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spk17: Ladies and gentlemen, please stand by. The conference will begin shortly. We ask you to please hold the line. We will begin shortly. Thank you. Greetings. And welcome to the Seacoast Banking Corporation's fourth quarter and full year 2022 earnings conference call. My name is Malika, and I will be your operator for today. During the presentation, all participants will be in a listen-only mode. Afterwards, we'll conduct a question and answer session. At that time, if you have a question, please press the one followed by the four on your telephone. If at any time during the conference you need to reach an operator, please press star zero. Before we begin, I have been asked to direct your attention to the statement at the end of the company's press release regarding forward-looking statements. Seacoast will be discussing issues that constitute forward-looking statements within the meaning of the Securities and Exchange Act, and its comments today are intended to be covered within the meaning of that act. Please note that this conference is being recorded. I will now turn the conference over to Chuck Schaefer, Chairman and CEO of Seacoast Bank. Mr. Schaefer, you may now begin.
spk15: Thank you all for joining us this morning.
spk16: As we provide our comments, we'll reference the fourth quarter and full year 2022 earnings slide deck, which you can find at seacoastbanking.com. I'm joined today by Tracy Dexter, Chief Financial Officer, and Michael Young, Treasurer and Director of Investor Relations. Looking back at 2022, we made remarkable progress in expanding the franchise throughout Florida, Through acquisitions and new market launches, we strengthened our competitive position across the state and crossed the $10 billion in assets threshold. We started the year with the completion of the Sable Palm Bank and Florida Business Bank of Florida transactions, putting us in the desirable Sarasota market and continuing our growth in Brevard County. Also in the first quarter, we entered Naples and Jacksonville with DeNovo teams, resulting in better than expected customer growth in both markets over the last 12 months. In early October, we completed the acquisition of Drummond Bank, expanding our presence in North Florida, including Ocala and Gainesville, and added an exceptional C&I team covering both markets. Also in October, we expanded our franchise into the dynamic Miami-Dade County market with the Apollo acquisition. And during the third quarter, we announced the addition of Professional Bank, expanding our reach in South Florida even further. Moreover, in early 2022, we continued our focus on delivering better digital experiences to our customers, completing a significant digital conversion, adding Zelle, budgeting tools, account aggregation, improved digital onboarding, Spanish language, and several other digital customer experience improvements. We enhanced our commercial banking team in 2022 with a transformative year of recruiting well-seasoned commercial bankers, treasury officers, and credit officers throughout Florida, meaningfully increasing productivity over the prior year. Our wealth team also had an outstanding year, adding $425 million to bring assets under management to near $1.4 billion at year end. Throughout the year, we made investments across all of our operational areas in technology and talent, building resilience and scalability as Seacoast transitions to a mid-sized bank. Seacoast had an exceptional 2022, setting ourselves apart as Florida's leading community bank. Turning to our financial results, the team finished the year with excellent performance. We materially expanded our net interest margin during the fourth quarter, increasing 69 basis points from the prior quarter with loan yields rising 84 basis points. At the same time, the cost of deposits increased only 12 basis points. This represents an impressive cycle-to-date beta of less than 5%. We believe the strength of our relationship-focused lending model our granular deposit franchise, is finally becoming more evident during a period of higher interest rates versus other more transactional, wholesale, or rapid growth business models. We generated $67 million in adjusted fourth quarter pre-tax pre-provision earnings, an increase of $17.7 million from the prior quarter, while achieving a 52% efficiency ratio. Our fourth quarter adjusted pre-tax pre-provision return on tangible assets improved to 2.28%, And our adjusted return on tangible equity improved to 15%, up from 12.5%. SECOS continues to operate from a position of strength, with capital allowance ratios at the top of our peer group. We ended the quarter with a TCE ratio of 9.1% and an ACL coverage ratio of 1.40%. And considering the loss absorption included in the purchase accounting marks, the company's backstop at a 2.60% coverage rate. Additionally, should a downturn materialize, Florida has the potential to outperform the rest of the country, given the wealth accumulation and population growth over the last few years. Florida has exceeded every state in the nation in attracting affluent, wealthy individuals and corporations, adding materially to the state's GDP and further bolstering the state's economic drivers. Our credit metrics remain outstanding, and we continue to be a disciplined, conservative lender focused on building a carefully underwritten and diversified portfolio by nurturing full client relationships that bring low-cost funding. And as a reminder, our portfolio has been built over the long term with a consistent growth rate while driving diversification by product type, segment, and vintage. A final thought. Considering the continued economic strength of Florida, our carefully underwritten credit portfolio with low CRA and C&D concentrations, peer-leading capital levels, and peer-leading capital levels, we believe we have a very strong balance sheet that can weather any challenges ahead. Further, such strengths should provide optionality to be offensive and potentially more volatile economic environment, including opportunistic market share gains, organic growth, and acquisition opportunities. I'll now turn the call over to Tracy.
spk12: Thank you, Chip. Good morning, everyone. Directing your attention to fourth quarter results, beginning with the highlights on slide five. The net interest margin expanded 69 basis points to 4.36%, and on a core basis, expanded 43 basis points to 4.01%. Loan originations, in combination with acquisitions at higher book yields and the low cost of deposits we maintained during the quarter, supported higher net interest margin. Our cost of deposits increased only 12 basis points during the fourth quarter to 21 basis points. We've managed deposit pricing largely on an exception basis since the beginning of the rate cycle, though we do expect to see an increase at a quicker pace in the coming months given the velocity of rate movement and the competitive environment. Pre-tax, pre-provision earnings continue to increase with 7% growth quarter over quarter to $46 million. And when adjusted for merger-related costs and amortization of acquired intangibles in each period, pre-tax, pre-provision earnings increased 36% to $66.6 million, and as a percentage of tangible assets, to 2.28%. We delivered organic loan growth in addition to growth through acquisition this quarter. Our credit standards remained disciplined and focused on relationship lending, and we saw annualized organic growth of 14% this quarter. I'll emphasize that the growth is in keeping with the bank's credit standards and is a combination of solid production in the quarter and slowing loan prepayments. The loan-to-deposit ratio ended the quarter at 82%. Average loan yields increased 84 basis points to 5.29%, and the December weighted average add-on yields reached 6.5%. Credit risk metrics remain strong. with non-accrual loans representing 0.35% of total loans compared to 0.32% in the prior quarter. The quarterly provision for credit losses is $14.1 million, including $15 million in initial provision on the Apollo and Drummond acquired loans, offset by the release of $2.1 million in reserves we established in the third quarter to provide for losses potentially resulting from the impact of Hurricane Ian that did not materialize. The allowance for credit losses stands at 1.4% of total loans and continues to reflect the possibility of potentially deteriorating economic conditions. Wealth management was a particular bright spot during the quarter and for the full year 2022, with the wealth management team adding $425 million in assets under management over the last 12 months. And as you know, there's been significant activity on the M&A front, including the closings of the Apollo and Drummond transactions on October 7th and the upcoming acquisition of Professional Bank expected on January 31st, with system conversion late in the second