Seacoast Banking Corporation of Florida (NASDAQ:SBCF) Q4 2021 Earnings Conference Call January 28, 2022 10:00 AM ET

Company Participants

Chuck Shaffer - President and Chief Executive Officer
Tracey Dexter - Chief Financial Officer

Conference Call Participants

Michael Young - SunTrust Robinson Humphrey
Steve Moss - B. Riley FBR Inc.

Disclaimer*: This transcript is designed to be used alongside the freely available audio recording on this page. Timestamps within the transcript are designed to help you navigate the audio should the corresponding text be unclear. The machine-assisted output provided is partly edited and is designed as a guide.

Operator

00:06 Good morning and welcome to the Seacoast Banking Corporation's Fourth Quarter and Full-Year 2021 Earnings Conference Call. My name is Brandon, and I'll be your operator. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session.

00:20 Before we begin, I have been asked to direct your attention to the statement contained at the end of the company's press release regarding forward-looking statements. 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 this conference is being recorded.

00:43 And I will now turn the call over to Chuck Shaffer, President and CEO of Seacoast Bank. Mr. Shaffer, you may begin.

Chuck Shaffer

00:50 Thank you, Brandon, and thank you all for joining us this morning. As we provide our comments, we'll reference the fourth quarter 2021 earnings slide deck, which you can find at seacoastbanking.com. Joining me this morning is Tracey Dexter, Chief Financial Officer; and Jeff Lee, Chief Digital Officer.

01:10 The Seacoast team delivered another outstanding quarter generating 42.3 million in pre-tax, pre-provisioning earnings and grew tangible book value per share of 10% from the prior year to $17.84. Additionally, the company reported an adjusted efficiency ratio of 53.4% and the adjusted return on tangible assets was 1.49%. These strong shareholder returns were complemented with solid growth in loan outstanding growing 8% on an annualized basis.

01:41 We saw growth in both our commercial and consumer segments, and we are exiting 2021 with loan pipelines at record levels. The business environment in Florida has never been better. There continues to be a significant migration of affluent individuals and companies relocating to Florida, due to low taxes of business friendly environment and a post-pandemic work from anywhere economy. This migration to Florida is in combination with the best hiring market we've seen in years.

02:11 High quality bankers are increasingly frustrated with the cultural challenges and complexities emerging with upstream mergers and larger organizations, and as a result, are looking for a culture that allows them to service their clients and give business accomplished.

02:27 Given our tool set, speed to market, and consistency and executing for clients, bankers are choosing to call Seacoast home. Since the prior quarter end, we've added 12 commercial bankers and 7 mortgage bankers to our team. And in-line with our growth plan, we've discussed on previous calls, we are launching teams in Jacksonville and Naples.

02:51 We expect hiring to continue robustly in the coming quarters, as we have a record pipeline of high quality talent ready to exit larger banks for something more exciting. We will introduce our customers to a significantly enhanced digital banking platform in early February, including many new tools and digital products.

03:10 We'll follow this up in May with the launch of an enhanced online account opening product for both business and consumer customers. This investment in technology will significantly improve our customers mobile and online banking experience, lower our costs to acquire new customers, and reduce our cost to service our client base.

03:29 And lastly, I'm incredibly proud of the many Seacoast Associates for their hard work in 2021. We are building a bank that will strongly compete across the state and the fruits of this labor is starting to show up in both customer and balance sheet growth. As we enter 2022, we will soon have a significantly enhanced digital banking offering for our customer base.

03:51 We are operating a best-in-class data analytics platform supporting growth in our frontline businesses and we are building what could be the strongest commercial banking team in Florida in the coming years. When you put all this together, it provides me with the level of confidence that 2021 has the potential to be an outstanding year for disciplined growth.

04:11 Our fundamentals remain very strong with a well-capitalized low risk fortress balance sheet, strict underwriting standards, and a desirable customer franchise positioned to take market share in Florida. I will also note that acquisition discussions continue across the state, and we expect we'll have opportunities to continue to execute our successful M&A strategy in the coming year.

04:34 I'll now turn the call over to Tracey, who will walk through our financial results.

