SBCF - NASDAQ

Welcome to Seacoast's Banking Corporation's First Quarter 2024 Earnings Conference Call. My name is [ Marvelo ], and I will be your operator. Later, we will come back the question-and-answer session. If you would like to ask a question [Operator instructions]. 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 and Exchange Act and its comments today are intended to be covered within the meaning of the 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.

Okay. Thank you, and thank you all for joining us this morning. As we provide our comments, we'll reference the first quarter earnings slide deck, which you can find at seacoastbanking.com. I'm joined today by Tracey Dexter, Chief Financial Officer; Michael Young, Treasurer and Director of Investor Relations; and James Stallings, Chief Credit Officer. We started 2024 on solid footing, one of the strongest quarters on record for customer acquisition. This results from our focused investment over the last 24 months and acquiring the most talented revenue-producing bankers in Florida, strong execution by our retail team and further investments in marketing and branding across all of our markets. We saw significant new opportunities throughout the state, which drove growth in DDA and supported an annualized deposit growth rate of 8%. Additionally, we had an outstanding quarter in Wealth Management with fee-based assets under management increasing by $160 million and exited the quarter with a significant wealth pipeline. Both our SBA team and our insurance agency had solid quarterly results, and our treasury team continues to win middle-market commercial depository accounts. Our loan pipeline reached its highest point in over a year with a large proportion of that in C&I, and we expect a meaningful second quarter for closings. I was incredibly proud of the team's focus on customer acquisition, and we saw deposit growth in nearly every market we operate in. Given all the significant business development activity occurring across the franchise, I'm very excited about our prospects for new client acquisition over the remainder of 2024. And turning to expense management. As we discussed on last quarter's call, we fully executed our cost savings initiative earlier this quarter. This initiative was designed to reduce overhead to offset revenue compression associated with the current interest rate environment. At this point, we are done with this exercise and expect adjusted noninterest expense in 2024 to be down significantly from 2023 and do not expect further onetime expenses. Tracey will provide further guidance shortly. Taking a deeper dive into lending and asset quality, we are encouraged by the growth in our pipelines while maintaining a prudent approach in the current economic climate. Loan outstandings were down about $80 million from the prior quarter, primarily due to a handful of closings that pushed into the second quarter, elevated paydowns in our construction portfolio and $30 million in credits we purposely exited. Our loan pipeline grew substantially by nearly 50% to $573 million and new loan add-on rates were approximately 8% during the quarter. Looking forward, we continue to expect low single-digit growth for the remainder of the year. And additionally, it's important to emphasize that we continue to acquire a comprehensive banking relationship with Seacoast for all of our lending activities, ensuring a mutually beneficial partnership with our clients. Our asset quality continues to show sustained strength and charge-offs for the quarter were just 15 basis points, annualized and classified and criticized assets remained nearly flat from the prior quarter. Our ACL stands at $147 million, equating to 1.47% of total loans. This figure places us in a strong position with an allowance ratio among the highest in our peer group. Additionally, we have another $163 million in purchase discount. Our fortress balance sheet positions us exceptionally well compared to our peers, allowing us to navigate and adapt to any developments this cycle may present. And as we progress through 2024, our steadfast commitment to upholding conservative balance sheet principles remains unwavering. We are resolute in our efforts to prudently manage our expenses while strategically investing to stimulate growth in low-cost deposits as evidenced by our performance this quarter. This focus will not only help us maintain a diverse and stable funding base, but also fortify our company's already robust balance sheet. Ultimately, these endeavors are geared towards building the long-term value of our franchise, ensuring resilience and prosperity in the years to come and establishing an exceptional financial institution and one of the nation's most economically attractive states. I'll now turn the call over to Tracey to walk through our financial results.

