Q4 2021 Seacoast Banking Corporation of Florida Earnings Call

January 28, 2022

Yeah.

All parties. Please stand by your conference will begin momentarily once again, please standby the seacoast banking Corporation's fourth quarter and full year 2021 earnings call. We'll start we'll materially thank you.

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Good morning, and welcome to the Seacoast banking Corporation's fourth quarter and full year 2021 earnings conference call.

This is Brandon and I'll be your operator at this time all participants are in a listen only mode. Later, we will conduct a question and answer session.

Before we begin I've been asked to direct your attention to the statement contained at the end of the Companys press release regarding forward looking statements.

<unk> will be discussing issues that constitute forward looking statements within the meaning of the securities and Exchange Act in his comments today are intended to be covered within the meaning of that act.

Please note. This conference is being recorded and I will now turn the call over to Chuck Shaffer, President and CEO of Seacoast Bank. Mr. Schafer you may begin.

Thank you Brandon and thank you all for joining us this morning.

As we provide our comments will reference the fourth quarter 2021 earnings slide deck, which you can find at seacoast banking dot com.

Joining me. This morning is Tracey Dexter Chief Financial Officer, and Jeff Lee Chief Digital Officer.

The seacoast team delivered another outstanding quarter generating $42 3 million in pretax pre provision earnings and grew tangible book value per share 10% from the prior year to $17 84.

Additionally, the company reported an adjusted efficiency ratio of 53, 4% and the adjusted return on tangible assets was 149%.

The strong shareholder returns were complemented with solid growth in loan outstandings growing 8% on an annualized basis we.

We saw growth in both our commercial and consumer segments, and we are exiting 2021 with loan pipelines at record levels.

The business environment in Florida has never been better there continues to be a significant migration of affluent individuals and companies relocating to Florida due to low taxes, a business friendly environment in a post pandemic work from anywhere economy.

This migration to Florida is in combination with the best hiring market. We've seen in years high quality bankers are increasingly frustrated with the cultural challenges and complexities emerging with upstream mergers and larger organizations and as a result are looking for a culture that allows them to service their clients and gift business <unk>.

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Given our toolset speed to market and consistency in executing for clients.

So choosing.

Bankers are choosing to call Seacoast Hall.

Since the prior quarter and we've added 12 commercial bankers and seven more mortgage bankers to our team.

I'm in line with our growth plan, we have discussed on previous calls we are launching teams in Jacksonville and Naples, we.

We expect hiring to continue robustly in the coming quarters as we have a record pipeline of high quality talent ready to exit larger banks for something more exciting.

We will introduce our customers to a significantly enhanced digital banking platform in early February including many new tools and digital products will follow this up in may with the launch of an enhanced online account opening product for both business and consumer customers.

This investment in technology will significantly improve our customers' mobile and online banking experience lower our cost to acquire new customers and reduce our cost to service our client base.

And lastly, I am incredibly proud of as many seacoast associates for their hard work in 2021, we are building a bank that will strongly compete across the state and the fruits of this labor is starting to show up in both customer and balance sheet growth.

As we enter 2022, we will soon have a significant significantly enhanced digital banking offering for our customer base.

We're operating a best in class data analytics platform supporting growth in our frontline businesses.

And we are building what could be the strongest commercial banking team in Florida in the coming years.

When you put all this together it provides me with a level of confidence that 2021 has the potential to be an outstanding year for disciplined growth.

Our fundamentals remain very strong with a well capitalized low risk fortress balance sheet strict underwriting standards and a desirable customer franchise positioned to take market share in Florida.

I'll also note that acquisition discussions continue across the state and.

And we expect we will have opportunities to continue to execute our successful M&A strategy in the coming year.

I'll now turn the call over to Tracy, who will walk through our financial results.

Good morning, everyone.

Directing your attention to fourth quarter results, beginning with slide five.

Earnings per share was <unk> 62 in the fourth quarter, an increase of 17% compared to the prior year quarter.

On a GAAP basis, net income increased 24% year over year to $36 3 million and on an adjusted basis, which excludes merger related and other isolated items in each period net income increased 20% to $36 9 million.

Organic loan production continues to increase resulting in fourth quarter annualized loan growth of 8%.

Commercial loan originations were a record 409 million, increasing 23% from prior quarter and 47% from the prior year quarter.

The commercial pipeline also reached a record level $398 million, that's nearly 140% higher than year end 2020.

The team also set a record for production in consumer lending with fourth quarter originations, increasing 9% from the prior quarter and 53% from the prior year quarter.

The net interest margin, excluding the effects of PPP loans and accretion on acquired loans increased two basis points to 291%.

We continue to deliver steadily increasing tangible book value per share, which ended the period at $17 84.

An increase of 10% from the end of 2020.

Cost of deposits remains in the single digits.

Our wealth management Division continues to grow with new assets under management of $419 million for the full year 2021.

AUM of $1 2 billion at December 31, 2021 through the year.

Year over year increase of 42%.

And the acquisitions of stable Palm Bank in Florida business Bank were successfully completed in early January .

Purchase accounting adjustments, including a day, one provision for loan losses will impact the first quarter of 2022.

Turning to slide six.

Overall net interest margin dropped six basis points from three 2% to $3, one 6%, excluding PPP and accretion on acquired loans, which introduced significant variability net interest margin increased by two basis points from 289% to $2 91%.

Net interest income on a fully tax equivalent basis increased by $1 million or 1% in the fourth quarter to $72 4 million.

The increase includes an increase in interest and fees on loans, primarily due to growth in the loan portfolio, we're ending loan balances, excluding PPP increased $119 million during the quarter.

Offsetting the increases in organic growth with lower recognition of fees on PPP loans.

We recognized $3 $4 million in PPP interest and fees compared to $5 9 million in the third quarter of 2021.

Excluding PPP yields in the core loan portfolio declined 11 basis points to 418%.

In the Securities portfolio, we've continued to pace, our investments of excess liquidity, adding a net $210 million and the growth in the securities portfolio contributed to higher securities interest income.

Yields in the securities portfolio declined two basis points to 157%.

Offsetting and favorable to net interest margin, our lower cash balances and continued improvement in the cost of deposits, which dropped to six basis points in the fourth quarter.

We expect that the core net interest margin has stabilized and we will expand into the coming year.

For modeling purposes, we expect that net interest margin will expand four to six basis points for each 25 basis point increase in the fed funds rate.

Exiting 2022, we expect core net interest margin will be higher by approximately 20 basis points compared to the fourth quarter of 2021 inclusive of three rate hikes during the year, which we had modeled in the second third and fourth quarters.

As a reminder, we operate with an asset sensitive balance sheet predominantly core deposit funded and we continue to carry ample liquidity that will replace with high that will reprice with higher rates.

As a frame of reference a 100 basis point shock on our static balance sheet would translate to an approximate 7% increase in net interest income.

Moving to slide seven.

Adjusted Noninterest income was $18 3 million a decrease of 700000 from the previous quarter and an increase of $3 4 million from the prior year quarter.

As you can see in the results year over year, we've continued to focus on driving noninterest income in 2021.

The wealth management team continues to deliver strong growth and successful relationship expansion and revenue during the quarter was strong at $2 4 million.

We remain very focused on building the wealth management business given its high return on capital and the value it adds to our commercial relationships.

In our mortgage banking business as expected revenue was lower on lower refinancing demand and tight housing inventory levels.

Lower pipelines are typical seasonal conditions at the end of the year and the team will continue to contribute meaningful results with recent hiring and a strong Florida housing market.

Our SBA team has had a very successful year as non PPP opportunities return.

Fourth quarter did see lower production compared to the third quarter.

We expect increasing production in the coming year.

We saw a meaningful contribution again this quarter from our FDIC investments.

Income from these investments can vary widely among periods.

We also had a unique gain from the sale of a website domain name that we acquired in the bank acquisition. Several years ago that gain was 750000 and is not included in the presentation of adjusted noninterest income.

Looking ahead, we expect wealth management and SBA to continue to grow mortgage banking gains will remain constrained by market conditions in the first quarter and we expect improvements beginning in the second quarter with recent hiring positioning us to capitalize on the opportunities.

Overall for noninterest income, we expect first quarter to be between 16 and $17 million.

Moving to slides eight and nine.

Adjusted noninterest expense for the fourth quarter was at the lower end of the range of the guidance, we provided at $48 3 million.

Salaries and benefits expenses were higher compared to the third quarter, reflecting the addition of commercial banking talent and higher production related incentives.

As we prepare for the upgrade of our mobile and digital banking platform in February 4th quarter expenses included costs related to preparation and testing and you see that in the increase in data processing costs.

Looking ahead.

We expect to maintain our expense discipline as we always do we expect first quarter expenses, excluding the amortization of intangible assets to be in the range of $52 million to $53 million.

The increase quarter over quarter is the result of the two acquisitions that closed early this month, adding approximately $2 8 million in additional overhead in the first quarter.

And an additional approximately $1 2 million and continued investments in talent and in digital enhancements.

We expect the adjusted efficiency ratio to be approximately 56% in the first quarter in line with prior year seasonality and to decline somewhat ratably throughout the year to be in the low <unk> by the fourth quarter.

This includes growth in net interest income through the year and reflects cost efficiencies associated with the two transactions that take full effect by the second half of the year.

As a reminder, for the two transactions system conversion and branding changes will take place for Florida business Bank in March and with Sabal Palm Bank in May.

Turning to slide 10, and our efforts in commercial banking.

The record levels of production and pipeline. This quarter are in part the result of our success in bringing together this group of individuals and others with significant market expertise and proven success in developing high performing commercial banking team.

We brought in 20, new bankers in 2021 and have targeted even more additions in 2022, as we expand our footprint across the state.

Turning to slide 11.

Highlighting the diversity of our exposure and concentration levels well below regulatory guidance.

Our portfolio is broadly distributed across various asset classes.

Stabilized income producing commercial real estate represents 29% of loans outstanding owner.

Owner occupied commercial real estate represents 20% of the portfolio.

Residential real estate comprises 24% of the portfolio.

For years, we've 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 19% and 162% of risk based capital respectively.

Our loan portfolio is diverse and broadly distributed across categories with an average commercial loan size, excluding PPP of less than 500000.

Turning to slide 12.

Loan balances, excluding PPP are higher by $119 million from the prior quarter, representing annualized growth growth for the quarter of 8%.

That increase represents organic growth in commercial and consumer categories, partially offset by a decline in residential mortgage loans.

Commercial growth as a highlight as recent talent additions and investments in technology are building momentum and delivered record level originations this quarter of $409 million, an increase of 23% over the third quarter and an increase of 47% compared to the fourth quarter of 2020.

The year ended with a record commercial pipeline as well as $398 million.

Consumer growth was also strong with originations of 73 million, increasing 9% from the third quarter and 53% compared to the prior year quarter.

The consumer pipeline, which was $30 million at year end had increased 63% from year end 2020.

For further detail by loan segment of production and pipeline levels by quarter. Please reference slide 24 in the presentation deck.

Looking forward, we expect loan growth to continue with an annualized growth rate in the mid to high single digits in the first quarter of 2022 and expand to high single digits for the remainder of the year.

We expect core yields stabilize near fourth quarter levels and to be somewhat higher in the first quarter supported by the positive impact of the portfolios coming on from the two acquisitions.

Turning to slide 13.

<unk> shows PPP activity for the year.

We processed $778 million and forgiveness year to date, including $103 million in the fourth quarter, bringing principal balances of PPP loans outstanding at December $31 million to $91 million net of deferred fees.

Overall since the start of the program, we've collected $27 6 million in SBA fees.

Of that we've recognized over 25 million life to date and have $2 4 million in fees remaining to be recognized in future periods.

