Welcome to the Seacoast First Quarter 2017 Earnings Conference Call. My name is Paulette and I will be your operator. Before we begin, I have been asked to direct your attention to the statement contained at the end of our 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 their comments today are intended to be covered within the meaning of that Act. Please note this conference is being recorded. I will now turn the call over to Dennis Hudson, Chairman and CEO, Seacoast Bank. Mr. Hudson, you may begin.

Thank you for joining us today for our first quarter 2017 conference call. Our press release issued yesterday after the market close and updated investor presentation, which contains supplementary information are posted on the investors portion of our website at SeacoastBanking.com. You can find information under presentations. With us today is Chuck Schaffer, our Chief Financial Officer, who will discuss our financial and operating results, as well as Julie Kleffel, our Community Banking Executive; Chuck Cross, our Commercial Banking Executive; Dave Houdeshell, our Chief Credit Officer; and Jeff Lee, our Chief Marketing and Analytics Officer. During the first quarter, Seacoast's execution of our balanced growth strategy continued to create value for shareholders and positioned us well we feel for the balance of the year. Net income increased 100% on a 23% increase in revenue and our adjusted net income rose 46%. Adjusted earnings per share rose by 30%. Strong organic growth drove our improved performance complemented by the impact of our expansion last year in Orlando. Our revenue growth and our improved operating efficiency in turn created significant operating leverage as reflected in our improved bottom-line year-over-year. Notably, we accomplished this while adhering to our credit standards and our controls governing loan portfolio diversity and granularity. Moreover, we continue to build franchise value with strong deposit growth as we maintained a 14 basis point cost of deposits for the quarter, which is another important key to creating value for shareholders in the environment ahead. This quarter, we found opportunities to make investments in our people and in our business, as well as opportunities to reduce costs that are significantly designed to position us for stronger performance over the rest of this year. Chuck is going to provide us with some additional color on this in a few minutes. In short,…

Thank you, Denny, and thank you all for joining us this morning. As I provide my comments, I'll reference the slide deck, which can be found at www.seacoastbanking.com. I'll start this morning on slide five by talking about a few notable items aggregating the $3.6 million that impacted the first quarter. These actions were taken purposely to better position Seacoast for improved performance as the year moves forward. First, we had the seasonal return of 401(k) and payroll tax expense. We also restructured our executive team, bringing on two new roles and reducing the team by three roles. There were some salary overlap and severance-related charges associated with this transition. We also completed a lift-out of a commercial lending team, which will be headquartered in Tampa, Florida. This team has nationwide sales distribution and will be focused on growing C&I relationships that fit within our house limits and credit guardrails. This team's pipeline has grown to $90 million as of April 20th and we're excited to have them on the Seacoast team. We recruited this team out of a large regional bank and they have a proven track record of success. We also completed a reduction in force resulting in severance charges in the quarter. The benefit of this work will be realized at the start of the second quarter. And finally, we consolidated four branches, resulting in closure and severance-related charges in the quarter with anticipated benefits partially realized in the second quarter and more fully over the remainder of the year. Before we move to performance during the first quarter, please note that the company has updated its definition of adjusted net income and adjusted non-interest expense to exclude the effect of amortization expense associated with acquisition-related intangibles. Although this is not a GAAP measure, management believes that…

Thanks, Chuck, and we'd be pleased to take a few questions, operator.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Michael Young from SunTrust. Please go ahead.

Hey, good morning everyone.

Good morning Michael.

Hi Michael.

Chuck, I just wanted to start with the revised guidance for the year. The $0.06 of incremental growth post-capital raise; is that simply a function of deploying the liquidity from the capital raise or are you expecting incremental growth even though you haven't changed your loan growth guidance per se?

I think the way to think about it, Michael, is with the capital raise, it's allowing us to grow the balance sheet even probably more stronger than we had originally anticipated and when you think about the fact that we've added a new team, the C&I team that we added in Tampa, as well as GulfShore, both of those are additive to our loan growth thoughts, as well as we'll be adding to our securities portfolio, potentially adding $100 million to $200 million over the next quarter. And so the combination of additional investment securities, lending, both from the C&I team and the GulfShore team, all potentially give more flexibility to growing the balance sheet over the remainder of the year.

Okay. And one other just point of clarification I guess. The original guidance was using a static rate scenario as of year-end, so this one I guess incorporates an additional rate hike. Is that the right way to think about that?

I think you can't think about it that way. We did have that rate hike in between and we have rerun our models to substantiate the additional guidance we put out today.

Okay, great. And maybe just switching gears, Denny, big picture on M&A. Obviously there was the deal on Tampa announced last night, but just wanted to get your updated thoughts on opportunities this year and what you might be seeing in the pipeline.

Yes, I would just say that there are opportunities out there and we continue to look at them. As you well know, our primary focus though is organic growth and we believe that it is critically important that we demonstrate an ability to continue to grow our customer base and broaden the relationships within that customer base over time and we're quite pleased to do that. So, I would say given the change in trading multiples that occurred after the election probably gave rise to more interest on the part of sellers and -- but really don't have anything more to say other than that. But, again, we try to really focus on a balanced strategy around growth. As you saw this quarter, we invested in a new production team that moved over on mass to us in the Tampa market, which we think is going to be incredibly valuable as we look ahead over the balance of the year. We also closed on our acquisition in Tampa and we believe one of the key values, if not the key value in that acquisition was the leadership team that we got in that market. We think there is tremendous opportunity for that team to lead with further growth in that market and so we remain focused on that. If we see an opportunity that we think makes sense and fits into our strategy and is not just accretive to earnings and has the right metrics, but more importantly, actually accretes value overall to the franchise, we would certainly consider it.

Okay, great. I'll step back for now. Thanks.

Thanks a lot.

And our next question comes from Bob Ramsey from FBR. Please go ahead.

Hey, good morning. A sort of quick technical question. Which lines were the merger and branch consolidation charges in? Do you have how much of that was maybe in salaries and where else they fell?

Yes. I think the way to think about that, Bob, is $2 million was in salaries and wages; other was about $100,000; occupancy $300,000 and FF&E $200,000.

Okay, got it. Thank you. And then obviously that stuff all goes away next quarter. I know you highlighted some of the other unusual seasonal type costs. Is it fair to say that we start the second quarter, the full $3.6 million lower or you think there's some other offsetting factors in there?

The only thing that will expand into the second quarter is some of the branch-related expenses due to the way lease termination works and the accounting rules around that. There will be some one-time expenses probably dragging into the second quarter connected to the four branches we announced.

And I'm sure you know this, but obviously we did the closing for the Tampa acquisition, the GulfShore acquisition and those one-timers will hit in the second quarter as well.

Yes, that's fair. Got it. And then I know as you all have mapped out the earnings trajectory through the year, you say you expect to end the year with an adjusted efficiency ratio in the 50s. Any -- can we narrow that down a little bit more? There is obviously a big range between 51% and 59%. Is the mid-50s probably a fair way to think about it without being too precise?

Yes, I don't want to be too precise there, Bob, but mid-50s to high 50s is probably the way to think about it, but our internal target is mid-50s.

Okay, got it. And then last question. Just curious, noticed on the end of period balance sheet that there was an uptick in broker timed deposits this quarter. Could you maybe talk about what drove that increase?

Yes. We had some leverage on the balance sheet when we came into the end of the year. We took advantage of the fact that we thought we could go out and extend duration of funding. It was just an interest rate risk management play to extend the benefit to rising rates in the balance sheet.

Okay, great. Any pressure on deposit pricing out there? I'm just curious what you are seeing competitively.

No, no real pressure. If there is any pressure, it's up in the public fund and wholesale markets, but as you know most of our funding is relationship-based, small business and consumer and the like. We see no real pressure down there where in the wholesale markets just moved in line with the short-term end of the curve.

Great. All right. Thank you.

Our next question comes from Stephen Scouten from Sandler O'Neill. Please go ahead.

Hey guys, good morning.

Hey Steve.

A question for you, maybe drilling down a little bit more into this Tampa team lift-out. Can you give any more color about how many people that might be and what sort of contribution you expect? I know you said it would be accretive to 2017 earnings, but any further clarity there and maybe average loan sizes as well. I would expect they may be a little less granular than your average portfolio. Is that fair?

Hey Steve, this is Chuck Cross. I'll take the first part of that. This C&I team kind of focuses on the equipment side of lending. They are a great fit with our credit culture. They focus on companies up to about $750 million in revenue that have strong balance sheets and consistent cash flow. Their typical deal size is $2 million to $10 million, which fits well within our guardrails. Most of their transactions are fully amortizing under seven years and they tend to target business aircraft, on-highway trucks and trailers, and rail cars.

And to follow-up with the question around the accretion earnings and the like. We made an investment here in the first quarter that's primarily salary-related expenses and as we move through the year and our portfolio builds, we think that becomes $0.01 or so accretive to earnings by the end of the year.

Okay. And did you mention where those folks came from at all? Did I miss that?

Just -- the only information we gave and I think we'll stick here is it was a large regional bank.

Okay, fair enough. And maybe looking at the branch closures, it looked like from the actual branch count that maybe only one of those occurred in the quarter and the other three have maybe already occurred this quarter. Is that correct? And then in terms of the cost, it looked like $515,000 taken this quarter and maybe you said some additional into 2Q with a $2 million annual benefit. So, what's the earn-back on that?

I think the way to think about it is, well, one; we applied for all four in the quarter, so they are all coming through. The only expenses that will move into the second quarter are around the facilities and the lease-related expenses. All of the salary-related costs associated with that have been taken in this quarter.

