Q4 2020 Seacoast Banking Corporation of Florida Earnings Call
Ladies and gentlemen, thank you for holding your conference will begin shortly thank you for your patience.
[music].
Yeah.
Welcome to the Seacoast fourth quarter earnings Conference call. My name is Richard and I'll be your operator for today's call. At this time all participants are in a listen only mode later, and we'll conduct a question and answer session. During the question and answer session. If you have a question. Please press Star then one on your Touchtone phone.
Before we begin I've been asked of direct your attention to the statement contained at the end of the press release regarding forward looking statements.
First we will be discussing issues that constitute forward looking statements within the meaning of the securities and Exchange Act and their comments today are intended to be covered within the meaning of that act.
Please note that this conference is being recorded and now.
And of all over to Mr. Chuck Shaffer, President and CEO Seacoast Bank. Mr. Schafer you may begin.
Thank you all for joining us this morning, as we provide our comments will reference for the fourth quarter 2020, earning slide deck, which can be found at seacoast banking dot com.
With me. This morning is Danny Hudson Executive Chairman, Tracey Dexter Chief Finance Officer, Jeff Lee Chief Digital Officer, David Houdyshell director of credit analytics, and policy and Richard rate for our Chief Credit Officer.
Before we get started I'd like to congratulate Danny on his new role as executive Chairman I know I speak for all of our associates, our board of directors and our community and expressing our sincere best wishes to you as you enter this next phase of your professional career.
For the last 28 years, you of lead and created and an incredible innovative institution delivered tremendous value for both shareholders and customers.
Your father on cool and grandfather, before you and steer and.
Houston has helped shape the fabric of our communities that we serve and has had tremendous value it's sort of as it had tremendous positive impact on our customers our associates and their families and why.
And to wish you my sincere congratulations and thank you for all your guidance Mentorship and friendship over the years.
You have helped shape my career and many of our teammates for professional lives and your leadership has been incredibly impact on us all.
Thank you for all you've done and I know I speak for both of US that we're excited and believes the road ahead is filled with opportunity Congrats again, Dennis and I'll turn the call over to you.
Thanks, Chuck for over 42 years, I've served our customers shareholders and associates as of Seacoast team member and as you said and including 28 of those years as CEO.
It has indeed been of great honor to be able to contribute along many others, who along the way gave so much of themselves to build what we've become.
And perhaps most gratifying accomplishments have been the leaders that have been forged and the culture that defines us as a company.
Couldnt be more pleased to have you know step and of the CEO role you will bring into that role of the energy and will the wind win that you've consistently demonstrated and other roles you've held as well as an extraordinary focus on creating value for shareholders.
Thank you Dan and thanks, Thanks for the kind words.
And now turning to the quarter opened by expressing my appreciation for the seacoast team for producing another excellent quarter of impressive results. Despite the backdrop of of pandemic.
The seacoast associates continued to generate top quartile returns by focusing on value, creating customer relationships driving best in class customer satisfaction and growing market share and a thriving Florida marketplace.
During the quarter the company generated earnings per share on an adjusted basis of 55 fin.
<unk> finished 2020 with an efficiency ratio of below 50% and grew tangible book value per share of 15% and on and on an annualized basis to $16 16.
Asset quality liquidity and capital are all strong and we continue to generate meaningful capital growth bolstering our fortress balance sheet.
Our capital ratios are more substantial than most of our peers, which will provide strategic flexibility as we move through the coming period, and ultimately and economic recovery.
Last quarter, Florida Governor moved to phase III of the state's recovery of the coverage plan for.
Really opening up Florida businesses with no restrictions.
We have seen our business customers return to full operation and an acceleration of the migration from the northeast of Florida, primarily high net worth of individuals and many corporate relocations.
And we're encouraged by the state of economic recovery supported by another round of federal stimulus and the potential for a third round of stimulus shortly.
We are heads down on another round of PPP and are seeing strong demand for a second draw of PPP loans.
As of Wednesday evening, we had taken applications for $170 million or over 500 of loans to assist Florida businesses.
We continue to maintain a conservative stance and the face of Covid uncertain path, our ACL coverage remained flat quarter over quarter, and we continue to model, our ACO with of weight towards a more severe downturn.
As evidence of the recovery materializes in the coming year, we will begin to challenge this assumption and <unk>.
You will have more details on the ACL modeling and our prepared comments.
We continue to be vigilant and maintaining our disciplined conservative credit culture.
