Seacoast Banking Corporation of Florida (SBCF) Q3 2026 Earnings Report, Transcript and Summary

Welcome to Seacoast Banking Corporation's third quarter 2026 earnings conference call. My name is Colby, and I will be your conference operator today. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, we will conduct a question and answer session. If you would 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 would 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 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 conference over to Chuck Shaffer, Chairman and CEO of Seacoast Bank. Mr. Shaffer, you may begin.

Okay. Thank you, Colby, and good morning, everyone, and thank you for joining us. As we move through today's presentation, we will reference the third quarter 2026 earnings slide deck 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. Seacoast delivered another strong quarter with continued progress in growth, profitability, and operating leverage, all tracking well against the guidance we laid out earlier this year. The quarter also marked an important transition for our company. We successfully completed the technology conversion of Citizens First Bank in The Villages, bringing our integration work largely to a close. The third quarter also represents the end of M&A-related charges flowing through our income statement, providing a cleaner earnings profile and greater visibility into the underlying earnings power of Seacoast. On October 2nd, Seacoast celebrated its 100th anniversary, an extraordinary milestone made possible by generations of associates, customers, shareholders, and the communities we serve. Turning to the third quarter, net income was $59.9 million, or $0.55 per share, with adjusted earnings of $71.8 million or $0.66 per share. I was particularly pleased with the continued improvement in profitability, which has been a major strategic focus over the past year. Adjusted ROA improved to 1.34%, and adjusted ROTE increased to 16.9%, and adjusted pre-tax, pre-provision earnings grew 58% year-over-year. Organic growth remains strong, and loans grew at a 13% annualized rate in the quarter, and we ended September with a commercial pipeline of approximately $1.3 billion. Importantly, we are generating this growth while maintaining disciplined underwriting and strong credit quality with non-performing loans declining 15% and net charge-offs remaining low. On the funding side, total deposits were essentially flat year to date, but the underlying franchise trends remain encouraging, particularly as we continue to focus on growing operating accounts. Year to date, non-interest-bearing deposits have grown at a 10% annualized rate, and year-to-date growth in business accounts offset declines in public fund balances. We are now moving beyond our seasonal low point for deposits, and I expect core deposit growth from here. As we look ahead, Seacoast is operating from a position of considerable strength. We have a fortress balance sheet, substantial liquidity, robust capital, improving profitability, and significant organic growth opportunities across our markets. That combination gives us both resilience and considerable flexibility as we move into 2027. With the integration largely behind us, our focus is squarely on execution, attracting great bankers, growing organically, deepening customer relationships, and investing in technology and AI to operate more efficiently and deliver an even better experience for our customers. I want to thank our associates for their tremendous commitment to Seacoast and our One Team culture. We have accomplished a great deal thus far in 2026, and with the integration behind us, profitability improving, and strong momentum across the franchise, I believe Seacoast is very well positioned for another year of strong performance in 2027. With that, I'll turn it over to Tracey.

