Seacoast Banking of Florida - Earnings Call - Q3 2025
October 28, 2025
Executive Summary
- Q3 2025 delivered solid core performance: adjusted EPS was $0.52 vs. $0.36 a year ago and flat vs. Q2; core NIM (ex-accretion) expanded 3 bps to 3.32% and net interest income rose 5% q/q to $133.9M.
- Against Wall Street: SBCF beat EPS consensus (Primary EPS: $0.52 vs. $0.458, +$0.062) but missed S&P Global “Revenue” consensus ($148.9M vs. $154.5M, -$5.6M); note company-reported net revenues were $157.3M.
- Balance sheet catalysts: 7% annualized organic deposit growth (+$212.3M, with +$80.4M non-interest-bearing) and 8% annualized organic loan growth; loan-to-deposit ratio at 83.8% post-Heartland, with Villages closing on Oct 1 to further reduce LTD ratio below ~75% at year-end.
- Guidance update: management reaffirmed core NIM ~3.45% in Q4; guided Q4 noninterest income to $22–$24M and adjusted expenses to $110–$112M; expects low-to-mid-single-digit organic deposit growth; announced a 5.6% dividend increase to $0.19 per share for Q4.
- Strategic narrative: record wealth management AUM additions ($258.1M), strong capital (Tier 1 14.5%), and accretive Villages acquisition position SBCF for margin expansion and earnings accretion into 2026.
What Went Well and What Went Wrong
What Went Well
- Adjusted EPS up 48% y/y to $0.52; adjusted pre-tax pre-provision earnings up 45% y/y to $67.2M reflecting core momentum and operating leverage.
- Robust deposit and loan growth: +$212.3M organic deposits (7% annualized; +$80.4M non-interest-bearing) and 8% annualized organic loan growth; deposit mix remains granular with transaction accounts at 48% of total.
- Wealth management momentum: record $258.1M new AUM in the quarter; AUM up 24% y/y; management: “record-breaking quarter in wealth management”.
- CEO: “Our competitive transformation…is delivering exceptional results…strong momentum in growing net interest income, driven by very strong performance in both loan and deposit growth.”.
What Went Wrong
- GAAP EPS down q/q to $0.42 reflecting $10.8M merger-related costs; efficiency ratio worsened to 60.66% on reported basis despite adjusted improvement.
- Noninterest income declined $0.7M q/q to $23.8M (securities losses of $0.8M; “Other” down $1.5M due to prior-quarter tax refunds).
- S&P Global standardized “Revenue” missed consensus by ~3.6% despite company-reported net revenues rising 4% q/q—highlighting definitional gaps investors must reconcile.
Transcript
Operator (participant)
Welcome to Seacoast Banking Corporation's third quarter 2025 earnings conference call. My name is Desiree, and I will be your operator. Before we begin, I have been asked to direct your attention to the statements 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 will now turn the call over to Chuck Shaffer, Chairman and CEO of Seacoast Banking Corporation of Florida. Mr. Shaffer, you may begin.
Chuck Shaffer (CEO)
All right. Thank you. And good morning, everyone. As we proceed with our presentation, we'll refer to the third quarter earnings slide deck, which is available at seacoastbanking.com. Joining me today is Tracey Dexter, our Chief Financial Officer, Michael Young, our Chief Strategy Officer, and James Stallings, our Chief Credit Officer. The Seacoast team delivered another exceptional quarter, which clearly demonstrated the progress we are making towards enhancing our return profile while delivering strong growth on both sides of the balance sheet. Our competitive transformation has fully taken hold, with loan and deposit growth near 8%, the result of a focused effort to recruit the most qualified and capable bankers across our footprint. I was particularly pleased with the growth in non-interest-bearing DDA accounts and a balanced approach to loan growth, with our commercial production spread across C&I and CRE with multiple asset classes and industries.
The team also delivered strong performance across multiple revenue streams, including a record-breaking quarter in wealth management and solid performance in treasury management fees, SBA, interchange, and insurance agency income. Impressively, the team accomplished all this while successfully closing and converted the Heartland transaction, as well as closing the Villages transaction on October 1. Asset quality remains sound, non-performing loans declined, and net charge-offs were lower than our prior guidance, reflecting our continued focus on disciplined underwriting and proactive risk management. We have very limited exposure to shared national credits or NDFI, and just to remind you, our portfolio is almost entirely franchise quality relationships made to borrowers in our footprint, including consumers, businesses, nonprofits, and municipalities that we have deep relationships with. Lastly, capital and liquidity are industry-leading, and our liquidity profile will be further enhanced with the Villages transaction.
