Seacoast Banking Corporation of Florida (SBCF) 2019 Q4 法說會逐字稿

Welcome to the Seacoast Fourth Quarter Earnings Conference Call.

My name is Paulette, and I will be your operator for today's call.

(Operator Instructions)

Before we begin, I have been asked to direct your attention to the statement contained at the end of the 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 our comments today are intended to be covered within the meaning of that act.

Please note that this conference is being recorded.

I will now turn the call over to Mr. Dennis Hudson, Chairman and CEO, Seacoast Bank.

Mr. Hudson, you may begin.

Thank you, operator, and good morning, and thank you, everybody, for joining us today for Seacoast's Fourth Quarter and Year-End 2019 Conference Call.

Our press release, which we released yesterday after the market closed, and our investor presentations can be found in the Investor portion of our website under the title Presentations.

With me today is Chuck Shaffer, our Chief Financial Officer and Chief Operating Officer, who will discuss our financial and operating results; and Jeff Lee, our Chief Digital Officer.

Seacoast wrapped up an exceptionally strong year, with continued solid improvement in our financial performance.

Adjusted earnings for the year totaled $104.6 million, up from $79 million last year, and earnings per share increased by 24% to $2.01 for the year.

Our assets exceeded $7 billion as loan growth continued to accelerate during the year, with particularly strong growth in the final quarter.

These improvements continue to track our goals as we have executed the balanced growth strategy we laid out at our first Investor Day just 3 short years ago.

Since that time, our assets have grown from $4.7 billion to $7.1 billion or an increase of 51%.

Earnings have doubled from $1 a share in 2016 to $2.01 this year.

And our tangible capital ratio increased from 7.7% at year-end 2016 to 11.05% this year.

Clearly, our balanced growth strategy has and continues to deliver strong results for shareholders.

Full year adjusted revenue on a fully taxable basis grew by 14% for the year, while adjusted noninterest expense grew by only 3%, creating tremendous operating leverage, reflecting both our continued growth as well as the successful consolidation of offices in late 2018 and a lot of hard work by our team members to streamline processes, renegotiate contracts and take greater advantage of our digital capabilities.

As you saw yesterday, we are excited to announce the acquisition of Freedom Bank operating in the important St.

Pete market on the West Coast of Florida and together with our Palm Beach deal announced last month, will add almost $500 million of assets and additional operating leverage in 2020 and beyond.

Yesterday's announcement of Freedom Bank also brings us a solid, knowledgeable leadership team.

Cathy Swanson will become our market president for Pinellas County, responsible for all aspects of our operations in that important market.

She'll be joined by her key leadership folks and when combined with our franchise and people, will make us the largest Florida-based bank in St.

Petersburg and the third largest Florida-based community bank in the Tampa-St.

Pete MSA.

Turning back to the East Coast, we expect to close the Palm Beach transaction late in the first quarter and Freedom late in the second quarter.

As we've said many times, we remain focused on building out an extremely valuable and irreplaceable franchise throughout the state of Florida, and we believe our Florida acquisition program will continue to play an important role in our balanced growth strategy over the next couple of years.

We will remain focused on opportunities that strengthen our position in Florida's higher-growth metro markets, including Tampa-St.

Pete, Orlando, South Florida and also helping us continue to build operating leverage.

I also want to say, the outlook for Florida and particularly, the markets in which we operate, remains very strong today.

Chuck will cover more detail in a minute, but the final quarter of the year continued to produce just excellent results.

Adjusted earnings per share for the quarter was $0.52, and our adjusted return on average tangible assets stood at 1.57%.

Earnings continued to accrete steady peer-leading growth in tangible book value per share, and our overall capital position remains steady with a tangible capital ratio of over 11%, ranking us among the strongest in the nation.

Our capital returns remain strong with an adjusted return on tangible capital of just under 15%, pretty incredible when you consider the size of our capital base.

Looking ahead, we remain very confident in our ability to meet our Vision 2020 objectives.

Hitting these objectives require us to drive a lot of change into the organization.

And a great deal of that change is now behind us.

As we continue to execute our balanced growth strategy, we will focus on delivering both strong growth and excellent returns.

Our Seacoast team members have worked incredibly hard over the past couple of years to get us where we are today.

I want to express my sincere appreciation to all of you and my confidence in your ability to continue to lead Seacoast to build out this incredible franchise across Florida as we continue to execute our balanced growth strategy.

