NOTE K — BUSINESS COMBINATIONS

Acquisition of Grand Bankshares, Inc.

On July 17, 2015, the Company completed its previously announced acquisition of Grand Bankshares, Inc. (“Grand”) as set forth in the Agreement and Plan of Merger (“Agreement”) whereby Grand merged with and into the Company. Pursuant to and simultaneously with the merger of Grand with and into the Company, Grand’s wholly owned subsidiary bank, Grand Bank & Trust of Florida (“GB”), merged with and into the Company’s subsidiary bank, Seacoast National Bank.

The Company’s primary reasons for the transaction were to further solidify its market share in the attractive Palm Beach market and expand its customer base and leverage operating cost through economies of scale. The acquisition is expected to positively affect the Company’s operating results to the extent the Company earns more from interest earning assets than it pays in interest on its interest bearing liabilities. Merger related charges summed to $2.7 million for the third quarter of 2015, primarily impacting salaries and wages, outsourced data processing costs, and legal and professional fees. All of these costs were expensed in the third quarter of 2015.

The Company acquired 100% of the outstanding common stock of Grand. The purchase price consisted of stock, and additionally the Company paid approximately $1.48 million in cash for all of Grand’s outstanding shares of preferred B stock, representing the par value of $1,000 per share of preferred B stock. Each share of Grand common stock and Preferred A stock was exchanged for 0.3114 shares of the Company’s common stock, or approximately 1.09 million shares of Company stock. Based on the price of the Company’s common stock of $15.75 per share on July 17, 2015, plus cash paid for Grand’s outstanding shares of preferred B stock, the total purchase price was $18.7 million.

	July 17, 2015
Grand preferred B shares exchanged for cash	$	1,481,000

Number of Grand common shares outstanding		3,501,185
Per share exchange ratio		0.3114
Number of shares of common stock issued		1,090,269
Multiplied by common stock price per share on July 17, 2015	$	15.75
Value of common stock issued		17,171,737

Total purchase price	$	18,652,737

The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition. The fair values listed are preliminary and are subject to adjustment. While they are not expected to be materially different than those shown, any adjustments to the estimates will be reflected retroactively as of the date of acquisition.

Date of acquisition	July 17, 2015
	(in thousands)
Assets:
Cash and cash equivalents	$	34,408
Securities available for sale		46,366
Loans		109,988
Bank premises		4,191
Other real estate owned		2,424
Core deposit intangible		2,564
Goodwill		555
Other assets		14,163
Total assets acquired	$	214,659

Liabilities:
Deposits	$	188,469
Repurchase agreements		1,658
Subordinated debt		5,151
Other liabilities		728
Total liabilities assumed	$	196,006

The acquisition is accounted for under the acquisition method in accordance with ASC Topic 805, Business Combinations. Both the purchased assets and liabilities assumed are recorded at their respective acquisition date fair values. Determining fair values of assets and liabilities, especially the loan portfolio and foreclosed real estate, is a complicated process involving significant judgment regarding methods and assumptions used to calculate estimated fair values.

The table below presents information with respect to the fair value of acquired loans, as well as their unpaid principal balance (“Book Balance”) at acquisition date.

	July 17, 2015
(Dollars in thousands)	Book Balance		Fair Value
Loans:
Single family residential real estate	$	6,158	$	6,379
Commercial real estate		82,782		79,887
Construction/development/land		979		913
Commercial loans		2,393		1,516
Consumer and other loans		14,575		13,692
Purchased credit-impaired		10,993		7,601
Total loans	$	117,880	$	109,988

For the loans acquired we first, segregated all acquired loans with specifically identified credit deficiency factor(s). The factors we considered to identify loans as Purchase Credit Impaired (“PCI”) loans were all acquired loans that were nonaccrual, 60 days or more past due, designated as Trouble Debt Restructured (“TDR”), graded “special mention” or “substandard.” These loans were then evaluated to determine estimated fair values as of the acquisition date. As required by generally accepted accounting principles, we are accounting for these loans pursuant to ASC Topic 310-30. The table below summarizes total contractually required principal and interest cash payments, management’s estimate of expected total cash payments and fair value of the loans as of July 17, 2015 for purchase credit impaired loans. Contractually required principal and interest payments have been adjusted for estimated prepayments.