We remain committed to our fortress balance sheet principles and continue to operate one of the strongest banks in the industry. In closing, I want to express my sincere appreciation to our dedicated associates for their commitment to advancing our growth and profitability goals. Their focus and executions continue to drive our success. We operate with one of the best banking teams in the Southeast, across some of the best markets in the United States, with an exceptionally strong balance sheet. I remain confident in our growth outlook and our ability to continue to deliver continued improvements and returns into 2026. With that, I'll turn the call over to Tracey Dexter to walk through our financial results. Tracey?
Tracey Dexter (CFO)
Thank you, Chuck. Good morning, everyone. Directing your attention to third quarter results, beginning with slide four. The Seacoast team delivered a strong quarter with adjusted net income, which excludes merger-related charges, increasing 48% year-over-year to $45.2 million or $0.52 per share. Organic deposits, excluding brokered and Heartland-acquired deposits, grew $212 million or 7% annualized, and that organic growth included $80 million in non-interest-bearing deposits. Loan production continued to be strong, with organic growth in balances of 8% on an annualized basis. The pipeline has reached a record high, reflecting the success of recent hiring and the increase in the balance sheet following the completion of the Villages acquisition in October. Net interest income was $133.5 million, an increase of 5% from the prior quarter, and net interest margin, excluding accretion on acquired loans, expanded 3 basis points to 3.32%.
Tangible book value per share increased 9% year over year to $17.61, remarkable given that the Heartland acquisition included 50% cash consideration. Our capital position continues to be very strong. Seacoast's tier-one capital ratio is 14.5%, and the ratio of tangible common equity to tangible assets is 9.8%. We completed our acquisition of Heartland Bank shares on July 11, adding four branches and approximately $824 million in assets. The technology conversion was fully completed in the third quarter. On October 1, we finalized our acquisition of The Villages Bancorporation, adding 19 branches and over $4 billion in assets. We expect the full technology conversion to happen early in the third quarter of 2026. Turning to slide five, net interest income increased by $6.6 million or 5% compared to the prior quarter, and by $26.9 million or 25% compared to the prior year quarter.
The net interest margin declined 1 basis point to 3.57%, and excluding accretion on acquired loans, expanded 3 basis points from the prior quarter to 3.32%. In the securities portfolio, yields increased 5 basis points to 3.92%. Loan yields declined 2 basis points to 5.96%. Excluding accretion, loan yields increased 3 basis points to 5.61%. The cost of deposits remained near flat, with only a 1 basis point increase during the quarter to 1.81%, and overall cost of funds is down 3 basis points from the prior quarter. With strong momentum in loan growth, deposit costs now lower and stabilizing, additional liquidity, and accretive acquisitions, we expect net interest income to continue to grow. Consistent with our previous guidance, we expect to exit the year with the core net interest margin reaching approximately 3.45%, inclusive of recent acquisitions.
Moving to slide six, non-interest income, excluding securities activity, was $24.7 million, increasing 5% from the prior year quarter. Fee revenue continues to benefit from our investments in talent and expansion of treasury management services to commercial customers, with service charges on deposits increasing 12% from the prior quarter. Our wealth management team delivered a record quarter in new AUM, continuing its strong performance and reinforcing its position as a key growth driver for the organization. $258 million in new AUM was added in the third quarter, the highest quarterly result in the division's history, and $473 million in new AUM in 2023 year to date. BOLI income increased to $3.9 million in the third quarter and included $1.3 million in benefits. Other income totaled $6 million and included higher gains on SBA loan sales and higher loan swap fees.
Looking ahead to the fourth quarter, we expect non-interest income in a range from $22 million-$24 million. Moving to slide seven, again, the wealth division continues to grow, entirely organic and with significant referrals from our commercial teams, with total AUM increasing 24% year-over-year and a 25% annual CAGR in the past five years. On slide eight, non-interest expense in the third quarter was $102 million, an increase of $10.3 million, and the third quarter included $10.8 million in merger-related expenses. Higher salaries and wages reflect continued expansion and the addition of Heartland, as well as higher performance-driven incentives. Outsourced data processing costs totaled $9.3 million, an increase of $0.8 million, reflecting higher transaction volume and growth in customers, including from the acquisition of Heartland. Other categories of expenses were in line with expectations.
