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spk05: Welcome to Seacoast Banking Corporation's third quarter 2023 earnings conference call. My name is Daisy, and I will be your operator. During the presentation, all participants will be in the listen-only mode. Afterwards, we will conduct the question-and-answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during this conference you need to reach an operator, please press star zero. 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. Seekers 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 Schaefer, Chairman and CEO of Seacoast Bank. Mr. Schaefer, you may begin.
spk04: Thank you all for joining us this morning. As we provide our comments, we'll reference the third quarter 2023 earnings slide deck, which you can find at seacoastbanking.com. I'm joined today by Tracy Dexter, Chief Financial Officer, Michael Young, Treasurer and Director of Investor Relations, James Stallings, Chief Credit Officer, and David Hattushell, Director of Credit Risk Analytics. The SECO's team produced another quarter of solid financial performance in line with the guidance we provided last quarter, despite the backdrop of a challenging yield curve. As we discussed on last quarter's call, following a period of elevated acquisition activity, we returned our focus to organic growth leveraging the exceptional talent that it joined in recent years and the additional marketing investments we made late in the quarter to drive low-cost deposit growth and deepen client relationships. This campaign resulted in 3.7% annualized organic deposit growth in the quarter, including both expanded relationships across our customer base as well as fully new relationships. The average add-on rate for those deposits was 3.75%, and we used this additional funding to pay down broker deposits at rates near 5%, further strengthening our fortress balance sheet and adding liquidity capacity. We also remain intensely focused on expense discipline, reducing headcount by 6% during the quarter, with the full expense benefit of this headcount reduction hitting Q4. We expect expenses to decline in the fourth quarter and will remain vigilant operating the company with a focus on managing overhead prudently into 2024. And Tracy will provide further expense guidance in her prepared remarks. Turning to lending and credit, We continue to take a very careful approach to lending in the current environment. As we guided on last quarter's call, loan asset standings declined from the prior quarter, primarily the result of much lower customer demand. And when originating new credit facilities, we are requiring much wider spreads, larger depository relationships, and conservative credit structures. Our average add-on rate increased to nearly 8% by late in the quarter, and in all cases required a full relationship with Seacoast. Our asset quality remains strong with a decline in non-performing loans and declining classified and criticized assets from the prior quarter. We did charge off one $11.3 million acquired loan this quarter. This was expected, and the loan was fully reserved in our allowance through purchase accounting and thus had no impact on earnings or capital for the quarter. Turning to M&A, we believe late 2024 will be a period of rapid industry consolidations. Our goal is to position Seacoast for this opportunity by entering 2024 with strong capital and liquidity. We will be fully prepared to take advantage of these opportunities as they materialize and position Seacoast to be the acquire of choice in Florida. And to conclude, we continue to operate from a position of significant strength in the nation's most robust local economies. Florida's strong statewide economic backdrop and our fortress balance sheet position Seacoast well compared to peers and sets us up to take advantage of opportunities we expect will arise in the coming periods. Our key focus exiting this year and into 2024 will be on generating franchise value through deposit growth and diligently managing expenses. These are our two areas of focus. I'd like to thank all of Seco's associates for the continued hard work during the quarter and congratulate the team on a great launch of our organic growth campaign. I'm excited to see where you take it in the coming quarters. And lastly, I'm proud that we moved our deposit market share in Florida from number 18 to number 15 in 2023. Consolidating market share in Florida will yield tremendous franchise value in the long run. I'll now turn the call over to Tracy to walk through our financial results.
spk01: Thank you, Chuck. Good morning, everyone. Directing your attention to third quarter results, beginning with the highlights on slide four. Annual deposit market share data released as of June 30th demonstrates the strength of our franchise and the results of our expanded market presence and strong relationship focus. Seacoast moved up three slots to number 15 in the state, maintaining a leading position in our legacy markets, and seeing strong growth in our newer markets. As we work to move into the top 10, we'll continue our relationship-centric approach. We're pleased to report growth in organic deposits at an annualized rate of 3.7 percent, combined with $334 million in paydowns of wholesale funding. Our broker deposits and FHLB advances combined represent only 3 percent of total liabilities. We're focused on relationship-based customer acquisition and positioning Seacoast for top 10 market share in all major Florida markets. Our capital position continues to be very strong and we're committed to maintaining our fortress balance sheet. Seacoast tier one capital ratio increased to 13.9% and the ratio of tangible common equity to tangible assets increased during the quarter to 8.68%. Also notable, If all held to maturity securities were presented at fair value, the TCE to TA ratio would still be a strong 7.89%. Our credit standards remained disciplined and focused on relationship lending, and our loan-to-deposit ratio ended the quarter at 83%. Credit risk metrics remained strong, with low levels of non-accrual loans and criticized assets. We're closely managing our expense base, and executed on several expense-related initiatives during the quarter, including a headcount reduction and the consolidation of one branch location. Tangible book value per share increased to $14.26. Removing the impact of the change in accumulated comprehensive income, tangible book value per share at September 30th would have been $14.56, representing an annualized growth rate of 8%. Turning to slide five. Net interest income declined by 7.6 million, or 6% during the quarter, with higher deposit costs partially offset by higher yields. Consistent with our expectations, net interest margin contracted 29 basis points to 3.57%. In the securities portfolio, yields increased 19 basis points to 3.32%. Loan yields increased four basis points to 5.93%, with a September add-on rate near 8%, offset by payoff activity accelerating deferred costs. The yield on loans excluding accretion on acquired loans increased three basis points from the prior quarter. The cost of deposits increased to 1.79%, while the pace of that increase has slowed from the second quarter, and our funding base remains strong with 55% transaction accounts. Notably impactful to deposit costs this quarter was the Florida Bar Association's IOTA program changes enacted in May, requiring financial institutions to pay interest on these accounts at a specified spread to an index. This contributed approximately five basis points to the increase in deposit costs in the third quarter. Looking ahead, we expect the declines we've seen in net interest margin over the last few quarters to slow materially. Though we intend to remain competitive on deposits, We expect only 5 to 10 basis points of margin compression in the fourth quarter. We expect margin to then stabilize and begin to improve in the back half of 2024. Moving to slide 6. As we continue to focus on growing our broad base of revenue sources, third quarter results reflect the first-time impact to Seacoast of the Durbin Amendment, which limits interchange-related revenue for banks with over $10 billion in assets. This drove a decline in interchange of $3.4 million. Service charges increased 2% with continued expansion of our commercial treasury management offerings and new customer acquisition. Wealth management revenues were down slightly, reflecting broader market performance. Assets under management of $1.6 billion have grown 29% year over year. The addition of an insurance agency business through an acquisition in the fourth quarter of 2022 added $1.2 million to third quarter non-interest income. Looking ahead, we continue to focus on growing revenue and we expect fourth quarter non-interest income of approximately $19 to $21 million. Moving to slide seven, assets under management increased 29% from a year ago to $1.6 billion and have increased at a compound annual growth rate of 24% in the last three years. Our family office style offering continues to resonate with customers, generating strong returns for the franchise. Moving on to slide eight. Adjusted non-interest expense for the quarter was lower than the guidance we provided, coming in at $83.2 million. During the quarter, we completed a 6% reduction in force and consolidated one additional branch location. Looking forward, we will operate with a disciplined and prudent approach to expense management. Cost synergies from recent acquisitions and recent expense reduction initiatives continue to positively impact results. We expect adjusted expenses for the fourth quarter to further decline as cost synergies and efficiency initiatives take effect, coming in at 80 to 83 million, and we anticipate maintaining that run rate into 2024. Adding back the amortization of intangible assets, that's an expectation of $86 to $89 million. We remain committed to an intense focus on expenses and will continue to look for opportunities to optimize our business model. Moving to slide nine, the efficiency ratio on an adjusted basis was 60%. The increase quarter over quarter reflects lower net interest income as deposit costs continue to increase, though at a slower pace. Also impactful to net interest income was the required change to interest paid on IOTA accounts, which translated to approximately one and a half points on efficiency ratio, and the first full quarter of the Durbin Amendment on interchange revenue, which impacted the efficiency ratio by another approximately one and a half points. As we scale the company and adjust expenses in accordance with the rate outlook and with the return of higher margins in 2024, we believe the efficiency ratio will stabilize from this point forward. Turning to slide 10, loan outstandings declined by 1% as we maintain our strict credit discipline and as we continue to see the impact of higher rates on market demand. Average loan yields increased to 5.93% with increases partially offset by higher FAS cost amortization due to payoff. We expect loan yields to continue to increase in the coming periods as our fixed rate loans mature and reprice. New loan yields in the third quarter were near 8%. Looking forward, we believe loan outstandings will be relatively stable in the fourth quarter and then return to modest growth in 2024. Turning to slide 11. Portfolio diversification in terms of asset mix, industry, and loan type has been a critical element of the company's lending strategy. Exposure across industries and collateral types is broadly distributed, and we continue to be vigilant in maintaining our disciplined, conservative credit culture. Construction and commercial real estate concentrations remain well below regulatory guidelines and below peer levels. We've managed our loan portfolio with diverse distribution across categories and retaining granularity to manage risk. Turning to slide 12, non-owner occupied commercial real estate loans represent 33% of all loans and are distributed across industries and collateral types. Importantly, C&I loans and the related owner occupied CRE which is repaid through cash flows of the business, not from the sale or leasing of the property, also represent 33% of the total portfolio. On slides 13 and 14, we provide additional detail on the dispersion of non-owner-occupied commercial real estate loans in markets across the state and in categories including retail and office, noting the strong performance of these segments to date in key credit monitoring metrics. Diversification across industries and collateral types has been a critical tenet of our strategy, and the low average commercial loan sizes are the result of our longtime focus on granularity and on creating valuable customer relationships. Moving on to credit topics on slide 15. The allowance for credit losses decreased during the quarter to an overall $149.7 million. A single expected charge-off totaling $11.3 million was the driver of the change. This acquired loan to a CNI borrower was fully reserved through purchase accounting, and the charge-off did not impact earnings or capital. Outside of that loan, charge-offs were in line with our recently historically low experience. Combined, the allowance for credit losses and the $186 million remaining unrecognized discount on acquired loans represent 3.4% of outstanding loan balances. Moving to slide 16, looking at trends in credit metrics. Our credit metrics remain very strong, though we remain watchful of inflation pressures and the broader economic environment and are carefully considering the ongoing impacts of higher rates on the economy. Non-performing loans declined to 0.41% of total loans, and the percentage of criticized and classified loans to total assets declined to 1.36%. Moving to slide 17 in the investment securities portfolio, the average yield on securities increased during the quarter by 19 basis points to 3.32%. Higher interest rates during the quarter were detrimental to portfolio values, increasing the overall unrealized loss position from the end of the prior quarter. Turning to slide 18 in the deposit portfolio, excluding the pay down of broker deposits, Organic deposits increased by 108 million, or 3.7% annualized, despite the typical seasonally slower period. Transaction accounts represent 55% of overall deposits, which continues to highlight our longstanding relationship-focused approach. The cost of deposits increased this quarter to 1.79%, with the dynamic changes in the industry and the materially increased competitive landscape, though the pace of increase has slowed. Overall, our expectation for the fourth quarter is that the cost of deposits will continue to increase with higher rates, albeit at a slower pace than previous quarters, though the extent of the impact is difficult to predict with certainty. That said, we continue to outperform peers in our cost of deposits as the environment serves to highlight the strength of our low-cost deposit base and focus on relationships. We remain keenly focused on organic growth and expect deposit outstandings to continue to increase. On slide 19, the bar chart shows the addition of balances and higher rate categories that affected the overall mix during the quarter. Seacoast continues to benefit from a diverse and granular deposit base with the top 10 depositors representing only 3% of total deposits. Our consumer franchise contributes 43% of overall deposit balances with an average balance per account of only 24,000. Business customers represent 57% of total deposits with an average balance per account of $111,000. Our customers are highly engaged and have a long history with us and we have a peer leading level of non-interest bearing deposits representing 32% of the deposit base. This provides significant strength in maintaining deposit costs over time and reflects the granular relationship nature of our franchise. On slide 20. demonstrating our significant capacity to fund potential outflows. The bar on the right identifies balances above the FDIC insured limit, excluding public funds accounts that have collateral-backed protection. Uninsured and uncollateralized deposits total approximately $3.5 billion, which, if needed, would be almost completely funded by Seacoast cash and borrowing capacity at the Federal Reserve. And finally, on slide 21, Our capital position continues to be very strong, and we're committed to maintaining our fortress balance sheet. You can see the increase in tangible common equity to tangible assets in the third quarter as we move past the initially dilutive effect of recent acquisitions, reflecting our commitment to driving shareholder value creation. We expect this ratio to continue to increase in the coming periods. Also of note, the 13.9% Tier 1 capital ratio is among the highest in the industry. In summary, considering our strong capital levels, prudent credit culture, and high-quality customer franchise, we have one of the strongest balance sheets in the industry, providing optionality if the environment becomes more challenging, and to continue building Florida's leading community bank. I'll now turn the call back over to Chuck.
spk04: Thank you, Tracy. All right, operator, I think we're ready for Q&A.
spk07: Thank you. If you would like to register a question, please press the one followed by the four on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. One moment please for our first question. Our first question comes from the line of David Feaster. Please proceed with your question.
spk09: Hey, good morning everybody.
spk07: Good morning, David. Good morning.
spk09: you know, maybe just starting on the loan side, you know, it's great to see the improvement in the commercial loan pipeline. It sounds like we're, we're, you know, stabilizing there. I'm curious what, what drove the increase in the pipeline? Is it, is it demand changing or customers just, you know, more accepting of a higher rate environment on, on pricing or just more competitors pulling back or just your lenders out there, you know, just, blocking, tackling, gathering business. So just curious, kind of what drove the increase in the commercial pipeline, the complexion of it, and kind of how new loan yields are trending?
spk04: Well, as we discussed on prior calls, David, you know, we were very cautious to drive loan growth in a period where we thought the market had driven structure to a weakened standard and pricing to, you know, lower spreads than what we thought was appropriate. as times marched on here, the market's gotten more reasonable, and what we're seeing is the ability to get conservative credit structures, strong deposits, and in many cases, strong DDA in these relationships, as well as spreads we think that appropriately reflect the opportunity that we're taking. So, You know, in many ways, the market has moved back towards our more conservative credit posture. And as a result, we're seeing more demand, which is, you know, very much positive. That's great.
spk09: And then maybe just following up on that deposit front, you know, you guys touched on some of the broad deposit thoughts. And, you know, I'm just curious if we could dig in to maybe some of the underlying trends that you're seeing there in the competitive landscape today. You know, we obviously have headwinds from client deposit activation, right? I mean, folks using more cash and some of that migration. But just curious maybe how you're seeing on, like, underlying account growth and relationship growth just from, you know, the full relationships that you talked about earlier. Just curious where you're having wins and where you see opportunity to drive core deposit growth.
spk04: Yeah, I would say our biggest opportunity continues to be just client angst and unhappiness with larger regional banks. When you look at the banker portfolio we have and the team that we've put together, their former backgrounds typically are upstream market banks. And so we continue to see a lot of upset customers with their larger, more regional banks. And as a result, we've been just taking market share. That'd be the best way to describe it in all cases. We're seeing full relationships coming on. We're not out marketing high-yield CDs. We're not out marketing high-cost money market. We are in the market. We are competitive, but what we're seeing is full, deep relationships coming over. As we move past an elevated period of M&A, we've now moved to a point here where we are very focused on organic growth across the state. We've got a stronger and bigger budget for marketing in the state. We're out driving brand recognition for the company. And at the same time, we've got a lot of talent that's joined us in the last 24 months that is now working their connectivity to bring on relationships. So as I mentioned at the outset, we're seeing a reasonable add-on rate for those deposits and very happy to see it. And I don't know, Michael or Tracy, anything you want to talk about the individual items in there?
spk12: Yeah, one other, you know, I think just big picture comment, you know, we kind of pulled back on lending when we felt like it was irrational. You know, that's long back the other way, as Chuck mentioned. And then similarly on the deposit side, you know, coming out of March and April, there was some irrational, you know, pricing in the market from various competitors that we, you know, chose not to, you know, participate in. And so I think you're seeing kind of more rationality on both sides of the balance sheet, particularly as peers loan growth is decelerating. they're being a little less competitive at, you know, really high rates to drive market share. So I think we're just seeing kind of the market stabilize and, you know, our consistent, you know, process kind of working right on both sides of the balance sheet now. So we've, we've made sure we didn't hurt ourselves on, you know, either loans or deposits right through the last 12 months. And now we're in really good standing as we head forward into 2024 and the back half of this year.
spk09: That's, that's great color. I appreciate it. And then, appreciate all the guidance that you guys gave and some of the, you know, preliminary thoughts, but I'm just curious, maybe, you know, looking out to 2024, I mean, we're not given guidance for that yet, but I guess as you look at the street estimates, look, there's a wide range at this point, just given there's a lot of moving parts from the M&A activity. I guess when you look at street and consensus outlook, is there anything that you're, you see that's wildly off? Or do you think the streets, you know, relatively realistic based on your preliminary thoughts and just, Curious how you think about that as we try and manage expectations heading into next year.
spk04: I'd say we feel good about street estimates. It generally lines up with what our thoughts are. You know, there's some line items one way or the other, but overall, street estimates are pretty good. Michael, I don't know if you think it adds to that in terms of the model, but overall, you know, we feel pretty good about street estimates.
spk12: Yeah. Yeah, I mean, there's, you know, obviously some volatility around, you know, credit expectations and rate expectations that are probably in each, you know, individual model, but generally... Seems like we're in good shape. Generally, bottom line, we're in line. Yep.
spk04: That's great.
spk09: Appreciate all the callers. Thanks, everybody.
spk03: Negative.
spk07: Our next question comes from the line of Stephen Scatton. Please proceed with your question.
spk11: Hey, thanks. Good morning. Appreciate you guys not calling out my estimates this morning, so thank you for that. Um, just curious, you know, you guys gave some guidance and a Tracy, you said maybe five to 10 basis points of additional NIM compression expected in the fourth quarter. Um, I don't know if you have like the September NIM or what you're seeing, you know, what you saw at quarter end that might give us some visibility into that starting point. And then thinking about that 24, you said maybe second half upside, if you could give any color about what drives that, I assume it's fixed rate loan repricing, but kind of, the puts and takes we might see in the 24 as well. Thanks.
spk12: Hey, Steven, it's Michael. Yeah. So just, I think as we exit the quarter, you know, it's just kind of where deposit costs are. So spot deposit costs are about, you know, closer to 187 kind of exiting the quarter. So we'll have some pull through that, you know, loan yields this quarter were a little low, sort of just lower fees in the quarter, but you know, those things will kind of move throughout Q4 and kind of line up with that NIM guide. So just trying to give you a little clarity there, but You know, as we've talked about, I think big picture, you know, over the last year, it's, you know, just with our fixed loan book repricing, we'll start to see more and more benefit of that and more of our book repricing into the higher rate environment as we move through 2024. And that will, you know, outweigh any deposit cost pressure that we may feel. And so, you know, you kind of see that stabilizing as we get into 2024 and the NIM starting to head higher, right, as we get into kind of year two, year three of the higher rate regime, we'll reprice more of our book up into that higher pricing level. So that's Kind of the right way to think about it.
spk11: Got it. And is there, you know, do we think about just like a four-year duration kind of evenly on the fixed rate loan book? Or is there any lumpiness to the, you know, kind of turnover of that portfolio over the next 12 months at all that we should know?
spk12: When you think about it cumulatively for maturities and amortization, we don't do a lot of interest-only lending, so we have a good bit of principal amortization that comes off of that as well. So when you take all that together, it's actually pretty smooth. Q4 is usually a higher origination quarter for us, so we do have a few more maturities this quarter than normal. So that'll help a little bit as we get into Q4.
spk11: Got it. Makes sense. And then... Chuck, I like the M&A commentary for 24. I hope you're right. I'm curious what that looks like in your mind. I know it's hard to say, hard to know what opportunities might present themselves, but would you expect to look at larger banks at this point in time, or would you continue to take advantage of some of the maybe 500 million to a billion and a half kind of banks that you guys have kind of feasted on the past few years?
spk04: Yeah, I mean, I'll talk kind of high level, but, you know, we continue to be very focused on the same strategy we've executed before. You know, we're focused on Florida only. We're focused on smaller transactions in Florida. That's primarily what the opportunity is. You know, 500 million to a billion-ish type banks is what's available to us in the states. We'll continue to focus there. M&A is tough right now. The math is challenging. We don't have much of an appetite for dilution right now. It's difficult to get a deal done in the current environment, but I think on the back half of next year, we continue to see the cycle mature. The struggles around generating earnings will drive sellers to become more reasonable on pricing, and we'll probably start to see some deals come to market. It's just going to take time. Just like anything, we're seeing sort of the market bid-ask spread has to come together. I think it'll take sort of maturing of this period to get there. But as that happens, I think, you know, obviously seller prices come down. That allows deals to happen and, you know, that sellers will get liquidity in their investments. But it'll take a little time. I also think, you know, the industry, obviously we've seen margin compression across the entire industry. banking industry and the best way to solve a lot of the earnings challenges is consolidating, you know, expense basis. And so I think that, I think, you know, all the natural drivers to drive the industry there will be there. It's just when and what time does that actually happen? Yeah, makes a lot of sense.
spk11: Okay. And then just last thing for me, any thoughts around like any sort of securities restructuring or would there be, you know, is that something you guys would consider at this point in time?
spk12: Steve, I'd just say, you know, consistent commentary there. We continue to evaluate, and if the, you know, earn back on that is strong relative to our other capital deployment opportunities, then that would be something we would look to engage in. I think, you know, to date, you know, where it has been enacted by some other banks, you know, I think it's just, you know, it's a little too much of a yield curve bet that was made, right, to shorten up. on their securities book, sell long and reinvest short, and we want to lock out kind of the earn back if we make a move like that, so we're certain of the earn back execution and timeline of the ROI that we would get.
spk11: Yep, makes a lot of sense. Okay, appreciate all the color. Have a great day.
spk08: Thanks, Steve.
spk07: Our next question comes from the line of Brady Gailey. Please proceed with your question.
spk08: Hey, thanks. Good morning, guys. Hey, Brady. So, you know, M&A is not a near term opportunity. I know you guys have been, you know, pretty successful in hiring bankers to come join the Seacoast team. But, you know, at the same time, you just did a workforce production and the efficiency ratio is running a little higher than it normally is for you guys. So how do you think about, you know, hiring in this environment? Is that something that you'll continue to pursue or is that, you know, on pause at this point?
spk04: Yeah, the way I think about it, Brady, is, you know, we're focused, like I mentioned in my prepared comments, on two things or kind of our two priority focuses. One is deposit growth. It's very important. And two is expense management. You know, I think we still have opportunity on expenses here going into 2024. We're keenly focused on that inside the company right now. If we saw a team or a banker or a few bankers that would be immediately creative, they have the ability to drive business to us that fit our culture and want to be a part of us, we certainly would look at those opportunities. But I would describe it as being carefully opportunistic is the best way to describe it. We're not going to aggressively go out and hire right now. If we see somebody that's really a strong player and wants to join the franchise, we'll certainly look at that. But expense management is a key focus of ours and really will be going into 2024.
spk08: And by expense management, I know you closed the location and did the reduction. Is that still on the table going forward or do you think you know, you're kind of done as far as announcing, you know, cost reduction plans.
spk04: I think there's more work for us to do. I don't want to get into sort of specifics on that because we need to work through that, but I think we still got some opportunity. Okay.
spk08: All right. And then, you know, I liked hearing the comment about the market share that CQS has now improving to number 15. You want to get into the top 10. Any idea or do you have a goal of when you'd like to get into the top 10? Is that, a couple years away. I'm just curious how you think about the possible timing there.
spk04: I think about it this way. We want to be an upper quartile performer. We want to deliver strong shareholder returns, and that's our priority. Growing market share is part of that, but priority one is delivering returns. Priority two is growing market share. And so if we see opportunities, we'll take them. There's no sort of timeline to that. It's more balancing an appropriate investment to return to expense management as we move through time But no timeline, just more importantly, delivering good returns to our shareholders.
spk12: And Brady, I'd just add on the heels of that, you know, not all deposit market share is the same, right? We don't have, you know, deposit verticals and things like that that we're driving after. Ours are true, you know, generally customer funds. So it's not, you know, just some corporate deposits that are placed somewhere.
spk04: We're after generating franchise value.
spk08: Yeah, that makes sense. Thanks for the color, guys. Thanks, Brady.
spk07: Our next question comes from the line of Russell Gunther. Please proceed with your question.
spk10: Hey, good morning, guys. Just wanted to follow up quickly. Hey, Chuck, good morning. To follow up on the loan growth conversation, appreciate all the color on how you're thinking about things. Just one from a growth volume perspective, modest growth in 24. You guys think about that as a low single-digit number, a mid-single-digit number, And then wherever volume shakes out, just maybe the mix you're contemplating.
spk12: Yeah, you know, I think, listen, Russell, I would gauge that based on kind of the economic backdrop that we find ourselves in 2024. I think we've been pretty conservative, right, about what we thought that might look like, in particular in the first half of the year. Obviously, with a very strong GDP print here recently, you know, maybe It's a little bit better, but not sure on, you know, sort of the macroeconomic forces. We are seeing, as Chuck mentioned earlier, kind of competitors pull back and retrench a bit. And so that does present an opportunity potentially to pick up market share. But, you know, all that together, I think we see good production. And I think we'll start to see, you know, the kind of balances grow as we move into 2024. But hard to put a fine point on it, you know, depending on kind of what the macroeconomic environment is that we're in. Yeah.
spk10: Okay, great.
spk04: What we won't do is just chase – we won't chase loan growth to chase loan growth. We're going to take opportunities where we see good returns, and, you know, that probably keeps us in the low single digits, but we'll see how things play out.
spk10: Okay. I appreciate it, guys. And then I think just broad strokes of comments discuss expectations for continued deposit growth alongside that loan growth. So is the 80% loan-to-deposit ratio a target we should think about going forward, or could that – drift tire. How do you think about managing that?
spk04: I think we'd be comfortable going up to about 90%. That's about where our guardrail is. I think over time it drifts that way, but it takes a fair amount of time to get there, so there's plenty of room to manage that ratio. but importantly, you know, if the Fed continues to shrink the balance sheet and the deposit market remains competitive, you know, growing deposits is very much a key focus of ours, and, you know, ideally, we'd grow deposits and keep the liquidity on the balance sheet as we move through time, but we'd be comfortable up to about 90 in the long run.
spk12: And the Just the pacing on that, you know, just keep in mind, as we've said before, the cash flow off the securities book is about $330 million or so, you know, every 12 months. So that kind of limits some of our, you know, remixing. We would probably remix right out of securities and into loans over time. But you'd probably pick up, you know, a couple points, you know, maybe two points or so on the loan-to-deposit ratio a year at that pace, assuming we don't do something more meaningful, you know, in terms of a restructure or something, if that became, you know, attractive at some point. That's very helpful, guys.
spk10: Thank you both. On the fee guide, so I think a little bit of a step up in 4Q, if you could just discuss the drivers there. And then I know we have the full year of Durban to contend with as we think about 24. So you expect to be able to run flat or maybe a little bit of fee income growth, just broad strokes outlook would be helpful.
spk01: Yeah, this is Tracy. In the third quarter, we had expected a little bit maybe better volumes in mortgage and SBA to some extent. Those were both a little slower than expected, in part because of some closings that pushed into October. So that'll be an area that comes in a little higher in the fourth quarter. I think generally deposit-related charges will continue to benefit from the increased size and breadth of the organization and some good momentum in deposit relationships, as Chuck has described. You know, wealth management somewhat driven by the market conditions. On interchange, I think you've seen the adjustment that we'll see, so I expect that to remain pretty stable through the fourth quarter.
spk10: Okay, great. And then last one for me, just an update on your shared national credit exposure, which I think is tiny and maybe all acquired, but just correct me if I'm wrong in your general thoughts on the asset class.
spk04: Almost none. Less than half a percent of the portfolios in shared national credits, they're all acquired. We've never actually acquired one or originated one here at Seacoast. So it's very, very small. We really have also no bought, you know, participations or very little bought participation. Same thing. They've only come in through acquired acquisitions. So, you know, we've never relied on SNICs or participations to support our loan growth. Everything we've done and originated at Seacoast has been, you know, driven organically out through our banking team. Understood.
spk10: Okay, guys. Thank you very much. That's it for me.
spk03: Thank you, Russell.
spk07: Our next question comes in the line of David Bishop. Please proceed with your question.
spk03: Hey, good morning, guys. David. Chuck or Mike, or Tracy, quick question. It sounded like you noted that payoffs were a little bit elevated this quarter versus last. That may have restrained loan growth. Just curious if you had that number versus last quarter. And then maybe, Michael, in terms of the maturity schedule, you know, next year and fourth quarter. Just curious maybe what the roll-off yields are looking like versus the add-on yields. It sounds like add-on yields are close to 8%, if I heard right, maybe just some color on those topics.
spk12: Yeah, sure. So, the payoffs this quarter were about $270 million, which is a little higher than what we had been seeing, and that was a little higher yield, though, 6.3%, roughly. So seeing some of the variable higher rate loans pay down as people just decide to kind of pay down those lines once you get to certain high levels of absolute rates. The new origination yields were upper sevens for sure, 7.8% roughly in the quarter. And then as we look forward into Q4 and next year, we're seeing kind of fixed rate book paying off and paying down in the mid fours to, you know, maybe high fours. So definitely a positive trend as, you know, we see that, you know, new originations replacing kind of runoff of a back book and refinancing a back book. So.
spk03: Got it. And then did I hear that the deposit inflows this quarter came in somewhere around, was it 250 replacing the brokers at 5%? I wasn't sure what I, if I got those numbers right earlier in the call.
spk12: It's a little higher than that on a blended basis, probably in the mid threes. So replacing brokered, you know, five that would have rolled up certainly in this environment, probably up to the mid fives. So, you know, that was a strong, strong makeshift for us this quarter. And that did occur throughout the quarter. So we'll see some, you know, some impacts of that benefiting Q4 a little bit. Got it.
spk03: And then, Chuck, I'm sure a topic you'd love to talk about, you mentioned the IOTA impact. Any chance, any lobbying efforts out there to get that overturned? Any chance that that goes away here in the near term? Do you think that's pretty sticky here for the duration of the release date of the term?
spk04: I'll be careful with my comments here, but I would say the Florida banking industry is working really hard to get that issue to a better place, and I'll probably leave it at that. Okay.
spk03: Fair enough. Fair enough. And then maybe a question for the credit guys just to make sure they're still awake. Curious, you know, we've heard a lot of other competitors talk about some issues in the senior care or assisted living industry. Just curious, any exposure there? And if so, what you're seeing in terms of your trends internally? David, you want to take that one? Or James?
spk06: Well, I would say first and foremost, we are aware of the issues in the industry. We've had conversations with peers about it. The good news is that seacoast exposure is minimal. I mean, I think we might have one or two small facilities, but it's not even on my radar. Yeah.
spk04: We've never been in the space, never really liked the space for a lot of reasons, and it's just not something we've done much of.
spk03: Perfect. Appreciate the comments.
spk07: As a reminder, to register for a question, press the 1-4. Our next question comes to the line of Brandon King. Please proceed with your question.
spk02: Hey, good morning. Yeah, Brandon. Morning, Brent. So with rates potentially peaking here, just want to get updated thoughts on how you are expecting to manage the balance sheet asset sensitivity going forward. If you're, you know, debating any sort of strategy to kind of maybe kind of potentially extend the ration from here.
spk12: Yeah, it's a good question, Brandon. And we're a little bit liability sensitive today. We do kind of similarly expect that rates may kind of stabilize here for a period. I think in general, we will manage the kind of rate sensitivity appropriately. Our best case would be a somewhat steepening of the yield curve or just kind of a stabilization at current rates. So I think The way to think about it is that we'll probably try to manage the tail risk, right, if rates were to move down or up significantly, consistent with our kind of conservative nature. That's really what we're focused on. And then just optimizing the profitability and performance of the balance sheet that we have today during the interim. So those are kind of the pieces I would call out.
spk02: Okay. And on the broker deposits issue, What is the expectation for when those could be fully paid off? Are there any, you know, chunky maturities coming up over the next few quarters?
spk12: It's kind of blended over the next year. We've got a few more, you know, larger chunks maybe over the next, you know, kind of four or five months, but it's kind of laddered out a little bit at this point. So we'll continue likely as we have success from our team reeling in deposits. to continue to pay those off and pay those down over time.
spk02: Okay. And then lastly, just thinking about balance sheet growth here, is the way to think about it maybe kind of a static balance sheet maybe until the second half of next year once loan growth improves? Is that a fair way to think about it?
spk12: I think dependent on our success with growth and kind of what the macro environment looks like, those are two caveats, I guess. But the team's engaged and locked in and focused on growing core relationships. And as we do that, we'll continue to see balance sheet growth, as we mentioned earlier, some of the dynamics in the market improving. I think you're seeing some of that accrue to our benefit. We've been patient, and now we're seeing good opportunities to be active, and so that's kind of where we're at right now.
spk02: Okay. That's all for me. Thanks for taking my questions. Thanks, Brian.
spk07: Chuck Schaefer, there are no further questions at this time. I will turn the call back over to you. Okay, thank you all for joining us this morning.
spk04: That will conclude our call.
spk07: That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.
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