Q1 2021 Seacoast Banking Corporation of Florida Earnings Call
Welcome to the Seacoast Banking Corporation first quarter 2021 earnings Conference call. My name is John and I'll be your operator for today's call before we begin I've been asked of direct your attention to the statement contained at the end of the Companys press release regarding forward looking statements.
Costs will be discussing issues that constitute 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 and I will now turn the call over to Chuck Shaffer, President and CEO of key cash costs Bank Mr. Steve for you may begin.
Yeah.
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Thank you all for joining us this morning, as we provide our comments will reference the first quarter 2021 earnings slide deck.
Which can be found at seacoast banking dot com.
With me. This morning is Tracey Dexter, our Chief Financial Officer, Jeff Lee, Chief Digital Officer, and Danny Hudson Executive Chairman.
I will open by expressing my gratitude to the seacoast team for producing another consecutive quarter of record results.
The seacoast associates continued to generate top quartile returns by focusing on value, creating customer relationships driving best in class customer satisfaction and expanding market share in a growing Florida marketplace.
During the quarter the company generated earnings per share on an adjusted basis of 63.
While posting an adjusted efficiency ratio of 51, 9% in a quarter that is impacted by seasonally higher payroll and benefits expenses.
Asset quality liquidity and capital are all strong and we continue to generate meaningful capital growth bolstering our fortress balance sheet.
This week, our board approved the introduction of a 13% dividend, which represents approximately a 21% payout ratio generally in line with our peers, providing a new source of return to our shareholders.
We believe this will have no impact on our organic growth or acquisitive growth strategy moving forward, particularly when you consider the capital generation, resulting from the Companys efficient operations.
The state of Florida is now fully reopened with restaurants hotels and other hospitality venues on a path to return to pre COVID-19 levels as the vaccination process continues to move forward rapidly and the state population continues to swell.
Our borrowers across multiple industries and asset classes are reporting robust demand with key issues, primarily arising from supply chain and labor shortages.
The state's unemployment rate continues to improve and most recently, which reported at four 7%, which on a comparative basis is where the state was in 2017.
Given the rising demand and increasing population, we expect economic conditions to continue to improve particularly in the metro markets, we primarily serve.
Given the significant recovery occurring across the state low unemployment and clear evidence of emerging of a V shaped recovery, we've returned to our pre pandemic credit policy and conservative underwriting guidelines.
We saw increased loan pipelines quarter over quarter across all of our business lines with the overall pipeline, increasing 44% the total of $434 million at quarter end.
Looking more specifically at the late stage published commercial pipeline, we ended the quarter of $241 million up 44% from the prior quarter.
And although we generally don't publish this number the overall complete commercial pipeline, which includes early stage deals has increased 55% from a few quarters ago.
Given the rapid acceleration in the Florida economy over the last two quarters and our increasing loan pipelines across all business units. We continue to forecast loan growth to return to pre COVID-19 levels on the back half of 2021.
And this forecast we are assuming our C&I borrowers returned to making investments in real estate equipment and inventory investing in their businesses, along with an expanding economy today.
To date, they have been slow to make these investments and been holding a significant amount of cash on their balance sheets.
We continued our focus on building fee based revenues entering 2021 with our wealth management team achieving a significant milestone crossing $1 billion in assets under management with an increase of 156 million in AUM in the first quarter of 2021.
Not only as of this team generated valuable au AUM growth, but theyre doing so profitably collecting on average of 80 basis points across the portfolio.
The team has done a remarkable job in building a high net worth family office model and partnering with our commercial team.
<unk> value for our most profitable clients and our CECO shareholders I'm incredibly proud of the team and reaching the $1 billion milestone and looking forward to seeing the growth in the coming years.
The mortgage business had another blockbuster quarter recording $4 2 million of fee income.
That achievement was recorded despite increasingly tight inventory levels in Florida, and slowing refinance demand. We ended the quarter with a pipeline of $165 million up from the prior quarter's exit pipeline of $117 million per.
Primarily the result of growth in the correspondent pipeline.
We expanded an opportunity to partner with other high quality, Florida mortgage originators to generate both portfolio growth with Florida clients and generating cross sell opportunities for depository and other products, we exited the quarter with the pipeline at 60 40 split between refinance and purchase volume.
