Enterprise Financial Services Corp (EFSC) Earnings Call Transcript & Summary

Good day, and welcome to the EFSC Investor Call. Today's conference is being recorded. At this time, I would now like to turn the call over to Mr. Jim Lally. Please go ahead, sir.

Thank you, Carrie, and good morning. We certainly appreciate you joining us today to review the strategic combination of Enterprise Financial Services Corp. and Seacoast Commerce Banc Holdings. Joining me this morning on the call is Keene Turner, Chief Financial Officer and Chief Operating Officer of our company; Scott Goodman, President of Enterprise Bank & Trust; and Doug Bauche, our Chief Credit Officer. Last evening, we announced the aforementioned strategic combination. With this, the merger creates a financial services organization that will have approximately $9.7 billion in assets, a very attractive, robust earnings profile and additional scale. I'd call your attention to Slide 4, where we have some details around the transaction. Our previous 2 acquisitions were focused primarily on improving our funding profile through traditional community consumer banking franchises. In Seacoast, we continue to further -- the further improvement of our funding base and also improve our already attractive deposit-to-branch ratio. Scott will spend more time covering the details of these businesses and our confidence to continue growing them. The larger balance sheet of our combined companies, coupled with continued focus on the higher-growth markets in the United States, including the Southwest, provide us with this opportunity. But unlike our previous 2 acquisitions, Seacoast brings to us a reliable asset generator. Since its founding, Seacoast has focused its efforts serving small and medium-sized businesses through the SBA 7(a) program. I'm excited to add this capability to our other cylinders and our specialized lending business engine. Doug will provide much more details on this business and our credit diligence process, but I would like to point out that Seacoast is the #9 SBA lender in the country and has successfully competed on speed and reliability, traits that the enterprise legacy customers have become accustomed to them. Keene will provide much more details on the financial model, but I want to point out a few things and outcomes of this merger, and they all meet all of our financial objectives: strong EPS accretion in '21, and when fully completed in '22, manageable tangible book value dilution with an earn back under 3 years and a very strong internal rate of return about 20%. Worth noting, we applied our disciplined approach to meticulously scheduling all of our assumptions and are confident that they are achievable. As is the case in many M&A opportunities, continuity is critical. With that in mind, I'm happy to announce that Rick Sanborn, the former CEO of Seacoast, will be joining the EFSC Board of Directors. Additionally, Dave Bartram and Rick Visser, who have built and led the SBA business for Seacoast, will continue to lead our SBA efforts. And we expect to maintain other essential management and business line leaders to ensure the continued success for the combined company. Slide 5 shows what the combination achieves: increased scale and size, which is vital as we continue to invest in our business; expanded geographic footprint that will allow us to continue to diversify our earnings stream; we are adding specialized lending expertise with distinguishable characteristics when compared to our competition; an enhanced earnings profile and; low-cost core deposits. Slide 6 provides a glimpse as to what the combined geographic footprint looks like. The 2 takeaways from this slide is that this merger increases our presence in the Southwest United States. This includes a community bank presence in San Diego, California. This will be our fifth community commercial market. I can see us attacking this market like we've done in Phoenix. There are some similarities to both markets, and it allows to broaden our experiences and improve our market share there relatively soon. Before I hand the call over to Scott, I want to turn your attention to Slide 7. Takeaway from this slide is that Seacoast is a very good earner, evidenced by their high DDA percentage and enviable net interest margin, both of which drove very healthy returns on both assets and tangible common equity. With that, I would like to turn the call over to Scott, who will provide much more detail on our new businesses. Scott?