Our adjusted efficiency ratio improved to 53.8%, down from 55.4% in the second quarter, demonstrating continued operating leverage. We continue to remain focused on profitability and performance and expect continued disciplined management of overhead and the efficiency ratio. With the addition of The Villages beginning in October, we expect adjusted expenses for the fourth quarter, excluding direct merger-related costs, to be in the range of $110 million-$112 million. Turning to slide nine, loan outstandings, excluding the impact of the Heartland acquisition, increased at an annualized 8%. Pipelines increased 30% to $1.2 billion, and we continue to see strong broad-based demand across our markets. Loan yields declined 2 basis points, with lower accretion on acquired loans, with the prior quarter impacted by elevated payoffs. Excluding the effect of accretion, yields increased 3 basis points from the prior quarter to 5.61%.
Looking forward, the pipeline remains strong, and we expect continued high single-digit organic loan growth in the coming quarter. With the addition of The Villages in the fourth quarter, we expect loan-to-deposit ratio at year-end 2025 to be below 75%, allowing significant continued growth opportunities. 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. Non-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 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 32% and 223% of consolidated risk-based capital, respectively.
We've managed our loan portfolio with diverse distribution across categories and retained granularity to manage risk. Moving to credit topics on slide 11, the allowance for credit losses totaled $147.5 million, with coverage to total loans remaining flat at 1.34%. The allowance for credit losses, combined with the $102.2 million remaining unrecognized discount on acquired loans, totals $249.7 million, or 2.27% of total loans that's available to cover potential losses. Moving to slide 12, looking at quarterly trends in credit metrics, which remain strong. We recorded net charge-offs of $3.2 million during the quarter, or 12 basis points annualized. Non-performing loans declined by $3.6 million during the quarter and represent only 0.55% of total loans. Accruing past due loans moved slightly higher to 0.19% of total loans. The level of criticized and classified loans stands at 2.5% of total loans, generally in line with prior periods.
As Chuck Shaffer mentioned in his opening remarks, Seacoast continues to have very limited exposure to shared national credits or non-depository financial institutions. We have no exposure to private equity debt funds. Moving to slide 13 and the investment securities portfolio, net unrealized losses in the AFS portfolio improved by $36 million during the third quarter, driven by changes in long-term rates. The portfolio yield increased 5 basis points to 3.92%, reflecting $385 million in purchases of primarily agency mortgage-backed securities, with an average yield of 5.03%. Turning to slide 14 and the deposit portfolio, Seacoast continues to benefit from a diverse deposit base. Customer transaction accounts represent 48% of total deposits, which continues to highlight our longstanding 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.
On slide 15, organic deposit growth, excluding changes in brokered deposits and the acquired Heartland Bank deposits, was $212.3 million, or 7% annualized, of which $80.4 million was non-interest-bearing deposit growth. Cost of deposits increased slightly by 1 basis point to 1.81%. The Heartland Bank acquisition added over $700 million in a strong core deposit franchise and the number one market share in Highlands County. We continue to build share across our markets with a focus on core relationship deposits. For the fourth quarter 2025, we expect low to mid-single-digit organic deposit growth. Finally, on slide 16, our capital position continues to be very strong. Tangible book value per share has grown to $17.61, and the ratio of tangible common equity to tangible assets held strong at 9.8%.
As expected, return on tangible common equity decreased, reflecting the impact of the Heartland Bank acquisition, and in the fourth quarter, we'll see the initial impact of The Villages Bancorporation acquisition on these metrics. Into the first quarter of 2026 and moving forward, we expect to see meaningful improvements in return on equity measures. Our risk-based and tier-one capital ratios remain among the highest in the industry. Results this quarter reflect our ability to deliver strong, sustainable performance. Our balance sheet is well-positioned, and our capital position is strong. We'll continue to execute on our organic growth and profitability goals as we integrate recent acquisitions and grow the franchise. I'll now turn the call back over to Chuck.
Chuck Shaffer (CEO)
All right. Thanks, Tracey. Operator, I think we're ready for Q&A.
Operator (participant)
Thank you. We will now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question and are listening via speakerphone in your device, please pick up your headset to ensure that your phone is not on mute when asking your question. Again, press star one to join the queue. Our first question comes from the line of Will Jones with KBW. Your line is open.
Will Jones (Analyst)
Yeah, thanks, guys. Good morning.
Chuck Shaffer (CEO)
Morning, Will.
Will Jones (Analyst)
I just wanted to start on the growth outlook. It's impressive in a quarter where you're closing and converting a deal and closing another one that you're still able to just so consistently produce this mid to high single-digit growth. As I look back on the first half of the year, it's so consistent with what you produced this quarter. At the same time, it feels like pipeline momentum, being at all-time highs and just kind of the added flexibility you're going to have with The Villages Bancorporation balance sheet, that there may be opportunity to kind of accelerate growth as you look into 2026. Could you just maybe talk about your willingness to scale up the growth opportunity to the extent that it does present itself next year?
