Seacoast Banking Corporation of Florida

NASDAQ:SBCF

Earnings Call Transcript 2024-Q3

[Operator]

Welcome to the Seacoast Banking Corporation's Third Quarter 2024 Earnings Conference Call. My name is JL, and I will be your operator. [Operator Instructions]

Before we begin, I've been asked to direct your attention to the statement at the end of the company's press release regarding forward-looking statements. Seacoast will be discussing issues that constitute forward-looking statements within the meaning of the Securities and Exchange Act, and its comments today are intended to be covered within the meaning of that act. Please note that this conference is being recorded.

I'll now turn the call over to Chuck Shaffer, Chairman and CEO of Seacoast Bank. Mr. Shaffer, you may begin.

[Charles Shaffer, executive]

All right. Thank you, and good morning, everyone. Before we start, I want to express our sympathy for all those affected by the hurricanes. Our hearts go out to all those who lost loved ones or experienced catastrophic losses. I also want to express my sincere appreciation for our associates, who with unwavering resilience, valiantly reacted to both hurricanes, securing our facilities while preparing their homes and families and quickly focusing on supporting our customers and communities before and after the storm. I'm incredibly impressed and proud of our entire team. And Tracey will provide a few further thoughts on the hurricanes here shortly.

As we turn to the quarter, we will refer to the third quarter earnings slide deck, which is at seacoastbanking.com. And I'm here with Tracey Dexter, our CFO; Michael Young, Treasurer and Director of Investor Relations; James Stallings, our Chief Credit Officer.

The Seacoast team produced an excellent quarter. The results this quarter evidenced the inflection in growth and the start of margin expansion that we expected to materialize in the second half of 2024. We continue to see our investments in banker talent, marketing and customer-focused culture paying off, producing annualized loan growth of 7% and annualized customer deposit growth of 7%. And of note, loan originations were up 22% quarter-over-quarter and commercial noninterest-bearing demand deposits grew by $67 million. Importantly, this quarter also generated annualized growth in tangible book value per share of 20% to $16.20. And additionally, net interest income, noninterest income, pretax pre-provision earnings and the NIM, excluding accretion on acquired loans, all improved sequentially.

This quarter showcases the strength of the banking team we've been intently building over the last few years. And while completing our acquisitions in late '22 and '23, we also recruited an exceptional commercial banking team, credit team and retail banking talent with additions in all markets. This quarter, we continued this expansion with further investments in bankers in Fort Lauderdale, Gainesville and Tampa. And importantly, as we transformed our frontline, we've also made all the necessary governance and enterprise risk investments to be a well-functioning, compliant midsized bank.

So in summary, this quarter demonstrated several proof points of our operating strategy. First, organic growth was substantial compared to the industry, driven by the investment in talented banking teams across the state over the last 24 months. And secondly, we saw a growth in net interest income and the core net interest margin, which aligned with our previous guidance. Expenses were well controlled and noninterest income was up over 30% from 1 year ago. The combination of an expanding margin into 2025 with strong organic growth will support earnings improvements as we move into the coming year.

And words to remind you, we are unwavering in our commitment to maintaining our conservative balance sheet principles. This commitment is the cornerstone of our strategy and a key factor in ensuring our long-term success. We remain steadfast in our mission to establish Seacoast as the leading player in Florida.

Now I'll pass the call to Tracey to talk about our financial results.

[Tracey Dexter, executive]

Thank you, Chuck. Good morning, everyone. Directing your attention to third quarter results, beginning with Slide 4. Seacoast reported net income of $30.7 million, or $0.36 per share in the third quarter. Pretax pre-provision earnings on an adjusted basis increased nearly $2 million quarter-over-quarter, benefiting from growing revenue sources and well-controlled expenses. Tangible book value per share increased 20% annualized to $16.20. Loan production was strong with growth in balances of 6.6% on an annualized basis, and the pipeline for future production remains robust.

Growth in customer deposits was also strong. Total deposits grew 4.2% annualized, which includes a decline in brokered deposits. Excluding brokered, customer deposits grew 6.6% annualized and noninterest-bearing accounts grew over 5% annualized. On the net interest margin, consistent with the guidance we provided last quarter, the margin, excluding accretion and purchase discount on acquired loans, has begun to expand, increasing 3 basis points during the quarter to 2.90%.

