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Welcome to the Seacoast Banking Corporation Second Quarter 2026 Earnings Conference Call. My name is Colby, and I will be your operator. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, we will conduct a question-and-answer session. If you would like to ask a question at that time, please press star one. 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 call over to Chuck Shaffer, Chairman and CEO of Seacoast Bank. Mr. Shaffer, you may begin.
Thank you, Colby, and good morning, everyone, and thank you for joining us. As we move through today's presentation, we will 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. Seacoast 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%, up from 13.3% a year ago. Adjusted pre-tax pre-provision earnings increased 52% from a year ago, driving continued improvement in operating leverage. Growth remained a key highlight for the quarter, and organic loan growth was 16% annualized, supported by broad-based production across our commercial banking platform, and we finished the quarter with a record commercial pipeline of approximately $1.3 billion. Importantly, we achieved this growth while maintaining underwriting discipline, and we continue to see strong opportunities to onboard additional banking talent teams across multiple markets. We expect to continue to deliver on our high-single-digit growth rate target for the full-year 2026. Funding trends were also favorable. Total deposits increased at a 4% annualized rate, led by growth in noninterest-bearing 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 noninterest-bearing demand deposits as we continue to onboard full relationships. Noninterest income improved from the prior quarter, our efficiency ratio remains on track with our guidance, and credit quality remains strong. Nonperforming loans declined. Net charge-offs remained low at 10 basis points of average loans, and accruing past-due loans improved. While provision expense increased due to supporting strong loan growth, our overall portfolio performance continues to reflect our conservative underwriting standards and proactive risk management. 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 could not 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 our full attention on organic growth, operational execution and disciplined financial performance over the remainder of the year. 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 repurchasing of 750,000 shares during the quarter, and year-to-date, that represents 1% of our outstanding shares repurchased. As Seacoast celebrates its 100th year, I want to thank our associates for their dedication and commitment. The one-team culture we operate with 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 will turn it over to Tracey to walk through our financial results.
Thank you, Chuck. Good morning, everyone. Beginning with slide 4 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 noninterest-bearing demand deposits, and the cost of deposits declined 1 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 8 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 5. Net interest income totaled $182.2 million, up $4 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 8 basis points to 3.65%. Turning to noninterest income on slide 6. Noninterest 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 noninterest 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 7. 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% compound annual growth rate in the past five years. Moving to expenses on slide 8. Noninterest expense totaled $123.1 million in the second quarter, which includes $8.4 million of merger and integration costs. In the third quarter, we will 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, noninterest 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 30, 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 nonperforming 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. Demand deposits increased 4% on an annualized basis to $4.2 billion. Deposit costs and overall funding costs are lower, and we have used brokered 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 and the investment securities portfolio. Net unrealized losses in the available-for-sale 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 have 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 as we move to the second half of 2026. With that, I will turn the call back to Chuck.
Thank you, Tracey. And before we jump into Q&A, I want to reiterate my thank you to all the Seacoast associates on the call. The conversion was incredibly well executed. They did an amazing job. It went flawlessly. Many people across our markets were involved. Thank you to everyone that worked so hard on that. As we enter our 100th year, we are excited to celebrate our 100th anniversary later in the year. We are working on ringing the Nasdaq bell. We are in really incredible shape as we move through the year, and it has been exciting to get the conversion complete. With that, operator, we will go to Q&A.
分析師問答
Thank you. We will now begin the question-and-answer session. Your first question comes from the line of Russell Gunther with Stephens Inc. Your line is open.
Hey. Good morning, guys. The deck highlights an average commercial loan size of $1 million. 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 toward larger loans or an expanded credit box?
Great question, Russell. We are recruiting bankers out of larger institutions, primarily the regional banks. That brings opportunities to bank larger and more complex clients. We are very disciplined in managing to our hold limits and thoughtful about concentration limits. The positive about our balance sheet is there is a lot of room to book bigger credits without significantly moving the average loan size. If you look at the size of the portfolio and the way we have built it over many decades, there is a tremendous amount of granularity. We still do plenty of smaller credits when you look at the actual number of credits, and there are a few larger ones along the way. The larger ones bring operating leverage. On the flip side, we must manage loss ratios, and we are always carefully navigating that over time. We are very disciplined on where we hold, and we have a great syndications desk when we need to syndicate credits to get above our hold limits. We are having opportunities to bank larger, more complex clients. The beauty of that is they bring large operating balances, treasury management, and in some cases, wealth management. It has been great to see.
I appreciate your thoughts there, Chuck. 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. Maybe just help us get a sense for the sustainability of this double-digit growth rate. I know you have left the full-year guide unchanged, but could there be upside to that or how should we think about 2027 organic growth expectations?
