BUSINESS COMBINATIONS

3 Months Ended

Mar. 31, 2017

Business Combinations [Abstract]

Business Combinations

NOTE L — BUSINESS COMBINATIONS

Acquisition of Floridian Financial Group, Inc.

On March 11, 2016, the Company completed its acquisition of Floridian Financial Group, Inc. (“Floridian”), the parent company of Floridian Bank. Simultaneously, upon completion of the merger, Floridian’s wholly owned subsidiary bank, Floridian Bank, was merged with and into Seacoast Bank. Floridian, headquartered in Lake Mary, Florida, operated 10 branches in Orlando and Daytona Beach, of which several were consolidated with Seacoast locations. This acquisition added approximately $417 million in total assets, $337 million in deposits, and $267 million in loans to Seacoast.

The Company acquired 100% of the outstanding common stock of Floridian. Under the terms of the definitive agreement, Floridian shareholders received, 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 equaled 35% cash and 65% Seacoast shares (based on Seacoast’s closing price of $15.47 per share on March 11, 2016).

The following table represents the purchase price paid to Floridian shareholders in connection with the acquisition:

	March 11, 2016
Shares exchanged for cash	$	26,699,000
Number of Floridian Financial Group, Inc. common shares outstanding		6,222,119
Per share exchange ratio		0.5289
Number of shares of common stock issued		3,291,066
Multiplied by common stock price per share on March 11, 2016	$	15.47
Value of common stock issued		50,912,791
Total purchase price	$	77,611,791

The acquisition was accounted for under the acquisition method in accordance with ASC Topic 805, Business Combinations. The Company recognized goodwill on this acquisition which is nondeductible for tax purposes as this acquisition was a nontaxable transaction. The goodwill was calculated based on the fair values of the assets acquired and liabilities assumed as of the acquisition date. Loans that were nonaccrual and all loan relationships identified as impaired as of the acquisition date were considered by management to be credit impaired and were accounted for pursuant to ASC Topic 310-30.

			Measurement
	Initial Report		Period		As Adjusted
Date of acquisition	March 11, 2016		Adjustments		March 11, 2016
			(in thousands)
Assets:
Cash	$	28,243	$	0	$	28,243
Investment securities		66,912		95		67,007
Loans, net		268,249		(2,112)		266,137
Fixed assets		7,801		(628)		7,173
Core deposit intangibles		3,375		0		3,375
Goodwill		29,985		1,647		31,632
Other assets		12,879		998		13,877
	$	417,444	$	0	$	417,444
Liabilities:
Deposits	$	337,341	$	0	$	337,341
Other liabilities		2,492		0		2,492
	$	339,833	$	0	$	339,833

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.

	March 11, 2016
(In thousands)	Book Balance		Fair Value
Loans:
Single family residential real estate	$	38,304	$	37,367
Commercial real estate		172,531		167,105
Construction/development/land		20,546		18,108
Commercial loans		39,070		37,804
Consumer and other loans		3,385		3,110
Purchased credit-impaired		6,186		2,643
Total acquired loans	$	280,022	$	266,137

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 Purchased Credit Impaired (“PCI”) loans were all acquired loans that were nonaccrual, 60 days or more past due, designated as Troubled 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 the total contractually required principal and interest cash payments, management’s estimate of expected total cash payments and fair value of the loans as of March 11, 2016 for purchased credit impaired loans. Contractually required principal and interest payments have been adjusted for estimated prepayments.

(In thousands)	March 11, 2016
Contractually required principal and interest	$	8,031
Non-accretable difference		(4,820)
Cash flows expected to be collected		3,211
Accretable yield		(568)
Total purchased credit-impaired loan acquired	$	2,643

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, deposits were analyzed based on factors such as type of deposit, deposit retention, interest rates and age of deposit relationships.

The Company recognized goodwill of $32 million for this acquisition that is nondeductible for tax purposes. The acquisition of Floridian constitutes a business combination. Accordingly, the assets acquired and liabilities assumed are presented at their fair values. The determination of fair value required 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, and in some instances rely on use of third party experts.

Operating results of the Company for the three months ended March 31, 2017 include the operation of the acquired assets and assumed liabilities since the date of acquisition of March 11, 2016. Pro-forma data for the three months ending March 31, 2016 in the table below presents pro-forma information as if the acquisition occurred at the beginning of 2015.

	Three Months Ended
	March 31,
(In thousands, except per share amounts)	2016
Net interest income	$	30,222
Net income		4,810
EPS - basic		0.14
EPS - diluted		0.14

Acquisition of BMO Harris Central Florida Offices, Deposits and Loans

On June 3, 2016, Seacoast Bank assumed approximately $314 million in deposits related to business and consumer banking customers at a deposit premium of 3.0% of the deposit balances, $63 million in business loans at a loan premium of 0.5%, and fourteen branches of BMO Harris Bank N.A. (“BMO”), located in the Orlando Metropolitan Statistical Area (“MSA”).

