Earnings Call Transcript - SBCF Q1 2025

Operator, Operator

Welcome to Seacoast Banking Corporation's First Quarter 2025 Earnings Conference Call. My name is Desiree and I will be your operator. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. 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 that act. Please note that this conference is being recorded. I will now turn the call over to Chuck Shaffer, Chairman and CEO of Seacoast Bank. Mr. Shaffer, you may begin.

Chuck Shaffer, Chairman and CEO

Okay. Thank you, Desiree and good morning everyone. As we proceed with our presentation, we'll refer to the first quarter earnings slide deck available at seacoastbanking.com. Joining me today are Tracey Dexter, our Chief Financial Officer; Michael Young, our Treasurer and Director of Investor Relations; and James Stallings, our Chief Credit Officer. Before we delve into earnings, I'd like to address the recent market uncertainty over the past three weeks. Clearly, there is emerging risk in the macroeconomic environment and volatility has increased. I want to remind you that Seacoast is well-positioned to navigate turbulent times. We've built one of the strongest balance sheets in the country, featuring an industry-leading capital position, robust credit diversity, and a granular highly valuable deposit franchise. This fortress balance sheet provides us with optionality and durability, serving as a significant source of strength. Additionally, we primarily operate in Florida, one of the strongest economies in the nation. And turning to the quarterly results, the Seacoast team delivered a strong quarter for both loans and deposits, outperforming peers and the industry at large. The net interest margin increased by 9 basis points, while the cost of deposits declined by 15 basis points. We achieved 6% annualized loan growth and ended the quarter with a healthy late-stage pipeline. Deposit growth was also strong at nearly 11% annualized with non-interest-bearing demand deposits growing 17% annualized. This all resulted in 22% growth in adjusted pre-tax pre-provision earnings when compared to the same quarter one year ago and tangible book value per share grew 10% over that same period. This quarter marked a promising start to 2025, and our investments in talent across our footprint have fully taken effect, driving substantial onboarding and new relationships. These investments in revenue-producing talent will continue to drive solid disciplined growth. And additionally, we onboarded another 10 revenue-producing bankers during the quarter. Asset quality remained strong during the quarter with the NPL ratio dropping 68 basis points. Charge-offs for the quarter were entirely driven by acquired credits. And the provision for loan losses increased from the prior quarter in part due to strong loan growth that occurred late in the quarter, and we chose to hold the allowance coverage ratio flat to the prior quarter given market uncertainty. We will take a conservative approach until clarity emerges. And lastly, everything is progressing well with Heartland Bancshares. We expect to close and convert this transaction in the third quarter.

