First Green Bancorp of Orlando, Fla., has built a reputation for championing social causes, including holding deposits for state-licensed medical marijuana companies.

But when it came time to sell itself, that practice caused one potential sale to fall apart, and nearly scuttled a later ultimately successful attempt.

Seacoast Banking Corp. of Florida, which eventually agreed to buy $731 million-asset First Green in June for $133 million, balked at pursuing a deal until the bank distanced itself from medical marijuana, according to a filing tied to the proposed merger.

The filing reveals just how squeamish banks are with medical marijuana, since it remains illegal under federal law and because of the risk associated with anti-money-laundering compliance.

“Any type of exposure to the marijuana industry will be seen as a negative, especially in a sale,” said Robert McVay, a lawyer at Harris Bricken. “Banks and credit unions that are actively involved in that business are generally willing to take a bit of a risk.”

An aversion to buying banks with exposure to medical marijuana could eventually subside, but only if more buyers are convinced that the federal government will eventually legalize the drug, said McVay, who has no ties to First Green or Seacoast.

First Green initially decided to look at selling in March 2017, hiring an investment bank that contacted 16 potential buyers over a four-month period. By early August, three banks, including the $5.9 billion-asset Seacoast, had expressed an interest.

Seacoast and one of the other banks made it clear that they were unable to immediately pursue a deal. Seacoast, for instance, had agreed in May 2017 to buy Palm Beach Community Bank and NorthStar Banking.

The third bank offered to pay $22 a share, or roughly $127 million based on First Green’s shares outstanding. The unnamed bank and First Green entered into a 45-day exclusivity period on Sept. 1, the filing said.

Talks fell apart quickly, however, as the would-be buyer’s board became concerned about First Green’s medical marijuana business. The bank terminated the exclusivity agreement after just 25 days.

The setback led to a Sept. 27 board meeting at which First Green’s directors began to discuss whether to continue to bank medical marijuana companies. In addition to the collapsed negotiation, directors were worried about Attorney General Jeff Sessions’ public opposition to legalized marijuana, the filing said.

During the meeting, the board discussed First Green’s “safety and soundness approach” to the business and whether more limitations were needed. Directors also evaluated the bank’s ability to exit the business on a timely basis, if necessary.

Those concerns were punctuated in mid-November, when Seacoast told First Green that it had no interest taking on the medical marijuana business. The absence of regulatory guidance on the issue also came up as First Green’s directors mulled over the approval process of any sale.

First Green’s directors finally determined during a Dec. 11 meeting that the bank was unlikely to receive an acquisition proposal from a traditional buyer as long as it maintained relationships with medical marijuana firms. The bank announced plans to exit the business on Dec. 22.

First Green Chairman Ken LaRoe, who had been a vocal proponent of medical marijuana after seeing how it helped his wife recover from a bicycle accident, said at the time of the announcement that the bank opted to exit the business after certain investors expressed unease with it.

The bank, however, had also agreed to a 60-day exclusivity period with Seacoast, which had proposed paying $23 a share, or roughly $133 million. Seacoast eventually hired an outside firm to conduct a review pf First Green’s medical marijuana business that looked at controls for account openings and closings, along with anti-money-laundering compliance.

Following the review, Seacoast lowered its offer on Feb. 13 to $21 a share, or $121 million.

First Green rejected the lower offer and asked its investment bank to contact the third bank that had expressed an interest in a deal back in the spring. That suitor, which was working on a separate acquisition, in late February proposed paying $22.25 a share, or about $129 million.

The parties eventually work on a merger built around a price of $22.50 a share.

That deal also fell apart. The potential acquirer walked away on May 21, telling First Green it had its hands full with a recently announced deal and other mergers it was looking to integrate.

The only Florida bank to announce a major acquisition around that time was CenterState Banks, which agreed on April 24 to buy Charter Financial in West Point, Ga., for $362 million. CenterState also bought Harbor Community Bank and Sunshine Bancorp earlier this year in deals that pushed its assets above $10 billion.

First Green’s investment bank then recommended that the bank launch a two-week auction in an attempt to land a buyer. On May 25, four banks, including Seacoast, were given access to a data room and the fully negotiated definitive agreements First Green had with the last potential buyer. Each had until June 8 to submit a bid.

Seacoast proposed $22.50 a share, while another bank offered $21.45. First Green’s investment bank successfully lobbied Seacoast to raise its offer to $23 a share, or $132.6 million.

Each board approved the deal on June 11; it was announced the next day. The deal, which is expected to close in the fourth quarter, priced First Green at 175% of its tangible equity, based on data from S&P Global Market Intelligence.

“This acquisition brings Seacoast a highly complementary banking institution in a transaction with excellent economics, strengthening our position in Orlando, which is already at scale, and our overall franchise in the state,” Dennis Hudson III, Seacoast’s chairman and CEO, said in a press release announcing the deal.

Seacoast said it expects 10% earnings accretion from the deal next year and in 2020, excluding merger-related costs. It should take less than a year for Seacoast to earn back any dilution to its tangible book value.

Seacoast plans to cut about half of First Green's operating costs. Six of First Green's seven branches are within three miles of a Seacoast branch.

The filing revealed a number of notable payouts associated with the acquisition.

LaRoe is set to receive $3.8 million, including a change-in-control payment and a cash-out of his supplemental executive retirement plan, the filing said. Keith Costello, First Bank’s CEO, will receive about $2.8 million tied to those items.

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