Business Combinations

12 Months Ended

Dec. 31, 2017

Note S - Business Combinations

Acquisition of Floridian Financial Group, Inc.

On March 11, 2016, Seacoast completed its acquisition of Floridian Financial Group, Inc. (“Floridian”). 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 $417 million in total assets, $266 million in loans and $337 million in deposits.

Seacoast expects to benefit from this acquisition through solidifying its market share in the Central Florida market, expanding its customer base and leveraging operating costs through economies of scale, and positively affect the Company’s operating results.

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 equals 35% cash and 65% Seacoast shares (based on Seacoast’s closing price of $15.47 per share on March 11, 2016).

(In thousands, except per share data)	March 11, 2016
Floridian shares exchanged for cash	$	26,699

Number of Floridian common shares outstanding		6,222
Per share exchange ratio		0.5289
Number of shares of common stock issued		3,291
Multiplied by common stock price per share on March 11, 2016	$	15.47
Value of common stock issued		50,913

Total purchase price	$	77,612

The acquisition was accounted for under the acquisition method in accordance with ASC Topic 805, Business Combinations. The Company recognized goodwill of $32 million on this acquisition which is nondeductible for tax. The goodwill was calculated based on the fair values of the assets acquired and liabilities assumed. The fair values initially assigned to assets acquired and liabilities assumed were preliminary. The adjustments reflected in the table below are the result of new information obtained subsequent to the initial measurement.

			Measurement
	March 11, 2016		Period		March 11, 2016
	(Initially Reported)		Adjustments		(As Adjusted)
	(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 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. 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 PCI loans. Contractually required principal and interest payments have been adjusted for estimated prepayments.

	March 11, 2016
(In thousands)
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 loans 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.

The Company believes the deposits assumed from 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.

Acquisition of BMO Harris Central Florida Offices, Deposits and Loans

On June 3, 2016, Seacoast completed its acquisition of the Orlando banking operations of BMO Harris Bank N.A. (BMO), which included fourteen branches. The acquisition added $314 million in total assets, $63 million in loans and $314 million in deposits. The business and consumer banking deposits were acquired at a deposit premium of 3.0% and business loans at a loan premium of 0.5%.

The acquisition was accounted for under the acquisition method in accordance with ASC Topic 805, Business Combinations. The Company recognized $13 million goodwill on this acquisition that is deductible for tax purposes over a 15-year period. The goodwill was calculated based on the fair values of the assets acquired and liabilities assumed. The fair values initially assigned to assets acquired and liabilities assumed were preliminary. The adjustments reflected in the table below are the result of new information obtained subsequent to the initial measurement.

			Measurement
	June 3, 2016		Period		June 3, 2016
	(Initially Reported)		Adjustments		(As Adjusted)
	(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 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.

Acquisition of GulfShore Bancshares, Inc.

On April 7, 2017, the Company completed its acquisition of 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. This acquisition added $358 million in total assets, $251 million in loans and $285 million in deposits to Seacoast.

As a result of this acquisition the Company expects to enhance its presence in the Tampa, Florida market, expand its customer base and leverage operating cost through economies of scale, and 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.

The Company acquired 100% of the outstanding common stock of GulfShore. Under the terms of the definitive agreement, GulfShore shareholders received, for each share of GulfShore common stock, 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).

(In thousands, except per share data)	April 7, 2017
Shares exchanged for cash	$	8,034

Number of GulfShore Bancshares, Inc. common shares outstanding		5,464
Per share exchange ratio		0.4807
Number of shares of common stock issued		2,627
Multiplied by common stock price per share on April 7, 2017	$	23.94
Value of common stock issued		62,883

Total purchase price	$	70,917

The acquisition was accounted for under the acquisition method in accordance with ASC Topic 805, Business Combinations. The Company recognized goodwill of $37.1 million for this acquisition that is nondeductible for tax purposes. 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, core deposit intangibles and deferred taxes, is a complicated process involving significant judgment regarding methods and assumptions used to calculate estimated fair values.