In addition, we saw a 2% growth in net interest income, consistent with our expectations. Noninterest income increased 7% from the prior quarter and 33% from the prior year quarter, with continued success in deepening customer relationships through services, including wealth management, treasury management and insurance. And we continue to grow the team with additional investments in talent in key markets.

Our capital position continues to be very strong. Seacoast's Tier 1 capital ratio is 14.8%, and the ratio of tangible common equity to tangible assets is 9.6%. Also notable, if all held-to-maturity securities were presented at fair value, the TCE-to-TA ratio would still be over 9%.

Turning to Slide 5. Net interest income expanded by $2.3 million during the quarter, with growth in loans and securities, along with growing noninterest-bearing deposits outpacing a 3 basis point increase in deposit costs. Core net interest margin expanded 3 basis points to 2.90%. In the securities portfolio, yields increased 6 basis points to 3.75%, benefiting from recent purchases. Loan yields, excluding accretion, also increased 6 basis points to 5.58%. Accretion of purchase discounts on acquired loans was lower by $1 million compared to the prior quarter.

The cost of deposits increased to 2.34%, but with exit rates in September beginning to more fully reflect rate declines. Looking ahead to the fourth quarter, we expect continued expansion of net interest income and expect the core net interest margin to expand in a range of 5 to 10 basis points, driven by continued loan and deposit growth and declining deposit costs. Our expectations include two 25 basis point rate cuts in the fourth quarter.

Moving to Slide 6. Noninterest income, excluding securities activity, increased $1.3 million in the third quarter to $23.5 million. Service charges increased with continued expansion of our commercial treasury management offerings and new customer acquisition. Wealth and insurance agency income continue to grow. Other income was higher by $1.5 million, including higher SBIC income and higher loan swap fees. Looking ahead, we continue to focus on growing noninterest income, and we expect fourth quarter noninterest income in a range from $22 million to $23 million.

Moving to Slide 7. Assets under management have increased 16% year-to-date to just under $2 billion and have increased at a compound annual growth rate of 26% in the last 5 years. Wealth management revenues year-to-date reached $11.1 million, up 17% from the corresponding period in the prior year.

Moving to Slide 8. Noninterest expense for the quarter was $84.8 million, consistent with the guidance we provided last quarter. Recent expense reduction initiatives are benefiting nearly every category with the increase from the prior quarter, reflecting continued investments in revenue-producing talent. Expenses are well controlled, and the efficiency ratio improved to 59.8%. Discipline around expenses will continue to be a focus. And in the fourth quarter, we expect core noninterest expense to again be between $84 million and $86 million.

Turning to Slide 9. Loan outstandings increased at an annualized rate of 6.6% and average loan yields, excluding accretion on acquired loans, increased 6 basis points to 5.58%. The pipeline remains strong, and looking forward, we expect mid-single-digit loan growth in the coming quarter.

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, and we continue to be vigilant in maintaining our disciplined, conservative credit culture. Nonowner-occupied commercial real estate loans represent 35% 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 34% and 227% 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 $140.5 million, or 1.38% of total loans compared to 1.41% in the prior quarter. The allowance for credit losses, combined with the $142 million remaining unrecognized discount on acquired loans, totaled $282 million, or 2.8% of total loans that's available to cover potential losses, providing substantial loss absorption capacity. As we move into the fourth quarter, we're continuing to assess the potential impact of Hurricane Milton on our customers and whether and to what extent that may result in future credit losses. That may result in the need for a build in allowance in the fourth quarter, and based on our work to date, that may be in a range between $5 million and $10 million.

Moving to Slide 12. Looking at quarterly trends in credit metrics. Our credit metrics remain strong. Charge-offs included the resolution of a small number of individually evaluated credits with previously established specific reserves and the continued runoff of isolated acquired portfolios. Nonperforming loans represented 0.79% of total loans. Additions to nonaccrual loans in the third quarter included a small number of credits delinquent on payments, but for which no loss is expected as collateral values are well in excess of the loan balances. The level of criticized and classified loans to total loans remained flat at 2.59%.