Tracey Dexter, Chief Financial Officer

Thank you, Chuck. Good morning everyone. Directing your attention to first quarter results, beginning with Slide 4. Seacoast reported net income of $31.5 million or $0.37 per share in the first quarter and pre-tax pre-provision income increased $2.7 million to $50.6 million. Growth in loans and deposits was largely the result of talent added over the last several quarters, which is now resulting in onboarding significant new relationships. Total deposits were up 11% annualized and non-interest-bearing balances grew 17% annualized. Loan production was strong with growth in balances near 6% on an annualized basis. Net interest income of $118.5 million is up 2% from the prior quarter with the cost of deposits declining 15 basis points to 1.93%. Net interest margin expanded 9 basis points to 3.48% and excluding accretion on acquired loans, net interest margin expanded 19 basis points to 3.24%. Tangible book value per share of $16.71 represents a 10% year-over-year increase. Our capital position continues to be very strong. Seacoast's Tier 1 capital ratio is 14.7% and the ratio of tangible common equity to tangible assets is 9.6%. We grew our branch footprint during the quarter with two new locations in Fort Lauderdale and Tampa, two of the fastest-growing markets in the state. And in February, we announced the proposed acquisition of Heartland Bancshares and Heartland National Bank. We're on track to close in the third quarter of 2025. Turning to Slide 5. Net interest income expanded by $2.7 million during the quarter, driven primarily by lower deposit costs. The net interest margin expanded 9 basis points to 3.48%, and excluding accretion on acquired loans expanded 19 basis points to 3.24%. In the securities portfolio, yields increased 11 basis points to 3.88% benefiting from new purchases. Loan yields were down 3 basis points to 5.9%. Excluding accretion, loan yields increased by 10 basis points to 5.58%. The cost of deposits decreased 15 basis points to 1.93% due to proactive deposit repricing and growth in DDA balances, demonstrating the success of the talent we've added in recent periods and the strength of our relationship-focused banking model. Given the strong growth momentum coming out of the first quarter, we expect net interest income to continue to grow through the remainder of the year. Moving to Slide 6. Non-interest income, excluding securities activity was $22 million, increasing 8% from the first quarter of 2024 and a 20% increase in wealth management revenue and 25% increase in insurance agency income year-over-year. Beyond that, our investments in talent and significant market expansion across the state have resulted in continued growth in treasury management services to commercial customers. Other income was lower by $4.1 million compared to the prior quarter, with lower gains on SBIC investments and fewer loan sales compared to the fourth quarter. Looking ahead to the second quarter, we continue to focus on growing non-interest income and we expect non-interest income in a range from $20 million to $22 million. Moving to Slide 7. Our Wealth division continued its strong growth, adding $117 million in new assets under management in the first quarter, with total AUM increasing 14% year-over-year. And on Slide 8, non-interest expense in the first quarter was $90.6 million on a GAAP basis and included $1.1 million in merger-related expenses. Consistent with expectations, the first quarter was seasonally higher with higher payroll tax and 401(k) contributions. Increases in other line items reflect the expansion of our commercial team by 10 bankers and the addition of two new branch locations. We continue to remain focused on profitability and performance and expect adjusted expenses for the second quarter, which excludes merger-related costs to be in a range of $87 million to $89 million. Turning to Slide 9. Loan outstandings increased at an annualized rate of 5.6% with production of $555 million in the first quarter and the pipeline expanding by over 40% from the prior quarter. Loan yields were down 3 basis points and excluding accretion, were higher by 10 basis points to 5.58%. The accretion continues to be variable and declined this quarter with the prior quarter impacted by significant payoffs. Looking forward, the pipeline is very strong, and we expect mid to high single-digit loan growth in the coming quarter and for the full year 2025, though the impact of tariffs may add some uncertainty. On to Slide 12, looking at quarterly trends and credit metrics. Non-performing loans represented 0.68% of total loans, a decrease of approximately $21 million from the prior quarter and accruing past-due loans remained low at 0.16% of total loans. Moving to Slide 13 and the investment securities portfolio. The average yield on securities has benefited from recent purchases at higher yields, and the portfolio yield increased during the first quarter to 3.88%. We leveraged FHLB advances to purchase securities in advance of the Heartland acquisition. Heartland's short-term bond portfolio and high liquidity levels provided an opportunity to lock in higher rates mid-quarter with purchases of $412 million in primarily agency mortgage-backed securities with an average book yield of 5.51%. Turning to Slide 14 and the deposit portfolio. Total deposits increased to $12.6 billion, growing at an 11% annualized rate from the prior quarter and non-interest-bearing accounts grew at 17% annualized. We believe this growth was in part the result of customers aggregating balances to make tax payments, and we expect some outflow in the second quarter. The cost of deposits declined 15 basis points to 1.93%. We remain very encouraged about the continued ability of recent talent additions to onboard relationships and build core deposits and we expect low to mid-single-digit deposit growth for the full year 2025 with a typical seasonally lower trend in the second quarter. On Slide 15, Seacoast continues to benefit from a diverse deposit base. Customer transaction accounts represent 50% of total deposits, which continues to highlight our long-standing relationship-focused approach. Our customers are highly engaged and have a long history with us and low average balances reflect the granular relationship nature of our franchise. And finally, on Slide 16, our capital position continues to be very strong and we're committed to maintaining our fortress balance sheet. Tangible book value per share has increased 10% year-over-year, 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 growth strategy positions us well as we continue to build Florida's leading regional bank. I'll now turn the call back to you, Chuck.

