Seacoast Banking Corporation of Florida

Welcome to the Seacoast Banking Corporation's second quarter 2026 earnings conference call. My name is Colby and I'll be your operator. All lines have been placed on mute to prevent any background noise. And after the speaker's remarks, we will conduct a question and answer session. If you'd like to ask a question at that time, please press star then the number one on your telephone keypad to raise your hand and enter the queue. If you'd like to withdraw your question at any time, please 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 that act. Please note that this conference is being recorded. I'll now turn the call over to Chuck Shaffer Chairman and CEO of Seacoast Bank. Mr. Shaffer, you may begin.

All right, thank you, Colby, and good morning, everyone, and thank you for joining us. As we move through today's presentation, we'll reference the second quarter 2026 earnings slide deck, which is available at seacoastbanking.com. Joining me today are Tracey Dexter, our Chief Financial Officer, Michael Young, our Chief Strategy Officer, and James Stallings, our Chief Credit Officer. CECOS delivered another strong quarter, reflecting the strength of our diversified franchise, disciplined execution, and continued strict focus on delivering the earnings guidance we provided at the start of the year. Net income totaled $59.5 million, or $0.55 per diluted share, and adjusted earnings were $65.8 million, or $0.61 per diluted share. Adjusted return on assets for the quarter was 1.25%, and the adjusted return on tangible equity was 15.8%. Thank you for joining us. and we continue to see strong opportunities to onboard additional banking talent teams across multiple markets and we expect to continue to deliver on a high single-digit growth rate target for the full year of 2026. Funding trends were also favorable. Total deposits increased at a 4% annualized rate led by growth in non-sparing balances and while the broader industry felt more pressure on deposit costs, our cost of deposits declined to 1.53%, highlighting the strength of our relationship-based franchise and disciplined pricing strategies I was pleased to continue to see consistent quarterly growth in non-experient demand deposits as we continue to onboard full relationships. Non-experient income improved from the prior quarter, and our efficiency ratio remains on track with our guidance. And credit quality remains strong. Non-performing loans decline, net charge-offs remain low at 10 basis points of average loans, and accruing past due loans improve. And while provision expense increased due to support strong loan growth, Our overall portfolio performance continues to reflect our conservative underwriting standards and proactive risk management. And beyond the financial results, this quarter marked an important milestone for Seacoast. Earlier this month, we successfully converted the clients of Citizens First Bank in the villages onto Seacoast systems and platforms. This was one of our largest and most complex integrations in our history and was executed exceptionally well by our team. I was extremely impressed by the success of this conversion and couldn't be more proud of our team. They executed flawlessly. This successful conversion caps a transformative period of M&A activity for us and positions us to focus on full attention on organic growth, operational execution, and disciplined financial performance over the remainder of the year. And as we enter the second half of 2026, Seacoast is exceptionally well positioned. We maintain a strong balance sheet, substantial liquidity, robust capital levels, improving profitability, and attractive growth opportunities across all our markets. We also demonstrated confidence in our outlook through the repurchase of 750,000 shares during the quarter. And year-to-date, that represents 1% of our outstanding shares repurchased. And as SECO celebrates its 100th year, I want to thank our associates for their dedication and commitment. The one-team culture we operate has allowed us to manage integration complexity, build new products, invest in scalable platforms, grow customers across all our markets, and attract some of the best bankers in the industry. With that, I'll turn it over to Tracey to walk through our financial results.

Thank you, Chuck. Good morning, everyone. Beginning with slide four and second quarter performance highlights. Seacoast reported net income of $59.5 million, or $0.55 per share, in the second quarter, an increase of 87% from the prior quarter and 39% from the prior year quarter. On an adjusted basis, net income was $65.8 million, or $0.61 per share, and adjusted pre-tax pre-provision earnings were $95.5 million, up 4% from the prior quarter and up 52% from the prior year quarter. Continued strong loan origination volume and lower payoffs than the first quarter resulted in an overall increase in loan balances of $504 million, or 16% annualized during the second quarter and 8% annualized in the first half. We delivered 4% annualized organic growth in non-interest-bearing demand deposits and the cost of deposits declined one basis point to 1.53%. We saw growth in net interest income up 2% from the prior quarter with higher core yields and well-managed deposit costs. Net interest margin, excluding accretion on acquired loans, expanded eight basis points from the prior quarter to 3.65%. Our capital position remains very strong and we continued to be active in share repurchases buying back just over 750,000 shares in the second quarter. Moving to net interest income and margin on slide five. Net interest income totaled 182.2 million, up four million from the prior quarter, with higher yields and balances on both securities and loans, and lower funding costs, all partially offset by lower purchase loan accretion. The net interest margin was stable at 3.83%, and excluding the impact of accretion on acquired loans, core margin expanded eight basis points to 3.65%. Turning to non-interest income on slide six, non-interest income totaled 27.8 million, a significant increase from the prior quarter. Recall that the first quarter of 2026 included a $39.5 million loss from the strategic repositioning of the securities portfolio. adjusted non-interest income, which excludes the securities activity, totaled $27.8 million, up 3% from the prior quarter and up 14% year-over-year, reflecting continued growth in fee-based businesses with the growth of the franchise. Wealth management remains a key contributor, with revenue up 3% from the prior quarter and 42% year-over-year. Mortgage production continues to grow, with two-thirds of total mortgage production in the second quarter coming from the villages communities. Moving to slide seven, the Wealth Management Division delivered another quarter of exceptional results. Assets under management have increased 45% from this time last year. In 2026 so far, the team has added $388 million of new assets under management with income growing 42% year-over-year and a 24% CAGR in the past five years. Moving to expenses on slide 8, non-interest expense totaled $123.1 million in the second quarter, which includes $8.4 million of merger and integration costs. In the third quarter, we'll incur the last of the expected costs related to the Villages acquisition, with the full system conversion and merging of customer and back office systems coming to a close in the third quarter. In the second quarter, excluding merger charges, Non-interest expense was $114.8 million, modestly higher than the first quarter. Importantly, we saw continued improvement in operating leverage, with the efficiency ratio improving to 58.5% on a GAAP basis and 54.5% on an adjusted basis, reflecting disciplined expense control alongside core revenue growth. Turning to slides 9 and 10 on the loan portfolio, Loans ended the period at $13.1 billion, up 16% on an annualized basis from the prior quarter and 8% annualized year-to-date growth, keeping us right on track with our full-year high single-digit growth guidance. The commercial pipeline increased to $1.3 billion at June 30th, supporting continued organic growth as we move through the year. On credit quality, shown on slides 11 and 12, asset quality metrics remain solid. We saw low levels of charge-offs during the quarter, a decline in non-performings and past dues compared to the prior quarter, and stable levels of criticized and classified loans. The allowance for credit losses totaled 1.38% of total loans. Turning to deposits on slides 13 and 14, total deposits increased $154 million during the quarter, or 3.7% annualized. Non-interest-bearing demand deposits increased 4% on an annualized basis to $4.2 billion. Deposit costs and overall funding costs are lower, and we've used broker deposits strategically to fund the higher loan growth this quarter, offsetting what would otherwise be our typical seasonal low point during the year for deposits. Moving to slide 15 in the investment securities portfolio. Net unrealized losses in the AFS portfolio moved higher by $7.5 million during the quarter, driven by higher rates. Portfolio yields increased 10 basis points to 4.47% from the prior quarter, benefiting from the securities repositioning executed in the first quarter of 2026. Turning to capital and liquidity on slide 16, strong capital levels are a hallmark of the Seacoast franchise. Tangible book value per share grew 8% annualized during the quarter. The level of tangible equity to tangible assets increased to 9.3%, and we put some capital to work through share repurchases. Our robust capital levels provide significant flexibility to support organic growth and disciplined capital deployment. On slide 17, we reiterate our 2026 guidance. Our results for the quarter continue to evidence the improvements we've achieved in core profitability, strong funding trends, and continued execution against our strategic priorities. We remain focused on discipline growth and long-term shareholder value creation as we move to the second half of 2026. With that, I'll turn the call back to Chuck.

All right. Thank you, Tracey. And before we jump into Q&A, I just want to reiterate my... Thank you to all the Seacoast associates on the call. The conversion was an incredible, incredibly well executed. They did an amazing job. It went flawlessly. And, you know, a lot of people involved in that crossed a lot of our markets and y'all did an amazing job. And so just want to say thank you to them. And as we enter our 100th year here, we're excited to celebrate our 100th anniversary later in the year. Thank you. We will now begin the question and answer session. Again, if you would like to ask a question, please press star then the number one on your telephone keypad to raise your hand and enter the queue.

If you'd like to withdraw your question any time, you can press star one again. Your first question comes from a line of Russell Gunther with Stevens, Inc. Your line is open.