Chuck Shaffer (CEO)
Thanks for the question, Will. That was one of the things I thought was most impressive about the quarter. Not only did the team grow strongly on both sides of the balance sheet, we also converted a Heartland transaction, which went exceptionally well. We continue to move with tremendous momentum. When you look at building the pipeline, the building growth, we have a slide in there that shows the net loan growth quarter to quarter, and you're seeing consistent improvement. When you kind of combine the liquidity we're picking up with The Villages transaction, which, just to remind you, is a very granular, diverse, lower-cost deposit portfolio, and connect that with what I think now is one of the strongest commercial banking teams across Florida and maybe in the whole Southeast, it is a really strong combination to put together to drive earnings as we move forward.
The team we've built over the last three years has matured now. If you recall, we've been pretty hard at work recruiting consistently now for a good 36 months. We've moved past solicitation constraints and other things that the bankers would have had in terms of contractual arrangements, and they're now fully available to go out and call and build business. We've also moved to the point where, from a lending perspective, some of the very low-yielding loans that were kind of locked into some of those balance sheets that would be moving business from have reached maturity and/or have amortized down to the point where they're willing to refinance those arrangements. When you put all that together, I just feel very confident about our ability to deliver our guide, which was high single digit as we move forward. I think I'd stick with that guide for now.
I think that's an appropriate guide as we move through time. I feel really confident in our ability to deliver that in the coming quarters.
Michael Young (CSO)
This is Michael. I just wanted to add, you know, I think when you compare that to what you're seeing in the industry right now, we did a lot of work over the last two years, and we de-risked kind of our portfolio and made sure that everything that we have is what we want to have going forward. I think a lot of others are going through that right now. Our production is leading to more net growth as we add new relationships and grow the book.
Will Jones (Analyst)
Yeah. That's fair enough. I'm certainly in an envious position to be in. As I guess maybe more holistically, as you think about 2026 and the flexibility that The Villages Bancorporation will provide to you, as we kind of think about the size of the balance sheet next year, would you characterize 2026 more as a year of optimization? Maybe you don't need as intensive of deposit growth to kind of just leverage the balance sheet on the loan side, or do you still expect to see some modest balance sheet growth in 2026?
Michael Young (CSO)
Hey, Will. Yeah. Let me, I'll take that one. This is Michael. I'll call it one trend in the fourth quarter quickly, and then I'll move to 2026 for a little bit of color there. In the fourth quarter, we did add a little bit of leverage in the third quarter to pre-buy some securities for The Villages, restructuring about $350 million that Tracey mentioned earlier. We have about $167 million of brokered deposits at about 4.2% that'll run off in November, and another $175 million of FHLB advances at about 4.2% that'll run off in November as well. We will de-lever just a little bit here in the fourth quarter at higher yields and expanding margin. As we move to 2026, we really think that across the franchise, there's a lot of deposit growth opportunity. We've opened about five to six new locations by year-end across the footprint here.
Also with The Villages, continued expansion and growth with them opening new town centers and having a lot of net new immigration there as well. There's just a lot of tailwinds to deposit growth. We will remix a little bit, but deposits are still likely to grow at a pretty decent clip in 2026. The balance sheet will be expanding kind of in line with that deposit growth that we forecast for 2026.
Will Jones (Analyst)
Yeah. Okay. I appreciate that detail, Michael. Just lastly for me, you guys have been expanding into Atlanta more recently. Correct me if I'm wrong, maybe your first meaningful expansion outside the state of Florida, just in terms of where you have boots on the ground, a telltale market that's seen quite a bit of M&A turnover in the past couple of months here. Maybe, Chuck, if you could just frame what you would like to see in terms of the build-out of Atlanta and where there may be opportunity to add talent here.
Chuck Shaffer (CEO)
Sure. Thanks, Will. You're right. What we see in that market and what we see as we entered it a few years ago is the opportunity to take advantage of what we think will be significant consolidation in the northern arc of Atlanta. About three years ago, we began to enter that market carefully with a commercial real estate team. We saw a lot of success uniquely, or maybe not uniquely, but interestingly, we found a lot of connectivity between Atlanta and Florida with a lot of, particularly on the commercial real estate side, some of the institutional quality commercial real estate investors and developers doing a lot of work in Florida. It was a natural segue. As that continued to build, we've bolted on a C&I team that continues to grow in that market.