 

The fair values listed are subject to adjustment. The acquisition is accounted for under the acquisition method in accordance with ASC Topic 805, Business Combinations. 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 are known. Determining fair values of assets and liabilities, especially the loan portfolio and bank premises and leases related to the fourteen branches acquired, is a complicated process involving significant judgment regarding methods and assumptions used to calculate estimated fair values.

			Measurement
	Initial Report		Period		As Adjusted
Date of acquisition	June 3, 2016		Adjustments		June 3, 2016
			(in thousands)
Assets:
Cash from BMO (net of payable)	$	234,094	$	0	$	234,094
Loans, net		62,671		0		62,671
Fixed assets		3,715		0		3,715
Core deposit intangibles		5,223		(135)		5,088
Goodwill		7,645		163		7,808
Other assets		952		(28)		924
	$	314,300	$	0	$	314,300
Liabilities:
Deposits	$	314,248	$	0	$	314,248
Other liabilities		52		0		52
	$	314,300	$	0	$	314,300

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.

	June 3, 2016
(In thousands)	Book Balance		Fair Value
Loans:
Commercial real estate	$	31,564	$	31,200
Commercial loans		32,479		31,471
Purchased credit-impaired		0		0
Total acquired loans	$	64,043	$	62,671

At June 3, 2016, no loans acquired from BMO Harris were specifically identified with a credit deficiency factor(s). The factors we consider to identify loans as PCI loans are acquired loans that were nonaccrual, 60 days or more past due, designated as TDR, graded “special mention” or “substandard.” PULs were 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 intangibles (including goodwill) of approximately $13 million for this acquisition that are deductible for tax purposes over a 15-year period. The acquisition of BMO Harris’s Orlando banking operations by Seacoast Bank constitutes 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, and in some instances rely on use of third party experts. These fair value estimates are considered preliminary and are subject to change for up to one year after the closing date of the acquisition as additional information becomes available. For the BMO Harris transaction, fair values as presented for loans, fixed assets, deposits, and certain other assets and liabilities are necessarily considered preliminary.

Acquisition of GulfShore Bancshares, Inc.

On April 7, 2017, the Company completed its acquisition of GulfShore Bancshares, Inc. (“GulfShore”), the parent company of GulfShore Bank. Simultaneously, upon completion of the merger, GulfShore’s wholly owned subsidiary bank, GulfShore Bank, was merged with and into Seacoast Bank. GulfShore, headquartered in Tampa, Florida, operated 3 branches in Tampa and St. Petersburg, of which all have been retained as Seacoast locations. This acquisition added approximately $321 million in total assets, $285 million in deposits, and $258 million in loans to Seacoast.

The Company acquired 100% of the outstanding common stock of GulfShore. Under the terms of the definitive agreement, GulfShore shareholders received the combination of $1.47 in cash and 0.4807 shares of Seacoast common stock (based on Seacoast’s closing price of $23.94 per share on April 7, 2017).

	April 7, 2017
Shares exchanged for cash	$	8,033,999
Number of GulfShore Bancshares, Inc. common shares outstanding		5,464,308
Per share exchange ratio		0.4807
Number of shares of common stock issued (approximately)		2,626,693
Multiplied by common stock price per share on April 7, 2017	$	23.94
Value of common stock issued		62,883,030
Total purchase price	$	70,917,029

The acquisition will be accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. Some disclosures are being omitted at this time as the information is not available and incomplete. The Company will recognize goodwill on this acquisition which is nondeductible for tax purposes as this acquisition is a nontaxable transaction. The goodwill will be calculated based on the fair values of the assets acquired and liabilities assumed as of the acquisition date, which at the time of this filing were incomplete and reliant upon use of third party experts for pending valuations, including the core deposit intangible and pending appraisals on purchased unimpaired loans and purchased credit impaired loans, bank premises and other fixed assets, other real estate owned, subordinated debt, and remaining assets and other liabilities. Loans that are nonaccrual and all loan relationships identified as impaired as of the acquisition date will be considered by management to be credit impaired and will be accounted for pursuant to ASC Topic 310-30. 

The Company believes the deposits assumed from the acquisition will have an intangible value. The Company will be applying 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, deposits will be analyzed based on factors such as type of deposit, deposit retention, interest rates and age of deposit relationships.

Acquisition of Palm Beach Community Bank 

On May 4, 2017, the Company announced that it had entered into an agreement and plan of merger with Palm Beach Community Bank, a Florida Bank (“PBCB”). The agreement provides that PBCB will merge with and into Seacoast Bank. PBCB operates four branches in West Palm Beach, Florida with deposits of approximately $281 million and loans of $290 million. Closing of the acquisition is expected in the third quarter of 2017, after the receipt of approvals from regulatory authorities, the approval of PBCB shareholders, and the satisfaction of other customary closing conditions.