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Seacoast Banking Corp of Florida (NASDAQ:SBCF)
Q1 2021 Earnings Call
Apr 23, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the Seacoast Banking Corporation's First Quarter 2021 Earnings Conference Call. My name is John, and I'll be your operator for today's call.

Before we begin, I've 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.

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

Chuck Shaffer -- President & Chief Executive Officer

Thank you all for joining us this morning. As we provide our comments, we will reference the first quarter 2021 earnings slide deck, which can be found at seacoastbanking.com. With me this morning is Tracey Dexter, our Chief Financial Officer; Jeff Lee, Chief Digital Officer; and Denny Hudson, Executive Chairman. I will open by expressing my gratitude to the Seacoast team for producing another consecutive quarter of record results. The Seacoast associates continue to generate top quartile returns by focusing on value-creating customer relationships, driving best-in-class customer satisfaction and expanding market share in a growing Florida marketplace.

During the quarter, the Company generated earnings per share on an adjusted basis of $0.63, while posting an adjusted efficiency ratio of 51.9% in a quarter that is impacted by seasonally higher payroll and benefits expenses. Asset quality, liquidity and capital are all strong, and we continue to generate meaningful capital growth, bolstering our fortress balance sheet. This week, our Board approved the introduction of a $0.13 dividend, which represents approximately a 21% payout ratio, generally in line with our peers, providing a new source of return to our shareholders. We believe this will have no impact on our organic growth or acquisitive growth strategy moving forward, particularly when you consider the capital generation resulting from the Company's efficient operations.

The State of Florida is now fully reopened with restaurants, hotels and other hospitality venues on a path to return to pre-COVID levels as the vaccination process continues to move forward rapidly and the state population continues to swell. Our borrowers across multiple industries and asset classes are reporting robust demand with key issues primarily arising from supply chain and labor shortages. The state's unemployment rate continues to improve, and most recently, was reported at 4.7%, which on a comparative basis is where the state was in 2017.

Given the rising demand and increasing population, we expect economic conditions to continue to improve, particularly in the metro markets we primarily serve. Given the significant recovery occurring across the state, low unemployment and clear evidence emerging of a V-shaped recovery, we have returned to our pre-pandemic credit policy and conservative underwriting guidelines. We saw increased loan pipelines quarter-over-quarter across all of our business lines with the overall pipeline increasing 44% to total $434 million at quarter end. Looking more specifically at the late-stage published commercial pipeline, we ended the quarter at $241 million, up 44% from the prior quarter. And although we generally don't publish this number, the overall complete commercial pipeline, which includes early stage deals, has increased 55% from a few quarters ago.

Given the rapid acceleration in the Florida economy over the last two quarters and our increasing loan pipelines across all business units, we continue to forecast loan growth to return to pre-COVID levels on the back half of 2021. In this forecast, we are assuming our C&I borrowers return to making investments in real estate, equipment and inventory, investing in their businesses along with an expanding economy. To date, they have been slow to make these investments and been holding a significant amount of cash on their balance sheets. We continued our focus on building fee-based revenues entering 2021 with our wealth management team achieving a significant milestone of crossing $1 billion in assets under management with an increase of $156 million in AUM in the first quarter of 2021. Not only has this team generated valuable AUM growth but they are doing so profitably, collecting on average 80 basis points across the portfolio.

The team has done a remarkable job in building a high net worth family office model and partnering with our commercial team, generating value for our most profitable clients and our CECO shareholders. I'm incredibly proud of the team in reaching the $1 billion milestone and looking forward to seeing the growth in the coming years. The mortgage business had another blockbuster quarter, recording $4.2 million in fee income. That achievement was recorded despite increasingly tight inventory levels in Florida and slowing refinance demand. We ended the quarter with a pipeline of $165 million, up from the prior quarter's exit pipeline of $117 million, primarily the result of growth in the correspondent pipeline. We expanded an opportunity to partner with other high-quality Florida mortgage originators to generate both portfolio growth with Florida clients and generating cross-sell opportunities for depository and other products. We exited the quarter with the pipeline at 60-40 split between refinance and purchase volume.

