Q1 2025 Seacoast Banking Corp of Florida Earnings Call
Speaker Change: [inaudible] David Bishop, Michael Young, David Feaster, Russell Gunther, David Feaster, Russell Gunther
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Speaker Change: We will be discussing issues that constitute forward looking statements within the meaning of the securities and Exchange Act any common sturdy are intended to be covered within the meaning of that act.
Speaker Change: Please note that this conference is being recorded.
Speaker Change: I will now turn the call over to Chuck Shaffer, Chairman and CEO of FICO span. Mr. Schafer you may begin.
Speaker Change: Okay. Thank you dessert Rae and good morning, everyone. As we proceed with our presentation, we'll refer to the first quoting earnings slide deck available at seacoast banking Dot com.
Speaker Change: Joining me today are Tracey Dexter, our Chief Financial Officer, Michael Young, our Treasurer, and director of Investor Relations and.
Speaker Change: James Stallings, our Chief Credit Officer.
Speaker Change: Before we delve into earnings I'd like to address the recent market uncertainty over the past three weeks.
Speaker Change: Clearly, there's emerging risk and the macroeconomic environment and volatility has increased.
Speaker Change: I want to remind you that seacoast is well positioned to navigate turbulent times we.
Speaker Change: We built one of the strongest balance sheets in the country, featuring an industry, leading capital position robust credit diversity and a granular highly valuable deposit franchise.
Speaker Change: This fortress balance sheet provides us with optionality and durability, serving as a significant source of strength.
Speaker Change: Additionally, we primarily operate in Florida, one of the strongest economies in the nation.
Speaker Change: And turning to the quarterly results the seacoast team delivered a strong quarter for both loans and deposits.
Speaker Change: Our performing peers and the industry at large.
Speaker Change: Our net interest margin increased by nine basis points, while the cost of deposits declined by 15 basis points, we achieved 6% annualized loan growth and ended the quarter with a healthy late stage pipeline.
Speaker Change: Deposit growth was also strong at nearly 11% annualized with noninterest bearing demand deposits growing 17% annualized.
Speaker Change: This all resulted in 22% growth in adjusted pre tax pre provision earnings when compared to the same quarter, one year ago and tangible book value per share grew 10% over that same period.
Speaker Change: This quarter marked a promising start to 2025 and our investments in talent.
Speaker Change: Across our footprint have fully taken effect driven driving substantial onboarding of new relationships.
Speaker Change: These investments in revenue producing talent will continue to drive solid disciplined growth.
Speaker Change: And additionally, well onboarding another 10 revenue producing bankers during the quarter.
Speaker Change: Asset quality remained strong during the quarter with the NPL ratio dropping to 68 basis points charge offs for the quarter were entirely driven by acquired credits.
Speaker Change: And the provision for loan losses increased from the prior quarter in part due to strong loan growth that occurred late in the quarter and we chose to hold the allowance coverage ratio flat to the prior quarter given market uncertainty.
Speaker Change: We will take a conservative approach until clarity emerges.
Tracy: And lastly, everything is progressing well with Heartland Bancshares, we expect to close and convert this transaction in the third quarter I will now pass the call to Tracy who will review our financial results. Thank you Jack good morning, everyone.
Tracy: Turning your attention to first quarter results beginning with slide four.
Tracy: <unk> reported net income of $31 5 million or <unk> 37 per share in the first quarter and pre tax pre provision income increased $2 7 million to $50 6 million.
Tracy: Growth in loans and deposits was largely the result of talent added over the last several quarters, which is now resulting in onboarding significant new relationships totaled.
Tracy: Total deposits were up 11% annualized and noninterest bearing balances grew 17% annualized.
Tracy: Loan production was strong with growth in balances near 6% on an annualized basis.
Tracy: Net interest income of $118 5 million is up 2% from the prior quarter with the cost of deposits declining 15 basis points to 193%.
Tracy: Net interest margin expanded nine basis points to 348% and excluding accretion on acquired loans net interest margin expanded 19 basis points to 324%.
Tracy: Tangible book value per share of $16.71 represents a 10% year over year increase.