With that, I'd like to turn the call over to Chuck to review our results in a little more detail and also to talk a little more about our recent acquisition.

Then we'd be happy to take a few questions.

Chuck?

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

As I provide my comments, I'll reference the Fourth Street Freedom Bank deck and the fourth quarter 2019 earnings slide deck, which can be found at seacoastbanking.com.

Let's start this morning with the Fourth Street Freedom Bank deck.

Last night, we announced the acquisition of Fourth Street Banking Corporation, inclusive of its subsidiary bank, Freedom Bank.

Freedom is a $300 million bank by assets, headquartered in St.

Petersburg, Florida, operating 2 highly profitable branches in the city of St.

Petersburg.

This acquisition builds upon our 2 prior end-market acquisitions, adding 2 branches and increasing distribution and scale to our position in Florida's second largest MSA.

Seacoast will be the third largest Florida-based franchise in the Tampa-St.

Pete-Clearwater MSA and the largest Florida-based bank in the St.

Petersburg market.

This acquisition fits our M&A strategy, being an end-market, low-risk transaction, with a very high-quality customer franchise and strong credit underwriting.

We expect this transaction to come together easily with no disruption to our organic growth plan.

Freedom is led by Cathy Swanson, a lifelong St.

Petersburg banker and prior to being CEO of Freedom, she was an executive with Synovus Bank.

Cathy will remain with Seacoast as market president of Pinellas County.

Freedom's high-quality loan book has an average loan yield of approximately 5.79%, and the majority of the firm's funding is made up of checking, savings, NOW and money market accounts, representing 74% of deposit funding.

Noninterest-bearing checking represents 33% of the funding, and the net interest margin is approximately 4.16%, which will be accretive to Seacoast NIM.

We expect a full conversion of Fourth Street's convertible subordinated debt to common equity prior to close.

The debt has a 4.50% rate and converts at $1.85 per share, which is dilutive to Fourth Street's tangible book value per share and increases the tangible common equity by $10 million.

The holders can convert the debt anytime after December 31, 2019.

The holders can choose to convert, not convert or conditionally convert subject to the deal being approved by shareholders and regulatory authorities.

We fully expect all holders to convert, given it is in their best economic interest to do so.

And anyone who does not convert will have their debentures redeemed for cash.

Turning to Slide 5. Under the terms of the merger agreement, Fourth Street shareholders will receive 0.1275 shares of Seacoast common stock based on Seacoast's closing price on January 22, 2020, of $29.39 a share.

The transaction is valued at approximately $63.6 million or $3.75 per share.

The deal pricing translates to 1.74x Fourth Street's tangible book value, inclusive of the subordinated debt conversion and 14.1x 2020 earnings and 7.4x 2020 earnings when adjusted for cost saves.

We expect the acquisition to close late in the second quarter of 2020 after receipt of approvals from regulatory authorities, the approval of Fourth Street shareholders and the satisfaction of other customary closing conditions.

We expect cost-outs of 50% plus, and we'll phase these in over the first 120 days after transaction close.

Using the crossover method, we expect the -- we expect tangible book value dilution to be earned back in approximately 1.5 years, inclusive of a quarter-year impact from CECL and an IRR north of 20%.

Similar to our other acquisitions, this is an accretive, value-creating transaction that strengthens our foothold in a key and growing MSA.

Given the timing of the close, we expect the deal to be 1.5% accretive to earnings in 2020 and 3.3% accretive to earnings in 2021.

And when combined with the recently announced First Bank of the Palm Beaches transaction, the combined earn-back of both deals is less than 2 years, and the combination will be over 5% accretive to earnings in 2021.

The assumptions used for modeling were developed following detailed due diligence, which included a robust review of Freedom Bank's credit portfolio.

Due diligence identified a loan mark of 3.12%, including a 50 basis point interest rate mark, an 81 basis point credit discount mark related to the non-PCD loans and a 1.82% CECL-related ALLL mark.

A pretax loan loss provision of $2.2 million was assumed to be recorded through the income statement to establish a day 1 mark on the non-PCD loan portfolio.

We estimate a core deposit intangible of 2.5%.

Taken together, our assumptions yield goodwill of a modest $26 million, maintaining Seacoast's strong tangible common equity ratio.

