Seacoast Banking Co. of Florida Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
January 28, 2025
Skip to Participants
Operator

Welcome to Seaco's Banking Corporation's 4th Quarter and Full Year 2024 Earnings Conference Call. My name is Jericho, and I will be your operator. All lines have been placed on view to prevent any background noise. After the speakers' remarks, there will be a question and answer session. 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.

Operator

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 the act. Please note that this conference is being recorded. I will now turn the call over to Chuck Schafer, Chairman and CEO of Seagull's Bank. Mr. Schafer, you may begin.

Charles Shaffer
Charles Shaffer
Chairman, President & CEO at Seacoast Banking of Florida

Okay. Thank you, Jerico, and good morning, everyone. As we go through our presentation, we'll refer to the 4th quarter earnings slide deck available at seacoastbanking.com. I'm here today with Tracy Dexter, our Chief Financial Officer Michael Young, our Treasurer and Director of Investor Relations and James Stallings, our Chief Credit Officer. CECO's team delivered an outstanding quarter.

Charles Shaffer
Charles Shaffer
Chairman, President & CEO at Seacoast Banking of Florida

This period showcased profitability enhancements we've been focusing on, while also demonstrating the organic growth and margin expansion we anticipated would materialize by late 2024. Adjusted pretax pre provision earnings were $56,600,000 a 22% increase from the prior quarter and the net interest margin expanded by 22 basis points to 3.39%. Our strong granular core deposit franchise allowed us to reduce the cost of deposits by 26 basis points in the 4th quarter, while the team grew loans by 4% on an annualized basis. The adjusted return on tangible assets improved to 1.24 percent, up from 0.98% and the adjusted efficiency ratio declined from 59.8% to 56.1%. Our capital position remains strong with a tangible common equity ratio of 9.6% and a CET1 ratio of 14.8%.

Charles Shaffer
Charles Shaffer
Chairman, President & CEO at Seacoast Banking of Florida

Asset quality metrics also improved showing a significant decline in classified and criticized assets. This quarter marked a strong finish to 2024 and we're entering 2025 from a position of significant strength. Our investments in talent across our footprint have fully taken effect driving substantial onboarding and new relationships. And while we started the quarter slowly due to the 2 hurricanes, the team finished the quarter strong setting a record for loan production with originations of $900,000,000 during the period. Loan volume was well diversified encompassing both C and I and commercial real estate.

Charles Shaffer
Charles Shaffer
Chairman, President & CEO at Seacoast Banking of Florida

We also ended the year on a high note wealth management and treasury management fees overcoming lost revenue from service charges and interchange due to the hurricanes early in the quarter. And as we enter 2025, we're starting the year with strong momentum with all our business lines positioned for success. With an improved yield curve and a stronger macroeconomic outlook, we're excited about the year ahead. We continue to see numerous opportunities to recruit growth focused talent and teams, and we anticipate we'll see opportunities to deploy our strong capital position. With that, I'll turn the call over to Tracy to walk through our financial results.

Tracey Dexter
EVP & CFO at Seacoast Banking of Florida

Thank you, Chuck. Good morning, everyone. Directing your attention to 4th quarter results, beginning with Slide 4. Seacoast reported net income of $34,100,000 or $0.40 per share in the 4th quarter and adjusted net income of $40,600,000 or $0.48 per share. Net interest income of $115,800,000 is up 9% from the prior quarter.

Tracey Dexter
EVP & CFO at Seacoast Banking of Florida

The cost of deposits declined 26 basis points to 2.08%. Net interest margin expanded 22 basis points to 3.39 percent and excluding accretion on acquired loans, net interest margin expanded 15 basis points to 3.05%. Non interest income excluding securities activity increased 8% from the prior quarter and expenses were well controlled resulting in improvement in the efficiency ratio to 56%. Loan production was strong with growth in balances near 4% on an annualized basis overcoming elevated payoffs and several strategic loan sales in the Q4. Return on tangible assets increased to 1.06% on a GAAP basis and 1.24% on an adjusted basis.

Tracey Dexter
EVP & CFO at Seacoast Banking of Florida

Return on tangible common equity increased to 10.9% on a GAAP basis and 12.74% on an adjusted basis. Tangible book value per share of $16.12 represents a 7% year over year increase with a decline in the 4th quarter due to the impact of changes in rates on other comprehensive income in the securities portfolio. 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%. Turning to Slide 5.