Our asset quality metrics remained strong with NPL and NPA ratios moving favorably quarter over quarter.
Our portfolio of deferred loans is down to <unk>, 5% of total loans are only $27 million.
Net charge offs were only three basis points in the quarter and we are pleased with the credit portfolio's performance and continue to see no material issues on the horizon.
The outlook continues to improve in the states and the U S economy in general and the Moody's forecast, we use on our CSO model continues to show improvement on each quarterly update.
We were excited to announce the legacy bank transaction during the quarter and discussions with management indicate the our head of they are ahead of our model on loan Outstandings of deposit Outstandings and net income.
We expect to close and convert legacy in early August 2021.
And we continue to see potential opportunities to further expand our franchise in our key markets in the coming periods.
And to conclude the company recorded another quarter of impressive performance generating disciplined growth in franchise value or.
Our goal remains to continue increasing market share in a disciplined manner by focusing on and growing value creating relationships improving.
Improving digital customer experiences and driving greater productivity across the franchise by delivering products and services to our markets more efficiently than our competition.
I'll now turn the call over to Tracy to walk through our financial results. Thank you Chad good morning, everyone.
Directing your attention to first quarter results, let's start with slide five.
Net income was a record $33 7 million for the first quarter on a GAAP basis, increasing 15% quarter over quarter on.
On an adjusted basis, which excludes M&A and isolated branch consolidation charges net income of $35 5 million, an increase of 16% over quarter over quarter.
Earnings per share on a GAAP basis were 60.
Compared to 53 cents in the prior quarter.
On an adjusted basis earnings per share increased to 63 from 55%.
On a GAAP basis, we reported one 7% return on tangible assets and $15 six 2% return on tangible common equity on.
On an adjusted basis first quarter, Iot with 175% and Aro TCE was 16, 1%.
As we continue to grow our capital base, it's worth mentioning that if the first 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 21, 8% increasing from 18, 8% in the fourth quarter.
Tangible book value per share increased to $16 62.
Up from $16 16 last quarter and increased 15% year over year.
The cost of deposits declined to 13 basis points from last quarter's 19 basis points.
Loan pipelines increased 44% from prior quarter end as Florida as economic recovery begins to drive increased demand.
The wealth management team continued AUM growth with an impressive increase of $156 million in assets under management this quarter to surpassed that milestone $1 billion in total AUM.
Strong mortgage banking and interchange revenue further bolstered results.
We originated $232 million in new PPP loans under the renewed program and so all of the pace of forgiveness of loans under the original program increase.
This quarter's new originations of 232 million resulted in fees earned totaling $9 4 million, which will be recognized over the life of the loans.
In March we announced the upcoming acquisition of legacy Bank of Florida, which has a deep presence in Broward and Palm Beach counties offering us exciting opportunities in the fast growing south Florida market.
We're also pleased to announce that our board of directors approved of 13th cash dividend, which will be payable on June 30 to shareholders of record on June 15.
Turning to slide six.
Net interest income on a fully tax equivalent basis decreased 3% sequentially to $66 7 million and the net interest margin declined eight basis points to 351%.
The decline was largely the result of growth in our cash position.
We've kept more liquidity on the balance sheet. During this period of low long term rates and expect to deploy the cash prudently over time with the expectation of increasing rates.
Again, we're patient and we'll be responsive to changes in the outlook, but expect that in the second quarter, we will make net additions of approximately 200 million to the securities portfolio.
We estimate the impact on net interest margin of excess liquidity at approximately eight basis points, so removing the growth and excess liquidity during the quarter. The net interest margin would've been approximately $3 five 9% flat to the prior quarter.
The yield on securities declined eight basis points to 165%, resulting from elevated prepayments and lower yields on new purchases.
In loans, we reported lower accretion of purchase discount at $2 9 million in the first quarter compared to $4 4 million in the fourth quarter.
Out of lower payoffs in the first quarter.
The impact of accretion on net interest margin was 15 basis points in the first quarter compared to 23 basis points in the fourth quarter.
This was partially offset by higher PPP fees with the combination of the new PPP program and forgiveness on loans in the original program.
Excluding the effects of PPP and accretion of purchase discounts loan yields decreased eight basis points to for one 5% due to the impact of the overall low rate environment.
