Earnings Call Transcript - SBCF Q3 2024

Operator, Operator

Welcome to the Seacoast Banking Corporation's Third Quarter 2024 Earnings Conference Call. My name is JL, 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've been asked to direct your attention to the statement at the end of the company's press release regarding forward-looking statements. Seacoast will be discussing issues that constitute forward-looking statements within the meaning of the Securities and Exchange Act and its comments today are intended to be covered within the meaning of that act. Please note that this conference is being recorded. I'll now turn the call over to Chuck Shaffer, Chairman and CEO of Seacoast Bank. Mr. Shaffer, you may begin.

Chuck Shaffer, Chairman and CEO

All right. Thank you, and good morning, everyone. Before we start, I want to express our sympathy for all those affected by the hurricanes. Our hearts go out to all those who lost loved ones or experienced catastrophic losses. I also want to express my sincere appreciation for our associates who with unwavering resilience valiantly reacted to both hurricanes, securing our facilities while preparing their homes and families and quickly focusing on supporting our customers and communities before and after the storm. I'm incredibly impressed and proud of our entire team. And Tracey will provide a few further thoughts on the hurricanes here shortly. As we turn to the quarter, we will refer to the third quarter earnings slide deck, which is at seacoastbanking.com. The Seacoast team produced an excellent quarter. The results this quarter evidenced the inflection in growth and the start of margin expansion that we expected to materialize in the second half of 2024. We continue to see our investments in banker talent, marketing and customer-focused culture paying off, producing annualized loan growth of 7% and annualized customer deposit growth of 7%. Notably, loan originations were up 22% quarter-over-quarter and commercial non-interest-bearing demand deposits grew by $67 million. Importantly, this quarter also generated annualized growth in tangible book value per share of 20% to $16.20. Additionally, net interest income, non-interest income, pretax pre-provision earnings and the NIM, excluding accretion on acquired loans, all improved sequentially. This quarter showcases the strength of the banking team we've been intently building over the last few years. While completing our acquisitions in late '22 and '23, we also recruited an exceptional commercial banking team, credit team, and retail banking talent with additions in all markets. This quarter, we continued this expansion with further investments in bankers in Fort Lauderdale, Gainesville, and Tampa. Importantly, as we transformed our front line, we've also made all the necessary governance and enterprise risk investments to be a well-functioning compliant mid-sized bank. In summary, this quarter demonstrated several proof points of our operating strategy. First, organic growth was substantial compared to the industry, driven by the investment in talented banking teams across the state over the last 24 months. Secondly, we saw growth in net interest income and the core net interest margin, which aligned with our previous guidance. Expenses were well controlled, and non-interest income was up over 30% from one year ago. The combination of an expanding margin into 2025 with strong organic growth will support earnings improvements as we move into the coming year. To remind you, we are unwavering in our commitment to maintaining our conservative balance sheet principles. This commitment is the cornerstone of our strategy and a key factor to ensuring our long-term success. We remain steadfast in our mission to establish Seacoast as the leading player in Florida. I'll now pass the call to Tracey to talk about our financial results.