Thank you, Chuck. Good morning, everyone. Directing your attention to first quarter results, beginning with Slide 4. Seacoast reported net income of $0.31 per share in the first quarter and on an adjusted basis, net income was $0.37 per share. On an adjusted basis, return on tangible assets was 1.04%, ROTCE was 11.15% and the efficiency ratio was 61.1%. Deposit growth was strong at 8% annualized, with solid results in growing new customers across the entire franchise. Our wealth management team continues to deliver strong results with assets under management increasing 9% during the quarter. Highlighting our continued focus on expense discipline, we're seeing the benefit of recent actions we've taken to streamline expenses with adjusted noninterest expense down $3.1 million from the prior quarter. Our loan pipelines have grown meaningfully, and we continue to see stable credit trends. Tangible book value per share increased to $15.26, overcoming the negative impact of the rate environment on unrealized losses on securities in AOCI. Our capital position continues to be very strong, and we're committed to maintaining our fortress balance sheet. Seacoast's Tier 1 capital ratio was 14.6%, and the ratio of tangible common equity to tangible assets is 9.3%. Also notable, if all held to maturity securities were presented at fair value, the TCE/TA ratio would still be a strong 8.6%. Our first quarter results include a $4.1 million gain on the liquidation of our Visa-B shareholdings. The gain offset a $3.8 million loss on the sale of approximately $87 million in securities. The opportunistic repositioning has an expected earnback of approximately 1.9 years. Before we continue, I'd like to draw your attention to a change in our presentation, beginning in the first quarter of 2024, our presentation format no longer excludes amortization of intangibles from adjusted expenses, and we've updated the presentation of prior periods for comparability. On to Slide 5. Net interest income declined by $5.7 million or 5% during the quarter with higher deposit costs and growth in deposit balances, partially offset by higher yields on loans and securities. Core net interest margin contracted 11 basis points to 2.91% outside the range of guidance we provided due largely to better-than-forecast growth in deposit balances and in part due to the investment in securities creating leverage on the balance sheet. In the securities portfolio, yields increased 5 basis points to 3.47%. Loan yields, excluding accretion, increased 8 basis points to 5.48%. Accretion of purchase discounts on acquired loans was lower by $0.7 million compared to the prior quarter. The cost of deposits increased to 2.19%, and we added an overall $239 million in deposit balances, including growth in noninterest-bearing DDA. Looking ahead, we expect net interest income to stabilize in the second quarter and to grow from that point forward. Our assumptions include 1 25 basis point rate cut in November and 1 in December. Moving to Slide 6. Noninterest income, excluding securities activity, increased $0.5 million in the first quarter to $20.3 million. Service charges increased with continued expansion of our commercial treasury management offerings and new customer acquisition. Interchange income during the fourth quarter of 2023 included an annual volume-based incentive from the payment network, resulting in a comparative decline in the first quarter. Other income was higher by $0.5 million with higher saleable production in our marine lending business and higher income from SBIC investments. Looking ahead, we continue to focus on growing noninterest income, and we expect second quarter noninterest income in a range from $20 million to $22 million. Moving to Slide 7. Assets under management increased 9% this quarter to a record $1.9 billion and have increased at a compound annual growth rate of 28% in the last 5 years. Wealth Management revenues during the quarter increased to $3.5 million, up 9% from the prior quarter and 16% from the prior year quarter. With a significant pipeline at quarter end, we expect continued strong client acquisition in Wealth Management over the remainder of 2024. On to Slide 8. Noninterest expense for the quarter was $90.4 million, and on an adjusted basis, was $83.3 million, in line with the guidance we provided last quarter. We saw a typical seasonal increase in employee benefits and payroll taxes, leading to an increase of $1.2 million. In outsourced data processing