SBCF filing — read by section

Item 2. Management’s Discussion and Analysis

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
 The purpose of this discussion and analysis is to aid in understanding significant changes in the financial condition of Seacoast Banking Corporation of Florida and its subsidiaries ("Seacoast" or the “Company”) and their results of operations. Nearly all of the Company’s operations are contained in its banking subsidiary, Seacoast National Bank (“Seacoast Bank” or the “Bank”). Such discussion and analysis should be read in conjunction with the Company’s Condensed Consolidated Financial Statements and the related notes included in this report. 
 The emphasis of this discussion will be on the three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020 for the consolidated statements of income. For the consolidated balance sheets, the emphasis of this discussion will be the balances as of September 30, 2021 compared to December 31, 2020. 
 This discussion and analysis contains statements that may be considered “forward-looking statements” as defined in, and subject to the protections of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. See the following section for additional information regarding forward-looking statements. 
 For purposes of the following discussion, the words “Seacoast" or the "Company” refer to the combined entities of Seacoast Banking Corporation of Florida and its direct and indirect wholly owned subsidiaries. 
 
 
 
 Special Cautionary Notice Regarding Forward-Looking Statements 
 Certain statements made or incorporated by reference herein which are not statements of historical fact, including those under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere herein, are “forward-looking statements” within the meaning, and protections, of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements with respect to the Company's beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, and intentions about future performance, and involve known and unknown risks, uncertainties and other factors, any of which may be impacted by the COVID-19 pandemic and related effects on the U.S. economy, which may be beyond the Company's control, and which may cause the actual results, performance or achievements of Seacoast Banking Corporation of Florida (“Seacoast” or the “Company”) or its wholly-owned banking subsidiary, Seacoast National Bank (“Seacoast Bank), to be materially different from those set forth in the forward-looking statements. 
 All statements other than statements of historical fact could be forward-looking statements. You can identify these forward-looking statements through the use of words such as "may," "will," "anticipate," "assume," "should," "support," "indicate," "would," "believe," "contemplate," "expect," "estimate," "continue," "further," "plan," "point to," "project," "could," "intend," "target" or other similar words and expressions of the future. These forward-looking statements may not be realized due to a variety of factors, including, without limitation: 
 • the effects of future economic and market conditions, including seasonality; 
 • the adverse impact of COVID-19 and variants thereof (economic and otherwise) on the Company and its customers, counterparties, employees, and third-party service providers, and the adverse impacts to our business, financial position, results of operations, and prospects, including the ongoing potential to adversely affect Seacoast’s revenues and values of its assets and liabilities, lead to a tightening of credit, and increase stock price volatility; 
 • government or regulatory responses to the COVID-19 pandemic, including the risk of inflation and interest rate increases resulting from monetary and fiscal stimulus response, which may have unanticipated adverse effects on our customers, and our financial condition and results of operations; 
 • governmental monetary and fiscal policies, including interest rate policies of the Board of Governors of the Federal Reserve ("Federal Reserve"), as well as legislative, tax and regulatory changes; 
 • changes in accounting policies, rules and practices, including the impact of the adoption of the current expected credit losses (“CECL”) methodology; 
 • our participation in the Paycheck Protection Program (“PPP”); 
 • the risks of changes in interest rates on the level and composition of deposits, loan demand, liquidity and the values of loan collateral, securities, and interest rate sensitive assets and liabilities; 
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 • interest rate risks, sensitivities and the shape of the yield curve; uncertainty related to the impact of LIBOR calculations on securities, loans and debt; 
 • governmental actions to stimulate the economy and provide support for small businesses have resulted in material increases to the Company’s liquidity position, adversely affecting the net interest margin. The duration of this liquidity remaining on the balance sheet is uncertain; 
 • changes in borrowing, borrower credit risks, payment behaviors, spending, or saving by businesses or households including as a result of the financial impact of COVID-19; 
 • changes in retail distribution strategies, customer preferences and behavior; 
 • changes in the availability and cost of credit and capital in the financial markets; 
 • changes in the prices, values and sales volumes of residential and commercial real estate; 
 • the Company's ability to comply with any regulatory requirements, including such requirements that may become applicable as the Company increases its total assets; 
 • the effects of problems encountered by other financial institutions that adversely affect Seacoast or the banking industry; 
 • Seacoast's concentration in commercial real estate loans and in real estate collateral in the state of Florida; 
 • inaccuracies or other failures from the use of models, including the failure of assumptions and estimates, as well as differences in, and changes to, economic, market and credit conditions; 
 • the impact on the valuation of Seacoast's investments due to market volatility or counterparty payment risk; 
 • statutory and regulatory dividend restrictions; 
 • increases in regulatory capital requirements for banking organizations generally; 
 • the risks of mergers, acquisitions and divestitures, including Seacoast's ability to continue to identify acquisition targets and successfully acquire and integrate desirable financial institutions; 
 • changes in technology or products that may be more difficult, costly, or less effective than anticipated; 
 • the Company's ability to identify and address increased cybersecurity risks, including as a result of employees working remotely; 
 • inability of Seacoast's risk management framework to manage risks associated with the business; 
 • dependence on key suppliers or vendors to obtain equipment or services for the business on acceptable terms; 
 • reduction in or the termination of Seacoast's ability to use the mobile-based platform that is critical to the Company's business growth strategy, as well as risks related to transitioning to new or different platforms and service providers; 
 • the effects of war or other conflicts, acts of terrorism, natural disasters, health emergencies, epidemics or pandemics, or other catastrophic events that may affect general economic conditions; 
 • unexpected outcomes of, and the costs associated with, existing or new litigation involving the Company, including as a result of the Company’s participation in the PPP; 
 • Seacoast's ability to maintain adequate internal controls over financial reporting; 
 • potential claims, damages, penalties, fines and reputational damage resulting from pending or future litigation, regulatory proceedings and enforcement actions; 
 • the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, non-bank financial technology providers, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in the Company's market areas and elsewhere, 
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 including institutions operating regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone, computer and the Internet; 
 • the failure of assumptions underlying the establishment of reserves for possible credit losses; 
 • the risks relating to the recently completed merger including, without limitation: unexpected transaction costs, including the costs of integrating operations; the risks that the business will not be integrated successfully or that such integration may be more difficult, time-consuming or costly than expected; the potential failure to fully or timely realize expected revenues and revenue synergies, including as the result of revenues being lower than expected; 
 • the risks relating to the proposed mergers including, without limitation: the timing to consummate the proposed mergers; the risk that a condition to closing of the proposed mergers may not be satisfied; the risk that the mergers may not be completed at all; the diversion of management time on issues related to the proposed mergers; unexpected transaction costs, including the costs of integrating operations; the risks that the businesses will not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected; the potential failure to fully or timely realize expected revenues and revenue synergies, including as the result of revenues following the mergers being lower than expected; the risk of deposit and customer attrition; any changes in deposit mix; unexpected operating and other costs, which may differ or change from expectation; the risk of customer and employee loss and business disruptions, including, without limitation, as the result of difficulties in maintaining relationships with employees; increased competitive pressures on solicitations of customers by competitors; as well as difficulties and risks inherent with entering new markets; and, 
 • other factors and risks described under “Risk Factors” herein and in any of the Company's subsequent reports filed with the SEC and available on its website at www.sec.gov. 
 All written or oral forward-looking statements that are made or are attributable to Seacoast are expressly qualified in their entirety by this cautionary notice. The Company assumes no obligation to update, revise or correct any forward-looking statements that are made from time to time, either as a result of future developments, new information or otherwise, except as may be required by law. 
 
 
 
 Business Developments 
 Impact of COVID-19 Pandemic 
 The COVID-19 pandemic and related restrictive measures taken by governments, businesses and individuals have caused unprecedented uncertainty, volatility and disruption in financial markets and in governmental, commercial and consumer activity in the United States and globally, including the markets that we serve. As the restrictive measures eased during 2020 and over the course of 2021, the U.S. economy has begun to recover and with the availability and distribution of multiple COVID-19 vaccines, we anticipate continued improvements in commercial and consumer activity and the U.S. economy. While the overall outlook has improved based on the availability of the vaccine to all adults and older children, there continues to be the risk of increases in infection rates in the country, as well as within the State of Florida, attributed to variants, including the Delta variant. Therefore, the risk of further resurgence and possible reimplementation of business restrictions remains. 
 While indications of recovery exist, we recognize that our business and consumer customers are experiencing varying degrees of financial distress, which is expected to continue through the remainder of 2021, especially if new COVID-19 variant infections increase (or are not adequately contained) and new economic restrictions are mandated. Changing consumer behavior and the impact of government support programs including the PPP have contributed to higher customer deposit balances, which may adversely affect our net interest income and net interest margin. Commercial activity has improved, but has not returned in all industries to the levels existing prior to the outbreak of the pandemic, which may result in our customers’ inability to meet their loan obligations to us. In addition, the economic pressures and uncertainties related to the COVID-19 pandemic have resulted in changes in consumer spending behaviors, which may negatively impact the demand for loans and other services we offer. Our borrowers include customers in industries such as hotel/lodging, restaurants and retail and commercial real estate, all of which have been significantly impacted by the COVID-19 pandemic, or remain at heightened risk of future negative economic impact, which may be caused or exacerbated by increased COVID-19 variant infections, vaccine hesitancy, or new economic restrictions in our footprint. We recognize that these industries may take longer to recover as consumers may be hesitant to return to full social interaction or may change their spending habits on a more permanent basis as a result of the pandemic. We continue to monitor these customers closely. 
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 We have taken deliberate actions to maintain our balance sheet strength to serve our clients and communities, including maintaining higher levels of liquidity and managing our assets and liabilities in order to maintain a strong capital position and support business growth and acquisition opportunities; however, future economic conditions are subject to significant uncertainty. Uncertainties associated with the pandemic include the duration of the COVID-19 outbreak and any related variant infections, and effectiveness of COVID-19 vaccines, the impact to our customers, employees and vendors and the impact to the economy as a whole. We continuously seek to monitor and anticipate developments, but cannot predict all of the various adverse effects COVID-19 will have on our business, financial condition, liquidity or results of operations. 
 Acquisition of Legacy Bank of Florida 
 In August 2021, the Company completed the acquisition of Legacy Bank of Florida (“Legacy Bank”), which added $477 million in loans and $495 million in deposits. The acquisition strengthens the Company’s position in South Florida, one of the strongest and fastest growing markets in the country, and complements prior acquisitions in the market. Consolidation activities and related expenses are substantially complete. 
 Announcement of Sabal Palm Bancorp, Inc. Acquisition 
 On August 23, 2021, the Company announced that it had entered into an agreement and plan of merger with Sabal Palm Bancorp, Inc. (“Sabal Palm”) and its wholly-owned subsidiary, Sabal Palm Bank. Sabal Palm operates three branches across the Sarasota, FL market with $255 million in loans and $389 million in deposits as of September 30, 2021. The acquisition is expected to close in the first quarter of 2022, pending receipt of regulatory and shareholder approvals. The acquisition will provide entry into Sarasota county, which is located in the North Port-Sarasota-Bradenton MSA. 
 Announcement of Business Bank of Florida, Corp. Acquisition 
 On August 23, 2021, the Company announced that it had entered into an agreement and plan of merger with Business Bank of Florida, Corp. (“BBFC”) and its wholly-owned subsidiary, Florida Business Bank. BBFC operates one branch in Melbourne, FL with $139 million in loans and $169 million in deposits as of September 30, 2021. The acquisition is expected to close in the first quarter of 2022 pending receipt of regulatory and shareholder approvals. The acquisition will deepen the Company’s presence in Brevard County, which is located in the Palm Bay-Melbourne-Titusville MSA. 
 
 
 
 Results of Operations 
 For the third quarter of 2021, the Company reported net income of $22.9 million, or $0.40 per average diluted share, compared to $31.4 million, or $0.56, for the second quarter of 2021 and $22.6 million, or $0.42, for the third quarter of 2020. For the nine months ended September 30, 2021, net income totaled $88.1 million or $1.56 per average diluted share, an increase of $39.7 million, or 82%, compared to the nine months ended September 30, 2020. Adjusted net income 1 for the third quarter of 2021 totaled $29.4 million, or $0.51 per average diluted share, compared to $33.3 million, or $0.59, for the second quarter of 2021 and $27.3 million, or $0.50, for the third quarter of 2020. For the nine months ended September 30, 2021, adjusted net income 1 totaled $98.1 million, or $1.74 per average diluted share, compared to $58.3 million, or $1.09 per average diluted share for the nine months ended September 30, 2020. 
 
