What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-03 compared with 2021-08-05 · 297 added, 276 removed, 700 unchanged (45% of the section changed)

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Such discussion and analysis should be read in conjunction with the Company’s Condensed Consolidated Financial Statements and the related notes included in this report.

The emphasis of this discussion will be on the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020 for the consolidated statements of income.

For the consolidated balance sheets, the emphasis of this discussion will be the balances as of June 30, 2021 compared to December 31, 2020.

The emphasis of this discussion will be on the three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020 for the consolidated statements of income.

For the consolidated balance sheets, the emphasis of this discussion will be the balances as of September 30, 2021 compared to December 31, 2020.

This discussion and analysis contains statements that may be considered “forward-looking statements” as defined in, and subject to the protections of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

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The duration of this liquidity remaining on the balance sheet is uncertain;

• changes in borrower credit risks and payment behaviors, including as a result of the financial impact of COVID-19;

• changes in borrowing, borrower credit risks, payment behaviors, spending, or saving by businesses or households including as a result of the financial impact of COVID-19;

• changes in retail distribution strategies, customer preferences and behavior;

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• changes in the prices, values and sales volumes of residential and commercial real estate;

• the Company's ability to comply with any regulatory requirements;

• the Company's ability to comply with any regulatory requirements, including such requirements that may become applicable as the Company increases its total assets;

• the effects of problems encountered by other financial institutions that adversely affect Seacoast or the banking industry;

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• dependence on key suppliers or vendors to obtain equipment or services for the business on acceptable terms;

• reduction in or the termination of Seacoast's ability to use the mobile-based platform that is critical to the Company's business growth strategy;

• reduction in or the termination of Seacoast's ability to use the mobile-based platform that is critical to the Company's business growth strategy, as well as risks related to transitioning to new or different platforms and service providers;

• the effects of war or other conflicts, acts of terrorism, natural disasters, health emergencies, epidemics or pandemics, or other catastrophic events that may affect general economic conditions;

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• potential claims, damages, penalties, fines and reputational damage resulting from pending or future litigation, regulatory proceedings and enforcement actions;

• the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, non-bank financial technology providers, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in the Company's market areas and elsewhere, including institutions operating regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone, computer and the Internet;

including institutions operating regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone, computer and the Internet;

• the failure of assumptions underlying the establishment of reserves for possible credit losses;

• the risks relating to the Legacy Bank of Florida proposed merger including, without limitation:

the timing to consummate the proposed merger;

the risk that a condition to closing of the proposed merger may not be satisfied;

the risk that the merger may not be completed at all;

the diversion of management time on issues related to the proposed merger;

• the risks relating to the recently completed merger including, without limitation:

unexpected transaction costs, including the costs of integrating operations;

the risks that the business will not be integrated successfully or that such integration may be more difficult, time-consuming or costly than expected;

the potential failure to fully or timely realize expected revenues and revenue synergies, including as the result of revenues being lower than expected;

• the risks relating to the proposed mergers including, without limitation:

the timing to consummate the proposed mergers;

the risk that a condition to closing of the proposed mergers may not be satisfied;

the risk that the mergers may not be completed at all;

the diversion of management time on issues related to the proposed mergers;

unexpected transaction costs, including the costs of integrating operations;

the risks that the businesses will not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected;

the potential failure to fully or timely realize expected revenues and revenue synergies, including as the result of revenues following the merger being lower than expected;

the potential failure to fully or timely realize expected revenues and revenue synergies, including as the result of revenues following the mergers being lower than expected;

the risk of deposit and customer attrition;

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The COVID-19 pandemic and related restrictive measures taken by governments, businesses and individuals have caused unprecedented uncertainty, volatility and disruption in financial markets and in governmental, commercial and consumer activity in the United States and globally, including the markets that we serve.

As the restrictive measures have been eased during 2020 and into 2021, the U.S.

As the restrictive measures eased during 2020 and over the course of 2021, the U.S.

economy has begun to recover and with the availability and distribution of multiple COVID-19 vaccines, we anticipate continued improvements in commercial and consumer activity and the U.S.

While the overall outlook has improved based on the availability of the vaccine to all adults and older children, there has been a recent rise in hospitalization and infection rates in the country, but especially in our footprint, caused by the Delta variant, a rapidly spreading strain of coronavirus.

Therefore, the risk of further resurgence and possible reimplementation of restrictions remains.

While indications of recovery exist, we recognize that our business and consumer customers are experiencing varying degrees of financial distress, which is expected to continue into the second half of 2021, especially if new COVID-19 variant infections increase (or are not adequately contained) and new economic restrictions are mandated.

While the overall outlook has improved based on the availability of the vaccine to all adults and older children, there continues to be the risk of increases in infection rates in the country, as well as within the State of Florida, attributed to variants, including the Delta variant.

Therefore, the risk of further resurgence and possible reimplementation of business restrictions remains.

While indications of recovery exist, we recognize that our business and consumer customers are experiencing varying degrees of financial distress, which is expected to continue through the remainder of 2021, especially if new COVID-19 variant infections increase (or are not adequately contained) and new economic restrictions are mandated.

Changing consumer behavior and the impact of government support programs including the PPP have contributed to higher customer deposit balances, which may adversely affect our net interest income and net interest margin.

Commercial activity has improved, but has not returned to the levels existing prior to the outbreak of the pandemic, which may result in our customers’ inability to meet their loan obligations to us.

Commercial activity has improved, but has not returned in all industries to the levels existing prior to the outbreak of the pandemic, which may result in our customers’ inability to meet their loan obligations to us.

In addition, the economic pressures and uncertainties related to the COVID-19 pandemic have resulted in changes in consumer spending behaviors, which may negatively impact the demand for loans and other services we offer.

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however, future economic conditions are subject to significant uncertainty.

Uncertainties associated with the pandemic include the duration of the COVID-19 outbreak and any related variant infections, the availability, acceptance, and effectiveness of COVID-19 vaccines, the impact to our customers, employees and vendors and the impact to the economy as a whole.

Uncertainties associated with the pandemic include the duration of the COVID-19 outbreak and any related variant infections, and effectiveness of COVID-19 vaccines, the impact to our customers, employees and vendors and the impact to the economy as a whole.

We continuously seek to monitor and anticipate developments, but cannot predict all of the various adverse effects COVID-19 will have on our business, financial condition, liquidity or results of operations.

Acquisition of Legacy Bank of Florida

In August 2021, the Company completed the acquisition of Legacy Bank of Florida (“Legacy Bank”), which added $477 million in loans and $495 million in deposits.

The acquisition strengthens the Company’s position in South Florida, one of the strongest and fastest growing markets in the country, and complements prior acquisitions in the market.

Consolidation activities and related expenses are substantially complete.

Announcement of Sabal Palm Bancorp, Inc.

On August 23, 2021, the Company announced that it had entered into an agreement and plan of merger with Sabal Palm Bancorp, Inc.

(“Sabal Palm”) and its wholly-owned subsidiary, Sabal Palm Bank.

Sabal Palm operates three branches across the Sarasota, FL market with $255 million in loans and $389 million in deposits as of September 30, 2021.

The acquisition is expected to close in the first quarter of 2022, pending receipt of regulatory and shareholder approvals.

The acquisition will provide entry into Sarasota county, which is located in the North Port-Sarasota-Bradenton MSA.

Announcement of Business Bank of Florida, Corp.

On August 23, 2021, the Company announced that it had entered into an agreement and plan of merger with Business Bank of Florida, Corp.

(“BBFC”) and its wholly-owned subsidiary, Florida Business Bank.

BBFC operates one branch in Melbourne, FL with $139 million in loans and $169 million in deposits as of September 30, 2021.

The acquisition is expected to close in the first quarter of 2022 pending receipt of regulatory and shareholder approvals.

The acquisition will deepen the Company’s presence in Brevard County, which is located in the Palm Bay-Melbourne-Titusville MSA.

Results of Operations

For the second quarter of 2021, the Company reported net income of $31.4 million, or $0.56 per average diluted share, compared to $33.7 million, or $0.60, for the first quarter of 2021 and $25.1 million, or $0.47, for the second quarter of 2020.

For the six months ended June 30, 2021, net income totaled $65.1 million or $1.17 per average diluted share, an increase of $39.3 million, or 153%, compared to the six months ended June 30, 2020.

Adjusted net income 1 for the second quarter of 2021 totaled $33.3 million, or $0.59 per average diluted share, compared to $35.5 million, or $0.63, for the first quarter of 2021 and $25.5 million, or $0.48, for the second quarter of 2020.

For the six months ended June 30, 2021, adjusted net income 1 totaled $68.7 million, or $1.23 per average diluted share, compared to $30.9 million, or $0.59 per average diluted share for the six months ended June 30, 2020.

Second First Second Six Months Ended

Quarter Quarter Quarter June 30,

For the third quarter of 2021, the Company reported net income of $22.9 million, or $0.40 per average diluted share, compared to $31.4 million, or $0.56, for the second quarter of 2021 and $22.6 million, or $0.42, for the third quarter of 2020.

For the nine months ended September 30, 2021, net income totaled $88.1 million or $1.56 per average diluted share, an increase of $39.7 million, or 82%, compared to the nine months ended September 30, 2020.

Adjusted net income 1 for the third quarter of 2021 totaled $29.4 million, or $0.51 per average diluted share, compared to $33.3 million, or $0.59, for the second quarter of 2021 and $27.3 million, or $0.50, for the third quarter of 2020.

For the nine months ended September 30, 2021, adjusted net income 1 totaled $98.1 million, or $1.74 per average diluted share, compared to $58.3 million, or $1.09 per average diluted share for the nine months ended September 30, 2020.

Third Second Third Nine Months Ended

Quarter Quarter Quarter September 30,

2021 2021 2020 2021 2020

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Net Interest Income and Margin

Net interest income for the second quarter of 2021 totaled $65.8 million, decreasing $0.8 million, or 1%, compared to the first quarter of 2021, and decreasing $1.5 million, or 2%, compared to the second quarter of 2020.

For the six months ended June 30, 2021, net interest income totaled $132.4 million, an increase of $2.0 million, or 2%, compared to the six months ended June 30, 2020.

The decrease quarter-over-quarter reflects lower income on Paycheck Protection Program (“PPP”) loans, partially offset by lower interest expense on deposits, while the decrease from the second quarter of 2020 reflects the impact of the lower interest rate environment.

Net interest margin (on a fully tax equivalent basis) 1 was 3.23% in the second quarter of 2021, compared to 3.51% in the first quarter of 2021 and 3.70% in the second quarter of 2020.

The decrease during the second quarter of 2021 was largely the result of significant growth in transaction account deposit balances.

This increase in funding occurred across our customer base at near-zero rates, as new clients were onboarded and existing clients continue to see expansion in cash balances.

The resulting increase in liquidity negatively impacted net interest margin by 23 basis points in the second quarter of 2021.

Excluding this increase in liquidity, the remaining decline in net interest margin compared to the first quarter of 2021 is attributed to lower PPP interest and fees as a result of declining balances as PPP loans are forgiven.

Compared to the first quarter of 2021, securities yields declined by only two basis points to 1.63% and non-PPP loan yields declined by only one basis point to 4.36% during the second quarter of 2021.

Offsetting and favorable was the decline in the cost of deposits from 13 basis points in the first quarter of 2021 to eight basis points in the second quarter of 2021.

The effect on net interest margin of purchase discounts on acquired loans was an increase of 14 basis points in the second quarter of 2021 compared to an increase of 15 basis points in the first quarter of 2021 and an increase of 16 basis points in the second quarter of 2020.

