Participants

Charles Shaffer; Chairman of the Board, President, Chief Executive Officer; Seacoast Banking Corporation of Florida

Tracey Dexter; Chief Financial Officer, Executive Vice President; Seacoast Banking Corporation of Florida

Michael Young; Executive Vice President, Treasurer and Director of Investor Relations; Seacoast Banking Corporation of Florida

James Stallings; Executive President, Chief Credit Officer; Seacoast Banking Corporation of Florida

Stephen Scouten; Analyst; Piper Sandler Companies

Woody Lay; Analyst; Keefe, Bruyette, & Woods

David Feaster; Analyst; Raymond James & Associates

Russell Gunther; Analyst; Stephens

David Bishop; Analyst; Hovde Group, LLC

Presentation

Operator

Welcome to Seacoast Banking Corporation's first-quarter 2025 earnings conference call. My name is Desiree, and I will be your operator. (Operator Instructions)
Before we begin, I have been asked to direct your attention to the statement at the end of the company's press release regarding forward-looking statements. Seacoast will be discussing issues that constitute forward-looking statements within the meaning of the Securities and Exchange Act and its comments today are intended to be covered within the meaning of 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. Mr. Shaffer, you may begin.

Charles Shaffer

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 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 in the industry at large. The net 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. These all resulted in 22% growth in adjusted pre-tax free 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 and talent across our footprint have fully taken effect, during driving substantial onboarding and new relationships. These investments in revenue producing talent will continue to drive solid disciplined growth. And additionally, while on boarded another 10 revenue producing bankers during the quarter.
Asset quality remains strong during the quarter with the NPL ratio dropping 68 basis points. Charge us 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 Bank shares. We expect to close and convert this transaction in the third quarter.
I'll now pass the call to Tracey, who will review our financial results.

Tracey Dexter

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 Bank shares 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 1st 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 FBIC 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 401k contributions. Increases in other line items reflect the expansion of our commercial team by 10 bankers and the addition of 2 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%. Accretion continues to be variable and decline this quarter, with the prior quarter impacted by significant payoff.
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 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 34% and 220% 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 $140.3 million or 1.34% of total loans, flat to the prior quarter. Our allowance estimation process includes consideration of recent volatility in the markets and macroeconomic environment, and we continue to closely monitor the potential impact of economic and fiscal policy decisions on our borrowers.
The allowance for credit losses combined with the $119.5 million remaining unrecognized discount on acquired loans totals $259.8 million or 2.49% of total loans that's available to cover potential losses, providing substantial loss absorption capacity.
Moving to slide 12, looking at quarterly trends in 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 remain low at 0.16% of total loans.
Moving to slide 13 in 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 in 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 one capital ratios are among the highest in the industry.
In summary, we remain steadfastly committed to driving shareholder value, and our consistent discipline growth strategy positions us well as we continue to build Florida's leading regional banks.
I'll now turn the call back to you, Chuck.

Charles Shaffer

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

Question and Answer Session

Operator

(Operator Instructions) Stephen Scouten, Piper Sandler.

Stephen Scouten

Hey, good morning, everyone. Thanks for the time. Clarity on the securities trade related to the pending Heartland deal, is that just basically you guys taking advantage of the market and saying, okay, these are the securities we want and at closing we're going to liquidate that Heartland book? It's just you're just kind of front running that trade a little bit.

Michael Young

Yeah, hey, Stephen, this is Michael. I'll take that one.
Yeah, 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. The 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 all, with rates moving up and down here, but you know 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

Yeah, seems smart. I like it. 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 I mean there was some impact from the rate cuts at the end of the year in the quarter.
So I guess how did that 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

Yeah, hey Steven, kind of, this is Michael again, I think there's two sides obviously to the NIM equation here, but I'll tackle the loans first. So we have about 50% fixed loans, about 29% adjustable loans and then only 20%, 21% that are true, more floating, or immediately adjustable loans. So we felt the impact obviously of the 100 basis points of Fed rate cuts throughout the fourth quarter, but it's just small on a total basis for our balance sheet.
We also had some received float hedges that are rolling off here in April as well on our securities portfolio and our loan portfolio, so we're becoming more fixed rate as assets yields had lower generally and as rates potentially had lower here and so, we're just pretty well positioned for our rates down scenario.
And I think that's kind of the overall piece here combined with the deposit cost moving lower you saw that in the fourth quarter but continuing kind of into the 1st quarter here and we'll just continue to manage our deposit pricing proactively to continue to drive them expansion both on the deposit cost side but then our back book on fixed rate loans and fixed rate securities continues to roll in more and more each day.
And so we're getting a basis point or 2 basis points kind of a month in terms of yield step up on that, and you can see that trend on slide 21.

Stephen Scouten

Okay, superb. And then just last thing for me I guess, the trends around loan growth sound really encouraging the new hires are great to see yet again, and you guys still have it armed with a with a ton of excess capital. So let's say the environment stabilizes, which I think we all hope it does, could there be additional upside to this mid, what was the guide, mid-, high-single-digit loan growth or additional paths for the excess capital from here?

