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DATE
Friday, July 25, 2025 at 2:00 p.m. ET
CALL PARTICIPANTS
Chief Executive Officer — Charles M. Shaffer
Chief Financial Officer — Tracey L. Dexter
Treasurer, Head of Corporate Development & Investor Relations — Michael J. Young
Chief Credit Officer — James Stallings
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TAKEAWAYS
Net Income-- Net income was $42.7 million for the quarter, up 36% sequentially, primarily attributed to loan growth and lower deposit costs.
Adjusted Net Income-- Adjusted net income was $44.5 million, a 39% quarter-over-quarter increase, excluding $2.4 million of merger-related charges.
Return on Assets-- Return on assets was 1.08%, demonstrating improved profitability metrics.
Return on Tangible Common Equity-- Return on tangible common equity was 12.8%.
Adjusted Efficiency Ratio-- Adjusted efficiency ratio was 55.4%, an improvement from 59.5% in Q1 2025, excluding merger-related charges.
Loan Growth-- Annualized loan growth reached 6.4%, driven by $854 million in loan production and strong commercial pipelines.
Net Interest Income-- Net interest income was $126.9 million, a 7% increase from the previous quarter.
Net Interest Margin-- Net interest margin was 3.58%, expanding 10 basis points sequentially; core margin (excluding accretion) up 5 basis points to 3.29%.
Deposit Costs-- Deposit costs declined to 1.8%, a 13 basis-point improvement from 1.93% last quarter.
Noninterest Income-- Noninterest income (excluding securities activity) was $24.5 million, increasing 10% from the second quarter of 2024; includes a $700,000 gain from salable mortgages and $3.4 million in BOLI income.
Projected Noninterest Income-- Expected noninterest income in the $20 million to $22 million range for Q3 2025.
Assets Under Management-- The wealth division added $215 million in new assets under management year-to-date, with total AUM up 16% year-over-year.
Allowance for Credit Losses-- Allowance for credit losses was $142.2 million, representing 1.34% of total loans and unchanged sequentially.
Net Charge-Offs-- Net charge-offs were $2.5 million, or nine basis points annualized.
Nonperforming Loans-- Nonperforming loans were 0.61% of total loans, down by $6.8 million during the quarter.
Criticized and Classified Loans-- Criticized and classified loans declined slightly to 2.39% of total loans, showing a slight decline.
Tangible Book Value per Share-- Tangible book value per share was $17.19, representing a 12% year-over-year increase.
Tier 1 Capital Ratio-- Tier 1 capital ratio was 14.6%, indicating a very strong capital position.
Allowance and Discount Coverage-- The sum of the allowance for credit losses and remaining unrecognized discount on acquired loans totals $250.6 million, or 2.36% of total loans.
Heartland Bancshares Acquisition-- Closed July 11, adding four branches and approximately $777 million in assets as part of the Heartland Bancshares acquisition.
Villages Bank Corporation Acquisition-- Expected to close in late October, bringing approximately $4.1 billion in assets.
Deposit Mix-- Customer transaction accounts comprise 47% of total deposits, emphasizing the relationship-based franchise.
Loan Portfolio Diversification-- Nonowner-occupied commercial real estate loans represent 34% of all loans; exposure remains within regulatory guidance and below peer group levels.
Securities Portfolio-- Net unrealized losses in the available-for-sale portfolio improved by $16 million, driven by changes in long-term rates.
Deposit Growth Guidance-- Management expects low single-digit organic deposit growth for the full year 2025.
Core Net Interest Margin Guidance-- Management anticipates exiting the year with an approximate 3.35% core net interest margin. The two acquisitions could add approximately 10 basis points to that figure.
SUMMARY
Management highlighted margin expansion resulting from proactive deposit cost actions and robust loan growth, signaling continued confidence in achieving mid to high single-digit organic loan growth through 2025 and into 2026. The company completed the Heartland Bancshares acquisition and remains on track to close the Villages Bank Corporation deal, each expected to add scale and improve funding mix.