When you think about the full-year guide, remember in the first quarter we were about flat on growth because we had some large payoffs. Combined, that brought us right in line with where we expected to be. The quarter was very strong and the pipeline is very strong. To give color, about 40% of that 16% annualized growth was related to residential mortgages we booked in the portfolio primarily out of The Villages market. We expect to sell a little more of that as we move forward, so that may move more into fees rather than held loans over time. The rest of the growth comes from talent we have onboarded over the last few years. We have recruited at a high level from super regional banks, and they continue to onboard clients. There are also strong dynamics in Florida. We cover just about every major market in Florida and many tertiary markets; we have a statewide brand that resonates with clients who want an organization that has the sophistication to grow with them. We have invested heavily in treasury management, bankers, and credit. Those overhead investments make us very competitive in the marketplace. There are many clients who want a headquartered bank that is local and can serve their needs with sophistication. We see a lot of demand for what we are doing and more to come.
That is really helpful. Thanks for your thoughts, Chuck. That is it for me.
Thanks, Russell.
Your next question comes from the line of David Feaster with Raymond James. Your line is open.
Hey. Good morning, everybody. I want to talk about The Villages deal. Getting an update, you talked about the conversion went extremely smooth and integration is largely done. This is a huge deal with a large amount of opportunity. I am curious what is next as you look forward, executing on efficiency initiatives and cross-selling initiatives. What do you see there?
As we have said, this is the most transformative thing we have done in the history of our company. It is a meaningful market and a growing market. It remains the fastest growing metropolitan area in the country and we see a lot of inbound population growth there. As we wind down conversion activities, we still have probably another six to eight weeks of work to ensure clients are fully onboarded; branch traffic and call center traffic remain busy. After that, it will be back to full organic business and we will focus on cross-selling our consumer product base. There are strong opportunities to build a wealth management business in that market; we are already seeing good inbound opportunities. We will continue to build a branch network there as the market develops. It will be a good source of deposits, wealth management clients, and an important mortgage market. With the conversion behind us, we can put our full attention on organic growth. That makes me feel great about our outlook for the remainder of the year and into 2027.
That is great. On the loan growth there is a high degree of confidence. From everything you alluded to. I am curious on the funding side. There are seasonal factors this quarter. Competition for deposits has increased. How do you think about core deposit growth, where you are having success, and how you can drive core deposit growth while defending deposit costs given industry dynamics?
We have flexibility in the balance sheet. As we continue to onboard operating companies, we are seeing DDA growth. The beauty of our balance sheet is we can manage margin and growth; we can lean in on price or lean out. We do not have the constraints that some peers may have that are fully lent up with high loan-to-deposit ratios. We have a low loan-to-deposit ratio, which gives us flexibility. As we get past conversion, retail teams that were heavily focused on the conversion will return to growth activities. That will provide additional opportunity. Michael, I will let you speak to deposit cost dynamics.
David, we have done a lot of work to reduce our certificate of deposit cost on the customer side as rates have come down. That dynamic is largely complete. We want to be competitive and grow from here, but we are still adding at a blended cost of deposits in the low twos when you blend DDA and interest-bearing balances, with DDA interest bearing in the mid-twos. Over time with growth we will see those deposit costs move up a little, but it is more tactical rather than requiring us to be aggressive. That gives us the ability to continue to grow profitably versus compressing profitability as we grow, given our low loan-to-deposit ratio and not having our backs against the wall. We feel very strong about the balance sheet position and where we are headed.
Definitely coming at it from a position of strength. One last question: we hear a lot about competition, especially on pricing for loans. Where are new loan yields in the pipeline today, and are you starting to see pressure that is moving to underwriting, such as structures and standards changing? I appreciate Chuck's comment that you are disciplined on underwriting, but is competition migrating toward structure and standards?
Michael, why don't you address add-on rates and then I will discuss competition and underwriting.
On add-on rates on the commercial side, they were around the low sixes for the quarter, modestly down versus the first quarter due to competitive forces. We tend to operate in lower-risk segments, and some competitors have moved into those areas while some super regionals have jumped back in. That has pressured some spreads. Still, these are good clients, and when you blend those yields with the core deposits we are bringing on, it is a reasonable return. On the residential side, we have been retaining more mortgages through the first half of the year. With the long end of the curve up, that has been positive and supportive of yield, more in the mid-sixes.
It is very competitive right now. National banks are back in and competing in commercial real estate. We are remaining disciplined on underwriting, particularly leverage. We are starting to see competitors allow borrowers to put less equity into deals. That is not something we will chase. We maintain discipline around equity, and to some extent that requires pricing trade-offs to maintain equity in transactions, but we will make those trade-offs to stay conservative on underwriting. We are seeing things we do not like, but we will stick to our approach and see how it plays out. Competition is as intense as I have seen.
Okay. That is helpful. Thanks, everybody.
Thank you, David.
Again, if you would like to ask a question, please press star one. We will pause just for a moment to compile our roster. Since there are no further questions in queue, I would like to turn the call back over to Chuck Shaffer for closing remarks.
Thank you. Growth is on track and we are very pleased with the progress this quarter. We have more balance sheet flexibility than many in the industry, which will allow us to operate profitably over the back half of the year. We also have strong durability of earnings following the bond repositioning we executed earlier in the year. I could not be more excited about what is ahead now that the conversion distraction is behind us. Thank you to everyone on the call today. We will be available for questions if anyone has any follow-up. Operator, I will conclude our call. Thank you.
Ladies and gentlemen, this concludes today's conference call. You may now disconnect.