			Measurement
	April 7, 2017		Period		April 7, 2017
Date of acquisition	(Initially Reported)		Adjustments		(As Adjusted)
	(in thousands)
Assets:
Cash	$	38,267	$	0	$	38,267
Time deposits with other banks		17,273		0		17,273
Investment securities		21		0		21
Loans, net		250,876		0		250,876
Fixed assets		1,307		0		1,307
Other real estate owned		13		0		13
Core deposit intangibles		3,927		0		3,927
Goodwill		37,098		0		37,098
Other assets		8,867		0		8,867
	$	357,649	$	0	$	357,649

Liabilities:
Deposits	$	285,350	$	0	$	285,350
Other liabilities		1,382		0		1,382
	$	286,732	$	0	$	286,732

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.

	April 7, 2017
(In thousands)	Book Balance		Fair Value
Loans:
Single family residential real estate	$	101,281	$	99,598
Commercial real estate		106,729		103,905
Construction/development/land		13,175		11,653
Commercial loans		32,137		32,247
Consumer and other loans		3,554		3,473
Purchased credit-impaired		0		0
Total acquired loans	$	256,876	$	250,876

No loans acquired were specifically identified with credit deficiency factor(s), pursuant to ASC Topic 310-30. The factors we considered to identify loans as PCI loans were all acquired loans that were nonaccrual, 60 days or more past due, designated as TDR, graded “special mention” or “substandard.”

Loans without specifically identified credit deficiency factors are referred to as 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.

Acquisition of NorthStar Banking Corporation

On October 20, 2017, the Company completed its acquisition of NorthStar Banking Corporation (“NSBC”). Simultaneously, upon completion of the merger, NSBC’s wholly owned subsidiary bank, NorthStar Bank, was merged with and into Seacoast Bank. NorthStar, headquartered in Tampa, Florida, operated three branches in Tampa, of which all have been retained as Seacoast locations. This acquisition added $216 million in total assets, $137 million in loans and $182 million in deposits to Seacoast.

The Company acquired 100% of the outstanding common stock of NSBC. Under the terms of the definitive agreement, NSBC shareholders received, for each share of NSBC common stock, the combination of $2.40 in cash and 0.5605 shares of Seacoast common stock (based on Seacoast’s closing price of $24.92 per share on October 20, 2017).

(In thousands, except per share data)	October 20, 2017
Shares exchanged for cash	$	4,701

Number of NorthStar Banking Corporation Common shares outstanding		1,958
Per share exchange ratio		0.5605
Number of shares of common stock issued		1,098
Multiplied by common stock price per share on October 20, 2017	$	24.92
Value of common stock issued		27,353
Cash paid for NorthStar Banking Corporation vested stock options		801

Total purchase price	$	32,855

The acquisition was accounted for under the acquisition method in accordance with ASC Topic 805, Business Combinations. The Company recognized goodwill of $12.4 million for this acquisition that is nondeductible for tax purposes. 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 core deposit intangibles, and deferred taxes, is a complicated process involving significant judgment regarding methods and assumptions used to calculate estimated fair values.

Date of acquisition	October 20, 2017
	(in thousands)
Assets:
Cash	$	5,485
Investment securities		56,123
Loans, net		136,832
Fixed assets		2,637
Core deposit intangibles		1,275
Goodwill		12,404
Other assets		1,522
Total assets	$	216,278

Liabilities:
Deposits	$	182,443
Other liabilities		980
Total liabilities	$	183,423

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.

	October 20, 2017
(In thousands)	Book Balance		Fair Value
Loans:
Single family residential real estate	$	15,111	$	15,096
Commercial real estate		73,139		69,554
Construction/development/land		11,706		10,390
Commercial loans		31,200		30,854
Consumer and other loans		6,761		6,645
Purchased Credit Impaired		5,527		4,293
Total acquired loans	$	143,444	$	136,832

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 PCI loans were all acquired loans that were nonaccrual, 60 days or more past due, designated as 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 October 20, 2017 for purchased credit impaired loans. Contractually required principal and interest payments have been adjusted for estimated prepayments.

	October 20, 2017
(In thousands)
Contractually required principal and interest	$	5,596
Non-accretable difference		(689)
Cash flows expected to be collected		4,907
Accretable yield		(614)
Total purchased credit-impaired loan acquired	$	4,293

Acquisition of Palm Beach Community Bank

On November 3, 2017, the Company completed its acquisition of Palm Beach Community Bank (“PBCB”). PBCB was merged with and into Seacoast Bank. This acquisition added $357 million in total assets, $272 million in loans and $269 million in deposits to Seacoast. PBCB, headquartered in West Palm Beach, Florida, operated four branches in West Palm Beach, two of which were consolidated with Seacoast locations in February 2018.

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

The Company acquired 100% of the outstanding common stock of PBCB. Under the terms of the definitive agreement, PBCB shareholders received, for each share of PBCB common stock, the combination of $6.26 in cash and 0.9240 shares of Seacoast common stock (based on Seacoast’s closing price of $24.31 per share on November 3, 2017).

(In thousands, except per share data)	November 3, 2017
Shares exchanged for cash	$	15,694

Number of Palm Beach Community Bank Common shares outstanding		2,507
Per share exchange ratio		0.9240
Number of shares of common stock issued		2,316
Multiplied by common stock price per share on November 3, 2017	$	24.31
Value of common stock issued		56,312
Total purchase price	$	72,006

The acquisition was accounted for under the acquisition method in accordance with ASC Topic 805, Business Combinations. The Company recognized goodwill of $33.4 million for this acquisition that is nondeductible for tax purposes. 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, core deposit intangibles, and deferred taxes, is a complicated process involving significant judgment regarding methods and assumptions used to calculate estimated fair values.

Date of acquisition	November 3, 2017
	(In thousands)
Assets:
Cash	$	9,301
Investment securities		22,098
Loans, net		272,090
Fixed assets		7,641
Core deposit intangibles		2,523
Goodwill		33,428
Other assets		9,909
Total assets	$	356,990

Liabilities:
Deposits	$	268,633
Other liabilities		16,351
Total liabilities	$	284,984

The table below presents information with respect to the fair value of acquired loans, as well as their Book Balance at acquisition date.

	November 3, 2017
(In thousands)	Book Balance		Fair Value
Loans:
Single family residential real estate	$	30,153	$	30,990
Commercial real estate		134,705		132,654
Construction/development/land		69,686		67,425
Commercial loans		36,076		37,083
Consumer and other loans		179		172
Purchased Credit Impaired		4,768		3,766
Total acquired loans	$	275,567	$	272,090

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 PCI loans were all acquired loans that were nonaccrual, 60 days or more past due, designated as 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 November 3, 2017 for purchased credit impaired loans. Contractually required principal and interest payments have been adjusted for estimated prepayments.

(In thousands)	November 3, 2017

Contractually required principal and interest	$	4,768
Non-accretable difference		(1,002)
Cash flows expected to be collected		3,766
Accretable yield		0
Total purchased credit-impaired loan acquired	$	3,766

Pro-Forma Information

Pro-forma data as of 2016 and 2017 present information as if the acquisitions of Gulfshore, NSBC and PBCB occurred at the beginning of 2016:

	Twelve Months Ended December 31,
(In thousands, except per share data)	2017		2016

Net interest income	$	196,259	$	170,363
Net income available to common shareholders		51,274		41,594
EPS - basic	$	1.11	$	0.97
EPS - diluted	$	1.09	$	0.96

Acquisition costs included in the Company’s income statement for the years ended December 31, 2017 and December 31, 2016 are $12.9 million and $9.0 million, respectively.