quarter of 2023. Turning to slide six, net interest income expanded 36% during the quarter, adding $31.5 million with higher yields and higher loan balances. Net interest margin expanded 69 basis points to 4.36%, and excluding PPP and accretion on acquired loans, net interest margin increased by 43 basis points to just over 4%. In the securities portfolio, yields increased 41 basis points to 2.77%, and loan yields expanded 84 basis points to 5.29%. We continue to benefit from a strong, low-cost funding base with 64% transaction accounts, and the cost of deposits increased only 12 basis points to 21 basis points. The additions during the quarter of Apollo and Drummond Banks further enhanced the deposit base with longstanding granular relationships. Looking ahead, we expect continued expansion of net interest income driven by balance sheet growth and more modestly increasing yields on loans and securities outpacing increasing deposit costs. In the first quarter, we model net interest income in a range between $132 million and $138 million with the actual outcomes highly dependent on the pace and velocity of deposit competition in the coming quarter. Moving to slide seven. Adjusted non-interest income was $17.6 million, an increase of $1.2 million from the previous quarter, and a decrease of $700,000 from the prior year quarter. We saw increases in service charges and interchange revenue, and wealth management revenue increased 6% from prior quarter and 22% from the prior year quarter. Comparing overall performance to the prior year quarter, the decrease relates to lower mortgage banking activity impacted by rising rates with mortgage-related income of $2 million in the fourth quarter of 2021 compared to about $400,000 in the fourth quarter of 2022. Looking ahead, we continue to focus on growing our broad base of revenue sources And with the benefit of the expanded franchise, we expect first quarter non-interest income in a range from $20 million to $23 million, which includes the partial quarter activity from professional banks. Moving to slide eight. Adjusted non-interest expense for the quarter was $70.4 million, which was lower than the guidance we provided last quarter. Increases from the prior quarter were aligned with the expanded associate base and growing customer base, And it's important to note that the Drummond and Apollo cost synergies will fully materialize beginning in the second quarter of 2023. Salaries and benefits on an adjusted basis increased $12.3 million, reflecting the increase in staff to support Seacoast's expanded statewide franchise, as well as increases in incentives related to higher commercial production during the quarter. Data processing costs are typically volume-based, and the increase aligns with the larger customer base and higher transaction volumes. Similarly, occupancy-related costs are in line with the increase in the bank's footprint during the quarter. Amortizing core deposit intangible assets increased during the quarter with the addition of Apollo and Drummond. Amortization of these assets during the fourth quarter was $4.8 million, and we expect the full year amortization, including the addition of Professional Bank, to be approximately $28 million. Looking ahead, We expect to maintain our expense discipline while continuing investments to support growth. We expect first quarter expenses scaling with the growing size of the organization in the range of 86 million to 90 million, inclusive of the operating results of Apollo and Drummond and a partial quarter for professional. On an adjusted basis, excluding the amortization of intangibles, that would be 80 to 84 million. On slide nine, the efficiency ratio on an adjusted basis improved to 52%. As we scale the company for growth and become the leading bank in our Florida markets, we continue to pace our investments with discipline, evidenced by our consistent focus on efficiency. Looking forward to the full year 2023, we expect to maintain the efficiency ratio in the low 50s. Turning to slide 10, the chart on the left highlights the continued diverse mix of our credit exposures and our disciplined approach to managing concentrations. In the upper right of the slide, construction and commercial real estate concentrations remain well below regulatory guidelines and well below peer levels. Turning to slide 11, loan outstandings increased $241 million, or 14% excluding acquisitions on an annualized basis. Commercial originations were up over the prior quarter. And looking forward, we're seeing market demand generally slowing, impacted by rising rates. Average core loan yields increased by 50 basis points during the quarter to 4.8%, with the December weighted average add-on yields reaching 6.5%. We expect the pace of loan growth to moderate somewhat, expecting an annualized growth rate in the first quarter in the mid single digits. Loan yields will continue to benefit from the higher rate environment, and we expect core yields in the first quarter, excluding purchase accounting accretion, to expand meaningfully to the 520s range. Turning to slide 12, in the investment securities portfolio, the average yield increased during the quarter by 41 basis points to 2.77%. Values have stabilized, and duration in the AFS portfolio has extended somewhat from around 3.5 in the third quarter to 3.73 in the fourth quarter. Turning to slide 13, deposits outstanding totaled just under 10 billion, which is an increase of 1.2 billion from September. Net of acquired balances, there were outflows of approximately 320 million in non-interest-bearing demand accounts. Our cost of deposits increased by only 12 basis points, and we did see some outflows with impacts from rate sensitivity and a general absorption of liquidity in the market. The competitive environment is increasingly dynamic, and our expectation is that the cost of deposits will increase at a faster pace in the first quarter than in the fourth quarter, in addition to the impact of adding higher-cost deposits from professional banks. That said, we continue to expect to outperform peers as the environment serves to highlight the strength of our low-cost deposit base. Looking forward to the first quarter, including the impact of professional banks, we expect our cost of deposits to move above 50 basis points. providing more precise guidance is difficult given the increasingly dynamic competitive market for deposits. Moving to slide 14, wealth revenues increased 6% compared to the third quarter and 22% compared to the fourth quarter of 2021. The previously mentioned deposit outflows contributed in part to the strong results for the Wealth Management Division. You'll see that assets under management has increased 60% from $870 million two years ago to nearly $1.4 billion today. Moving on to credit topics on slide 15. The allowance for credit losses increased during the quarter by $18.6 million to an overall $113.9 million with a decline in coverage of two basis points to 1.4%. The provision this quarter was $14.1 million, which included $15 million assigned to the portfolios acquired from Apollo and Drummond offset by the release of $2.1 million we had set aside for Hurricane Ian, but fortunately did not need. We remain watchful of inflation pressures and are carefully considering the ongoing impacts of higher rates on the economy, though our credit metrics remain very strong. Moving to slide 16, charge-offs were only four basis points on the overall portfolio. Non-performing loans represent 0.35% of total loans, The percentage of criticized loans to risk-based capital increased modestly with conservative grading on acquired loans. And in the allowance, we continue to assess the environment and the factors that might affect loan performance. And this quarter, the allowance for credit losses is modestly lower at 1.4% of total loans, again, attributed to the release of hurricane reserves. On slide 17. Our capital position continues to be very strong and we're committed to maintaining our fortress balance sheet. You can see the somewhat dilutive effect of the acquisitions in the fourth quarter on tangible equity and from prior quarters this year of the decline in accumulated other comprehensive income. While those measures will return over time, we're committed to driving shareholder value creation. The ratio of tangible common equity to tangible assets is a strong 9.1% And this quarter, adjusted return on tangible common equity was 15.1%. In summary, considering our peer-leading capital levels, prudent credit culture, and high-quality customer franchise, we have one of the strongest balance sheets in the industry, providing optionality if a recession materializes, and flexibility to be opportunistic in client selection, organic growth, and acquisition opportunities, and to continue to build Florida's leading community bank. We'll look forward to your questions. Chuck, I'll turn the call back to you.