Tracey Dexter
EVP & CFO at Seacoast Banking of Florida

Net interest income expanded by $9,100,000 during the quarter, driven primarily by lower deposit costs. The net interest margin expanded 22 basis points to 3.39% and excluding accretion on acquired loans expanded 15 basis points to 3.05%. In the securities portfolio, yields increased 2 basis points to 3.77 percent benefiting from recent purchases. Loan yields were down 1 basis point to 5.93%. Excluding accretion, loan yields declined by 10 basis points to 5.48%.

Tracey Dexter
EVP & CFO at Seacoast Banking of Florida

The impact of the lower Fed funds rate on our variable rate portfolio, along with interest adjustments resulting from the planned sale of consumer FinTech loans accounted for the decrease. The cost of deposits decreased 26 basis points to 2.08 percent, demonstrating the strength of our granular core deposit franchise built through our relationship focused banking model. Looking ahead to the Q1, we expect continued expansion of net interest income and expect the core net interest margin to expand another approximately 7 to 10 basis points, driven by continued loan and deposit growth and lower deposit costs. For the full year 2025, assuming no change in the yield curve and one Fed rate cut, we expect to exit the year with core net interest margin around 3.35 percent. An additional rate cut could add another approximately 5 basis points.

Tracey Dexter
EVP & CFO at Seacoast Banking of Florida

Moving to Slide 6. Non interest income excluding securities activity increased $2,000,000 in the 4th quarter to $25,500,000 Service charges declined largely due to fee waivers early in the 4th quarter post hurricane. 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 higher by $2,500,000 including higher SBIC income and gains on loan sales. Looking ahead to the Q1, we continue to focus on growing non interest income, and we expect non interest income in a range from $20,000,000 to $22,000,000 That's a modest step down from the 4th quarter to the first, given the favorable items like loan sales and SBIC income that positively impacted the 4th quarter.

Tracey Dexter
EVP & CFO at Seacoast Banking of Florida

Moving to Slide 7. Our Wealth division reached a number of internal milestones in 20 24, including record new assets under management. Total AUM has increased 20% year over year to $2,100,000,000 and has increased at a compound annual growth rate of 24% in the last 5 years. On to Slide 8. Non interest expense in the Q4 was consistent with the guidance we provided coming in at $85,600,000 on a GAAP basis.

Tracey Dexter
EVP & CFO at Seacoast Banking of Florida

Continued investments have been focused on acquiring revenue producing talent while maintaining strong expense control. We continue to remain focused on profitability and performance and expect continued disciplined management of overhead and the efficiency ratio. Moving to Slide 9. Loan outstandings increased at an annualized rate of 3.7 percent. Record production of over $900,000,000 in the 4th quarter had funding levels of approximately 50%.

Tracey Dexter
EVP & CFO at Seacoast Banking of Florida

Offsetting strong production in the quarter were elevated payoffs and approximately $40,000,000 in loan sales. Loan sales included the disposition of 2 larger commercial real estate relationships, each generating a gain on sale and reducing classified loan balances. Also sold were consumer FinTech loans acquired in 2022, which had contributed about 8 basis points to charge offs in 2024. Loan yields were down excluding accretion by 10 basis points. Approximately 27% of the loan portfolio is comprised of variable rate loans, which saw rate changes in line with movements in market rates.

Tracey Dexter
EVP & CFO at Seacoast Banking of Florida

In addition, the cleanup of the consumer fintech portfolios resulted in adjustments to interest income of approximately $500,000 Accretion continues to be variable and was elevated this quarter in line with elevated payoffs. Looking forward, we expect core loan yields in the Q1 to stabilize. The pipeline remains strong and we expect low to mid single digit loan growth in the coming quarter moving toward high single digit growth by the end of the year. 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.

Tracey Dexter
EVP & CFO at Seacoast Banking of Florida

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. These measures are significantly below the peer group at 36% and 2 24% of consolidated risk based capital, respectively. We've managed our loan portfolio with diverse distribution across categories and retaining granularity to manage risk.