The cost of deposits decreased six basis points from 19 basis points in the fourth quarter to 13 basis points in the first quarter, reflecting our continued repricing down of interest bearing deposits and time deposits.
The net interest margin, excluding PPP and accretion of purchase discounts decreased by 12 basis points from 337% to three 5%.
Looking ahead to the second quarter.
We expect the cost of deposits to continue to decline to the upper single digits.
Also consistent with the guidance, we gave last quarter, we expect net interest margin excluding PPP in purchase loan accretion will continue to decline modestly in the second quarter, given the effect of excess liquidity, though we expect to continue to see the offsetting effect of lower funding rates during that period.
We believe the margin will reach its lower bound in the second quarter, assuming the forward curve materializes and the growth in excess liquidity moderate.
Moving to slide seven.
Adjusted non interest income, which excludes securities gains and losses was $17 8 million, an increase of $2 8 million or 19% from the previous quarter and an increase of $3 1 million or 21% from the prior year quarter.
Our mortgage banking business continues to capitalize on low interest rates and on the strong Florida housing market exceeding our expectations with revenues of $4 2 million in the first quarter.
Despite recent increases in mortgage rates and low inventories our team continues to deliver outstanding results.
At the end of the first quarter, approximately 60% of loans in the pipeline, where refinancings and 40% for home purchases compared to a ratio closer to 70 30 refinancings to purchases at the end of the fourth quarter.
Interchange revenue again reached a new record level of $3 8 million in the first quarter with higher transaction volume and higher per card spend.
We're especially proud of this quarter of our wealth management team, who passed an incredible milestone with $1 billion in assets under management.
With a determined and consistent relationship based approach. This team grew AUM by 18% in the first quarter and when compared to year end 2019, AUM has grown by a remarkable of 57%.
First quarter. Other income includes $1 $7 million in collections on loans that were acquired in 2017 and at the time of acquisition were assigned zero value.
These were resolved through the diligence of our credit collection team and we expect no similar activity in future periods.
Looking ahead, we believe the mortgage activity is likely to moderate and we expect overall noninterest income to be in a range. During the second quarter of approximately 15 five to $16 5 million.
Moving to slide eight.
Adjusted noninterest expense totaled $43 9 million, an increase of $2 million from the prior quarter and in line with prior quarter guidance.
Addressing all changes on an adjusted basis.
Salaries and benefits increased by $1 2 million compared to the fourth quarter.
The increase reflects seasonally higher payroll taxes and increased 401 K contributions.
Legal and professional fees increased $1 5 million compared to the fourth quarter for.
Fourth quarter included the benefit of a recovery of litigation expenses incurred during 2020.
Within other expense write downs on Oreo properties in the fourth quarter and none in the first quarter drove the positive comparison.
Looking ahead, we expect to maintain our expense discipline as we always do we.
We expect second quarter expenses, excluding the amortization of intangible assets to remain in the range of $43 five to $44 5 million.
Moving to slide nine adjusts.
Adjusted efficiency ratio in the first quarter increased to 52%, reflecting higher noninterest expenses and the seasonal impact of employee benefits.
Maintaining the guidance, we provided last quarter, we expect the full year 2021 efficiency ratio to be in the low fifties.
Turning to slide 10.
Loans outstanding increased 6% year over year to $5 7 billion excluding.
Excluding PPP loans total outstandings decreased this quarter by $89 million or just under 2%.
As you know, Florida is economic recovery is now well established and it appears that the demand for loans has increased.
At March 31st loan pipelines were 44% higher than the prior quarter, including an increase in commercial pipelines of 44% to $241 million in.
An increase in consumer pipelines of 54% to 28 million and an increase in residential pipelines for the portfolio from $25 million last quarter to 72 million at March 31.
With the increase in the residential portfolio of pipeline, we're beginning to see the results of of Florida focused of correspondent program, where we're generating opportunities for portfolio growth and also adding relationships and generating cross sell opportunities.
Across our markets and products, we're seeing increased loan demand in line with Florida strong economic recovery.
Looking forward, we are reiterating our prior guidance and continue to expect expect loan growth to return to pre pandemic levels in the second half of 2021.
In this guidance, we're assuming our C&I borrowers returned to making real estate equipment and inventory purchases investing in their business is into an expanding economy today.