Thank you, Jim. Good morning, everybody. As Jim mentioned, the Seacoast array of specialized loan and deposit verticals provides a powerful addition to our existing specialized banking organization. It adds complementary capabilities and significantly expands our scope of offerings to the business marketplace. Seacoast has built a highly successful and differentiated SBA 7(a) loan business, with a national network of 20 loan production offices and over 20 producers. Growth has been focused specifically on commercial real estate needs of small and medium-sized businesses, and this niche focus has enabled them to distinguish themselves as experts in filling a critical capital need for growing businesses while also building a profitable and high-quality loan portfolio. And in a minute, Doug will provide some additional detail around the talent, the credit profile and the due diligence process, which greatly reinforce our confidence in the stability of this business. Moving to the deposit franchise as profiled on Slide #8. Seacoast also adds a local branch network of roughly $300 million, together with $750 million in specialized commercial deposits across 3 existing verticals that further diversify our combined funding base. Homeowner association deposits totaled roughly $315 million and are originated by deposit specialists through 4 national production offices. These specialists are experts in the specific needs of these large HOA property management companies, which includes particular account structuring, treasury management capabilities, integration with existing accounting systems as well as ongoing dedicated operational support. As you can see, this business is sticky and has shown strong growth, more than doubling in size over the past 3 years. Commercial property management adds roughly $289 million in deposits and is focused on the needs of large commercial property managers as it relates to the funds that are required to be set aside under the various state regulations. Again, this business is managed by a team of deposit specialists, who are experts in the various state level regulations, and position to help clients navigate these rules, set up record-keeping and provide treasury management capabilities that also integrate with existing accounting systems. The 1031 exchange vertical extends from relationships with attorneys and title companies that hold escrowed proceeds in conjunction with the pending 1031 real estate exchange transaction. This business is a bit lumpier and somewhat more rate sensitive, but it's also very efficient and adds an additional lever to fill potential funding needs. And lastly, Seacoast was recently successful in recruiting a seasoned team in the third-party escrow deposit business. These bankers were dislocated from another institution in conjunction with a change of control and bring a long and successful track record of building nationally based financial escrows and specialized deposit portfolios. The third-party escrow platform is a very low cost deposit strategy, designed to work as an independent third-party escrow agent with lawyers, accountants, investment bankers and other typical financial intermediaries. This team will complement and accelerate our own organic specialized legal deposit portfolio, which has been developed recently. And now I'm going to hand it over to Doug for some additional color on the SBA portfolio. Doug?

Yes. Thanks, Scott. As previously mentioned, Seacoast has been a national leader in SBA 7(a) originations focusing exclusively on first mortgage owner-occupied commercial real estate lending. 75% of Seacoast's $1.1 billion loan portfolio consists of SBA 7(a) loans. 16% are non-SBA commercial loans and roughly 9% of the results of their PPP activity. Total bank credit exposure, excluding the SBA government-guaranteed portion, is $521 million. As reflected on Slide 9, Seacoast has a history of outstanding asset quality metrics, which is a testament to the sound credit leadership that Rick Sanborn, David Bartram and Rick Visser have provided. Nonperforming asset levels have been well-managed and historical credit losses have been nominal, and are in fact, in a net recovery position year-to-date. The portfolio, largely distributed throughout California, Texas, Nevada and Arizona, is well diversified in terms of borrower with the largest single relationship less than $10 million and by property type, as reflected in the chart on Slide 9. In terms of our credit due diligence process, we utilized a 3-pronged approach. First, we deployed our top internal credit talent to conduct a thorough credit risk review of all loans over $750,000, achieving 65% penetration of the unguaranteed exposure. Secondly, we engaged in the independent SBA consultant to review Seacoast's SBA compliance and to examine the quality of current file documentation to ensure the SBA guarantees were in good order. Lastly, we utilized a third-party business credit scoring model to assess probability of default for every loan in the portfolio. The results of our credit due diligence call for a credit mark of $9.5 million. When combined with Day 2 CECL impact of another $8.6 million, equates to roughly 3.5% coverage of the $521 million in non-SBA guaranteed exposure. And with that, I'd like to turn it over to our CFO, Keene Turner.