We expect the majority of this remaining fee income to be fully recognized by the first quarter of 2022.

Turning to slide 14 for the securities portfolio.

We continue to invest excess liquidity at a moderate pace in the investment securities portfolio with approximately $430 million in purchases this quarter offset by Paydowns and sales for net growth of $210 million.

Additions were largely agency guaranteed with short duration and overall portfolio value declined with expectations for higher rates.

Visible in the chart is that we've added during the year to our held to maturity portfolio, thereby limiting the impact of valuation changes to tangible book value.

With new purchases, we will continue to steadily pace, our investments expecting net additions of approximately $150 million to $250 million in the first quarter and continue to focus on shorter duration agency bonds that will roll down the curve and allow us to deploy the resulting cash flow at higher future rates.

Turning to slide 15.

Deposits outstanding were $8 1 billion, a decrease quarter over quarter due primarily to our management of brokered money market deposits.

As we manage excess liquidity and overall cash levels. We've continued to make use of wholesale funding and off balance sheet deposit products through third party programs.

Off balance sheet levels remained near flat compared to the prior quarter at $228 million and the decline in brokered deposits drove much of the change in overall deposits.

As we move into January I'll note that we have brought back approximately $150 million in deposits from brokered programs to the balance sheet and the acquisitions of Sabal Palm Bank in Florida business Bank have added another $560 million in deposits.

At year end 2021 transaction accounts represented 62% of total deposits and had grown 29% year over year, demonstrating the strength of our customer franchise, our growing Florida economy, and our ability to win share in the marketplace.

We expect deposit balances exiting the first quarter to be in a range between eight eight and $8 9 billion.

We expect to continue to use off balance sheet programs for liquidity management purposes at approximately the same levels, we have in the past two quarters.

Onto slide 16.

The cost of deposits has continued to decline and for the fourth quarter was only six basis points.

Looking ahead, we believe this represents the lower bound for deposit costs, though we expect the cost of deposits to remain in the single digits for most of 2022.

For reference our non maturity deposits in the last full rate cycle repriced at a rate of 24% and when looking at just the first 100 basis points of the last cycle the rate was only 10%.

Ultimately over the long term decisions about repricing will be made in light of the rate environment and competitive factors.

Illustrated in the chart on Slide 16 is the deposits per branch, which stepped down this quarter to $154 million.

We opened two new branches in the fourth quarter, which brought the per branch deposit level down.

In addition, as I mentioned the decline in brokered money market deposits also brought down overall deposit levels.

Our branch optimization strategy is supported by our digital and analytics competency, which continues to provide opportunity to drive growth and operating efficiency across our retail franchise.

In the last five years, we've consolidated 27% of our physical branches.

We still think physical branches are extremely important to our customers and as a result expanded our Broward county presence with two new branches during the fourth quarter.

We also have a branch opening in Naples later in the first quarter complementing our Florida West Coast growth strategy that includes Tampa and Sarasota.

The strategic positioning of physical branch locations and top growth markets is a key part of our continuing growth strategy.

Moving to slide 17.

Wealth management business has delivered growth in assets under management with a compound annual growth rate of 33% over the past two years and 42% in 2021.

The team has done a remarkable job building a high net worth family office model and partnering with our commercial team to build relationships.

This relationship driven approach generates value for our most profitable clients and we will continue to deliver tremendous growth.

Moving to slide 18 and to credit topics.

Owens for loan losses decreased during the quarter to $83 3 million, representing a decline in portfolio coverage, excluding PPP from 154% in the prior quarter to 143% this quarter.

The decrease is in line with sustained indications of overall economic recovery and continuing strong portfolio quality trends.

In addition to the allowance the total purchase discount remaining on prior bank acquisitions is $23 1 million, which will be earned as an adjustment to yield over the life of those loans.

Turning to slide 19 on asset quality.

Credit measures remained strong with charge offs non accrual and criticized loans at historically low levels.

Net charge offs in the fourth quarter were 570000 or four basis points on average loans and the level of nonperforming loans decreased by 2 million to $36 million, representing 0.52% of total loans.

Criticized loans decreased to 13% of risk based capital in the fourth quarter and the overall allowance for credit losses. At December 31 is $83 3 million with allowance coverage, excluding PPP loans of 143%.

Turning to slide 20.

Our capital position continues to be very strong and we're committed to maintaining our fortress balance sheet.

Tangible book value per share of $17 84, and.

An increase of 10% year over year.

The tangible common equity to tangible asset ratio increased to 11, 1% at the end of the year 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, 2% at December 31.

Adjusted return on tangible common equity was 14, 1%.

Acknowledging our peer group, leading capital levels, 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 19% for the fourth quarter and 18, 6% for the full year 2021.

And finally on slide 21.

Looking back over the last five years, we've achieved a compounded annual growth rate in tangible book value per share of 12% driving shareholder value creation.

We've positioned this franchise with a foundation of strong liquidity and capital from which we will continue to execute on our strategic growth initiatives and optimize the opportunities of this strong Florida economy.

We look forward to your questions Chuck I'll turn the call back to you. Thank.

Thank you Jessie and Brandon I think we're ready for Q&A.

Thank you Sir we will now begin the question and answer session.

You have a question. Please dial star one on your phone keypad, if you'd like to be removed from the queue. When you sell on the pilot side of the house.

There may be a delay before each question as announced if you have a speakerphone. Please pick up your handset first before daily.

If you have a question please dial star one on your phone.

And on the line, we have David Feaster. Please go ahead.

Hey, good morning, everybody.

Okay.

Nice to see the increase in production in the quarter just curious some of the puts and takes with what you think is driving the increase obviously the pipeline.

As we.

Throughout the year, but are you seeing increased demand just given the economic strength of the market the new hires hitting stride as it increased willingness to kind of compete on pricing and then just I guess.

How do you think about production and maybe any color on the composition of the pipeline.

And kind of what segments, you're expecting to drive growth this year.

Thanks, David There is a lot in that question, but.

Open by saying.

You laid down in Florida, you understand what's happening here the state is on fire.

Population growth is.

Amazing and the quality of the fluency in the corporate relocations occurring here is I think unparalleled.

As a result, we continue to see just generally the Florida GDP, starting to really expand and so we're seeing demand whats.

Sort of very pleasing is if you look at the table.

Our loan table in the press release Youll see that we saw expansion in both consumer and commercial and then commercial both commercial and financial and CRE and so we're seeing it across the board I would say that.

Thats. The primary reason for the continued increase in the in the pipeline and then secondary to that is certainly the expanding team that we're building here at CECO.

We brought in throughout this year, we hired 20 new.

Commercial bankers in 2021, they have contributed about 20% to our pipeline at this point.

<unk> continued to grow their books and grow the opportunity there and so it's a combination of both the economy and the hiring but I would say sort of looking backwards. It's the economy, expanding and then looking forward it'll be more of a contribution from the additional bankers. So we couldnt be more pleased with the quarter, we couldnt be more pleased with the <unk>.

Look.

I have a lot of confidence that the coming year will be a nice year for growth.

That's helpful. Maybe just following up on that in the release you talked about disruption from some larger M&A or upstream M&A as you put it just curious where you're seeing the most opportunity.

The client acquisition side or new hires and then just with the new hires given that these are larger institutions are you seeing more middle market opportunities and then just an update on the de Novo expansion Jacksonville in Sarasota.

Yes, so just stepping back and thinking about that if you think about the strategy. We're executing at this point looking back historically, we built.

An incredible data analytics platform that is providing opportunities for material cross sell in our business. We then began focusing on building better and improve processes for our commercial bankers.

And here recently in the first quarter, we will make a fairly sizable.

So put us put a sizeable focus on improving our customer experiences on our digital and online banking platforms. When you kind of put all that together and then you step back and look at what's happening in the marketplace.

There's a lot of disruption in larger banks upstream from us that disruptions coming in terms of putting together operating systems, putting together a leadership a lot of challenges around putting together those cultures.

As such when you kind of think about the customer experience is going through those organizations and the banker experiences. We are still relatively small very focused on key markets very focused on improving both customer and banker experiences I think it's continuing to.

Better position us to win share and Thats, what youre seeing in our growth Thats, what youre seeing in the growth in pipelines and I think that's what we'll see in the coming years.

This key focused on what is arguably.

Some of the best markets in the country in combination with a key focus on improving experiences for our customer base and frankly for our bankers to allow them to get business done I think really is positioning us in an incredibly competitive way and so.

That's why I think we're seeing the growth come back online Thats, what I think is out ahead for us.

I think again, just getting back to I think I'm very pleased what we've gotten done pleased with the team and excited about what's coming in the next couple of years.

That's great and then I appreciate all the color on the margin and the rate sensitivity, but maybe just peeling back the NIM guidance.

Exclude just I'd like to give some color excluding rate hike.

If I take the midpoint of the use of five basis points for each rate hike and only a partial benefit of the fourth quarter that you talked about would that imply about seven or eight basis points of core margin expansion exclusive of hikes.

Could you just remind us what data you are assuming in that rate hike guidance.

<unk> on the two deals.

Closed in January .

Yes, we saw we saw core NIM stabilize in the fourth quarter and.

And the Steepening of the yield curve will be constructive for hire new add on yields both alone and the securities portfolio. So we expect core loan yields begin to stabilize move up in the first quarter.

And we've seen securities yield start an upward trend in the first quarter. So the pace of each of those will be a function of growth.

Where we said we see mid to high single digit loan growth in the first quarter and high single digit loan growth beyond.

And in security is expect to continue to deploy excess cash in the securities portfolio. We have historically managed to an asset sensitive balance sheet.

Rate hikes that are now being priced into the market will also be beneficial.

When we look at the deposit side.

Looking at prior cycles, and we can kind of reference historical betas.

<unk> holds a very strong core deposit base with a low beta our non maturity deposit beta over the last cycle was about 24%. The first 100 basis points only 10.

But we would expect it to be similar moving forward just kind of a reference to <unk>.

Historical point, so like we said we think the NIM.

NIM has has stabilized and has some upside in the first quarter based on those factors.

Next we have Michael Yang. Please go ahead.

Hey, Thanks for taking the question.

Hey, Jerry.

I'm doing just fine thanks.

I did too.

We'll focus on the NIM, so just apologies but.

As we kind of just look at the environment just curious your thoughts on what you expect to transpire.

In the competitive environment, just in terms of loan pricing loan yields do.

Do you think that kind of a move up in long rates can actually captured into loan yields are.

There's too much competition, where some of that is going to be seeded away and then similarly I assume in the.

Speaker 1: rate projections or up-rate scenario that you have. You probably have more, you know, higher deposit betas than what you're likely to experience. Any comments on that would be helpful.

Rate projections are up rate scenario that you have you probably have more.

Higher deposit betas than what you are likely to experience or any comment on that would be helpful.

Speaker 2: I think that deposit beta and they'll come back around a competition. Oh, sure. When we look at deposit betas, we're kind of referencing historical cycles or non-maternity deposit beta over the last cycle is about 24% and the first 100 pretty beneficial at only 10%. So we'd expect something similar moving forward, potentially even a bit less, considering the large amount of liquidity on bank balance sheet that could certainly translate to slower competitive repricing on the deposit side. The only thing I'd add to that, Michael, just thinking back to last time we went through sort of rate cycles. Unlike the last time, there's sort of an unprecedented amount of liquidity in the market when you look at loan deposit ratios across the banking system.

I'll take the deposit beta and they'll come back around the competition sure. When we look at deposit betas were kind of referencing historical cycles are non maturity deposit beta over the last cycle was about 24% in the first 100 pretty beneficial only 10%.

So we would expect something similar moving forward potentially even a bit less considering the large amount of liquidity on bank balance sheet that could certainly translate to slower competitive re pricing on the deposit side. The only thing I would add to that Michael just thinking about back to last last time, we went through sort of rate cycles. Unlike the last time.