Tracey Dexter

04:38 Thanks, Chuck. Good morning, everyone. Directing your attention to fourth quarter results, beginning with Slide 5. Earnings per share was $0.62 in the fourth quarter, an increase of 17%, compared to the prior year quarter. On a GAAP basis, net income increased 24% year-over-year to 36.3 million, and on an adjusted basis, which excludes merger related and other isolated items in each period, net income increased 20% to 36.9 million.

05:10 Organic loan production continues to increase, resulting in fourth quarter annualized loan growth of 8%. Commercial loan originations were a record 409 million, increasing 23% from prior quarter and 47% from the prior year quarter. The commercial pipeline also reached a record level of 398 million, that's nearly 140% higher than year-end 2020.

05:37 The team also set a record for production in consumer lending with fourth quarter originations increasing 9% from the prior quarter, and 53% from the prior year quarter. The net interest margin, excluding the effects of PPP loans and accretion on acquired loans increased 2 basis points to 2.91%. We continue to deliver steadily increasing tangible book value per share, which ended the period at $17.84, an increase of 10% from the end of 2020.

06:09 Cost of deposits remains in the single-digits. Our wealth management division continues to grow with new assets under management of 419 million for the full-year 2021. AUM of 1.2 billion at December 31, 2021 is a year-over-year increase of 42%. And the acquisition of the Sabal Palm Bank and Florida Business Bank were successfully completed in early January. Purchase accounting adjustments including a day one provision for loan losses will impact the first quarter of 2022.

06:43 Turning to Slide 6. Overall, net interest margin dropped 6 basis points from 3.22% to 3.16%, excluding PPP and accretion on acquired loans, which introduced significant variability. Net interest margin increased by 2 basis points from 2.89% to 2.91%. Net interest income on a fully tax equivalent basis increased by 1 million or 1% in the fourth quarter to 72.4 million.

07:00 The increase includes an increase in interest in fees on loans, primarily due to growth in the loan portfolio, where ending loan balances, excluding PPP increased 119 million during the quarter, offsetting the increases in organic growth with lower recognition of fees on PPP loans, we recognized 3.4 million in PPP interest and fees compared to 5.9 million in the third quarter of 2021.

07:43 Excluding PPP, yields in the core loan portfolio declined 11 basis points to 4.18%. In the securities portfolio, we've continued to pace our investments of excess liquidity, adding a net 210 million and the growth in the securities portfolio contributed to higher securities interest income. Yields in the securities portfolio declined 2 basis points to 1.57%.

08:10 Offsetting and favorable to net interest margin are lower cash balances and continued improvement in the cost of deposits, which dropped to 6 basis points in the fourth quarter. We expect that the core net interest margin has stabilized and will expand into the coming year. For modeling purposes, we expect that net interest margin will expand 4 basis points to 6 basis points per each 25 basis point increase in the Fed Funds rate.

08:39 Exiting 2022, we expect core net interest margin will be higher by approximately 20 basis points, compared to the fourth quarter of 2021, inclusive of three rate hikes during the year, which we had modeled in the second, third, and fourth quarters.

08:56 As a reminder, we operate with an asset sensitive balance sheet, predominantly core deposit funded, and we continue to carry ample liquidity that will reprice with higher rates. As a frame of reference, a 100 basis point shock on our static balance sheet would translate to an approximate 7% increase in net interest income.

09:19 Moving to Slide 7. Adjusted non-interest income was 18.3 million, a decrease of 700,000 from the previous quarter, and an increase of 3.4 million from the prior year quarter. As you can see in the results year-over-year, we've continued to focus on driving non-interest income in 2021.

09:40 The wealth management team continues to deliver strong growth and successful relationship expansion and revenue during the quarter was strong at 2.4 million. We remain very focused on building the wealth management business given its high return on capital and the value it adds to our commercial relationships.

10:00 In our mortgage banking business, as expected, revenue is lower on lower refinancing demand and tight housing inventory levels. Lower pipelines are typical of seasonal conditions at the end of the year, and the team will continue to contribute meaningful results with recent hiring and a strong Florida housing market.

10:20 Our SBA team has had a very successful year as non-PPP opportunities return though the fourth quarter did see lower production compared to the third quarter. We expect increasing production in the coming year. We saw a meaningful contribution again this quarter from our SBIC investments though income from these investments can vary widely among periods.

