Welcome to the Seacoast Fourth Quarter Earnings Conference Call. My name is Paulette, 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. Mr. Hudson, you may begin.

Thank you, operator and good morning and thank you everybody for joining us today for Seacoast fourth quarter and year-end 2019 conference call. Our press release which we released yesterday after the market close and our investor presentation can be found on the Investor portion of our website under the title Presentations.With me today is Chuck Shaffer, our Chief Financial Officer and Chief Operating Officer, who will discuss our financial and operating results and Jeff Lee, our Chief Digital Officer.Seacoast wrapped up an exceptionally strong year with continued solid improvement in our financial performance. Adjusted earnings for the year totaled a $104.6 million, up from $79 million last year, and earnings per share increased by 24% to $2.01 for the year. Our assets exceeded $7 billion as loan growth continued to accelerate during the year with particularly strong growth in the final quarter.These improvements continue to track our goals as we’ve executed the balanced growth strategy we laid out at our first Investor Day just three short years ago. Since that time, our assets have grown from $4.7 billion to $7.1 billion or an increase of 51%.Earnings have doubled from $1 a share in 2016 to $2.01 this year. And our tangible capital ratio increased from 7.7% at year-end 2016 to 11.05% this year. Clearly, our balanced growth strategy has and continues to deliver strong results for shareholders.Full-year adjusted revenue on a fully taxable basis grew by 14% for the year, while adjusted non-interest expense grew by only 3%, creating tremendous operating leverage, reflecting both our continued growth as well as success consolidation of offices in late 2018 and a lot of hard work by our team members to streamline processes, renegotiate contracts and take greater advantage of our digital capabilities.As you saw yesterday, we are excited to announce the…

Thank you, Danny and thank you all for joining us this morning. As I provide my comments, I’ll reference the Fourth Street Freedom Bank deck and the fourth quarter 2019 earnings slide deck, which can be found at seacoastbanking.com.Let's start this morning with the Fourth Street Freedom Bank deck. Last night we announced the acquisition of Fourth Street Banking Corporation, inclusive of its subsidiary Bank -- Freedom Bank. Freedom is a $300 million bank by assets headquartered in St. Petersburg Florida, operating two highly profitable branches in the city of St. Petersburg. This acquisition builds upon our two prior end market acquisitions, adding two branches and increasing distribution and scale to our position in Florida's second-largest MSA.Seacoast will be the third largest Florida-based franchise in the Tampa St. Pete Clearwater MSA and the largest Florida-based bank in the St. Petersburg market. This acquisitions fits our M&A strategy to being an end market, low risk transaction, with a very high quality customer franchise and strong credit underwriting. We expect this transaction to come together easily with no disruption to our organic growth plan.Freedom is led by Cathy Swanson, a lifelong St. Petersburg banker. And prior to being CEO of Freedom, she was an Executive with Synovus Bank. Cathy will remain with Seacoast as Market President of Pinellas County. Freedom's high-quality loan book has an average loan yield of approximately 5.79% and the majority of the firm's funding is made up of checking, savings now, and money market accounts, representing 74% of deposit funding.Non-interest-bearing checking represents 33% of the funding and the net interest margin is approximately 4.16%, which will be accretive to Seacoast NIM. We expect a full conversion of fourth Street's convertible subordinated debt to common equity prior to close. The debt has a 4.50% rate and converts to a…

Thank you, Chuck. And operator, we'd be pleased to take a few questions.

Thank you. [Operator Instructions] And our first question comes from David Feaster from Raymond James. Please go ahead.

Hey. Good morning, guys. Congrats on the deal.

Good morning. Thank you. We are excited about it.

So you got a pretty full plate here. Two deals, which I believe you’ve had as much as three ongoing at the same time. Are we on pause here near-term, or would you still be interested in M&A at this point? And I guess historically you’ve converted and closed the same day, is that the plan here?

Yes, that is the plan here, David, and just generally conversations remain robust. We plan to close the First Bank of the Palm Beaches deal in mid-March. So that's right around the quarter. And one of the benefits of doing small low risk transactions is that we can close and convert them at the same time which we will do with both these transactions and keep moving down the road. So we are still out talking to various opportunities. The conversations remain robust and there are still plenty of opportunity to continue our M&A strategy as we move forward.