Theres sort of an unprecedented liquidity in the market when you look at loan to deposit ratios across the banking system.

Speaker 2: our loan deposit ratio down around 70. You know, I don't think there's, I think the pressure around deposit re-pricing will probably take a little longer than it took in prior cycles. And so why we're providing sort of a historical look at deposit re-pricing based on the past, I think, in the coming.

Our loan to deposit ratio down around 70, I don't think there is I think the pressure around deposit repricing will probably take a little longer than it took in prior cycles and so why we're providing sort of a historical look at deposit repricing.

Based on the past I think in the coming.

Speaker 2: few years it probably takes longer for a deposit competitive pressure to heat up.

A few years, it probably takes longer for deposit competitive pressure to heat up.

Speaker 2: on the loan side you know it's it's always competitive it remains competitive uh... i don't know that there's uh... you know additional competitive sort of forces coming into loan pricing is we move forward uh... you know we continue to sort of balance both fixed rate and swap the floating rate lending and try to pick our duration carefully but uh... you know i think from a competitive uh... positioning i don't think it changes on higher rates really

On the loan side.

It's always competitive it remains competitive.

I don't know that there is.

Additional competitive sort of forces coming into loan pricing as we move forward.

We continue to sort of balance both fixed rate and swapped the floating rate lending and try to pick our duration carefully.

<unk>.

I think from a competitive positioning I don't think it changes on higher rates really.

Speaker 1: And then maybe just on the expense front, I think the outlook's actually pretty good in light of inflation. I mean, do you see any sort of risk factors to that as we move throughout the year? If there's more pressure and sort of curious what amount of maybe hiring is sort of built into plan this year, I know you guys have been aggressive in hiring over the prior two years. So wouldn't you, maybe this year you take more of a breather or if you're still seeing a lot of good opportunities out there?

Okay.

Then maybe just on the expense front I think the outlook is actually pretty good in light of inflation I mean, do you see any sort of risk factors to that as we move throughout the year, if theres more pressure.

And sort of curious what amount of maybe hiring is sort of built into the plan. This year I know you guys have been aggressive.

Hiring over the prior two years so wasn't sure if maybe this year you take more of a breather or if youre still seeing a lot of good opportunities out there.

Speaker 3: Yeah, I'm sure Chuck will follow and tell you that the opportunities on the hiring front remain really strong. There's no question that our people are the reason for our success. We want to attract and retain the best talent in the industry and that includes competitive compensation. We've accounted for that in the forecast. We've done that in a way that anticipates, you know, likely scenario.

Yes sure.

Chuck will follow and tell you.

The opportunities on the hiring front remained really strong there is no question that our people are the reason for our success, we want to attract and retain the best talent in the industry and that includes competitive compensation. We've accounted for that in our forecast. We think we've done that in a way that anticipate likely scenarios.

Speaker 2: Yeah, the only thing I'd add is we looked out at our forecast in the coming year. We expect to add probably somewhere between 15 to 20 further commercial revenue, producing bankers as we continue to expand the team. We're launching a team and Jacksonville will be launching a team in Naples in the coming month. We've baked that into our forecast that we provided there for the first quarter on expense. But we think we've caught all that in the guide.

Yes, the only thing I would add is when we looked out at our forecast in the coming year, we expect to add probably somewhere between 15% to 20.

Further commercial revenue producing bankers as we continue to expand the team we're launching a team in Jacksonville will be launching a team in Naples in the coming months, which we baked that into our forecast that we provided there for the first quarter on expense, but we.

We think we've caught all of that in the guide Michael.

Okay and then just last one for me just on the fee income obviously, that's been an area of investment and good growth both in the wealth management side, but also mortgages have been good but.

Just curious your outlook, particularly on mortgage I think given kind of the macro headwinds versus the reinvestment that you all have made to kind of grow that business, you just kind of where.

Any outlook you can kind of provide on ability to offset kind of macro pressures would be helpful.

Speaker 3: Yeah, in mortgage, the pipeline numbers typically drop during the last month of the year, and they have since, in January , recovered quite a bit. But we've also had a reduction of lending just in the marketplace overall, resulting from inventory shortages.

Yes in mortgage pipeline numbers typically dropped during the last month of the year.

And they have seen in January recovered quite a bit but we've also had a reduction of lending just in the marketplace overall, resulting from inventory shortages limited builder availability and <unk>.

Speaker 3: Limited builder availability and overall flow down and refinancing. We've already recruited a number of new mortgage loan officers. We'll make the most of the opportunities that do exist. But we do expect production and resulting saleable gains to be somewhat muted in the coming quarter.

Overall slowdown in refinancing we've already recruited a number of new mortgage loan officers will make the most of the opportunities that do exist, but we do expect production and resulting saleable gains to be somewhat muted in the coming quarter.

Speaker 2: When you look out beyond that quarter, Michael, we have an expectation that continues to improve over the remainder of the year, particularly as we grow out the producing team. And we feel pretty confident we'll have our opportunities to do.

And when you look out beyond that quarter, Michael we have an expectation that continues to improve over the remainder of the year, particularly as we grow out the producing team.

We feel pretty confident we will have our opportunities to do that.

Speaker 1: Okay, and last one, little nuance, but they're increasing the cost of second home mortgages from the Fannie Freddie, et cetera. So you guys think that there might be more of an opportunity to either originate those on balance sheet or be more competitive there, any thoughts, generally.

Okay, and last one little nuance, but they're increasing the cost of second home.

Mortgages.

From the Fannie Freddie et cetera. So you guys think that there might be more of an opportunity to either originate those on balance sheet or b.

Be more competitive there or any thoughts generally along that.

Speaker 4: I don't have anything I could probably tell you on that Michael I do know that our our mortgage team has been looking at the issue and and trying to find a way to strategize to take advantage of the situation but I don't have anything I'm sure with you today. Okay, thanks. Appreciate it. Thank you, Monk.

I don't have anything I could probably tell you on that Michael I do know that our mortgage team has been looking at the issue and trying to find a way to strategize to take advantage of the situation, but I don't have anything I can share with you today.

Yes.

Okay. Thanks I appreciate it.

Thank you Michael.

We have Brady Gailey online. Please go ahead.

Yes. Thank you good morning, guys.

Hey, Brady.

Speaker 5: So with seat coast now over 10 billion, there's the M&A strategy shift. The historically you guys have done these, you know, kind of smaller tuck-in deals. You know, I know there's not that many larger targets left in Florida after all the consolidation we've seen, but there's still some out there. There's your M&A strategy shift to, you know, larger target targets now that you're over 10 billion.

So with with CECO, it's now over $10 billion.

Does the M&A strategy shift historically, you guys have done these kind.

Smaller tuck in deals.

Yes.

There's not that many larger targets left in Florida. After all the consolidation we've seen but there's still some out there do you does your M&A strategy shift too.

Larger target targets now that you are over $10 billion.

Speaker 2: I wouldn't describe it that way, Brady. I mean, I think that we continue to be more focused on the right markets with the right economics in those markets. So when you look at Florida, we remain focused all the way down the east coast from Jacksonville to Miami, the whole I-4 corridor and a little north of Orlando.

I wouldn't describe it that way Brady I mean, I think that we continue to be more focused on the right markets with the right economics in those markets. So when you look at Florida, We remain focused kind of all the way down the Jackson the east coast from Jacksonville to Miami.

We'll I four corridor.

A little north of Orlando.

Speaker 2: and then down the Southwest corridor. The thing you have to remember is even the smaller banks in those markets are getting bigger. And so there's still opportunities to put together banks between 500 million to a billion and a half and in combination to be material to our results.

And then down the southwest corridor.

The thing you have to remember is even the smaller banks in those markets are getting bigger and so there's still opportunities to put together banks between 500 to a billion and a half in combination to be material to our results.

Speaker 5: All right, and then you know say you guys do not do any additional M&A this year outside of the two to just close and it is there a scenario where

Okay Alright.

You guys do not do any additional M&A this year outside of the two and just close is there a scenario where.

Speaker 5: you know, you could get the balance sheet back under 10 by the end of this year? Or do you think you're over 10 to stay from here on out?

You could get the balance sheet back under Tim by the end of this year or do you think you are over 10 to stay from here on out.

I think we're probably over tend to stay and I think it would be really difficult for us to manage under 10, particularly just given the organic growth we see out ahead for us.

Speaker 5: Finally, for me, I was a lot of talk about NSFBs and overdrafts potentially going away or getting reduced significantly. Can you tell us at CCOs, what was the level of NSFBs last year and then the same? What was the level of overdrafts last year? And just thoughts on, you feel like you're going to have to cut that at some point or maybe not.

Alright, and then finally familiar there's a lot of talk about NSF fees and overdraft potentially going away.

Reduced significantly, but can you tell us at CECO.

What was the level of success.

These last year than let's say what was the level of overdraft flush here and just thoughts on that.

You feel like Youre going to have to cut that at some point or maybe not.

Speaker 3: Yeah, Brady, I don't have to break out in front of me between overdraft and NSF, but overall, consumer overdraft-related fees were about 2 million in 2021.

Yes, Brady I don't have the breakout in front of me between.

Overdraft NSF, but overall consumer overdraft related fees were about $2 million in 2021.

Speaker 3: We're continually evaluating our product set and our pricing to remain competitive.

We're continually evaluating our product set and our pricing to remain competitive to manage risk.

Speaker 3: to manage risk, to better serve our customers and to attract new customers, our desire is to remain competitive.

Better serve our customers and to attract new customers our desire is to remain competitive.

Speaker 3: We've already been actively looking at making changes as it relates to overdraft.

<unk> already been actively looking at making changes as it relates to overdraft and considering ways to simplify our fee structure and help customers identify the products that best meet their needs.

Speaker 3: and considering ways to simplify our fee structure and help customers identify the products that best meet their needs. We actually currently offer two accounts with no overdraft fees and in all other accounts we offer customers the ability to link accounts so that transfers can be made to cover balance deficits.

Actually currently offer two accounts with no overdraft fees and then all other accounts.

For customers the ability to link accounts, so that transfers can be made to cover balance deficit, but thinking about the potential financial impact of the change.

Speaker 3: but thinking about the potential financial impact of a change.

Speaker 3: The changes we're considering will require some product updates and could be implementing changes in the third quarter of 2022. That may impact those fees by as much as half or 1 million, but we're continuing to evaluate that. We'll have more information later in the year and fees and other products may offset the decrease in overdraft. We have more work to do to finalize our.

The changes were considering will require some product updates and then we could be implementing changes in the third quarter of 2022 that may impact those fees by as much as half or $1 million, but we're continuing to evaluate that we will have more information later in the year.

And fees and other products may offset the decrease in overdraft, we have more work to do to finalize our.

All set there.

Speaker 5: It just clarifies that 2 million is a manual number, not a quarterly number rate. That's right, full year 21. That's a pretty small amount for y'all. So yeah, that's not a big deal. All right, great. Thanks for the color, guys. Thank you.

Just to clarify that $2 million, an annual number not a quarterly number right.

That's right full year 'twenty, one concern that's a pretty that's a pretty small amount.

Not a big Bill alright, great. Thanks for the color guys.

Thank you.

And we have Steve Moss online. Please go ahead.

Good morning.

Speaker 6: Steve? Just following back, going back to loan pricing here, it sounds like it's improved down there. Just kind of wondering maybe, you know, see a good pipeline here. Are there some underlying mixed shifts in the pipeline maybe helping yields a little bit too?

Steve maybe just fallen back going back to loan pricing here. It sounds like its improved down there just kind of wondering maybe.

We see a good pipeline here or there is some underlying mix shifts.

On the pipeline, maybe helping yields a little bit too.