costs, we incurred $4.1 million in onetime charges associated with consolidation activities and began to see the benefits this quarter with a decline of $0.6 million on an adjusted basis. Legal and professional fees were lower, with the fourth quarter reflecting expenses associated with legal matters, which are now complete. The efficiency ratio moved somewhat higher, affected by higher deposit costs associated with growth and seasonal payroll tax expenses. The successful execution of our recent expense reduction initiatives have begun to positively impact results and lower ongoing costs, and we'll maintain this discipline around expenses. We expect second quarter noninterest expense to be in a similar range to the first quarter between $83.5 million and $84.5 million. Turning to Slide 9. Loan outstandings declined by $84.9 million during the quarter, partially attributed to elevated payoffs and paydowns across our construction portfolio. Average loan yields, excluding accretion on acquired loans, increased 8 basis points to 5.48% and in the first quarter, we continued to see new loan yields in the 8% range. The pipeline is very strong with a large portion in C&I and looking forward, we expect loan growth in the low single digits. 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. None-owner-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 managed 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 36% and 222% 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 $146.7 million or 1.47% of total loans compared to 1.48% in the prior quarter. The allowance for credit losses, combined with the $163 million remaining unrecognized discount on acquired loans, totaled $310 million or 3.1% 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. Our credit metrics are strong, and we remain watchful of the ongoing impact of higher rates on the economy. The annualized charge-off rate during the quarter was 15 basis points. Nonperforming loans represent 0.77% of total loans, and accruing past due loans remain at 0.3% of total loans. Criticized and classified loans were near flat at 2.4% of total loans. On Slide 13, providing a longer-term view of our stable asset quality trends. Also recall that the period presented includes 8 separate bank acquisitions and a near doubling of asset size. The stability of our credit experience during that period reflects the consistently applied discipline of our credit culture. Moving to Slide 14 and the investment securities portfolio. During the first quarter, we sold all our holdings of Visa Class B shares and recognized a net gain of $4.1 million. We also recognized the opportunity to sell low-yielding bonds with modest losses on a small percentage of the investment portfolio. The proceeds, approximately $87 million were reinvested into bonds with an average yield of 5.5%. With an expected earn back of less than 2 years, this was an opportunity to increase interest income and improve our securities yields. In the overall portfolio, the average yield on securities increased during the quarter by 5 basis points to 3.47%. Changes in the rate environment negatively impacted portfolio values, and as a result, the overall unrealized loss position increased by $14.5 million. Turning to Slide 15 and the deposit portfolio. Seacoast has been keenly focused on deposit growth and the 8% annualized growth this quarter demonstrates our success in acquiring relationships. Noninterest demand deposits grew $10.4 million. And while growth in money market and other interest-bearing accounts has resulted in higher deposit costs, this relationship-based funding supports our continued progress in deepening market share as we become Florida's leading regional bank. The cost of deposits increased this quarter to 2.19%, and we expect in the second quarter a continued increase, albeit at a slower pace. Looking forward, we expect continued growth in deposits and are very encouraged about the activity and focus across the franchise on deposit gathering. On Slide 16, Seacoast continues to benefit from a diverse deposit base. Noninterest-bearing deposits represent 30% of total deposits, which was flat from the prior quarter and transaction accounts represent 52% 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 17. 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 $15.26 and the ratio of tangible common equity to tangible assets remains exceptionally strong at 9.3%. 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.