10:43 We also had a unique gain from the sale of a website domain name that we acquired in a bank acquisition several years ago. That gain was 750,000 and is not included in the presentation of adjusted non-interest income.

10:58 Looking ahead, we expect wealth management and FBA to continue to grow. Mortgage banking gains will remain constrained by market conditions in the first quarter, and we expect improvements beginning in the second quarter with recent hiring positioning us to capitalize on the opportunities. Overall, for non-interest income, we expect first quarter to be between 16 million and 17 million.

11:24 Moving to Slides 8 and 9. Adjusted non-interest expense for the fourth quarter was at the lower end of the range of the guidance we provided at 48.3 million. Salaries and benefits expenses were higher, compared to the third quarter, reflecting the addition of commercial banking talent and higher production related incentives.

11:44 As we prepare for the upgrade of our mobile and digital banking platform in February, fourth quarter expenses included costs related to preparation and testing and you see that in the increase in data processing costs.

11:58 Looking ahead, we expect to maintain our expense discipline as we always do. We expect first quarter expenses, excluding the amortization of intangible assets to be in the range of 52 million to 53 million. The increase quarter-over-quarter is the result of the two acquisitions that closed early this month, adding approximately 2.8 million in additional overhead in the first quarter, and an additional approximately 1.2 million in continued investments in talent and digital enhancements.

12:31 We expect the adjusted efficiency ratio to be approximately 56% in the first quarter in line with prior year seasonality. And to decline somewhat ratably throughout the year to be in the low-50s by the fourth quarter. This includes growth in net interest income through the year and reflects cost efficiencies associated with the two transactions that take full effect by the second half of the year.

12:57 As a reminder for the two transactions, system conversion and branding changes will take place for Florida Business Bank in March, and with Sabal Palm Bank in May.

13:08 Turning to Slide 10 and our efforts in commercial banking. The record levels of production and pipeline this quarter are in part the result of our success in bringing together this group of individuals and others with significant market expertise and proven success in developing high performing commercial banking team. We brought in 20 new bankers in 2021 and have targeted even more additions in 2022 as we expand our footprint across the state.

13:38 Turning to Slide 11, highlighting the diversity of our exposure and concentration levels well below regulatory guidance. Our portfolio is broadly distributed across various asset classes. Stabilized income producing commercial real estate represents 29% of loans outstanding, owner occupied commercial real estate represents 20% of the portfolio and residential real estate comprising 24% of the portfolio.

14:07 For years, we've consistently managed our portfolio to keep construction and land development loans and commercial real estate loans well below regulatory guidance. At December 31, that represented 19% and 162% of risk based capital respectively. Our loan portfolio is diverse and broadly distributed across categories with an average commercial loan size, excluding PPP of less than 500,000.

14:36 Turning to Slide 12. Loan balances, excluding PPP are higher by 119 million from the prior quarter, representing annualized growth for the quarter of 8%. That increase represents organic growth in commercial and consumer categories, partially offset by a decline in residential mortgage loans.

14:58 Commercial growth is a highlight as recent talent additions and investments in technology are building momentum and delivered record level originations this quarter of 409 million, an increase of 23% over the third quarter, and an increase of 47%, compared to the fourth quarter of 2020.

15:17 The year ended with a record commercial pipeline as well of 398 million. Consumer growth was also strong with originations of 73 million increasing 9% from the third quarter and 53%, compared to the prior year quarter. The consumer pipeline, which was 30 million at year-end had increased 63% from year-end 2020. For further detail by loan segment of production and pipeline levels by quarter, please reference Slide 24 in the presentation deck.

15:51 Looking forward, we expect loan growth to continue with an annualized growth rate in the mid-to-high single-digits in the first quarter of 2022 and expand to high single digits for the remainder of the year. We expect core yields stabilize near fourth quarter levels and to be somewhat higher in the first quarter, supported by the positive impact of the portfolios coming on from the two acquisitions.

16:18 Turning to Slide 13, the graphic shows PPP activity for the year. We've processed 778 million in forgiveness year to date, including 103 million in the fourth quarter, bringing principal balances of PPP loans outstanding at December 31 to 91 million net of deferred fees.

