Earnings Call Transcript - SBCF Q4 2022

Operator, Operator

Greetings, and welcome to the Seacoast Banking Corporation's Fourth Quarter and Full-Year 2022 Earnings Conference Call. My name is Malika, and I will be your operator for today. Before we begin, I have been asked to direct your attention to the statement 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. I will now turn the conference over to Chuck Shaffer, Chairman and CEO of Seacoast Bank. Mr. Shaffer, you may now begin.

Chuck Shaffer, Chairman and CEO

Thank you all for joining us this morning. As we provide our comments, we will reference the fourth quarter and full-year 2022 earnings slide deck, which you can find at seacoastbanking.com. I'm joined today by Tracey Dexter, Chief Financial Officer; and Michael Young, Treasurer and Director of Investor Relations. Looking back at 2022, we made remarkable progress in expanding the franchise throughout Florida. Through acquisitions and new market launches, we strengthened our competitive position across the state and crossed the $10 billion in assets threshold. We started the year with the completion of the Sabal Palm Bank and Florida Business Bank transactions, putting us in the desirable Sarasota market and continuing our growth in Brevard County. Also in the first quarter, we entered Naples and Jacksonville with de novo teams, resulting in better than expected customer growth in both markets over the last 12 months. In early October, we completed the acquisition of Drummond Bank, expanding our presence in North Florida, including Ocala and Gainesville, and added an exceptional C&I team covering both markets. Additionally, in October, we expanded our franchise into the dynamic Miami-Dade County market with the Apollo acquisition. During the third quarter, we announced the addition of Professional Bank, expanding our reach in South Florida even further. Moreover, in early 2022, we continued our focus on delivering better digital experiences to our customers, completing a significant digital conversion that added Zelle, budgeting tools, account aggregation, improved digital onboarding, Spanish language support, and several other digital customer experience improvements. We enhanced our commercial banking team in 2022 with a transformative year of recruiting well-seasoned commercial bankers, treasury officers, and credit officers throughout Florida, meaningfully increasing productivity over the prior year. Our wealth team also had an outstanding year, adding $425 million to bring assets under management to nearly $1.4 billion at year-end. Throughout the year, we made investments across all operational areas in technology and talent, building resilience and scalability as Seacoast transitions to a mid-size bank. Seacoast had an exceptional 2022, distinguishing ourselves as Florida's leading community bank. Turning to our financial results, the team finished the year with excellent performance. We materially expanded our net interest margin during the fourth quarter, increasing 69 basis points from the prior quarter with loan yields rising 84 basis points. At the same time, the cost of deposits increased only 12 basis points. This represents an impressive cycle-to-date beta of less than 5%. We believe the strength of our relationship-focused lending model and our granular deposit franchise is finally becoming more evident during a period of higher interest rates, as compared to other more transactional wholesale rapid growth business models. We generated $67 million in adjusted fourth quarter pre-tax, pre-provision earnings, an increase of $17.7 million from the prior quarter, while achieving a 52% efficiency ratio. Our fourth quarter adjusted pre-tax, pre-provision return on tangible assets improved to 2.28%, and our adjusted return on tangible equity improved to 15%, up from 12.5%. Seacoast continues to operate from a position of strength, with capital allowance ratios at the top of our peer group. We ended the quarter with a TCE ratio of 9.1% and an ACL coverage ratio of 1.40%. Considering the loss absorption included in the purchase accounting marks, the company's backup at a 2.60% coverage rate. Additionally, should a downturn materialize, Florida has the potential to outperform the rest of the country, given the wealth accumulation and population growth over the last few years. Florida has exceeded every state in the nation in attracting affluent wealthy individuals and corporations, adding materially to the state's GDP and further bolstering the state's economic drivers. Our credit metrics remain outstanding, and we continue to be a disciplined conservative lender, focused on building a carefully underwritten and diversified portfolio by nurturing full client relationships to bring low-cost funding. And as a reminder, our portfolio has been built over the long term with a consistent growth rate while driving diversification by product type, segment, and vintage. A final thought, considering the continued economic strength of Florida, our carefully underwritten credit portfolio with low CRE and C&I concentrations, and peer-leading capital levels, we believe we have a very strong balance sheet that can weather any challenges ahead. Such strength should also provide optionality to be offensive in potentially more volatile economic environments, including opportunistic market share gains, organic growth, and acquisition opportunities. I'll now turn the call over to Tracey.

Tracey Dexter, Chief Financial Officer

Thank you, Chuck. Good morning, everyone. Directing your attention to fourth quarter results, beginning with the highlights on Slide 5. The net interest margin expanded 69 basis points to 4.36%, and on a core basis expanded 43 basis points to 4.01%. Loan originations, in combination with acquisitions at higher book yields and the low cost of deposits we maintained during the quarter supported higher net interest margin. Our cost of deposits increased only 12 basis points during the fourth quarter to 21 basis points. We've managed deposit pricing largely on an exception basis since the beginning of the rate cycle, but we do expect to see an increase at a quicker pace in the coming months, given the velocity of rate movement and the competitive environment. Pre-tax, pre-provision earnings continued to increase with 7% growth quarter-over-quarter to $46 million, and when adjusted for merger-related costs and amortization of acquired intangibles in each period, pre-tax, pre-provision earnings increased 36% to $66.6 million and as a percentage of tangible assets to 2.28%. We delivered organic loan growth in addition to growth through acquisition this quarter. Our credit standards remain disciplined and focused on relationship lending, and we saw annualized organic growth of 14% this quarter. I want to emphasize that the growth adheres to the bank's credit standards and is a combination of solid production in the quarter and slowing loan prepayments. The loan-to-deposit ratio ended the quarter at 82%. Average loan yields increased 84 basis points to 5.29%, and the December weighted average add-on yields reached 6.5%. Credit risk metrics remained strong, with non-accrual loans representing 0.35% of total loans compared to 0.32% in the prior quarter. The quarterly provision for credit losses is $14.1 million, including $15 million in initial provision on the Apollo and Drummond acquired loans, offset by the release of $2.1 million in reserves we established in the third quarter to provide for losses potentially resulting from the impact of Hurricane Ian that did not materialize. The allowance for credit losses stands at 1.4% of total loans and continues to reflect the possibility of potentially deteriorating economic conditions. Wealth Management was a particularly bright spot during the quarter and for the full-year 2022, with the wealth management team adding $425 million in assets under management over the last 12 months. As you know, there has been significant activity on the M&A front, including the closings of the Apollo and Drummond transactions on October 7, and the upcoming acquisition of Professional Bank expected on January 31, with system conversion expected late in the second quarter of 2023. Turning to Slide 6, net interest income expanded 36% during the quarter, adding $31.5 million with higher yields and higher loan balances. Net interest margin expanded 69 basis points to 4.36%, and excluding PPP and accretion on acquired loans, net interest margin increased by 43 basis points to just over 4%. In the securities portfolio, yields increased 41 basis points to 2.77%, and loan yields expanded 84 basis points to 5.29%. We continue to benefit from a strong low-cost funding base with 64% transaction accounts, and the cost of deposits increased only 12 basis points to 21 basis points. In addition, during the quarter, the Apollo and Drummond banks further enhanced the deposit base with longstanding granular relationships. Looking ahead, we expect continued expansion of net interest income, driven by balance sheet growth and modestly increasing yields on loans and securities outpacing increasing deposit costs. In the first quarter, we model net interest income in a range between $132 million and $138 million, with the actual outcomes highly dependent on the pace and velocity of deposit competition in the coming quarter. Moving to Slide 7, adjusted non-interest income was $17.6 million, an increase of $1.2 million from the previous quarter and a decrease of $700,000 from the prior year quarter. We saw increases in service charges and interchange revenue, and wealth management revenue increased 6% from the prior quarter and 22% from the prior year quarter. Comparing overall performance to the prior year quarter, the decrease relates to lower mortgage banking activity impacted by rising rates, with mortgage-related income of $2 million in the fourth quarter of 2021 compared to about $400,000 in the fourth quarter of 2022. Looking ahead, we continue to focus on growing our broad base of revenue sources, and with the benefit of the expanded franchise, we expect first quarter non-interest income in a range from $20 million to $23 million, which includes the partial quarter activity from Professional Bank. Moving to Slide 8, adjusted non-interest expense for the quarter was $70.4 million, which was lower than the guidance we provided last quarter. Increases from the prior quarter were aligned with the expanded associate base and growing customer base, and it is important to note that the Drummond and Apollo cost synergies will fully materialize beginning in the second quarter of 2023. Salaries and benefits on an adjusted basis increased $12.3 million, reflecting the increase in staff to support Seacoast's expanded statewide franchise, as well as increases in incentives related to higher commercial production during the quarter. Data processing is typically volume-based, and the increase aligns with the larger customer base and higher transaction volumes. Similarly, occupancy-related costs are in line with the increase in the bank's footprint during the quarter. Amortizing core deposit intangible assets increased during the quarter with the addition of Apollo and Drummond. Amortization of these assets during the fourth quarter was $4.8 million, and we expect full-year amortization, including the addition of Professional Bank, to be approximately $28 million. Looking ahead, we expect to maintain our expense discipline while continuing investments to support growth. We expect first-quarter expenses scaling with the growing size of the organization in the range of $86 million to $90 million, inclusive of the operating results of Apollo and Drummond and a partial quarter for Professional. On an adjusted basis, excluding the amortization of intangibles, that would be $80 million to $84 million. On Slide 9, the efficiency ratio on an adjusted basis improved to 52%. As we scale the company for growth and become the leading bank in our Florida markets, we continue to pace our investments with discipline, evidenced by our consistent focus on efficiency. Looking forward to the full-year 2023, we expect to maintain the efficiency ratio in the low 50s. Turning to Slide 10, the chart on the left highlights the continued diverse mix of our credit exposures and our disciplined approach to managing concentration. In the upper right of the slide, construction and commercial real estate concentrations remained well below regulatory guidelines and well below peer levels. Turning to Slide 11, loan outstandings increased $241 million or 14%, excluding acquisitions on an annualized basis. Commercial originations were up over the prior quarter, and looking forward, we're seeing market demand generally slowing, impacted by rising rates. Average core loan yields increased by 50 basis points during the quarter to 4.8%, with the December weighted average add-on yields reaching 6.5%. We expect the pace of loan growth to moderate somewhat, anticipating an annualized growth rate in the first quarter in the mid-single digits. Loan yields will continue to benefit from the higher rate environment, and we expect core yields in the first quarter excluding purchase accounting accretion to expand meaningfully into the 520s range. Turning to Slide 12, in the investment securities portfolio, the average yield increased during the quarter by 41 basis points to 2.77%. Values have stabilized and duration in the AFS portfolio has extended from around 3.5 in the third quarter to 3.73 in the fourth quarter. Turning to Slide 13, deposits outstanding totaled just under $10 billion, which is an increase of $1.2 billion from September. Net of acquired balances, there were outflows of approximately $320 million in non-interest bearing demand accounts. Our cost of deposits increased by only 12 basis points, and we observed some outflows impacted by rate sensitivity and a general absorption of liquidity in the market. The competitive environment is increasingly dynamic, and our expectation is that the cost of deposits will increase faster in the first quarter than in the fourth quarter, in addition to the impact from adding higher cost deposits from Professional Bank. That said, we continue to expect to outperform peers, and the environment highlights the strength of our low-cost deposit base. Looking forward to the first quarter, including the impact of Professional Bank, we expect our cost of deposits to move above 50 basis points. Providing more precise guidance is difficult, given the increasingly dynamic competitive market for deposits. Moving to Slide 14, wealth revenues increased 6% compared to the third quarter and 22% compared to the fourth quarter of 2021. The previously mentioned deposit outflows contributed in part to the strong results for the Wealth Management division. You'll see that assets under management have increased 60% from $870 million two years ago to nearly $1.4 billion today. Moving on to credit topics on Slide 15, the allowance for credit losses increased during the quarter by $18.6 million to an overall $113.9 million, with a decline in coverage of 2 basis points to 1.4%. The provision this quarter was $14.1 million, which included $15 million assigned to the portfolios acquired from Apollo and Drummond, offset by the release of $2.1 million that was set aside for Hurricane Ian, which fortunately, did not need to be utilized. We remain watchful of inflation pressures and are carefully considering the ongoing impact of higher rates on the economy, although our credit metrics remain very strong. Moving to Slide 16, charge-offs were only 4 basis points on the overall portfolio. Non-performing loans represent 0.35% of total loans. The percentage of criticized loans to risk-based capital increased modestly, reflecting conservative grading on acquired loans. In the allowance, we continue to assess the environment and the factors that might affect loan performance; this quarter, the allowance for credit losses is modestly lower at 1.4% of total loans, again attributed to the release of hurricane reserves. On Slide 17, our capital position continues to be very strong, and we're committed to maintaining our fortress balance sheet. You can see the somewhat dilutive effect of the acquisitions in the fourth quarter on tangible equity and from prior quarters this year, with a decline in accumulated other comprehensive income; while these measures will return over time, we're committed to driving shareholder value creation. The ratio of tangible common equity to tangible assets is a strong 9.1%. In this quarter, adjusted return on tangible common equity was 15.1%. In summary, considering our peer-leading capital levels, prudent credit culture, and high-quality customer franchise, we have one of the strongest balance sheets in the industry, providing optionality if a recession materializes and flexibility to be opportunistic in client selection, organic growth, acquisition opportunities, and to continue building Florida's leading community bank. We'll look forward to your questions. Chuck, I'll turn the call back to you.

Chuck Shaffer, Chairman and CEO

Thank you, Tracey. And before we go to Q&A, I just want to say thank you to all the Seacoast associates on the call. 2022 was truly a special year. I'm incredibly proud of all of you and thank you for all your hard work and effort. Okay. Operator, we're ready for Q&A.

Operator, Operator

Our first phone question is from Brady Gailey. Please go ahead. Your line is now open.

Brady Gailey, Analyst

So, I wanted to start with loan growth. I know you guys had been expecting high-single digits. It sounds like you're more in the mid-single digit area for the first quarter of the year. Should we think about mid-single digits as appropriate for the entire year? Or do you think that you will get back to the high-single after you get through what’s kind of a seasonally slow first quarter?

Chuck Shaffer, Chairman and CEO

Yes. And maybe looking back at the quarter, we really had a very good quarter for loan growth, and it was a nice mix between C&I and commercial real estate, largely driven by the addition of our new teams. We added over the back half of last year, and it was really great to see the relationships come over with that additional talent, generally very high-quality relationships that joined the franchise. As a result of the quality talent we hired, we are pleased with the outcome, also pleased with the average add-on rate hitting about 650 towards the end of the year. So, we saw a nice pull-up in new loan yields. Looking forward, it’s tough to provide guidance beyond the quarter, and we're guiding to mid-single digits for the first quarter. I would say, at this point, given the inversion of the curve, I think it's prudent for us to be cautious and thoughtful as we move through this period. We want to add high-quality opportunities as they come on, particularly high-quality relationships coming with both deposits and loans. But beyond that, Brady, we will have to see how things play out for the year, but mid-single digit guidance for Q1.

Brady Gailey, Analyst

Okay. And then your accretable yield really ticked up in the fourth quarter; it was almost $10 million, which is more than you had in the first three quarters of the year combined. I know that line item can be very difficult to forecast. And I know you're about to add Professional into that bucket, but any shot at what accretable yield could be for the full-year 2023?

Tracey Dexter, Chief Financial Officer

Yes, I think when we look back at the fourth quarter and the acquisition estimates, the credit marks came in really in line with our expectations. But to your point, the rate marks, measured off the rate environment on October 7 for both banks at the date of closing, came in a bit higher, impacting the accretable yield. So, as we look forward, accretion is a difficult number to model, as you pointed out, but with about 9.7 in the fourth quarter and the addition of Professional Bank in the first quarter, our model shows about $10 million or $11 million in the first quarter, and then you'll see it move a little higher after that.

Brady Gailey, Analyst

Okay. All right. And then lastly from me, I mean, Seacoast has been incredibly active in M&A. You're closing your biggest deal ever next week. I know bank M&A nowadays is tougher just with the rate mark component, but how do you think about bank M&A? You've done a lot; is it time to stop and pause and digest what you've done, or are you still on the offense, and you could see additional deals beyond Professional this year?

Chuck Shaffer, Chairman and CEO

I think the way to think about M&A for us is we’re in the midst of converting Drummond, which we'll finish up here in the first week of February. Our plan is to convert Professional right around the first week of June. So, as we come out of the Professional acquisition, we will be ready and available to engage in M&A, but it will be highly dependent upon market conditions at that time and whether pricing can make sense. Clearly, earn backs have to make sense in M&A, and we have to be able to model not only liquidity but also credit reserves, etc. So it will depend on where things stand when we get there, but I think from an operational perspective, we've done a very good job over the last few years adding talent and technology to scale the franchise. I think we've been ahead of the growth plan. And so we will be ready, but it will depend on the environment.

Brady Gailey, Analyst

Okay. That makes sense. All right. Thanks, guys.

Operator, Operator

Thank you. Our next question is from the line of David Feaster. Please go ahead. Your line is now open.

David Feaster, Analyst

I wanted to circle back to the loan growth side. I mean, you talked about things starting to slow, but I just wanted to get some sense of the puts and takes here, right? How much of this is weaker demand from clients versus maybe you guys having less of an appetite for credit at this point, given the economic backdrop? And if you could just talk about maybe what segments are still providing good risk-adjusted returns? And are there anything that you are avoiding or slowing where it just doesn't make sense?

Chuck Shaffer, Chairman and CEO

Yes. Thanks for the question, David. Growing a bank into an inverted curve, as I mentioned last question, is something you have to be prudent and thoughtful about. When we look at what we're seeing in the commercial real estate sector, things have slowed pretty dramatically when you look at cap rates and where interest rates are. It seems like deal transactions have really slowed significantly here. We're also seeing much less activity in the residential market, driven by the same issues—customers are entered rates that are lower, while new rates are much higher in the marketplace, and cap rates in commercial real estate remain low. So there are certainly fewer transactional volumes, and the last thing you want to do is stretch into that environment, so we’re being thoughtful there. We’ve pulled back pretty strongly from construction lending at this point, but we’re still looking at stabilized income-producing properties where leverage makes sense and where we have relationships with known borrowers. We still see a nice pipeline around C&I, and we’re getting good looks given some of the talent we’ve brought into the company on the C&I side. We’ll take our opportunities there. On the commercial real estate side, where we have appropriate leverage, strong cash flow, and strong balance sheets, we will do deals, but again, the way we’re playing the game is we need full relationships moving forward. We need to understand balance sheets, liquidity, and we must understand the client deeply. So it's a conservative approach, given the environment. However, I think we’re navigating it pretty well. If you step back and view our balance sheet and how we've constructed it over the history of the organization, we've always focused on relationships where we can secure good yields on loans and good structures and credit, while carefully choosing our spots.

David Feaster, Analyst

Okay. That makes sense. And then maybe on the other side of the coin, just touching on the funding. You talked about how competitive it is out there. Obviously, rates are accelerating, and deposit costs are increasing, and you're managing that well. I'm curious how you think about deposit costs as we look forward. Slower growth alleviates some of that pressure, but just curious—how much of the outflows this quarter were surge deposits? Are more price-sensitive clients leaving for higher rates in the bond market versus borrowers just using cash to pay down higher-cost debt? And any thoughts on how you plan to manage future potential outflows through borrowings, brokered funding, or even potential security sales?

Chuck Shaffer, Chairman and CEO

You captured it all in the question, David. The bond market, obviously, now serves as a competitor to bank deposits. The pace at which rates moved up on the short end of the curve created real competition. When looking at the overall marketplace for bank deposits, we’ve seen trends in line with the national banks in terms of deposit shrinkage. Part of that was driven by about $150 million lower balances across title companies and attorneys, reflecting the fact that fewer transactions are occurring in the marketplace. The remainder of the decrease was simply that customers have less balance in their accounts and are feeling the pressure from rates. That being said, our franchise includes $240,000 accounts; 87% of those accounts have less than $5 million at Seacoast. If you look deeper, 68% of those accounts are under $1 million. We have a very granular franchise built over nearly 100 years, which provides a lot of strength in these environments. We are 65% transactional on the depository side of our funding base, and that unique strength is evident in the prior quarter's results. I’m confident in our ability to perform better than most in the banking community, given our transactional relationship nature and the granular franchise we've built over a long time. Looking forward, Michael, do you want to comment on how we’re thinking about deposits?

Michael Young, Treasurer and Director of Investor Relations

Yes, David. On a go-forward basis, we'll look to hold balances steady or potentially grow them depending on how the competitive environment plays out. In the interim, we will fund any gap with FHLB borrowings, as we have been doing, but we are not in a significant net borrowing position as of 12/31. We’ll manage that throughout the year to optimize rate, volume, and net interest income. As we’ve shown throughout this cycle, we’ve achieved a sub-5% deposit beta on a cumulative basis. Historically, we’ve been at 28% cumulative deposit beta, and we feel confident about outperforming that on a stand-alone basis. There will be a step-up, as Tracey mentioned earlier, from Professional Bank once that deal closes—this will just be a one-time step-up. Beyond that, we'll continue to manage this scenario with some flexibility to maintain or drive balanced growth. Regarding securities, we wouldn’t expect to make additional purchases or increase that book; we'll just let that amortize down over time and reallocate positively into very high loan yields in today’s market. That should be beneficial to our overall net interest margin going forward.

David Feaster, Analyst

What are the securities cash flows that you're expecting this year?

Michael Young, Treasurer and Director of Investor Relations

Yes, about $300 million to $350 million. A little extra could come from Professional Bank, which overall would fund a good percentage of our projected loan growth for the year.

David Feaster, Analyst

Okay. And then maybe just circling back to the M&A question. On the other side, you've done a phenomenal job recruiting and attracting really high-quality bankers. I’m curious how you think about recruiting versus M&A, given some of the challenges that you alluded to? How do you see recruiting at this point as we look forward?

Chuck Shaffer, Chairman and CEO

Yes, I think in both cases, we will be opportunistic. I think our banker count and the number of bankers we have in the company is appropriate right now for the growth rates we see ahead. If we’re adding talent, it will be where we see very high-quality candidates in the markets we want to penetrate. The good news is we continue to see high demand for our company, which is exciting as the talent we are bringing in have significant momentum and pipeline, eager to join the franchise. As we've discussed in the past, we are at a unique size in Florida where we have a substantial brand growing across the state, which has helped in attracting high-quality bankers, alongside the disruptions happening within organizations above us. So, we will be opportunistic as we move forward, while carefully managing costs in this environment. M&A will also be conducted opportunistically; if earn backs make sense, deal pricing works, we're comfortable with liquidity and credit, we will consider it, but we need to be thoughtful about the current environment.

Michael Young, Treasurer and Director of Investor Relations

And David, I’d just add that we have sufficient production capacity already within our current banker team. So, there's not an immediate need to hire to drive growth at this time. However, we always want to be opportunistic about expanding our franchise over time.

Operator, Operator

Thank you. And our next question is from the line of Brandon King. Please go ahead. Your line is now opened.

Brandon King, Analyst

So, another question on deposits. I just wanted to get a sense of the underlying mix there and the outlook for that, particularly since it was in the quarter where outflows occurred. Did they come primarily from non-interest-bearing accounts relative to interest-bearing? How do you see that mix trending for the year as far as your intent to grow deposits?

Tracey Dexter, Chief Financial Officer

Yes, Brandon. Most of the absorption and deposits in the fourth quarter, as you might expect, came from non-interest-bearing accounts. We saw some movement to other account types, so really largely those are just lower balances consistent with what we've seen across the industry. We chose to manage pricing in a way that kept our deposit costs low. We do expect greater stability in deposit balances going forward, but at incrementally higher funding costs. I believe customer behavior patterns potentially have stabilized as they relate to rate movement. We'll continue seeking some stabilization through adjusting our pricing strategy.

Chuck Shaffer, Chairman and CEO

Yes, Brandon. Just to add, on the demand deposit side, we’ve seen a lot of the surge deposits and average account balances come down a bit from that excess liquidity. We are likely now at a relatively more stable position, similar to pre-liquidity surge levels. This should continue to improve, but we will focus on growing core relationships and money market accounts with commercial customers, so you should see incremental growth in those areas moving forward.

Brandon King, Analyst

Okay. And I know this might be a little premature, but can you give me a sense of how the company and performance levels could react if the Fed cuts rates, as some people expect in the back half of this year and next year? What is your position from a balance sheet perspective in terms of how the company could perform in that environment?

Chuck Shaffer, Chairman and CEO

Sure, Brandon. In a dynamic NII perspective, we'd see upwards of about a little over a 3% increase in an up 100 basis point scenario; conversely, in a down 100 basis point scenario, we'd trend down a little more than 3% as well. This yields pretty symmetric outcomes from that perspective. We’ve reduced our asset sensitivity as we have reached higher levels at absolute rates, so we think we’re well-positioned there with not much sensitivity and risk in either direction. As we assess downside risk to rates, given the high levels we are at in terms of absolute rates today, we aim to minimize downside risk for Seacoast as a franchise; our strength recorded this quarter.

Operator, Operator

Thank you. At this moment, I'm showing no further questions. I'll turn it back to the speakers.

Chuck Shaffer, Chairman and CEO

Thank you, and thank you all for joining us. This quarter showed the strength of the franchise and our focus on building the franchise over the long run. It was great to see the strong results for the quarter. Just to reiterate, I appreciate everybody on the Seacoast team for their hard work over the last year; it's been a truly remarkable year. So, thank you all, and that will conclude our call.

Operator, Operator

Thank you, ladies and gentlemen. We thank you for your participation and ask that you please disconnect your call. This concluded today's call. Have a good day.