spk16: Thank you, Tracy. And before we go to Q&A, I just want to say thank you to all the Seacoast associates on the call. You know, 2022 was truly a special year. I'm incredibly proud of all of you, and thank you for all your hard work and effort. Okay, operator, we're ready for Q&A.
spk17: Certainly. Thank you. Ladies and gentlemen, on the phone lines, if you wish to register for a question, please press the one followed by the four on your telephone. you will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. Once again, ladies and gentlemen, that is 1-4 to ask a question on the phone line. Our first phone question is from the line of Brady Gailey. Please go ahead. Your line is now open.
spk23: Hey, thank you. Good morning, guys. Good morning, Brady.
spk02: I wanted to start with loan growth. I know you guys had been expecting high single-digit it sounds like you're more in the mid single digit area for the first quarter of the year. Should we think about mid single digits as, you know, appropriate for the entire year? Or do you think that you get back to the high single after you get through the kind of seasonally slow one Q?
spk16: Yeah. And maybe looking back at the quarter, you know, we really had a very good quarter for loan growth and it was a nice mix between CNI and commercial real estate and And in large part, it was driven by a lot of the new additions to the teams we added over the back half of the year last year. And it was really great to see the relationships come over with that additional talent. Generally, very high-quality relationships that joined the franchise as a result of the quality talent we hired. And so we were very pleased with the outcome, also pleased with the average add-on rate hitting about 650 there towards the end of the year. So a nice... pull up in new loan yields. And then looking forward, it's tough to provide guidance beyond a quarter. We're guiding to mid-single digits for the first quarter. I would say at this point, given the inversion of the curve, I think it's prudent for us to be cautious and thoughtful as we move through this period. We'll continue to add high-quality opportunities as they come on, particularly high-quality relationships coming with both deposits and loans. But, you know, beyond that, Brady, we'll have to see how things play out for the year. But, you know, mid-single-digit guide for Q1. Okay.
spk02: And then, you know, accretable yield really ticked up in the fourth quarter. It was almost $10 million. That was more than y'all did for the first three quarters of the year combined. I know that line item can be very difficult to forecast, and I know you're about to add professional into that bucket, but Any shot at what accretable yield could be for the full year 2023?
spk12: Yeah, I think when we look back at the fourth quarter and the acquisition estimates, the credit marks came in really in line with our expectations. But to your point, the rate marks with those measurements driven off of the rate environment on October 7th for both banks, the date of closing, the rate marks came in a bit higher and so impacting the accretable yield. And so I think as we look forward, we're, accretion is kind of a difficult number to model, as you point out, but with about 9.7 in the fourth quarter and the addition of professional bank in the first, our model shows about 10 or 11 million in the first quarter, and you'll see it move a little higher after that.
spk02: Okay. All right, and then lastly for me, I mean, Seacoast has been incredibly active in M&A. You know, you're closing your biggest deal ever next week. I know Bank M&A nowadays is tougher just with the rate mark component. But how do you think about Bank M&A? You know, you've done a lot. Is it time to stop and pause and digest what you've done? Or are you still on the offense and think you could see additional deals beyond professional this year?
spk16: I think the way to think about M&A for us is we're in the middle of about to convert Drummond. We'll get that done here about the first week of February. And then our plan is to convert professional right around the first week of June. And so as we come out of professional, we'll be ready and available to do M&A, but I think it'll be highly dependent upon what market conditions are at that time and whether or not pricing can make sense. You know, obviously, earnbacks have to make sense in M&A, and we have to be able to model not only liquidity but also credit reserve, et cetera. So, you know, it would be dependent on where things stand when we get there, but I think from an operational perspective, we've done a very good job over the last few years adding talent and technology to scale the franchise. I think we've been out ahead of the growth plan And so, you know, we'll be ready, but it will be dependent on the environment. Okay. That makes sense. All right. Thanks, guys.
spk02: Thanks, Brady.
spk17: Thank you. Our next question is from the line of David Feaster. Please go ahead. Your line is now open.
spk09: Hey, good morning, everybody. Good morning, David. I want to circle back to the loan growths. side i mean you talked about things starting to slow but i just wanted to get some of the sense of the puts and takes here right how much of this is is weaker demand from clients versus maybe you guys having less of an appetite for credit at this point given the economic backdrop and if you could just talk about maybe what segments are still like what loans coming across your desk or what sectors are still providing good risk adjusted returns and maybe Are there anything that you're kind of avoiding or slowing where it just doesn't make sense?
spk16: Thanks for the question, David. Growing a bank into an inverted curve, as I mentioned on the last question, is something you have to be prudent and thoughtful about. And when we look at what we're seeing, particularly in the commercial real estate sector, things have slowed pretty dramatically. When you look at cap rates and where interest rates are and – it just seems like deal transactions have just really slowed pretty dramatically here. We're also seeing much less transactions in the residential market, and both are being driven by the same thing. Customers are in rates that are lower, rates are much higher in the marketplace, and then cap rates in commercial real estate remain low. So there's certainly less transactional volume, and the last thing you want to do is stretch into that environment. And so We're being thoughtful there. I would say we've pulled back pretty strongly out of construction or spec at this point, but we're still looking at stabilized income producing property where leverage makes sense and where we have relationships and borrowers we know well. And we're still looking at C&I and operating companies where they make sense. We are seeing a nice pipeline around C&I, and we're seeing really nice looks given some of the talent we brought into the company on the C&I side. So we're taking our opportunities there and on the commercial real estate side where we have appropriate leverage, strong cash flow, strong balance sheets, good borrowers, we'll do deals there. But again, kind of the way we're playing the game pretty firmly here is we need full relationships as we move through time. We need to understand balance sheets, understand liquidity. understand deeply the the client and so it's it's a conservative approach given the environment but uh you know i think we're we're navigating it pretty well and you know when you step back and just look at the balance sheet and the way we construct the balance sheet over uh really the history of the organization is we we've really always focused on relationships where we have good uh yields on loans good structures and credit and uh pick our spots carefully okay that makes sense
spk09: And then maybe on the other side of the coin, just touching on the funding, you talked about it. It's extremely competitive out there. Obviously, days are accelerating, deposit costs are increasing, and you've done a great job managing that. I'm just curious, how do you think about deposit flows as we look forward? Slower growth does alleviate some of that pressure, but Just curious, like, what are you seeing? How much of the outflows this quarter are surge deposits or more price-sensitive clients leaving and seeking higher rates, you know, maybe in the bond market versus borrowers just using cash to pay down higher-cost debt? And then just any thoughts on how you plan to manage future potential outflows between borrowings, broker funding, or even potential security sales?