Tracey Dexter, CFO

Thank you, Chuck. Good morning, everyone. Directing your attention to third quarter results, beginning with Slide 4. Seacoast reported net income of $30.7 million or $0.36 per share in the third quarter. Pretax pre-provision earnings on an adjusted basis increased nearly $2 million quarter-over-quarter, benefiting from growing revenue sources and well-controlled expenses. Tangible book value per share increased 20% annualized to $16.20. Loan production was strong with growth in balances of 6.6% on an annualized basis and the pipeline for future production remains robust. Growth in customer deposits was also strong. Total deposits grew 4.2% annualized, which includes a decline in brokered deposits. Excluding brokered, customer deposits grew 6.6% annualized and non-interest bearing accounts grew over 5% annualized. On the net interest margin, consistent with the guidance we provided last quarter, the margin, excluding accretion and purchase discounts on acquired loans has begun to expand, increasing 3 basis points during the quarter to 2.90%. Additionally, we saw 2% growth in net interest income consistent with our expectations. Non-interest income increased 7% from the prior quarter and 33% from the prior year quarter with continued success in deepening customer relationships through services including wealth management, treasury management, and insurance. We continue to grow the team with additional investments in talent in key markets. Our capital position continues to be very strong. Seacoast's Tier 1 capital ratio is 14.8% and the ratio of tangible common equity to tangible assets is 9.6%. Also notable, if all held-to-maturity securities were presented at fair value, the TCE to TA ratio would still be over 9%. Turning to Slide 5. Net interest income expanded by $2.3 million during the quarter with growth in loans and securities along with growing non-interest bearing deposits outpacing a 3 basis point increase in deposit costs. Core net interest margin expanded 3 basis points to 2.90%. In the securities portfolio, yields increased 6 basis points to 3.75%, benefiting from recent purchases. Loan yields excluding accretion also increased 6 basis points to 5.58%. Accretion of purchase discounts on acquired loans was lowered by $1 million compared to the prior quarter. The cost of deposits increased to 2.34%, but with exit rates in September beginning to more fully reflect rate declines. Looking ahead to the fourth quarter, we expect continued expansion of net interest income and expect the core net interest margin to expand in a range of 5 basis points to 10 basis points, driven by continued loan and deposit growth and declining deposit costs. Our expectations include 225 basis point rate cuts in Q4. Moving to Slide 6. Non-interest income excluding securities activity increased $1.3 million in Q3 to $23.5 million. Service charges increased with continued expansion of our commercial treasury management offerings and new customer acquisition. Wealth and insurance agency income continue to grow. Other income was higher by $1.5 million including higher SBIC income and higher loan swap fees. Looking ahead, we continue to focus on growing non-interest income and we expect fourth quarter non-interest income in a range from $22 million to $23 million. Moving to Slide 7. Assets under management have increased 16% year-to-date to just under $2 billion and have increased at a compound annual growth rate of 26% in the last five years. Wealth management revenues year-to-date reached $11.1 million, up 17% from the corresponding period in the prior year. Moving to Slide 8. Non-interest expense for the quarter was $84.8 million consistent with the guidance we provided last quarter. Recent expense reduction initiatives are benefiting nearly every category, with the increase from the prior quarter reflecting continued investments in revenue-producing talent. Expenses are well controlled and the efficiency ratio improved to 59.8%. Discipline around expenses will continue to be a focus and in Q4, we expect core non-interest expense to again be between $84 million and $86 million. Turning to Slide 9. Loan outstandings increased at an annualized rate of 6.6% and average loan yields excluding accretion on acquired loans increased 6 basis points to 5.58%. The pipeline remains strong and looking forward, we expect mid-single-digit loan growth in the coming quarter. Turning to Slide 10. Portfolio diversification in terms of asset mix, industry, and loan type has been a critical element of the company's lending strategy. Exposure is broadly distributed and we continue to be vigilant in maintaining our disciplined conservative credit culture. Non-owner occupied commercial real estate loans represent 35% of all loans and are distributed across industries and collateral types. As we have for many years, we consistently manage our portfolio to keep construction and land development loans and commercial real estate loans well below regulatory guidance. These measures are significantly below the peer group at 34% and 227% of consolidated risk-based capital, respectively. We've managed our loan portfolio with diverse distribution across categories and retaining granularity to manage risk. Moving on to credit topics on Slide 11. The allowance for credit losses totaled $140.5 million or 1.38% of total loans compared to 1.41% in the prior quarter. The allowance for credit losses, combined with the $142 million remaining unrecognized discount on acquired loans, totaled $282 million or 2.8% of total loans that's available to cover potential losses, providing substantial loss absorption capacity. As we move into Q4, we're continuing to assess the potential impact of Hurricane Milton on our customers and whether and to what extent that may result in future credit losses. That may result in the need for a build in the allowance in Q4, and based on our work to date, that may be in a range between $5 million and $10 million. Moving to Slide 12, looking at quarterly trends in credit metrics. Our credit metrics remain strong. Charge-offs included the resolution of a small number of individually evaluated credits with previously established specific reserves and the continued runoff of isolated acquired portfolios. Non-performing loans represented 0.79% of total loans. Additions to non-accrual loans in the third quarter included a small number of credits delinquent on payments, but for which no loss is expected as collateral values are well in excess of the loan balances. The level of criticized and classified loans to total loans remained flat at 2.59%. Moving to Slide 13 and the investment securities portfolio. The average yield on securities has benefited from purchases in recent quarters at higher yields, with the portfolio yield increasing during the third quarter to 3.75%. Changes in the rate environment positively impacted portfolio values and as a result, the overall unrealized loss position improved by $83 million. In October, we took advantage of favorable market conditions and have repositioned a portion of the available-for-sale portfolio. We sold securities with proceeds of approximately $113 million yielding an average 2.8%, resulting in a pretax loss of approximately $8 million impacting fourth quarter results. The proceeds were reinvested in agency mortgage-backed securities with a book yield of approximately 5.4% for an estimated earn-back of less than three years. Turning to Slide 14 in the deposit portfolio. Total deposits increased by $127.5 million with an increase in customer deposits of nearly $196 million, partially offset by a decline in brokered balances. The cost of deposits increased this quarter only 3 basis points to 2.34%, a slower pace of increase than in previous periods consistent with our expectations. In September, based on actions we've taken in the portfolio, rates began to decline. Looking forward to the fourth quarter, we expect continued growth in core deposits and a continued decline in deposit costs and we remain very encouraged about the continued activity and focus across the franchise on deposit gathering. On Slide 15, Seacoast continues to benefit from a diverse deposit base. Customer transaction accounts represent 49% of total deposits, which continues to highlight our 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. Finally, on Slide 16, our capital position continues to be very strong, and we're committed to maintaining our fortress balance sheet. Tangible book value per share increased to $16.20 and the ratio of tangible common equity to tangible assets remains exceptionally strong at 9.6%. Our risk-based and Tier 1 capital ratios are among the highest in the industry. In summary, we remain steadfastly committed to driving shareholder value, and our consistent disciplined expense management positions us well as we continue to build Florida’s leading regional bank. Chuck, I'll turn the call back to you.