Tracy: Our capital position continues to be very strong.
Tracy: <unk> tier one capital ratio was 14, 7% and the ratio of tangible common equity to tangible assets is nine 6%.
Tracy: We grew our branch footprint during the quarter with two new locations in Fort Lauderdale, and Tampa two of the fastest growing markets in the state.
Tracy: And in February we announced the proposed acquisition of Heartland Bancshares and Heartland National Bank, we're on track to close in the third quarter of 2025.
Tracy: Turning to slide five.
Tracy: Net interest income expanded by $2 7 million during the quarter, driven primarily by lower deposit costs.
Tracy: The net interest margin expanded nine basis points to 348% and excluding accretion on acquired loans expanded 19 basis points to three 4%.
Tracy: In the securities portfolio yields increased 11 basis points to 388% benefiting from new purchases.
Tracy: Loan yields were down three basis points to five 9%, excluding accretion loan yields increased by 10 basis points to 558%.
Tracy: The cost of deposits decreased 15 basis points to 193% due to proactive deposit repricing and growth in DDA balances demonstrating the success of the talent. We've added in recent periods and the strength of our relationship focused banking model.
Tracy: Given the strong growth momentum coming out of the first quarter. We expect net interest income to continue to grow through the remainder of the year.
Tracy: Moving to slide six.
Tracy: Noninterest income excluding securities activity with $22 million, increasing 8% from the first quarter of 2024, and a 20% increase in wealth management revenue and 25% increase in insurance agency income year over year.
Tracy: Beyond that our investments in talent and significant market expansion across the state have resulted in continued growth in treasury management services to commercial customers.
Other income was lower by $4 1 million compared to the prior quarter with lower gains on SBA, IC investment and fewer loan sales compared to the fourth quarter.
Tracy: Looking ahead to the second quarter, we continue to focus on growing noninterest income and we expect non interest income in a range from 20 million to $22 million.
Tracy: Moving to slide seven.
Tracy: Our wealth Division continued its strong growth, adding $117 million in new assets under management in the first quarter with total AUM, increasing 14% year over year.
Tracy: And on slide eight noninterest expense in the first quarter was $90 6 million on a GAAP basis and included $1 1 million in merger related expenses.
Tracy: Consistent with expectations, the first quarter with seasonally higher with higher payroll tax and 401K contribution.
Tracy: Increases in other line items reflect the expansion of our commercial team by 10 bankers and the addition of two new branch locations.
Tracy: We continue to remain focused on profitability and performance and expect adjusted expenses for the second quarter, which excludes merger related costs to be in a range of 87 million to $89 million.
Tracy: Turning to slide nine.
Tracy: Loan Outstandings increased at an annualized rate of five 6% with production of $555 million in the first quarter and the pipeline expanding by over 40% from the prior quarter.
Tracy: Loan yields were down three basis points, and excluding accretion were higher by 10 basis points to five 5% to 8% accretion.
Tracy: Accretion continues to be variable and decline this quarter with the prior quarter impacted by significant payoffs.
Tracy: Looking forward the pipeline is very strong and we expect mid to high single digit loan growth in the coming quarter and for the full year 2025, though the impact of tariffs may add some uncertainty.
Tracy: Onto slide 10.
Tracy: Portfolio diversification in terms of asset mix industry and loan type has been a critical element of the company's lending strategy.
Tracy: <unk> is broadly distributed and we continue to be vigilant in maintaining our disciplined conservative credit culture.
Tracy: Non owner occupied commercial real estate loans represented 34% of all loans and our distributed across industries and collateral types.
Tracy: As we have for many years, we consistently manage our portfolio to keep construction and land development loans and commercial real estate loans, well below regulatory guidance.
These measures are significantly below the peer group at 34% and 220% of consolidated risk based capital respectively.
Tracy: We've managed our loan portfolio with diverse distribution across categories and retaining granularity to manage risk.
Tracy: Moving on to credit topics on slide 11.
Tracy: The allowance for credit losses totaled $140 3 million or 134% of total loans flat to the prior quarter.
