What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-28 compared with 2021-03-01 · 410 added, 383 removed, 617 unchanged (56% of the section changed)

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Its principal subsidiary is Seacoast National Bank (“Seacoast Bank”), a wholly owned national banking association.

The Company provides integrated financial services including commercial and retail banking, wealth management, and mortgage services to customers through advanced banking solutions, and Seacoast Bank's network of 51 traditional branches and commercial banking centers.

The Company provides integrated financial services including commercial and consumer banking, wealth management, and mortgage services to customers through advanced online and mobile banking solutions, and Seacoast Bank's network of 54 traditional branches and commercial banking centers.

Seacoast operates primarily in Florida, with concentrations in the state's fastest growing markets, each with unique characteristics and opportunities.

The Company's offices stretch from the southeast, including Fort Lauderdale, Boca Raton and Palm Beach, north along the east coast to the Daytona area, into Orlando and Central Florida and the adjacent Tampa market, and west to Okeechobee and surrounding counties.

Okeechobee and surrounding counties.

In the first quarter of 2022, the footprint has expanded to include Naples, Sarasota, and Jacksonville.

The Company delivers integrated banking services, combining traditional retail locations with online and mobile technology and a convenient telephone banking center.

3 unchanged sentences

In Orlando, Seacoast is now the largest Florida-based bank and a top-10 bank in the Orlando market overall.

In other key markets, including Palm Beach County, Fort Lauderdale, and Tampa, the Company has enhanced its footprint with ten acquisitions since 2014, generating continued expansion and strengthening market share, increasing the customer base and lowering operating costs through economies of scale.

In other key markets, including Palm Beach County, Fort Lauderdale, and Tampa, the Company has enhanced its footprint with 13 acquisitions since 2014, generating continued expansion and strengthening market share, increasing the customer base and lowering operating costs through economies of scale.

The Company's acquisition strategy has not only increased customer households and been accretive to earnings, but has also opened markets and Seacoast's customer base.

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(In millions) Primary Market(s) Year of Acquisition Acquired Loans Acquired Deposits

Florida Business Bank/ Business Bank of Florida, Corp.

Melbourne 2022 $ 124 $ 166

Sabal Palm Bank/ Sabal Palm Bancorp, Inc.

Sarasota 2022 249 396

Legacy Bank of Florida Boca Raton and Palm Beach 2021 477 495

Freedom Bank/ Fourth Street Banking Company

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Orlando 2014 365 516

2020 Acquisitions

In March 2020, Seacoast acquired First Bank of the Palm Beaches (“FBPB”), which increased the Company’s market share in the attractive Palm Beach market.

FBPB operated two branches, which were converted to Seacoast branches, with deposits of $174 million and loans of $147 million at the time of acquisition.

In August 2020, Seacoast completed the acquisition of Fourth Street Banking Company (“Fourth Street”) and its wholly-owned subsidiary Freedom Bank, which added $303 million in loans and $330 million in deposits.

The acquisition supports Seacoast’s growing presence in the attractive St.

Petersburg, Florida market.

Freedom Bank operated two branches in St.

Petersburg, which were converted to Seacoast branches.

1 Acquired loans and deposits presented for acquisitions closed in 2022 are preliminary and do not include fair value/purchase accounting adjustments.

Impact of COVID-19, the CARES Act and the Paycheck Protection Program on Comparability Among Periods

Early in 2020, the global economy began experiencing a downturn resulting from the COVID-19 pandemic.

Seacoast reacted quickly at the onset to make adjustments to operations intended to protect the health and welfare of our associates and customers.

The Company's range of digital banking products combined with continued access to branches through drive-thrus and lobby appointments has allowed the Company to continue to meet customer needs.

A robust and well-tested business continuity program has allowed the Company to maintain productivity levels with a majority of associates working remotely.

The spread of COVID-19 has created a global public health crisis that has resulted in 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.

Governmental responses to the pandemic have included orders to close businesses not deemed essential and directing individuals to restrict their movements, observe social distancing and shelter in place.

These actions, together with responses to the pandemic by businesses and individuals, have resulted in rapid decreases in commercial and consumer activity, temporary, and some permanent, closures of many businesses that have led to a loss of revenues and a rapid increase in unemployment, material decreases in business valuations, disrupted global supply chains, market downturns and volatility, changes in consumer behavior related to pandemic fears (including a decline in demand for banking products or services, including loans and deposits which could impact our future financial condition, results of operations and liquidity) , related emergency response legislation and an expectation that Federal Reserve policy will maintain a low interest rate environment for the foreseeable future.

Although financial markets have rebounded from significant declines that occurred

earlier in the pandemic and global economic conditions showed signs of improvement beginning during the second quarter of 2020, many of the effects that arose or became more pronounced after the onset of the COVID-19 pandemic have persisted through the end of the year.

These changes have had and are likely to continue to have a significant adverse effect on the markets in which we conduct our business and the demand for our products and services.

Our business and consumer customers are experiencing varying degrees of financial distress, which is expected to continue into the first quarter of 2021 and beyond, especially if COVID-19 infections increase and new economic restrictions are mandated.

Our borrowing base includes customers in industries such as hotel/lodging, restaurants, and retail, all of which have been and are likely to continue to be significantly impacted by the COVID-19 pandemic.

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.

Future economic conditions are subject to significant uncertainty.

We have taken deliberate actions to ensure that we have the balance sheet strength to serve our clients and communities, including increases in liquidity and managing our assets and liabilities in order to maintain a strong capital position.

Current economic pressures and their effects on our customers, coupled with the implementation of the CECL expected loss methodology for determining our allowance for credit losses, have contributed to a substantially increased provision for credit losses in 2020.

We continue to monitor closely the impact of the COVID-19 pandemic on our customers, as well as the effects of the CARES Act.

Uncertainties associated with the pandemic include the duration of the outbreak (including the impact of new variants of the virus that may be resistant to the various vaccines available), the impact to our customers, employees and vendors and the impact to the economy as a whole.

COVID-19 has had, and is expected to continue to have, a significant adverse impact on our business, financial position and operating results.

The extent to which the COVID-19 pandemic will impact our operations and financial results in 2021 cannot be fully estimated at this time.

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.

The COVID-19 pandemic and related responses 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.

The impact of the economic downturn caused by the pandemic was experienced differently across geographic areas, business sectors and demographic groups.

The Florida economy has experienced positive trends including population growth and lower unemployment than much of the rest of the country.

While the overall economic outlook has improved, there continues to be the risk of further resurgence of infections, including from variants, and possible reimplementation of business restrictions.

The Coronavirus Aid, Relief and Economic Security (“CARES”) Act encouraged financial institutions to provide loan modifications to assist borrowers financially impacted by COVID-19.

Seacoast began offering payment accommodations to eligible borrowers in March 2020 and, at June 30, 2020, loans with active payment accommodations peaked at $1.1 billion.

Nearly all such modifications have expired and borrowers returned to making payments under the original loan terms.

December 31, 2021 and 2020, loans with active payment accommodations totaled $1.2 million and $74.1 million, respectively.

In 2020, uncertainty related to the impact of the pandemic on the economy and on borrowers’ ability to repay loan obligations resulted in increases in the provisioning for credit losses during 2020.

As the overall economic outlook has improved and loan portfolio credit indicators have remained strong, the Company has reduced the level of allowance for credit losses in 2021 compared to 2020.

The future effects of the COVID-19 pandemic on economic activity remain uncertain, and future additional provisions for credit losses could be necessary.

The CARES Act also included 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 assisted borrowers in 2020 with more than 5,500 loans originated through the PPP and, when combined with PPP loans acquired from Freedom Bank, outstanding balances totaled $567.0 million at December 31, 2020.

The SBA established a fee structure based on loan size.

Fees received by Seacoast, net of related costs, totaled $17.2 million, and are deferred and recognized as an adjustment to yield over time.

Seacoast recognized net fees of $7.8 million and contractual interest of $4.2 million on PPP loans in 2020.

The remaining $9.5 million in deferred PPP loan fees at December 31, 2020 will be recognized over the loans' remaining contractual maturity or sooner, as loans are forgiven.

In January 2021, the Company began accepting applications for the re-opening of the PPP lending program on our fully digital origination platform.

As of February 18, 2021, the Company had originated approximately 1,800 loans totaling $180 million under the latest round of PPP.

Loan Modifications

The CARES Act, as amended by the Consolidated Appropriations Act on December 27, 2020, provides financial institutions the option to exclude from troubled debt restructuring (“TDR”) consideration certain loan modifications that might otherwise be categorized as TDRs under ASC 310-40 in order to assist borrowers financially impacted by COVID-19.

This option is available for modifications that are deemed to be COVID-related, where the borrower was not more than 30 days past due on December 31, 2019, and the modification is executed between March 1, 2020 and the earlier of (i) January 1, 2022 or (ii) 60 days after the end of the COVID-19 national emergency.

Federal banking regulators issued similar guidance that also allows lenders to conclude that short-term modifications for borrowers financially affected by the pandemic should not be considered TDRs if the borrower was current at the time of modification.

Seacoast began offering payment accommodations to eligible borrowers in March 2020 and, at December 31, 2020, $74.1 million of loans, or 1% of total loans, had active payment accommodations, down 93% from a peak of $1.1 billion in the second quarter of 2020.

None of these loans have been classified as TDRs.

During the payment accommodation period, Seacoast typically continues to recognize interest income.

Adoption of New Accounting for Credit Losses

On January 1, 2020, the Company adopted ASC Topic 326 - Financial Instruments - Credit Losses, which replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology.

The adoption resulted in an increase to the allowance for credit losses on loans of $21.2 million and an addition to the reserve for unfunded lending-related commitments of $1.8 million.

Seacoast assisted borrowers with nearly 9,000 loans originated through the PPP.

The SBA established a fee structure based on loan size, and fees received by Seacoast, net of related costs, totaled $26.7 million, which were deferred and are being recognized as an adjustment to yield over time.

During 2020, Seacoast recognized net fees of $7.8 million and contractual interest of $4.2 million on PPP loans.

During 2021, Seacoast recognized net fees of $17.5 million and contractual interest of $3.8 million on PPP loans.

PPP loan balances outstanding at December 31, 2021 totaled $91.1 million, and the remaining $2.4 million in deferred PPP loan fees will be recognized over the loans' remaining contractual maturity or sooner, as loans are forgiven.

2021 Financial Performance Highlights

• Steady build of shareholder value through consistent growth in tangible book value per share, which ended the period at $16.16, an increase of 15% during the fourth quarter on an annualized basis.

• Record net income of $124.4 million, or $2.18 per diluted share, for the year ended December 31, 2021, an increase of 60% year-over-year.

• Steady build of shareholder value through consistent growth in tangible book value per share, which ended the period at $17.84, an increase of 10% year-over-year.

• The tangible common equity ratio of 11.09% supports Seacoast's ability to deploy capital for organic growth and opportunistic acquisitions.

• Record net income of $29.3 million in the fourth quarter, increasing 30% quarter-over-quarter.

• Record levels of mortgage banking fees and wealth management income in 2020, reflecting increases of 126% and 18%, respectively, from 2019.

• The successful acquisitions of First Bank of the Palm Beaches and Freedom Bank added experienced bankers while expanding the Company's presence in attractive growth markets, which we believe will further support sustainable, profitable growth.

• Total deposits per banking center were $135.9 million at December 31, 2020, an increase of 17% from $116.3 million one year earlier.

• Continued discipline around expenses, primarily achieved through focus on reducing overhead and streamlining business and cost savings processes, achieving a fourth quarter 2020 efficiency ratio below 50%.