Russell Gunther, Analyst

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

Michael Young, Treasurer and Director of Investor Relations

Sure, Russell, this is Michael. So maybe we'll start with the deposit cost side. I think just from a high-level perspective, if you zoom out over the whole cycle, we had about a 45% deposit beta on the way up. We would expect a similar level of performance on the way down. We had an acceleration of that beta later in the cycle. We also think we have a very strong deposit base and we were very customer-friendly during a liquidity type environment, and we think we'll be able to move pretty quickly on the way down. As a reminder, our deposits are mainly in exception tiers, so we have the ability to flex those as we need. You saw the deposit costs in September that stepped down pretty materially, and we expect continued benefits into October from a full run rate of those reductions. So we would expect the margin expansion that Tracy guided to in the fourth quarter, when you take into account the amount of deposit reductions there. Plus we do assume two additional rate cuts, one in November and one in December, though the latter not being that impactful for the quarter.

Russell Gunther, Analyst

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

Chuck Shaffer, Chairman and CEO

Yes. And maybe Michael can kind of follow up on the growth. But I'll just sort of reiterate what I had in my opening comments, really proud of the team we're building. I think they're exceptionally strong. I think the growth you saw this quarter is the outcome of the investments in talent we've made over the last 24 months. As you see coming into the fourth quarter, the pipeline remains strong. So I think our guide here for Q4 is mid-single digits. In the long run, we'd like to be a little north of that as we move into late next year, assuming the economy and everything plays out. But I think just generally, mid-single-digit type guide is way to think about at least over the next few quarters, depending on the economy and rates and how things play out here. But feel very good about the team we have. I feel very good about the volume we saw this quarter and expect a similar production quarter here coming into Q4. Michael, anything you'd add to that?

Michael Young, Treasurer and Director of Investor Relations

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

Russell Gunther, Analyst

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

Chuck Shaffer, Chairman and CEO

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

Michael Young, Treasurer and Director of Investor Relations

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

Chuck Shaffer, Chairman and CEO

The momentum is strong, and with the strong momentum inflection in margin, that all sets up a good coming year.

Woody Lay, Analyst

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

Michael Young, Treasurer and Director of Investor Relations

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

Woody Lay, Analyst

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

Tracey Dexter, CFO

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

Chuck Shaffer, Chairman and CEO

If you think about the portfolio, it's burning off at a pretty stable rate at this point given where rates are. You could just trend it out from where it's gone in the last few quarters and probably use that for a good sense of where it's headed into the coming year.