Tracy: Our allowance estimation process includes consideration of recent volatility in the markets and macroeconomic environment and we continue to closely monitor the potential impact of economic and fiscal policy decisions on our borrowers.
Tracy: The allowance for credit losses, combined with the $119 5 million remaining unrecognized discount on acquired loans totaled $259 8 million or $2, 49% of total loans, that's available to cover potential losses, providing substantial loss absorption capacity.
Tracy: Moving to slide 12, looking at quarterly trends and credit metrics.
Tracy: Nonperforming loans represented 0.68% of total loans, a decrease of approximately $21 million from the prior quarter and accruing past due loans remain low at <unk>, 6% of total loans.
Tracy: Moving to slide 13 in the investment Securities portfolio.
Tracy: The average yield on securities has benefited from recent purchases at higher yields and the portfolio yield increased during the first quarter to 388%.
Tracy: We leveraged <unk> advances to purchase securities in advance of the Heartland acquisition.
Tracy: <unk> short term bond portfolio and high liquidity levels provided an opportunity to lock in higher rates mid quarter with purchases of $412 million in primarily agency mortgage backed securities with an average book yield of 551%.
Tracy: Turning to slide 14 in the deposit portfolio.
Tracy: Total deposits increased to $12 6 billion growing at an 11% annualized rate from the prior quarter and noninterest bearing accounts grew at 17% annualized.
Tracy: We believe this growth was in part the result of customers aggregating balances to make tax payments and we expect some outflow in the second quarter.
Tracy: The cost of deposits declined 15 basis points to 193%.
Tracy: We remain very encouraged about the continued ability of recent talent additions to onboard relationships and build core deposits and we expect low to mid single digit deposit growth for the full year 2025, with a typical seasonally lower trend in the second quarter.
Tracy: On slide 15, Chico's continues to benefit from a diverse deposit base.
Tracy: Customer transaction accounts represent 50% of total deposits, which continues to highlight our long standing relationship focused approach.
Tracy: Our customers are highly engaged and have a long history with us and low average balances reflect the granular relationship nature of our franchise.
Tracy: And finally on slide 16, our capital position continues to be very strong and we are committed to maintaining our fortress balance sheet.
Tracy: Tangible book value per share has increased 10% year over year and the ratio of tangible common equity to tangible assets remains exceptionally strong at nine 6%.
Tracy: Our risk based and tier one capital ratios are among the highest in the industry.
Tracy: In summary, we remain steadfastly committed to driving shareholder value and our consistent disciplined growth strategy positions us well as we continue to build Florida's leading leading regional bank.
Tracy: I'll now turn the call back to you Chuck Thank you Tracy and operator, I think we're ready for Q&A.
Tracy: Thank you we will now begin the question and answer session. If you have dialed in and we'd like to ask a question. Please press star one on your telephone keypad derecho hand, and join the queue.
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Tracy: Yeah.
Tracy: Okay.
Speaker Change: And our first question comes from the line of Stephen Scouten with Piper Sandler Your line is open.
Stephen Scouten: Hey, good morning, everyone. Thanks for the time.
Speaker Change: Morning.
Speaker Change: Clarity on the security side related to the pending Heartland deal is that just basically you guys taken advantage of the market and saying Okay. These are the securities we want in our clothing, we're going to liquidate that Heartland book.
Speaker Change: Kind of front running that trade a little bit.
Michael: Yeah, Hey, Steven this is Michael I'll take that one.
Michael: Yes that really is what it was and it was a unique opportunity given the structure of their securities portfolio and high balances of cash along with their long tenure of their deposit relationships. The combination of those three things made at low risk effort to be able to do this so basically we just pre purchase.
Michael: The securities that we would want to retain following the transaction their securities portfolio is about a one year duration and so theres not a lot of rate volatility impact to the Aoc marker the capital piece.
Michael: Even with all with rates moving up and down here, but yes it.
Michael: It could move in our favor.
Michael: If rates are lower at the time of the transaction closed because we would have pre locked in our securities portfolio at higher yields.