The company stated integration of the Heartland and Villages franchises should "significantly enhance Seacoast's profitability profile" after full integration.
Chief Executive Officer Shaffer said, "The pipeline going into the third quarter remains, continues to be strong." supporting the company’s forward guidance for loan growth.
Management indicated the mid-cycle net charge-off expectation remains at 20 to 25 basis points, with current levels well below that range due to the exit from consumer fintech portfolios.
Treasurer Young discussed returning to a "low thirties" total deposit beta as further Federal Reserve cuts are realized, reflecting normalization after aggressive rate management.
Chief Credit Officer Stallings reported "increased competition" and some spread compression in commercial real estate over the last ninety days, but noted credit quality and structure remain stable.
Planned deleveraging of wholesale funding following the Heartland acquisition will further improve the funding mix without impacting the investment securities balance.
This supports margin upside of approximately 10 basis points to core net interest margin upon the close of the Villages transaction, expected in Q4 2025.
INDUSTRY GLOSSARY
Nonowner-occupied commercial real estate loans: Loans secured by commercial property where the primary occupant is not the property owner, commonly used in CRE banking disclosure.
BOLI (Bank-Owned Life Insurance): Life insurance policies owned by banks on certain employees, with income recognized as noninterest revenue.
Deposit Beta: The sensitivity of a bank's deposit costs to changes in benchmark interest rates over an interest rate cycle.
Accretion: The periodic recognition of purchase discounts related to acquired loans, increasing asset yields and interest income over time.
Full Conference Call Transcript
Chuck Shaffer: Okay. Thank you, Angela, and good morning, everyone. We proceed with our presentation, we'll refer to the second quarter earnings slide deck. Available at seacoastbanking.com. Joining me today are Tracey Dexter, our Chief Financial Officer, Michael Young, our Treasurer, Head of Corporate Development Investor Relations, and James Stallings, our Chief Credit Officer. The Seacoast team delivered exceptional results in the second quarter of 2025, reflecting the strength of our growing franchise, the discipline and focus of our team, and the momentum we continue to build across all of our markets.
This quarter was highlighted by a substantial increase in net income, up 36% from the prior quarter, largely driven by a 10 basis point expansion in the net interest margin, and this was the result of robust loan growth and disciplined deposit cost management. We also delivered solid performance in noninterest income and continue to demonstrate effective expense control. Profitability improved across the board. We made meaningful progress in our strategic priorities. Annualized loan growth reached 6.4%, supported by a strong commercial pipeline, an outcome of a multiyear strategy to attract top talent from larger institutions. This talent continues to drive high-quality loan production and deepen customer relationships.
We also successfully closed the Heartland Bancshares transaction a few weeks ago and remain on track to close the Villages Bank Corporation acquisition in the fourth quarter. Both franchises bring high-quality deposit bases and complementary balance sheets. Once fully integrated, we expect these transactions to significantly enhance Seacoast's profitability profile. Turning to credit, asset quality remains sound, nonperforming loans declined to 0.61% of total loans. Net charge-offs were just $2.5 million, reflecting our continued focus on disciplined underwriting and proactive risk management. Criticized and classified loans remain stable. In closing, I want to express my sincere appreciation to our dedicated associates for their commitment to advancing our growth and profitability goals. Their focus and execution continue to drive our success.
I remain very confident in our strategic direction, and we are enthusiastic about the opportunities that lie ahead. With that, I'll turn it over to Tracey to walk through our financial results. Tracey?
Tracey Dexter: Thank you, Chuck. Good morning, everyone. Directing your attention to second quarter results, beginning with Slide four. The Seacoast team delivered a strong quarter, with net income of $42.7 million or 50¢ per share, increasing 36% from the prior quarter, and adjusted net income, which excludes merger-related charges, increasing 39% sequentially to $44.5 million or 52¢ per share. Profitability metrics are all improved, and include a return on assets of 1.08%, return on tangible common equity of 12.8%, and an improvement in the efficiency ratio which, excluding merger-related charges, was 55%. Loan production was solid, with growth in balances over 6% on an annualized basis.
