Tuesday, July 5, 2022

How rising rates impacted pricing of a Fla. bank deal

Rising interest rates led Seacoast Banking Corp. of Florida in Stuart to reduce its offer for Drummond Banking Co. in Chiefland, Fla., by more than 10%. 

The $10.9 billion-asset Seacoast agreed in early May to buy the $985 million-asset Drummond for $173.2 million in stock. 

Seacoast proposed paying $194.4 million in cash and stock when it sent its first pitch to Drummond on March 12, according to a regulatory filing tied to the pending transaction. Seacoast lowered its offer after the value of Drummond’s securities portfolio fell by about $21 million during the first quarter. 

The filing disclosed the Drummond began to consider potential buyers as early as 2019. Its interest in selling picked up last November; by January, six banks entered into nondisclosure agreements to conduct due diligence. 

Seacoast and two unnamed banks submitted letters of interest. 

Drummond "decided to continue discussions with Seacoast due to the price offered, quality of franchise and management and Seacoast’s position as a Florida financial institution,” the filing said. 

After Seacoast lowered its offer, it sent the preliminary draft of the merger agreement to Drummond on April 12. 

Drummond’s board approved the merger agreement on May 3. Seacoast’s board did the same a day later, and the companies announced the proposed merger on May 5.

The deal, which is expected to close early in the fourth quarter, priced Drummond at 192% of its tangible book value. 

Drummond “has an outstanding reputation for exceptional service and strong financial performance, with a deep commitment to the communities it serves for the last 32 years,” Charles Shaffer, Seacoast’s chairman and CEO, said in the press release announcing the deal. 

“We see great opportunity in complementing its strengths with Seacoast’s innovation and breadth of offerings to grow our presence and expand our position in the state,” Shaffer added. 

The transaction is expected to be 8.3% accretive to Seacoast’s 2023 earnings. It should take Seacoast less than two years to earn back any dilution to its tangible book value.  

Luther Drummond, Drummond’s chairman and president, and Gray Drummond, the bank’s CEO, will become market executives at Seacoast. Scott Guthrie, president of Drummond Bank, will become a market president.  

Luther Drummond, Gray Drummond and Guthrie will each receive a base salary of $331,000, the filing said. Each executive agreed to noncompete and non-solicitation agreements that will end three years after their employment ends.

Luther Drummond will also receive a $1 million signing bonus.

Gray Drummond will receive a lump-sum payment of about $1.7 million within 30 days of the deal’s closing, along with $81,000 each quarter for the first three years of employment. 

Guthrie is set to receive $520,000 after the deal’s closing, along with $55,500 a quarter for the next three years. He will also receive a bonus of at least $150,000 for 2023.

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