Chuck Shaffer, Chairman and CEO

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

Operator, Operator

Thank you. We will now begin the question-and-answer session. And our first question comes from the line of Stephen Scouten with Piper Sandler. Your line is open.

Stephen Scouten, Analyst

Hey, good morning everyone. Thanks for the time.

Chuck Shaffer, Chairman and CEO

Good morning.

Stephen Scouten, Analyst

I would like some clarity on the securities trade related to the pending Heartland deal. Are you essentially taking advantage of the market by selecting these securities and planning to liquidate the Heartland book at closing? It seems like you are preemptively positioning yourselves in that trade.

Michael Young, Treasurer and Director of Investor Relations

Yes, hey Stephen, this is Michael. I'll take that one. Yes, that really is what it was. And it was a unique opportunity given the structure of their securities portfolio and high balances of cash along with their long tenure of their deposit relationships. The combination of those three things made it a low-risk effort to be able to do this. So, basically, we just pre-purchased the securities that we would want to retain following the transaction, their securities portfolio is about a one-year duration. And so there's not a lot of rate volatility impact to the AOCI mark or the capital piece even with rates moving up and down here. But it could move in our favor if rates are lower at the time of transaction close because we would have pre-locked in our securities portfolio at higher yields.

Stephen Scouten, Analyst

Yes. It seems smart. Okay, that's great. Thanks for the color there. How should we think about kind of the increase in the core loan yields in the quarter given the impact that there was some impact from the rate cuts at the end of the year in the quarter. So, I guess, how did that come about? How did that manifest? And then how should we think about the NIM from here? The move in the core NIM was pretty impressive, I thought.

Michael Young, Treasurer and Director of Investor Relations

Yes, Stephen. This is Michael again. There are two aspects to consider regarding the net interest margin. First, focusing on loans, we have approximately 50% fixed loans, about 29% adjustable loans, and only around 20-21% that are truly floating or immediately adjustable. We experienced the effects of the 100 basis points of Federal Reserve rate cuts during the fourth quarter, but the overall impact on our balance sheet was minimal. Additionally, we will see some float hedges rolling off in April, affecting both our securities and loan portfolios. Our asset mix is becoming increasingly fixed-rate as yields decline and rates potentially decrease further. We feel well-prepared for a lower rate environment. Along with decreasing deposit costs—evident in the fourth quarter and continuing into the first quarter—we will proactively manage our deposit pricing to drive net interest margin growth. Our fixed-rate loans and securities continue to roll in increasingly, allowing us to gradually see a couple of basis points uptick in yield each month, a trend you can observe on Slide 21.

Stephen Scouten, Analyst

Okay. Super. And then just one last thing from me, the trend in loan growth looks very promising. It's also encouraging to see the new hires, and you still have a lot of excess capital. So, if the environment stabilizes, which we all hope for, could there be further potential for the mid to high single-digit loan growth or other options for utilizing the excess capital from this point forward?

Chuck Shaffer, Chairman and CEO

Yes, I'll take that. It's Chuck. If you remember back in the first quarter, our guidance for the second half of the year was high single-digits, and I believe we have a clear path to achieving that in a more normalized environment. This quarter has shown strong evidence of the investments we've made over the past couple of years, with solid growth in both deposits and loans. I feel confident that we can reach high single-digit growth in the latter half of the year, barring any impacts from tariffs and economic volatility. It's still too early to determine how our customers will respond to these factors or what the full impact will be. However, the strength of our team is now becoming apparent, which boosts my confidence for the remainder of the year. We have successfully built the team, and looking at the broader picture, this quarter has shown solid growth. A lot of investments have been made over the last year and a half, and I believe we are nearing the completion of those investments. We now have the team in place to drive growth, and our focus for the rest of the year will be on leveraging these investments to enhance profitability.

