Seacoast Banking Corporation of Florida

Welcome to SECO's Banking Corporation's first quarter 2025 earnings conference call. My name is Desiree and I will be your operator. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question again, press the star 1. Before we begin, I have been asked to direct your attention to the statement at the end of the company's press release regarding forward-looking statements. Seacoast will be discussing issues that constitute forward-looking statements within the meaning of the Securities and Exchange Act and its comments today are intended to be covered within the meaning of that act. Please note that this conference is being recorded. I will now turn the call over to Chuck Schaefer, Chairman and CEO of Seacoast Bank. Mr. Schaefer, you may begin.

Okay, thank you, Desiree, and good morning, everyone. As we proceed with our presentation, we'll refer to the first courting earnings slide deck available at secosbanking.com. Joining me today are Tracy Dexter, our Chief Financial Officer, Michael Young, our Treasurer and Director of Investor Relations, and James Stallings, our Chief Credit Officer. Before we delve into earnings, I'd like to address the recent market uncertainty over the past three weeks. Clearly, there is emerging risk in the macroeconomic environment, and volatility has increased. I want to remind you that Seacoast is well-positioned to navigate turbulent times. We've built one of the strongest balance sheets in the country, featuring an industry-leading capital position, robust credit diversity, and a granular, highly valuable deposit franchise. This fortress balance sheet provides us with optionality and durability, serving as a significant source of strength. Additionally, we primarily operate in Florida, one of the strongest economies in the nation. And turning to the quarterly results, the Seacoast team delivered a strong quarter for both loans and deposits, outperforming peers and the industry at large. The net interest margin increased by 9 basis points, while the cost of deposits declined by 15 basis points. We achieved 6% annualized loan growth and ended the quarter with a healthy late-stage pipeline. Deposit growth was also strong at nearly 11% annualized, with non-interest-bearing demand deposits growing 17% annualized. This all resulted in 22% growth in adjusted pre-tax pre-provision earnings when compared to the same quarter one year ago, and tangible book value per share grew 10% over that same period. This quarter marked a promising start to 2025, and our investments in talent across our footprint have fully taken effect, driving substantial onboarding and new relationships. These investments in revenue-producing talent will continue to drive solid, disciplined growth. And additionally, we onboarded another 10 revenue-producing bankers during the quarter. Asset quality remained strong during the quarter, with the NPL ratio dropping to 68 basis points. Charge-offs for the quarter were entirely driven by acquired credits. And the provision for loan losses increased from the prior quarter in part due to strong loan growth that occurred late in the quarter, and we chose to hold the allowance coverage ratio flat to the prior quarter given market uncertainty. We will take a conservative approach until clarity emerges. And lastly, everything is progressing well with Heartland Bank shares. We expect to close and convert this transaction in the third quarter. I'll now pass the call to Tracy, who will review our financial results.