spk16: You know, you captured it all in the question, David, but... The bond markets obviously are now a competitor to bank deposits. I think that the pace at which rates moved up on the short end of the curve created a real competitor. And when you look at the overall marketplace for bank deposits, it's certainly shrunk. And you've seen that not only in the community banks, but obviously in the national banks. When you look at our trends quarter over quarter, we look very similar to the national banks in terms of deposit shrinkage. And, you know, part of that was driven and we saw it is we had about $150 million lower balances across title companies and attorneys. And that's just the fact that there's a lot less transactions happening in the marketplace. And then the remainder of it was, you know, just generally customers having less balance in their accounts and some, obviously, rate pressure. That being said, you know, when you look at our franchise, we have 240,000 accounts. 87% of those accounts have under $5 million at Seacoast. And if you sort of peel it back further, 68% of those accounts are under a million. So we are a very granular franchise that's been built over almost 100 years that provides a lot of strength in these environments. And we're 65% transactional on the depository side in terms of our funding base. And that is a unique strength we have. And, you know, I think that's evident in the prior quarter's results. You know, and so when I think when you compare us the most moving forward, I'm confident our ability to perform better than most of the banking community, just given the transactional relationship nature and the granular franchise we built over, you know, a very long period of time. But, you know, looking forward, I don't know, Michael, you want to get some comments on the way we're thinking about deposits as we move forward?
spk08: Yeah, David, I'd just add to that that I think on a go-forward basis, we'll look to hold balances a lot more steady or potentially hopefully grow them. The competitive environment will kind of dictate some of that. In the interim, we'll fund any gap with FHLB borrowings as we have done, but we're not obviously in a very net borrow position as of 1231. And so we'll just kind of manage that as we move forward throughout the year to optimize rate and volume in NII as we have throughout the cycle thus far. We're still a sub-5% deposit beta on a cumulative basis. As a reminder, prior cycles we were a 28% cumulative deposit beta, and we still feel pretty good about performing or potentially outperforming that on a standalone basis. You will see the step up, as Tracy mentioned in her prepared comments from Professional Bank, once that deal closes, kind of just a one-time step up. But other than that, you know, we'll continue to manage through this, you know, with a little more, you know, rate to just hold or drive, you know, balance growth. On the security side, I think you mentioned there, We wouldn't expect additional securities purchases or to grow that book. We'll just kind of let that amortize down over time, and we'll remix positively into very high loan yields that we're getting in the market today, and that should be helpful to the overall NIM picture going forward.
spk10: What are the securities cash flows that you're expecting this year?
spk08: Yeah, about $300 million, $300 to $350 million cash. The extra little bit could come from ProBank, so that's kind of about the level, and that would fund a good percentage of our projected loan growth for the year.
spk09: Okay, and then maybe just kind of circling back to the M&A question, on the other side, you've had a phenomenal job recruiting and attracting really high-quality bankers. I'm just curious how you think about recruiting versus M&A, just given some of the challenges that you alluded to. And, you know, how do you think about recruiting at this point as we look forward?
spk16: Yeah, I think in both cases we'll be opportunistic. You know, I think our banker size and the number of bankers we have in the company is appropriate right now for the growth rates we see out ahead. So if we're adding, it'll be where we see very high-quality talent, markets we want to be in. The great news is we continue to see large demand to join the company, which has been exciting. The folks we've brought in have a lot of momentum and a lot of pipeline of talent that really wants to join the franchise. And as we've talked in the past, we're at a unique size in Florida now where we have a lot of brand across the state that we're building, and that's been very helpful in bringing in high-quality bankers in conjunction with a lot of the disruption that's happening up above us and all the names you know. And so that continues to push talent our way. We'll be opportunistic as we move through time, all knowing that we're going to carefully manage costs as we move through this environment and manage our expense base. Same with M&A. It'll be opportunistic if earnbacks make sense, deal pricing works, it's in marks we want to be, and we can get comfortable with liquidity and credit. We would look at it. But we just have to be thoughtful about the environment we're in and thoughtful about earnbacks.
spk08: And, David, I would just add we've got a lot of production capacity already within, you know, the banker set that we already have. So there's not a need to hire to drive growth at this point. But, you know, again, we always want to be opportunistic and build a franchise over time. Makes sense. Thanks, everybody.
spk14: Thanks, David.
spk17: Thank you. And our next question is from the line of Brendan King. Please go ahead. Your line is now open.
spk06: Hey, good morning.
spk14: Good morning, Brendan.
spk06: So another question on deposits. I just want to get a sense of the underlying mix there and the outlook for that, kind of in the quarter, where the outflows came from. Was it from more non-interest bearing than interest bearing? And then how do you see that mix trending for the year as far as your intent to grow deposits?
spk12: Yeah, Brandon, most of the absorption of deposits in the fourth quarter, as you might expect, came from non-interest bearing accounts. We saw some movement to other account types, but really largely those are just lower balances. That seems to be consistent with what we've been seeing across the industry. We've chosen to manage pricing on that in a way that's kept our deposit costs low. We do expect, as Michael said, greater stability in deposit balances going forward, but at incrementally higher funding costs. So I think the patterns of customer behavior potentially have stabilized in terms of rate movement, but we'll continue to seek some stabilization through shifting our pricing strategy a bit.
spk08: Brandon, I'll just add, I think on just the demand deposit side, we've seen a lot of the surge deposits and just kind of average account balances come down a little bit from that excess liquidity. So we're probably in a relatively better, more stable position, more similar back to pre-liquidity surge levels. So that should be a little bit better. But, you know, we will continue to focus on growing core relationships and money market accounts with commercial customers, et cetera. So you'll see, you know, incremental, you know, growth there going forward.
spk06: Okay. And then I know this might be a little premature, but what is the kind of sense of how the company and performance level could perform in the event that the Fed does cut rates, particularly I know people expect in the back half of this year and next year. Just what is kind of the positioning from a balance sheet perspective as far as how a company could perform in that environment?
spk08: Yeah, sure, Brandon. Our dynamic NII look would be in an up 100 basis point scenario, we would be up about a little over 3%. In a down 100 scenario, we'd be down a little more than 3% as well. So pretty symmetric outcomes from that perspective. And our asset sensitivity has been reduced as well as we've reached higher levels of absolute rates. So I think we're pretty well positioned there. Not a lot of sensitivity and risk as much today. I think we'll continue to evaluate downside risk to rates given the high level that we're at in terms of an absolute basis on interest rates today. and, you know, minimize downside risk. Obviously, for Seacoast as a franchise, you know, our strength is our funding basis. We've seen this quarter. And so, you know, we want to make sure that we maintain the monetization of that strength going forward. Thanks for taking my questions.
spk05: Thanks, Brandon. Thanks, Brandon.
spk17: Thank you. And at this moment, I'm showing no further questions. I'll turn it back to the speakers.
spk16: Thank you, and thank you all for joining us. You know, this quarter showed the strength of the franchise and our focus on building franchise over the long run. It was great to see the strong results for the quarter. And just to reiterate, appreciate everybody at the Seacoast team and the hard work they put into last year. You know, it's just a truly remarkable year. So thank you all, and I think that will conclude our call.
spk17: Thank you, ladies and gentlemen. We thank you for your participation and ask that you please disconnect your call. This concludes today's call. Have a good day. Thank you. Thank you. Thank you.