To date, they've been slow to make these investments and have been holding a significant amount of cash on their balance sheets.
The yield on loans, excluding PPP and accretion of purchase discounts decreased to $4, one 5% with the overall lower rate environment.
As we said last quarter, we expect loan yields to further modestly decline in the second quarter with lower add on yields assuming no change in the rate environment and increased originations.
Turning to slide 11.
As you know the PPP program opened again in January accommodating both first time borrowers and second draws for borrowers who had participated in the first round of the program.
PPP loans outstanding at March 31 were $581 7 million net of deferred fees with an average loan size of 99000 median loan size of 37500 and with 85% of all our PPP loans under 150000.
Most of our PPP borrowers in the renewed program, 83% by count our second dry borrowers.
We originated $232 million in new PPP loans this quarter and the renewed program is still open. So we will continue to originate PPP loans into the second quarter as well.
Borrowers from the original program are seeking forgiveness, and we processed $214 million and forgiveness during the quarter.
Overall since the start of the original program, we've collected $26 7 million in SBA fees.
Of that we have thus far recognized $13 2 million and have $13 5 million in fees remaining to be recognized in future periods.
Turning to slide 12, highlighting the diversity of our exposure and concentration levels well below regulatory guidance on.
Our portfolio is broadly distributed across various asset classes state.
Stabilized income producing commercial real estate represents 25% of loans outstanding.
Owner occupied commercial real estate represents 21% of the portfolio and residential real estate comprises 22% of the portfolio.
Approximately 75% of our commercial portfolio, excluding PPP is secured by real estate with borrowers that have meaningful equity in their investments and lower loan to values.
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 March 31 that represented 21% and 155% of risk based capital respectively.
Those levels have continued to decline and are lower than most in our peer group.
Performance on loans previously provided with payment accommodations has remained strong and we have only $27 million in loans with active payment of accommodations.
Our loan portfolio is diverse and broadly distributed across categories with an average commercial loan size, excluding PPP of just over 400000.
Turning to slide 13 for the securities portfolio.
Faster prepayments and lower yielding portfolio purchases in the first quarter resulted in a decline in yield of eight basis points.
The net unrealized gain in the portfolio decreased during the quarter largely due to the steepening of the yield curve.
During the first quarter, we reclassified $212 million from the available for sale of classification to held to maturity, which included U S government agency bonds that had longer duration profile and reasonable yields.
We're carefully making new investments in bonds that have lower extension risk with shorter durations.
Looking forward to the second quarter, we're being prudent on how much cash we will put back to work in this portfolio given the prospect of higher rates and expect net additions of $200 million.
Turning to slide 14 deposits outstanding were $7 4 billion, an increase of $453 million quarter over quarter, and an increase of $1 5 billion or 25% year over year.
Transaction accounts represent 59% of total deposits and have grown 47% year over year, largely driven by PPP and other stimulus funds driving higher customer balances.
At quarter end deposits per banking center with $154 million compared to 118 million one year ago, the combination of higher deposits and two fewer branches.
And on slide 15, compared to the fourth quarter the cost of deposits was lower by six basis points to 13 basis points.
Looking ahead, we expect the cost of deposits to continue to decline in the second quarter, reaching the high single digits.
Moving to slide 16, the allowance for credit losses under CSO reflects our estimate of lifetime expected credit losses, which includes our expectation that some loans will migrate into law through the cycle.
Coverage on loans, excluding PPP is 171% down from $1 seven 9% in the prior quarter, a reflection of improvement in economic conditions.
In addition to what we feel is a prudent level of allowance note that we also have $27 3 million in purchase discount that will be earned over the life of those loans as an adjustment to yield.
Turning to slide 17 on asset quality credit measures are strong.
Net charge offs in the first quarter were only 370000 and the level of nonperforming loans decreased by 0.8 million to $35 3 million, representing 0.62% of total loans.
Criticized loans were flat at 16% of total risk based capital at March 31.
As I said earlier performance on loans previously provided with payment of accommodations has remained strong and we have only $27 million in loans with active payment of accommodations.
The overall allowance for credit losses at March 31 is $86 6 million and allowance coverage, excluding PPP loans decreased eight basis points to 171%.
We maintain a prudent level of allowance and we'll continue to revisit this estimate throughout 2021.
Turning to slide 18, our capital position continues to be very strong.