Tracey Dexter
EVP & CFO at Seacoast Banking of Florida

Moving on to credit topics on Slide 11. The allowance for credit losses totaled $138,100,000 or 1.34 percent of total loans compared to 1.38% in the prior quarter. The allowance for credit losses combined with the $128,000,000 remaining unrecognized discount on acquired loans totaled $266,000,000 or 2.6 percent of total loans that's available to cover potential losses, providing substantial loss absorption capacity. Moving to Slide 12, looking at quarterly trends and credit metrics. Contributing to charge offs in the 4th quarter, we entered into arrangements to sell approximately $20,000,000 in consumer FinTech loans and as a result charged down these loans by $3,000,000 Nonperforming loans represented 0.9% of total loans, while an increase from the prior quarter, additions to non accrual loans in the 4th quarter included a small number of credits for which no loss is expected as collateral values are well in excess of the loan balances.

Tracey Dexter
EVP & CFO at Seacoast Banking of Florida

Benefiting from the sale of 2 commercial real estate loan relationships, the ratio of criticized and classified loans to total loans decreased to 2.17%. Moving to Slide 13 and the Investment Securities portfolio. The average yield on securities has benefited from purchases in recent quarters at higher yields, including a restructure executed early in the Q4 and the portfolio yield increased during the Q4 to 3.77%. We took advantage of favorable market conditions and repositioned a portion of the available for sale portfolio in October. We sold securities with proceeds of approximately $113,000,000 with an average book yield of 2.8%, resulting in a pre tax loss of approximately $8,000,000 impacting 4th quarter results.

Tracey Dexter
EVP & CFO at Seacoast Banking of Florida

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 3 years. On to Slide 14 and the deposit portfolio. Total deposits were $12,200,000,000 flat from the prior quarter. The cost of deposits declined 26 basis points to 2.08%. We remain keenly focused on organic growth and are very encouraged about the continued activity and focus across the franchise on deposit gathering.

Tracey Dexter
EVP & CFO at Seacoast Banking of Florida

On Slide 15, 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. And 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 7% year over year to $16.12 and the ratio of tangible common equity to tangible assets remains exceptionally strong at 9.6%.

Tracey Dexter
EVP & CFO at Seacoast Banking of Florida

Our risk based and Pier 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. I'll now turn the call back over to Chuck.

Charles Shaffer
Charles Shaffer
Chairman, President & CEO at Seacoast Banking of Florida

Thank you, Tracy. And operator, I think we're ready for Q and A.

Operator

Thank you. We will now begin the question and answer session. And our first question comes from Wood Lai from KBW. Please go ahead.

Woody Lay
Vice President at Keefe, Bruyette & Woods (KBW)

Hey, good morning guys.

Charles Shaffer
Charles Shaffer
Chairman, President & CEO at Seacoast Banking of Florida

Good morning, Wood.

Michael Young
EVP, Treasurer & Director of IR at Seacoast Banking of Florida

Good morning.

Woody Lay
Vice President at Keefe, Bruyette & Woods (KBW)

I

Woody Lay
Vice President at Keefe, Bruyette & Woods (KBW)

wanted to start on the loan growth front. I mean, it was a pretty strong quarter given the elevated payoffs and some of the other headwinds there. It looks like the pipeline is a little bit down entering the Q1, but how are you thinking about loan growth in the year ahead?

Charles Shaffer
Charles Shaffer
Chairman, President & CEO at Seacoast Banking of Florida

Yes. And I think Tracy provided her guide of low to mid single digits sort of early in the year and then moving to high single digits late in the year. I think it's kind of the way to think about it. I would look at the pipeline as typical just seasonality. Typically, we clear the pipeline at the end of the year.

Charles Shaffer
Charles Shaffer
Chairman, President & CEO at Seacoast Banking of Florida

The Q1 is usually a little slower start and then it builds beyond that already here in the 1st 30 days of the year. The pipeline's built back up some. So I'm really confident about where we're headed there. Built a great team that continue to onboard a lot of relationships. So we're headed the right direction, Wood.

Woody Lay
Vice President at Keefe, Bruyette & Woods (KBW)

Got it. And then any color on the yield on new production and how that compared relative to the Q3? Are you seeing any impact on loan rates from increased competition?

Michael Young
EVP, Treasurer & Director of IR at Seacoast Banking of Florida

Hey, Woody, this is Michael. Yes, we saw in the Q4, we were at about a little above 7% on add on rates. It was a little lower. I think that was just a pull through from kind of the lower rate environment we saw at the end of the Q3. But now as the long end of the curve has come in higher, as we enter 2025, that's really supportive of our loan add on rates.

Michael Young
EVP, Treasurer & Director of IR at Seacoast Banking of Florida

That said, there is competition certainly, and we remain mindful of that. And we're we'll compete on price for good relationships, but not on structure. So we'll keep an eye on that. But we still feel, I think, directionally very good about the yield curve and its shape headed into 2025 and that being supportive of our loan yields and higher loan yields throughout the year.