Thank you, Tracey, and to our Seacoast bankers on the call, we had an exceptional quarter for customer growth, proud of everything you guys did. Thanks for all the hard work. And at this point, operator, we'll take questions.

We will now begin the question-and-answer session. If you have dialed in, would in the queue [Operator instructions]. And your first question comes from the line of Brandon King with Truist Securities.

So just on the margin, could you kind of give us a sense of how you're thinking about how the margin could trend this year and kind of your date forward curve assumptions is?

Yes. Sure, Brandon. This is Michael. Just to start, the updated assumptions, I take the last part first, as Tracey mentioned in the prepared comments, one cut in November and then one in December. Obviously, that last one doesn't have a lot of impact on the shift versus our prior forecast was the delay in cuts being later in the year with some upward pressure in the cost of funds related to that. So in general, though, we still expect the margin to bottom in the first half of the year this year and expand from there but the pace of Fed cuts will be kind of the ultimate driver at the pace of expansion or magnitude of expansion in the back half of the year. So with a delay in that, we would expect less expansion of the margin in the back half.

Okay. So is it fair to say that like the funds are stable, that kind of the margins just kind of stay stable at this -- at the current range?

In the near term, in the long run, we expect the margin to begin to expand. And importantly, as Tracey said in her prepared comments, we think NII is starting to stabilize and then starts to grow clearly -- very strongly on the back half of the year in '25.

Okay. Got it. And then I want to talk about the pipelines are higher quarter-over-quarter. So just -- could you put that into context as far as what you're seeing, where that's coming from, whether it's from existing customers or taking market share and talent additions?

Yes. Thanks, Brandon. I mean that's super excited about the efforts by our banking team this quarter on business development. We saw deposit growth across nearly every market in the state, we saw growing pipelines across almost every market in the state, and we also saw a larger percentage of our pipeline growing in C&I. And so what we're seeing, just kind of at a broad level is the opportunity to continue to take clients from some of the national and large regional banks, and a lot of that is coming from heavy investment in talent over the last 24 months. We're now starting to mature into that investment, and we're starting to see material client aggregation. If you kind of just think about a moderate size operating company, typically, they're going to have about 5 or 6 products, they're going to have a letter of credit that's -- a line of credit that's tied to SOFR plus a spread, we're moving that over. They typically have an operating account, we're moving that over. They typically have a money market account or a sweep account, we're moving that over. We're collecting the TM, the merchant and the treasury. What we're leaving behind is the 4% equipment loan and the 4% building loan, but the next equipment request that comes up, we're going to do that equipment request for that client. And so the sort of the -- when you look at the blended add-on rate on the depository side for that, what you're seeing is maybe a 30, 70 type cost to that money coming into the franchise. -- which I'm really pumped up about. I'm excited about what I'm seeing in terms of all the wins that were sort of all the way across the franchise. There's a lot of incredible business development being done by our team. That team is now maturing into probably into a year's worth of seasonality here. So we're moving past nonsolicits and other things. There were restrictions we had to work through so we're now seeing a lot of clients onboarding with the bank. We also have worked really hard to focus our entire company on deposit gathering and client acquisition, a lot of effort inside the company. We're seeing the impact of that show up. We had a phenomenal quarter for new clients so that's leading to strong wealth pipeline, strong deposit growth in the quarter. We had DDA growth in the quarter and growing pipelines kind of across the board. So I'm pretty pumped up about what the quarter had and pumped up about what the rest of the year could look like.

Got it. And lastly, I was encouraged to see kind of a slight uptick in noninterest-bearing deposits. Do you think you could grow from this base here? Or anything seasonality to point out that you could maybe see some decline in near term…

Yes. We're keenly focused on growing that. That's one of our core objectives for this year. And we will see some tax payments here in April that's naturally going to occur. But as that kind of happens, we expect to continue building DDA and so that is our focus. And as I said, what we're trying to really get done here is moving on full relationships that includes DDA. So I was really pleased with what I saw in the quarter. It came from a lot of new prospect growth, and we will continue to focus on growing DDA. I think we're running right now about 30% DDA still deposits. I think that's very solid, very solid in the industry, and we'll continue to work and keep it as close to that as we can. Operator, I think we're ready for another question.

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

Good morning, everybody. Great. I am curious, maybe a high-level question. Curious how you're thinking about managing the balance sheet today. I mean you're a bit liability sensitive at this point. The rate outlook continues to change pretty rapidly. So I'm just curious how you think about managing the balance sheet at this point, just given the uncertainty on rates, increased likelihood of a higher for longer environment. I mean, you guys have obviously been active with securities optimization, I'm just curious if there's any other initiatives or what else you might be considering?

Yes. Sure, David. This is Michael. I think at a high level, we have been focused on market share gain, and you saw the really strong deposit growth in the first quarter. As we deploy that into loans throughout the rest of the year, I think you'll see the benefits of that pull through with better support for kind of overall margin at that point in time. And then I would also add, we're not going to stand still here. There was sort of a propensity to kind of wait until the Fed cuts take action on the deposit book, but I think you're going to see us lean into that a little more that we haven't yet this cycle. So that could be another kind of tailwind, but we're going to continue to actively manage it and try to drive the best return profile we can for shareholders in the interim.