The effect of interest and fees on PPP loans was an increase of six basis points in the second quarter of 2021, an increase of 11 basis points in the first quarter of 2021 and an increase of eight basis points in the second quarter of 2020.

For the six months ended June 30, 2021, net interest margin (on a fully tax equivalent basis) 1 was 3.37%, compared to 3.81% for the six months ended June 30, 2020.

The yield on securities declined from 2.85% for the six months ended June 30, 2020 to 1.64% for the six months ended June 30, 2021, reflecting the impact of a lower interest rate environment including the payoff of higher yielding securities being replaced with lower yields on new purchases.

The yield on non-PPP loans declined from 4.72% for the six months ended June 30, 2020 to 4.36% for the six months ended June 30, 2021, reflecting the impact of the lower interest rate environment.

Offsetting and favorable was the decline in the cost of deposits from 43 basis points for the six months ended June 30, 2020 to 10 basis points for the six months ended June 30, 2021.

The effect on net interest margin of purchase discounts on acquired loans was an increase of 15 basis points for the six months ended June 30, 2021 compared to an increase of 21 basis points for the six months ended June 30, 2020.

The effect of interest

1 Non-GAAP measure - see “Explanation of Certain Unaudited Non-GAAP Financial Measures” for more information and a reconciliation to GAAP.

and fees on PPP loans was an increase of eight basis points for the six months ended June 30, 2021,compared to an increase of four basis points for the six months ended June 30, 2020.

The cost of deposits declined to eight basis points in the second quarter of 2021, compared to 13 basis points in the first quarter of 2021 and 31 basis points in the second quarter of 2020.

Net interest income for the third quarter of 2021 totaled $71.3 million, increasing $5.5 million, or 8%, compared to the second quarter of 2021, and increasing $7.8 million, or 12%, compared to the third quarter of 2020.

For the nine months ended September 30, 2021, net interest income totaled $203.7 million, an increase of $9.8 million, or 5%, compared to the nine months ended September 30, 2020.

The increase quarter over quarter and compared to the prior year quarter reflects higher loan and securities balances, and higher recognition of fees on Paycheck Protection Program (“PPP”) loans attributed to higher loan forgiveness.

Furthermore, lower interest expense reflects the continued low rate environment and the Company’s efforts to proactively manage rates paid on interest bearing deposits.

Net interest margin (on a fully tax equivalent basis) 1 was 3.22% in the third quarter of 2021, compared to 3.23% in the second quarter of 2021 and 3.40% in the third quarter of 2020.

The decrease during the third quarter of 2021 reflects decreases in yields on both securities and non-PPP loans, partially offset by the impact of higher fees due to higher loan forgiveness on PPP loans and lower rates on interest bearing deposits.

Compared to the second quarter of 2021, securities yields declined by four basis points to 1.59% and non-PPP loan yields declined by seven basis points to 4.29% during the third quarter of 2021.

Offsetting and favorable was the increase in yields on PPP loans from 4.07% to 8.33%, which includes the impact of higher fee accretion in the current quarter, and a decrease in the cost of deposits from eight basis points in the second quarter of 2021 to seven basis points in the third quarter of 2021.

The effect on net interest margin of purchase discounts on acquired loans was an increase of 15 basis points in the third quarter of 2021 compared to an increase of 14 basis points in the second quarter of 2021 and an increase of 17 basis points in the third quarter of 2020.

The effect of interest and fees on PPP loans was an increase of 18 basis points in the third quarter of 2021, an increase of six basis points in the second quarter of 2021 and an increase of seven basis points in the third quarter of 2020.

For the nine months ended September 30, 2021, net interest margin (on a fully tax equivalent basis) 1 was 3.32%, compared to 3.67% for the nine months ended September 30, 2020.

The yield on securities declined from 2.58% for the nine months ended September 30, 2020 to 1.62% for the nine months ended September 30, 2021, reflecting the impact of a lower interest rate environment including the payoff of higher yielding securities being replaced with lower yields on new purchases.

The yield on non-PPP loans declined from 4.63% for the nine months ended September 30, 2020 to 4.34% for the nine months ended September 30, 2021, reflecting the impact of the lower interest rate environment.

Offsetting and favorable was the increase in yield on PPP loans, which increased from 2.60% for the nine months ended September 30, 2020 to 5.16% for the nine months ended September 30, 2021 as well as the decline in the cost of deposits from 36 basis points for the nine months ended September 30, 2020 to 9 basis points for the nine months ended September 30, 2021.

The effect on net interest margin of purchase discounts on acquired loans was an increase of 15 basis points for the nine months ended September 30, 2021 compared to an increase of 20 basis points for the nine months ended September 30, 2020.

The effect of interest and fees on PPP loans was an increase of 12 basis points for the nine months ended September 30, 2021, compared to an increase of four basis points for the nine months ended September 30, 2020.

The cost of deposits declined to seven basis points in the third quarter of 2021, compared to eight basis points in the second quarter of 2021 and 24 basis points in the third quarter of 2020.

For the nine months ended September 30, 2021, the cost of deposits was nine basis points, a decrease of 27 basis points compared to the nine months ended September 30, 2020.

Lower cost of deposits reflects lower market rates, and a favorable shift in product mix to include a higher proportion of noninterest bearing demand deposits to total deposits.

For the six months ended June 30, 2021, the cost of deposits was ten basis points, a decrease of 33 basis points compared to the six months ended June 30, 2020.

The following table details the trend for net interest income and margin results (on a tax equivalent basis) 1 , the yield on earning assets and the rate paid on interest bearing liabilities for the periods specified:

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Bearing Liabilities

Second quarter 2021 $ 65,933 3.23 % 3.33 % 0.16 %

First quarter 2021 66,741 3.51 % 3.65 % 0.23 %

Third quarter 2021 $ 71,455 3.22 % 3.31 % 0.14 %

Second quarter 2021 65,933 3.23 % 3.33 % 0.16 %

Six months ended June 30, 2021 132,674 3.37 % 3.49 % 0.19 %

Six months ended June 30, 2020 130,679 3.81 % 4.27 % 0.70 %

Third quarter 2020 63,621 3.40 % 3.65 % 0.40 %

Nine months ended September 30, 2021 204,129 3.32 % 3.42 % 0.17 %

Nine months ended September 30, 2020 194,300 3.67 % 4.05 % 0.59 %

1 On tax equivalent basis, a non-GAAP measure - see "Explanation of Certain Unaudited Non-GAAP Financial Measures" for more information and a reconciliation to GAAP.

Total average loans decreased $161.1 million, or 3%, for the second quarter of 2021 compared to the first quarter of 2021, and decreased $130.3 million, or 2%, from the second quarter of 2020.

The decrease from the prior quarter reflects a net decrease in PPP loans as a result of loan forgiveness.

The decrease from the prior year reflects PPP loan forgiveness and a conservative slowdown in originations of commercial and consumer loans, partially offset by loans acquired from Freedom Bank.

Average loans as a percentage of average earning assets totaled 68% for the second quarter of 2021, 75% for the first quarter of 2021 and 78% for the second quarter of 2020.

Loan production and pipelines (loans in underwriting and approval or approved and not yet closed) are detailed in the following table for the periods specified:

Second First Second Six Months Ended

Quarter Quarter Quarter June 30,

Total average loans increased $105.8 million, or 2%, for the third quarter of 2021 compared to the second quarter of 2021, and decreased $156.8 million, or 3%, from the third quarter of 2020.

The increase compared to the prior quarter reflects loan growth including loans acquired from Legacy Bank, partially offset by a decrease in PPP loans attributed to loan forgiveness.

The decrease compared to the prior year quarter reflects the impact of PPP loan forgiveness.

Average loans as a percentage of average earning assets totaled 65% for the third quarter of 2021, 68% for the second quarter of 2021 and 79% for the third quarter of 2020.

Loan production and late-stage pipelines (loans in underwriting and approval or approved and not yet closed) are detailed in the following table for the periods specified:

Third Second Third Nine Months Ended

Quarter Quarter Quarter September 30,

(In thousands) 2021 2021 2020 2021 2020

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PPP originations — 23,529 8,276 256,007 598,994

Commercial originations during the second quarter of 2021 were $193.0 million, a decrease of $11.2 million, or 5%, compared to the first quarter of 2021, and an increase of $86.2 million, or 81%, compared to the second quarter of 2020.

The commercial pipeline increased $81.1 million, or 34%, to $322.0 million at June 30, 2021, compared to March 31, 2021, and increased $205.0 million, or 175%, compared to June 30, 2020.

The increases reflect increasing demand in line with Florida’s expanding economy and the addition of new commercial bankers.

Commercial originations during the third quarter of 2021 were $331.6 million, an increase of $138.6 million, or 72%, compared to the second quarter of 2021, and an increase of $243.4 million, or 276%, compared to the third quarter of 2020.

Recent investments in commercial banking talent contributed to the increase in production quarter-over-quarter.

Commercial originations for the third quarter of 2021 also includes a $17.1 million purchased loan pool.

The commercial pipeline increased $46.9 million, or 15%, to $368.9 million at September 30, 2021, compared to June 30, 2021, and increased $112.7 million, or 44%, compared to September 30, 2020, also reflecting the benefit of investments in commercial banking talent.

The Company originates residential mortgage loans identified for sale to investors in the secondary market.

The Company uses rate locks with investors at the time of application, thereby eliminating interest rate risk.

Residential loans originated for sale in the secondary market totaled $120.1 million in the second quarter of 2021, compared to $138.3 million in the first quarter of 2021 and $122.5 million in the second quarter of 2020, a decrease of 13% and a decrease of 2%, respectively.

Refinance activity has slowed from the peaks seen in the last several quarters, and housing inventory is low.

Residential saleable pipelines were $60.6 million as of June 30, 2021, compared to $92.1 million as of March 31, 2021 and $94.7 million as of June 30, 2020.

Residential loan production retained in the portfolio for the second quarter of 2021 was $118.1 million compared to $46.6 million in the first quarter of 2021 and $23.5 million in the second quarter of 2020, an increase of 153% and an increase of 402%, respectively.

The pipeline of residential loans intended to be retained in the portfolio was $54.1 million as of June 30, 2021, compared to $72.4 million as of March 31, 2021, and $13.2 million as of June 30, 2020.

Residential loans retained in the second quarter of 2021 includes a $38.4 million purchased pool consisting of 30-year fixed rate jumbo residential loans.

Consumer originations totaled $63.7 million during the second quarter of 2021, an increase of $17.0 million, or 36%, from the first quarter of 2021 and an increase of $5.7 million, or 10%, from the second quarter of 2020.

The consumer pipeline was $31.7 million as of June 30, 2021, compared to $28.1 million as of March 31, 2021 and $30.6 million at June 30, 2020.

Residential loans originated for sale in the secondary market totaled $95.1 million in the third quarter of 2021, compared to $120.1 million in the second quarter of 2021 and $162.5 million in the third quarter of 2020, a decrease of 21% and a decrease of 41%, respectively.

Refinance activity has slowed from the peaks seen in 2020, and Florida’s housing inventory remains limited.

Residential saleable pipelines were $42.8 million as of September 30, 2021, compared to $60.6 million as of June 30, 2021 and $149.9 million as of September 30, 2020.

Residential loan production retained in the portfolio for the third quarter of 2021 was $250.8 million compared to $118.1 million in the second quarter of 2021 and $25.4 million in the third quarter of 2020.

Residential loans retained in the third quarter of 2021 includes $180.8 million in purchased loan pools compared to $38.4 million purchased during the second quarter of 2021.

The Company fully underwrites acquired loans prior to executing transactions.