Woody Lay
Vice President at Keefe, Bruyette & Woods (KBW)

Got it. And then lastly in the opening comments you mentioned that there could be some opportunities to deploy some excess capital later in the yield in the year. Would that be primarily through M and A and just any update on your overall thoughts on M and A?

Charles Shaffer
Charles Shaffer
Chairman, President & CEO at Seacoast Banking of Florida

Yes, I would say post election conversations have accelerated, I think generally across Florida and across the industry. So we think we may have opportunities to put capital to work as the year moves on. We did look at a few things prior quarter that really we didn't like the pricing on, so we passed on them. But we are active in the M and A market and we will be opportunistic if something comes along.

Woody Lay
Vice President at Keefe, Bruyette & Woods (KBW)

All right. Thanks for taking my questions. Congrats on the good quarter.

Charles Shaffer
Charles Shaffer
Chairman, President & CEO at Seacoast Banking of Florida

Thanks, Luke.

Operator

Our next question comes from the line of Russell Gunther from Stephens. Please go ahead.

Russell Gunther
Managing Director & Equity Research Analyst at Stephens Inc

Hey, good morning, guys.

Charles Shaffer
Charles Shaffer
Chairman, President & CEO at Seacoast Banking of Florida

Hey, Russell.

Michael Young
EVP, Treasurer & Director of IR at Seacoast Banking of Florida

Good morning, Russell.

Russell Gunther
Managing Director & Equity Research Analyst at Stephens Inc

Wanted to follow-up on the loan sales in the quarter. I think you mentioned a couple of portfolios. So just for a point of clarification on my end, is it the $20,000,000 of consumer FinTech, is that what was sold or is there anything beyond that in 4Q results?

Tracey Dexter
EVP & CFO at Seacoast Banking of Florida

Right. The 4th quarter included about $20,000,000 also in sales of a couple of non performing commercial real estate relationships. So with the purchase discount that remained on those loans, those ended up with a gain on sale during the Q4. So $20,000,000 in commercial real estate and then the $20,000,000 in consumer FinTech nearly fully resolved the kind of runoff portfolios in consumer fintech that we acquired a couple of years ago.

Russell Gunther
Managing Director & Equity Research Analyst at Stephens Inc

Okay. Thank you, Tracy. That's helpful. And then in terms of Chuck, you touched on it a bit in terms of the acceleration expected in loan growth throughout the course of the year. I'm just curious embedded in that, how are you guys thinking about the pace of payoffs and the headwind that may or may not present for you guys?

Michael Young
EVP, Treasurer & Director of IR at Seacoast Banking of Florida

Hey, Russell, this is Michael. I'll take that one. We had a higher payoff quarter in the Q4. We had kind of signaled that, I think, on the Q3 call, which is why we're more at a mid single digit growth rate, also with the impact of hurricanes in the Q4. We don't have the same lumpiness in terms of maturities as we move into 2025.

Michael Young
EVP, Treasurer & Director of IR at Seacoast Banking of Florida

So it should be better in terms of our ability to generate net loan growth. So we had a very strong production quarter in Q4, but offset by the payoffs. We don't have those same headwinds really as we move forward into 2025. But we do still have maturities of that lower rate fixed rate portfolio that are burning off about $600,000,000 there in the kind of high fours that will be set now with the higher yield curve into a much higher rate environment.

Russell Gunther
Managing Director & Equity Research Analyst at Stephens Inc

Thanks, Michael. I appreciate it. And then just also circling back to the deployment of excess capital, I'm just curious if you guys are thinking about or how you guys are thinking about continuing to kind of nip and tuck at the securities portfolio with restructurings throughout 2025 and if so, whether or not that's embedded in the guide provided earlier?

Michael Young
EVP, Treasurer & Director of IR at Seacoast Banking of Florida

Hey, Russell, this is Michael again. We evaluated, as we've said, frequently, when we've seen opportunities where the earn back got inside the 3 years, we felt like that was an attractive use of capital. We aren't there right now, but we'll continue to evaluate that as we move forward and look for opportunities. But I think we will see how the environment unfolds and where the rate environment is to see whether or not that's going to be beneficial or the right use of capital versus our other capital priorities. And then whether that's embedded into our guidance not currently at this time.