I would expect us to ultimately open a handful of branches in probably a three to five-year period as we move through the coming years and expand into the market. We've had a lot of success at this point. We're onboarding a lot of high-quality customers. I would expect us to build out that northern arc. Beyond that, I don't think we have any plans outside of that at this point. That's kind of our focus in Atlanta. We still have markets to fill in around Florida that we're focused on as well. We're still getting a lot of inbound demand by bankers and banking teams wanting to join the franchise. We're carefully taking advantage of that as we move through time. Potentially, as there is more market disruption consolidation, we'll have very good opportunities to bring on really high-quality talent.
Will Jones (Analyst)
Okay. I appreciate that color, guys. Nice quarter. Thank you.
Chuck Shaffer (CEO)
Thanks, Will.
Operator (participant)
Our next question comes from the line of David Feaster with Raymond James. Your line is open.
David Feaster (Analyst)
All right. Good morning, everybody.
Michael Young (CSO)
Hey, David.
Chuck Shaffer (CEO)
Morning, David.
David Feaster (Analyst)
I wanted to touch on The Villages deal and just kind of hoping to get maybe some of an update. I mean, this is a transformational deal and an extremely exciting time for y'all. How has the deal gone early on, right? I mean, we're only a couple of weeks into it, I know. Where are you seeing the most opportunity to add value near term? You know, the timeline to cross-sell some additional products across the existing footprint. How are you prepping for that conversion to minimize disruption and ensure a seamless integration?
Chuck Shaffer (CEO)
Great question, David. It's the most exciting thing that's ever happened to Seacoast. I really am not overstating that. We are really excited to be in the Villages MSA. We've had a very good reception in that market. The team there fits incredibly well within Seacoast. The cultures are very much aligned, very customer-focused. We've been really excited to have the team join us. It's gone incredibly smooth. Having done a lot of these through my career, this one's a good one, and it's going exceptionally well. As we look at that market, as you mentioned, the most important thing we can do is have a very clean, smooth, easy conversion for the Villages customers, citizens-first customers. That's what we're focused on. That'll happen about July next year. We gave ourselves plenty of time to do lots of data integrity work, lots of mock conversions, lots of work.
There's a whole team here that is heads down on that. It is the most important thing we can do as we come into that year. The quality of that customer franchise we're acquiring is tremendous. We want to make it incredibly smooth for them, incredibly smooth for the Villages community in general, and highly focused on that. We're also going to be doing lots of coffee meetings and training for the customer. I mean, we have all kinds of things planned, events, cocktail parties, everything you can imagine. We're going to be deeply involved in the Villages and the growth of the Villages. We want to get this one right because we have Villages 2 coming that we're going to build alongside with. A lot of upside to getting that right, a lot of benefit in the coming years.
We think we can build a bank that's twice the size of the bank there over time as it gets built in that market. We're super excited on it. That's step one. Step two will be building around that franchise in terms of wealth management. We've got a wealth team built at this point. We've acquired a full team up in that market that is now calling in that market, and we're starting to already win business, particularly on the trust side. We're off to the races up there. Things are going incredibly well. I think the balance sheet came in a little bigger than we expected. Deposits are growing, and we're probably outperforming a bit of our model at this point.
David Feaster (Analyst)
That's terrific. On the other side, too, we touched on it a bit, but the pipelines continue to grow. It's at record levels. How much of that is just, A, obviously, Florida is a really strong market. How much of that is just the market backdrop versus maybe more confidence from your clients to start investing in maybe down rates? Some projects might pencil today that didn't before versus just, like you talked about, market share gains from your new hires. How's the complexity of the pipeline today, both by segment and geography? Kind of curious where you're seeing the most opportunity.
Chuck Shaffer (CEO)
Yeah. Market's strong. Demand is strong. We're seeing sort of broad-based demand, C&I and CRE. The pipeline's a mix of about 50/50 CRE and C&I. It's pretty wide. It's pretty broad. The industries are pretty wide, too. Kind of across the board, market demand remains really good. It really hasn't slowed down as a result of tariffs or anything. We're still seeing quite a bit of demand. We've seen no real impact in terms of demand as a result of that. We're feeling very good about market demand. Probably more importantly, what we're seeing a significant amount on is offloading customers out of larger bank balance sheets onto our balance sheet as we continue to have the banking team mature into the investments we made a number of years ago. I'll just reiterate what I said to Will's question.
A lot of those loans were locked in at very low rates. The customers are coming up on their terms. They've got to refinance. Rather than going back to the bank they're at, they're following their banker to Seacoast. That is very exciting as we move forward. Combining that with the liquidity we're bolting on through the M&A is incredibly accretive in the years to come.
