Seacoast Banking Corporation of Florida Q3 2024 Earnings Call Transcript

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Provided by Quartr
October 25, 2024

Key Takeaways

  • Seacoast delivered **7% annualized loan growth** and **7% customer deposit growth**, including a $67 million increase in non-interest bearing demand deposits, driven by a 22% quarter-over-quarter surge in originations.
  • Tangible book value per share rose **20% annualized to $16.20**, while adjusted pre-tax, pre-provision earnings increased by $2 million sequentially, reflecting strong operating leverage.
  • Net interest margin excluding accretion expanded **3 basis points to 2.90%**, with management guiding for an additional 5–10 basis point pickup in Q4 amid two expected rate cuts.
  • Non-interest income jumped **33% year-over-year** (7% sequentially), and the bank forecasts Q4 fee income of $22 million to $23 million, led by wealth, treasury management, and insurance services.
  • Management plans a **$5–10 million reserve build** in Q4 for potential hurricane-related credit losses and will recognize an **$8 million pre-tax loss** on the sale of securities.
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Earnings Conference Call
Seacoast Banking Corporation of Florida Q3 2024
00:00 / 00:00

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Operator

Welcome to the Seacoast Banking Corporation's third quarter 2024 earnings conference call. My name is JL, and I will be your operator. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, simply press star one again. Before we begin, I've been asked to direct your attention to the statement at the end of the company's press release regarding forward-looking statements. Seacoast will be discussing issues that constitute forward-looking statements within the meaning of the Securities and Exchange Act, and its comments today are intended to be covered within the meaning of that act. Please note that this conference is being recorded.

Operator

I'll now turn the call over to Chuck Shaffer, Chairman and CEO of Seacoast Bank. Mr. Shaffer, you may begin.

Chuck Shaffer
Chuck Shaffer
Chairman and CEO at Seacoast

All right, thank you, and good morning, everyone. Before we start, I want to express our sympathy for all those affected by the hurricanes. Our hearts go out to all those who lost loved ones or experienced catastrophic losses. I also want to express my sincere appreciation for our associates, who, with unwavering resilience, valiantly reacted to both hurricanes, securing our facilities while preparing their homes and families, and quickly focusing on supporting our customers and communities before and after the storm. I'm incredibly impressed and proud of our entire team, and Tracey will provide a few further thoughts on the hurricanes here shortly. As we turn to the quarter, we will refer to the third quarter earnings slide deck, which is at seacoastbanking.com, and I'm here with Tracey Dexter, our CFO, Michael Young, Treasurer and Director of Investor Relations, and James Stallings, our Chief Credit Officer.

Chuck Shaffer
Chuck Shaffer
Chairman and CEO at Seacoast

The Seacoast team produced an excellent quarter. The results this quarter evidenced the inflection in growth and the start of margin expansion that we expected to materialize in the second half of 2024. We continue to see our investments in banker talent, marketing, and customer-focused culture paying off, producing annualized loan growth of 7% and annualized customer deposit growth of 7%. And of note, loan originations were up 22% quarter over quarter, and commercial non-interest-bearing demand deposits grew by $67 million. Importantly, this quarter also generated annualized growth in tangible book value per share of 20% to $16.20. And additionally, net interest income, non-interest income, pre-tax, pre-provision earnings, and the NIM, excluding accretion on acquired loans, all improved sequentially. This quarter showcases the strength of the banking team we've been intentionally building over the last few years.

Chuck Shaffer
Chuck Shaffer
Chairman and CEO at Seacoast

And while completing our acquisitions in late 2022 and 2023, we also recruited an exceptional commercial banking team, credit team, and retail banking talent with additions in all markets. This quarter, we continued this expansion with further investments in bankers in Fort Lauderdale, Gainesville, and Tampa. And importantly, as we transformed our front line, we've also made all the necessary governance and enterprise risk investments to be a well-functioning, compliant mid-sized bank. So in summary, this quarter demonstrated several proof points of our operating strategy. First, organic growth was substantial compared to the industry, driven by the investment in talented banking teams across the state over the last 24 months. And secondly, we saw growth in net interest income and the core net interest margin, which aligned with our previous guidance. Expenses were well controlled, and non-interest income was up over 30% from one year ago.

Chuck Shaffer
Chuck Shaffer
Chairman and CEO at Seacoast

The combination of an expanding margin into 2025 with strong organic growth will support earnings improvements as we move into the coming year. Just to remind you, we are unwavering in our commitment to maintaining our conservative balance sheet principles. This commitment is the cornerstone of our strategy and a key factor in ensuring our long-term success. We remain steadfast in our mission to establish Seacoast as the leading player in Florida. Now I'll pass the call to Tracey to talk about our financial results.

