SEACOAST BANKING CORP OF FLORIDA 10-Q

Item 1. Financial Statements SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, (In thousands, except per share data) 2021 2020 2021 2020 Interest and fees on loans $ 64,424 $ 60,487 $ 187,070 $ 188,771 Interest and dividends on securities 7,918 7,097 21,070 23,609 Interest on interest bearing deposits and other investments 867 556 2,162 1,974 Total Interest Income 73,209 68,140 210,302 214,354 Interest on deposits 849 1,299 2,894 5,692 Interest on time certificates 583 2,673 2,294 11,261 Interest on borrowed money 453 665 1,378 3,449 Total Interest Expense 1,885 4,637 6,566 20,402 Net Interest Income 71,324 63,503 203,736 193,952 Provision for credit losses 5,091 ( 845 ) ( 5,479 ) 36,279 Net Interest Income after Provision for Credit Losses 66,233 64,348 209,215 157,673 Noninterest income Other income 19,058 16,942 52,220 45,387 Securities (losses) gains, net ( 30 ) 4 ( 199 ) 1,253 Total Noninterest Income (Note I – Noninterest Income and Expense) 19,028 16,946 52,021 46,640 Total Noninterest Expenses (Note I – Noninterest Income and Expense) 55,268 51,674 147,172 141,871 Income Before Income Taxes 29,993 29,620 114,064 62,442 Provision for income taxes 7,049 6,992 25,991 14,025 Net Income $ 22,944 $ 22,628 $ 88,073 $ 48,417 Share Data Net income per share of common stock Diluted $ 0.40 $ 0.42 $ 1.56 $ 0.91 Basic 0.40 0.42 1.57 0.91 Average common shares outstanding Diluted 57,645 54,301 56,441 53,325 Basic 57,148 53,978 55,954 52,926 See notes to unaudited condensed consolidated financial statements. 3 Table of Contents SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2021 2020 2021 2020 Net Income $ 22,944 $ 22,628 $ 88,073 $ 48,417 Other comprehensive income (loss): Available-for-sale securities: Unrealized gains (losses) on available-for-sale securities, net of tax benefit of $ 1.3 million and tax benefit of $ 4.3 million for the three and nine months ended September 30, 2021, respectively, and tax expense of $ 0.4 million and tax expense of $ 4.0 million for the three and nine months ended September 30, 2020, respectively $ ( 4,459 ) $ 1,890 $ ( 15,014 ) $ 16,024 Amortization of unrealized gains and losses on securities transferred to held-to-maturity, net of tax expense of $ 5 thousand and $ 16 thousand for the three and nine months ended September 30, 2021, respectively, and tax expense of $ 12 thousand and $ 36 thousand for the three and nine months ended September 30, 2020, respectively 21 43 65 137 Reclassification adjustment for losses (gains) included in net income, net of tax benefit of $ 0 and $ 19 thousand for the three and nine months ended September 30, 2021, respectively, and tax expense of $ 0 and $ 0.3 million for the three and nine months ended September 30, 2020, respectively — ( 4 ) 91 ( 1,403 ) Available-for-sale securities, net of tax $ ( 4,438 ) $ 1,929 $ ( 14,858 ) $ 14,758 Unrealized losses on derivatives designated as cash flow hedges, net of reclassifications to income, net of tax benefit of $ 32 thousand and $ 83 thousand for the three and nine months ended September 30, 2021, respectively ( 94 ) — ( 243 ) — Total other comprehensive income (loss) $ ( 4,532 ) $ 1,929 $ ( 15,101 ) $ 14,758 Comprehensive Income $ 18,412 $ 24,557 $ 72,972 $ 63,175 See notes to unaudited condensed consolidated financial statements. 4 Table of Contents SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) September 30, December 31, (In thousands, except share data) 2021 2020 Assets Cash and due from banks $ 199,460 $ 86,630 Interest bearing deposits with other banks 1,028,235 317,458 Total cash and cash equivalents 1,227,695 404,088 Time deposits with other banks 750 750 Debt securities: Securities available-for-sale (at fair value) 1,546,155 1,398,157 Securities held-to-maturity (fair value $ 518.5 million at September 30, 2021 and $ 192.2 million at December 31, 2020) 526,502 184,484 Total debt securities 2,072,657 1,582,641 Loans held for sale (at fair value) 49,597 68,890 Loans 5,905,884 5,735,349 Less: Allowance for credit losses ( 87,823 ) ( 92,733 ) Loans, net of allowance for credit losses 5,818,061 5,642,616 Bank premises and equipment, net 71,250 75,117 Other real estate owned 13,628 12,750 Goodwill 252,154 221,176 Other intangible assets, net 16,153 16,745 Bank owned life insurance 193,747 131,776 Net deferred tax assets 24,187 23,629 Other assets 153,619 162,214 Total Assets $ 9,893,498 $ 8,342,392 Liabilities Deposits $ 8,334,172 $ 6,932,561 Securities sold under agreements to repurchase, maturing within 30 days 105,548 119,609 Subordinated debt 71,576 71,365 Other liabilities 91,682 88,455 Total Liabilities 8,602,978 7,211,990 Shareholders' Equity Common stock, par value $ 0.10 per share, authorized 120,000,000 shares, issued 58,742,223 and outstanding 58,349,137 at September 30, 2021, and authorized 120,000,000 , issued 55,584,979 and outstanding 55,243,226 shares at December 31, 2020 5,835 5,524 Other shareholders' equity 1,284,685 1,124,878 Total Shareholders' Equity 1,290,520 1,130,402 Total Liabilities and Shareholders' Equity $ 9,893,498 $ 8,342,392 See notes to unaudited condensed consolidated financial statements. 5 Table of Contents SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, (In thousands) 2021 2020 Cash Flows from Operating Activities Net income $ 88,073 $ 48,417 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 4,139 4,531 Amortization of premiums and discounts on securities, net 5,353 2,890 Amortization of operating lease right-of-use assets 3,263 3,274 Other amortization and accretion, net ( 11,715 ) ( 4,402 ) Stock based compensation 7,492 5,471 Origination of loans designated for sale ( 406,392 ) ( 378,069 ) Sale of loans designated for sale 438,422 335,882 Provision for credit losses ( 5,479 ) 36,279 Deferred income taxes 3,325 ( 6,257 ) Losses (gains) on sale of securities 73 ( 1,102 ) Gains on sale of loans ( 12,450 ) ( 10,585 ) Gains on sale and write-downs of other real estate owned ( 380 ) ( 278 ) Losses on disposition of fixed assets and write-downs upon transfer of bank premises to other real estate owned 684 790 Changes in operating assets and liabilities, net of effects from acquired companies: Net decrease (increase) in other assets 4,899 ( 27,735 ) Net (decrease) increase in other liabilities ( 14,543 ) 9,174 Net cash provided by operating activities $ 104,764 $ 18,280 Cash Flows from Investing Activities Maturities and repayments of debt securities available-for-sale 417,189 211,798 Maturities and repayments of debt securities held-to-maturity 103,254 53,409 Proceeds from sale of debt securities available-for-sale 57,209 96,733 Purchases of debt securities available-for-sale ( 848,122 ) ( 626,731 ) Purchases of debt securities held-to-maturity ( 235,077 ) — Maturities of time deposits with other banks — 1,495 Net new loans and principal repayments 559,920 ( 204,282 ) Purchases of loans held for investment ( 236,699 ) — Proceeds from sale of other real estate owned 4,954 6,174 Additions to other real estate owned ( 2,134 ) ( 2,004 ) Proceeds from sale of FHLB and Federal Reserve Bank Stock 3,945 37,697 Purchase of FHLB and Federal Reserve Bank Stock ( 59 ) ( 26,976 ) Net cash from bank acquisition 98,100 71,965 Purchase of bank owned life insurance ( 50,000 ) — Additions to bank premises and equipment ( 1,697 ) ( 1,373 ) Net cash used in investing activities $ ( 129,217 ) $ ( 382,095 ) See notes to unaudited condensed consolidated financial statements. 6 Table of Contents SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, (In thousands) 2021 2020 Cash Flows from Financing Activities Net increase in deposits $ 906,690 $ 826,686 Net (decrease) increase in repurchase agreements ( 14,061 ) 3,387 Net decrease in FHLB borrowings with original maturities of three months or less — ( 235,000 ) Repayments of FHLB borrowings with original maturities of more than three months ( 33,000 ) ( 80,000 ) Proceeds from FHLB borrowings with original maturities of more than three months — 35,000 Stock based employee benefit plans 3,287 ( 1,221 ) Dividends paid ( 14,856 ) — Net cash provided by financing activities $ 848,060 $ 548,852 Net increase in cash and cash equivalents 823,607 185,037 Cash and cash equivalents at beginning of period 404,088 124,531 Cash and cash equivalents at end of period $ 1,227,695 $ 309,568 Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 8,334 $ 19,834 Cash paid during the period for taxes 28,200 21,712 Recognition of operating lease right-of-use assets, other than through bank acquisition 35 1,887 Recognition of operating lease liabilities, other than through bank acquisition 35 1,887 Supplemental disclosure of non-cash investing activities: Transfer of debt securities from available-for-sale to held-to-maturity $ 210,805 $ — Unsettled purchases of debt securities available-for-sale 8,064 — Transfers from loans to other real estate owned — 5,552 Transfers from bank premises to other real estate owned 3,318 1,289 See notes to unaudited condensed consolidated financial statements. 7 Table of Contents SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) Accumulated Other Comprehensive Income (Loss) Common Stock Paid-in Capital Retained Earnings Treasury Stock (In thousands) Shares Amount Total Balance at June 30, 2021 55,436 $ 5,544 $ 862,598 $ 314,584 $ ( 10,180 ) $ 9,801 $ 1,182,347 Comprehensive income — — — 22,944 — ( 4,532 ) 18,412 Stock based compensation expense 23 — 2,358 — — — 2,358 Common stock transactions related to stock based employee benefit plans 25 5 ( 22 ) — 34 — 17 Common stock issued for stock options 178 17 2,885 — — — 2,902 Issuance of common stock, pursuant to acquisition 2,687 269 86,218 — — — 86,487 Conversion of options, pursuant to acquisition — — 5,607 — — — 5,607 Dividends on common stock ($ 0.13 per share) — — — ( 7,610 ) — — ( 7,610 ) Three months ended September 30, 2021 2,913 291 97,046 15,334 34 ( 4,532 ) 108,173 Balance at September 30, 2021 58,349 $ 5,835 $ 959,644 $ 329,918 $ ( 10,146 ) $ 5,269 $ 1,290,520 Accumulated Other Comprehensive Income (Loss) Common Stock Paid-in Capital Retained Earnings Treasury Stock (In thousands) Shares Amount Total Balance at June 30, 2020 52,991 $ 5,299 $ 811,321 $ 204,726 $ ( 8,037 ) $ 17,294 $ 1,030,603 Comprehensive income — — — 22,628 — 1,929 24,557 Stock based compensation expense 39 — 1,948 — — — 1,948 Common stock transactions related to stock based employee benefit plans 18 6 ( 6 ) — 96 — 96 Common stock issued for stock options 1 — 16 — — — 16 Issuance of common stock, pursuant to acquisition 2,120 212 40,909 — — — 41,121 Three months ended September 30, 2020 2,178 218 42,867 22,628 96 1,929 67,738 Balance at September 30, 2020 55,169 $ 5,517 $ 854,188 $ 227,354 $ ( 7,941 ) $ 19,223 $ 1,098,341 Accumulated Other Comprehensive Income (Loss) Common Stock Paid-in Capital Retained Earnings Treasury Stock (In thousands) Shares Amount Total Balance at December 31, 2020 55,243 $ 5,524 $ 856,092 $ 256,701 $ ( 8,285 ) $ 20,370 $ 1,130,402 Comprehensive income — — — 88,073 — ( 15,101 ) 72,972 Stock based compensation expense 23 — 6,620 — — — 6,620 Common stock transactions related to stock based employee benefit plans 139 17 ( 40 ) — ( 1,861 ) — ( 1,884 ) Common stock issued for stock options 257 25 5,147 — — — 5,172 Issuance of common stock, pursuant to acquisition 2,687 269 86,218 — — — 86,487 Conversion of options, pursuant to acquisition — — 5,607 — — — 5,607 Dividends on common stock ($ 0.13 per share) — — — ( 14,856 ) — — ( 14,856 ) Nine months ended September 30, 2021 3,106 311 103,552 73,217 ( 1,861 ) ( 15,101 ) 160,118 Balance at September 30, 2021 58,349 $ 5,835 $ 959,644 $ 329,918 $ ( 10,146 ) $ 5,269 $ 1,290,520 8 Table of Contents Accumulated Other Comprehensive Income (Loss) Common Stock Paid-in Capital Retained Earnings Treasury Stock (In thousands) Shares Amount Total Balance at December 31, 2019 51,514 $ 5,151 $ 786,242 $ 195,813 $ ( 6,032 ) $ 4,465 $ 985,639 Comprehensive income — — — 48,417 — 14,758 63,175 Stock based compensation expense 39 — 5,471 — — — 5,471 Common stock transactions related to stock based employee benefit plans 395 44 ( 53 ) — ( 1,909 ) — ( 1,918 ) Common stock issued for stock options 58 6 692 — — — 698 Cumulative change in accounting principle upon adoption of new accounting pronouncement — — — ( 16,876 ) — — ( 16,876 ) Issuance of common stock, pursuant to acquisition 3,163 316 61,836 — — — 62,152 Nine months ended September 30, 2020 3,655 366 67,946 31,541 ( 1,909 ) 14,758 112,702 Balance at September 30, 2020 55,169 $ 5,517 $ 854,188 $ 227,354 $ ( 7,941 ) $ 19,223 $ 1,098,341 See notes to unaudited condensed consolidated financial statements. 9 Table of Contents SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note A – Basis of Presentation Basis of Presentation: The accompanying unaudited condensed consolidated financial statements of Seacoast Banking Corporation of Florida and its subsidiaries (the "Company") have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain prior period amounts have been reclassified to conform to the current period presentation. Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 or any other period. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. Use of Estimates: The preparation of these condensed consolidated financial statements requires management to make judgments in the application of certain accounting policies that involve significant estimates and assumptions. The Company has established policies and control procedures that are intended to ensure valuation methods are well controlled and applied consistently from period to period. These estimates and assumptions, which may materially affect the reported amounts of certain assets, liabilities, revenues and expenses, are based on information available as of the date of the financial statements, and changes in this information over time and the use of revised estimates and assumptions could materially affect amounts reported in subsequent financial statements. Specific areas, among others, requiring the application of management’s estimates include determination of the allowance for credit losses, acquisition accounting and purchased loans, intangible assets and impairment testing, other fair value measurements and contingent liabilities. Note B – Recently Issued Accounting Standards, Not Yet Adopted None applicable this period. 10 Table of Contents Note C – Earnings per Share Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted average number of shares of common stock outstanding during the period. For the three and nine months ended September 30, 2021, no options to purchase shares of the Company's common stock were anti-dilutive, compared to 508,000 shares that were excluded in the computation of diluted earnings per share for both the three and nine months ended September 30, 2020. Three Months Ended September 30, Nine Months Ended September 30, (Dollars in thousands, except per share data) 2021 2020 2021 2020 Basic earnings per share Net income $ 22,944 $ 22,628 $ 88,073 $ 48,417 Average common shares outstanding 57,148 53,978 55,954 52,926 Net income per share $ 0.40 $ 0.42 $ 1.57 $ 0.91 Diluted earnings per share Net income $ 22,944 $ 22,628 $ 88,073 $ 48,417 Average common shares outstanding 57,148 53,978 55,954 52,926 Add: Dilutive effect of employee restricted stock and stock options 497 323 487 399 Average diluted shares outstanding 57,645 54,301 56,441 53,325 Net income per share $ 0.40 $ 0.42 $ 1.56 $ 0.91 Net income has not been allocated to unvested restricted stock awards that are participating securities because the amounts that would be allocated are not material to net income per share of common stock. Unvested restricted stock awards that are participating securities represent less than one percent of all of the outstanding shares of common stock for each of the periods presented. Note D – Securities The amortized cost, gross unrealized gains and losses and fair value of securities available-for-sale and held-to-maturity at September 30, 2021 and December 31, 2020 are summarized as follows: September 30, 2021 (In thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Debt securities available-for-sale U.S. Treasury securities and obligations of U.S. government agencies $ 6,785 $ 371 $ ( 2 ) $ 7,154 Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities 1,147,743 12,378 ( 9,450 ) 1,150,671 Private mortgage-backed securities and collateralized mortgage obligations 75,754 1,710 ( 236 ) 77,228 Collateralized loan obligations 277,262 149 ( 105 ) 277,306 Obligations of state and political subdivisions 32,016 1,837 ( 57 ) 33,796 Totals $ 1,539,560 $ 16,445 $ ( 9,850 ) $ 1,546,155 Debt securities held-to-maturity Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities $ 526,502 $ 4,702 $ ( 12,740 ) $ 518,464 Totals $ 526,502 $ 4,702 $ ( 12,740 ) $ 518,464 11 Table of Contents December 31, 2020 (In thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Debt securities available-for-sale U.S. Treasury securities and obligations of U.S. government agencies $ 8,250 $ 528 $ ( 1 ) $ 8,777 Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities 1,038,437 23,457 ( 1,240 ) 1,060,654 Private mortgage-backed securities and collateralized mortgage obligations 89,284 2,131 ( 210 ) 91,205 Collateralized loan obligations 202,563 279 ( 647 ) 202,195 Obligations of state and political subdivisions 33,005 2,321 — 35,326 Totals $ 1,371,539 $ 28,716 $ ( 2,098 ) $ 1,398,157 Debt securities held-to-maturity Mortgage-backed securities of U.S. government-sponsored entities $ 184,484 $ 7,818 $ ( 123 ) $ 192,179 Totals $ 184,484 $ 7,818 $ ( 123 ) $ 192,179 Proceeds from sales of securities were $ 1.0 million for the three months ended September 30, 2021, with no gain or loss recognized. For the nine months ended September 30, 2021, proceeds from sales of securities were $ 57.2 million, resulting in gross gains of $ 0.2 million and gross losses of $ 0.3 million. For the three months ended September 30, 2020, proceeds from sales of securities were $ 4.4 million, which resulted in gross gains of $ 4 thousand and no gross losses. For the nine months ended September 30, 2020, proceeds from sales of securities were $ 96.7 million, which resulted in gross gains of $ 2.4 million and gross losses of $ 1.3 million. Also included in “Securities gains (losses), net” is a decrease of $ 30 thousand and a decrease of $ 0.1 million for the three and nine months ended September 30, 2021, respectively, and increases of $ 0.1 million and $ 0.2 million for the three and nine months ended September 30, 2020, respectively, in the value of a CRA-qualified mutual fund. During the first quarter of 2021, the Company reclassified debt securities with an amortized cost of $ 210.8 million from available-for-sale to held-to-maturity, as it has the ability and intent to hold these securities to maturity. These securities had net unrealized gains of $ 0.8 million at the date of transfer, which will continue to be reported in accumulated other comprehensive income, and will be amortized over the remaining life of the securities as an adjustment of yield. The effect on interest income of the amortization of net unrealized gains is offset by the amortization of the premium on the securities transferred. At September 30, 2021, debt securities with a fair value of $ 385.5 million were pledged primarily as collateral for public deposits and secured borrowings. The amortized cost and fair value of debt securities held-to-maturity and available-for-sale at September 30, 2021, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because prepayments of the underlying collateral for these securities may occur, due to the right to call or repay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately. 12 Table of Contents September 30, 2021 Held-to-Maturity Available-for-Sale (In thousands) Amortized Cost Fair Value Amortized Cost Fair Value Due in less than one year $ — $ — $ 1,418 $ 1,442 Due after one year through five years — — 13,892 14,828 Due after five years through ten years — — 8,376 8,764 Due after ten years — — 15,115 15,916 — — 38,801 40,950 Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities 526,502 518,464 1,147,743 1,150,671 Private mortgage-backed securities and collateralized mortgage obligations — — 75,754 77,228 Collateralized loan obligations — — 277,262 277,306 Totals $ 526,502 $ 518,464 $ 1,539,560 $ 1,546,155 The estimated fair value of a security is determined based on market quotations when available or, if not available, by using quoted market prices for similar securities, pricing models or discounted cash flows analyses, or using observable market data. The tables below indicate the fair value of available-for-sale debt securities with unrealized losses for which no allowance for credit losses has been recorded. September 30, 2021 Less Than 12 Months 12 Months or Longer Total (In thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses U.S. Treasury securities and obligations of U.S. government agencies $ — $ — $ 248 $ ( 2 ) $ 248 $ ( 2 ) Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities 660,028 ( 8,696 ) 15,350 ( 754 ) 675,378 ( 9,450 ) Private mortgage-backed securities and collateralized mortgage obligations 13,018 ( 206 ) 2,710 ( 30 ) 15,728 ( 236 ) Collateralized loan obligations 64,232 ( 58 ) 9,459 ( 47 ) 73,691 ( 105 ) Obligations of state and political subdivisions 5,443 ( 57 ) — — 5,443 ( 57 ) Totals $ 742,721 $ ( 9,017 ) $ 27,767 $ ( 833 ) $ 770,488 $ ( 9,850 ) December 31, 2020 Less Than 12 Months 12 Months or Longer Total (In thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses U.S. Treasury securities and obligations of U.S. government agencies $ — $ — $ 256 $ ( 1 ) $ 256 $ ( 1 ) Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities 203,405 ( 1,218 ) 569 ( 22 ) 203,974 ( 1,240 ) Private mortgage-backed securities and collateralized mortgage obligations 23,997 ( 210 ) — — 23,997 ( 210 ) Collateralized loan obligations 104,697 ( 102 ) 72,513 ( 545 ) 177,210 ( 647 ) Totals $ 332,099 $ ( 1,530 ) $ 73,338 $ ( 568 ) $ 405,437 $ ( 2,098 ) At September 30, 2021, the Company had $ 9.4 million of unrealized losses on mortgage-backed securities and collateralized mortgage obligations issued by government-sponsored entities having a fair value of $ 675.4 million. These securities are either explicitly or implicitly guaranteed by the U.S. government and have a long history of no credit losses. The implied government 13 Table of Contents guarantee of principal and interest payments and the high credit rating of the portfolio provide sufficient basis for the current expectation that there is no risk of loss if default were to occur. Based on the assessment of all relevant factors, the Company believes that the unrealized loss positions on these debt securities are a function of changes in investment spreads and interest rate movements and not changes in credit quality, and expects to recover the entire amortized cost basis of these securities. Therefore, at September 30, 2021, no allowance for credit losses has been recorded. At September 30, 2021, the Company had $ 0.2 million of unrealized losses on private label residential and commercial mortgage-backed securities and collateralized mortgage obligations having a fair value of $ 15.7 million. The collateral underlying these mortgage investments is primarily residential real estate. The securities have average credit support of 35 %. Based on the assessment of all relevant factors, the Company believes that the unrealized loss positions on these debt securities are a function of changes in investment spreads and interest rate movements and not changes in credit quality, and expects to recover the entire amortized cost basis of these securities. Therefore, at September 30, 2021, no allowance for credit losses has been recorded. At September 30, 2021, the Company had $ 0.1 million in unrealized losses in uncapped 3-month LIBOR floating rate collateralized loan obligations ("CLOs") having a fair value of $ 73.7 million. CLOs are special purpose vehicles and those in which the Company has invested acquire 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, these positions are in AAA and AA tranches, with average credit support of 37 % and 24 %, respectively. The Company evaluates the securities for potential credit losses by modeling expected loan-level defaults, recoveries, and prepayments for each CLO security. Based on the assessment of all relevant factors, the Company believes that the unrealized loss positions on these debt securities are a function of changes in investment spreads and interest rate movements and not changes in credit quality, and expects to recover the entire amortized cost basis of these securities. Therefore, at September 30, 2021, no allowance for credit losses has been recorded. All HTM debt securities are issued by government-sponsored entities, which are either explicitly or implicitly guaranteed by the U.S. government and have a long history of no credit losses. While the potential for default on these securities may be something greater than zero, the long history with no credit losses, the implied government guarantee of principal and interest payments and the high credit rating of the HTM portfolio provide sufficient basis for the current expectation that there is no risk of loss if default were to occur. As a result, as of September 30, 2021, no allowance for credit losses has been recorded. Included in other assets at September 30, 2021 is $ 31.5 million of Federal Home Loan Bank and Federal Reserve Bank stock stated at par value. The Company has not identified events or changes in circumstances that may have a significant adverse effect on the fair value of these cost method investment securities. Also included in other assets is a $ 9.4 million investment in a CRA-qualified mutual fund carried at fair value. Accrued interest receivable on AFS and HTM debt securities of $ 3.7 million and $ 0.8 million at September 30, 2021, respectively, and $ 3.2 million and $ 0.4 million at December 31, 2020, respectively, is also included in other assets. The Company holds 11,330 shares of Visa Class B stock, which, following resolution of Visa litigation, will be converted to Visa Class A shares. Under the current conversion ratio that became effective September 27, 2019, the Company would receive 1.6228 shares of Class A stock for each share of Class B stock for a total of 18,386 shares of Visa Class A stock. The ownership of Visa stock is related to prior ownership in Visa's network while Visa operated as a cooperative, and is recorded on the Company's financial records at a zero basis. Note E – Loans Loans held for investment are categorized into the following segments: • Construction and land development: Loans are extended to both commercial and consumer customers which are collateralized by and for the purpose of funding land development and construction projects, including 1-4 family residential construction, multi-family property and non-farm residential property where the primary source of repayment is from proceeds of the sale, refinancing or permanent financing of the property. • Commercial real estate - owner-occupied: Loans are extended to commercial customers for the purpose of acquiring real estate to be occupied by the borrower's business. These loans are collateralized by the subject property and the repayment of these loans is largely dependent on the performance of the company occupying the property. • Commercial real estate - non owner-occupied: Loans are extended to commercial customers for the purpose of acquiring commercial property where occupancy by the borrower is not their primary intent. These loans are viewed 14 Table of Contents primarily as cash flow loans, collateralized by the subject property, and the repayment of these loans is largely dependent on rental income from the successful operation of the property. • Residential real estate: Loans are extended to consumer customers and collateralized primarily by 1-4 family residential properties and include fixed and variable rate mortgages, home equity mortgages, and home equity lines of credit. Loans are primarily written based on conventional loan agency guidelines, including loans that exceed agency value limitations. Sources of repayment may be from the occupant of the residential property or from cash flows on rental income from the successful operation of the property. • Commercial and financial: Loans are extended to commercial customers. The purpose of the loans can be working capital, physical asset expansion, asset acquisition or other business purposes. Loans may be collateralized by assets owned by the borrower or the borrower's business. Commercial loans are based primarily on the historical and projected cash flow of the borrower's business and secondarily on the capacity of credit enhancements, guarantees and underlying collateral provided by the borrower. • Consumer: Loans are extended to consumer customers. The segment includes both installment loans and lines of credit which may be collateralized or non-collateralized. • Paycheck Protection Program ("PPP"): Loans originated under a temporary program established by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), and extended by the Economic Aid Act. Under the terms of the program, balances may be forgiven if the borrower uses the funds in a manner consistent with the program guidelines, and repayment is guaranteed by the U.S. government. The following tables present net loan balances by segment as of: September 30, 2021 (In thousands) Portfolio Loans Acquired Non-PCD Loans PCD Loans Total Construction and land development $ 190,344 $ 37,067 $ 48 $ 227,459 Commercial real estate - owner-occupied 951,119 218,128 32,089 1,201,336 Commercial real estate - non owner-occupied 1,166,220 428,095 79,272 1,673,587 Residential real estate 1,278,138 181,344 7,847 1,467,329 Commercial and financial 865,064 97,642 19,846 982,552 Consumer 157,916 5,092 11 163,019 Paycheck Protection Program 153,842 36,760 — 190,602 Totals $ 4,762,643 $ 1,004,128 $ 139,113 $ 5,905,884 December 31, 2020 (In thousands) Portfolio Loans Acquired Non-PCD Loans PCD Loans Total Construction and land development $ 216,420 $ 26,250 $ 2,438 $ 245,108 Commercial real estate - owner occupied 854,769 247,090 39,451 1,141,310 Commercial real estate - non-owner occupied 1,043,459 323,273 29,122 1,395,854 Residential real estate 1,155,914 176,105 10,609 1,342,628 Commercial and financial 743,846 94,627 16,280 854,753 Consumer 181,797 6,660 278 188,735 Paycheck Protection Program 515,532 51,429 — 566,961 Totals $ 4,711,737 $ 925,434 $ 98,178 $ 5,735,349 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 September 30, 2021, the remaining fair value adjustments on acquired loans were $ 26.6 million, or 2.3 %, of the outstanding acquired loan balances, compared to $ 30.2 million, or 2.9 %, of the acquired loan balances at December 31, 2020. These amounts are accreted into interest income over the remaining lives of the related loans on a level yield basis. 15 Table of Contents Accrued interest receivable is included within Other Assets and was $ 15.2 million and $ 25.8 million at September 30, 2021 and December 31, 2020, respectively. The following tables present the status of net loan balances as of September 30, 2021 and December 31, 2020. Loans on short-term payment deferral at the reporting date are reported as current. September 30, 2021 (In thousands) Current Accruing 30-59 Days Past Due Accruing 60-89 Days Past Due Accruing Greater Than 90 Days Nonaccrual Total Portfolio Loans Construction and land development $ 190,310 $ — $ — $ — $ 34 $ 190,344 Commercial real estate - owner-occupied 949,282 671 — — 1,166 951,119 Commercial real estate - non owner-occupied 1,164,458 — — — 1,762 1,166,220 Residential real estate 1,267,081 340 35 — 10,682 1,278,138 Commercial and financial 856,579 1,179 99 1,814 5,393 865,064 Consumer 157,468 269 34 — 145 157,916 Paycheck Protection Program 1 153,484 358 — — — 153,842 Total Portfolio Loans $ 4,738,662 $ 2,817 $ 168 $ 1,814 $ 19,182 $ 4,762,643 Acquired Non-PCD Loans Construction and land development $ 37,067 $ — $ — $ — $ — $ 37,067 Commercial real estate - owner-occupied 217,436 — 692 — — 218,128 Commercial real estate - non owner-occupied 427,170 — — — 925 428,095 Residential real estate 178,504 300 — — 2,540 181,344 Commercial and financial 96,799 334 — — 509 97,642 Consumer 4,639 15 — — 438 5,092 Paycheck Protection Program 1 36,760 — — — — 36,760 Total Acquired Non-PCD Loans $ 998,375 $ 649 $ 692 $ — $ 4,412 $ 1,004,128 PCD Loans Construction and land development $ 42 $ — $ — $ — $ 6 $ 48 Commercial real estate - owner-occupied 28,739 — — — 3,350 32,089 Commercial real estate - non owner-occupied 76,768 — — — 2,504 79,272 Residential real estate 6,007 24 — — 1,816 7,847 Commercial and financial 17,678 743 83 — 1,342 19,846 Consumer 11 — — 11 Total PCD Loans $ 129,245 $ 767 $ 83 $ — $ 9,018 $ 139,113 Total Loans $ 5,866,282 $ 4,233 $ 943 $ 1,814 $ 32,612 $ 5,905,884 1 Paycheck Protection Program loans are not reflected as past due when forgiveness applications are being processed by the SBA. Repayment of principal and interest is fully guaranteed by the U.S. government. 