Mark: Yes, Thanks, Mark Okay. That's great. Thanks for the color there.
Mark: How should we think about kind of the increase in the core loan yields in the quarter given the impact there was some impact from the rate cuts at the end of the year in the quarter. So.
Mark: I guess, how did that how did that come about how that manifest and then how should we think about the NIM from here the move in the core NIM was pretty impressive.
Steven: Hey, Steven.
Steven: This is Michael again, I think theres two sides, obviously to the to the NIM equation here, but ill tackle the loans versus.
Steven: We have about 50% fixed loans about 29% adjustable loans in Italy, 2021% that are true more floating or immediately adjustable loans. So we felt the impact obviously of the 100 basis points of fed rate cuts throughout the fourth quarter, but it's just small.
Steven: On a total basis for our balance sheet.
Steven: We also had some receive float hedges that are rolling off here in April as well on our securities portfolio and our loan portfolio. So we're becoming more fixed rate.
Steven: Asset yields had lower generally and as rates potentially had lower here and so we're pretty well positioned for our rates down scenario and I think thats kind of the overall piece here combined with the deposit cost moving lower you saw that.
Steven: In the fourth quarter, but continuing kind of into the first quarter here and we will just continue to manage our deposit pricing proactively to.
Steven: To drive NIM expansion, both on the deposit cost side, but then our back book on fixed rate loans.
Steven: And fixed rate securities continues to roll in more and more each day and so we're getting a basis point or two basis points kind of a month in terms of yield step up on that and you can see that trend on slide 21.
Steven: Okay Super.
Steven: And then just last thing for me I guess.
Steven: The trends around loan growth sound really encouraging the new hires are great to see yet again.
Steven: And you guys still have armed with a ton of excess capital. So, let's say the environment stabilizes, which I think we all hope it does.
Steven: Could there be additional upside to this mid.
Steven: Was the Guy's mid high single digit loan growth or or additional paths for the for the excess capital from here.
Steven: Yes.
Chuck Shaffer: I'll take that as Chuck.
Steven: Chuck Stevens.
Steven: <unk>.
Speaker Change: If you remember back in the first quarter, our guide for the back half of the year was high single digits I think with some.
Speaker Change: Some clarity in a more normalized environment I think we have a clear path to high single digits. When you look at the investments we've made over the last couple of years this quarters.
Speaker Change: Very good quarter in terms of evidence in the pull through that investment strong deposit growth strong loan growth.
Speaker Change: I would feel very confident in the back half of the year that high single digit type number barring the impact of tariffs and economic volatility still too early to tell how our customers react to that or what the full impact of that would be but I think the quality of the team. We build is now materially pulling through and that gives me a lot of confidence.
Speaker Change: What we'll see over the back half of the year.
Speaker Change: And I think at this point, we built that team. So when you can.
Speaker Change: Step back and look at the Big picture for Us fairly solid quarter in terms of growth a lot of investments made over the last 12 to 18 months I think we're kind of getting to the end of those investments in terms of what we need to be doing we've got the team built to grow and at this point over the remainder of the year, our focus will be on.
Speaker Change: Leveraging that investment to drive profitability enhancements.
Speaker Change: The remainder of the year.
Speaker Change: Fantastic. Thanks, so much for the Thompson.
Speaker Change: Great quarter. Thanks.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Woody lay with <unk>. Your line is open.
Speaker Change: Hey, good morning.
Speaker Change: Good morning.
Speaker Change: Just wanted to.
Speaker Change: A follow up on the NIM.
Speaker Change: Core NIM beat expectations in the quarter.
Speaker Change: Bye.
Speaker Change: About 10 basis points.
Speaker Change: How should we be thinking about that $3 35 core NIM target by the end of the year.
Michael: Hey, Dave This is Michael.
Dave: Yes, there will be a little bit of impact on the timing around when the Heartland acquisition closes so thats.
Dave: The caveat to put out there depending on when that closes but outside of that the core trends are remained positive I think in our ability to manage deposit costs lower and like I said, just the back book repricing, that's going to continue for some time here over the next few years and so that's just sort of a.