Tracey Dexter
Tracey Dexter
CFO at Seacoast

Thank you, Chuck. Good morning, everyone. Directing your attention to third quarter results, beginning with slide four. Seacoast reported net income of $30.7 million or $0.36 per share in the third quarter. Pre-tax, pre-provision earnings on an adjusted basis increased nearly $2 million quarter over quarter, benefiting from growing revenue sources and well-controlled expenses. Tangible book value per share increased 20% annualized to $16.20. Loan production was strong, with growth in balances of 6.6% on an annualized basis, and the pipeline for future production remains robust. Growth in customer deposits was also strong. Total deposits grew 4.2% annualized, which includes a decline in brokered deposits. Excluding brokered, customer deposits grew 6.6% annualized, and non-interest-bearing accounts grew over 5% annualized.

Tracey Dexter
Tracey Dexter
CFO at Seacoast

On the net interest margin, consistent with the guidance we provided last quarter, the margin, excluding accretion and purchase discount on acquired loans, has begun to expand, increasing 3 basis points during the quarter to 2.90%. In addition, we saw a 2% growth in net interest income, consistent with our expectations. Non-interest income increased 7% from the prior quarter and 33% from the prior year quarter, with continued success in deepening customer relationships through services including wealth management, treasury management, and insurance, and we continue to grow the team with additional investments in talent in key markets. Our capital position continues to be very strong. Seacoast Tier 1 capital ratio is 14.8%, and the ratio of tangible common equity to tangible assets is 9.6%.

Tracey Dexter
Tracey Dexter
CFO at Seacoast

Also notable, if all held to maturity securities were presented at fair value, the TCE to TA ratio would still be over 9%. Turning to slide five. Net interest income expanded by $2.3 million during the quarter, with growth in loans and securities, along with growing non-interest-bearing deposits, outpacing a 3-basis point increase in deposit costs. Core net interest margin expanded 3 basis points to 2.90%. In the securities portfolio, yields increased 6 basis points to 3.75%, benefiting from recent purchases. Loan yields, excluding accretion, also increased 6 basis points to 5.58%. Accretion of purchase discounts on acquired loans was lower by $1 million compared to the prior quarter. The cost of deposits increased to 2.34%, but with exit rates in September beginning to more fully reflect rate declines.

Tracey Dexter
Tracey Dexter
CFO at Seacoast

Looking ahead to the fourth quarter, we expect continued expansion of net interest income and expect the core net interest margin to expand in a range of 5 to 10 basis points, driven by continued loan and deposit growth and declining deposit costs. Our expectations include two 25 basis point rate cuts in the fourth quarter. Moving to slide six. Non-interest income, excluding securities activity, increased $1.3 million in the third quarter to $23.5 million. Service charges increased with continued expansion of our commercial treasury management offerings and new customer acquisition. Wealth and insurance agency income continued to grow. Other income was higher by $1.5 million, including higher SBIC income and higher loan swap fees. Looking ahead, we continue to focus on growing non-interest income, and we expect fourth quarter non-interest income in a range from $22 million-$23 million.

Tracey Dexter
Tracey Dexter
CFO at Seacoast

Moving to slide seven. Assets under management have increased 16% year-to-date to just under $2 billion and have increased at a compound annual growth rate of 26% in the last five years. Wealth management revenues year-to-date reached $11.1 million, up 17% from the corresponding period in the prior year. Moving to slide eight. Non-interest expense for the quarter was $84.8 million, consistent with the guidance we provided last quarter. Recent expense reduction initiatives are benefiting nearly every category, with the increase from the prior quarter reflecting continued investments in revenue-producing talent. Expenses are well controlled and the efficiency ratio improved to 59.8%. Discipline around expenses will continue to be a focus, and in the fourth quarter, we expect core non-interest expense to again be between $84 million and $86 million. Turning to slide nine.

Tracey Dexter
Tracey Dexter
CFO at Seacoast

Loan outstanding increased at an annualized rate of 6.6%, and average loan yields, excluding accretion on acquired loans, increased six basis points to 5.58%. The pipeline remains strong, and looking forward, we expect mid-single-digit loan growth in the coming quarter. Turning to slide 10. Portfolio diversification in terms of asset mix, industry, and loan type has been a critical element of the company's lending strategy. Exposure is broadly distributed, and we continue to be vigilant in maintaining our disciplined, conservative credit culture. Non-owner-occupied commercial real estate loans represent 35% of all loans and are distributed across industries and collateral types. 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.

Tracey Dexter
Tracey Dexter
CFO at Seacoast

These measures are significantly below the peer group at 34% and 227% of consolidated risk-based capital, respectively. We've managed our loan portfolio with diverse distribution across categories and retaining granularity to manage risk. Moving on to credit topics on slide 11. The allowance for credit losses totaled $140.5 million, or 1.38% of total loans, compared to 1.41% in the prior quarter. The allowance for credit losses, combined with the $142 million remaining unrecognized discount on acquired loans, totals $282 million, or 2.8% of total loans, that's available to cover potential losses, providing substantial loss absorption capacity.