Results of Operations

Earnings Summary

For the year ended December 31, 2020, net income totaled $77.8 million, or $1.44 per diluted share, compared to $98.7 million, or $1.90 per diluted share, for the year ended December 31, 2019.

Return on average assets (“ROA”) was 0.99% and return on average equity (“ROE”) was 7.44% in 2020 compared to 1.45% and 10.63%, respectively, in 2019.

Adjusted net income 1 for the year ended December 31, 2020 totaled $89.0 million, or $1.65 per diluted share, compared to $104.6 million, or $2.01 per diluted share, in 2019.

• Increasing commercial loan originations, with the fourth quarter of 2021 increasing 47% over the prior year to a record $408.9 million, and a record commercial pipeline of $397.8 million at December 31, 2021.

• Growth in fee based revenues with year-over-year increases in interchange income of 18% to $16.2 million, wealth management income, which increased 28% to $9.6 million and SBA gains, which increased 124% to $1.5 million for the full year.

• Disciplined expense management with a focus on balancing investments by streamlining business and cost savings processes, maintaining a 2021 efficiency ratio of 55%, which includes the impact of merger-related expenses incurred during the year.

On an adjusted basis 1 , efficiency ratio was 53%.

• The successful acquisition of Legacy Bank of Florida in the third quarter of 2021 added experienced bankers and a net four new branches in Broward and Palm Beach counties.

First Second Third Fourth Total

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Return on average tangible assets 1.70 % 1.48 % 1.00 % 1.51 % 1.41 % 1.08 %

Return on average tangible shareholders' equity 0.95 13.47 11.35 13.87 10.10 14.72

Return on average tangible common equity 15.62 13.88 9.56 14.29 13.27 10.10

Efficiency ratio 53.21 54.93 59.55 53.70 55.39 54.84

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1.75 % 1.52 % 1.23 % 1.49 % 1.48 % 1.17 %

Adjusted return on average tangible shareholders' equity 1

Adjusted return on average tangible common equity 1

16.01 14.27 11.72 14.11 13.97 10.93

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

On both a GAAP and adjusted basis, return on average tangible assets and return on average tangible shareholders' equity decreased in 2020 when compared to the prior year.

The change reflects the impact on net income of increased provisioning for credit losses in 2020 attributed to the adoption of CECL on January 1, 2020, and the financial impact of the COVID-19 pandemic, as well as growth in the balance sheet resulting from PPP loans, acquisitions, and higher deposit balances.

Results of Operations

Earnings Summary

For the year ended December 31, 2021, net income totaled $124.4 million, or $2.18 per diluted share, compared to $77.8 million, or $1.44 per diluted share, for the year ended December 31, 2020.

Return on average assets (“ROA”) was 1.33% and return on average equity (“ROE”) was 10.24% in 2021 compared to 0.99% and 7.44%, respectively, in 2020.

Adjusted net income 1 for the year ended December 31, 2021 totaled $135.0 million, or $2.36 per diluted share, compared to $89.0 million, or $1.65 per diluted share, in 2020.

During 2020, uncertainty related to the impact of COVID-19 resulted in increased provisioning for credit losses.

A strong economic recovery in the state of Florida as well as an improving economic outlook have resulted in a release of reserves throughout 2021.

In 2021, the Company's efficiency ratio, defined as noninterest expense less foreclosed property expense and amortization of intangibles divided by net operating revenue (net interest income on a fully tax equivalent basis plus noninterest income excluding securities gains and losses), was 55.39%, compared to 54.84% for 2020.

Changes from the prior year reflect higher 2020 expenses, including acquisition-related costs, partially offset by lower funding costs and increases in noninterest income.

Changes from the prior year reflect higher 2021 expenses, resulting from organic and acquisition related expansion of the Company's footprint and investments in commercial banking talent, partially offset by lower funding costs and increases in noninterest income.

The adjusted efficiency ratio 1 in 2021 was 52.59% compared to 51.63% in 2020.

The Company expects to maintain an adjusted efficiency ratio in the low 50s for the full year 2021.

Net Interest Income and Margin

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Net interest income (on a fully taxable equivalent basis) 1 for the year ended December 31, 2021 was $276.5 million, increasing $13.3 million, or 5%, compared to the year ended December 31, 2020.

In 2020 and 2019, net interest margin was 3.65% and 3.92%, respectively.

In 2020, net interest income and the net interest margin reflect the impact of interest rate cuts by the Federal Reserve in the first quarter of 2020 in response to the COVID-19 pandemic.

Loans and security yields contracted by 59 and 67 basis points, respectively, offset by a decline in the cost of deposits by 37 basis points.

The impact on net interest margin from accretion of purchase discounts on acquired loans was 21 basis points in 2020, compared to 25 basis points in 2019.

PPP loans decreased net interest margin by three basis points in 2020.

Table 2 presents the Company’s average balance sheets, interest income and expenses, and yields and rates, for the past three years.

The following table details the trend for net interest income and margin results (on a fully taxable equivalent basis) 1 , yield on earning assets and rate on interest bearing liabilities.

(In thousands, except percentages) Net Interest

Earning Assets 1

Rate on Interest

Bearing Liabilities

Fourth quarter 2019 $ 61,846 3.84 % 4.49 % 0.98 %

First quarter 2020 63,291 3.93 4.54 0.90

Second quarter 2020 67,388 3.70 4.03 0.51

Third quarter 2020 63,621 3.40 3.65 0.40

Fourth quarter 2020 68,903 3.59 3.80 0.33

1 On a fully taxable equivalent basis - see “Explanation of Certain Unaudited Non-GAAP Financial Measures” for more information and a reconciliation to GAAP.

Total average loans increased $745.3 million, or 15%, during 2020 compared to 2019 with growth attributed primarily to loans originated in the PPP, and the two bank acquisitions completed in 2020.

Average investment securities balances increased $99.6 million, or 8%, during 2020 compared to 2019.

Average loans (the highest yielding component of earning assets) as a percentage of average earning assets totaled 79% in 2020 and 2019.

The mix of loans has remained stable, with volumes related to commercial real estate representing 52% of total loans, excluding PPP loans, at December 31, 2020, compared to 49% at December 31, 2019.

Residential loan balances with individuals (including home equity loans and lines and personal construction loans) represented 28% of total loans, excluding PPP loans, at December 31, 2020 compared to 32% at December 31, 2019.

(see “Loan Portfolio”).

In 2021 and 2020, net interest margin (on a fully tax equivalent basis) 1 was 3.27% and 3.65%, respectively.

The continued low interest rate environment during 2021 resulted in lower yields on securities and non-PPP loans.

Yield on securities contracted by 72 basis points from 2.33% to 1.61% while the yield on non-PPP loans declined 33 basis points from 4.62% to 4.29% as higher yielding securities and loans paid down and were replaced with lower yielding assets.

Yield on PPP loans increased from 2.86% to 5.57% resulting from loan forgiveness during the year.

The effect on net interest margin of interest and fees from PPP loans was an increase of 11 basis points in 2021 compared to a decrease of 3 basis points in 2020.

The effect on net interest margin of purchase discounts on acquired loans was an increase of 15 basis points in 2021 compared to 21 basis points in 2020.

The cost of deposits decreased by 24 basis points to 8 basis points in 2021, reflecting the impact of the continued low interest rate environment as well as a shift in product mix to include a higher proportion of noninterest bearing demand deposits to total deposits.

The following table details the Company’s average balance sheets, interest income and expenses, and yields and rates 1 , for the past three years:

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

For the Year Ended December 31,

2021 2020 2019

(In thousands, except percentages) Average

Balance Interest Yield/

Earning Assets:

Taxable $ 1,839,619 $ 29,206 1.59 % $ 1,277,441 $ 29,718 2.33 % $ 1,176,842 $ 35,354 3.00 %

Nontaxable 25,369 730 2.88 22,164 570 2.57 23,122 695 3.01

Total Securities 1,864,988 29,936 1.61 1,299,605 30,288 2.33 1,199,964 36,049 3.00

Federal funds sold 763,795 1,043 0.14 187,400 260 0.14 16,431 366 2.23

Other investments 65,533 1,947 2.97 52,094 2,237 4.29 71,614 3,013 4.21

Loan excluding PPP loans 5,369,204 230,552 4.29 5,259,653 242,736 4.62 4,933,518 250,730 5.08

PPP loans 381,860 21,282 5.57 419,154 11,974 2.86 — — —

Total Loans 5,751,064 251,834 4.38 5,678,807 254,710 4.49 4,933,518 250,730 5.08

Total Earning Assets 8,445,380 284,760 3.37 7,217,906 287,495 3.98 6,221,527 290,158 4.66

Allowance for credit losses on loans (88,659) (81,858) (33,465)

Cash and due from banks 332,664 142,314 94,643

Bank premises and equipment, net 71,771 71,846 69,142

Intangible assets 249,089 231,267 228,042

Bank owned life insurance 156,599 128,569 124,803

Other assets 170,210 149,956 126,588

Total Assets $ 9,337,054 $ 7,860,000 $ 6,831,280

Liabilities and Shareholders' Equity

Interest-Bearing Liabilities:

Interest-bearing demand $ 1,787,234 895 0.05 % $ 1,324,433 1,710 0.13 % $ 1,114,334 4,025 0.36 %

Savings 805,816 383 0.05 610,015 849 0.14 516,526 2,015 0.39

Money market 1,765,444 2,327 0.13 1,294,629 4,361 0.34 1,164,938 10,581 0.91

Time deposits 602,739 2,788 0.46 1,101,321 13,365 1.21 1,092,516 21,776 1.99

Securities sold under agreements to repurchase 113,881 141 0.12 84,514 283 0.33 106,142 1,431 1.35

Federal Home Loan Bank borrowings — — — 139,439 1,540 1.10 131,921 3,010 2.28

Other borrowings 71,495 1,685 2.36 71,220 2,184 3.07 70,939 3,367 4.75

Total Interest-Bearing Liabilities 5,146,609 8,219 0.16 4,625,571 24,292 0.53 4,197,316 46,205 1.10

Noninterest demand 2,851,687 2,107,931 1,641,766

Other liabilities 123,446 81,279 63,405

Total Liabilities 8,121,742 6,814,781 5,902,487

Shareholders' equity 1,215,312 1,045,219 928,793

Total Liabilities & Shareholders' Equity $ 9,337,054 $ 7,860,000 $ 6,831,280

Cost of deposits 0.08 % 0.32 % 0.69 %

Interest expense as % of earning assets 0.10 % 0.34 % 0.74 %

Net interest income/yield on earning assets $ 276,541 3.27 % $ 263,203 3.65 % $ 243,953 3.92 %

1 On a fully taxable equivalent basis.

All yields and rates have been computed using amortized costs.

Fees on loans have been included in interest on loans.

Nonaccrual loans are included in loan balances.

