Seacoast Banking Corporation of Florida Q2 2024 Earnings Report

Seacoast Banking Corporation of Florida EPS Results

• Actual EPS: $0.36
• Consensus EPS: $0.34
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: $0.37

Seacoast Banking Corporation of Florida Revenue Results

• Actual Revenue: $201.99 million
• Expected Revenue: $126.00 million
• Beat/Miss: Beat by +$75.99 million
• YoY Revenue Growth: N/A

Seacoast Banking Corporation of Florida Announcement Details

• Quarter: Q2 2024
• Date: 7/25/2024
• Time: After Market Closes
• Conference Call Date: Friday, July 26, 2024
• Conference Call Time: 10:00AM ET

Seacoast Banking Corporation of Florida (NASDAQ:SBCF) operates as a bank holding company through its principal subsidiary, Seacoast National Bank. Headquartered in Stuart, Florida, Seacoast National Bank provides a full range of commercial and retail banking services across the coastal region of Florida. Its network of branches serves customers from Martin County through Miami-Dade County, offering deposit accounts, lending solutions, cash management and payment services to individuals, small businesses and middle-market companies.

In addition to traditional banking, Seacoast offers specialized mortgage lending and wealth management services. Through Seacoast Mortgage, the company originates residential and commercial real estate loans, while its wealth division provides private banking, trust administration and financial planning. The bank’s treasury management platform supports business clients with online banking tools, merchant card processing, payroll services and liquidity solutions. Insurance products, including property/casualty and personal risk coverage, are also marketed to retail and commercial customers.

Founded in 1926 as the Bank of Stuart, Seacoast has grown organically and through strategic acquisitions to become a community-oriented institution with deep ties to its service area. The company emphasizes personalized service and local decision-making, while investing in digital platforms to enhance customer experience. Glenn R. Lubert, Jr. serves as president and chief executive officer, guiding Seacoast’s mission to support economic growth and financial well-being within the Florida communities it serves.

Seacoast Banking Corporation of Florida Q2 2024 Earnings Call Transcript

Key Takeaways

• Second quarter saw 2.4% annualized loan growth with a record $744 million late-stage pipeline and a 60% jump in commercial loan originations, setting up mid-single-digit growth in Q3.
• Management expects net interest income and margin to have inflected in Q2 and to expand in the back half of 2024 on higher loan yields and stabilizing deposit costs.
• Noninterest income rose by $2 million in Q2, driven by growth in wealth management, treasury management, insurance and service fees, with Q3 guidance of $21 million–$22 million.
• Adjusted noninterest expenses have declined for four consecutive quarters (down 10% year-over-year) and Q3 expense guidance is just $84 million–$85 million, reflecting successful cost-reduction initiatives.
• Deposit costs stabilized at 2.33% in May and June and total deposits grew by $100 million in Q2, supporting margin expansion as core deposit gathering accelerates.

Presentation

[Operator]

Welcome to Seacoast Banking Corporation's second quarter 2024 earnings conference call. My name is Pam, and I will be your operator. Before we begin, I have 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. I will now turn the call over to Chuck Shaffer, Chairman and CEO of Seacoast Bank. Mr. Shaffer, you may begin.

[Chuck Shaffer, Chairman and CEO at Seacoast Bank]

Thank you, Pam, and good morning, everyone. As we go through our presentation, we'll be referring to the second quarter earnings slide deck, which is available at seacoastbanking.com. I'm here today with Tracey Dexter, Chief Financial Officer, Michael Young, Treasurer and Director of Investor Relations, and James Stallings, Chief Credit Officer. The Seacoast team had a strong quarter with good earnings performance and continued strong customer acquisition. Our investments in talent and marketing paid off, with a 60% increase in commercial loan originations from the previous quarter and a record $744 million late-stage pipeline entering Q3. As we anticipated on our comments last quarter, we saw a low single-digit loan growth in the second quarter at 2.4% annualized, and we expect production to increase in Q3, which will boost net interest income and the net interest margin.