Moving to Slide 13 in the investment securities portfolio. The average yield on securities has benefited from purchases in recent quarters at higher yields, with the portfolio yield increasing during the third quarter to 3.75%. Changes in the rate environment positively impacted portfolio values. And as a result, the overall unrealized loss position improved by $83 million. In October, we took advantage of favorable market conditions and have repositioned a portion of the available-for-sale portfolio. We sold securities with proceeds of approximately $113 million, yielding an average 2.8%, resulting in a pretax loss of approximately $8 million, impacting fourth quarter results. The proceeds were reinvested in agency mortgage-backed securities with a book yield of approximately 5.4% for an estimated earn-back of less than 3 years.

Turning to Slide 14 in the deposit portfolio. Total deposits increased by $127.5 million, with an increase in customer deposits of nearly $196 million, partially offset by a decline in brokered balances. The cost of deposits increased this quarter only 3 basis points to 2.34%, a slower pace of increase than in previous periods, consistent with our expectations. In September, based on actions we've taken in the portfolio, rates began to decline. Looking forward to the fourth quarter, we expect continued growth in core deposits and a continued decline in deposit costs, and we remain very encouraged about the continued activity and focus across the franchise on deposit gathering.

On Slide 15, Seacoast continues to benefit from a diverse deposit base. Customer transaction accounts represent 49% 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 increased to $16.20, and the ratio of tangible common equity to tangible assets remains exceptionally strong at 9.6%. Our risk-based and Tier 1 capital ratios are among the highest in the industry.

In summary, we remain steadfastly committed to driving shareholder value, and our consistent, disciplined expense management positions us well as we continue to build Florida's leading regional bank.

Chuck, I'll turn the call back to you.

[Charles Shaffer, executive]

Thank you, Tracey. And operator, we're ready for Q&A.

[Operator]

[Operator Instructions] Your first question comes from the line of Russell Gunther of Stephens.

[Russell Elliott Gunther, analyst]

I wanted to start with the margin. I appreciate all the color that you guys shared, particularly the piece on where deposit costs were for September. Wondering, first, if you could talk to how the margin shook out in September as well. And then as we think about the guide for core expansion of 5 to 10 bps in 4Q, can you just help triangulate that to where you'd expect the reported margin to head as well?

[Michael Young, executive]

Sure, Russell. This is Michael. So maybe we'll start with the deposit cost side, a couple of questions kind of were embedded in there on the deposit costs. I think just from a high-level perspective, if you zoom out over the whole cycle, we had about a 45% deposit beta on the way up. We would expect a similar level of performance on the way down. We have an acceleration of that beta later in the cycle. We also -- we still think we have a very strong deposit base. And we were very customer-friendly during a liquidity tight environment, and we think we'll be able to move pretty quickly on the way down. As a reminder, our deposits are mainly an exception tier. So we have the ability to flex those as we need. You saw the deposit cost in September that stepped down pretty materially, and we expect continued benefits into October from a full run rate of those reductions.

So we would expect the margin expansion that Tracey guided to in the fourth quarter when you take into account the amount of deposit reductions there, plus we do assume two additional rate cuts, although one in November, one in December. The one in December, obviously, though, not being that impactful for the quarter.

[Russell Elliott Gunther, analyst]

And then maybe switching gears to loan growth, really strong quarter. Pipelines look good. I appreciate thoughts on the coming quarter. How should we think about into 2025, given some of the hires mentioned, strength of your markets, but also considering potential impact of paydowns?

[Charles Shaffer, executive]

Yes. And maybe Michael can kind of follow up on the growth. But I'll just sort of reiterate what I had in my opening comments, really proud of the team we're building. I think they're exceptionally strong. I think the growth you saw this quarter is the outcome of the investments in talent we've made over the last 24 months. And as you see kind of coming in here in the fourth quarter, the pipeline remains strong. So I think our guide here for Q4 is mid-single digits.

In the long run, we'd like to be a little north of that as we move into late into next year, assuming the economy and everything plays out. But I think just generally mid-single-digit type guide is the way to think about at least over the next few quarters, depending on the economy and rates and how things play out here. But feel very good about the team we have. I feel very good about the volume we saw this quarter and expect a similar production quarter here coming into Q4.

Michael, anything you'd add to that?