Now turning to the fourth quarter results and beginning with the highlights on Slide 4 of the earnings deck, we finished the year with strong results in the fourth quarter, with adjusted net income growing 12% year-over-year to $26.8 million, resulting in earnings per diluted share of $0.52.

For the full year 2019, adjusted net income was 32% higher than 2018.

We reported adjusted return on tangible assets of 1.57% and adjusted return on tangible common equity of 14.2%.

And as we continue to grow our capital base, it's worth mentioning that if in the fourth quarter -- that if the fourth quarter's tangible common equity tangible asset ratio was adjusted to an illustrative target of 8%, our adjusted return on tangible common equity would be 20.8%, increasing from 20.5% in the prior quarter.

Seacoast's management and Board will continue to monitor our capital position and are committed to managing capital prudently to build shareholder value through the economic cycle.

And we are pleased to report the continued robust build of shareholder value with tangible book value per share growing 20% year-over-year to $14.76.

Our focus on growing revenue, while streamlining operations, is evident in our efficiency ratio, which improved 1.5 points sequentially to 47.5%.

Year-to-date, we have generated 11% operating leverage, with adjusted revenues increasing 14% and adjusted noninterest expense increasing 3%.

And lastly, we generated substantial loan growth this quarter and brought deposit costs down by 12 basis points, successfully defending our margin.

Turning now to Slide 5. Net interest income increased $0.8 million sequentially despite a 25 basis point drop in the federal funds rate.

Net interest margin contracted 5 basis points to 3.84%.

Excluding accretion on acquired loans, the net interest margin declined only 1 basis point sequentially despite the reduction in rates experienced over the second half of 2019.

Quarter-over-quarter, the yield on loans contracted 17 basis points, yield on securities contracted 12 basis points and the cost of deposits decreased 12 basis points.

The declines quarter-over-quarter were the result of Federal Reserve rate cuts, 2 in the third quarter and another in the fourth quarter, affecting the variable rate portion of our loan and securities portfolio and lower add-on rates in commercial and mortgage loans.

We continue to proactively mitigate the impact of rate cuts by remaining disciplined in deposit pricing.

Our strategy has included meaningfully shortened time deposit offerings to maturities of 1 year or less and moving rates lower on higher-yielding savings and money market products.

Other interest-bearing liabilities, such as our trust-preferred and Federal Home Loan Bank Advances also benefited from falling short-term rates.

While the curve has steepened slightly from the previous quarter, the persistent flat rate environment will remain challenging.

Looking ahead to the first quarter of 2020, assuming no changes in the federal funds rate, we expect the net interest margin to be in the low 3.80s for the first quarter.

The guidance of a potential slight decline in margin is the anticipated result of an assumed, persistent flat yield curve.

The impact of purchase loan accretion on the net interest margin, though variable, was 21 basis points in the fourth quarter, and we are modeling approximately 22 basis points in the first quarter of 2020.

Assuming economic conditions remain unchanged, we expect net interest income to expand throughout 2020, primarily the result of growth in the balance sheet.

Moving to Slide 6. Adjusted noninterest income was $13.8 million, flat to the previous quarter, and grew $1 million or 8% from the prior year.

Mortgage banking fees totaled $1.5 million, a bit more subdued from heightened refinance activity in the third quarter, but our continued focus on generating saleable volume produced $6.5 million in revenue for 2019.

We expect continued improvements in this line item in 2020, the result of continued expansion of the mortgage banking team.

2019 was a great year for our wealth management teams with AUM growth of $140 million, in line with our target, and an increase in fees of $0.4 million or 7% year-over-year.

We ended the year with $650 million in assets under management.

Service charges on deposits are in line with the previous quarter and interchange income increased $0.2 million sequentially.

In 2019, interchange income increased by $1.1 million or 9% compared to the prior year, and Seacoast's debit card program surpassed $1 billion in retail sales.

The company's debit card program consistently performs in the top quartile of Visa partner banks of similar size.

The GAAP presentation of noninterest income includes $2.5 million in gains on sales of securities, a decision we made to capture significant price appreciation as the 10-year treasury declined significantly early in the fourth quarter.

Moving to Slide 7. Adjusted noninterest expense totaled $36 million, declining $0.9 million sequentially and $3.6 million less than the prior year.

This outperformed our previous guided range of $37 million to $38 million for the fourth quarter.

Salaries and employee benefits decreased $1 million on a combined basis, the result of lower incentive accruals and our continued proven success in focusing on cost control across the franchise.