Stephen Scouten, Analyst

Fantastic. Thanks so much for the comments this morning. Great quarter.

Chuck Shaffer, Chairman and CEO

Thank you.

Operator, Operator

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

Woody Lay, Analyst

Hey good morning.

Chuck Shaffer, Chairman and CEO

Good morning Woody.

Woody Lay, Analyst

Just wanted to follow-up on the NIM. Core NIM beat expectations in the quarter by about 10 basis points. So, how should we be thinking about that 3.35% core NIM target by the end of the year?

Michael Young, Treasurer and Director of Investor Relations

Hey Woody, this is Michael. Yes, there will be a little bit of impact on the timing around when the Heartland acquisition closes. So, that's just a caveat to put out there depending on when that closes. But outside of that, the core trends remain positive, I think, in our ability to manage deposit costs lower. And like I said, just the back book repricing that's going to continue for some time here over the next few years. And so that's just sort of a core underlying tailwind on the asset side. We continue to reprice up into the higher rate environment every day, and then we're managing deposit costs carefully to continue to drive NIM expansion and profitability improvement, as Chuck mentioned. So, I think that's really the focus. So, as it pertains to the 3.35% NIM in the fourth quarter, I don't think we've updated guidance explicitly there. But if there's more rate cuts, we said we'd be higher than that, certainly. And I think then just the timing of the Heartland acquisition close could impact that a little bit as well, but we feel good about the trajectory, particularly of NII dollars, but also NIM going forward.

Woody Lay, Analyst

Got it. And maybe shifting over to credit. Just any color on what drove the criticized and classified increase in the quarter?

James Stallings, Chief Credit Officer

Hey, good morning Woody, this is James Stallings. I'll sort of speak to that. We had a handful of loans that moved to criticized or classified this quarter. We've sort of looked over that. We don't really see sort of thematic drivers of that. These were somewhat idiosyncratic. We had one situation that was isolated to a CRE facility that experienced flooding last year that took some other units offline. We had another situation that was an existing C&I business. The underlying business is performing fine, but the owner was excessively distributing, and so we stepped in and we adjusted the risk rate and took action on that. But by and large, it is just a handful of one-off situations that drove that.

Chuck Shaffer, Chairman and CEO

We continue to take a rather conservative approach to that Woody, and just carefully grade over time. That's kind of normal cycle movements here. Things move in, classifieds, they move out through non-accrual. But in the case James just described, most of those, we expect to remain non-accrual and actually don't really expect much loss content. They're all just sort of unique situations.

Woody Lay, Analyst

I just wanted to ask, regarding the Heartland call, you mentioned your ongoing interest in smaller bank mergers and acquisitions. Has the uncertainty in the current macroeconomic environment influenced your capital deployment strategy?

Chuck Shaffer, Chairman and CEO

Yes, it's a great question. Obviously, a lot of volatility over the last three weeks. I'd describe it this way. We remain open and ready to do another deal; the Heartland deal is small enough and will be easily integrated here in the coming couple of quarters. So, beyond that, we'll be ready to do deals, obviously, continue to remain very disciplined in terms of earn backs, pricing and the like. And obviously, anything we look at would have to contemplate all this volatility that's going on. So, we're open and ready, but obviously, volatility makes deals more challenging. In terms of kind of the way we think about things, unfortunately, we're kind of blacked out of buying back shares right now given the Heartland deal, but that looks pretty attractive at these levels. So, depending on what things look like as we come through the Heartland deal, buybacks could make sense and M&A could make sense. So, it just depends on what the environment looks like, but deploying capital, obviously, is very accretive to our franchise, given the capital levels.

Woody Lay, Analyst

Thanks for taking my questions.

Chuck Shaffer, Chairman and CEO

Thanks Woody.