The following table shows the impact of value and rate on earning assets and interest bearing liabilities 1 :

Due to Change in:

(In thousands) Volume Rate Total Volume Rate Total

Amount of increase (decrease)

Earning Assets:

Taxable $ 11,002 $ (11,514) $ (512) $ 2,681 $ (8,317) $ (5,636)

Nontaxable 87 73 160 (27) (98) (125)

Total Securities 11,089 (11,441) (352) 2,654 (8,415) (5,761)

Federal funds sold 793 (10) 783 309 (10) 299

Other investments 488 (778) (290) 3,387 (4,568) (1,181)

Loans excluding PPP loans 4,880 (17,064) (12,184) 15,813 (23,807) (7,994)

PPP loans (1,572) 10,880 9,308 11,974 — 11,974

Total Loans 3,308 (6,184) (2,876) 27,787 (23,807) 3,980

Total Earning Assets 15,678 (18,413) (2,735) 34,137 (36,800) (2,663)

Interest-Bearing Liabilities:

Interest-bearing demand 415 (1,230) (815) 515 (2,830) (2,315)

Savings 183 (649) (466) 247 (1,413) (1,166)

Money market accounts 1,103 (3,137) (2,034) 807 (7,027) (6,220)

Time deposits (4,178) (6,399) (10,577) 141 (8,552) (8,411)

Total Deposits (2,477) (11,415) (13,892) 1,710 (19,822) (18,112)

Securities sold under agreements to repurchase 67 (209) (142) (182) (966) (1,148)

Federal Home Loan Bank borrowings (1,540) — (1,540) 127 (1,597) (1,470)

Other borrowings 7 (506) (499) 11 (1,194) (1,183)

Total Interest Bearing Liabilities (3,943) (12,130) (16,073) 1,666 (23,579) (21,913)

Net Interest Income $ 19,621 $ (6,283) $ 13,338 $ 32,471 $ (13,221) $ 19,250

1 On a fully taxable equivalent basis.

All yields and rates have been computed using amortized costs.

Fees on loans have been included in interest on loans.

Nonaccrual loans are included in loan balances.

Changes attributable to rate/volume (mix) are allocated to rate and volume on an equal basis.

Total average loans increased $72.3 million, or 1%, during 2021 compared to 2020.

Average loans (the highest yielding component of earning assets) as a percentage of average earning assets totaled 68% in 2021, compared to 79% in 2020.

Loans secured by commercial real estate represented 53% of total loans, excluding PPP loans, at December 31, 2021, compared to 52% at December 31, 2020.

Residential loan balances with individuals (including home equity loans and lines and personal construction loans) represented 26% of total loans, excluding PPP loans, at December 31, 2021, compared to 28% at December 31, 2020 (see “Loan Portfolio”).

Average debt securities increased $565.4 million, or 44%, from 2020 reflecting the investment of excess liquidity into the securities portfolio.

Securities comprised 22% and 18% of average earning assets in 2021 and 2020, respectively.

Yields on securities decreased from 2.33% in 2020 to 1.61% in 2021.

Loan production is detailed in the following table for the periods specified:

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Residential pipeline - saleable at period end $ 30,102 $ 92,017

Residential loan - sold 509,420 236,528

Residential loans - sold 422,796 509,420

Residential pipeline - portfolio at period end $ 25,589 $ 25,083

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PPP originations $ 256,007 $ 598,994

Commercial and commercial real estate loan production in 2020 totaled $655.8 million, compared to $1.1 billion in 2019.

During 2019, the Company acquired $72.4 million in fixed-rate commercial real estate loans from the wholesale market.

No purchases were made in the wholesale market during 2020.

Commercial and commercial real estate loan production in 2021 totaled $1.1 billion, compared to $655.8 million in 2020.

Included in 2021 are $36.4 million in fixed-rate commercial real estate loans acquired through the wholesale market.

The combination of economic expansion and a focus on building the leading commercial bank in Florida with the addition of top talent resulted in significant growth in loan production during 2021.

Residential loan production totaled $887.4 million in 2021, compared to $638.6 million in 2020.

2019 includes purchases of residential loans from the wholesale market totaling $134.7 million.

Included in 2021 are purchases of $219.2 million in residential loans from the wholesale market.

No purchases were made in the wholesale market during 2020.

Consumer originations totaled $249.5 million during 2021, compared to $219.3 million during 2020.

Seacoast originated more than 5,500 loans to borrowers through the PPP program for $599.0 million in 2020, and acquired $55.0 million in PPP loans from Freedom Bank.

Under the terms of the SBA's program, principal and interest on PPP loans may be forgiven provided the borrower uses the funds in a manner consistent with the program's guidelines.

As of December 31, 2020, $71.8 million in PPP loans had been forgiven.

Average debt securities increased $99.6 million, or 8%, from 2019.

Securities comprised 18% and 19% of average earning assets in 2020 and 2019, respectively.

Yields on securities decreased from 3.00% in 2019 to 2.33% in 2020.

In 2020, the cost of average interest-bearing liabilities decreased 57 basis points to 0.53% from 2019, reflecting the impact of interest rate reductions in 2019 and 2020.

The low overall cost of our funding reflects the Company’s successful core deposit focus that produced strong growth in customer relationships over the past several years.

Noninterest bearing demand deposits at December 31, 2020 represent 33% of total deposits, compared to 28% at December 31, 2019.

Seacoast originated $256.0 million in PPP loans during 2021 and $599.0 million in 2020.

No additional PPP originations are expected.

In 2021, the cost of average interest-bearing liabilities decreased 37 basis points to 0.16% from 2020, reflecting the impact of the continued low interest rate environment as well as a shift in product mix to include a higher proportion of noninterest bearing demand deposits to total deposits.

The low overall cost of funding reflects the Company’s successful core deposit focus that produced strong growth in customer relationships over the past several years.

Noninterest bearing demand deposits at December 31, 2021 represented 38% of total deposits, compared to 33% at December 31, 2020.

The cost of average total deposits (including noninterest bearing demand deposits) in 2021 was 0.08%, compared to 0.32% in 2020.

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Over the past several years, the Company has strengthened its retail deposit franchise using new strategies and product offerings, while maintaining a focus on growing customer relationships.

Seacoast believes that digital product offerings are central to core deposit growth and have proved to be of meaningful value to its customers in this environment.

Seacoast believes that digital product offerings are central to core deposit growth and have proved to be of meaningful value to its customers.

Seacoast's call center and retail associates continue to lead the market in availability and customer service standards, with the call center out-performing large bank call center wait times and service level standards.

The impact of PPP originations and individual stimulus payments, as well as the acquisition of FBPB in the first quarter of 2020 and Freedom Bank in the third quarter of 2020, have all contributed to higher deposit balances.

The Company has also seen a continued shift toward mobile banking use as customers recognize the ease of access and security features of such engagement.

At December 31, 2020, registered mobile devices had increased 16% compared to December 31, 2019, while online users increased 13% in the same time period.

Growth in mobile banking use represents both consumer and business customers utilizing the convenience of mobile and online channels.

During 2020, average transaction deposits (noninterest and interest bearing demand) increased $676.3 million, or 25%, compared to 2019.

Along with new relationships, deposit programs and digital sales have improved the Company's market share and deepened relationships with existing customers.

The impact of various government stimulus programs, as well as the acquisition of Legacy Bank of Florida in the third quarter of 2021, have also contributed to higher deposit balances.

During 2021, average transaction deposits (noninterest and interest bearing demand deposits) increased $1.2 billion, or 35%, compared to 2020.

Growth in core deposits has also provided low funding costs.

3 unchanged sentences

No federal funds purchased were utilized at December 31, 2021 or 2020.

The Company had no FHLB borrowings outstanding at December 31, 2020 compared to $315.0 million at December 31, 2019.

FHLB borrowings averaged $139.4 million at an average rate of 1.10% for the full year 2020, compared to $131.9 million at an average rate of 2.28% for the full year 2019 (see “Note J - Borrowings” to the Company’s consolidated financial statements).

In 2020, average subordinated debt of $71.2 million related to trust preferred securities issued by subsidiary trusts of the Company carried an average cost of 3.07%, down from 4.75% in 2019, reflecting the impact of lower interest rates as the subordinated debt cost is based on LIBOR plus a spread (see “Note J - Borrowings”).

The Company had no FHLB borrowings during the year ended December 31, 2021 or at December 31, 2020.

FHLB borrowings averaged $139.4 million at an average rate of 1.10% for the full year 2020 (see “Note 9 - Borrowings” to the Company’s consolidated financial statements).

In 2021, average subordinated debt of $71.5 million related to trust preferred securities issued by subsidiary trusts of the Company carried an average cost of 2.36%, down from 3.07% in 2020, reflecting the impact of lower interest rates as the subordinated debt cost is based on LIBOR plus a spread (see “Note 9 - Borrowings”).

Provision for Credit Losses

The provision for credit losses was $38.2 million for the full year 2020 compared to $11.0 million for the full year 2019.

The provision for credit losses was a net benefit of $9.4 million for the full year 2021 compared to a provision of $38.2 million for the full year 2020.

The provision in 2021 reflects an improved economic outlook compared to heightened uncertainty in 2020 relating to the impact of COVID-19 on the economic environment.

On January 1, 2020, the Company adopted ASC Topic 326 - Financial Instruments - Credit Losses.

Under the CECL approach, the Company reserves for the full amount of expected credit losses over the life of the loans.

The estimate is based on current conditions and reasonable and supportable forecasts.

This use of CECL requires earlier recognition, when compared with the previous accounting guidance, of credit losses that are deemed expected but not yet probable.

The expectation of higher future losses due to the ongoing impact of COVID-19 on the current and forecasted economic environment resulted in the increase in provisioning during 2020.

Under the CECL approach, the Company reserves for the full amount of expected credit losses over the life of the loans, which also contributed to the increase in provision in 2020.

Noninterest Income

Noninterest income (excluding securities gains and losses) totaled $71.3 million in 2021, an increase of $11.0 million, or 18%, compared to 2020.

Noninterest income accounted for 19% of total revenue in 2020 and 2019 (net interest income plus noninterest income, excluding securities gains and losses).

Service charges on deposits for the year ended December 31, 2020 compared to the year ended December 31, 2019 decreased $2.1 million, or 18%, to $9.4 million.

This decrease reflects the impact of the COVID-19 pandemic on service charges, including the waiver of certain account charges during the second quarter of 2020, as well as higher average deposit balances resulting in lower overdraft fees in 2020.

Overdraft fees represented 44% of total service charges on deposits in 2020 compared to 55% in 2019.

Noninterest income accounted for 21% of total revenue in 2021 and 19% in 2020 (net interest income plus noninterest income, excluding securities gains and losses).

Noninterest income is detailed as follows:

For the Year Ended December 31, % Change

(In thousands, except percentages) 2021 2020 21/20

Service charges on deposit accounts $ 9,777 $ 9,429 4%

Interchange income 16,231 13,711 18

Wealth management income 9,628 7,507 28

Mortgage banking fees 11,782 14,696 (20)

Marine finance fees 665 690 (4)

SBA gains 1,531 685 124

BOLI income 4,154 3,561 17

SBIC income 6,778 1,373 394

Other income 10,759 8,683 24

71,305 60,335 18

Securities gains (losses), net (578) 1,235 (147)

Total Noninterest Income $ 70,727 $ 61,570 15%

Service charges on deposits for the year ended December 31, 2021 compared to the year ended December 31, 2020 increased $0.3 million, or 4%, to $9.8 million.

This increase reflects a return to more normalized fee activity compared to the prior year, in part due to the waiver of certain account charges during the first half of 2020 in response to the COVID-19 pandemic.

Overdraft fees on business and consumer accounts represented 41% of total service charges on deposits in 2021 compared to 44% in 2020.

Interchange revenue totaled $16.2 million in 2021, an increase of 18% from $13.7 million in 2020.

Growth in business customers and marketing targeted at increasing debit card utilization across all customers resulted in record interchange revenue for the year.

Growth in the number of commercial and consumer customers, targeted marketing campaigns and a continued economic recovery all contributed to higher transaction volume and per-card spending for both consumer and commercial customers for the year.

Wealth management revenues, including brokerage commissions and fees and trust income, increased $2.1 million, or 28%, to $9.6 million for the year ended December 31, 2021.

A determined and consistent focus on building new relationships and providing exceptional services resulted in considerable growth during 2020, with assets under management (“AUM”) increasing 33% year-over-year to $870 million as of December 31, 2020.

Mortgage banking fees increased by $8.2 million, or 126%, to $14.7 million for the year ended December 31, 2020 compared to 2019.