Thank you, Chuck. Good morning, everyone. Beginning with slide four and third-quarter performance highlights. Seacoast reported net income of $59.9 million, or $0.55 per share, up 1% from the prior quarter and 64% from the prior year quarter. Adjusted net income increased 9% sequentially to $71.8 million or $0.66 per share, up 59% from the prior year quarter. Adjusted pre-tax, pre-provision earnings were $100.3 million, up 5% from the prior quarter and 49% from the prior year quarter. Net interest income increased 2% from the prior quarter. Net interest margin was stable at 3.83%, while margin excluding acquired loan accretion increased one basis point to 3.66%. Adjusted ROA improved to 1.34%. Loans increased $429 million, or 13% annualized, during the quarter, supported by continued strong origination activity. We're seeing good results in relationship deposit growth year to date, with non-interest-bearing deposits up 10% on an annualized basis since the beginning of the year. Adjusted return on tangible equity grew to 16.9%, and we remain well-positioned with strong capital. Moving to net interest income and margin on slide ive. Net interest income on a fully tax-equivalent basis totaled $185.4 million, up $3.2 million from the prior quarter. Higher average loan balances and higher core loan yields supported growth, partially offset by higher deposit costs and lower average securities balances. Net interest margin remained stable at 3.83%. Excluding acquired loan accretion, core margin increased one basis point to 3.66%. Securities yields increased to 4.52%. Loan yields were 5.89%, up one basis point sequentially. Excluding accretion, loan yields increased three basis points from the prior quarter to 5.64%. The cost of deposits increased modestly but remains low at 1.6%, and the overall cost of funds was 1.74%. Turning to non-interest income on slide six. Non-interest income totaled $31.6 million, up 14% from the prior quarter. Excluding securities activity, adjusted non-interest income was $32.1 million, up 15% from the prior quarter. Wealth management income continues to build, increasing 2% sequentially. Mortgage banking income increased $2 million from the prior quarter to $4.7 million, with the increase largely the result of the change in the value of mortgage servicing rights resulting from higher market interest rates. Insurance agency income continues to grow, increasing $0.5 million from the prior quarter. Other income increased $1.4 million from the prior quarter, reflecting higher swap and syndication fees, higher gains on SBA loan sales, and higher income from SBIC investments. Moving to slide seven. Assets under management reached $3.2 billion, an increase of 29% year-over-year, and as you can see on the chart, a 22% compound annual growth rate over the last five years. The team has added $574 million of new organic assets under management year to date, reflecting continued new business development and asset inflows from new and existing relationships. Moving to expenses on Slide 8. Non-interest expense totaled $133.3 million and included $15.5 million of merger and integration costs associated with the completion of the Citizens First Bank Villages Bancorporation conversion. Adjusted non-interest expense was $117.8 million, compared with $114.8 million in the prior quarter. The adjusted efficiency ratio improved to 53.9% from 54.5% in the second quarter and 57.6% a year ago, demonstrating continued improvement in core operating leverage. Looking ahead to the fourth quarter, we expect approximately $2.4 million in discrete expenses, which will not recur in 2027. On to Slides nine and 10 on the loan portfolio. Loans ended the quarter at $13.6 billion, increasing $429 million, or 13% annualized, from June 30th. The commercial pipeline remains strong at approximately $1.3 billion at September 30th, supporting our outlook for continued organic growth. Looking at the allowance for credit losses, the details of which are shown on Slide 11. The allowance for credit losses was $191 million, 1.41% of total loans, compared with 1.38% at June 30th. During the third quarter, we recorded an adjustment to the purchase accounting valuation for a loan acquired in the Villages acquisition. This increased the allowance by $8.4 million with a corresponding adjustment to goodwill. Our credit quality metrics, shown on Slide 12, remain solid. Non-performing loans declined during the quarter to $73.3 million and represent 54 basis points of total loans. Net charge-offs were $5.4 million, or 16 basis points of average loans, and the four-quarter average is ten basis points of total loans. The level of criticized and classified loans was stable at 2.9% of total loans. Turning to deposits on Slides 13 and 14. Total deposits were $16.6 billion at September 30th, compared with $16.8 billion at June 30th. The third quarter is typically our seasonal low point during the year, but the decline also reflects a $159 million reduction in brokered time deposits. Non-interest-bearing demand deposits remain near flat at $4.2 billion. Average non-interest-bearing balances increased $40 million from the second quarter. Customer transaction accounts represented 48% of total deposits at quarter end, and the top ten depositors represented only 2% of total customer deposits. Moving to Slide 15 and the investment securities portfolio. Net unrealized losses in the available-for-sale securities portfolio increased by $237 million during the third quarter, driven by higher rates and wider spreads. As a reminder, this is a high-quality portfolio of largely agency-backed securities, and with no anticipated need to sell these securities, the decline in value is considered temporary and will reverse over time as these bonds move toward maturity or as the rate environment changes. Turning to capital and liquidity on Slide 16. Strong capital levels are a hallmark of the Seacoast franchise. The sequential decline in tangible equity to tangible assets and tangible book value per share primarily reflected the impact of higher rates on the market value of the available-for-sale securities portfolio through accumulated other comprehensive income. We also put some capital to work through share repurchases. Our robust capital levels continue to provide significant flexibility to support organic growth and disciplined capital deployment. On Slide 17, demonstrating the components of the change in TBV per share during the quarter, which again, was primarily impacted by unrealized losses related to the securities portfolio. On Slide 18, 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 disciplined growth and long-term shareholder value creation. With that, I'll turn the call back to Chuck.

All right. Thank you, Tracy and Colby. We'll open for Q&A.

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 would like to withdraw your question at any time, simply press star one again. We'll pause just for a moment to compile the roster. With your first question, comes from Woody Lay with KBW. Your line is open.