Michael Young, Treasurer and Director of Investor Relations

And maybe one other thing to add would be that as you consider it overall, we do have the CDI amortization that is also decreasing. Both of these factors will continue to move lower over time, so the overall impact is somewhat less significant than just the purchase accounting accretion alone.

Woody Lay, Analyst

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

Chuck Shaffer, Chairman and CEO

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

David Feaster, Analyst

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

Chuck Shaffer, Chairman and CEO

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

David Feaster, Analyst

Okay. Regarding deposits, you've mentioned that you're starting to lower deposit rates. How has the response from your clients been so far? As you seek to reduce deposit costs without jeopardizing relationships or deposits, how are those discussions progressing? What rates, on a blended basis, are you currently able to achieve for new core deposit growth?

Chuck Shaffer, Chairman and CEO

Yes. And I'll let Michael take the second part of that question around the sort of new deposits coming on. But just in terms of client reaction, we really didn't see any pushback at all. It's gone pretty well. The clients accepted it, and we've seen the competition move down. That's been the good news, and that was the thing that we had to watch carefully is where does the competition go. As Michael mentioned earlier, as we went through the prior year, obviously, coming on the backside of the banking crisis in mid to early '23 with the bank failures, we were very client friendly. We moved things up pretty rapidly there. We wanted to protect client relationships, maintain liquidity in the balance sheet, and maintain our core deposit franchise. As you know, over our history, we continue to maintain a very customer-focused non-transactional funding base. We protected that, and as rates come down on the other side, it gives us a lot of ability to move rates down. The market moves, we're going to move. It is a bit of benefit to our balance sheet given that kind of hurt us on the way up, the heavy level of fixed rate in the loan book. It will help us on the way down, and I think we'll have a little more flexibility than probably a lot of others on the deposit side. So I think that's a benefit we see out ahead for us. And then, Michael, I don't know if you want to take the one on what the new add-on rate for deposits was.

Michael Young, Treasurer and Director of Investor Relations

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

David Feaster, Analyst

I have a high-level question regarding the Florida economy, particularly after the hurricanes. You mentioned that these storms can have devastating effects, and insurance costs have already posed challenges in the state. It seems likely that premiums will continue to rise, and some insurers might exit the market. How do you think this will affect the economy, particularly in coastal areas, and what are the implications for commercial real estate from these trends? I'm interested in your thoughts on how the broader economy will be impacted.

Chuck Shaffer, Chairman and CEO

It's a great question. Really hard to answer, David. I think our initial reaction is we've been through a lot of hurricanes in the state and things are always challenging at the outset, but we work our way through it. I think the state will work their way through this. The insurance premiums are certainly an issue here. We started to see if we look back over the last couple of years, we saw a big run-up, then got some tort reform. We saw insurance premiums start to stabilize and arguably start to come down a little bit as insurance companies started to re-enter the market. My hope is that continues to happen. I think, in terms of the storm impact, I think it was focused on the Tampa St. Pete kind of West Coast markets and particularly the barrier islands. Beyond that, the rest of the state, I think, is pretty much 100% backup of business. So I think the impact will be limited. I know the state goes through these things; we always come out the other side okay. I still feel very confident in the economy, very confident in Florida. Yes, we probably will see insurance premiums continue to be a bit of a challenge.

David Bishop, Analyst

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

Chuck Shaffer, Chairman and CEO

Michael, do you want to take that one? I think you got payoffs numbers there.

Michael Young, Treasurer and Director of Investor Relations

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

David Bishop, Analyst

Then as you look ahead, anything coming from a larger payoff or not really?

Michael Young, Treasurer and Director of Investor Relations

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

David Bishop, Analyst

And I wasn't sure if I heard correctly during the preamble. The uptick in non-accrual loans that I hear that you guys are well-reserved or not expecting much in the way of loss content given the praise sizes?

Chuck Shaffer, Chairman and CEO

Yes, go ahead, Tracey.