Thanks, Doug, and good morning. I'm going to continue the discussion on Slide 12, where it's clear that Seacoast has demonstrated not only a strong balance sheet growth, but they've translated that to strong financial performance. I'd say that in normal times, it's similar to our own profile and expectations. However, their momentum has continued in the current economic climate. There's steady growth in returns while transitioning from an originating sell to an originate and hold model for the SBA portfolio, demonstrates the power of this franchise. And I'm truly excited for the combined opportunity to take advantage of the scale of a combined $9.7 billion balance sheet, strong pro forma capital given the current environment and deal structure and the financial accretion given achievable deal synergies. We expect the result of these attributes will be to fortify and drive earnings growth in a challenging economic environment through a combination of 2 strong earners. We're also looking forward to the additional flexibility that the SBA asset class affords us with the opportunity to either improve the near-term earnings stream or grow the size of the balance sheet or a blend of both. Additionally, it's worth noting that the deposit specialties further scale our branch-light and high deposit for branch attributes and represent a significant investment in areas that we already excel in, such as client and cash and treasury management. With that, let's dig in to the transaction highlights on Slide 13. $156 million purchase price equates to 4.9 million EFSC shares in a fixed exchange, and the nominal amount of cash for outstanding options at $1.6 million. The price to the last 12 months earnings is reasonable at 10.3x and is 6.5x with fully phased-in cost savings. The resulting core deposit premium is just over 5% and a price to tangible book value of 1.5x. Looking at the price to tangible book value, including the write-up on the guaranteed loan portfolio that's held for sale, the price to tangible book value decreases to 1.24x. This combination is consistent with our historical track record of being disciplined when choosing our partners, both in terms of enhancing the funding capabilities and scale of our overall franchise and doing so in a highly disciplined manner that creates future value for all shareholders. Strategically, this combination does several things. It improves our balance sheet liquidity and flexibility as Seacoast currently designates the guaranteed portion of the SBA 7(a) loan that's held for sale. And this asset class and their status is one of the top SBA lenders in the nation, provides for significant earning asset growth and compelling yields. It also improves our overall funding and deposit composition, with their $1 billion of deposits, including approximately 60% of noninterest-bearing DDA. This combination also allows us to manage the overall risk profile in a variety of ways. As an example, the loan-to-deposit ratio appears to be 100% when you look at simply loans and deposits. However, the structure of the balance sheet includes over $500 million in SBA-guaranteed loans that could be easily sold at a premium in the secondary market. Given the liquidity of these loans, the resulting loan-to-deposit is more like 50%. Not only is this merger a strategic fit and significantly accretive to talent, but we're able to achieve compelling economics that support the complementary nature of our companies. Pricing is disciplined and sets the stage for remaining deal measures and economics. $0.31 per share of earnings -- of per share accretion, my apologies, which is approximately 11% in 2022. And we expect 2022 first quarter will represent a clean run rate on a combined basis. With the all-stock deal and the relatively small amount of goodwill and intangibles that are estimated, the projected tangible book value dilution is manageable at approximately 2% at closing. The tangible book value earn back is less than 3 years using the crossover method, and it's even more favorable if you use a simple method. And as Jim noted and is highly important in the current environment, the internal rate of return is strong and in excess of 25%. Moving on to Slide 14. As usual, we have done a deep dive into the business and the resulting transaction assumptions. We feel the execution risk here given our experience in Seacoast's business model is relatively low. We know the key differentiators and how to preserve them, and we know the areas that benefit from combined synergies and scale. And we expect to successfully execute that plan, and we have a team that I have great confidence can manage through it. Synergies represent 25% of Seacoast's estimated total noninterest expense or $11 million in total. We expect those cost savings to be achieved 85% in 2021 and 100% realized in 2022. Our detailed due diligence ensures that the cost savings are achievable. One of the key competitive advantages that Seacoast has in our operational process is speed of delivery. We've been very careful in our estimates to ensure that we have preserved that advantage. As Jim mentioned, we have also not modeled any assumptions on building our commercial and consumer banking platform in the California market for further deepening relationships with existing customers. Those are areas that we will explore after we have successfully combined our 2 organizations. Obviously, the consummation of the transaction and the achievement of cost savings result in onetime costs, which we estimate totaling approximately $18 million. The gross loan credit mark, as Doug noted, is $9.5 million and includes $8.6 million of non-PCD portfolio and $0.9 million on the PCD portfolio. As you heard from Doug, the credit profile is extremely clean, and over half the portfolio has the SBA guarantee. The Day 2 CECL double count of $8.6 million, combined with a $9.5 million fair value mark, resulted in 3.5% coverage of the $521 million of non-guaranteed loan portfolio. While we believe this is conservative based on both the historical credit quality of Seacoast and the results of our detailed due diligence, we also felt it was prudent in today's environment. To that end, stripping out our view of the current environment, the credit mark would be approximately half that level or less. We've also modeled a $34 million markup of the held-for-sale loan portfolio that is guaranteed by the SBA. Think of this as the investment portfolio, and as I previously mentioned, this is a liquid loan portfolio that can be sold at a premium to enhance both income and liquidity. Alternatively, we can retain a large portion of this portfolio as it provides a high variable rate yield. The price to tangible book value, as I noted before, decreases from 1.5 to 1.24 when adjusting for the fair value of this held-for-sale portfolio. The core deposit premium is estimated at 0.23% or $2 million. The low interest rate environment has obviously played into the value of the core deposits intangible, and that will be amortized over 10 years, sum-of-years digit. Given the valuation in the current environment, we are issuing 100% stock in a fixed exchange. And as a result of our combined capital position, we estimate tangible common equity to tangible assets will expand modestly, and the pro forma regulatory capital will increase from our already current strong position. This is largely due to the nature of Seacoast assets being mostly SBA guaranteed. While the pro forma total assets are expected to be approximately $9.5 billion at closing, we do anticipate the balance sheet to decline as the forgiveness process kicks in on the $900 million of combined PPP loan. We also have other levers to manage total assets as we approach the $10 billion mark to ensure that we cross the threshold in accordance with our plan. Just want to wrap up by saying we are extremely excited about this combination. The concentrated deposit lending capabilities of Seacoast, coupled with their small branch network, is attractive in normal times but even more so in today's environment. We're also excited about the San Diego market and the potential community bank opportunities that may exist. We view this as an exciting potential upside as we jointly work to drive growth in that market from a lending and deposit perspective with full product and capabilities of a $9 billion institution. Finally, this transaction further accelerates our earnings growth and accentuates our capital and liquidity flexibility while preserving the strong operating fundamentals of our organization. I appreciate everyone taking the time today to join us this morning, and we'll open the line for questions at this time.

[Operator Instructions] And our first question will be from Jeff Rulis from D.A. Davidson.

Just a question on the -- Keene, on that last mention on the $10 billion threshold. It looks like with PPP kind of coming off, that's probably not going to be an issue for 2020. Does that mean -- and we're a long ways out, but would you look to manage that figure in '21, potentially staying below that mark again for next year? Or any thoughts on that front?

Yes. Jeff, I think there's a variety of thoughts. I mean certainly, I think we want to be smart about managing it. I mean with PPP, you're $1 billion away, and that's a lot of growth even for the combined organization in 2021. So I think if we were able to acquire that type of growth from a client perspective or more, and I certainly think it signals that it's robust economy or we're really doing something that's extraordinary. And I think the profitability of that would come from that, we'd be happy to more than make up for the modest cost that kind of going over. And I think we lose around $3 million in interchange, it's going to cost us a couple of million dollars in expenses kind of initially going over. So I'm not overly worried about that. And I think the balance sheet, individually and on a combined basis, there's a lot of flexibility to be able to, to your point, manage through that. So I think it would be a class A problem to have that kind of growth, really challenging us throughout 2021 and push us up against it. I think the real wildcard is for probably more for 2020 in terms of how much and how quickly forgiveness occurs and where that liquidity goes. But again, we've got some wholesale and other funding that we can use to keep it fairly managed.

Okay. And then the cost savings at 25%, a strong figure if you look from afar, kind of limited branch overlap. And maybe if you could help me kind of what may I be missing on synergies there? Is it -- do you expect to maybe close some of the locations? How do you arrive at the cost savings?

Yes. I would -- Jeff, currently, I think much of the cost savings is expected to be in senior management compensation. Without getting too specific, I mean, I think Jim mentioned that Rick Visser is going to continue on beyond 2021, and Dave is going to stay for what we expect to be about a year transition period, and Rick's going to join the Board. So there's -- fairly heavily weighted towards new cost savings and senior management. And then that's probably about 55% to 60% of the cost savings. And then I think we expect to pick up some nice efficiencies with the volumes joining our systems and technologies and processes that we can absorb the rest of those cost saves. So again, we do a very deep dive. We take a volume-based approach to the combination. And then we really kind of look at costs and where we might have a more favorable buying power and things like that. So hopefully, that part of it is helpful.

No, that is. And more just circling back on the location discussion or analysis if there is one, again, very early, and I guess we'll see as this approach is closed. But any thoughts on -- would you look at some of those locations scattered throughout the U.S. as sort of combining those? Or is there any discussion of that this early on?