Hey, good morning, guys.

Morning, Woody.

Morning.

Wanted to start on the margin outlook, and especially get a sense of how the margin trended throughout the quarter and where we kind of sat in the back half of September, once we saw the rate hike.

Yeah, Woody, this is Michael. I'll take that one. I think, generally, the thing to think about as we head into the fourth quarter is that we'll have the return of seasonal deposit flows, namely public funds. Our public funds are more relationship-oriented and therefore at a lower rate than some of our wholesale funding that we've used to temporarily fund the balance sheet with the strong growth in Q3. You'll see a pretty distinct mix shift into Q4 with about $300 million or so of deposit growth at much lower rates, maybe 100 to 200 basis points below our wholesale funding. That should lead to reasonable margin expansion into the fourth quarter, all else equal. Then taking just the Fed hike portion of that occurred in September. As you can see from our disclosures, we are relatively neutral to rates at this point, with about a 35% deposit beta. That roughly matches up to our 35% floating rate loan portfolio. As we see moves in the Fed funds rate, we do not expect that to be really much of a headwind or tailwind to the overall margin or earnings outlook.

Got it. I guess as even the NIM trajectory past this quarter, I know you are not going to give 2027 guidance, but I would expect loan growth to continue to be strong. As you think about that incremental growth, does that represent a positive to the margin or is incremental growth are we kind of reaching peak margins from here?

I would not say we are reaching peak margins. That is not how I would characterize it. Maybe I will just unpack it a little bit. Again, not providing 2027 guidance, but just giving you some of the dynamics that we have articulated in the past. I think there are three key buckets to think about on the earning asset side. First, you have got about $600 million of fixed-rate maturities through the end of 2027 that are in the high 4% range. So those will step up pretty nicely. I think in particular, if the long end of the curve stays high, and upward sloping, we will get more leverage out of some of these back book repricing dynamics. Then you have got the ARM portfolio that has been relatively fixed over the last three to four years, coming out of a concentration of COVID-era originations. Those are all hitting reset windows about $300 million-$400 million per year over the next couple years with step-ups of about 1.5% on the rates on those. The third bucket would just be the changeover from the securities portfolio to loans as we remix the balance sheet following the acquisitions and the strong loan growth, which is hitting on your direct question, that the securities portfolio is at about a 445 yield today. So as we change over $500 million-$600 million of cash flows from securities to loans over the next couple years, that provides, again, with a higher rate environment, more power to the earning asset repricing. So all those are kind of tailwinds discreetly to earning assets stepping up higher. Then we should be balanced relative to Fed hikes, as I just mentioned, on the deposit beta relative to our floating rate positioning on the loan portfolio. The only factor you have left is what is deposit competition going to look like? We feel good about our ability to continue to grow core funding and relationship funding without feeling maybe as much pressure as peers. We still feel good, I think, overall about margin expansion from here into 2027 if the long end of the curve stays high.

All right. That's really great color. I appreciate that. Then I guess just last for me, if I look at the core ROA in the third quarter, you were at a 134 ROA. It sounds like there's tailwinds to the margin. You're through the Villages conversion, but you're targeting a 130 for the fourth quarter. I was just curious on where you see some of the normalization occurring in the overall profitability.

Yeah, Woody, this is Michael. I'll start on that one. I think Tracy mentioned in the prepared remarks about $2.4 million in kind of discrete expense items in the fourth quarter that may just put a little pressure in the other direction temporarily for ROA, but the longer-term dynamics of margin expansion should be supportive of ROA over time. I will call out that we are still investing for growth in the franchise with a high single-digit loan growth rate, et cetera. We're continuing to add and attract talent to the franchise from bankers and other people kind of bringing that in. There is still a good bit of investment that's going on to support strong growth in our markets, and we just see lots of opportunity there. We're going to balance it as we always have with revenue and managing kind of the efficiency ratio and profitability. It was really important for us to get to the 130 level we articulated prior to the acquisition and the 16% ROTE. So feel good about where we are with some tailwinds in a higher rate environment.

The only thing I would add, Woody, is we feel strongly that we will hit the high end of the guidance range that we provided and exit the year in a really strong position.

Got it. All right. Well, I appreciate you all taking my questions.

Thanks, Woody.

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. Our next question comes from Russell Gunther with Stephens. Your line is open.

Hey, good morning, guys.

Morning, Russell.