[Michael Young, executive]

Yes. Just Russell, obviously, we have the 2 hurricanes late September and October, and that probably impacts growth a little bit in Q4, which is why maybe a slight step-down in the growth quarter-to-quarter, plus a little higher maturities in Q4. But we still see the momentum in the pipeline and the customer conversations, just a slight probably lag at the beginning of the quarter here.

[Russell Elliott Gunther, analyst]

Got it. Okay. Great. And then just maybe tying it all together, last one for me. So it sounds like we've got the expanding NIM. We've got growth inflecting higher. How are you guys thinking about an ROA target for '25?

[Charles Shaffer, executive]

Yes. We don't have anything out there, but obviously, we want to be north of 1 as we move through time. And we're very keenly focused on profitability. I'd say as we look over the next coming quarters and into next year, that is our primary objective right now. We've made a lot of really solid investments in talent around the company over the last 12 -- like I said earlier, 12 to 24 months. But over the coming quarters, our goal right now is to drive profitability north and more solidly deliver a better profitability profile. And so that is our objective coming into the year.

[Michael Young, executive]

I was just going to add on that, if you look back historically, our net interest margin is significantly higher than where we are today. I think with our kind of fixed rate balance sheet and low-cost deposit franchise that we look to kind of re-evidence, you'll see the margin expansion coming forward that will kind of get us back to a profitability level that we're happy with.

[Charles Shaffer, executive]

And just one more -- yes. Thank you, Russell. The momentum is strong. And with the strong momentum inflection in margin, that all sets up a good coming year.

[Operator]

Your next question comes from the line of Woody Lay of KBW.

[Wood Lay, analyst]

I wanted to just touch on the small bond repositioning you announced for October. Is this motivated by the pickup in loan growth? And if we see the growth sustained from here, is there a potential for some further restructuring?

[Michael Young, executive]

Woody, this is Michael. We did reinvest the proceeds of that restructure into new securities. So it's not necessarily something we did to fund loan growth. And we're seeing, quite frankly, strong deposit growth as well as you saw this quarter on a core customer basis. So it's not really a liquidity play so much as just our focus on kind of the math and the earnback and when we find opportunities where it's reasonable with kind of the rates moving higher here recently and less convexity in terms of what we would reinvest into, it made sense to go ahead and take the opportunity to do a small reposition on a select group of the books. So we'll just keep doing that, if the opportunities present themselves, and we'll stay away from it if it doesn't make sense.

[Wood Lay, analyst]

Got it. And then wanted to hit on accretable yield real quick. It was a little bit of a headwind in the third quarter. Just any kind of guide you could give for the next couple of quarters? Do you think the $9 million is a good run rate? Or does it take a further step-down from here?

[Tracey Dexter, executive]

This is Tracey. Yes, that's going to continue to be difficult to predict. But you might expect, and if you look back over the last few quarters, you can see as we get further out from the periods of acquisition, that level of accretion starts to taper off. So I think it's difficult to put a specific number on around timing. That's obviously just uncertainty around timing over the next few years. But maybe the trend that you've seen in the last few quarters could be a good indication of where accretion goes in the next few quarters.

[Charles Shaffer, executive]

Yes. If you think about the portfolio, it's burning off at a pretty stable rate at this point given where rates are. And so you could just trend it out from where it's gone in the last few quarters. It probably gives you a good sense of where it's headed in the coming year.

[Michael Young, executive]

And maybe one other -- sorry, this is Michael. One other thing to tack on there, Woody, just as you think about it in aggregate, we do have the CDI amortization as well that's headed down. So those will both be moving lower with time. So the net impact is a little more marginal than just the purchase accounting accretion by itself.

[Wood Lay, analyst]

Got it. I appreciate that color. And then maybe just last for me, shifting over to the noninterest-bearing deposits. I mean the growth was great to see in the quarter. It feels like trends are strong there. Do you think balances can continue to march higher from here just given the new client onboarding?

[Charles Shaffer, executive]

Yes. I mean I was really encouraged about that myself, and I do think it is 100% because of the new client onboarding. So yes, I think as we move through time, we can continue to move kind of at the pace we have. It's a key focus of ours. And on the C&I side of the business, we are 100% focused on full relationships. So when we're lending to these clients, we're expecting the client to move basically the entire banking relationship, and we're seeing that fairly consistently. So I was encouraged to see that and expect it to continue.