We saw higher claims in health insurance this quarter and increased legal and professional expenses associated with the upcoming acquisitions.

And also during the third quarter of 2019, the FDIC announced the achievement of their target deposit insurance reserve ratio, resulting in our ability to apply previously awarded credits to our deposit insurance assessment and 0 associated expense this quarter.

The company has remaining credits of $0.7 million, which will be applied to future assessments if the FDIC's reserve ratio remains above the target threshold.

For the first quarter of 2020, we expect adjusted noninterest expense to be approximately $40.5 million to $41.5 million, excluding the amortization of intangible assets, which is approximately $1.5 million per quarter.

This guidance includes the acquisition of the First Bank of the Palm Beaches, which is expected to close in mid-March and is presented on an adjusted basis, which excludes onetime merger-related charges.

We will remain -- we will maintain our disciplined focus on efficiency and expense management.

And as a reminder, the first quarter is impacted by seasonal 401(k), payroll tax and the return of incentive compensation expenses.

The company recorded $8.1 million in income tax expense in the fourth quarter compared to $8.5 million in the prior quarter.

The third quarter of 2019 was impacted by a change in the Florida corporate income tax rate, which resulted in write-downs of deferred tax assets and a slightly higher resulting rate in the third quarter.

For the full year 2019, our effective tax rate was 23.2%, and we model our rate for 2020 at 23%.

Moving to Slide 8. I'd like to highlight our continued improvements in generating operating leverage with a declining overhead and a focus on growing revenue.

The adjusted efficiency ratio declined 2.9% sequentially to 48%.

And the adjusted noninterest expense to tangible asset ratio declined to 2.11%.

We expect our adjusted efficiency ratio to move modestly back above 50% in the first half of 2020, before moving back below 50% during the second half of 2020.

The increase in the first half of the year is primarily the result of 401(k), payroll tax and other compensation expenses and is in line with prior year seasonality.

We remain confident that we are on track to achieve a below 50% efficiency ratio, exiting 2020 and beyond and on target with our Vision 2020 plan.

We continue to maintain strict and proactive cost control discipline while ensuring we do not impede on revenue growth.

Turning to Slide 9. Total new loan production was a record $587 million compared to $488 million in the prior quarter.

Resulting net loan growth in the quarter was 17% on an annualized basis and 8% year-over-year, achieving our stated objective of mid- to high single-digit loan growth in 2019.

Commercial originations during the fourth quarter of 2019 were $247 million, reflecting strong execution by our teams across the footprint and the addition of key talent over the past year in our fastest-growing markets like Tampa and Broward County.

Our commercial pipeline was $256 million at the end of the quarter, an increase of 56% compared to the same quarter in the prior year.

Moving on to the residential category.

We placed $163 million in the portfolio, including the opportunistic purchase of a portfolio totaling $99 million.

Additional production of $62 million was sold in the secondary market.

The saleable mortgage pipeline exiting the year was up 40% compared to the same quarter in the prior year.

Consumer and small business produced $115 million, up $12 million from the prior quarter.

We are well positioned to continue to drive attractive growth while maintaining our credit discipline as the economic cycle continues to mature.

For the full year 2020, we expect loan growth of mid- to high single digits as we move forward.

Turning to Slide 10.

Deposits outstanding decreased $88 million sequentially, and we ended the year with deposit growth of 8%.

Public bond fund balances were seasonally higher and throughout the year, we have continued the successful acquisition of commercial customers with business checking balances growing 9% in 2019.

Looking ahead to 2020, we maintain our target for deposit growth of approximately 4% to 6%.

Turning to Slide 11.

Rates paid on deposits decreased 12 basis points to 61 basis points.

We expect deposit cost in the first quarter to be in line with Q4, assuming no rate actions taken by the Federal Reserve.

Noninterest-bearing demand deposits represent 28% of the deposit franchise and transaction accounts represent 50% of our deposit book, in line with the prior quarter.

Turning to Slide 12.

Credit continues to benefit from rigorous credit selection that emphasizes through the cycle orientation and builds on customer relationships in well-understood known markets and sectors as well as maintaining diversity of loan mix.

The allowance to total loans was up 1 basis point to 68 basis points at quarter end.

Net charge-offs for the quarter were $3.2 million or 25 basis points of average loans and for the full year 2019, averaged 16 basis points, in line with prior guidance.