Net interest income was $126.9 million, an increase of 7% from the prior quarter, and net interest margin expanded 10 basis points to 3.58%. Excluding accretion on acquired loans, net interest margin expanded five basis points to 3.29%. Contributing to the NIM improvement is a decline in deposit costs, from 1.93% in the prior quarter to 1.8% in the second quarter, reflecting our continued focus on relationship-based funding and disciplined pricing. Tangible book value per share of $17.19 represents a 12% year-over-year increase. Our capital position continues to be very strong, Seacoast's tier one capital ratio is 14.6%, the ratio of tangible common equity to tangible assets is 9.75%.
We completed our acquisition of Heartland Bancshares on July 11, adding four branches and approximately $777 million in assets. We announced our proposed acquisition of Villages Bank Corporation, which will add a significant additional presence in Central Florida and approximately $4.1 billion in assets. That acquisition is expected to close in late October 2025. Turning to slide five. Net interest income increased by $8.4 million during the quarter, driven by loan growth and by lower deposit costs. The net interest margin expanded 10 basis points to 3.58%, and excluding accretion on acquired loans, expanded five basis points to 3.29%. In the securities portfolio, yields decreased one basis point to 3.87%.
Loan yields expanded eight basis points to 5.98%, excluding accretion, loan yields were flat compared to the prior quarter. Through proactive deposit cost management, we've brought the cost of deposit down by 13 basis points during the quarter to 1.8%. With strong momentum in loan growth, deposit costs now lower and stabilizing, additional liquidity and accretive acquisitions, we expect net interest income to continue to grow through the remainder of the year. Additionally, we continue to expect to exit the year with the core net interest margin of approximately 3.35% inclusive of one expected rate cut in September and one in December. And with the two acquisitions, that could add approximately 10 basis points to that figure.
Moving to slide six. Noninterest income, excluding securities activity, was $24.5 million, increasing 10% from the second quarter of 2024. Fee revenue continues to benefit from our expansion of treasury management services to commercial customers. Our wealth and insurance businesses provide consistent strong results. Salable mortgages originated during the quarter generated gains of $700,000. BOLI income increased to $3.4 million in the second quarter, and included a $900,000 benefit. Other income totaled $7.5 million and included a $3 million payroll tax credit received during the quarter claimed by a bank that we previously acquired. Looking ahead to the third quarter, we expect noninterest income in a range from $20 million to $22 million. Moving to slide seven.
Our wealth division continued its strong growth, adding $215 million in new assets under management so far this year. With total AUM increasing 16% compared to this time last year. Moving to slide eight. Noninterest expense in the second quarter was $91.7 million, an increase of $1.1 million. The current quarter includes $2.4 million in merger-related expenses. Higher salaries and wages reflect annual merit increases and performance-driven incentives. Other categories of expenses are in line with our expectations, and reflect our continued focus on profitability and performance. Our adjusted efficiency ratio improved to 55.4%, down from 59.5% in the first quarter, demonstrating continued operating leverage.
We continue with that focus, and with the addition of the Heartland franchise, we expect adjusted expenses for the third quarter, which excludes direct merger-related costs, to be in a range of $92 million to $94 million. Turning to slide nine. Loan outstandings increased at an annualized 6.4% with production of $854 million in the second quarter. Pipelines remained strong at $921 million and we continue to see strong demand across our markets. Loan yields expanded eight basis points with higher accretion on acquired loans resulting from elevated payoff. Looking forward, the pipeline is very strong, and we expect continued mid to high single-digit organic loan growth in the coming quarter and for the full year 2025.