Our asset quality metrics remained strong with NPL and NPA ratios moving favorably quarter-over-quarter. Our portfolio of deferred loans is down to 0.5% of total loans or only $27 million. Net charge-offs were only 3 basis points in the quarter, and we are pleased with the credit portfolio's performance and continue to see no material issues on the horizon. The outlook continues to improve in the state and the U.S. economy in general, and the Moody's forecast we use in our CECL model continues to show improvement on each quarterly update. We were excited to announce the Legacy Bank transaction during the quarter, and discussions with management indicate they are ahead of our model on loan outstandings, deposit outstandings and net income. We expect to close and convert Legacy in early August 2021, and we continue to see potential opportunities to further expand our franchise in our key markets in the coming periods.

And to conclude, the Company recorded another quarter of impressive performance, generating disciplined growth and franchise value. Our goal remains to continue increasing market share in a disciplined manner by focusing on and 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.

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

Tracey Dexter -- Chief Financial Officer

Thank you, Chuck. Good morning, everyone. Directing your attention to first quarter results, let's start with slide 5. Net income was a record $33.7 million for the first quarter on a GAAP basis, increasing 15% quarter-over-quarter. On an adjusted basis, which excludes M&A and isolated branch consolidation charges, net income was $35.5 million, an increase of 16% quarter-over-quarter.

Earnings per share on a GAAP basis were $0.60 compared to $0.53 in the prior quarter. On an adjusted basis, earnings per share increased to $0.63 from $0.55. On a GAAP basis, we reported 1.70% return on tangible assets and 15.62% return on tangible common equity. On an adjusted basis, first quarter ROTA was 1.75% and ROTCE was 16.01%. As we continue to grow our capital base, it's worth mentioning that if the first 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 21.8%, increasing from 18.8% in the fourth quarter.

Tangible book value per share increased to $16.62, up from $16.16 last quarter, and increased 15% year-over-year. The cost of deposits declined to 13 basis points from last quarter's 19 basis points. Loan pipelines increased 44% from prior quarter end as Florida's economic recovery begins to drive increased demand.

The wealth management team continues AUM growth with an impressive increase of $156 million in assets under management this quarter to surpass a milestone $1 billion in total AUM. Strong mortgage banking and interchange revenue further bolstered results. We originated $232 million in new PPP loans under the renewed program and saw the pace of forgiveness of loans under the original program increase. This quarter's new originations of $232 million resulted in fees earned totaling $9.4 million, which will be recognized over the life of the loan.

In March, we announced the upcoming acquisition of Legacy Bank of Florida, which has a deep presence in Broward and Palm Beach counties, offering us exciting opportunities in the fast-growing South Florida market. We're also pleased to announce that our Board of Directors approved a $0.13 cash dividend, which will be payable on June 30th to shareholders of record on June 15th.

Turning to Slide 6; net interest income on a fully tax equivalent basis decreased 3% sequentially to $66.7 million, and the net interest margin declined 8 basis points to 3.51%. The decline was largely the result of growth in our cash position. We've kept more liquidity on the balance sheet during this period of low long-term rates and expect to deploy the cash prudently over time with the expectation of increasing rates. Again, we're patient and will be responsive to changes in the outlook, but expect that in the second quarter, we will make net additions of approximately $200 million to the securities portfolio. We estimate the impact on net interest margin of excess liquidity at approximately 8 basis points. So, removing the growth in excess liquidity during the quarter, the net interest margin would have been approximately 3.59%, flat to the prior quarter. The yield on securities declined 8 basis points to 1.65%, resulting from elevated prepayments and lower yields on new purchases.

In loans, we reported lower accretion of purchase discount at $2.9 million in the first quarter compared to $4.4 million in the fourth quarter, the result of lower payoffs in the first quarter. The impact of accretion on net interest margin was 15 basis points in the first quarter compared to 23 basis points in the fourth quarter. This was partially offset by higher PPP fees with the combination of the new PPP programs and forgiveness on loans in the original program. Excluding the effects of PPP and accretion and purchase discounts, loan yields decreased 8 basis points to 4.15% due to the impact of the overall low rate environment. The cost of deposits decreased 6 basis points from 19 basis points in the fourth quarter to 13 basis points in the first quarter, reflecting our continued repricing down of interest-bearing deposits and time deposits. The net interest margin excluding PPP and accretion of purchase discounts decreased by 12 basis points from 3.37% to 3.25%.