Speaker 2: I don't know if there's any mixed shift. We're still running roughly, I would say, on the commercial side, 60% CRE, 40% CNI. We think with time that probably flips back around the other way, that's kind of where we were, pre-pandemic.

I don't know if theres any mix shift, we're still running roughly I would say on the commercial side, 60%.

Sorry, 40% C&I, we think with time that probably flips back around the other way that's kind of where we were pre pandemic.

Speaker 2: But I'd also remind you, we also are a consumer lender and we have other products that help bring up our overall add-on yield that help benefit the overall loan yields moving forward.

But I'd also remind you we also do it.

Our consumer lender and we have other products that help bring up sort of overall AD on yield that.

That helped benefit the overall sort of.

Loan yields moved forward, but.

Speaker 2: The other thing is sort of we carefully blend both fixed and variable. You know, we're swapping some of the fixed rate to variable rate given the likelihood of potentially higher rates here. And so that's that's helping as well as when we look forward it potentially a higher rate environment.

The other thing is sort of we carefully blend both fixed and variable we're swapping some of the fixed rate to variable rate given the likelihood of potentially higher rates here and so that's helping as well as when we look forward at potentially a higher rate environment.

Speaker 4: Okay. That's helpful, Chuck. And then just in terms of the pipeline of new hires, Chuck, I think you said 15 to 20. Is that for the full year you're planning to hire or just in the over the first quarter to this year? Full year. Full year, 2020.

Okay.

That's helpful. Chuck and then just in terms of the pipeline of new hires Chuck I think you said, 15% to 20.

Full year, you plan to hire or just in the.

For the first quarter to the full year guidance.

Full year 2022.

Speaker 4: Okay, great. Most of my other questions have been asked and answered, so I appreciate it. Thank you. Thank you.

Okay great.

Most of my other questions have been asked and answered so I appreciate it. Thank you.

Thank you.

Thank you I will now turn it back to Mr. Shaffer for closing remarks.

Speaker 2: Thank you Brandon and thank you all for joining us this morning and we'll speak to you soon. Thanks Brandon. I think we're done.

Thank you Brian .

You all for joining us this morning.

We'll speak to you soon thanks, Brandon I think we're done.

Speaker 7: Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for joining. You may now disconnect.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for joining you may now disconnect.

[music].

Speaker 7: Good morning and welcome to the Seacoast Banking Corporation's fourth quarter and full year 2021 earnings coverage.

Good morning, and welcome to the Seacoast banking Corporation's fourth quarter and full year 2021 to earnings Conference call. My name is Brandon and I'll be your operator at this time all participants are in a listen only mode. Later, we will conduct a question and answer session.

Speaker 7: My name is Brandon, and I'll be your operator. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer.

Speaker 7: Before we begin, I have been asked to direct your attention to the statement contained at the end of the company's press release regarding forward-looking statements.

Before we begin I've been asked to direct your attention to the statement contained at the end of the Companys press release regarding forward looking statements.

Speaker 7: 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.

Speaker 7: Please note this conference is being recorded and I will now turn the call over to Chuck Schaefer, President and CEO of Seacoast Bank. Mr. Schaefer, you may begin.

Please note. This conference is being recorded and I will now turn the call over to Chuck Shaffer, President and CEO of Seacoast Bank. Mr. Schafer you may begin.

Thank you Brandon and thank you all for joining us this morning.

Speaker 2: As we provide our comments, we will reference the fourth quarter 2021 earning slide deck, which you can find at Seacoastbanking.com.

As we provide our comments will reference the fourth quarter 2021 earnings slide deck, which you can find at seacoast banking dot com.

Speaker 2: Joining me this morning is Tracy Dexter, Chief Financial Officer, and Jeff Lee, Chief Digital Officer.

Joining me. This morning is Tracey Dexter Chief Financial Officer, and Jeff Lee Chief Digital Officer.

Speaker 2: The Seacoast team delivered another outstanding quarter, generating $42.3 million in pre-tax, pre-provisioned earnings, and grew tangible book value per share 10% from the prior year to $17.84.

The seacoast team delivered another outstanding quarter generating $42 3 million in pre tax pre provision earnings and grew tangible book value per share 10% from the prior year to $17 84.

Speaker 2: Additionally, the company reported an adjusted efficiency ratio of 53.4%, and the adjusted return on tangible assets was 1.49%.

Additionally, the company reported an adjusted efficiency ratio of 53, 4% and the adjusted return on tangible assets was 149%.

Speaker 2: These strong shareholder returns were complemented with solid growth in loan outstandings, growing 8% on an annualized basis.

Strong shareholder returns were complemented with solid growth in loan outstandings growing 8% on an annualized basis we.

Speaker 2: We saw growth in both our commercial and consumer segments, and we are exiting 2021 with loan pipelines at record levels.

We saw growth in both our commercial and consumer segments, and we are exiting 2021 with loan pipelines at record levels.

Speaker 2: The business environment in Florida has never been better. There continues to be a significant migration of affluent individuals and companies relocating to Florida due to low taxes, a business-friendly environment, and a post-pandemic work-from-anywhere economy.

Speaker 2: This migration to Florida is in combination with the best hiring market we've seen in years. High-quality bankers are increasingly frustrated with the cultural challenges and complexities emerging with upstream mergers and larger organizations, and as a result are looking for a culture that allows them to service their clients and get business accomplished.

This migration of Florida is in combination with the best hiring market. We've seen in years high quality bankers are increasingly frustrated with the cultural challenges and complexities emerging with upstream mergers and larger organizations and as a result are looking for a culture that allows them to service their clients and gift business.

<unk>.

Speaker 2: Given our tool set, speed to market, and consistency in executing for clients, bankers are choosing to call Seacoast home.

Given our toolset speed to market and consistency in executing for clients bankers are choosing.

Bankers are choosing to call Seacoast Hall.

Speaker 2: Since the prior quarter end, we've added 12 commercial bankers and 7 mortgage bankers to our team.

Since the prior quarter and we've added 12 commercial bankers and seven more mortgage bankers to our team.

Speaker 2: And in line with our growth plan we've discussed on previous calls, we are launching teams in Jacksonville and Naples.

I'm in line with our growth plan, we have discussed on previous calls we are launching teams in Jacksonville and Naples.

Speaker 2: We expect hiring to continue robustly in the coming quarters as we have a record pipeline of high-quality talent ready to exit larger banks for something more exciting.

We expect hiring to continue robustly in the coming quarters as we have a record pipeline of high quality talent ready to exit larger banks for something more exciting.

Speaker 2: We will introduce our customers to a significantly enhanced digital banking platform in early February , including many new tools and digital products.

We will introduce our customers to a significantly enhanced digital banking platform in early February , including many new tools and digital products.

Speaker 2: We'll follow this up in May with the launch of an enhanced online account opening product for both business and consumer customers.

I'll follow this up in May with the launch of an enhanced online account opening product for both business and consumer customers. This.

Speaker 2: This investment in technology will significantly improve our customers' mobile and online banking experience, lower our costs to acquire new customers, and reduce our cost of service.

This investment in technology will significantly improve our customers' mobile and online banking experience lower our cost to acquire new customers and reduce our cost to service our client base.

Speaker 2: And lastly, I'm incredibly proud of the many Seacoast Associates for their hard work in 2021. We are building a bank that will strongly compete across the state, and the fruits of this labor are starting to show up in both customer and balance sheet growth.

And lastly, I am incredibly proud that many seacoast associates for their hard work in 2021, we are building a bank that will strongly compete across the state and the fruits of this labor is starting to show up in both customer and balance sheet growth.

Speaker 2: As we enter 2022, we'll soon have a significantly enhanced digital banking offering for our customer base. We are operating a best-in-class data analytics platform supporting growth in our frontline businesses and we are building what could be the strongest commercial banking team in Florida in the coming years.

As we enter 2022, we will soon have a significant significantly enhanced digital banking offering for our customer base. We are operating a best in class data analytics platform supporting growth in our frontline businesses.

And we are building what could be the strongest commercial banking team in Florida in the coming years.

Speaker 2: When you put all this together, it provides me with a level of confidence that 2021 has the potential to be an outstanding year for discipline growth.

When you put all this together it provides me with a level of confidence that 2021 has the potential to be an outstanding year for disciplined growth.

Speaker 2: Our fundamentals remain very strong with a well-capitalized, low-risk Fortress Balance Sheet, strict underwriting standards, and a desirable customer franchise positioned to take market share in Florida.

Our fundamentals remain very strong with a well capitalized low risk fortress balance sheet.

Strict underwriting standards and a desirable customer franchise positioned to take market share in Florida.

Speaker 2: I will also note that acquisition discussions continue across the state, and we expect we'll have opportunities to continue to execute our successful M&A strategy in the coming year. I'll now turn the call over to Tracy, who will walk through our financial results.

I'll also note that acquisition discussions continue across the state and.

And we expect we will have opportunities to continue to execute our successful M&A strategy in the coming year.

I'll now turn the call over to Tracy, who will walk through our financial results.

Good morning, everyone.

Speaker 3: Directing your attention to fourth quarter results, beginning with slide five.

Directing your attention to fourth quarter results, beginning with slide five.

Speaker 3: Earnings per share was 62 cents in the fourth quarter, an increase of 17% compared to the prior year quarter. On a gap basis, net income increased 24% year over year to 36.3 million. And on an adjusted basis, which excludes merger related and other isolated items in each period, net income increased 20% to 36.9 million.

Earnings per share was <unk> 62 in the fourth quarter, an increase of 17% compared to the prior year quarter.

On a GAAP basis, net income increased 24% year over year to $36 3 million.

And on an adjusted basis, which excludes merger related and other isolated items in each period net income increased 20% to $36 9 million.

Speaker 3: Organic loan production continues to increase resulting in fourth quarter annualized loan growth of eight percent

Organic loan production continues to increase resulting in fourth quarter annualized loan growth of 8%.

Speaker 3: Commercial loan originations were a record 409 million, increasing 23% from prior quarter and 47% from the prior year quarter.

Commercial loan originations were a record 409 million, increasing 23% from prior quarter and 47% from the prior year quarter.

Speaker 3: The commercial pipeline also reached a record level of $398 million. That's nearly 140% higher than year-end 2020.

The commercial pipeline also reached a record level $398 million that is nearly 140% higher than year end 2020.

Speaker 3: The team also set a record for production in consumer lending with fourth quarter originations increasing 9% from the prior quarter and 53% from the prior year quarter.

The team also set a record for production in consumer lending with fourth quarter originations, increasing 9% from the prior quarter and 53% from the prior year quarter.

Speaker 3: the net interest margin excluding the effects of PPP loans and accretion on acquired loans increased two basis points to 2.91%.

The net interest margin, excluding the effects of PPP loans and accretion on acquired loans increased two basis points to 291%.

Speaker 3: We continue to deliver steadily increasing tangible book value per share, which ended the period at $17.84, an increase of 10% from the end of 2020. Cost of deposits?

We continue to deliver steadily increasing tangible book value per share, which ended the period at $17 84 and.

An increase of 10% from the end of 2020.

Cost of deposits remains in the single digits.

Speaker 3: Our Wealth Management Division continues to grow, with new assets under management of $419 million for the full year 2021.

Our wealth management Division continues to grow with new assets under management of $419 million for the full year 2021.

Speaker 3: AUM of $1.2 billion at December 31, 2021 is a year-over-year increase of 42 percent.

AUM of $1 2 billion at December 31, 2021 is a year over year increase of 42%.

Speaker 3: and the acquisitions that Sable Palm Bank and Florida Business Bank were successfully completed in early January . Participating adjustments including a day one provision for loan losses will impact the first quarter of 2022.

And the acquisitions of stable Palm Bank in Florida business Bank were successfully completed in early January .