Speaker Change: Core underlying tailwind on the asset side, we continue to reprice up into the higher rate environment. Every day, and then were managing deposit cost carefully to continue to drive NIM expansion and profitability improvement as Chuck mentioned, so I think thats really the focus so as it pertains to the $3 35 NIM in the fourth.
Speaker Change: <unk> I don't think we've updated guidance explicitly there, but if there's more rate cuts, we said we'd be higher than that certainly and I think then just the timing of the heartland acquisition close could impact that a little bit as well.
Speaker Change: Feel good about the trajectory, particularly of NII dollars, but also NIM going forward.
Speaker Change: Got it.
Speaker Change: And maybe shifting over to credit just any color on what drove the criticized and classified increased in the quarter.
Speaker Change: Okay.
James Stallings: Hey, good morning, Woody this is James Stylings al sort of speak to that.
Speaker Change: We had a handful of loans that debt.
That moved to criticized or classified this quarter, we have sort of looked over that we don't really see sort of thematic.
Speaker Change: Drivers of that these were somewhat idiosyncratic weird when situation that was isolated to CRE facility.
Speaker Change: Experienced flooding last year that took them.
Speaker Change: The units offline.
Speaker Change: Another situation that.
Speaker Change: It was an existing C&I business the underlying business is performing fine the owner was excessively distributing and so we stepped in and we.
Speaker Change: We adjusted the risk rate and took action on that but by and large it is it is.
Speaker Change: Just a handful of one off situations that drove that.
Speaker Change: We continue to take very good.
Speaker Change: Each person that would even just carefully grade over time.
Speaker Change: Normal cycle movements here things move in classifieds and move out through non accrual.
James Stallings: In the case that James just described most of those we expect to remain on accrual and actually don't really expect much loss content there.
Speaker Change: You sort of unique situations.
Speaker Change: And then maybe just last for me.
Speaker Change: Back on the Heartland call. We had talked about you remained interested in smaller bank M&A.
Speaker Change: At the.
Speaker Change: The uncertainty in the current macro environment.
Speaker Change: Shifting your sort of capital deployment strategy.
Speaker Change: Yes.
Speaker Change: Great question, obviously, a lot of volatility over the last three weeks I would describe it. This way we mean, we remain open and ready to do another deal the heartland deals small enough and will be easily integrated here in the coming couple of quarters. So beyond that we'll be we'll be ready to do deals obviously continue to remain very discipline.
Speaker Change: In terms of our backs on pricing and the like and obviously anything we'd look at would have to contemplate all of this volatility that's going on so.
Speaker Change: Open and ready, but obviously volatility makes deals more challenging.
Speaker Change: In terms of kind of the way, we think about things.
Speaker Change: Fortunately were kind of blocked out of buying back shares right now given the heartland deal, but that looks pretty attractive at these these levels. So depending on what things look like as we come through the Heartland deal buybacks could make sense.
Speaker Change: M&A could make sense, so just depends on what the environment looks like but.
Speaker Change: Deploying capital, obviously very accretive to our franchise given the capital levels.
Speaker Change: Alright, thanks for taking my questions.
Rod: Thanks Rod.
Speaker Change: Next question comes from the line of David Feaster with Raymond James Your line is open.
Speaker Change: Hi, good morning, everybody.
Speaker Change: Good morning, David.
Speaker Change: I just wanted to circle back to the loan side I mean, the increase in the pipeline is terrific I mean and it's.
Speaker Change: Extremely encouraging to hear the commentary about the late stage pipeline growing obviously, you've got a real tailwind first of all of them economic backdrop here in Florida, right and then the new hires.
Speaker Change: Im just curious first off where are you seeing an opportunity for growth and just what's the pulse of your clients as you talk to your bankers just given the uncertainty.
Speaker Change: Are you seeing any change in the pull through of the pipeline or would you expect to see any just given the trade wars, just kind of curious what youre seeing on that front.