16:38 Overall, since the start of the program, we've collected 27.6 million in SBA fees. Of that, we've recognized over 25 million lives to date and have 2.4 million in fees remaining to be recognized in future periods. We expect the majority of this remaining fee income to be fully recognized by the first quarter of 2022.

17:01 Turning to Slide 14 for the securities portfolio. We continue to invest excess liquidity at a moderate pace in the investment securities portfolio, with approximately 430 million in purchases this quarter, offset by paydowns and sales for net growth of 210 million. Additions were largely agency guaranteed with short duration and overall portfolio value decline with expectations for higher rates.

17:29 Visible in the chart is that we've added during the year to our Held to maturity portfolio, thereby limiting the impact of valuation changes to tangible book value. With new purchases, we will continue to steadily pace our investments expecting net additions of approximately 150 million to 250 million in the first quarter and continue to focus on shorter duration agency bonds that will roll down the curve and allow us to deploy the resulting cash flow at higher future rates.

18:01 Turning to Slide 15, deposits outstanding were 8.1 billion, a decrease quarter-over-quarter, due primarily to our management of brokered money market deposits. As we manage excess liquidity and overall cash levels, we’ve continued to make use of wholesale funding and off balance sheet deposit products through third party programs.

18:23 Off balance sheet levels remained near flat, compared to the prior quarter at 228 million and the decline in brokered deposits drove much of the change in overall deposits. As we move into January, I’ll note that we have brought back approximately 150 million in deposits from brokered programs through the balance sheet and the acquisitions of Sabal Palm Bank and Florida Business Bank have added another 560 million in deposits.

18:51 At year-end 2021, transaction accounts represented 62% of total deposits and had grown 29% year-over-year, demonstrating the strength of our customer franchise, a growing Florida economy, and our ability to win share in the marketplace.

19:08 We expect deposit balances exiting the first quarter to be in a range between 8.8 billion and 8.9 billion. We expect to continue to use off balance sheet programs for liquidity management purposes at approximately the same levels we have in the past two quarters.

19:26 On to Slide 16, the cost of deposits has continued to decline and for the fourth quarter it was only 6 basis points. Looking ahead, we believe this represents the lower bound for deposit costs, though we expect the cost of deposits to remain in single digits for most of 2022. For reference, our non-maturity deposits in the last full rate cycle repriced at a rate of 24% and when looking at just the first 100 basis points of the last cycle, the rate was only 10%.

19:59 Ultimately over the long-term, decisions about repricing will be made in light of the rate environment and competitive factors. Illustrated in the chart on Slide 16, is the deposit per branch, which stepped down this quarter to 154 million. We opened two new branches in the fourth quarter, which brought the per branch deposit level down. In addition, as I mentioned, the decline in brokered money market deposits also brought down overall deposit levels.

20:30 Our branch optimization strategy is supported by our digital and analytics competency, which continues to provide opportunity to drive growth and operating efficiency across our retail franchise. In the last five years, we've consolidated 27% of our physical branches.

20:47 We still think physical branches are extremely important to our customers and as a result expanded our Broward County presence with two new branches during the fourth quarter. We also have a branch opening in Naples later in the first quarter complementing our Florida West Coast growth strategy that includes Tampa and Sarasota. The strategic positioning of physical branch locations in top growth markets is a key part of our continuing growth strategy.

21:15 Moving to Slide 17. The Wealth Management business has delivered growth in assets under management with a compound annual growth rate of 33% over the past two years and 42% percent in 2021. The team has done a remarkable job building a high net worth family office model and partnering with our commercial team to build relationships. This relationship driven approach generates value for our most profitable clients and will continue to deliver tremendous growth.

21:44 Moving to Slide 18 and to credit topics. The allowance for loan losses decreased during the quarter to 83.3 million, representing a decline in portfolio coverage, excluding PPP from 1.54% in the prior quarter to 1.43% this quarter. The decrease is in line with sustained indications of overall economic recovery and continuing strong portfolio quality trends.

22:11 In addition to the allowance, the total purchase discount remaining on prior bank acquisitions is 23.1 million, which will be earned as an adjustment to yield over the life of those loans.