Tangible book value per share of $16 62.
An increase of 15% year over year.
The tangible common equity to tangible asset ratio was 10, 7% at the end of the first quarter and has consistently been among the highest in our peer group.
The tier one capital ratio was 18, 2% and the total risk based capital ratio was 19, 2% at March 31.
Each increasing over the prior quarter.
Return on tangible common equity increased to 16% on an adjusted basis.
And finally on slide 19 looks.
Looking back from the beginning of 2017 to today, we have achieved a compounded annual growth rate in tangible book value per share of 12% driving shareholder value creation.
We've positioned for this franchise with a foundation of strong strong liquidity and capital from which we will execute on our strategic growth initiatives and optimize the opportunities of this strong Florida economy.
We look forward to your questions today, I'll turn the call back over to Chuck. Thank.
Thank you Tracy and operator, we're prepared to take a few questions.
Thank you we'll now begin the question and answer session. If you do have a question press Star then one on you touched on phone.
If you wish for me from the queue. Please press the pound sign for the half day.
Once again, if you have a question press Star then one on your Touchtone phone.
And our first question is from Steve Moss. Please go ahead.
Good morning.
Good morning, Steve.
I guess, maybe just start with loan growth here, maybe just a little bit more color in terms of.
It sounds like on the pipeline build is coming for more of your C&I borrowers.
Just a little more color there and perhaps also.
Whats the possibility of maybe seen.
Gross come above.
The high single digit low double digit type growth rates in the second half of 'twenty 2021.
I think the puts and takes there if you work your way through it as.
If you were to look at our loan pipeline you would see that.
There is a little more CRE in the pipeline on what we've seen them on the past and the reason that is of C&I borrowers tend to be sitting on a tremendous amount of cash and as you know if you spend time looking at our portfolio. It's primarily in heavily weights into professional practice for a lot of attorneys doctors lawyers and all.
On our operated businesses all of which received stimulus money through PPP.
In all cases in those businesses, we need to work through that cash before theyre going to be willing to make investments and so when we provide sort of our guidance around pre pandemic growth of sort of mid to high single digit growth on the back half of the year.
You described a range of outcomes there on the high end of that will be more driven by the C&I business is coming back out and making investments will be towards the lower end of that if they continue to sort of hold the cash and I think the pace of which that will happen. It depends to some extent on forgiveness as we work through forgiveness and.
Borrowers are more confident in the cash then being in their balance sheet daily they're distributed or invested in alongside investing it would take.
Take down credit and so.
If you were to think about modeling us out you somewhat have to take a position on how quick of C&I borrowers come back into the marketplace.
But we still feel very confident on the back half of the year of sort of mid to high single digit growth given the Florida economy and.
And we've seen significant recovery over the last two quarters, it's been very robust the vaccination process is moving quickly.
If you were in Florida, you would feel very much like it was pre pandemic things of very much returned our balance sheets of both consumers and businesses are.
Bolt up with a tremendous amount of cash from the stimulus payments and therefore credit issues of moderated and we expect growth to return of late this year.
And maybe just on that business to the aspect of your interchange income.
Stepped up here quarter over quarter, just kind of curious.
Think about that as we continue to go higher from here.
Or if there's just anything unusual there.
I think Q1 is usually the strong point, but I don't expect it to materially move lower from this point forward. So no a lot of that's been driven by stimulus in the economy and spending which we've seen both across the card companies and our own debit portfolio as well as always we've talked from the past we continue to market for interchange we.
Continue to drive stimulus campaigns, and we will expect to continue to focus on that but I think I think Q1 was of high point and then if you are modeling Q4 will be of high point again.
Okay.
That's helpful. And then just one last one from me just in terms of.
Looking at the margin and in particular on loan pricing just kind of curious as to where new loans are coming on on these days versus roll off yield.
Yes, Steve.
In the prior quarter I'd give you an exact answer.
We were at $3 81 for add on rate in Q1, and that's been very stable for us over probably the last three quarters and Thats a mix across all of our asset classes and the roll off rate I don't have in front of me Tracy do you know what the roll off rate is.
Hmm.
All of Reis.
For Q4 in the first quarter.
Yeah.
Great well, thank you very much nice quarter. Thanks, Steve.