The pipeline of residential loans intended to be retained in the portfolio was $35.4 million as of September 30, 2021, compared to $54.1 million as of June 30, 2021, and $33.4 million as of September 30, 2020.

Consumer originations totaled $66.4 million during the third quarter of 2021, an increase of $2.7 million, or 4%, from the second quarter of 2021 and an increase of $4.1 million, or 7%, from the third quarter of 2020.

The consumer pipeline was $31.0 million as of September 30, 2021, compared to $31.7 million as of June 30, 2021 and $17.1 million at September 30, 2020.

In March 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law.

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Loans originated under this program have a contractual rate of interest of 1% with principal and interest that may be forgiven, provided that the borrower uses the funds in a manner consistent with PPP guidelines.

Seacoast has assisted more than 8,000 borrowers through the PPP since inception, $529.7 million in PPP loan balances have been forgiven, and remaining outstanding balances total $364.1 million at June 30, 2021.

Average debt securities increased $78.6 million, or 5%, during the second quarter of 2021 compared to the first quarter of 2021, and were $499.9 million, or 43%, higher compared to the second quarter of 2020.

Seacoast has assisted more than 8,000 borrowers through the PPP since inception, $675.7 million in PPP loan balances have been forgiven, and remaining outstanding balances total $190.6 million at September 30, 2021.

Average debt securities increased $341.8 million, or 21%, during the third quarter of 2021 compared to the second quarter of 2021, and were $651.1 million, or 48%, higher compared to the third quarter of 2020.

Increases reflect the investment of excess liquidity, partially offset by paydowns and maturities.

The cost of average interest-bearing liabilities contracted in the second quarter of 2021 to 16 basis points from 23 basis points for the first quarter of 2021, and from 51 basis points for the second quarter of 2020.

The cost of average total deposits (including noninterest bearing demand deposits) in the second quarter of 2021 was 8 basis points compared to 13 basis points in

the first quarter of 2021 and 31 basis points in the second quarter of 2020, reflecting continued repricing downward of interest-bearing deposits and time deposits.

During the second quarter of 2021, average transaction deposits (noninterest and interest bearing demand) increased $459.3 million, or 11%, compared to the first quarter of 2021 and increased $1.1 billion, or 32%, compared to the second quarter of 2020, reflecting the inflow of new customers and higher deposit balances for existing customers.

The Company’s deposit mix remains favorable, with 93% of average deposit balances comprised of savings, money market, and demand deposits for the six months ended June 30, 2021.

Seacoast's average cost of deposits, including noninterest bearing demand deposits, decreased to 10 basis points for the six months ended June 30, 2021 compared to 43 basis points for the six months ended June 30, 2020, reflecting the lower interest rate environment and shifts in deposit mix with a higher proportion of low cost deposits.

Brokered CDs totaled $20.0 million at June 30, 2021, with a weighted average rate of 0.32%.

The cost of average interest-bearing liabilities contracted in the third quarter of 2021 to 14 basis points from 16 basis points in the second quarter of 2021, and from 40 basis points in the third quarter of 2020.

The cost of average total deposits (including noninterest bearing demand deposits) in the third quarter of 2021 was 7 basis points compared to 8 basis points in the second quarter of 2021 and 24 basis points in the third quarter of 2020, reflecting continued repricing downward of interest-bearing deposits and time deposits.

During the third quarter of 2021, average transaction deposits (noninterest and interest bearing demand) increased $384.9 million, or 9%, compared to the second quarter of 2021 and increased $1.2 billion, or 34%, compared to the third quarter of 2020, reflecting the acquisition of Legacy Bank, the inflow of new customers, and higher deposit balances for existing customers.

The Company’s deposit mix remains favorable, with 93% of average deposit balances comprised of savings, money market, and demand deposits for the nine months ended September 30, 2021.

Seacoast's average cost of deposits, including noninterest bearing demand deposits, decreased to 9 basis points for the nine months ended September 30, 2021 compared to 36 basis points for the nine months ended September 30, 2020, reflecting the lower interest rate environment and shifts in deposit mix with a higher proportion of low cost deposits.

Brokered CDs totaled $20.0 million at September 30, 2021, with a weighted average rate of 0.32%.

The Company participates in programs with third party deposit networks as part of its liquidity management strategy, particularly as it approaches $10 billion in assets.

Through these programs, the Company can offer its customers access to FDIC insurance on large balances, and the Company can retain or sell, on an overnight basis, the underlying deposits.

The Company expects to remain below $10 billion in assets at year end 2021, and at September 30, 2021, the Company had sold, on an overnight basis, $233.1 million in deposits, compared to $112.7 million at December 31, 2020.

These deposits are not included in the Consolidated Balance Sheet.

Sweep repurchase agreements with customers increased $37.5 million, or 48%, year-over-year.

For the six months ended June 30, 2021, the average balance was $114.2 million compared to an average balance of $72.9 million for the six months ended June 30, 2020.

The average rate on customer sweep repurchase accounts was 0.13% for the six months ended June 30, 2021, compared to 0.55% for the six months ended June 30, 2020.

No federal funds purchased were utilized at June 30, 2021 nor June 30, 2020.

The Company had no FHLB borrowings during the six months ended June 30, 2021 compared to $224.9 million with an average rate of 1.14% for the six months ended June 30, 2020.

For the nine months ended September 30, 2021, the average balance was $116.3 million compared to an average balance of $78.8 million for the nine months ended September 30, 2020.

The average rate on customer sweep repurchase accounts was 0.13% for the nine months ended September 30, 2021, compared to 0.41% for the nine months ended September 30, 2020.

No federal funds purchased were utilized at September 30, 2021 nor September 30, 2020.

In connection with the Legacy Bank transaction, the Company acquired $33.0 million in FHLB borrowings during the third quarter of 2021, which were immediately repaid for a nominal fee.

The Company had no other FHLB borrowings during the nine months ended September 30, 2021 compared to $180.9 million with an average rate of 1.08% for the nine months ended September 30, 2020.

The decrease reflects the impact of higher average deposit balances that were sufficient to fund the Company’s liquidity needs during 2021.

For the six months ended June 30, 2021, subordinated debt averaged $71.4 million, compared to $71.1 million for the six months ended June 30, 2020.

The average rate on subordinated debt for the six months ended June 30, 2021 was 2.40%, compared to 3.69% for the six months ended June 30, 2020.

For the nine months ended September 30, 2021, subordinated debt averaged $71.5 million, compared to $71.2 million for the nine months ended September 30, 2020.

The average rate on subordinated debt for the nine months ended September 30, 2021 was 2.37%, compared to 3.28% for the nine months ended September 30, 2020.

The subordinated debt relates to trust preferred securities issued by subsidiary trusts of the Company.

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Average Balances, Interest Income and Expenses, Yields and Rates 1

Second Quarter First Quarter Second Quarter

Third Quarter Second Quarter Third Quarter

Average Yield/ Average Yield/ Average Yield/

81 unchanged sentences

Noninterest Income

Noninterest income totaled $15.3 million for the second quarter of 2021, a decrease of $2.3 million, or 13%, compared to the first quarter of 2021 and an increase of $0.3 million, or 2%, from the second quarter of 2020.

Noninterest income totaled $33.0 million for the six months ended June 30, 2021, an increase of $3.3 million, or 11%, compared to the six months ended June 30, 2020.

Noninterest income totaled $19.0 million for the third quarter of 2021, an increase of $3.7 million, or 24%, compared to the second quarter of 2021 and an increase of $2.1 million, or 12%, from the third quarter of 2020.

Noninterest income totaled $52.0 million for the nine months ended September 30, 2021, an increase of $5.4 million, or 12%, compared to the nine months ended September 30, 2020.

Noninterest income is detailed as follows:

Second First Second Six Months Ended

Quarter Quarter Quarter June 30,

Third Second Third Nine Months Ended

Quarter Quarter Quarter September 30,

(In thousands) 2021 2021 2020 2021 2020

10 unchanged sentences

Total $ 19,028 $ 15,322 $ 16,946 $ 52,021 $ 46,640

Service charges on deposits were $2.3 million in the second quarter of 2021, $2.3 million in the first quarter of 2021 and $1.9 million in the second quarter of 2020.

For the six months ended June 30, 2021, service charges on deposits totaled $4.7 million, a decrease of $0.1 million, or 2%, compared to the six months ended June 30, 2020.

The decrease in service charges for the six-month period reflects the impact on overdraft fees of higher average deposit balances in the 2021 period.

Overdraft fees represent 39% of total service charges on deposits for the six months ended June 30, 2021 and 46% for the six months ended June 30, 2020.

Interchange income reached a record $4.1 million for the three months ended June 30, 2021, an increase of $0.3 million, or 9%, compared to the three months ended March 31, 2021, and an increase of $1.0 million, or 30%, compared to the three months ended June 30, 2020.

For the six months ended June 30, 2021, interchange income totaled $8.0 million, an increase of $1.5 million, or 24%, compared to the six months ended June 30, 2020.

The 2021 periods reflect higher transactional volume and higher per-card spending with the first half of 2020 negatively impacted by the effect of COVID-19-related shutdowns on consumer consumption.

Wealth management income, including trust fees and brokerage commissions and fees, was a record $2.4 million in the second quarter of 2021, increasing $0.1 million, or 3%, from the first quarter of 2021 and increasing $0.7 million, or 39%, compared to the second quarter of 2020.

For the six months ended June 30, 2021, wealth management income totaled $4.7 million, an increase of $1.1 million, or 31%, compared to the six months ended June 30, 2020.

Assets under management have grown significantly as the team continues to deliver strong growth through the addition of new relationships.

Assets under management have increased $451 million from June 30, 2020 to exceed $1.2 billion at June 30, 2021.

Mortgage banking fees decreased by $1.2 million, or 30%, to $3.0 million in the second quarter of 2021 compared to the first quarter of 2021, and decreased $0.6 million, or 16%, compared to the second quarter of 2020, reflecting the impact of slowing refinance activity and low housing inventory levels.

For the six months ended June 30, 2021, mortgage banking fees totaled $7.2 million, an increase of $1.4 million, or 25%, compared to the six months ended June 30, 2020.

SBA gains totaled $0.2 million, a decrease of $0.1 million, or 19%, compared to the first quarter of 2021 and an increase of $0.1 million, or 28%, compared to the second quarter of 2020.

For the six months ended June 30, 2021, SBA gains totaled $0.5 million, an increase of $0.2 million, or 62%, compared to the six months ended June 30, 2020.

Bank owned life insurance (“BOLI”) income totaled $0.9 million for the second quarter of 2021, in line with comparative periods.

BOLI income totaled $1.7 million for the six months ended June 30, 2021 and $1.8 million for the six months ended

June 30, 2020.

The Company purchased $25.0 million of BOLI late in the second quarter of 2021 with a tax equivalent first year yield of 4.50% that will positively impact future periods.

Other income was $2.2 million in the second quarter of 2021, a decrease of $1.5 million, or 40%, quarter-over-quarter and an increase of $0.1 million, or 5%, year-over-year.

For the six months ended June 30, 2021, other income totaled $6.0 million, an increase of $0.5 million, or 9%, compared to the six months ended June 30, 2020.

Included in other income in the first quarter of 2021 was $1.7 million in income associated with the resolution of contingencies on two loans acquired in 2017.

Similar activity is not expected in subsequent periods.

Service charges on deposits were $2.5 million in the third quarter of 2021, $2.3 million in the second quarter of 2021 and $2.2 million in the third quarter of 2020.

For the nine months ended September 30, 2021, service charges on deposits totaled $7.2 million, an increase of $0.2 million, or 2%, compared to the nine months ended September 30, 2020.

The increase in service charges for the nine-month period reflects an increase in customer deposit accounts.