And our focus on on generating value, creating customer relationships.
We are passing on deals that do not price two and appropriate risk adjusted return and are seeing and some cases competition price credit facilities at levels that we will not match.
We saw increased loan production and the fourth quarter with commercial volumes totaling $277 million in line with the reopening of the state.
And impressively our yield on loans for moving the impact of PPP and accretion on acquired loans increased from the prior quarter despite pressure from lower rates.
We expect loan growth to return to pre COVID-19 levels on the back half of 2021, assuming the economic recovery continues to take hold and the state.
Our asset quality metrics remained strong quarter over quarter with loans and non accrual status and classified and criticized asset ratio is improving from the prior quarter.
<unk> ratio has also improved.
Our portfolio of deferred loans is down to 1% of loans of $74 1 million.
We are pleased with the deferred portfolios performance over the year.
Despite.
Ending the year at a negligible amount and encouraged by continued improvement and asset quality. Despite the pandemic.
And we focused on building fee based revenues and 2020, providing strong results and mortgage banking and wealth management.
Mortgage business had a record breaking year recording almost $15 million of fee income and impressively the wealth management team generated $69 million and new AUM and the quarter, bringing the full year AUM generated in 2022 of remarkable $282 million.
To conclude the quarter was impressively strong and sets the company up well entering 2021 of.
Our goal remains to continue increasing market share and a disciplined manner by focusing on growing value, creating relationships and improving digital customer experiences and driving greater productivity across the franchise by delivering products and services to our markets more efficiently than our competition.
As the pandemic winds down throughout this year, we believe there'll be opportunities for continued our disciplined acquisition strategy and key growth markets across the state of Florida, I will now turn the call over to Tracy who will walk through our financial results.
Thank you Chuck and good morning, everyone.
Directing your attention to fourth quarter results, let's start with slide six.
For the fourth quarter on a GAAP basis earnings per share was <unk> 53.
On an adjusted basis, which excludes M&A and isolated expense consolidation charges earnings per share increased to 55.
And from 50, <unk> and the third quarter.
On a GAAP basis, we reported of one point for 9% return on tangible assets and $13 eight 7% return on tangible common equity.
On an adjusted basis fourth quarter results for one 5% adjusted <unk> and 14% adjusted our OTC.
As we continue to grow our capital base, it's worth mentioning that if the fourth quarter's tangible common equity to tangible asset ratio was adjusted to an illustrative target of 8%. Our adjusted return on tangible common equity would be 18, 8% increasing from 17, 3% in the third quarter.
Tangible book value per share increased to $16 16 up from $15 57 last quarter and increase of 15% on an annualized basis.
And the efficiency ratio was 48, 2% compared to 61, 6% and the prior quarter and on an adjusted basis with 48, 8% compared to 54, 8% in the prior quarter.
Lower cost of deposits had a positive impact on our margin with a decline of five basis points from 24 basis points last quarter to 19 next quarter.
Commercial originations during the fourth quarter increased to 277 4 million compared to $88 2 million in the third quarter.
While we continue to maintain a conservative posture our growth reflects well qualified borrowers that can demonstrate the strength to navigate the pandemic economy.
The wealth management team continues to build on AUM growth with impressive results.
<unk> and up 33% year over year to $870 million and continued strong revenue.
And throughout the pandemic, we've worked closely with our borrowers to provide payment of accommodations that helps support their businesses through this difficult year nearly all of those loans have resumed their original payment terms at.
And at year end, only $74 1 million and loans remain on some kind of modification program that is just 1% of total loans.
Lastly, we added a slide showing the remarkable shift of affluence and corporate relocations, primarily from the north Eastern United States to Florida.
The state of benefiting tremendously from its lower taxes, and warm weather and easy flights back to the northeast.
Population change felt throughout the seacoast footprint and particularly in South, Florida will benefit seacoast as the Florida economy continues to expand.
Turning to slide seven net.
Net interest income increased $5 3 million sequentially to $68 9 million.
Of that increase $3 5 million relates to higher PPP revenue. The result of both the change we made and the prior quarter to align fee recognition with the contractual and maturity of the loans and also of the benefit of PPP loan forgiveness, which began in the fourth quarter and resulted and the recognition of $1 5 million in additional on PPP.
P loans fees.
We still have $9 5 million and deferred fees on PPP loans that will be recognized over the loans remaining contractual life or sooner if the loans are forgiven.