And just high level, David, if you think about the way we position the balance sheet, we've got very strong allowance, we've got the purchase discount, we've got a lot of capital. The capital gives us optionality. If the earn-back is there for buybacks, we'll take it if the earn-back is there, for [Indiscernible] issue repurchase, we'll take it. The earn back is there for a deal, we'll look at that, too. So we have choices here and then sort of fourth, as Michael mentioned, we're very keenly focused on essentially taking market share across the state of Florida. And so I think we have options as we move forward, we'll continue to manage that and continue to watch for opportunities as they develop.

And maybe on that same topic, right? I mean you guys have done a good job kind of -- it seems like we're kind of increasingly focused on organic growth. And you've had a lot of success recruiting high-quality talent to the bank. I'm curious, how do you think about hires at this point? I mean we're starting to see that horsepower kind of come to fruition to see what they can do. Are you still interested in hires? And are you still having success recruiting?

Yes, definitely. There's more to come there. We're going to obviously manage expenses carefully. Our goal is to keep our expense load in line and so we'll have to find ways to offset those investments as we find them. But yes, where we find really high-quality bankers, either in wealth, commercial or otherwise, and they can bring a bag of business we're going to take a look at it. There is still a lot of opportunity in that regard, there's a lot of talent that still wants to join the franchise and kind of the investments we've made over the last few years, I still think we're in the early innings of that investment pulling through. If you think about acquiring team back before rates kind of where they were, you move all those clients with credit as you initiated loans, it's difficult when those loan books are sitting at 3.5%, 4%, so we're moving those clients with deposits, which just takes longer. So taken a little while to see that pull through. But now we're starting to really see a pull through. And importantly, it's been a while since we had the distraction of a deal and so we're now, I think last time we had a conversion with June of last year, so we're 9 months out from our last conversion, 12 months out from our last -- more than 12 months out from 15 months out from our last announced acquisition. So a lot of those distractions have moved away. It allows us to focus on organic growth and allow us to focus on taking market share across the state. So like I said earlier, I'm very excited about what I'm seeing, just numbers and numbers of wins happening kind of all over the place and wealth, commercial and retail. We're just -- we're winning business left and right.

That's terrific. And maybe switching gears to the fee line. It was great to see the increase in fees. I know it's been a big focus. It seems like insurance has been especially strong, wealth has also had some nice AUM wins. You talked about being interested in potentially recruiting some wealth advisers, I'm curious if you could touch on those business lines, what you're seeing and thoughts on expanding or investing in those and potential cross-sell opportunities.

Yes. Maybe I'll start with the insurance agency. That integration to SGOs has gone exceptionally well, it's an amazing team inside that agency. We're super excited to have them on board, spend a lot of time with them, I think there's more to be done there. We haven't even really got started on building a cross-sell business around that agency, that's something that's in the works here on the back half of the year. There's a lot to be done there that this prior quarter was a record quarter for that agency, the best quarter they've ever had in our history. So really pleased with what's happening there. I like the business, the return on capital is really good, in the wealth story continues to be an exceptional story. They had a really good quarter, AUM grew by $160 million. The pipeline is super strong, we're setting up to have a really good wealth year, returns there are really good. Both those businesses take a long time to build, but they generate really good returns and so we're focused there. And then the other piece on I'll add, David, is we've made a lot of investment in our TM team. So our treasury management capabilities, both in terms of technology, service offerings, people has just gotten remarkably better from where we were 24 months ago. And so we are winning, like I mentioned earlier, we are winning operating companies, we are winning TM accounts. That's a whole another line of business that's early in its innings to fully mature and provide benefits. So there's opportunities here. Mortgage banking has kind of been it's kind of held back just given the market and the way the market is. There's just still not a lot of inventory, not a lot moving there. But we'll continue to be really focused on fees, continue to be really focused on growing that line item and I couldn't be, again, just I'm excited about what's going on in wealth excited about what's going on [Indiscernible], so those are 2 really solid businesses for us.