Overdraft fees represent 40% of total service charges on deposits for the nine months ended September 30, 2021 and 44% for the nine months ended September 30, 2020.

Interchange income remained flat at $4.1 million for the three months ended September 30, 2021, compared to the three months ended June 30, 2021, and increased $0.4 million, or 12%, compared to the three months ended September 30, 2020.

Third quarter activity reflects stable transaction volume despite the impact of the COVID-19 delta variant on spending early in the third quarter.

For the nine months ended September 30, 2021, interchange income totaled $12.1 million, an increase of $2.0 million, or 20%, compared to the nine months ended September 30, 2020.

The 2021 periods reflect the return of transactional volume and higher per-card spending in the current year when compared to the prior year, which was negatively affected by COVID-19-related shutdowns and reduced consumer consumption.

Wealth management income, including trust fees and brokerage commissions and fees, was a record $2.6 million in the third quarter of 2021, increasing $0.2 million, or 7%, from the second quarter of 2021 and increasing $0.6 million, or 30%, compared to the third quarter of 2020.

For the nine months ended September 30, 2021, wealth management income totaled $7.3 million, an increase of $1.7 million, or 31%, compared to the nine months ended September 30, 2020.

The wealth management team continues to successfully win business with commercial relationships and high net worth families across the Company’s footprint, as reflected through the growth of assets under management from $792.6 million at September 30, 2020 to $1.2 billion at September 30, 2021.

Mortgage banking fees decreased by $0.4 million, or 14%, to $2.5 million in the third quarter of 2021 compared to the second quarter of 2021, and decreased $2.7 million, or 52%, compared to the third quarter of 2020, reflecting the impact of lower refinance activity and low housing inventory levels.

For the nine months ended September 30, 2021, mortgage banking fees totaled $9.8 million, a decrease of $1.3 million, or 12%, compared to the nine months ended September 30, 2020.

SBA gains were a record $0.8 million, an increase of $0.6 million, compared to the second quarter of 2021 and an increase of $0.6 million, compared to the third quarter of 2020.

Higher saleable loan production reflects a renewed focus on saleable activity as the PPP program winds down.

For the nine months ended September 30, 2021, SBA gains totaled $1.3 million, an increase of $0.8 million, or 133%, compared to the nine months ended September 30, 2020.

Bank owned life insurance (“BOLI”) income was $1.1 million for the third quarter of 2021, an increase of $0.3 million compared to both the second quarter of 2021 and the third quarter of 2020.

The increase is attributed to additions to BOLI, including $25.0 million purchased late in the second quarter, with a tax equivalent yield of 4.50%.

In addition, the Company acquired $9.1 million in BOLI from Legacy Bank, and an additional $25.0 million was purchased late in the third quarter of 2021.

BOLI income totaled $2.9 million for the nine months ended September 30, 2021 and $2.7 million for the nine months ended September 30, 2020.

Other income was $5.2 million in the third quarter of 2021, an increase of $3.0 million quarter-over-quarter and an increase of $2.9 million year-over-year, reflecting the impact of gains on SBIC investments during the quarter.

Returns recognized on these investments will vary and are not expected to occur on a routine basis.

For the nine months ended September 30, 2021, other income totaled $11.2 million, an increase of $3.4 million, or 43%, compared to the nine months ended September 30, 2020.

Noninterest Expenses

The Company has demonstrated its commitment to efficiency through disciplined, proactive management of its cost structure.

For the second quarter of 2021, the efficiency ratio, defined as noninterest expense less amortization of intangibles and gains, losses, and expenses on foreclosed properties divided by net operating revenue (net interest income on a fully taxable equivalent basis plus noninterest income excluding securities gains and losses), was 54.93% compared to 53.21% for the first quarter of 2021 and 50.11% for the second quarter of 2020.

The increase in the efficiency ratio quarter-over-quarter primarily reflects lower PPP income and lower mortgage banking gains from slowing refinance activity and low housing inventory levels, partially offset by lower cost of deposits and lower noninterest expense.

The increase in the efficiency ratio when compared to the prior year quarter reflects higher noninterest expense primarily associated with lower deferrals of salary costs attributed to lower PPP loan production in the second quarter of 2021, and the impact of the lower rate environment on interest income, partially offset by lower cost of deposits.

For the six months ended June 30, 2021, the efficiency ratio was 54.05% compared to 54.88% for the six months ended June 30, 2020.

The adjusted efficiency ratio 1 was 53.49% in the second quarter of 2021, compared to 51.99% in the first quarter of 2021 and 49.60% in the second quarter of 2020.

The increase in the adjusted efficiency ratio quarter-over-quarter primarily reflects lower PPP income, and lower mortgage banking gains from slowing refinance activity and low housing inventory levels, partially offset by lower cost of deposits.

At June 30, 2021, adjusted noninterest expense 1 as a percent of average tangible assets was 1.98% for the second quarter of 2021 compared to 2.16% for the first quarter of 2021 and 2.11% for the second quarter of 2020.

For the six months ended June 30, 2021 the adjusted efficiency ratio 1 was 52.72% compared to 51.53% for the six months ended June 30, 2020.

Second First Second Six Months Ended

Quarter Quarter Quarter June 30,

For the third quarter of 2021, the efficiency ratio, defined as noninterest expense less amortization of intangibles and gains, losses, and expenses on foreclosed properties divided by net operating revenue (net interest income on a fully taxable equivalent basis plus noninterest income excluding securities gains and losses), was 59.55% compared to 54.93% for the second quarter of 2021 and 61.65% for the third quarter of 2020.

The increase in the efficiency ratio quarter over quarter primarily reflects higher net interest income and higher non-interest income, which was more than offset by the impact of higher expenses, primarily resulting from the Legacy Bank acquisition during the third quarter of 2021.

The decrease in the efficiency ratio when compared to the prior year quarter reflects higher net interest income and higher noninterest income.

Both periods reflected the impact of higher expenses from acquisitions with the completion of the Freedom Bank acquisition in the third quarter of 2020.

For the nine months ended September 30, 2021, the efficiency ratio was 55.99% compared to 57.15% for the nine months ended September 30, 2020.

The adjusted efficiency ratio 1 2 was 51.50% in the third quarter of 2021, compared to 53.49% in the second quarter of 2021 and 54.82% in the third quarter of 2020.

The decrease in the adjusted efficiency ratio 1 compared to the prior quarter and the prior year quarter primarily reflects higher net interest income and higher noninterest income.

At September 30, 2021, adjusted noninterest expense 1 as a percent of average tangible assets was 1.95% for the third quarter of 2021 compared to 1.98% for the second quarter of 2021 and 2.24% for the third quarter of 2020.

For the nine months ended September 30, 2021 the adjusted efficiency ratio 1 was 52.29% compared to 52.64% for the nine months ended September 30, 2020.

1 2 Non-GAAP measure - see “Explanation of Certain Unaudited Non-GAAP Financial Measures” for more information and a reconciliation to GAAP.

Third Second Third Nine Months Ended

Quarter Quarter Quarter September 30,

(In thousands, except ratios) 2021 2021 2020 2021 2020

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2 Adjusted efficiency ratio is defined as noninterest expense, including adjustments to noninterest expense divided by aggregated tax equivalent net interest income and noninterest income, including adjustments to revenue.

Noninterest expense for the second quarter of 2021 totaled $45.8 million, a decrease of $0.3 million, or 1%, compared to the first quarter of 2021, and an increase of $3.4 million, or 8%, from the second quarter of 2020.

For the six months ended June

30, 2021, noninterest expenses totaled $91.9 million, an increase of $1.7 million, or 2%, compared to the six months ended June 30, 2020.

Noninterest expense for the third quarter of 2021 totaled $55.3 million, an increase of $9.5 million, or 21%, compared to the second quarter of 2021, and an increase of $3.6 million, or 7%, from the third quarter of 2020.

For the nine months ended

September 30, 2021, noninterest expenses totaled $147.2 million, an increase of $5.3 million, or 4%, compared to the nine months ended September 30, 2020.

Noninterest expenses are detailed as follows:

Second First Second Six Months Ended

Quarter Quarter Quarter June 30,

Third Second Third Nine Months Ended

Quarter Quarter Quarter September 30,

(In thousands) 2021 2021 2020 2021 2020

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Amortization of intangibles 1,306 1,212 1,497 3,729 4,436

Foreclosed property expense and net (gain) loss on sale (90) (65) 245 (155) (70)

Foreclosed property expense and net loss (gain) on sale 66 (90) 512 (89) 442

Provision for credit losses on unfunded commitments 133 — 756 133 980

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Total $ 55,268 $ 45,784 $ 51,674 $ 147,172 $ 141,871

Salaries and wages totaled $23.0 million for the second quarter of 2021, $21.4 million for the first quarter of 2021, and $20.2 million for the second quarter of 2020.

Lower PPP loan production in the second quarter of 2021 resulted in lower deferrals of related salary costs.

For the six months ended June 30, 2021, salaries and wages totaled $44.4 million, an increase of $0.4 million, or 1%, compared to the six months ended June 30, 2020.

The increase compared to the prior year reflects higher salaries from headcount added through acquisition and investments made to support organic growth.

During the second quarter of 2021, employee benefit costs, which include costs associated with the Company's self-funded health insurance benefits, 401(k) plan, payroll taxes, and unemployment compensation, were $4.0 million, a decrease of $1.0 million, or 21%, compared to the first quarter of 2021 and an increase of $0.6 million, or 17%, compared to the second quarter of 2020.

The first quarter of 2021 included higher seasonal payroll taxes and 401(k) plan contributions, as well as higher healthcare-related costs.

For the six months ended June 30, 2021, employee benefit costs totaled $8.9 million, an increase of $1.3 million, or 17%, compared to the six months ended June 30, 2020.

The increase reflects the impact of higher health insurance related costs and payroll taxes resulting from headcount added through acquisition and investments made to support organic growth.

Salaries and wages totaled $27.9 million for the third quarter of 2021, $23.0 million for the second quarter of 2021, and $23.1 million for the third quarter of 2020.

The third quarter includes $2.6 million in merger-related expenses, as well as increases relating to the addition of the Legacy Bank branch franchise, and increases resulting from investments in commercial banking talent.

For the nine months ended September 30, 2021, salaries and wages totaled $72.3 million, an increase of $5.2 million, or 8%, compared to the nine months ended September 30, 2020.

The increase compared to the prior year reflects higher salaries from headcount added through acquisitions and investments made to support organic growth.

During the third quarter of 2021, employee benefit costs, which include costs associated with the Company's self-funded health insurance benefits, 401(k) plan, payroll taxes, and unemployment compensation, were $4.2 million, an increase of $0.2 million, or 6%, compared to the second quarter of 2021 and an increase of $0.2 million, or 5%, compared to the third quarter of 2020.

The third quarter of 2021 included higher healthcare-related costs attributed to increased headcount.

For the nine months ended September 30, 2021, employee benefit costs totaled $13.1 million, an increase of $1.5 million, or 13%, compared to the nine months ended September 30, 2020.

The increase reflects the impact of higher health insurance related costs and payroll taxes resulting from headcount added through acquisitions and investments made to support organic growth.

The Company utilizes third parties for its core data processing systems.

Ongoing data processing costs are directly related to the number of transactions processed and the negotiated rates associated with those transactions.

Outsourced data processing costs totaled $4.7 million, $4.5 million and $4.1 million for the second quarter of 2021, first quarter of 2021 and second quarter of 2020, respectively.

For the six months ended June 30, 2021, outsourced data processing costs totaled $9.1 million, an increase of $0.5 million, or 5%, compared to the six months ended June 30, 2020.