Speaker Change: Sort of a broad based comment pipeline remains we've not seen any fallout at this point, which is encouraging our customers continue to remain committed to their projects and so we haven't seen any any true impact yet we have surveyed a lot of our customers in terms of the impact of tariffs and how they are navigating it.
Speaker Change: What I think youre him from anybody everybody. It's just too early to tell we hear lots of different well pass the cost on whether there'd be no impact we have some customers actually it will be an advantage for them and so it just depends on the situation, but I do think it's just really too early to call what the impact of all of this will be on forward growth but.
Speaker Change: Generally at the high level I still feel very positive if you look at the pipeline.
Speaker Change: Solidly there we expect to continue to pull that pipeline through in the coming quarter and so in the <unk>.
Speaker Change: Lease over the next 90 to 120 days I feel very good about the growth outlook for us feel solid in our sort of mid to high single digit growth for the coming quarter on loans and then beyond that will be dependent on sort of a more broader macroeconomic.
Speaker Change: Issues, and whether or not that impacts our customers, but so far so good they seem to be holding in there with no real issues pipeline seems to be holding in and obviously our heads are in the sand, we're pulling our customers talking to our customers being thoughtful here.
Speaker Change: Yeah, Yeah, and look I mean, you guys are always.
Speaker Change: Really conservative you've got a strong track record of asset quality, a distant disciplined approach to credit.
Speaker Change: And maybe as you just staying on the topic of the uncertainty as you step back and think about the potential impacts.
Speaker Change: I guess is there anything that you're watching more closely.
Speaker Change: Has there been any changes to your credit box or underwriting or even approach to risk ratings.
Speaker Change: Has there been any.
Speaker Change: Just shifts just given the volatility.
Speaker Change: No real shifts other than as were looking at new credits, obviously were having fairly deep conversations around what the impact of tariffs could be on that opportunity, obviously, writing up and the write ups how that customer can mitigate that risk what capacity do they have to carry their projects given the.
Speaker Change: The uncertainty and so it's just requiring a deeper level of discipline, but.
Speaker Change: Generally I think that we're just continuing to do what we do we're not pulled back yet at this point, we're taking a customer by customer and just thoughtfully looking at each of our credits one by one risk rating and the like we continue to just remain very conservative obviously as time moves on and we'll have to contemplate terraces things come through renewable and alike, but.
Speaker Change: We will just continue to take it day by day.
Speaker Change: Okay, David David This is Michael I, just want to add one thing there I think with all the new bankers that we brought on they have long tenured relationships with their customers and so a lot of growth will be supported just by moving over those relationships that they are already really connected with versus.
Speaker Change: Being completely dependent on kind of the macro environment in <unk>.
Speaker Change: Picking up net new green shoots.
Speaker Change: Yes.
Speaker Change: An important distinction.
Speaker Change: And then last one just wanted to touch on the fee side, obviously theres a lot of positives on the fee income side. The guide implies maybe a little bit of downside from the first quarter. The market pullback can obviously impact wealth management could you just touch on maybe some of the puts and takes on the various fee income lines.
Michael: Sure David This is Michael.
Michael: Yes, I think versus the fourth quarter as we called out we had some onetime benefits.
Michael: The spic's write up that we spent on sort of moving out within type portfolio in the fourth quarter moving here into the first quarter. We have some seasonal declines obviously in some of the deposit service charges and fees that we will continue to build throughout the year. We're obviously growing deposits. So that's a tailwind to the spa.
Michael: <unk> deposit related fees and TM and other areas.
Same with some of the seasonal things in marine mortgage et cetera.
Michael: And then we've had a little bit of contribution here from SBA market getting a little better. So just kind of some sort of general reset seasonally in the first quarter and some growth from there in various businesses, including wealth TM.
Michael: SBA.
Michael: Yeah, and while wealth may see some pullback due to the fact that the equity markets pulled back a fairly large portion of our wealth portfolio is actually fixed income so it's.
Michael: Probably as not as impactful as it may be for other.
Michael: Investment strategies.
Michael: And often times when we see fairly big uncertainty like this it opens up opportunities for us to look at moving new clients and the CECO. So some ways globally challenging other ways, it's a material opportunity for us.