[Chuck Shaffer, Chairman and CEO at Seacoast Bank]

Tracey will provide more details on this shortly. We've been focused on increasing non-interest income and have seen improved performance in wealth management fees, service charges on deposits, and insurance agency revenue in each of the past four quarters. Our efforts to reduce expenses have also been successful, with adjusted non-interest expenses declining sequentially for the past four quarters, approximately $9 million per quarter lower than a year ago. During the quarter, we worked on lowering our cost of deposits by reducing offered rates, and we saw our cost of deposits begin to stabilize in May. In looking at our asset quality, we continue to maintain strong performance. Charge-offs were slightly higher this quarter at approximately 40 basis points annualized, mainly due to a limited number of loans, each of which were previously reserved for, which decreased the ACL upon charge-off.

[Chuck Shaffer, Chairman and CEO at Seacoast Bank]

While classified and criticized increased slightly from the prior quarter, non-performing loans declined by $17 million. Our ACL stands at $142 million, equal to 1.41% of total loans, and including the reserve for unused commitments, this ratio moves to 1.46% of total loans, positioning us strongly amongst our peer group. Additionally, we have another $151 million in purchase discount. Our balance sheet puts us in great position compared to peers, allowing us to navigate any challenges the cycle may present. Overall, it was a solid quarter, generally in line with the previous guidance across all areas.

[Chuck Shaffer, Chairman and CEO at Seacoast Bank]

As we stated in previous quarters, we believe we reached an inflection point in net interest income in the second quarter and expect growth in net interest income and net interest margin as we enter the back half of 2024. We're committed to maintaining our conservative balance sheet principles to ensure long-term success, and we remain steadfast in our goal of establishing Seacoast as a leading player in Florida. I'll now pass the call to Tracey to review our financial results. Tracey?

[Tracey Dexter, CFO at Seacoast Bank]

Thank you, Chuck. Good morning, everyone. Directing your attention to second quarter results, beginning with Slide four. Seacoast reported net income of $30.2 million, or $0.36 per share in the second quarter. As Chuck mentioned, we're seeing the benefit of recent expense reduction actions, and as a result, non-interest expense is down 10% compared to the prior year quarter. The pace of increase in cost of deposits slowed during the quarter and was flat in May and June. Pre-tax, pre-provision earnings on an adjusted basis increased $2 million quarter-over-quarter, benefiting from growing revenue sources, including wealth, treasury management, and insurance, and well-controlled expenses. Our loan pipelines have grown meaningfully, and we continue to see stable credit trends. Tangible book value per share increased to $15.41, and our capital position continues to be very strong.

[Tracey Dexter, CFO at Seacoast Bank]

Seacoast Tier One Capital ratio is 14.8%, and the ratio of tangible common equity to tangible assets is 9.3%. Also notable, if all Held-to-Maturity securities were presented at fair value, the TCE to TA ratio would still be a strong 8.6%. We also repurchased nearly 40,000 shares at just over $22 on price dips during the quarter. Turning to Slide five. Net Interest Income declined modestly during the quarter, with higher deposit costs and growth in deposit balances, partially offset by higher yields on loans and securities. Core Net Interest Margin contracted four basis points to 2.87%. In the securities portfolio, yields increased 22 basis points to 3.69%, benefiting from recent purchases. Loan yields, excluding accretion, increased four basis points to 5.52%.

[Tracey Dexter, CFO at Seacoast Bank]

Accretion of purchase discounts on acquired loans was lower by $0.4 million compared to the prior quarter. The cost of deposits increased to 2.31%, with the exit rate flat month-over-month at 2.33%. Looking ahead, we expect that the second quarter was the trough for net interest income and will see growth in both net interest income and the net interest margin in the third quarter, driven by higher yields on loans and stabilizing deposit costs. Our rate assumptions are unchanged and include 125 basis point rate cut in November. Moving to Slide six. Non-interest income, excluding securities activity, increased $2 million in the second quarter to $22.2 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.

[Tracey Dexter, CFO at Seacoast Bank]

In the BOLI portfolio, we restructured policies to capture higher rates, resulting in higher income, which will continue into future periods. Other income was higher by $0.7 million, including a gain on sale of one non-performing commercial real estate loan. Looking ahead, we continue to focus on growing non-interest income, and we expect third quarter non-interest income in a range from $21 million-$22 million. Moving to Slide seven. Assets under management have increased 12% year-to-date to a record $1.9 billion, and have increased at a compound annual growth rate of 27% in the last five years. Wealth management, wealth management revenues during the quarter increased to $3.8 million, up 6% from the prior quarter and 14% from the prior year quarter.