David Feaster (Analyst)
Okay. Maybe just stepping back, kind of a higher-level question. You've had pretty massive growth over the past several years. We went from, looking back, at the start of 2020, you were a $7 billion asset bank. Today, you're north of $21 billion in just five years, organically and through the inclusion of several community banks. Given that massive growth, as you step back and look where you stand today and you think about how you are going to compete maybe against more of some of your larger brethren, is there anything that you're missing or that you need to invest in, especially as you continue to move upstream, whether that be technology, infrastructure, product offerings? Just kind of curious what you're working on today and being a much larger institution, if there's anything that you need to add or where you're looking to invest.
Chuck Shaffer (CEO)
I would say the good thing or the smart thing we did over the last few years is we invested heavily in building out our line two, line three risk function. We have a very strong function that supports being a larger midsize bank. We continue to make investments over that period of time. I feel very confident in where we stand in regard to our overall enterprise risk management, our governance, the structure of the organization. We've also made a lot of investments on the technology side, particularly customer-facing technology. There are probably some things we need to continue to build on, particularly around our commercial treasury stack that we remain focused on here as we move forward. We're working on getting Zelle for Business inside the company. That's an important technology product that's important to our small business customers in particular.
There are things we're bolting on, David, that we'll be doing in the coming years. I think at this point, the good news around our size is at $21 billion, we have the ability to compete up market in a meaningful way. We've brought in large regional bank quality talent into the organization, combined that with a really high-quality treasury management team. You see that pulling through in our TM fees. We're letting them go to work and have the ability, the capacity now to go out and compete up market and win business. I largely feel like we're there. There are investments we need to make. We'll continue to make. There are investments we need to make to continue to harden and build our IT infrastructure and other things as we get larger. I think we've got that all in the plan.
I think we've managed that and paced that appropriately and feel very good about our investments in the coming year and our earnings profile.
David Feaster (Analyst)
Terrific. Thanks, everybody. Exciting times for you all.
Chuck Shaffer (CEO)
Thank you, David.
Operator (participant)
Next question comes from the line of Russell Gunther with Stephens. Your line is open.
Russell Gunther (Analyst)
Hi. Good morning, guys.
Chuck Shaffer (CEO)
Hi, Russell.
Russell Gunther (Analyst)
Morning.
Wanted to start on the margin discussion. I think the core name for this quarter came in a little bit lighter than this guide. Could you walk us through the glide path that gets us from 3Q to that 3.45%? Maybe touch on where the September NIM shook out if you could. What does this consider for continued excess liquidity deployment going forward?
Michael Young (CSO)
Hey, Russell. This is Michael. I'll take that one. Yeah. We've been talking about a 3.45% NIM in the fourth quarter for a while. We were kind of unsure of the date of the close of the legal transaction with The Villages Bancorporation. That came in a little earlier, so that's certainly beneficial. I mentioned the wholesale funding that we'll pay off here in November, early November. That'll benefit the margin as well into the fourth quarter. I think from there, just the completion of the securities restructure in the fourth quarter will be the other main driver. We're down in cost of funds. Our September cost of funds was about 1.92% versus 1.96% reported for the quarter. We're already benefiting from the rate cut that happened in September.
We'll add on the low-cost deposits from The Villages Bancorporation as well, that we had talked about, would add roughly about 10 basis points in total to the fourth quarter cost of funds improvement and therefore NIM. I think we're right on schedule. Obviously, if we get a couple rate cuts here, if we get October and December, that's beneficial to our slightly liability-sensitive balance sheet. Those give you some of the moving pieces, I think, as you move through the fourth quarter. We still expect expanding margin into 2026 with the securities reposition behind us and the low-cost deposit franchises that we've acquired. Maybe one other piece there as you look out, while we're not giving 2026 guidance yet, we do expect the deposit beta to come down a little bit.
We've really outperformed there at about a 48% deposit beta through these first 100 basis points of cuts through late last year. We would expect with the lower-cost deposit franchises, maybe we're closer to 30% beta going forward. Obviously, we hoped to outperform that, but that's probably where we would model going forward.
Russell Gunther (Analyst)
Okay. No, that's super helpful, Michael. Thank you. Maybe just a reminder in terms of what's left to do on the securities restructure, where that sort of pro forma securities to average earning asset contribution would likely shake out in 4Q, and then the type of progress you would expect to make toward ratcheting that down over 2026.