Operator, Operator

Next question comes from the line of David Feaster with Raymond James. Your line is open.

David Feaster, Analyst

Good morning everybody.

Chuck Shaffer, Chairman and CEO

Good morning David.

David Feaster, Analyst

I wanted to revisit the loan segment. The growth in the pipeline is fantastic, and it’s very encouraging to hear about the expansion in the late-stage pipeline. There’s a positive economic environment in Florida, along with new hires contributing to this growth. I'm interested to know where you see opportunities for further growth. Additionally, how are your clients feeling during discussions with your bankers? Given the current uncertainties, have you noticed any changes in the conversion of the pipeline, or do you anticipate any changes due to the trade wars? I'm eager to hear your insights on this matter.

Chuck Shaffer, Chairman and CEO

The pipeline remains strong, and we have not seen any negative effects so far, which is a positive sign. Our customers are still committed to their projects, and we have not experienced any significant impacts at this time. We have conducted surveys with our customers regarding the tariffs and their strategies for dealing with them. The consensus seems to be that it is too early to make definitive predictions. Many are saying they will pass on costs, while others believe there will be no impact at all. Some customers might even benefit from the situation. The effects on future growth are still uncertain, but overall, I remain optimistic. The pipeline looks solid, and we anticipate continuing to advance it in the next quarter. In the upcoming 90 to 120 days, I am confident about our growth outlook, expecting mid to high single-digit growth in loans for the coming quarter. Beyond that, our growth will largely depend on broader macroeconomic conditions and their effect on our customers. So far, things look good; our customers are managing well, and the pipeline is holding steady. We are actively engaging with our customers and staying informed about their situations.

David Feaster, Analyst

Yes. Yes. And look, I mean, you guys are always really conservative. You've got a strong track record of asset quality, a disciplined approach to credit. Maybe as you, just staying on the topic of the uncertainty, as you step back and think about the potential impacts, I guess, is there anything that you're watching more closely. Has there been any changes to your credit box or underwriting or even approach to risk ratings? I mean has there been any just shifts just given the volatility?

Chuck Shaffer, Chairman and CEO

No, there have not been significant shifts. As we look at new credits, we are having thorough discussions about the potential impacts of tariffs on those opportunities and how customers can mitigate that risk. We are assessing their capacity to manage their projects amidst uncertainty, which requires a more disciplined approach. Generally, we are maintaining our usual practices and are not pulling back at this time. We are evaluating each customer individually and examining each of our credits carefully. We continue to adopt a conservative stance regarding risk ratings and similar factors. As time progresses, we will need to consider tariffs as we face renewals, but for now, we will continue to take things one day at a time.

Michael Young, Treasurer and Director of Investor Relations

David, this is Michael. I just want to add one thing there. I think with all the new bankers that we brought on, they have long-tenured relationships with their customers. And so a lot of growth will be supported just by moving over those relationships that they are already really connected with versus being completely dependent on kind of the macro environment and picking up net new green shoots.

David Feaster, Analyst

Yes, that's an important distinction. Thanks. And then last one, just wanted to touch on the fee side. Obviously, there's a lot of positives on the fee income side. The guide implies maybe a little bit of downside from the first quarter. The market pullback can obviously impact wealth management. Could you just touch on maybe some of the puts and takes on the various fee income lines?

Michael Young, Treasurer and Director of Investor Relations

Sure David, this is Michael. Yes, I think versus the fourth quarter, as we called out, we had some one-time benefits like the SBIC write-up that we spent on sort of moving out the fintech portfolio in the fourth quarter, moving here into the first quarter. We have some seasonal declines, obviously, in some of the deposit service charges and fees that will continue to build throughout the year. We're obviously growing deposits, so that's a tailwind to the specific deposit-related fees in TM and other areas. And same with some of the seasonal things in marine, mortgage, et cetera. And then we've had a little bit of contribution here from SBA market getting a little better. So, just kind of some general reset seasonally in the first quarter and some growth from there in various businesses, including wealth, TM, and SBA.

