Seacoast Banking Corporation of Florida (SBCF) 2020 Q4 法說會逐字稿

Welcome to the Seacoast Fourth Quarter Earnings Conference Call. My name is Richard, and I'll be your operator for today's call. (Operator Instructions)

Before we begin, I've 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 their 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. Chuck Shaffer, President and CEO of Seacoast Bank. Mr. Shaffer, you may begin.

Thank you all for joining us this morning. As we provide our comments, we'll reference the fourth quarter 2020 earnings slide deck, which can be found at seacoastbanking.com. With me this morning is Denny Hudson, Executive Chairman; Tracey Dexter, Chief Financial Officer; Jeff Lee, Chief Digital Officer; David Houdeshell, Director of Credit Analytics and Policy; and Richard Raiford, our Chief Credit Officer.

Before we get started, I'd like to congratulate Denny on his new role as Executive Chairman. I know I speak for all of our associates, our Board of Directors and our community in expressing our sincere best wishes to you as you enter this next phase of your professional career. For the last 28 years, you've led and created an incredible innovative institution that has delivered tremendous value for both shareholders and customers. You, your father, uncle and grandfather before you has steered an institution that's helped shape the fabric of our communities that we serve and has had tremendous value -- has had a tremendous positive impact on our customers, our associates and their families.

I want to wish you my sincere congratulations and to thank you for all your guidance, mentorship and friendship over the years. You've helped shape my career and many of our teammates' professional lives, and your leadership has been an incredible impact on us all. Thank you for all you've done, and I know I speak for both of us that we are excited and believe the road ahead is filled with opportunity. Congrats again, Denny, and I'll turn the call over to you.

Thanks, Chuck. For over 42 years, I've served our customers, shareholders and associates as a Seacoast team member. And as you said, including 28 of those years as CEO. It has indeed been a great honor to be able to contribute along many others who, along the way, gave so much of themselves to build what we've become.

Perhaps my most gratifying accomplishments have been the leaders that have been forged in the culture that defines us as a company. I couldn't be more pleased to have you now step into the CEO role. You will bring into that role the energy and will to win that you've consistently demonstrated in other roles you hold as well as an extraordinary focus on creating value for shareholders.

Thank you, Denny. Thanks for the kind words. And now turning to the quarter. I'll open by expressing my appreciation for the Seacoast team for producing another excellent quarter of impressive results despite the backdrop of a pandemic.

The Seacoast associates continue to generate top quartile returns by focusing on value-creating customer relationships, driving best-in-class customer satisfaction and growing market share in a thriving Florida marketplace.

During the quarter, the company generated earnings per share on an adjusted basis of $0.55, finished 2020 with an efficiency ratio below 50% and grew tangible book value per share 15% on an annualized basis to $16.16. Asset quality, liquidity and capital are all strong, and we continue to generate meaningful capital growth, bolstering our fortress balance sheet. Our capital ratios are more substantial than most of our peers, which will provide strategic flexibility as we move through the coming period and ultimately, an economic recovery.

Last quarter, Florida's governor moved to Phase 3 of the state's recovery plan, fully opening up Florida's businesses with no restrictions. We have seen our business customers return to full operation and an acceleration of the migration from the northeast of Florida, primarily high-net worth individuals and many corporate relocations. We are encouraged by the state's economic recovery supported by another round of federal stimulus and the potential for a third round of stimulus shortly. We are heads down on another round of PPP and are seeing strong demand for second draw PPP loans.

As of Wednesday evening, we had taken applications for $170 million or over 1,500 loans to assist Florida's businesses. We continue to maintain a conservative stance in the face of COVID's uncertain path. Our ACL coverage remained flat quarter-over-quarter, and we continue to model our ACL with a weight towards a more severe downturn. As evidence of the recovery materializes in the coming year, we will begin to challenge this assumption. And Tracey will have more details on the ACL modeling in our prepared comments.

We continue to be vigilant in maintaining our disciplined, conservative credit culture and our focus on generating value-creating customer relationships. We are passing on deals that do not price to an appropriate risk-adjusted return and are seeing, in some cases, competition-priced credit facilities at levels that we will not match.