Outsourced data processing costs totaled $5.6 million, $4.7 million and $6.1 million for the third quarter of 2021, second quarter of 2021 and third quarter of 2020, respectively.

The third quarter of 2021 included $0.9 million in merger-related costs related to data conversion, while the third quarter of 2020 included $1.9 million in merger-related costs.

For the nine months ended September 30, 2021 and September 30, 2020, outsourced data processing costs totaled $14.8 million.

The Company continues to improve and enhance mobile and other digital products and services through key third parties.

Outsourced data processing costs may increase in the future as customers adopt improved products and as business volumes grow.

Telephone and data line expenditures, including electronic communications with customers and between branch and customer support locations and personnel, as well as with third-party data processors, remained flat at $0.8 million for the second quarter of 2021, first quarter of 2021, and second quarter of 2020, respectively.

For the six months ended June 30, 2021, telephone and data line expenditures totaled $1.6 million, an increase of $0.1 million, or 8%, compared to the six months ended June 30, 2020.

Total occupancy, furniture and equipment expenses were $4.5 million for the second quarter of 2021, $5.0 million in the first quarter of 2021, and $4.7 million in the second quarter of 2020.

For the six months ended June 30, 2021, total occupancy, furniture and equipment expenses totaled $9.5 million, an increase of $0.2 million, or 2%, compared to the six months ended June 30, 2020.

Marketing expenses totaled $1.0 million in the second quarter of 2021, $1.2 million in the first quarter of 2021 and $1.0 million in the second quarter of 2020.

For the six months ended June 30, 2021, marketing expenses totaled $2.2 million, a decrease of $0.1 million, or 5%, compared to the six months ended June 30, 2020.

Telephone and data line expenditures, including electronic communications with customers and between branch and customer support locations and personnel, as well as with third-party data processors, were $0.8 million, $0.8 million, and $0.7 million for the third quarter of 2021, second quarter of 2021, and third quarter of 2020, respectively.

For the nine months ended September 30, 2021, telephone and data line expenditures totaled $2.4 million, an increase of $0.2 million, or 10%, compared to the nine months ended September 30, 2020.

Total occupancy, furniture and equipment expenses were $5.1 million in the third quarter of 2021, $4.5 million in the second quarter of 2021, and $5.4 million in the third quarter of 2020.

Increases in the third quarter reflect merger-related equipment disposals, as well as increases relating to the addition of the Legacy Bank branch franchise.

For the nine months ended

September 30, 2021, total occupancy, furniture and equipment expenses totaled $14.6 million, a decrease of $0.5 million, or 3%, compared to the nine months ended September 30, 2020.

Marketing expenses totaled $1.4 million in the third quarter of 2021, $1.0 million in the second quarter of 2021 and $1.5 million in the third quarter of 2020.

For the nine months ended September 30, 2021, marketing expenses totaled $3.5 million, a decrease of $0.3 million, or 7%, compared to the nine months ended September 30, 2020.

Targeted marketing campaigns allow the Company to engage new and existing customers while maintaining a controlled expense base.

Legal and professional fees for the second quarter of 2021 were $2.2 million, a decrease of $0.4 million, or 15%, compared to the first quarter of 2021, and a decrease of $0.1 million, or 4%, compared to the second quarter of 2020.

For the six months ended June 30, 2021, legal and professional fees totaled $4.8 million, a decrease of $0.9 million, or 16%, compared to the six months ended June 30, 2020.

Acquisition-related expenses were $0.5 million in the second quarter of 2021, $0.6 million in the first quarter of 2021 and $0.2 million in the second quarter of 2020.

Acquisition-related expenses were $1.1 million in the six months ended June 30, 2021 and $1.4 million for the six months ended June 30, 2020.

FDIC assessments were $0.5 million for the second quarter of 2021 and $0.5 million the first quarter of 2021, while the second quarter of 2020 benefited from FDIC small bank assessment credits to offset expenses.

These credits were fully utilized by the second quarter of 2020.

For the six months ended June 30, 2021, FDIC assessments totaled $1.0 million compared to $0.3 million for the six months ended June 30, 2020.

During the second quarter of 2021, the Company recorded gains on the sale of OREO, net of other expenses of $0.1 million compared to gains of $0.1 million in the first quarter of 2021 and write-downs of $0.2 million in the second quarter of 2020 (see “Nonperforming Loans, Troubled Debt Restructurings, Other Real Estate Owned, and Credit Quality” for more discussion).

For the six months ended June 30, 2021, the Company recorded gains on the sale of OREO, net of other expenses of $0.2 million compared to gains of $0.1 million for the six months ended June 30, 2020.

No adjustment to the reserve for credit losses on unfunded lending commitments was recorded in the first or second quarter of 2021, compared to a $0.2 million increase in reserves in the second quarter of 2020.

Other expense totaled $4.1 million, $4.0 million and $3.8 million for the second quarter of 2021, the first quarter of 2021 and the second quarter of 2020, respectively.

For the six months ended June 30, 2021, other expense totaled $8.1 million, an increase of $0.6 million, or 9%, compared to the six months ended June 30, 2020.

For the second quarter of 2021, the Company recorded tax expense of $8.8 million compared to tax expense of $10.2 million in the first quarter of 2021 and $7.2 million in the second quarter of 2020.

For the six months ended June 30, 2021, tax expense totaled $18.9 million, an increase of $11.9 million, or 169%, compared to the six months ended June 30, 2020.

A tax benefit related to stock-based compensation totaled $0.6 million in the second quarter of 2021, compared to a tax benefit of $0.1 million in the first quarter of 2021 and tax expense of $0.2 million in the second quarter of 2020.

Legal and professional fees for the third quarter of 2021 were $4.2 million, an increase of $2.0 million, or 90%, compared to the second quarter of 2021, and an increase of $1.1 million, or 38%, compared to the third quarter of 2020.

For the nine months ended September 30, 2021, legal and professional fees totaled $8.9 million, an increase of $0.3 million, or 3%, compared to the nine months ended September 30, 2020.

Acquisition-related expenses were $2.0 million in the third quarter of 2021, $0.5 million in the second quarter of 2021, and $1.3 million in the third quarter of 2020.

FDIC assessments were $0.7 million for the third quarter of 2021 and $0.5 million in both the second quarter of 2021 and the third quarter of 2020.

For the nine months ended September 30, 2021, FDIC assessments totaled $1.7 million compared to $0.7 million for the nine months ended September 30, 2020 with 2020 benefiting from the FDIC small bank assessment credits which offset expense.

A provision of $0.1 million was recorded for credit losses on unfunded lending commitments in the third quarter of 2021 attributed to the acquisition of Legacy Bank, compared to no adjustment in the second quarter of 2021 and a $0.8 million provision in the third quarter of 2020 with the acquisition of Freedom Bank.

Other expense totaled $4.0 million, $4.1 million and $4.5 million for the third quarter of 2021, the second quarter of 2021 and the third quarter of 2020, respectively.

For the nine months ended September 30, 2021, other expense totaled $12.1 million, an increase of $0.1 million, or 1%, compared to the nine months ended September 30, 2020.

For the third quarter of 2021, the Company recorded tax expense of $7.0 million compared to tax expense of $8.8 million in the second quarter of 2021 and $7.0 million in the third quarter of 2020.

For the nine months ended September 30, 2021, tax expense totaled $26.0 million, an increase of $12.0 million, or 85%, compared to the nine months ended September 30, 2020 due to higher pre-tax income.

A tax benefit related to stock-based compensation totaled $0.3 million in the third quarter of 2021, compared to a tax benefit of $0.6 million in the second quarter of 2021 and nominal impact in the third quarter of 2020.

Explanation of Certain Unaudited Non-GAAP Financial Measures

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Reconciliation of Non-GAAP Measures

Second First Second Six Months Ended

Quarter Quarter Quarter June 30,

Third Second Third Nine Months Ended

Quarter Quarter Quarter September 30,

(In thousands, except per share data) 2021 2021 2020 2021 2020

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Net income $ 22,944 $ 31,410 $ 22,628 $ 88,073 $ 48,417

Second First Second Six Months Ended

Quarter Quarter Quarter June 30,

(In thousands, except per share data) 2021 2021 2020 2021 2020

Diluted earnings per share $ 0.40 $ 0.56 $ 0.42 $ 1.56 $ 0.91

Third Second Third Nine Months Ended

Quarter Quarter Quarter September 30,

(In thousands, except per share data) 2021 2021 2020 2021 2020

Noninterest Income $ 19,028 $ 15,322 $ 16,946 $ 52,021 $ 46,640

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Adjusted Pre-Tax Pre-Provision Earnings $ 43,901 $ 37,820 $ 36,399 $ 122,303 $ 113,519

Second First Second Six Months Ended

Quarter Quarter Quarter June 30,

Third Second Third Nine Months Ended

Quarter Quarter Quarter September 30,

(In thousands, except per share data) 2021 2021 2020 2021 2020

43 unchanged sentences

Loan interest income excluding tax equivalent adjustment $ 64,424 $ 60,348 $ 60,487 $ 187,070 $ 188,771

Second First Second Six Months Ended

Quarter Quarter Quarter June 30,

Third Second Third Nine Months Ended

Quarter Quarter Quarter September 30,

(In thousands, except per share data) 2021 2021 2020 2021 2020

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Financial Condition

Total assets increased $1.0 billion at June 30, 2021, or 12%, from December 31, 2020, reflecting higher cash balances due to higher customer deposit balances, as well as the origination of PPP loans under the renewed program.

Total assets increased $1.6 billion at September 30, 2021, or 19%, from December 31, 2020, reflecting the acquisition of Legacy Bank, which added $628.9 million in assets, as well as higher cash balances due to higher customer deposit balances, and additional investments in debt securities.

Information related to maturities, carrying values and fair value of the Company’s debt securities is set forth in “ Note D – Securities ” of the Company’s condensed consolidated financial statements.

At June 30, 2021, the Company had $1.3 billion in debt securities available-for-sale and $493.5 million in debt securities held-to-maturity.

At September 30, 2021, the Company had $1.5 billion in debt securities available-for-sale and $526.5 million in debt securities held-to-maturity.

The Company's total debt securities portfolio increased $490.0 million, or 31%, from December 31, 2020.

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The Company has the intent and ability to retain these securities until maturity.

During the six months ended June 30, 2021, there were $669.2 million of debt security purchases and $361.9 million in aggregated paydowns and maturities.

For the six months ended June 30, 2021, the Company had $56.2 million in proceeds from sales of securities with net losses of $0.1 million.

For the six months ended June 30, 2020, there were $239.2 million debt security purchases and aggregated maturities and principal paydowns totaled $140.3 million.

Proceeds from sales of securities during the six months ended June 30, 2020 totaled $92.3 million, with net gains of $1.1 million.

During the nine months ended September 30, 2021, there were $1.1 billion of debt security purchases and $520.4 million in aggregated paydowns and maturities.

For the nine months ended September 30, 2021, the Company had $57.2 million in proceeds from sales of securities with net losses of $0.1 million.

For the nine months ended September 30, 2020, there were $626.7 million debt security purchases and aggregated maturities and principal paydowns totaled $237.1 million.

Proceeds from sales of securities during the nine months ended September 30, 2020 totaled $96.7 million, with net gains of $1.1 million.

Debt securities generally return principal and interest monthly.

At June 30, 2021, available-for-sale debt securities had gross unrealized losses of $6.3 million and gross unrealized gains of $18.7 million, compared to gross unrealized losses of $2.1 million and gross unrealized gains of $28.7 million at December 31, 2020.

The modified duration of the available-for-sale portfolio at June 30, 2021 was 3.2 years, compared to 3.8 years at December 31, 2020.