[Tracey Dexter, CFO at Seacoast Bank]

Our family office style offering continues to resonate, and internal referrals are a significant contributor, generating strong returns for the franchise and deepening relationships with our customers. Moving to Slide eight. Non-interest expense for the quarter was $82.5 million, lower than the range of guidance we provided last quarter. Recent expense reduction initiatives are benefiting nearly every category. Outside of the impact of severance-related charges in the first quarter, salaries and wages increased $0.7 million, including annual merit increases and annual stock award grants. Investments in growth-focused talent will also continue to be a priority. We saw a typical seasonal increase in employee benefits and payroll taxes in the first quarter, leading to a comparative decline in the second quarter.

[Tracey Dexter, CFO at Seacoast Bank]

In outsourced data processing and occupancy costs, we incurred one-time charges early in the first quarter associated with consolidation activities, leading to a comparative decline in expense in these categories in the second quarter. Our planned investments in branding and in marketing campaigns across the state led to higher marketing expenses. Other expenses were lower across several categories, and the efficiency ratio improved to 60.2%. Discipline around expenses will continue to be a focus, and in the third quarter, we expect non-interest expense to be between $84 million and $85 million. Turning to Slide nine. Loan outstandings increased at an annualized rate of 2.4%, and the pipeline has grown 46% to $834 million. Average loan yields, excluding accretion on acquired loans, increased four basis points to 5.52%.

[Tracey Dexter, CFO at Seacoast Bank]

The pipeline is very strong, and looking forward, we expect the pace of loan growth to continue to increase and expect mid-single-digit 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 34% 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. These measures are significantly below the peer group at 34% and 222% of consolidated risk-based capital, respectively.

[Tracey Dexter, CFO at Seacoast Bank]

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 $141.6 million, or 1.41% of total loans, compared to 1.47% in the prior quarter. A small number of individually evaluated credits were charged off during the quarter, resolving previously established specific reserves. The allowance for credit losses, combined with the $151 million remaining unrecognized discount on acquired loans, totals $293 million, or 2.9% of total loans, that's available to cover potential losses, providing substantial loss absorption capacity. On Slide 12, providing a longer-term view of our stable asset quality trends, recall that the period presented includes 8 separate bank acquisitions and a near doubling of asset size.

[Tracey Dexter, CFO at Seacoast Bank]

The stability of our credit experience during that period reflects the consistently applied discipline of our credit culture. Moving to Slide 13, looking at quarterly trends in credit metrics. Our credit metrics remain strong. Nonperforming loans declined to 0.6% of total loans, with a number of nonaccruals resolved either through charge-off, sale, or being paid off. Accruing past due loans and criticized and classified loans each increased slightly as a percentage of total loans, but remain low. Moving to Slide 14 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 second quarter by 22 basis points to 3.69%. Changes in the rate environment negatively impacted portfolio values, and as a result, the overall unrealized loss position increased by $6 million.

[Tracey Dexter, CFO at Seacoast Bank]

Turning to Slide 15 and the deposit portfolio. Total deposits increased by $100 million. The cost of deposits increased this quarter to 2.31%, a slower pace of increase than in previous periods, consistent with our expectations. In fact, in June, we saw no increase from the prior month at 2.33%. Looking forward, we expect continued growth in core deposits and stabilization of deposit costs, and we remain very encouraged about the continued activity and focus across the franchise on deposit gathering. On Slide 16, Seacoast continues to benefit from a diverse deposit base. Customer transaction accounts represent 50% 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.

[Tracey Dexter, CFO at Seacoast Bank]

Finally, on Slide 17, 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 $15.41, and the ratio of Tangible Common Equity to Tangible Assets remains exceptionally strong at 9.3%. Our risk base and Tier One 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, Chairman and CEO at Seacoast Bank]

Thank you, Tracey. All right, Pam, I think we're ready for Q&A.

[Operator]

Thank you. If you have dialed in and would like to ask a question, please 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 are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute. One moment for your first question. Your first question comes from the line of David Feaster of Raymond James. Please go ahead.

[Chuck Shaffer, Chairman and CEO at Seacoast Bank]

David, you may be on mute.

[David Feaster, Managing Director at Raymond James]

Can you hear me?