Speaker Change: Okay terrific, thanks, everybody great quarter. Thanks, Thanks, Dave.
Speaker Change: Next question comes from the line of Russell Gunther with Stephens. Your line is open.
Russell Gunther: Hey, good morning, guys.
Speaker Change: Morning Russell.
Russell Gunther: Good morning, Chuck.
Speaker Change: Wanted to follow up on the margin discussion here you guys on NII growth expected for the rest of the year.
Speaker Change: I appreciate all the color on slide 14, and so my question is on the cost of deposits.
Speaker Change: Going forward.
Speaker Change: Bouncing in that 190 to 193.
Speaker Change: Over the course of <unk>, how are you thinking about that trend going forward in the absence of rate cuts.
Michael: Hey, Russell this is Michael.
Michael: I think we still have opportunities to continue to make some tactical adjustments to our deposit costs coming out of what was the big increase in a sudden increase in rates and then.
Quick decline as well, we've kind of made a lot of top of the house movements, but I think given our relationship banking model et cetera, we're making tactical adjustments every day and so I think there is still some opportunities there to move deposit costs.
Michael: Verbally into the rest of the year. So we will continue to focus on that but it's tactical at this point probably versus significant the other key piece is really the demand deposits right in noninterest bearing deposits, we had really strong growth.
Michael: As we brought on new bankers and new relationships and we continue to move those in every day.
Michael: And so I think that's the other key trend to watch as we continue to grow just our overall relationship based Lynn.
Michael: That book and the noninterest bearing deposits will be a key driver there as well.
Speaker Change: Yes, great. Good point, Michael Thank you and then maybe on the along the lines of the.
Michael: Revenue producers that you have.
Michael: Higher than this quarter.
Michael: What's the pipeline for continued lift outs as well.
Michael: Spectation for that to continue over the course of the year is there some kind of seasonality as to when you can bring people over based on bonuses.
Michael: Trying to get a sense for any potential additional adds this year and how that may or may not impact the expense run rate as well.
Michael: Great question the way I describe it is I think we've built the team to grow in that mid to high single digit.
Michael: Right.
Michael: Profile moving forward fairly.
Michael: With some confidence and so I don't know that we've got to add a lot of.
Michael: Additional overhead there over the lease over the next couple of quarters as we move out into the coming year, we will see how things sort of play out but I think at this point, we'll be pretty selective.
Michael: On the other side the other side on the other hand of that conversation, we have a lot of inbound demand wanted to build banks in markets and thanks for us, which is exciting and we will get to it with time and we're excited to hear all the interest in becoming part of our franchise, but I think at this point at least over the next couple of quarters I'm, primarily focused on improving our profitability.
Michael: The profile.
Chuck Shaffer: Thank you Chuck I appreciate that.
Michael: And then guys last one for me.
Speaker Change: Understanding a good portion amount of the book is marked asset quality trends this quarter are favorable.
Speaker Change: Understanding the dynamics with the ACL of this quarter, but I guess, just as you are digesting the potential impact of tariffs could you just share any particular sectors of the loan portfolio you are keeping an incremental add ons.
Speaker Change: Hey, Good morning, Russell James Sellings here I think in terms of.
Speaker Change: What we're looking at we're certainly watching our CNS business is to try to understand what the impacts of tariffs or.
Speaker Change: Mentioned, we've talked to a number of very clients already in the general sense is that it's too soon to do.
Speaker Change: What I would say that we've been been pleasantly surprised by is that a number of our clients that we've spoken to already they have indicated that they've been they've been considering supply chain disruptions in tariffs.
Speaker Change: Since before the election and recall that many of these clients experienced supply chain disruptions and significant cost inflation post COVID-19 and so many of them have adjusted their business models with the ability to pass through.
Speaker Change: In fixed price contracts into pre buy a lot of them will be increased inventory ahead of the expected tariff impact. So it's too early to tell we are still cautious regarding <unk>.
Speaker Change: C&I businesses in our portfolio that may have derivative exposure too.