Our next question is from Michael Yang. Please go ahead.
Hey, Thanks for taking the questions Hi, Michael Good morning.
Good morning.
Wanted to start I guess, maybe just on on the capital.
And quite frankly liquidity I mean, you guys have kind of a high class problem of of.
Of really having high levels of both of those which is potential energy for the future.
It sounds like there is some some greater loan growth may be coming in the back half, but even with that and in the dividend.
Now some of it which was nice to see.
Youre still.
Good day.
Rebuilding capital so just kind of curious your outlook on the opportunity to use to deploy that and if you would do anything sort of.
In the interim maybe on a temporary basis I know you bought pools of mortgage loans and things like that in the past just to kind of lever capital and liquidity or anything like that that's out there.
I think I think the way to think about that as one.
Like carrying a significant amount of capital we like the fortress balance sheet concept that we've put together here.
We will continue to revisit capital over time, our primary focus for capital is organic growth and M&A I think.
On the M&A market conversations have been robust and.
And increasing over the last six months and so I think ideally we would put that into M&A and at this point, we've put a dividend in place and we will just revisit over time Michael.
A careful balance of growth versus strengthen the balance sheet and we'll just see what how it plays out as we move through the through the coming years, but.
Ideally again, it would be an organic growth on M&A.
Okay.
And I.
I guess the other question I had was just through vision 2020, you guys have done a really great job of kind of balancing reinvestment with calling of expenses in other areas. The guide for for next quarter. It looks like that is weighted to continue but are there opportunities to be I guess, a little more aggressive.
Either hiring or other areas to maybe invest a little more in the future for growth.
At this point in the cycle.
Yes, we have a number of key investments in the coming year.
Part of that is hiring we are very much active out recruiting both individuals and teams we have a number of folks we're talking to right now and if you look back in the first quarter on late last year, we brought in a team up in the central Florida area, including a new market President and a new regional credit officer, we have line of sight.
Towards the number of future hires here as we come in the coming year and that is.
Baked into our investment plans and then secondarily, we've been making a significant amount of net investment in our origination cycle times, and the company and particularly on the commercial banking business to be able to deliver product to market faster. Some of the results of that investment in work will come later this year as the team continues to.
Basically build a much quicker digital origination process and then thirdly, we've been investing in digital front end for our customers. We expect as we enter 2022 and through 2022 to have a.
Much more robust digital front end for our customers something we're excited about it.
I don't think well increase our expense base as we move through time, we've got that offset and we've got a plan to make these investments while managing our efficiency ratio and so as you know we continuously challenge ourselves to make the hard trade off decisions around.
Sort of legacy overhead to a digital future ahead, and we'll continue to make investments for sure and Florida, just generally around team hires on what's going on as the economies come back here bankers of back out in force along with <unk>.
Fairly increased M&A conversation, so has opportunities to acquire talent.
Okay and last one for me you guys have made of a lot of investment on the fee income side of the house.
To kind of offset the low rate environment could could you maybe just talk about mortgage in particular I guess, that's been high from an industry perspective, I know a lot of investment has gone in there. So should we expect kind of market share gain to mute the industry volume fall off or maybe just higher volumes in Florida generally.
Kind of muting the industry impact.
Yes.
The way, we think about mortgages, it's a great way to acquire customers and so we focus on Florida, only we focus on the markets. We're in and we look at it as a way to service our current customers as well as grow of new customer base, I think thats, the highest value of the mortgage business and build sustainable on <unk> revenue that comes along.
Side of that cross sell.
So as we move forward, we are always actively looking to recruit originators into the franchise.
But over time, if refinance demand were to slow that's why our guide is the slower mortgage income in the coming quarters that all being said the team here at Seacoast has done an incredible job of prioritizing purchase money and servicing the realtors in the markets, we're in and along the East Coast here, we're the number one market share on the mortgage side.
And we continue to expand that business in particular in Orlando and as well as Tampa, We've hired a number of mortgage originators in those two markets, but again, our key focus with mortgages to drive customer growth and franchise value.
It is over time.
Okay. Thanks, Congrats on a good quarter. Thank you Michael.
Our next question is from David Feaster. Please go ahead.
Hey, good morning, everybody, Hey, David how are you.
Well thank you.
It was great to see the increase of the pipeline, it's extremely encouraging I'm just sort.