 Third Second Third Nine Months Ended 
 Quarter Quarter Quarter September 30, 
 2021 2021 2020 2021 2020 
 Return on average tangible assets 1.00 % 1.48 % 1.20 % 1.37 % 0.93 % 
 Return on average tangible shareholders' equity 9.56 13.88 11.35 12.89 8.71 
 Efficiency ratio 59.55 54.93 61.65 55.99 57.15 
 
 Adjusted return on average tangible assets 1 
 1.23 % 1.52 % 1.38 % 1.48 % 1.04 % 
 Adjusted return on average tangible shareholders' equity 1 
 11.72 14.27 13.06 13.91 9.80 
 Adjusted efficiency ratio 1 
 51.50 53.49 54.82 52.29 52.64 
 1 Non-GAAP measure - see “Explanation of Certain Unaudited Non-GAAP Financial Measures” for more information and a reconciliation to GAAP. 
 

 Net Interest Income and Margin 
 
 1 Non-GAAP measure - see “Explanation of Certain Unaudited Non-GAAP Financial Measures” for more information and a reconciliation to GAAP. 
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 Net interest income for the third quarter of 2021 totaled $71.3 million, increasing $5.5 million, or 8%, compared to the second quarter of 2021, and increasing $7.8 million, or 12%, compared to the third quarter of 2020. For the nine months ended September 30, 2021, net interest income totaled $203.7 million, an increase of $9.8 million, or 5%, compared to the nine months ended September 30, 2020. The increase quarter over quarter and compared to the prior year quarter reflects higher loan and securities balances, and higher recognition of fees on Paycheck Protection Program (“PPP”) loans attributed to higher loan forgiveness. Furthermore, lower interest expense reflects the continued low rate environment and the Company’s efforts to proactively manage rates paid on interest bearing deposits. Net interest margin (on a fully tax equivalent basis) 1 was 3.22% in the third quarter of 2021, compared to 3.23% in the second quarter of 2021 and 3.40% in the third quarter of 2020. The decrease during the third quarter of 2021 reflects decreases in yields on both securities and non-PPP loans, partially offset by the impact of higher fees due to higher loan forgiveness on PPP loans and lower rates on interest bearing deposits. Compared to the second quarter of 2021, securities yields declined by four basis points to 1.59% and non-PPP loan yields declined by seven basis points to 4.29% during the third quarter of 2021. Offsetting and favorable was the increase in yields on PPP loans from 4.07% to 8.33%, which includes the impact of higher fee accretion in the current quarter, and a decrease in the cost of deposits from eight basis points in the second quarter of 2021 to seven basis points in the third quarter of 2021. The effect on net interest margin of purchase discounts on acquired loans was an increase of 15 basis points in the third quarter of 2021 compared to an increase of 14 basis points in the second quarter of 2021 and an increase of 17 basis points in the third quarter of 2020. The effect of interest and fees on PPP loans was an increase of 18 basis points in the third quarter of 2021, an increase of six basis points in the second quarter of 2021 and an increase of seven basis points in the third quarter of 2020. 
 For the nine months ended September 30, 2021, net interest margin (on a fully tax equivalent basis) 1 was 3.32%, compared to 3.67% for the nine months ended September 30, 2020. The yield on securities declined from 2.58% for the nine months ended September 30, 2020 to 1.62% for the nine months ended September 30, 2021, reflecting the impact of a lower interest rate environment including the payoff of higher yielding securities being replaced with lower yields on new purchases. The yield on non-PPP loans declined from 4.63% for the nine months ended September 30, 2020 to 4.34% for the nine months ended September 30, 2021, reflecting the impact of the lower interest rate environment. Offsetting and favorable was the increase in yield on PPP loans, which increased from 2.60% for the nine months ended September 30, 2020 to 5.16% for the nine months ended September 30, 2021 as well as the decline in the cost of deposits from 36 basis points for the nine months ended September 30, 2020 to 9 basis points for the nine months ended September 30, 2021. The effect on net interest margin of purchase discounts on acquired loans was an increase of 15 basis points for the nine months ended September 30, 2021 compared to an increase of 20 basis points for the nine months ended September 30, 2020. The effect of interest and fees on PPP loans was an increase of 12 basis points for the nine months ended September 30, 2021, compared to an increase of four basis points for the nine months ended September 30, 2020. 
 The cost of deposits declined to seven basis points in the third quarter of 2021, compared to eight basis points in the second quarter of 2021 and 24 basis points in the third quarter of 2020. For the nine months ended September 30, 2021, the cost of deposits was nine basis points, a decrease of 27 basis points compared to the nine months ended September 30, 2020. Lower cost of deposits reflects lower market rates, and a favorable shift in product mix to include a higher proportion of noninterest bearing demand deposits to total deposits. 
 The following table details the trend for net interest income and margin results (on a tax equivalent basis) 1 , the yield on earning assets and the rate paid on interest bearing liabilities for the periods specified: 
 
 (In thousands, except ratios) Net Interest 
 Income 1 
 Net Interest 
 Margin 1 
 Yield on 
 Earning Assets 1 
 Rate on Interest
Bearing Liabilities 
 Third quarter 2021 $ 71,455 3.22 % 3.31 % 0.14 % 
 Second quarter 2021 65,933 3.23 % 3.33 % 0.16 % 
 Third quarter 2020 63,621 3.40 % 3.65 % 0.40 % 
 
 Nine months ended September 30, 2021 204,129 3.32 % 3.42 % 0.17 % 
 Nine months ended September 30, 2020 194,300 3.67 % 4.05 % 0.59 % 
 1 On tax equivalent basis, a non-GAAP measure - see "Explanation of Certain Unaudited Non-GAAP Financial Measures" for more information and a reconciliation to GAAP. 
 

 Total average loans increased $105.8 million, or 2%, for the third quarter of 2021 compared to the second quarter of 2021, and decreased $156.8 million, or 3%, from the third quarter of 2020. The increase compared to the prior quarter reflects loan growth including loans acquired from Legacy Bank, partially offset by a decrease in PPP loans attributed to loan forgiveness. The decrease compared to the prior year quarter reflects the impact of PPP loan forgiveness. 
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 Average loans as a percentage of average earning assets totaled 65% for the third quarter of 2021, 68% for the second quarter of 2021 and 79% for the third quarter of 2020. 
 Loan production and late-stage pipelines (loans in underwriting and approval or approved and not yet closed) are detailed in the following table for the periods specified: 
 
 Third Second Third Nine Months Ended 
 Quarter Quarter Quarter September 30, 
 (In thousands) 2021 2021 2020 2021 2020 
 Commercial pipeline at period end $ 368,907 $ 322,014 $ 256,191 $ 368,907 $ 256,191 
 Commercial loan originations 331,618 193,028 88,245 728,899 378,432 
 
 Residential pipeline - saleable at period end 42,847 60,585 149,896 42,847 149,896 
 Residential loans - sold 95,136 120,099 162,468 353,572 347,792 
 
 Residential pipeline - portfolio at period end 35,387 54,132 33,374 35,387 33,374 
 Residential loans - retained 250,820 118,126 25,404 415,566 74,719 
 
 Consumer pipeline at period end 30,980 31,748 17,094 30,980 17,094 
 Consumer originations 66,400 63,702 62,293 176,847 171,765 
 
 PPP originations — 23,529 8,276 256,007 598,994 
 
 
 
 

 Commercial originations during the third quarter of 2021 were $331.6 million, an increase of $138.6 million, or 72%, compared to the second quarter of 2021, and an increase of $243.4 million, or 276%, compared to the third quarter of 2020. Recent investments in commercial banking talent contributed to the increase in production quarter-over-quarter. Commercial originations for the third quarter of 2021 also includes a $17.1 million purchased loan pool. 
 The commercial pipeline increased $46.9 million, or 15%, to $368.9 million at September 30, 2021, compared to June 30, 2021, and increased $112.7 million, or 44%, compared to September 30, 2020, also reflecting the benefit of investments in commercial banking talent. 
 The Company originates residential mortgage loans identified for sale to investors in the secondary market. The Company uses rate locks with investors at the time of application, thereby eliminating interest rate risk. Residential loans originated for sale in the secondary market totaled $95.1 million in the third quarter of 2021, compared to $120.1 million in the second quarter of 2021 and $162.5 million in the third quarter of 2020, a decrease of 21% and a decrease of 41%, respectively. Refinance activity has slowed from the peaks seen in 2020, and Florida’s housing inventory remains limited. Residential saleable pipelines were $42.8 million as of September 30, 2021, compared to $60.6 million as of June 30, 2021 and $149.9 million as of September 30, 2020. 
 Residential loan production retained in the portfolio for the third quarter of 2021 was $250.8 million compared to $118.1 million in the second quarter of 2021 and $25.4 million in the third quarter of 2020. Residential loans retained in the third quarter of 2021 includes $180.8 million in purchased loan pools compared to $38.4 million purchased during the second quarter of 2021. The Company fully underwrites acquired loans prior to executing transactions. The pipeline of residential loans intended to be retained in the portfolio was $35.4 million as of September 30, 2021, compared to $54.1 million as of June 30, 2021, and $33.4 million as of September 30, 2020. 
 Consumer originations totaled $66.4 million during the third quarter of 2021, an increase of $2.7 million, or 4%, from the second quarter of 2021 and an increase of $4.1 million, or 7%, from the third quarter of 2020. The consumer pipeline was $31.0 million as of September 30, 2021, compared to $31.7 million as of June 30, 2021 and $17.1 million at September 30, 2020. 
 In March 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law. The CARES Act includes provisions for the Paycheck Protection Program (“PPP”) offered through the U.S. Small Business Administration (“SBA”). Loans originated under this program have a contractual rate of interest of 1% with principal and interest that may be forgiven, provided that the borrower uses the funds in a manner consistent with PPP guidelines. Seacoast has assisted more than 8,000 borrowers through the PPP since inception, $675.7 million in PPP loan balances have been forgiven, and remaining outstanding balances total $190.6 million at September 30, 2021. 
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 Average debt securities increased $341.8 million, or 21%, during the third quarter of 2021 compared to the second quarter of 2021, and were $651.1 million, or 48%, higher compared to the third quarter of 2020. Increases reflect the investment of excess liquidity, partially offset by paydowns and maturities. 
 The cost of average interest-bearing liabilities contracted in the third quarter of 2021 to 14 basis points from 16 basis points in the second quarter of 2021, and from 40 basis points in the third quarter of 2020. The cost of average total deposits (including noninterest bearing demand deposits) in the third quarter of 2021 was 7 basis points compared to 8 basis points in the second quarter of 2021 and 24 basis points in the third quarter of 2020, reflecting continued repricing downward of interest-bearing deposits and time deposits. 
 During the third quarter of 2021, average transaction deposits (noninterest and interest bearing demand) increased $384.9 million, or 9%, compared to the second quarter of 2021 and increased $1.2 billion, or 34%, compared to the third quarter of 2020, reflecting the acquisition of Legacy Bank, the inflow of new customers, and higher deposit balances for existing customers. 
 The Company’s deposit mix remains favorable, with 93% of average deposit balances comprised of savings, money market, and demand deposits for the nine months ended September 30, 2021. Seacoast's average cost of deposits, including noninterest bearing demand deposits, decreased to 9 basis points for the nine months ended September 30, 2021 compared to 36 basis points for the nine months ended September 30, 2020, reflecting the lower interest rate environment and shifts in deposit mix with a higher proportion of low cost deposits. Brokered CDs totaled $20.0 million at September 30, 2021, with a weighted average rate of 0.32%. The Company participates in programs with third party deposit networks as part of its liquidity management strategy, particularly as it approaches $10 billion in assets. Through these programs, the Company can offer its customers access to FDIC insurance on large balances, and the Company can retain or sell, on an overnight basis, the underlying deposits. The Company expects to remain below $10 billion in assets at year end 2021, and at September 30, 2021, the Company had sold, on an overnight basis, $233.1 million in deposits, compared to $112.7 million at December 31, 2020. These deposits are not included in the Consolidated Balance Sheet. 
 Sweep repurchase agreements with customers increased $37.5 million, or 48%, year-over-year. For the nine months ended September 30, 2021, the average balance was $116.3 million compared to an average balance of $78.8 million for the nine months ended September 30, 2020. The average rate on customer sweep repurchase accounts was 0.13% for the nine months ended September 30, 2021, compared to 0.41% for the nine months ended September 30, 2020. No federal funds purchased were utilized at September 30, 2021 nor September 30, 2020. 
 In connection with the Legacy Bank transaction, the Company acquired $33.0 million in FHLB borrowings during the third quarter of 2021, which were immediately repaid for a nominal fee. The Company had no other FHLB borrowings during the nine months ended September 30, 2021 compared to $180.9 million with an average rate of 1.08% for the nine months ended September 30, 2020. The decrease reflects the impact of higher average deposit balances that were sufficient to fund the Company’s liquidity needs during 2021. 
 For the nine months ended September 30, 2021, subordinated debt averaged $71.5 million, compared to $71.2 million for the nine months ended September 30, 2020. The average rate on subordinated debt for the nine months ended September 30, 2021 was 2.37%, compared to 3.28% for the nine months ended September 30, 2020. The subordinated debt relates to trust preferred securities issued by subsidiary trusts of the Company. 
 