Our forward-looking expectation for annualized net charge-offs is 20 to 25 basis points through the first half of 2020.

Let me take a moment to remind you that under purchase accounting, loans acquired through an acquisition were placed in the acquired loan portfolio and a purchase mark, including both characteristics for credit and rate, is applied and accreted back through net interest income as these loans pay down or mature.

At the end of the fourth quarter, this discount represents 3.83% of purchased loans outstanding.

In the nonacquired loan portfolio, the ALLL ended the quarter at 80 basis points of loans outstanding, down 4 basis points from the prior quarter.

Classified and criticized assets continued to trend favorably.

We continue to prudently manage our commercial real estate exposure, with construction and land development as a percentage of bank level capital at 40% and commercial real estate loans as a percentage of bank level capital at 204%, down from 42% and 204%, respectively, in the prior quarter and well below regulatory guidance.

On a consolidated basis, construction and land development and commercial real estate loans represent 38% and 191%, respectively.

Concentrations continue to be consistently managed with the funded balance of our top 10 and top 20 relationships representing 21% and 39% of total consolidated risk-based capital, respectively, down from 34% and 54%, respectively, 3 years prior.

Our average commercial loan size is approximately $365,000.

Nonperforming assets decreased $0.3 million to $39.3 million in the fourth quarter of 2019 due to the sale of an OREO property.

Classified and criticized assets declined from 3% and 10% of total risk-based capital, respectively, to 3% and 9% of risk-based capital at period end.

The provision quarter-over-quarter reflects strong loan growth in the fourth quarter and a small increase in net charge-offs for the quarter.

Looking back over the last 4 quarters, net charge-offs were 16 basis points of loans outstanding, in line with our expectation and reflecting strong asset quality trends.

Turning to CECL.

We are finalizing our model validation review.

And while we do not have a final day 1 impact to share, we do continue to expect that the adoption of CECL will increase our loan loss reserves.

One reason for the increase is the impact on our purchase loan portfolio.

We acquired these loans at a discount and the purchase discount, which currently stands at 3.83%, accretes into interest income over time.

The vast majority of our acquired loans were not considered credit-impaired at the time of acquisition.

Under CECL, that purchase discount no longer shields these loans from getting an allowance.

So the day 1 impact of CECL will include recording a reserve on these loans.

That's essentially double-counting the credit mark on these loans, but that's what the new accounting standard will require us and other banks to do.

Keep in mind that there is no change to the purchase discount, and that will continue to be accretive to interest income for purchased nonimpaired loans.

The portfolio of purchased credit-impaired loans is only $12.7 million.

These loans will be treated in a newly defined category of PCD, purchase credit deteriorated, upon adoption.

There will be an incremental reserve for these loans that also increases the allowance upon adoption.

And the impact on PCI accretion going forward will be nominal.

Turning to Slide 13.

We continue our commitment to maintaining a fortress balance sheet through the cycle, built around strong capital and strict credit underwriting.

This has served to generate strong capital levels and book value per share growth, positioning us well for additional disciplined acquisition and organic growth opportunities in 2020.

The Tier 1 capital ratio was 15%.

The total risk-based capital ratio -- and the total risk-based capital ratio was 15.7% at December 31, 2019.

The tangible common equity to tangible asset ratio was 11.1% at quarter end, providing ample capital for additional further growth.

Using an 8% TCE ratio illustratively would imply over $210 million in capital available for deployment and as mentioned earlier, implies a 20.8% return on tangible common equity for the quarter.

Seacoast's Board and management are committed to a prudent capital management to drive shareholder value.

And to wrap up on Slide 14 and 15, we are well positioned to sustain and advance the momentum and growth into 2020.

Since announcing our Vision 2020 targets in February 2017, we have achieved a compounded annual growth rate in tangible book value per share of 13%, steadily building shareholder value.

Our fundamentals remain very strong with a well-capitalized, low-risk balance sheet and attractive funding, and we see continued robust opportunities to enhance our balanced growth strategy in some of Florida's fastest-growing markets.

We are on track to meet our Vision 2020 targets and remain focused on continuing to create meaningful values for shareholders.

We look forward to your questions.

I'll turn the call back to Denny.

Thank you, Chuck.

And operator, we'd be pleased to take a few questions.

(Operator Instructions) And our first question comes from David Feaster from Raymond James.

Congrats on the deal.

Thank you.

We're excited about it.

So you got a pretty full plate here.

2 deals, but I believe you've had as much as 3 ongoing at the same time.

Are we on pause here near term?

Or would you still be interested in M&A at this point?

And I guess, historically, you've converted and closed the same day.

Is that the plan here?

Yes, that is the plan here, David.

And generally, conversations remain robust.

We plan to close the First Bank of the Palm Beaches deal in mid-March, so that's right around the quarter.

And one of the benefits of doing small low-risk transactions is that we can close and convert them at the same time, which we'll do with both these transactions and keep moving down the road.

So we're still out talking to various opportunities.

The conversations remain robust, and there's still plenty of opportunity to continue our M&A strategy as we move forward.

Okay.

Terrific.

And I guess, just what -- the deal really expands your St.

Pete presence here.

How do you think about this market and the opportunities for growth for both loans and deposits as well as new hires?

Yes.

No, that's a great, great question, David.

And now what I'd say to you is we talked in the past to both research and investors that we love the Tampa-St.

Pete market.

It's a tremendous market.

It's twice the size of Orlando, and it's the second largest MSA in the state of Florida.

It is full of opportunities for us, both in terms of customers and bankers.

And as we've done over the past year, we've continued to expand our banker pool in the market and just here in the fourth quarter added across the franchise another 7 commercial bankers and another 9 MLOs.

So we continue to expand distribution.

We think the markets are serving us well.

We continue to see strong population growth in the markets and great opportunities for growth.

So this gives us some more scale there.

The team that operates in the St.

Pete market, it has operated there for many years, is well regarded, well thought of and is staying on with us and is excited about the opportunity to work with us.

So I think this acquisition is more than just acquiring a bank.

There's a great market behind it.

So as you know, David, our position in Pinellas County was quite small.

Previously, we had a very, very small amount of exposure there.

And so as Cathy and her team get together and assimilate with our position there, it just builds an even stronger presence for her and for her bank in that market, and we're really excited about the talent that is coming with that acquisition.

So very excited about that.

And also, a good support on the part of shareholders there, grown to really appreciate some of the deep connections they have in the market.

And so we're really, really excited about being in a much stronger position in Pinellas County.

That's terrific.

Yes.

It's a great bank and a great team.

Appreciate...

Now that we're there, we hope we can convince Raymond James to open up an account with us.

There you go.

There you go.

I appreciate all the color on the guidance, but I just had a quick one on the loan growth guidance.

Does that assume any additional loan purchases?

And I guess, how do you think about loan purchases supplementing organic growth?

Do you expect -- and if you do any more purchases, do you think it's going to be more on the commercial or the resi mortgage side?

The way I'd describe the purchase strategy is it's purely opportunistic.

We don't count on it.

If we come across something that makes sense, we'll do it.

In this case, the portfolio we purchased in the fourth quarter was something we had been working on with a fairly large regional bank that had a higher loan-to-deposit ratio that wanted to exit that or reduce that loan-to-deposit ratio.

We actually went into that portfolio and hand-selected the loans that we took as an agreement we put together with them.

So we got a great portfolio.

So it's purely an opportunistic strategy, David.

Our next question comes from Steve Moss from B. Riley FBR.

I just wanted to follow up on the loan growth questions here.

Perhaps for the quarter here in particular, the pipeline ending last quarter was really strong, close to $360 million.

And I guess the pull-through didn't seem quite as strong as what I was thinking.

Just curious, like what drove that?

Or maybe were some stuff pushed out into next quarter?

It was purely some things pushed into Q1.

So we had a handful of deals, maybe about 10 deals that moved into Q1 that would make up the difference there and where we'd close about half of those and expect to close the rest over the coming weeks.

So it was just purely a timing on closings.

Okay.

That's helpful.

And then just in terms of prepayment activity and paydowns, how much is that influencing your loan growth for '20 -- loan growth expectations for 2020?

Yes, we've modeled in a similar trend to what we experienced in the current year.

And what we've seen when you go back and look at payoffs is it's really been rate-dependent when rates have come down.

Particularly in the long end of the curve, we did see payoffs go up.

Payoffs were actually the highest they've been all year in Q4.

So we had to overcome that.

And so we model in a conservative guide around that and expected to remain just about the same as it's been over the last 12 months.

Okay.

That's helpful.

And then perhaps just a question on capital return.

I mean, obviously, you've been doing acquisitions and that's been a source of capital deployment.