spk22: Thank you.
spk17: Greetings and welcome to the Seacoast Banking Corporation's fourth quarter and full year 2022 earnings conference call. My name is Malika and I will be your operator for today. During the presentation, all participants will be in a listen-only mode. Afterwards, we'll conduct a question and answer session. At that time, if you have a question, please press the one followed by the four on your telephone. If at any time during the conference you need to reach an operator, please press star zero. Before we begin, I have been asked to direct your attention to the statement at the end of the company's press release regarding forward-looking statements. Seacoast will be discussing issues that constitute forward-looking statements within the meaning of the Securities and Exchange Act, and its comments today are intended to be covered within the meaning of that act. Please note that this conference is being recorded. I will now turn the conference over to Chuck Schaefer, Chairman and CEO of Seacoast Bank. Mr. Schaefer, you may now begin.
spk15: Thank you all for joining us this morning. As we provide our comments, we'll reference the fourth quarter and full year 2022 earnings slide deck, which you can find at seacoastbanking.com.
spk16: I'm joined today by Tracy Dexter, Chief Financial Officer, and Michael Young, Treasurer and Director of Investor Relations. Looking back at 2022, we made remarkable progress in expanding the franchise throughout Florida.
spk15: Through acquisitions and new market launches, we strengthened our competitive position across the state and crossed the $10 billion in assets threshold.
spk16: We started the year with the completion of the Sable Palm Bank and Florida Business Bank of Florida transactions, putting us in the desirable Sarasota market and continuing our growth in Brevard County. Also in the first quarter, we entered Naples and Jacksonville with DeNovo teams, resulting in better-than-expected customer growth in both markets over the last 12 months. In early October, we completed the acquisition of Drummond Bank, expanding our presence in North Florida, including Ocala and Gainesville, and added an exceptional C&I team covering both markets. Also in October, we expanded our franchise into the dynamic Miami-Dade County market with the Apollo acquisition, And during the third quarter, we announced the addition of Professional Bank, expanding our reach in South Florida even further. Moreover, in early 2022, we continued our focus on delivering better digital experiences to our customers, completing a significant digital conversion, adding Zelle, budgeting tools, account aggregation, improved digital onboarding, Spanish language, and several other digital customer experience improvements. We enhanced our commercial banking team in 2022 with a transformative year of recruiting well-seasoned commercial bankers, treasury officers, and credit officers throughout Florida, meaningfully increasing productivity over the prior year. Our wealth team also had an outstanding year, adding $425 million to bring assets under management to near $1.4 billion at year end. Throughout the year, we made investments across all of our operational areas in technology and talent, building resilience and scalability as SECOS transitions to a mid-sized bank. SECOS had an exceptional 2022, setting ourselves apart as Florida's leading community bank. Turning to our financial results, the team finished the year with excellent performance. We materially expanded our net interest margin during the fourth quarter, increasing 69 basis points from the prior quarter, with loan yields rising 84 basis points. At the same time, the cost of deposits increased only 12 basis points. This represents an impressive cycle-to-date beta of less than 5%. We believe the strength of our relationship-focused lending model and our granular deposit franchise is finally becoming more evident during a period of higher interest rates versus other more transactional, wholesale, or rapid-growth business models. We generated $67 million in adjusted fourth-quarter pre-tax pre-provision earnings an increase of $17.7 million from the prior quarter, while achieving a 52% efficiency ratio. Our fourth quarter adjusted pre-tax, pre-provision return on tangible assets improved to 2.28%, and our adjusted return on tangible equity improved to 15%, up from 12.5%. SECOS continues to operate from a position of strength, with capital allowance ratios at the top of our peer group. We ended the quarter with a TCE ratio of 9.1%, and an ACL coverage ratio of 1.40%. And considering the loss absorption included in the purchase accounting marks, the company's backstop is a 2.60% coverage rate. Additionally, should a downturn materialize, Florida has the potential to outperform the rest of the country, given the wealth accumulation and population growth over the last few years. Florida has exceeded every state in the nation in attracting affluent, wealthy individuals and corporations, adding materially to the state's GDP and further bolstering the state's economic drivers. Our credit metrics remain outstanding, and we continue to be a disciplined, conservative lender focused on building a carefully underwritten and diversified portfolio by nurturing full client relationships that bring low-cost funding. And as a reminder, our portfolio has been built over the long term with a consistent growth rate while driving diversification by product type, segment, and vintage. A final thought. Considering the continued economic strength of Florida, our carefully underwritten credit portfolio with low CRA and C&D concentrations, peer-leading capital levels, and peer-leading capital levels, we believe we have a very strong balance sheet that can weather any challenges ahead. Further, such strengths should provide optionality to be offensive and potentially more volatile economic environment, including opportunistic market share gains, organic growth, and acquisition opportunities. I'll now turn the call over to Tracy.
spk12: Thank you, Chip. Good morning, everyone. Directing your attention to fourth quarter results, beginning with the highlights on slide five. The net interest margin expanded 69 basis points to 4.36%, and on a core basis, expanded 43 basis points to 4.01%. Loan originations, in combination with acquisitions at higher book yields and the low cost of deposits we maintained during the quarter, supported higher net interest margin. Our cost of deposits increased only 12 basis points during the fourth quarter to 21 basis points. We've managed deposit pricing largely on an exception basis since the beginning of the rate cycle, though we do expect to see an increase at a quicker pace in the coming months given the velocity of rate movement and the competitive environment. Pre-tax, pre-provision earnings continue to increase with 7% growth quarter over quarter to $46 million. And when adjusted for merger-related costs and amortization of acquired intangibles in each period, pre-tax, pre-provision earnings increased 36% to $66.6 million, and as a percentage of tangible assets to 2.28%. We delivered organic loan growth in addition to growth through acquisition this quarter. Our credit standards remained disciplined and focused on relationship lending, and we saw annualized organic growth of 14% this quarter. I'll emphasize that the growth is in keeping with the bank's credit standards and is a combination of solid production in the quarter and slowing loan prepayments. The loan-to-deposit ratio ended the quarter at 82%. Average loan yields increased 84 basis points to 5.29%, and the December weighted average add-on yields reached 6.5%. Credit risk metrics remain strong. with non-accrual loans representing 0.35% of total loans compared to 0.32% in the prior quarter. The quarterly provision for credit losses is $14.1 million, including $15 million in initial provision on the Apollo and Drummond acquired loans, offset by the release of $2.1 million in reserves we established in the third quarter to provide for losses potentially resulting from the impact of Hurricane Ian that did not materialize. The allowance for credit losses stands at 1.4% of total loans and continues to reflect the possibility of potentially deteriorating economic conditions. Wealth management was a particular bright spot during the quarter and for the full year 2022, with the wealth management team adding $425 million in assets under management over the last 12 months. And as you know, there's been significant activity on the M&A front, including the closings of the Apollo and Drummond transactions on October 7th and the upcoming acquisition of Professional Bank expected on January 31st, with system conversion late in the second quarter of 2023. Turning to slide six, net interest income expanded 36% during the