Looking ahead to the second quarter, we expect the cost of deposits to continue to decline to the upper single digits. Also, consistent with the guidance we gave last quarter, we expect net interest margin, excluding PPP and purchase loan accretion, will continue to decline modestly in the second quarter, given the effect of excess liquidity, though we expect to continue to see the offsetting effect of lower funding rates during that period. We believe the margin will reach its lower bound in the second quarter, assuming the forward curve materializes and the growth in excess liquidity moderates.

Moving to Slide 7; adjusted non-interest income, which excludes securities gains and losses, was $17.8 million, an increase of $2.8 million or 19% from the previous quarter and an increase of $3.1 million or 21% from the prior year quarter. Our mortgage banking business continues to capitalize on low interest rates and on the strong Florida housing market, exceeding our expectations with revenues of $4.2 million in the first quarter. Despite recent increases in mortgage rates and low inventories, our team continues to deliver outstanding results. At the end of the first quarter, approximately 60% of loans in the pipeline were refinancings and 40% were home purchases compared to a ratio closer to 70-30 refinancings to purchases at the end of the fourth quarter.

Interchange revenue, again, reached a new record level of $3.8 million in the first quarter, with higher transaction volume and higher per card spend. We're especially proud this quarter of our wealth management team, who passed an incredible milestone with $1 billion in assets under management. With a determined and consistent relationship-based approach, this team grew AUM by 18% in the first quarter. And when compared to year-end 2019, AUM has grown by a remarkable 57%. First quarter other income includes $1.7 million in collections on loans that were acquired in 2017, and at the time of acquisition, were assigned zero value. These were resolved through the diligence of our credit collection team, and we expect no similar activity in future periods.

Looking ahead, we believe the mortgage activity is likely to moderate, and we expect overall non-interest income to be in a range during the second quarter of approximately $15.5 million to $16.5 million.

Moving to Slide 8; adjusted non-interest expense totaled $43.9 million, an increase of $2 million from the prior quarter and in line with prior quarter guidance, addressing all changes on an adjusted basis. Salaries and benefits increased by $1.2 million compared to the fourth quarter. The increase reflects seasonally higher payroll taxes and increased 401(k) contributions. Legal and professional fees increased $1.5 million compared to the fourth quarter. The fourth quarter included the benefit of a recovery of litigation expenses incurred during 2020. Within other expense, writedowns on REO properties in the fourth quarter and none in the first quarter drove the positive comparison. Looking ahead, we expect to maintain our expense discipline, as we always do. We expect second quarter expenses, excluding the amortization of intangible assets, to remain in the range of $43.5 million to $44.5 million.

Moving to Slide 9; adjusted efficiency ratio in the first quarter increased to 52%, reflecting higher non-interest expenses and the seasonal impact of employee benefits. Maintaining the guidance we provided last quarter, we expect the full year 2021 efficiency ratio to be in the low-50s.

Turning to Slide 10; loans outstanding increased 6% year-over-year to $5.7 billion. Excluding PPP loans, total outstandings decreased this quarter by $89 million or just under 2%. As you know, Florida's economic recovery is now well-established, and it appears that the demand for loans has increased. At March 31, loan pipelines were 44% higher than the prior quarter, including an increase in commercial pipelines of 44% to $241 million, an increase in consumer pipelines of 54% to $28 million and an increase in residential pipeline for the portfolio from $25 million last quarter to $72 million at March 31. With the increase in the residential portfolio pipeline, we're beginning to see the results of a Florida-focused correspondent program, where we're generating opportunities for portfolio growth and also adding relationships and generating cross-sell opportunities. Across our markets and products, we're seeing increased loan demand in line with Florida's strong economic recovery.

Looking forward, we are reiterating our prior guidance and continue to expect loan growth to return to pre-pandemic levels in the second half of 2021. In this guidance, we're assuming our C&I borrowers return to making real estate equipment and inventory purchases, investing in their businesses into an expanding economy. To date, they've been slow to make these investments and have been holding a significant amount of cash on their balance sheet. The yield on loans, excluding PPP and accretion of purchase discounts, decreased to 4.15% with the overall lower rate environment. As we said last quarter, we expect loan yields to further modestly decline in the second quarter with lower add-on yields, assuming no change in the rate environment and increased originations.

Turning to Slide 11; 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 of the program. PPP loans outstanding at March 31st were $581.7 million, net of deferred fees, with an average loan size of $99,000, median loan size of $37,500 and with 85% of all our PPP loans under $150,000. Most of our PPP borrowers in the renewed program, 83% by count, are second draw borrowers. We originated $232 million in new PPP loans this quarter, and the renewed program is still open, so we'll continue to originate PPP loans into the second quarter as well. Borrowers from the original program are seeking forgiveness, and we processed $214 million in forgiveness during the quarter.

Overall, since the start of the original program, we've collected $26.7 million in SBA fees. Of that, we've thus far recognized $13.2 million and have $13.5 million in fees remaining to be recognized in future periods.

Turning to Slide 12; 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 25% of loans outstanding. Owner-occupied commercial real estate represents 21% of the portfolio, and residential real estate comprises 22% of the portfolio. Approximately 75% of our commercial portfolio, excluding PPP, is secured by real estate with borrowers that have meaningful equity in their investments and lower loan to values. 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 March 31st, that represented 21% and 155% of risk-based capital, respectively. Those levels have continued to decline and are lower than most in our peer group.

Performance on loans previously provided with payment accommodations has remained strong, and we have only $27 million in loans with active payment accommodations. Our loan portfolio is diverse and broadly distributed across categories with an average commercial loan size, excluding PPP, of just over $400,000.

Turning to Slide 13 for the securities portfolio; faster prepayments and lower-yielding portfolio purchases in the first quarter resulted in a decline in yield of 8 basis points. The net unrealized gain in the portfolio decreased during the quarter, largely due to the steepening of the yield curve. During the first quarter, we reclassified $212 million from the available for sale classification to held to maturity, which included U.S. government agency bonds that had longer-duration profiles and reasonable yields. We're carefully making new investments in bonds that have lower extension risk with shorter durations.

Looking forward to the second quarter, we're being prudent on how much cash we will put back to work in this portfolio, given the prospect of higher rates and expect net additions of $200 million.

Turning to Slide 14; deposits outstandings were $7.4 billion, an increase of $453 million quarter-over-quarter and an increase of $1.5 billion or 25% year-over-year. Transaction accounts represent 59% of total deposits and have grown 47% year-over-year, largely driven by PPP and other stimulus funds, driving higher customer balances. At quarter-end, deposits per banking center were $154 million compared to $118 million one year ago, the combination of higher deposits and two fewer branches.

And on Slide 15; compared to the fourth quarter the cost of deposits was lower by 6 basis points to 13 basis points. Looking ahead, we expect the cost of deposits to continue to decline in the second quarter, reaching the high single digits.

Moving to Slide 16; 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 1.71%, down from 1.79% in the prior quarter, a reflection of improvement in economic conditions. In addition to what we feel is a prudent level of allowance, note that we also have $27.3 million in purchase discount that will be earned over the life of those loans as an adjustment to yield.

Turning to Slide 17; on asset quality, credit measures are strong. Net charge-offs in the first quarter were only $370,000, and the level of non-performing loans decreased by $0.8 million to $35.3 million, representing 0.62% of total loans. Criticized loans were flat at 16% of total risk-based capital at March 31st. And as I said earlier, performance on loans previously provided with payment accommodations has remained strong, and we have only $27 million in loans with active payment accommodations. The overall allowance for credit losses at March 31st is $86.6 million, and allowance coverage, excluding PPP loans, decreased 8 basis points to 1.71%. We maintain a prudent level of allowance, and we'll continue to revisit this estimate throughout 2021.

Turning to Slide 18; our capital position continues to be very strong. Tangible book value per share is $16.62, an increase of 15% year-over-year. The tangible common equity to tangible asset ratio was 10.7% at the end of the first quarter and has consistently been among the highest in our peer group. The Tier 1 capital ratio was 18.2%, and the total risk-based capital ratio was 19.2% at March 31, each increasing over the prior quarter. Return on tangible common equity increased to 16% on an adjusted basis.

And finally, on Slide 19; looking back from the beginning of 2017 to today, 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 execute on our strategic growth initiatives and optimize the opportunities of this strong Florida economy.

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

Chuck Shaffer -- President & Chief Executive Officer

Thank you, Tracey. And operator, we're prepared to take a few questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question is from Steve Moss. Please go ahead.

Steve Moss -- B. Riley FBR Inc. -- Analyst

Good morning. I guess, maybe just starting with loan growth here. Maybe just a little bit more color in terms of -- it sounds like on the pipeline build, it's coming from more of your C&I borrowers. Just a little more color there, and perhaps also, what the possibility of maybe seeing growth come above the high single digit, low double digit type growth rates in the second half of 2021?

Chuck Shaffer -- President & Chief Executive Officer

I think, the puts and takes there, if you work your way through it, is -- if you were to look at our loan pipeline, you would see that there is a little more CRE in the pipeline than what we've seen in the past. And the reason that is C&I borrowers tend to be sitting on a tremendous amount of cash. And as you know, if you spend time looking at our portfolio, it primarily and heavily weights into professional practice, a lot of attorneys, doctors, lawyers and owner operated businesses, all of which to receive stimulus money through PPP. And in all cases, in those businesses, we need to work through that cash before they're going to be willing to make investments. And so, when we provide sort of our guidance around pre-pandemic growth of sort of mid to high single-digit growth on the back half of the year, I would describe the range of outcomes there on the high end of that will be more driven by the C&I businesses coming back out and making investments will be toward the lower end of that if they continue to sort of hoard the cash. And I think the pace of which that will happen depends to some extent on forgiveness, as we work through forgiveness and borrowers are more confident in the cash then being in their balance sheet, they'll either distribute it or invest it and alongside investing it would take down credit.

And so, if you were to think about modeling us out, you somewhat have to take a position on how quick those C&I borrowers come back into the marketplace. But, we still feel very confident on the back half of the year of sort of mid to high single-digit growth given the Florida economy. And we've seen significant recovery over the last two quarters. It's been very robust. The vaccination process is moving quickly. If you were in Florida, you would feel very much like it was pre-pandemic thing to very much return our balance sheets of both consumers, and businesses are bulked up with a tremendous amount of cash from the stimulus payments. And therefore, credit issues have moderated, and we expect growth to return late this year.

Steve Moss -- B. Riley FBR Inc. -- Analyst

Right. And maybe just on that business activity aspect, your interchange income stepped up here quarter-over-quarter. Just kind of curious, do you think about that as continue to go higher from here, or if there's just anything unusual there?

Chuck Shaffer -- President & Chief Executive Officer

I think, Q1 is usually the strong point, but I don't expect it to materially move lower from this point forward. So, a lot of that's been driven by stimulus in the economy and spending which we've seen both across the card companies and our own debit portfolio as well as we've talked in the past, we continue to market for interchange, we continue to drive stimulus campaigns, and we'll expect to continue to focus on that. But I think Q1 was a high point. And then, if you were modeling, Q4 will be a high point again.

Steve Moss -- B. Riley FBR Inc. -- Analyst

Okay, that's helpful. And then, just one last one from me. Just in terms of looking at the margin and in particular loan pricing, just kind of curious as to where new loans are coming on these days versus roll-off yields?

Chuck Shaffer -- President & Chief Executive Officer

Yes. Steve, in the prior quarter, I can give you an exact answer, we were at 3.81% for our add-on rate in Q1, and that's been very stable for us over probably the last three quarters. And that's a mix across all of our asset classes. And the roll-off rate, I don't have in front of me. Tracey, do you know what the roll-off rate is?

Tracey Dexter -- Chief Financial Officer

I think I do. Roll-off rate 4.24% in the first quarter.

Operator

Our next question is from Michael Young. Please go ahead.

Michael Young -- SunTrust Robinson Humphrey -- Analyst

I wanted to start, I guess, maybe just on the capital, and quite frankly, liquidity. I mean, you guys have kind of a high-class problem of really having high levels of both of those, which is potential energy for the future. It sounds like there's some greater loan growth maybe coming in the back half. But even with that and the dividend announcement, which was nice to see. You're still going to have -- be building capital. So, just kind of curious your outlook on opportunities to deploy that. And if you would do anything sort of in the interim, maybe on a temporary basis, I know you bought pools of mortgage loans and things like that in the past just to kind of lever capital and liquidity. So, anything like that that's out there?

Chuck Shaffer -- President & Chief Executive Officer

I think the way to think about that is, one, we like carrying a significant amount of capital. We like the fortress balance sheet concept that we've put together here. And we'll continue to revisit capital over time. Our primary focus for capital is organic growth and M&A. I think, the M&A market conversations have been robust and increasing over the last six months. And so, I think ideally, we put that into M&A. And at this point, we've put a dividend in place and we'll just revisit it over time, Michael. It's a careful balance of growth versus strength in the balance sheet. And we'll just see what -- how it plays out as we move through the coming years. But ideally, again, it would be an organic growth and M&A.

Michael Young -- SunTrust Robinson Humphrey -- Analyst

Okay. And I guess, the other question I had was just through Vision 2020, you guys have done a really great job of kind of balancing reinvestment with culling of expenses in other areas. The guide for next quarter looks like that is slated to continue. But, are there opportunities to be, I guess, a little more aggressive, either in hiring or other areas to maybe invest a little more in the future for growth at this point in the cycle?

Chuck Shaffer -- President & Chief Executive Officer

Yes. We have a number of key investments in the coming year. Part of that is hiring. We are very much active out recruiting both, individuals and teams. We have a number of folks we're talking to right now. And if you look back in the first quarter and late last year, we brought in a team up in the Central Florida area, including a new market president and a new regional credit officer. We have line of sight toward a number of future hires here as we come in the coming year, and that is baked into our investment plans. And then, secondarily, we've been making a significant amount of investment in our origination cycle times in the Company, particularly in the commercial banking business, to be able to deliver product to market faster. Some of the results of that investment and work will come later this year as the team continues to basically build a much quicker digital origination process. And then, thirdly, we've been investing in digital front end for our customers. We expect as we enter 2022 and through 2022 to have a much more robust digital front end for our customers, something we're excited about it. It is -- I don't think we'll increase our expense base as we move through time. We've got that offset and we've got a plan to make these investments while managing our efficiency ratio.

And so, as you know, we continuously challenge ourselves to make the hard trade-off decisions around sort of legacy overhead to a digital future ahead. And we'll continue to make investments, for sure. In Florida, just generally, around team hires and what's going on as the economies come back here, bankers are back out in force along with fairly increased M&A conversations, so has opportunities to acquire talent.

Michael Young -- SunTrust Robinson Humphrey -- Analyst

Okay. And last one for me. You guys have made a lot of investment on the fee income side of the house to kind of offset the low rate environment. Could you maybe just talk about mortgage, in particular? I guess, that's been high from an industry perspective. I know a lot of investment's gone in there. So, should we expect kind of market share gain to mute the industry volume fall off or maybe just higher volumes in Florida generally kind of muting the industry impact?

Chuck Shaffer -- President & Chief Executive Officer

Yes. The way we think about mortgage is it's a great way to acquire customers. And so, we focus on Florida only. We focus on the markets we're in. And we look at it as a way to service our current customers as well as grow a new customer base. I think, that's the highest value of the mortgage business. It builds sustainable annuitized revenue that comes alongside that cross sell. And so, as we move forward, we are always actively looking to recruit originators into the franchise. But over time, if refinance demand were to slow, that's why our guide is to slower mortgage income in the coming quarters. That all being said, the team here at Seacoast has done an incredible job of prioritizing purchase money and servicing the realtors in the markets we're in, and along the East Coast here, we're the number one market share on the mortgage side. And we continue to expand that business, in particular, in Orlando and as well as Tampa. We've hired a number of mortgage originators in those two markets. But again, our key focus with mortgage is to drive customer growth and franchise value overtime.

Operator

Our next question is from David Feaster. Please go ahead.

David Feaster -- Raymond James -- Analyst

It was great to see the increase in the pipeline. It's extremely encouraging. I just was curious, how much of this is from existing customers that you think are getting more ready to invest, just given the improved economic outlook versus new customer acquisition from the new hires that you've made and just an update kind of where we are in the migration of new clients from the PPP program.

Chuck Shaffer -- President & Chief Executive Officer

Sure. If you were to look at the pipeline, I'd say the majority of it is new customers that we've been bringing in. It is new relationships. A lot of it's the expansionary plans, we've grown into the Tampa, West Coast market and into South Florida. And so, we're seeing more and more opportunities that is largely coming from our expansion of our business. And I would tell you, like I mentioned earlier, our sort of overall pipeline, including early stage deals, if you were to sort of measure that on a productivity basis, we have more deals per banker in the pipeline than we've had really going back over a number of years. So, our entire population is in the game, which we're excited about. They're selling the full bank. So, we're seeing not only growth in loan opportunities, they are significantly contributing to the AUM growth, which has been substantial. If you run the math on that, we're up almost $450 million, north of $450 million year-over-year in AUM that's come from that team, expanding, help expand that business alongside our wealth team. And they're selling the full bank. So, we're super excited about the commercial business. It's something we continue to focus on to make it more competitive.

As I mentioned earlier, we've made a lot of investments in technology there. We've made a lot of investments in leadership around the State of Florida. And we'll continue to. It's -- I think there's an opportunity for us here, particularly as all the community banks have either exited or gotten smaller or the larger community banks have gotten much larger. There's a nice space for us to slide in here and be the commercial bank of these metro markets that we serve. And so, on the PPP side, we continue to get customers. We continue to cross sell customers. I don't have the exact numbers in front of me. I can get them for you later today, David. But, we continue to use it as an opportunity to acquire customers.

David Feaster -- Raymond James -- Analyst

That's great. And just kind of curious, reading between the lines, it sounds like you're a lot more confident that your appetite for credits improved pretty significantly. I guess, just given the build in the pipeline, the improved economic outlook and with the distraction from PPP in the rearview. Do you think that loans, exclusive of PPP, have troughed here, and that we should start seeing growth in the second quarter, or do you think there could be some additional runoff just from payoffs and paydowns?

Chuck Shaffer -- President & Chief Executive Officer

Right now, our model would have very slight growth in the coming quarter, and then fairly significant growth in Q3 and Q4. So, I think this is the trough.

David Feaster -- Raymond James -- Analyst

Okay. And then, just wanted to touch on the strategy for deploying your excess cash. It sounds like you're going to be pretty methodical and invest over time, or is it that do you expect maybe some of this liquidity to flow out? And I guess, just how do you think about your asset sensitivity in the securities book, just in light of this liquidity build? And do you see opportunity to maybe take some duration risk and take some massive sensitivity off the table, or just how are you just thinking about that?

Chuck Shaffer -- President & Chief Executive Officer

I think, Tracey, you can jump in here, too, if you want. But, I think, we'll continue to be patient. I think, the risk of higher rates is fairly material at this point. And so, we don't want to get ahead of ourselves and then find ourselves under water in these long duration type low-yielding bonds. And so, we'll be very methodical, David. It is a careful balance of earnings to the risk of market value declines in a higher rate environment. Today, we've focused on sort of sliding in for four-year duration with no extension risk. You take a little yield hit there and it pushes the yield down in the 1.20, 1.30 range, but we think that's appropriate. And our guide to you for the coming quarter is a net $200 million in growth.

Tracey Dexter -- Chief Financial Officer

Yes. And David, you're right to mention some of the uncertainties there. The excess liquidity is driven largely by trends in PPP forgiveness, those higher customer deposit balances. And so, changes in that behavior would certainly cause us to reconsider.

Chuck Shaffer -- President & Chief Executive Officer

Yes. You can kind of envision a period here where that excess liquidity that's in bank balance sheets, including ours and everybody else's begins to wane in the coming year and as that money gets invested. So our sort of thought there is the C&I type customer that's got all of this cash will begin to invest later in this year. I think they have to. I think it's pent up, and they've been waiting for, like I said, to work through forgiveness as well as some clarity on the economic recovery and the impact of the pandemic. I think, as we've talked in the past, we were waiting for some very clear indications around that, including vaccine, stimulus, etcetera. I think we've been able to see that and that gives us confidence that the state is doing incredibly well. And we're feeling confident about the future ahead on our economic recovery.

Operator

[Operator Instructions] And I have no further questions at this time.

Chuck Shaffer -- President & Chief Executive Officer

All right, thank you. Thank you, everybody, for joining us this morning. And we'll talk soon. Thank you.

Operator

[Operator Closing Remarks]

Duration: 43 minutes

Call participants:

Chuck Shaffer -- President & Chief Executive Officer

Tracey Dexter -- Chief Financial Officer

Steve Moss -- B. Riley FBR Inc. -- Analyst

Michael Young -- SunTrust Robinson Humphrey -- Analyst

David Feaster -- Raymond James -- Analyst

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