Though the impact of tariffs may add some uncertainty. 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, we continue to be vigilant in maintaining our disciplined, conservative credit culture. Nonowner 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 33221% 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 $142.2 million, or 1.34% of total loans. With no change in allowance coverage compared 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 $108.5 million remaining unrecognized discount on acquired loans, totals $250.6 million, or 2.36% 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. Credit quality remains strong. We recorded net charge-offs of $2.5 million during the quarter, or nine basis points annualized. Nonperforming loans declined by $6.8 million during the quarter and represent only 0.61% of total loans. And accruing past due loans moved lower to 0.13% of total loans. The level of criticized and classified loans declined slightly to 2.39% total loans. Moving to slide 13 and the investment securities portfolio. We leveraged wholesale funding to purchase securities in the first half of the year in advance of the Heartland acquisition. Adding primarily agency securities to the portfolio with an average book yield near 5%.
Interest rate swaps that had been beneficial to prior quarters matured in April with the impact to the overall portfolio yield offset by the new purchases. Net unrealized losses in the AFS portfolio improved by $16 million during the quarter, driven by changes in long-term rates. Turning to Slide 14 on the deposit portfolio. Total deposits dipped $77 million, reflecting, as expected, typical seasonal slowness and a strategic focus on exiting very high rate deposit relationships. We took proactive steps to manage down the cost of deposits, which declined 13 basis points to 1.8%. This funding will be replaced with lower-cost core franchise deposits from Heartland, improving our margin outlook.
We continue to onboard new relationships and build market share with a focus on core deposits. We expect low single-digit deposit growth, organic deposit growth, for the full year 2025. On slide 15, Seacoast continues to benefit from a diverse deposit base. Customer transaction accounts represent 47% 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 grown to $17.19, and the ratio of tangible common equity to tangible assets is exceptionally strong at 9.8%. We saw meaningful improvements in return on equity measures, and our risk-based and tier one capital ratios remain among the highest in the industry. As a reminder, we'll be putting some of this capital to work in the Heartland and Villages transaction, which will materially improve our return on capital. In summary, results this quarter reflect the strength of our core franchise and disciplined execution across the organization. We remain confident in our ability to deliver strong sustainable performance. Our balance sheet is well positioned, and our capital position is strong.
We'll continue to execute on our organic growth and profitability goals as we integrate recent acquisitions, and grow the franchise. I'll now turn the call back to you, Chuck. Alright. Thank you, Tracey. And, operator, we'll take some questions.
Angela: Thank you. We will now begin the question and answer. If you have dialed in and would like to ask a question, please press 1 and your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press 1 again. If you are called upon to ask your question and are listening by loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. And your first question comes from the line of David Feaster with Raymond James. Your line is now open.
David Feaster: Hi. Good morning, everybody. Morning, David. Morning, Dave. I wanna start on the growth side. Know, really encouraged by the growth trends that you've been seeing over the past few quarters and the strength the continued strength of the pipeline. I just wanted to get a sense, first off, on the competitive landscape from your standpoint in Florida, and then some of the drivers behind this growth. I mean, is the growth like, is it increased demand and activity from your clients as maybe things have settled down or less maybe the worst-case scenario with trade wars is kind of off the table, or is this the hires that you've made really just gaining share and, that's the biggest driver?
Just kinda curious some of those dynamics.
Chuck Shaffer: Thanks, David. And I'll start with the drivers to growth and then come back around to the competitive landscape. You know, obviously, we've had a very focused approach to advantage of the ability to recruit bankers, across all of our markets. We've had significant success with that over the last or three years, and it built, you know, as I've described in the past, what I think is a, you know, exceptionally strong commercial and treasury management team across our organization, and that is driving growth as we continue to onboard clients from that recruiting effort. That's one driver. The second driver is economic conditions remain really strong. Across the footprint. Demand for credit remains strong.
The impact of tariffs at this point has been fairly limited. And, really, we've not seen any sort of confidence weaken or anything along those lines. Sort of the market remains still as focused as it has been. The pipeline going into the third quarter remains, continues to be strong. And so I feel confident in our ability to deliver that mid to high single-digit growth rate at least over the next few quarters. And into 2026. Team's doing exceptionally well. And so I feel very confident, David, on our path forward there. And it is largely driven by talent. It's also driven by demand in the marketplace.