Purchase accounting adjustments, including a day, one provision for loan losses will impact the first quarter of 2022.

Turning to slide six.

Speaker 3: Overall, net interest margin dropped 6 basis points from 3.22% to 3.16%.

Speaker 3: excluding PPP and accretion on acquired loans, which introduced significant variability. Net interest margin increased by two basis points from 2.89% to 2.91%.

Speaker 3: net interest income on a fully tax-equivalent basis increased by 1 million or 1 percent in the fourth quarter to $72.4 million.

Net interest income on a fully tax equivalent basis increased by $1 million or 1% in the fourth quarter to $72 4 million.

Speaker 3: The increase includes an increase in interest and fees on loans, primarily due to growth in the loan portfolio, where ending loan balances excluding PPP increased $119 million during the quarter.

The increase includes an increase in interest and fees on loans, primarily due to growth in the loan portfolio, we're ending loan balances, excluding PPP increased $119 million during the quarter.

Speaker 3: Offsetting the increases in organic growth was lower recognition of fees on PPP loans. We recognized $3.4 million in PPP interest and fees compared to $5.9 million in the third quarter of 2021.

Offsetting the increases in organic growth with lower recognition of fees on PPP loans.

We recognized $3 4 million in PPP interest and fees compared to $5 9 million in the third quarter of 2021.

Speaker 3: excluding PPP, yields in the core loan portfolio declined 11 basis points to 4.18%.

Excluding PPP yields in the core loan portfolio declined 11 basis points to 418%.

Speaker 3: In the securities portfolio, we've continued to pace our investments of excess liquidity, adding a net 210 million, and the growth in the securities portfolio contributed to higher securities interest income.

Speaker 3: Yields in the securities portfolio declined two basis points to 1.57%.

Yields in the securities portfolio declined two basis points to 157%.

Speaker 3: offsetting and favorable to net interest margin are lower cash balances and continued improvement in the cost of deposits, which dropped to six basis points in the fourth quarter.

Offsetting and favorable to net interest margin, our lower cash balances and continued improvement in the cost of deposits, which dropped to six basis points in the fourth quarter.

Speaker 3: We expect that the Coronet Interest margin has stabilized and will expand into the coming year.

We expect that the core net interest margin has stabilized and we will expand into the coming year.

Speaker 3: For modeling purposes, we expect that net interest margin will expand four to six basis points per each 25 basis point increase in the Fed funds rate.

For modeling purposes, we expect that net interest margin will expand four to six basis points for each 25 basis point increase in the fed funds rate.

Speaker 3: Exiting 2022, we expect Core Net Interest Margin will be higher by approximately 20 basis points compared to the fourth quarter of 2021, inclusive of three rate hikes during the year, which we had modeled in the second, third, and fourth quarter.

Speaker 3: As a reminder, we operate with an asset-sensitive balance sheet predominantly core deposit funded. And we continue to carry ample liquidity that will replace with high- that will reprice with higher rates.

Speaker 3: As a frame of reference, a 100 basis point shock on our static balance sheet would translate to an approximate 7% increase in that interest income.

As a frame of reference a 100 basis point shock on our static balance sheet would translate to an approximate 7% increase in net interest income.

Moving to slide seven.

Speaker 3: adjusted non-interesting comes with 18.3 million, a decrease of 700,000 from the previous quarter, and an increase of 3.4 million from the prior year quarter.

Adjusted Noninterest income was $18 3 million a decrease of 700000 from the previous quarter and an increase of $3 4 million from the prior year quarter.

Speaker 3: As you can see in the results year over year, we've continued to focus on driving non-interesting come in 2021.

As you can see in the results year over year, we've continued to focus on driving noninterest income in 2021.

Speaker 3: The Wealth Management Team continues to deliver strong growth and successful relationship expansion, and revenue during the quarter was strong at $2.4 million.

The wealth management team continues to deliver strong growth and successful relationship expansion and revenue during the quarter was strong at $2 4 million.

Speaker 3: We remain very focused on building the wealth management business given its high return on capital and the value it adds to our commercial relationship.

We remain very focused on building the wealth management business given its high return on capital and the value it adds to our commercial relationships.

Speaker 3: In our mortgage banking business, as expected, revenue is lower on lower refinancing demand and tight housing inventory levels.

In our mortgage banking business as expected revenue was lower on lower refinancing demand and tight housing inventory levels.

Speaker 3: Lower pipelines are typical of seasonal conditions at the end of the year, and the team will continue to contribute meaningful results with recent hiring and a strong Florida housing market.

Lower pipelines are typical of seasonal conditions at the end of the year and the team will continue to contribute meaningful results with recent hiring and a strong Florida housing market.

Speaker 3: Our SBA team has had a very successful year as non-PPP opportunities return, though the fourth quarter did see lower production compared to the third quarter. We expect increasing production in the coming year.

Our SBA team has had a very successful year as non PPP opportunities return, though the fourth quarter did see lower production compared to the third quarter we.

We expect increasing production in the coming years.

Speaker 3: We saw a meaningful contribution again this quarter from our SBIC investments, though income from these investments can vary widely among periods.

We saw a meaningful contribution again this quarter from our FDIC investments.

Income from these investments can vary widely among periods.

Speaker 3: We also had a unique game from the sale of a website domain name that we acquired in a bank acquisition several years ago. That game was 750,000 and is not included in the presentation of adjusted non-interesting costs.

We also had a unique gain from the sale of a website domain name that we acquired in a bank acquisition. Several years ago that gain was 750000 and is not included in the presentation of adjusted noninterest income.

Speaker 3: Looking ahead, we expect wealth management and SBA to continue to grow. Mortgage banking gains will remain constrained by market conditions in the first quarter, and we expect improvements beginning in the second quarter with recent hiring positioning us to capitalize on the opportunity.

Speaker 3: Overall for non-interest income, we expect first quarter to be between 16 and 17 million.

Overall for noninterest income, we expect first quarter to be between 16 and $17 million.

Moving to slides eight and nine.

Speaker 3: Adjusted non-interest expense for the fourth quarter was at the lower end of the range of the guidance we provided at forty eight point three million

Adjusted noninterest expense for the fourth quarter was at the lower end of the range of the guidance, we provided at $48 3 million.

Speaker 3: Salaries and benefits expenses were higher compared to the third quarter, reflecting the addition of commercial banking talent and higher production related incentives.

Salaries and benefits expenses were higher compared to the third quarter, reflecting the addition of commercial banking talent and higher production related incentives.

Speaker 3: As we prepare for the upgrade of our mobile and digital banking platform in February , fourth quarter expenses included costs related to preparation and testing, and you see that in the increase in data processing costs.

Speaker 3: Looking ahead, we expect to maintain our expense discipline as we always do. We expect first quarter expenses, excluding the amortization of intangible assets, to be in the range of 52 to 53 million.

Looking ahead.

We expect to maintain our expense discipline as we always do we expect first quarter expenses, excluding the amortization of intangible assets to be in the range of $52 million to $53 million.

Speaker 3: The increased quarter over quarter is the result of the two acquisitions that closed early this month, adding approximately 2.8 million in additional overhead in the first quarter. And an additional approximately 1.2 million in continued investments in talent and in digital enhance.

The increase quarter over quarter is the result of the two acquisitions that closed earlier this month, adding approximately $2 8 million in additional overhead in the first quarter.

And an additional approximately $1 2 million and continued investments in talent and in digital enhancements.

Speaker 3: We expect the adjusted efficiency ratio to be approximately 56% in the first quarter in line with prior year seasonality and to decline somewhat ratably throughout the year to be in the low 50s by the fourth quarter.

Speaker 3: This includes growth and net interest income through the year and reflects cost efficiencies associated with the two transactions that take full effect by the second half of the year.

This includes growth in net interest income through the year and reflects cost efficiencies associated with the two transactions that take full effect by the second half of the year.

Speaker 3: As a reminder for the two transactions, system conversion and branding changes will take place for Florida Business Bank in March and with Sable Palm Bank in May.

As a reminder, for the two transactions system conversion and branding changes will take place for our Florida business Bank in March and with Sabal Palm Bank in May.

Speaker 3: Turning to slide 10 and our efforts in commercial banking.

Turning to slide 10, and our efforts in commercial banking.

Speaker 3: The record levels of production and pipeline this quarter are in part the result of our success in bringing together this group of individuals and others with significant market expertise and proven success in developing high-performing commercial banking teams.

Speaker 3: We brought in 20 new bankers in 2021 and have targeted even more additions in 2022 as we expand our footprint across the state.

We brought in 20, new bankers in 2021 and have targeted even more additions in 2022, as we expand our footprint across the state.

Turning to slide 11.

Speaker 3: highlighting the diversity of our exposure and concentration levels well below regulatory guides.

Highlighting the diversity of our exposure and concentration levels well below regulatory guidance.

Speaker 3: Our portfolio is broadly distributed across various asset classes.

Our portfolio is broadly distributed across various asset classes stay.

Speaker 3: Stabilized income-producing commercial real estate represents 29% of loans outstanding. Owner-occupied commercial real estate represents 20% of the portfolio. And residential real estate comprises 24% of the portfolio.

Stabilized income producing commercial real estate represents 29% of loans outstanding owner.

Owner occupied commercial real estate represents 20% of the portfolio.

In residential real estate, comprising 24% of the portfolio.

Speaker 3: For years, we've consistently managed our portfolio to keep construction and land development loans and commercial real estate loans well below regulatory guidance.

For years, we've consistently managed our portfolio to keep construction and land development loans and commercial real estate loans, well below regulatory guidance.

Speaker 3: at December 31st that represented 19% and 162% of risk-based capital respectively.

At December 31 that represented 19% and 162% of risk based capital respectively.

Speaker 3: Our loan portfolio is diverse and broadly distributed across categories with an average commercial loan size excluding PPP of less than 500,000.

Our loan portfolio is diverse and broadly distributed across categories with an average commercial loan size, excluding PPP of less than 500000.

Turning to slide 12.

Speaker 3: Loan balances excluding PPP are higher by $119 million from the prior quarter, representing annualized growth for the quarter of 8%.

Loan balances, excluding PPP are higher by $119 million from the prior quarter, representing annualized growth growth for the quarter of 8%.

Speaker 3: that increase represents organic growth in commercial and consumer categories, partially offset by a decline in residential mortgage loans.

That increase represents organic growth in commercial and consumer categories, partially offset by a decline in residential mortgage loans.

Speaker 3: Commercial growth is a highlight, as recent talent additions and investments in technology are building momentum and delivered record-level originations this quarter of $409 million, an increase of 23% over the third quarter, and an increase of 47% compared to the fourth quarter of 2020.

Speaker 3: The year ended with a record commercial pipeline as well of $398 million.

The year ended with a record commercial pipeline as well with $398 million.

Speaker 3: Consumer growth was also strong, with originations of 73 million, increasing 9% from the third quarter, and 53% compared to the prior year quarter.

Consumer growth was also strong with originations of 73 million, increasing 9% from the third quarter and 53% compared to the prior year quarter.

Speaker 3: The consumer pipeline, which was 30 million at year end, had increased 63% from year end 2020.

The consumer pipeline, which was $30 million at year end had increased 63% from year end 2020.

Speaker 3: For further detail by loan segment of production and pipeline levels by quarter, please reference slide 24 in the presentation deck.

For further detail by loan segment of production and pipeline levels by quarter. Please reference slide 24 in the presentation deck.

Speaker 3: Looking forward, we expect loan growth to continue with an annualized growth rate in the mid to high single digits in the first quarter of 2022, and expand to high single digits for the remainder of the year.

Speaker 3: We expect core yields stabilize near fourth quarter levels and to be somewhat higher in the first quarter, supported by the positive impact of the portfolios coming on from the two acquisition.