Tracey Dexter
Tracey Dexter
CFO at Seacoast

As we move into the fourth quarter, we're continuing to assess the potential impact of Hurricane Milton on our customers and whether and to what extent that may result in future credit losses. That may result in the need for a build in allowance in the fourth quarter, and based on our work to date, that may be in a range between $5 million and $10 million. Moving to slide 12, looking at quarterly trends in credit metrics. Our credit metrics remain strong. Charge-offs included the resolution of a small number of individually evaluated credits with previously established specific reserves and the continued runoff of isolated acquired portfolios. Non-performing loans represented 0.79% of total loans.

Tracey Dexter
Tracey Dexter
CFO at Seacoast

Additions to non-accrual loans in the third quarter included a small number of credits delinquent on payments, but for which no loss is expected as collateral values are well in excess of the loan balances. The level of criticized and classified loans to total loans remained flat at 2.59%. Moving to slide 13 and the investment securities portfolio. The average yield on securities has benefited from purchases in recent quarters at higher yields, with the portfolio yield increasing during the third quarter to 3.75%. Changes in the rate environment positively impacted portfolio values, and as a result, the overall unrealized loss position improved by $83 million. In October, we took advantage of favorable market conditions and have repositioned a portion of the available-for-sale portfolio.

Tracey Dexter
Tracey Dexter
CFO at Seacoast

We sold securities with proceeds of approximately $113 million, yielding an average 2.8%, resulting in a pretax loss of approximately $8 million, impacting fourth quarter results. The proceeds were reinvested in agency mortgage-backed securities with a book yield of approximately 5.4% for an estimated earn back of less than three years. Turning to slide 14 and the deposit portfolio. Total deposits increased by $127.5 million, with an increase in customer deposits of nearly $196 million, partially offset by a decline in brokered balances. The cost of deposits increased this quarter only three basis points to 2.34%, a slower pace of increase than in previous periods, consistent with our expectations. In September, based on actions we've taken in the portfolio, rates began to decline.

Tracey Dexter
Tracey Dexter
CFO at Seacoast

Looking forward to the fourth quarter, we expect continued growth in core deposits and a continued decline in deposit costs, and we remain very encouraged about the continued activity and focus across the franchise on deposit gathering. On slide 15, Seacoast continues to benefit from a diverse deposit base. Customer transaction accounts represent 49% of total deposits, which continues to highlight our long-standing relationship-focused approach. Our customers are highly engaged and have a long history with us, and low average balances reflect the granular relationship nature of our franchise. Finally, on slide 16, our capital position continues to be very strong, and we're committed to maintaining our fortress balance sheet. Tangible book value per share increased to $16.20, and the ratio of tangible common equity to tangible assets remains exceptionally strong at 9.6%.

Tracey Dexter
Tracey Dexter
CFO at Seacoast

Our risk-based and Tier 1 capital ratios are among the highest in the industry. In summary, we remain steadfastly committed to driving shareholder value, and our consistent, disciplined expense management positions us well as we continue to build Florida's leading regional bank. Chuck, I'll turn the call back to you.

Chuck Shaffer
Chuck Shaffer
Chairman and CEO at Seacoast

Thank you, Tracey. And operator, we're ready for Q&A.

Operator

Thank you. If you have dialed in and would like to ask a question, press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you're called upon to ask a question and are listening via loudspeaker, please pick up your handset to ensure that your phone is not on mute when asking your question. Your first question comes from the line of Russell Gunther of Stephens. Your line is open.

Russell Gunther
Russell Gunther
Analyst at Stephens

Hi, good morning, guys.

Chuck Shaffer
Chuck Shaffer
Chairman and CEO at Seacoast

Good morning, Russell.

Michael Young
Michael Young
Treasurer and Director of Investor Relations at Seacoast

Good morning.

Russell Gunther
Russell Gunther
Analyst at Stephens

Good morning. I wanted to start with the margin. Appreciate all the color that you guys shared, particularly the piece on where deposit costs were for September. Wondering, first, if you could talk to how the margin shook out in September as well. Then as we think about the guide for core expansion of 5-10 basis points in 4Q, could you just help triangulate that to where you'd expect the reported margin to head as well?

Michael Young
Michael Young
Treasurer and Director of Investor Relations at Seacoast

Sure, Russell, this is Michael, so maybe we'll start with the deposit cost side. A couple of questions kind of were embedded in there. On the deposit costs, I think just from a high-level perspective, if you zoom out over the whole cycle, we had about a 45% deposit beta on the way up. We would expect a similar level of performance on the way down. We have an acceleration of that beta, you know, later in the cycle. We also still think we have a very strong deposit base, and we were very customer-friendly during a liquidity-tight environment, and we think we'll be able to move, you know, pretty quickly on the way down. As a reminder, our deposits are mainly in exception tiers, so we have the ability to flex those as we need.

Michael Young
Michael Young
Treasurer and Director of Investor Relations at Seacoast

You saw the deposit costs in September that stepped down pretty materially, and we expect continued benefits into October from a full run rate of those reductions, so we would expect, you know, the margin expansion that Tracey guided to in the fourth quarter when you take into account the amount of deposit reductions there, plus, you know, we do assume two additional rate cuts, although one in November, one in December. The one in December, obviously, though, not being that impactful for the quarter.

Russell Gunther
Russell Gunther
Analyst at Stephens

Thanks, Michael. And then maybe switching gears to loan growth, you know, really strong quarter, pipelines look good. You know, appreciate thoughts on the coming quarter. How should we think about into 2025, given some of the hires mentioned, you know, strength of your markets, but also considering potential impact of paydowns?

Chuck Shaffer
Chuck Shaffer
Chairman and CEO at Seacoast

Yeah, and maybe Michael can kind of follow up on the growth, but I'll just sort of reiterate what I had in my opening comments. You know, I'm really proud of the team we're building. I think they're exceptionally strong. I think the growth you saw this quarter is the outcome of the investments in talent we've made over the last 24 months. And as you see, kind of coming in here in the fourth quarter, the pipeline remains strong. So I think our guide here for Q4 is mid-single digits. In the long run, you know, we'd like it to be a little north of that as we move into late the next year, assuming the economy and everything plays out. But I think just generally, mid-single digit type guide is a way to think about, at least over the next few quarters, depending on the economy and rates and, you know, how things play out here. But feel very good about the team we have, feel very good about the volume we saw this quarter, and expect a similar production quarter here coming into Q4. Michael, anything to add to that?

Michael Young
Michael Young
Treasurer and Director of Investor Relations at Seacoast

Yeah, just Russell, obviously we had the two hurricanes late September and October, and you know, that probably impacts growth a little bit in Q4, which is why, you know, maybe a slight step down in the growth quarter to quarter, plus a little higher maturities in Q4. But you know, we still see the momentum in the pipeline and the customer conversation is just a slight probably lag at the beginning of the quarter here.

Russell Gunther
Russell Gunther
Analyst at Stephens

Got it. Okay, great. Thank you both. And then just maybe tying it all together, last one for me. So, you know, it sounds like we've got the expanding BIM, we've got growth inflecting higher. How are you guys thinking about an ROA target for 2025?

Chuck Shaffer
Chuck Shaffer
Chairman and CEO at Seacoast

Yeah, we don't have anything out there, but obviously, you know, we want to be north of one as we move through time, and we're very keenly focused on profitability. I'd say, you know, as we look over the next coming quarters and into next year, that is our primary objective right now. We made a lot of really solid investments in talent around the company over the last 12, like I said earlier, 12 to 24 months. But over the coming quarters, you know, our goal right now is to drive profitability north and, you know, more solidly deliver a better profitability profile, and so that is our objective coming into the year.

Russell Gunther
Russell Gunther
Analyst at Stephens

Got it.

Michael Young
Michael Young
Treasurer and Director of Investor Relations at Seacoast

And Russell-

Russell Gunther
Russell Gunther
Analyst at Stephens

All right. Thanks, Chuck. Thank you, guys. Yeah, go ahead, Michael.

Michael Young
Michael Young
Treasurer and Director of Investor Relations at Seacoast

I was just going to add on that, you know, if you look back historically, our net interest margin, you know, is significantly higher than where we are today. I think with our, you know, kind of fixed rate balance sheet and low-cost deposit franchise that we look to kind of releverage, you'll see the margin expansion coming forward that will, you know, kind of get us back to a profitability level that we're happy with.

Chuck Shaffer
Chuck Shaffer
Chairman and CEO at Seacoast

Yeah, and just one more-

Russell Gunther
Russell Gunther
Analyst at Stephens

Thank you, both.

Chuck Shaffer
Chuck Shaffer
Chairman and CEO at Seacoast

Yeah, thank you, Russell. The momentum is strong, and with the strong momentum, inflection, and margin, you know, that all sets up a good coming year.

Operator

Your next question comes from the line of Woody Lay of KBW. Your line is open.

Woody Lay
Woody Lay
Analyst at KBW

Hey, good morning, guys.

Chuck Shaffer
Chuck Shaffer
Chairman and CEO at Seacoast

Hey, Woody.

Tracey Dexter
Tracey Dexter
CFO at Seacoast

Good morning.

Woody Lay
Woody Lay
Analyst at KBW

Wanted to just touch on the small bond repositioning you announced for October. Is this motivated by the pickup in loan growth, and if we see the growth sustain from here, is there potential for some further restructurings?

Michael Young
Michael Young
Treasurer and Director of Investor Relations at Seacoast

Hey, Woody, this is Michael. You know, we did reinvest the proceeds of that restructure into new securities, so it's not necessarily something we did to fund loan growth. And we're seeing, quite frankly, strong deposit growth as well, as you saw this quarter on a core customer basis. So it's not really a liquidity play so much as just our focus on kind of the math and the earn back and when we find opportunities where it's reasonable, you know, with kind of the rates moving higher here recently and less convexity in terms of what we would reinvest into. It made sense to go ahead and take the opportunity to do a small reposition on a select group of the book.

Michael Young
Michael Young
Treasurer and Director of Investor Relations at Seacoast

So we'll just keep doing that, if the opportunities present themselves, and we'll stay away from it if, you know, it doesn't make sense.

Woody Lay
Woody Lay
Analyst at KBW

Got it. And then wanted to hit on accretable yield real quick. It was a little bit of a headwind in the third quarter. Just any kind of guide you could give for the next couple of quarters, do you think the $9 million is a good run rate, or does it take a further step down from here?

Tracey Dexter
Tracey Dexter
CFO at Seacoast

Hey, Woody, this is Tracey. Yeah, that's going to continue to be difficult to predict. But, you know, you might expect, and if you look back over the last few quarters, you can see as we get further out from the periods of acquisition, that level of accretion starts to taper off. So, you know, I think it's difficult to put a specific number on around timing. That's obviously just uncertainty around timing over the next few years. But maybe the trend that you've seen in the last few quarters could be a good indication of where accretion goes in the next few quarters.

Chuck Shaffer
Chuck Shaffer
Chairman and CEO at Seacoast

Yeah, if you think about the portfolios burning off at a pretty stable rate at this point, given where rates are. And so, you know, if you just trend it out from where it's gone in the last few quarters, it probably gives you a good sense of where it's headed into the coming year.

Michael Young
Michael Young
Treasurer and Director of Investor Relations at Seacoast

Maybe one other... Sorry, this is Michael. One other thing to tack on there, Woody, just as you think about it in aggregate, we do have the CDI amortization as well that's headed down, so those will both be moving lower with time. The net impact is a little more marginal than just the purchase accounting accretion by itself.

Woody Lay
Woody Lay
Analyst at KBW

Got it. Appreciate that color. And then maybe just last for me, shifting over to the non-interest-bearing deposits. I mean, the growth was great to see in the quarter. It feels like trends are strong there. Do you think balances can continue to march higher from here, just given the new client onboarding?

Chuck Shaffer
Chuck Shaffer
Chairman and CEO at Seacoast

Yeah, I mean, I was really encouraged about that myself, and I do think it is 100% because of the new client onboarding. So yeah, I think as we move through time, we can continue to move kind of at the pace we have. It's a key focus of ours. And on the C&I side of the business, we're 100% focused on full relationships, so when we're lending to these clients, we're expecting the client to move in basically the entire banking relationship, and we're seeing that fairly consistently. So I was encouraged to see that and expect it to continue.

Woody Lay
Woody Lay
Analyst at KBW

Great. Thanks for taking my questions.

Chuck Shaffer
Chuck Shaffer
Chairman and CEO at Seacoast

Thank you, Woody.

Operator

Your next question comes from the line of David Feaster of Raymond James. Your line is open.

David Feaster
David Feaster
Analyst at Raymond James

Hey, good morning, everybody.

Chuck Shaffer
Chuck Shaffer
Chairman and CEO at Seacoast

Hey, David.

Michael Young
Michael Young
Treasurer and Director of Investor Relations at Seacoast

Morning.

David Feaster
David Feaster
Analyst at Raymond James

I wanted to start on the organic growth side. I mean, that it was great to see what we've been talking about for a while come to fruition, and it's also good to see the stability in the pipeline, which, again, supports that this, this is sustainable. I'm just kind of curious, how you think about the complexion of the pipeline? Obviously, growth in this quarter was driven by CRE. I know we've had a notable focus on trying to drive C&I growth. That obviously takes time to bring over relationships. But I'm just curious, how you think about the complexion of the pipeline, and drivers of growth going forward? Do you still expect it to be CRE-heavy near term? And when do you think we can start seeing more of a C&I contribution?

Chuck Shaffer
Chuck Shaffer
Chairman and CEO at Seacoast

Yeah, and I would say, David, it's somewhat just dependent upon where fundings happen and what's term debt versus not. But if you were to look at the production in the quarter, it's about 50/50 CRE, C&I. I think that probably continues in the coming quarters. And that's about what our run rate has been. That's about kind of where things have been now for a while. So I do think over time, you can see, if you look owner-occupied, CRE was up, and non-owner-occupied CRE was up a little more, as you mentioned. But I expect it to be pretty balanced as we move through the coming quarters. And you know, as I said, it's about 50/50.

David Feaster
David Feaster
Analyst at Raymond James

Okay. Okay. And then maybe touching on the deposit front. I mean, you talked about, you know, starting to reprice deposits lower. I'm curious, how's reception been with your clients so far? And, you know, as you think about trying to find, you know, that point where you can push deposit costs lower without losing a relationship or losing the deposits. Like, how are those conversations going? And, you know, where are you able to drive, like, what rates are, on a blended basis, are you able to drive new core deposit growth today?

Chuck Shaffer
Chuck Shaffer
Chairman and CEO at Seacoast

Yeah, and I'll let Michael take the second part of that question around the sort of new deposits coming on. But just in terms of client reaction, we really didn't see any pushback at all. It's gone pretty well. The clients accepted it, and we've seen the competition move down. So, you know, that's, that's been kind of the good news, and that was the thing that, you know, we had to watch carefully, is where does the competition go.

Chuck Shaffer
Chuck Shaffer
Chairman and CEO at Seacoast

As Michael mentioned earlier, as we went through the prior year, you know, obviously coming on the backside of the banking crisis in early 2023 with the bank failures, we were very client-friendly, and you know, we moved things up pretty rapidly there, and we wanted to protect client relationships and maintain liquidity in the balance sheet and maintain our core deposit franchise. You know, as you know, over our history, we continue to maintain a very customer-focused, non-transactional funding base, and so we protected that. As rates come down on the other side, I think it gives us a lot of ability to move rates down. So as the market moves, we're going to move.

Chuck Shaffer
Chuck Shaffer
Chairman and CEO at Seacoast

And so, you know, I think that is a bit of benefit to our balance sheet, you know, given that, you know, it kind of hurt us on the way up, the heavy level of fixed rate in the loan book. It'll help us on the way down, and I think we'll have a little more flexibility than probably a lot of others on the deposit side. So I think that's a benefit we see out ahead for us. And then, Michael, I don't know if you want to take the one on what the new add-on rate for deposits was.

Michael Young
Michael Young
Treasurer and Director of Investor Relations at Seacoast

Yeah, David, new add-on rate on a blended basis, you know, we were kind of in the low threes, generally across the quarter. We've pretty typically been around 200 basis points below Fed Funds through this cycle. So, you know, as rates head lower, we would expect to be adding on at, you know, incrementally lower rates.

Chuck Shaffer
Chuck Shaffer
Chairman and CEO at Seacoast

Yep.

David Feaster
David Feaster
Analyst at Raymond James

Okay. And then last one for me, just kind of maybe a high-level question for y'all. Yeah, I just want to get your thoughts on the Florida economy, especially post-hurricanes, right? I mean, you talked about it. I mean, these storms can be catastrophic, right? Insurance costs have already been an issue in the state. I'm curious, you know, you got to imagine that premiums are probably going to continue to increase, maybe some insurers leave the state. I'm curious, how do you think about how does that impact the Florida economy, especially the coastal ones, and impacts on CRE from these trends? Just, you know, curious how you think about some of the impacts on the broader economy from this.

Chuck Shaffer
Chuck Shaffer
Chairman and CEO at Seacoast

It's a great question. Really hard to answer, David. You know, I think our initial reaction is we've been through a lot of hurricanes in the state, and things are always challenging at the outset, but we work our way through it, and I think the state will work their way through this. You know, the insurance premiums are certainly an issue here. You know, we started to see, you know, if you kind of look back over the last couple of years, we saw a big run-up, then we got some tort reform. We saw insurance premiums start to stabilize and arguably start to come down a little bit as insurance companies started to reenter the market. My hope is that continues to happen.

Chuck Shaffer
Chuck Shaffer
Chairman and CEO at Seacoast

I think in terms of the storm impact, I think it was, you know, focused on the Tampa, St. Pete, kind of West Coast markets, and particularly the barrier islands. But when you get beyond that, the rest of the state, I think, is pretty much 100% back up in business. So I think the impact will be limited. I know the state goes through these things. We always come out the other side okay, and so I still feel very confident in the economy, very confident in Florida, and yes, we probably will see insurance premiums continue to be a bit of a challenge.

David Feaster
David Feaster
Analyst at Raymond James

Okay. That's all. Appreciate it, y'all.

Chuck Shaffer
Chuck Shaffer
Chairman and CEO at Seacoast

Appreciate it, Dave.

Operator

Again, if you would like to ask a question, simply press star one on your telephone keypad. Your next question comes from the line of David Bishop of the Hovde Group. Your line is open.

David Bishop
David Bishop
Analyst at Hovde Group

Yeah, good morning, Chuck.

Chuck Shaffer
Chuck Shaffer
Chairman and CEO at Seacoast

Hey, David.

David Bishop
David Bishop
Analyst at Hovde Group

Hey, a question. You know, we've had a lot of your peers talk about a lot of headwinds from loan payoffs this quarter, as maybe there's some clarity or taking some profits off the table to maybe reinvest in new projects. Just curious how payoffs, loan payoffs look this quarter versus recent trends?

Chuck Shaffer
Chuck Shaffer
Chairman and CEO at Seacoast

Michael, you want to take that one? I think you got the payoff numbers there.

Michael Young
Michael Young
Treasurer and Director of Investor Relations at Seacoast

Yeah. Yeah, David, this is Michael. Honestly, it was actually a positive for us. We saw lower levels of payoffs this quarter. I think, again, if you kind of zoom back out, you know, we were a little more cautious in late 2022 and mid 2023 and had less construction fundings and things that were maturing. So I think that's just all else equal, a little less of a headwind for us, and then just having stability kind of post the M&A environment. I think you're just seeing lower levels of payoffs, and we're able to achieve greater levels of net growth. So, you know, wasn't really much of an issue for us in the quarter.

David Bishop
David Bishop
Analyst at Hovde Group

Got it. Then as you look ahead, anything looming from a larger payoff or not really?

Michael Young
Michael Young
Treasurer and Director of Investor Relations at Seacoast

No, I think we're seeing more stability in the book. You know, obviously, lower rates, you could see higher prepayment speeds across the portfolio, but we haven't seen that yet, at least with just a 50 basis point cut. And then we do have a little higher, as we talked about earlier, a little higher level of maturities in the fourth quarter, which is why we're, you know, kind of thinking the net growth between the hurricane and that could be at, you know, more mid-single digit levels as opposed to where we were this quarter. But nothing else that's really idiosyncratic to call out.

David Bishop
David Bishop
Analyst at Hovde Group

Got it. And then I wasn't sure if I heard correctly during the preamble. The uptick in nonaccrual loans, I hear that you guys are well reserved or not expecting much in the way of loss content, given appraised values.

Chuck Shaffer
Chuck Shaffer
Chairman and CEO at Seacoast

Yeah, we don't... Yeah, go ahead, Tracey.

Tracey Dexter
Tracey Dexter
CFO at Seacoast

That's right, David. We did see a little bit of an uplift in nonperforming loans this quarter. Really, a handful of loans and those have sufficient collateral. No loss is expected there.

Chuck Shaffer
Chuck Shaffer
Chairman and CEO at Seacoast

Yeah, those were already-

David Bishop
David Bishop
Analyst at Hovde Group

Got it, then final question.

Chuck Shaffer
Chuck Shaffer
Chairman and CEO at Seacoast

They were already graded in the criticized and classified assets and just moved to NPL. They're just going through the natural cycle.

David Bishop
David Bishop
Analyst at Hovde Group

Okay, got it. And then, Chuck, you noted as well, it's been pretty stellar growth on the wealth management side of the business. Just curious, I don't know if there's a way to reframe it in terms of, like, new account growth, you know, versus, you know, sort of market appreciation. And is this an area where you could dip your toe in and look to acquire additional RIAs or really add more aggressively in that front? Thanks.

Chuck Shaffer
Chuck Shaffer
Chairman and CEO at Seacoast

Yeah, we've. It's a business we really like. You know, the return on capital and the wealth management business is exceptionally strong. You know, and as we bank wealth management clients, and both on the bank side and the wealth side, they tend to be, you know, clients for life. And so we think very highly of the business as a business. We're very focused on. We looked at wealth management acquisition opportunities. We will look at them over time. We've not done one to date, but it is something that we could do if something was unique that came along.

Chuck Shaffer
Chuck Shaffer
Chairman and CEO at Seacoast

But we really like the business as we've talked about in the past, and we think it's a really solid business for us, and I think our business is deeply interconnected to our commercial banking franchise. And we see very often when our commercial banking clients liquidate companies, we oftentimes get the opportunity to manage the assets and help those families out. And so it's a phenomenal business for us. We love the business, and it's something we'll continue to focus on.

David Bishop
David Bishop
Analyst at Hovde Group

Great. Thank you for the call.

Chuck Shaffer
Chuck Shaffer
Chairman and CEO at Seacoast

Thank you.

Operator

Your next question comes from the line of Stephen Scouten of Piper Sandler. Your line is open.

Stephen Scouten
Stephen Scouten
Analyst at Piper Sandler

Hey, good morning, everyone. Appreciate the time. Curious, Chuck, you talked about getting back to that 1% ROA in time. I assume that would primarily be driven by kind of loan growth, balance sheet mix, and improving NIM. Is that fair to say, or would you think there's, like, another driving force there that's worth noting as well, that'd be more impactful?

Chuck Shaffer
Chuck Shaffer
Chairman and CEO at Seacoast

Yeah, I think at a very high level, you know, our expense base is well invested in. You know, I think we've got the team to drive growth over time. And when you kind of, sort of think that we, we've got a lot of those investments made, and then you look at kind of the growth that we've seen in our focus on non-interest income, the investments in commercial bankers, investments in treasury management talent, investments in wealth, you know, what you're seeing is, you know, the operating leverage start to pull through. And so when you think about the coming year, the combination of, you know, decent to strong organic growth, combined with potential for margin expansion, particularly as rates come down. When you kind of put the two of those together, you know, it starts to really drive some profitability improvement.

Chuck Shaffer
Chuck Shaffer
Chairman and CEO at Seacoast

You know, I know you can see that in the model. You know, we've got a really great team that's really focused on growth, and they are consistently onboarding new clients. It gives me some confidence that in combination with getting past the margin headwinds that we've been faced over the last year or so, you know, it really starts to set us up to see solid profitability improvement.

Stephen Scouten
Stephen Scouten
Analyst at Piper Sandler

Yeah. Okay. That's super helpful. That's great to hear. And then I guess, as I think about the margin expansion, and you guys talked about kind of trends continuing to improve there and return maybe closer to historical levels. If I look at the core NIM, and I don't know if that's how you guys think about it, but it was in the, like, three oh six range back in 1Q 2022 before we started the rate hike cycle. Is that kind of where you would think it could get back to, or is there anything that's changed around the balance sheet that would allow that core NIM to be above that level? Or how can you kind of frame up the potential for the core NIM, the core earnings power from that perspective?

Michael Young
Michael Young
Treasurer and Director of Investor Relations at Seacoast

Hey, Steven, it's Michael. You know, we're not gonna give any guidance for 2025 on where we think that's gonna get to. Obviously, I think everyone's expectations around the number of Fed cuts is gonna be sort of a determining factor as we move through next year, as well as kind of the shape of the yield curve. So with those caveats out there, you know, I think we do expect margin expansion, you know, per rate cut, you know, maybe two to four basis points. Could be a little better, could be a little worse, depending on the shape of the curve, et cetera. But we expect that to come through.

Michael Young
Michael Young
Treasurer and Director of Investor Relations at Seacoast

And so, you know, if you think about the moving pieces into next year, between now and the end of next year, we've got 450 million of securities cash flow at about a 3.3% rate that's gonna reprice up into a higher rate environment. We got another 750 million plus of fixed rate cash flows off the loan book that are going to reprice from, you know, around, you know, kind of high fours into the current environment. Those provide some pretty steady tailwinds, regardless of what happens with rates and the number of cuts. And then the cuts themselves are just very additive, given our fixed rate nature of our loan book and the adjustable rates, even on our loan book, don't reprice really until 2026, 2027.

Michael Young
Michael Young
Treasurer and Director of Investor Relations at Seacoast

So we've got pretty stable asset yields, with, you know, improving deposit costs that I think are gonna drive the margin expansion. So we feel comfortable with the direction and pace of that going forward into next year, but the number of cuts will have some upside, you know, impact in terms of where that goes and how high and how quickly.

Stephen Scouten
Stephen Scouten
Analyst at Piper Sandler

Yeah, yeah, that's extremely helpful color, Michael. And just to clarify, when you talk about the 2-4 basis points per rate cut, are you thinking about that on a core basis or on a GAAP basis?

Michael Young
Michael Young
Treasurer and Director of Investor Relations at Seacoast

Yeah, core basis. I think that's what we can manage. The GAAP basis-

Stephen Scouten
Stephen Scouten
Analyst at Piper Sandler

Yep

Michael Young
Michael Young
Treasurer and Director of Investor Relations at Seacoast

Around accretion will depend on just the pace of repayments there. So really talking about the core. And, you know, I do think, given our sort of friendliness with clients, early on their deposit rates, I think there's more opportunity to move a little more quickly on the front end. But that will obviously start to, you know, decelerate a little bit on the back end of kind of the rate cycle, so just like we saw on the way up.

Stephen Scouten
Stephen Scouten
Analyst at Piper Sandler

Yep, makes sense, and then last thing for me, just you guys obviously have created a ton of excess shareholder value since 2014 by M&A. The environment has not really been maybe set up for that in the last year or so. But with rates coming down, are you seeing a pickup at all in conversations, or do you think there's a greater likelihood of something manifesting here in the near medium term and kind of continuing that path?

Chuck Shaffer
Chuck Shaffer
Chairman and CEO at Seacoast

Just kind of give you a flat. I don't think anything's really changed in terms of the level of conversations. There are certainly conversations out there. We have relationships throughout the state that we continue to chat with. You know, we'll be disciplined. It's gonna have to make sense from a earn back perspective, and it's gonna have to make a lot of sense from a return perspective because I think our organic story is so strong. So we'll be really thoughtful if we do anything, but you know, there are conversations happening.

Stephen Scouten
Stephen Scouten
Analyst at Piper Sandler

Got it. Very good. Thanks, Chuck. Thanks, Michael and Tracey. Appreciate the time.

Chuck Shaffer
Chuck Shaffer
Chairman and CEO at Seacoast

Thanks, Stephen.

Operator

With no further questions, this concludes our Q&A session. I would now like to turn the conference back over to Chuck Shaffer for closing remarks.

Chuck Shaffer
Chuck Shaffer
Chairman and CEO at Seacoast

All right, well, thank you all for joining us this morning and, just again, to reiterate my great appreciation for our associates that worked so hard to get us through the two hurricanes. It was a lot of work, and it's a lot over a few weeks, and you all did a phenomenal job, both getting the bank prepared and taking care of our clients, so just thank you to all our Seacoast associates for that, and I appreciate everybody joining the call. Thank you. That'll wrap us up.

Operator

This concludes today's conference call. You may now disconnect.

Analysts
    • Tracey Dexter
      CFO at Seacoast
    • Russell Gunther
      Analyst at Stephens
    • Chuck Shaffer
      Chairman and CEO at Seacoast
    • David Feaster
      Analyst at Raymond James
    • Michael Young
      Treasurer and Director of Investor Relations at Seacoast
    • Stephen Scouten
      Analyst at Piper Sandler
    • David Bishop
      Analyst at Hovde Group
    • Woody Lay
      Analyst at KBW
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