Welcome to the Seacoast First Quarter Earnings Conference Call. My name is Christine and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] Before we begin, I have been asked to direct your attention to the statement contained at the end of the 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 that this conference is being recorded. I will now turn the call over to Mr. Dennis Hudson, Chairman and CEO, Seacoast Bank. You may begin.

Thank you, operator and good morning and thank you everybody for joining us today for our first quarter 2019 conference call. Our press release, which we released yesterday after the market closed and our investor presentation can be found on the investor portion of our website under the title Presentations. With us today is Chuck Shaffer, our Chief Financial Officer and Head of Strategy who will discuss our financial and operating results. Also with us today are Julie Kleffel, our Community Banking Executive; Chuck Cross, our Commercial Banking Executive; David Houdeshell, our Chief Risk Officer; and Jeff Lee, our Chief Marketing and Analytics Officer. As you saw in yesterday’s press release, Seacoast reported a strong first quarter and is off to a great start in 2019. We grew adjusted net revenue 18% to $74 million and achieved adjusted net income of $24 million, up 25% year-over-year. We reported $0.47 on adjusted earnings per share, an increase of 18% year-over-year driven by higher loans and deposits as a result of our balanced growth strategy along with NIM expansion. Our strong deposit growth continued during the quarter again demonstrating the strength of our attractive customer franchise. Loan growth was seasonally lower as we remain steadfast in our highly disciplined credit underwriting. We will not chase deals that do not meet our strict credit guardrails. Our loan pipelines remained robust and growing and are up 19% over the same period last year and we are seeing continued growth in our pipeline already in the first few weeks of the second quarter. Overall, Seacoast is benefiting from the continued vitality of the Florida economy. As a leading Florida bank, the base bank in attractive markets with strong growth fundamentals, we are well-positioned to deliver sustainable, profitable growth. Before turning to strategy, I would like…

Thank you, Denny and thank you all for joining us this morning. As I provide my comments I will reference the first quarter 2019 earnings slide deck which can be found at seacoastbanking.com. And beginning with Slide 4, we started the year on a strong footing turning over the momentum built in 2018. Adjusted net income grew year-over-year 25% to $24.2 million resulting in earnings per share of $0.47. Our performance was highlighted by robust deposit growth, continued NIM expansion and sequential improvements across all of our loan pipelines. We reported 1.50% adjusted return on tangible assets and a 15.1% adjusted return on tangible common equity. Tangible book value per share grew 5.2% sequentially to $12.98. We ended the quarter with a tangible common equity ratio of 10.2% and a loan to deposit ratio of 86% affording ample room for continued loan growth. As we continue to grow our capital base it’s worth mentioning illustratively that the first quarter’s tangible common equity to tangible asset ratio was adjusted to a normalized target of 8%. Our adjusted return on tangible common equity would be 18.8%. Total deposits grew 16% on an annualized basis. Excluding the favorable $147 million impact from additional broker deposits acquired during the quarter and customer sweep balances transferred to interest bearing deposits totaling $76 million. Non-interest bearing demand deposits grew 27% on an annualized basis. Finally, in support of our continued focus on growth during the quarter we hired 10 business bankers augmenting the 10 business bankers we hired in Q4, expanding distribution in the fast growing markets of Fort Lauderdale and Tampa. Overall, our results reflect strong fundamentals of franchise we remain on track to achieve our vision 2020 objectives. Turning now to Slide 5, net interest income was up $0.8 million sequentially and the net…

Thank you, Chuck. And we would be pleased to take a few questions. Operator, if you could let us know.

Thank you. [Operator Instructions] Our first question is from Steve Moss of B. Riley FBR. Please go ahead.

Good morning, guys.

Hey, Steve.

I guess, starting with the loan grow outlook here. You hired 10 additional bankers in the quarter and obviously it was typically a period as a ramp-up, so mid to high single-digit loan growth probably reflecting not much production until late this year from them. Just kind of wondering maybe how you’re thinking about their overall production as we get further out?

Yes. I think it accelerates through the year, Steve. So as these bankers come on line, we hired 10 in Q4, 10 in Q1, there’s a ramp up period I can tell you from bankers we hired in the fourth quarter. We’re already seeing some pretty quality relationships coming over. And with that, it’s been full relationships, it’s been good quality C&I type business with heavy deposits, part of our strong deposit growth in the first quarter. But I believe it will accelerate as we move through the year. So, the guidance of mid to high is kind of a Q4 ‘19 our Q4 ‘18 to Q4 ‘19 guidance, but that will continue to accelerate as we move through the year on our current plan.

Yes, we are pretty confident. In fact, we are confident that we are going to see this kind of ramp up occur. And again, as Chuck pointed out, we had some nice hires in Q4 that are already in the pipeline and we expect that to continue to grow. So, we’re very confident about our forward loan growth.

Okay, that’s helpful. And then, just in terms of the margin here going forward. As you think about the purchase accounting accretion coming down, I think you said generally 1 basis point quarter-over-quarter going forward or should we expect some acceleration after the second quarter?

Yes. I think the way to think about the NIM guidance is, it’s a conservative guide that includes a couple of basis points less than purchase accretion. As you know that can go either way. We see pay offs happen earlier than expected. It can go up. If it moves the way we expect it to, it’s about a basis point or 2 reduction a quarter, but that it could it depends on where things go from here. It’s a variable type forecast. Secondly, I’ll mention that it assumes a pervasive inverted curve with some heightened deposit competition. If this were to abate, that would be a positive sign for us. We are starting to see flashes of deposit competition abating, but it’s really too early to tell. And really our objective here is to keep the core margin flat, which we would keep us at the high end of the range. So, I believe we’re providing curves conservative guidance, and I believe we’re positioned better than most to manage this as we move forward, and with the lower loan to deposit ratio, greater liquidity, and our ability to remix, I think we’ll outperform on NIM as we move through the year.

And a big focus on yield looking at looking at those rates going on.

Right. And on the yield subject, Denny, just wondering how much more do you guys thinking to push through in terms of increasing spreads or any color on that?

It’s kind of a tale of two ends of the spectrum. The work we have done, particularly with credit and risk analytics, we are finding really pushing our yields up nicely in an appropriate way, getting I think better spreads in some of the consumer and smaller balance. C&I loans that we do I think the area that really gives us fits in the CRE area and from a yield standpoint. So Chuck mentioned mix change and that’s really important and we have these tools now that we can bring to bear to help maintain or even enhance our yields as we go forward it’s a big part of our go forward planning.

Okay, that’s helpful. And one last one for me on capital here continues to build, just wondering what your thoughts are with regard to the dividend, share repurchases and how M&A activity is these days?

There is no question we are carrying off tons of capital today. And we are very comfortable with where we are, but we continue to have consistent discussion with our Board. And I think our Board and we understand clearly that we are building capital, give on the robust earnings that we are producing. But we still feel there are number of deals out there. And we think that’s a great opportunity for us and so we want to kind of have the dry powder to get those deals done. And I would just point that at any point in time we can return this capital, this excess capital in the form of dividends or buybacks or both. And we will be continuing to look at that, but right now we are kind of okay with where we are given the opportunity we set ahead of to deploy that capital and to very nicely accretive transactions.

Great. Thank you very much guys.

Thanks.

Thank you. Our next question is from Michael Young of SunTrust. Please go ahead.

Hey, good morning.

Good morning.

I apologize. I hopped on late. So if you covered this, then it’s repetitive. Please forgive me. But just on the additional expense rationalization that you are expecting $10 million, can you just give a little more color there, how much of that is kind of incremental to what’s already been communicated and I guess when should we kind of expect that to be fully baked this year?

Yes. I think the way to think about it Michael is we wanted to take a proactive extents expense reductions as we move through the year and we want to be positioned regardless of what economic rate environment shows up. And we also want the flexibility to take advantage of potential disruption from the few larger bank deals announced over the last few quarters. And so as we have talked in the past our objective there is get small business direct fulfillment done and our digital commercial origination platform done, we had cut $7 million to help pay for that and banker investments data will be completed in the next 45 days. So looking forward we think it will have a partial benefit to the coming quarter and then it’s $10 million annualized you can assume about $2.5 million impact in both Q3 and Q4 and $800,000 to $1 million benefit in the second quarter and the rest falls into next year as it’s $10 million on an annualized basis.

Okay. So there is about $3 million that’s incremental on top of $7 million or this is full $10 million on top of the $7 million that you have communicated?

This is full $10 million on top of the $7 million. So we have cut the $7 million. We have reinvested the $7 million and now we are on to getting after another $10 million.

Okay. And but it sounds like maybe some reinvestment of that if you could have outside hiring opportunity which is just a near term negative but a longer term positive..?

Yes. And the way I think about that is we want the flexibility and if we saw an opportunity we would come back to the street and explain why that made sense. But now at this point it’s a cost reduction initiative and we will see how things play out through the year. We know there is this potential disruption that may occur, we want to be ready and available for that, but if it doesn’t show up we will use it as an expense reduction initiative.

Okay. And one last one just on that would you look to do anything on the C side in terms of hiring or has this been just focused on kind of commercial bankers?

Yes. Now, we were focused on that as well. As I mentioned, we have a goal of growing AUM in the trust area $120 million to $150 million a year. That’s a big emphasis for us that requires investment as we move forward. Secondly, on the mortgage space, we’ve repositioned that part of the organization to focus heavily on saleable. I would tell you the pipeline at the end of March and into April is now grown up to about 70% saleable. We’re very encouraged by the shift going on in that area and we think that supports and will support non-interest income as we move through the year.

Okay. Thanks for all that color. I’ll step back.

Thank you, Mike.

Thanks Mike.

Thank you. Our next question is from Stephen Scouten of Sandler O’Neill. Please go ahead.

Hey, guys. Good morning.

Hey, Steve.

Good Morning.

So, curious on the NIM and kind of the outlook around the interest rate environment. Have you guys begun doing any hedging or other things that might lock in some of your advantages here today in the prospect of a lower rate environment given that you are still fairly sensitive or what’s kind of your thoughts there?

Yes, it’s a careful balance. We monitor it as we move forward. We haven’t done any hedging like swaps or anything like that, but we continue to carefully balance both assets and liabilities to manage the NIM appropriately. I think we’ve managed to a moderately asset-sensitive balance sheet. We continue to manage to that, but it’s something we’re just careful to keep in check.

We really focus on the cash side of that and make sure that we have what we think is the appropriate balance and not over exposing ourselves one way or the other.

Right.

Perfect, okay. And then, I don’t know if you have this number there handy, but what’s the remaining balance of either your credit mark or expected accretion? Do you have those figures by chance?

Yes. Hold on a second. It’s in the tables of the release. It’s about…

Okay.

Yes, it’s in the tables. I can pull…

Okay. And then, I guess the question along with that is, how far down the path have you guys gotten in terms of the effects of CECL and this move to BCD accounting? And you know we’ve heard some banks some of them mostly larger, but talk about how there could be a pretty significant impact to some of the accretion coming through from the related remaining credit marks. I’m just wondering if you guys have any view on that as of yet or the potential impact to you all from that change?

Yes, I think it’s too early to give any real impact on CECL, I can tell you. What I can say is that we’re in our third test model, our third side-by-side model and as we move through the year, we’ll be able to give further updates on that. But at this point we’re continuing to work through it, Steve.

And we’re continuing to refine as those models are run and we’re making good progress.

Yes.

Okay, super. Thanks for the color guys. I appreciate it.

Alright.

Thank you.

Thank you. I will now turn the call back over to Mr. Hudson for closing remarks.

Great. Well, thank you everybody for joining us today. We appreciate the time and we look forward to reporting our results in the upcoming quarter. Thank you.

Thank you. And thank you ladies and gentlemen, this concludes today’s conference. Thank you for participating. You may now disconnect.