So maybe I'll characterize those a little bit. So the San Diego locations are really the traditional community bank network and that was via the Capital Bank acquisition. I think that initially provides an opportunity to see if we can combine, grow that from that. I think that they made an investment -- CECL has made an investment there in their combination with Capital Bank, and I think it's worth seeing how that business performs. And so we have no immediate plans there. The Las Vegas location facilitates some of the property management and HOA business in the state of Nevada. And so that is a very modest and more like a professional office location than a traditional branch. And so we would expect to keep that. And then the rest of the locations or offices where business development officers and their teams are working. So they're really essential to serve the SBA business as well as the other deposit specialties. And so those are really -- we expect to keep those and to be able to continue the production out of all those lines of businesses.

Our next question will be from Andrew Liesch from Piper Sandler.

Just want to follow-up on some of the guidance for the next year, more specifically, knowing that they had been retaining a lot of the SBA production on the balance sheet. I mean how much do you guys anticipate selling at this point? And I then realize that that's also kind of tied in, like, what do you -- what sort of loan growth are you expecting out of this franchise next year after the deals close?

Andrew, this is Keene. I mean I think the sort of net-net, I think they've been putting, I'm going to call it, $150 million to $200 million on the balance sheet. And certainly, gross production is a little bit higher than that. And then I think our view is that we would continue their plan of transitioning to more of a buy and hold, we'll say, all else being equal on the deposit generation front and things like that. So I think we might sell the total production. So those were net numbers. I think you might sell the total production somewhere between 25 and 75, depending on conditions and how things work out. So we haven't totally formulated that plan exactly. We certainly like the flexibility. And I think you could see an environment, particularly if we're -- we still have some muted balance sheet growth and some excess liquidity, we might choose to hold off on generating those shorter-term earnings for that longer term life of loan, higher earnings level. So again, a lot of flexibility there. But I think their plan is sort of fairly similar to what you've seen thus far in 2020 and weaning off a little bit of the gain-on-sale model.

Okay. That's helpful. And then just at a really high level, the SBA business is more transactional in nature than relationship-based. From the borrower perspective, I know Enterprise is very much a relationship-based bank. But this -- with Seacoast keeping a lot of these loans on the balance here, are these more -- is this more of a relationship-based SBA business that you might find it at other institutions? And I'm just curious, like, how you guys became more comfortable with the business that's as transactional as SBA tends to be.

Andrew, this is Jim. Let me just talk about that for a second. So there are relationships built into the intermediaries that share opportunities to the producers. So the relationship exists there. We haven't modeled in anything about creating a cross-sell, advancing the relationship more than the loan and something we can explore. But it is what it is in terms of what the business is, and we don't want to get in and disrupt what's good about it. So the relationship really exists on how the business comes to bear as opposed to the end user. And we have other businesses like that in our company. You think about our life insurance premium finance business, and the end user of our product isn't necessarily a long-term client. It's the intermediary that brings us business over and over again.

Our next question will be from Michael Schiavone from KBW.

Congrats on the deal. So revenue synergies weren't really highlighted at all in the releases. But can you discuss how the deal could provide some revenue opportunities for lending and fee income?

Yes. I -- this is Keene. I would say, typically, we definitely don't model in revenue synergies. And I'll kick this off and let Scott talk about it a little bit more. But certainly, there's a lot of products and services that we built out that I think we can utilize in a variety of fashions. Our card business is one example that comes to mind. And I think the prior question sort of hinted at the fact that there may be an opportunity on a selective basis for customers who are just starting their businesses or using the 7(a) product to use that as a relationship that's fostered over a period of time. And so we certainly don't want to do anything to disrupt what sits there today and what it is today. But I think there's opportunities from our platform to the extent that it makes sense for our clients to be able to benefit from some of the offerings that we still sell.

Michael, I would just add to that, if I could just add to that. We have a very robust business banking sales organization here at Enterprise. And quite frankly, we don't have the level of expertise in delivery on SBA. So as we think about all of the boots on the street that we have in our markets of St. Louis, Kansas City, Phoenix and Albuquerque, there's opportunity, I think, for our business banking sales organization to leverage that expertise and back-office support on the SBA origination side that Seacoast affords us.