And net interest margin, excluding PPP and accretion of purchase discount decreased by five basis points from three point for 2% to 337%.
A decrease and securities yields was the primary driver with continuing elevated prepayments and the securities portfolio and the deployment of some of our excess liquidity into securities and the fourth quarter.
The effect of lower yields and securities was partially offset by lower cost of deposits, which dropped to 19 basis points.
We expect the cost of deposits to continue to decline in the first quarter of 2021.
And the loan portfolio the effect on net interest margin from accretion of purchase discount on acquired loans was 23 basis points in the fourth quarter of 2020 compared to 17 basis points in the third quarter.
Excluding the effects of PPP and accretion of purchase discounts loan yields increased one basis point to for 2% to 3%.
Looking ahead, we expect net interest margin, excluding PPP and purchase loan accretion will continue to decline modestly in the first half of 2021, given the effect of excess liquidity, though we expect to continue to see the offsetting effect of lower funding rates during that period.
Moving to slide eight.
Non interest income was $14 9 million, a decrease of $2 million or 12% from the previous quarter and excluding securities gains and increase of $1 1 million or 8% from the prior year quarter.
Our mortgage banking business continues to capitalize on low interest rates and on the strong Florida housing market with revenues of $3 6 million in the fourth quarter and.
That is down from our record third quarter, and we do see a slowdown in refinance activity.
That said the Florida housing market is benefiting from remarkable population migration trends and low rates and we've built a strong foundation with local real estate professionals, who have experienced our teams consistently delivering the highest service levels.
The fourth quarter was also strong for our wealth management team with $1 9 million and revenue and additions of $69 million in new assets under management, bringing total AUM to $870 million.
During the full year 2020, the wealth team added new AUM of 282 million and impressive achievement.
Interchange revenue was $3 6 million compared to a record $3 7 million and the third quarter in.
In 2020 seacoast customers use their debit cards at an accelerated pace driving record interchange results for the full year.
Service charges on deposits increased by <unk> 2 million compared to the third quarter for business customers and consumers continued to maintain higher average balances.
Looking ahead, noting the lower mortgage pipeline as we enter the first quarter, we expect non interest income to be in a range in the first quarter of approximately 14 million to $15 million.
Moving to slide nine adjusts.
Adjusted noninterest expense totaled $41 9 million a decrease of $3 5 million from the prior quarter and just below our guided range of $42 million to $44 million.
Addressing all changes on an adjusted basis.
Salaries and benefits decreased by $1 5 million compared to the third quarter. The decrease reflects the impact of higher deferrals associated with accelerated commercial loan originations.
Legal and professional fees decreased compared to the third quarter due to a onetime recovery of certain legal expenses incurred during 2020.
Within other expense, we recorded a $1 3 million increase and foreclosed property expense largely the result of declines in value on to our REO properties.
Also and offsetting other expense includes 0.8 million release of reserves for unfunded commitments, reflecting the impact of and improved economic forecast and relevant segments.
Other expense also reflects lower mortgage production related expenses and lower marketing costs during the quarter.
Looking ahead, we expect to maintain our cost discipline and focus on investments in key areas of technology commercial banking talent acquisitions and operational efficiency.
We expect first quarter expenses, excluding the amortization of intangible assets to be and the range of $43 five to $44 5 million.
And as a reminder, the first quarter includes the return of seasonal expenses associated with payroll taxes.
Moving to slide 10.
The adjusted efficiency ratio in the fourth quarter decreased to 48, 8% exiting the year below 50%.
Looking ahead, we expect to make investments in key areas of technology and commercial banking talent driving growth moving forward. We expect the full year 2021 efficiency ratio to be in the low fifties.
Turning to slide 11.
Loans outstanding increased 10% for the full year to $5 7 billion.
Excluding PPP loans total outstandings decreased by $51 million or 1% in the fourth quarter of 2020.
Loan originations increased during the fourth quarter to $541 million compared to 338 million in the third quarter, including an increase of $189 million quarter over quarter and commercial.
We continue to maintain our conservative approach to underwriting and as we're seeing increased demand. We remain focused on relationships that can demonstrate the strength to navigate a pandemic economy.
On PPP loans, the SBA started processing loan forgiveness applications and the fourth quarter of 2020 and during the fourth quarter $72 million of our PPP loans were forgiven.
As of this week forgiveness approved by the SBA to date is now over $135 million.