16 Table of Contents December 31, 2020 (In thousands) Current Accruing 30-59 Days Past Due Accruing 60-89 Days Past Due Accruing Greater Than 90 Days Nonaccrual Total Portfolio Loans Construction and land development $ 216,262 $ — $ — $ — $ 158 $ 216,420 Commercial real estate - owner occupied 851,222 1,076 — — 2,471 854,769 Commercial real estate - non-owner occupied 1,041,306 — — — 2,153 1,043,459 Residential real estate 1,142,893 3,002 1,427 61 8,531 1,155,914 Commercial and financial 737,362 135 1,967 — 4,382 743,846 Consumer 180,879 203 138 2 575 181,797 Paycheck Protection Program 515,532 — — — — 515,532 Total Portfolio Loans $ 4,685,456 $ 4,416 $ 3,532 $ 63 $ 18,270 $ 4,711,737 Acquired Non-PCD Loans Construction and land development $ 26,250 $ — $ — $ — $ — $ 26,250 Commercial real estate - owner occupied 244,486 — — — 2,604 247,090 Commercial real estate - non-owner occupied 322,264 — — — 1,009 323,273 Residential real estate 171,507 1,605 104 — 2,889 176,105 Commercial and financial 93,223 216 — — 1,188 94,627 Consumer 6,640 20 — — — 6,660 Paycheck Protection Program 51,429 — — — — 51,429 Total Acquired Non-PCD Loans $ 915,799 $ 1,841 $ 104 $ — $ 7,690 $ 925,434 PCD Loans Construction and land development $ 2,429 $ — $ — $ — $ 9 $ 2,438 Commercial real estate - owner occupied 36,345 — — — 3,106 39,451 Commercial real estate - non-owner occupied 24,200 — — — 4,922 29,122 Residential real estate 9,537 — — — 1,072 10,609 Commercial and financial 15,121 125 — — 1,034 16,280 Consumer 271 — — — 7 278 Total PCD Loans $ 87,903 $ 125 $ — $ — $ 10,150 $ 98,178 Total Loans $ 5,689,158 $ 6,382 $ 3,636 $ 63 $ 36,110 $ 5,735,349 All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest subsequently received on such loans is accounted for under the cost-recovery method, whereby interest income is not recognized until the loan balance is reduced to zero. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, and future payments are reasonably assured. The Company recognized $ 0.3 million and $ 0.1 million in interest income on nonaccrual loans during the three months ended September 30, 2021 and 2020, respectively. The Company recognized $ 0.9 million and $ 0.5 million in interest income on nonaccrual loans during the nine months ended September 30, 2021 and 2020, respectively. 17 Table of Contents The following tables present net balances of loans on nonaccrual status and the related allowance for credit losses, if any, as of: September 30, 2021 (In thousands) Nonaccrual Loans With No Related Allowance Nonaccrual Loans With an Allowance Total Nonaccrual Loans Allowance for Credit Losses Construction and land development $ 40 $ — $ 40 $ — Commercial real estate - owner-occupied 3,490 1,026 4,516 417 Commercial real estate - non owner-occupied 3,739 1,452 5,191 95 Residential real estate 14,345 693 15,038 362 Commercial and financial 3,443 3,801 7,244 2,658 Consumer 33 550 583 550 Totals $ 25,090 $ 7,522 $ 32,612 $ 4,082 December 31, 2020 (In thousands) Nonaccrual Loans With No Related Allowance Nonaccrual Loans With an Allowance Total Nonaccrual Loans Allowance for Credit Losses Construction and land development $ 148 $ 19 $ 167 $ 8 Commercial real estate - owner-occupied 7,893 288 8,181 287 Commercial real estate - non owner-occupied 5,666 2,418 8,084 1,640 Residential real estate 9,520 2,972 12,492 1,587 Commercial and financial 3,175 3,429 6,604 2,235 Consumer 222 360 582 75 Totals $ 26,624 $ 9,486 $ 36,110 $ 5,832 Collateral-Dependent Loans Loans are considered collateral-dependent when the repayment, based on the Company's assessment as of the reporting date, is expected to be provided substantially through the operation or sale of the underlying collateral and there are no other available and reliable sources of repayment. The following table presents collateral-dependent loans as of: (In thousands) September 30, 2021 December 31, 2020 Construction and land development $ 31 $ 189 Commercial real estate - owner-occupied 5,152 11,992 Commercial real estate - non owner-occupied 5,190 7,285 Residential real estate 15,039 16,652 Commercial and financial 9,302 11,198 Consumer 583 586 Totals $ 35,297 $ 47,902 Loans by Risk Rating The Company utilizes an internal asset classification system as a means of identifying problem and potential problem loans. The following classifications are used to categorize loans under the internal classification system: • Pass: Loans that are not problem loans or potential problem loans are considered to be pass-rated. • Special Mention: Loans that do not currently expose the Company to sufficient risk to warrant classification in the Substandard or Doubtful categories, but possess weaknesses that deserve management's close attention are deemed to be Special Mention. 18 Table of Contents • Substandard: Loans with the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. • Substandard Impaired: Loans typically placed on nonaccrual and considered to be collateral-dependent or accruing TDRs. • Doubtful: Loans that have all the weaknesses inherent in those classified Substandard with the added characteristic that the weakness present makes collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The principal balance of loans classified as doubtful are likely to be charged off. The following tables present the risk rating of loans by year of origination as of: September 30, 2021 (In thousands) 2021 2020 2019 2018 2017 Prior Revolving Total Construction and Land Development Risk Ratings: Pass $ 62,879 $ 38,326 $ 38,517 $ 26,344 $ 4,771 $ 20,952 $ 35,590 $ 227,379 Special Mention — — — — — — — — Substandard — — — — — — — — Substandard Impaired — — — — — 80 — 80 Doubtful — — — — — — — — Total $ 62,879 $ 38,326 $ 38,517 $ 26,344 $ 4,771 $ 21,032 $ 35,590 $ 227,459 Commercial real estate - owner-occupied Risk Ratings: Pass $ 155,499 $ 159,752 $ 186,442 $ 142,027 $ 132,413 $ 385,244 $ 8,951 $ 1,170,328 Special Mention — 6,588 5,416 655 220 5,690 — 18,569 Substandard — — — 77 3,903 2,770 — 6,750 Substandard Impaired — — 2,811 256 1,104 1,518 — 5,689 Doubtful — — — — — — — — Total $ 155,499 $ 166,340 $ 194,669 $ 143,015 $ 137,640 $ 395,222 $ 8,951 $ 1,201,336 Commercial real estate - non owner-occupied Risk Ratings: Pass $ 248,842 $ 201,940 $ 303,903 $ 202,400 $ 123,851 $ 513,792 $ 7,203 $ 1,601,931 Special Mention — — 2,363 — 1,620 8,397 — 12,380 Substandard — 4,798 3,856 24,078 1,907 19,446 — 54,085 Substandard Impaired — — 1,052 — — 4,139 — 5,191 Doubtful — — — — — — — — Total $ 248,842 $ 206,738 $ 311,174 $ 226,478 $ 127,378 $ 545,774 $ 7,203 $ 1,673,587 Residential real estate Risk Ratings: Pass $ 364,563 $ 119,039 $ 110,560 $ 136,044 $ 132,151 $ 243,005 $ 342,581 $ 1,447,943 Special Mention — — — 47 — 205 285 537 Substandard — — — — — 160 35 195 Substandard Impaired — 488 728 40 5,358 9,335 2,705 18,654 Doubtful — — — — — — — — Total $ 364,563 $ 119,527 $ 111,288 $ 136,131 $ 137,509 $ 252,705 $ 345,606 $ 1,467,329 19 Table of Contents September 30, 2021 (In thousands) 2021 2020 2019 2018 2017 Prior Revolving Total Commercial and financial Risk Ratings: Pass $ 229,168 $ 187,063 $ 107,743 $ 83,267 $ 45,562 $ 60,048 $ 222,822 $ 935,673 Special Mention 563 16,137 219 247 275 149 406 17,996 Substandard — 388 4,502 3,666 1,491 3,333 25 13,405 Substandard Impaired — — 5,394 4,335 1,698 3,389 662 15,478 Doubtful — — — — — — — — Total $ 229,731 $ 203,588 $ 117,858 $ 91,515 $ 49,026 $ 66,919 $ 223,915 $ 982,552 Consumer Risk Ratings: Pass $ 32,239 $ 34,927 $ 30,164 $ 19,961 $ 12,050 $ 18,097 $ 12,838 $ 160,276 Special Mention — 38 90 57 42 50 1,477 1,754 Substandard — — — 11 35 — 198 244 Substandard Impaired — 15 59 25 79 129 438 745 Doubtful — — — — — — — — Total $ 32,239 $ 34,980 $ 30,313 $ 20,054 $ 12,206 $ 18,276 $ 14,951 $ 163,019 Paycheck Protection Program Risk Ratings: Pass $ 182,082 $ 8,520 $ — $ — $ — $ — $ — $ 190,602 Total $ 182,082 $ 8,520 $ — $ — $ — $ — $ — $ 190,602 Consolidated Risk Ratings: Pass $ 1,275,272 $ 749,567 $ 777,329 $ 610,043 $ 450,798 $ 1,241,138 $ 629,985 $ 5,734,132 Special Mention 563 22,763 8,088 1,006 2,157 14,491 2,168 51,236 Substandard — 5,186 8,358 27,832 7,336 25,709 258 74,679 Substandard Impaired — 503 10,044 4,656 8,239 18,590 3,805 45,837 Doubtful — — — — — — — — Total $ 1,275,835 $ 778,019 $ 803,819 $ 643,537 $ 468,530 $ 1,299,928 $ 636,216 $ 5,905,884 December 31, 2020 (In thousands) 2020 2019 2018 2017 2016 Prior Revolving Total Construction and Land Development Risk Ratings: Pass $ 62,107 $ 52,384 $ 46,067 $ 15,873 $ 7,335 $ 17,873 $ 35,324 $ 236,963 Special Mention 206 245 5,918 — — 1,449 — 7,818 Substandard — — — — — 51 — 51 Substandard Impaired — — — 37 — 239 — 276 Doubtful — — — — — — — — Total $ 62,313 $ 52,629 $ 51,985 $ 15,910 $ 7,335 $ 19,612 $ 35,324 $ 245,108 Commercial real estate - owner-occupied Risk Ratings: Pass $ 155,953 $ 198,559 $ 156,276 $ 138,341 $ 148,389 $ 287,772 $ 14,255 $ 1,099,545 Special Mention 5,773 1,858 3,305 — 4,471 4,050 2 19,459 Substandard — — — 4,709 1,955 5,508 — 12,172 Substandard Impaired — 3,151 747 1,362 — 4,874 — 10,134 Doubtful — — — — — — — — Total $ 161,726 $ 203,568 $ 160,328 $ 144,412 $ 154,815 $ 302,204 $ 14,257 $ 1,141,310 20 Table of Contents December 31, 2020 (In thousands) 2020 2019 2018 2017 2016 Prior Revolving Total Commercial real estate - non owner-occupied Risk Ratings: Pass $ 159,299 $ 313,287 $ 201,112 $ 123,357 $ 175,623 $ 356,943 $ 8,596 $ 1,338,217 Special Mention — 431 9,487 7,580 10,240 114 — 27,852 Substandard — — 9,709 — 8,311 3,682 — 21,702 Substandard Impaired — 2,418 — — 125 5,540 — 8,083 Doubtful — — — — — — — — Total $ 159,299 $ 316,136 $ 220,308 $ 130,937 $ 194,299 $ 366,279 $ 8,596 $ 1,395,854 Residential real estate Risk Ratings: Pass $ 96,819 $ 144,329 $ 204,077 $ 205,046 $ 160,612 $ 159,742 $ 350,502 $ 1,321,127 Special Mention — — 33 720 — 966 479 2,198 Substandard 350 — — 896 — 1,452 100 2,798 