Business Combinations

3 Months Ended

Mar. 31, 2020

Acquisition of First Bank of the Palm Beaches

On March 13, 2020, the Company completed its acquisition of First Bank of the Palm Beaches (“FBPB”). FBPB was merged with and into Seacoast Bank. FBPB operated two branches in the Palm Beach market.

As a result of this acquisition, the Company expects to enhance its presence in the Palm Beach market, expand its customer base and leverage operating cost through economies of scale, and positively affect the Company’s operating results.

The Company acquired 100% of the outstanding common stock of FBPB. Under the terms of the definitive agreement, each share of FBPB common stock was converted into the right to receive 0.2000 shares of Seacoast common stock.



(In thousands, except per share data)	March 13, 2020
Number of FBPB common shares outstanding	5,213
Per share exchange ratio	0.2000
Number of shares of common stock issued	1,043
Multiplied by common stock price per share on March 13, 2020	$	20.17
Value of common stock issued	21,031
Cash paid for FBPB vested stock options	866
Total purchase price	$	21,897

The acquisition of FBPB was accounted for under the acquisition method in accordance with ASC Topic 805, Business Combinations. The Company recognized goodwill of $6.8 million for this acquisition that is nondeductible for tax purposes. Determining fair values of assets and liabilities, especially the loan portfolio, core deposit intangibles, and deferred taxes, is a complicated process involving significant judgment regarding methods and assumptions used to calculate estimated fair values. The fair values initially assigned to assets acquired and liabilities assumed are preliminary and could change for up to one year after the closing date of the acquisition as new information and circumstances relative to closing date fair values becomes known.



(In thousands)	Initially Measured March 13, 2020
Assets:
Cash	$	34,749
Investment securities	447
Loans	146,839
Bank premises and equipment	6,086
Core deposit intangibles	819
Goodwill	6,799
Other assets	1,285
Total assets	$	197,024
Liabilities:
Deposits	$	173,741
Other liabilities	1,386
Total liabilities	$	175,127

The table below presents information with respect to the fair value and unpaid principal balance of acquired loans at the acquisition date.



	March 13, 2020
(In thousands)	Book Balance		Fair Value
Loans:
Construction and land development	$	9,493	$	9,012
Commercial real estate - owner occupied	46,221		45,171
Commercial real estate - non owner occupied	36,268		35,153
Residential real estate	47,569		47,031
Commercial and financial	9,659		9,388
Consumer	1,132		1,084
Total acquired loans	$	150,342	$	146,839

The table below presents the carrying amount of loans for which, at the date of acquisition, there was evidence of more than insignificant deterioration of credit quality since origination:



(In thousands)	March 13, 2020
Book balance of loans at acquisition	$	43,682
Allowance for credit losses at acquisition	(516		)
Non-credit related discount	(128		)
Total PCD loans acquired	$	43,038

The Company believes the deposits assumed in the acquisition have an intangible value. In determining the valuation amount, deposits were analyzed based on factors such as type of deposit, deposit retention, interest rates and age of deposit relationships.

Pro-Forma Information

Pro-forma data for the three months ended March 31, 2020 presents information as if the acquisition of FBPB occurred at the beginning of 2019, as follows:



	Three Months Ended March 31,
(In thousands, except per share amounts)	2020		2019
Net interest income	$	64,614	$	62,538
Net income	1,172		22,299
EPS - basic	$	0.02	$	0.43
EPS - diluted	0.02		0.42

Proposed Acquisition of Fourth Street Banking Company

On January 23, 2020, the Company announced that it had entered into an agreement and plan of merger with Fourth Street Banking Company ("Fourth Street") and its wholly-owned subsidiary, Freedom Bank. Pursuant to the terms of the merger agreement, Fourth Street, headquartered in St. Petersburg, FL, will be merged with and into Seacoast and Freedom Bank will be merged with and into Seacoast Bank. Freedom Bank operates two branches in the Tampa-St. Petersburg metropolitan statistical area with $308 million in deposits and $264 million in loans as of December 31, 2019. This acquisition is anticipated to close in the third quarter of 2020, subject to the receipt of approvals from regulatory authorities, the approval of Fourth Street shareholders and the satisfaction of other customary conditions.