As you know the PPP program opened again in January and accommodating both first time borrowers and second draws for borrowers who had participated in the first round.
Thus far we have over 1500 borrowers and various stages of the application and funding process for approximately $170 million and new PPP loans so far.
The pipeline and commercial was $167 million at the end of the fourth quarter of decrease from prior quarter in line with historical seasonal trends.
The consumer and pipeline increased to $18 million compared to $17 million last quarter.
And residential pipeline for $117 million compared to $183 million, reflecting the expected slowing of refinance activity from third quarter's record levels.
Our markets continue to benefit from high levels of purchase activity and our team is well positioned to continue to outperform competitors.
Looking forward, assuming the economic recovery takes hold we expect loan growth to return to pre pandemic levels and the second half of 2021.
The yield on loans, excluding PPP and accretion of purchase discounts increased slightly to for two 3%.
We expect loan yields to slowly decline modestly in the first half of 2021 with lower add on yields assuming no change in the rate environment.
Turning to slide 12, highlighting the diversity of our exposure and concentration levels well below regulatory guidance.
We are confident that our established conservative posture is serving us well in this environment and we intend to continue to manage our credit exposures prudently.
Our portfolio is broadly distributed across various asset classes.
Stabilized income producing commercial real estate represents 24% of loans outstanding.
Owner occupied commercial real estate represents 21% of the portfolio and.
Residential real estate comprises 23% of the portfolio.
Approximately 80% of our commercial portfolio is secured by real estate with borrowers that have meaningful equity and their investments and lower loan to values.
And the average LTV of the commercial portfolio secured by real estate is 55%.
For years, we have consistently managed our portfolio to keep construction and land development loans and commercial real estate loans, well below regulatory guidance.
At December 31 that represented 24% and 157% of risk based capital respectively.
Those levels have continued to decline and are lower than most and our peer group.
And our loan portfolio is diverse and broadly distributed across categories with an average commercial loan size, excluding PPP of just under 400000.
Turning to slide 13 for a look at loans with payment of accommodations.
Since last March along with the entire industry, we supported our customers with short term payment deferral programs.
As 2020 progressed the large majority of these borrowers successfully resumed making contractual payments and the level of loans with accommodations has dropped from nearly $1 1 billion at June 30 to $74 1 million at December 31st.
Turning to slide 14 for a more detailed look at our CRE and <unk> portfolios, including accommodations.
Diversification across industries and collateral types has been of critical tenant of our strategy, which we believe continues to position us well in this environment.
The largest exposure and our aggregated owner occupied CRE and construction portfolios is office buildings.
Loans and the office building category with active payment of accommodations at year end totaled only $6 million.
That has declined from the $135 million and payment of accommodations. We reported in this category at the end of the third quarter.
The average loan size and our office portfolio of 600000.
The average LTV is 57%.
56% of this portfolio is classified as owner occupied comprised primarily of independent professional practices, including medical accounting engineering and other like type professionals.
For the remainder of the office portfolio is stabilized income producing investment properties.
Our second largest segment is retail real estate, representing only 8% of total loans.
And these are typically multi day shopping centers and many were provided with payment of accommodations during the year.
Outstanding payment of accommodations in the retail category have dropped as of the end of the fourth quarter to only for $5 million compared to $147 million at the end of the third quarter.
We're very pleased with the positive impact that our payment deferral efforts have had and assisting local businesses and with the ability of those borrowers and nearly every case to return to making contractual payments.
As you know the retail portfolio does not include regional mall complex is outlet malls and movie theaters or entertainment venues.
The average loan size and our retail portfolio is $1 3 million and the average LTV is 58%.
We've also been very pleased with the performance of our hotel and restaurant and portfolios, where the large majority of borrowers have returned to make and contractual payments, reflecting the strength of our operators and the lower leverage across the portfolio.
The restaurant and hotel portfolios are primarily secured with real estate with an average loan to value of only 55%.
Our hotel exposure is well diversified the majority of our exposure is beach side, and along Interstate and major arteries that benefit from weekend travel where there are no occupancy restrictions.
We have little exposure and theme park locations and do not finance resort Our conference center facilities.
Turning to slide 15 for a more detailed look at our commercial and financial loans.
The largest.
Exposure is and holding companies owned by high net worth individuals for aircraft and marine vessels and this represents a modest 4% of total loans, none of which have active payment of accommodations.