At September 30, 2021, available-for-sale debt securities had gross unrealized losses of $9.9 million and gross unrealized gains of $16.4 million, compared to gross unrealized losses of $2.1 million and gross unrealized gains of $28.7 million at December 31, 2020.

The modified duration of the available-for-sale portfolio at September 30, 2021 was 3.2, compared to 3.8 at December 31, 2020.

The credit quality of the Company’s securities holdings is primarily investment grade.

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The Company also has invested $277.3 million, with a fair value of $277.3 million, in uncapped 3-month LIBOR floating rate collateralized loan obligations (“CLOs”).

CLOs are special purpose vehicles, and the Company’s holdings purchase nearly all

first lien broadly syndicated corporate loans across a diversified band of industries while providing support to senior tranche investors.

As of June 30, 2021, the Company held 26 total positions, all of which were in AAA/AA tranches with average credit support of 31%.

CLOs are special purpose vehicles, and the Company’s holdings purchase nearly all first lien broadly syndicated corporate loans across a diversified band of industries while providing support to senior tranche investors.

As of September 30, 2021, the Company held 32 total positions, all of which were in AAA/AA tranches with average credit support of 31%.

The Company utilizes credit models with assumptions of loan level defaults, recoveries, and prepayments to evaluate each security for potential credit losses.

1 unchanged sentence

Held-to-maturity securities consist solely of mortgage-backed securities and collateralized mortgage obligations guaranteed by government agencies.

At June 30, 2021, the Company has determined that all debt securities in an unrealized loss position are the result of both broad investment type spreads and the current interest rate environment.

At September 30, 2021, the Company has determined that all debt securities in an unrealized loss position are the result of both broad investment type spreads and the current interest rate environment.

Management believes that each investment will recover any price depreciation over its holding period as the debt securities move to maturity, and management has the intent and ability to hold these investments to maturity if necessary.

Therefore, at June 30, 2021, no allowance for credit losses has been recorded.

Therefore, at September 30, 2021, no allowance for credit losses has been recorded.

Loan Portfolio

Loans, net of unearned income and excluding the allowance for credit losses, were $5.4 billion at June 30, 2021, a $298.3 million decrease from December 31, 2020.

During the six months ended June 30, 2021, the Company participated in the most recent round of the PPP, resulting in originations of $256.0 million.

This was offset by $457.0 million in PPP loans that were forgiven by the SBA during the six months ended June 30, 2021.

Remaining decreases in loans reflect the impact of continued paydowns, as loan growth is expected to return in the second half of 2021.

For the six months ended June 30, 2021, the Company originated $397.3 million in commercial and commercial real estate loans, compared to $290.2 million for the six months ended June 30, 2020, an increase of $107.1 million, or 37%.

The loan pipeline for commercial and commercial real estate loans totaled $322.0 million at June 30, 2021.

Prior year’s production and pipeline reflect the impact of the onset of the COVID-19 pandemic where the Company purposefully slowed originations.

The current year activity reflects the Company’s return to its pre-pandemic credit policy and strict underwriting guidelines.

The Company originated $164.7 million in residential loans retained in the portfolio during the six months ended June 30, 2021, compared to $49.3 million during the six months ended June 30, 2020, an increase of $115.4 million, or 234%.

Residential loans retained in the portfolio in the second quarter of 2021 includes a $38.4 million purchased pool consisting of 30-year fixed rate jumbo residential loans.

Saleable production increased for the six months ended June 30, 2021, representing $258.4 million versus $185.3 million during the six months ended June 30, 2020, an increase of 39%.

Consumer originations totaled $110.4 million for the six months ended June 30, 2021, an increase of $1.0 million, or 1%, compared to the six months ended June 30, 2020.

Loans, net of unearned income and excluding the allowance for credit losses, were $5.9 billion at September 30, 2021, a $170.5 million increase from December 31, 2020.

Increases include organic growth, along with the acquisition of Legacy Bank and the purchase of loan pools.

During the nine months ended September 30, 2021, the Company participated in the most recent round of the PPP, resulting in loan originations of $256.0 million.

Increases were offset by $675.1 million in PPP loans forgiven by the SBA during the nine months ended September 30, 2021.

For the nine months ended September 30, 2021, the Company originated $728.9 million in commercial and commercial real estate loans, compared to $378.4 million for the nine months ended September 30, 2020, an increase of $350.5 million, or 93%.

The late-stage loan pipeline for commercial and commercial real estate loans totaled $368.9 million at September 30, 2021.

Prior year’s production and pipeline reflect the impact of the onset of the COVID-19 pandemic when the Company purposefully slowed originations.

The current year activity reflects the Company’s return to its pre-pandemic credit policy and continuation of strict underwriting guidelines.

The Company originated $415.6 million in residential loans retained in the portfolio during the nine months ended September 30, 2021, compared to $74.7 million during the nine months ended September 30, 2020, an increase of $340.8 million, or 456%.

Residential loans retained in the portfolio includes $180.8 million in purchased pools consisting of 30-year fixed rate jumbo residential loans purchased in the third quarter of 2021 and a $38.4 million purchased pool consisting of 30-year fixed rate jumbo residential loans purchased in the second quarter of 2021.

Saleable production increased for the nine months ended September 30, 2021, representing $353.6 million versus $347.8 million during the nine months ended September 30, 2020, an increase of 2%.

Consumer originations totaled $176.8 million for the nine months ended September 30, 2021, an increase of $5.1 million, or 3%, compared to the nine months ended September 30, 2020.

The Company remains committed to sound risk management procedures.

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The Company's exposure to commercial real estate lending remains well below regulatory limits (see “Loan Concentrations”).

The following tables detail loan portfolio composition at June 30, 2021 and December 31, 2020 for portfolio loans, purchased credit deteriorated (“PCD”) and loans purchased which are not considered purchased credit deteriorated (“Non-PCD”) as defined in Note E-Loans.

June 30, 2021

The following tables detail loan portfolio composition at September 30, 2021 and December 31, 2020 for portfolio loans, purchased credit deteriorated (“PCD”) and loans purchased which are not considered purchased credit deteriorated (“Non-PCD”) as defined in Note E-Loans.

September 30, 2021

(In thousands) Portfolio Loans Acquired Non-PCD Loans PCD Loans Total

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Totals $ 4,711,737 $ 925,434 $ 98,178 $ 5,735,349

The amortized cost basis of loans at June 30, 2021 included net deferred costs of $25.2 million on non-PPP portfolio loans and net deferred fees of $10.6 million on PPP loans.

The amortized cost basis of loans at September 30, 2021 included net deferred costs of $32.1 million on non-PPP portfolio loans and net deferred fees of $5.4 million on PPP loans.

At December 31, 2020, the amortized cost basis included net deferred costs of $22.6 million on non-PPP portfolio loans and net deferred fees of $9.5 million on PPP loans.

At June 30, 2021, the remaining fair value adjustments on acquired loans was $24.4 million, or 3.0%, of the outstanding acquired loan balances.

At September 30, 2021, the remaining fair value adjustments on acquired loans was $26.6 million, or 2.3%, of the outstanding acquired loan balances.

At December 31, 2020, the remaining fair value adjustments for acquired loans was $30.2 million, or 2.9%, of the acquired loan balances.

These amounts are accreted into interest income over the remaining lives of the related loans on a level yield basis.

Commercial real estate (“CRE”) loans, inclusive of owner-occupied commercial real estate, increased by $2.9 million, or 0.1%, in the six months ended June 30, 2021, totaling $2.5 billion at June 30, 2021 compared to $2.5 billion at December 31, 2020.

Commercial real estate (“CRE”) loans, inclusive of owner-occupied commercial real estate, increased by $337.8 million, or 13%, in the nine months ended September 30, 2021, totaling $2.9 billion at September 30, 2021 compared to $2.5 billion at December 31, 2020.

Owner-occupied commercial real estate loans represent $1.2 billion, or 42%, of the commercial real estate portfolio.

Fixed-rate and adjustable-rate loans secured by commercial real estate, excluding construction loans, totaled approximately $2.1 billion and $421.6 million, respectively, at June 30, 2021, compared to $2.1 billion and $453.7 million, respectively, at December 31, 2020.

During the six months ended June 30, 2021, the Company participated in the most recent round of the PPP and originated more than 2,700 loans for $256.0 million.

Also during the six months ended June 30, 2021, $457.0 million in PPP loans were forgiven by the SBA.

At June 30, 2021, Seacoast had $6.8 million of loans with payment accommodations to borrowers financially impacted by the COVID-19 pandemic, none of which have been classified as TDRs, compared to $74.1 million at December 31, 2020.

Fixed-rate and adjustable-rate loans secured by commercial real estate, excluding construction loans, totaled approximately $2.5 billion and $412.6 million, respectively, at September 30, 2021, compared to $2.1 billion and $453.7 million, respectively, at December 31, 2020.

During the nine months ended September 30, 2021, the Company participated in the most recent round of the PPP and originated 2,782 loans totaling $256.0 million.

Also during the nine months ended September 30, 2021, $675.1 million in PPP loans were forgiven by the SBA.

At September 30, 2021, Seacoast had $2.2 million of loans with payment accommodations to borrowers financially impacted by the COVID-19 pandemic, none of which have been classified as TDRs, compared to $74.1 million at December 31, 2020.

Interest and fees have continued to accrue on these loans during any payment deferral period.

Residential real estate loans decreased $116.1 million, or 9%, to $1.2 billion as of June 30, 2021, compared to December 31, 2020.

Residential real estate loans increased $124.7 million, or 9%, to $1.5 billion as of September 30, 2021, compared to December 31, 2020.

Substantially all residential mortgage originations have been underwritten to conventional loan agency standards, including loans having balances that exceed agency value limitations.

At June 30, 2021, approximately $343.4 million, or 28%, of the Company’s residential mortgage balances were adjustable 1-4 family mortgage loans, which includes hybrid adjustable-rate mortgages, compared to $436.3 million, or 32% at December 31, 2020.

Fixed-rate mortgages totaled approximately $567.4 million, or 46%, at June 30, 2021, compared to $499.0 million, or 37% at December 31, 2020.

Home equity lines of credit ("HELOCs"), primarily floating rates, totaled $315.7 million at June 30, 2021 and $341.6 million at December 31, 2020.

At September 30, 2021, approximately $315.3 million, or

21%, of the Company’s residential mortgage balances were adjustable 1-4 family mortgage loans, which includes hybrid adjustable-rate mortgages, compared to $436.3 million, or 32% at December 31, 2020.

Fixed-rate mortgages totaled approximately $0.8 billion, or 56%, at September 30, 2021, compared to $499.0 million, or 37% at December 31, 2020.

Home equity lines of credit ("HELOCs"), primarily floating rates, totaled $325.3 million at September 30, 2021 and $341.6 million at December 31, 2020.

Borrowers in the residential real estate portfolio have an average credit score of 749.

Specifically for HELOCs, borrowers have an average credit score of 763.

The average LTV of our HELOC portfolio is 67% with 43% of the portfolio being in first lien position at June 30, 2021, compared to 68% with 45% of the portfolio being in the first lien position at December 31, 2020.

The average LTV of our HELOC portfolio is 67% with 43% of the portfolio being in first lien position at September 30, 2021, compared to an average LTV of 68% with 45% of the portfolio being in the first lien position at December 31, 2020.

The Company also provides consumer loans, which include installment loans, auto loans, marine loans, and other consumer loans, which decreased $25.7 million, or 14%, to total $163.0 million compared to $188.7 million at December 31, 2020.

Borrowers in the consumer portfolio have an average credit score of 734.

