Seacoast Banking Corporation of Florida

Welcome to Seacoast Banking Corporation's fourth quarter and full year 2024 earnings conference call. My name is Jericho and I'll be your operator. All lines has been placed on view to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you would like to ask a question during this time, simply press star one, followed by the number one on your telephone keyboard. If you would like to withdraw your question, press star one again. 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 the 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.

Okay. Thank you, Jericho. And good morning, everyone. As we go through our presentation, we'll refer to the fourth 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. SECO's team delivered an outstanding quarter. 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 pre-tax, pre-provision earnings were $56.6 million, 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 fourth quarter, while the team grew loans by 4% on an annualized basis. The adjusted return on tangible assets improved to 1.24%, up from 0.98%, and the adjusted efficiency ratio declined from 59.8% to 56.1%. Our capital position remained strong, with a tangible common equity ratio of 9.6%, and a CET1 ratio of 14.8%. 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 and talent across our footprint have fully taken effect, driving substantial onboarding and new relationships. And while we started the quarter slowly due to the two hurricanes, The team finished the quarter strong, setting a record for loan production with originations of $900 million during the period. Loan volume was well diversified, encompassing both C&I and commercial real estate. We also ended the year on a high note in 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. And with that, I'll turn the call over to Tracy to walk through our financial results.

Thank you, Chuck. Good morning, everyone. Directing your attention to fourth quarter results, beginning with slide four. Seacoast reported net income of $34.1 million, or $0.40 per share, in the fourth quarter, and adjusted net income of $40.6 million, or $0.48 per share. Net interest income of $115.8 million is up 9% from the prior quarter. The cost of deposits declined 26 basis points to 2.08%. Net interest margin expanded 22 basis points to 3.39%. 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 fourth quarter. Return on tangible assets increased to 1.06% on a gap basis and 1.24% on an adjusted basis. Return on tangible common equity increased to 10.9% on a gap 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 fourth 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. SECO's Tier 1 capital ratio is 14.8%. and the ratio of tangible common equity to tangible assets is 9.6%. Turning to slide five, net interest income expanded by 9.1 million 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 two basis points to 3.77%, benefiting from recent purchases. Loan yields were down one basis point to 5.93%. Excluding accretion, loan yields declined by 10 basis points to 5.48%. 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%, demonstrating the strength of our granular core deposit franchise built through our relationship-focused banking model. Looking ahead to the first quarter, 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%. An additional rate cut could add another approximately five basis points. Moving to slide six, non-interest income excluding securities activity increased $2 million in the fourth quarter to $25.5 million. Service charges declined, largely due to fee waivers early in the fourth 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 2.5 million, including higher SBIC income and gains on loan sales. Looking ahead to the first quarter, we continue to focus on growing non-interest income, and we expect non-interest income in a range from 20 million to 22 million. That's a modest step down from the fourth quarter to the first, given the favorable items like loan sales and SBIC income that positively impacted the fourth quarter. Moving to slide seven. Our wealth division reached a number of internal milestones in 2024, including record new assets under management. Total AUM has increased 20% year over year to 2.1 billion, and has increased at a compound annual growth rate of 24% in the last five years. On to slide eight. Non-interest expense in the fourth quarter was consistent with the guidance we provided, coming in at $85.6 million on a GAAP basis. 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%. Record production of over $900 million in the fourth quarter had funding levels of approximately 50%. Offsetting strong production in the quarter were elevated payoffs and approximately $40 million in loan sales. Loan sales included the disposition of two 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 eight 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. In addition, the cleanup of the consumer FinTech portfolios resulted in adjustments to interest income of approximately $500,000. Accretion continued to be variable and was elevated this quarter in line with elevated payoffs. Looking forward, we expect core loan yields in the first quarter 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. 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 224% of consolidated risk-based capital, respectively. We've managed our loan portfolio with diverse distribution across categories and retaining granularity to manage risk. Moving on to credit topics on slide 11. The allowance for credit losses totaled $138.1 million, or 1.34% of total loans, compared to 1.38% in the prior quarter. The allowance for credit losses, combined with the $128 million remaining unrecognized discount on acquired loans, totals $266 million, or 2.6% 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 fourth quarter, we entered into arrangements to sell approximately $20 million in consumer FinTech loans, and as a result, charged down these loans by $3 million. Non-performing loans represented 0.9% of total loans, while an increase from the prior quarter, additions to non-accrual loans in the fourth quarter included a small number of credits for which no loss is expected. as collateral values are well in excess of the loan balances. Benefiting from the sale of two 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 fourth quarter. and the portfolio yield increased during the fourth quarter 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 million with an average book yield of 2.8%, resulting in a pre-tax loss of approximately $8 million impacting fourth quarter results. The proceeds were reinvested in agency mortgage-backed securities with a book yield of approximately 5.4% for an estimated earnback of less than three years. On to slide 14 in the deposit portfolio. Total deposits were $12.2 billion, 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 gatherings. 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 longstanding 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%. Our risk-based and Tier 1 capital ratios are among the highest in the industry. In summary, we remain steadfastly committed to driving shareholder value and our consistent, disciplined expense management positions us well as we continue to build Florida's leading regional bank. I'll now turn the call back over to Chuck.