In total for the commercial and financial portfolio loans with payment of accommodations declined from $61 million at the end of the third quarter to under $12 million at the end of the fourth quarter.
Turning to slide 16, and 17 for the Securities portfolio.
With the decline in rates and faster prepayments on mortgage backed securities yields are down this quarter by 39 basis points we.
We made additional purchases of primarily agency grade mortgage backed securities at an average add on yield of 143% and and average life of four six years.
We are carefully investing in bonds that have little extension risk and we will roll down the curve over and approximately four year period.
Market values across the portfolio increased bringing the net unrealized gain to $34 3 million.
Looking forward to the first quarter, given the historically low rate environment, we're being cautious on how much cash we will put back to work and this portfolio and expect to invest approximately 150 million to $250 million with similar yields and duration to the fourth quarter activity.
Turning to slides 18, and 19 deposits outstanding were $6 9 billion and increase of $18 million quarter over quarter, and an increase of $1 3 billion or 24% year over year.
Compared to the third quarter the cost of deposits was lower by five basis points to 19 basis points.
Looking ahead, we expect the cost of deposits to continue to decline in the first quarter of 2021.
Moving to slide 20.
The allowance for credit losses under Cecil reflects our estimate of lifetime expected credit losses, which includes our expectation that some loans will migrate into loss through the cycle.
Coverage on loans, excluding PPP is 179% down slightly from one 8% in the prior quarter.
In addition to what we feel is a prudent level of allowance.
Note that we also have $32 million and purchase discount that will be earned over the life of those loans as an adjustment to yield.
Also of note our obligations under unfunded loan commitments have a separate reserve of $2 2 million.
Turning to slide 21 on asset quality.
Charge offs and the fourth quarter were $3 1 million. This.
And this was comprised primarily of a small number of commercial loans and none of those charge offs individually exceeded 600000.
The level of nonperforming loans decreased by 0.8 million to $36 1 million still representing 0.63% of total loans.
Criticized loans were 16% of total risk based capital at December 31.
As the third quarter deferrals expired and we were able to see borrowers demonstrating the ability to return to making full payments. Several loans were upgraded out of criticized categories in the fourth quarter.
We continue to remain cautious and are taking and appropriately conservative approach to grading.
The overall allowance for credit losses at December 31 is $92 7 million and allowance coverage, excluding PPP loans is down slightly to $1 79%.
We continue to have a guarded view of the economic outlook and the timing of a full recovery. So our allowance estimate still give significant weight to the Moody's S. Three moderate recession scenario what are the characteristics of the downturn could be sustained over a more extended period.
We will continue to revisit this assumption in 'twenty and 'twenty, one as evidence of the recovery materializes.
Turning to slide 22.
Our capital position continues to be strong and our long standing commitment to maintaining a fortress balance sheet has positioned us for resilience.
Tangible book value per share of $16 16.
And increase of nearly 4% over the third quarter and 15% when annualized.
The tangible common equity to tangible asset ratio was 11% at the end of the fourth quarter and has consistently been among the highest in our peer group.
The tier one capital ratio was 17, 4% and the total risk based capital ratio was 18, 5% at December 31.
Each increasing over the prior quarter.
Return on tangible common equity increased to 14% on an adjusted basis.
To wrap up on slide 23.
Looking back from the beginning of 2017 to today, we have achieved compounded annual growth rate in tangible book value per share of 12% driving shareholder value creation. We are confident that our established conservative posture and efficient operating model will serve us well as the recovery of progresses.
We look forward to your questions I will turn the call back over to Chuck.
Okay. Thank you Tracy Richard I think we're ready for Q&A.
Thank you and we will.
And now begin the question and answer session. If you have a question. Please press Star then one on your touched on phone if you wish to be removed from the queue. Please press the pound sign or the hefty there will be of delay before the first question is announced and if you're using a speakerphone you may need to pick up the handset first before pressing the numbers. Once again, if you have a question.
Please press Star then one on your Touchtone phone.
Our first question online comes from Mr. Michael Yang. Please go ahead your line is open.
Hey, good morning, good morning, Michael.
I guess I can.
Kicked off prematurely congratulating, Danny last call and with 42 years with one company I guess.
And non core is welcomed.
Congrats again.
I know Chuck you, even though he's not a blood family member he probably feels like that at this point with and how long you all of work together. So wish you the best and and the future and we.
Obviously Miss hearing you on these calls on a regular basis.