Hey, good morning, guys. Good morning, Russell. The deck highlights an average commercial loan size of a million, and I think granularity is a staple of Seacoast's conservative risk profile. As your balance sheet has grown and you hire commercial lenders from larger institutions, Chuck, how, if at all, will the complexion of your commercial loan growth profile shift at all towards larger loans or an expanded credit box?

Great question, Russell. The way I describe it is we are recruiting bankers out of larger institutions, primarily the super regional banks. and that obviously brings opportunities to bank larger and more complex clients. We are very disciplined in managing to our hold limits and thoughtful about concentration limits and kind of the real positive about our balance sheet is there's a lot of room to book some bigger credits and not really move the average loan size. If you look at the size of the portfolio and the way we've built it over many decades, there is a tremendous amount of granularity and I would tell you we still do plenty of smaller credits when you look at the actual number of credits and there's a few larger ones along the way. The larger ones bring obviously operating leverage. On the flip side, we have to manage concentration ratios and we're always carefully navigating that over time but we are very disciplined on where we hold and we've got a great syndications desk where we need to syndicate credits to get above our hold limits but we are having opportunities to bank larger, more complex clients and the beauty of that is they're bringing large operating balances, treasury management, in some cases wealth management. It's been really great to see.

I appreciate your thoughts there, Chuck. Thank you. And then on the quarter, really strong organic results. The paydowns eased and that helped as well, but the commercial pipeline is still up after this robust result. So maybe just try to get a sense for the sustainability of this double-digit growth rate. I know you've left the kind of full-year guide unchanged, but perhaps there's upside to that or as we think about 27 organic growth expectation.

Yeah, and I think when you think about the full-year guide, just a reminder, the first quarter we were about flat on growth because we had some large payoffs. So, you know, basically if you combine the two, that brought us right in line with where we expected to be. I would describe to you is obviously the quarter was very strong. As we look at the pipeline, it's very strong. The way to think about it, we hit 16% annualized growth. About 3% of that annualized growth was related to the residential mortgages we booked in the portfolio, primarily out of the villages market. We do expect to probably sell a little more of that as we move through time, so that may move more into the fee item. We'll obviously continue to service those credits, but probably we'll see more of that move to a saleable category. But we'll kind of move back and forth depending on growth there. about half of the remainder of that, so you kind of get down to 13 and split that in half. I'd say the other half of that came from all the talent we've onboarded over the last few years. We've talked about the high level of recruiting we've done and the quality of that recruiting coming out of the super regional banks, and they're continuing to onboard clients. We continue to see opportunities to bank new prospects. It's been super exciting to see. and then I would tell you too there's sort of the other third third the third of the other third of that piece is just Florida it really is doing really well there is very strong loan demand across all of our markets and we're now at a size if you kind of step back and look at the big picture we cover just about every major market in Florida we cover every major market in Florida and then we cover most of the tertiary markets as well So we've got a statewide brand that resonates with clients really want to be with an organization that has the sophistication to grow with them. We've invested heavily in the treasury management side of the business. We've invested heavily in bankers. We've invested heavily in credit. And so we've made the overhead investments to be very competitive in the marketplace. and that's allowing us to get access to new clients every day. There's a lot of clients that want to be with a headquartered bank that's generally local that can serve their needs with the sophistication and so we just see a lot of demand for what we're doing and it's been really exciting to see and I think there's a lot more to come.

That's really helpful. Thanks for your thoughts, Chuck. That's it for me.

Awesome. Thanks, Russell.

David Feaster, Raymond James

Thank you for joining us.

As we wind down the conversion activities, which we still got, you know, probably another six to eight weeks to help clients make sure they're fully onboarded and we're branch traffic still busy and call center traffic still busy. So we need to continue to navigate that. But as we get past that, it'll be back to full organic business and there's opportunities to continue to cross sell some of our consumer product base. There is great opportunities to continue to build a wealth management business in that market. We're already seeing good inbound opportunities there. So we'll continue to focus on it, David, and we'll continue to build a branch network up there as that market continues to develop. And I think it'll continue to be a really good source of deposits for us, a good source for wealth management. It's obviously an incredible mortgage business for us. and over time we'll build in and around there with our commercial banking platform and kind of the awesome part about this is now that we're getting through this, we hit our 16% growth rate and we got all the pipeline building and everything alongside with the conversion. Now we'll have the conversion behind us to allow us to almost put our full attention to organic growth. So it makes me feel great about our outlook and what I think the remainder of the year looks like and moving into 2027. That's great.

And then maybe, you know, we talked on loan growth, right? I mean, there's a high degree of confidence in that from everything you alluded to. I'm curious on the funding side. Obviously, there's some seasonal factors this quarter. Competition for deposits has obviously increased. How do you think about core deposit growth, where you're having success, and just how you can drive core deposit growth at this point while defending deposit costs just given the competition that we're hearing about?

Yeah, maybe I'll open with just a few comments and I'll let Michael walk you through the dynamics. But one, you know, as we move forward, as we continue to onboard operating companies, we are seeing DDA and Michael talked a little about the dynamics here in a second. But the beauty of what we built in this balance sheet is we have a lot of flexibility. So we can manage margin and we can manage growth. And so we can lean in where we want to on price and we can lean out on price. And so We don't have quite the constraints that maybe a lot of our peers do that are fully lent up and have loan deposit ratios that are 90% plus. We've got a very low loan deposit ratio and that gives us flexibility. And I'm excited about all the New prospect, particularly on a commercial side. And as we get past this conversion, we'll be able to sort of unleash our retail teams again because they've been heavily heads down. You know, you can imagine what it took to get that conversion done. We had 300 people working on that. So those 300 people will go back to focusing on growth. And so that will give us a lot of opportunity as well. Michael, you want to talk through the deposits cost dynamics there?

Yeah. David, just maybe unpacking that just a little bit further, you know, we've done a lot of work to get our CD costs down, you know, just on the customer side as rates have come down. I think that dynamic's, you know, largely done. We want to be competitive and grow from here, as Chuck mentioned, but we're still adding, you know, on a blended basis, cost of deposits in the low twos, you know, blending with DDA, interest bearing kind of in the mid twos. So Over time with growth, we'll see those deposit costs move up a little bit, but it's more tactical versus us having to be aggressive. And that just gives us the ability to continue to grow profitably versus having to compress profitability as we grow, given our low loan to deposit ratio and not having our backs against the wall there. So I think we feel really strong about the balance sheet positioning and where we stand and where we're headed from here.

Yeah, definitely coming at it from a position of strength. Maybe just last one. You know, we hear a lot of complaints about competition, especially on the pricing side. And I'm talking about loans here. I'm curious, where are new loan yields in the pipeline today? And whether you're starting to see pressure and competition start moving to the underwriting side as well. Appreciating, Chuck, you talked about it in prepared remarks that you guys are very disciplined on underwriting. But I'm curious if you're seeing that Competition starts to migrate towards structures and standards and such.

Michael, why don't you jump in on add-on rates and then I'll talk a little bit about competition.

Yeah, David. So just on add-on rates, on the commercial side, they were kind of in the low sixes for the quarter in terms of add-on rates. Thank you for joining us. It's still reasonable rates of return. On the residential side, we have been retaining a little more, you know, resi through the first half of the year. You know, obviously with the long end of the curve up, that's been positive and supportive of yields there. So kind of more in the mid-sixes. So if you want to think about the dynamics there, that's kind of what's been playing out. And Chuck, I don't know if you want to speak more to that.

Yeah, I would just say, and you've heard this on others' calls, it is, you know, are all hypercompetitive at this point. All the national banks are back in competing in commercial real estate that stepped out. You have a lot of competition for middle market companies. We're remaining very disciplined on underwriting and particularly leverage. We are starting to see competitors allow clients to put less equity in deals. That's not something we're going to chase. So we're maintaining discipline around equity. and to some extent that comes a little bit on price because we're having to price a little lower to maintain equity in the transaction but we're willing to make that trade to stay conservative on our underwriting approach and so I would say we are starting to see things that we don't like seeing but we're going to stick with our guns and stick with what we do and we'll see how it all plays out but it is as competitive as it's ever been. It's very competitive. Okay, that's helpful. Thanks, everybody. Awesome, David. Thank you.

Again, if you'd like to ask a question, please press star then the number one on your telephone keypad to raise your hand and enter the queue. We'll pause just for a moment to compile our roster. Since there are no further questions in queue, I'd like to turn the call back over to Chuck Schaefer for closing remarks.

All right. Thank you, Colby. And I just want to reiterate, you know, growth is on track. We are very pleased with the progress this quarter. You know, we have more balance sheet flexibility than I think most in the industry, which will allow us to operate here very profitably over the back half of the year. Thank you. Ladies and gentlemen, this concludes today's conference call. You may now disconnect.