Was curious how much of this is from existing customers that you think are getting more ready to invest.
Just given the improved economic outlook versus new customers customer acquisition from the new hires that you've made in just about kind of where we are in the migration of new clients from the PPP program sure.
For you to look at the pipeline of say the majority of it is new customers that we've been bringing in it is new relationships a lot of it's the expansionary plans.
Plans, we've as we've grown into the Tampa West coast market and into South, Florida, and so we're seeing more and more opportunities that is largely coming from our expansion of our business and I would tell you like I mentioned earlier, our sort of overall pipeline, including early stage deals.
If you were to sort of measure that on a productivity basis, we have more deals per banker in the pipeline that we've had really going back over a number of years. So our entire population is in the game, which we're excited about theyre selling the full bank. So we're seeing not only growth in loan opportunities they are significantly contributing to.
Of the AUM growth, which has been substantial if you run the math on that we're up almost $450 million north of $4 50 year over year on AUM, that's come from that team expanding help expand that business alongside our wealth team.
And.
Selling the full bank. So we're super excited about the commercial business. It's something we continue to focus on to make it more competitive as I mentioned earlier, we've made a lot of investments in technology. There. We've made a lot of investments in leadership around the state of Florida, and we will continue to.
I think there is an opportunity for us here, particularly as all of the community banks of either exited of gotten smaller or the larger community banks of got much larger there's a nice space for us to slide in here and be the commercial bank of these metro markets that we serve and so.
On the PPP side, we continue to get customers. So we continue to cross sell customers I don't have the exact numbers in front of me I can get them for you.
Later today, David but we we continue to use it as an opportunity to acquire customers.
Great.
Curious reading between the lines it sounds like Youre, a lot more confidence that your appetite for credit improved pretty significantly I guess, just given the build in the pipeline of the improved economic outlook with the distraction for PPD in the rear view.
Do you think that loans exclusive of PBT of trough here and that we should start seeing growth in the second quarter or do you think there could be some additional runoff from payoffs and pay downs right now our model would have very slight growth in the coming quarter, and then fairly significant growth in Q3 and Q4. So I think this is the trough.
Okay.
And then just wanted to touch on the strategy for the point of your excess cash it sounds like youre going to be pretty methodical and invest over time or is it that you expect maybe some of this liquidity to flow out and I guess, just how do you think about your asset sensitivity on the Securities book just in light of this liquidity build and the opportunity to maybe take.
Some duration risk and take some assets sensitivity off the table of just how are you just thinking about that.
Thank you.
So you can jump in here too if you want but I think well.
Well continue to be patient I think the risk of higher rates is fairly material at this point and so we don't want to get ahead of ourselves and then find ourselves underwater and these long duration type low yielding bonds and so it will be very methodical David it is a careful balance of.
<unk> earnings to the risk of.
Market value declines at a higher rate environment of today, we've focused on sort of sliding in four year duration with no extension risk.
A little yield hit there and it pushes the yields down in the $121 30 range, but we think that's appropriate.
And of our.
Of our guide for the coming quarters of net 200 million of growth.
Yeah, and David Youre right you mentioned some of the uncertainty there the the excess liquidity is driven.
Largely by on trends.
Trends in PPP forgiveness of higher customer deposit balances and so changes in that behavior would certainly cause us to reconsider.
You can kind of envisioning of period here, where that excess liquidity, that's in bank balance sheets, including ours on everybody else's begins to wane in the coming year and as that money gets invested so.
Our sort of thought there is of the C&I type customer. That's got all of this cash will begin to invest later in this year I think they have to I think it is pent up and they've been waiting for like I said to work through forgiveness as well as some clarity on the economic recovery and the impact of the pandemic I think as we talked on the past we were waiting for.
For some very clear indications around that including vaccine stimulus et cetera, I think we've been able to see that and that gives us confidence that the state is doing incredibly well and we're feeling confident about the future of head on our economic recovery.
Okay, that's great color thanks, everybody.
Thank you David.
Once again, if you do have a question for Star then one on your Touchtone phone.
And I have no further questions at this time.
Alright. Thank you. Thank you everybody for joining us this morning, and we'll talk soon thank you.
Thank you ladies and gentlemen that concludes today's conference. Thank you for participating and you may now disconnect.