Charles Shaffer

Yeah, I'll take that. It's Chuck, Stephen. If you remember back in the first quarter our guide for the back half of the year was high single digits, I think with some clarity in a more normalized environment. I think we have a clear path to high single digits, when you look at the investments we've made over the last couple years, this quarters, a very good quarter in terms of evidencing the pull through of that investment, strong deposit growth, strong loan growth. I'd feel very confident in the back half of the year that high single digit type number barring, the impact of tariffs and economic volatility.
Still too early to tell how our customers react to that or what the full impact of that would be, but I think the quality of the team we build is now, materially pulling through, and that gives me a lot of confidence on, what we'll see over the back half of the year.
And I think at this point we've built that team so when you, kind of step back and look at the big picture for us, fairly solid quarter in terms of growth, a lot of investments made over the last 12 to 18 months. I think we're kind of getting to the end of those investments in terms of what we need to be doing. We've got the team built to grow and at this point over the remainder of the year our focus will be on, leveraging that investment to drive profitability enhancements, throughout the remainder of the year.

Stephen Scouten

Fantastic, thanks so much for your time this morning.

Operator

Woody Lay, KBW.

Woody Lay

Hey, good morning.

Charles Shaffer

Good morning, Woody.

Woody Lay

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 335 core NIM target by the end of the year?

Michael Young

Hey, Woody, this is Michael. Yeah, 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 335 NIM in the fourth quarter, I don't think we've updated guidance explicitly there, but you know 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 them going forward.

Woody Lay

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

James Stallings

Hey, good morning, Woody. This is James Stallings. I'll sort of speak to that. We had a handful of loans that that moved to criticize or classify 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.
Some other units offline, we had another situation that was an existing CNI business that 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 it is just a handful of one-off situations that drove that.

Charles Shaffer

We continue to take a breakout of that and just, carefully grade over time. That's kind of normal cycle movements here things move in classified they move out through non-accrual, but in the case James just described most of those, we expect to remain on accrual and actually don't really expect much lost content. They're all just sort of unique situations.

Woody Lay

And then maybe just last for me I think back on the Heartland call we had talked about -- you remained interested in smaller bank M&A has the uncertainty in the current macro environment has that shifted your sort of capital deployment strategy?

Charles Shaffer

Yeah, it's a great question. Obviously, a lot of volatility over the last three weeks, I'd describe it this way. We mean we remain open and ready to do another deal. The Heartland deal's small enough and we'll be easily integrated here in the coming couple quarters. So beyond that, we'll be ready to do deals, obviously, continue to remain very disciplined in terms of earn backs and pricing and the like.
And obviously, anything we'd look at would have to contemplate all this volatility that's going on, so. You know we're open and ready but obviously volatility makes deals more challenging, in terms of kind of the way we think about things we 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 very creative to our franchise given the capital levels.

Woody Lay

All right, thanks for taking my questions.

Operator

David Feaster, Raymond James.

David Feaster

Hi, good morning, everybody. I just wanted to circle back to the loan side. I mean, the increase in the pipeline is terrific. I mean, and it's extremely encouraging to hear the commentary about the late stage pipeline growing. Obviously, you've got a real tailwind, first of all from the economic backdrop here in Florida, right?
And then the new hires, I'm just curious, first off, where are you seeing opportunity for growth and just what's the pulse of your clients as you talk to your bankers, just given the uncertainty? Are you seeing any change in the pull through of the pipeline or would you expect to see any just given the trade wars, just kind of curious what you're seeing on that front.

Charles Shaffer

Sort of broad braced comment, pipeline remains. We've not seen any fallout at this point, which is encouraging our customers continue to remain committed to their projects and so we haven't seen any true impact yet. We have surveyed a lot of our customers in terms of the impact of tariffs and how they're navigating it and kind of what I think you're from by everybody it's just too early to tell, we hear lots of different we'll pass the cost on.
Well, there'll be no impact. We have some customers actually it'll be an advantage for them and so it just depends on the situation, but I do think it's just really too early to call what the impact of all this will be on forward growth, but generally at the high level I still feel very positive. If you look at the pipeline, it's solidly there we expect to continue to pull that pipeline through in the coming quarter.
And so in at least over the next 90 to 120 days, I feel very good about the growth outlook for us feel solid in our sort of mid to high single digit growth for the coming quarter on loans and then beyond that we'll be dependent on sort of the more broader macroeconomic issues and whether or not that impacts our customers, but so far so good, they seem to be holding in there with no real issues.
Pipeline seems to be holding in and obviously our heads are in the sand. We're pulling our customers, talking to our customers, being thoughtful here.

David Feaster

Yeah, and look, I mean, you guys are always really conservative. You got a strong track record of asset quality, and disciplined approach to credit, maybe as you just stay 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?