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

It's great to hear you so upbeat on the customer acquisition front. And I mean, we saw really strong deposit growth in the first quarter. Do you think this is a trend that can sort of carry on throughout the year?

That's the goal. We're in this moment here where we do see tax payments going out, we'll probably see a little bit of decline in public funds that seasonally happens here in the second quarter. But given the focus across the franchise, I'd like to have another quarter before I tell you for certain, but it was a really solid quarter. Really, pipelines are good, deposit pipelines are good. So I'm feeling pretty confident about it Woody.

Yes. And what are you seeing on the loan competition side? I mean there's a lot of peers that don't have the balance sheet flexibility that you all have, so are you seeing competitors sort of pull out? Any thoughts there?

Yes, we did sort of late last year, but an early in this year. But over the last 60, 90 days, we've seen competitors really pull back in. I would say the one challenge is to merge some of the regional banks that were largely pulling relationships out of have gotten really aggressive on cutting pricing to hold relationships. That wasn't happening, that's a little bit of an emergence. And then there seems to be a number of banks reentering the commercial real estate and construction space. And so it did feel like there was some pullback, but we are seeing the competitiveness sort of return. That being said, I like where we're at. I like our optionality and I like our ability to continue to win business, and that's what we're doing but it has gotten a little more competitive here recently.

Yes. And then I know internally, you are very focused on your overall exposure and concentration of certain loan segments. As you look at the loan portfolio today, are there segments that you feel you're underweighted to that you could look to grow? And then vice versa, are there segments that are more full and likely won't see much growth premier?

Yes. We're sort of fully open the business for C&I operating companies pretty much across the board. There's a couple of industries in there that obviously we wouldn't do. But generally, manufacturing, distribution, business services, all the health care, all the things you could sort of name we're opening and targeting. On the commercial real estate side, there's plenty of room to do commercial real estate. Obviously, office is something we're not going to really look at right now and our hotel exposure is generally at its max. We've been working on reducing that, in fact, we worked out -- we let a couple of hotel loans get refinanced out from us here to work that down. So hotel hospitalities kind of on hold at this point, Office is definitely on hold. But outside of that, we're looking at other -- pretty much anything else that comes to retail, we'll look at opportunities, particularly grocery-anchored retail. Multifamily is stabilized and that's working, we'll look at that as well. Industrial, we'll look at those projects as well. But really, the only thing that's one of our sort of we're on a Max cap on is hospitality and office.

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

You might have just answered one of my questions here. I think you noted like $30 million in loans that you kind of allowed to leave the bank. Was that indeed in the hospitality portfolio?

Yes, most of it was. Yes. There were weaker credits that came due through renewal and there was other banks that were willing to sort of take us out of that and we let that happen, Stephen.

Perfect. And then what would it take for you guys to get a bit more aggressive around growth? And maybe I'm hearing this way you're not intended it to, but my takeaway is kind of you're being conservative because you have a great bank and a great franchise, and you don't want to disrupt that. That being said, it sounds like you've got a great team in place, and the pipelines have grown significantly. So -- so what would kind of, I don't know, give you more confidence to be a bit more aggressive in putting that stuff on the balance sheet?

Clarity of the economic environment, I'd say the biggest thing. I mean, it's a struggle right now to get your head around where rates are headed, where growth is headed, GDP underperformed here recently. We talk a lot internally about stagflation and what the impacts of stagflation could be. So it's -- we're always -- as you know, it's pretty well, Steve, we're always going to be cautious, prudent, exercise discipline and -- but clarity around where we're headed on all this would be super helpful. The team we've built is amazing, I'd love that clarity emerge because I think we could run incredibly hard, but I think we just got to continue to pick our sponsors carefully and pick our winners, and that's what we're doing.

Yes. Makes sense. And it was really interesting anecdotally to hear you say that some of your competitors are coming back into the market a bit. Do you think that affects kind of what is out there from a talent acquisition perspective? And has there been any sort of shift in who you might be talking to in terms of large regionals or like-size competitors or anything like that in terms of the potentially available talent?