[Operator]

Your next question comes from the line of David Feaster of Raymond James.

[David Feaster, analyst]

I wanted to start on the organic growth side. I mean it was great to see what we've been talking about for a while come to fruition. And it's also good to see the stability in the pipeline, which again supports that this is sustainable. I'm just kind of curious how you think about the complexity of the pipeline. Obviously, growth in this quarter was driven by CRE. I know we've had a notable focus on trying to drive C&I growth. That obviously takes time to bring over relationships. But I'm just curious, how do you think about the complexion of the pipeline and drivers of growth going forward? Do you still expect it to be CRE heavy near term? And when do you think we can start seeing more of a C&I contribution?

[Charles Shaffer, executive]

Yes. And I would say, David, it's somewhat just dependent upon where fundings happen and what's term debt versus not. But if you were to look at the production in the quarter, it's about 50-50 CRE, C&I, I think that probably continues in the coming quarters, and that's about what our run rate has been. That's about kind of where things have been now for a while. So I do think over time, you can see if you look, owner-occupied CRE was up and nonowner-occupied CRE was up a little more, as you mentioned. But I expect it to be pretty balanced as we move through the coming quarters. And as I said, it's about 50-50.

[David Feaster, analyst]

Okay. And then maybe touching on the deposit front. I mean you talked about starting to reprice deposits lower. I'm curious, how has reception been with your clients so far? And as you think about trying to find that point where you can start -- where you can push deposit costs lower without losing the relationship or losing the deposits, like how are those conversations going? And where are you able to drive -- like what rates are on a blended basis are you able to drive new core deposit growth today?

[Charles Shaffer, executive]

Yes. And I'll let Michael take the second part of that question around the sort of new deposits coming on. But just in terms of client reaction, we really didn't see any pushback at all. It's gone pretty well. The clients accepted it, and we've seen the competition move down. So that's been kind of the good news, and that was the thing that we had to watch carefully is where does the competition go.

And as Michael mentioned earlier, as we went through the prior year, obviously, coming on the backside of the banking crisis in mid to early '23 with the bank failures, we were very client friendly and we move things up pretty rapidly there. And we wanted to protect client relationships and maintain liquidity in the balance sheet and maintain our core deposit franchise. As you know, over our history, we continue to maintain a very customer-focused, non-transactional funding base. And so we protected that. And as rates come down on the other side, I think it gives us a lot of ability to move rates down. So as the market moves, we're going to move.

And so I think that is a bit of benefit to our balance sheet given that kind of hurt us on the way up. The heavy level of fixed rate in the loan book, it will help us on the way down. And I think we'll have a little more flexibility than probably a lot of others on the deposit side. So I think that's a benefit we see out ahead for us.

And then, Michael, I don't know if you want to take the one on what the new add-on rate for deposits was.

[Michael Young, executive]

Yes. David, the new add-on rate on a blended basis, we were kind of in the low 3s generally across the quarter. We've pretty typically been around 200 basis points below Fed funds through the cycle. So as rates head lower, we would expect to be adding on at incrementally lower rates.

[David Feaster, analyst]

Okay. And then last one for me, just kind of maybe a high-level question for you all. I just wanted to get your thoughts on the Florida economy, especially post hurricanes, right? I mean you talked about it. I mean these storms can be catastrophic, right? Insurance costs have already been an issue in the state. I'm curious, you got to imagine that premiums are probably going to continue to increase, maybe some insurers leave the state. I'm curious, how do you think about -- how does that impact the Florida economy, especially the coastal ones and impacts on CRE from these trends? Just curious how you think about some of the impacts on the broader economy from this.

[Charles Shaffer, executive]

It's a great question. Really hard to answer, David. I think our initial reaction is we've been through a lot of hurricanes in the state and things are always challenging at the outset, but we work our way through it. And I think the state will work their way through this. The insurance premiums are certainly an issue here. We started to -- see if we kind of look back over the last couple of years, we saw a big run-up then we got some tort reform. We saw insurance premium start to stabilize and arguably start to come down a little bit as insurance companies started to reenter the market.