Okay. That helps. And then can you just talk about your expectations around the NIM and how the trajectory might change over time if you implement more of an originated sell model with the SBA loans? And then also, just can you provide some guidance around the purchase accounting accretion?

Sure. Yes. So today, their NIM is clearly very robust. And so adjusted for purchase accounting and other items, you go from about a 5.40 NIM to about a 4.80 NIM. So obviously, the write-up on the held-for-sale portfolio is the biggest driver of that from that perspective. And then we get a modest benefit from the Day 2 PCD accretion. So that's coming in over about 7 years. And then you've got the loan held-for-sale fair value market at the same. So kind of 1 year impacts your pretax kind of negative drag on earnings from deal assumptions about $4.6 million. And again, most of that's driven by the held-for-sale loan marks. And then you've got a little bit of an abatement from the non-PCD loans based on the way it works through CECL. So hopefully, that's helpful.

Our next question will be from John Palmer from PL Capital.

I want to dive in for a second on the HOA deposits that you have. How many relationships are in the $315 million?

John, this is Scott. What I can tell you is it's a pretty broad base, and there isn't any significant concentration. There is business with some of the top HOA property management companies in the company who hold, in some cases, hundreds of millions of deposits that they spread between multiple banks. If you're familiar with the space, there's probably maybe 6 or 7 banks in the country that really specialize at this, and they share some of those larger relationships. But it gets pretty granular after that.

And are those direct, Scott? Or are those through a facilitator?

So the business is -- the accounts are held and the business is done directly with that HOA property management company.

Okay, great. And can you say the same thing about the property management deposits as well?

The commercial side? Yes.

Yes, yes.

Same structure.

And have you found those deposits to be fairly sticky?

They are. They are because there's a high level of expertise from what those bankers can do for those companies relative to on the HOA side, kind of navigating kind of the account specialties, how the accounts are booked, how they integrate with the accounting platforms. And then there's a dedicated operational support because there's a high velocity of transactions that go in and out. And so that dedicated support provides a stickiness there.

Our next question will be from Brian Martin from Janney Montgomery.

Congratulations. Say, just one -- a couple of questions. Just, Keene, in your EPS accretion forecast, I guess, just going back to one of the earlier questions, what portion of the production in your forecast are you intending to sell on the SBA side?

Yes. Of the production, I would say it's -- I think I said $25 million to $75 million. So that's, what, 10% to 40%, something like that. So I think the numbers that I gave you, I don't know that I have the percentages, but the numbers I gave are sort of straight off the forecast.

I got you. Okay. All right. And then just a second one on the SBA. I mean I guess, do you guys intend to -- is your plan to grow the SBA business kind of substantially from here? Just kind of continue to operate the business as it is today?

Well, I think the idea is to continue, at least with what Seacoast was doing. And I think there could be opportunity given a larger balance sheet related to the question that we -- that Scott addressed previously. Number one, I think the larger balance sheet may afford some more opportunities in the deposit space because overnight, the lack of concentration for that property manager materially decreased. And so to the extent that they like the differentiated product and service of the combined organization, I think that creates opportunities. And then that will create more opportunities to hold more production or grow the balance sheet or add more producers. Backing up, I think Seacoast has a history of adding anywhere from 1 to 4 producers each and every year. And so I think it really just depends on finding -- continuing that plan, finding those individuals and continuing to, over time, have them get -- have success and traction and success and continue to expand it. But I think it's that kind of steady approach over time that we expect to continue. And again, to the extent that there's even more success or even more robust results, there's a lot of flexibility if we decide we don't want to hold that much of certain asset classes or whatever it is to sell at least the guarantee pieces.

Yes. Got you. Okay. And then just on the deposits. You talked -- one question was on the stickiness, which you kind of talked about. But I guess is your expectation, is there a risk on these, the specialty niches on the deposit side that some of that could walk away? And just -- and then maybe secondly, just kind of if that's not the case, just kind of your growth outlook on those deposits that -- the specialty deposits. I mean they've been growing pretty nicely. Just kind of wondering what the outlook is or what your expectations are there.