Russell Gunther
Managing Director & Equity Research Analyst at Stephens Inc

Great. Thanks, Michael. And then guys, just one last one for me. Commentary around expenses were in line with expectations for this quarter. Apologies if I missed it, but just how are you guys thinking about the expense run rate over the course of 2025?

Tracey Dexter
EVP & CFO at Seacoast Banking of Florida

Yes. I think we've been really successful in executing on our expense discipline initiatives across the organization. Looking ahead, as you know, there's some seasonality to expenses that will impact the first quarter. You'll always see things like higher FICA and 401 kind of lifting expenses in the Q1. Through the year, we'll continue to look for opportunities to invest in growth.

Tracey Dexter
EVP & CFO at Seacoast Banking of Florida

So I'd expect some variability throughout the year, but we'll continue to manage our disciplined approach.

Russell Gunther
Managing Director & Equity Research Analyst at Stephens Inc

Very good. Thanks, Tracy. Hey, thanks guys for taking all of my questions.

Tracey Dexter
EVP & CFO at Seacoast Banking of Florida

Thank you.

Operator

Our next question comes from David Feaster from Raymond James. Please go ahead.

David Feaster
David Feaster
Director - Banking at Raymond James Financial

Hey, good morning, everybody.

Charles Shaffer
Charles Shaffer
Chairman, President & CEO at Seacoast Banking of Florida

Good morning, David.

David Feaster
David Feaster
Director - Banking at Raymond James Financial

I wanted to circle back to the growth side and the guidance for accelerating growth over the course of the year. Look, the origination activity is extremely encouraging. What you guys have been able to do is great. I'm curious how much of the expectations for the acceleration in growth is driven by expectations for improving demand versus you gaining share and the continued hires that you've got and just high level. Just curious, what's the pulse of the market from your perspective and what are you expecting the growth to be driven by?

Charles Shaffer
Charles Shaffer
Chairman, President & CEO at Seacoast Banking of Florida

Well, as you know, David, we made a lot of investments in talent over the last 12 to 24 months. And importantly, in 2020, just late 2022, 2023, we held back on lending during that period, 1, because the rates were lower and 2, due to just the environment that I think served us very well because it gave us a very attractive liquidity position today that we can put to work. So as we continue to onboard teams, they view that as an opportunity to come on and join us and we have the balance sheet to grow as we move forward. So, but primarily in the guide and what we expect is growth driven by the investments we've made in talent across the franchise. Demand remains reasonably strong.

Charles Shaffer
Charles Shaffer
Chairman, President & CEO at Seacoast Banking of Florida

It seems to be growing. I think the 10 year part of the curve will be kind of the wildcard as to whether or not demand remains strong. If the 10 year holds in where it is, I think you'll continue to see demand in the marketplace. Competition is definitely out there again. Some of the super regional and national banks have kind of moved back in the commercial real estate market where they're out of it for a while.

Charles Shaffer
Charles Shaffer
Chairman, President & CEO at Seacoast Banking of Florida

But I feel confident in our ability to hit our objectives. We've got a great team. They're onboarding great relationships and pipeline is already growing through the 1st part of this year.

David Feaster
David Feaster
Director - Banking at Raymond James Financial

That's

David Feaster
David Feaster
Director - Banking at Raymond James Financial

great. That's great. And you have had a lot of success hiring and just listening to kind of the prepared comments, it sounds like there might be some appetite for additional hires. There's obviously been some disruption in the state from M and A, expectation is that more is going to come. The credit unions have been pretty active, much to everybody's chagrin.

David Feaster
David Feaster
Director - Banking at Raymond James Financial

But just kind of curious your thoughts on hiring and capitalizing on some of this disruption. And yes, just curious what you guys are looking at there?

Charles Shaffer
Charles Shaffer
Chairman, President & CEO at Seacoast Banking of Florida

Yes. We continue to see a lot of opportunity to hire. It's almost too much opportunity because we're having to balance back to the profitability. And so we're balancing profitability to hiring and growth and trying to find that right mix. But yes, there's still a lot of opportunities to put and grow our team across the state.

Charles Shaffer
Charles Shaffer
Chairman, President & CEO at Seacoast Banking of Florida

And so we'll manage the profitability. I think our primary focus right now is driving our profitability metrics in the right direction and then we'll balance that back against growth. But I think we got the right mix now with a great team and the right prospects for growth. And so we'll continue to balance it all out, but I feel good about where we're headed.