My hope is that continues to happen. I think in terms of the storm impact, I think it was focused on the Tampa/St. Pete kind of West Coast markets and particularly the barrier islands. But when you get beyond that, the rest of this data, I think, is pretty much 100% back up in business. So I think the impact will be limited. I know the state goes through these things. We always come out the other side okay. And so I still feel very confident in the economy, very confident in Florida. And yes, we probably will see insurance premiums continue to be a bit of a challenge.

[Operator]

[Operator Instructions] Your next question comes from the line of David Bishop of the Hovde Group.

[David Bishop, analyst]

A question, we've had a lot of your peers talk about lot of headwinds from loan payoffs this quarter as maybe there's some clarity or taking some profits off the table to maybe reinvest in new projects. Just curious how payoffs -- loan payoffs this quarter versus recent trends?

[Charles Shaffer, executive]

Michael, do you want to take that one? I think you got [ payoff first there ].

[Michael Young, executive]

Yes, David, this is Michael. Honestly, it was actually -- it was a positive for us. We saw lower levels of payoffs this quarter. I think, again, if you kind of zoom back out, we were a little more cautious in late '22 and mid-'23 and had less construction fundings and things that were maturing. So I think that's just, all else equal, a little less of a headwind for us. And then just having stability kind of post the M&A environment, I think you're just seeing lower levels of payoffs, and we're able to achieve greater levels of net growth. So it wasn't really much of an issue for us in the quarter.

[David Bishop, analyst]

Got it. Then as you look ahead, anything looming from a larger payoff or not really?

[Michael Young, executive]

No. I think we're seeing more stability in the book. Obviously, lower rates, you could see higher prepayment speeds across the portfolio, but we haven't seen that yet, at least with just a 50 basis point cut. And then we do have a little higher, as we talked about earlier, a little higher level of maturities in the fourth quarter, which is why we're kind of thinking the net growth between the hurricane and that could be at more mid-single-digit levels as opposed to where we were this quarter. But nothing else that's really idiosyncratic to call out.

[David Bishop, analyst]

Got it. And then I wasn't sure if I heard correctly during the preamble. The uptick in nonaccrual loans, I hear that you guys are well reserved or not expecting much in the way of loss content given appraised values.

[Charles Shaffer, executive]

Yes. We don't -- yes, go ahead, Tracey.

[Tracey Dexter, executive]

That's right, David. We did see a little bit of an uplift in nonperforming loans this quarter, really a handful of loans, and those have sufficient collateral, no losses expected there.

[Charles Shaffer, executive]

Yes, those were already [indiscernible]. They were already graded in the crit classified assets and just moved to NPL. They're just going through the natural cycle.

[David Bishop, analyst]

Okay. Got it. And then, Chuck, you noted as well, it's been pretty stellar growth on the wealth management side of the business. Just curious, I don't know if there's a way to frame it in terms of like new account growth versus sort of market appreciation. And is this an area where you could dip your toe in and look to acquire additional RIAs or really add more aggressively on that front?

[Charles Shaffer, executive]

Yes. We -- it's a business we really like. The return on capital and the wealth management business is exceptionally strong. And as we bank wealth management clients, both on the bank side and the wealth side, they tend to be clients for life. And so we think very highly of the business. It's a business we're very focused on. We will look at wealth management acquisition opportunities. We will look at them over time. We've not done one to date, but it is something that we could do if something was unique that came along.

But we really like the business as we've talked about in the past, and we think it's a really solid business for us. And I think our business is deeply interconnected to our commercial banking franchise. And we see very often when our commercial banking clients liquidate companies, we oftentimes get the opportunity to manage the assets and help those families out. And so it's phenomenal business for us. We love the business, and it's something we'll continue to focus on.

[Operator]

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

[Stephen Scouten, analyst]

Curious, Chuck, you talked about getting back to that 1% ROA in time. I assume that would primarily be driven by kind of loan growth, balance sheet mix and improving NIM. Is that fair to say? Or would you think there's like another driving force there that's worth noting as well that would be more impactful?

[Charles Shaffer, executive]

Yes. I think at a very high level, our expense base is well invested in. I think we've got the team to drive growth over time. And when you kind of sort of think that we've got a lot of those investments made and then you look at kind of the growth that we've seen in our focus on noninterest income, the investments in commercial bankers, investments in treasury management talent, investments in wealth, what you're seeing is the operating leverage start to pull through. And so when you think about the coming year, the combination of decent to strong organic growth, combined with potential for margin expansion, particularly as rates come down when you kind of put the two of those together, it starts to really drive some profitability improvement. And there, you can see that in the model.