At June 30, 2021, the Company had unfunded loan commitments of $1.6 billion compared to $1.5 billion at December 31, 2020.

At September 30, 2021, the Company had unfunded loan commitments of $1.8 billion compared to $1.5 billion at December 31, 2020.

Loan Concentrations

The Company has developed prudent guardrails to manage loan types that are most impacted by stressed market conditions in order to minimize credit risk concentration to capital.

Outstanding balances for commercial and CRE loan relationships greater than $10 million totaled $834.0 million and represented 15% of the total portfolio at June 30, 2021 compared to $753.7 million, or 13%, at year-end 2020.

The Company’s ten largest commercial and commercial real estate funded and unfunded loan relationships at June 30, 2021 aggregated to $279.5 million, of which $223.8 million was funded compared to $254.3 million at December 31, 2020, of which $188.0 million was funded.

The Company had 147 commercial and commercial real estate relationships in excess of $5 million totaling $1.5 billion, of which $1.2 billion was funded at June 30, 2021 compared to 135 relationships totaling $1.3 billion at December 31, 2020, of which $1.2 billion was funded.

Outstanding balances for commercial and CRE loan relationships greater than $10 million totaled $1.1 billion and represented 18% of the total portfolio at September 30, 2021 compared to $753.7 million, or 13%, at year-end 2020.

The Company’s ten largest commercial and commercial real estate funded and unfunded loan relationships at September 30, 2021 aggregated to $294.0 million, of which $193.9 million was funded compared to $254.3 million at December 31, 2020, of which $188.0 million was funded.

The Company had 180 commercial and commercial real estate relationships in excess of $5 million totaling $1.8 billion, of which $1.5 billion was funded at September 30, 2021 compared to 135 relationships totaling $1.3 billion at December 31, 2020, of which $1.2 billion was funded.

Concentrations in total construction and land development loans and total CRE loans are maintained well below regulatory limits.

Construction and land development and CRE loan concentrations as a percentage of subsidiary bank total risk based capital declined to 24% and 164%, respectively, at June 30, 2021, compared to 26% and 169%, respectively, at December 31, 2020.

Construction and land development and CRE loan concentrations as a percentage of subsidiary bank total risk based capital were 21% and 175%, respectively, at September 30, 2021, compared to 23% and 168%, respectively, at December 31, 2020.

Regulatory guidance suggests limits of 100% and 300%, respectively.

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Nonperforming Loans, Troubled Debt Restructurings, Other Real Estate Owned, and Credit Quality

Nonperforming assets (“NPAs”) at June 30, 2021 totaled $45.7 million, and were comprised of $32.9 million of nonaccrual loans, $11.0 million of other real estate owned (“OREO”), and $1.8 million of branches and other properties used in bank operations taken out of service.

Nonperforming assets (“NPAs”) at September 30, 2021 totaled $46.2 million, and were comprised of $32.6 million of nonaccrual loans, and $13.6 million of other real estate owned (“OREO”).

Compared to December 31, 2020, nonaccrual loans decreased $3.5 million, primarily the result of paydowns.

The increase in OREO of $0.8 million reflects $1.3 million of capital expenditures, $0.1 million in sales and $0.4 million in write-downs.

The decrease in OREO for bank branches of $0.8 million reflects the addition of three branch properties totaling $3.3 million, offset by the sale of four branch properties for $4.1 million.

The increase in OREO of $0.9 million reflects additions of $3.3 million, and $2.1 million of capital expenditures, offset by $4.1 million in sales and $0.4 million in write-downs.

Overall, NPAs decreased $2.6 million, or 5%, from $48.9 million as of December 31, 2020.

At June 30, 2021, approximately 82% of nonaccrual loans were secured with real estate.

At September 30, 2021, approximately 76% of nonaccrual loans were secured with real estate.

See the tables below for details about nonaccrual loans.

At June 30, 2021, nonaccrual loans were written down by approximately $6.7 million, or 10%, of the original loan balance (including reserves on individually evaluated loans).

Nonperforming loans to total loans outstanding at June 30, 2021 decreased to 0.61% from 0.63% at December 31, 2020.

Nonperforming assets to total assets at June 30, 2021 decreased to 0.49% from 0.59% at December 31, 2020.

At September 30, 2021, nonaccrual loans were written down by approximately $7.1 million, including reserves on individually evaluated loans.

Nonperforming loans to total loans outstanding at September 30, 2021 decreased to 0.55% from 0.63% at December 31, 2020.

Nonperforming assets to total assets at September 30, 2021 decreased to 0.47% from 0.59% at December 31, 2020.

The Company’s asset mitigation staff handles all foreclosure actions together with outside legal counsel.

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Company policy requires TDRs that are classified as nonaccrual loans after restructuring remain on nonaccrual until performance can be verified, which usually requires six months of performance under the restructured loan terms.

Accruing TDRs totaled $4.0 million at June 30, 2021 compared to $4.2 million at December 31, 2020.

Accruing TDRs totaled $4.0 million at September 30, 2021 compared to $4.2 million at December 31, 2020.

Accruing TDRs are excluded from the nonperforming asset ratios.

Beginning in March 2020, in response to the economic downturn resulting from the COVID-19 pandemic, the Company has offered short-term payment deferrals to affected borrowers.

As of June 30, 2021, pandemic-related deferrals totaled $6.8 million and are not considered TDRs.

If economic conditions deteriorate further, these borrowers may be unable to resume scheduled payments, which may result in further modification of terms and the potential for classification as a TDR in future periods.

As of September 30, 2021, pandemic-related deferrals totaled $2.2 million and are not considered TDRs.

If economic conditions deteriorate, these borrowers may be unable to resume scheduled payments, which may result in further modification of terms and the potential for classification as a TDR in future periods.

The table below sets forth details related to nonaccrual and accruing restructured loans.

June 30, 2021

September 30, 2021

Nonaccrual Loans Accruing

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Total $ 16,143 $ 19,967 $ 36,110 $ 4,182

At June 30, 2021 and December 31, 2020, total TDRs (performing and nonperforming) were comprised of the following loans by type of modification:

June 30, 2021 December 31, 2020

At September 30, 2021 and December 31, 2020, total TDRs (performing and nonperforming) were comprised of the following loans by type of modification:

September 30, 2021 December 31, 2020

(In thousands) Number Amount Number Amount

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Total 94 $ 8,856 106 $ 10,290

During the six months ended June 30, 2021, there were two defaults totaling $0.1 million of loans that had been modified in TDRs within the preceding twelve months.

During the six months ended June 30, 2020, there were three defaults totaling $1.4 million of loans that had been modified to a TDR within the preceding twelve months.

Loan modifications are not reported in calendar years after modification if the loans were modified at an interest rate equal to the yields of new loan originations with comparable risk and the loans are performing based on the terms of the restructuring agreements.

During the nine months ended September 30, 2021, there were two defaults totaling $0.1 million of loans that had been modified in TDRs within the preceding twelve months.

During the nine months ended September 30, 2020, there were four defaults totaling $1.4 million of loans that had been modified to a TDR within the preceding twelve months.

A restructured loan is considered in default when it becomes 90 days or more past due under the modified terms, has been transferred to nonaccrual status, has been charged off or has been transferred to OREO.

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Management estimates the allowance using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

Historical credit losses provide the basis for

estimation of expected credit losses.

Historical credit losses provide the basis for estimation of expected credit losses.

Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, loan to value ratios, borrower credit characteristics, loan seasoning or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values, occupancy rates, and other macroeconomic metrics.

During the second quarter of 2021, the Company recorded a reversal of provision of $4.9 million reflecting improvement in the economic forecast.

No allowance has been assigned to PPP loans, which are guaranteed by the U.S.

Net charge-offs for the second quarter of 2021 were $0.7 million, or 0.05%, of average loans and, for the four most recent quarters, averaged 0.10% of outstanding loans.

Excluding PPP loans, the ratio of allowance to total loans decreased to 1.60% at June 30, 2021 from 1.71% at March 31, 2021.

During the third quarter of 2021, the Company recorded a provision of $5.1 million, reflecting the impact of higher loans outstanding, including loans acquired in the Legacy Bank acquisition.

Net charge-offs for the third quarter of 2021 were $1.4 million, or 0.10% of average loans and, for the four most recent quarters, averaged 0.10% of outstanding loans.

Excluding PPP loans, the ratio of allowance to total loans decreased to 1.54% at September 30, 2021 from 1.60% at June 30, 2021.

The following tables present the activity in the allowance for credit losses on loans by segment:

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

(In thousands) Beginning

Balance Provision

Balance Initial Allowance on PCD Loans Acquired During the Period Provision

Losses Charge-

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Totals $ 81,127 $ 3,046 $ 5,091 $ (2,052) $ 620 $ (9) $ 87,823

Six Months Ended June 30, 2021

(In thousands) Beginning Balance Provision for Credit Losses Charge- Offs Recoveries TDR Allowance Adjustments Ending Balance

Nine Months Ended September 30, 2021

(In thousands) Beginning Balance Initial Impact on Allowance of PCD Loans Acquired During the Period Provision for Credit Losses Charge- Offs Recoveries TDR Allowance Adjustments Ending Balance

Construction and land development $ 4,920 $ — $ (2,438) $ — $ 124 $ (3) $ 2,603

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Totals $ 92,733 $ 3,046 $ (5,479) $ (4,777) $ 2,320 $ (20) $ 87,823

At June 30, 2021, the Company had $1.2 billion in loans secured by residential real estate and $2.5 billion in loans secured by commercial real estate, representing 23% and 47% of total loans outstanding, respectively.

At September 30, 2021, the Company had $1.5 billion in loans secured by residential real estate and $2.9 billion in loans secured by commercial real estate, representing 25% and 49% of total loans outstanding, respectively.

In addition, the Company is subject to a geographic concentration of credit because it primarily operates in Florida.

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The Company does not rely on and is not dependent upon off-balance sheet financing or significant amounts of wholesale funding.

Brokered certificates of deposit (“CDs”) at June 30, 2021 were $20.0 million, a decrease of $213.8 million, or 91%, from December 31, 2020.

Cash and cash equivalents, including interest bearing deposits, totaled $1.4 billion on a consolidated basis at June 30, 2021, compared to $404.1 million at December 31, 2020, an increase of 259%.

Higher cash and cash equivalent balances at June 30, 2021 reflect favorable deposit growth, including significant growth in transaction account deposit balances during the second quarter.

This increase in funding occurred across our customer base at near-zero rates, as new clients were onboarded and existing clients continue to see expansion in cash balances.

Brokered certificates of deposit (“CDs”) at September 30, 2021 were $20.0 million, a decrease of $213.8 million, or 91%, from December 31, 2020.

Cash and cash equivalents, including interest bearing deposits, totaled $1.2 billion on a consolidated basis at September 30, 2021, compared to $404.1 million at December 31, 2020.

Higher cash and cash equivalent balances at September 30, 2021 reflect the benefit of deposits acquired from Legacy Bank in addition to favorable organic deposit growth.

Contractual maturities for assets and liabilities are reviewed to meet current and expected future liquidity requirements.

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The Company is also able to provide short-term financing of its activities by selling, under an agreement to repurchase, United States Treasury and Government agency debt securities not pledged to secure public deposits or trust funds.

At June 30, 2021, the Company had available unsecured lines of credit of $135.0 million and secured lines of credit, which are subject to change, of $1.7 billion.

At September 30, 2021, the Company had available unsecured lines of credit of $165.0 million and secured lines of credit, which are subject to change, of $1.3 billion.

In addition, the Company had $1.7 billion of debt securities and $694.6 million in residential and commercial real estate loans available as collateral.