In 2020, Seacoast continued to capitalize on the robust residential refinance market and a vibrant Florida housing market, resulting in record results for the year.

Marine finance fees were $0.7 million in 2020, a decrease of $0.4 million, or 34%, compared to fees of $1.1 million in 2019.

Gains on sale of the guaranteed portion of SBA loans totaled $0.7 million for the year ended December 31, 2020, a decrease of $1.8 million compared to 2019.

A shift toward PPP production beginning in the second quarter of 2020 in response to the COVID-19 pandemic resulted in lower production of saleable SBA loans for 2020.

Bank owned life insurance (“BOLI”) income totaled $3.6 million in 2020, a decrease of $0.1 million, or 3%, compared to the prior year.

Other income decreased $0.5 million, or 5%, year-over-year.

2020 results reflect higher swap fees, which are more than offset by a $1.0 million BOLI death benefit recognized in 2019.

Securities gains in 2020 totaled $1.2 million, resulting from the sale of $96.7 million of debt securities, and a $0.1 million increase in the value of the CRA-qualified mutual fund investment.

Securities gains in 2019 totaled $1.2 million, resulting from the sale of $202.7 million of debt securities, and a $0.2 million increase in the value of the CRA-qualified mutual fund investment.

The wealth management team has continued to grow relationships, resulting in an increase in assets under management of 42% year-over-year to $1.2 billion as of December 31, 2021.

Mortgage banking fees decreased by $2.9 million, or 20%, to $11.8 million for the year ended December 31, 2021 compared to 2020.

The prior year results benefited from a significant decrease in interest rates which resulted in a strong refinance market, while 2021 results reflect a slowdown in refinance activity and lower housing inventory.

Gains on sale of the guaranteed portion of SBA loans totaled $1.5 million for the year ended December 31, 2021, an increase of $0.8 million compared to 2020.

PPP loan production ended in the second quarter of 2021, resulting in a shift back to SBA borrowing in the second half of 2021.

Bank owned life insurance (“BOLI”) income totaled $4.2 million in 2021, an increase of $0.6 million, or 17%, compared to the prior year.

The Company purchased or added through bank acquisition $69.1 million in BOLI in 2021.

Income from the Company's investments in Small Business Investment Companies (“SBICs”) increased by $5.4 million to $6.8 million compared to 2020.

The amounts recognized on SBIC investments will vary amongst periods.

Other income increased by $2.1 million year-over-year, reflecting $1.7 million from the resolution of contingencies on two loans acquired in 2017, and the sale of an internet domain name for $0.8 million.

These increases were partially offset by a decrease in loan swap fees.

Securities losses in 2021 totaled $0.6 million, resulting from a $0.4 million net loss on the sale of debt securities with a fair value of $102.1 million, and a $0.2 million decrease in the value of the CRA-qualified mutual fund investment.

Securities gains in 2020 totaled $1.2 million, resulting from net gains on the sale of $96.7 million of debt securities, and a $0.1 million increase in the value of the CRA-qualified mutual fund investment.

Noninterest Expense

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

Noninterest expenses in 2020 totaled $185.6 million and included acquisition-related expenses of $9.1 million, expenses related to branch consolidation of $0.8 million, and $0.3 million in bonuses to retail associates for keeping critical functions operating at full capacity through the initial stages of the Company's response to the COVID-19 pandemic.

In 2019, noninterest expenses totaled $160.7 million, including $1.0 million in acquisition-related expenses, $1.8 million in expenses related to branch consolidation, and $0.1 million in business continuity expenses relating to a hurricane event.

Noninterest expenses in 2021 totaled $197.4 million and included acquisition-related expenses of $7.9 million, and expenses related to branch consolidation and other expense reduction initiatives of $2.2 million.

In 2020, noninterest expenses totaled

$185.6 million, including $9.1 million in acquisition-related expenses, $0.8 million in expenses related to branch consolidation and other expense reduction initiatives, and $0.3 million in bonuses to retail associates for keeping critical functions operating at full capacity through the initial stages of the Company's response to the COVID-19 pandemic.

Adjusted noninterest expense 1 in 2021 totaled $182.4 million, an increase of 8% from 2020, reflecting overall growth of the organization.

Changes in the categories of noninterest expense for the year ended 2021 compared to 2020 are further described below.

Seacoast has expanded its footprint while decreasing its reliance on branches through successful bank acquisitions and the repositioning of the banking center network in strategic growth markets to meet the evolving needs of its customers.

At December 31, 2020, deposits per banking center were $135.9 million, up 17% from $116.3 million at December 31, 2019.

The Company consolidated one banking center location in 2020 and three in 2019.

The Company plans to further consolidate three banking center locations in the first quarter of 2021.

For the Year Ended December 31, % Change

(In thousands, except percentages) 2021 2020 21/20

Salaries and wages $ 97,283 $ 88,539 10%

Employee benefits 17,873 15,544 15

Outsourced data processing costs 19,919 19,053 5

Telephone and data lines 3,223 2,984 8

Occupancy 14,140 14,150 —

Furniture and equipment 5,390 5,874 (8)

Marketing 4,583 4,833 (5)

Legal and professional fees 11,376 9,167 24

FDIC assessments 2,405 1,268 90

Amortization of intangibles 5,033 5,857 (14)

Foreclosed property expense and net loss on sale (264) 2,263 (112)

Provision for credit losses on unfunded commitments 133 185 (28)

Other 16,341 15,835 3

Total Noninterest Expense $ 197,435 $ 185,552 6%

Salaries and wages totaled $97.3 million in 2021, an increase of $8.7 million, or 10%, compared to 2020.

Results in 2020 include $2.8 million in bank acquisition-related charges.

Record levels of saleable mortgage production resulted in higher

commissions, and bonuses were paid to retail associates for keeping critical functions operating at full capacity through the initial stages of the Company's response to the COVID-19 pandemic.

Higher headcount is attributed to the recruitment of seasoned bankers in key markets, to the FBPB and Freedom Bank acquisitions, and the addition of staff to support the PPP.

Higher loan originations in 2020 relating to the PPP resulted in higher deferrals of related salary costs.

During 2020, employee benefit costs, which include group health insurance, 401(k) plan contributions, payroll taxes, and unemployment compensation, increased $1.8 million, or 13%, compared to 2019.

The increase is attributed to higher headcount and higher health insurance costs.

Results in 2021 include $2.6 million in bank acquisition-related charges compared to $2.8 million in 2020.

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

During 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, increased $2.3 million, or 15%, compared to 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 core data processing systems.

The data processing costs associated with these third parties fluctuate based on the number of transactions processed and the negotiated rates associated with those transactions.

Outsourced data processing costs totaled $19.1 million and $15.1 million in 2020 and 2019, respectively.

Of the $4.0 million, or 26%, increase in 2020, $2.7 million is the result of acquisition-related costs incurred in 2020.

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

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 $19.9 million in 2021, an increase of $0.9 million, or 5%.

Results include $0.9 million in acquisition-related charges compared to $2.7 million in 2020.

Investments in 2021 included improvements to the digital commercial loan origination platform that has provided a quicker renewal process and a streamlined workflow for bankers and underwriters, and an automated PPP forgiveness solution integrated with the Company's existing technology infrastructure.

The Company continues to improve and enhance mobile and digital products and services through key third parties, and in the first quarter of 2022 upgraded its online and mobile banking platform, providing an enhanced digital experience for customers.

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

Telephone and data line expenses, including electronic communications with customers, between branch locations and personnel, and with third party data processors, remained flat year-over-year at $3.0 million.

The Company continues to manage expenses for this category, which has benefited from branch consolidation, while continuing to grow alternative service channels including the Customer Support Center and digital applications.

Telephone and data line expenses, including electronic communications with customers, between branch locations and personnel, and with third party data processors, increased by $0.2 million in 2021 to $3.2 million.

Total occupancy, furniture and equipment expenses in 2021 totaled $19.5 million, a decrease of $0.5 million, or 2%, compared to 2020.

The decrease reflects the benefit of recent branch consolidations.

The Company continues to strategically manage its branch footprint to balance customer needs for access to physical branches with the ability to provide services through telephone-based and digital channels.

Branch consolidations will continue for the Company and the banking industry in general as the customer service dynamic continues to evolve.

The Company continues to evolve its branch footprint in order to redirect capacity into attractive growth markets.

In alignment with this strategy, four banking center locations were consolidated in 2021, and two new branches opened.

In 2021 and 2020, marketing expenses totaled $4.6 million and $4.8 million, respectively.

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FDIC assessments were $2.4 million in 2021, compared to $1.3 million in 2020.

In the third quarter of 2019, the FDIC announced the achievement of the target deposit insurance reserve ratio, resulting in the Company's ability to apply previously awarded credits to its deposit insurance assessment.

The Company used these credits to offset $0.9 million of expenses during 2019 and $0.7 million during 2020.

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

For the year ended December 31, 2020, foreclosed property expense and net loss on sale was $2.3 million, compared to $0.1 million in 2019.

Results in 2020 primarily reflect the write-downs of two properties in the fourth quarter upon the receipt of updated valuations.

Expenses in the prior year were partially offset by $0.7 million in FDIC deposit insurance assessment credits.

For the year ended December 31, 2021, foreclosed property expenses were more than offset by net gains on sale, resulting in a benefit of $0.3 million, compared to foreclosed property expense and net losses on sale of $2.3 million in 2020.

Results in 2021 were the result of gains on the sale of OREO properties, while the prior year was impacted primarily by the write-downs of two properties.

Other expense totaled $16.3 million and $15.8 million in 2021 and 2020, respectively.

The increase of $0.6 million, or 4%, includes higher recruiting fees and higher mortgage production-related expenses.

The increase of $0.5 million, or 3%, includes higher loan production-related expenses.

In 2021, the provision for income taxes totaled $34.3 million, compared to $22.8 million in 2020.

In 2019, a reduction in the State of Florida corporate income tax rate resulted in the write-down of certain deferred tax assets, resulting in additional income tax expense of $1.1 million.

In 2020, changes under the CARES Act provided for the carryback of net operating losses that resulted in an income tax benefit of $0.4 million.

Discrete tax benefits related to share-based compensation were $0.1 million and $0.8 million in 2020 and 2019, respectively.

Fourth Quarter Review

The increase reflects higher pre-tax income and is partially offset by a temporary reduction in the corporate state tax rate in 2021 to 3.535% compared to 4.5% for 2020.

The state tax rate increased to 5.5% effective January 1, 2022, resulting in an additional tax benefit of $0.8 million recognized in the fourth quarter of 2021 upon the adjustment of the value of deferred tax assets affected by the change.

Discrete tax benefits related to share-based compensation were $0.9 million in 2021 and $0.1 million in 2020.

Fourth Quarter Results and Analysis

Net income totaled $36.3 million in the fourth quarter of 2021, an increase of $13.4 million, or 58%, from the third quarter of 2021, and an increase of $7.0 million, or 24%, compared to the fourth quarter of 2020.

Adjusted net income 1 totaled $30.7 million, an increase of $3.4 million, or 12%, from the third quarter of 2020, and an increase of $3.9 million, or 14%, compared

to the fourth quarter of 2019.

Adjusted net income 1 totaled $36.9 million, an increase of $7.5 million, or 26%, from the third quarter of 2021, and an increase of $6.2 million, or 20%, compared to the fourth quarter of 2020.

Diluted earnings per common share (“EPS”) was $0.62 and adjusted diluted EPS 1 2 was $0.62 in the fourth quarter of 2021, compared to diluted EPS of $0.40 and adjusted diluted EPS 1 of $0.51 in the third quarter of 2021 and compared to diluted EPS of $0.53 and adjusted diluted EPS 1 of $0.55 in the fourth quarter of 2020.