 
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 The following tables detail average balances, net interest income and margin results (on a tax equivalent basis, a non-GAAP measure) for the periods presented: 
 
 Average Balances, Interest Income and Expenses, Yields and Rates 1 
 
 
 2021 2020 
 Third Quarter Second Quarter Third Quarter 
 Average Yield/ Average Yield/ Average Yield/ 
 (In thousands, except ratios) Balance Interest Rate Balance Interest Rate Balance Interest Rate 
 Assets 
 Earning assets: 
 Securities: 
 Taxable $ 1,971,520 $ 7,775 1.58 % $ 1,629,410 $ 6,559 1.61 % $ 1,322,160 $ 6,972 2.11 % 
 Nontaxable 25,311 181 2.86 25,581 186 2.90 23,570 157 2.67 
 Total Securities 1,996,831 7,956 1.59 1,654,991 6,745 1.63 1,345,730 7,129 2.12 
 
 Federal funds sold and other investments 1,091,997 867 0.31 925,323 709 0.31 239,511 556 0.92 
 
 Loans excluding PPP loans 5,422,350 58,600 4.29 5,092,897 55,313 4.36 5,242,776 58,854 4.47 
 PPP Loans 281,724 5,917 8.33 505,339 5,127 4.07 618,088 1,719 1.11 
 Total Loans 5,704,074 64,517 4.49 5,598,236 60,440 4.33 5,860,864 60,573 4.11 
 
 Total Earning Assets 8,792,902 73,340 3.31 8,178,550 67,894 3.33 7,446,105 68,258 3.65 
 
 Allowance for loan losses (88,412) (86,042) (92,151) 
 Cash and due from banks 386,781 327,171 138,749 
 Premises and equipment 70,667 70,033 72,572 
 Intangible assets 254,980 235,964 228,801 
 Bank owned life insurance 164,879 133,484 129,156 
 Other assets 171,937 166,686 163,658 
 Total Assets $ 9,753,734 $ 9,025,846 $ 8,086,890 
 
 Liabilities and Shareholders' Equity 
 Interest-bearing liabilities: 
 Interest-bearing demand $ 1,891,092 $ 219 0.05 % $ 1,692,178 $ 235 0.06 % $ 1,364,947 $ 330 0.10 % 
 Savings 842,018 65 0.03 790,734 118 0.06 648,319 170 0.10 
 Money market 1,860,386 565 0.12 1,736,481 627 0.14 1,328,931 799 0.24 
 Time deposits 572,661 583 0.40 533,350 524 0.39 1,051,316 2,673 1.01 
 Securities sold under agreements to repurchase 120,507 35 0.12 115,512 35 0.12 90,357 40 0.18 
 Federal Home Loan Bank borrowings — — — — — — 93,913 181 0.77 
 Other borrowings 71,530 418 2.32 71,460 422 2.37 71,258 444 2.48 
 Total Interest-Bearing Liabilities 5,358,194 1,885 0.14 4,939,715 1,961 0.16 4,649,041 4,637 0.40 
 Noninterest demand 2,985,582 2,799,643 2,279,584 
 Other liabilities 161,411 116,093 96,458 
 Total Liabilities 8,505,187 7,855,451 7,025,083 
 
 Shareholders' equity 1,248,547 1,170,395 1,061,807 
 
 Total Liabilities & Equity $ 9,753,734 $ 9,025,846 $ 8,086,890 
 
 Cost of deposits 0.07 % 0.08 % 0.24 % 
 Interest expense as a % of earning assets 0.09 % 0.10 % 0.25 % 
 Net interest income as a % of earning assets $ 71,455 3.22 % $ 65,933 3.23 % $ 63,621 3.40 % 
 
 1 On a fully taxable equivalent basis, a non-GAAP measure - see "Explanation of Certain Unaudited Non-GAAP Financial Measures" for more information and a reconciliation to GAAP. All yields and rates have been computed on an annual basis using amortized cost. Fees on loans have been included in interest on loans. Nonaccrual loans are included in loan balances. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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 Average Balances, Interest Income and Expenses, Yields and Rates 1 
 
 
 2021 2020 
 Year to Date Year to Date 
 Average Yield/ Average Yield/ 
 (In thousands, except ratios) Balance Interest Rate Balance Interest Rate 
 Assets 
 Earning assets: 
 Securities: 
 Taxable $ 1,718,671 $ 20,632 1.60 % $ 1,203,877 $ 23,241 2.57 % 
 Nontaxable 25,606 554 2.88 20,895 461 2.94 
 Total Securities 1,744,277 21,186 1.62 1,224,772 23,702 2.58 
 
 Federal funds sold and other investments 800,839 2,162 0.36 253,635 1,974 1.04 
 
 Loans excluding PPP loans 5,222,629 169,417 4.34 5,254,089 182,239 4.63 
 PPP Loans 464,397 17,930 5.16 348,407 6,787 2.60 
 Total Loans 5,687,026 187,347 4.40 5,602,496 189,026 4.51 
 
 Total Earning Assets 8,232,142 210,695 3.42 7,080,903 214,702 4.05 
 
 Allowance for loan losses (88,717) (78,067) 
 Cash and due from banks 323,693 111,019 
 Premises and equipment 71,644 70,451 
 Intangible assets 242,820 228,795 
 Bank owned life insurance 143,601 127,683 
 Other assets 167,775 145,827 
 Total Assets $ 9,092,958 $ 7,686,611 
 
 Liabilities and Shareholders' Equity 
 Interest-bearing liabilities: 
 Interest-bearing demand $ 1,728,985 $ 712 0.06 % $ 1,279,485 $ 1,461 0.15 % 
 Savings 785,447 320 0.05 588,913 683 0.15 
 Money market 1,736,519 1,862 0.14 1,217,627 3,548 0.39 
 Time deposits 605,269 2,294 0.51 1,165,194 11,261 1.29 
 Securities sold under agreements to repurchase 116,304 112 0.13 78,755 241 0.41 
 Federal Home Loan Bank borrowings — — — 180,893 1,460 1.08 
 Other borrowings 71,460 1,266 2.37 71,186 1,748 3.28 
 Total Interest-Bearing Liabilities 5,043,984 6,566 0.17 4,582,053 20,402 0.59 
 Noninterest demand 2,741,115 2,001,630 
 Other liabilities 122,329 79,821 
 Total Liabilities 7,907,428 6,663,504 
 
 Shareholders' equity 1,185,530 1,023,107 
 
 Total Liabilities & Equity $ 9,092,958 $ 7,686,611 
 
 Cost of deposits 0.09 % 0.36 % 
 Interest expense as a % of earning assets 0.11 % 0.38 % 
 Net interest income as a % of earning assets $ 204,129 3.32 % $ 194,300 3.67 % 
 
 1 On a fully taxable equivalent basis, a non-GAAP measure - see "Explanation of Certain Unaudited Non-GAAP Financial Measures" for more information and a reconciliation to GAAP. All yields and rates have been computed on an annual basis using amortized cost. Fees on loans have been included in interest on loans. Nonaccrual loans are included in loan balances. 
 

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 Noninterest Income 
 Noninterest income totaled $19.0 million for the third quarter of 2021, an increase of $3.7 million, or 24%, compared to the second quarter of 2021 and an increase of $2.1 million, or 12%, from the third quarter of 2020. Noninterest income totaled $52.0 million for the nine months ended September 30, 2021, an increase of $5.4 million, or 12%, compared to the nine months ended September 30, 2020. 
 Noninterest income is detailed as follows: 
 
 Third Second Third Nine Months Ended 
 Quarter Quarter Quarter September 30, 
 (In thousands) 2021 2021 2020 2021 2020 
 Service charges on deposit accounts $ 2,495 $ 2,338 $ 2,242 $ 7,171 $ 7,006 
 Interchange income 4,131 4,145 3,682 12,096 10,115 
 Wealth management income 2,562 2,387 1,972 7,272 5,558 
 Mortgage banking fees 2,550 2,977 5,283 9,752 11,050 
 Marine finance fees 152 177 242 518 545 
 SBA gains 812 232 252 1,331 572 
 BOLI income 1,128 872 899 2,859 2,672 
 Other income 5,228 2,249 2,370 11,221 7,869 
 19,058 15,377 16,942 52,220 45,387 
 Securities (losses) gains, net (30) (55) 4 (199) 1,253 
 Total $ 19,028 $ 15,322 $ 16,946 $ 52,021 $ 46,640 

 Service charges on deposits were $2.5 million in the third quarter of 2021, $2.3 million in the second quarter of 2021 and $2.2 million in the third quarter of 2020. For the nine months ended September 30, 2021, service charges on deposits totaled $7.2 million, an increase of $0.2 million, or 2%, compared to the nine months ended September 30, 2020. The increase in service charges for the nine-month period reflects an increase in customer deposit accounts. Overdraft fees represent 40% of total service charges on deposits for the nine months ended September 30, 2021 and 44% for the nine months ended September 30, 2020. 
 Interchange income remained flat at $4.1 million for the three months ended September 30, 2021, compared to the three months ended June 30, 2021, and increased $0.4 million, or 12%, compared to the three months ended September 30, 2020. Third quarter activity reflects stable transaction volume despite the impact of the COVID-19 delta variant on spending early in the third quarter. For the nine months ended September 30, 2021, interchange income totaled $12.1 million, an increase of $2.0 million, or 20%, compared to the nine months ended September 30, 2020. The 2021 periods reflect the return of transactional volume and higher per-card spending in the current year when compared to the prior year, which was negatively affected by COVID-19-related shutdowns and reduced consumer consumption. 
 Wealth management income, including trust fees and brokerage commissions and fees, was a record $2.6 million in the third quarter of 2021, increasing $0.2 million, or 7%, from the second quarter of 2021 and increasing $0.6 million, or 30%, compared to the third quarter of 2020. For the nine months ended September 30, 2021, wealth management income totaled $7.3 million, an increase of $1.7 million, or 31%, compared to the nine months ended September 30, 2020. The wealth management team continues to successfully win business with commercial relationships and high net worth families across the Company’s footprint, as reflected through the growth of assets under management from $792.6 million at September 30, 2020 to $1.2 billion at September 30, 2021. 
 Mortgage banking fees decreased by $0.4 million, or 14%, to $2.5 million in the third quarter of 2021 compared to the second quarter of 2021, and decreased $2.7 million, or 52%, compared to the third quarter of 2020, reflecting the impact of lower refinance activity and low housing inventory levels. For the nine months ended September 30, 2021, mortgage banking fees totaled $9.8 million, a decrease of $1.3 million, or 12%, compared to the nine months ended September 30, 2020. 
 SBA gains were a record $0.8 million, an increase of $0.6 million, compared to the second quarter of 2021 and an increase of $0.6 million, compared to the third quarter of 2020. Higher saleable loan production reflects a renewed focus on saleable activity as the PPP program winds down. For the nine months ended September 30, 2021, SBA gains totaled $1.3 million, an increase of $0.8 million, or 133%, compared to the nine months ended September 30, 2020. 
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 Bank owned life insurance (“BOLI”) income was $1.1 million for the third quarter of 2021, an increase of $0.3 million compared to both the second quarter of 2021 and the third quarter of 2020. The increase is attributed to additions to BOLI, including $25.0 million purchased late in the second quarter, with a tax equivalent yield of 4.50%. In addition, the Company acquired $9.1 million in BOLI from Legacy Bank, and an additional $25.0 million was purchased late in the third quarter of 2021. BOLI income totaled $2.9 million for the nine months ended September 30, 2021 and $2.7 million for the nine months ended September 30, 2020. 
 Other income was $5.2 million in the third quarter of 2021, an increase of $3.0 million quarter-over-quarter and an increase of $2.9 million year-over-year, reflecting the impact of gains on SBIC investments during the quarter. Returns recognized on these investments will vary and are not expected to occur on a routine basis. For the nine months ended September 30, 2021, other income totaled $11.2 million, an increase of $3.4 million, or 43%, compared to the nine months ended September 30, 2020. 
 Noninterest Expenses 
 The Company has demonstrated its commitment to efficiency through disciplined, proactive management of its cost structure. For the third quarter of 2021, the efficiency ratio, defined as noninterest expense less amortization of intangibles and gains, losses, and expenses on foreclosed properties divided by net operating revenue (net interest income on a fully taxable equivalent basis plus noninterest income excluding securities gains and losses), was 59.55% compared to 54.93% for the second quarter of 2021 and 61.65% for the third quarter of 2020. The increase in the efficiency ratio quarter over quarter primarily reflects higher net interest income and higher non-interest income, which was more than offset by the impact of higher expenses, primarily resulting from the Legacy Bank acquisition during the third quarter of 2021. The decrease in the efficiency ratio when compared to the prior year quarter reflects higher net interest income and higher noninterest income. Both periods reflected the impact of higher expenses from acquisitions with the completion of the Freedom Bank acquisition in the third quarter of 2020. For the nine months ended September 30, 2021, the efficiency ratio was 55.99% compared to 57.15% for the nine months ended September 30, 2020. 
 The adjusted efficiency ratio 1 2 was 51.50% in the third quarter of 2021, compared to 53.49% in the second quarter of 2021 and 54.82% in the third quarter of 2020. The decrease in the adjusted efficiency ratio 1 compared to the prior quarter and the prior year quarter primarily reflects higher net interest income and higher noninterest income. At September 30, 2021, adjusted noninterest expense 1 as a percent of average tangible assets was 1.95% for the third quarter of 2021 compared to 1.98% for the second quarter of 2021 and 2.24% for the third quarter of 2020. For the nine months ended September 30, 2021 the adjusted efficiency ratio 1 was 52.29% compared to 52.64% for the nine months ended September 30, 2020. 
 