No, we're still pulling the same thread and still working down the same angle. We like regional bank talent. It fits well with our credit appetite, fits well with our risk posture and fits well with our cross-sell model. They come equipped to sell wealth and TM and the full gamut, which is what we want to see. And so would continue to recruit from the same place, Steve.

[Operator instructions] And your next question comes from the line of David Bishop with Hovde Group.

Yes. Chuck, sound pretty optimistic, especially as we get into 2025 for the direction of spread income and the margin. Any sort of maybe top level holistic guidance you can give us into 2025, if rates do stabilize, we start to get Fed rate cuts, maybe the impact there on spread income or the margin?

David, it's Michael. Yes, I think just -- I'll give you some of the pieces. We're obviously not going to give any guidance for 25 at this point in time. But a lot of the trends we've seen are still consistent. We've got about $1 billion of kind of lower fixed rate, assets that will turn over this over the next 12 months, It will reprice higher. We expect that at some point here, the rate of increase on deposits should decelerate as we mentioned some of the proactive stances we're taking in that area as well near term. So I think as you see those things materialize in the balance sheet return to growth, you're going to see a more positive revenue trajectory as we head into 2025. And that should be a more stable earnings base, right? We don't have ongoing things that we need to derisk like you're seeing with other banks, we don't have a lot of reserve to build, we don't have capital that we need to build, so we really have kind of the winds at our back and the ability to kind of move forward and grow the bank and grow the franchise value of the bank and grow earnings as well.

Got it. And then accretion income has been under a little bit of pressure here. Is that $10 million sort of run rate good under this interest rate environment? And if rates do start to fall, could we -- is that impacted by potentially prepayments or payoffs? Just curious how we should think about the pace of purchase accounting accretion.

David, as you said, as expected, the accretion has tapered off since the period immediately following the recent acquisitions. Generally, accretion runs higher when the individual loans with high marks have payoffs or meaningful paydowns and so we've seen notably fewer prepayments on loans with high marks. That's going to continue to be difficult to predict, but maybe just a point of emphasis. It does come back eventually and just the uncertainty that exists around timing. But I think probably what you're seeing in the first quarter, that 10% to 10.5%, I guess, would be a reasonable guess.

Got it. Then Chuck, I think you're pretty bold up about the commercial loan pipeline. Any chance you'd share the commercial deposit pipeline, how that looks like in visibility there from a dollar perspective or a percentage basis of that pipeline?

I don't have it in front of me, David, and I don't really have a number to give you. I wouldn't give it to you if I have it. I just don't have it in front of me.

Maybe just a gearing ratio on that, we do require compensating balances. So you can see what we're seeing in terms of the loan pipeline and assume some percentage, right, of those loans or a percentage of the balances of those loans would be also coming in, in terms of deposit funding.

And the trick for modeling there is just to remind you again, we are going to see some tax payments here made. I think we're going to see tax payments across the industry, is not going to be a heavy tax year for all banks for a lot of reasons, but as well as public funds typically come down. So we'll have that kind of fighting that through April here but as we continue to grow, we'll grow through it.

Got it. And the final question, a little bit of pickup in the substandard criticized. Just curious, when you look at that book, is there a material difference in the average size of those loans versus maybe the portfolio average is a chunkier than what we see on average?

No, no. It's kind of the average portfolio, classified criticized were generally flat quarter-over-quarter up just the hair. Generally, we're seeing just normal, call it, seasoning of the cycle here. And then when you look at the NPL book, that book is kind of just spread amongst a number of smaller transactions as well. So we feel pretty good, we are pretty good where we are on asset quality. We feel pretty strongly about where we're positioned and we've got the allowance to generally cover anything that's going to come our way, I think.

That concludes our Q&A session. I will now turn the conference back over to Mr. Shaffer for closing remarks.

Okay. Thank you very much. Thank you all for joining us this morning. I do think we had an exceptional quarter for -- the Seacoast team did an amazing job, and I'm excited to see what we can do over the remainder of the year and well around if anybody has any questions, feel free to reach out. Okay. Thank you, operator. That will conclude our call.