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Net interest income (on a tax-equivalent basis), for the fourth quarter of 2021 totaled $72.4 million, an increase of $1.0 million, or 1%, from the third quarter of 2021, and an increase of $3.5 million, or 5%, from the fourth quarter 2020.

Net interest margin (on a tax-equivalent basis), increased 19 basis points to 3.59% from the third quarter of 2020, and contracted 25 basis points from the fourth quarter of 2019.

During the fourth quarter of 2020, net interest income included $5.2 million in interest and fees earned on PPP loans compared to $1.7 million in the third quarter of 2020.

Lower PPP loan fees in the third quarter resulted from a calculation change to align fee recognition with the contractual maturity of the loans.

Loan forgiveness began in the fourth quarter of 2020, resulting in accelerated recognition of $1.5 million in PPP loan fees.

Noninterest income, excluding securities gains and losses, totaled $14.9 million for the fourth quarter of 2020, a decrease of $2.0 million, or 12%, from the third quarter of 2020 and an increase of $1.1 million, or 8%, from the fourth quarter of 2019.

Mortgage banking gains decreased by $1.6 million to $3.6 million in the fourth quarter of 2020, compared to record results in the prior quarter.

The low interest rate environment continued to result in heightened refinance demand, though at lower levels than in the third quarter.

Net interest margin (on a tax-equivalent basis), contracted six basis points to 3.16% from 3.22% in the third quarter of 2021.

Noninterest income, excluding securities gains and losses, totaled $19.1 million for the fourth quarter of 2021, in line with the third quarter of 2021 and an increase of $4.1 million, or 28%, from the fourth quarter of 2020.

Included in the fourth quarter was a gain of $0.8 million on the sale of a website domain name obtained in a prior bank acquisition, and an increase of $0.7 million in SBIC investment income compared to the third quarter of 2021.

These increases were offset by lower mortgage banking fees, which decreased by $0.5 million, due to slowing refinance activity and continuing low housing inventory levels, and lower SBA gains, which decreased by $0.6 million due to lower saleable production.

Noninterest expenses for the fourth quarter of 2021 totaled $50.3 million, a decrease of $5.0 million, or 9% from the prior quarter and an increase of $6.6 million, or 15%, from the fourth quarter of 2020.

Compared to the third quarter of 2020, salaries and wages decreased by $1.6 million to $21.5 million, primarily reflecting the effect of higher expense deferrals associated with accelerated commercial loan originations in the fourth quarter.

Other decreases compared to the third quarter of 2020 are primarily attributed to merger-related expenses.

A provision for loan losses of $1.9 million was recorded in the fourth quarter of 2020 compared to a reversal of $0.8 million in the previous quarter.

Costs associated with bank acquisitions and expense initiatives were lower by $6.5 million in the fourth quarter of 2021 compared to the prior quarter.

Offsetting were increases in employee benefits expense associated with higher employee health insurance costs, and expenses incurred in preparing for the 2022 upgrade of the online and mobile banking platform.

The provision for loan losses was a net benefit of $3.9 million in the fourth quarter of 2021, reflecting continued improvement in the economic outlook, compared to a provision of $5.1 million in the prior quarter.

The prior quarter included an increase associated with onboarding the Legacy Bank of Florida acquisition.

The ratio of allowance for credit losses to total loans was 1.41% at December 31, 2021, compared to 1.49% at September 30, 2021.

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Securities losses (gains), net 379 30 55 114 578

Gain on sale of domain name (included in other income) (755) — — — (755)

Total Adjustments to Noninterest Income (376) 30 55 114 (177)

3 unchanged sentences

Amortization of intangibles (1,304) (1,306) (1,212) (1,211) (5,033)

Business continuity expenses — — — (307) (307)

Branch reductions and other expense initiatives (168) (870) (663) (449) (2,150)

3 unchanged sentences

Tax effect of adjustments 280 2,081 598 577 3,536

Effect of change in corporate tax rate on deferred tax assets 774 — — — 774

Total Adjustments to Income Taxes 1,054 2,081 598 577 4,310

3 unchanged sentences

Adjusted Earnings per Diluted Share 0.62 0.51 0.59 0.63 2.36

Adjusted diluted shares outstanding 55,739 54,301 53,308 52,284 53,930

Average diluted shares outstanding 59,016 57,645 55,901 55,992 57,088

Adjusted Noninterest Expense $ 48,309 $ 46,811 $ 43,400 $ 43,879 $ 182,399

Provision for credit losses on unfunded commitments — (133) — — (133)

Foreclosed property expense and net (loss) gain on sale (1,821) (512) (245) 315 (2,263)

Net Adjusted Noninterest Expense $ 40,880 $ 44,164 $ 40,253 $ 41,751 $ 167,048

Foreclosed property expense and net gain (loss) on sale 175 (66) 90 65 264

Fourth Third Second First Total

(In thousands except per share data) 2021 2021 2021 2021 Year

Net Adjusted Noninterest Expense $ 48,484 $ 46,612 $ 43,490 $ 43,944 $ 182,530

Revenue $ 90,995 $ 90,352 $ 81,124 $ 84,281 $ 346,752

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Return on Average Assets (“ROA”)

1.43 % 0.93 % 1.40 % 1.61 % 1.33 %

Impact of removing average intangible assets and related amortization 0.08 0.07 0.08 0.09 0.08

Return on Average Tangible Assets (“ROTA”)

1.51 1.00 1.48 1.70 1.41

Impact of other adjustments for Adjusted Net Income (0.02) 0.23 0.04 0.05 0.07

6 unchanged sentences

Return on Average Tangible Common Equity (“ROTCE”)

14.29 9.56 13.88 15.62 13.27

Impact of other adjustments for Adjusted Net Income (0.18) 2.16 0.39 0.39 0.70

9 unchanged sentences

Impact of PPP (0.13) (0.22) 0.01 (0.04) (0.10)

Yield on loans excluding PPP and accretion on acquired loans 4.23 % 4.22 % 4.31 % 4.57 % 4.33 %

Fourth Third Second First Total

(In thousands except per share data) 2021 2021 2021 2021 Year

Yield on loans excluding PPP and accretion on acquired loans 3.94 % 4.03 % 4.13 % 4.15 % 4.06 %

Net interest income 1

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Total noninterest income $ 14,930 $ 16,946 $ 15,006 $ 14,688 $ 61,570

Securities (gains) losses, net (2,539) 847 466 9 (1,217)

BOLI benefits on death (included in other income) — (956) — — (956)

Securities losses (gains), net 18 (4) (1,230) (19) (1,235)

Total Adjustments to Noninterest Income 18 (4) (1,230) (19) (1,235)

11 unchanged sentences

Tax effect of adjustments 440 1,530 121 1,544 3,635

Effect of change in corporate tax rate on deferred tax assets — (1,135) — — (1,135)

Total Adjustments to Income Taxes 440 1,530 121 1,544 3,635

5 unchanged sentences

Adjusted Noninterest Expense $ 41,906 $ 45,432 $ 40,676 $ 41,482 $ 169,496

Provision for credit losses on unfunded commitments 795 (756) (178) (46) (185)

Foreclosed property expense and net (loss)/gain on sale (1,821) (512) (245) 315 (2,263)

32 unchanged sentences

Return on Average Tangible Common Equity (“ROTCE”)

13.87 11.35 13.47 0.95 10.10

Impact of other adjustments for Adjusted Net Income 0.13 1.71 (0.38) 1.91 0.83

3 unchanged sentences

Accretion on acquired loans (4,448) (3,254) (2,988) (4,287) (14,977)

Interest and fees on PPP loans (5,187) (1,719) (5,068) — (11,974)

Loan Interest Income excluding accretion on acquired loans $ 56,049 $ 55,600 $ 56,873 $ 59,237 $ 227,759

2 unchanged sentences

Impact of accretion on acquired loans (0.30) (0.22) (0.21) (0.33) (0.27)

Interest and fees on PPP loans 0.11 0.33 (0.04) — 0.11

Yield on Loans excluding accretion on acquired loans 4.23 % 4.22 % 4.31 % 4.57 % 4.33 %

2 unchanged sentences

Accretion on acquired loans (4,448) (3,254) (2,988) (4,287) (14,977)

Interest and fees on PPP loans (5,187) (1,719) (5,068) — (11,974)

Net Interest Income excluding accretion on acquired loans $ 59,268 $ 58,648 $ 59,332 $ 59,004 $ 236,252

1 unchanged sentence

Impact of accretion on acquired loans (0.23) (0.17) (0.16) (0.27) (0.21)

Impact of PPP loans 0.01 0.19 (0.08) — 0.03

Net interest margin excluding accretion on acquired loans 3.37 % 3.42 % 3.46 % 3.66 % 3.47 %

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Financial Condition

Total assets increased $1.2 billion, or 17% year-over-year to $8.3 billion at December 31, 2020, reflecting the impact of PPP loan originations and the completion of two acquisitions during the year.

Information related to yields, maturities, carrying values and fair value of the Company’s securities is set forth in Tables 13-16 and “Note D - Securities” of the Company’s consolidated financial statements.

Total assets increased $1.3 billion, or 16%, year-over-year to $9.7 billion at December 31, 2021, reflecting a combination of organic growth and acquisitions, partially offset by PPP forgiveness.

Information related to yields, maturities, carrying values and fair value of the Company’s securities is set forth in Tables 7 and 8 and “Note 3 - Securities” of the Company’s consolidated financial statements.

At December 31, 2021, the Company had $1.6 billion in securities available-for-sale, and $638.6 million in securities held-to-maturity.

The Company's total debt securities portfolio increased $700.3 million, or 44%, from December 31, 2020.

During the year ended December 31, 2020, there were $830.3 million of debt security purchases and $379.9 million in paydowns and maturities over the same period.

For the year ended December 31, 2020, proceeds from the sale of securities totaled $96.7 million, with net gains of $1.1 million.

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 year ended December 31, 2021, there were $1.5 billion of debt security purchases and $679.3 million in paydowns and maturities over the same period.

For the year ended December 31, 2021, debt securities with a fair value of $102.1 million were sold with net losses of $0.4 million.

During the year ended December 31, 2020, there were $830.3 million of debt security purchases and $379.9 million in paydowns and maturities over the same period.

For the year ended December 31, 2019, proceeds from the sale of securities totaled $202.7 million, with net losses of $1.0 million.

For the year ended December 31, 2020, debt securities with a fair value of $96.7 million were sold with net gains of $1.1 million.

Debt securities generally return principal and interest monthly.

The modified duration of the investment portfolio at December 31, 2020 was 3.8 years, compared to 3.5 years at December 31, 2019.

The modified duration of the securities portfolio at both December 31, 2021 and December 31, 2020 was 3.8 years.

At December 31, 2021, available-for-sale securities had gross unrealized losses of $20.9 million and gross unrealized gains of $11.5 million, compared to gross unrealized losses of $2.1 million and gross unrealized gains of $28.7 million at December 31, 2020.

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

As of December 31, 2020, the Company’s investment securities, except for $35.3 million of securities issued by states and their political subdivisions, generally are traded in liquid markets.

Treasury and U.S.

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government-sponsored entities totaled $1.9 billion, or 82%, of the total portfolio.

The portfolio also includes $91.2 million in private label securities, most secured by residential real estate collateral, with low loan to values and average credit support of 22%.

The portfolio includes $88.1 million, with a fair value of $88.8 million, in private label residential and commercial mortgage-backed securities and collateralized mortgage obligations.

Included are $63.0 million, with a fair value of $63.1 million, in private label mortgage-backed residential securities with weighted average credit support of 28%.

The collateral underlying these mortgage investments includes both fixed-rate and adjustable-rate mortgage loans.