Substandard Impaired 109 726 1,520 1,762 715 9,671 2,002 16,505 Doubtful — — — — — — — — Total $ 97,278 $ 145,055 $ 205,630 $ 208,424 $ 161,327 $ 171,831 $ 353,083 $ 1,342,628 Commercial and financial Risk Ratings: Pass $ 214,774 $ 146,511 $ 103,769 $ 60,782 $ 39,692 $ 53,758 $ 204,304 $ 823,590 Special Mention 71 946 965 5,612 67 635 209 8,505 Substandard 154 41 3,016 1,609 553 3,239 764 9,376 Substandard Impaired 317 4,595 3,199 2,292 2,074 704 81 13,262 Doubtful 1 — — — — — — 20 20 Total $ 215,316 $ 152,093 $ 110,949 $ 70,295 $ 42,386 $ 58,336 $ 205,378 $ 854,753 Consumer Risk Ratings: Pass $ 46,476 $ 43,143 $ 30,433 $ 18,937 $ 21,880 $ 9,488 $ 15,089 $ 185,446 Special Mention 58 27 14 41 42 21 1,854 2,057 Substandard — — — 42 4 151 228 425 Substandard Impaired 7 50 193 24 329 183 21 807 Doubtful — — — — — — — — Total $ 46,541 $ 43,220 $ 30,640 $ 19,044 $ 22,255 $ 9,843 $ 17,192 $ 188,735 Paycheck Protection Program Risk Ratings: Pass $ 566,961 $ — $ — $ — $ — $ — $ — $ 566,961 Total $ 566,961 $ — $ — $ — $ — $ — $ — $ 566,961 Consolidated Risk Ratings: Pass $ 1,302,389 $ 898,213 $ 741,734 $ 562,336 $ 553,531 $ 885,576 $ 628,070 $ 5,571,849 Special Mention 6,108 3,507 19,722 13,953 14,820 7,235 2,544 67,889 Substandard 504 41 12,725 7,256 10,823 14,083 1,092 46,524 Substandard Impaired 433 10,940 5,659 5,477 3,243 21,211 2,104 49,067 Doubtful 1 — — — — — — 20 20 Total $ 1,309,434 $ 912,701 $ 779,840 $ 589,022 $ 582,417 $ 928,105 $ 633,830 $ 5,735,349 1 Loans classified as doubtful are fully reserved at December 31, 2020. Loans Modified in Connection with COVID-19 Pandemic The CARES Act, which was signed into law on March 27, 2020, and amended by the Consolidated Appropriations Act on December 27, 2020, encourages financial institutions to practice prudent efforts to work with borrowers financially impacted by the COVID-19 pandemic by providing an option to exclude from TDR consideration certain loan modifications that might otherwise be categorized as TDRs under ASC 310-40. This option is available for modifications that are deemed to be COVID-related, where the borrower was not more than 30 days past due on December 31, 2019, and the modification is executed between March 1, 2020 and the earlier of (i) January 1, 2022 or (ii) 60 days after the end of the COVID-19 national emergency. 21 Table of Contents Federal banking regulators issued similar guidance that also allows lenders to conclude that short-term modifications for borrowers affected by the pandemic should not be considered TDRs if the borrower was current at the time of modification. Seacoast has provided financially impacted borrowers with loan accommodations, primarily consisting of payment deferrals of up to six months. At its peak on June 30, 2020, loans on deferral represented $ 1.1 billion, or 21 %, of total non-PPP loans. In the second half of 2020, the large majority of these borrowers successfully resumed making contractual payments, and the level of loans with accommodations has decreased to $ 2.2 million, or 0.04 %, of total non-PPP loans as of September 30, 2021. Types of accommodations have included a combination of one or more of the following: full payment deferral, partial payment deferral, reduction of interest rate, extension of the original maturity date, or re-amortization of the facility. The following table presents the balance of loans with active payment accommodations at the specified dates, excluding PPP loans: (In thousands) September 30, 2021 December 31, 2020 Construction and land development $ — $ 1,032 Commercial real estate - owner-occupied 582 14,248 Commercial real estate - non owner-occupied — 32,549 Residential real estate 610 12,839 Commercial and financial 624 11,915 Consumer 338 1,479 Totals $ 2,154 $ 74,062 Troubled Debt Restructured Loans The Company’s TDR concessions granted to certain borrowers generally do not include forgiveness of principal balances, but may include interest rate reductions, an extension of the amortization period and/or converting the loan to interest only for a limited period of time. 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. The following table presents loans that were modified in a troubled debt restructuring during the three and nine months ended: Three Months Ended September 30, 2021 2020 (In thousands) Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Construction and land development — $ — $ — — $ — $ — Commercial real estate - owner-occupied — — — — — — Commercial real estate - non owner-occupied — — — — — — Residential real estate 1 152 152 — — — Commercial and financial — — — — — — Consumer — — — 1 41 41 Totals 1 $ 152 $ 152 1 $ 41 $ 41 22 Table of Contents Nine Months Ended September 30, 2021 2020 (In thousands) Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Construction and land development — $ — $ — — $ — $ — Commercial real estate - owner-occupied — — — — — — Commercial real estate - non owner-occupied — — — — — — Residential real estate 4 231 231 1 45 45 Commercial and financial 1 142 142 4 437 437 Consumer — — — 3 88 88 Totals 5 $ 373 $ 373 8 $ 570 $ 570 The TDRs described above resulted in a specific allowance for credit losses of $ 0.2 million as of September 30, 2021 and September 30, 2020. 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. The Company considers a loan to have defaulted when it becomes 90 days or more delinquent under the modified terms, has been transferred to nonaccrual status, is charged off or has been transferred to other real estate owned. For loans measured based on the present value of expected future cash flows, $ 9,000 and $ 19,000 for the three months ended September 30, 2021, and 2020, respectively, and $ 20,000 and $ 65,000 for the nine months ended September 30, 2021, and 2020, respectively, was included in interest income and represents the change in present value attributable to the passage of time. 23 Table of Contents Note F – Allowance for Credit Losses Activity in the allowance for credit losses is summarized as follows: Three Months Ended September 30, 2021 (In thousands) Beginning Balance Initial Allowance on PCD Loans Acquired During the Period Provision for Credit Losses Charge- Offs Recoveries TDR Allowance Adjustments Ending Balance Construction and land development $ 4,053 $ — $ ( 1,459 ) $ — $ 10 $ ( 1 ) $ 2,603 Commercial real estate - owner-occupied 8,676 — ( 24 ) — — — 8,652 Commercial real estate - non owner-occupied 34,807 1,327 5,278 ( 1,327 ) — — 40,085 Residential real estate 12,543 — 1,456 ( 27 ) 158 ( 3 ) 14,127 Commercial and financial 18,016 1,719 ( 2 ) ( 535 ) 326 — 19,524 Consumer 3,032 — ( 158 ) ( 163 ) 126 ( 5 ) 2,832 Paycheck Protection Program — — — — — — — Totals $ 81,127 $ 3,046 $ 5,091 $ ( 2,052 ) $ 620 $ ( 9 ) $ 87,823 Three Months Ended September 30, 2020 (In thousands) Beginning Balance Initial Allowance on PCD Loans Acquired During the Period Provision for Credit Losses Charge- Offs Recoveries TDR Allowance Adjustments Ending Balance Construction and land development $ 7,161 $ 39 $ 475 $ — $ 26 $ — $ 7,701 Commercial real estate - owner occupied 5,562 954 689 — 26 ( 12 ) 7,219 Commercial real estate - non-owner occupied 38,992 2,096 ( 7,050 ) ( 25 ) 5 — 34,018 Residential real estate 20,453 27 ( 3,196 ) ( 19 ) 65 ( 5 ) 17,325 Commercial and financial 15,514 2,632 8,081 ( 1,776 ) 203 — 24,654 Consumer 3,568 15 ( 244 ) ( 355 ) 114 ( 2 ) 3,096 Paycheck Protection Program — — — — — — — Totals $ 91,250 $ 5,763 $ ( 1,245 ) $ ( 2,175 ) $ 439 $ ( 19 ) $ 94,013 Nine Months Ended September 30, 2021 (In thousands) Beginning Balance Initial Allowance on 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 Commercial real estate - owner-occupied 9,868 — ( 1,216 ) — — — 8,652 Commercial real estate - non owner-occupied 38,266 1,327 1,817 ( 1,327 ) 2 — 40,085 Residential real estate 17,500 — ( 4,323 ) ( 48 ) 1,008 ( 10 ) 14,127 Commercial and financial 18,690 1,719 1,172 ( 2,855 ) 798 — 19,524 Consumer 3,489 — ( 491 ) ( 547 ) 388 ( 7 ) 2,832 Paycheck Protection Program — — — — — — Totals $ 92,733 $ 3,046 $ ( 5,479 ) $ ( 4,777 ) $ 2,320 $ ( 20 ) $ 87,823 24 Table of Contents Nine Months Ended September 30, 2020 (In thousands) Beginning Balance Impact of Adoption of ASC 326 Initial Allowance on PCD Loans Acquired During the Period Provision for Credit Losses Charge- Offs Recoveries TDR Allowance Adjustments Ending Balance Construction and land development $ 1,842 $ 1,479 $ 87 $ 4,202 $ — $ 92 $ ( 1 ) $ 7,701 Commercial real estate - owner occupied 5,361 80 1,161 655 ( 45 ) 44 ( 37 ) 7,219 Commercial real estate - non-owner occupied 7,863 9,341 2,236 14,578 ( 37 ) 37 — 34,018 Residential real estate 7,667 5,787 124 3,638 ( 150 ) 283 ( 24 ) 17,325 Commercial and financial 9,716 3,677 2,643 12,144 ( 4,642 ) 1,116 — 24,654 Consumer 2,705 862 28 662 ( 1,442 ) 284 ( 3 ) 3,096 Paycheck Protection Program — — — — — — — — Totals $ 35,154 $ 21,226 $ 6,279 $ 35,879 $ ( 6,316 ) $ 1,856 $ ( 65 ) $ 94,013 Management establishes the allowance using relevant available information from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts to project losses over a three-year forecast period. Forecast data is sourced primarily from Moody’s Analytics, a firm widely recognized for its research, analysis, and economic forecasts. For portfolio segments with a weighted average life longer than three years, the Company reverts to longer-term historical loss experience to estimate losses over the remaining life of the loans within each segment. Historical credit losses provide the basis for the 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 current and forecasted environmental conditions, such as changes in unemployment rates, property values, occupancy rates, and other macroeconomic metrics. As of September 30, 2021, the Company utilized Moody’s most recent “U.S. Macroeconomic Outlook Baseline” scenario and considered the uncertainty associated with the assumptions in the Baseline scenario, including the potential for increasing COVID-19 infections, including from variants, and the resulting potential erosion in consumer confidence, and the risk that government stimulus programs are less effective than expected. Outcomes in any or all of these factors could differ from the Baseline scenario, and the Company incorporated qualitative considerations reflecting the risk of uncertain economic conditions, and for additional dimensions of risk not captured in the quantitative model. In the Construction and Land Development segment, the decrease in reserves during the quarter reflects lower loan balances and improved economic variables relating to residential real estate. In this segment, the primary source of repayment is typically from proceeds of the sale, refinancing, or permanent financing of the underlying property; therefore, industry and collateral