And, you know, kinda on the other side of the big beautiful bill, it seems like we've gotten past any lack of confidence in the forward direction, and I think that's all supportive of growth as we move forward in the coming quarters and into the coming year. The competitive landscape, I would say, continues to probably increasingly get more competitive. We saw, particularly in commercial real estate, a lot of large banks pull out of the space, in '24 in '23 and '24 in particular, and now have come back in a material way. It's as competitive as it's ever been kind of across the board, across all of our markets.
So, you know, it's, it's full-on competitive at this point. And, so but we continue to do well there. We pick our spots carefully, and I'm pleased with the growth this quarter and pleased with the outlook for growth.
David Feaster: That's great. That's helpful. And maybe just switching gears to the other side of the balance sheet. Right? You've done a great job actively managing funding costs, continue to push deposit costs lower. Obviously, we've got the Heartland and the Villages deal coming online. But I guess at a high level, how do you think about funding costs? Is there much deposit cost leverage left? And where do you see the most opportunity to drive the core deposit growth that you're talking about?
Chuck Shaffer: I'll let Michael take the deposit cost side and maybe come back with a few comments around driving growth. But, Michael, you wanna talk a little bit about the outlook for deposit cost?
Michael Young: Sure, Dave. And just what you know, we had a great quarter, great work by the team, just kind of proactive management. You know, we've been speaking to the fact that, you know, we were very, you know, friendly through the liquidity constrained environment. '23 and '24, and we've been bringing deposit cost down. As the Fed cut rates and then just some proactive and tactic this quarter that really, you know, moved the needle for us and ROA that we've been focused on. So we've done a lot of that work. You know, I think we wanna be judicious here, and we don't wanna constrain growth.
So we're gonna balance you know, between growth and volume and, you know, rate management from here. But I think, really, the opportunity at this point is growing those core operating accounts and blending down our cost of funds through DDA growth over time. And with all the bankers we've added, you know, that's been really beneficial. To them bringing over relationships and full relationships that should be additive to that. On the volume side, just as a reminder, we're kind of the seasonal low point for us, with public funds. At seasonal low points, and then we have the tax-related outflows at the end of the first quarter, headed into the second quarter.
So should also see the seasonal trends turn to tailwinds from headwinds in the second half. Yeah. And the only thing I'd add to that, Michael, I think you answered that really well, is we have any deposit verticals or any sort of wholesale deposits in the franchise. We win deposits and loans customer by customer, and it's the entire balance sheet is relationship-based. And so as we move forward, as we onboard customers and prospects, particularly, those coming off the balance sheets of the larger banks, we'll continue to add to our core deposit franchise. And we're not focused on driving high-rate deposits and sort of more transactional-based deposits.
It is about net new checking core accounts and driving business growth over time.
David Feaster: Okay. That's good. And then just kinda curious, maybe some balance sheet optimization thoughts. I mean, you guys have been very active. We got these two deals. Gives you a ton of financial flexibility and optionality. You've already done some prepurchasing for the Heartland deal. You know, you touched on some of the moves with swaps. I'm just curious, you know, I guess, with these two deals and anticipation of Fed cuts and just kinda where we are today, how do you think about has your has your plans to manage and optimize the balance sheet changed and just some of your priorities here?
Michael Young: Sure, David. This is Michael. You know, I think the long-term plan is the same. You know, these acquisitions are super valuable deposit franchises, and we're super glad to have them as part of the overall Seacoast franchise. It looks a lot like, you know, who we are and we've always been. And so it'll just continue to add, you know, ballast to the balance sheet, and keep us very steady through various rate cycles that may emerge. Obviously, there's a lot of different permutations and outcomes that may transpire in terms of interest rates over the medium term, and we're, you know, just very focused on managing that interest rate risk, appropriately.
