Seacoast-Freedom Bank deal drops in value but still has big payouts

Six members of the board of directors of Fourth Street Banking Co. and an investment firm in Palm Beach will get the biggest stock payouts after Seacoast Banking Corp. of Florida completes its purchase of Fourth Street and its Freedom Bank subsidiary in St. Petersburg.

While the value of the transaction has dropped by about a third since it originally was announced in January, each of Fourth Street’s biggest shareholders still are in line for Seacoast stock valued at $2 million or more, based on the current stock price.

Seacoast (Nasdaq: SBCF), headquartered in Stuart and the parent of Seacoast National Bank, disclosed details of the deal, including employment contracts and director holdings, in a registration statement filed Monday with the U.S. Securities and Exchange Commission.

Cathy Swanson, CEO, Freedom Bank

Freedom Bank CEO Cathy Swanson has signed an employment agreement with Seacoast. She will be senior vice president and market president for Pinellas County, with an annual salary of $248,000 and eligible for stock-based awards and retention bonuses.

Seacoast also has an employment offer letter with Adam Curtis, chief lending officer at Freedom Bank. Curtis would serve as senior vice president, commercial banking producing manager with Seacoast’s commercial banking team.

Seacoast, with $7.1 billion in total assets as of Dec. 31, currently has four offices in Pinellas and Hillsborough counties, while Freedom Bank, a privately owned bank with $346 million in total assets, has two offices in St. Petersburg. Freedom, along with First Home Bank, are only two community banks headquartered in St. Petersburg.

Seacoast’s management and board favored the the Fourth Street/Freedom Bank deal because it “would increase Seacoast’s existing footprint in the Tampa-St. Petersburg market, that market overlap would drive cost savings, and that cultural similarities supported the probability of an efficient, low risk integration with minimal customer attrition,” according to the registration statement.

Fourth Street put itself up for sale in the summer of 2019, when it hired Hovde Group to market the bank. Hovde contacted 25 prospects, and 15 of them signed nondisclosure agreements so they could do due diligence on Fourth Street. Three prospective buyers in addition to Seacoast offered written or oral proposals to buy Fourth Street, but Seacoast’s all-stock offer, initially valued at $3.60 a share for each share of Freedom stock, was the one directors decided to pursue when they met in November.

During negotiations, Seacoast offered to exchange each share of Freedom stock for 0.1293 shares of Seacoast stock, which represented a $3.80 a share price at the time. Seacoast later reduced the exchange ratio to 0.1275 per share, to account for the cost of key Freedom Bank executives signing agreements that they would not compete with Seacoast and would not solicit customers.

When the deal was announced on Jan. 24, it was valued at about $63.6 million. Since then, the Covid-19 coronavirus pandemic has pulled down stocks across the board, and Seacoast’s stock price has dropped from $29.50 a share at the close on Jan. 23 to $19.05 a share at the close Wednesday. The total value of the deal currently is about $40.4 million.

That’s also led to a decline in the value of the Seacoast stock that will be received by the Fourth Street directors and officers. Here’s a list of the largest Fourth Street stockholders and the stock they beneficially own, as reported in the registration statement, and the value of the Seacoast stock they will receive, based on Wednesday’s closing price.

The registration statement notes that there is overlap in the total shares shown for Moench, Neil Savage and John Savage. The total shares shown for each include 494,616 shares held by KIJOMO LLLP, a limited partnership in St. Petersburg, and 311,416 shares of Directed Capital Resources LLC, a real estate finance firm in St. Petersburg.

Other Fourth Street and Freedom Bank directors have smaller holdings and will receive payouts of stock currently valued at less than $1 million.

Fourth Street also entered into change of control agreements with Swanson, Curtis and two other bank officers. When the deal closes, Swanson will get $375,000 and Curtis will get $600,000. C. Peter Bardin, Freedom’s chief financial officer, and Susan Blackburn, Freedom’s president, will each get $175,000.

The deal still has to be approved by Fourth Street shareholders. A date for a shareholders meeting has not yet been set.