Charles Shaffer

No real shifts other than as we're looking at new credits obviously we're having fairly deep conversations around what the impact of tariffs could be on that opportunity, obviously writing up in the write-ups, how that customer can mitigate that risk, what capacity do they have to carry their project given the uncertainty and so you know it's just requiring a deeper level of discipline, but.
Generally, I think that we're just continuing to do what we do, we're not pulled back yet at this point. We're taking it customer by customer and just thoughtfully looking at each of our credits one by one. Risk grading and the like, we continue to just remain very conservative, obviously as time moves on, we'll have to contemplate tariffs as things come through renewal and the like, but we'll just continue to take it day by day.

Michael Young

And David, this is Michael. I just want to add one thing there, I think with all the new bankers that we've 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're already really connected with versus, being completely dependent on kind of the macro environment and, picking up net new green shoots.

David Feaster

Yeah, 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 and obviously impact. Well, management, could you just touch on maybe some of the puts and takes on the various fee income lines?

Michael Young

Sure, David, this is Michael. Yeah, 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 1st 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 the tailwind to the specific deposit related fees and 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 resets seasonally in the first quarter and some growth from there and various businesses, including wealth, TM, and SBA.

Charles Shaffer

Yeah, and while wealth may see some pullback due to the fact that the equity markets pulled back a fairly large portion of our wealth portfolio is actually fixed income, so it probably is not as impactful as it 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 EA. So in some ways a little bit challenging in other ways it's a material opportunity for us.

David Feaster

Okay, terrific. Thanks, everybody. Great quarter.

Charles Shaffer

Thanks, Dave.

Operator

Russell Gunther, Stephens.

Russell Gunther

Hey, good morning, guys.

Charles Shaffer

Morning, Russell.

Russell Gunther

Good morning, Chuck. Wanted to follow up on the margin discussion you know here you guys on NII growth expected for the rest of the year. Appreciate all the color on slide 14 and so my question is on the cost of deposits, going forward, been kind of bouncing in that 192, 193, over the course of one.
How are you thinking about that trend going forward in the absence of rate cuts?

Michael Young

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.
And the other key piece is really the demand deposits, right, noninterest-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

Yeah, great. Good point, Michael, thank you. And then maybe on the -- along the lines of the revenue producers that you hired in this quarter, what's the pipeline for continued list outs? Is it expectations for that to continue over the course of the year?
Is there some kind of seasonality as to when you can bring people over based on bonuses just trying to get a sense for any potential additional ads this year and how that may or may not impact the expense run rate as well?

Charles Shaffer

Yeah, great question. The way I describe it is I think we've built the team to grow in that mid to high single digit, type, profile moving forward fairly so, with some confidence, and so, I don't know that we've got to add a lot of, additional overhead there over the lease over the next couple quarters, as we move out into the coming year we'll see how things sort of play out, but I think at this point we'll be pretty selective.
On the other side, on the other hand of that conversation, we have a lot of inbound demand wanting to build banks and markets and things for us, which is exciting, and we will get to it with time and we're excited to hear, all the interest in becoming part of our franchise, but I think at this point, at least over the next couple quarters, I'm primarily focused on improving our profitability profile.

Russell Gunther

Thank you, Chuck. I appreciate that. And then guys last one for me, understanding a good portion amount of the of the book is marked, asset quality trends this quarter are favorable, understanding the dynamics of 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

Hey, good morning, Russell. James Stallings here. I think in terms of what we're looking at, we're certainly watching, our CNI 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 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 experience 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 and to 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 CNI businesses in our portfolio that may have, derivative exposure to A 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 they've already begun to take action.

Charles Shaffer

Tracey, do you want to address the allowance code?

Tracey Dexter

Yeah, I think, the portfolio continues to perform well. Our judgments are balanced with our awareness of the volatility and 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

Got it. Thank you very much for taking all of my questions.

Operator

David Bishop, Hovde Group.

David Bishop

Yeah, good morning. Yeah, following on Russell's question about credit, Chuck, I think you heard the preamble you said that most of the charge offs this quarter were previously acquired credit. I'm curious you sort of view this level of that charge off. I think they've been running in the mid to high 20 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?

Charles Shaffer

It's really hard to provide any solid guidance here, but I think, 25 basis points in that charge off 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

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

Tracey Dexter

Yeah, 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's still got some lag time in the economic indicators so we just tune in to 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

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

Charles Shaffer

We've not seen any weakness show up. I mean, I think, one way to describe it is our view of the residential market in Florida is values definitely sort of have peaked at this point and probably, I don't, we don't see any sort of sharp decline or anything in values, but we do expect values to probably hold here at this point.
The market still feels relatively healthy even though the costs are higher, people are selling houses, people are buying houses. Inventory levels have gotten a little higher over the last 3 or 4 quarters, but I think generally things are okay and things are healthy even regardless of the higher cost of insurance, et cetera.
Florida is still a very attractive place to move to. Taxation remains exceptionally low. In fact, I just saw that we're looking at potentially lowering our state sales tax, which is, from my point of view, incredibly impressive given the state's, balanced budget and even surplus. And so I think states doing a pretty good job of also supporting our insurance companies, bringing a lot of new supply into the market, so. It's stable, but prices have definitely seemed to hit a peak at this point.

David Bishop

Got it. I appreciate the color.

Operator

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

Charles Shaffer

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

Operator

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