Okay. Terrific. And I guess just what -- do you really expand your St. Pete presence here? How do you think about this market and the opportunities for growth for both loans and deposits as well as new hires?

That’s -- it's a great question, David. And what I would say to you is, we talked in the past to both research and investors that we love the Tampa St. Pete market, it's a tremendous market. It's twice the size of Orlando and its the second-largest MSA in the state of Florida. It is full of opportunities for us both in terms of customers and bankers. And as we've gone over the past year, we’ve continued to expand our banker pool in the market and just here in the fourth quarter added across the franchise another seven commercial bankers and another 9 MLOS. So we continue to expand distribution. We think the markets are serving as well. We continue to see strong population growth in the markets and great opportunities for growth. So this gives us to more scale there. The team that operates in the St. Pete market is operated there for many years is well regarded, well-thought of and its staying on with us and is excited about the opportunity to work with us. So I think this acquisition is more than just acquiring a bank. There is a great market behind it.

As you know, David, our position in Pinellas County was quite small. Previously we had very, very small amount of exposure there. And so as Cathy and her team get together and assimilate with our position there, it just builds an even stronger presence for her and for her bank in that market and we're really excited about the talent that is coming with that acquisition. So very, very excited about that. Also a good support on the part of shareholders there, grown to really appreciate some of the deep connections they have in the market. And so we're really, really excited about being in much stronger position in Pinellas County.

That’s terrific. Yes, it's a great bank and great team. I appreciate …

Now that we’re there we hope we can convince Raymond James to open up an account with us.

There you go. There you go. I appreciate all the color on the guidance, but just had a quick one on the loan growth guidance. Does that assume any additional loan purchases? And I guess how do you think about loan purchases supplementing organic growth? Do you expect -- and if you do anymore purchases, do you think it's going to be more on the commercial or the resi mortgage side?

The way I would describe the purchase strategy is its purely opportunistic. We don't count on it. If we come across something that makes sense, we will do it. In this case the portfolio we purchased in the fourth quarter with something we've been working on with a fairly large regional banks that had a higher loan to deposit ratio that wanted to exit that or reduce that loan to deposit ratio, we actually went into that portfolio and hand selected the loans that we took. It's an agreement we put together with them. So we got a great portfolio. So it's purely an opportunistic strategy, David.

Okay. That’s true.

Yes, go ahead.

Well, that's good. That's all from me. Go ahead.

Thank you very much.

Thank you, David.

Thanks, David.

Our next question comes from Steve Moss from B. Riley FBR. Please go ahead.

Good morning, guys.

Hey, Steve.

Just wanted to follow-up on the loan growth questions here. Perhaps for the quarter here, in particular, the pipeline ending last quarter was really strong, close to $260 million. And I guess the pull through didn't seem quite as strong as what I was thinking. Just curious like what drove that or maybe with some stuff pushed out into next quarter.

Steve, it's purely some things pushed into Q1. So we had a handful of deals, maybe about 10 deals that moved into Q1, that would make up the difference there and where we've closed about half of those and expect to close the rest over the coming weeks. So it was just purely a timing on closings.

Okay. That's helpful. And then just in terms of prepayment activity and pay downs, how much is that influencing your loan growth for -- loan growth expectations for 2020?

Yes, we’ve modeled in similar trend to what we experienced in the current year. And what we've seen when you go back and look at payoffs is it's really been rate dependent, when rates have come down, particularly, in long end of the curve we see payoffs go up. Payoffs were actually the highest they've been all year in Q4. So we had to overcome that. So we model in a conservative guide around that and expect it to remain just about the same as it's been over the last 12 months.

Okay. That's helpful. And then perhaps just a question on capital return, I mean, obviously, you've been doing acquisitions and that’s been a source of capital deployment. But just wondering any thoughts around dividend at this point, capital still remain -- appears to remain strong here.