But just wondering, any thoughts around dividend at this point.

Capital still appears to remain strong here.

Yes, it certainly does remain strong.

And all I can say is, we regularly take a look at our capital position in light of kind of our current and forecasted -- forecast that we see out there and including opportunities we see for balance sheet growth and the overall operating environment, and we're comfortable today with the capital levels we maintain.

We went to great lengths to kind of talk about that earlier in our prepared remarks.

And we just view it as a tremendous asset, a tremendous benefit that we carry along.

When you look at our credit discipline and our commitment to maintaining a really a fortress balance sheet, not just in terms of credit, but also in terms of capital, it really puts us in an extremely strong position.

And we intend to leverage that strong position as we go forward with that large and very robust capital level.

Having said that, capital does continue to build, and we'll regularly reevaluate that.

And as we continue to have discussions with our Board, we'll look at alternatives and make sure we deploy capital prudently as circumstances warrant.

So stay tuned.

And if we have something to say, we'll certainly be talking about it.

Our next question comes from Michael Young from SunTrust.

I wanted to ask just qualitatively on any investments that are going on this year.

I think last year, there was the full digital kind of end-to-end processes of origination that you're working on and some hiring, et cetera.

I know there were some departures here at the end of the year.

So can you just talk about maybe some strategic initiatives and where some ongoing investment needs are for this year?

Well, I'll just start and say that many of the investments we talked about last year, particularly around the digital investments and the like, much of that is behind us.

We have more to continue to kind of complete as we look into 2020.

That was always our plan to have that in pretty solid shape as we got into 2020.

So we think our investments going forward will be more heavily weighted into some of the growth investments that we see out there.

And probably, as Chuck mentioned earlier, we continue to hire very aggressively in the markets that we're in, and we'll continue to see investments, I would say, in that area around growth.

So that's kind of high level, what I would say.

Chuck, do you have any other thoughts?

No, I think that Wells says it well.

Last year, we made a fair amount of investment in a full digital and in a commercial origination platform, a full pricing model that we acquired as well as investments in our own internally developed platform.

So we put a lot more money and work into that over the last year to set ourselves up for growth.

We're now investing in putting bankers into what we think is a robust platform and looking to expand the markets.

That's kind of the objective then for 2020.

Okay.

Is it fair to characterize that it'll be more of investment in people and originators this year versus kind of back-end or technology initiatives from last year?

Yes.

And the only other thing I'd say is, we, as part of our negotiation with our outsourced data provider last year, which provided a fair amount of benefit to our P&L, we negotiated a full rework of our digital, mobile and online platforms.

And so late this year, we'll work to really enhance the customer experience around our mobile and online platforms, and that's all worked into our forward expectations and worked into the cost structure.

So it was just a matter of implementing that.

And I think that's going to provide a much better user experience for our customers.

And so we're pretty excited about that.

Okay.

And maybe just a couple of ways of asking questions about the NIM.

But first, you guys had a very significant drop in deposit costs this quarter.

It was pretty impressive, given that you already have a pretty low cost of deposits overall.

Are there incremental opportunities to continue to do that?

Or have you kind of pulled a lot of the levers there already?

Yes.

I think -- and this all depends on interest rates and the steepness of the curve.

But assuming the curve remains flat, I'd expect deposit cost to remain about where they are for the foreseeable future unless the outlook changes.

And NIM, we guided to low 3.80s in Q1.

Assuming the rate curve would remain where it is, it's probably would -- that would also flatline out as we move forward.

So it's all going to depend on where rates go.

But I think we can hold the deposit cost about where they are.

Okay.

And there's no latent pressure on loan yields from here.

I know you guys are a little less LIBOR-sensitive.

So I didn't know if there'd be some incremental roll-through throughout the year.

Or do you believe you can kind of offset that?

No, I think we can offset that.

And I think that remains relatively flat as well.

We're pretty well-positioned for where we are.

And the thing that would be most beneficial is some steepness in the curve, as you know, but we're in pretty good shape, I think, from a margin and loan and deposit cost perspective.

We work pretty hard to manage that position to be as effective as possible and position ourselves to be right where we are and feel good about where we are going into 2020.

And when you look forward, as I mentioned in my prepared comments, I think net interest income continues to grow because we positioned that well as well as we expect growth into the coming year.

So our forward outlook remains pretty positive.

Congrats on a good year.

Cool.

Thank you, Michael.

Thanks, Mike.

Our next question comes from Jeff Cantwell from Guggenheim Securities.

Congrats on the results.

I would have asked if you could drill down a little bit and maybe give us a little bit of color on the new business that you're seeing across both consumer and commercial over the past quarter, maybe the past few months, really.

Could you just tell us a little bit about the customers you've been adding and remind us why you think they're choosing Seacoast?

It's always good to get a refresh on why you're winning new business.

Yes.

No, we continue to be very competitive in the marketplace, and we benefit tremendously from the population growth that's going on in the economy.

If you look at the markets we purposely position the franchise in, Tampa, Orlando, the I-4 corridor in South Florida, there's tremendous growth in those markets, tremendous growth in the Florida GDP that is helping businesses.

Our core business prospect is generally companies that are in the professional practice space and small manufacturing and the like, and that those companies are doing incredibly well given what's happening in Florida.

There's a lot of health care moving to Florida, chasing the population, and it just really is supporting growth.

So the markets are doing well.

We're getting good inbound customer growth, and we're using bankers and marketing and everything you can imagine to make sure that continues.

And it's -- Florida is doing incredibly well and we're catching the benefit of that.

No question about it.

And when you look at, for example, unemployment rates in most of the markets we're in and some of them now, they're below 3%, just incredibly strong environment and consumers are employed.

And we're just seeing really positive things here.

Very competitive, certainly in Florida.

But I think we offer a really unique value proposition with the level of service that we deliver and the like in those markets.

We're also, as you well know, very focused on continuing to grow and support our production folks in the field.

And we have a lot of tools that we use to help them do that, and we're expanding that group every month as we continue to grow out into the franchise.

When you look ahead at our market share in a lot of these markets, there's nothing but upside for us as we continue to grow the franchise.

So very excited about the next few years and what that will bring in terms of growth.

My second question is related to that.

I was curious if you could talk a little bit about what you're seeing with your existing customer base in terms of cross-sell?

And we saw your data analytics and things of that nature.

And obviously, you guys have put a lot of work into making sure that you're staying on top of the trends with your customer base.

So I guess my question is, is which products are you seeing the most success with from a cross-selling perspective right now?

And are there areas where you would expect to be doing more cross-selling over the next, call it, 12 to 18 months?

Okay.

Jeff, it's Jeff Lee.

I'll answer that question for you.

We continue to see really good progress in the cross-selling of deposit accounts, loan accounts and also some of our fee areas as well.

I think Wells, in particular, has done a really good job of tapping into the cross-sell opportunities.

A lot of that's banker-driven, where we're getting the referrals in.

I think when you look at the penetration of some of these products and services, there's still a lot of room to grow and take advantage of what's still existing in the platform that we already have.

So if there's still value to be created, but we've seen continued good momentum, it's cross-selling of deposit activity, loan activity and the fee activity products as well.

Great.

And then if I could just squeeze one last one and it's just related to your earlier -- some of the earlier questions that we heard about the loan growth guidance for this year.

And could you just help us out there a little bit, maybe at a high level, explain where you expect to see that growth to come from?

Is there a geography in particular that looks very strong, for example, just maybe just give us a little more color there?

Yes, no problem.

The bulk of the growth comes out of the commercial banking franchise, and it's primarily coming out of Broward County, Palm Beach County, somewhat in our legacy market or the Treasure Coast.

But also Orlando and Tampa, and in particular, around the more metropolitan markets is where we see the bulk of the growth.

Yes.

And I would just reiterate that the focus, when you look at where our investments are in terms of handling that growth, they're clearly in the metro areas.

That's where we see the deep markets and the incredible growth happening in those markets.

But I would also say that it's pretty evenly distributed across the entire franchise.

We have had -- been working very hard to make investments in -- across the franchise, but particularly in markets where we have more upside in terms of market size and Tampa being one of those.

And so we've seen pipelines grow generally across the board, but they've become far more even, I would say, over the last year and due to a lot of hard work by a lot of folks in the field who are doing a great job contacting customers and helping us grow.

So I think it's pretty much across the board.

Just a great environment, great market, a great state to be in.

And operator, I think that ends our call today.

We appreciate everybody joining us today, and we look forward to updating you in April for the first quarter.

Thank you.

Thank you, ladies and gentlemen.

This concludes today's conference.

Thank you for participating.

And you may now disconnect.