quarter, adding $31.5 million with higher yields and higher loan balances. Net interest margin expanded 69 basis points to 4.36%, and excluding PPP and accretion on acquired loans, net interest margin increased by 43 basis points to just over 4%. In the securities portfolio, yields increased 41 basis points to 2.77%, and loan yields expanded 84 basis points to 5.29%. We continue to benefit from a strong, low-cost funding base with 64% transaction accounts, and the cost of deposits increased only 12 basis points to 21 basis points. The additions during the quarter of Apollo and Drummond Banks further enhanced the deposit base with longstanding granular relationships. Looking ahead, we expect continued expansion of net interest income driven by balance sheet growth and more modestly increasing yields on loans and securities outpacing increasing deposit costs. In the first quarter, we model net interest income in a range between $132 million and $138 million with the actual outcomes highly dependent on the pace and velocity of deposit competition in the coming quarter. Moving to slide seven. Adjusted non-interest income was $17.6 million, an increase of $1.2 million from the previous quarter, and a decrease of $700,000 from the prior year quarter. We saw increases in service charges and interchange revenue, and wealth management revenue increased 6% from prior quarter and 22% from the prior year quarter. Comparing overall performance to the prior year quarter, the decrease relates to lower mortgage banking activity impacted by rising rates with mortgage-related income of $2 million in the fourth quarter of 2021 compared to about $400,000 in the fourth quarter of 2022. Looking ahead, we continue to focus on growing our broad base of revenue sources And with the benefit of the expanded franchise, we expect first quarter non-interest income in a range from $20 million to $23 million, which includes the partial quarter activity from professional banks. Moving to slide eight. Adjusted non-interest expense for the quarter was $70.4 million, which was lower than the guidance we provided last quarter. Increases from the prior quarter were aligned with the expanded associate base and growing customer base, And it's important to note that the Drummond and Apollo cost synergies will fully materialize beginning in the second quarter of 2023. Salaries and benefits on an adjusted basis increased $12.3 million, reflecting the increase in staff to support Seacoast's expanded statewide franchise, as well as increases in incentives related to higher commercial production during the quarter. Data processing costs are typically volume-based, and the increase aligns with the larger customer base and higher transaction volumes. Similarly, occupancy-related costs are in line with the increase in the bank's footprint during the quarter. Amortizing core deposit intangible assets increased during the quarter with the addition of Apollo and Drummond. Amortization of these assets during the fourth quarter was $4.8 million, and we expect the full year amortization, including the addition of Professional Bank, to be approximately $28 million. Looking ahead, We expect to maintain our expense discipline while continuing investments to support growth. We expect first quarter expenses scaling with the growing size of the organization in the range of 86 million to 90 million, inclusive of the operating results of Apollo and Drummond, and a partial quarter for professional. On an adjusted basis, excluding the amortization of intangibles, that would be 80 to 84 million. On slide nine, the efficiency ratio on an adjusted basis improved to 52%. As we scale the company for growth and become the leading bank in our Florida markets, we continue to pace our investments with discipline, evidenced by our consistent focus on efficiency. Looking forward to the full year 2023, we expect to maintain the efficiency ratio in the low 50s. Turning to slide 10, the chart on the left highlights the continued diverse mix of our credit exposures and our disciplined approach to managing concentrations. In the upper right of the slide, construction and commercial real estate concentrations remain well below regulatory guidelines and well below peer levels. Turning to slide 11, loan outstandings increased $241 million, or 14% excluding acquisitions on an annualized basis. Commercial originations were up over the prior quarter. And looking forward, we're seeing market demand generally slowing, impacted by rising rates. Average core loan yields increased by 50 basis points during the quarter to 4.8%, with the December weighted average add-on yields reaching 6.5%. We expect the pace of loan growth to moderate somewhat, expecting an annualized growth rate in the first quarter in the mid single digits. Loan yields will continue to benefit from the higher rate environment, and we expect core yields in the first quarter, excluding purchase accounting accretion, to expand meaningfully to the 520s range. Turning to slide 12, in the investment securities portfolio, the average yield increased during the quarter by 41 basis points to 2.77%. Values have stabilized, and duration in the AFS portfolio has extended somewhat from around 3.5 in the third quarter to 3.73 in the fourth quarter. Turning to slide 13, deposits outstanding totaled just under 10 billion, which is an increase of 1.2 billion from September. Net of acquired balances, there were outflows of approximately 320 million in non-interest-bearing demand accounts. Our cost of deposits increased by only 12 basis points, and we did see some outflows with impacts from rate sensitivity and a general absorption of liquidity in the market. The competitive environment is increasingly dynamic, and our expectation is that the cost of deposits will increase at a faster pace in the first quarter than in the fourth quarter, in addition to the impact of adding higher cost deposits from professional banks. That said, we continue to expect to outperform peers as the environment serves to highlight the strength of our low-cost deposit base. Looking forward to the first quarter, including the impact of professional banks, we expect our cost of deposits to move above 50 basis points. providing more precise guidance is difficult given the increasingly dynamic competitive market for deposits. Moving to slide 14, wealth revenues increased 6% compared to the third quarter and 22% compared to the fourth quarter of 2021. The previously mentioned deposit outflows contributed in part to the strong results for the Wealth Management Division. You'll see that assets under management has increased 60% from $870 million two years ago to nearly $1.4 billion today. Moving on to credit topics on slide 15. The allowance for credit losses increased during the quarter by $18.6 million to an overall $113.9 million, with a decline in coverage of two basis points to 1.4%. The provision this quarter was $14.1 million, which included $15 million assigned to the portfolios acquired from Apollo and Drummond offset by the release of $2.1 million we had set aside for Hurricane Ian, but fortunately did not need. We remain watchful of inflation pressures and are carefully considering the ongoing impacts of higher rates on the economy, though our credit metrics remain very strong. Moving to slide 16, charge-offs were only four basis points on the overall portfolio. Non-performing loans represent 0.35% of total loans, The percentage of criticized loans to risk-based capital increased modestly with conservative grading on acquired loans. And in the allowance, we continue to assess the environment and the factors that might affect loan performance. And this quarter, the allowance for credit losses is modestly lower at 1.4% of total loans, again, attributed to the release of hurricane reserves. On slide 17. our capital position continues to be very strong and we're committed to maintaining our fortress balance sheet. You can see the somewhat dilutive effect of the acquisitions in the fourth quarter on tangible equity and from prior quarters this year of the decline in accumulated other comprehensive income. While those measures will return over time, we're committed to driving shareholder value creation. The ratio of tangible common equity to tangible assets is a strong 9.1% And this quarter, adjusted return on tangible common equity was 15.1%. In summary, considering our peer-leading capital levels, prudent credit culture, and high-quality customer franchise, we have one of the strongest balance sheets in the industry, providing optionality if a recession materializes and flexibility to be opportunistic in client selection, organic growth, and acquisition opportunities, and to continue to build Florida's leading community bank. We'll look forward to your questions. Chuck, I'll turn the call back to you.