Michael Young (CSO)
Sure, Russell. High level, we closed the deal October 1, and we began restructuring the securities book at that time. We've made a lot of great progress there, and we'll continue to do so throughout the fourth quarter with a focus on best execution versus speed to completion. We're in good shape there and no real changes versus our initial expectations. The one positive is that original modeling of the deal, we recall that in April of this year, the tariff tantrum was going on and credit spreads were much wider, and rates were higher at that point in time as well. As those have compressed to deal close, we would expect a lower AOCI than what we originally anticipated. We should have a little higher book value in capital, which we hope will make the deal less dilutive.
Getting more detailed into the timing of the repositioning of the balance sheet in total, in the fourth quarter, we expect the loan-to-deposit ratio, as Tracey mentioned, to be below 75%. As we grow throughout 2026, we would expect some positive remix. Again, if you did just a high single-digit loan growth number for next year, that would be about $300 million more than a low to mid-single-digit deposit growth number. That kind of gives you an order of magnitude on what could happen next year. Obviously, with higher loan growth, we might remix faster.
Russell Gunther (Analyst)
Okay. Absolutely. Very helpful, Michael. Thank you. Just last one for me. I appreciate the look at where 4Q expenses could shake out. As we think about the pro forma franchise, maybe bigger picture, how should we contextualize sort of a decent core growth rate for Seacoast going forward?
Michael Young (CSO)
Hey, Russell. This is Michael again. I think what we've said historically and continue to expect to be the case on just the organic side would be something in pace and in alignment with inflation, kind of a 3%, 3%-4% growth rate on the core underlying. It depends on the success and sort of banker hires from there. As Chuck mentioned, we do expect some merger disruption across our footprint in the Southeast broadly. We may see a better appetite and a better opportunity to invest. As Chuck's mentioned before, we've had a lot of pipeline of opportunities to hire bankers, but we've wanted to balance that hiring with profitability delivery to shareholders. I think you'll see, obviously, into 2026, we're going to have strong profitability delivery to shareholders.
It gives us more capacity and ability to continue to expand and hire bankers and expand our commercial banking franchise. I think those are kind of the things you want to think about. We're not giving 2026 guidance yet. We'll give more color on that in January.
Russell Gunther (Analyst)
Understood. Okay. Very helpful. Thank you, guys, for taking all my questions.
Michael Young (CSO)
Thank you, Russell.
Operator (participant)
Next question comes from the line of Stephen Scouten with Piper Sandler. Your line is open.
Stephen Scouten (Analyst)
Good morning. Thanks. Appreciating you're not giving 2026 guide at all, but in the same vein, you did give like a 2026 kind of high-level run rate number in the Villages slide deck. Do you feel like that $250 million number you kind of disclosed there is probably on pace and maybe it even sounds like potentially ahead of schedule based on the deal closing sooner, better loan growth, and those sort of things? Is that kind of a fair way to think about expectations versus that disclosure?
Michael Young (CSO)
Yeah, Stephen. This is Michael. I think we feel really comfortable with what we laid out originally. I think what you may see is, again, given kind of the rate movement, we may see better book value, or less dilution than we initially expected, but we're still finalizing those rate marks, obviously, and everything right now. As we currently model, that would be the biggest change on the earnings front. We still feel really comfortable with where we're headed and what we have initially laid out. Some, obviously, variability with how many rate cuts we get and what you all are modeling, but we feel really comfortable with the $2.46 number.
Chuck Shaffer (CEO)
Yeah. If you go back to that deck, Stephen, just to reiterate with some confidence, that's where we expect to land.
Stephen Scouten (Analyst)
Fantastic. Perfect. And then just thinking about the balance sheet remix path over time, you guys have highlighted a couple of times this, you know, 75%‑ish loan‑to‑deposit ratio. A ton of potential to remix over time. Does that lead you to pursue any different paths? I mean, I think the answer is no based on knowing you guys over time, but do you think about any loan portfolio purchases? I mean, you've always had a really low CRE exposure, you know, with this Atlanta push. Do you think about maybe adding more CRE than you have in the past? Just kind of any changes to strategy around loan growth, given all the dry powder you have to put to work?
Michael Young (CSO)
I think a high single-digit guide is still appropriate. Stephen, you know, we'll be disciplined and focus on granularity, focus on diversity, and be thoughtful over time. Certainly, we'll have a lot of capacity to lend, but the way I describe it is we'll do it prudently and thoughtfully over the coming years.
Stephen Scouten (Analyst)
Okay. Fair enough. Lastly for me, on the fee side of things, it looked like SBA had a particularly strong quarter. Were any of the hires in the recent past within that division? Is that something that we could see like sustainable strength in, or was that more episodic in nature?
Chuck Shaffer (CEO)
Within the wealth management division, you focus on?