Non-guaranteed agency commercial securities total $25.1 million, with a fair value of $25.7 million.

These securities have weighted average credit support of 12%.

The collateral underlying these mortgages are primarily pooled multifamily loans.

The Company also has invested $292.7 million in uncapped 3-month LIBOR floating rate collateralized loan obligations.

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As of December 31, 2021, all of the Company's collateralized loan obligations were in AAA/AA tranches with average credit support of 32%.

The Company performs routine stress testing on these securities to assess both structure and collateral.

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 December 31, 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 December 31, 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 December 31, 2021, an increase of $189.7 million, or 3%, compared to December 31, 2020.

In the second quarter of 2020, the Company began originating Paycheck Protection Program (“PPP”) loans established by the Coronavirus Aid, Relief and Economic Security (“CARES”) Act.

At December 31, 2020, the Company had $567 million in PPP loans outstanding.

Excluding PPP loans, loans outstanding decreased year-over-year by $30 million to $5.2 billion.

The Company adhered to its conservative underwriting guidelines through 2020 in response to the impact of the COVID-19 pandemic on the economic environment.

For the year ended December 31, 2020, non-PPP commercial loan originations, including small business and SBA loans, were $655.8 million, compared to $1.1 billion for the year ended December 31, 2019, a decrease of 38%.

The loan pipeline for commercial loans totaled $166.7 million at December 31, 2020.

Residential loans originated for sale in the secondary market were $509.4 million for the year ended December 31, 2020, compared to $236.5 million for the year ended December 31, 2019.

A vibrant refinance market and a strong Florida housing market, combined with the residential lending team's focus on high-quality service levels to homebuyers, refinance customers and local real estate professionals, resulted in record originations for the year.

Originations of residential loans retained were $129.2 million in 2020, compared to $287.0 million in December 31, 2019.

The saleable residential mortgage pipeline at December 31, 2020 totaled $92.0 million while the retained pipeline was $25.1 million.

During 2020, the Company successfully completed two bank acquisitions, resulting in loans acquired of $146.8 million in the FBPB acquisition and $303.4 million in the Freedom Bank acquisition.

During 2019, the Company purchased $201.1 million in loans, with an average loan size of $297 thousand and an average yield of 3.92%.

The Company made no loan purchases during 2020.

The Company has maintained a conservative approach to underwriting and has intentionally slowed loan growth since the onset of the pandemic in light of increased economic uncertainty.

Assuming the economic recovery commences in the second half of 2021, the resumption of growth will be accompanied by defined risk management procedures.

Increases reflect organic growth, along with the acquisition of Legacy Bank of Florida and the purchase of select loan pools, offset by PPP forgiveness.

During the first half of 2021, the Company participated in the second round of the PPP program, resulting in originations of $256.0 million.

Increases were offset by $777.6 million in PPP loans forgiven by the SBA during the year ended December 31, 2021.

In the third quarter of 2021, the Company successfully completed the acquisition of Legacy Bank of Florida, resulting in the addition of $477.2 million in loans.

For the year ended December 31, 2021, the Company originated $1.1 billion in commercial and commercial real estate loans, compared to $655.8 million for the year ended December 31, 2020, an increase of $482.0 million, or 73%.

The late-stage pipeline for commercial and commercial real estate loans totaled $397.8 million at December 31, 2021.

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

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

The Company originated $245.4 million in residential loans retained in the portfolio during the year ended December 31, 2021, compared to originations of $129.2 million during the year ended December 31, 2020, an increase of $116.2 million, or 90%.

Residential loans retained in the portfolio includes a $180.8 million purchased pool 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 jumbo rate residential loans purchased in the second quarter of 2021.

Saleable production decreased for the year ended December 31, 2021, representing $422.8 million versus $509.4 million during the year ended December 31, 2020, a decrease of 17%.

The Company originated $249.5 million consumer loans during the year ended December 31, 2021 compared to $219.3 million originated in the year ended December 31, 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 below regulatory limits (see “Loan Concentrations”).

The following table details loan portfolio composition at December 31, 2020 for portfolio loans, purchased credit deteriorated loans (“PCD”) and loans purchased which are not considered credit deteriorated (“Non-PCD”) as defined in “Note E - Loans”;

and at December 31, 2019 for portfolio loans, purchased unimpaired loans (“PUL”) and purchased credit impaired loans (“PCI”).

With the adoption of ASC Topic 326 - Financial Instruments - Credit Losses on January 1, 2020, the Company re-evaluated the aggregation of loans into segments, and separated Commercial Real Estate - Owner Occupied from Commercial Real Estate - Non Owner Occupied.

In prior years, all Commercial Real Estate loans were considered a single segment.

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

The following table details loan portfolio composition at December 31, 2021 and 2020 for portfolio loans, purchased credit deteriorated loans (“PCD”) and loans purchased which are not considered credit deteriorated (“Non-PCD”) as defined in “Note 4 - Loans”.

December 31, 2021

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December 31, 2020

(In thousands) Portfolio Loans PULs PCI Loans Total

Construction and land development $ 281,335 $ 43,618 $ 160 $ 325,113

Commercial real estate 1

1,834,811 533,943 10,217 2,378,971

Residential real estate 1,304,305 201,848 1,710 1,507,863

Commercial and financial 697,301 80,372 579 778,252

Consumer 200,166 8,039 — 208,205

Totals $ 4,317,918 $ 867,820 $ 12,666 $ 5,198,404

1 Commercial real estate includes owner-occupied balances of $1.0 billion at December 31, 2019.

Commercial real estate loans, inclusive of owner-occupied commercial real estate, increased $158.2 million, or 7%, totaling $2.5 billion at December 31, 2020, compared to December 31, 2019.

Owner-occupied loans represent $1.1 billion, or 45%, of the commercial real estate portfolio.

Office building loans of $761.1 million, or 27%, of commercial real estate mortgages, comprise our largest concentration with a substantial portion owner-occupied.

Fixed-rate and adjustable-rate loans secured by commercial real estate, excluding construction loans, totaled approximately $2.1 billion and $453.7 million, respectively, at December 31, 2020, compared to $2.0 billion and $418.8 million, respectively, at December 31, 2019.

At December 31, 2020, Seacoast had $74.1 million of loans with payment accommodations to borrowers financially impacted by the COVID-19 pandemic, none of which have been classified as a TDR.

If economic conditions deteriorate further, these borrowers may be unable to resume scheduled payments, which may result in reversal of accrued interest, further modification of terms and additional necessary provisions for credit losses.

At December 31, 2020, of loans that were provided with payment assistance during 2020, 94% are in current status or have paid off the balance entirely, less than 1% are 30 or more days past due, and 5% have been provided with an additional accommodation, including additional payment deferrals or interest only payment arrangements.

Interest and fees have typically continued to accrue on these loans throughout their accommodation period.

The following table presents loans with accommodations, excluding PPP loans, at December 31, 2020:

(In thousands) Loans with Payment Accommodations Total Loans including Loans with Payment Accommodations % of Loans with Payment Accommodations

(In thousands) Portfolio Loans Acquired

Non-PCD Loans PCD Loans Total

Construction and land development $ 216,420 $ 26,250 $ 2,438 $ 245,108

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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 following table details commercial real estate and construction and land development loans outstanding by collateral type at December 31, 2020:

($ in thousands) OOCRE, CRE & ADC % of Total Loans With Payment Accommodations

Office Building $ 761,118 13% $ 6,416

Retail 454,863 8 4,505

Industrial & Warehouse 385,875 7 661

Other Commercial Property 261,875 5 2,688

Healthcare 219,736 4 777

Apartment Building / Condominium 171,141 3 555

Hotel / Motel 130,743 2 25,169

Vacant Lot 75,480 1 66

Convenience Store 56,474 1 734

Restaurant 49,636 1 5,691

1-4 Family Residence - Individual Borrowers 48,472 1 301

Church 29,155 1 266

School/ Education 28,133 — —

1-4 Family Residence - Spec Home 23,846 — —

Agriculture 19,832 — —

Manufacturing Building 18,106 — —

1-4 Family Residence - Builder Lines 16,280 — —

Recreational Property 14,976 — —

Other Properties 16,531 — —

Total $ 2,782,272 49% $ 47,829

The largest collateral type in the CRE and construction portfolios, when aggregated, is office buildings, representing 13% of the portfolio.

The average loan size in the office building category is $600 thousand, the average loan to value (“LTV”) is 57%, and 56% of this category is classified as owner-occupied.

This primarily includes medical, accounting, engineering, health care, veterinarians and other similar professionals.

The second-largest category is retail, representing 8% of total loans.

The average loan size in the retail category is $1.3 million and the average LTV is 58%.

Loans collateralized by hotels/motels represent $130.7 million with an average loan size of $2.9 million and an average LTV of 54%.

Restaurant exposure is limited at $49.6 million in loans, and is distributed among quick serve and full-service restaurants, with an average loan size of $788 thousand and LTV of 57%.

The following table details the commercial and financial loans outstanding by industry type at December 31, 2020:

($ in thousands) Commercial and Financial % of Total Loans With Payment Accommodations

Management Companies 1

$ 202,442 4% $ —

Professional, Scientific, Technical & Other Services 101,661 2 991

Real Estate Rental & Leasing 79,759 1 241

Healthcare & Social Assistance 74,158 1 403

Finance & Insurance 72,771 1 —

Construction 67,098 1 972

Manufacturing 52,700 1 1,777

Transportation & Warehousing 46,803 1 5,786

Wholesale Trade 36,969 1 —

Retail Trade 24,896 — 951

Education 22,204 — —

Accommodation & Food Services 16,830 — 351

Administrative Support 13,675 — 89

Public Administration 12,056 — —

Agriculture 11,151 — 8

Other Industries 19,580 — 346

Total $ 854,753 14% $ 11,915

1 Primarily corporate aircraft and marine vessels associated with high net worth individuals.

Commercial and financial loans outstanding increased $76.5 million, or 10%, year-over year to $854.8 million as of December 31, 2020.

The Company's primary customers for commercial and financial loans are small- to medium-sized professional firms, retail and wholesale outlets, and light industrial and manufacturing companies.

Such businesses are smaller and subject to the risks of lending to small- to medium-sized businesses, including, but not limited to, the effects of a downturn in the local economy, possible business failure, and insufficient cash flows.

Residential mortgage loans decreased $165.2 million, or 11%, year-over-year to $1.3 billion as of December 31, 2020.

The amortized cost basis of loans at December 31, 2021 included net deferred costs of $31.0 million on non-PPP portfolio loans and net deferred fees of $2.4 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 December 31, 2021, the remaining fair value adjustments on acquired loans was $23.1 million, or 2.3% of the outstanding acquired loan balances.

At December 31, 2020, the remaining fair value adjustments on 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 $397.0 million, or 16%, totaling $2.9 billion at December 31, 2021, compared to December 31, 2020.

Owner-occupied commercial real estate loans represent $1.2 billion, or 41%, of the commercial real estate portfolio.

During the year ended December 31, 2021, the Company participated in the most recent round of the PPP and originated 2,782 loans totaling $256.0 million.

Also during the year ended December 31, 2021, $777.6 million in PPP loans were forgiven by the SBA.

At December 31, 2021, Seacoast had $1.2 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.

Residential mortgage loans increased $82.7 million, or 6%, year-over-year to $1.4 billion as of December 31, 2021.

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

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Remaining fixed rate balances were comprised of home improvement loans totaling $373.1 million, most with maturities of 10 years or less.

Home equity lines of credit, primarily floating rates, totaled $341.6 million at December 31, 2020.