Chuck Shaffer, Chairman and CEO

And while wealth may see some pullback due to the fact that the equity markets pull back a fairly large portion of our wealth portfolio is actually fixed income. So, it probably is not as impactful that may be for other investment strategies. And oftentimes, when we see fairly big uncertainty like this, it opens up opportunities for us to look at moving new clients into Seacoast. So in some ways, a little bit challenging. In other ways, it's a material opportunity for us.

David Feaster, Analyst

Okay, terrific. Thanks everybody. Great quarter.

Chuck Shaffer, Chairman and CEO

Thanks David.

Operator, Operator

Next question comes from the line of Russell Gunther with Stephens. Your line is open.

Russell Gunther, Analyst

Hey, good morning guys.

Chuck Shaffer, Chairman and CEO

Morning Russell.

Russell Gunther, Analyst

I wanted to follow-up on the margin discussion. We hear you guys on NII growth expected for the rest of the year. I appreciate all the color on Slide 14. And so my question is on the cost of deposits going forward. You've been kind of bouncing in that 1.92% to 1.93% over the course of 1Q. How are you thinking about that trend going forward in the absence of rate cuts?

Michael Young, Treasurer and Director of Investor Relations

Hey Russell, this is Michael. I think we still have opportunities to continue to make some tactical adjustments to our deposit costs coming out of what was a big increase and a sudden increase in rates and then a quick decline as well. We've kind of made a lot of top of the house movements. But I think given our relationship banking model, et cetera, we're making tactical adjustments every day. And so I think there's still some opportunities there to move deposit costs favorably into the rest of the year. So, we'll continue to focus on that. But it's tactical at this point, probably versus significant. The other key piece is really the demand deposits, right, non-interest-bearing deposits. We had really strong growth as we brought on new bankers and new relationships, and we continue to move those in every day. And so I think that's the other key trend to watch as we continue to grow just our overall relationship-based deposit book and the non-interest-bearing deposits will be a key driver there as well.

Russell Gunther, Analyst

Yes, that's a great point, Michael. Thank you. Regarding the revenue producers you hired this quarter, what is the pipeline for further hires? Do you anticipate this trend to continue throughout the year? Is there any seasonality in bringing people over based on bonuses? I am trying to understand the potential for additional hires this year and how that could affect the expense run rate.

Chuck Shaffer, Chairman and CEO

Yes, that's a great question. I believe we've structured the team to achieve growth in the mid to high single digits moving forward, and I feel fairly confident about that. I don't anticipate needing to increase our overhead significantly in the next couple of quarters. As we look ahead to the coming year, we will assess how things develop. At this moment, we plan to be quite selective. On a different note, there's considerable inbound demand for creating banks and markets for us, which is encouraging. We will address this interest over time and are pleased with the enthusiasm for joining our franchise. However, for now, my main focus for the next few quarters will be on enhancing our profitability profile.

Russell Gunther, Analyst

Thank you, Chuck. I appreciate that. And then guys, last one for me. Understanding a good portion of amount of the book is marked, asset quality trends this quarter are favorable, understanding the dynamics with the ACL this quarter. But I guess just as you are digesting the potential impact of tariffs, could you just share any particular sectors of the loan portfolio you're keeping an incremental eye on, if any?

James Stallings, Chief Credit Officer

Hey, good morning Russell, James Stallings here. I think in terms of what we're looking at, we're certainly watching our C&I businesses to try to understand what the impacts of tariffs are. As Chuck mentioned, we've talked to a number of our clients already and the general sense is that it's too soon to tell. What I would say that we've been pleasantly surprised by is that a number of our clients that we've spoken to already have indicated that they've been considering supply chain disruptions and tariffs since before the election. And recall that many of these clients experienced supply chain disruptions and significant cost inflation post-COVID. And so many of them have adjusted their business models with the ability to pass through to not get caught in fixed price contracts, into pre-buy. A lot of them have increased inventory ahead of the expected tariff impact. So, it's too early to tell. We are still cautious regarding C&I businesses in our portfolio that may have derivative exposure to higher cost inputs as a result of tariffs and potential supply chain disruptions. But at this point, we feel like they're pretty well anticipating it and have already begun to take action.