 1 2 Non-GAAP measure - see “Explanation of Certain Unaudited Non-GAAP Financial Measures” for more information and a reconciliation to GAAP. 
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 Third Second Third Nine Months Ended 
 Quarter Quarter Quarter September 30, 
 (In thousands, except ratios) 2021 2021 2020 2021 2020 
 Noninterest expense, as reported $ 55,268 $ 45,784 $ 51,674 $ 147,172 $ 141,871 
 
 Merger-related charges (6,281) (509) (4,281) (7,371) (9,074) 
 Amortization of intangibles (1,306) (1,212) (1,497) (3,729) (4,436) 
 Business continuity expenses — — — — (307) 
 Branch reductions and other expense initiatives (870) (663) (464) (1,982) (464) 
 Adjusted noninterest expense 1 
 $ 46,811 $ 43,400 $ 45,432 $ 134,090 $ 127,590 
 
 Foreclosed property expense and net (loss)/gain on sale (66) 90 (512) 89 (442) 
 Provision for credit losses on unfunded commitments (133) — (756) (133) (980) 
 
 Net adjusted noninterest expense 1 
 $ 46,612 $ 43,490 $ 44,164 $ 134,046 $ 126,168 
 
 Efficiency ratio 59.55 % 54.93 % 61.65 % 55.99 % 57.15 % 
 Adjusted efficiency ratio 1,2 
 51.50 53.49 54.82 52.29 52.64 
 Adjusted noninterest expense as a percent of average tangible assets 1,2 
 1.95 1.98 2.24 2.03 2.26 
 1 Non-GAAP measure - see “Explanation of Certain Unaudited Non-GAAP Financial Measures” for more information and a reconciliation to GAAP. 
 
 2 Adjusted efficiency ratio is defined as noninterest expense, including adjustments to noninterest expense divided by aggregated tax equivalent net interest income and noninterest income, including adjustments to revenue. 
 

 Noninterest expense for the third quarter of 2021 totaled $55.3 million, an increase of $9.5 million, or 21%, compared to the second quarter of 2021, and an increase of $3.6 million, or 7%, from the third quarter of 2020. For the nine months ended 
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 September 30, 2021, noninterest expenses totaled $147.2 million, an increase of $5.3 million, or 4%, compared to the nine months ended September 30, 2020. Noninterest expenses are detailed as follows: 
 
 Third Second Third Nine Months Ended 
 Quarter Quarter Quarter September 30, 
 (In thousands) 2021 2021 2020 2021 2020 
 
 Salaries and wages $ 27,919 $ 22,966 $ 23,125 $ 72,278 $ 67,049 
 Employee benefits 4,177 3,953 3,995 13,110 11,629 
 Outsourced data processing costs 5,610 4,676 6,128 14,754 14,820 
 Telephone/data lines 810 838 705 2,433 2,210 
 Occupancy 3,541 3,310 3,858 10,640 10,596 
 Furniture and equipment 1,567 1,166 1,576 3,987 4,557 
 Marketing 1,353 1,002 1,513 3,523 3,788 
 Legal and professional fees 4,151 2,182 3,018 8,915 8,658 
 FDIC assessments 651 515 474 1,692 740 
 Amortization of intangibles 1,306 1,212 1,497 3,729 4,436 
 Foreclosed property expense and net loss (gain) on sale 66 (90) 512 (89) 442 
 Provision for credit losses on unfunded commitments 133 — 756 133 980 
 Other 3,984 4,054 4,517 12,067 11,966 
 Total $ 55,268 $ 45,784 $ 51,674 $ 147,172 $ 141,871 
 
 
 

 Salaries and wages totaled $27.9 million for the third quarter of 2021, $23.0 million for the second quarter of 2021, and $23.1 million for the third quarter of 2020. The third quarter includes $2.6 million in merger-related expenses, as well as increases relating to the addition of the Legacy Bank branch franchise, and increases resulting from investments in commercial banking talent. For the nine months ended September 30, 2021, salaries and wages totaled $72.3 million, an increase of $5.2 million, or 8%, compared to the nine months ended September 30, 2020. The increase compared to the prior year reflects higher salaries from headcount added through acquisitions and investments made to support organic growth. 
 During the third quarter of 2021, employee benefit costs, which include costs associated with the Company's self-funded health insurance benefits, 401(k) plan, payroll taxes, and unemployment compensation, were $4.2 million, an increase of $0.2 million, or 6%, compared to the second quarter of 2021 and an increase of $0.2 million, or 5%, compared to the third quarter of 2020. The third quarter of 2021 included higher healthcare-related costs attributed to increased headcount. For the nine months ended September 30, 2021, employee benefit costs totaled $13.1 million, an increase of $1.5 million, or 13%, compared to the nine months ended September 30, 2020. The increase reflects the impact of higher health insurance related costs and payroll taxes resulting from headcount added through acquisitions and investments made to support organic growth. 
 The Company utilizes third parties for its core data processing systems. Ongoing data processing costs are directly related to the number of transactions processed and the negotiated rates associated with those transactions. Outsourced data processing costs totaled $5.6 million, $4.7 million and $6.1 million for the third quarter of 2021, second quarter of 2021 and third quarter of 2020, respectively. The third quarter of 2021 included $0.9 million in merger-related costs related to data conversion, while the third quarter of 2020 included $1.9 million in merger-related costs. For the nine months ended September 30, 2021 and September 30, 2020, outsourced data processing costs totaled $14.8 million. The Company continues to improve and enhance mobile and other digital products and services through key third parties. Outsourced data processing costs may increase in the future as customers adopt improved products and as business volumes grow. 
 Telephone and data line expenditures, including electronic communications with customers and between branch and customer support locations and personnel, as well as with third-party data processors, were $0.8 million, $0.8 million, and $0.7 million for the third quarter of 2021, second quarter of 2021, and third quarter of 2020, respectively. For the nine months ended September 30, 2021, telephone and data line expenditures totaled $2.4 million, an increase of $0.2 million, or 10%, compared to the nine months ended September 30, 2020. 
 Total occupancy, furniture and equipment expenses were $5.1 million in the third quarter of 2021, $4.5 million in the second quarter of 2021, and $5.4 million in the third quarter of 2020. Increases in the third quarter reflect merger-related equipment disposals, as well as increases relating to the addition of the Legacy Bank branch franchise. For the nine months ended 
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 September 30, 2021, total occupancy, furniture and equipment expenses totaled $14.6 million, a decrease of $0.5 million, or 3%, compared to the nine months ended September 30, 2020. 
 Marketing expenses totaled $1.4 million in the third quarter of 2021, $1.0 million in the second quarter of 2021 and $1.5 million in the third quarter of 2020. For the nine months ended September 30, 2021, marketing expenses totaled $3.5 million, a decrease of $0.3 million, or 7%, compared to the nine months ended September 30, 2020. Targeted marketing campaigns allow the Company to engage new and existing customers while maintaining a controlled expense base. 
 Legal and professional fees for the third quarter of 2021 were $4.2 million, an increase of $2.0 million, or 90%, compared to the second quarter of 2021, and an increase of $1.1 million, or 38%, compared to the third quarter of 2020. For the nine months ended September 30, 2021, legal and professional fees totaled $8.9 million, an increase of $0.3 million, or 3%, compared to the nine months ended September 30, 2020. Acquisition-related expenses were $2.0 million in the third quarter of 2021, $0.5 million in the second quarter of 2021, and $1.3 million in the third quarter of 2020. 
 FDIC assessments were $0.7 million for the third quarter of 2021 and $0.5 million in both the second quarter of 2021 and the third quarter of 2020. For the nine months ended September 30, 2021, FDIC assessments totaled $1.7 million compared to $0.7 million for the nine months ended September 30, 2020 with 2020 benefiting from the FDIC small bank assessment credits which offset expense. 
 A provision of $0.1 million was recorded for credit losses on unfunded lending commitments in the third quarter of 2021 attributed to the acquisition of Legacy Bank, compared to no adjustment in the second quarter of 2021 and a $0.8 million provision in the third quarter of 2020 with the acquisition of Freedom Bank. 
 Other expense totaled $4.0 million, $4.1 million and $4.5 million for the third quarter of 2021, the second quarter of 2021 and the third quarter of 2020, respectively. For the nine months ended September 30, 2021, other expense totaled $12.1 million, an increase of $0.1 million, or 1%, compared to the nine months ended September 30, 2020. 
 Income Taxes 
 For the third quarter of 2021, the Company recorded tax expense of $7.0 million compared to tax expense of $8.8 million in the second quarter of 2021 and $7.0 million in the third quarter of 2020. For the nine months ended September 30, 2021, tax expense totaled $26.0 million, an increase of $12.0 million, or 85%, compared to the nine months ended September 30, 2020 due to higher pre-tax income. A tax benefit related to stock-based compensation totaled $0.3 million in the third quarter of 2021, compared to a tax benefit of $0.6 million in the second quarter of 2021 and nominal impact in the third quarter of 2020. 
 Explanation of Certain Unaudited Non-GAAP Financial Measures 
 This report contains financial information determined by methods other than Generally Accepted Accounting Principles (“GAAP”). The financial highlights provide reconciliations between GAAP and adjusted financial measures including net income, fully taxable equivalent net interest income, noninterest income, noninterest expense, tax adjustments, net interest margin and other financial ratios. Management uses these non-GAAP financial measures in its analysis of the Company’s performance and believes these presentations provide useful supplemental information, and a clearer understanding of the Company’s performance. The Company believes the non-GAAP measures enhance investors’ understanding of the Company’s business and performance and if not provided would be requested by the investor community. These measures are also useful in understanding performance trends and facilitate comparisons with the performance of other financial institutions. The limitations associated with operating measures are the risk that persons might disagree as to the appropriateness of items comprising these measures and that different companies might define or calculate these measures differently. The Company provides reconciliations between GAAP and these non-GAAP measures. These disclosures should not be considered an alternative to GAAP. 
 Reconciliation of Non-GAAP Measures 
 
 Third Second Third Nine Months Ended 
 Quarter Quarter Quarter September 30, 
 (In thousands, except per share data) 2021 2021 2020 2021 2020 
 Net income, as reported: 
 Net income $ 22,944 $ 31,410 $ 22,628 $ 88,073 $ 48,417 
 
 Diluted earnings per share $ 0.40 $ 0.56 $ 0.42 $ 1.56 $ 0.91 
 

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 Third Second Third Nine Months Ended 
 Quarter Quarter Quarter September 30, 
 (In thousands, except per share data) 2021 2021 2020 2021 2020 
 Noninterest Income $ 19,028 $ 15,322 $ 16,946 $ 52,021 $ 46,640 
 Securities (gains) losses, net 30 55 (4) 199 (1,253) 
 
 Total adjustments to noninterest income 30 55 (4) 199 (1,253) 
 Total Adjusted Noninterest Income $ 19,058 $ 15,377 $ 16,942 $ 52,220 $ 45,387 
 
 Noninterest Expense 55,268 $ 45,784 $ 51,674 $ 147,172 $ 141,871 
 Merger-related charges (6,281) (509) (4,281) (7,371) (9,074) 
 Amortization of intangibles (1,306) (1,212) (1,497) (3,729) (4,436) 
 Business continuity expenses — — — — (307) 
 Branch reductions and other expense initiatives 1 
 (870) (663) (464) (1,982) (464) 
 Total adjustments to noninterest expense (8,457) (2,384) (6,242) (13,082) (14,281) 
 Total Adjusted Noninterest Expense $ 46,811 $ 43,400 $ 45,432 $ 134,090 $ 127,590 
 