type and estimated collateral values are among the relevant factors in assessing expected losses. In the Commercial Real Estate - Owner-Occupied segment, increases in the allowance resulting from loan growth were offset by the impact of improved economic variables relating to unemployment. Risk characteristics include but are not limited to, collateral type, loan seasoning, and lien position. In the Commercial Real Estate - Non Owner-Occupied segment, the increase in reserves reflects higher loan balances, partially offset by improved economic forecast variables including lower unemployment. Repayment is often dependent upon rental income from the successful operation of the underlying property. Loan performance may be adversely affected by general economic conditions or conditions specific to the real estate market, including property types. Collateral type, loan seasoning, and lien position are among the risk characteristics analyzed for this segment. The Residential Real Estate segment includes first mortgages secured by residential property, and home equity lines of credit. The increase in reserves reflects the impact of higher loan balances resulting from organic growth and loans acquired, partially offset by improved economic forecast variables including lower unemployment. Risk characteristics considered for this segment include, but are not limited to, collateral type, lien position, loan to value ratios, and loan seasoning. In the Commercial and Financial segment, borrowers are primarily small to medium sized professional firms and other businesses, and loans are generally supported by projected cash flows of the business, collateralized by business assets, and/or 25 Table of Contents guaranteed by the business owners. The increase in reserves is attributed to higher loan balances. Industry, collateral type, estimated collateral values and loan seasoning are among the relevant factors in assessing expected losses. Consumer loans include installment and revolving lines, loans for automobiles, boats, and other personal or family purposes. Risk characteristics considered for this segment include, but are not limited to, collateral type, loan to value ratios, loan seasoning and FICO score. The decline in the reserve during the quarter reflects lower loan balances and improved economic forecast variables. Balances outstanding under the Paycheck Protection Program are guaranteed by the U.S. government and have not been assigned a reserve. The allowance for credit losses is composed of specific allowances for loans individually evaluated and general allowances for loans grouped into loan pools based on similar characteristics, which are collectively evaluated. The Company’s loan portfolio and related allowance at September 30, 2021 and December 31, 2020 is shown in the following tables: September 30, 2021 Individually Evaluated Collectively Evaluated Total (In thousands) Recorded Investment Associated Allowance Recorded Investment Associated Allowance Recorded Investment Associated Allowance Construction and land development $ 80 $ 3 $ 227,379 $ 2,600 $ 227,459 $ 2,603 Commercial real estate - owner occupied 5,689 420 1,195,647 8,232 1,201,336 8,652 Commercial real estate - non owner-occupied 5,190 95 1,668,397 39,990 1,673,587 40,085 Residential real estate 18,654 513 1,448,675 13,614 1,467,329 14,127 Commercial and financial 15,478 3,350 967,074 16,174 982,552 19,524 Consumer 746 565 162,273 2,267 163,019 2,832 Paycheck Protection Program — — 190,602 — 190,602 — Totals $ 45,837 $ 4,946 $ 5,860,047 $ 82,877 $ 5,905,884 $ 87,823 December 31, 2020 Individually Evaluated Collectively Evaluated Total (In thousands) Recorded Investment Associated Allowance Recorded Investment Associated Allowance Recorded Investment Associated Allowance Construction and land development $ 276 $ 13 $ 244,832 $ 4,907 $ 245,108 $ 4,920 Commercial real estate - owner occupied 10,243 402 1,131,067 9,466 1,141,310 9,868 Commercial real estate - non owner-occupied 8,083 1,640 1,387,771 36,626 1,395,854 38,266 Residential real estate 16,506 2,064 1,326,122 15,436 1,342,628 17,500 Commercial and financial 13,281 3,498 841,472 15,192 854,753 18,690 Consumer 807 91 187,928 3,398 188,735 3,489 Paycheck Protection Program — — 566,961 — 566,961 — Totals $ 49,196 $ 7,708 $ 5,686,153 $ 85,025 $ 5,735,349 $ 92,733 26 Table of Contents Note G – Derivatives Back-to-Back Swaps The Company offers interest rate swaps when requested by customers to allow them to hedge the risk of rising interest rates on their variable rate loans. Upon entering into these swaps, the Company enters into offsetting positions with counterparties in order to minimize the interest rate risk. These back-to-back swaps qualify as freestanding financial derivatives with the fair values reported in other assets and other liabilities. The Company is party to master netting arrangements with its financial institution counterparties; however, the Company does not offset assets and liabilities under the arrangements for financial statement presentation purposes. Gains and losses on these back-to-back swaps, which offset, are recorded through noninterest income. No net gains or losses have been recognized to date on these instruments. As of September 30, 2021, the interest rate swaps had an aggregate notional value of $ 180.6 million, with a fair value of $ 9.1 million recorded in other assets and other liabilities. As of December 31, 2020, the interest rate swaps had an aggregate notional value of $ 182.4 million, with a fair value of $ 13.3 million recorded in other assets and other liabilities. The weighted average maturity was 6.9 years at September 30, 2021 and 7.5 years at December 31, 2020. Interest Rate Floors Designated as Cash Flow Hedges The Company has entered into interest rate floor contracts to mitigate exposure to the variability of future cash flows due to changes in interest rates on certain segments of its variable-rate loans. During 2020, the Company entered into two interest rate floor contracts, each with a notional amount of $ 150.0 million, maturing in October 2023 and November 2023. The Company considers these derivatives to be highly effective at achieving offsetting changes in cash flows attributable to changes in interest rates and has designated them as cash flow hedges. Therefore, changes in the fair value of these derivative instruments are recognized in other comprehensive income. Amortization of the premium paid on cash flow hedges is recognized in earnings over the term of the hedge in the same caption as the hedged item. For the three and nine months ended September 30, 2021, the Company recognized a loss through other comprehensive income of $ 0.2 million and $ 0.5 million, respectively, and reclassified $ 0.1 million and $ 0.2 million, respectively, out of accumulated other comprehensive income and into interest income. As of September 30, 2021 and December 31, 2020, the interest rate floors had a fair value of $ 0.5 million and $ 1.0 million, respectively, recorded in other assets in the consolidated balance sheet. Over the next twelve months the Company expects to reclassify $ 0.4 million from accumulated other comprehensive income into interest income related to these agreements. (In thousands) Notional Amount Fair Value Balance Sheet Category At September 30, 2021 Back-to-back swaps $ 180,610 $ 9,110 Other Assets and Other Liabilities Interest rate floors 300,000 514 Other Assets At December 31, 2020 Back-to-back swaps $ 182,379 $ 13,339 Other Assets and Other Liabilities Interest rate floors 300,000 1,004 Other Assets Note H – Securities Sold Under Agreements to Repurchase Securities sold under agreements to repurchase are accounted for as secured borrowings. For securities sold under agreements to repurchase, the Company is required to pledge collateral with value sufficient to fully collateralized borrowings. Company securities pledged were as follows by collateral type and maturity as of: (In thousands) September 30, 2021 December 31, 2020 Fair value of pledged securities - overnight and continuous: Mortgage-backed securities and collateralized mortgage obligations of U.S. government sponsored entities $ 134,801 $ 137,268 27 Table of Contents Note I – Noninterest Income and Expense Details of noninterest income and expenses for the three and nine months ended September 30, 2021 and 2020 are as follows: Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2021 2020 2021 2020 Noninterest income Service charges on deposit accounts $ 2,495 $ 2,242 $ 7,171 $ 7,006 Interchange income 4,131 3,682 12,096 10,115 Wealth management income 2,562 1,972 7,272 5,558 Mortgage banking fees 2,550 5,283 9,752 11,050 Marine finance fees 152 242 518 545 SBA gains 812 252 1,331 572 BOLI income 1,128 899 2,859 2,672 Other income 5,228 2,370 11,221 7,869 19,058 16,942 52,220 45,387 Securities (losses) gains, net ( 30 ) 4 ( 199 ) 1,253 Total $ 19,028 $ 16,946 $ 52,021 $ 46,640 Noninterest expense Salaries and wages $ 27,919 $ 23,125 $ 72,278 $ 67,049 Employee benefits 4,177 3,995 13,110 11,629 Outsourced data processing costs 5,610 6,128 14,754 14,820 Telephone/data lines 810 705 2,433 2,210 Occupancy 3,541 3,858 10,640 10,596 Furniture and equipment 1,567 1,576 3,987 4,557 Marketing 1,353 1,513 3,523 3,788 Legal and professional fees 4,151 3,018 8,915 8,658 FDIC assessments 651 474 1,692 740 Amortization of intangibles 1,306 1,497 3,729 4,436 Foreclosed property expense and net (gain) loss on sale 66 512 ( 89 ) 442 Provision for credit losses on unfunded commitments 133 756 133 980 Other 3,984 4,517 12,067 11,966 Total $ 55,268 $ 51,674 $ 147,172 $ 141,871 Note J – Equity Capital The Company is well capitalized and at September 30, 2021, the Company and the Company’s principal banking subsidiary, Seacoast Bank, exceeded the common equity Tier 1 (CET1) capital ratio regulatory threshold of 6.5 % for well-capitalized institutions under the Basel III standardized transition approach, as well as risk-based and leverage ratio requirements for well capitalized banks under the regulatory framework for prompt corrective action. Note K – Contingent Liabilities The Company and its subsidiaries, because of the nature of their business, are at all times subject to numerous legal actions, threatened or filed. Management presently believes that none of the legal proceedings to which it is a party are likely to have a materially adverse effect on the Company’s consolidated financial condition, operating results or cash flows. 