Seacoast Third Quarter 2026 Earnings Conference Call - SEACOAST BANKING CORP OF FLORIDA

Financial Performance:

• Reported net income of $59.9 million ($0.55/share), up 1% sequentially and 64% year-over-year (YoY); adjusted net income was $71.8 million ($0.66/share), up 9% sequentially and 59% YoY.
• Adjusted pre-tax pre-provision earnings (PNW) reached $100.3 million, increasing 5% sequentially and 49% YoY.
• Net interest income totaled $185.4 million (up $3.2M QoQ); Net Interest Margin (NIM) remained stable at 3.83%, while core NIM (excluding accretion) rose 1 bps to 3.66%.
• Adjusted Return on Assets (ROA) improved to 1.34%; Adjusted Return on Tangible Equity (ROTE) increased to 16.9%.
• Non-interest income rose 14% QoQ to $31.6 million, driven by gains in wealth management, mortgage banking, and insurance; assets under management (AUM) reached $3.2 billion, up 29% YoY.
• Non-interest expense was $133.3 million including $15.5 million in merger costs; adjusted expense was $117.8 million, yielding an adjusted efficiency ratio of 53.9%.
• Loans grew $429 million (13% annualized) to $13.6 billion; total deposits were $16.6 billion (down $200M QoQ, primarily due to seasonal lows and $159M reduction in brokered CDs), with non-expiring deposits growing 10% annualized YoY.
• Allowance for credit losses stood at $191 million (1.41% of loans); non-performing loans declined 15% to $73.3 million (0.54% of total loans), and net charge-offs were $5.4 million.

Guidance and Future Outlook:

• Reiterated 2026 full-year guidance, projecting to exit the year in a strong position with high ROA (>130 bps) and ROTE (>16%).
• Fourth-quarter 2026 outlook includes approximately $2.4 million in non-recurring discrete expenses, with a targeted efficiency ratio band of 53-55% and normalized adjusted expenses of ~$118-119 million.
• Loan growth guidance for 2027 modeled at high single-digit annualized rates, with Q4 2026 projected near 10% annualized growth.
• Management anticipates margin expansion into 2027 driven by favorable asset repricing dynamics, seasonal public fund deposit inflows (lower cost), and a mix shift from securities to loans, assuming the yield curve remains elevated.
• Long-term capital deployment strategy focuses on organic growth, technology investment, and maintaining a disciplined balance sheet without relying on brokered CDs or FHLB advances.

Business Segments and Product Lines:

• Successfully completed the technology conversion and integration of Citizens First Bank and The Villages, removing M&A-related charges from the income statement.
• Wealth management segment continues to show strong organic growth, adding $574 million in new assets YTD; mortgage banking income benefited from higher MSR values due to rising rates.
• Insurance agency income and SBA loan sale gains contributed to non-interest income growth.
• Commercial loan pipeline remains robust at $1.3 billion as of September 30th.
• Balance sheet remixing continues, with ~$600 million in fixed-rate securities maturing by end of 2027 expected to be redeployed into higher-yielding loans.
• Construction loan book is transitioning from construction to permanent/mini-perm status, freeing capacity for future lending while maintaining risk guardrails.

Market and Competitive Landscape:

• Operating in a volatile macro environment with potential impacts from geopolitical events and post-midterm interest rate fluctuations.
• Management perceives lower sensitivity to deposit competition compared to peers due to a granular, relationship-oriented deposit base acquired through Villages and Heartland integrations.
• The commercial real estate (CRE) market faces demand destruction risks at higher rates, though management expects CRE values to eventually reconcile to facilitate transactions.
• Mortgage production is noted as more resilient than peers due to a concentration in new construction in The Villages rather than rate-driven refinances.

Risks and Challenges:

• Interest rate risk: While balanced by a 35% deposit beta vs. 35% floating-rate loan portfolio, further rate hikes could pressure deposit costs or dampen loan demand.
• Credit risk: Maintaining low charge-offs while expanding in a higher-rate environment requires disciplined underwriting; criticized loans remain stable at 2.9%.
• Securities portfolio: Unrealized losses on Available-for-Sale (AFS) securities increased by $237 million due to rising rates, impacting Accumulated Other Comprehensive Income (AOCI) and tangible book value.
• Execution risk: Future organic growth depends on successful hiring of bankers and continued technology investment, which may temporarily pressure the efficiency ratio.

Management Commentary and Tone:

• Tone is confident and optimistic, highlighting a "fortress balance sheet," strong profitability, and successful post-integration execution.
• CEO Chuck Schaefer emphasized the 100th anniversary milestone and the strategic shift from integration to pure organic growth and customer experience enhancement via AI/technology.
• CFO Tracy Dexter and Strategy Officer Michael Young expressed strong belief in hitting the high end of 2026 guidance and sustaining margin expansion into 2027.
• Management is focused on "attracting great bankers" and deepening customer relationships to drive the projected high single-digit loan growth.

Analyst Questions and Answers:

• Woody Lay (KBW): Asked about margin outlook and ROA normalization. Management confirmed Q4 margin expansion due to seasonal public funds inflows at lower rates; explained that while discrete expenses may slightly pressure Q4 ROA, long-term dynamics support >130 bps ROA.
• Russell Gunther (Stevens): Inquired about loan growth sustainability in a higher rate environment. Management expects ~10% Q4 growth but models high single-digits long-term; noted lower payoffs in a high-rate environment aid net growth. Clarified a 35% deposit beta is sustainable due to improved deposit mix.
• Stephen Scooten (Piper Sandler): Asked about CRE/Construction concentrations and balance sheet remixing. Management clarified that construction loans are moving to permanent status, allowing continued opportunistic lending; noted securities sales in Q3 were a one-time event to fund exceptional growth, with future mix shifts relying on maturing securities cash flows.

Other Key Points:

• Seacoast Banking Corporation celebrated its 100th anniversary on October 2nd.
• The company now has a "cleaner earnings profile" with the conclusion of M&A charges and technology conversion.
• Average non-interest-bearing deposit balances increased by $40 million in the quarter, and the top 10 depositors represent only 2% of total customer deposits, indicating strong diversification.
• Management does not anticipate further securities sales to fund loan growth in 2027, viewing the prior quarter's sales as a specific response to strong organic demand during a seasonal deposit trough.