We expect core yields stabilize near fourth quarter levels and to be somewhat higher in the first quarter supported by the positive impact of the portfolios coming on from the two acquisitions.

Speaker 3: Turning to slide 13, the graphic shows PPP activity for the year.

Turning to slide 13, the graphic shows PPP activity for the year.

Speaker 3: We've processed $778 million in forgiveness year to date, including $103 million in the fourth quarter, bringing principal balances of PPP loans outstanding at December 31 to $91 million net of deferred fees.

Speaker 3: Overall, since the start of the program, we've collected 27.6 million in SBA fees.

Overall since the start of the program, we've collected $27 6 million in SBA fees.

Speaker 3: Of that, we've recognized over 25 million lives to date and have 2.4 million in fees remaining to be recognized in future periods.

Of that we've recognized over 25 million life to date and have $2 $4 million and fees remaining to be recognized in future periods.

Speaker 3: We expect the majority of this remaining fee income to be fully recognized by the first quarter of 2022.

We expect the majority of this remaining fee income to be fully recognized by the first quarter of 2022.

Speaker 3: Turning to slide 14 for the security's portfolio. We continue to invest excess liquidity at a moderate pace in the investment security's portfolio, with approximately 430 million in purchases this quarter, offset by pay downs and sales for net growth of 210 million.

Turning to slide 14 for the securities portfolio.

Speaker 3: Additions were largely agency guaranteed with short duration and overall portfolio value declines with expectations for higher rates.

Additions were largely agency guaranteed with short duration and overall portfolio value declined with expectations for higher rates.

Speaker 3: Visible in the chart is that we've added during the year to our health to maturity portfolio thereby limiting the impact of valuation changes to tangible book value.

Visible in the chart is that we've added during the year to our held to maturity portfolio, thereby limiting the impact of valuation changes to tangible book value.

Speaker 3: With new purchases, we will continue to steadily pace our investments, expecting net additions of approximately 150 to 250 million in the first quarter, and continue to focus on shorter duration agency bonds that will roll down the curve and allow us to deploy the resulting cash flow at higher future rates.

Speaker 3: Turning to slide 15, deposits outstanding were 8.1 billion. A decrease quarter over quarter due primarily to our management of broker's money market deposits.

Turning to slide 15.

Deposits outstanding were $8 1 billion, a decrease quarter over quarter due primarily to our management of brokered money market deposits.

Speaker 3: As we manage excess liquidity and overall cash levels, we've continued to make use of wholesale funding and off-balance sheet deposit products through third-party programs.

As we manage excess liquidity and overall cash levels. We've continued to make use of wholesale funding and off balance sheet deposit products through third party programs.

Speaker 3: Off-balance, she levels remained near flat compared to the prior quarter at 228 million, and the decline in broker deposits drove much of the change in overall deposits.

<unk> balance sheet levels remained near flat compared to the prior quarter at $228 million and the decline in broker deposits drove much of the change in overall deposits.

Speaker 3: As we move into January , I'll note that we have brought back approximately $150 million in deposits from brokered programs to the balance sheet, and the acquisitions of Sable Palm Bank and Florida Business Bank have added another $560 million in deposits.

Speaker 3: At year end 2021, transaction accounts represented 62% of total deposits and had grown 29% year over year, demonstrating the strength of our customer franchise, a growing Florida economy, and our ability to win share in the marketplace.

At year end 2021 transaction accounts represented 62% of total deposits and had grown 29% year over year, demonstrating the strength of our customer franchise.

Growing, Florida economy, and our ability to win share in the marketplace.

Speaker 3: We expect deposit balances exiting the first quarter to be in a range between 8.8 and 8.9 billion.

We expect deposit balances exiting the first quarter to be in a range between eight eight and $8 9 billion.

Speaker 3: We expect to continue to use off-balance sheet programs for liquidity management purposes at approximately the same levels we have in the past two quarters.

We expect to continue to use off balance sheet programs for liquidity management purposes at approximately the same levels, we have in the past two quarters.

Speaker 3: on to slide 16. The cost of deposits has continued to decline, and for the fourth quarter was only six basis points.

On to slide 16.

The cost of deposits has continued to decline and for the fourth quarter was only six basis points.

Speaker 3: Looking ahead, we believe this represents the lower bound for deposit costs, though we expect the cost of deposits to remain in the single digits for most of 2022.

Looking ahead, we believe this represents the lower bound for deposit costs, though we expect the cost of deposits to remain in the single digits for most of 2022.

Speaker 3: For reference, our non-maternity deposit in the last full rate cycle reprised at a rate of 24%. And when looking at just the first 100 basis points of the last cycle, the rate was only 10%.

For reference our non maturity deposits in the last full rate cycle repriced at a rate of 24% and when looking at just the first 100 basis points of the last cycle the rate was only 10%.

Speaker 3: Ultimately over the long term, decisions about repricing will be made in light of the rate environment and competitive facts.

Ultimately over the long term decisions about repricing will be made in light of the rate environment and competitive factors.

Speaker 3: Illustrated in the chart on slide 16 is the deposit per branch, which stepped down this quarter to 154 million.

Illustrated in the chart on Slide 16 is the deposits per branch, which stepped down this quarter to $154 million.

Speaker 3: We opened two new branches in the fourth quarter, which brought the per branch deposit level down. In addition, as I mentioned, the decline in broker money market deposits also brought down overall deposit level.

We opened two new branches in the fourth quarter, which brought the per branch deposit level down.

In addition, as I mentioned the decline in brokered money market deposits also brought down overall deposit levels.

Speaker 3: Our branch optimization strategy is supported by our digital and analytics competency, which continues to provide opportunity to drive growth and operating efficiency across our retail friends.

Our branch optimization strategy is supported by our digital and analytics competency, which continues to provide opportunity to drive growth and operating efficiency across our retail franchise.

Speaker 3: In the last five years, we've consolidated 27% of our physical brain.

In the last five years, we've consolidated 27% of our physical branches.

Speaker 3: We still think physical branches are extremely important to our customers, and as a result, expanded our Broward County presence with two new branches during the fourth quarter.

We still think physical branches are extremely important to our customers and as a result expanded our Broward county presence with two new branches during the fourth quarter.

Speaker 3: We also have a branch opening in Naples later in the first quarter. Complimenting our Florida West Coast growth strategy that includes Tampa and Sarasota.

We also have a branch opening in Naples later in the first quarter complementing our Florida West Coast growth strategy that includes Tampa and Sarasota.

Speaker 3: The strategic positioning of physical branch locations in top growth markets is a key part of our continuing growth strategy.

The strategic positioning of physical branch locations and top growth markets is a key part of our continuing growth strategy.

Moving to slide 17.

Speaker 3: The wealth management business has delivered growth and assets under management with a compound annual growth rate of 33% over the past two years and 42% in 2021.

Wealth management business has delivered growth in assets under management with a compound annual growth rate of 33% over the past two years and 42% in 2021.

Speaker 3: The team has done a remarkable job building a high net worth family office model and partnering with our commercial team to build relationships.

The team has done a remarkable job building a high net worth family office model and partnering with our commercial team to build relationships.

Speaker 3: This relationship-driven approach generates value for our most profitable clients and will continue to deliver tremendous growth.

This relationship driven approach generates value for our most profitable clients and we will continue to deliver tremendous growth.

Speaker 3: Moving to slide 18 and to credit topics, the allowance for loan losses decreased during the quarter to 83.3 million, representing a decline in portfolio coverage excluding PPP from 1.54% in the prior quarter to 1.43% this quarter.

Moving to slide 18 and to credit topics.

The allowance for loan losses decreased during the quarter to $83 3 million, representing a decline in portfolio coverage, excluding PPP from 154% in the prior quarter to 143% this quarter.

Speaker 3: The decrease is in line with sustained indications of overall economic recovery and continuing strong portfolio quality trends.

The decrease is in line with sustained indications of overall economic recovery and continuing strong portfolio quality trends.

Speaker 3: In addition to the allowance, the total purchase discount remaining on prior bank acquisitions is 23.1 million, which will be earned as an adjustment to yield over the life of those.

In addition to the allowance the total purchase discount remaining on prior bank acquisitions is $23 1 million, which will be earned as an adjustment to yield over the life of those loans.

Speaker 3: Turning to slide 19 on asset quality. Credit measures remain strong with charge-offs, non-accrual and criticized loans at historically low level.

Turning to slide 19 on asset quality credit.

Credit measures remained strong with charge offs non accrual and criticized loans at historically low levels.

Speaker 3: Net charge-off in the fourth quarter were 570,000 or four basis points on average loans. And the level of non-performing loans decreased by 2 million to 30.6 million, representing 0.52% of total loans.

Net charge offs in the fourth quarter were 570000 or four basis points on average loans and the level of nonperforming loans decreased by $2 million to $30 6 million, representing 0.52% of total loans.

Speaker 3: Criticized loans decrease to 13% of risk-based capital in the fourth quarter. And the overall allowance for credit losses at December 31 is 83.3 million with allowance coverage excluding PPP loans of 1.43%.

Turning to slide 20.

Speaker 3: Our capital position continues to be very strong and we're committed to maintaining our fortress balance.

Our capital position continues to be very strong and we're committed to maintaining our fortress balance sheet.

Speaker 3: Tangeable Book Value per share is $17.84, an increase of 10% year over year.

Tangible book value per share of $17 84, and.

An increase of 10% year over year.

Speaker 3: The tangible common equity to tangible asset ratio increased to 11.1% at the end of the year and has consistently been among the highest in our peer group.

The tangible common equity to tangible asset ratio increased to 11, 1% at the end of the year and has consistently been among the highest in our peer group.

Speaker 3: The Tier 1 capital ratio was 17.4% and the total risk-based capital ratio was 18.2% at December 31.

The tier one capital ratio was 17, 4% and the total risk based capital ratio was 18, 2% at December 31.

Speaker 3: Adjusted return on tangible common equity with 14.1%.

Adjusted return on tangible common equity was 14, 1%.

Speaker 3: Technology are peer group leading capital levels. It's worth mentioning that if the fourth quarters tangible common equity to tangible asset ratio was adjusted to an illustrative target of 8 percent Our adjusted return on tangible common equity would be 19 percent for the fourth quarter and 18.6 percent for the full year 2021

Speaker 3: And finally, on slide 21, looking back over the last five years, we've achieved a compounded annual growth rate in tangible book value per share of 12%, driving shareholder value creation.

And finally on slide 21 looking.

Looking back over the last five years, we've achieved a compounded annual growth rate in tangible book value per share of 12% driving shareholder value creation.

Speaker 3: We've positioned this franchise with a foundation of strong liquidity and capital, from which we'll continue to execute on our strategic growth initiatives and optimize the opportunities of this strong Florida economy. We look forward to your questions.

We look forward to your questions Chuck I'll turn the call back to you.

Speaker 7: Thank you, Dr. Hussi and Brandon. I think we're ready for Q&A. Thank you, sir. We'll now begin the question and answer, sir. If you have a question, please tell Star One on your phone, keep at it. If you'd like to be removed from the queue, please tell the pound sign or the head.

Thank you Jessie and Brandon I think we're ready for Q&A.

Thank you Sir we will now begin the question and answer session. If you have a question. Please tell star one on your phone keypad.

If you'd like to be removed from the queue. Please stay on the pilot side over the hedge.

Speaker 7: There may be a delay before each question is announced. If you have a speakerphone, please pick up your handset first before dialing.

There may be a delay before each question as it helps if you're on a speakerphone. Please pick up your handset first before Tyler once it.

Speaker 7: Once again, if you have a question, please tell Star One on your phone. And on the light, we have David Feastur. Please go ahead.

Again, if you have a question please star one on your phone.