And so we've got a really great team that's really focused on growth, and they are consistently onboarding new clients. And so it gives me some confidence that, that in combination with getting past the margin headwinds that we've been faced over the last year or so, really starts to set us up to see solid profitability improvement.

[Stephen Scouten, analyst]

Yes. Okay, that's super helpful. That's great to hear. And then I guess, as I think about the margin expansion, you guys talked about kind of trends continuing to improve there and return maybe closer to historical levels. If I look at the core NIM, and I don't know if that's how you guys think about it, but it was in the like 3.06% range back in 1Q '22 before we started the rate hike cycle. Is that kind of where you would think it could get back to? Or is there anything that's changed around the balance sheet that would allow that core NIM to be above that level? Or how can you kind of frame up the potential for the core NIM, the core earnings power from that perspective?

[Michael Young, executive]

Stephen, it's Michael. We're not going to give any guidance for 2025 on where we think that's going to get to. Obviously, I think everyone's expectations around the number of Fed cuts is going to be sort of a determining factor as we move through next year as well as kind of the shape of the yield curve. So with those caveats out there, I think we do expect margin expansion per rate cut maybe 2 to 4 basis points, could be a little better, it could be a little worse depending on the shape of the curve, et cetera, but we expect that to come through.

And so if you think about the moving pieces into next year, between now and the end of next year, we've got $450 million of securities cash flow at about a 3.3% rate that's going to reprice up into a higher rate environment. We got another $750 million plus of fixed rate cash flows off the loan book that are going to reprice from around kind of high 4s into the current environment. So those provide some pretty steady tailwinds regardless of what happens with rates and the number of cuts. And then the cuts themselves are just very additive given our fixed rate nature of our loan book, and the adjustable rates even on our loan book don't reprice really until '26, '27. So we've got pretty stable asset yields with improving deposit costs that I think are going to drive the margin expansion.

So we feel comfortable with the direction and pace of that going forward into next year, but the number of cuts will have some output impact in terms of where that goes and how high and how quickly.

[Stephen Scouten, analyst]

Yes. Yes. That's extremely helpful color, Michael. And just to clarify, when you talk about the 2 to 4 bps per rate cut, are you thinking about that on a core basis or on a GAAP basis?

[Michael Young, executive]

Yes, core basis, I think that's what we can manage. The GAAP basis around accretion will depend on just the pace of repayments there. So really talking about the core. And I do think given our sort of friendliness with clients early on their deposit rates, I think there's more opportunity to move a little more quickly on the front end. But that will obviously start to decelerate a little bit on the back end of kind of the rate cycle, so just like we saw on the way up.

[Stephen Scouten, analyst]

Yes. Makes sense. And then last thing for me, just you guys obviously have created a ton of excess shareholder value since 2014 via M&A. The environment has not really been maybe set up for that in the last year or so. But with rates coming down, are you seeing a pickup at all in conversations? Or do you think there's a greater likelihood of something manifesting here in the near, medium term and kind of continuing that path?

[Charles Shaffer, executive]

Just to kind of give you [ a flavor ], I don't think anything has really changed in terms of the level of conversations. There are certainly conversations out there. We have relationships throughout the state that we continue to chat with. We'll be disciplined. It's going to have to make sense from an earnback perspective, and it's going to have to make a lot of sense from a return perspective because I think our organic story is so strong. So we'll be really thoughtful if we do anything, but there are conversations happening.

[Operator]

With no further questions, this concludes our Q&A session. I would now like to turn the conference back over to Chuck Shaffer for closing remarks.

[Charles Shaffer, executive]

All right. Well, thank you all for joining us this morning. And just again to reiterate my great appreciation for our associates that work so hard to get us through the 2 hurricanes, there's a lot of work and it's a lot over a few weeks, and you all did a phenomenal job, both getting the bank prepared and taking care of our clients. So just thank you to all our Seacoast associates for that. And I appreciate everybody joining the call. Thank you. That will wrap us up.

[Operator]

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