Chuck Shaffer, Chairman and CEO

Tracey, do you want to address the allowance component?

Tracey Dexter, Chief Financial Officer

Yes, I think the portfolio continues to perform well. Our judgments are balanced with our awareness of the volatility in market conditions and the potential for deterioration. So, as James said, we're monitoring the portfolio closely for potential impacts on our borrowers of changes in economic and fiscal policy, market conditions changing. We think right now; the 1.34% allowance coverage is prudent. But of course, we'll continue to take into account all factors as we go forward.

Russell Gunther, Analyst

Got it. Hey guys, thank you very much for taking all of my questions.

Chuck Shaffer, Chairman and CEO

Thanks Russ.

Operator, Operator

And our last question comes from the line of David Bishop with Hovde Group. Your line is open.

David Bishop, Analyst

Yes, good morning. Following on Russell's question about credit. Chuck, I think you heard in the preamble, you said most of the charge-offs this quarter were previously acquired credit. I'm curious, you sort of view this level of net charge-offs. I think they've been running in the mid to high 20s lately. Is that sort of the normalized level? Or do you think we see some improvement as you sort of run through some of these acquired loan books and continue to charge those off?

Chuck Shaffer, Chairman and CEO

It's really hard to provide any solid guidance here. But I think 25 basis points of net charge-offs is a reasonable assumption. It's going to bump around here and there, but that's kind of what we run in our model.

David Bishop, Analyst

Got it. And then the bump up in the reserve this quarter. Just curious in terms of the economic forecast use. Are you using sort of the Moody's baseline, severe? Just curious what are sort of the drivers to that ACL?

Tracey Dexter, Chief Financial Officer

Yes. We use a blend of three Moody's economic scenarios, the baseline, the S3 and the more positive S1 in different weightings. And so of course, when we run the model at the beginning of our quarter end process, that still got some lag time in the economic indicators. So, we just tune into changes and kind of acknowledging the volatility in those factors. So, our allowance contemplates the more recent volatility and does still have the various weightings on the three economic scenarios.

David Bishop, Analyst

Okay, great. And then final question. Chuck and Tracey, we have been seeing some headlines recently about some of the softness maybe on the residential side of the state in Florida with insurance rates spiking and such. Are you seeing that play into any weakness within the local housing markets across your footprint? Thanks.

Chuck Shaffer, Chairman and CEO

We haven't noticed any signs of weakness. In my opinion, the residential market in Florida has seen values peak, and while we don't anticipate a significant decline, we expect values to remain stable at this point. The market seems relatively healthy despite higher costs. Homes are being bought and sold, and inventory levels have increased slightly over the past few quarters. Overall, things are acceptable and robust, even with the higher insurance costs. Florida continues to be an appealing place to relocate, with exceptionally low taxation. In fact, there are discussions about potentially lowering the state sales tax, which is remarkable considering the state's balanced budget and surplus. The state is effectively supporting our insurance companies and adding new supply to the market. While the situation is stable, prices have recently hit a peak.

David Bishop, Analyst

Got it. Appreciate the color Chuck.

Chuck Shaffer, Chairman and CEO

Thank you.

Operator, Operator

That concludes the question-and-answer session. I would like to turn the call back over to Chuck Shaffer for closing remarks.

Chuck Shaffer, Chairman and CEO

All right. Thank you, operator. I think that will conclude our call. We're around if anybody has any further questions and appreciate the Seacoast team and an amazing quarter for growth and we're on to having an amazing year. So, thank you all.

Operator, Operator

Ladies and gentlemen, this concludes today's conference call. Thank you all for joining and you may now disconnect.