(Dollars in thousands)	July 17, 2015

Contractually required principal and interest	$	12,552
Non-accretable difference		4,249
Cash flows expected to be collected		8,303
Accretable yield		702
Total purchased credit-impaired loan acquired	$	7,601

Second, loans without specifically identified credit deficiency factors are referred to as Purchased Unimpaired Loans (“PULs”) for disclosure purposes. These loans were then evaluated to determine estimated fair values as of the acquisition date. Although no specific credit deficiencies were identifiable, we believe there is an element of risk as to whether all contractual cash flows will be eventually received. Factors that were considered included the economic environment both nationally and locally as well as the real estate market particularly in Florida. We have applied ASC Topic 310-20 accounting treatment to the PULs.

The Company believes the deposits assumed from the acquisition have an intangible value. The Company applied ASC Topic 805, which prescribes the accounting for goodwill and other intangible assets such as core deposit intangibles, in a business combination. In determining the valuation amount, a third party analyzed the deposits based on factors such as type of deposit, deposit retention, interest rates and age of deposit relationships.

The Company recognized goodwill on this acquisition which is nondeductible for tax purposes as this acquisition is a nontaxable transaction. The goodwill has been calculated based on the fair values of the assets acquired and liabilities assumed as of the acquisition date and, in some instances, based on use of third party experts for valuations. The acquisition of Grand constituted a business combination. Accordingly, the assets acquired and liabilities assumed are presented at their fair values. The determination of fair value requires management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change. These fair value estimates are considered preliminary and are subject to change for up to one year after closing date of the acquisition as additional information becomes available. Immaterial amounts of the intangible assets recognized are deductible for income tax purposes

The operating results of the Company for the three months and nine months ended September 30, 2015 includes the operating results of the acquired assets and assumed liabilities since the date of acquisition of July 17, 2015.

Pro-forma data for the nine months ending September 30, 2015 and 2014 listed in the table below presents pro-forma information as if the acquisition occurred at the beginning of 2014.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in thousands, except per share amounts)	2015		2014		2015		2014

Net interest income	$	29,333	$	19,358	$	83,927	$	55,734
Net income available to common shareholders		4,870		3,690		18,803		9,281
EPS - basic	$	0.14	$	0.14	$	0.55	$	0.35
EPS - diluted	$	0.14	$	0.14	$	0.55	$	0.34

Acquisition of BMO Harris Central Florida Offices, Deposits and Loans

On October 14, 2015, the Company announced that Seacoast’s wholly-owned subsidiary, Seacoast National Bank, entered into a Branch Sale Agreement with BMO Harris Bank N.A. (“BMO”) pursuant to which it has agreed to purchase, subject to the terms of the Agreement, fourteen branches of BMO located in the Orlando Metropolitan Statistical Area (“MSA”). Seacoast National Bank will assume approximately $355 million in deposits, of which approximately 56% are checking accounts, and approximately $70 million in loans related to business banking customers at a deposit premium of 3.0 percent of the deposit balances. Subject to regulatory approval and the satisfaction of customary closing conditions, the acquisition is expected to close in the first half of 2016.

Acquisition of Floridian Financial Group, Inc

On November 3, 2015, the Company announced that it signed a definitive agreement to acquire Floridian Financial Group, Inc. (“Floridian”), the parent company of Floridian Bank. Upon completion of the merger, Seacoast expects that Floridian Bank will be merged into Seacoast National Bank. Floridian, headquartered in Lake Mary, Florida, currently operates 10 branches in Orlando and Daytona Beach and will add approximately $426 million in assets, $361 million in deposits, and $289 million in loans to Seacoast.

Under the terms of the definitive agreement, Floridian shareholders will have the right to receive, at their election, (i) the combination of $4.29 in cash and 0.5291 shares of Seacoast common stock, (ii) $12.25 in cash, or (iii) 0.8140 shares of Seacoast common stock, subject to a customary proration mechanism so that the aggregate consideration mix equals 35% cash and 65% Seacoast shares (based on Seacoast’s ten-day average closing price of $15.05 per share as of October 29, 2015).

The transaction is expected to close in the first quarter of 2016, and is subject to approval by Floridian’s shareholders, receipt of regulatory approvals and other customary closing conditions.