[Chuck Shaffer, Chairman and CEO at Seacoast Bank]

Oh, yep.

[David Feaster, Managing Director at Raymond James]

Can you hear me now?

[Chuck Shaffer, Chairman and CEO at Seacoast Bank]

There you are.

[David Feaster, Managing Director at Raymond James]

Okay.

[Chuck Shaffer, Chairman and CEO at Seacoast Bank]

Yeah, we can hear you.

[David Feaster, Managing Director at Raymond James]

Hey, good morning, everybody. Sorry about that.

[Chuck Shaffer, Chairman and CEO at Seacoast Bank]

Hey, buddy. No worries.

[David Feaster, Managing Director at Raymond James]

Great to see the inflection in loan growth. And just, you know, given the increase in pipelines, it seems like this trajectory is structurally improving, and it sounds like the majority of it you gain in share from the new hires hitting stride. Is that the right way to think about it? And just kinda how is demand broadly from your perspective, and where are you seeing the most growth opportunities today?

[Chuck Shaffer, Chairman and CEO at Seacoast Bank]

Yeah, David, I think you characterized it and read it well. I think when you step back and look at the quarter, we, you know, saw a 2.4% annualized loan growth. That was about where we had guided to in the prior quarter. You know, as Tracey mentioned, our guide is the mid-single digit in the coming quarter. And, you know, what's really encouraging about it, just like we talked about last quarter, is the bulk of what's coming on is new customer relationships and prospects as we continue to onboard clients, primarily as a result of the investments we've made over the last 24 months in talent around the state. You know, the demand of our current customers, I would say, remains pretty light, just like you've seen across the industry.

[Chuck Shaffer, Chairman and CEO at Seacoast Bank]

But, what we're seeing is we're moving market share primarily out of large regional banks onto the Seacoast balance sheet. And so, you know, I'm very encouraged, as we talked about last quarter, I remain very encouraged, and think we the team we've built is first class, and I'm, I'm super excited about where we're headed.

[David Feaster, Managing Director at Raymond James]

That's terrific. Then maybe somewhat of a difficult question to answer because there's a lot of moving parts, but I'm curious, how do you think about the size of the balance sheet? Obviously, loan growth's improving, like we just talked about. We talked about core deposit growth, returning. I'm just curious, how do you think about plans for that core deposit growth? Would you expect to, you know, reduce some wholesale funding and borrowings first and use securities cash flows to fund growth with the balance sheet remaining relatively stable? Is that the right way to think about it? I'm just, you know, kind of curious, how do you think about that and some of the puts and takes?

[Chuck Shaffer, Chairman and CEO at Seacoast Bank]

Michael, you want to take that one?

[Michael Young, Treasurer and Director of Investor Relations at Seacoast Bank]

Yeah. Hey, hey, David, good morning. This is Michael. I would think about it as, you know, really our balance sheet growing at the pace of deposit growth from here. As Chuck mentioned, we've got momentum, you know, building on the, the lending side, on the loan side. We expect, you know, some, some benefits, obviously, on the deposit side as well, as we kinda take that market share and, and have faster customer acquisition. So we're thinking that the deposit side of the balance sheet may grow in kind of the low single digits, so a little bit of remix, but, you know, we really wanna grow the balance sheet from here.

[David Feaster, Managing Director at Raymond James]

Okay, that makes sense. And then last one for me, just given the move in rates, curious, how do you think about optimizing balance sheet optimization opportunities? And, you know, curious what you guys would be interested in. Obviously, additional restructurings could make some sense, but any interest in loan sales or anything else like that? I know you sold some, you know, NPAs this quarter, but just curious whether the move in rates has changed your appetite and as it opened up maybe some more doors.

[Michael Young, Treasurer and Director of Investor Relations at Seacoast Bank]

Yeah. Hey, David, this is Michael again. I think, you know, if you step back and look at the balance sheet as a whole, we have very high levels of capital. We've done that intentionally to have a lot of ballast in turbulent times. You know, we still have that optionality, as you mentioned, and that's a focus of ours to maintain that optionality. But there are, you know, continue to be opportunities with rate volatility, et cetera, and changing, you know, kind of forward outlooks where we can, you know, take opportunities on the margin, as you've seen us do some small portfolio restructurings and some other things along the way between BOLI and securities to optimize earnings. You know, so those opportunities obviously are still out there.