And on the line, we have David Feaster. Please go ahead.

Hey, good morning, everybody.

Speaker 8: So, nice to see the increase in production in the quarter, just curious some of the puts and takes with what you think is driving the increase, obviously the pipeline's been building as we, you know, throughout the year, but are you seeing increased demand, just given the economic strength of the market, is it the new hire sitting stride, is it increased willingness to kind of compete on pricing, and then just, I guess.

Yes.

Nice to see the increase in production in the quarter just curious some of the puts and takes with what you think is driving the increase obviously the pipeline.

Building as we.

Throughout the year, but are you seeing an increased demand just given the economic strength of the market.

New hires hitting stride is it increased willingness to kind of compete on pricing and then just I guess.

Speaker 8: How do you think about production and maybe any color on the competition of the pipeline and what segments you're expecting to drive growth?

How do you think about production and maybe any color on the composition of the pipeline.

And kind of what segments, you're expecting to drive growth this year.

Speaker 2: Thanks, David. There's a lot in that question, but I'll open by saying, you know, you live down in Florida. You understand what's happening here. The state is on fire. I mean, the amount of population growth is

Thanks, David There is a lot in that question, but I'll open by saying.

You laid down in Florida, you understand what's happening here the state is on fire.

Population growth is amazing.

Speaker 2: amazing, and the quality of the affluency and the corporate relocations occurring here is, I think, unparalleled. And as a result, we continue to see just generally the Florida GDP starting to really expand. And so we're seeing demand. What's sort of very pleasing is if you look in the

Amazing and the quality of the fluency in the corporate relocations occurring here is I think unparalleled.

Unparallel.

As a result, we continue to see just generally the Florida GDP, starting to really expand and so we're seeing demand whats.

Sure a very pleasing is if you look on the table.

Speaker 2: in our loan table in the press release, you'll see that we saw expansion in both consumer and commercial and then commercial, both commercial and financial and CRE.

And our loan table in the press release Youll see that we saw expansion in both consumer and commercial and then commercial both commercial and financial and CRE and so we're seeing it across the board I would say that.

Speaker 2: We're seeing it across the board. I would say that that's the primary reason for the continued increase in the pipeline, and then secondary to that is certainly the expanding team that we're building here.

The primary reason for the continued increase in the in the pipeline and then secondary to that is certainly the expanding team that we're building here at <unk>.

Speaker 2: At Seacoast, we've brought in throughout this year, we've hired 20 new.

Because we brought in throughout this year, we hired 20 new <unk>.

Speaker 2: commercial bankers in 2021. They've contributed about 20% to our pipeline at this point. They continue to grow their books and grow the opportunity there.

Commercial bankers in 2021, they have contributed about 20% to our pipeline at this point.

Continued to grow their books and grow the opportunity there.

Speaker 2: And so it's a combination of both the economy and the hiring. But I'd say, you know, sort of looking backwards, it's the economy expanding, and then looking forward, it'll be more the contribution from the additional banker. So we couldn't be more pleased with the quarter, we couldn't be more pleased with the outlook. And I have a lot of confidence that the coming year will be a nice year for growth.

And so it's a combination of both the economy and the hiring but I would say in sort of looking backwards. It's the economy, expanding and then looking forward it'll be more of a contribution from the additional bankers. So we couldnt be more pleased with the quarter, we couldnt be more pleased with the outlook.

I have a lot of confidence that the coming year will be a nice year for growth.

Speaker 8: That's helpful. Maybe just following up on that. In the release you talked about this rapid with some larger M&A or upstream M&A, you put it, just curious, where you're seeing the most opportunity, you get on the client acquisition side or new hires. And then just with the new hires, given that these are larger institutions, where you see more middle market opportunities, and then just an update on the Denoval expansion jack culture, so does.

That's helpful. Maybe just following up on that in the release you talked about disruption from some larger M&A or upstream M&A as you put it just curious where you're seeing the most opportunity.

The client acquisition side or new hires and then just with the new higher given that these are larger institutions are you seeing more middle market opportunities and then just an update on the de Novo expansion Jacksonville in Sarasota.

Speaker 2: Yeah, so just stepping back and thinking about that, if you think about the strategy we're executing at this point, looking back historically, we built, you know, an incredible data analytics platform that's providing opportunities for material cross sell in our business.

Yes, so just stepping back and thinking about that if you think about the strategy. We're executing at this point looking back historically, we built.

Speaker 2: We then began focusing on building better and improved processes for our commercial bankers. And here recently in the first quarter we'll make a fairly sizable put a sizable focus on improving our customer experiences on our digital and online banking platform.

And here recently in the first quarter, we will make a fairly sizable.

Speaker 2: when you kind of put all that together and then you step back and look at what's happening in the marketplace.

Speaker 2: You know, there's a lot of disruption and larger banks upstream from us that disruptions coming in in terms of putting together operating systems, putting together leadership, a lot of challenges around putting together those cultures. And as such, when you kind of think about the customer experiences going through those organizations and the banker experiences,

As such when you kind of think about the customer experiences going through those organizations and the banker experiences. We are still relatively small very focused on key markets very focused on improving both customer and banker experiences I think it's continuing to.

Speaker 2: We're still relatively small, very focused on key markets, very focused on improving both customer and banker experiences. I think it's continuing to

Speaker 2: better position us to win share and that's what you're seeing in our growth. That's what you're seeing in the growth in pipelines and I think that's what we'll see in the coming years.

Better position us to win share and Thats, what youre seeing in our growth Thats, what youre seeing in the growth in pipelines and I think that's what we'll see in the coming years.

Speaker 2: you know, sort of this key focus on what is arguably, you know, some of the best markets in the country.

Key focused on what is arguably.

Speaker 2: in combination with the key focus on improving experiences for our customer base.

Speaker 2: and frankly for our bankers to allow them to get business done, I think really is positioning us in an incredibly competitive way. That's why I think we're seeing the growth come back online. That's what I think is out ahead for us. I think, again, just getting back to it, I think I'm very pleased with what we've gotten done, pleased with the team, and excited about what's coming in the next couple of years.

That's why I think we're seeing the growth come back online and that's what I think is out ahead for us.

I think again, just getting back to I think I'm very pleased what we've gotten done pleased with the team and excited about what's coming in the next couple of years.

Speaker 8: That's great. And then, Jerry, he appreciate all the color on the margin and the rate sensitivity, but maybe just peel them back to them guys a bit. Just, I'd like to get some color, excluding rate height. If I take the midpoint of using five basis points for each rate height, only a partial benefit of the height of the fourth quarter that you talked about, would that imply about seven or eight basis points with core margin expansion, exclusive of height?

That's great and then Jerry can you appreciate all the color on the margin and the rate sensitivity, but maybe just drilling back to NIM guidance.

Just I'd like to give some color excluding rate hike.

If I take the midpoint of the five basis points for each rate hike and only a partial benefit of the hike in the fourth quarter that you talked about would that imply about seven or eight basis points of core margin expansion exclusive of hikes.

Speaker 8: And could you just remind us what data is you're assuming in that rate height guidance and the impact from the two deals that closed in January ?

Can you just remind us what data youre, assuming in that rate high guidance.

<unk> on the two deals.

Those in January .

Speaker 3: Yeah, we saw corn and stabilized in the fourth quarter and the steepening of the yield curve will be constructive for higher new add on yield, book alone and the security portfolio. So we expect corn on yields begin to stabilize, move up in the first quarter. And we've seen security yields start and upward trend in the first quarter. So the pace of each of those will be a function of growth.

Yes, we saw we saw core NIM stabilize in the fourth quarter and and the Steepening of the yield curve will be constructive for hire new add on yields both alone and in the securities portfolio. So we expect core loan yields begin to stabilize move up in the first quarter.

And we've seen securities yield start an upward trend in the first quarter. So the pace of each of those will be a function of growth.

Speaker 3: where we said we see mid-to-high single-digit loan growth in the first quarter and high single-digit loan growth beyond. And in securities, expect to continue to deploy excess cash in the securities portfolio. We have historically managed to, in asset-sensitive balance sheet, rate hikes that are now being priced into the market will also be beneficial. When we look at the deposit side.

Where we said we see mid to high single digit loan growth in the first quarter and high single digit loan growth beyond.

In security is expect to continue to deploy excess cash in the securities portfolio. We have historically managed to an asset sensitive balance sheet.

Rate hikes that are now being priced into the market will also be beneficial.

When we look at the deposit side.

Speaker 3: Looking at prior cycles and we can kind of reference historical betas Seekas hold a very strong core deposit base with a low beta are non maturity deposit beta over the last cycle With about 24% first 100 basis points only 10

Looking at prior cycles, and we can kind of reference historical betas CCAR.

<unk> holds a very strong core deposit base with a low beta our non maturity deposit beta over the last cycle was about 24%. The first 100 basis points only 10.

Speaker 3: But we would expect this to be similar moving forward. That's just kind of a reference to historical point.

But we would expect it to be similar moving forward and just kind of a reference to historical point. So like we said we think the the.

Speaker 3: So, like we said, we think the NIM has stabilized and has some upside in the first quarter based on those factors.

<unk> has has stabilized and has some upside in the first quarter based on those factors.

Next we have Michael Yang. Please go ahead.

Hey, Thanks for taking the question.

Speaker 8: I'm doing just fine, thanks.

Hey, how are you doing just fine thanks.

Good too.

Speaker 1: still focus on the name. So just apologies, but you know, as we kind of just look at the environment, just curious your thoughts on.

Still focus on the NIM, so just apologies, but as.

As we kind of just look at the environment just curious your thoughts on what you expect to transpire.

Speaker 1: What do you expect to transpire in the competitive environment, just in terms of loan pricing, loan yields? Do you think that the move-up in long rates is going to actually be captured in the loan yields, or is there too much competition where some of that's going to be seeded away? Similarly, I assume in the...

In the competitive environment, just in terms of loan pricing loan yields.

Do you think that kind of a move up in long rates is going to actually be captured into loan yields are.

There are too much competition, where some of that is going to be seeded away and then similarly I assume in the.

Speaker 1: rate projections or uprate scenario that you have, you probably have more, you know, higher deposit betas than what you're likely to experience. So, any comment on that would be helpful.

Rate projections are up rate scenario that you have and you probably have more.

Higher deposit betas than what you are likely to experience or any comment on that would be helpful.

Speaker 2: to take the deposit beta and then I'll come back around to competition? Oh, sure. When we look at deposit betas, we're kind of referencing historical cycles. Our non-maturity deposit beta over the last cycle was about 24%, and the first 100 pretty beneficial at only 10%, so we'd expect something similar moving forward, potentially even a bit less considering the large amount of liquidity on banks' balance sheet that could certainly translate to slower competitive repricing on the deposit side. The only thing I'd add to that, Michael, just thinking back to last time we went through sort of rate cycles, unlike the last time, there's sort of an unprecedented amount of liquidity in the market when you look at loan to deposit ratios across the banking system.

I'll take the deposit beta and they'll come back around the competition I'm sure. When we look at deposit betas were kind of referencing historical cycles are non maturity deposit beta over the last cycle was about 24% in the first 100 pretty beneficial only 10%.

So we would expect something similar moving forward potentially even a bit less considering the large amount of liquidity on bank balance sheet that could certainly translate to slower competitive re pricing on the deposit side. The only thing I'd add to that Michael just thinking about back to last last time, we went through sort of rate cycles. Unlike the last time.

Theres sort of an unprecedented liquidity in the market when you look at loan to deposit ratios across the banking system.

Speaker 2: our loan-to-deposit ratio down around 70, I think the pressure around deposit repricing will probably take a little longer than it took in prior cycles, and so why we're providing sort of a historical look at deposit repricing based on the past, I think in the coming

Based on the past I think in the coming.