But I think it really gives us a lot of raw material and to optimize, you know, earnings and profitability. For the franchise as we move forward. And particularly as time progresses, we've talked a lot about, you know, just the fixed rate repricing trends on our balance sheet and even the acquired balance sheet. So you know, we're stepping into sort of margin expansion assets re repricing higher. And then this really core sticky deposit that I think we've reevidenced through the second quarter, that'll be positive for us.
So we'll get an initial lift as we reposition the securities portfolios, here in the back half of twenty five, and then the upside comes from, you know, that 70 low seventies loan to deposit ratio remixing up towards you know, 80 and eventually 85% loan to deposit ratio as we deploy that. With, banker hires and loan growth. You know, over the coming years. Yeah. And I would point investors and shareholders back to the deck we put out on the village transaction that contemplated both bank deals in the forward direction of Seacoast.
And what you can see in that deck is one thirty plus ROA emerges know, fairly very strong return on tangible common equity, and that's the result of that repositioning. So we believe we're right on track with what we presented in the villages. Deck there, and, we also put some earnings guidance in there as well. So if you're looking for where we think we're headed, just go back to that deck. That's the outlook.
David Feaster: That's helpful. Thanks, everybody.
Chuck Shaffer: Thank you, Dave. Alright. Operator, I think we're ready for another question.
Angela: Your next question comes from the line of Woody Lay with KBW. Your line is now open.
Woody Lay: Hey. Good morning, guys. Hey. Good morning, Woody. Wanted to follow-up on deposit cost. I think so far through this evening, cycle, your interest-bearing deposit beta is around 80%. Obviously, there's kind of been some onetime corrections in there. Stemming from, you know, 2023. But how do you think about the deposit beta going forward with incremental rate cuts? Yeah. Hey, Woody. This is Michael. I'll take that one.
Know, I think what we had articulated is that we were kind of aggressive late in the cycle on betas on the way up to protect liquidity, and we expect it to be aggressive on the way down and, you know, reestablishing because we do we have a very strong deposit franchise, those lower deposit costs that Seacoast is known for. And I think we've evidenced that here through this quarter. So I think you've seen kind of the more aggressive move down in betas and then from here, you know, we'll return to more normalized betas, as we have incremental Fed cuts. Potentially through next year.
So know, we had a 45% cumulative beta this cycle versus prior cycles closer in the low thirties, I would expect we kinda return to that low thirties kind of, you know, top of the house beta. Again, not on interest bearing, just total deposits as we see incremental Fed cuts, move in from here. Got it. And then I can't remember off the top of my head what the or if you even specified what the sort of the beta assumptions were at the start of the year for the three thirty five core NIM for Seacoast, but it feels like you would have outperformed expectations a little bit.
Have there been any offsets on the asset side that sort of maintaining that core NIM guidance at three thirty five? Or I guess, could there be potential upside?
Michael Young: Yeah. It's a it's a good question, Woody. You know, I think we've you know, we certainly moved, more on the deposit side. Than where we, you know, maybe expected to be at this point, but also the Fed cuts are occurring later in the year, and maybe we'll only have one instead of two. And so if you think about it that way, we're kind of ahead of the game, but where we'll land at the end of the year you know, is maybe just slightly different because of the delay in the Fed cuts. Doesn't change the cumulative outcome.
And then the one other thing I would just call out is on the asset yield side, we've had those benefits from the pay fixed swaps and 2024, kinda handed off to some higher just prepayment and interest recovery benefits as we work through some credit resolution in the first half of this year. Then we'll expect that continued back book fixed rate repricing to really take the lead in the second half of the year. Combined with, you know, I think, balance sheet growth. And I think we're just leaning a little more towards growth, versus you know, margin optimization in the back half, which should land us in a similar spot.
And then we basically spoke to, you know, the deals we'll add roughly once we close the villages about 10 basis points to the margin at that point in time. And so just a little bit kg on when that will, you know, close, if that'll be early in the fourth quarter or late in the fourth quarter, we'll kinda dictate how much margin expansion we get there. Got it. Super helpful. And then just last for me. I know over you know, the past year investing in the you've kind of been toggling between investing in the franchise, while recognizing, you know, the profitability improvement story. We got a pretty notable inflection in the second quarter.
