Seacoast Banking Corporation of Florida
NASDAQ:SBCF
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Seacoast Banking Corporation of Florida
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00:08 Welcome to the Seacoast Banking Corporation's Third Quarter twenty twenty one Earnings Conference Call. My name is John, I'll be your operator for today's call.
00:16 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 that this conference is being recorded.
00:39 And I will now turn the call over to Chuck Shaffer, President and CEO of Seacoast Bank. Mr. Shaffer, you may begin.
00:47 Thank you, John, and thank you all for joining us this morning. As we provide our comments, we'll reference the third quarter twenty twenty one earnings slide deck, which can be found at seacoastbanking.com. With me this morning is Tracey Dexter, Chief Financial Officer; and Jeff Lee, Chief Digital Officer.
01:05 The Seacoast team generated strong operating performance during the quarter, growing tangible book value per share, thirteen percent from the prior year to seventeen point five two dollars. The adjusted efficiency ratio was fifty one point five percent, modestly better than our previous guidance. And adjusted pre-tax pre-provision earnings improved to forty three point three million dollars, up from thirty seven point eight million dollars in the prior quarter.
01:31There is noise in the quarter, the result of closing the Legacy Bank transaction and negotiating and announcing the Sabal Palm Bank and Florida Business Bank transactions. When you look past the day one provisioning for Legacy Bank and one-time expenses, net interest income and non-interest income were better than consensus estimates, and adjusted noninterest expense was in line with guidance.
01:54 The driver of the decline in GAAP earnings, quarter-over-quarter, was solely attributable to booking the day one provision for loan losses associated with the acquisition of the Legacy Bank portfolio as compared with a reversal in the provision in the prior quarter, and one-time merger related expenses associated with all three transactions.
02:14 Looking more deeply at the Legacy Bank transaction, it's clear this transaction was one of our better transactions completed to date. The balance sheet was larger than modeled at close and this transaction had near-zero tangible book value dilution, strong earnings accretion, and bolted on some of the best micro markets in South Florida, including Boca Raton, Delray Beach, and Pompano Beach.
02:37 Lastly, with Dennis Bedley, Marcia Snyder's leadership, the Legacy Bank team continued to produce at very strong levels through close, and the team has had a considerable pipeline of new business at Seacoast already. The Florida economy continues to expand with inbound population growth, driven by low taxes, a business-friendly environment, and a post-pandemic work from anywhere economy.
03:00 Corporate relocations continue to occur with many organizations bringing large portions of their staff to Florida. This solid economic backdrop of population growth combined with the significant recruiting activity that ramped up materially a year ago has contributed to the increase in commercial loan production and resulted in an increase in the pipeline.
03:22 When analyzing the change in loan outstandings quarter-over-quarter, there are a lot of moving parts. To help understand these dynamics, we included a table on page eleven of the slide deck, which provides growth by category. The table breaks out organic growth by removing the loans acquired from Legacy Bank and wholesale purchase pools. If you focus on the commercial banking line items, you will see growth in total commercial outstandings starting to emerge.
03:52 In aggregate, the commercial portfolio grew twenty six million dollars from the prior quarter, or a three percent annualized growth rate. This growth includes the offsetting impact of a number of payoffs in the commercial land development category during the quarter. I believe this table demonstrates the underlying positive dynamic starting to show up in the balance sheet.
04:12 Our strategic focus of expanding commercial banking capability in terms of bankers and technology is working, and we are only focused on acquiring and expanding value-creating relationships as this strategy delivers growth and franchise value in risk appropriate segments.
04:30 Also, the pipeline showed significant progress in the quarter, with the late-stage pipeline increasing forty percent from the same time, one year ago as disclosed. The early-stage pipeline now exceeds one billion dollar, a record number. This growth is coming from a combination of C&I and CRE, with nearly sixty percent of the volume year-to-date considered C&I, including owner-occupied commercial real estate and forty percentinvestor commercial real estate.
04:58 Notably, approximately thirty percent of our commercial bankers joined in the last twelve months and it takes time for bankers to begin to ramp up production. This group contributed only eleven percent of the volume this year, indicating there is much more upside on production ahead.
05:15 Lastly, there is a material opportunity to continue to add to our commercial banking team in the coming quarters as our story, tools, and process resonate with bankers who want to join a growing and dynamic enterprise. We recently announced additional leadership hiring in the Naples in Northeast Florida markets and expect to begin building commercial banking focus teams in these markets in the coming year. We have a record pipeline of high-quality talent ready to exit larger banks for something more exciting.