Thank you Michael it's been terrific working with you over the years is great great to get to know you. So thanks for that thanks Michael.
And you are leaving the company and in good hands and with a high class problem of very high capital levels and we wanted to start there.
Maybe Jeff just on capital levels being high you guys announced the share buyback, obviously and December once you kind of see saw the deferrals come down, but now the stocks valued pretty well. So just how do you kind of view deploying the capital from here maybe on the absence of M&A materializing.
Yes no.
Happy to address of Michael and thanks for the question.
Our view on capital remains very similar we know we are still and a pandemic is still and uncertain period and so we're very comfortable with where our capital levels are today and will continue to take a disciplined approach to the environment. We're in that being said, we'll continue to revisit the various options for capital which includes by.
Backs dividends organic and M&A our preference.
Is the use of capital for both organic growth and M&A, we think thats the highest use and.
And on buybacks, we'll continue to look at that on and earn back basis, and we'll use it opportunistically when it makes sense for shareholders.
And as we move forward and we'll continue to revisit all of the various components, including dividends and it'll be something we'll we'll continue to look at particularly as the as the economy continues to recover here over the coming year.
Okay and.
And wanted to also ask just on kind of the NII dollars. Obviously I know NIM is going to be a little hard to forecast on you guys have kind of a view on maybe how much securities are going to purchase but just net.
Net net however, you want to talk about and maybe on a core basis ex PPP or with PPV whatever is easiest, but how do you kind of see the.
The stability and or progression higher and NII dollars as we move through 2021.
Yeah I can start.
We expect significant variability as you said and PPP and and accretion of purchase discount that will affect NII. We do expect of margin to continue to decline if we remain in this rate curve.
But as a reminder, we also have very low deposit cost and if we do see the curve expand later in the year that would be beneficial to the margin.
The economic recovery supporting loan growth and the second half of the year will also be beneficial to NII.
Yeah, and just real.
Real quick I'll, just mentioned and Michael.
One of the benefits we have at seacoast is the high quality of the deposit base, we have and.
And at 19 basis point cost of funds and it's primarily transactional long duration.
And the positive outlook ahead for us as we see the yield curve begins to steepen ideally on the backside of this recovery, we see loan growth for recover.
And there is a positive story there is as margin winds out loan growth recovers and we're able to keep cost of deposits low that's what's always historically happened of the franchise, what's happens with high quality franchises like ours and.
And given the relationship nature of the franchise and we think there is and expansion of margin that could happen if that yield curve would materialize on the on the backside of the recovery.
Okay and last one for me just on kind of loan growth generally I know you all where we're kind of fairly cautious on the second half of last year, just given the pandemic and wanting to see kind of.
Yes.
The implications and the path forward.
Florida has been relatively probably more open than many other states and benefiting from tourism, maybe disproportionately. So do you kind of see that that optimism and confidence to begin with.
Making new new loans more aggressively as you get back to that kind of a historical high.
High single digit low double digit growth rate.
Yes, I think the way the way we were thinking of that we're certainly still being cautious and thoughtful as we navigate this period and when.
And we look at new loan requests were looking for borrowers that have the ability to navigate the pandemic and have the ability to navigate and further deterioration that all being said, Florida is.
Recovering.
Now vaccinated and 25% of our senior population, which is a positive development. We're seeing all of our business is open and.
And so that gives us some confidence that the back half of the year it could be relatively strong as we move through through the first half of that being said it is still recovering there is still.
It's still.
Social distancing and things are going on and the state and so we don't see as the as many opportunities as we are seeing during the period prior to the pandemic, but we do expect that to come back and you can see that and the.
And of quarterly run rate moving up from $80 million and 277 million from of third quarter of the fourth quarter as we were able to get back out and seasonally the first quarter is normally slower, but when we look out beyond the first quarter into second and third and fourth quarter, and we expect things to start to start to come back.
Okay, great. Thanks.
Thanks, Michael.
Thank you.
Our next question on line comes from Mr. David David Feaster. Please go ahead.
Hey, good morning, everybody good morning, David.
And just wanted to dig into the commercial pipeline of bidding and loan production. It was of great production quarter. I was just curious maybe the composition of production and the pipeline I guess first of all of how much of this do you think is from existing clients versus new clients that you brought over from the lender hires or the PPP program.
And then just maybe the breakdown between CRE and C&I I guess would you expect more contribution for C&I, just given the focus there going forward.