spk16: Thank you, Tracy. And before we go to Q&A, I just want to say thank you to all the Seacoast associates on the call. You know, 2022 was truly a special year. I'm incredibly proud of all of you, and thank you for all your hard work and effort. Okay, operator, we're ready for Q&A.
spk17: Certainly. Thank you. Ladies and gentlemen, on the phone lines, if you wish to register for a question, please press the one followed by the four on your telephone. you will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. Once again, ladies and gentlemen, that is one four to ask a question on the phone line. Our first phone question is from the line of Brady Gailey. Please go ahead. Your line is now open.
spk23: Hey, thank you. Good morning, guys.
spk02: Good morning, Brady. So I wanted to start with loan growth. I know you guys had been expecting high single-digit it sounds like you're more in the mid single digit area for the first quarter of the year. Should we think about mid single digits as, you know, appropriate for the entire year? Or do you think that you get back to the high single after you get through the kind of seasonally slow one Q?
spk16: Yeah. And maybe looking back at the quarter, you know, we really had a very good quarter for loan growth and it was a nice mix between CNI and commercial real estate. In large part, it was driven by a lot of the new additions to the teams we added over the back half of the year last year. It was really great to see the relationships come over with that additional talent. Generally, very high-quality relationships that joined the franchise as a result of the quality talent we hired. We were very pleased with the outcome, also pleased with the average add-on rate hitting about 650 there towards the end of the year. Nice pull up in new loan yields. And then looking forward, it's tough to provide guidance beyond a quarter. We're guiding to mid-single digits for the first quarter. I would say at this point, given the inversion of the curve, I think it's prudent for us to be cautious and thoughtful as we move through this period. We'll continue to add high-quality opportunities as they come on, particularly high-quality relationships coming with both deposits and loans. But, you know, beyond that, Brady, we'll have to see how things play out for the year. But, you know, mid-single-digit guide for Q1. Okay.
spk02: And then, you know, accretable yield really ticked up in the fourth quarter. It was almost $10 million. That was more than y'all did for the first three quarters of the year combined. I know that line item can be very difficult to forecast, and I know you're about to add professional into that bucket, but Any shot at what accretable yield could be for the full year 2023?
spk12: Yeah, I think when we look back at the fourth quarter and the acquisition estimates, the credit marks came in really in line with our expectations. But to your point, the rate marks with those measurements driven off of the rate environment on October 7th for both banks, the date of closing, the rate marks came in a bit higher and so impacting the accretable yields. And so I think as we look forward, we're, accretion is kind of a difficult number to model, as you point out, but with about 9.7 in the fourth quarter and the addition of professional bank in the first, our model shows about 10 or 11 million in the first quarter, and you'll see it move a little higher after that.
spk02: Okay. All right, and then lastly for me, I mean, Seacoast has been incredibly active in M&A. You know, you're closing your biggest deal ever next week. I know Bank M&A nowadays is tougher just with the rate mark component. But how do you think about Bank M&A? You know, you've done a lot. Is it time to stop and pause and digest what you've done? Or are you still on the offense and think you could see additional deals beyond professional this year?
spk16: I think the way to think about M&A for us is we're in the middle of about to convert Drummond. We'll get that done here about the first week of February. And then our plan is to convert professional right around the first week of June. And so as we come out of professional, we'll be ready and available to do M&A, but I think it'll be highly dependent upon what market conditions are at that time, and whether or not pricing can make sense. You know, obviously, earnbacks have to make sense in M&A, and we have to be able to model not only liquidity but also credit reserve, et cetera. So, you know, it would be dependent on where things stand when we get there, but I think from an operational perspective, we've done a very good job over the last few years adding talent and technology to scale the franchise. I think we've been out ahead of the growth plan And so, you know, we'll be ready, but it will be dependent on the environment. Okay. That makes sense. All right. Thanks, guys.
spk02: Thanks, Brady.
spk17: Thank you. Our next question is from the line of David Feaster. Please go ahead. Your line is now open.
spk09: Hey, good morning, everybody. Good morning, David. I want to circle back to the loan growths. side i mean you talked about things starting to slow but i just wanted to get some of the sense of the puts and takes here right how much of this is is weaker demand from clients versus maybe you guys having less of an appetite for credit at this point given the economic backdrop and if you could just talk about maybe what segments are still like what loans coming across your desk or what sectors are still providing good risk adjusted returns and maybe Are there anything that you're kind of avoiding or slowing where it just doesn't make sense?
spk16: Thanks for the question, David. Growing a bank into an inverted curve, as I mentioned on the last question, is something you have to be prudent and thoughtful about. And when we look at what we're seeing, particularly in the commercial real estate sector, things have slowed pretty dramatically. When you look at cap rates and where interest rates are and... it just seems like deal transactions have just really slowed pretty dramatically here. We're also seeing much less transactions in the residential market, and both are being driven by the same thing. Customers are in rates that are lower, rates are much higher in the marketplace, and then cap rates in commercial real estate remain low. So there's certainly less transactional volume, and the last thing you want to do is stretch into that environment. And so We're being thoughtful there. I would say we've pulled back pretty strongly out of construction or spec at this point, but we're still looking at stabilized income producing property where leverage makes sense and where we have relationships and borrowers we know well. And we're still looking at C&I and operating companies where they make sense. We are seeing a nice pipeline around C&I, and we're seeing really nice looks given some of the talent we brought into the company on the C&I side. So we're taking our opportunities there and on the commercial real estate side where we have appropriate leverage, strong cash flow, strong balance sheets, good borrowers, we'll do deals there. But again, kind of the way we're playing the game pretty firmly here is we need full relationships as we move through time. We need to understand balance sheets, understand liquidity. understand deeply the the client and so it's it's a conservative approach given the environment but uh you know i think we're we're navigating it pretty well and you know when you step back and just look at the balance sheet and the way we construct the balance sheet over uh really the history of the organization is we we've really always focused on relationships where we have good uh yields on loans good structures and credit and uh pick our spots carefully okay that makes sense
spk09: And then maybe on the other side of the coin, just touching on the funding, you talked about it, and it's extremely competitive out there. Obviously, days are accelerating, deposit costs are increasing, and you've done a great job managing that. I'm just curious, how do you think about deposit flows as we look forward? Slower growth does alleviate some of that pressure, but Just curious, like what are you seeing? How much of the outflows this quarter are surge deposits or more price-sensitive clients leaving and seeking higher rates, you know, maybe in the bond market versus borrowers just using cash to pay down higher-cost debt? And then just any thoughts on how you plan to manage future potential outflows between borrowings, broker funding, or even potential security sales?