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The Company has traditionally relied upon dividends from Seacoast Bank and securities offerings to provide funds to pay the Company’s expenses and to service the Company’s debt.

During the second quarter of 2021, Seacoast Bank distributed $25.6 million to the Company and, at June 30, 2021, is eligible to distribute dividends to the Company of approximately $183.7 million without prior regulatory approval.

At June 30, 2021, the Company had cash and cash equivalents at the parent of approximately $87.8 million compared to $70.1 million at December 31, 2020.

During the third quarter of 2021, Seacoast Bank distributed $38.3 million to the Company and, at September 30, 2021, is eligible to distribute dividends to the Company of approximately $194.4 million without prior regulatory approval.

At September 30, 2021, the Company had cash and cash equivalents at the parent of approximately $95.5 million compared to $70.1 million at December 31, 2020.

Deposits and Borrowings

Customer relationship funding is detailed in the following table for the periods specified:

June 30, December 31,

September 30, December 31,

(In thousands, except ratios) 2021 2020

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The Company’s balance sheet continues to be primarily funded by core deposits.

Total deposits increased $0.9 billion, or 13%, to $7.8 billion at June 30, 2021, compared to $6.9 billion at December 31, 2020.

Total deposits increased $1.4 billion, or 20%, to $8.3 billion at September 30, 2021, compared to $6.9 billion at December 31, 2020.

The increase is largely the result of significant growth in transaction account deposit balances as new clients were onboarded and existing clients continue to see expansion in cash balances.

1 unchanged sentence

Noninterest demand deposits were higher by $796.7 million, or 35%, compared to year-end 2020, totaling $3.1 billion.

Noninterest demand deposits represented 38% of total deposits at June 30, 2021 and 33% at December 31, 2020.

During the six months ended June 30, 2021, $213.8 million of brokered CDs at an average rate of 1.14% matured.

Brokered CDs at June 30, 2021 totaled $20.0 million, compared to $233.8 million at December 31, 2020, and mature in the fourth quarter of 2021.

Customer repurchase agreements totaled $120.0 million at June 30, 2021, increasing $0.4 million from December 31, 2020.

Noninterest demand deposits represented 37% of total deposits at September 30, 2021 and 33% at December 31, 2020.

During the nine months ended September 30, 2021, $213.8 million of brokered CDs at an average rate of 1.14% matured.

Brokered CDs at September 30, 2021 totaled $20.0 million, compared to $233.8 million at December 31, 2020, and mature in the fourth quarter of 2021.

Customer repurchase agreements totaled $105.5 million at September 30, 2021, decreasing $14.1 million from December 31, 2020.

Repurchase agreements are offered by Seacoast to select customers who wish to sweep excess balances on a daily basis for investment purposes.

Public funds comprise a significant amount of the outstanding balance.

The Company participates in programs with third party deposit networks as part of its cash management strategy.

The Company participates in programs with third party deposit networks as part of its liquidity management strategy, particularly as it approaches $10 billion in assets.

Through these programs, the Company can offer its customers access to FDIC insurance on large balances, and the Company can retain or sell, on an overnight basis, the underlying deposits.

At June 30, 2021, the Company had sold, on an overnight basis, $115.8 million in deposits, compared to $112.7 million at December 31, 2020.

The Company expects to remain below $10 billion in assets at year end 2021, and at September 30, 2021, the Company had sold, on an

overnight basis, $233.1 million in deposits, compared to $112.7 million at December 31, 2020.

These deposits are not included in the Consolidated Balance Sheet.

No unsecured federal funds purchased were outstanding at June 30, 2021.

At June 30, 2021 and December 31, 2020, borrowings were comprised of subordinated debt of $71.5 million and $71.4 million, respectively, related to trust preferred securities issued by trusts organized or acquired by the Company, and there were no borrowings from FHLB.

For the six months ended June 30, 2020, FHLB borrowings averaged $224.9 million with a weighted average rate of 1.14%.

The weighted average interest rate of outstanding subordinated debt related to trust preferred securities was 2.40% and 3.69% for the six months ended June 30, 2021 and June 30, 2020, respectively.

No unsecured federal funds purchased were outstanding at September 30, 2021.

At September 30, 2021 and December 31, 2020, borrowings were comprised of subordinated debt of $71.6 million and $71.4 million, respectively, related to trust preferred securities issued by trusts organized or acquired by the Company, and there were no borrowings from FHLB.

For the nine months ended September 30, 2020, FHLB borrowings averaged $180.9 million with a weighted average rate of 1.08%.

The weighted average interest rate of outstanding subordinated debt related to trust preferred securities was 2.37% and 3.28% for the nine months ended September 30, 2021 and September 30, 2020, respectively.

Off-Balance Sheet Transactions

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These instruments are not recorded on the balance sheet until funds are advanced under the commitment.

Loan commitments were $1.6 billion at June 30, 2021 and $1.5 billion at December 31, 2020.

Loan commitments were $1.8 billion at September 30, 2021 and $1.5 billion at December 31, 2020.

Capital Resources

The Company’s equity capital at June 30, 2021 increased $51.9 million, or 5%, from December 31, 2020 to $1.2 billion.

The Company’s equity capital at September 30, 2021 increased $160.1 million, or 14%, from December 31, 2020 to $1.3 billion.

Changes in equity included increases from net income of $88.1 million, partially offset by the issuance of a common stock dividend totaling $14.9 million and the decrease in accumulated other comprehensive income of $15.1 million primarily attributed to the decrease in market value of available-for-sale debt securities.

The ratio of shareholders’ equity to period end total assets was 12.69% and 13.55% at June 30, 2021 and December 31, 2020, respectively.

The ratio of tangible shareholders’ equity to tangible assets was 10.43% and 11.01% at June 30, 2021 and December 31, 2020, respectively.

The ratio of shareholders’ equity to period end total assets was 13.04% and 13.55% at September 30, 2021 and December 31, 2020, respectively.

The ratio of tangible shareholders’ equity to tangible assets was 10.62% and 11.01% at September 30, 2021 and December 31, 2020, respectively.

The decrease was due to growth in the balance sheet, the result of bank acquisitions, PPP loans and associated liquidity.

Activity in shareholders’ equity for the six months ended June 30, 2021 and 2020 follows:

Activity in shareholders’ equity for the nine months ended September 30, 2021 and 2020 follows:

(In thousands) 2021 2020

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Cumulative change in accounting principle upon adoption of new accounting pronouncement — (16,876)

Issuance of stock pursuant to acquisition — 21,031

Issuance of common stock and conversion of options pursuant to acquisition 92,094 62,152

Stock compensation, net of Treasury shares acquired 9,908 4,251

1 unchanged sentence

Change in accumulated other comprehensive income (15,101) 14,758

Ending balance at June 30, 2021 and 2020

Ending balance at September 30, 2021 and 2020

$ 1,290,520 $ 1,098,341

1 unchanged sentence

Seacoast management's use of risk-based capital ratios in its analysis of the Company’s capital adequacy are “non-GAAP” financial measures.

Seacoast management uses these measures to assess the quality of capital and believes that investors may find it useful in their analysis of the Company.

Seacoast management

uses these measures to assess the quality of capital and believes that investors may find it useful in their analysis of the Company.

The capital measures are not necessarily comparable to similar capital measures that may be presented by other companies (see “ Note J – Equity Capital ”).

June 30, 2021 Seacoast

September 30, 2021 Seacoast

(Consolidated) Seacoast

5 unchanged sentences

1 For subsidiary bank only.

The Company’s total risk-based capital ratio was 19.21% at June 30, 2021, an increase from December 31, 2020’s ratio of 18.51%.

The Company’s total risk-based capital ratio was 18.56% at September 30, 2021, an increase from 18.51% at December 31, 2020.

During the first quarter of 2020, the Company adopted interagency guidance which delays the impact of CECL adoption on capital for two years followed by a three-year phase-in period.

At June 30, 2021, the Bank’s leverage ratio (Tier 1 capital to adjusted total assets) was 10.71%, well above the minimum to be well capitalized under regulatory guidelines.

At September 30, 2021, the Bank’s leverage ratio (Tier 1 capital to adjusted total assets) was 10.71%, well above the minimum to be well capitalized under regulatory guidelines.

The Company and Seacoast Bank are subject to various general regulatory policies and requirements relating to the payment of dividends, including requirements to maintain adequate capital above regulatory minimums.

46 unchanged sentences

When management determines that foreclosure is probable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

The allowance for credit losses on troubled debt restructurings (“TDRs”) is measured using the same method as all other loans held for investment, except when the value of a concession cannot be measured using a method other than the discounted cash flow method.

When the value of a concession is measured using the discounted cash flow method, the allowance for credit losses is determining by discounting the expected future cash flows at the original interest rate of the loan.

9 unchanged sentences

however, collateral values are evaluated periodically based on market information and incremental charge-offs are recorded if it is determined that collateral values have declined from their initial estimates.

Note F to the financial statements (titled “Allowance for Credit Losses”) summarizes the Company’s allocation of the allowance for credit losses on loans by loan segment and provides detail regarding charge-offs and recoveries for each loan segment and the composition of the loan portfolio at June 30, 2021 and December 31, 2020.

Acquisition Accounting and Purchased Loans – Critical Accounting Policies and Estimates

3 unchanged sentences

The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of expected principal, interest and other cash flows.

Loans are identified as purchased credit deteriorated

(“PCD”) when they have experienced more-than-insignificant deterioration in credit quality since origination.

Loans are identified as purchased credit deteriorated (“PCD”) when they have experienced more-than-insignificant deterioration in credit quality since origination.

An allowance for expected credit losses on PCD loans is recorded at the date of acquisition through an adjustment to the loans’ amortized cost basis.

11 unchanged sentences

The fair value of collateral-dependent loans, OREO and repossessed assets is typically based on current appraisals, which are reviewed quarterly to determine if fair value adjustments are necessary based on known changes in the market and/or the project assumptions.

When necessary, the appraised value may be adjusted based on more recent appraisal assumptions received by the Company on other similar properties, the tax assessed market value, comparative sales and/or an internal valuation.

Collateral-dependent loans are loans where repayment is solely dependent on the liquidation of the collateral or operation of the collateral for repayment.

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In addition, the actual costs of resolving these claims may be substantially higher or lower than the amounts reserved for the claims.

At June 30, 2021 and December 31, 2020, the Company had no significant accruals for contingent liabilities and had no known pending matters that could potentially be significant.

At September 30, 2021 and December 31, 2020, the Company had no significant accruals for contingent liabilities and had no known pending matters that could potentially be significant.

Interest Rate Sensitivity

6 unchanged sentences

The analysis of the impact on net interest income over a twelve-month period is subjected to instantaneous changes in market rates of 100 basis point increases up to 200 basis points of change on net interest income and is monitored on a quarterly basis.

The following table presents the ALCO simulation model's projected impact of a change in interest rates on the projected baseline net interest income for the 12 and 24 month periods beginning on July 1, 2021, holding all other changes in the balance sheet static.

The following table presents the ALCO simulation model's projected impact of a change in interest rates on the projected baseline net interest income for the 12 and 24 month periods beginning on October 1, 2021, holding all other changes in the balance sheet static.

This change in interest rates assumes parallel shifts in the yield curve and does not take into account changes in the slope of the yield curve.

6 unchanged sentences

-1.00% (1.8%) (7.5%)

The Company had a positive gap position based on contractual and prepayment assumptions for the next 12 months, with a positive cumulative interest rate sensitivity gap as a percentage of total earning assets of 31.6% at June 30, 2021.

This result includes assumptions for core deposit re-pricing validated for the Company by an independent third party consulting group.

10 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis