Welcome to the Seacoast Banking Corporation Third Quarter 2017 Earnings Conference Call. My name is Paula 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] Please note that this conference is being recorded. I will now turn the call over to Dennis Hudson, CEO. You may begin.

Thank you, Paula. And before we begin, I want to direct everyone’s attention to the statement contained at the end of our company’s press release regarding forward-looking statements. Seacoast will be discussing issues that constitute forward-looking statements within the meaning of the Securities and Exchange Act. And our comments today are intended to be covered within the meaning of that act. Thanks again everybody for joining us today for Seacoast third quarter 2017 conference call. Our press release, which we released yesterday, I think after the market close and our investor presentation can be found on the investor portion of our website under the title Presentation. 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 Julie Kleffel, our Community Banking Executive; Chuck Cross, our Commercial Banking Executive; David Houdeshell, our Chief Risk and Credit Officer; and Jeff Lee, our Chief Marketing and Analytics Officer. Our third quarter results show that the investments we’ve made over the past two years continue to produce results for shareholders. Building on our 90-year-old history the strength of our brand and our transformed customer service platform, we generated record commercial loan growth and solid organic growth overall. We possess one of the top performing banking franchises in Florida, which is one of the nation’s most economically robust states with solid positions in four of our states most attractive markets. We continue to strengthen that franchise through our balanced growth strategy of organic growth, prudent risk management and selective value creating acquisitions. Turning to our financial results. Third quarter net revenue increased 5% over the prior quarter and 21% over the second quarter last year. Adjusted net income rose 20% sequentially and 37% compared with last year’s third quarter.…

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 5 discussing some of the highlights for the quarter. Net revenue increase 21% year-over-year to $57.2 million and adjusted net income was up 37% to $15.1 million. Sequentially, net revenue increased 5% or $2.5 million and adjusted net income was up 20% or $2.5 million. Adjusted return on tangible common equity ended the quarter at 12.8%. Adjusted return on tangible assets was 1.16% for the quarter and the adjusted efficiency ratio declined to 57.7%. All three ratios have improved meaningfully from one year ago and this improvement evidences our continued progress towards our vision 2020 objectives and commitment to creating value for shareholders. Unlike prior quarters the impact of acquisitions of branch reductions were more modest in Q3 highlighting the underlying earnings momentum and the outlook to continue to build tangible book value per share. In early 2017 we engaged in a $200 million equity transaction that included the issuance of $50 million in new equity to support growth. Over the course of the year this capitalism has been employed in a productive manner already offsetting most of the initial EPS dilution from the share issuance. Additionally, we’ve increased tangible book value per share from $9.37 at start of the year to $10.95 at the current quarter. That’s a 17% increase in nine months. By year end we’ll close on three accretive acquisitions exiting the Seacoast franchise into Tampa with the GulfShore and NorthStar purchases and strengthening our presence in South Florida with the Palm Beach Community Bank acquisition. Moving forward one slide, Slide 6. Denny mentioned that third quarter was impacted by Hurricane Irma. The…

Thanks, Chuck. And we’d be happy 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.

Good morning, Michael.

I wanted to started off on the NIM commentary Chuck, to the mid 3.75% I think you said by 2Q next year, correct me I mishear that. Embedded within that you expect some continued positive balance sheet remix towards loans from deposits and the loan deposit ratio moving higher? Or do you expect to get a little more aggressive on deposit pricing to kind of push deposit growth higher? Maybe just help me understand some of the puts and takes there.

Sure. The way I think about it is the guidance really is for fourth quarter is mid 3.70% and then that should climb to the high 3.70% by Q2 of next year. Part of what’s coming on there is the new accretive that’s inclusive of the two acquisitions in Q4. And I think when you look forward there will be a positive mix shift from declining securities portfolio and a growing loan book. And we will compete a little more aggressively for deposits moving forward. We put our guidance – the guidance that we provided as a 6% deposit growth. So assuming we achieve our objective there. Growing deposits we should see NIM remain stable to slightly growing over the next couple of quarters.

Okay, great. And maybe just sticking with the deposits. In terms of maybe where you’re seeing pressure at this point if any other than sort of the public funds piece. Could you maybe characterize it geographically at all that more in kind of the major MSAs, Orlando, Tampa versus the legacy deposit base. Just curious any color there.

Yes. Definitely the more urban market is more competitive. And the pricing pressure is in the public funds arena in the larger commercial client type customers wholesale funding is where the pricing pressure is. If you look at over our last 12 months, our public fund money market balances are down about $102 million – the year. So when you take that out our deposit growth was about 3% and it’s one of our key focuses moving forward. But the competitive pressure is primarily in the urban markets.

Okay. And maybe just last one for Denny. It seems like we’re kind of passed a lot of the restructuring charges related with – just kind of improving the efficiency ratio and expense base going forward so tangible book value growth is increasing. Do you think you need to retain all of that capital to support growth? Or do you think there’s opportunities to maybe be reinstitute dividend or other capital management actions that maybe we’re not thinking off?

And I think we’ll be looking at that. I mean you asked the right question. We still see some opportunities for growth from an M&A perspective. So I think it’s important to maintain a continued strength to those capital ratios. But I would say that is an evolving conversation and something probably have more to talk about next year.

Okay, great. Thanks guys.

Thanks Mike.

[Operator Instructions] Our next question comes from Steve Moss from FBR. Steve, please go ahead.

Good morning.

Good morning, Steve.

On the margin I was wondering does your guidance include Fed hike in those numbers.

Yes. Thanks, Steve. No, rates remain where they are today no change in short-term or long-term rates.

Okay. And in terms of asset sensitivity, it’s fair to think about 3 to 4 basis points in terms of margin expansion for a hike.

Correct. That’s exactly the right number.

Okay. On the deposit side a little bit of increase here in broker deposits wondering if your deposit growth includes some component of that as well.

I think at this point there maybe very minor increases now looking forward but the deposit growth guidance we’re given and what we want to get accomplished would come from our retail small business and commercial teams. And probably much less though on broker deposits, we’ve got about what we want in that bucket.

Okay that’s helpful. Then in terms of – and just one another clarification on the margin, on loan yields the 460 to 470 numbers that was inclusive or exclusive of purchase accounting?

Yes. That includes the accretion.

Okay that’s helpful. And just on the M&A front, Denny you said, you still see opportunities to do deals. Wondering if there’s been any increase in discussions or activity or is that a little further out.

Increase in what activity?

In M&A discussions.

Okay. I really don’t like talking about all of that. I’d suffice it to say that we are continuously alert to opportunities. We continuously talk with folks across the state. And when we see an opportunity that makes sense for us that we think can add real value to what we’ve created here, we engage. So I think those opportunities still exist, they’re still out there. And over the next year you’ll continue to see more of that develop as we go through time. But I don’t have anything specific to talk about in terms – but they continue to be there.

All right. Well thank you very much.

Great. Thanks, Steve.

Thanks, Steve.

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

Hey, good morning guys.

Hi, David.

Loan growth was a bit lighter than expected as expect as you talk about there is business interruption from the storm. Could you just try and quantify that and maybe what you’re seeing thus far early in the fourth quarter that gives you confidence that you get back to that mid teens run rate?

Yes, I think, when you look at that the storm specifically delayed closings towards the end of the months and our mortgage pipeline as well was certainly impacted by it. Early right out to shoot here coming into Q4 we seen good strong production, teams are back online. Things they got pushed or getting closed. And so we feel confident we’re sort of back on track with our run rate.

And I just to add, we saw record commercial originations this quarter. We hit a record in the residential production this quarter. And a little bit of elevated pay offs in the commercial book, which was a little bit of a surprise. And as we ended the quarter, our pipelines are pretty much very close to a record number. So when we look into Q4, we see continued really solid growth, solid organic growth and loan. So I think the just a reminder, we had a mortgage sale that occurred this quarter that impacted the growth rate. When you take that out, I think our growth rate was closer to maybe expectation. And frankly we see a very, very positive market out there, in terms of continued loan growth. On the deposit side we’ve seen tremendously positive organic growth. Again as we pointed out earlier on the call, we saw a little bit of a cutback in that growth to the loss of some higher yielding asset liabilities, primarily out of the municipal portfolio that we have. But when you axe that out 3% growth which wasn’t bad this is one of our seasonal – this is the seasonally weakest quarter that we typically have. And we’re expecting those rates – growth rates come back as we stated earlier to look forward. So actually we couldn’t be happier with our loan growth this quarter.

Terrific. Could you just talk about your hiring plans going forward, last quarter you’ve hired a team in Tampa. How your conversations going, is it – are you still having good conversations to pick off new teams and maybe what markets you’re most focused on, any detail you have there?

Hey David, this is Chuck Cross. The only comment there is, we continually talk to people around the state, and both individuals and teams. And we’re opportunistic when they’re ready to move or see this is an opportunity.

As Chuck said earlier, we’ve added substantially to the team this quarter with the acquisitions it will close both in Tampa and in Palm Beach County. And the number count there is actually pretty impressive and very impressed with the people that are joining us on that team, in particular it helps us build out our much stronger team, I think are deeper team in the Tampa market, which is just now starting to produce some growth for us. And when you add the impact of that incredible market in Tampa, Tampa, St. Pete, it gives us much greater capacity to continue to grow. David when you look back over the last several years, we have dramatically shifted our loan production into deeper metro areas across the state. And that is what we’ll continue to drive positive results for us both in terms of the loan growth and in terms of in particular commercial deposit growth out of those markets.

Great. On your expense guidance is got you’ve talked about adding $2 million of expenses, I believe in the first quarter, is that off the 3Q run rate would that imply that kind of that $35.5 million to $36 million, I’m assuming is an inclusive of cost savings, it’s kind of a good base for quarterly expenses next year?

Yes.

Got it. Thank you.

Our next question comes from Jeff Cantwell from Guggenheim. Please go ahead.

Hi, good morning.

Morning.

Thanks to taking my question. I just wanted to talk about your improvement in the efficiency ratio, and the extent to which such tied to the increase in mobile penetration. I guess clearly the argument will be some of the improvement in your efficiency ratio, subscribe your digital strategy. So just trying to get a better feel for the extent by which mobile penetration should increase further, as we start to think about 2018 and how much of a driver albeit with respect to the efficiency ratio? Thanks.

Yes, I think the way to think about it is, there’s certainly interlink between the third party providers and the expense associated with digital penetration. That being said, the cost to service a relationship be a mobile or digital is far, far lower than it is on a traditional basis. So it’s up to us to make sure its customers migrate to a more digital platform and as customer preference has changed, that we take action across our network and rotating expenses out of the network, which is what we’ve done over the last two to three years, and as we’ve seen customers migrate to digital. And is that continues, we’ll continue to allow that to happen. So I think net-net it’s actually a positive, the more customers migrate to digital, and it’s something we encourage and are driving towards and it’s up to us to execute against that opportunity.

Really important really little more complicated, of course and in terms of really trying that was well said Chuck, and as we just to want to trying to say, as we begun to make those connections and connect them into actual dollar reductions in overhead the profit as we use to understand, how we – how fast we can move become increasingly critical and that’s been a big part of our success, I think in bringing that ratio down is being able to have that build those connections between the behavioral change and reducing what was our fixed infrastructure cost. And so that’s really the key to the whole thing. And when we rolled out to the 2020 vision in February of this year that was one big piece of it, but there are many other pieces of that 2020 vision that rest on top of those same concepts as we can continue to improve the efficiency of being able to deliver and fulfill, for example, our lending products across the line. So it’s an interesting time, but there’s tremendous opportunity as you point out to bring those expense ratios down in the world which you have.

Great. Appreciate the color. Thanks very much.

Thanks Jeff, thanks.

And we’re showing no further questions. I’ll turn the call back to Dennis Hudson for closing remarks.

Thank you operator and thank you everybody for attending today. We look forward to talking with you again after the first of the year. Thank you.

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