28 Table of Contents Note L – Fair Value Under ASC Topic 820, fair value measurements for items measured at fair value on a recurring and nonrecurring basis at September 30, 2021 and December 31, 2020 included: (In thousands) Fair Value Measurements Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) At September 30, 2021 Financial Assets Available-for-sale debt securities 1 $ 1,546,155 $ 199 $ 1,545,956 $ — Derivative financial instruments 2 9,624 — 9,624 — Loans held for sale 2 49,597 — 49,597 — Loans 3 9,945 — 942 9,003 Other real estate owned 4 13,628 — 390 13,238 Equity securities 5 9,404 9,404 — — Financial Liabilities Derivative financial instruments 2 $ 9,110 $ — $ 9,110 $ — At December 31, 2020 Financial Assets Available-for-sale debt securities 1 $ 1,398,157 $ 101 $ 1,398,056 $ — Derivative financial instruments 2 14,343 — 14,343 — Loans held for sale 2 68,890 — 68,890 — Loans 3 8,806 — 1,900 6,906 Other real estate owned 4 12,750 — 72 12,678 Equity securities 5 6,530 6,530 — — Financial Liabilities Derivative financial instruments 2 $ 13,339 $ — $ 13,339 $ — 1 See “Note D – Securities” for further detail of fair value of individual investment categories. 2 Recurring fair value basis determined using observable market data. 3 S e e “ Note E – Loans .” N onrecurring fair value adjustments to collateral-dependent loans reflect full or partial write-downs that are based on current appraised values of the collateral in accordance with ASC Topic 310. 4 Fair value is measured on a nonrecurring basis in accordance with ASC Topic 360. 5 An investment in shares of a mutual fund that invests primarily in CRA-qualified debt securities, reported at fair value in Other Assets. Recurring fair value basis is determined using market quotations. Available-for-sale debt securities : Level 1 securities consist of U.S. Treasury securities. Other securities are reported at fair value utilizing Level 2 inputs. The estimated fair value of a security is determined based on market quotations when available or, if not available, by using quoted market prices for similar securities, pricing models or discounted cash flow analyses, using observable market data where available. The Company reviews the prices supplied by independent pricing services, as well as their underlying pricing methodologies, for reasonableness and to ensure such prices are aligned with traditional pricing matrices. The fair value of collateralized loan obligations is determined from broker quotes. From time to time, the Company will validate, on a sample basis, prices supplied by the independent pricing service by comparison to prices obtained from other brokers and third-party sources or derived using internal models. Derivative financial instruments : The Company offers interest rate swaps to certain loan customers to allow them to hedge the risk of rising interest rates on their variable rate loans. The Company originates a variable rate loan and enters into a variable-to-fixed interest rate swap with the customer. The Company also enters into an offsetting swap with a correspondent bank. 29 Table of Contents These back-to-back agreements are intended to offset each other and allow the Company to originate a variable rate loan, while providing a contract for fixed interest payments for the customer. The fair value of these derivatives is based on a discounted cash flow approach. Due to the observable nature of the inputs used in deriving the fair value of these derivative contracts, the valuation of interest rate swaps is classified as Level 2. Other derivatives consist of interest rate floors designated as cash flow hedges. The fair values of these instruments are based upon the estimated amount the Company would receive or pay to terminate the instruments, taking into account current interest rates and, when appropriate, the current creditworthiness of the counterparties. Interest rate floors designated as cash flow hedges are classified within Level 2. Loans held for sale : Fair values are based upon estimated values to be received from independent third party purchasers. These loans are intended for sale and the Company believes that the fair value is the best indicator of the resolution of these loans. Fair market value changes occur due to changes in interest rates, the borrower’s credit, the secondary loan market and the market for a borrower’s debt. Interest income is recorded based on the contractual terms of the loan and in accordance with the Company’s policy on loans held for investment. None of the loans were 90 days or more past due or on nonaccrual as of September 30, 2021 and December 31, 2020. The aggregate fair value and contractual balance of loans held for sale as of September 30, 2021 and December 31, 2020 is as follows: (In thousands) September 30, 2021 December 31, 2020 Aggregate fair value $ 49,597 $ 68,890 Contractual balance 48,172 66,415 Excess 1,425 2,475 Loans : Loans carried at fair value consist of collateral-dependent real estate loans. Fair value is based on recent real estate appraisals less estimated costs of sale. These evaluations may use either a single valuation approach or a combination of approaches, such as comparative sales, cost and/or income approach. A significant unobservable input in the income approach is the estimated capitalization rate for a given piece of collateral. At September 30, 2021 capitalization rates utilized to determine fair value of the underlying collateral averaged approximately 7.0 %. Adjustments to comparable sales may be made by an appraiser to reflect local market conditions or other economic factors and may result in changes in the fair value of an asset over time. As such, the fair value of these loans is considered level 3 in the fair value hierarchy. Collateral-dependent loans measured at fair value totaled $ 14.2 million with a specific reserve of $ 4.3 million at September 30, 2021, compared to $ 16.5 million with a specific reserve of $ 7.7 million at December 31, 2020. For loans classified as Level 3, changes included loan additions of $ 5.4 million offset by $ 2.6 million in paydowns and charge-offs and $ 0.7 million in loans that returned to accruing status for the nine months ended September 30, 2021. Other real estate owned : When appraisals are used to determine fair value and the appraisals are based on a market approach, the fair value of other real estate owned (“OREO”) is classified as a Level 2 input. When the fair value of OREO is based on appraisals which require significant adjustments to market-based valuation inputs or apply an income approach based on unobservable cash flows, the fair value of OREO is classified as Level 3. For OREO classified as Level 3 at September 30, 2021, changes during the nine months ended included additions of $ 2.1 million offset by sales and write--downs of $ 1.6 million. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Company’s monthly and/or quarterly valuation process. There were no such transfers during the nine months ended September 30, 2021 and 2020. 30 Table of Contents The carrying amount and fair value of the Company’s other financial instruments that were not disclosed previously in the balance sheet and for which carrying amount is not fair value as of September 30, 2021 and December 31, 2020 is as follows: (In thousands) Carrying Amount Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) September 30, 2021 Financial Assets Debt securities held-to-maturity 1 $ 526,502 $ — $ 518,464 $ — Time deposits with other banks 750 — 757 — Loans, net 5,808,116 — — 5,810,038 Financial Liabilities Deposit liabilities 8,334,172 — — 8,336,134 Subordinated debt 71,576 — 58,399 — December 31, 2020 Financial Assets Debt securities held-to-maturity 1 $ 184,484 $ — $ 192,179 $ — Time deposits with other banks 750 — 762 — Loans, net 5,633,810 — — 5,686,019 Financial Liabilities Deposit liabilities 6,932,561 — — 6,936,097 Subordinated debt 71,365 — 58,227 — 1 See “Note D – Securities” for further detail of individual investment categories. The short maturity of Seacoast’s assets and liabilities results in having a significant number of financial instruments whose fair value equals or closely approximates carrying value. Such financial instruments are reported in the following balance sheet captions: cash and due from banks, interest bearing deposits with other banks, FHLB borrowings and securities sold under agreements to repurchase, maturing within 30 days. The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value at September 30, 2021 and December 31, 2020: Held-to-maturity debt securities : These debt securities are reported at fair value utilizing level 2 inputs. The estimated fair value of a security is determined based on market quotations when available or, if not available, by using quoted market prices for similar securities, pricing models or discounted cash flow analyses, using observable market data where available. The Company reviews the prices supplied by independent pricing services, as well as their underlying pricing methodologies, for reasonableness and to ensure such prices are aligned with traditional pricing matrices. From time to time, the Company will validate, on a sample basis, prices supplied by the independent pricing service by comparison to prices obtained from other brokers and third-party sources or derived using internal models. Loans : Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type, such as commercial or mortgage. Each loan category is further segmented into fixed and adjustable-rate interest terms as well as performing and nonperforming categories. The fair value of loans is calculated by discounting scheduled cash flows through the estimated life including prepayment considerations, using estimated market discount rates that reflect the risks inherent in the loan. The fair value approach considers market-driven variables including credit related factors and reflects an “exit price” as defined in ASC Topic 820. Deposit liabilities : The fair value of demand deposits, savings accounts and money market deposits is the amount payable at the reporting date. The fair value of fixed maturity certificates of deposit is estimated using the rates currently offered for funding of similar remaining maturities. 31 Table of Contents Note M – Business Combinations Proposed Acquisition 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. Proposed Acquisition of Business Bank of Florida, Inc. 