Okay. So, we should see--

Yes, payback, just to answer that, is two years or less type payback periods. I don't have that specifically. If you want, I can follow-up with you on it, but it is two years or less generally.

Okay. No, that's fantastic. That's fantastic. And then just in terms of the loan growth, obviously you had a little bit you mentioned on the $43 million loan purchase. Is that activity that you guys would expect to continue or was that just opportunistic in nature? What's the thought process behind that resi mortgage purchase?

Yes, it was just opportunistic in nature. When we compared it back what we could get in the investment portfolio from a yield to duration benefit, we thought that was a better investment, so we put it in the loan portfolio. It's only going to be opportunistic going forward. Our forward plan doesn't include anything, but if we see something we like, we'll take it, but it's not part of really our plan to grow loans.

And regardless, I wouldn't call it a significant thing for us as we look forward.

Perfect, perfect. Okay, maybe one last one from me. I know Bob was asking you maybe on an expense run rate, but ex the GulfShore acquisition, I mean this -- I think give or take around $31.6 million core expenses for the quarter. Is that a pretty good run rate if I'm thinking about that into 2Q or is there anything on a core basis that should shift around significantly?

I don't think you'll see anything on a core basis shift around significantly, but we will pick up the full impact of GulfShore in the second quarter and then the efficiency work we're doing right now will start to impact Q3 and Q4.

Perfect. Thanks so much, guys. Congrats on a good quarter.

Thanks.

Thank you.

Our next question comes from David Feaster from Raymond James. Please go ahead.

Hey, good morning guys.

Good morning David.

Hey David.

So, on the lender lift-out, this is interesting -- it's a great move and an easy way to generate organic growth at a reasonable price. Do you think that the continued consolidation in Florida from out-of-state banks is going to create more opportunity and more dislocation for you to pick off high-quality talent like this?

Hey, David, this is Chuck Cross. We continually talk to people and look at that. A lot of the acquisitions, some of the key people are tied up, so we try to stay in the game and we will be opportunistic where we can be opportunistic.

But I would say it probably continues to increase the opportunities and I know we're talking with some others right now in some markets.

Okay. And you noted that deposit pricing pressure, you haven't seen any yet and given your customer base you really don't expect it. Could you maybe just talk about the competitive environment for deposits, what deposit betas you might expect in the next 25 to 50 basis points or maybe when would you expect deposit betas to increase and maybe where you anticipate the loan to deposit ratio shaking out over time?

Yes, I'll start with the loan deposit ratio. I think as you move into late this year or early next year, the loan to deposit ratio starts to approach around 90% type range and deposit growth and the competition around deposit funding is out there. It's more competitive around the public funds type area, but if I think customers see value and your franchise value in the service you provide, that's how we grow deposits going forward and it's doing it the hard way, getting out and working in the field and bringing in relationships.

And I would say that a lot of our cross-sell work has really I would say helped us with that and we've seen some nice results there again focusing on broadening the relationships we have with customers. I know particularly I think we have some additional opportunity in the small business and commercial areas, areas we've seen nice deposit growth in over the last couple of quarters and we will continue to focus on that because we see more opportunity there. So, we have in place a pretty solid strategy to deal with the question you asked in terms of deposit betas and our goal will be to demonstrate improved performance when compared with others as a result of the work we're doing particularly in the area of analytics and digital.

Got you. Last one from me. Given your expectations for loan yields to remain stable here around the 445 level, does that imply that the March rate hike is essentially pretty much captured in the first quarter numbers?

Part of it, but I would suggest, yes, the guidance I gave on loan yields includes the March rate hike.

Thanks, guys.

[Operator Instructions] And our next question comes from Eric Wasserstrom from Guggenheim Securities. Please go ahead.

Thanks very much. Just to follow-up on the loan growth question. Is the sequential growth trend that you experienced in the first quarter, is that a fair basis for a run rate -- an organic run rate?

I think the way to think about it is first quarter is usually seasonally our weakest quarter. As you move through the year, I would suspect just like we saw over the last year we had 19% growth in loan outstandings. Our expectation is mid to high teens as we move through this year. So, I wouldn't use first quarter as a proxy for the way we think about the rest of the year.

We expect higher, better performance.

Yes.

So, if I just put the pieces together, it is an organic growth rate let's say in the mid, high teens plus the benefits of the acquisition plus the benefits of the commercial lending team joining in the back half?

I think the way to think about it is the mid to high teens includes all of our loan production, but given what we acquired, we feel very confident and excited about what we think we can put together going forward.

Okay. Thanks very much.

Thanks Eric.

And we're showing no further questions. I will now turn the call back to Mr. Hudson for closing comments.

Well, thank you, everybody, for attending today. As always, we're happy to handle follow-up questions after the call and we look forward to talking with you next quarter.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating and you may now disconnect.