Yes, it certainly does remain strong. And all I can say is we regularly take a look at our capital position in light of kind of our current and forecasted -- forecast that we see out there. And including opportunities we see for balance sheet growth and the overall operating environment, we're comfortable today with the capital levels we maintain. We went to great lengths, kind of talk about that earlier in our prepared remarks and we just view it as a tremendous asset, a tremendous benefit that we carry a long. When you look at our credit discipline and our commitment to maintaining really a fortress balance sheet, not just in terms of credit, but also in terms of capital, really puts us in an extremely strong position. And we intend to leverage that strong position as we go forward with that large and very robust capital level. Having said that, capital does continue to build and we will regularly reevaluate that. And as we continue to have discussions with our Board, we will look at alternatives and make sure we deploy capital prudently as circumstances warrant. So stay tuned. And if we have something to say, we will certainly be talking about it.

All right. Thank you very much guys.

Thanks, Steve.

Our next question comes from Michael Young from SunTrust. Please go ahead.

Hey, good morning.

Hey, Michael.

Wanted to ask just qualitatively on any investments that are going on this year. I think last year there was the full digital kind of end-to-end processes of origination that you were working on and some hiring etcetera. I know there were some departures here at the end of the year. So can you just talk about maybe some strategic initiatives and where some ongoing investment needs are for this year?

Well, I will just start and say that many of the investments we talked about last year, particularly around the digital investments and the like, much of that is behind us. We have more to continue to kind of complete as we look into 2020. That was always our plan to have that in pretty solid shape as we got into 2020. So we think our investments going forward will be more heavily weighted into some of the growth investments that we see out there. And probably, as Chuck mentioned earlier, we continue to hire very aggressively in the markets that we are in and we will continue to see investments, I would say, in that area around growth. So that's kind of high level, what I would say. Chuck, you have any other thoughts?

No, I think that Wells [ph] says it well. Last year, we made a fair amount of investment in a full digital end-to-end commercial origination platform, a full pricing model that we acquired as well as investments in our own internally developed platform. So we put a lot of more money and work into that over the last year to set ourselves up for growth. We are now investing in putting bankers into what we think is a robust platform and looking to expand the markets. That's kind of the objective in for 2020.

Okay. So fair to characterize that it will be more of investment in people and in originators this year versus kind of back-end or technology initiatives from last year?

Yes, and the only other thing I would say is, we as part of our negotiation with our outsource data provider last year, which provided a fair amount of benefit to our P&L, we negotiated a full rework of our digital, mobile and online platforms. And so late this year, we will work to really enhance the customer experience around our mobile and online platforms and that's all worked into our forward expectations and worked into the cost structure. So it's just a matter of implementing that. And I think that's going to provide a much better user experience for our customers, and so we are pretty excited about that.

Okay. And maybe just a couple of ways of asking questions about the NIM. But first, you guys had very significant drop in deposit costs this quarter. That was pretty impressive, given that you already have a pretty low cost of deposits overall. Are there incremental opportunities to continue to do that or have you kind of pulled a lot of the levers there already?

Yes, I think -- and it all depends on interest rates and the steepness of the curve. But assuming the curve remains flat, I would expect deposit cost to remain about where they are for the foreseeable future unless the outlook changes. And NIM, we guided to low 3.80s in Q1, assuming the rate curve would remain where it is, it's probably would -- that would also flat line out as we move forward. So it's all going to depend on where rates go, but I think we can hold the deposit cost about where they are.

Okay. And there is no latent pressure on loan yields from here. I know you guys are a little less LIBOR since it is cited out there decent incremental roll through throughout the year, or you believe you can kind of offset that?

No, I think, we can offset that. And I think that remains relatively flat as well. We are pretty well positioned for where we are. And the thing that would be most beneficial is some steepness in the curve, as you know, but we are in pretty good shape I think from a margin and loan and deposit cost perspective. We work pretty hard to manage that position, to be as effective as possible and position ourselves to be right where we are and feel good about where we are going into 2020. And when you look forward, as I mentioned in my prepared comments, I think net interest income continues to grow because we position that well, as well as we expect growth into the coming year. So our forward outlook remains pretty positive.

All right. Congrats on a good year.

Thank you, Mike.

Thanks, Mike.

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

Hi. Good morning.

Good morning.

Hey, Jeff.