David Feaster
David Feaster
Director - Banking at Raymond James Financial

And maybe along those same lines, I mean, the stage is set for some pretty material revenue growth. It sounds like expense growth, it's there's some investment opportunities on the horizon. How do you think about the profitability profile of the bank and the ability to drive positive operating leverage this year, just as some of these investments come to fruition? And it sounds like maybe just depending on the revenue growth and loan growth outlook, some of that might flow to the expense side and we reinvest it?

Michael Young
EVP, Treasurer & Director of IR at Seacoast Banking of Florida

Hey, David. This is Michael. I'll take that one. On operating leverage, we definitely will show positive operating leverage this year with the margin and NII dynamics that's going to be a nice tailwind. I think I would kind of anchor us back to what we've talked about in the past.

Michael Young
EVP, Treasurer & Director of IR at Seacoast Banking of Florida

We used to be sort of a 50% to 55% efficiency ratio company when we were driving sort of an M and A growth model. Now that we're shifting increasingly towards organic growth. It comes with a little higher efficiency ratio, as well as with the just being a midsized bank. So that 55% to 60% range is something we into manage within. And we'll have normal sort of inflationary pressures on the expense base year to year.

Michael Young
EVP, Treasurer & Director of IR at Seacoast Banking of Florida

And then we'll just see kind of what the talent pipeline looks like and the opportunities ahead.

Charles Shaffer
Charles Shaffer
Chairman, President & CEO at Seacoast Banking of Florida

Maybe if I could just follow-up, David. If you think back, David, to kind of how we managed through back in 2022, 2023, we held back on growth during that period. We bolstered liquidity given the market dynamics. We allowed capital to grow and that's all kind of set us up to this position where we are, where we were conservative during that period, built the team, migrated to a midsized bank, built the compliance function and made the right investments there. And so we're now at the sort of right moment, if you will, of we've made the investments.

Charles Shaffer
Charles Shaffer
Chairman, President & CEO at Seacoast Banking of Florida

It's time to capitalize on those investments. And if the market continues to provide a solid yield curve here, I think there'll be a lot of opportunity for us.

David Feaster
David Feaster
Director - Banking at Raymond James Financial

That's terrific. Thanks everybody.

Charles Shaffer
Charles Shaffer
Chairman, President & CEO at Seacoast Banking of Florida

Thanks, Dave.

Operator

Our next question comes from Christopher Marinac from Janney Montgomery Scott. Please go ahead.

Christopher Marinac
Director of Research at Janney Montgomery Scott

Thanks. Good morning. Tracy, I want to go back to the margin and sort of cost of funds discussion. If the Fed doesn't cut rates further, is there a possibility that deposit costs just kind of go flat and maybe even tick up as treasuries go back up? I'm just curious kind of what is possible then?

Christopher Marinac
Director of Research at Janney Montgomery Scott

I know the Q1, first half guide that you gave us and just kind of thinking beyond that.

Tracey Dexter
EVP & CFO at Seacoast Banking of Florida

Yes. Our current forecast includes 1 Fed rate cut in the middle of the year. We're seeing the benefit now of being able to address the deposit costs and be proactive about some of that. That will continue a little bit, but I think you'll see some meaningful stabilization in deposit costs. Michael, you want to expand on that?

Michael Young
EVP, Treasurer & Director of IR at Seacoast Banking of Florida

Yes. Maybe, Chris, just to start the year, we're down from even the December level. So we're starting from a very strong position there. Some stability, I think, initially in deposit costs. And then if we don't see a rate cut midyear, maybe a slight drift upwards from there, but very slight.

Michael Young
EVP, Treasurer & Director of IR at Seacoast Banking of Florida

And then on the flip side, right, there's 2 sides to that equation. On the loan yield side, we still feel very positive about the back book repricing trend that should outpace the deposit costs and lead to that margin expansion as we move throughout the year.

Christopher Marinac
Director of Research at Janney Montgomery Scott

Great. Thanks for the additional color. And then just back on the criticized cost aside improvement that we saw this quarter. Chuck, do you see any changes with either loans maturing or just reappraise process that would just cause those criticized to go back up? It's not as much a loss question as it is just sort of direction of that ratio.

Charles Shaffer
Charles Shaffer
Chairman, President & CEO at Seacoast Banking of Florida

I think I'd characterize we feel really good about our asset quality position. I think we've managed the bank conservatively for a number of years now and our classified and criticized ratios are fairly strong compared to or actually really strong compared to the industry in general. And so I think it's stable at this point, Chris. I don't know there of any reason why classified and criticized would increase from here.

Christopher Marinac
Director of Research at Janney Montgomery Scott

Great. Thanks for taking all of our questions this morning.

Operator

Our next question comes from David Bishop from Hovde Group. Please go ahead.

David Bishop
Director - Research Department at Hovde Group

Yes, good morning folks.

Charles Shaffer
Charles Shaffer
Chairman, President & CEO at Seacoast Banking of Florida

Hi David.

David Bishop
Director - Research Department at Hovde Group

Hey,

David Bishop
Director - Research Department at Hovde Group

good morning. Quick question, Chuck, in terms of maybe visibility in terms of the deposit pipeline here. It looks like this quarter maybe lead to cash and short term liquidity to fund the loan growth. How should we think about funding of loan growth in 2025?

Charles Shaffer
Charles Shaffer
Chairman, President & CEO at Seacoast Banking of Florida

I'll make a few high level comments and let Michael jump in here. But given our low loan deposit ratio, we're not out competing in the higher rate CD market and not out competing for the higher cost transactional deposits. We're focused solely on relationships based sort of relationships. And so it's more focused on DDA and bringing on operating accounts and that takes longer, but it's the right stuff to do. It's building franchise value.

Charles Shaffer
Charles Shaffer
Chairman, President & CEO at Seacoast Banking of Florida

And so we're going to stay out of the higher rate stuff. But Michael, you want to talk a little bit about that?

Michael Young
EVP, Treasurer & Director of IR at Seacoast Banking of Florida

Yes. One other just kind of nuance thing here, but given the low loan to deposit ratio, we can grow deposits at a slower pace on a percentage basis than loans and still fully fund the loan book. So I think we feel pretty good about our ability to grow deposits this year with some of the headwinds from 2023 and 2024 sort of remediating and the progress we made on deposit costs in the Q4. We're starting from a good spot on a cost basis, so we can be competitive as we move throughout 2025. That said, if we were less successful on the deposit side, we do have over $350,000,000 in securities book cash flow that would come in throughout the year that could be used to help fund loan growth without having to sell any securities.

Michael Young
EVP, Treasurer & Director of IR at Seacoast Banking of Florida

So just giving you a couple of the moving pieces, but we feel good about deposit growth in 2025.

David Bishop
Director - Research Department at Hovde Group

Okay, perfect. And then maybe a question for Tracy. I assume some of the uptick in the purchase accounting accretion income this quarter was a function of some of the payoffs you mentioned. Just curious as we think as maybe as a percent of the margin or so a contribution of margin, I think this year was like 31 basis points on average per quarter. Maybe do you see that sort of stat I assume it steps down

David Bishop
Director - Research Department at Hovde Group

and maybe should we think about

David Bishop
Director - Research Department at Hovde Group

an average in the low 20 basis point range contribution margin? How should we think about that during the year?

Tracey Dexter
EVP & CFO at Seacoast Banking of Florida

Yes, David. I think that's right to think about it stepping down over time. The accretion remains quite variable and difficult to predict. 4th quarter, as you said, was a bit higher, kind of aligned with elevated payoff. I would think maybe looking ahead, we'd see something more aligned with the levels in the Q3 or before, which was kind of on the lower end.

Tracey Dexter
EVP & CFO at Seacoast Banking of Florida

Recent quarterly results have ranged from maybe $9,000,000 to $10,000,000 a quarter in accretion. So working off that number, maybe the lower end of that range is a good estimate for going forward, but again, really difficult to predict.

David Bishop
Director - Research Department at Hovde Group

Got it. Appreciate the color.

Operator

There are no further questions at this time. Mr. Schafer, I turn the call back over to you.

Charles Shaffer
Charles Shaffer
Chairman, President & CEO at Seacoast Banking of Florida

Okay. Thank you and appreciate everybody joining the call and appreciate the Seacoast team. You guys did an awesome job. It was a great quarter and look forward to talking to you next quarter. I think that'll conclude our call.

Charles Shaffer
Charles Shaffer
Chairman, President & CEO at Seacoast Banking of Florida

Thank you, sir.

Operator

This concludes today's call. Thank you for joining. You may now disconnect.

Executives
Analysts
Powered by Quartr
Earnings Conference Call
Seacoast Banking Co. of Florida Q4 2024
00:00 / 00:00

Transcript Sections