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. Acquisition of Legacy Bank of Florida On August 6, 2021, the Company completed its acquisition of Legacy Bank of Florida (“Legacy Bank”). Prior to the acquisition, Legacy Bank operated five branches in Broward and Palm Beach counties. As a result of this acquisition, the Company expects to expand its customer base and leverage operating cost through economies of scale, and positively affect the Company’s operating results. The Company acquired 100 % of the outstanding common stock of Legacy Bank. Under the terms of the definitive agreement, each share of Legacy Bank common stock was converted into the right to receive 0.1703 share of Seacoast common stock. (In thousands, except per share data) August 6, 2021 Number of Legacy Bank common shares outstanding 15,778 Per share exchange ratio 0.1703 Number of shares of common stock issued 2,687 Multiplied by common stock price per share on August 6, 2021 $ 32.19 Value of common stock issued 86,487 Cash paid for fractional shares 7 Fair value of options converted 4,736 Total purchase price $ 91,230 The acquisition of Legacy Bank was accounted for under the acquisition method in accordance with ASC Topic 805, Business Combinations . The Company recognized goodwill of $ 31.0 million for this acquisition that is nondeductible for tax purposes. Determining fair values of assets and liabilities, especially the loan portfolio, core deposit intangibles, and deferred taxes, is a complicated process involving significant judgment regarding methods and assumptions used to calculate estimated fair values. The fair values initially assigned to assets acquired and liabilities assumed are preliminary and could change for up to one year after the closing date of the acquisition as new information and circumstances relative to closing date fair values becomes known. 32 Table of Contents (In thousands) Initially Measured August 6, 2021 Assets: Cash $ 98,107 Investment securities 992 Loans 477,215 Bank premises and equipment 2,577 Core deposit intangibles 3,454 Goodwill 30,978 Other assets 15,532 Total assets $ 628,855 Liabilities: Deposits 494,921 Other liabilities 42,705 Total liabilities $ 537,626 The table below presents information with respect to the fair value and unpaid principal balance of acquired loans at the acquisition date. August 6, 2021 (In thousands) Book Balance Fair Value Loans: Construction and land development $ 37,558 $ 36,651 Commercial real estate - owner-occupied 35,765 35,363 Commercial real estate - non owner-occupied 241,322 237,091 Residential real estate 71,118 70,541 Commercial and financial 61,274 58,324 Consumer 647 647 PPP loans 38,598 38,598 Total acquired loans $ 486,282 $ 477,215 The table below presents the carrying amount of loans for which, at the date of acquisition, there was evidence of more than insignificant deterioration of credit quality since origination: (In thousands) August 6, 2021 Book balance of loans at acquisition $ 66,371 Allowance for credit losses at acquisition ( 3,046 ) Non-credit related discount ( 736 ) Total PCD loans acquired $ 62,589 The acquisition of Legacy Bank resulted in the addition of $ 11.2 million in allowance for credit losses, including the $ 3.0 million identified in the table above for PCD loans, and $ 8.2 million for non-PCD loans recorded through the provision for credit losses at the date of acquisition. The Company believes the deposits assumed in the acquisition have an intangible value. In determining the valuation amount, deposits were analyzed based on factors such as type of deposit, deposit retention, interest rates and age of deposit relationships. Acquisition of Fourth Street Banking Company On August 21, 2020, the Company completed its acquisition of Fourth Street Banking Company (“Fourth Street”). Simultaneously, upon completion of the merger of Fourth Street and the Company, Fourth Street's wholly owned subsidiary 33 Table of Contents bank, Freedom Bank, was merged with and into Seacoast Bank. Prior to the acquisition, Freedom Bank operated two branches in St. Petersburg, Florida. As a result of this acquisition, the Company expects to enhance its presence in St. Petersburg, expand its customer base and leverage operating cost through economies of scale, and positively affect the Company’s operating results. The Company acquired 100 % of the outstanding common stock of Fourth Street. Under the terms of the definitive agreement, each share of Fourth Street common stock was converted into the right to receive 0.1275 share of Seacoast common stock. (In thousands, except per share data) August 21, 2020 Number of Fourth Street common shares outstanding 11,220 Shares issued upon conversion of convertible debt 5,405 Per share exchange ratio 0.1275 Number of shares of common stock issued 2,120 Multiplied by common stock price per share on August 21, 2020 $ 19.40 Value of common stock issued 41,121 Cash paid for Fourth Street vested stock options 596 Total purchase price $ 41,717 The acquisition of Fourth Street was accounted for under the acquisition method in accordance with ASC Topic 805, Business Combinations . The Company recognized goodwill of $ 9.0 million for this acquisition that is nondeductible for tax purposes. Determining fair values of assets and liabilities, especially the loan portfolio, core deposit intangibles, and deferred taxes, is a complicated process involving significant judgment regarding methods and assumptions used to calculate estimated fair values. (In thousands) August 21, 2020 Assets: Cash $ 38,082 Investment securities 3,498 Loans 303,434 Bank premises and equipment 9,480 Core deposit intangibles 1,310 Goodwill 9,030 Other assets 7,088 Total assets $ 371,922 Liabilities: Deposits $ 329,662 Other liabilities 543 Total liabilities $ 330,205 34 Table of Contents The table below presents information with respect to the fair value and unpaid principal balance of acquired loans at the acquisition date. August 21, 2020 (In thousands) Book Balance Fair Value Loans: Construction and land development $ 9,197 $ 8,851 Commercial real estate - owner-occupied 77,936 75,215 Commercial real estate - non owner-occupied 76,014 71,171 Residential real estate 23,548 23,227 Commercial and financial 72,745 68,096 Consumer 2,748 2,694 PPP loans 55,005 54,180 Total acquired loans $ 317,193 $ 303,434 The table below presents the carrying amount of loans for which, at the date of acquisition, there was evidence of more than insignificant deterioration of credit quality since origination: (In thousands) August 21, 2020 Book balance of loans at acquisition $ 59,455 Allowance for credit losses at acquisition ( 5,763 ) Non-credit related discount ( 4,319 ) Total PCD loans acquired $ 49,373 The acquisition of Fourth Street resulted in the addition of $ 10.4 million in allowance for credit losses, including the $ 5.8 million identified in the table above for PCD loans, and $ 4.6 million for non-PCD loans recorded through the provision for credit losses at the date of acquisition. The Company believes the deposits assumed in the acquisition have an intangible value. In determining the valuation amount, deposits were analyzed based on factors such as type of deposit, deposit retention, interest rates and age of deposit relationships. Acquisition of First Bank of the Palm Beaches On March 13, 2020, the Company completed its acquisition of First Bank of the Palm Beaches (“FBPB”). FBPB was merged with and into Seacoast Bank. FBPB operated two branches in the Palm Beach market. As a result of this acquisition, the Company expects to enhance its presence in the Palm Beach market, expand its customer base and leverage operating cost through economies of scale, and positively affect the Company’s operating results. The Company acquired 100 % of the outstanding common stock of FBPB. Under the terms of the definitive agreement, each share of FBPB common stock was converted into the right to receive 0.2000 share of Seacoast common stock. (In thousands, except per share data) March 13, 2020 Number of FBPB common shares outstanding 5,213 Per share exchange ratio 0.2000 Number of shares of common stock issued 1,043 Multiplied by common stock price per share on March 13, 2020 $ 20.17 Value of common stock issued 21,031 Cash paid for FBPB vested stock options 866 Total purchase price $ 21,897 The acquisition of FBPB was accounted for under the acquisition method in accordance with ASC Topic 805, Business Combinations . The Company recognized goodwill of $ 6.9 million for this acquisition that is nondeductible for tax purposes. Determining fair values of assets and liabilities, especially the loan portfolio, core deposit intangibles, and deferred taxes, is a 35 Table of Contents complicated process involving significant judgment regarding methods and assumptions used to calculate estimated fair values. The adjustments reflected in the table below are the result of information obtained subsequent to the initial measurement. (In thousands) Initially Measured March 13, 2020 Measurement Period Adjustments As Adjusted March 13, 2020 Assets: Cash $ 34,749 $ — $ 34,749 Investment securities 447 — 447 Loans 146,839 ( 62 ) 146,777 Bank premises and equipment 6,086 — 6,086 Core deposit intangibles 819 — 819 Goodwill 6,799 62 6,861 Other assets 1,285 20 1,305 Total assets $ 197,024 $ 20 $ 197,044 Liabilities: Deposits $ 173,741 $ — $ 173,741 Other liabilities 1,386 20 1,406 Total liabilities $ 175,127 $ 20 $ 175,147 The table below presents information with respect to the fair value and unpaid principal balance of acquired loans at the acquisition date. March 13, 2020 (In thousands) Book Balance Fair Value Loans: Construction and land development $ 9,493 $ 9,012 Commercial real estate - owner-occupied 46,221 45,171 Commercial real estate - non owner-occupied 36,268 35,079 Residential real estate 47,569 47,043 Commercial and financial 9,659 9,388 Consumer 1,132 1,084 Total acquired loans $ 150,342 $ 146,777 The table below presents the carrying amount of loans for which, at the date of acquisition, there was evidence of more than insignificant deterioration of credit quality since origination: (In thousands) March 13, 2020 Book balance of loans at acquisition $ 43,682 Allowance for credit losses at acquisition ( 516 ) Non-credit related discount ( 128 ) Total PCD loans acquired $ 43,038 The acquisition of FBPB resulted in the addition of $ 2.3 million in allowance for credit losses, including the $ 0.5 million identified in the table above for PCD loans, and $ 1.8 million for non-PCD loans recorded through the provision for credit losses at the date of acquisition. The Company believes the deposits assumed in the acquisition have an intangible value. In determining the valuation amount, deposits were analyzed based on factors such as type of deposit, deposit retention, interest rates and age of deposit relationships. Pro-Forma Information 36 Table of Contents Pro-forma data for the three and nine months ended September 30, 2021 presents information as if the acquisition of Legacy Bank occurred at the beginning of 2020, as follows: Three Months Ended September 30, Nine Months Ended September 30, (In thousands, except per share amounts) 2021 2020 2021 2020 Net interest income $ 73,309 $ 68,164 $ 216,682 $ 207,388 Net income 43,401 24,098 104,521 39,930 EPS - basic $ 0.75 $ 0.42 $ 1.81 $ 0.72 EPS - diluted 0.74 0.44 1.79 0.71 37 Table of Contents