Stephen Scouten (Analyst)
I said SBA.
Chuck Shaffer (CEO)
Oh, SPA.
Stephen Scouten (Analyst)
Oh, SBA, I think, in particular.
Chuck Shaffer (CEO)
No, we've not added anything there. Just the volumes have come back. Teams remain focused, but it's the same group we've been operating with for a couple of years.
Michael Young (CSO)
Yeah. Gain on sales spreads there, Stephen, have gotten a little bit better, which is probably one of the drivers in that line item this quarter.
Stephen Scouten (Analyst)
Great. I actually thought the last thing is the conversion, I think you said, is set for maybe third quarter 2026 on The Villages Bancorporation. Is that where we would expect to see more of the lion's share of the cost saves come out at that point in time?
Tracey Dexter (CFO)
That's right. The conversion is currently planned for early in the third quarter of 2026, so looking still to achieve all those cost saves in the second half of 2026.
Stephen Scouten (Analyst)
Fantastic. Thanks so much for all the color. Great, great quarter.
Michael Young (CSO)
Thanks, Steve.
Operator (participant)
Next question comes from the line of David Bishop with Hovde Group. Your line is open.
David Bishop (Analyst)
Hey, good morning, guys.
Chuck Shaffer (CEO)
Hey, David.
David Bishop (Analyst)
Hey, quick question. Chuck, you know, maybe comment on what you're seeing out there in the market in terms of loan pricing and spreads. I know it's still pretty, you know, competitive with credit holding in fairly nicely. Just curious what you're seeing on credit spread fronts. Thanks.
Chuck Shaffer (CEO)
It's really low. It's definitely gotten hyper-competitive. I would say we're cautious around that, being thoughtful, but yeah, credit spreads are incredibly tight, particularly for high-quality, stabilized commercial real estate and really high-quality, strong cash-flowing operating companies. It's remarkably tight. Everybody's back in the game in a big way. We saw after 2023, some of the banks pull back. Now it feels like everybody's back in. Credit spreads are super tight. We're navigating that carefully, picking our spots carefully, but credit spreads are remarkably low across the board, particularly in low-risk areas, low risk where we're most involved.
David Bishop (Analyst)
Got it. You had mentioned the opportunity for The Villages 2 build out. Just remind us the timeline and maybe, I don't know if you've ring-fenced the deposit or loan opportunity there. Just curious, just some more details around The Villages 2. Thanks.
Chuck Shaffer (CEO)
Yeah. We think Villages 2 probably builds out over the next 10-15 years. It'll take some time. They've got, Michael, correct me if I'm wrong, I think two town centers open at this point. We are opening our branch in that town center now. I would expect, I think they, largely, if you think about it this way, they grew a $4 billion bank in Villages 1 with some inflation just on money in general. You could probably grow a $4 billion-$6 billion bank in Villages 2 over the next 10 years.
David Bishop (Analyst)
Got it. Final question, Chuck. It doesn't sound like it to this point, but obviously, there's a lot in the media and papers about the impact of rising insurance costs in Florida. Are you seeing any sort of impact in that impacting shovels in the ground or our behavior? Thanks.
Chuck Shaffer (CEO)
Not really. It's noise. It's complicated. We actually are seeing insurance premiums stabilize, if not coming back down at this point. We've had premiums get to the point where they brought a bunch of new entrants back into the market, as well as there was some tort reform that went on about 18 months ago that's pulling through at this point as well. We've seen a fair amount of startup capital come back into the market to provide insurance buy-down policies from the state of Florida Citizens' Wind Pool. I do feel like insurance is still expensive, I mean, on a relative basis for sure, but it's stable. In some cases, we're seeing it come down. It's still challenging for older properties; that's going to be your most expensive spot. If you're buying or building a brand new home, it's actually really inexpensive at this point.
It's kind of bifurcated inside the marketplace, but it isn't near as bad as it was, call it, 24 months ago.
David Bishop (Analyst)
Got it. Appreciate the color.
Chuck Shaffer (CEO)
All right.
Operator (participant)
That concludes the question-and-answer session. I would like to turn the call back over to Mr. Chuck Shaffer for closing remarks.
Chuck Shaffer (CEO)
Thank you all for joining us this morning. I just want to reiterate my thanks and appreciation to the Seacoast team. Proud of our company. We produced an amazing quarter. I think our outlook is really good and I am super, super excited to be where we are. Thanks to our team for everything they've done. Thanks to our shareholders for supporting us. Thank you all for joining this call. That'll wrap us up, operator. Thank you.
Operator (participant)
Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.