The way I would think about and Michael is its a mix its primarily current customers that we know well and have done business with in the past that are bringing back opportunities through us it tends to lean into owner occupied commercial real estate given the nature of the C&I and owner operated companies that we focus on there is.
A portion of that CRE to sort of well call. It qualified.
Strong balance sheets high liquidity, and again, showing clear ability to navigate the pandemic, but it's a mix, but leans heavily more into owner occupied CRE and more professional practices and we've done in the past.
Okay.
And then I guess, you know just curious kind of the pulse of your clients as we head into next year.
And found that there still.
Still a bit nervous or are they willing to start investing and some expansionary capex and maybe I guess start seeing some accelerating growth here and utilization increases just curious kind of a pulse of your client and here.
I think things are still of recovering as we describe it and generally folks are still cautious that being said there is definitely a sense of optimism as to what's out of ahead for Florida and.
And we do see more conversations happening pretty much across the state and there is more confidence growing and the state and I think it's the vaccines and the vaccination process takes hold.
That will provide a lot more covenants as we move forward and and as you know theres a lot of liquidity and both of our borrowers and businesses across the state that ultimately we will need to be redeployed into things as we move forward, but there's a lot of liquidity and and growing optimism is the way I'd describe it.
Okay and then.
Just.
Just curious on the margin and I know, it's hard to say, but especially in light of the.
Likelihood for further liquidity build and the challenging backdrop and all of that just any thoughts on on the core NIM and where we might trough and maybe you did the timing of it.
And I look to club question, but any insight and to maybe when we can bottom would.
And would be helpful.
And I can start.
And a core NIM, excluding pvp purchase loan accretion declined five basis points during the quarter to 337, and it will likely continue to modestly decline in the first half of 2021, given continued pressure on securities yield the dilutive effect as you said of.
Excess liquidity. So we expect to continue to see lower funding rates during that period.
And that it's pretty difficult to provide guidance on NIM given the potential uncertainty of the rate environment and also the ongoing effects of the pandemic and stimulus programs that might also impact of that.
Okay, and where do you think we kind of might might trough net around there I mean are we going to stay kind of north of 330 or or kind of maybe dip and a $3 one.
It's hard to give guidance David out there on a quarter.
It's too difficult.
Once you get out beyond a quarter or two the big variability of kind of go back to what I mentioned and the Michael is if we.
To see the yield curve steepened for our of our balance sheet, where we have some assets sensitivity you have a lot of liquidity.
And the ability to drag out deposit costs over the long run there is a lot of support for margin, but we would need to see the 10 year move up and the longer end of the curve start to move which we think is a reasonable possibility given the level of inflation and the level of government support.
On yeah, Okay, and thanks, everybody.
Thanks, David.
Thank you.
Our next question on line comes from Mr. Steve Moss. Please go ahead your line is open.
Good morning.
Steve.
I guess, maybe just following up on the margin here in terms of.
Just maybe of how do we think about like total purchase accounting accretion for.
For 2021, and dollar amount and if there's kind of a range, maybe if you could frame that out for us Tracy.
And also and area that's difficult to model a lot of volatility.
And in the current quarter accretion of purchase discount and positively impacted yields by 30 basis points last quarter. It was 22 basis points.
Highly dependent on payoffs, but we have modeled a benefit of about 27 basis points of long yields could be higher could be lower.
Okay. That's helpful. And then I think you said low <unk> efficiency ratio for 2021, just kind of curious.
If maybe some of the realization of PPP fees are influencing influencing that number and.
And just kind of how your thoughts are on expenses what you are.
Investment needs are.
Irene and her technology versus wanting to rationalize expenses.
Yeah, and looking ahead in 2021, we expect to maintain the cost discipline that we've always had focus on investments in key areas of technology and operational efficiency and.
And like I said, we expect the efficiency ratio to be and the low fifty's.
And.
And the only thing I'd add to that Steve has and will be opera news opportunistic with acquiring talent through time, we are actively recruiting, particularly commercial banking talent around the state and we're seeing good opportunities for that but expect to manage the business and the low fifty's throughout the year.
Okay and just in terms of does that include the PPP fees being realized into NII.
Okay.
Okay.
And then in terms of just.
In terms of the purchases of securities here, the $150 million to $250 million or was that just for the first quarter.
Or just maybe.