22:23 Turning to Slide 19 on asset quality, credit measures remain strong with charge-offs, non-accrual, and criticized loans at historically low levels. Net charge-offs in the fourth quarter were 570,000 or 4 basis points on average loans, and the level of non-performing loans decreased by 2 million to 30.6 million, representing 0.52% of total loans.

22:50 Criticized loans decreased to 13% of risk-based capital in the fourth quarter and the overall allowance for credit losses at December 31 is 83.3 million with allowance coverage, excluding PPP loans of 1.43%.

23:07 Turning to Slide 20. Our capital position continues to be very strong and we're committed to maintaining our fortress balance sheet. Tangible book value per share is $17.84, an increase of 10% year-over-year. The tangible common equity to tangible asset ratio increased to 11.1% at the end of the year and has consistently been among the highest in our peer group.

23:32 The Tier 1 capital ratio was 17.4% and the total risk-based capital ratio was 18.2% at December 31. Adjusted return on tangible common equity was 14.1%. Acknowledging our peer group leading capital levels, it’s worth mentioning that if the fourth quarter's tangible common equity to tangible asset ratio was adjusted to an illustrative target of 8%, our adjusted return on tangible common equity would be 19% for the fourth quarter, and 18.6% for the full-year 2021.

24:08 And finally, on Slide 21, looking back over the last five years, we've achieved a compounded annual growth rate in tangible book value per share of 12%, driving shareholder value creation. We've positioned this franchise with a foundation of strong liquidity and capital from which we will continue to execute on our strategic growth initiatives, and optimize the opportunities of this strong Florida economy.

24:35 We look forward to your questions. Chuck, I'll turn the call back to you.

Chuck Shaffer

24:38 Thank you, Tracey and Brandon. I think we're ready for Q&A.

Question-and-Answer Session

Operator

24:43 Thank, sir. We’ll now begin the question-and-answer session. [Operator Instructions] And on line we have [David Feaster] [ph]. Please go ahead.

Unidentified Analyst

25:09 Hi, good morning everybody. Nice to see the increase in production in the quarter. Just curious some of the puts and takes with what you think is driving the increase? Obviously, the pipeline has been building as we – throughout the year, but are you seeing an increased demand just given the economic strength of the market, is it the new [hire setting] [ph] stride? Is it increased willingness to kind of compete on pricing? And then just, I guess, how do you think about production and maybe any color on the composition of the pipeline and kind of what segments you’re expecting to drive growth this year?

Chuck Shaffer

25:48 Thanks, David. There's a lot in that question, but I’ll open by saying, you lived down in Florida, you understand what's happening here, the state is on fire. I mean, the amount of population growth is amazing and the quality of fluency in the corporate locations occurring here is, I think unparallel. And as a result, we continue to see just generally the Florida GDP starting to really expand. And so, we're seeing demand what's, sort of very pleasing is if you look in that table, in our loan table in the press release, you'll see that we saw expansion in both consumer and commercial and then commercial both commercial and financial and CRE.

26:31 And so, we're seeing it across the board. I would say that that's the primary reason for they continued to increase in the pipeline? And then secondary to that is certainly the expanding team that we're building here. It's Seacoast, you know we brought in throughout this year. We hired 20 new commercial bankers in 2021. They've contributed about 20% to our pipeline at this point. They continue to grow their books and grow the opportunity there.

27:02 And so, it's a combination of both the economy and the hiring, but I'd say, sort of looking backwards, it's the economy expanding and then looking forward it'll be more of the contribution from the additional bankers. So, we couldn't be more pleased with the quarter. We couldn't be more pleased with the outlook and I have a lot of confidence that the coming year will be a nice year for growth.

Unidentified Analyst

27:25 That's helpful. Maybe just following up on that, in the release you talked about disruption of some larger M&A or upstream M&A as you put it. Just curious where you are seeing the most opportunity? Is it on the client acquisition side or new hires? And then just with the new hires, given that these are larger institutions, are you seeing more middle market opportunities? And then just an update on the de novo expansion in Jacksonville [indiscernible]?

Chuck Shaffer

27:49 Yes. So, just stepping back and thinking about that, if you think about the strategy we're executing at this point, looking back historically, we built an incredible data analytics platform that's providing opportunities for material cross sell in our business. We've then began focusing on building better and improved processes for our commercial bankers and here recently in the first quarter, we'll make a fairly sizable – put a sizable focus on improving our customer experiences on our digital and online banking platforms.

28:27 When you kind of put all that together, and then you step back and look at what's happening in the marketplace, there's a lot of disruption and larger bank’s upstream from us that disruption is coming in terms of putting together operating systems, putting together leadership, a lot of challenges around putting together those cultures and as such, when you kind of think about the customer experiences going through those organizations and the banker experiences, we are still relatively small, very focused on key markets, very focused on improving both customer and banker experiences.

29:02 I think it's continuing to better position us to win share and that's what you're seeing in our growth. That's what you're seeing the growth in pipelines, and I think that's what we'll see in the coming years. Sort of this key focus on what is arguably some of the best markets in the country in combination with the key focus on improving experiences for our customer base, and frankly for our bankers to allow them to get business done, I think really is positioning us in an incredibly competitive way.

29:33 And so, that's why I think we're seeing the growth come back online. That's what I think is out ahead for us, and I think again, just getting back to, I think I'm very pleased what we've gotten done, pleased with the team and excited about what's coming in the next couple of years.

Unidentified Analyst

29:49 That's great. And then, Tracey appreciate all the color on the margin and the rate sensitivity, but maybe just turning back to NIM guidance a bit, just – I like to get some color excluding rate hikes. If I think the midpoint of the, using 5 basis points for each rate hike, and only a partial benefit of the hike in the fourth quarter that she talked about, would that imply about 7 basis points or 8 basis points in core margin expansion, exclusive of hikes? And could you just remind us what betas you're assuming in that rate hike guidance and the impact from the two deals that closed in January?

Tracey Dexter

30:24 Yes, we saw core NIM stabilize in the fourth quarter and the steepening in the yield curve will be constructive for higher new add-on yields both the loan and the securities portfolio. So, we expect core loan yields begin to stabilize, move up in the first quarter. And we've seen security yields start an upward trend in the first quarter. So the pace of each of those will be a function of growth where we said, we see mid-to-high single-digit loan growth in the first quarter and high single digit loan growth beyond.

30:58 And in securities, expect to continue to deploy excess cash in the securities portfolio. We have historically managed to an asset sensitive balance sheet rate hikes that are now being priced into the market will also be beneficial. When we look at the deposit side, looking at prior cycles, and we can kind of reference historical betas, Seacoast holds a very strong core deposit base with the low beta.

31:24 Our non-maturity deposit beta over the last cycle was about 24% in the first 100 basis points only 10, but we would expect us to be similar moving forward. That's just kind of a reference to historical points. So, like we said, we think the NIM has stabilized and has some upside in the first quarter based on those factors.

Operator

31:54 Up next we have Michael Young. Please go ahead.

Michael Young

31:58 Hey, thanks for taking the question.

Chuck Shaffer

32:02 How are you?

Michael Young

32:04 I'm doing just fine. Thanks. Wanted to still focus on the NIM, so just apologies, but as we kind of just look at the environment, just curious your thoughts on what you expect to transpire in the competitive environment, just in terms of loan pricing loan yields? Do you think that kind of the move up in [long rates] [ph] is going to actually be captured into [little yields] [ph] or is there too much competition where some of that's going to be seated away? And then similarly to we – I assume in the rate projections or upgrade scenario that you have; you probably have more higher deposit betas than what you're likely to experience or any comments on that would be helpful?

Chuck Shaffer

32:49 You want to take the deposit beta and I'll come back around the competition?

Tracey Dexter

32:52 Oh, sure. When we look at deposit betas, we're kind of referencing historical cycles. Our non-maturity deposit beta over the last cycle was about 24% and the first 100 pretty beneficial only 10%. So, we'd expect something similar moving forward potentially even a bit less considering large amount of liquidity on bank balance sheet that could certainly translate to lower competitive repricing on the deposit side.

Chuck Shaffer

33:18 The only thing I'd add to that, Michael just thinking about back to last time we went through, sort of rate cycles, unlike the last time, you know there’s sort of an unprecedented amount of liquidity in the market when you look at loan to deposit ratios across the banking system.

33:30 Our loan deposit ratio is down around 70, you know I don't think there's – I think the pressure around deposit repricing will probably take a little longer than it took in prior cycles. And so, while we're providing sort of a historical look at deposit repricing based on the past, I think in the coming few years, it probably takes longer for a deposit competitive pressure to eat up.

33:58 On the loan side, it's always competitive. It remains competitive. I don't know that there's additional competitive sort of forces coming into loan pricing as we move forward. We continue to sort of balance both fixed rate and swap the floating rate lending and try to pick our duration carefully, but I think from a competitive positioning, I don't think it changes on higher rates really.

Michael Young

34:27 Okay. And then maybe just on the expense front, I think the outlook is actually pretty good in light of inflation. I mean, do you see, any sort of risk factors to that as we move throughout the year? If there's more pressure and sort of curious what amount of maybe hiring that sort of built into plan this year? I know you guys have been aggressive in hiring over the prior two years. So, wasn't sure if maybe this year you take more of a breather or if you're still seeing a lot of good opportunities out there?

Tracey Dexter

34:57 Yeah. I'm sure Chuck will follow and tell you that the opportunities on the hiring front remain really strong. There's no question that our people are the reason for our success. We want to attract and retain the best talent in the industry and that includes competitive compensation. We've accounted for that in the forecast. We think we've done that in a way that anticipates likely scenarios.

Chuck Shaffer

35:22 Yeah. The only thing I'd add is, when we looked out at our forecast in the coming year, we expect to add probably somewhere between 15 to 20 further commercial revenue producing bankers. As we continue to expand the team, we're launching a team in Jacksonville, we'll be launching a team in Naples and the come month. We [baked] [ph] that into our forecast that we provided there for the first quarter on expense, but we think we've caught all that in the guide, Michael.

Michael Young

35:54 Okay. And then just last one for me, just on the fee income. Obviously, that's been an area of investment and good growth both in the wealth management side, but also mortgages, you've been good, but maybe just curious your outlook, particularly on mortgage, I think given kind of the macro headwinds versus the reinvestment that you all have made to kind of grow that business, just kind of where any outlook you can kind of provide on ability to offset kind of macro pressures would be helpful?

Tracey Dexter

36:26 Yeah. In mortgage, the pipeline numbers typically dropped during the last month of the year and they have since in January recovered quite a bit, but we've also had a reduction of lending just in the marketplace overall. Resulting from inventory shortages, limited builder availability and the overall slowdown in refinancings. We've already recruited a number of new mortgage loan officers. We'll make the most of the opportunity to do this, but we do expect production and resulting saleable gains to be somewhat muted in the coming quarter.

Chuck Shaffer

36:58 And when you look out beyond that quarter, Michael, we have an expectation that continues to improve over the remainder of the year, particularly as we grow out the producing team and we feel pretty confident we'll have our opportunities to do that.

Michael Young

37:14 Okay. And last one, little nuance, but they're increasing the cost of second home mortgages from the Fannie, Freddie, etcetera. So, do you guys think that there might be more of an opportunity to either originate those on balance sheet or be more competitive there, any thoughts generally along that?

Chuck Shaffer

37:36 I don't have anything I could probably tell you on that, Michael. I do know that our mortgage team has been looking at the issue and trying to find a way to strategize to take advantage of the situation, but I don't have anything I can share with you today.

Michael Young

37:50 Okay. Thanks. Appreciate it.

Chuck Shaffer

37:52 Thank you, Mike.

Operator

37:54 We have [Brady Gailey] [ph] online. Please go ahead.

Unidentified Analyst

37:58 Thank you. Good morning guys.

Chuck Shaffer

38:00 Hey, Brady?

Unidentified Analyst

38:02 So, with Seacoast now over 10 billion, does the M&A strategy shift, historically you guys have done these kind of smaller tuck-end deals? I know there's not that many larger targets left in Florida, after all the consolidation we've seen, but there's still some that there. Does your M&A strategy shift to larger targets now that you're over 10 billion?

Chuck Shaffer

38:32 I wouldn't describe it that way, Brady. I think that we continue to be more focused on the right markets with the right economics in those markets. So, when you look at Florida, we remain focused, kind of all the way down the East Coast from Jacksonville to Miami. The whole I-4 corridor and Little North of Orlando and then down the Southwest corridor, the thing you have to remember is even the smaller banks in those markets are getting bigger. And so, there's still opportunities to put together banks between 500 million to 1.5 billion in combination to be material to our results.

Unidentified Analyst

39:11 Okay. All right. And then say you guys do not do any additional M&A this year outside of the two that just closed, is there a scenario where you could get the balance sheet back under 10 by the end of this year, or do you think you're over 10 to stay from here on out?

Chuck Shaffer

39:32 I think we're probably over 10 to stay. I think it will be really difficult for us to manage under 10, particularly just given the organic growth we see out ahead for us.

Unidentified Analyst

39:41 Alright. Then finally for me, there was a lot of talk about [NSFPs] [ph] and overdrafts potentially going away are getting reduced significantly. Can you tell us at Seacoast, what was the level of [SFP fees] [ph] last year and then the say, what was the level of overdraft last year? And just thoughts on, do you feel like you're going to have to cut that at some point or maybe not?

Tracey Dexter

40:05 Yes, Brady, I don't have to break-out in front of me between overdraft and NFF, but overall, consumer overdraft related fees were about 2 million in 2021. We're continually evaluating our product set and our pricing to remain competitive, to manage risk, to better serve our customers and to attract new customers. Our desire is to remain competitive. We'd already been actively looking at making changes as it relates to overdraft and considering ways to simplify our fee structure, and help customers identify the products that best meet their needs.

40:41 We actually currently offer two accounts with no overdraft fees and in all other accounts we offer customers the ability to link accounts so that transfers can be made to cover balanced deficit, but thinking about the potential financial impact of the change, the changes we're considering will require some product updates and we could be implementing changes in the third quarter of twenty two. That may impact those fees by as much as half or 1 million, but we're continuing to evaluate that.

41:11 We'll have more information later in the year. And fees and other products may offset the decrease in overdraft. We have more work to do to finalize our set there.

Unidentified Analyst

41:23 And just to clarify, that 2 million is an annual number, not a quarterly number, right.

Tracey Dexter

41:29 That's right. Full-year 2021.

Unidentified Analyst

41:31 That's a pretty small amount for you’ll. So, yeah, that's not a big deal. Alright, great. Thanks for the color guys.

Chuck Shaffer

41:38 Thank you.

Operator

41:41 And we have Steve Moss on line. Please go ahead.

Steve Moss

41:45 Good morning.

Chuck Shaffer

41:47 Hey, Steve.

Steve Moss

41:48 Just following back, going back to loan pricing here, it sounds like it's improved down there, just kind of wondering maybe, to see a good pipeline here, are there some underlying mix shifts in the pipeline, maybe helping yields a little bit to?

Chuck Shaffer

42:05 I don't know if there's any mix shift. We're still running roughly, I would say on the commercial side, 60% CRE, 40% C&I, you know we think with time that probably flips back around the other way, that's kind of where we were pre-pandemic. But I'd also remind you, we also do – we also are consumer lender and we have other products that help bring up, sort of our overall add-on yield that helped benefit the overall, sort of loan yields moving forward, but the other thing is, sort of we carefully blend both fixed and variable.

42:39 We're swapping some of the fixed rate to variable rate given the likelihood of potentially higher rates here. And so, that's helping as well as when we look forward at potentially a higher rate environment.

Steve Moss

42:53 Okay. That's helpful Chuck. And then just in terms of the pipeline of new hires, Chuck, I think you said 15 to 20, is that for the full-year you're planning to higher or just over the first quarter to the [Multiple Speakers]?

Chuck Shaffer

43:09 Full-year 2022.

Steve Moss

43:12 Okay, great. Most of my other questions have been asked and answered. So, I appreciate. Thank you.

Chuck Shaffer

43:18 Steve, thank you.

Operator

43:20 Thank you. And we'll now turn it back to Mr. Shaffer for closing remarks.

Chuck Shaffer

43:25 Thank you, Brandon. And thank you all for joining us this morning, and we'll speak to you soon. Thanks, Brandon. I think we're done.

Operator

43:32 Thank you. Ladies and ladies and gentlemen, this concludes today's conference. Thank you for joining. You may now disconnect.