Hi. Congrats on the results and thanks for taking my questions. I wanted to ask you, if you could drill down a little bit and maybe give us a little bit of color on the new business that you are seeing across both consumer and commercial over the past quarter, or maybe the past few months, really. Can you just tell us a little bit about the customers you've been adding and remind us why you think they're choosing Seacoast? It's always good to get a refresh on why you're winning new business. Thanks.

Sure. Yes. No, we continue to be very competitive in the marketplace. And we benefit tremendously from the population growth that’s going on in the economy. If you look at the markets we purposely position the franchise in Tampa, Orlando, I-4 corridor in South Florida, there's tremendous growth in those markets, tremendous growth in the Florida GDP, that is helping businesses. Our core business prospect is generally companies that are in the professional practice space and small manufacturing and the like. And those companies are doing incredibly well given what’s happening in Florida. There is a lot of healthcare moving to Florida, chasing the population, and it just really is supporting growth. So the markets are doing well. We are getting good inbound customer growth and we are using bankers and marketing and everything you can imagine to make sure that continues. And it's -- Florida is doing incredibly well and we are catching the benefit of that.

No question about it. And when you look at, for example, unemployment rates in most of the markets we are in and some of them now they're below 3%. Just incredibly strong environment. And consumers are employed, and we're just seeing really positive things here. Very competitive, certainly, in Florida, but I think we offer a really unique value proposition with the level of service that we deliver and the like in those markets. We are also, as you well know, very focused on continuing to grow and support our production folks in the field. And we’ve a lot of tools that we use to help them do that and we're expanding that group every month, as we continue to grow out into the franchise. If you look ahead at our market share in a lot of these markets, there is nothing, but upside for us as we continue to grow the franchise. So very, very excited about the next few years and what that will bring in terms of growth.

Thanks very much. And my second question is related to that. I was curious if you could talk a little bit about what you are seeing with your existing customer base in terms of cross-sell? And we saw your data analytics and things of that nature and obviously you guys have put a lot of work into making sure that you're staying on top of the trends with your customer base. So I guess my question is which products are you seeing the most success with from a cross-selling perspective right now? And are there areas where you would expect to be doing more cross-selling over the next, call it, 12 to 18 months?

Hey, Jeff, it's Jeff Lee. I will answer that question for you. Continue to see really good progress in the cross-selling of deposit accounts, loan accounts and also some of our fee areas as well. I think wealth, in particular, has done a really good job of tapping into the cross-sell opportunities, a lot of that is banker driven, where we're getting the referrals in. I think when you look at the penetration of some of these products and services, there is still a lot of room to grow and take advantage of what’s still existing in the platform that we already have. So there is still value to be created, but we've seen continued good momentum at the cross-selling of deposit activity, loan activity and the fee activity products as well.

Great. And then if I could just squeeze one last one. And it's just related to your earlier -- some of the earlier questions that we heard about the loan growth guidance for this year. Could you just help us out there a little bit, maybe at a high level, explain where you expect to see that growth to come from. Is there a geography in particular that looks very strong, for example, just maybe just give us a little more color there? Thanks.

Yes, no problem. The bulk of the growth comes out of the commercial banking franchise and it's primarily coming out of Broward County, Palm Beach County, somewhat in our legacy market or the Treasure Coast, but also Orlando and Tampa and, in particular, around the more metropolitan markets is where we see the bulk of the growth.

And I would just reiterate that the focus, when you look at where our investments are in terms of handling that growth, they're clearly in the metro areas. That's where we see the deep markets and the incredible growth happening in those markets. But I would also say that it's pretty evenly distributed across the entire franchise. We have had been working very hard to make investments in across the franchise, but particularly in markets where we’ve more upside in terms of market size, and Tampa being one of those. And so we've seen pipelines grow generally across the board, but they've become far more even, I would say over the last year. And due to a lot of hard work by a lot of folks in the field who are doing a great job contacting customers and helping us grow. So I think it's pretty much across the board. Just a great environment, great market, great State to be in.

Okay, great. Thanks very much.

Thank you, Jeff.

Thank you, Jeff. And operator, I think that ends our call today. We appreciate everybody joining us today and we look forward to updating you in April for the first quarter. Thank you.

Thank you. Ladies and gentlemen, this concludes today’s conference. Thank you for participating and you may now disconnect.