I know there's couple of onetime items that might have benefited, but profitability is still at a really nice level. Just given that and given some of the disruption we've seen in your backyard, how do you think about reinvesting into the franchise? Yeah. It's a that's a that's a great question, Woody. And we'll, we'll see what present their self. Obviously, last time there was significant, disruption, we materially capitalized on that disruption, and you're seeing the benefits of that now pull through our financials. As we move forward, we'll opportunistically look at opportunity and we'll weigh that against delivering what, we've committed to shareholders in terms of returns.
You know, I'd say my primary focus is delivering what we have in the in our village's deck and getting our profitability up to where I think it needs to be. But, if unique opportunities present themselves, we'll obviously look at them. Alright. Thanks for taking my questions. Thank you,
Angela: Your next question comes from the line of David Bishop with Hovde Group. Your line is now open.
David Bishop: Yeah. Good morning, guys. Hey. What? Hey, Tom. We keep we keep hearing about and I think maybe alluded to in the preamble or one of the questions about you know, large banks coming back into the commercial real estate market and such. Just curious what you're seeing out there in terms of loan pricing and spreads how they've trended over the past ninety days or so? It's been tough. I don't know. James Stallings, you wanna talk about what you're seeing? He's our chief credit officer. He's looking at deals every day. Commercial real estate pricing.
James Stallings: Yeah. Thanks, Chuck. And thanks, David. It's a it's a good question. You know, we are seeing I think for the for the top tier sponsors and for really quality asset, we're we're continuing to see, increased competition where, you know, we probably didn't see as many banks bidding as aggressively eighteen, twenty four months ago. That has changed in the last ninety days, and I would say we're we're, you know, we're starting to see some spread compression below a two handle. You know, we're seeing we're seeing 180, 190 basis point spreads on some on some really quality transactions. And then there's some pressure on structure. You know, we're seeing sponsors really push for longer IU periods.
Even with even with stabilized properties to try to drive cash on cash returns for their for their investors. So there's there's some competition, but the, you know, the good news is that credit quality is holding up, and so it's still supportive of the of the structures that we're that we're having to do to win business.
Chuck Shaffer: Yep. So we're carefully walking the line there of getting the right risk-based returns, but I don't think I think our growth outlook remains very, stable, but, we'll pick our spots carefully. We're always thoughtful and disciplined as how we approach credit, and we'll continue to be And as pricing compresses, we'll we'll pick our spots there too. Obviously, we'll support our high-quality tier one sponsors as we as we have in the past, but, we'll be thoughtful. As we move through time, and it's definitely more competitive than it was a year ago. Got it. That's a good segue, Chuck. Maybe to that next question. Here.
David Bishop: Or sticking with credit. Unusually low loss content this quarter. I think our charge-offs were sub 10 basis points. Just curious, as you look across the horizon, just maybe any sort of thoughts where you think you seen that charge-off stabilizing here in the near term? Yeah. Credit quality remains very stable, and our outlook is for it to remain stable. We're not seeing any deterioration across the portfolio. If anything, we're seeing it, sort of clean up as we've moved through past some of the M and A from sort of '22 and '23. So you know, I what I can tell you is I feel pretty good about our outlook on asset quality.
I think it does remain you know, very stable moving forward. And, David, this is Michael. Just, as a reminder and 2024, you know, we have the consumer fintech portfolio that we called out before that we largely liquidated in the fourth quarter. That had added about eight basis points to net charge-offs. So, you know, that's kinda removed and gone. And so, you know, kind of the benefits of that pull through. But, you know, longer term, we have the expect mid-cycle to be 20 to 25 basis points. So it's just kind of a mid-cycle level for us. Got it. And then one sort of housekeeping question, Mike.