[Michael Young, Treasurer and Director of Investor Relations at Seacoast Bank]

As you know, Chuck often says, you know, we're really just very math-focused and disciplined around, you know, the earn back and, you know, doing the right thing for shareholders long term.

[Chuck Shaffer, Chairman and CEO at Seacoast Bank]

And I think, David, if you step back and just look at our balance sheet, we do have and will have, as Michael said, just probably some opportunities around the edges to do some of that. But importantly, you know, we are seeing net interest income in the margin inflect at this point, with some loan growth coming on the back half of the year and stabilizing deposit costs. You know, I'm pretty encouraged about the profitability outlook for 2025.

[David Feaster, Managing Director at Raymond James]

Okay, that's great. Thanks, everybody.

[Chuck Shaffer, Chairman and CEO at Seacoast Bank]

Thanks, David.

[Operator]

Your next question comes from the line of Woody Lay of KBW. Please go ahead.

[Woody Lay, VP at KBW]

Hey, good morning, guys.

[Chuck Shaffer, Chairman and CEO at Seacoast Bank]

Morning, Woody.

[Woody Lay, VP at KBW]

So how does the mix of the loan pipeline compare to historical levels? Is it more weighted to C&I than in the past?

[Chuck Shaffer, Chairman and CEO at Seacoast Bank]

Yeah, I think the way to think about it, we mentioned this on last quarter's call, the pipeline does weigh more into C&I, and so, you know, the funding level is lower than what historically we would see. You know, again, we're super encouraged because we're, you know, bringing on a line of credit, we're bringing on a, you know, operating company, and we're bringing with it deposits and the full relationship. But that'll take 12-18 months to fund up as we move through then, you know, the next into next year. But what we're building is momentum into the back half, and so the funding levels are a little lower than they've been historically, but the momentum is very strong.

[Woody Lay, VP at KBW]

Yeah. And then on the sort of average commercial loan size, you know, you disclosed it's around $750,000. Just given you sort of revamped the commercial lending team, you're competing more with the large regionals, do you expect that average loan size to increase over time?

[Chuck Shaffer, Chairman and CEO at Seacoast Bank]

Yeah, it'll take some time because there's a lot of notes in that portfolio. But yes, the loans we're adding on are generally larger than that as we move forward. But there's, you know, a very large granular portfolio there that's, you know, why that average loan size is as low as it is. But looking forward, the new volume coming on is larger.

[Woody Lay, VP at KBW]

Yep. And then on maybe shifting over to deposit costs, I mean, it was great to see the month-over-month trends. It sounds like you think this is a trend that can persist from here?

[Michael Young, Treasurer and Director of Investor Relations at Seacoast Bank]

Hey, Woody, this is Michael. Yeah, I think, you know, we've taken the back book repricing actions that we discussed, you know, kind of on the last quarterly call, and you saw the stability that materialized in the quarter on both interest-bearing deposit costs and, you know, the total cost of deposits. And so I think going forward from here, you know, we still want to grow deposits, and we still want to take market share while there's a good opportunity to do so. And so, you know, we might still expect some slight increase in the cost of deposits going forward, but, you know, at a much lower pace than, you know, what we're seeing in terms of our loan yields improving. And so that's going to lead to that margin expansion into the back half that Tracey and Chuck both referenced.

[Michael Young, Treasurer and Director of Investor Relations at Seacoast Bank]

I think that's kind of the right way to think about it. Obviously, you know, DDA mix is the most important factor, and, you know, we feel pretty good about stabilization there as well.

[Woody Lay, VP at KBW]

Sounds great. Thanks for taking my questions.

[Chuck Shaffer, Chairman and CEO at Seacoast Bank]

Thank you, Woody.

[Operator]

Your next question comes from the line of Brandon King of Truist Securities. Please go ahead.

[Brandon King, Wholesale Payment and Treasury Sales Analyst at Truist Securities]

Hey, good morning.

[Chuck Shaffer, Chairman and CEO at Seacoast Bank]

Hey, Brandon. Morning, Brandon.

[Brandon King, Wholesale Payment and Treasury Sales Analyst at Truist Securities]

What magnitude of margin NI expansion are you expecting in the back half of this year?

[Michael Young, Treasurer and Director of Investor Relations at Seacoast Bank]

Hey, Brandon, this is Michael. You know, obviously, that depends somewhat on what your interest rate outlook is. We are modeling for a November first cut and only one cut this year, followed by, you know, greater cuts kind of into 2025. But, you know, really, the balance sheet is slightly liability sensitive, but close to neutral. So, you know, a lot of it's going to be based on kind of the active management that we do and the pace really of our loan growth versus our DDA balances that are going to be kind of the drivers of how much expansion we get into the back half.

[Chuck Shaffer, Chairman and CEO at Seacoast Bank]

As you know, Brandon, you got an election year, there's a lot going on. You know, we don't know where the Fed's going to go, so, you know, providing much guidance there over the long run is tough. You know, we'll wait and see how things play out.

[Brandon King, Wholesale Payment and Treasury Sales Analyst at Truist Securities]

Okay. I guess, is it fair to assume just modest expansion? Is that a way to think about it? You're not expecting any sort of material ramp? Is that the way to think about it?

[Michael Young, Treasurer and Director of Investor Relations at Seacoast Bank]

Yeah, I think modest is probably a fair characterization. You know, the benefit that we do have, though, is if rates decline further, you know, we have a little more of a fixed loan book that, again, is stepping up into the higher rate regime. So that's really kind of the tailwind that's buffering us, you know, going forward, and that should also help us if rates do head lower. Yeah.

[Brandon King, Wholesale Payment and Treasury Sales Analyst at Truist Securities]

Okay. And then on the credit side, with the increase in net charge-offs to those smaller credits, could you just remind us kind of what those credits are, and were they legacy Seacoast or were they acquired credits? Just some more characterization there.

[Tracey Dexter, CFO at Seacoast Bank]

Yeah. Hi, Brandon. Charge-offs this quarter largely reflect previously reserved balances, and it's a small number of loans. A large portion of that is the acquired portfolios that are in run-off mode, along with a small number of other specific reserves. So while the charge-offs are elevated this quarter, we do still expect a normalized level on an average basis, would be around 25 basis points. Our year-to-date annualized charge-offs are 27 basis points.

[Brandon King, Wholesale Payment and Treasury Sales Analyst at Truist Securities]

Okay. And with the reserve, I mean, you have such strong reserves with also the acquired credit discount. Is it fair to assume that's going to continue to march lower, given how high it is, putting all those pieces together?

[Tracey Dexter, CFO at Seacoast Bank]

I think it depends. Each quarter, we look at the current credit conditions, expected forward economic conditions. We assess the allowance just, you know, with the forecast scenarios. The Moody's forecast scenarios drive a lot of the quantitatively derived loss model outcomes. And of course, we also consider adjustments which may be appropriate based on metrics specific to our markets or our portfolio. We go through this comprehensive process each quarter, so the circumstances at each quarter end really drive changes in the reserve. I think it's reasonable to assume that we'll use the allowance for the purpose it was built, that's to cover losses as they arise. So if we do see the economic outlook improving and the portfolio conditions are supportive, we may end up with a lower coverage level than we have today.

[Brandon King, Wholesale Payment and Treasury Sales Analyst at Truist Securities]

Okay. Thanks for taking my questions.

[Chuck Shaffer, Chairman and CEO at Seacoast Bank]

Thanks, Brandon.

[Operator]

Again, if you would like to ask a question, press star, then the number one on your telephone keypad. Our next question comes from the line of Stephen Scouten of Piper Sandler. Please go ahead.

[Stephen Scouten, Managing Director at Piper Sandler]

Hey, good morning, everyone.

[Chuck Shaffer, Chairman and CEO at Seacoast Bank]

Stephen.

[Stephen Scouten, Managing Director at Piper Sandler]

I guess I know earlier you said, you know, balance sheet growth probably in line with deposit growth, but obviously year to date, I think, you know, deposits have moved faster than loans, and so the loan deposit ratio is down a bit. I mean, do you think we could see that move back to, you know, 85% range and kind of lever the balance sheet a bit more over time?

[Chuck Shaffer, Chairman and CEO at Seacoast Bank]

Michael?