Speaker Change: Higher cost inputs as a result of tariffs and potential supply chain disruptions, but at this point.
Speaker Change: Feel like Theyre pretty well anticipating it and have already begun to take action.
Speaker Change: Curious you want address the allowance <unk>, yeah, I think the.
Speaker Change: Portfolio continues to perform well our judgments are balanced with our awareness of the volatility in market conditions and the potential for deterioration. So as James said, we're monitoring the portfolio closely for potential impacts on our borrowers.
Speaker Change: Ranges in economic and fiscal policy market conditions, changing we think right now the 134% allowance coverage is prudent but of course, we will.
To take into account all factors as we go forward.
Speaker Change: Got it hey, guys. Thank you very much for taking all of my questions. Thanks.
Ross: Thanks Ross.
Speaker Change: And our last question comes from the line of David B shop with Harvey Group. Your line is open.
Speaker Change: Yes, good morning.
Speaker Change: Following on on Russell's question about credit Chuck I think you've heard that.
Speaker Change: Preamble you said most of the charge offs. This quarter were previously acquired credit I'm curious you sort of view this level of net charge offs I think they've been running in the mid to high Twenty's lately is that sort of the normalized level or do you think we see some improvement as you sort of run through some of these acquired loan books continue to charge those off.
Speaker Change: It's really hard to provide any solid guidance here, but I think 25 basis points of net charge offs as a reasonable assumption thats going to bump around here and there, but that's kind of what we run in our model.
Speaker Change: Got it and then the.
Speaker Change: Bump up in the reserve this quarter just curious in terms of.
Speaker Change: The economic forecast used or used in sort of the Moody's.
Speaker Change: Baseline severe just curious what are some of the drivers to that to that ACL.
Speaker Change: We use a blend of three Moody's economic scenarios baseline, yes, three and a more positive echelon and different weightings.
Speaker Change: So of course, when we run the model at the beginning of our quarter end process. That's still got some lag time in the economic indicators. So.
Speaker Change: So we just tune into.
Speaker Change: Changes in kind of acknowledging the volatility in those factors so our allowance contemplates.
Speaker Change: The more recent volatility and does still have the various weightings on the three economic scenarios.
Speaker Change: Okay, Great and then.
Speaker Change: Final question.
Speaker Change: Chuck and Tracy and have been seeing some headlines recently about some of the thoughts just maybe on the residential side of the state of Florida with insurance rates spiking as such or you're seeing that.
Speaker Change: Play into any weakness within the local housing markets across your footprint.
Speaker Change: We've not seen any weakness show up I mean, I think one way to describe it is our view of the residential market in Florida is values definitely Sarah peaked at this point and probably I don't we don't see any sort of sharp decline or anything in values, but we do expect values to probably hold here at this point the market still feels relatively.
Speaker Change: <unk> healthy even though the cost are higher people are cell analysis people are buying houses inventory levels have gotten a little higher over the last three or four quarters.
Speaker Change: I think generally things are okay, and things are healthy even regardless of the.
Speaker Change: Of higher cost of insurance et cetera at Florida is still a very attractive place to move to taxation remains exceptionally low.
Speaker Change: <unk> just saw that we're looking at potentially lowering our state sales tax which is from my point of view incredibly impressive given the state's balanced budget, namely surplus and so I think states doing a pretty good job of also supporting our insurance companies bring a lot of new supply into the market. So it's stable but.
Speaker Change: Prices are definitely seem to hit.
Speaker Change: Hit a peak at this point.
Speaker Change: Got it I appreciate the telephone.
Speaker Change: Alright.
Speaker Change: Yes.
Speaker Change: That concludes the question and answer session I would like to turn the call back over to Chuck Shaffer for closing remarks.
Speaker Change: Alright. Thank you operator, I think that will conclude our call. We're around if anybody has any further questions and I appreciate the seacoast team amazing quarter for growth.
Speaker Change: <unk> may have been an amazing year. So thank you all.
Speaker Change: Ladies and gentlemen, this concludes today's conference call. Thank you all for joining and you may now disconnect.
Speaker Change: Okay.
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Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: [music].