Welcome to Seacoast Banking Corporation's conference call regarding the announcement of the proposed acquisition of Drummond Banking Company and its bank subsidiary, Drummond Community Bank. My name is France, and I will be your operator. If you would like to register for a question, you may do so by pressing the one followed by the four. If you require operator assistance, please press star zero. 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 and the risks and uncertainties identified therein, which you should read carefully, as such risks and uncertainties may cause results to differ from expectations. 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 the Act. Seacoast's abilities to accurately project results or predict the effects of future plans or strategies, including the impact of the proposed merger with Drummond Banking Company or predict market or economic developments, is inherently limited. Seacoast believes that the expectations reflected or implied by any forward-looking statements are based on reasonable assumptions, but are not guarantees of performance or results of the success of the proposed merger, and if actual results, performance and integration with and into Seacoast could differ materially from the expectations set forth in the forward-looking statements. You should keep in mind that any forward-looking statements made by Seacoast speak only as of the date which they were made, and that Seacoast undertakes no obligation to update or revise any forward-looking statements, and you are cautioned not to place undue reliance on such forward-looking statements. Please note this call is being recorded. I will now turn the call over to Chuck Shaffer, Chairman and CEO of Seacoast Bank. Mr. Shaffer, you may now begin. Thank you, France, and thank you all for joining us this morning. As we provide our comments, we will reference the merger slide deck titled Acquisition of Drummond Banking Company, which can be found at seacoastbanking.com. With me this morning is Tracey Dexter, our Chief Financial Officer. We're very excited to announce the acquisition of Drummond Banking Company. The transaction represents a continuation of our M and A strategy by providing Seacoast with a low cost, low beta, 32-year-old deposit base with deep relationships and new markets across the state, including the attractive and growing Ocala and Gainesville markets. This is a unique bank, unlike many we've acquired in the past, that were built to be sold at some point. Drummond Community Bank has been focused on building an institution with strong franchise value that is cycle tested and has been focused on the long run. The transaction adds over 1 billion in assets and generates 8.6% earnings accretion in 2023, with modest tangible book value dilution earnback to over 1.6 years. The modeling assumptions include the acquisition of Apollo Bank shares. The transaction metrics were affected by the decline in value of the bank's securities portfolio due to recent changes in the yield curve. Available for sale securities are marked to fair value, marked to fair value through equity, and assuming the declines in value are related to rate and not credit, which we believe to be true here, the value of the portfolio will return over time. With the current lower value of securities, the lower equity creates a higher calculation of tangible book value dilution and a longer earnback period than would otherwise be the case. The earn back, excluding timing related fair value marks, is only 0.6 years. This transaction allows Seacoast to expand in this attractive market efficiently, bringing our brand of high-quality service and digital products, which will generate greater cost efficiencies and strengthen our ability to achieve accretive organic growth in the future. We've applied this model in our markets in the past. For example, in the legacy Seacoast franchise, we've been able to support the community's banking needs efficiently and significantly expand the use of mobile and online banking platforms for day-to-day banking needs. We have a very similar opportunity with Drummond. We have a playbook that has been developed and refined over the last eight years that will drive greater mobile engagement across the customer base and deepen and strengthen product usage across the Drummond footprint. We know from experience that we can achieve significant customer satisfaction while lowering the cost to serve this customer base. The Drummond account profile of 42,000 accounts provides a tremendous opportunity to flex our analytics muscle memory. In credit diligence, we took a detailed and careful approach and came away confident we understand the quality of the portfolio we're acquiring and placed a conservative mark of 2.47%. The portfolio is relationship driven to local customers and fits well within Seacoast's credit portfolio. Drummond has also developed diversified sources of fee revenue. Though the transaction metrics presented do not reflect potential revenue synergies, Seacoast will expand these services, which include an insurance agency and a title company, to our entire customer base, including through the use of our customer analytics engine, to further build resilient and diversified sources of fee income. I want to thank Luther Drummond, Gray Drummond, and Scott Guthrie at Drummond Bank for their help over the past few months, putting together this transaction. To conclude, this transaction is a strategic expansion that provides additional, stable, low cost funding and introduces the Seacoast brand to several attractive North Florida markets. I'll now turn the call over to Tracey to provide further details on the combination. Thanks, Chuck. Good afternoon, everyone. Drummond has 18 branches and 932 million in deposits at March 31, 2022. Loans of 543 million as of the same date have an average yield of 5.64%. 92% of the bank's deposit funding is made up of checking, savings, and money market accounts, and non-interest bearing demand accounts represent 51% of total deposits. One of the unique aspects of Drummond Community Bank is the quality of the deposit book. We've provided details on slide eight of the investor deck. With over 50% of the funding in non-interest checking accounts and an average life of 9.25 years, the deposit beta in this book is very low. Looking back at the last cycle, this deposit book significantly outperformed the Florida bank average and had a lower deposit beta than Seacoast. Moving on to the transaction metrics with reference to slide 11. Under the terms of the merger agreement, Seacoast will acquire 100% of Drummond's outstanding shares. Based on Seacoast's closing price of $33.72 as of May 3, the transaction is valued at 173.2 million. The deal pricing translates to 1.91x Drummond's tangible book value and 6.2x 2023 earnings per share when including expected cost savings. We're projecting 40% cost savings, for which we have a very detailed execution plan and have consistently demonstrated the ability to execute these in all prior transactions. Credit assumptions used for modeling were developed following detailed due diligence. Credit quality is strong, and we took a conservative approach to modeling, resulting in a total estimated purchase mark of 4.69%, including the CECL double count. That's a total estimate of 25.3 million pre-tax mark, which includes 1.3 million in day one CECL reserves on PCD loans, 12 million in day one CECL reserves through provision on non-PCD loans, and accretable mark of 12 million. We conservatively modeled forward loan and deposit growth in the mid-single digits. Using the crossover method, we expect tangible book value dilution to be 2.5% at closing to be earned back in 1.6 years. Of note, the decline in value of the securities portfolio that's marked through AOCI is a large portion of the initial dilution and extends the earn back by about one year. Removing the AOCI rate mark, the dilution is minimal at 0.7% with an earn back of 0.6 years. This is an accretive value-creating transaction that brings us a very attractive low-cost deposit base and an expanded footprint across the state. We expect the merger to be accretive to earnings in 2023 by 8.6%. Assumptions use the forward rate curve and assumed eight additional 25 basis point hikes in 2022, two of which were announced yesterday, and two 25 basis point hikes in 2023. We expect the acquisition to close early in the fourth quarter of 2022 after receipt of approval from regulatory authorities, the approval of Drummond shareholders, and the satisfaction of other customary closing conditions. Chuck, I'll turn the call back to you. Thanks, Tracey. We're delighted to make this announcement. Operator, we're ready for Q&A. Thank you. If you would like to register a question, please press the one followed by the four on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw, please press the one and the three. Our first question will be from the line of David Feaster with Raymond James. Please go ahead, sir. Hey, good afternoon, everybody. Good afternoon, David. I just wanted to start on the fee income side. You touched on this a bit in the prepared remarks. You know, Drummond's bringing a couple nice fee income lines, obviously don't include revenue synergies. You know, were insurance and title something that you guys were looking at getting into yourselves? I guess just how you think about your ability to cross-sell these, the timing of that, and then just any thoughts on how much of the deposits are in that trust business? We have been looking to. Yeah, sorry, David. We have been looking for an insurance business. We had not found something that we could acquire on a standalone basis. We wanted to support our fee income revenue sources. It's something we've been sort of focused on now for maybe a year and a half. That was one of the advantages of doing this transaction is, it, at Drummond, they have a really high-quality insurance business that's focused primarily on commercial-oriented insurance activities. We're super excited. You know, one of the opportunities here is the Seacoast franchise, which is roughly a little over 200,000 customers. We have the ability to drive, you know, cross-sell into that. We also have about 78,000 businesses that'll be available for insurance services. It provides a basis to start building on. It's a well-run, very profitable insurance business. It's been around a couple decades, and we're excited to bolt it on Seacoast. That's terrific. Yeah, it seems like a real opportunity, especially given the data analytics and everything that y'all have. Exactly. Maybe touching on the consumer book, just curious what types of loans are in there and your comfort level in the consumer portfolio? Yeah. As you know, David, we've been a long retail bank here at Seacoast and very comfortable in and around the consumer space. It's made up of anything that you know sort of traditionally would assume, car loans, other consumer loans, et cetera. They also have a small portfolio of Fintech originated consumer lending that we expect to probably just allow to burn off over the short period that remains. They're generally high FICO, well underwritten type lending, and we're very comfortable with it, Dave. Okay. You know, as you look at your footprint, maybe step back a bit. You know, the Apollo deal takes us deeper into Miami. You've got the de novo expansion into Jacksonville and Naples. You know, this is contiguous with your markets and really kind of rounds out one of the areas that you didn't have exposure to. Unfortunately, you guys did it again with scale. Just as we look at the rest of the state, you think about your priorities with future expansion. Is it primarily infill and existing markets, or, I mean, are there any other markets that you feel like you need to expand into? Is the Panhandle and other parts of North Florida something you're interested in? There's still more to be done, David. I would say, you know, our key focus really is Jacksonville to Miami, the entire portion of Central Florida, including some of the markets in and around kind of the Orlando area, as well as there's still a fair amount of room to fill in down in Southwest Florida. I still think we got plenty of opportunity out ahead of us and more to be done. Those are the key markets we'll continue to work on filling in and bolting onto. You know, one of the benefits, David, is, as you know, you know, we really haven't had to leave the state to find high-quality growth. The growth has been moving here, and particularly over the last two-three years, it's been nothing short of remarkable with the amount of inbound population growth, and it continues. Continuing to, you know, consolidate market share in the state, I think, is the best strategy for us and something we'll continue to be focused on. Perfect. Thanks, everybody. Thank you, Dave. Our next question is from David Bishop with Hovde Group. Please go ahead. Yeah, good afternoon. Hey, David. Hey, Chuck and Tracey. Just remind me, going over the $10 billion mark, remind me what the impact of the Durbin Amendment is when that occurs. Now that you've done these, you've got the pending two deals getting close to the $13 billion mark, is there sort of an optimal balance sheet or size you're targeting in the near to intermediate term? Thanks. Yeah, we had talked about the impact of Durbin and regulatory costs and estimated that at about 9.2 million annually pre-tax. The impact certainly, you know, as we continue to provide scale to the organization, we work to offset that impact. We were successful in offsetting about 60% of that EPS dilution with the addition of Sabal Palm Bank and Florida Business Bank in January. Then, you know, adding Apollo Bank to the model pushes us over the top to fully offset those estimated costs. Higher regulatory and Durbin-related costs across 10, you know, we've created the offsets for that even before we get to this transaction. Yeah, David, I would say we cleared that on Apollo, and this is additive above that. At this point, you know, I think we've dealt with the Durbin issue. Got it. That takes place, that starts impacting next year, correct, in terms of just the revenue run rate? Right. It'll take effect in the second half of 2023. Got it. Chuck, just maybe a holistic question here. You noted in terms of, you know, layering in your successful, you know, mobile banking initiative and the community banking efforts. You know, given just sort of the low deposit beta, obviously they have a very strong deposit franchise, low beta. Do you spend as much time sort of on customer deposits due diligence in terms of sort of, you know, exporting, you know, your expertise to Drummond to make sure there's a, you know, not a greater than usual deposit attrition that could taint their deposit base? Yeah. Great question, David. No, that's actually what is very attractive about this franchise. We spent a fair amount of time looking at the deposit portfolio. You know, the bank is 32 years old, and as you can imagine, with that type of seasoning in the portfolio, it is a lot of checking accounts and there's incredible value in that. We're able to run a fair amount of analytics on the portfolio, and we know that we can drive much stronger mobile penetration into this portfolio. We also know that we think we can drive greater cross-sell, and there's just a lot of upside to bringing on this portfolio. You know, it's a low deposit beta. It performed incredibly well in the last cycle because it is just made up with thousands and thousands of just consumer and business operating accounts. We're excited to bring it on. It's a portfolio that looks a lot like legacy Seacoast. If you were to sort of look at our portfolio of customers, particularly in and around kind of the Treasure Coast and Okeechobee markets here, that we've always operated in, and we just, you know, we see great value in the deposit portfolio. I mean, I think that is the big strength of this bank that we're buying. The history of the Drummond family and Drummond Bank in that market has been there many years, even before this bank was started. It's a long time, well-seasoned portfolio. I think it'll perform incredibly well for Seacoast, and I think it's an incredible opportune time to buy this kind of franchise right now with rates going up. Great. Appreciate that detail. One final sort of housekeeping question. Chuck or Tracey may not have the number off the top of your head. If you do, I can circle back. Average loan size at Drummond relative to Seacoast is, I would imagine, pretty granular, similar to y'all. Yeah, I'll have to get back to you. Yeah, we'll get back to you. What I can say is we know it's much lower than Seacoast, so it builds into the granularity at Seacoast. Perfect. Great. Appreciate the color. Thanks, Dave. Our next question is from Brady Gailey from Keefe, Bruyette & Woods. Please go ahead. Hey, thanks. Good afternoon, guys. Hey, Brady. Hey. Is there any way to size what the revenue synergy could be, as you guys, you know, you talked about insurance title. I think they also have wealth management. I know it's not in the deal math here, but is there any way to size, you know, how big those revenue synergies could be? Yeah, we haven't really tried to run the math on that at this point, Brady. You know, it's the best way to describe it is, you know, in order to fully take advantage of it, there's some investment that's gonna be needed to scale the insurance business, for example. They did in all, between the insurance title company and the wealth business, roughly $5.5 million in revenue. You know, particularly on the insurance side, it's probably gonna lean much harder into commercial insurance. We have 78,000 businesses at Seacoast in our customer profile. You know, the penetration of that, even if it was a small number, is gonna lead to material results. There's a lot of upside but I don't have sort of a quantification I can provide for you today. Okay. You know, Chuck, you guys have been so successful in, you know, acquiring all these, you know, small Florida banks. How many more banks are out there in the state of Florida that, you know, would be a target that you guys would be interested in, kind of like Drummond? Like, is that five banks? Is it a dozen? What's the opportunity that's left in Florida for you guys? Probably a little over 10. Okay. In that ballpark. All right. 10-12, probably about right. Okay. Finally for me, just back on the Durbin question. 9.2 million pre-tax annually, I think that was the number, you know, back when you guys were, like, closer to 9 billion in assets, and now you're 13 billion. Like, does that. I'm guessing that $9.2 billion has grown from back then, just given the recent M and A. Like, what's that number, you know, including everything, even including Drummond in there? What would that impact be with you guys as a 13 billion asset bank? Yeah. I think it's fair to say that that number grows as the franchise grows. I think the 9.2 million included not only interchange and Durbin direct, but also the additional costs associated with some of the regulatory changes that take effect outside of the interchange. I don't have a specific number, but you're right to think that that number would have increased. Perfect. All right, great. Thanks, guys. Thanks, Brady. Our next question is from Michael Young with Truist Securities. Please go ahead. Hey, good afternoon. Wanted to maybe just ask for a little more detail on sort of the cost savings assumptions. You know, 40%'s pretty healthy for a sort of market extension deal. Didn't look like the branches were all that clustered together, but, you know, maybe there's some opportunity there with your data analytics to kind of prune that. Could you just walk through, you know, kind of how you're getting to the 40% cost savings number? Hi, Michael. Yeah, there will be opportunities for consolidation. We'll finalize those decisions here in the next couple of months. The overall planned cost savings at 40%. The way that breaks down, the majority of the cost out, maybe 40% of the total relates to the consolidation of back office functions and locations. Then after that, savings in data and transaction processing, the integration of various systems, that represents another about 25% of the overall cost out we have planned. The remaining, that'd be 35%, is really achieved through the consolidation of other operational expenses, things like legal and audit fees. We'll have most of the cost outs achieved by the first quarter of 2023. I have 85% by the first quarter of 2023, with 100% by the second quarter of 2023. Okay, that's helpful. You know, maybe just looking at kind of the relative yields of both books, both the loans and the deposits. You know, they have pretty high yield on the loan side. You know, I don't know if a lot of that's more related to the consumer paper that Chuck just talked about or if that's more the C&D book, but it'd be helpful to kind of understand where those higher loan yields are coming from. On the flip side, just on the noninterest-bearing deposits, not sure what's in there, but is there anything that's particularly rate sensitive where you guys might shrink the size of the book as you bring the bank over? Yeah, just talking about loan yields, they're a little bit of it is the fact that they have the consumer paper that's higher yielding. The other fact is it's a real franchise. They've gotten paid for the lending they've done in the markets for a long time, and that, you know, that's the quality of the service and quality of the history of the bank. You know, it's a good yielding portfolio. The C&D book is primarily construction loans to individuals to build homes. It's all residential, and a lot of it built under a program they have with a secondary market that'll buy that paper at the end of construction. It's actually kind of a flow through type situation. We're able to move out and be sold for a premium at close. It's pretty nice product, something we probably will bring on to the Seacoast franchise. Then on deposit side, it's just all transaction accounts, Michael. I don't see any of it really running off. There is no high yield. It is just purely, that's the beauty of this bank. It is a deposit portfolio built on transactions. You know, it is. They have always focused on building the funding base, and they've done an incredible job over multiple decades. That's what we're buying here. Okay, helpful color. Last one for me is just, you know, obviously four deals being completed this year. I know two are already, you know, done and on the books, but, you know, decent pace of M and A here over the past kind of six, 12 months. You know, do you have to kinda or do you need to sort of take a bit of a pause, bit of a breather or, you know, is it still full steam ahead, you know, seeing opportunities and wanna capitalize on them near-term? Well, the first two after this coming weekend will be fully converted and closed and consolidated, so those are behind us. Apollo, we expect to do early in Q4, and then this one, later this year, maybe a conversion right at the first of the year. I would say we need to get through our approval on Apollo, which we expect in about 45 days. Once we get through that, we'll be ready to start thinking about what's next. Okay, thanks very much. Thanks, Michael. As a reminder, to register, you may press the one followed by the four. Our next question is from Steve Moss with B. Riley Securities. Please go ahead. Good afternoon. Steve. Hey, Chuck Shaffer, most of my questions have been asked here. I guess just one follow-up. Not sure if you had specified, but just you know, is the entire consumer portfolio the fintech loans, or is it just a portion? And just wondering, you know, any color around you know, what the FICO scores are within that portfolio and maybe the underlying yield if you have them. It's just the portion. The FICOs are north of 750 for the most part. You know, it's right around 750 probably on average. So that's about what that portfolio looks like. Probably like about an 8%-9% yield kind of the way to think about it? Yep. That's about right, Michael. I mean, Steve, sorry. No problem. All right, well, thank you very much, and congratulations on the transaction. Awesome, Steve. Thank you. To Mr. Shaffer, there are no questions at this time. You may continue with your presentation or closing remarks. Okay. Thank you all for joining us. Exciting transaction. We're glad to talk to you about it today, and that'll conclude our comments. Thank you, operator. You're very welcome, sir. This does conclude the conference call for today. We thank you all for your participation and kindly ask that you please disconnect your lines. Have a great day, everyone.