 Income Taxes $ 7,049 $ 8,785 $ 6,992 $ 25,991 $ 14,025 
 Tax effect of adjustments 2,081 598 1,530 3,256 3,195 
 
 
 Total adjustments to income taxes 2,081 598 1,530 3,256 3,195 
 Adjusted income taxes 9,130 9,383 8,522 29,247 17,220 
 Adjusted net income $ 29,350 $ 33,251 $ 27,336 $ 98,098 $ 58,250 
 
 Earnings per diluted share, as reported $ 0.40 $ 0.56 $ 0.42 $ 1.56 $ 0.91 
 Adjusted diluted earnings per share 0.51 0.59 0.50 1.74 1.09 
 Average diluted shares outstanding 57,645 55,901 54,301 56,441 53,325 
 
 Adjusted Noninterest Expense $ 46,811 $ 43,400 $ 45,432 $ 134,090 $ 127,590 
 Foreclosed property expense and net (loss) gain on sale (66) 90 (512) 89 (442) 
 Provision for unfunded commitments (133) — (756) (133) (980) 
 Net Adjusted Noninterest Expense $ 46,612 $ 43,490 $ 44,164 $ 134,046 $ 126,168 
 
 Revenue $ 90,352 $ 81,124 $ 80,449 $ 255,757 $ 240,592 
 Total adjustments to revenue 30 55 (4) 199 (1,253) 
 Impact of FTE adjustment 131 131 118 393 348 
 Adjusted revenue on a fully tax equivalent basis $ 90,513 $ 81,310 $ 80,563 $ 256,349 $ 239,687 
 Adjusted Efficiency Ratio 51.50 % 53.49 % 54.82 % 52.29 % 52.64 % 
 Net Adjusted Noninterest Expense as a Percent of Average Tangible Assets 2 
 1.95 % 1.98 % 2.24 % 2.03 % 2.26 % 
 
 Net Interest Income $ 71,324 $ 65,802 $ 63,503 $ 203,736 $ 193,952 
 Impact of FTE adjustment 131 131 118 393 348 
 Net interest income including FTE adjustment 71,455 65,933 63,621 204,129 194,300 
 Noninterest income 19,028 15,322 16,946 52,021 46,640 
 Noninterest expense 55,268 45,784 51,674 147,172 141,871 
 Pre-Tax Pre-Provision Earnings 35,215 35,471 28,893 108,978 99,069 
 Adjustments to noninterest income 30 55 (4) 199 (1,253) 
 Adjustments to noninterest expense (8,656) (2,294) (7,510) (13,126) (15,703) 
 Adjusted Pre-Tax Pre-Provision Earnings $ 43,901 $ 37,820 $ 36,399 $ 122,303 $ 113,519 
 

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 Third Second Third Nine Months Ended 
 Quarter Quarter Quarter September 30, 
 (In thousands, except per share data) 2021 2021 2020 2021 2020 
 Average Assets $ 9,753,734 $ 9,025,846 $ 8,086,890 $ 9,092,958 $ 7,686,611 
 Less average goodwill and intangible assets (254,980) (235,964) (228,801) (242,820) (228,795) 
 Average Tangible Assets $ 9,498,754 $ 8,789,882 $ 7,858,089 $ 8,850,138 $ 7,457,816 
 
 Return on Average Assets (ROA) 0.93 % 1.40 % 1.11 % 1.29 % 0.84 % 
 Impact of removing average intangible assets and related amortization 0.07 0.08 0.09 0.08 0.09 
 Return on Average Tangible Assets (ROTA) 1.00 1.48 1.20 1.37 0.93 
 Impact of other adjustments for Adjusted Net Income 0.23 0.04 0.18 0.11 0.11 
 Adjusted Return on Average Tangible Assets 1.23 % 1.52 % 1.38 % 1.48 % 1.04 % 
 
 Average Shareholders' Equity $ 1,248,547 $ 1,170,395 $ 1,061,807 $ 1,185,530 $ 1,023,107 
 Less average goodwill and intangible assets (254,980) (235,964) (228,801) (242,820) (228,795) 
 Average Tangible Equity $ 993,567 $ 934,431 $ 833,006 $ 942,710 $ 794,312 
 
 Return on Average Shareholders' Equity 7.29 % 10.76 % 8.48 % 9.93 % 6.32 % 
 Impact of removing average intangible assets and related amortization 2.27 3.12 2.87 2.96 2.39 
 Return on Average Tangible Common Equity (ROTCE) 9.56 13.88 11.35 12.89 8.71 
 Impact of other adjustments for Adjusted Net Income 2.16 0.39 1.71 1.02 1.09 
 Adjusted Return on Average Tangible Common Equity 11.72 % 14.27 % 13.06 % 13.91 % 9.80 % 
 
 Loan Interest Income 2 
 $ 64,517 $ 60,440 $ 60,573 $ 187,347 $ 189,026 
 Accretion on acquired loans (3,483) (2,886) (3,254) (9,237) (10,529) 
 Interest and fees on PPP loans (5,917) (5,127) (1,719) (17,930) (6,787) 
 Loan interest income excluding PPP and accretion on acquired loans 2 
 $ 55,117 $ 52,427 $ 55,600 $ 160,180 $ 171,710 
 
 Yield on Loans 2 
 4.49 % 4.33 % 4.11 % 4.40 % 4.51 % 
 
 Impact of accretion on acquired loans (0.24) (0.21) (0.22) (0.21) (0.25) 
 Impact of PPP loans (0.22) 0.01 0.33 (0.09) 0.11 
 Yield on loans excluding PPP and accretion on acquired loans 2 
 4.03 % 4.13 % 4.22 % 4.10 % 4.37 % 
 
 Net Interest Income 2 
 $ 71,455 $ 65,933 $ 63,621 $ 204,129 $ 194,300 
 Accretion on acquired loans (3,483) (2,886) (3,254) (9,237) (10,529) 
 Interest and fees on PPP loans (5,917) (5,127) (1,719) (17,930) (6,787) 
 Net interest income excluding PPP and accretion on acquired loans 2 
 $ 62,055 $ 57,920 $ 58,648 $ 176,962 $ 176,984 
 
 Net Interest Margin 2 
 3.22 % 3.23 % 3.40 % 3.32 % 3.67 % 
 Impact of accretion on acquired loans (0.15) (0.14) (0.17) (0.15) (0.20) 
 Impact of PPP loans (0.18) (0.06) 0.19 (0.12) 0.04 
 Net interest margin excluding PPP and accretion on acquired loans 2 
 2.89 % 3.03 % 3.42 % 3.05 % 3.51 % 
 
 Loan Interest Income 2 
 $ 64,517 $ 60,440 $ 60,573 $ 187,347 $ 189,026 
 Tax equivalent adjustment to loans (93) (92) (86) (277) (255) 
 Loan interest income excluding tax equivalent adjustment $ 64,424 $ 60,348 $ 60,487 $ 187,070 $ 188,771 
 

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 Third Second Third Nine Months Ended 
 Quarter Quarter Quarter September 30, 
 (In thousands, except per share data) 2021 2021 2020 2021 2020 
 Securities Interest Income 2 
 $ 7,956 $ 6,745 $ 7,129 $ 21,186 $ 23,702 
 Tax equivalent adjustment to securities (38) (39) (32) (116) (93) 
 Securities interest income excluding tax equivalent adjustment $ 7,918 $ 6,706 $ 7,097 $ 21,070 $ 23,609 
 
 Net Interest Income 2 
 $ 71,455 $ 65,933 $ 63,621 $ 204,129 $ 194,300 
 Tax equivalent adjustments to loans (93) (92) (86) (277) (255) 
 Tax equivalent adjustments to securities (38) (39) (32) (116) (93) 
 Net interest income excluding tax equivalent adjustments $ 71,324 $ 65,802 $ 63,503 $ 203,736 $ 193,952 
 1 Includes severance, contract termination costs, disposition of branch premises and fixed assets, and other costs to effect the Company's branch consolidation and other expense reduction strategies. 
 
 2 On a fully taxable equivalent basis. All yields and rates have been computed using amortized cost. 
 

 
 
 
 Financial Condition 
 Total assets increased $1.6 billion at September 30, 2021, or 19%, from December 31, 2020, reflecting the acquisition of Legacy Bank, which added $628.9 million in assets, as well as higher cash balances due to higher customer deposit balances, and additional investments in debt securities. 
 Securities 
 Information related to maturities, carrying values and fair value of the Company’s debt securities is set forth in “ Note D – Securities ” of the Company’s condensed consolidated financial statements. 
 At September 30, 2021, the Company had $1.5 billion in debt securities available-for-sale and $526.5 million in debt securities held-to-maturity. The Company's total debt securities portfolio increased $490.0 million, or 31%, from December 31, 2020. 
 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. 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. The Company has the intent and ability to retain these securities until maturity. 
 During the nine months ended September 30, 2021, there were $1.1 billion of debt security purchases and $520.4 million in aggregated paydowns and maturities. For the nine months ended September 30, 2021, the Company had $57.2 million in proceeds from sales of securities with net losses of $0.1 million. For the nine months ended September 30, 2020, there were $626.7 million debt security purchases and aggregated maturities and principal paydowns totaled $237.1 million. Proceeds from sales of securities during the nine months ended September 30, 2020 totaled $96.7 million, with net gains of $1.1 million. 
 Debt securities generally return principal and interest monthly. At September 30, 2021, available-for-sale debt securities had gross unrealized losses of $9.9 million and gross unrealized gains of $16.4 million, compared to gross unrealized losses of $2.1 million and gross unrealized gains of $28.7 million at December 31, 2020. The modified duration of the available-for-sale portfolio at September 30, 2021 was 3.2, compared to 3.8 at December 31, 2020. 
 The credit quality of the Company’s securities holdings is primarily investment grade. U.S. Treasuries, obligations of U.S. government agencies and obligations of U.S. government sponsored entities totaled $1.7 billion, or 81%, of the total portfolio. 
 The portfolio includes $75.8 million, with a fair value of $77.2 million, in private label residential and commercial mortgage-backed securities and collateralized mortgage obligations. Included are $50.7 million, with a fair value of $51.2 million, in private label mortgage-backed residential securities with weighted average credit support of 34%. The collateral underlying these mortgage investments includes both fixed-rate and adjustable-rate mortgage loans. Non-guaranteed agency commercial securities total $25.0 million, with a fair value of $26.0 million. These securities have weighted average credit support of 12%. The collateral underlying these mortgages are primarily pooled multifamily loans. 
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 The Company also has invested $277.3 million, with a fair value of $277.3 million, in uncapped 3-month LIBOR floating rate collateralized loan obligations (“CLOs”). CLOs are special purpose vehicles, and the Company’s holdings purchase nearly all first lien broadly syndicated corporate loans across a diversified band of industries while providing support to senior tranche investors. As of September 30, 2021, the Company held 32 total positions, all of which were in AAA/AA tranches with average credit support of 31%. The Company utilizes credit models with assumptions of loan level defaults, recoveries, and prepayments to evaluate each security for potential credit losses. The result of this analysis did not indicate expected credit losses. 
 Held-to-maturity securities consist solely of mortgage-backed securities and collateralized mortgage obligations guaranteed by government agencies. 
 At September 30, 2021, the Company has determined that all debt securities in an unrealized loss position are the result of both broad investment type spreads and the current interest rate environment. Management believes that each investment will recover any price depreciation over its holding period as the debt securities move to maturity, and management has the intent and ability to hold these investments to maturity if necessary. Therefore, at September 30, 2021, no allowance for credit losses has been recorded. 
 Loan Portfolio 
 Loans, net of unearned income and excluding the allowance for credit losses, were $5.9 billion at September 30, 2021, a $170.5 million increase from December 31, 2020. Increases include organic growth, along with the acquisition of Legacy Bank and the purchase of loan pools. During the nine months ended September 30, 2021, the Company participated in the most recent round of the PPP, resulting in loan originations of $256.0 million. Increases were offset by $675.1 million in PPP loans forgiven by the SBA during the nine months ended September 30, 2021. 
 For the nine months ended September 30, 2021, the Company originated $728.9 million in commercial and commercial real estate loans, compared to $378.4 million for the nine months ended September 30, 2020, an increase of $350.5 million, or 93%. The late-stage loan pipeline for commercial and commercial real estate loans totaled $368.9 million at September 30, 2021. Prior year’s production and pipeline reflect the impact of the onset of the COVID-19 pandemic when the Company purposefully slowed originations. The current year activity reflects the Company’s return to its pre-pandemic credit policy and continuation of strict underwriting guidelines. 
 The Company originated $415.6 million in residential loans retained in the portfolio during the nine months ended September 30, 2021, compared to $74.7 million during the nine months ended September 30, 2020, an increase of $340.8 million, or 456%. Residential loans retained in the portfolio includes $180.8 million in purchased pools consisting of 30-year fixed rate jumbo residential loans purchased in the third quarter of 2021 and a $38.4 million purchased pool consisting of 30-year fixed rate jumbo residential loans purchased in the second quarter of 2021. Saleable production increased for the nine months ended September 30, 2021, representing $353.6 million versus $347.8 million during the nine months ended September 30, 2020, an increase of 2%. 
 Consumer originations totaled $176.8 million for the nine months ended September 30, 2021, an increase of $5.1 million, or 3%, compared to the nine months ended September 30, 2020. 
 The Company remains committed to sound risk management procedures. Lending policies contain guardrails that pertain to lending by type of collateral and purpose, along with limits regarding loan concentrations and the principal amount of loans. The Company's exposure to commercial real estate lending remains well below regulatory limits (see “Loan Concentrations”). 
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 The following tables detail loan portfolio composition at September 30, 2021 and December 31, 2020 for portfolio loans, purchased credit deteriorated (“PCD”) and loans purchased which are not considered purchased credit deteriorated (“Non-PCD”) as defined in Note E-Loans. 
 
 September 30, 2021 
 (In thousands) Portfolio Loans Acquired Non-PCD Loans PCD Loans Total 
 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 was $26.6 million, or 2.3%, of the outstanding acquired loan balances. At December 31, 2020, the remaining fair value adjustments for acquired loans was $30.2 million, or 2.9%, of the acquired loan balances. These amounts are accreted into interest income over the remaining lives of the related loans on a level yield basis. 
 Commercial real estate (“CRE”) loans, inclusive of owner-occupied commercial real estate, increased by $337.8 million, or 13%, in the nine months ended September 30, 2021, totaling $2.9 billion at September 30, 2021 compared to $2.5 billion at December 31, 2020. Owner-occupied commercial real estate loans represent $1.2 billion, or 42%, of the commercial real estate portfolio. 
 Fixed-rate and adjustable-rate loans secured by commercial real estate, excluding construction loans, totaled approximately $2.5 billion and $412.6 million, respectively, at September 30, 2021, compared to $2.1 billion and $453.7 million, respectively, at December 31, 2020. 
 During the nine months ended September 30, 2021, the Company participated in the most recent round of the PPP and originated 2,782 loans totaling $256.0 million. Also during the nine months ended September 30, 2021, $675.1 million in PPP loans were forgiven by the SBA. 
 At September 30, 2021, Seacoast had $2.2 million of loans with payment accommodations to borrowers financially impacted by the COVID-19 pandemic, none of which have been classified as TDRs, compared to $74.1 million at December 31, 2020. Interest and fees have continued to accrue on these loans during any payment deferral period. 
 Residential real estate loans increased $124.7 million, or 9%, to $1.5 billion as of September 30, 2021, compared to December 31, 2020. Substantially all residential mortgage originations have been underwritten to conventional loan agency standards, including loans having balances that exceed agency value limitations. At September 30, 2021, approximately $315.3 million, or 
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 21%, of the Company’s residential mortgage balances were adjustable 1-4 family mortgage loans, which includes hybrid adjustable-rate mortgages, compared to $436.3 million, or 32% at December 31, 2020. Fixed-rate mortgages totaled approximately $0.8 billion, or 56%, at September 30, 2021, compared to $499.0 million, or 37% at December 31, 2020. Home equity lines of credit ("HELOCs"), primarily floating rates, totaled $325.3 million at September 30, 2021 and $341.6 million at December 31, 2020. Borrowers in the residential real estate portfolio have an average credit score of 749. Specifically for HELOCs, borrowers have an average credit score of 763. The average LTV of our HELOC portfolio is 67% with 43% of the portfolio being in first lien position at September 30, 2021, compared to an average LTV of 68% with 45% of the portfolio being in the first lien position at December 31, 2020. 
 The Company also provides consumer loans, which include installment loans, auto loans, marine loans, and other consumer loans, which decreased $25.7 million, or 14%, to total $163.0 million compared to $188.7 million at December 31, 2020. Borrowers in the consumer portfolio have an average credit score of 734. 
 At September 30, 2021, the Company had unfunded loan commitments of $1.8 billion compared to $1.5 billion at December 31, 2020. 
 Loan Concentrations 
 The Company has developed prudent guardrails to manage loan types that are most impacted by stressed market conditions in order to minimize credit risk concentration to capital. Outstanding balances for commercial and CRE loan relationships greater than $10 million totaled $1.1 billion and represented 18% of the total portfolio at September 30, 2021 compared to $753.7 million, or 13%, at year-end 2020. 
 The Company’s ten largest commercial and commercial real estate funded and unfunded loan relationships at September 30, 2021 aggregated to $294.0 million, of which $193.9 million was funded compared to $254.3 million at December 31, 2020, of which $188.0 million was funded. The Company had 180 commercial and commercial real estate relationships in excess of $5 million totaling $1.8 billion, of which $1.5 billion was funded at September 30, 2021 compared to 135 relationships totaling $1.3 billion at December 31, 2020, of which $1.2 billion was funded. 
 Concentrations in total construction and land development loans and total CRE loans are maintained well below regulatory limits. Construction and land development and CRE loan concentrations as a percentage of subsidiary bank total risk based capital were 21% and 175%, respectively, at September 30, 2021, compared to 23% and 168%, respectively, at December 31, 2020. Regulatory guidance suggests limits of 100% and 300%, respectively. On a consolidated basis, construction and land development and commercial real estate loans represent 19% and 160%, respectively, of total consolidated risk based capital. To determine these ratios, the Company defines CRE in accordance with the guidance on “Concentrations in Commercial Real Estate Lending” (the “Guidance”) issued by the federal bank regulatory agencies in 2006 (and reinforced in 2015), which defines CRE loans as exposures secured by land development and construction, including 1-4 family residential construction, multi-family property, and non-farm nonresidential property where the primary or a significant source of repayment is derived from rental income associated with the property (i.e., loans for which 50 percent or more of the source of repayment comes from third party, non-affiliated, rental income) or the proceeds of the sale, refinancing, or permanent financing of the property. Loans to real estate investment trusts (“REITs”) and unsecured loans to developers that closely correlate to the inherent risks in CRE markets would also be considered CRE loans under the Guidance. Loans on owner-occupied CRE are generally excluded. In addition, the Company is subject to a geographic concentration of credit because it primarily operates in Florida. 
 Nonperforming Loans, Troubled Debt Restructurings, Other Real Estate Owned, and Credit Quality 
 Nonperforming assets (“NPAs”) at September 30, 2021 totaled $46.2 million, and were comprised of $32.6 million of nonaccrual loans, and $13.6 million of other real estate owned (“OREO”). Compared to December 31, 2020, nonaccrual loans decreased $3.5 million, primarily the result of paydowns. The increase in OREO of $0.9 million reflects additions of $3.3 million, and $2.1 million of capital expenditures, offset by $4.1 million in sales and $0.4 million in write-downs. Overall, NPAs decreased $2.6 million, or 5%, from $48.9 million as of December 31, 2020. At September 30, 2021, approximately 76% of nonaccrual loans were secured with real estate. See the tables below for details about nonaccrual loans. At September 30, 2021, nonaccrual loans were written down by approximately $7.1 million, including reserves on individually evaluated loans. 
 Nonperforming loans to total loans outstanding at September 30, 2021 decreased to 0.55% from 0.63% at December 31, 2020. Nonperforming assets to total assets at September 30, 2021 decreased to 0.47% from 0.59% at December 31, 2020. 
 The Company’s asset mitigation staff handles all foreclosure actions together with outside legal counsel. 
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 The Company pursues loan restructurings in select cases where it expects to realize better values than may be expected through traditional collection activities. The Company has worked with retail mortgage customers, when possible, to achieve lower payment structures in an effort to avoid foreclosure. Troubled debt restructurings (“TDRs”) have been a part of the Company’s loss mitigation activities and can include rate reductions, payment extensions and principal deferrals. Company policy requires TDRs that are classified as nonaccrual loans after restructuring remain on nonaccrual until performance can be verified, which usually requires six months of performance under the restructured loan terms. Accruing TDRs totaled $4.0 million at September 30, 2021 compared to $4.2 million at December 31, 2020. Accruing TDRs are excluded from the nonperforming asset ratios. 
 Beginning in March 2020, in response to the economic downturn resulting from the COVID-19 pandemic, the Company has offered short-term payment deferrals to affected borrowers. As of September 30, 2021, pandemic-related deferrals totaled $2.2 million and are not considered TDRs. If economic conditions deteriorate, these borrowers may be unable to resume scheduled payments, which may result in further modification of terms and the potential for classification as a TDR in future periods. 
 The table below sets forth details related to nonaccrual and accruing restructured loans. 
 
 September 30, 2021 
 Nonaccrual Loans Accruing
Restructured Loans 
 (In thousands) Non-Current Current Total 
 Construction and land development $ — $ 40 $ 40 $ 39 
 Commercial real estate - owner-occupied 256 4,260 4,516 103 
 Commercial real estate - non owner-occupied 1,473 3,718 5,191 — 
 Residential real estate 6,816 8,222 15,038 3,616 
 Commercial and financial 5,059 2,185 7,244 126 
 Consumer 62 521 583 163 
 Total $ 13,665 $ 18,947 $ 32,612 $ 4,047 
 

 
 December 31, 2020 
 Nonaccrual Loans Accruing
Restructured Loans 
 (In thousands) Non-Current Current Total 
 Construction and land development $ 37 $ 129 $ 166 $ 109 
 Commercial real estate - owner-occupied 5,682 2,500 8,182 109 
 Commercial real estate - non owner-occupied 2,030 6,053 8,083 — 
 Residential real estate 4,074 8,418 12,492 3,740 
 Commercial and financial 3,777 2,827 6,604 — 
 Consumer 543 40 583 224 
 Total $ 16,143 $ 19,967 $ 36,110 $ 4,182 
 

 At September 30, 2021 and December 31, 2020, total TDRs (performing and nonperforming) were comprised of the following loans by type of modification: 
 
 September 30, 2021 December 31, 2020 
 (In thousands) Number Amount Number Amount 
 Maturity extended 52 $ 5,263 51 $ 5,438 
 Rate reduction 27 3,119 37 4,275 
 Chapter 7 bankruptcies 9 313 13 417 
 Not elsewhere classified 6 161 5 160 
 Total 94 $ 8,856 106 $ 10,290 

 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. 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 
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 agreements. A restructured loan is considered in default when it becomes 90 days or more past due under the modified terms, has been transferred to nonaccrual status, has been charged off or has been transferred to OREO. 
 In accordance with regulatory reporting requirements, loans are placed on nonaccrual following the Retail Classification of Loan interagency guidance. The accrual of interest is generally discontinued on loans, except consumer loans, that become 90 days past due as to principal or interest unless collection of both principal and interest is assured by way of collateralization, guarantees or other security. Consumer loans that become 120 days past due are generally charged off. The loan carrying value is analyzed and any changes are appropriately made as described above quarterly. 
 Allowance for Credit Losses on Loans 
 Management estimates the allowance using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit losses provide the basis for estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, loan to value ratios, borrower credit characteristics, loan seasoning or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values, occupancy rates, and other macroeconomic metrics. 
 During the third quarter of 2021, the Company recorded a provision of $5.1 million, reflecting the impact of higher loans outstanding, including loans acquired in the Legacy Bank acquisition. Net charge-offs for the third quarter of 2021 were $1.4 million, or 0.10% of average loans and, for the four most recent quarters, averaged 0.10% of outstanding loans. Excluding PPP loans, the ratio of allowance to total loans decreased to 1.54% at September 30, 2021 from 1.60% at June 30, 2021. 
 The following tables present the activity in the allowance for credit losses on loans by segment: 
 
 Three Months Ended 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 
 

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 Nine Months Ended September 30, 2021 
 (In thousands) Beginning Balance Initial Impact on Allowance of PCD Loans Acquired During the Period Provision for Credit Losses Charge- Offs Recoveries TDR Allowance Adjustments Ending Balance 
 Construction and land development $ 4,920 $ — $ (2,438) $ — $ 124 $ (3) $ 2,603 
 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 
 
 

 At September 30, 2021, the Company had $1.5 billion in loans secured by residential real estate and $2.9 billion in loans secured by commercial real estate, representing 25% and 49% of total loans outstanding, respectively. In addition, the Company is subject to a geographic concentration of credit because it primarily operates in Florida. 
 LIBOR Transition 
 The Company’s LIBOR transition steering committee is responsible for overseeing the execution of the Company’s enterprise-wide LIBOR transition program, and for evaluating and mitigating risks associated with the transition from LIBOR. The LIBOR transition program includes a comprehensive review of the financial products, agreements, contracts, and business processes that may use LIBOR as a reference rate, and the development and execution of strategy to transition away from LIBOR, with appropriate consideration of the potential financial, customer, counterpart, regulatory and legal impacts. The Company continues to execute its LIBOR transition program, and to monitor regulatory and legislative activity to identify any necessary actions and facilitate the transition to alternative reference rates. 
 Cash and Cash Equivalents and Liquidity Risk Management 
 Liquidity risk involves the risk of being unable to fund assets with the appropriate duration and rate-based liability, as well as the risk of not being able to meet unexpected cash needs. Liquidity planning and management are necessary to ensure the ability to fund operations cost effectively and to meet current and future potential obligations such as loan commitments and unexpected deposit outflows. 
 Funding sources include primarily customer-based deposits, collateral-backed borrowings, brokered deposits, cash flows from operations, cash flows from the loan and investment portfolios and asset sales, primarily secondary marketing for residential real estate mortgages and marine loans. Cash flows from operations are a significant component of liquidity risk management and the Company considers both deposit maturities and the scheduled cash flows from loan and investment maturities and payments when managing risk. 
 Deposits are a primary source of liquidity. The stability of this funding source is affected by numerous factors, including returns available to customers on alternative investments, the quality of customer service levels, perception of safety and competitive forces. The Company routinely uses debt securities and loans as collateral for secured borrowings. In the event of severe market disruptions, the Company has access to secured borrowings through the FHLB and the Federal Reserve Bank of Atlanta under its borrower-in-custody program. 
 The Company does not rely on and is not dependent upon off-balance sheet financing or significant amounts of wholesale funding. Brokered certificates of deposit (“CDs”) at September 30, 2021 were $20.0 million, a decrease of $213.8 million, or 91%, from December 31, 2020. 
 Cash and cash equivalents, including interest bearing deposits, totaled $1.2 billion on a consolidated basis at September 30, 2021, compared to $404.1 million at December 31, 2020. Higher cash and cash equivalent balances at September 30, 2021 reflect the benefit of deposits acquired from Legacy Bank in addition to favorable organic deposit growth. 
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 Contractual maturities for assets and liabilities are reviewed to meet current and expected future liquidity requirements. Sources of liquidity are maintained through a portfolio of high quality marketable assets, such as residential mortgage loans, debt securities available-for-sale and interest-bearing deposits. The Company is also able to provide short-term financing of its activities by selling, under an agreement to repurchase, United States Treasury and Government agency debt securities not pledged to secure public deposits or trust funds. At September 30, 2021, the Company had available unsecured lines of credit of $165.0 million and secured lines of credit, which are subject to change, of $1.3 billion. In addition, the Company had $1.7 billion of debt securities and $694.6 million in residential and commercial real estate loans available as collateral. In comparison, at December 31, 2020, the Company had available unsecured lines of $135.0 million and secured lines of credit of $1.8 billion, and $1.2 billion of debt securities and $733.3 million in residential and commercial real estate loans available as collateral. 
 The Company has traditionally relied upon dividends from Seacoast Bank and securities offerings to provide funds to pay the Company’s expenses and to service the Company’s debt. During the third quarter of 2021, Seacoast Bank distributed $38.3 million to the Company and, at September 30, 2021, is eligible to distribute dividends to the Company of approximately $194.4 million without prior regulatory approval. At September 30, 2021, the Company had cash and cash equivalents at the parent of approximately $95.5 million compared to $70.1 million at December 31, 2020. 
 Deposits and Borrowings 
 Customer relationship funding is detailed in the following table for the periods specified: 
 
 
 September 30, December 31, 
 (In thousands, except ratios) 2021 2020 
 Noninterest demand $ 3,086,466 $ 2,289,787 
 Interest-bearing demand 1,845,165 1,566,069 
 Money market 1,951,639 1,556,370 
 Savings 834,309 689,179 
 Time certificates of deposit 616,593 831,156 
 Total deposits $ 8,334,172 $ 6,932,561 
 
 Customer sweep accounts $ 105,548 $ 119,609 
 
 Noninterest demand deposits as % of total deposits 37 % 33 % 

 The Company’s balance sheet continues to be primarily funded by core deposits. 
 Total deposits increased $1.4 billion, or 20%, to $8.3 billion at September 30, 2021, compared to $6.9 billion at December 31, 2020. The increase is largely the result of significant growth in transaction account deposit balances as new clients were onboarded and existing clients continue to see expansion in cash balances. 
 Since December 31, 2020, interest bearing deposits (interest bearing demand, savings and money market deposits) increased $819.5 million, or 21%, to $4.6 billion, and CDs (excluding brokered CDs) decreased $0.7 million, or 0.1%, to $596.6 million. Noninterest demand deposits were higher by $796.7 million, or 35%, compared to year-end 2020, totaling $3.1 billion. Noninterest demand deposits represented 37% of total deposits at September 30, 2021 and 33% at December 31, 2020. 
 During the nine months ended September 30, 2021, $213.8 million of brokered CDs at an average rate of 1.14% matured. Brokered CDs at September 30, 2021 totaled $20.0 million, compared to $233.8 million at December 31, 2020, and mature in the fourth quarter of 2021. 
 Customer repurchase agreements totaled $105.5 million at September 30, 2021, decreasing $14.1 million from December 31, 2020. Repurchase agreements are offered by Seacoast to select customers who wish to sweep excess balances on a daily basis for investment purposes. Public funds comprise a significant amount of the outstanding balance. 
 The Company participates in programs with third party deposit networks as part of its liquidity management strategy, particularly as it approaches $10 billion in assets. Through these programs, the Company can offer its customers access to FDIC insurance on large balances, and the Company can retain or sell, on an overnight basis, the underlying deposits. The Company expects to remain below $10 billion in assets at year end 2021, and at September 30, 2021, the Company had sold, on an 
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 overnight basis, $233.1 million in deposits, compared to $112.7 million at December 31, 2020. These deposits are not included in the Consolidated Balance Sheet. 
 No unsecured federal funds purchased were outstanding at September 30, 2021. 
 At September 30, 2021 and December 31, 2020, borrowings were comprised of subordinated debt of $71.6 million and $71.4 million, respectively, related to trust preferred securities issued by trusts organized or acquired by the Company, and there were no borrowings from FHLB. For the nine months ended September 30, 2020, FHLB borrowings averaged $180.9 million with a weighted average rate of 1.08%. 
 The weighted average interest rate of outstanding subordinated debt related to trust preferred securities was 2.37% and 3.28% for the nine months ended September 30, 2021 and September 30, 2020, respectively. 
 Off-Balance Sheet Transactions 
 In the normal course of business, the Company may engage in a variety of financial transactions that, under generally accepted accounting principles, either are not recorded on the balance sheet or are recorded on the balance sheet in amounts that differ from the full contract or notional amounts. These transactions involve varying elements of market, credit and liquidity risk. 
 Lending commitments include unfunded loan commitments and standby and commercial letters of credit. For loan commitments, the contractual amount of a commitment represents the maximum potential credit risk that could result if the entire commitment had been funded, the borrower had not performed according to the terms of the contract, and no collateral had been provided. A large majority of loan commitments and standby letters of credit expire without being funded, and accordingly, total contractual amounts are not representative of actual future credit exposure or liquidity requirements. Loan commitments and letters of credit expose the Company to credit risk in the event that the customer draws on the commitment and subsequently fails to perform under the terms of the lending agreement. 
 For commercial customers, loan commitments generally take the form of revolving credit arrangements. For retail customers, loan commitments generally are lines of credit secured by residential property. These instruments are not recorded on the balance sheet until funds are advanced under the commitment. Loan commitments were $1.8 billion at September 30, 2021 and $1.5 billion at December 31, 2020. 
 Capital Resources 
 The Company’s equity capital at September 30, 2021 increased $160.1 million, or 14%, from December 31, 2020 to $1.3 billion. Changes in equity included increases from net income of $88.1 million, partially offset by the issuance of a common stock dividend totaling $14.9 million and the decrease in accumulated other comprehensive income of $15.1 million primarily attributed to the decrease in market value of available-for-sale debt securities. 
 The ratio of shareholders’ equity to period end total assets was 13.04% and 13.55% at September 30, 2021 and December 31, 2020, respectively. The ratio of tangible shareholders’ equity to tangible assets was 10.62% and 11.01% at September 30, 2021 and December 31, 2020, respectively. The decrease was due to growth in the balance sheet, the result of bank acquisitions, PPP loans and associated liquidity. 
 Activity in shareholders’ equity for the nine months ended September 30, 2021 and 2020 follows: 
 
 (In thousands) 2021 2020 
 Beginning balance at December 31, 2020 and 2019 
 $ 1,130,402 $ 985,639 
 Net income 88,073 48,417 
 Cumulative change in accounting principle upon adoption of new accounting pronouncement — (16,876) 
 Issuance of common stock and conversion of options pursuant to acquisition 92,094 62,152 
 Stock compensation, net of Treasury shares acquired 9,908 4,251 
 Issuance of common share dividend (14,856) — 
 Change in accumulated other comprehensive income (15,101) 14,758 
 Ending balance at September 30, 2021 and 2020 
 $ 1,290,520 $ 1,098,341 

 Capital ratios are well above regulatory requirements for well-capitalized institutions. Seacoast management's use of risk-based capital ratios in its analysis of the Company’s capital adequacy are “non-GAAP” financial measures. Seacoast management 
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 uses these measures to assess the quality of capital and believes that investors may find it useful in their analysis of the Company. The capital measures are not necessarily comparable to similar capital measures that may be presented by other companies (see “ Note J – Equity Capital ”). 
 
 September 30, 2021 Seacoast
(Consolidated) Seacoast
Bank Minimum to be Well- Capitalized 1 
 
 Total Risk-Based Capital Ratio 18.56% 17.00% 10.00% 
 Tier 1 Capital Ratio 17.66 16.10 8.00 
 Common Equity Tier 1 Ratio (CET1) 16.53 16.10 6.50 
 Leverage Ratio 11.74 10.71 5.00 
 1 For subsidiary bank only. 
 

 The Company’s total risk-based capital ratio was 18.56% at September 30, 2021, an increase from 18.51% at December 31, 2020. During the first quarter of 2020, the Company adopted interagency guidance which delays the impact of CECL adoption on capital for two years followed by a three-year phase-in period. At September 30, 2021, the Bank’s leverage ratio (Tier 1 capital to adjusted total assets) was 10.71%, well above the minimum to be well capitalized under regulatory guidelines. 
 The Company and Seacoast Bank are subject to various general regulatory policies and requirements relating to the payment of dividends, including requirements to maintain adequate capital above regulatory minimums. The appropriate federal bank regulatory authority may prohibit the payment of dividends where it has determined that the payment of dividends would be an unsafe or unsound practice. The Company is a legal entity separate and distinct from Seacoast Bank and its other subsidiaries, and the Company’s primary source of cash and liquidity, other than securities offerings and borrowings, is dividends from its bank subsidiary. Without Office of the Comptroller of the Currency (“OCC”) approval, Seacoast Bank can pay $194.4 million of dividends to the Company. 
 The OCC and the Federal Reserve have policies that encourage banks and bank holding companies to pay dividends from current earnings, and have the general authority to limit the dividends paid by national banks and bank holding companies, respectively, if such payment may be deemed to constitute an unsafe or unsound practice. If, in the particular circumstances, either of these federal regulators determined that the payment of dividends would constitute an unsafe or unsound banking practice, either the OCC or the Federal Reserve may, among other things, issue a cease and desist order prohibiting the payment of dividends by Seacoast Bank or us, respectively. The board of directors of a bank holding company must consider different factors to ensure that its dividend level, if any, is prudent relative to the organization’s financial position and is not based on overly optimistic earnings scenarios such as any potential events that may occur before the payment date that could affect its ability to pay, while still maintaining a strong financial position. As a general matter, the Federal Reserve has indicated that the board of directors of a bank holding company, such as Seacoast, should consult with the Federal Reserve and eliminate, defer, or significantly reduce the bank holding company’s dividends if: (i) its net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (ii) its prospective rate of earnings retention is not consistent with its capital needs and overall current and prospective financial condition; or (iii) it will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios. 
 The Company has seven wholly owned trust subsidiaries that have issued trust preferred stock. Trust preferred securities from acquisitions were recorded at fair value when acquired. All trust preferred securities are guaranteed by the Company on a junior subordinated basis. The Federal Reserve’s rules permit qualified trust preferred securities and other restricted capital elements to be included under Basel III capital guidelines, with limitations, and net of goodwill and intangibles. The Company believes that its trust preferred securities qualify under these revised regulatory capital rules and believes that it can treat all $71.6 million of trust preferred securities as Tier 1 capital. For regulatory purposes, the trust preferred securities are added to the Company’s tangible common shareholders’ equity to calculate Tier 1 capital. 
 
 
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 Critical Accounting Policies and Estimates 
 The Company’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles, (“GAAP”), including prevailing practices within the financial services industry. The preparation of consolidated financial statements requires management to make judgments in the application of certain of its 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. Management believes the most critical accounting estimates and assumptions that involve the most difficult, subjective and complex assessments are: 
 • the allowance and the provision for credit losses on loans; 
 • acquisition accounting and purchased loans; 
 • intangible assets and impairment testing; 
 • other fair value adjustments; 
 • impairment of debt securities;, and; 
 • contingent liabilities. 
 The following is a discussion of the critical accounting policies intended to facilitate a reader’s understanding of the judgments, estimates and assumptions underlying these accounting policies and the possible or likely events or uncertainties known to the Company that could have a material effect on reported financial information. 
 Allowance and Provision for Credit Losses on Loans– Critical Accounting Policies and Estimates 
 For loans, management estimates the allowance for credit losses using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit losses provide the basis for estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, loan to value ratios, borrower credit characteristics, loan seasoning or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values, occupancy rates, and other macroeconomic metrics. 
 The allowance for credit losses is measured on a collective basis when similar risk characteristics exist. The Company has developed an allowance model based on an analysis of probability of default ("PD") and loss given default ("LGD") to determine an expected loss by loan segment. PDs and LGDs are developed by analyzing the average historical loss migration of loans to default. 
 The allowance estimation process also applies an economic forecast scenario over a three year forecast period. The forecast may utilize one scenario or a composite of scenarios based on management's judgment and expectations around the current and future macroeconomic outlook. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. For portfolio segments with a weighted average life longer than three years, the Company reverts to longer term historical loss experience, adjusted for prepayments, to estimate losses over the remaining life of the loans within each segment. 
 Adjustments may be made to baseline reserves for some of the loan pools based on an assessment of internal and external influences on credit quality not fully reflected in the quantitative components of the allowance model. These influences may include elements such as changes in concentration, macroeconomic conditions, recent observable asset quality trends, staff turnover, regional market conditions, employment levels and loan growth. Based upon management's assessments of these factors, the Company may apply qualitative adjustments to the allowance. 
 Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. When management determines that foreclosure is probable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. 
 The allowance for credit losses on troubled debt restructurings (“TDRs”) is measured using the same method as all other loans held for investment, except when the value of a concession cannot be measured using a method other than the discounted cash 
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 flow method. When the value of a concession is measured using the discounted cash flow method, the allowance for credit losses is determining by discounting the expected future cash flows at the original interest rate of the loan. 
 It is the Company's practice to ensure that the charge-off policy meets or exceeds regulatory requirements. Losses on unsecured consumer loans are recognized at 90 days past due, compared to the regulatory loss criteria of 120 days. In compliance with Federal Financial Institution Examination Council guidelines, secured consumer loans, including residential real estate, are typically charged off or charged down between 120 and 180 days past due, depending on the collateral type. Commercial loans and real estate loans are typically placed on nonaccrual status when principal or interest is past due for 90 days or more, unless the loan is both secured by collateral having realizable value sufficient to discharge the debt in-full and the loan is in process of collection. Loans provided with short-term payment deferrals under the CARES Act or interagency guidance are not considered past due if in compliance with the terms of their deferral. Secured loans may be charged down to the estimated value of the collateral with previously accrued unpaid interest reversed against interest income. Subsequent charge-offs may be required as a result of changes in the market value of collateral or other repayment prospects. Initial charge-off amounts are based on valuation estimates derived from appraisals, broker price opinions, or other market information. Generally, new appraisals are not received until the foreclosure process is completed; however, collateral values are evaluated periodically based on market information and incremental charge-offs are recorded if it is determined that collateral values have declined from their initial estimates. 
 Note F to the financial statements (titled “Allowance for Credit Losses”) summarizes the Company’s allocation of the allowance for credit losses on loans by loan segment and provides detail regarding charge-offs and recoveries for each loan segment and the composition of the loan portfolio at September 30, 2021 and December 31, 2020. 
 Acquisition Accounting and Purchased Loans – Critical Accounting Policies and Estimates 
 The Company accounts for acquisitions under ASC Topic 805, Business Combinations , which requires the use of the acquisition method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. All loans acquired are recorded at fair value in accordance with the fair value methodology prescribed in ASC Topic 820, Fair Value Measurement . The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of expected principal, interest and other cash flows. Loans are identified as purchased credit deteriorated (“PCD”) when they have experienced more-than-insignificant deterioration in credit quality since origination. An allowance for expected credit losses on PCD loans is recorded at the date of acquisition through an adjustment to the loans’ amortized cost basis. In contrast, expected credit losses on loans not considered PCD are recognized in net income at the date of acquisition. 
 Fair value estimates for acquired assets and assumed liabilities are based on the information available, and are subject to change for up to one year after the closing date of the acquisition as additional information relative to closing date fair values becomes available. 
 Intangible Assets and Impairment Testing – Critical Accounting Policies and Estimates 
 Intangible assets consist of goodwill, core deposit intangibles and mortgage servicing rights. Goodwill represents the excess purchase price over the fair value of net assets acquired in business acquisitions. The core deposit intangible represents the excess intangible value of acquired deposit customer relationships. Core deposit intangibles are amortized on a straight-line basis, and are evaluated for indications of potential impairment at least annually. Goodwill is not amortized but rather is evaluated for impairment on at least an annual basis. The Company performed an annual impairment test of goodwill, as required by ASC Topic 350, Intangibles—Goodwill and Other , in the fourth quarter of 2020, and concluded that no impairment existed. 
 Fair value estimates for acquired assets and assumed liabilities are based on the information available, and are subject to change for up to one year after the closing date of the acquisition as additional information relative to closing date fair values becomes available. 
 Other Fair Value Measurements – Critical Accounting Policies and Estimates 
 The fair value of collateral-dependent loans, OREO and repossessed assets is typically based on current appraisals, which are reviewed quarterly to determine if fair value adjustments are necessary based on known changes in the market and/or the project assumptions. When necessary, the appraised value may be adjusted based on more recent appraisal assumptions received by the Company on other similar properties, the tax assessed market value, comparative sales and/or an internal 
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 valuation. Collateral-dependent loans are loans where repayment is solely dependent on the liquidation of the collateral or operation of the collateral for repayment. 
 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. 
 Impairment of Debt Securities – Critical Accounting Policies and Estimates 
 Expected credit losses on both held-to-maturity (“HTM”) and available-for-sale (“AFS”) securities are recognized through a valuation allowance. For HTM securities, management estimates expected credit losses over the remaining expected life and recognizes this estimate as an allowance for credit losses. An AFS security is considered impaired if the fair value is less than amortized cost basis. For AFS securities, if any portion of the decline in fair value is related to credit, the amount of allowance is determined as the portion related to credit, limited to the difference between the amortized cost basis and the fair value of the security. If the fair value of the security increases in subsequent periods, or changes in factors used within the credit loss assessment result in a change in the estimated credit loss, the Company would reflect the change by decreasing the allowance. If the Company has the intent to sell or believes it is more likely than not that it will be required to sell an impaired AFS security before recovery of the amortized cost basis, the credit loss is recorded as a direct write-down of the amortized cost basis. Declines in the fair value of AFS securities that are not considered credit related are recognized in Accumulated Other Comprehensive Income on the Company’s Consolidated Balance Sheet. 
 Seacoast analyzes AFS debt securities quarterly for credit losses. The analysis is performed on an individual security basis for all securities where fair value has declined below amortized cost. Fair value is based upon pricing obtained from third party pricing services. Based on internal review procedures and the fair values provided by the pricing services, the Company believes that the fair values provided by the pricing services are consistent with the principles of ASC Topic 820, Fair Value Measurement . However, on occasion pricing provided by the pricing services may not be consistent with other observed prices in the market for similar securities. Using observable market factors, including interest rate and yield curves, volatilities, prepayment speeds, loss severities and default rates, the Company may at times validate the observed prices using a discounted cash flow model and using the observed prices for similar securities to determine the fair value of its securities. 
 The Company utilizes both quantitative and qualitative assessments to determine if a security has a credit loss. Quantitative assessments are based on a discounted cash flow method. Qualitative assessments consider a range of factors including: percent decline in fair value, rating downgrades, subordination, duration, amortized loan-to-value, and the ability of the issuers to pay all amounts due in accordance with the contractual terms. 
 Contingent Liabilities – Critical Accounting Policies and Estimates 
 Seacoast is subject to contingent liabilities, including judicial, regulatory and arbitration proceedings, and tax and other claims arising from the conduct of the Company's business activities. These proceedings include actions brought against the Company and/or its subsidiaries with respect to transactions in which the Company and/or its subsidiaries acted as a lender, a financial adviser, a broker or acted in a related activity. Accruals are established for legal and other claims when it becomes probable that the Company will incur an expense and the amount can be reasonably estimated. Company management, together with attorneys, consultants and other professionals, assesses the probability and estimated amounts involved in a contingency. Throughout the life of a contingency, the Company or its advisers may learn of additional information that can affect the assessments about probability or about the estimates of amounts involved. Changes in these assessments can lead to changes in recorded reserves. In addition, the actual costs of resolving these claims may be substantially higher or lower than the amounts reserved for the claims. At September 30, 2021 and December 31, 2020, the Company had no significant accruals for contingent liabilities and had no known pending matters that could potentially be significant. 
 
 
 
 Interest Rate Sensitivity 
 Fluctuations in interest rates may result in changes in the fair value of the Company’s financial instruments, cash flows and net interest income. This risk is managed using simulation modeling to calculate the most likely interest rate risk utilizing estimated loan and deposit growth. The objective is to optimize the Company’s financial position, liquidity, and net interest income while limiting their volatility. 
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 Senior management regularly reviews the overall interest rate risk position and evaluates strategies to manage the risk. The Company's Asset and Liability Management Committee ("ALCO") uses simulation analysis to monitor changes in net interest income due to changes in market interest rates. The simulation of rising, declining and flat interest rate scenarios allows management to monitor and adjust interest rate sensitivity to minimize the impact of market interest rate swings. The analysis of the impact on net interest income over a twelve-month period is subjected to instantaneous changes in market rates of 100 basis point increases up to 200 basis points of change on net interest income and is monitored on a quarterly basis. 
 The following table presents the ALCO simulation model's projected impact of a change in interest rates on the projected baseline net interest income for the 12 and 24 month periods beginning on October 1, 2021, holding all other changes in the balance sheet static. This change in interest rates assumes parallel shifts in the yield curve and does not take into account changes in the slope of the yield curve. 
 
 % Change in Projected Baseline Net 
 Change in Interest Rates Interest Income 
 1-12 months 13-24 months 
 +2.00% 11.4% 15.1% 
 +1.00% 5.6% 7.7% 
 Current —% —% 
 -1.00% (1.8%) (7.5%) 

 The Company had a positive gap position based on contractual and prepayment assumptions for the next 12 months, with a positive cumulative interest rate sensitivity gap as a percentage of total earning assets of 30.8% at September 30, 2021. This result includes assumptions for core deposit re-pricing validated for the Company by an independent third party consulting group. 
 The computations of interest rate risk do not necessarily include certain actions management may undertake to manage this risk in response to changes in interest rates. Derivative financial instruments, such as interest rate swaps, options, caps, floors, futures and forward contracts may be utilized as components of the Company’s risk management profile. 
 
 
 
 Effects of Inflation and Changing Prices 
 The condensed consolidated financial statements and related financial data presented herein have been prepared in accordance with U.S. GAAP, which require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money, over time, due to inflation. 
 Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution’s performance than the general level of inflation. However, inflation affects financial institutions by increasing their cost of goods and services purchased, as well as the cost of salaries and benefits, occupancy expense, and similar items. Inflation and related increases in interest rates generally decrease the market value of investments and loans held and may adversely affect liquidity, earnings, and shareholders’ equity. Mortgage originations and re-financings tend to slow as interest rates increase, and higher interest rates likely will reduce the Company’s earnings from such activities and the income from the sale of residential mortgage loans in the secondary market.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.
SEACOAST BANKING CORP OF FLORIDA 10-Q

Item 2. Management’s Discussion and Analysis