Yes, Brian, I think I was just going to talk a little bit about the stickiness again. Certainly, our expectation is not that they're going to walk away. I think we think there's good history with a lot of the talent that's in those specialty businesses, not unlike our other specialty businesses where you get a relationship that's developed. I think that integration and back room support with those accounting systems, that provides the stickiness as well. So I think the other exciting part is as Seacoast had grown and had gotten to the point where they were close to 100% longer deposit, there was a balance on kind of holding opportunities at bay, in some cases, with some of these deposit niches. And I think some of the excitement that's created is now there's additional runway to open up some of that pipeline and bring in some of those opportunities in both the commercial and HOA side.

Got you. And have the people, I guess, both on the SBA side and the deposit side, kind of been locked up from a contract standpoint or?

Brian I think -- so any company is going to be -- it's incumbent upon us to keep them part of the vision going forward. And the intent isn't to change anything. They've been successful amid the model that Seacoast has created. And you know as well, as an acquirer, we go in and really adopt the best attributes of our new partners. We're not a -- we don't have a book that says this is the Enterprise way when you walk in. We really evaluate what makes them and special and hold it through. And we're not going to change that going on this one. So I can't promise that people might choose a different path, but it won't be because we've gone in and changed the world on them.

Yes. I would add to that I think one of the important deal formulas here is that Dave and Rick are going to continue to lead the SBA business and that we're not intending to make material changes or any changes really at all to that factor. And we want to maintain the turnaround time, the fluidity of those teams, the cohesion of those teams, and that's certainly a high priority. And I think from our view, certainly, there's going to be some conversions on the deposit side from a systems perspective. But I think our view is that some of the things that Seacoast was looking to do and deliver from a technology perspective, we're able to bring to the table via some of the products and services we have already just when we kind of plug those systems together. So I think both of those are strong back patterns for being able to keep everyone together, keep the business together and hopefully not lose any momentum on growth amidst the conversion and closing and moving forward.

Okay. Perfect. And just the last couple for me was the -- Keene, you said the first clean quarter. I guess I missed what you said there from an expense standpoint.

Yes. I think our view is that 2022 is sort of the first full clean quarter just given some of the business line continuity that we noted for a 1-year period. So -- and when we expect to close. So we just -- we'll get a large majority of the cost savings out throughout the course of 2021, but you'll probably see some step down from Q4 '21 to Q1 '22. And obviously, all of that is predicated on our intended timing from a closing perspective.

Got you. Okay. And the pro forma TCE, did you comment on that? Or I guess, I thought you said something on that, maybe I missed it.

Yes. I think pro forma TCE, it's about 5 or 6 basis points. And that may not seem particularly strong, but I think that's a good stack pattern from a deal perspective and with the onetime charges. So you've got both organizations with a strong capital base. And then really from a regulatory capital perspective, you've got more like in the range, particularly on the risk-based ratios, about a range of 50 to 150 basis points of accretion just given the Seacoast business model and that you're essentially level on leverage ratio. So we feel like it's a strong combination and amid everything that's going on, derisks the balance sheet.

Right. Okay. And then just the EPS accretion, Keene, I guess, as you look -- I guess, in a more normal credit environment, I guess, would it be a pretty similar level? Because I think when we look at the EPS outlook that's out there, kind of the consensus numbers, you still have pretty elevated provisioning levels for you guys relative to what your history has been, obviously. But I guess, pretty similar level, is that what you would kind of expect on that just an 11% as you look to '22?

I'm not sure I fully grasp what your question is on our estimate.

I guess just from a standpoint, when you look at the EPS estimates if you're using consensus, consensus has a pretty high provision in there for '22. And conceivably, that could be a lot lower or depending on how people's outlook is. So I guess does that -- if you're using a low base for what your EPS outlook is to start in '22, I guess, does that change if that -- based on your outlook for provisioning?

Yes. Clearly, the math would suggest that relative contributions are different. Enterprise has a stronger earnings profile in 2022 than what the estimate is. I think when you start peeling all that back, I think it's the market had a great degree of confidence that there was a more robust earnings profile in 2022. You also have a different deal metric and valuation today than you do with Enterprise issuing shares at $30 here, so...

At this time, I'd like to turn the call back over to Mr. Jim Lally for closing remarks.

Well, thank you, Carrie. And again, thank you for all who participated this morning. You can tell there's great excitement on our side for this opportunity, and we appreciate your interest in our company. And certainly, we'll see you all pretty soon. Thanks again. Have a great day.

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may now disconnect.