[Michael Young, Treasurer and Director of Investor Relations at Seacoast Bank]

Hey, Stephen, this is Michael. Yeah, I, I think that that's fair. You know, we obviously maintain our conservative stance on capital but also liquidity, so, you know, we don't wanna move that too high. But you know, as you can see with the building pipeline, building, lending momentum, you know, after we sort of intentionally decelerated loan growth last year, due to our risk posture, you know, I think as we move forward, you're gonna see the, you know, the loan growth building, and probably coming in at a slightly faster pace than deposit growth, which would, which would help us to, you know, relever the balance sheet, as you mentioned, a little bit. But, really, what that's gonna do is just build, you know, earnings momentum and revenue momentum.

[Stephen Scouten, Managing Director at Piper Sandler]

Yep, that makes sense. That makes sense. And then just thinking about, and I know we've talked about this in the past, but at least as of last quarter's Q, you guys still modeled to slightly asset sensitive. Has that changed appreciably, or is it really more, you know, modeling in a static balance sheet versus the reality of what may play out that causes you to believe you're, you know, slightly liability sensitive?

[Michael Young, Treasurer and Director of Investor Relations at Seacoast Bank]

Yeah, I think we modeled it slightly liability sensitive. I can get with you offline on that, Stephen. But, you know, we're basically down 100 basis points. We pick up about 1% in revenue. So that, you know, depends on if you're looking at dynamic or static. Obviously, our balance sheet has been moving pretty quickly, and so that has a pretty big impact. And just our ability to manage the balance sheet is probably stronger.

[Michael Young, Treasurer and Director of Investor Relations at Seacoast Bank]

So, that's where I think, you know, really, if you zoom out and look at our balance sheet, we've got, you know, a little higher amount of fixed rate assets, that should be more stable in terms of their pricing versus our liabilities, that some will automatically reprice, but obviously, we would be proactively repricing downward if rates were to decline. And so that's what will give us kind of the earnings leverage, into a down rate scenario.

[Chuck Shaffer, Chairman and CEO at Seacoast Bank]

Yes. In summary-

[Stephen Scouten, Managing Director at Piper Sandler]

Yeah, you're right. I have some reading, reading comprehension issues this morning. Goes up 0.7% and then down 100 basis points, so apologies there.

[Chuck Shaffer, Chairman and CEO at Seacoast Bank]

Yeah.

[Stephen Scouten, Managing Director at Piper Sandler]

Then, just last thing for me, around M&A discussions. I mean, obviously, the stock is appreciably higher than it was maybe a quarter ago. The whole market's trending up. Does that help M&A conversations, maybe with some of these smaller private banks or conversations picking up at all, as of yet, and how do you think about those capital priorities today?

[Chuck Shaffer, Chairman and CEO at Seacoast Bank]

Yeah, great question. You know, obviously, with higher stock price, higher multiples across the industry, that would be indicative of more opportunities for M&A. I would say from an M&A perspective, you know, I'm very encouraged by our organic growth story. I think there's a lot of momentum inside the company. I think we are at this inflection point. So if we were to look at something, it would really have to make a lot of economic sense to kind of take us off what we're focused on. But, you know, you know, that's not to say we wouldn't do a deal, but that deal is gonna have to make, you know, a lot, a lot of sense. So that's kind of where we are on it, Stephen.

[Stephen Scouten, Managing Director at Piper Sandler]

Great. Sounds like a perfect dynamic. Appreciate all the time.

[Chuck Shaffer, Chairman and CEO at Seacoast Bank]

Okay. Thanks a lot.

[Operator]

There are no other questions. I will hand the call back over to Chuck for closing remarks.

[Chuck Shaffer, Chairman and CEO at Seacoast Bank]

All right. Awesome. Thank you all for joining us this morning. Thank you to the Seacoast team. I thought it was a very solid quarter and, looking forward to the back half of this year, and appreciate everybody joining the call. Thank you, Pam. That'll conclude.

[Operator]

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Participants

Analysts

• Brandon King, Wholesale Payment and Treasury Sales Analyst at Truist Securities
• Chuck Shaffer, Chairman and CEO at Seacoast Bank
• David Feaster, Managing Director at Raymond James
• Michael Young, Treasurer and Director of Investor Relations at Seacoast Bank
• Stephen Scouten, Managing Director at Piper Sandler
• Tracey Dexter, CFO at Seacoast Bank
• Woody Lay, VP at KBW