Speaker 2: a few years it probably takes longer for a deposit competitive pressure to heat up.

A few years, it probably takes longer for deposit competitive pressure to heat up.

On the loan side.

It's always competitive it remains competitive.

I don't know that there is.

Additional competitive sort of forces coming into loan pricing as we move forward.

We continue to sort of balance both fixed rate and swapped the floating rate lending and try to pick our duration carefully but.

I think from a competitive positioning I don't think it changes on higher rates really.

Okay, and then maybe just on the expense front I think the outlook is actually pretty good in light of inflation I mean, do you see any sort of risk factors to that as we move throughout the year, if theres more pressure.

Sort of curious what amount of maybe hiring is sort of built into the plan. This year I know you guys have been aggressive in.

And hiring over the prior two years so.

Wasn't sure if maybe this year you take more of a breather or if youre still seeing a lot of good opportunities out there.

Speaker 3: I'm sure Chuck will follow and tell you that the opportunities on the hiring front remain really strong. There's no question that our people are the reason for our success. We want to attract and retain the best talent in the industry, and that includes competitive compensation. We've accounted for that in the forecast. We think we've done that in a way that anticipates likely scenarios.

Yes, I'm, sorry, Chuck will follow and tell you.

Let the opportunities on the hiring front remained really strong there is no question that our people are the reason for our success, we want to attract and retain the best talent in the industry and that includes competitive compensation. We've accounted for that in our forecast. We think we've done that in a way that anticipate likely scenarios.

Speaker 2: Yeah, the only thing I'd add is when we looked out at our forecast in the coming year, we expect to add probably somewhere between 15 to 20 further commercial revenue, producing bankers as we continue to expand the team. We're launching a team and Jacksonville will be launching a team in Naples in the coming month. We've baked that into our forecast that we provided there for the first quarter on expense. But we think we've caught all that in the guide. Mike.

Yes, the only thing I would add is when we looked out at our forecast in the coming year, we expect to add probably somewhere between 15% to 20.

We think we've caught all of that in the guide Michael.

Speaker 1: And then just last one for me, just on the fee income, obviously that's been an area of investment and good growth both in the wealth management side but also mortgages.

Okay and then just last one for me just on the fee income obviously, that's been an area of investment and good growth both in the.

The wealth management side, but also mortgages has been good but.

Speaker 1: It's been good, but maybe just curious your outlook, particularly on mortgage, I think, given the macro headwinds versus the reinvestment that you all have made to grow that business. Any outlook you can provide on ability to offset macro pressures would be helpful.

Just curious your outlook, particularly on mortgage I think given kind of the macro headwinds versus the reinvestment that you all have made to kind of grow that business, you just kind of where.

Any outlook you can kind of provide on ability to offset kind of macro pressures will be helpful.

Speaker 3: Yeah, in mortgage, the pipeline numbers typically drop during the last month of the year, and they have since in January recovered quite a bit, but we've also had a reduction of lending just in the marketplace overall, resulting from inventory shortages.

Yes in mortgage pipeline numbers typically dropped during the last month of the year.

I have seen in January recovered quite a bit but we've also had a reduction of lending just in the marketplace overall, resulting from inventory shortages limited builder availability and the overall slowdown in refinancing.

Speaker 3: limited builder availability, and the overall slowdown in refinancing. We've already recruited a number of new mortgage loan officers. We'll make the most of the opportunities that do exist, but we do expect production and resulting saleable gains to be somewhat muted in the coming quarter.

We've already recruited a number of new mortgage loan officers will make the most of the opportunities that do exist, but we do expect production and resulting saleable games to be somewhat muted in the coming quarter.

You look out beyond that quarter, Michael we have an expectation that continues to improve over the remainder of the year, particularly as we grow out the producing team and we feel.

Pretty confident we will have our opportunities to do that.

Speaker 1: Okay, and last one, a little nuanced, but they're increasing the cost of second home mortgages from the Fannie, Freddie, et cetera. So do you guys think that there might be more of an opportunity to either originate those on balance sheet or be more competitive there? Any thoughts generally?

Okay, and last one little nuance, but they're increasing the cost of second home.

Mortgages.

From.

The Fannie Freddie et cetera. So do you guys think that there might be more of an opportunity to either originate those on balance sheet or be more competitive there or any thoughts generally along that.

Speaker 4: I don't have anything I could probably tell you on that. Michael, I do know that our mortgage team has been looking at the issue and trying to find a way to strategize to take advantage of the situation, but I don't have anything I'm sure with you today. Okay, thanks. Appreciate it. Thank you, Mike.

Okay. Thanks I appreciate it.

Thank you Michael.

Yeah.

We have Brady Gailey online. Please go ahead.

Yes. Thank you good morning, guys.

Hey, Brady.

Speaker 5: So, with Seacoast now over $10 billion, does the M&A strategy shift? Historically, you guys have done these kind of smaller tuck-in deals. I know there's not that many larger targets left in Florida after all the consolidation we've seen, but there's still some out there. Does your M&A strategy shift to larger targets now that you're over $10 billion?

So with with CECO, it's now over $10 billion.

Does the M&A strategy shift historically, you guys have done these.

Smaller tuck in deals.

Yes.

No theres not that many larger targets left in Florida. After all the consolidation we've seen but there's still some out there because your M&A strategy shift too.

Larger target targets now that you're over $10 billion.

Speaker 2: I wouldn't describe it that way, Brady. I think that we continue to be more focused on the right markets with the right economics in those markets. So when you look at Florida, we remain focused all the way down the east coast from Jacksonville to Miami, the whole I-4 corridor and a little north of Orlando.

Little north of Orlando.

Speaker 2: and then down the Southwest corridor. The thing you have to remember is even the smaller banks and those markets are getting bigger. And so there's still opportunities to put together banks between 500 million to a billion and a half and in combination to be material to our results.

And then down the southwest corridor.

Speaker 5: All right, and then, you know, say you guys do not do any additional M&A this year outside of the two that just closed, and is there a scenario where?

Okay Alright.

You guys do not do any additional M&A this year outside of the two and just close is there a scenario where.

Speaker 5: you could get the balance sheet back under 10 by the end of this year, or do you think you're over 10 to stay from here on out?

You could get the balance sheet back under 10 by the end of this year or do you think you are over 10 to stay from here on out.

Speaker 2: I think we're probably over 10 to stay. I think it'd be really difficult for us to manage under 10, particularly just given the organic growth we see out ahead for us.

I think we're probably over tend to stay and I think it would be really difficult for us to manage under 10, particularly just given the organic growth we see out ahead for us.

Speaker 5: All right, then finally for me, there's a lot of talk about NSF fees and overdrafts potentially going away or getting Reduced significantly. Can you tell us at Seacoast? You know, what was the level of SF fees last year and then the same? What was the level of overdraft last year and just thoughts on? You know, you feel like you're gonna have to cut that at some point or maybe not

Alright, and then finally familiar there's a lot of talk about NSF fees and overdrafts potentially going away.

Reduced significantly can you tell us at CECO.

What was the level of success.

Last year, and then lets say what was the level of overdraft flash here and just thoughts on that.

You feel like Youre going to have to cut that at some point or.

Maybe not.

Speaker 3: Yeah, Brady, I don't have the breakout in front of me between overdraft and NSF, but overall consumer overdraft related fees were about 2 million in 2021.

Yes, Brady I don't have the breakout in front of me between.

Overdraft NSF, but overall consumer overdraft related fees were about $2 million in 2021.

Speaker 3: We're continually evaluating our product set and our pricing to remain competitive.

We're continually evaluating our product set and our pricing to remain competitive to manage risks to better serve our customers and to attract new customers. Our desire is to remain competitive.

Speaker 3: to manage risk, to better serve our customers, and to attract new customers. Our desire is to remain competitive.

Speaker 3: We'd already been actively looking at making changes as it relates to overdraft.

Actually currently offer to account with no overdraft fees and then all other accounts.

For customers the ability to link accounts, so that transfers can be made to cover balance deficit, but thinking about the potential financial impact of the change.

Speaker 3: but thinking about the potential financial impact of a change.

Speaker 3: The changes we're considering will require some product updates, and we could be implementing changes in the third quarter of 2022. That may impact those fees by as much as half, or $1 million, but we're continuing to evaluate that. We'll have more information later in the year, and fees in other products may offset the decrease in overdrafts. We have more work to do to finalize our...

The changes were considering will require some product updates and when you could be implementing changes in the third quarter of 2022 that may impact those fees by as much as half or $1 million, but we're continuing to evaluate that we will have more information later in the year.

And fees and other products may offset the decrease in overdraft, we have more work to do to finalize our.

All set there.

Speaker 4: Just to clarify that two million is a is an annual number not a quarterly number, right? That's right full year 21 That's a pretty that's a pretty small amount for y'all. So yeah, that's not a big deal. All right, great Thanks for the color guys Thank you

Just to clarify that $2 million.

The annual number not a quarterly number right.

That's right full year 'twenty one concern.

That's a pretty small amount.

That's not a big Bill alright, great. Thanks for the color guys.

Thank you.

And we have Steve Moss online. Please go ahead.

Good morning.

Steve maybe just fallen back.

Back to loan pricing here it sounds like its improved down there just kind of wondering maybe.

See a good pipeline here or there is some underlying mix shifts.

In the pipeline, maybe helping yields a little bit too.

Speaker 2: I don't know if there's been any mix shift. We're still running roughly, I would say on the commercial side, 60% CRE, 40% CNI. You know, we think with time that probably flips back around the other way. That's kind of where we were pre-pandemic.

I don't know if theres any mix shift we're still running roughly.

Say on the commercial side, 60%.

CRE, 40% C&I, we think with time that probably flips back around the other way that's kind of where we were pre pandemic.

Speaker 2: But I'd also remind you, we also are a consumer lender and we have other products that help bring up our overall add-on yield that help benefit the overall loan yields moving forward.

But I'd also remind you. We also do it we also our consumer lender and we have other products that help bring up sort of overall AD on yield.

That.

Help benefit the overall sort of loan yields moved forward, but.

Speaker 2: The other thing is sort of we carefully blend both fixed and variable. You know, we're swapping some of the fixed rate to variable rate given the likelihood of potentially higher rates here. And so that's helping as well as when we look forward at potentially a higher rate environment.

The other thing is sort of we carefully blend both fixed and variable we're swapping some of the fixed rate to variable rate given the likelihood of potentially higher rates here.

So that's helping as well as when we look forward.

A higher rate environment.

Speaker 2: Okay, that's helpful, Chuck. And then just in terms of the pipeline of new hires, Chuck, I think you said 15 to 20, is that for the full year you're planning to hire or just in the, over the first quarter to this year? Full year, full year, 20, 20, 20.

Okay.

Yes.

That's helpful. Chuck and then just in terms of the pipeline of new hires Chuck I think you said, 15% to 20 is that for.

Full year, you plan to hire or just.

For the first quarter.

Or to the full year full.

Full year 2022.

Speaker 4: Okay, great, most of my other questions have been asked and answered, so I appreciate it. Thank you. Thank you.

Okay great.

Most of my other questions have been asked and answered so I appreciate it. Thank you.

Thank you.

Thank you I will now turn it back to Mr. Shaffer for closing remarks.

Speaker 2: Thank you, Brandon, and thank you all for joining us this morning, and we'll speak to you soon. Thanks, Brandon. I think we're done.

Thank you, Brian and thank you all for joining us this morning.

Speak to you soon thanks, Brandon I think we're done.

Speaker 7: Thank you, ladies and gentlemen. This concludes today's conference. Thank you for joining. You may now disconnect.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for joining you may now disconnect.

Q4 2021 Seacoast Banking Corporation of Florida Earnings Call

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