We saw increased loan production in the fourth quarter with commercial volumes totaling $277 million, in line with the reopening of the state. And impressively, our yield on loans are moving the impact of PPP, and accretion on acquired loans increased from the prior quarter despite pressure from lower rates. We expect loan growth to return to pre-COVID levels on the back half of 2021, assuming the economic recovery continues to take hold in the state.

Our asset quality metrics remained strong quarter-over-quarter, with loans in nonaccrual status and classified and criticized asset ratios improving from the prior quarter. NPA ratios also improved. Our portfolio of deferred loans is down to 1% of loans or $74.1 million. We are pleased with the deferred portfolio's performance over the year, despite ending the year at a negligible amount and encouraged by continued improvement in asset quality despite the pandemic.

We focused on building fee-based revenues in 2020, providing strong results in mortgage banking and wealth management. The mortgage business had a record breaking year, recording almost $15 million in fee income. And impressively, the wealth management team generated $69 million in new AUM in the quarter, bringing the full year AUM generated in 2020 to a remarkable $282 million.

To conclude, the quarter was impressively strong and sets the company up well entering 2021. Our goal remains to continue increasing market share in a disciplined manner by focusing on growing value-creating relationships, improving digital customer experiences and driving greater productivity across the franchise by delivering products and services to our markets more efficiently than our competition.

As the pandemic winds down throughout this year, we believe there will be opportunities to continue our disciplined acquisition strategy and key growth markets across the state of Florida.

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

Thank you, Chuck. Good morning, everyone. Directing your attention to fourth quarter results. Let's start with Slide 6.

For the fourth quarter on a GAAP basis, earnings per share was $0.53. On an adjusted basis, which excludes M&A and isolated expense consolidation charges, earnings per share increased to $0.55 from $0.50 in the third quarter. On a GAAP basis, we reported a 1.49% return on tangible assets and 13.87% return on tangible common equity.

On an adjusted basis, fourth quarter results were 1.5% adjusted ROTA and 14% adjusted ROTCE. As we continue to grow our capital base, it's worth mentioning that if the fourth quarter's tangible common equity to tangible asset ratio was adjusted to an illustrative target of 8%, our adjusted return on tangible common equity would be 18.8% increasing from 17.3% in the third quarter.

Tangible book value per share increased to $16.16, up from $15.57 last quarter, an increase of 15% on an annualized basis. The efficiency ratio was 48.2% compared to 61.6% in the prior quarter and, on an adjusted basis, was 48.8% compared to 54.8% in the prior quarter.

Lower cost of deposits had a positive impact on our margin with a decline of 5 basis points from 24 basis points last quarter to 19 this quarter. Commercial originations during the fourth quarter increased to $277.4 million compared to $88.2 million in the third quarter. While we continue to maintain a conservative posture, our growth reflects well-qualified borrowers that can demonstrate the strength to navigate the pandemic economy.

The wealth management team continues to build on AUM growth with impressive results that saw total AUM up 33% year-over-year to $870 million and continued strong revenue. And throughout the pandemic, we've worked closely with our borrowers to provide payment accommodations that help support their businesses through this difficult year. Nearly all of those loans have resumed their original payment terms. At year-end, only $74.1 million in loans remain on some kind of modification program. That's just 1% of total loans.

Lastly, we added a slide showing the remarkable shift of affluence and corporate relocations primarily from the Northeastern United States to Florida. The state is benefiting tremendously from its lower taxes, warm weather and easy flights back to the Northeast. The population change felt throughout the Seacoast footprint and particularly in South Florida will benefit Seacoast as the Florida economy continues to expand.

Turning to Slide 7. Net interest income increased $5.3 million sequentially to $68.9 million. Of that increase, $3.5 million relates to higher PPP revenue, the result of both the change we made in the prior quarter to align fee recognition with the contractual maturity of the loans and also the benefit of PPP loan forgiveness, which began in the fourth quarter and resulted in the recognition of $1.5 million in additional PPP loan fees. We still have $9.5 million in deferred fees on PPP loans that will be recognized over the loans' remaining contractual life or sooner if the loans are forgiven.

The net interest margin, excluding PPP and accretion of purchase discounts, decreased by 5 basis points from 3.42% to 3.37%. A decrease in securities yields was the primary driver with continuing elevated prepayments in the securities portfolio and the deployment of some of our excess liquidity into securities in the fourth quarter. The effect of lower yields and securities was partially offset by lower cost of deposits, which dropped to 19 basis points. We expect the cost of deposits to continue to decline in the first quarter of 2021.

In the loan portfolio, the effect on net interest margin from accretion of purchase discounts on acquired loans was 23 basis points in the fourth quarter of 2020 compared to 17 basis points in the third quarter. Excluding the effects of PPP and accretion of purchase discounts, loan yields increased 1 basis point to 4.23%. Looking ahead, we expect net interest margin, excluding PPP and purchased loan accretion, will continue to decline modestly in the first half of 2021, given the effect of excess liquidity, though we expect to continue to see the offsetting effect of lower funding rates during that period.

Moving to Slide 8. Noninterest income was $14.9 million, a decrease of $2 million or 12% from the previous quarter and excluding securities gains, an increase of $1.1 million or 8% from the prior year quarter. Our mortgage banking business continues to capitalize on low interest rates and on the strong Florida housing market, with revenues of $3.6 million in the fourth quarter. That is down from a record third quarter, and we do see a slowdown in refinance activity. That said, the Florida housing market is benefiting from remarkable population migration trends and low rates, and we've built a strong foundation with local real estate professionals who have experienced our teams consistently delivering the highest service levels.

The fourth quarter was also strong for our wealth management team, with $1.9 million in revenue and additions of $69 million in new assets under management, bringing total AUM to $870 million. During the full year 2020, the wealth team added new AUM of $282 million, an impressive achievement.

Interchange revenue was $3.6 million compared to a record $3.7 million in the third quarter. In 2020, Seacoast customers used their debit cards at an accelerated pace, driving record interchange results for the full year. Service charges on deposits increased by $0.2 million compared to the third quarter. Both business customers and consumers continue to maintain higher average balances. Looking ahead, noting the lower mortgage pipeline as we enter the first quarter, we expect noninterest income to be in a range in the first quarter of approximately $14 million to $15 million.

Moving to Slide 9. Adjusted noninterest expense totaled $41.9 million, a decrease of $3.5 million from the prior quarter and just below our guided range of $42 million to $44 million. Addressing all changes on an adjusted basis, salaries and benefits decreased by $1.5 million compared to the third quarter. The decrease reflects the impact of higher deferrals associated with accelerated commercial loan originations. Legal and professional fees decreased compared to the third quarter due to a onetime recovery of certain legal expenses incurred during 2020.

Within other expense, we recorded a $1.3 million increase in foreclosed property expense, largely the result of declines in value on 2 REO properties. Also, an offsetting other expense includes a $0.8 million release of reserves for unfunded commitments, reflecting the impact of an improved economic forecast in relevant segments. Other expense also reflects lower mortgage production-related expenses and lower marketing costs during the quarter.

Looking ahead, we expect to maintain our cost discipline and focus on investments in key areas of technology, commercial banking, talent acquisitions and operational efficiency. We expect first quarter expenses, excluding the amortization of intangible assets, to be in the range of $43.5 million to $44.5 million. As a reminder, the first quarter includes the return of seasonal expenses associated with payroll taxes.

Moving to Slide 10. The adjusted efficiency ratio in the fourth quarter decreased to 48.8%, exiting the year below 50%. Looking ahead, we expect to make investments in key areas of technology and commercial banking talent, driving growth moving forward. We expect the full year 2021 efficiency ratio to be in the low 50s.

Turning to Slide 11. Loans outstanding increased 10% for the full year to $5.7 billion. Excluding PPP loans, total outstandings decreased by $51 million or 1% in the fourth quarter of 2020. Loan originations increased during the fourth quarter to $541 million compared to $338 million in the third quarter, including an increase of $189 million quarter-over-quarter in commercial.

We continue to maintain our conservative approach to underwriting. And as we're seeing increased demand, we remain focused on relationships that can demonstrate the strength to navigate a pandemic economy.

On PPP loans, the SBA started processing loan forgiveness applications in the fourth quarter of 2020. And during the fourth quarter, $72 million of our PPP loans were forgiven. As of this week, forgiveness, approved by the SBA to date, is now over $135 million. As you know, the PPP program opened again in January, accommodating both first-time borrowers and second draws for borrowers who had participated in the first round. Thus far, we have over 1,500 borrowers in various stages of the application and funding process for approximately $170 million in new PPP loans so far.

The pipeline in commercial was $167 million at the end of the fourth quarter, a decrease from prior quarter, in line with historical seasonal trends. The consumer pipeline increased to $18 million compared to $17 million last quarter. In residential, pipelines were $117 million compared to $183 million, reflecting the expected slowing of refinance activity from third quarter's record levels. Our markets continue to benefit from high levels of purchase activity, and our team is well positioned to continue to outperform competitors.

Looking forward, assuming the economic recovery takes hold, we expect loan growth to return to pre-pandemic levels in the second half of 2021. The yield on loans, excluding PPP and accretion of purchase discounts, increased slightly to 4.23%. We expect loan yields to slowly decline modestly in the first half of 2021 with lower add-on yields, assuming no change in the rate environment.

Turning to Slide 12. Highlighting the diversity of our exposure and concentration levels well below regulatory guidance. We are confident that our established conservative posture is serving us well in this environment. And we intend to continue to manage our credit exposures prudently. Our portfolio is broadly distributed across various asset classes. Stabilized income-producing commercial real estate represents 24% of loans outstanding. Owner-occupied commercial real estate represents 21% of the portfolio. And residential real estate comprises 23% of the portfolio. Approximately 80% of our commercial portfolio is secured by real estate with borrowers that have meaningful equity in their investments and lower loan to values.

The average LTV of the commercial portfolio secured by real estate is 55%. For years, we have consistently managed our portfolio to keep construction and land development loans and commercial real estate loans well below regulatory guidance. At December 31, that represented 24% and 157% of risk-based capital, respectively. Those levels have continued to decline and are lower than most in our peer group. Our loan portfolio is diverse and broadly distributed across categories with an average commercial loan size, excluding PPP, of just under $400,000.

Turning to Slide 13 for a look at loans with payment accommodations. Since last March, along with the entire industry, we supported our customers with short-term payment deferral programs. As 2020 progress, the large majority of these borrowers successfully resumed making contractual payments, and the level of loans with accommodations has dropped from nearly $1.1 billion at June 30 to $74.1 million at December 31.

Turning to Slide 14 for a more detailed look at our CRE and AD&C portfolios, including accommodations. Diversification across industries and collateral types has been a critical tenet of our strategy, which we believe continues to position us well in this environment. The largest exposure in our aggregated, owner-occupied CRE and construction portfolios is office buildings. Loans in the office building category with active payment accommodations at year-end totaled only $6 million. That has declined from the $135 million in payment accommodations we reported in this category at the end of the third quarter. The average loan size in our office portfolio is $600,000. The average LTV is 57%. 56% of this portfolio is classified as owner-occupied, comprised primarily of independent professional practices including medical, accounting, engineering and other life-type professionals. The remainder of the office portfolio is stabilized income-producing investment properties.

Our second largest segment is retail real estate, representing only 8% of total loans. These are typically multi-bay shopping centers and many were provided with payment accommodation during the year. Outstanding payment accommodations in the retail category have dropped as of the end of the fourth quarter to only $4.5 million compared to $147 million at the end of the third quarter. We're very pleased with the positive impact that our payment deferral efforts have had in assisting local businesses and with the ability of those borrowers in nearly every case to return to making contractual payments. As you know, the retail portfolio does not include regional mall complexes, outlet malls, movie theaters or entertainment venues. The average loan size in our retail portfolio is $1.3 million, and the average LTV is 58%.

We've also been very pleased with the performance of our hotel and restaurant portfolios, where the large majority of borrowers have returned to making contractual payments, reflecting the strength of our operators and the lower leverage across the portfolio. The restaurant and hotel portfolios are primarily secured with real estate, with an average loan-to-value of only 55%. Our hotel exposure is well diversified. The majority of our exposure is beach side and along interstate and major arteries that benefit from weekend travel, where there are no occupancy restrictions. We have little exposure in theme park locations and do not finance resort or conference center facilities.

Turning to Slide 15 for a more detailed look at our commercial and financial loans. The largest exposure is in holding companies owned by high-net worth individuals for aircraft and marine vessels, and this represents a modest 4% of total loans, none of which have active payment accommodations. In total for the commercial and financial portfolio, loans with payment accommodations declined from $61 million at the end of the third quarter to under $12 million at the end of the fourth quarter.

Turning to Slide 16 and 17 for the securities portfolio. With the decline in rates and faster prepayments on mortgage-backed securities, yields are down this quarter by 39 basis points. We made additional purchases of primarily agency-grade mortgage-backed securities at an average add-on yield of 1.43% and an average life of 4.6 years. We are carefully investing in bonds that have little extension risk and will roll down the curve over an approximately 4-year period. Market values across the portfolio increased bringing the net unrealized gain to $34.3 million.

Looking forward to the first quarter, given the historically low-rate environment, we're being cautious on how much cash we will put back to work in this portfolio and expect to invest approximately $150 million to $250 million with similar yields and duration to the fourth quarter activity.

Turning to Slides 18 and 19. Deposits outstanding were $6.9 billion, an increase of $18 million quarter-over-quarter and an increase of $1.3 billion or 24% year-over-year. Compared to the third quarter, the cost of deposits was lower by 5 basis points to 19 basis points. Looking ahead, we expect the cost of deposits to continue to decline in the first quarter of 2021.

Moving to Slide 20. The allowance for credit losses under CECL reflects our estimate of lifetime expected credit losses, which includes our expectation that some loans will migrate into loss through the cycle. Coverage on loans, excluding PPP, is 1.79%, down slightly from 1.8% in the prior quarter. In addition to what we feel is a prudent level of allowance, note that we also have $30.2 million in purchase discount that will be earned over the life of those loans as an adjustment to yield. Also of note, our obligations under unfunded loan commitments have a separate reserve of $2.2 million.

Turning to Slide 21 on asset quality. Charge-offs in the fourth quarter were $3.1 million. This was comprised primarily of a small number of commercial loans, and none of those charge-offs individually exceeded $600,000. The level of nonperforming loans decreased by $0.8 million to $36.1 million, still representing 0.63% of total loans. Criticized loans were 16% of total risk-based capital at December 31. As the third quarter deferrals expired and we were able to see borrowers demonstrating the ability to return to making full payments, several loans were upgraded out of criticized categories in the fourth quarter.

We continue to remain cautious and are taking an appropriately conservative approach to grading. The overall allowance for credit losses at December 31 is $92.7 million, and allowance coverage, excluding PPP loans, is down slightly to 1.79%. We continue to have a guarded view of the economic outlook and the timing of a full recovery. So our allowance estimate still gives significant weight to the Moody's S3 moderate recession scenario, where the characteristics of the downturn could be sustained over a more extended period. We will continue to revisit this assumption in 2021 as evidence of the recovery materializes.

Turning to Slide 22. Our capital position continues to be strong and our long-standing commitment to maintaining a fortress balance sheet has positioned us for resilience. Tangible book value per share is $16.16, an increase of nearly 4% over the third quarter and 15% when annualized. The tangible common equity to tangible asset ratio was 11% at the end of the fourth quarter and has consistently been among the highest in our peer group. The Tier 1 capital ratio was 17.4%, and the total risk-based capital ratio was 18.5% at December 31, each increasing over the prior quarter. Return on tangible common equity increased to 14% on an adjusted basis.

To wrap up on Slide 23. Looking back from the beginning of 2017 to today, we have achieved compounded annual growth rate in tangible book value per share of 12%, driving shareholder value creation. We are confident that our established conservative posture and efficient operating model will serve us well as the recovery progresses.

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

Okay. Thank you, Tracey. Richard, I think we're ready for Q&A.

(Operator Instructions) Our first question online comes from Mr. Michael Young.

I guess, I kicked off prematurely congratulating Denny last call and with 42 years with one company, I guess, an encore is welcome. So congrats again, Denny. And I know, Chuck, even though he's not a blood family member, it probably feels like that at this point with how long you all worked together. So wish you the best in the future, and we'll obviously miss hearing you on these calls on a regular basis.

Thank you, Michael. It's been terrific working with you over the years. It's great to get to know you. So thanks for that.

Thanks, Michael.

And you're leaving the company in good hands and with a high-class problem of very high capital levels, so I wanted to start there. Maybe, Chuck, just on capital levels being high, you guys announced the share buyback. Obviously, in December, once you kind of saw the deferrals come down, but now the stock's valued pretty well. So just how do you kind of view deploying the capital from here maybe in the absence of M&A materializing?

Yes. No, happy to address it, Michael, and thanks for the question. Our view on capital remains very similar. We are still in a pandemic. It's still an uncertain period. And so we're very comfortable with where our capital levels are today, and we'll continue to take a disciplined approach to the environment we're in. That being said, we'll continue to revisit the various options for capital, which includes buybacks, dividends, organic and M&A. Our preference is to use capital for both organic growth and M&A. We think that's the highest use. And on the buybacks, we'll continue to look at that on an earn-back basis, and we'll use it opportunistically when it makes sense for shareholders. And as we move forward, we'll continue to revisit all the various components, including dividends, and it will be something we'll continue to look at, particularly as the economy continues to recover here over the coming year.

Okay. And wanted to also ask just on kind of the NII dollars. Obviously, I know NIM can be a little hard to forecast, although you guys have kind of a view on maybe how much securities you're going to purchase. But just net-net, however you want to talk about it maybe on a core basis ex-PPP or with PPP, whatever is easiest, but how do you kind of see the stability and/or progression higher in NII dollars as we move through 2021?

Yes. I can start. We expect significant variability, as we said, in PPP and an accretion of purchase discounts that will affect NII. We do expect the margin to continue to decline if we remain in this rate curve. But as a reminder, we also have very low deposit costs. And if we do see the curve expand later in the year, that would be beneficial to the margin. The economic recovery supporting loan growth in the second half of the year will also be beneficial to NII.

Yes. And just real quick, I'll just mention, Michael. And one of the benefits we have at Seacoast is the high-quality of the deposit base. We have a 19 basis point cost of funds, it's primarily transactional, long duration and the positive outlook ahead for us as we see the yield curve begins to steepen ideally on the backside of this recovery. We see loan growth recover. There's a positive story there as margin widens out, loan growth recovers and we're able to keep cost of deposits low. That's what's always historically happened to the franchise, what happens with high-quality franchises like ours. And given the relationship nature of the franchise, we think there is an expansion of margin that could happen if that yield curve would materialize on the backside of the recovery.

Okay. And last one for me, just on kind of loan growth generally. I know you all were kind of fairly cautious in the second half of last year just given the pandemic and wanting to see kind of, I guess, positive implications in a path forward. Florida has been relatively probably more open than any other states and benefiting from tourism maybe disproportionately. So -- or do you kind of see that optimism and confidence to begin making new loans more aggressively as you get back to that kind of historical, we'll call it, high single-digit, low double-digit growth rates?

Yes. I think the way we're thinking about it, we're certainly still being cautious and thoughtful as we navigate this period. When we look at new loan requests, we're looking for borrowers that have the ability to navigate the pandemic and have the ability to navigate further deterioration. That all being said, Florida is recovering. We've now vaccinated 25% of our senior population, which is a positive development. We're seeing all of our businesses open. And so that gives us some confidence that the back half of the year could be relatively strong as we move through the first half.

That being said, it is still recovering. There's still -- it's still -- the social distancing and things are going on in the state. So we don't see as the -- as many opportunities as we are seeing during the period prior to the pandemic, but we do expect that to come back. And you can see that in the quarterly run rate moving up from $80 million to $277 million from the third quarter to the fourth quarter as we were able to get back out. And seasonally, the first quarter is normally slower. But when we look out beyond the first quarter into second, third and fourth quarter, we expect things to start to come back.

Our next question on the line comes from Mr. David Feaster.

I just wanted to dig into the commercial pipeline a bit and loan production. It was a great production quarter. I was just curious maybe the composition of production in the pipeline. I guess, first of all, how much of this do you think is from existing clients versus new clients that you brought over from the lender hires or the PPP program? And then just maybe the breakdown between CRE and C&I, I guess, just would you expect more contribution from C&I, just given the focus there going forward?

The way I would think about it, Michael, is it's a mix. It's primarily current customers that we know well and have done business with in the past that are bringing back opportunities to us. It tends to lean into owner-occupied commercial real estate, given the nature of the C&I and owner-operated companies that we focus on. There is a portion that's CRE to sort of well-qualified, strong balance sheets, high liquidity, again, showing clear ability to navigate the pandemic. But it's a mix but leans heavily more into owner-occupied CRE and more professional practices that we've done in the past.

Okay. And then, I guess, just curious kind of the pulse of your clients as we head into next year. Have you found that they're still a bit nervous? Or are they willing to start investing in some expansionary CapEx? And maybe, I guess, start seeing some accelerating growth here as utilization increases? Just curious kind of the pulse of your client here.

I think things are still recovering in the way I'd describe it. And generally, folks are still cautious. That being said, there's definitely a sense of optimism as to what's out ahead for Florida. And we do see more conversations happening pretty much across the state. And there's more confidence growing in the state. And I think as the vaccines and the vaccination process takes hold, that will provide a lot more confidence as we move forward. And as you know, there's a lot of liquidity in both our borrowers and businesses across the state that ultimately will need to be redeployed into things as we move forward. But a lot of liquidity and growing optimism is the way I'd describe it.

Okay. And then just curious on the margin. I know it's hard to say, but especially in light of the likelihood for further liquidity builds and the challenging backdrop and all that. Just any thoughts on the core NIM? And where we might trough and maybe the timing of it? I know that's a tough question, but any insight into maybe when we can bottom would be helpful.

I can start. So the core NIM, excluding PPP, purchase loan accretion declined 5 basis points during the quarter to 3.37%. It will likely continue to modestly decline in the first half of 2021, given continued pressure on securities yields, the dilutive effect, as you said, of excess liquidity though we expect to continue to see lower funding rates during that period. Beyond that, it's pretty difficult to provide guidance on NIM, given the potential uncertainty of the rate environment and also the ongoing effects of the pandemic and stimulus programs that might also impact that.

Okay. And where do you think we kind of might trough that around there? I mean, are we going to stay kind of north of 3.30% or kind of maybe dipping at 3.20s?

It's hard to give guidance, David, out beyond the quarter. It's just too difficult. It's -- once you get out beyond a quarter or 2, the big variability kind of -- to go back to what I mentioned to Michael, is if we were to see the yield curve steepen for our balance sheet where we have some asset sensitivity where we have a lot of liquidity and the ability to drag out deposit costs over the long run, there's a lot of support for margin. But we would need to see the 10-year move up and the longer end of the curve start to move, which we think is a reasonable possibility given the level of inflation and the level of government support going on.

Our next question on line comes from Mr. Steve Moss.

I guess, maybe just following up on the margin here in terms of just maybe how do we think about like total purchase accounting accretion for 2021 in dollar amounts, if there's kind of a range, maybe if you could frame that out for us, Tracey?

Yes. Also, an area that's difficult to model, a lot of volatility. In the current quarter, accretion of purchase discounts positively impacted yields by 30 basis points. Last quarter, it was 22 basis points. Highly dependent on payoffs, but we have modeled a benefit of about 27 basis points to loan yields could be higher, could be lower.

Okay. That's helpful. And then I think you said low 50s efficiency ratio for 2021. Just kind of curious if maybe some of the realization of PPP fees are influencing that number? And then just kind of how your thoughts are on expenses, what your investment needs are, hiring or technology versus wanting to rationalize expenses?

Yes. Looking ahead in 2021, we expect to maintain the cost discipline that we've always had, focus on investments in key areas of technology, operational efficiency. Like I said, we expect the efficiency ratio to be in the low 50s and...

The only thing I'd add to that, Steve, is we'll be opportunistic with acquiring talent through time. We are actively recruiting, particularly commercial banking talent around the state, and we're seeing good opportunities for that, but expect to manage the business in the low 50s throughout the year.

Okay. And just in terms of -- does that include the PPP fees being realized into NII?

It does.

It does. Okay. And then in terms of just -- in terms of the purchases of securities here, the $150 million to $250 million number, is that just for the first quarter? Or just maybe -- and just how you think about securities as a percentage of assets here going forward?

Yes. It's just meant to guide to the first quarter.

Just the first quarter. Anything beyond that, we'll provide more guidance as we move forward. Again, just as Tracey mentioned, little cautious here to put a lot of money back to work with the 10-year near 1% with the likelihood, as I mentioned earlier, of the possibility of a rising yield curve later in the year, not wanting to overcommit to the current period and being somewhat balanced and disciplined about how much money we put back to work over time. But $150 million to $250 million for Q1 is about right. And then beyond that, we'll continue to be -- it will just depend on the outlook for rates in the economy in January.

Our next question online comes from Mr. Christopher Marinac.

Chuck and Tracey, I apologize if I missed this. Is there a timing for the third round of PPP in terms of when you recognize the forgiveness? Do you think that will be this year? Or will it take longer?

Yes. We've got -- well, as of a couple of days ago, we have about $170 million so far in loans funded under that third round of the program. We're assuming a pace of forgiveness that's similar to what we're seeing so far with round one. So for the latest round of PPP, we're estimating forgiveness starts around the second quarter of 2021 with about 1/3 of that forgiven by the end of this year.

So those loans will be off the books then, but that new $170 million will be off the books within a year or less?

We're estimating about 1/3 of those will be gone by the end of this year. So most will still be here at the end of 2021. Yes. Those are a 5-year contractual maturity, and we're still kind of learning from the experience and the pace of forgiveness and what to expect from the first round.

Okay. Got it. Sounds good. And then more of a strategic question. So Chuck, with all the conversations you're having and various people making suggestions at Seacoast, I mean, do you feel compelled to do anything from a bigger size? Or do you still feel comfortable doing kind of the small tuck-in acquisitions that you've been very successful with the past several years?

Yes. When we -- on the M&A front, I would say we are seeing deal conversations accelerate post-COVID, which is a positive. And I think, our focus will remain generally on smaller tuck-in acquisitions, primarily in the key growth markets of Florida, Tampa, Orlando, South Florida, north of Miami, sort of Fort Lauderdale up the East Coast as kind of our key markets, and it will likely still be tuck-in acquisitions, Chris. Those generate good cost-outs. They generate good growth in our market share in those markets and allow us to expand our presence in an economically feasible way. And as we've done in the past, they've generated good shareholder returns, and that's where our focus will be.

Sounds good. And Denny, best wishes to your next chapter.

Thanks, Chris.

And our final question comes from Mr. Stephen Scouten.

Just maybe a follow-up on some of Chris' questions there around kind of strategic decisions. Does there come a point where these tuck-in deals -- I think you've mentioned previously, maybe 5 or 6 that could potentially come to fruition over time, where those opportunities kind of exhaust themselves? And do you start thinking about deals outside of the state at some point in time, given just how rapidly you guys generate capital internally?

Thanks, Stephen, for the question. Our strategy is to remain in the state and in particular, the growing parts of the state. And as you think about Florida, given the population growth and in particular, the acceleration of that population growth during COVID, and you sort of layer on top of that the quality of the population growth coming into the state, it's fairly remarkable. And I think our best strategic path forward is to get as concentrated as we can in what is probably one of the most robust markets in the country. And that's going to generate the most franchise value.

Yes, that makes a lot of sense. Okay. And then in terms of talent acquisition, you guys noted a couple banker hires, a treasury management individual. How do you think about the pace of potential hires in 2021? I mean, will you -- I mean, do you have a target in mind? Do you have a fairly aggressive plan? Or is it just more opportunistic in nature?

We definitely have a plan to hire as we move forward, both in terms of banker talent and leadership talent in and around the organization. And we'll continue to hire, but it will be opportunistic. We're not going to sort of make hires just to hit a number. We're going to hire the right people in the right markets that fit into the culture well and folks we can believe in. So it will be opportunistic as we move through the year.

Perfect. And Denny, I know your role is changing, but I still expect to hear from you, but congrats nonetheless on the transition.

Okay. Thanks, Steve. Look forward to talking to you.

Thanks, Steve.

And we have no further questions at this time. I'd like to turn the call over to Mr. Shaffer for closing remarks.

Thank you, Richard, and thanks, everybody, for their questions, and we look forward to talking to you next quarter. Thank you.

And thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.