spk16: You know, you captured it all in the question, David, but – The bond market is obviously now a competitor to bank deposits. I think the pace at which rates moved up on the short end of the curve created a real competitor. When you look at the overall marketplace for bank deposits, it's certainly shrunk. You've seen that not only in the community banks, but obviously in the national banks. When you look at our trends quarter over quarter, we look very similar to the national banks in terms of deposit shrinkage. And part of that was driven, and we saw it, is we had about $150 million lower balances across title companies and attorneys, and that's just the fact that there's a lot less transactions happening in the marketplace. And then the remainder of it was just generally customers having less balance in their accounts and some, obviously, rate pressure. That being said, when you look at our franchise, we have 240,000 accounts. 87% of those accounts have under $5 million at Seacoast. And if you sort of peel it back further, 68% of those accounts are under a million. So we are a very granular franchise that's been built over almost 100 years. That provides a lot of strength in these environments. And we're 65% transactional on the depository side in terms of our funding base. And that is a unique strength we have. And, you know, I think that's evident in the prior quarter's results. You know, and so when I think when you compare us to most moving forward, I'm confident in our ability to perform better than most of the banking community, just given the transactional relationship nature and the granular franchise we built over, you know, a very long period of time. But, you know, looking forward, Michael, you want to get some comments on the way we're thinking about deposits as we move forward?
spk08: Yeah, David, I'd just add to that that I think on a go-forward basis, we'll look to hold balances a lot more steady or potentially hopefully grow them. The competitive environment will kind of dictate some of that. In the interim, we'll fund any gap with FHLB borrowings as we have done, but we're not obviously in a very net borrow position as of 1231. And so we'll just kind of manage that as we move forward throughout the year to optimize rate and volume in NII as we have throughout the cycle thus far. We're still a sub-5% deposit beta on a cumulative basis. As a reminder, prior cycles we were a 28% cumulative deposit beta, and we still feel pretty good about performing or potentially outperforming that on a standalone basis. You will see the step up, as Tracy mentioned in her prepared comments from Professional Bank, once that deal closes, kind of just a one-time step up. But other than that, we'll continue to manage through this with a little more rate to just hold or drive balance growth. On the security side, I think you mentioned there, You know, we wouldn't expect additional securities purchases or to grow that book. We'll just kind of let that amortize down over time and we'll remix positively into very high loan yields that we're getting in the market today. And that should be helpful to the overall NIM picture going forward.
spk10: What are the securities cash flows that you're expecting this year?
spk08: Yeah, about $300 million, $300 to $350 million. The extra little bit could come from ProBank, so that's kind of about the level, and that would fund a good percentage of our projected loan growth for the year.
spk09: Okay, and then maybe just kind of circling back to the M&A question, on the other side, you've had a phenomenal job recruiting and attracting really high-quality bankers. I'm just curious how you think about recruiting versus MNA just given some of the challenges that, that you alluded to. Um, and you know, uh, how do you think about recruiting at this point? Um, as we, as we look forward.
spk16: Yeah, I think in both cases we'll be opportunistic. You know, I think our banker, uh, size and the number of bankers we have in the company is appropriate right now for the growth rates we see out ahead. So if we're adding, you know, it'll be where we see very high-quality talent, markets we want to be in. You know, the great news is we continue to see, you know, large demand to join the company, which has been exciting. The folks we've brought in have a lot of momentum and a lot of pipeline of talent that really wants to join the franchise. And as we've talked in the past, we're at a unique size in Florida now where we have a lot of brand across the state that we're building, and that's been very helpful in bringing in high-quality bankers in conjunction with a lot of the disruption that's happening up above us and all the names you know. And so that continues to push talent our way. We'll be opportunistic as we move through time, all knowing that we're going to carefully manage costs as we move through this environment and manage our expense base. Same with M&A. It'll be opportunistic if earnbacks make sense, deal pricing works, it's in marks we want to be in, we can get comfortable with liquidity and credit, we would look at it. But we just have to be thoughtful about the environment we're in and thoughtful about earnbacks.
spk08: And David, I would just add, we've got a lot of production capacity already within, you know, the banker set that we already have. So there's not a need to hire to drive growth at this point. But, you know, again, we always want to be opportunistic and build a franchise over time. Makes sense. Thanks, everybody.
spk14: Thanks, David.
spk17: Thank you. And our next question is from the line of Brendan King. Please go ahead. Your line is now open.
spk06: Hey, good morning.
spk14: Good morning, Brendan.
spk06: So another question on deposits. I just want to get a sense of the underlying mix there and the outlook for that, kind of in the quarter, where the outflows came from. Was it from more non-interest bearing than interest bearing? And then how do you see that mix trending for the year as far as your intent to grow deposits?
spk12: Yeah, Brandon, most of the absorption of deposits in the fourth quarter, as you might expect, came from non-interest bearing accounts. We saw some movement to other account types, but really largely those are just lower balances. That seems to be consistent with what we've been seeing across the industry. We've chosen to manage pricing on that in a way that's kept our deposit costs low. We do expect, as Michael said, greater stability in deposit balances going forward, but at incrementally higher funding costs. So I think the patterns of customer behavior potentially have stabilized in terms of rate movement, but we'll continue to seek some stabilization through shifting our pricing strategy a bit.
spk08: Yeah, and Brandon, I'll just add, I think on just the demand deposit side, we've seen a lot of the surge deposits and just kind of average account balances come down a little bit from that excess liquidity. So we're probably in a relatively better, more stable position, more similar back to pre-liquidity surge levels. So that should be a little bit better. But, you know, we will continue to focus on growing core relationships and money market accounts with commercial customers, et cetera. So you'll see, you know, incremental, you know, growth there going forward.
spk06: Okay. And then I know this might be a little premature, but what is the kind of sense of how the company and performance level could perform in the event that the Fed does cut rates, particularly I know people are expecting the back half of this year and next year. Just what is kind of the positioning from a balance sheet perspective as far as how a company could perform in that environment?
spk08: Yeah, sure, Brandon. Our dynamic NII look would be in an up 100 basis point scenario, we would be up about a little over 3%. In a down 100 scenario, we'd be down a little more than 3% as well. So pretty symmetric outcomes from that perspective. And our asset sensitivity has been reduced as well as we've reached higher levels of absolute rates. So I think we're pretty well positioned there. Not a lot of sensitivity and risk as much today. I think we'll continue to evaluate downside risk to rates given the high level that we're at in terms of an absolute basis on interest rates today. and minimize downside risk. Obviously, for Seacoast, as a franchise, our strength is our funding base, as we've seen this quarter. And so we want to make sure that we maintain the monetization of that strength going forward. Thanks for taking my questions.
spk05: Thanks, Brandon. Thanks, Brandon.
spk17: Thank you. And at this moment, I'm showing no further questions. I'll turn it back to the speakers.
spk16: Thank you, and thank you all for joining us. You know, this quarter showed the strength of the franchise and our focus on building franchise over the long run. It was great to see the strong results for the quarter. And just to reiterate, appreciate everybody at the Seacoast team and the hard work they put into last year. You know, it's just a truly remarkable year. So thank you all, and I think that will conclude our call.
spk17: Thank you, ladies and gentlemen. We thank you for your participation and ask that you please disconnect your call. This concludes today's call. Have a good day.
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