Thank you, Chuck. Good morning, everyone. Directing your attention to first quarter results, beginning with slide four. Seacoast reported net income of $31.5 million, or $0.37 per share, in the first quarter, and pre-tax, pre-provision income increased $2.7 million to $50.6 million. Growth in loans and deposits was largely the result of talent added over the last several quarters, which is now resulting in onboarding significant new relationships. Total deposits were up 11% annualized, and non-interest bearing balances grew 17% annualized. Loan production was strong, with growth in balances near 6% on an annualized basis. Net interest income of $118.5 million is up 2% from the prior quarter, with the cost of deposits declining 15 basis points to 1.93%. Net interest margin expanded 9 basis points to 3.48%, and excluding accretion on acquired loans, net interest margin expanded 19 basis points to 3.24%. Tangible book value per share of $16.71 represents a 10% year-over-year increase. Our capital position continues to be very strong. Seacoast Tier 1 capital ratio is 14.7%, and the ratio of tangible common equity to tangible assets is 9.6%. We grew our branch footprint during the quarter with two new locations in Fort Lauderdale and Tampa, two of the fastest growing markets in the state. And in February, we announced the proposed acquisition of Heartland Bank Shares and Heartland National Bank. We're on track to close in the third quarter of 2025. Turning to slide five. Net interest income expanded by $2.7 million during the quarter, driven primarily by lower deposit costs. The net interest margin expanded 9 basis points to 3.48%, and excluding accretion on acquired loans, expanded 19 basis points to 3.24%. In the securities portfolio, yields increased 11 basis points to 3.88%, benefiting from new purchases. Loan yields were down 3 basis points to 5.9%, Excluding accretion, loan yields increased by 10 basis points to 5.58%. The cost of deposits decreased 15 basis points to 1.93% due to proactive deposit repricing and growth in DDA balances, demonstrating the success of the talent we've added in recent periods and the strength of our relationship-focused banking model. Given the strong growth momentum coming out of the first quarter, we expect net interest income to continue to grow through the remainder of the year. Moving to slide six, non-interest income excluding securities activity was $22 million, increasing 8% from the first quarter of 2024 and a 20% increase in wealth management revenue and 25% increase in insurance agency income year over year. 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 lower by $4.1 million compared to the prior quarter, with lower gains on SBIC investments and fewer loan sales compared to the fourth quarter. Looking ahead to the second 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. Moving to slide seven, our wealth division continued its strong growth adding $117 million in new assets under management in the first quarter, with total AUM increasing 14% year-over-year. And on slide 8, non-interest expense in the first quarter was $90.6 million on a GAAP basis and included $1.1 million in merger-related expenses. Consistent with expectations, the first quarter was seasonally higher, with higher payroll tax and 401 contributions. Increases in other line items reflect the expansion of our commercial team by 10 bankers and the addition of two new branch locations. We continue to remain focused on profitability and performance and expect adjusted expenses for the second quarter, which excludes merger-related costs, to be in a range of $87 million to $89 million. Turning to slide 9, loan outstandings increase at an annualized rate of 5.6%, with production of $555 million in the first quarter and the pipeline expanding by over 40% from the prior quarter. Loan yields were down 3 basis points and excluding accretion were higher by 10 basis points to 5.58%. Accretion continues to be variable and declined this quarter, with the prior quarter impacted by significant payoffs. Looking forward, the pipeline is very strong, and we expect mid to high single-digit loan growth in the coming quarter and for the full year 2025, though the impact of tariffs may add some uncertainty. On to slide 10, portfolio diversification in terms of asset mix, industry, and loan type has been a critical element of the company's lending strategy. Exposure is broadly distributed, and we continue to be vigilant in maintaining our disciplined, conservative credit culture. Non-owner-occupied commercial real estate loans represent 34% of all loans and are distributed across industries and collateral types. As we have for many years, we consistently manage our portfolio to keep construction and land development loans and commercial real estate loans well below regulatory guidance. These measures are significantly below the peer group at 34% and 220% of consolidated risk-based capital, respectively. We've managed our loan portfolio with diverse distribution across categories and retaining granularity to manage risk. Moving on to credit topics on slide 11, the allowance for credit losses totaled $140.3 million, or 1.34% of total loans, flat to the prior quarter. Our allowance estimation process includes consideration of recent volatility in the markets and macroeconomic environment, and we continue to closely monitor the potential impact of economic and fiscal policy decisions on our borrowers. The allowance for credit losses, combined with the $119.5 million remaining unrecognized discount on acquired loans, totals $259.8 million, or 2.49% of total loans, that's available to cover potential losses, providing substantial loss absorption capacity. Moving to slide 12, looking at quarterly trends in credit metrics. Non-performing loans represented 0.68% of total loans, a decrease of approximately 21 million from the prior quarter. And accruing past due loans remain low at 0.16% of total loans. Moving to slide 13 and the investment securities portfolio. The average yield on securities has benefited from recent purchases at higher yields and the portfolio yield increased during the first quarter to 3.88%. We leveraged FHLB advances to purchase securities in advance of the Heartland acquisition. Heartland's short-term bond portfolio and high liquidity levels provided an opportunity to lock in higher rates mid-quarter with purchases of $412 million in primarily agency mortgage-backed securities with an average book yield of 5.51%. Turning to slide 14 in the deposit portfolio, total deposits increased to $12.6 billion growing at an 11% annualized rate from the prior quarter, and non-interest bearing accounts grew at 17% annualized. We believe this growth was in part the result of customers aggregating balances to make tax payments, and we expect some outflow in the second quarter. The cost of deposits declined 15 basis points to 1.93%. We remain very encouraged about the continued ability of recent talent additions to onboard relationships and build core deposits, and we expect low to mid-single-digit deposit growth for the full year 2025, with a typical seasonally lower trend in the second quarter. 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 has increased 10% year over year, and the ratio of tangible common equity to tangible assets remains exceptionally strong at 9.6%. Our risk-based and tier one capital ratios are among the highest in the industry. In summary, we remain steadfastly committed to driving shareholder value, and our consistent, disciplined growth strategy positions us well as we continue to build Florida's leading regional banks. I'll now turn the call back to you, Chuck.