I know into the Heartland deal, you know, the you add the security is in front of that. Should we expect that to unwind here in the third quarter? Have some runoff on both the securities and borrowing side? Mhmm. Yeah. Not on the security side because those wouldn't have been a part of financials. So the security balances will remain fairly consistent, but we will delever a little bit, or plan to on the wholesale funding side. So we had a little higher, you know, brokered and FHA borrowings, in the second quarter. And you'll see those, you know, likely come down depending on, you know, kind of the path forward, for us into the villages.
But that's that's really the plan as we stand here today.
David Bishop: Great. Thank you.
Angela: Your next question comes from the line of Russell Gunther with Stephens Inc. Your line is now open.
Russell Gunther: Hey. Good morning, guys. Good morning, Russell. I wanted to good morning, Chuck. Maybe just following up on the loan growth discussion a little bit. Make sure I understand. I think more recently, you committed to being able to kinda keep with this mid to high single-digit pace as you as you look ahead to '26. Even on the bigger balance sheet with these deals. Make sure that's the case. And then maybe just address the transaction specifically that transpired last night. What type of opportunity do you think that might represent? And how Seacoast would plan to try to capitalize on dislocation?
Chuck Shaffer: Yeah. Sure. Thanks, Russell. Just to reiterate, you know, we still feel very confident in our mid to high single-digit growth rate on the loan side going into back half of this year and into '26. So I think that guidance remains sound and I'm confident in our ability to deliver that. And then the transaction last night, obviously, like, I mentioned earlier, we you know, any disruption is always beneficial. We'll see how that all plays out. And see where opportunities may come to us. You know, we operate with a very sound, strong capital position, sort of in a differentiated way are going to have a lot of liquidity to put to work over the coming years.
And have a really strong culture inside the organization and supporting front line bankers. And know, as you see from a lot of the awards we won around best places to work etcetera, we've got a very strong, capable, sustainable business here, and I think it'll be attractive to banking talent over time. And as that opportunity's come up, we'll look at them. And you know, anytime there's upstream disruption that's beneficial, And even beyond the transaction announced last night, I suspect there'll be more over time. And so we'll look to take advantage of that across all our markets.
Russell Gunther: Yeah. I appreciate that, Chuck, and a good point. Certainly on you know, excess liquidity, capital, and culture. Then I had a follow-up on the margin expectation just to make sure I heard it right. So core three thirty five NIM, for the back half of the year. And then as you fold in the two deals, is the guide for a reported margin of three forty five in the back half of the year?
Chuck Shaffer: Core, margin would be three forty five. So we're guiding the core. We, you know, accretion income can come in high or low quarter to quarter, so we're just guiding off the core. So three thirty five in the fourth quarter. With the guide with the acquisitions adding about 10 basis points to the margin from the lower cost of funding that those will bring in. Yeah. Okay. Got it. So the step up was more to core. Yep. Yeah. Just to make it really clear, three forty five inclusive of transactions plus accretion gets you to the margin.
Russell Gunther: Okay. Very good. I appreciate the clarification, guys. Rest of my questions are asked and answered. Thank you.
Chuck Shaffer: Awesome, Russell. Thank you.
Angela: There are no further questions. I would now like to turn the call back over to Mister Shaffer for closing remarks.
Chuck Shaffer: Alright. Thank you, Angela. And, you know, I just wanna say thank you to the Seacoast team. You know, we've got a very focused effort here to grow in that high single-digit range over time and deliver a quartile returns, and the team, you know, was heads down focused on that this quarter. I think this quarter evidences the outcome of that, and I feel really good about where we're headed here into coming year. So appreciate everybody on the Seacoast team for all their hard work and welcome to the Heartland team joining the franchise here in the last few weeks. And looking forward to the conversion. And looking forward to the Villages transaction in the fourth quarter.
We've had a lot of great interaction with that team. It's been a really solid cultural combination, and we're super excited about what that looks like later this year. So thank you to everybody on our team. You guys did an awesome job, and we'll be around if anybody has questions on the quarter. And that'll conclude our call.
Angela: Ladies and gentlemen, that concludes today's conference call. Thank you all for joining. You may now disconnect.