And just how do you think about securities as a percentage of assets here going forward. Yeah, just meant to guide to the first quarter and just the first quarter or anything beyond that we will provide more guidance as we move forward again, just as Tracy mentioned little cautious here to put a lot of money back to work with the tenure of near 1% with the.
And the likelihood as I mentioned earlier of the possibility of of rising.
Yield curve later in the year not wanting to overcommit to the current period and being somewhat balanced and disciplined about how much money, we put back to work over time, but 150 to 250 for Q1 is about right and and beyond that we will continue to be.
And depending on the outlook for rates and income.
And generate.
Okay, great well, thank you very much on my.
Questions. Thanks, Steve.
Thank you.
Our next question online comes from Mr. Christopher Merrimack. Please go ahead.
Hey, Thanks, Good morning, Chuck and Tracey I apologize if I missed this is there of timing for the third round of PPP in terms of when you recognize that forgiveness do you think that'll be this year or will it take longer.
Yeah, we've got well as of a couple of days ago, we have about 170 million and so far in loans funded under that third round of the program on.
And we're assuming a pace of forgiveness, that's similar to what we're seeing so far with round one and so for the latest round of PPP. We're estimating forgiveness starts around the second quarter of 2021 with about a third of that forgiven by the end of this year.
For those loans will be off the books and that new 170 will be off the books for that year or less.
We're estimating about a third of those will be gone by the end of this year. So most will still be here.
At the end of 2021.
Okay, great. Thanks for clarifying and those are a five year contractual maturity and.
And we're still kind of learning from the day experience and the pace of forgiveness and what to expect in the first round.
Okay got it.
Sounds good and then more of a strategic question. So Chuck is all of the conversations we're having and various people, making suggestions of seacoast you feel compelled to do anything from a bigger size or do you still feel comfortable doing kind of a small tuck in acquisitions that you've been very successful with the past several years.
Yeah, when we on.
On the M&A front I would say.
We are seeing.
Good day.
Deal of conversations accelerate post Covid, which is a positive and I think our focus will remain generally on smaller tuck in acquisitions, primarily and key growth markets, Florida, Tampa, Orlando, South, Florida, and North of Miami sort of Fort Lauderdale up the East coast is kind of our key <unk>.
<unk> and it.
It will likely still be tuck in acquisitions gross those generate good cost outs, they generate good growth and our market share and those markets and allow us to expand our presence and are economically feasible way and as we've done and the passive generated good shareholder returns and that's where our focus will be.
Sounds good thanks, very much and best wishes for your next chapter.
Okay. Thanks, Chris.
Thank you.
And our final question comes from Mr. Stephen Scouten. Please go ahead.
Hey, good morning, everyone, how you doing.
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Just maybe a follow up on some of Chris's questions there around kind of.
Strategic decisions does there come a point.
Where these tuck in deals I think you've mentioned previously maybe five or six that could potentially come to fruition over time, where those opportunities kind of exhaust themselves.
And do you start thinking about deals outside of the state at some point in time, given just how rapidly you guys generate capital internally.
Thanks, Stephen for the question our strategy is to remain and the state and in particular, the growing parts of the state.
And as you think about Florida, given the population growth and in particular, the acceleration of that population growth during COVID-19 and you sort of layer on top of that the quality of the population growth coming into the state.
It's fairly remarkable and I think our best strategic path forward is to get as concentrated as we can and what is probably one of the rote most robust markets and in the country and thats going to generate the most franchise value.
And that makes a lot of sense, Okay, and then in terms of.
Talent acquisition, you guys noted a couple.
Banker hires of Treasury management.
Individual how do you think about the pace of potential hires in 2021, and we use and do you have a target in mind do you have a fairly aggressive plan or is it just more opportunistic in nature.
We definitely have.
And to higher as we move forward both in terms of banker talent and leadership talent and and around the organization and we.
We will continue to hire but it'll be opportunistic we're not going to sort of make hires just to hit a number we're going to hire the right people and the rate markets.
Fit into the culture, well and and for folks and we can believe and so it'll be opportunistic as we move through the year.
Perfect. Thank you. Thank you and Danny I know your role is changing but I still expect to hear from you, but congrats nonetheless on the transition.
Thanks, Steve look forward to talking to you.
Steve.
And we have no further questions at this time I'd like to turn the call over to Mr. Schaeffer for closing remarks. Thank.
Thank you Richard and thanks, everybody for their questions and we'll look forward to talking to you next quarter. Thank you.
And thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.
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