Morning, Russell.

I'd love to start on the loan growth discussion, please. Really another great quarter from both an order of magnitude and mix perspective, commercial pipeline essentially unchanged. How are you guys thinking about the sustainability of a double-digit loan growth result near term? As we contemplate potential future rate hikes or the 10-year kind of remaining north of 5%, is there an absolute level of rates where demand destruction occurs that puts your organic growth targets at risk?

Yeah, this is a great question, Russell. The way we're thinking about things is, one, both last quarter and this quarter were standout quarters, and we probably were growing even greater than what we had expected, which is amazing and the result of the heavy amount of recruiting and banker adds that we made earlier this year and then into the prior year. But looking forward, there's no doubt as rates move higher, demand will go down. We've contemplated that as we think about the coming year, particularly in commercial real estate. As rates go higher, commercial real estate values come down. You end up in a point where buyers and sellers have to reconcile price again to get transactions to move. The way we're thinking about the longer-term outlook is remaining in that high single-digit growth rate. That's where we think we'll land. That's where we're modeling to, and that's kind of our expectation into the coming quarter. I would suggest probably right around 10% growth rate on an annualized basis is kind of the way to think about Q4 with some gives and takes in there. But more longer term, I think high single digits is a more appropriate sort of modeled growth rate for us.

Russell, maybe just-

Great

Just to tack on one additional piece on that. The payoff trends is important to keep in mind as well. As production and payoffs in a higher rate environment, we do expect lower payoffs. We had about $380 million this quarter, down from $420 million last quarter. Q1, we had relatively high payoffs. It takes a little less production to get to the same level of net growth in a higher rate environment for us anyway. Additionally, with the mortgage production that we have, ours is a little more resilient and durable than many peers, given that it's a lot of kind of new construction related in the Villages.

That's great color, guys. Thank you both. Michael, maybe this one's for you just in terms of a point of clarification, how you are thinking about the deposit beta here through the cycle. Was that a 35% kind of total deposit beta, or is that just near term? Maybe just walk us through how you'd expect to shake out.

Yeah, Russell, I think 35% is kind of where we expect to be. We were higher in the last rate hiking cycle, but obviously, that was a pretty acute cycle. We've remixed with really strong deposit balances through the Villages acquisition and the Heartland acquisition that look very similar to legacy Seacoast in terms of very granular deposit base with lower price sensitivity. So we still feel pretty good about that overall. Competition obviously is something that could emerge and put some pressure on that. I think with the strong back book repricing dynamics that we have over the next year or so, I think we'll more than offset the competitive pressures with back book repricing dynamics, which gives us the confidence in some continued margin expansion. Again, assuming that the long end of the curve stays reasonably high.

Okay. No, that makes a ton of sense. Thanks, Michael. Last one for me, guys, just on the expense outlook. Maybe just bigger picture, how to think about you guys understand the puts and takes for the coming quarter, reiterated the efficiency ratio guide. Is that a band that we would expect you guys to stay in? Or is there kind of a normalized pace of annual growth you contemplate reflecting thoughts around additional hires or investment in tech? Thanks.

Yeah, I think the way to think about it, Russell, is we will continue to make investments. We need to invest in bankers to continue the growth rate. We need to invest in tech. At the same time, as Michael talked about, there's solid revenue tailwinds here moving into the coming year, again, assuming the yield curve remains where it is today. So when you look at overall expenses, if you take out and you look at adjusted expenses for this quarter, we're roughly about $118 million into the coming quarter. We expect that to step up slightly, maybe by $2 million-$3 million, depending on a few items. But if you take that 118, annualize it, and add about a 5% growth rate, that's about our expectation for the coming year to give you a relative way to size it. And just overall, just to reiterate, as we think about running the company, we were going to run the company north of a 130 ROA, north of a 16% return on equity, and an efficiency ratio band somewhere between, call it, 53-55. We think that's about the right gearing ratio for us with a high single-digit growth rate on the asset side. That generates solid tangible book value growth and solid return performance, and that's what we're working to deliver for shareholders.

Absolutely. Okay. Guys, thank you for taking my question.

Thanks, Russ.

Your next question comes from the line of Stephen Scouten with Piper Sandler. Your line is open.

Hey, good morning, everyone.

Good morning, Stephen.

I'm curious on the. I know, Michael, I think you said some of the construction was from Villages. You guys might continue to take advantage of your comparatively low concentration on CRE and CLD and be opportunistic in those asset classes in particular?

We'll always be thoughtful. That'd be the best way to start, Stephen, is thinking carefully about it. I do think on what we're going to see in our construction book is as it is built up, we expect that to start to transition over into mini-perm and move into more of the non-owner occupied commercial real estate bucket, so move out of construction. That frees up some capacity in construction to continue to do some construction over time. But we're going to manage it within our guardrails. We don't want to get over-committed to any one area and continue to build a distributed, thoughtful loan book. But as the construction moves into more permanent status, there should be some capacity to continue to do some construction over time. Then, as I mentioned in the last couple questions there, it will be interesting to see how the market reacts to higher rates. That is the unknown at this point.

Sorry, Stephen, just to clarify on the Villages, that was just we are financing new deliveries through mortgage, so we are not financing the construction there. It is just that there is a tailwind because it is new deliveries versus refinance or rate-driven mortgage origination volume.

Yeah, that is over in the residential category.

Yep.

Got it. Okay. Thinking about that, how you think about pipeline conversion. The commercial pipeline remained really strong quarter-over-quarter, obviously. Just wondering with where rates have gone, do you think about conversion any differently as you try to factor out potential loan growth? Have you, I guess, seen anything from customers over the last couple of months that makes you feel more conservative about that expectation?

We haven't seen fallout yet, but as I guided to in the fourth quarter, I'd roughly modeled about a 10% annualized growth rate in the quarter, and that does assume that there is a little bit of fallout in that pipeline. We do want to handicap that a little bit. We don't know exactly where that's going. It's really hard to tell. You have midterms, you have the potential of a war restarting post-midterms, and you've got rates that moved up to 550, now back to five. So things are pretty volatile. There are a lot of unknowns there. But I would expect, like I mentioned, we do believe we'll be able to deliver high single-digit growth rates throughout the outlook at this point.

Got it. Just lastly for me, thinking about the pace of balance sheet remix. I think you talked a little bit about securities cash flows within this quarter. You actually sold some securities to fund the loan growth. How should we think about the mix shift there that might occur over the next year or two, given the low loan-to-deposit ratio and all the room you have there?

Yeah, Stephen, this is Michael. I'll take that one. Generally, I think we will be somewhat remixing. It'll be really dependent upon the pace of our organic deposit growth overall. We do have a little higher brokered CD balance, which again, should trend down, and FHLB balances, which will trend down in the fourth quarter seasonally. But over time, we really aren't trying to be dependent on those sources of funding. We're going to be focused on core customer funding, and I think we've got a big opportunity to increase that core funding growth now with the Villages conversion behind us and all the associates back in the field doing their normal day-to-day activities and focused on business development versus conversion activities. We're excited about what that could mean for 2027.

Yeah, I would just reiterate, what Michael said there is important. We have spent a lot of time over the last year preparing for this conversion. We had over 300 associates working on it. It took up a significant amount of the mind space and the focus inside the company to deliver what was a really, really solid conversion. Very pleased with the outcome of that. With that behind us now, we can turn all of our attention back to organic growth, and I think we will see the outcome of that as we move forward.

Stephen, just to put a finer point on it, we do not necessarily anticipate any additional security sales to fund loan growth. That was just really strong growth in the last two quarters above plan during our seasonally weaker period for deposit growth, and so it was kind of prudent to do so given that some of those were relatively lower yielding securities anyway on a floating rate basis, and so we replaced that with loans. Going forward, it will really be we will have $600 million a year of securities cash flow that will probably be used to remix the balance sheet towards loans, as I mentioned earlier. The aggregate growth of the balance sheet will be more dictated by the pace of deposit growth. Still in that low to mid-single digit range, that is what you should think about for aggregate balance sheet growth.

Got it. Great. Really good color there. Thanks for the time.

Thanks, Stephen.

With no further questions in queue, I would like to turn the conference back over to Chuck Shaffer for closing remarks.

I just want to thank you all for joining this morning. Again, my congratulations to the Seacoast team for celebrating our 100th years. We appreciate all the support from our associates, from our customers, from our shareholders, and all the communities that we work and serve. It has been exciting to celebrate that here at Seacoast, and we are looking forward to 2027. Thank you all for being here this morning. We are around if anybody has questions post-call. Operator, that will conclude the call.

This concludes today's conference call. You may now disconnect.