In comparison, fixed-rate loans secured by residential properties totaled $590.0 million at December 31, 2019, with 15- and 30-year fixed-rate residential mortgages totaling $43.5 million and $372.0 million, respectively, and home equity mortgages and lines of credit totaled $243.8 million and $292.1 million, respectively.

The Company also provides consumer loans, which includes installment loans, auto loans, marine loans and other consumer loans, which decreased $19.5 million, or 9%, year-over-year to a total of $188.7 million at December 31, 2020, compared to $208.2 million at December 31, 2019.

Of the $19.5 million decrease, automobile loans and other consumer loans decreased $20.6 million and $5.3 million, respectively, while marine loans increased $6.4 million.

At December 31, 2020, the Company had unfunded commitments to make loans of $1.5 billion, compared to $1.0 billion at December 31, 2019 (see “Note Q - Contingent Liabilities and Commitments with Off-Balance Sheet Risk” to the Company’s consolidated financial statements).

Home equity lines of credit (“HELOCs”), primarily floating rates, totaled $336.6 million at December 31, 2021.

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 69% with 42% of the portfolio being in the first lien position at December 31, 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 $14.6 million, or 8%, year-over-year to a total of $174.2 million at December 31, 2021, compared to $188.7 million at December 31, 2020.

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

At December 31, 2021, the Company had unfunded commitments to make loans of $2.0 billion, compared to $1.5 billion at December 31, 2020 (see “Note 15 - Contingent Liabilities and Commitments with Off-Balance Sheet Risk” to the Company’s consolidated financial statements).

Loan Concentrations

The Company has developed guardrails to manage loan types that are most impacted by stressed market conditions in order to achieve lower levels of credit loss volatility in the future.

Outstanding balances for commercial and commercial real estate (“CRE”) loan relationships greater than $10 million totaled $753.7 million, representing 13% of the total portfolio, at December 31, 2020, compared to $680.2 million, or 13%, at December 31, 2019.

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 commercial real estate (“CRE”) loan relationships greater than $10 million totaled $1.2 billion, representing 20% of the total portfolio at December 31, 2021, compared to $753.7 million, or 13%, at December 31, 2020.

The Company’s ten largest commercial and commercial real estate funded and unfunded loan relationships at December 31, 2021 aggregated to $312.0 million, of which $157.8 million was funded, compared to $254.3 million at December 31, 2020, of which $188.0 million was funded.

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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 total risk based capital, declined to 26% and 169%, respectively, at December 31, 2020, compared to 40% and 204% as of December 31, 2019.

Construction and land development and CRE loan concentrations as a percentage of total risk based capital, were 21% and 177%, respectively, at December 31, 2021, compared to 26% and 169% as of 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 162%, 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” 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, multifamily 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.

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, multifamily 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

Table 6 provides certain information concerning nonperforming assets for the years indicated.

Nonperforming assets (“NPAs”) at December 31, 2020 totaled $48.9 million, an increase of $9.5 million, or 24%, compared to 2019, and were comprised of $36.1 million of nonaccrual loans, $10.2 million of other real estate owned (“OREO”) and $2.6 million of branches taken out of service.

Compared to December 31, 2019, nonaccrual loans increased by $9.2 million, or 34%, and non-branch OREO decreased $4.3 million, or 62%, the result of property sales.

Nonperforming assets (“NPAs”) at December 31, 2021 totaled $44.2 million, a decrease of $4.6 million, or 9.5%, compared to 2020, and were comprised of $30.6 million of nonaccrual loans and other real estate owned (“OREO”) of $13.6 million that includes $1.4 million of branches taken out of service.

Compared to December 31, 2020, nonaccrual loans decreased by $5.5 million, or 15%, and non-branch OREO increased $2.0 million, or 20%, due to $2.5 million in capital expenditures, partially offset by writedowns of $0.4 million.

Approximately 76% of nonaccrual loans were secured with real estate at December 31, 2021.

Nonaccrual loans have been written down by approximately $8.4 million, or 12%, of the original loan balance (including specific impairment reserves).

See the tables below for details about nonaccrual loans.

Nonperforming loans to total loans outstanding at December 31, 2020 increased to 0.63% from 0.52% at December 31, 2019.

Nonperforming assets to total assets at December 31, 2020 increased to 0.59% from 0.55% at December 31, 2019.

Nonaccrual loans have been written down by approximately $7.1 million, including reserves on individually evaluated loans.

Nonperforming loans to total loans outstanding at December 31, 2021 decreased to 0.52% from 0.63% at December 31, 2020.

Nonperforming assets to total assets at December 31, 2021 decreased to 0.46% from 0.59% at December 31, 2020.

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

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

As of December 31, 2020, pandemic-related accommodations totaled $74.1 million and are not considered troubled debt restructurings (“TDRs”).

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

In addition to pandemic-related accommodations, the Company pursues loan restructurings in selected cases where it expects to realize better values than may be expected through traditional collection activities.

The Company pursues loan restructurings in selected 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.

TDRs have been a part of the Company’s loss mitigation activities and can include rate reductions, payment extensions and principal deferrals.

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.

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Accruing TDRs are excluded from nonperforming asset ratios.

The tables below set forth details related to nonaccrual and accruing restructured loans.

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

As of December 31, 2021, pandemic-related accommodations totaled $1.2 million and are not considered troubled debt restructurings (“TDRs”).

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

December 31, 2021

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Construction & land development $ — $ 259 $ 259 $ 12

Residential $ — $ — $ — $ 109

Commercial — 101 101 —

Individuals 37 28 65 —

37 129 166 109

Residential real estate mortgages 4,074 8,418 12,492 3,740

Commercial real estate mortgages - owner occupied 261 3,705 3,966 101

Commercial real estate mortgages - non-owner occupied 3,218 2,687 5,905 —

Real estate loans 11,823 17,100 28,923 3,958

Residential real estate 5,130 7,915 13,045 3,298

Commercial and financial 2,914 3,955 6,869 318

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Construction & land development $ 37 $ 129 $ 166 $ 109

Residential $ — $ — $ — $ —

Commercial 4,902 — 4,902 —

Individuals — 35 35 131

4,902 35 4,937 131

Commercial real estate mortgages - owner occupied 5,682 2,500 8,182 109

Commercial real estate mortgages - non-owner occupied 2,030 6,053 8,083 —

Residential real estate mortgages 4,074 8,418 12,492 3,740

Commercial real estate mortgages 3,802 2,718 6,520 4,666

Real estate loans 11,256 9,680 20,936 10,824

Commercial and financial 3,777 2,827 6,604 —

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Total loans 94 $ 8,571 106 $ 10,290

During the year ended December 31, 2020, ten loans totaling $0.7 million were modified to a TDR, compared to nine loans totaling $4.7 million for the year ended December 31, 2019.

During the year ended December 31, 2021, 12 loans totaling $0.8 million were modified to a TDR, compared to ten loans totaling $0.7 million for the year ended December 31, 2020.

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

There were no defaults on loans that had been

modified in TDRs within the twelve months preceding December 31, 2020 and four defaults totaling $3.2 million within the twelve months preceding December 31, 2019.

There was one default totaling $0.2 million on loans that had been modified in TDRs within the twelve months preceding December 31, 2021, and there were no defaults on loans that had been modified in TDRs within the twelve months preceding December 31, 2020.

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, or has been transferred to OREO.

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Allowance for Credit Losses on Loans

On January 1, 2020, the Company adopted ASC Topic 326 - Financial Instruments - Credit Losses.

The new guidance replaced the incurred loss model with an expected loss model, which is referred to as the current expected credit loss (“CECL”) model.

The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities.

It also applies to off-balance sheet credit exposure such as loan commitments, standby letters of credit, financial guarantees and other similar instruments.

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

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

Historical credit losses provide the basis for

estimation of expected credit losses.

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

Upon adoption of the new model, the initial adjustment to the allowance for credit losses was an increase of $21.2 million, bringing the ratio of allowance to total loans from 0.68% at December 31, 2019 to 1.08% at January 1, 2020.

The increase was attributed to the new requirement to estimate losses over the full remaining expected life of the loans and to the impact of the new guidance on the Company's acquired loan portfolio.

The economic forecast scenario as of January 1, 2020 projected a stable macroeconomic environment over the three year forecast period.

In addition to the $21.2 million impact of the initial adoption of ASC Topic 326, increases in the allowance during 2020 reflected the deterioration of the current and forecasted macroeconomic environment with the onset and continuation of the COVID-19 pandemic.

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

The provision for credit losses was a net benefit of $9.4 million for the year ended December 31, 2021, compared to a provision of $37.8 million for the year ended December 31, 2020.

The prior year reflected the impact of economic uncertainty attributed primarily to the onset of the COVID-19 pandemic.

The removal of lockdown restrictions and a continued improvement in the economic outlook are reflected in the decrease in provisioning in 2021.

Net charge-offs for 2021 were $3.0 million, or 0.06% of average loans, excluding PPP loans, compared to $7.6 million, or 0.14%, for 2020.

Excluding PPP loans, the ratio of allowance to total loans increased to 1.79% at December 31, 2020 from 0.68% at December 31, 2019 and 1.08% at January 1, 2020.

Uncertainty related to market conditions and the economic outlook will likely continue as the ongoing effects of the pandemic and the impact of additional government assistance programs remain unknown.

Excluding PPP loans, the ratio of allowance to total loans decreased to 1.43% at December 31, 2021 from 1.79% at December 31, 2020.

Activity in the allowance for credit losses is summarized as follows:

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(In thousands) Beginning

Balance Initial Allowance on PCD Loans Acquired During the Period Provision

Losses Charge-

Offs Recoveries TDR

Adjustments Ending

Construction and land development $ 4,920 $ — $ (2,300) $ — $ 133 $ (2) $ 2,751

Commercial real estate - owner occupied 9,868 — (1,289) — — — 8,579

Commercial real estate - non-owner occupied 38,266 1,327 (1,664) (1,327) 15 — 36,617

Residential real estate 17,500 — (5,822) (57) 1,196 (6) 12,811

Commercial and financial 18,690 1,719 2,292 (3,987) 1,030 — 19,744

Consumer 3,489 — (638) (727) 697 (8) 2,813

Paycheck Protection Program — — — — — — —

Total $ 92,733 $ 3,046 $ (9,421) $ (6,098) $ 3,071 $ (16) $ 83,315

December 31, 2020

(In thousands) Beginning

Balance Impact of Adoption of ASC 326 Initial Allowance on PCD Loans Acquired During the Period Provision

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

With the emergence of the COVID-19 pandemic in 2020 leading to significant market changes, high levels of unemployment and increasing degrees of uncertainty in the U.S.

economy, the impact on expected losses on loans is difficult to estimate with precision, and it is possible that additional provisions for credit losses could be needed in future periods.

LIBOR Transition

The Company, along with the entire financial services industry, is preparing for the expected phase-out of the benchmark London Interbank Offered Rate (“LIBOR”).

In preparing for the transition from LIBOR, the Company has formed a LIBOR transition steering committee which is responsible for overseeing the execution of the Company's enterprise-wide LIBOR transition program, and for evaluating and mitigating the 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 a strategy to transition away from LIBOR, with appropriate consideration of the potential financial, customer, counterparty, regulatory and legal impacts.

As of December 31, 2020, the Company has identified approximately $400 million in loans for which the repricing index is tied to LIBOR.

The Company also invests in securities and has issued subordinated debt tied to LIBOR.

The Company’s back-to-back swap agreements with customers and other derivatives are governed by the International Swap Dealers Association (“ISDA”).

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.

As of December 31, 2021, the Company has ceased issuance of new LIBOR loans, and has approximately $250 million in existing loans for which the repricing index is tied to LIBOR.

The Company's swap agreements and other derivatives are governed by the International Swap Dealers Association (“ISDA”).