Tracey Dexter, CFO

That's right, David. We did see a little bit of an uplift in non-performing loans this quarter, really a handful of loans, and those have sufficient collateral, so no loss is expected there.

Chuck Shaffer, Chairman and CEO

They were already graded in the classified assets and just moved to NPL. They're just going through the natural cycle. Yes, we really like this business. The return on capital in wealth management is exceptionally strong. As we attract wealth management clients on both the banking and wealth sides, they tend to remain clients for life. We hold this business in high regard and are very focused on it. We will consider wealth management acquisition opportunities in the future. Although we have not pursued one so far, we would certainly explore unique opportunities that may arise. We genuinely appreciate the value of this business, and we believe it is solid for us. Our operations are closely linked to our commercial banking franchise, and we frequently have the chance to manage assets for our commercial banking clients when they liquidate companies, providing support for their families. It is an outstanding business for us. We truly love it, and we will keep our focus on it moving forward.

Stephen Scouten, Analyst

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

Chuck Shaffer, Chairman and CEO

Yes. At a very high level, our expense base is well invested. I think we've got the team to drive growth over time. When you think that we’ve had a lot of those investments made and you look at the growth we've seen in our focus on non-interest income, the investments in commercial bankers, investments in treasury management talent, investments in wealth, what you're seeing is the operating leverage start to pull through. When you think about the coming year, the combination of decent to strong organic growth combined with potential for margin expansion, particularly as rates come down, starts to drive some profitability improvement, and you can see that in the model. We have a great team that's focused on growth and onboarding new clients consistently. It gives me some confidence that, in combination with getting past the margin headwinds we’ve faced over the last year or so, it really sets us up for solid profitability improvement.

Stephen Scouten, Analyst

And then I guess, as I think about the margin expansion, you guys talked about trends continuing to improve there and return maybe closer to historical levels. If I look at the core NIM, it was in the like 306 range back in 1Q '22 before we started the rate hike cycle. Is that kind of where you would think it could get back to? Or is there anything that's changed around the balance sheet that would allow that core NIM to be above that level? How can you frame up the potential for the core NIM, the core earnings power from that perspective?

Michael Young, Treasurer and Director of Investor Relations

Stephen, it's Michael. We're not going to give any guidance for 2025 on where we think that's going to get to. Everyone's expectations around the number of Fed cuts are going to be a determining factor as we move through next year as well as the shape of the yield curve. So those caveats are out there. We do expect margin expansion per rate cut, maybe 2 basis points to 4 basis points; it could be a little better, it could be a little worse, depending on the shape of the curve, but we expect that to come through. If you think about the moving pieces into next year, between now and the end of next year, we have $450 million of securities cash flow at about a 3.3% rate that's going to reprice into a higher rate environment. We have another $750 million plus of fixed rate cash flows off the loan book that are going to reprice from around kind of high 4s into the current environment. Those provide some pretty steady tailwinds regardless of what happens with rates and the number of cuts. The cuts themselves are just very additive given the fixed-rate nature of our loan book and the adjustable rates don't reprice until '26, '27. We have pretty stable asset yields with improving deposit costs that are going to drive margin expansion. We feel comfortable with the direction and pace of that going forward next year, but the number of cuts will have some output impact on where that goes, and how high and quickly.

Stephen Scouten, Analyst

And to clarify, when you talk about the 2 bps to 4 bps per rate cut, are you thinking about that on a core basis or on a GAAP basis?

Michael Young, Treasurer and Director of Investor Relations

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

Stephen Scouten, Analyst

And then last thing for me, just you guys have obviously created a ton of excess shareholder value since 2014 through M&A. The environment has not really been maybe set up for that in the last year or so, but with rates coming down, are you seeing a pickup at all in conversations? Is there a greater likelihood of something manifesting here in the near-medium-term? Do you continue on that path?

Chuck Shaffer, Chairman and CEO

I don't think much has changed regarding the level of discussions. There are definitely ongoing conversations, and we maintain relationships across the state that we are still engaging with. We will be cautious, as any actions need to make sense from both an earn-back and return perspective since our organic growth story is very strong. We will carefully consider any opportunities, but conversations are taking place.

Operator, Operator

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

Chuck Shaffer, Chairman and CEO

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

Operator, Operator

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