05:43 When you put all this together, it provides a level of confidence that loan growth is emerging and pre-pandemic growth levels are in near reach. We are targeting mid-single-digit organic loan growth in Q4 and high single-digit loan growth in twenty twenty two.
05:58 I would also like to reiterate that despite the pressure the excess liquidity is putting on the net interest margin across the industry, we will not waiver from our strict credit underwriting standards and we will focus on disciplined growth with appropriate risk-adjusted returns. Our asset quality metrics remained strong, with NPL and NPA ratios moving favorably quarter-over-quarter. And we are pleased with the credit portfolio's performance and continue to see no material issues on the horizon.
06:28 And to conclude, the company recorded another quarter of impressive performance, generating disciplined growth and franchise value. Our fundamentals remain very strong with a well capitalized, low-risk fortress balance sheet, strict underwriting standards, and an attractive customer franchise, well-positioned for growth.
06:46 Our goal remains to continue increasing market share in the robust Florida marketplace in a disciplined manner by focusing on growing value creating relationships, improving digital customer experiences, and driving greater productivity across the franchise. With the robust growth and transformation occurring in Florida, we believe our plan of consolidating market share across the state will drive significant value for shareholders over time.
07:10 We are excited about the future ahead, excited about our momentum across the state. And I'll turn the call over to Tracey to walk through the financial results.
07:21 Thank you, Chuck. Good morning, everyone. Directing your attention to third-quarter results, beginning with slide five. On a GAAP basis, net income was twenty two point nine million dollars, and on an adjusted basis, which excludes merger-related and other isolated charges, net income was twenty nine point four million dollars. The decline from the prior quarter in adjusted earnings reflects an increase in the provision for loan losses that is due to the day one impact of the Legacy Bank acquisition.
07:50 Pre-tax pre-provision adjusted earnings were forty three point nine million dollars, an increase of six point one million dollars or sixteen percent from the second quarter, and an increase of seven point five million dollars or twenty one percent from the prior-year quarter. We continue to deliver steadily increasing tangible book value per share, which ended the period at seventeen point five two, an increase of thirteen percent from the same time last year.
08:16 Organic loan production is increasing with commercial loan originations increasing to three hundred and thirty two million dollars from one hundred and ninety three million dollars in the second quarter, and eighty eight million dollars, this time last year. The late-stage commercial pipeline is also very strong at a record three hundred sixty nine million dollars. We continue to see strong asset quality trends with the ratio of non-performing loans declining to zero point five five percent.
08:42 Cost of deposits remains in the single digits as we continue to monitor the competitive landscape and adjust rates accordingly. Transaction account balances continue to grow, and excluding Legacy Bank, increased sixty five million dollars or five point five percent annualized, during the quarter.
09:01 A strong quarter for non-interest income with another record for wealth management and a new record in SBA saleable gains. The acquisition of Legacy Bank was completed in August and the third quarter results reflect all associated costs and purchase accounting adjustments, including goodwill of approximately thirty one million dollars. The acquisition impact third quarter results in non-interest expense with cost of approximately six million dollars, and in the provision for loan losses, where the day one impact was eight point two million dollars. And lastly, during the quarter we announced the Sabal Palm and Florida Business Bank acquisitions, which will close in January twenty twenty two.
9:42 Turning to slide six. Net interest income on a fully tax-equivalent basis was higher by five point five million dollars or eight percent in the third quarter, and the net interest margin declined by only one basis point to three point two percent. Net interest income includes higher interest and fees on loans, primarily due to growth in the loan portfolio, where ending loan balances excluding PPP, increased six hundred and forty two million dollars during the quarter.
10:11 Net interest income also includes the benefit of higher fees on PPP loans. You'll recall that when those loans are forgiven, we accelerate the recognition of fees that otherwise would have been spread over the life of the loan. The Seacoast team processed two hundred and seventeen million dollars in forgiveness this quarter, and we recognized five point nine million dollars in PPP interest and fees. Excluding PPP, yields in the core loan portfolio declined seven basis points to four point two nine percent, with elevated payoffs and continuing declines in rates.
10:45 In the securities portfolio, we've continued to pace our investments of excess liquidity, adding a net two hundred and fifty six million dollars, and the growth in the securities portfolio contributed to higher securities interest income. Yields in the securities portfolio declined four basis points to one point five nine percent. Offsetting and favorable is continued improvement in the cost of deposits, which dropped to seven basis points in the third quarter as we continue to monitor the competitive landscape and adjust rates, accordingly, including for the newly acquired Legacy Bank deposits.
11:22 Overall, net interest margin dropped only one basis point from three point two three percent to three point two two percent. Excluding PPP and accretion on acquired loans, which introduced significant variability, net interest margin was in line with forecast expectations, declining from three point zero three percent to three point eight nine percent.
11:44 Looking ahead to the fourth quarter, we expect the cost of deposits to remain in the high single-digits. We expect that there will continue to be downward pressure on loan and securities' yields in the fourth quarter, given the continuing effect of excess liquidity and lower add-on yields, and therefore, continued modest downward pressure on net interest margin.
12:05 Our modeling suggests that the fourth quarter may represent the lower bound for net interest margin, assuming the current forward rate curve and with loan growth we expect the margin to begin improving in twenty twenty two.
12:18 Moving to slide seven. Adjusted non-interest income, which excludes securities gains and losses was nineteen point one million dollars, higher by three point seven million dollars or twenty four percent from the previous quarter, and an increase of two point one million dollars or twelve percent from the prior year quarter. As you can see in the results, we continue to focus on driving non-interest income.
12:42 The wealth management team continues to deliver strong growth and successful relationship expansion and revenue during the quarter increased to two point six million dollars. 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.
13:01 In our mortgage banking business, as expected, revenue is lower on lower refinancing demand and tight housing inventory levels. However, the pipeline has stabilized, and this team will continue to contribute meaningful results by continuing to capitalize on low interest rates and on the strong Florida housing market. We expect mortgage banking gains in the fourth quarter to be in line with the third quarter and results for twenty twenty two will be dependent on rates and housing inventory levels in Florida.
13:33 Our SBA team has delivered outstanding results this quarter, generating record gains of zero point eight million dollars as non-PPP opportunities return. We're focused on building this business in the coming year and expect continued improvements in this line item in twenty twenty two. Also, we expanded our position in bank owned life insurance, both through purchases and through the Legacy Bank acquisition. BOLI purchase late in the second quarter for the tax-equivalent first-year yield of four point five percent contributed to the increase in BOLI income during the quarter.
14:09 Finally, meaningfully contributing to non-interest this quarter was a gain of three million dollars on one of our SBIC investments. Income from these investments can vary widely among periods.
14:22 Looking ahead, we expect overall non-interest income in the fourth quarter in a range of approximately sixteen million dollars to seventeen million dollars as we continue to focus on growing our broad base of revenue sources.
14:36 Moving to slide eight. Adjusted non-interest expense for the third quarter was in line with the guidance we provided at forty six point eight million dollars. Salaries and benefits expenses were higher compared to the second quarter, reflecting the addition of commercial banking talent and of the legacy bank franchise.
14:55 Legal and professional fees were higher by four hundred and fifty thousand. This line item includes smaller increases across a number of areas, including related to support for technology optimization initiatives. Other expenses were higher by zero point four million dollars and include higher marketing expenses due to timing of campaigns and the one hundred and thirty three thousand day-one provision for credit losses on Legacy Bank's unfunded commitments.
15:23 Looking ahead, we expect to maintain our expense discipline as we always do. We expect fourth quarter expenses excluding the amortization of intangible assets to be in the range of forty eight million dollars to forty nine million dollars. The increased quarter-over-quarter is the result of the addition of the legacy bank franchise and investments we're making in commercial banking talent.
15:47 Looking forward to twenty twenty two, we expect expenses to reflect the full impact of the additions of Legacy Bank, Florida Business Bank and Sabal Palm Bank along with commercial banking talent, expansion into Jacksonville and Naples, and enhancements in digital technology for our customers. We believe these investments support sustainable growth in the coming years and position the company to take advantage of the unique growing economy in Florida.
16:15 This results in a twenty twenty two efficiency ratio target below fifty five percent for the full year with the ratio trending down throughout the year and exiting twenty twenty two near fifty percent. Higher results early in the year are due to the expense seasonality associated with the first quarter and timing of expenses associated with investments.
16:39 Moving to slide nine. The adjusted efficiency ratio in the third quarter decreased to fifty one point five percent and reflects higher net interest income and higher non-interest income compared to the prior quarter, partially offset by higher non-interest expense. Reiterating the guidance we've provided in the last several quarters, we continue to expect the full year twenty twenty one efficiency ratio to be below fifty five percent.
17:07 Turning to slide ten. Loan balances excluding PPP are higher by thirteen percent from the prior quarter. That increase includes organic growth in commercial categories, loan pool purchases and the legacy bank acquisition, offset by declines in consumer mortgage banking and construction and land development loans. Commercial growth is a highlight as Florida's economic recovery is now well established and recent talent additions and investments in technology, position us well as loan demand is returning. We're very encouraged by the commercial pipeline, which has increased materially from the start of the year.
17:47 We're very encouraged by the commercial pipeline, which has increased materially from the start of the year. We continue to be vigilant and steadfast in executing our strict credit underwriting guidelines while achieving organic loan growth. Looking forward to the fourth quarter, we continue to expect organic loan growth, excluding PPP to be in the mid-single-digits for the coming quarter and expect loan growth to return to an annualized growth rate of high-single-digits in twenty twenty two.
18:13 As a reminder, the first quarter of each year is typically a seasonally slower quarter. We expect loan yields to further modestly decline in the fourth quarter with lower add-on yields, assuming no change in the rate environment and increased originations.
18:29 Turning to slide eleven, highlighting loan growth in key categories. The addition of Legacy Bank during the quarter added four thirty nine million dollars of non-PPP loan balances. Wholesale purchases totaled one hundred and ninety eight million dollars having made these investments as an alternative to additional investments in the securities portfolio. We've highlighted the commercial line items in the top green box, showing an organic increase of twenty six million dollars in aggregate across commercial categories. This growth represents a three percent annualized growth rate in our commercial book during the quarter.
19:05 We view this as a very positive indicator of the growth that's emerging as a result of our investments in commercial talent and technology over the last year. On an overall basis, excluding the Legacy Bank acquisition and wholesale purchases, loans outstanding increased by a net six million dollars during the quarter.
19:25 Turning to slide twelve. The graphics shows the year to date summary of PPP activity. We originated two fifty six million dollars in PPP loans earlier in the year under the renewed program. We've processed six seventy five million dollars in forgiveness year to date, including two seventeen million dollars in the third quarter, bringing principal balances of PPP loans outstanding at September thirty to one hundred and ninety one million dollars net of deferred fees.
19:53 Overall, since the start of the original program, we've collected twenty seven point six million dollars in SBA fees. Of that, we’ve recognized twenty two point two million dollars life to date and have five point four million dollars 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 twenty twenty two.
20:18 Turning to slide thirteen for the securities portfolio. We continue to invest excess liquidity at a moderate pace in the investment securities portfolio, with approximately four twenty million dollars in purchases this quarter, offset by pay downs for net growth of two fifty six million dollars. Additions were largely agency guaranteed with short duration and yields of one point four two percent. And overall portfolio value declined a bit with steepening of the curve during the quarter.
20:49 Somewhat offsetting and beneficial to yield was a yield maintenance provision in place on one holding that resulted in a four hundred thousand dollars benefit when the security paid down early. We'll continue to steadily pace our investments over time in bonds that have lower extension risk with shorter durations, and continue to expect net additions of two fifty million dollars in the fourth quarter.
21:13 Turning to slide fourteen, deposits outstanding were eight point three billion dollars, an increase of four ninety eight million dollars quarter over quarter, which includes the addition in August of four ninety five million dollars from Legacy Bank. The cost of deposits has continued to decline and for the third quarter was seven basis points. Looking ahead to the fourth quarter, we expect the cost of deposits to remain in the high single digits.
21:40 Transaction accounts represent fifty nine percent of total deposits and have grown thirty percent year over year. Excluding the impact of Legacy Bank, transaction account balances increased sixty five million dollars or five point five percent annualized during the quarter. We're pleased with the growth in deposit balances year to date despite the margin pressure. This growth demonstrates the strength of our customer franchise, growing Florida economy and our ability to win share in the marketplace.
22:10 And on slide fifteen, illustrated on the chart is the deposit per branch, which stepped down only slightly this quarter to one hundred and sixty five million dollars even with the addition of net four new branches with five from Legacy Bank and one consolidation. Also, in order to manage excess liquidity and as we approach the ten billion dollars asset mark, we're using off balance sheet deposit products through third party programs. We expect to remain under ten billion dollars at year end twenty twenty one. And at September thirty, we had two thirty three million dollars in off balance sheet deposits compared to one hundred and sixteen million dollars at June thirty.
22:49 Our branch optimization strategy is supported by our digital and analytics competency, which continues to provide opportunity to drive growth in operating efficiency across our retail franchise. In the last five years, we've consolidated twenty eight percent of our physical branches. We think physical branches are extremely important to our customers. In fact, we're planning two de novo branches that will open in the coming months as part of our balanced expansion strategy in Florida's high growth markets. One is in Naples, which is located in Southwest Florida and complements our West Coast growth strategy that includes Tampa and Sarasota. The other is implantation in the dynamic Broward County market, and supports our deepening presence in South Florida, which is the seventh largest MSA in the country.
23:41 Moving to slide sixteen. The wealth management business continues to deliver tremendous growth with assets under management growing at a compound annual growth rate of thirty four percent since year end twenty nineteen. The team has done a remarkable job building a high net worth family office model and partnering with our commercial team generating value for our most profitable clients and delivering another record revenue quarter. We'll continue to invest and focus on building out well management as we move forward.
24:12 Moving to slide seventeen and to credit topics. The allowance for loan losses increased during the quarter from eighty one point one million dollars to eighty seven point eight million dollars with the increase in total loan balances. In particular, we reserve on day one for the full life of loan expected losses on the Legacy Bank acquisition. At the date of acquisition, that added eleven point two million dollars to the reserve, eight point two million dollars of which is reflected in the third quarter provision.
24:43 At the end of each quarter, we update our estimate for the portfolio in line with sustained indications of overall economic recovery, the allowance as a percentage of total loans, excluding PPP decreased to one point five four percent from one point six percent in the prior quarter. In addition to assigning a day one reserve on legacy bank loans, we also reported a six million dollars purchase discount on legacy bank loans, bringing the total purchase discount remaining on all bank acquisitions to twenty six point six million dollars which will be earned as an adjustment to yield over the life of those loans.
25:21 Turning to slide eighteen on asset quality. Credit measures remained strong with charge offs, non-accrual and criticized loans at historically low levels. Net charge offs in the third quarter were one point four million dollars or ten basis points on average loans, and the level of non-performing loans decreased to thirty two point six million dollars, representing zero point five five percent of total loans.
25:47 Criticized loans increased slightly from thirteen percent last quarter to fourteen percent of risk based capital in the third quarter with the increase driven by the addition of a small number of legacy bank loans conservatively assigned risk ratings in these categories. All were also assigned appropriate reserves at the acquisition date.
26:08 The overall allowance for credit losses at September thirty is eighty seven point eight million dollars and allowance coverage, excluding PPP loans decreased six basis points to one point five four percent.
26:22 Turning to slide nineteen, our capital position continues to be very strong and we're committed to maintaining our fortress balance sheet. Tangible book value per share is seventeen point five two dollars, an increase of thirteen percent year over year. The tangible common equity to tangible asset ratio increased to ten point six percent at the end of the third quarter and has consistently been among the highest in our peer group. The tier one capital ratio was seventeen point seven percent and the total risk based capital ratio was eighteen point six percent at September thirty.
27:00 Return on tangible common equity was eleven point seven percent on an adjusted basis. Acknowledging our peer group leading capital levels, it's worth mentioning that if the third quarter's tangible common equity to tangible asset ratio was adjusted to an illustrative target of eight percent, our adjusted return on tangible common equity would be fifteen point three percent for the quarter and eighteen point five percent for twenty twenty one year to date. As I mentioned earlier, the current quarter's return on tangible equity was impacted by recording the day one provision for loan losses associated with acquiring legacy bank.
27:38 And finally, on slide twenty, looking back from the beginning of twenty seventeen to today, we've achieved a compounded annual growth rate in tangible book value per share of twelve percent, 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.
28:06 We look forward to your question. I'll turn the call back over to Chuck.
28:10 Thank you, Tracey. And, John, I think we're ready for Q&A.
28:14 Thank you. We'll now begin the question-and-answer session. [Operator Instructions] And our first question is from David Feaster from Raymond James.
28:38 Hey. Good morning, everybody.
28:40 Good morning. David.
28:41 Hey, David.
28:43 I just wanted to dig in maybe a bit into some of the commentary on the troughing NIM in the fourth quarter. I guess, could you maybe just walk us through some of the puts and takes with competitive yield and the liquidity deployment and the potential for earning asset mix, and just help us think about the margin as we go forward? And more importantly, the NII growth trajectory as well, it sounds like we should actually potentially see NII outpace loan growth next year, excluding PPP, if I'm thinking about that correctly?
29:15 I can start with that. Thanks. So, core NIM declined fourteen basis points to two point eight nine percent in the third quarter. As we look ahead, investment securities and loan yields should continue to modestly drift down, but the cost of deposits remains in the high-single-digits. We're looking at loan add on yields that are pretty stable in the fourth quarter compared to the third quarter. On new securities yields, we would expect in a range of one point four percent to one point five percent for the fourth quarter. We also expect to continue to put to work some of the excess liquidity in the investment securities portfolio, an additional two fifty million dollars there.
29:57 As PPP forgiveness starts to wind down near the end of this quarter, and largely in the fourth quarter, assuming deposit growth begins to normalize, we could see core NIM modestly decline in the fourth quarter, but we do think that to lower bound, and then building back, entering twenty twenty two. To your point, PPP forgiveness will likely have fully come off by maybe early in the first quarter of twenty twenty two. We do, however, have that significant amount of liquidity to deploy in organic loan growth, and some opportunistic loan pool purchases to support that NII growth.
30:38 Chuck, anything you want to add to that?
30:40 No. The only thing I'd add is, I think, David, if you're thinking about modeling, we do expect sort of quarter-to-quarter continued modest increases when you look throughout twenty twenty two, primarily as the mix improves to loans out of cash, and we expect to invest about a net two fifty million dollars in the securities portfolio. When you add all that together with where we think the loan pipeline is and our expectations for growth in the coming year, we think net interest income growth looks pretty strong in twenty twenty two.
31:09 Yes, okay. That makes sense. And then, just kind of following it up on the production in the new hires. You know, it's great to hear the pipeline that you have. I'm just curious how much of the new hires that you guys have recently announced have been driving some of this growth? In PPP, a client acquisition and just maybe get a sense of the embedded production from those new teams? Just an update on the expansion upstream a bit in the middle market and how that's gone?
31:41 Great, great question, David. And let me start by saying, what's been really good to see over the last quarter, in which we've talked about on prior calls, is the emergence of owner-operated companies coming back to the table and borrowing money. That was incredibly slow late last year, kind of through the first quarter, and over the last six months, we're now seeing a fair amount of growth, and if you look at the table we provided, and you look at owner-occupied CRE, for example, you see fairly solid growth during the quarter, which is great to see.
32:15 When you look at the new hires, about twenty percent of our commercial bankers are new to the company in the last twelve months, and they've only contributed about eleven percent. So, I think there is a lot more upside to come out of the work we've done on recruiting as well as I'm super excited about the amount of volume we're seeing on talent, looking forward into twenty twenty two. So, when you put all that together, that gives us confidence about loan growth in the coming year.
32:44 And importantly, as I mentioned, what's been great to see is the emergence of true demand for credit out of our core C&I customers, which is really an indication of what's going on in the local economy here, and -- was just down yesterday with a number of our customers, and it was nothing short of giddy about all the population growth. We're starting to see a lot of inbound population growth from California, couple -- speaking to a couple of CPAs, they're sort of backlogged and helping get customers businesses opened in Florida, and get licensing done.
33:20 And so, just remarkable what's going on here. And I would even argue that I think the Florida economy is stronger than it was pre-COVID, and so, we're seeing this start to light back up, particularly over the last three months to six months. I think that's driving some of the growth, as well as some of the new hiring. And as I mentioned earlier, sort of our early-stage pipeline is over one billion dollar, which is a record number for us. So we're starting to see it come together and just couldn't be more excited about what I think is out ahead for us.
33:50 That's great. And then, I mean, great to see the de novo expansion in Naples, and we've got the new hires in Jacksonville. I just wanted to -- as you step back and look at your footprint, I mean, where do you think we could see some more de novo expansion? I mean, is it more deepening in existing markets or filling in gaps? I mean, when we look at the map, the only real gap might be along the I-4 corridor in Central Florida, but just curious, your thoughts on de novo expansion, and how you think about M&A versus de novo? A project depends on opportunities, but just wanted to get your thoughts on that.
34:26 Sure. Yes. Great question. Kind of starting with M&A, we continue to be focused on kind of -- so, I'd say Jacksonville down to South Florida, including Miami-Dade with the right opportunity. The entire I-4 quarter Tampa over, and then Southwest Florida. We're going to go where there is opportunity, as you said, where we see acquisition opportunities that make sense for shareholders. We're certainly going to pursue them.
34:52 And from a de novo perspective, it's more about talent, where we see talent and where we see disruption will lead us to opportunities to grow customers in those markets. And what's -- as I mentioned earlier, what's exciting about what's going on in the state is we're starting to see real meaningful economic expansion, and so, it gives us the opportunity to fill out more effectively in these markets with some de novo growth. And then, the amount of talent opportunities that are showing up, it gives us even more opportunity.
35:25 So I'd say, David, continuing to focus on the same exact markets we've been focused on. There's a few fill-in markets in there, for example, Naples is one where there's not a lot of M&A opportunity, but it's a great market and with the right talent, and we think we can do well there. And so, we'll go where the opportunity is.
35:44 All right. Thanks.
35:46 Thank you, David.
35:48 Our next question is from Steve Moss from FBR.
35:53 Good morning.
35:54 Good morning, Steve.
35:57 Maybe just starting with loan pricing. Just kind of curious as to where the roll-on/roll-off yields are? And also, just in terms of the pay-offs and pay-downs, you're seeing, just kind of -- I mean, obviously there is pricing pressure, just wondering if you're also seeing competition on the structure?
36:16 Let’s start with the roll-on/roll-off and I'll hit the structure question, Tracey.
36:20 Sure. If I carve out the loan purchases, our organic add-on rates were about three point six one percent in this quarter. Just a little lower than last quarter, it was three point six nine percent. The pricing does remain competitive, but we saw some recent steepening in the curve, so that should help those -- those levels stabilize as we go into the fourth quarter. In terms of payoffs, our overall payoffs remained elevated, although marginally lower than the prior quarter. And our overall fall-off rate moved down a little bit from last quarter four point two two percent, this quarter.
36:59 Yes, Steve, on the structure side. We don't see -- we've seen a few things come to market that we wouldn't do. But for the most part, the competitive pressures have been around pricing. I'd say the pricing pressures are intense more than we've seen in the past, given the level of liquidity seems that for the most part, people are holding the line on structure, which is good to see. But it's definitely very competitive in the marketplace given the levels of liquidity.
37:30 Okay, that's helpful. And then, in terms of -- hear you guys on sweeping off-balance sheet deposits. I know the two pending acquisitions, obviously, add more assets, but you guys have just a tremendous amount of liquidity, the mass gets tight, but kind of curious, do you think you could sweep in standard ten billion dollars by year-end twenty twenty two?
37:53 [Multiple Speaker] We do expect to stay under ten billion dollars this year and plan to exceed, certainly with the acquisitions that are coming in the first part of twenty twenty two. So, we are planned and our guidance includes the assumption that we'll cross ten billion dollars in twenty twenty two.
38:14 Yes. We've built up a number of vehicles that we think will allow us to continue to move the deposits off-balance sheet and stay under ten billion dollars at the end of the year, Steve.
38:24 Right. Okay, that's helpful. And just in terms of M&A, I know you guys have -- obviously, two deals pending, but kind of curious how are discussions going? I hear you on the new hires and the pipeline new hires, does that kind of tilt towards more organic growth and hiring going forward? Or just kind of curious if there is any real shift in M&A there?
38:51 No. I would say it's same strategy, no shift. We continue to focus on the right opportunities, in the right markets, and if it makes sense for shareholders we'll pursue M&A as we have in the past. It's good to see the organic hiring coming online. I think that enhances what we're doing already, so it'll be a combination of the two moving forward.
39:12 The two pending deals we have, we've received approval from the OCC. We're still awaiting our Fed waiver, which we expect to come in the near term, and expect to close those probably in the first week of January. So, we expect to get those closed and if we come across something that makes sense, it'll likely be announcement in twenty twenty two, but we want to get the two deals closed that we have and continue to focus on growth.
39:38 Okay, great. Thank you very much. Appreciate all the color.
39:41 Thanks, Steve.
39:45 Our next question is from Steve Scouten from Sandler O'Neill.
39:52 Hey. How's it going, guys?
39:53 Hi, Steve.
39:56 I guess a couple things. Tracey, it sounds like you guys were thinking deposit growth, maybe, from here might kind of normalize, be a little bit -- a little bit lower than what we've seen in the past, is that's correct, what would kind of what kind of lead you to believe that what are you guys seeing that would lend to that direction?
40:17 Yes, we think -- the ending deposit balances have continued to increase over the last couple of quarters. We've seen some interesting studies that have found some correlations between the Fed securities holdings. So, we are looking at the timing of the Fed tapering of purchases. That's one of the things that tells us that the balances will stay around a little longer, but maybe -- maybe not necessarily continue to grow at this pace. We're also, as Chuck said, starting to see really increasing appetite in our market for expansion.
40:51 Yes, I'd say, Stephen, it's clear that the industry was very correlated to the Fed's increase in the balance sheet. We think even with tapering that really doesn't pull back on deposits, it will take all the way to the point of pure contraction of that balance sheet before we'll see any challenge there. So, we think it's multiple years of high levels of liquidity here before we start to see that come back out of the marketplace.
41:17 Yes. No, that makes sense. Okay, helpful. And then, kind of thinking about forward rate sensitivity as we hope to be prepared for some higher rates here in twenty twenty three. I think at last update, you guys were screening that like plus seven percent and up hundred basis point-scenario. Any changes to that asset sensitivity, or are you planning to do anything differently? And I guess, what are you assuming for deposit betas moving forward because I would assume it's demonstrably less than your peers?
41:49 Yes. No significant change in our expectations in terms of asset sensitivity. We have an asset-sensitive balance sheet with a strong core low-cost deposit base. So, higher rates would certainly provide more upside to loans and securities yields, while we would expect that continued benefit of low-cost funding. So, we would expect meaningful increases in NII and NIM in the first twelve months of the rate adjustment.
42:17 Yes. And we don't -- I don't -- we don't have the deposit betas in front of us, Steve, and we can get that to you. But that -- what I would state is, as you know about our franchise, it's highly transaction-funded, nearly sixty percent of the deposit base is transaction-oriented. And given the history and longtime nature of the organization. the duration of that funding base is extremely long. And so, historically, and we believe even going forward in a higher rate environment, the ability to lag the rise in deposit cost is probably better than others.
42:50 And kind of the true -- it's kind of -- its rates have gotten low here. It's hard to sort of look between the banks and see the good deposit bases and the not-so-good deposit bases. But we've always had one of the premium deposit franchise in the country, and it's because of the duration that's in that deposit base and the engagement that exists there too, as we've talked in the past. The bulk of our commercial portfolio leans into owner-operated companies of which generally have deeper, more thorough depository relationships with us.
43:21 So, there's a lot of upside for us when rates go up. The deposit base provides a lot of franchise value in that scenario. And I think we'd perform very well in a higher-rate scenario.
43:31 Yes, for sure. That's helpful. Okay. And then maybe just last thing for me, I mean you guys have been definitely ahead of the curve from your peers, in terms of use of digital tools, and kind of implementing technology in the way you deliver to customers. I'm wondering if there is any push into -- we're seeing a lot of these banks pushing the DeFi-type initiatives, pushing to -- I mean, buy now, pay later-types. I mean, there's all these different avenues, I feel like banks, they are moving into point of sale lending and the like. Are there any other kind of technology-driven initiatives that you guys are undertaking that might be new to the story?
44:10 Yes, nothing around DeFi or the pay-now models. We continue to be focused on grill and building a very strong franchise in Florida. And we're doing that through the investments we'd made in data -- data analytics, over time. And then, here in the first quarter, we're going to fully upgrade our digital toolset for our customer base. And we think the combination of that with high-quality bankers building a bank that's super competitive, generates the most value for shareholders over time, we'll continue to carefully watch what's emerging out there in DeFi, and other things. But nothing to talk about today.
44:49 Great. Okay. Thanks for the color. Appreciate again.
44:51 Thanks, Stephen.
44:54 [Operator Instructions] And I have no further questions, I'll turn it back to Charles for closing remarks.
45:12 Thank you, John. I appreciate everybody's time and I appreciate everybody calling into the call, and look forward to twenty twenty two. We'll talk to you soon.
45:21 Thank you. Ladies and gentlemen, that concludes today's call. Thank you for participating and you may now disconnect.