ISDA has developed fallback language for swap agreements and has established a protocol to allow counterparties to modify legacy trades to include the new fallback language.

The Company continues to monitor regulatory and legislative activity with regard to LIBOR-based products to identify all necessary actions and facilitate the transition to alternative reference rates.

The Company has adopted Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform:

Facilitation of the Effects of Reference Rate Reform on Financial Reporting , and the subsequent amendment, which provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform (e.g., discontinuation of LIBOR) if certain criteria are met.

The Company will apply the accounting relief as relevant contract and hedge accounting relationship modifications are made during the reference rate reform transition period, and does not expect the standard to have a material impact on the consolidated financial statements.

The Company also invests in securities and has issued subordinated debt tied to LIBOR.

The Company continues to monitor regulatory and legislative activity with regard to these products to identify and execute necessary actions to facilitate the transition to alternative reference rates.

Cash and Cash Equivalents, Liquidity Risk Management and Contractual Commitments

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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.

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

Brokered certificates of deposit (“CDs”) at December 31, 2020 totaled $233.8 million, compared to $472.9 million at December 31, 2019.

All of the brokered CDs outstanding at December 31, 2020 have maturities of 12 months or less.

Deposits are a primary source of liquidity.

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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 on off-balance sheet financing or significant amounts of wholesale funding.

Brokered deposits at December 31, 2021 totaled $8.0 million, compared to $430.4 million at December 31, 2020.

Cash and cash equivalents, including interest bearing deposits, totaled $737.7 million on a consolidated basis at December 31, 2021, compared to $404.1 million at December 31, 2020.

Higher cash and cash equivalent balances at December 31, 2020

reflect the Company's decision to maintain prudent higher levels of liquidity in the current economic environment, as well as higher customer deposit balances.

Higher cash and cash equivalent balances at December 31, 2021 are primarily the result of growth in deposits.

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

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In addition, the Company had $1.9 billion of debt securities and $614.2 million in residential and commercial real estate loans available as collateral.

In comparison, at December 31, 2019, the Company had available unsecured lines of $130.0 million and lines of credit of $1.1 billion, and $924.2 million of debt securities and $830.0 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 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 2020, Seacoast Bank distributed $20.2 million to the Company and, at December 31, 2020, is eligible to distribute dividends to the Company of approximately $213.4 million without prior approval.

During 2021, Seacoast Bank distributed $47.7 million to the Company and, at December 31, 2021, is eligible to distribute dividends to the Company of approximately $221.8 million without prior regulatory approval.

Seacoast Bank distributed $20.2 million to the Company during 2020.

At December 31, 2021, the Company had cash and cash equivalents at the parent of approximately $57.0 million compared to $70.1 million at December 31, 2020.

The following table presents contractual obligations.

The following table presents contractual obligations by remaining maturity.

All deposits presented in the table with indeterminate maturities such as interest bearing and noninterest bearing demand deposits, savings accounts and money market accounts are presented as having a maturity of one year or less.

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Total deposits increased $1.1 billion, or 16%, to $8.1 billion at December 31, 2021 compared to December 31, 2020.

The FBPB and Freedom Bank acquisitions added deposits of $173.7 million and $329.7 million, respectively, in 2020.

Since December 31, 2019, interest bearing deposits, which includes interest bearing demand, savings and money markets deposits, increased $1.0 billion, or 36%, to $3.8 billion at December 31, 2020, noninterest bearing demand deposits increased $699.3 million, or 44%, to $2.3 billion, and CDs decreased $353.9 million, or 30%, to $831.2 million.

The increase reflects growth in existing customer balances, the addition of new customers and the impact of the Legacy Bank of Florida acquisition which added $494.9 million in deposits during 2021.

Since December 31, 2020, interest bearing deposits, which includes interest bearing demand, savings and money markets deposits, increased $625.5 million, or 16%, to $4.4 billion at December 31, 2021, noninterest bearing demand deposits increased $785.7 million, or 34%, to $3.1 billion, and CDs decreased $276.2 million, or 33%, to $554.9 million.

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

Overall, customer balances increased on a year-over-year basis

Transaction account balances (noninterest demand and interest-bearing demand) increased to 62% of total deposits at December 31, 2021 compared to 56% at December 31, 2020.

Time deposits over $250,000 were $150.3 million and $171.5 million at December 31, 2021 and December 31, 2020, respectively.

The following table details the maturities of time deposits of $250,000 and greater at December 31, 2021 and December 31, 2020:

December 31, % of December 31, % of

(In thousands, except percentages) 2021 Total 2020 Total

Certificates of Deposit of $250,000 and Greater

Maturity Group:

Three months or less $ 57,299 38% $ 65,627 38%

Over three through six months 56,206 38 50,430 29

Over six through 12 months 20,027 13 35,580 21

Over 12 months 16,810 11 19,826 12

Total Certificates of Deposit of $250,000 and Greater $ 150,342 100% $ 171,463 100%

Total uninsured deposits were estimated to be $3.2 billion at December 31, 2021.

Customer repurchase agreements totaled $121.6 million at December 31, 2021, increasing $2.0 million, or 2%, 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.

The increase reflects a shift in customer balances from interest bearing deposits in 2020 as rates declined in 2020.

The increase reflects higher overall balances held by existing customers in 2021.

Public funds comprise a significant amount of the outstanding balance.

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

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

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

At December 31, 2020, the Company had sold, on an overnight basis, $112.7 million in deposits.

These deposits are not included in the Consolidated Balance Sheet.

At December 31, 2021, and had sold, on an overnight basis, $228.0

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

These deposits are not included in the Consolidated Balance Sheets.

No unsecured federal funds purchased were outstanding at December 31, 2021 or December 31, 2020.

Borrowings were comprised of subordinated debt related to trust preferred securities issued by trusts organized or acquired by the Company of $71.4 million and $71.1 million at December 31, 2020 and December 31, 2019, respectively, and borrowings from the FHLB of zero and $315.0 million, respectively.

Secured FHLB borrowings are an integral tool in liquidity management for the Company.

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

The Company issued subordinated debt in conjunction with its wholly owned trust subsidiaries in connection with bank acquisitions in previous years.

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The weighted average interest rate of our outstanding subordinated debt related to trust preferred securities was 2.36% for the year ended December 31, 2021, compared to 3.07% in 2020.

Go to “Note J - Borrowings” to the Company's consolidated financial statements for more detailed information pertaining to borrowings.

Go to “Note 9 - Borrowings” to the Company's consolidated financial statements for more detailed information pertaining to borrowings.

Off-Balance Sheet Transactions

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

Loan commitments were $1.5 billion at December 31, 2020, and $1.0 billion at December 31, 2019 (see “Note Q - Contingent Liabilities and Commitments with Off-Balance Sheet Risk” to the Company’s consolidated financial statements).

Loan commitments were $2.0 billion at December 31, 2021, and $1.5 billion at December 31, 2020 (see “Note 15 - Contingent Liabilities and Commitments with Off-Balance Sheet Risk” to the Company’s consolidated financial statements).

In the normal course of business, the Company and Seacoast Bank enter into agreements, or are subject to regulatory agreements that result in cash, debt and dividend restrictions.

A summary of the most restrictive items follows:

Seacoast Bank may be required to maintain reserve balances with the Federal Reserve Bank.

There was no reserve requirement at December 31, 2021 or December 31, 2020.

Under Federal Reserve regulation, Seacoast Bank is limited as to the amount it may loan to its affiliates, including the Company, unless such loans are collateralized by specified obligations.

At December 31, 2021, the maximum amount available for transfer from Seacoast Bank to the Company in the form of loans approximated $100.2 million, if the Company has sufficient acceptable collateral.

There were no loans made to affiliates during the periods ending December 31, 2021 and 2020.

Capital Resources and Management

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The Company's equity capital at December 31, 2021 increased $180.3 million, or 16%, from December 31, 2020, to $1.3 billion.

Changes in equity included increases from net income and the issuance of equity in conjunction with the acquisition of Legacy Bank of Florida, partially offset by the issuance of common stock dividends and the decrease in accumulated other comprehensive income primarily attributed to the decrease in market value of available-for-sale securities.

The ratio of shareholders’ equity to period end total assets was 13.54% and 13.55% at December 31, 2021 and December 31, 2020, respectively.

The ratio of tangible shareholders’ equity to tangible assets was 11.09% and 11.01% at December 31, 2021 and December 31, 2020, respectively.

Equity has increased as a result of earnings retained by the Company, the issuance of common stock in conjunction with bank acquisitions, and as a result of increases in accumulated other comprehensive income (“AOCI”) during the year ended December 31, 2020, primarily reflecting the impact of lower interest rates on available-for-sale securities.

Activity in shareholders’ equity for the year ended December 31, 2021 and December 31, 2020 follows:

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

Issuance of stock, pursuant to acquisitions 62,152 —

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

Stock compensation (net of Treasury shares acquired) 13,707 5,818

Dividends on common stock (22,506) —

Change in other comprehensive income (27,364) 15,905

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

The capital measures are not necessarily comparable to similar capital measures that may be presented by other companies and Seacoast does not nor should investors consider such non-GAAP financial measures in isolation from, or as a substitute for GAAP financial information (see “Table 6 - Capital Resources” and “Note O - Shareholders’ Equity”).

The capital measures are not necessarily comparable to similar capital measures that may be presented by other companies and Seacoast does not nor should investors consider such non-GAAP financial measures in isolation from, or as a substitute for GAAP financial information (see “Table 1 - Capital Resources” and “Note 13 - Shareholders’ Equity”).

(Consolidated) Seacoast

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1 For subsidiary bank only

The Company’s total risk-based capital ratio was 18.51% at December 31, 2020, an increase from 15.71% at December 31, 2019.

Higher earnings have been a primary contributor to this increase.

As of December 31, 2020, the Bank’s leverage ratio (Tier 1 capital to adjusted total assets) was 11.03%, compared to 11.38% at December 31, 2019.

The Company’s total risk-based capital ratio was 18.21% at December 31, 2021, a decrease from 18.51% at December 31, 2020.

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

As of December 31, 2021, the Bank’s leverage ratio (Tier 1 capital to adjusted total assets) was 10.65%, compared to 11.03% at December 31, 2020, 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.

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Under a recently adopted Federal Reserve policy, the board of directors of a bank holding company must consider different factors to ensure that its dividend level 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:

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;

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The Company has seven wholly owned trust subsidiaries that issued trust preferred securities, all of which 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 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 will be able to treat all $71.6 million of trust preferred securities as Tier 1 capital.

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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.

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.

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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 December 31, 2020 and 2019.

Note 5 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 December 31, 2021, 2020 and 2019.

Acquisition Accounting and Purchased Loans – Critical Accounting Policies and Estimates

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Goodwill is not amortized but rather is evaluated for impairment on at least an annual basis.

We performed an annual impairment test of goodwill as required by ASC Topic 350, Intangibles—Goodwill and Other, in the fourth quarter of 2020 with the assistance of third-party valuation specialists, and concluded that no impairment existed.

We performed an annual impairment test of goodwill as required by ASC Topic 350, Intangibles—Goodwill and Other, in the fourth quarter of 2021 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.

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The Company also holds 11,330 shares of Visa Class B stock which, following resolution of Visa’s litigation, will be converted to Visa Class A shares.

Under the current conversion rate that became effective September 27, 2019, the Company expects to 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.

Under the current conversion rate that became effective December 29, 2021, the Company expects to receive 1.6181 shares of Class A stock for each share of Class B stock, for a total of 18,333 shares of Visa Class A stock.

The Company's ownership is related to prior ownership in Visa’s network while Visa operated as a cooperative.

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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.

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis