SEACOAST BANKING CORP OF FLORIDA 10-Q

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The purpose of this discussion and analysis is to aid in understanding significant changes in the financial condition of Seacoast Banking Corporation of Florida and its subsidiaries (“Seacoast” or the “Company”) and their results of operations. Nearly all of the Company’s operations are contained in its banking subsidiary, Seacoast National Bank (“Seacoast Bank” or the “Bank”). Such discussion and analysis should be read in conjunction with the Company’s Condensed Consolidated Financial Statements and the related notes included in this report. The emphasis of this discussion will be on the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021 for the consolidated statements of income. For the consolidated balance sheets, the emphasis of this discussion will be the balances as of June 30, 2022 compared to December 31, 2021. This discussion and analysis contains statements that may be considered “forward-looking statements” as defined in, and subject to the protections of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. See the following section for additional information regarding forward-looking statements. For purposes of the following discussion, the words “Seacoast” or the “Company” refer to the combined entities of Seacoast Banking Corporation of Florida and its direct and indirect wholly owned subsidiaries. Special Cautionary Notice Regarding Forward-Looking Statements Certain statements made or incorporated by reference herein which are not statements of historical fact, including those under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere herein, are “forward-looking statements” within the meaning, and protections, of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements with respect to the Company's beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, and intentions about future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond the Company's control, and which may cause the actual results, performance or achievements of Seacoast Banking Corporation of Florida (“Seacoast” or the “Company”) or its wholly-owned banking subsidiary, Seacoast National Bank (“Seacoast Bank”), to be materially different from those set forth in the forward-looking statements. All statements other than statements of historical fact could be forward-looking statements. You can identify these forward-looking statements through the use of words such as “may,” “will,” “anticipate,” “assume,” “should,” “support,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “further,” “plan,” “point to,” “project,” “could,” “intend,” “target” or other similar words and expressions of the future. These forward-looking statements may not be realized due to a variety of factors, including, without limitation: • the effects of future economic and market conditions, including seasonality; • the ongoing adverse effects of COVID-19 and any variants thereof (economic and otherwise) on the Company and its customers, counterparties, employees, and third-party service providers, and the adverse impacts to our business, financial position, results of operations, and prospects; • government or regulatory responses to the COVID-19 pandemic, including the risk of inflation and interest rate increases resulting from monetary and fiscal stimulus response, which may have unanticipated adverse effects on our customers, and our financial condition and results of operations; • governmental monetary and fiscal policies, including interest rate policies of the Board of Governors of the Federal Reserve (“Federal Reserve”), as well as legislative, tax and regulatory changes, including those that impact the money supply and inflation; • changes in accounting policies, rules and practices, including the impact of the adoption of the current expected credit losses (“CECL”) methodology; • the risks of changes in interest rates on the level and composition of deposits, loan demand, liquidity and the values of loan collateral, securities, and interest rate sensitive assets and liabilities; • interest rate risks, sensitivities and the shape of the yield curve; uncertainty related to the impact of LIBOR calculations on securities, loans and debt; 38 Table of Contents • changes in borrower credit risks and payment behaviors, customer income, creditworthiness and confidence, spending and savings that may affect customer bankruptcies, defaults, charge-offs and deposit activity; • changes in retail distribution strategies, customer preferences and behavior (including as a result of economic factors); • changes in the availability and cost of credit and capital in the financial markets; • changes in the prices, values and sales volumes of residential and commercial real estate; • the Company's ability to comply with any regulatory requirements; • the effects of problems encountered by other financial institutions that adversely affect Seacoast or the banking industry; • Seacoast's concentration in commercial real estate loans and in real estate collateral in the state of Florida; • inaccuracies or other failures from the use of models, including the failure of assumptions and estimates, as well as differences in, and changes to, economic, market and credit conditions; • the impact on the valuation of Seacoast's investments due to market volatility or counterparty payment risk; • statutory and regulatory dividend restrictions; • increases in regulatory capital requirements for banking organizations generally; • the risks of mergers, acquisitions and divestitures, including Seacoast's ability to continue to identify acquisition targets and successfully acquire and integrate desirable financial institutions and realize expected revenues and revenue synergies; • changes in technology or products that may be more difficult, costly, or less effective than anticipated; • the Company's ability to identify and address increased cybersecurity risks, including as a result of employees working remotely; • inability of Seacoast's risk management framework to manage risks associated with the business; • dependence on key suppliers or vendors to obtain equipment or services for the business on acceptable terms, including the impact of supply chain disruptions; • reduction in or the termination of Seacoast's ability to use the online- or mobile-based platforms that are critical to the Company's business growth strategy; • the effects of war or other conflicts including the impacts related to or resulting from Russia’s military action in Ukraine, acts of terrorism, natural disasters, health emergencies, epidemics or pandemics, or other catastrophic events that may affect general economic conditions; • unexpected outcomes of, and the costs associated with, existing or new litigation involving the Company; • Seacoast's ability to maintain adequate internal controls over financial reporting; • potential claims, damages, penalties, fines and reputational damage resulting from pending or future litigation, regulatory proceedings and enforcement actions, including as a result of the Company’s participation in the PPP; • the risks that deferred tax assets could be reduced if estimates of future taxable income from operations and tax planning strategies are less than currently estimated and sales of capital stock could trigger a reduction in the amount of net operating loss carryforwards that the Company may be able to utilize for income tax purposes; • the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, non-bank financial technology providers, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in the Company's market areas and elsewhere, including institutions operating regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone, computer and the Internet; 39 Table of Contents • the failure of assumptions underlying the establishment of reserves for possible credit losses; and • other factors and risks described under “Risk Factors” herein and in any of the Company's subsequent reports filed with the SEC and available on its website at www.sec.gov. All written or oral forward-looking statements that are made or are attributable to Seacoast are expressly qualified in their entirety by this cautionary notice. The Company assumes no obligation to update, revise or correct any forward-looking statements that are made from time to time, either as a result of future developments, new information or otherwise, except as may be required by law. Business Developments Proposed Acquisition of Apollo Bancshares, Inc. On March 29, 2022, the Company announced its proposed acquisition of Apollo Bancshares, Inc. (“Apollo”). The transaction, which is expected to close early in the fourth quarter of 2022, will expand the Company’s presence in Miami-Dade County, part of the Miami-Fort Lauderdale-Pompano Beach MSA, Florida’s largest MSA and the 8 th largest in the nation. Apollo operates five branches across Miami-Dade County with deposits of approximately $930.3 million and loans of $736.0 million as of June 30, 2022. Regulatory approvals for the transaction have been received. Completion of the merger remains subject to certain conditions, including the approval of Apollo and Apollo Bank shareholders and the satisfaction of other customary closing conditions. Proposed Acquisition of Drummond Banking Company On May 4, 2022, the Company announced its proposed acquisition of Drummond Banking Company (“Drummond”). The transaction, which is expected to close early in the fourth quarter of 2022, will expand the Company’s presence in new Florida markets including Ocala and Gainesville. Drummond operates 18 branches across North Florida with deposits of approximately $919.0 million and loans of $570.9 million as of June 30, 2022. Completion of the Drummond merger is subject to certain conditions, including the receipt of regulatory approvals, the approval of Drummond shareholders and the satisfaction of other customary closing conditions. 2022 Acquisitions to Date On January 3, 2022, the Company completed the acquisitions of Sabal Palm Bancorp, Inc. (“Sabal Palm”) in Sarasota, and Business Bank of Florida, Corp. (“BBFC”) in Brevard County, which added a combined $367.9 million in loans, $562.3 million in deposits, and for which the Company recorded a $5.1 million provision for credit losses at acquisition. Organic Growth and Expansion Seacoast’s balanced growth strategy includes organic growth initiatives across the state. During the first half of 2022, Seacoast expanded its footprint into Naples/Southwest Florida and Jacksonville/Northeast Florida with key additions to its commercial banking leadership and teams. Over the past several quarters, Seacoast has added experienced bankers in the state’s most dynamic and fastest growing markets and expects to continue to invest in well-established seasoned bankers over the remainder of 2022. Results of Operations For the second quarter of 2022, the Company reported net income of $32.8 million, or $0.53 per average diluted share, compared to $20.6 million, or $0.33 per average diluted share, for the first quarter of 2022 and $31.4 million, or $0.56 per average diluted share, for the second quarter of 2021. For the six months ended June 30, 2022, net income totaled $53.3 million, or $0.86 per average diluted share, a decrease of $11.8 million, or 18%, compared to the six months ended June 30, 2021. Adjusted net income 1 for the second quarter of 2022 totaled $36.3 million, or $0.59 per average diluted share, compared to $27.1 million, or $0.44 per average diluted share, for the first quarter of 2022 and $33.3 million, or $0.59 per average diluted share, for the second quarter of 2021. For the six months ended June 30, 2022, adjusted net income 1 totaled $63.4 million, or $1.03 per average diluted share, compared to $68.7 million, or $1.23 per average diluted share for the six months ended June 30, 2021. 1 Non-GAAP measure - see “Explanation of Certain Unaudited Non-GAAP Financial Measures” for more information and a reconciliation to GAAP. 40 Table of Contents Second First Second Six Months Ended Quarter Quarter Quarter June 30, 2022 2022 2021 2022 2021 Return on average tangible assets 1.29 % 0.85 % 1.48 % 1.07 % 1.58 % Return on average tangible shareholders' equity 13.01 8.02 13.88 10.46 14.73 Efficiency ratio 56.22 62.33 54.93 59.17 54.05 Adjusted return on average tangible assets 1 1.38 % 1.06 % 1.52 % 1.23 % 1.63 % Adjusted return on average tangible shareholders' equity 1 13.97 10.01 14.27 11.95 15.12 Adjusted efficiency ratio 1 53.15 54.86 53.49 53.97 52.72 1 Non-GAAP measure - see “Explanation of Certain Unaudited Non-GAAP Financial Measures” for more information and a reconciliation to GAAP. Net Interest Income and Margin Net interest income for the second quarter of 2022 totaled $81.6 million, increasing $5.1 million, or 7%, compared to the first quarter of 2022, and increasing $15.8 million, or 24%, compared to the second quarter of 2021. For the six months ended June 30, 2022, net interest income totaled $158.2 million, an increase of $25.8 million, or 19%, compared to the six months ended June 30, 2021. The increases reflect higher balances and higher yields on securities and loans, partially offset by declines in interest and fees on Paycheck Protection Program (“PPP”) loans. Net interest margin (on a fully tax equivalent basis) 1 was 3.38% in the second quarter of 2022, compared to 3.25% in the first quarter of 2022, and 3.23% in the second quarter of 2021. The increase during the second quarter of 2022 reflects increases in yields on both securities and non-PPP loans. Compared to the first quarter of 2022, securities yields increased by 30 basis points to 1.98% and non-PPP loan yields increased by three basis points to 4.27% during the second quarter of 2022. The effect on net interest margin of accretion of purchase discounts on acquired loans were increases of 12 basis points in the second quarter of 2022, 15 basis points in the first quarter of 2022, and 14 basis points in the second quarter of 2021. The effect of interest and fees on PPP loans was an increase of two basis points in the second quarter of 2022, an increase of five basis points in the first quarter of 2022, and an increase of six basis points in the second quarter of 2021. The cost of deposits was six basis points in each of the first and second quarters of 2022, and eight basis points in the second quarter of 2021. The Company’s asset sensitive position, with significant core deposit funding and ample liquidity, will provide benefits in a higher rate environment. Higher interest rates through the remainder of 2022 are expected to contribute to increased net interest margin and to benefit net interest income as the Company’s assets are expected to reprice faster and to a greater degree than its liabilities. For the six months ended June 30, 2022, net interest margin (on a fully tax equivalent basis) 1 was 3.32%, compared to 3.37% for the six months ended June 30, 2021. The yield on securities increased from 1.64% for the six months ended June 30, 2021 to 1.83% for the six months ended June 30, 2022, reflecting the impact of rising interest rates as the Company makes new purchases in higher yielding securities. The yield on non-PPP loans declined from 4.36% for the six months ended June 30, 2021 to 4.25% for the six months ended June 30, 2022, reflecting the impact of elevated levels of prepayments of higher rate loans since mid-2020, and growth in the portfolio during recent periods of low rates. Offsetting and favorable was the decline in the cost of deposits from 10 basis points for the six months ended June 30, 2021 to six basis points for the six months ended June 30, 2022. The effect on net interest margin of purchase discounts on acquired loans was an increase of 14 basis points for the six months ended June 30, 2022 compared to an increase of 15 basis points for the six months ended June 30, 2021. The effect of interest and fees on PPP loans was an increase of three basis points for the six months ended June 30, 2022, compared to an increase of eight basis points for the six months ended June 30, 2021. The following table details the trend for net interest income and margin results (on a tax equivalent basis) 1 , the yield on earning assets and the rate paid on interest bearing liabilities for the periods specified: 41 Table of Contents (In thousands, except ratios) Net Interest Income 1 Net Interest Margin 1 Yield on Earning Assets 1 Rate on Interest Bearing Liabilities Second quarter 2022 $ 81,764 3.38 % 3.46 % 0.14 % First quarter 2022 76,639 3.25 % 3.33 % 0.12 % Second quarter 2021 65,933 3.23 % 3.33 % 0.16 % Six months ended June 30, 2022 158,403 3.32 % 3.40 % 0.13 % Six months ended June 30, 2021 132,674 3.37 % 3.49 % 0.19 % 1 On tax equivalent basis, a non-GAAP measure - see "Explanation of Certain Unaudited Non-GAAP Financial Measures" for more information and a reconciliation to GAAP. Total average loans increased $141.9 million, or 2%, for the second quarter of 2022 compared to the first quarter of 2022, and increased $882.5 million, or 16%, from the second quarter of 2021. The increase compared to the prior quarter reflects organic loan growth while the increase compared to the prior year quarter includes loans acquired from BBFC, Sabal Palm and Legacy Bank. Average loans as a percentage of average earning assets totaled 67% for the second quarter of 2022, 66% for the first quarter of 2022 and 68% for the second quarter of 2021. Loan production and late-stage pipelines (loans in underwriting and approval or approved and not yet closed) are detailed in the following table for the periods specified: Second First Second Six Months Ended Quarter Quarter Quarter June 30, (In thousands) 2022 2022 2021 2022 2021 Commercial pipeline at period end $ 476,693 $ 619,547 $ 322,014 $ 476,693 $ 322,014 Commercial loan originations 461,855 372,986 193,028 834,841 397,281 Residential pipeline - saleable at period end 14,700 25,745 60,585 14,700 60,585 Residential loans - sold 42,666 51,222 120,099 93,888 258,436 Residential pipeline - portfolio at period end 53,092 87,950 54,132 53,092 54,132 Residential loans - retained 102,996 175,457 118,126 278,453 164,746 Consumer pipeline at period end 75,532 61,613 31,748 75,532 31,748 Consumer originations 126,479 79,010 63,702 205,489 110,447 PPP originations — — 23,529 — 256,007 Commercial originations during the second quarter of 2022 were $461.9 million, an increase of $88.9 million, or 24%, compared to the first quarter of 2022, and an increase of $268.8 million, or 139%, compared to the second quarter of 2021. For the six months ended June 30, 2022, commercial originations were $834.8 million compared to $397.3 million for the six months ended June 30, 2021, an increase of $437.6 million, or 110%. Commercial originations remained strong and reflect the addition of well-established commercial bankers and expansion into new markets across the state. The addition of experienced commercial bankers in recent periods is generating disciplined growth in full relationships, including credit facilities, deposit relationships, and wealth opportunities. The commercial pipeline decreased $142.9 million, or 23%, to $476.7 million at June 30, 2022, compared to a record $619.5 million at March 31, 2022, and increased $154.7 million, or 48%, compared to June 30, 2021. As rates have increased, the Company has maintained its disciplined lending criteria, requiring lower leverage on commercial real estate projects. Despite this, the pipeline remains strong and continues to build. Residential loans originated for sale in the secondary market totaled $42.7 million in the second quarter of 2022, compared to $51.2 million in the first quarter of 2022 and $120.1 million in the second quarter of 2021. For the six months ended June 30, 2022, residential loans originated for sale in the secondary market totaled $93.9 million compared to $258.4 million for the six months ended June 30, 2021, a decrease of $164.5 million, or 64%. Limited housing inventory and slowing refinance activity 42 Table of Contents contributed to lower production. Residential saleable pipelines were $14.7 million as of June 30, 2022, compared to $25.7 million as of March 31, 2022 and $60.6 million as of June 30, 2021. Residential loan production retained in the portfolio for the second quarter of 2022 was $103.0 million compared to $175.5 million in the first quarter of 2022 and $118.1 million in the second quarter of 2021. For the six months ended June 30, 2022, residential loan production retained in the portfolio totaled $278.5 million compared to $164.7 million for the six months ended June 30, 2021, an increase of $113.7 million, or 69%. The first quarter of 2022 included the purchase of a $111.3 million wholesale residential home mortgage loan pool, and the second quarter of 2021 included the purchase of a $38.4 million wholesale residential home mortgage loan pool. The Company fully underwrites acquired loans prior to executing transactions. The pipeline of residential loans intended to be retained in the portfolio was $53.1 million as of June 30, 2022, compared to $88.0 million as of March 31, 2022, and $54.1 million as of June 30, 2021. Consumer originations totaled $126.5 million during the second quarter of 2022, compared to $79.0 million in the first quarter of 2022 and $63.7 million in the second quarter of 2021. For the six months ended June 30, 2022, consumer originations totaled $205.5 million compared to $110.4 million for the six months ended June 30, 2021, an increase of $95.0 million, or 86%. The consumer pipeline was $75.5 million as of June 30, 2022, compared to $61.6 million as of March 31, 2022 and $31.7 million at June 30, 2021. The increases are primarily the result of consumer lending teams that joined the Company in late 2021. Average debt securities increased $109.9 million, or 5%, during the second quarter of 2022 compared to the first quarter of 2022, and were $885.3 million, or 53%, higher compared to the second quarter of 2021. Increases reflect the investment of excess liquidity, partially offset by paydowns and maturities. Average debt securities were $2.5 billion for the six months ended June 30, 2022, an increase of $869.8 million, or 54%, compared to the six months ended June 30, 2021. The cost of average interest-bearing liabilities increased two basis points in the second quarter of 2022 to 14 basis points from 12 basis points in the first quarter of 2022, and decreased from 16 basis points in the second quarter of 2021. For the six months ended June 30, 2022, the cost of average interest-bearing liabilities was 0.13%, a decrease of six basis points compared to the six months ended June 30, 2021. The cost of average total deposits (including noninterest bearing demand deposits) was six basis points in both the second quarter of 2022 and the first quarter of 2022 and 8 basis points in the second quarter of 2021, reflecting continued repricing downward of interest-bearing deposits and time deposits. For the six months ended June 30, 2022, the cost of average total deposits (including noninterest bearing demand deposits) was 6 basis points compared to 10 basis points for the six months ended June 30, 2021. During the second quarter of 2022, average transaction deposits (noninterest and interest bearing demand) increased $349.6 million, or 6%, compared to the first quarter of 2022 and increased $1.3 billion, or 29%, compared to the second quarter of 2021, reflecting the inflow of new customers, including from bank acquisitions, and higher deposit balances for existing customers. For the six months ended June 30, 2022, average transaction deposits (noninterest and interest bearing demand) increased $1.3 billion, or 32%, compared to the six months ended June 30, 2021. The Company’s deposit mix remains favorable, with 95% of average deposit balances comprised of savings, money market, and demand deposits for the six months ended June 30, 2022. Average balances of sweep repurchase agreements with customers increased $2.3 million, or 2%, quarter-over quarter and $5.1 million, or 4%, year-over-year. For the six months ended June 30, 2022, the average balance was $119.3 million compared to an average balance of $114.2 million for the six months ended June 30, 2021. The average rate on customer sweep repurchase accounts was 0.22% for the six months ended June 30, 2022, compared to 0.13% for the six months ended June 30, 2021. Subordinated debt balances averaged $71.7 million in each of the first and second quarters of 2022, and $71.5 million in the second quarter of 2021. The average rate on subordinated debt for the second quarter of 2022 was 3.24%, an increase of 77 basis points compared to the first quarter of 2022 and an increase of 87 basis points compared to the second quarter of 2021. For the six months ended June 30, 2022, subordinated debt averaged $71.7 million, compared to $71.4 million for the six months ended June 30, 2021. The average rate on subordinated debt for the six months ended June 30, 2022 was 2.85%, compared to 2.40% for the six months ended June 30, 2021. The subordinated debt relates to trust preferred securities issued by subsidiary trusts of the Company. 43 Table of Contents The following tables detail average balances, net interest income and margin results (on a tax equivalent basis, a non-GAAP measure) for the periods presented: Average Balances, Interest Income and Expenses, Yields and Rates 1 2022 2021 Second Quarter First Quarter Second Quarter Average Yield/ Average Yield/ Average Yield/ (In thousands, except ratios) Balance Interest Rate Balance Interest Rate Balance Interest Rate Assets Earning assets: Securities: Taxable $ 2,517,879 $ 12,387 1.97 % $ 2,406,399 $ 10,041 1.67 % $ 1,629,410 $ 6,559 1.61 % Nontaxable 22,443 175 3.12 24,042 177 2.94 25,581 186 2.90 Total Securities 2,540,322 12,562 1.98 2,430,441 10,218 1.68 1,654,991 6,745 1.63 Federal funds sold 644,144 1,281 0.80 738,588 350 0.19 816,455 226 0.11 Other investments 46,257 636 5.51 44,999 583 5.25 108,868 483 1.78 Loans excluding PPP loans 6,454,444 68,647 4.27 6,276,964 65,675 4.24 5,092,897 55,313 4.36 PPP Loans 26,322 741 11.29 61,923 1,523 9.98 505,339 5,127 4.07 Total Loans 6,480,766 69,388 4.29 6,338,887 67,198 4.30 5,598,236 60,440 4.33 Total Earning Assets 9,711,489 83,867 3.46 9,552,915 78,349 3.33 8,178,550 67,894 3.33 Allowance for loan losses (90,242) (87,467) (86,042) Cash and due from banks 389,695 365,835 327,171 Premises and equipment 74,614 75,876 70,033 Intangible assets 307,411 304,321 235,964 Bank owned life insurance 206,839 205,500 133,484 Other assets 240,712 211,536 166,686 Total Assets $ 10,840,518 $ 10,628,516 $ 9,025,846 Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing demand $ 2,262,408 $ 293 0.05 % $ 2,097,383 $ 190 0.04 % $ 1,692,178 $ 235 0.06 % Savings 962,264 64 0.03 925,348 65 0.03 790,734 118 0.06 Money market 1,938,421 637 0.13 1,976,660 512 0.11 1,736,481 627 0.14 Time deposits 496,186 436 0.35 560,681 468 0.34 533,350 524 0.39 Securities sold under agreements to repurchase 120,437 94 0.31 118,146 39 0.13 115,512 35 0.12 Other borrowings 71,740 579 3.24 71,670 436 2.47 71,460 422 2.37 Total Interest-Bearing Liabilities 5,851,456 2,103 0.14 5,749,888 1,710 0.12 4,939,715 1,961 0.16 Noninterest demand 3,520,700 3,336,121 2,799,643 Other liabilities 117,794 141,972 116,093 Total Liabilities 9,489,950 9,227,981 7,855,451 Shareholders' equity 1,350,568 1,400,535 1,170,395 Total Liabilities & Equity $ 10,840,518 $ 10,628,516 $ 9,025,846 Cost of deposits 0.06 % 0.06 % 0.08 % Interest expense as a % of earning assets 0.09 % 0.07 % 0.10 % Net interest income as a % of earning assets $ 81,764 3.38 % $ 76,639 3.25 % $ 65,933 3.23 % 1 On a fully taxable equivalent basis, a non-GAAP measure - see "Explanation of Certain Unaudited Non-GAAP Financial Measures" for more information and a reconciliation to GAAP. All yields and rates have been computed on an annual basis using amortized cost. Fees on loans have been included in interest on loans. Nonaccrual loans are included in loan balances. 44 Table of Contents Average Balances, Interest Income and Expenses, Yields and Rates 1 2022 2021 Year to Date Year to Date Average Yield/ Average Yield/ (In thousands, except ratios) Balance Interest Rate Balance Interest Rate Assets Earning assets: Securities: Taxable $ 2,462,447 $ 22,428 1.82 % $ 1,590,152 $ 12,857 1.62 % Nontaxable 23,238 352 3.03 25,756 373 2.90 Total Securities 2,485,685 22,780 1.83 1,615,908 13,230 1.64 Federal funds sold 691,105 1,631 0.48 556,425 299 0.11 Other investments 45,631 1,219 5.39 96,422 996 2.08 Loans excluding PPP loans 6,366,194 134,322 4.25 5,121,114 110,817 4.36 PPP Loans 44,024 2,264 10.37 557,247 12,013 4.35 Total Loans 6,410,218 136,586 4.30 5,678,361 122,830 4.36 Total Earning Assets 9,632,639 162,216 3.40 7,947,116 137,355 3.49 Allowance for loan losses (88,862) (88,873) Cash and due from banks 377,831 291,626 Premises and equipment 75,241 72,141 Intangible assets 305,875 236,640 Bank owned life insurance 206,173 132,785 Other assets 226,205 165,658 Total Assets $ 10,735,102 $ 8,757,093 Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing demand $ 2,180,351 $ 483 0.04 % $ 1,646,587 $ 493 0.06 % Savings 943,908 129 0.03 756,693 255 0.07 Money market 1,957,435 1,149 0.12 1,673,559 1,297 0.16 Time deposits 528,255 904 0.35 621,844 1,711 0.55 Securities sold under agreements to repurchase 119,298 133 0.22 114,181 76 0.13 Other borrowings 71,706 1,015 2.85 71,425 849 2.40 Total Interest-Bearing Liabilities 5,800,953 3,813 0.13 4,884,289 4,681 0.19 Noninterest demand 3,428,921 2,616,856 Other liabilities 129,815 102,450 Total Liabilities 9,359,689 7,603,595 Shareholders' equity 1,375,413 1,153,498 Total Liabilities & Equity $ 10,735,102 $ 8,757,093 Cost of deposits 0.06 % 0.10 % Interest expense as a % of earning assets 0.08 % 0.12 % Net interest income as a % of earning assets $ 158,403 3.32 % $ 132,674 3.37 % 1 On a fully taxable equivalent basis, a non-GAAP measure - see "Explanation of Certain Unaudited Non-GAAP Financial Measures" for more information and a reconciliation to GAAP. All yields and rates have been computed on an annual basis using amortized cost. Fees on loans have been included in interest on loans. Nonaccrual loans are included in loan balances. 45 Table of Contents Noninterest Income Noninterest income totaled $17.0 million for the second quarter of 2022, an increase of $1.6 million, or 10%, compared to the first quarter of 2022 and an increase of $1.6 million, or 11%, from the second quarter of 2021. Noninterest income totaled $32.3 million for the six months ended June 30, 2022, a decrease of $0.7 million, or 2%, compared to the six months ended June 30, 2021. Noninterest income is detailed as follows: Second First Second Six Months Ended Quarter Quarter Quarter June 30, (In thousands) 2022 2022 2021 2022 2021 Service charges on deposit accounts $ 3,408 $ 2,801 $ 2,338 $ 6,209 $ 4,676 Interchange income 4,255 4,128 4,145 8,383 7,965 Wealth management income 2,774 2,659 2,387 5,433 4,710 Mortgage banking fees 932 1,686 2,977 2,618 7,202 Marine finance fees 312 191 177 503 366 SBA gains 473 156 232 629 519 BOLI income 1,349 1,334 872 2,683 1,731 Other income 3,761 2,870 2,249 6,631 5,993 17,264 15,825 15,377 33,089 33,162 Securities losses, net (300) (452) (55) (752) (169) Total $ 16,964 $ 15,373 $ 15,322 $ 32,337 $ 32,993 Service charges on deposits were $3.4 million in the second quarter of 2022, $2.8 million in the first quarter of 2022 and $2.3 million in the second quarter of 2021. For the six months ended June 30, 2022, service charges on deposits totaled $6.2 million, an increase of $1.5 million, or 33%, compared to the six months ended June 30, 2021. Increases in fees reflect growth in commercial deposit relationships and changes in monthly maintenance and ATM fees. Overdraft-related fees for both consumer and commercial accounts represent 38% of total service charges on deposits for the six months ended June 30, 2022, and 39% for the six months ended June 30, 2021. Interchange income increased to $4.3 million for the second quarter of 2022, compared to $4.1 million for the first quarter of 2022, and $4.1 million for the second quarter of 2021. For the six months ended June 30, 2022, interchange income totaled $8.4 million, an increase of $0.4 million, or 5%, compared to the six months ended June 30, 2021. Wealth management income, including trust fees and brokerage commissions and fees, was $2.8 million in the second quarter of 2022, increasing $0.1 million, or 4%, from the first quarter of 2022 and increasing $0.4 million, or 16%, compared to the second quarter of 2021. For the six months ended June 30, 2022, wealth management income totaled $5.4 million, an increase of $0.7 million, or 15%, compared to the six months ended June 30, 2021, as the team continues to deliver strong returns through the addition of new relationships. Mortgage banking fees decreased by $0.8 million, or 45%, to $0.9 million in the second quarter of 2022 compared to the first quarter of 2022, and decreased $2.0 million, or 69%, compared to the second quarter of 2021, reflecting lower saleable production due to the impact of rising interest rates and limited housing inventory. For the six months ended June 30, 2022, mortgage banking fees totaled $2.6 million, a decrease of $4.6 million, or 64%, compared to the six months ended June 30, 2021. SBA gains were $0.5 million in the second quarter of 2022, compared to $0.2 million in the first quarter of 2022, and $0.2 million in the second quarter of 2021. The increase reflects improved saleable loan production for the second quarter of 2022. For the six months ended June 30, 2022, SBA gains totaled $0.6 million, an increase of $0.1 million, or 21%, compared to the six months ended June 30, 2021. Bank owned life insurance (“BOLI”) income was $1.3 million for the second quarter of 2022, flat compared to the first quarter of 2022 and an increase of 55% compared to the second quarter of 2021. The increase year-over-year is attributed to additions of $69.1 million in BOLI from acquisitions and purchases during 2021. BOLI income totaled $2.7 million for the six months ended June 30, 2022 and $1.7 million for the six months ended June 30, 2021. 46 Table of Contents Other income was $3.8 million in the second quarter of 2022, an increase of $0.9 million quarter-over-quarter and an increase of $1.5 million year-over-year, reflecting higher loan-swap related income. For the six months ended June 30, 2022, other income totaled $6.6 million, an increase of $0.6 million, or 11%, compared to the six months ended June 30, 2021. The Company recognized $0.3 million in securities losses in the second quarter of 2022 compared to $0.5 million in the first quarter of 2022 and $0.1 million in the second quarter of 2021. Noninterest Expenses For the second quarter of 2022, the efficiency ratio, defined as noninterest expense less amortization of intangibles and gains, losses, and expenses on foreclosed properties divided by net operating revenue (net interest income on a fully taxable equivalent basis plus noninterest income excluding securities gains and losses), was 56.22% compared to 62.33% for the first quarter of 2022 and 54.93% for the second quarter of 2021. The higher efficiency ratio in the first quarter of 2022 primarily reflects the impact of merger-related expenses. For the six months ended June 30, 2022, the efficiency ratio was 59.17% compared to 54.05% for the six months ended June 30, 2021. The adjusted efficiency ratio 1 2 was 53.15% in the second quarter of 2022, compared to 54.86% in the first quarter of 2022 and 53.49% in the second quarter of 2021. In the second quarter of 2022, adjusted noninterest expense 1 as a percent of average tangible assets was 2.00% compared to 1.99% for the first quarter of 2022 and 1.98% for the second quarter of 2021. For the six months ended June 30, 2022 the adjusted efficiency ratio 1 was 53.97% compared to 52.72% for the six months ended June 30, 2021. The Company expects that the adjusted efficiency ratio 1 will continue to be in the low 50s for the remainder of 2022. Second First Second Six Months Ended Quarter Quarter Quarter June 30, (In thousands, except ratios) 2022 2022 2021 2022 2021 Noninterest expense, as reported $ 56,148 $ 58,917 $ 45,784 $ 115,065 $ 91,904 Merger-related charges (3,039) (6,692) (509) (9,731) (1,090) Amortization of intangibles (1,446) (1,446) (1,212) (2,892) (2,423) Branch reductions and other expense initiatives — (74) (663) (74) (1,112) Adjusted noninterest expense 1 $ 51,663 $ 50,705 $ 43,400 $ 102,368 $ 87,279 Foreclosed property expense and net gain on sale 968 164 90 1,132 155 Provision for credit losses on unfunded commitments — (142) — (142) — Net adjusted noninterest expense 1 $ 52,631 $ 50,727 $ 43,490 $ 103,358 $ 87,434 Efficiency ratio 56.22 % 62.33 % 54.93 % 59.17 % 54.05 % Adjusted efficiency ratio 1,2 53.15 54.86 53.49 53.97 52.72 Adjusted noninterest expense as a percent of average tangible assets 1,2 2.00 1.99 1.98 2.00 2.07 1 Non-GAAP measure - see “Explanation of Certain Unaudited Non-GAAP Financial Measures” for more information and a reconciliation to GAAP. 2 Adjusted efficiency ratio is defined as noninterest expense, including adjustments to noninterest expense divided by aggregated tax equivalent net interest income and noninterest income, including adjustments to revenue. 1 2 Non-GAAP measure - see “Explanation of Certain Unaudited Non-GAAP Financial Measures” for more information and a reconciliation to GAAP. 47 Table of Contents Noninterest expense for the second quarter of 2022 totaled $56.1 million, a decrease of $2.8 million, or 5%, compared to the first quarter of 2022, and an increase of $10.4 million, or 23%, from the second quarter of 2021. For the six months ended June 30, 2022, noninterest expenses totaled $115.1 million, an increase of $23.2 million, or 25%, compared to the six months ended June 30, 2021. Noninterest expenses are detailed as follows: Second First Second Six Months Ended Quarter Quarter Quarter June 30, (In thousands) 2022 2022 2021 2022 2021 Salaries and wages $ 28,056 $ 28,219 $ 22,966 $ 56,275 $ 44,359 Employee benefits 4,151 5,501 3,953 9,652 8,933 Outsourced data processing costs 6,043 6,156 4,676 12,199 9,144 Telephone/data lines 908 733 838 1,641 1,623 Occupancy 4,050 3,986 3,310 8,036 7,099 Furniture and equipment 1,588 1,426 1,166 3,014 2,420 Marketing 1,882 1,171 1,002 3,053 2,170 Legal and professional fees 2,946 4,789 2,182 7,735 4,764 FDIC assessments 699 789 515 1,488 1,041 Amortization of intangibles 1,446 1,446 1,212 2,892 2,423 Foreclosed property expense and net gain on sale (968) (164) (90) (1,132) (155) Provision for credit losses on unfunded commitments — 142 — 142 — Other 5,347 4,723 4,054 10,070 8,083 Total $ 56,148 $ 58,917 $ 45,784 $ 115,065 $ 91,904 Salaries and wages totaled $28.1 million for the second quarter of 2022, $28.2 million for the first quarter of 2022, and $23.0 million for the second quarter of 2021. The second quarter of 2022 reflects higher compensation costs, with ongoing investments in commercial banking talent and production support roles, which was more than offset by higher merger-related expenses in the first quarter of 2022 associated with the BBFC and Sabal Palm acquisitions. For the six months ended June 30, 2022, salaries and wages totaled $56.3 million, an increase of $11.9 million, or 27%, compared to the six months ended June 30, 2021. The increase compared to the prior year period reflects higher salaries from headcount added through acquisitions and investments made to support organic growth. During the second quarter of 2022, employee benefit costs, which include costs associated with the Company's self-funded health insurance benefits, 401(k) plan, payroll taxes, and unemployment compensation, were $4.2 million, a decrease of $1.4 million, or 25%, compared to the first quarter of 2022, and an increase of $0.2 million, or 5%, compared to the second quarter of 2021. The first quarter of 2022 included higher seasonal payroll taxes and 401(k) contributions. For the six months ended June 30, 2022, employee benefit costs totaled $9.7 million, an increase of $0.7 million, or 8%, compared to the six months ended June 30, 2021 primarily related to growth in the associate base. The Company utilizes third parties for its core data processing systems. Ongoing data processing costs are directly related to the number of transactions processed and the negotiated rates associated with those transactions. Outsourced data processing costs totaled $6.0 million, $6.2 million, and $4.7 million for the second quarter of 2022, first quarter of 2022, and second quarter of 2021, respectively. For the six months ended June 30, 2022 and June 30, 2021, outsourced data processing costs totaled $12.2 million and $9.1 million, respectively. The increase year-over-year reflects increased cost associated with growth in the company’s footprint as well as ongoing upgrades to the Company’s various technology platforms. Telephone and data line expenditures, including electronic communications with customers and between branch and customer support locations and personnel, as well as with third-party data processors, were $0.9 million, $0.7 million, and $0.8 million for the second quarter of 2022, first quarter of 2022, and second quarter of 2021, respectively. Telephone and data line expenditures totaled $1.6 million in each of the six months ended June 30, 2022 and 2021. Total occupancy, furniture and equipment expenses were $5.6 million in the second quarter of 2022, $5.4 million in the first quarter of 2022, and $4.5 million in the second quarter of 2021. Increases compared to the second quarter of 2021 relate to expansion of the branch footprint through acquisitions and through organic growth into new markets including Naples, Sarasota and Jacksonville. For the six months ended June 30, 2022, total occupancy, furniture and equipment expenses totaled $11.1 million, compared to $9.5 million for the six months ended June 30, 2021. 48 Table of Contents Marketing expenses totaled $1.9 million in the second quarter of 2022, $1.2 million in the first quarter of 2022, and $1.0 million in the second quarter of 2021. Increases quarter-over-quarter are primarily the result of marketing campaigns focused on our expansion markets. For the six months ended June 30, 2022, marketing expenses totaled $3.1 million, an increase of $0.9 million, or 41%, compared to the six months ended June 30, 2021. Legal and professional fees for the second quarter of 2022 were $2.9 million, a decrease of $1.8 million, or 38%, compared to the first quarter of 2022, and an increase of $0.8 million, or 35%, compared to the second quarter of 2021. For the six months ended June 30, 2022, legal and professional fees totaled $7.7 million, an increase of $3.0 million, or 62%, compared to the six months ended June 30, 2021. Acquisition-related expenses were $1.4 million in the second quarter of 2022, $2.9 million in the first quarter of 2022, and $0.5 million in the second quarter of 2021. FDIC assessments were $0.7 million for the second quarter of 2022, $0.8 million in the first quarter of 2022, and $0.5 million in the second quarter of 2021. For the six months ended June 30, 2022, FDIC assessments totaled $1.5 million compared to $1.0 million for the six months ended June 30, 2021. A provision of $0.1 million was recorded for potential credit losses on unfunded lending commitments in the first quarter of 2022 attributed to the acquisitions of BBFC and Sabal Palm. Other expense totaled $5.3 million, $4.7 million and $4.1 million for the second quarter of 2022, the first quarter of 2022 and the second quarter of 2021, respectively. For the six months ended June 30, 2022, other expense totaled $10.1 million, an increase of $2.0 million, or 25%, compared to the six months ended June 30, 2021, reflecting higher recruiting and production-related costs. The Company expects to maintain expense discipline while investing for growth. Expenses in the third quarter of 2022 are expected to increase, primarily as a result of continued investments in talent and scaling the business. Provision for Credit Losses The provision for credit losses was $0.8 million for the second quarter of 2022 compared to a provision of $6.6 million for the first quarter of 2022 and a reversal of provision of $4.9 million for the second quarter of 2021. The first quarter of 2022 included $5.1 million in provisioning for loans acquired in the Sabal Palm and BBFC transactions. The reversal in the second quarter of 2021 lowered the ratio of allowance for credit losses to total loans, reflecting improvement in the economic forecast at that time. Income Taxes For the second quarter of 2022, the Company recorded tax expense of $8.9 million compared to $5.8 million in the first quarter of 2022 and $8.8 million in the second quarter of 2021. During the second quarter of 2022, the Company received a $1.0 million refund of Florida corporate income tax paid in prior periods. Tax benefits related to stock-based compensation totaled $0.4 million in the second quarter of 2022, $0.5 million in the first quarter of 2022, and $0.6 million in the second quarter of 2021. For the six months ended June 30, 2022, tax expense totaled $14.7 million, a decrease of $4.2 million, or 22%, compared to the six months ended June 30, 2021 due primarily to lower pre-tax income. Explanation of Certain Unaudited Non-GAAP Financial Measures This report contains financial information determined by methods other than Generally Accepted Accounting Principles (“GAAP”). The financial highlights provide reconciliations between GAAP and adjusted financial measures including net income, fully taxable equivalent net interest income, noninterest income, noninterest expense, tax adjustments, net interest margin and other financial ratios. Management uses these non-GAAP financial measures in its analysis of the Company’s performance and believes these presentations provide useful supplemental information, and a clearer understanding of the Company’s performance. The Company believes the non-GAAP measures enhance investors’ understanding of the Company’s business and performance and if not provided would be requested by the investor community. These measures are also useful in understanding performance trends and facilitate comparisons with the performance of other financial institutions. The limitations associated with operating measures are the risk that persons might disagree as to the appropriateness of items comprising these measures and that different companies might define or calculate these measures differently. The Company provides reconciliations between GAAP and these non-GAAP measures. These disclosures should not be considered an alternative to GAAP. 49 Table of Contents Reconciliation of Non-GAAP Measures Second First Second Six Months Ended Quarter Quarter Quarter June 30, (In thousands, except per share data) 2022 2022 2021 2022 2021 Net income, as reported: Net income $ 32,755 $ 20,588 $ 31,410 $ 53,343 $ 65,129 Noninterest Income $ 16,964 $ 15,373 $ 15,322 $ 32,337 $ 32,993 Securities losses, net 300 452 55 752 169 Total adjustments to noninterest income 300 452 55 752 169 Total Adjusted Noninterest Income $ 17,264 $ 15,825 $ 15,377 $ 33,089 $ 33,162 Noninterest Expense 56,148 $ 58,917 $ 45,784 $ 115,065 $ 91,904 Merger-related charges (3,039) (6,692) (509) (9,731) (1,090) Amortization of intangibles (1,446) (1,446) (1,212) (2,892) (2,423) Branch reductions and other expense initiatives 1 — (74) (663) (74) (1,112) Total adjustments to noninterest expense (4,485) (8,212) (2,384) (12,697) (4,625) Total Adjusted Noninterest Expense $ 51,663 $ 50,705 $ 43,400 $ 102,368 $ 87,279 Income Taxes $ 8,886 $ 5,834 $ 8,785 $ 14,720 $ 18,942 Tax effect of adjustments 1,213 2,196 598 3,409 1,175 Total adjustments to income taxes 1,213 2,196 598 3,409 1,175 Adjusted income taxes 10,099 8,030 9,383 18,129 20,117 Adjusted net income $ 36,327 $ 27,056 $ 33,251 $ 63,383 $ 68,748 Earnings per diluted share, as reported $ 0.53 $ 0.33 $ 0.56 $ 0.86 $ 1.17 Adjusted diluted earnings per share 0.59 0.44 0.59 1.03 1.23 Average diluted shares outstanding 61,923 61,704 55,901 61,818 55,827 Adjusted Noninterest Expense $ 51,663 $ 50,705 $ 43,400 $ 102,368 $ 87,279 Foreclosed property expense and net (loss) gain on sale 968 164 90 1,132 155 Provision for credit losses on unfunded commitments — (142) — (142) — Net Adjusted Noninterest Expense $ 52,631 $ 50,727 $ 43,490 $ 103,358 $ 87,434 Revenue $ 98,611 $ 91,895 $ 81,124 $ 190,506 $ 165,405 Total adjustments to revenue 300 452 55 752 169 Impact of FTE adjustment 117 117 131 234 262 Adjusted revenue on a fully tax equivalent basis $ 99,028 $ 92,464 $ 81,310 $ 191,492 $ 165,836 Adjusted Efficiency Ratio 53.15 % 54.86 % 53.49 % 53.97 % 52.72 % Net Adjusted Noninterest Expense as a Percent of Average Tangible Assets 2 2.00 % 1.99 % 1.98 % 2.00 % 2.07 % Net Interest Income $ 81,647 $ 76,522 $ 65,802 $ 158,169 $ 132,412 Impact of FTE adjustment 117 117 131 234 262 Net interest income including FTE adjustment 81,764 76,639 65,933 158,403 132,674 Noninterest income 16,964 15,373 15,322 32,337 32,993 Noninterest expense 56,148 58,917 45,784 115,065 91,904 Pre-Tax Pre-Provision Earnings 42,580 33,095 35,471 75,675 73,763 Adjustments to noninterest income 300 452 55 752 169 Adjustments to noninterest expense (3,517) (8,190) (2,294) (11,707) (4,470) Adjusted Pre-Tax Pre-Provision Earnings $ 46,397 $ 41,737 $ 37,820 $ 88,134 $ 78,402 50 Table of Contents Second First Second Six Months Ended Quarter Quarter Quarter June 30, (In thousands, except per share data) 2022 2022 2021 2022 2021 Average Assets $ 10,840,518 $ 10,628,516 $ 9,025,846 $ 10,735,102 $ 8,757,093 Less average goodwill and intangible assets (307,411) (304,321) (235,964) (305,875) (236,640) Average Tangible Assets $ 10,533,107 $ 10,324,195 $ 8,789,882 $ 10,429,227 $ 8,520,453 Return on Average Assets (ROA) 1.21 % 0.79 % 1.40 % 1.00 % 1.50 % Impact of removing average intangible assets and related amortization 0.08 0.06 0.08 0.07 0.08 Return on Average Tangible Assets (ROTA) 1.29 0.85 1.48 1.07 1.58 Impact of other adjustments for Adjusted Net Income 0.09 0.21 0.04 0.16 0.05 Adjusted Return on Average Tangible Assets 1.38 % 1.06 % 1.52 % 1.23 % 1.63 % Average Shareholders' Equity $ 1,350,568 $ 1,400,535 $ 1,170,395 $ 1,375,413 $ 1,153,498 Less average goodwill and intangible assets (307,411) (304,321) (235,964) (305,875) (236,640) Average Tangible Equity $ 1,043,157 $ 1,096,214 $ 934,431 $ 1,069,538 $ 916,858 Return on Average Shareholders' Equity 9.73 % 5.96 % 10.76 % 7.82 % 11.39 % Impact of removing average intangible assets and related amortization 3.28 2.06 3.12 2.64 3.34 Return on Average Tangible Common Equity (ROTCE) 13.01 8.02 13.88 10.46 14.73 Impact of other adjustments for Adjusted Net Income 0.96 1.99 0.39 1.49 0.39 Adjusted Return on Average Tangible Common Equity 13.97 % 10.01 % 14.27 % 11.95 % 15.12 % Loan Interest Income 2 $ 69,388 $ 67,198 $ 60,440 $ 136,586 $ 122,830 Accretion on acquired loans (2,720) (3,717) (2,886) (6,437) (5,754) Interest and fees on PPP loans (741) (1,523) (5,127) (2,264) (12,013) Loan interest income excluding PPP and accretion on acquired loans 2 $ 65,927 $ 61,958 $ 52,427 $ 127,885 $ 105,063 Yield on Loans 2 4.29 % 4.30 % 4.33 % 4.30 % 4.36 % Impact of accretion on acquired loans (0.16) (0.24) (0.21) (0.21) (0.20) Impact of PPP loans (0.03) (0.06) 0.01 (0.04) (0.02) Yield on loans excluding PPP and accretion on acquired loans 2 4.10 % 4.00 % 4.13 % 4.05 % 4.14 % Net Interest Income 2 $ 81,764 $ 76,639 $ 65,933 $ 158,403 $ 132,674 Accretion on acquired loans (2,720) (3,717) (2,886) (6,437) (5,754) Interest and fees on PPP loans (741) (1,523) (5,127) (2,264) (12,013) Net interest income excluding PPP and accretion on acquired loans 2 $ 78,303 $ 71,399 $ 57,920 $ 149,702 $ 114,907 Net Interest Margin 2 3.38 % 3.25 % 3.23 % 3.32 % 3.37 % Impact of accretion on acquired loans (0.12) (0.15) (0.14) (0.14) (0.15) Impact of PPP loans (0.02) (0.05) (0.06) (0.03) (0.08) Net interest margin excluding PPP and accretion on acquired loans 2 3.24 % 3.05 % 3.03 % 3.15 % 3.14 % Loan Interest Income 2 $ 69,388 $ 67,198 $ 60,440 $ 136,586 $ 122,830 Tax equivalent adjustment to loans (81) (80) (92) (161) (184) Loan interest income excluding tax equivalent adjustment $ 69,307 $ 67,118 $ 60,348 $ 136,425 $ 122,646 51 Table of Contents Second First Second Six Months Ended Quarter Quarter Quarter June 30, (In thousands, except per share data) 2022 2022 2021 2022 2021 Securities Interest Income 2 $ 12,562 $ 10,218 $ 6,745 $ 22,780 $ 13,230 Tax equivalent adjustment to securities (36) (37) (39) (73) (78) Securities interest income excluding tax equivalent adjustment $ 12,526 $ 10,181 $ 6,706 $ 22,707 $ 13,152 Net Interest Income 2 $ 81,764 $ 76,639 $ 65,933 $ 158,403 $ 132,674 Tax equivalent adjustments to loans (81) (80) (92) (161) (184) Tax equivalent adjustments to securities (36) (37) (39) (73) (78) Net interest income excluding tax equivalent adjustments $ 81,647 $ 76,522 $ 65,802 $ 158,169 $ 132,412 1 Includes severance, contract termination costs, disposition of branch premises and fixed assets, and other costs to effect the Company's branch consolidation and other expense reduction strategies. 2 On a fully taxable equivalent basis. All yields and rates have been computed using amortized cost. Financial Condition Total assets increased $1.1 billion at June 30, 2022, or 12%, from December 31, 2021, reflecting organic growth, the acquisitions of BBFC and Sabal Palm, which combined added $661.0 million in assets, as well as higher cash and securities balances due to higher customer deposit balances. Securities Information related to yields, maturities, carrying values and fair value of the Company’s debt securities is set forth in “ Note 3 – Securities ” of the Company’s condensed consolidated financial statements. At June 30, 2022, the Company had $1.8 billion in securities available-for-sale and $794.8 million in securities held-to-maturity. The Company's total debt securities portfolio increased $312.6 million, or 14%, from December 31, 2021. During the six months ended June 30, 2022, there were $680.3 million of debt security purchases and $213.9 million in paydowns and maturities over the same period. The Company obtained securities in the first quarter of 2022 as part of the acquisition of BBFC which had a fair value of $26.0 million and were immediately sold with no gain or loss recognized. For the six months ended June 30, 2021, there were $669.2 million of debt security purchases and $361.9 million in paydowns and maturities over the same period. For the six months ended June 30, 2021, the Company had $56.2 million in proceeds from the sales of securities with a net loss of $0.1 million. Debt securities generally return principal and interest monthly. The modified duration of the available-for-sale portfolio at June 30, 2022 was 3.3, compared to 3.1 at December 31, 2021. At June 30, 2022, available-for-sale securities had gross unrealized losses of $163.2 million and gross unrealized gains of $0.7 million, compared to gross unrealized losses of $20.9 million and gross unrealized gains of $11.5 million at December 31, 2021. The decline in value was the result of rising interest rates and changes in interest rate spreads during the period. The Company assesses securities in an unrealized loss position on a quarterly basis. As of June 30, 2022, the Company expected to recover the entire amortized cost basis of these securities, and therefore, no allowance for credit losses was recorded. The credit quality of the Company’s securities holdings is primarily investment grade. U.S. Treasury and U.S. government agencies and obligations of U.S. government sponsored entities totaled $2.1 billion, or 81%, of the total portfolio. The portfolio includes $166.2 million, with a fair value of $158.8 million, in private label residential and commercial mortgage-backed securities and collateralized mortgage obligations. Included are $146.5 million, with a fair value of $139.6 million, in private label mortgage-backed residential securities with weighted average credit support of 22%. The collateral underlying these mortgage investments includes both fixed-rate and adjustable-rate mortgage loans. Non-guaranteed agency commercial securities totaled $19.7 million, with a fair value of $19.3 million. These securities have weighted average credit support of 21%. The collateral underlying these mortgages is primarily pooled multifamily loans. 52 Table of Contents The Company also has invested $315.2 million in uncapped 3-month LIBOR floating rate collateralized loan obligations. Collateralized loan obligations are special purpose vehicles that purchase first lien broadly syndicated corporate loans while providing support to senior tranche investors. As of June 30, 2022, all of the Company’s collateralized loan obligations were in AAA/AA tranches with average credit support of 32%. 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 June 30, 2022, the Company has determined that all debt securities in an unrealized loss position are the result of both broad investment type spreads and the current interest rate environment. Management believes that each investment will recover any price depreciation over its holding period as the debt securities move to maturity, and management has the intent and ability to hold these investments to maturity if necessary. Therefore, at June 30, 2022, no allowance for credit losses has been recorded. Loan Portfolio Loans, net of unearned income and excluding the allowance for credit losses, were $6.5 billion at June 30, 2022, a $616.5 million increase from December 31, 2021. Changes during the first half of 2022 included $367.9 million added through bank acquisitions, and the purchase of a $111.3 million residential loan pool in the first quarter of 2022. Removing the impacts of loans added through acquisitions and the purchased pool, loans grew 7% on an annualized basis in each of the first and second quarters of 2022. The Company expects loan growth to continue, with an annualized growth rate, excluding bank acquisitions, in the high single digits for the remainder of 2022. For the six months ended June 30, 2022, the Company originated $834.8 million in commercial and commercial real estate loans, compared to $397.3 million for the six months ended June 30, 2021, an increase of $437.6 million, or 110%. The late-stage loan pipeline for commercial and commercial real estate loans totaled $476.7 million at June 30, 2022. The addition of well-established commercial bankers and expansion into new markets across the state has generated disciplined loan growth. The Company originated $278.5 million in residential loans retained in the portfolio during the six months ended June 30, 2022, compared to $164.7 million during the six months ended June 30, 2021, an increase of $113.7 million, or 69%. Residential loans retained in the portfolio includes the $111.3 million purchased residential loan pool consisting of 30-year fixed rate jumbo residential loans purchased in the first quarter of 2022 and the $38.4 million purchased residential loan pool consisting of 30-year fixed rate jumbo residential loans purchased in the second quarter of 2021. Saleable production decreased for the six months ended June 30, 2022, to $93.9 million compared to $258.4 million during the six months ended June 30, 2021, reflecting the impact of increasing interest rates and limited housing inventory. Consumer originations totaled $205.5 million for the six months ended June 30, 2022, an increase of $95.0 million, or 86%, compared to the six months ended June 30, 2021. The increase is primarily the result of consumer lending teams that joined in late 2021. The Company remains committed to sound risk management procedures. Lending policies contain guardrails that pertain to lending by type of collateral and purpose, along with limits regarding loan concentrations and the principal amount of loans. The Company's exposure to commercial real estate lending remains well below regulatory limits (see “Loan Concentrations”). 53 Table of Contents The following tables detail loan portfolio composition at June 30, 2022 and December 31, 2021 for portfolio loans, purchased credit deteriorated (“PCD”) and loans purchased which are not considered purchased credit deteriorated (“Non-PCD”) as defined in Note 4-Loans. June 30, 2022 (In thousands) Portfolio Loans Acquired Non-PCD Loans PCD Loans Total Construction and land development $ 320,596 $ 29,391 $ 38 $ 350,025 Commercial real estate - owner-occupied 979,173 255,850 19,320 1,254,343 Commercial real estate - non owner-occupied 1,457,626 438,184 76,730 1,972,540 Residential real estate 1,442,435 198,901 6,129 1,647,465 Commercial and financial 1,018,258 92,610 13,903 1,124,771 Consumer 171,315 3,886 — 175,201 Paycheck Protection Program 10,518 6,685 — 17,203 Totals $ 5,399,921 $ 1,025,507 $ 116,120 $ 6,541,548 December 31, 2021 (In thousands) Portfolio Loans Acquired Non-PCD Loans PCD Loans Total Construction and land development $ 199,341 $ 31,438 $ 45 $ 230,824 Commercial real estate - owner-occupied 983,517 186,812 27,445 1,197,774 Commercial real estate - non owner-occupied 1,278,180 382,554 75,705 1,736,439 Residential real estate 1,261,306 156,957 7,091 1,425,354 Commercial and financial 968,318 84,395 16,643 1,069,356 Consumer 169,507 4,658 10 174,175 Paycheck Protection Program 69,503 21,604 — 91,107 Totals $ 4,929,672 $ 868,418 $ 126,939 $ 5,925,029 The amortized cost basis of loans at June 30, 2022 included net deferred costs of $30.8 million on non-PPP portfolio loans and net deferred fees of $0.3 million on PPP loans. At December 31, 2021, the amortized cost basis 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 June 30, 2022, the remaining fair value adjustments on acquired loans was a net discount of $21.4 million, or 1.8%, of the outstanding acquired loan balances. At December 31, 2021, the remaining fair value adjustments for acquired loans was a net discount of $23.1 million, or 2.3%, of the acquired loan balances. The discount is 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 CRE, increased by $292.7 million, or 10%, in the six months ended June 30, 2022, totaling $3.2 billion at June 30, 2022 compared to $2.9 billion at December 31, 2021. Owner-occupied CRE loans represent $1.3 billion, or 39%, of the commercial real estate portfolio. Residential real estate loans increased $222.1 million, or 16%, to $1.6 billion as of June 30, 2022, compared to December 31, 2021. Substantially all residential mortgage originations have been underwritten to conventional loan agency standards, including loans having balances that exceed agency value limitations. At June 30, 2022, approximately $314.4 million, or 19%, of the Company’s residential mortgage balances were adjustable 1-4 family mortgage loans, which includes hybrid adjustable-rate mortgages, compared to $278.9 million, or 20%, at December 31, 2021. Fixed-rate mortgages totaled approximately $952.0 million, or 56%, at June 30, 2022, compared to $773.7 million, or 54%, at December 31, 2021. Home equity lines of credit (“HELOCs”), primarily floating rates, totaled $381.1 million at June 30, 2022 and $336.6 million at December 31, 2021. Borrowers in the residential real estate portfolio have an average credit score of 750. Specifically for HELOCs, borrowers have an average credit score of 763. The average LTV of our HELOC portfolio is 67% with 37% of the portfolio being in first lien position at June 30, 2022, compared to an average LTV of 69% with 42% of the portfolio being in the first lien position at December 31, 2021. The Company also provides consumer loans, which include installment loans, auto loans, marine loans, and other consumer loans, which decreased $1.0 million, or 1%, to total $175.2 million, compared to $174.2 million at December 31, 2021. Borrowers in the consumer portfolio have an average credit score of 736. 54 Table of Contents At June 30, 2022, the Company had unfunded loan commitments of $2.2 billion, compared to $2.0 billion at December 31, 2021. Loan Concentrations The Company has developed prudent guardrails to manage loan types that are most impacted by stressed market conditions in order to minimize credit risk concentration to capital. Outstanding balances for commercial and CRE loan relationships greater than $10 million totaled $1.5 billion and represented 22% of the total portfolio at June 30, 2022, compared to $1.2 billion, or 20%, at year-end 2021. The Company’s ten largest commercial and commercial real estate funded and unfunded loan relationships at June 30, 2022 aggregated to $378.9 million, of which $228.3 million was funded, compared to $312.0 million at December 31, 2021, of which $157.8 million was funded. The Company had 189 commercial and commercial real estate relationships in excess of $5 million totaling $2.2 billion, of which $1.6 billion was funded at June 30, 2022, compared to 174 relationships totaling $1.9 billion at December 31, 2021, of which $1.4 billion was funded. Concentrations in total construction and land development loans and total CRE loans are maintained well below regulatory limits. Construction and land development and CRE loan concentrations as a percentage of subsidiary bank total risk based capital were 29% and 192%, respectively, at June 30, 2022, compared to 21% and 177%, respectively, at December 31, 2021. Regulatory guidance suggests limits of 100% and 300%, respectively. On a consolidated basis, construction and land development and commercial real estate loans represent 27% and 176%, respectively, of total consolidated risk based capital. To determine these ratios, the Company defines CRE in accordance with the guidance on “Concentrations in Commercial Real Estate Lending” (the “Guidance”) issued by the federal bank regulatory agencies in 2006 (and reinforced in 2015), which defines CRE loans as exposures secured by land development and construction, including 1-4 family residential construction, multi-family property, and non-farm nonresidential property where the primary or a significant source of repayment is derived from rental income associated with the property (i.e., loans for which 50 percent or more of the source of repayment comes from third party, non-affiliated, rental income) or the proceeds of the sale, refinancing, or permanent financing of the property. Loans to real estate investment trusts (“REITs”) and unsecured loans to developers that closely correlate to the inherent risks in CRE markets would also be considered CRE loans under the Guidance. Loans on owner-occupied CRE are generally excluded. At June 30, 2022, the Company had $1.6 billion in loans secured by residential real estate and $3.2 billion in loans secured by commercial real estate, representing 25% and 49% of total loans outstanding, respectively. In addition, the Company is subject to a geographic concentration of credit because it primarily operates in Florida. Nonperforming Loans, Troubled Debt Restructurings, Other Real Estate Owned, and Credit Quality Nonperforming assets (“NPAs”) at June 30, 2022 totaled $28.9 million, and were comprised of $26.4 million of nonaccrual loans, and $2.4 million of other real estate owned (“OREO”). Compared to December 31, 2021, nonaccrual loans decreased $4.2 million, primarily the result of paydowns. The decrease in OREO of $11.2 million reflects $12.8 million in sales and $0.1 million of write-downs, offset by $1.0 million added upon closure of a branch property, $0.1 million in acquired OREO, and $0.6 million in capital expenditures. Overall, NPAs decreased $15.4 million, or 35%, from $44.2 million as of December 31, 2021. At June 30, 2022, approximately 66% of nonaccrual loans were secured with real estate. See the tables below for details about nonaccrual loans. At June 30, 2022, nonaccrual loans reflected cumulative write downs of approximately $4.8 million, including reserves on individually evaluated loans. Nonperforming loans to total loans outstanding at June 30, 2022 decreased to 0.40% from 0.52% at December 31, 2021. Nonperforming assets to total assets at June 30, 2022 decreased to 0.27% from 0.46% at December 31, 2021. The Company’s asset mitigation staff handles all foreclosure actions together with outside legal counsel. The Company pursues loan restructurings in select cases where it expects to realize better values than may be expected through traditional collection activities. The Company has worked with retail mortgage customers, when possible, to achieve lower payment structures in an effort to avoid foreclosure. Troubled debt restructurings (“TDRs”) have been a part of the Company’s loss mitigation activities and can include rate reductions, payment extensions and principal deferrals. Company policy requires TDRs that are classified as nonaccrual loans after restructuring remain on nonaccrual until performance can be verified, which usually requires six months of performance under the restructured loan terms. Accruing TDRs totaled $4.0 million at June 30, 2022, compared to $3.9 million at December 31, 2021. Accruing TDRs are excluded from the nonperforming asset ratios. 55 Table of Contents The table below sets forth details related to nonaccrual and accruing restructured loans. June 30, 2022 Nonaccrual Loans Accruing Restructured Loans (In thousands) Non-Current Current Total Construction and land development $ — $ 11 $ 11 $ 5 Commercial real estate - owner-occupied 131 1,440 1,571 97 Commercial real estate - non owner-occupied 5,253 1,337 6,590 — Residential real estate 2,937 6,307 9,244 3,462 Commercial and financial 4,063 4,569 8,632 304 Consumer 78 316 394 154 Total $ 12,462 $ 13,980 $ 26,442 $ 4,022 December 31, 2021 Nonaccrual Loans Accruing Restructured Loans (In thousands) Non-Current Current Total Construction and land development $ — $ 259 $ 259 $ 12 Commercial real estate - owner-occupied 261 3,705 3,966 101 Commercial real estate - non owner-occupied 3,218 2,687 5,905 — Residential real estate 5,130 7,915 13,045 3,298 Commercial and financial 2,914 3,955 6,869 318 Consumer 46 508 554 188 Total $ 11,569 $ 19,029 $ 30,598 $ 3,917 At June 30, 2022 and December 31, 2021, total TDRs (performing and nonperforming) were comprised of the following loans by type of modification: June 30, 2022 December 31, 2021 (In thousands) Number Amount Number Amount Maturity extended 51 $ 4,940 56 $ 5,385 Rate reduction 20 1,113 25 2,769 Chapter 7 bankruptcies 7 220 1 39 Not elsewhere classified 6 189 12 378 Total 84 $ 6,461 94 $ 8,571 During the six months ended June 30, 2022, there was one default totaling $2 thousand on a loan that had been modified to a TDR within the preceding twelve months. During the six months ended June 30, 2021, there were two defaults totaling $0.1 million of loans that had been modified to a TDR within the preceding twelve months. Loan modifications are not reported in calendar years after modification if the loans were modified at an interest rate equal to the yields of new loan originations with comparable risk and the loans are performing based on the terms of the restructuring agreements. A restructured loan is considered in default when it becomes 90 days or more past due under the modified terms, has been transferred to nonaccrual status, has been charged off or has been transferred to OREO. In accordance with regulatory reporting requirements, loans are placed on nonaccrual following the Retail Classification of Loan interagency guidance. The accrual of interest is generally discontinued on loans, except consumer loans, that become 90 days past due as to principal or interest unless collection of both principal and interest is assured by way of collateralization, guarantees or other security. Consumer loans that become 120 days past due are generally charged off. The loan carrying value is analyzed and any changes are appropriately made as described above quarterly. Allowance for Credit Losses on Loans Management estimates the allowance using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit losses provide the basis for 56 Table of Contents estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, loan to value ratios, borrower credit characteristics, loan seasoning or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values, occupancy rates, and other macroeconomic metrics. During the second quarter of 2022, the Company recorded a provision of $0.8 million, reflecting the impact of higher loans outstanding. The first quarter of 2022 included a provision of $5.1 million for loans acquired in the BBFC and Sabal Palm acquisitions as well as the impact of organic loan growth during the quarter. The Company reported net recoveries for the second quarter of 2022 of $0.1 million and, for the four most recent quarters, net charge-offs averaged 0.04% of outstanding loans. The ratio of allowance for credit losses to total loans was 1.39% at June 30, 2022, 1.39% at March 31, 2022, and 1.49% at June 30, 2021. Excluding PPP loans, the ratio of allowance for credit losses to total loans at June 30, 2022 was 1.39%, compared to 1.40% at March 31, 2022 and 1.60% at June 30, 2021. LIBOR Transition The Company’s LIBOR transition steering committee is responsible for overseeing the execution of the Company’s enterprise-wide LIBOR transition program, and for evaluating and mitigating risks associated with the transition from LIBOR. The LIBOR transition program includes a comprehensive review of the financial products, agreements, contracts, and business processes that may use LIBOR as a reference rate, and the development and execution of strategy to transition away from LIBOR, with appropriate consideration of the potential financial, customer, counterpart, regulatory and legal impacts. The Company continues to execute its LIBOR transition program, and to monitor regulatory and legislative activity to identify any necessary actions and facilitate the transition to alternative reference rates. As of December 31, 2021, the Company ceased issuance of new LIBOR loans. As of June 30, 2022, the Company has approximately $218 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 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 and Liquidity Risk Management Liquidity risk involves the risk of being unable to fund assets with the appropriate duration and rate-based liability, as well as the risk of not being able to meet unexpected cash needs. Liquidity planning and management are necessary to ensure the ability to fund operations cost effectively and to meet current and future potential obligations such as loan commitments and unexpected deposit outflows. Funding sources include primarily customer-based deposits, collateral-backed borrowings, brokered deposits, cash flows from operations, cash flows from the loan and investment portfolios and asset sales, primarily secondary marketing for residential real estate mortgages and marine loans. Cash flows from operations are a significant component of liquidity risk management and the Company considers both deposit maturities and the scheduled cash flows from loan and investment maturities and payments when managing risk. Deposits are a primary source of liquidity. The stability of this funding source is affected by numerous factors, including returns available to customers on alternative investments, the quality of customer service levels, perception of safety and competitive forces. The Company routinely uses debt securities and loans as collateral for secured borrowings. In the event of severe market disruptions, the Company has access to secured borrowings through the FHLB and the Federal Reserve Bank of Atlanta under its borrower-in-custody program. The Company does not rely on and is not dependent upon off-balance sheet financing or significant amounts of wholesale funding. Brokered deposits at June 30, 2022 were $106.8 million, an increase compared to $8.0 million at December 31, 2021, which reflected the Company’s year-end liquidity management activities. Cash and cash equivalents, including interest bearing deposits, totaled $901.4 million on a consolidated basis at June 30, 2022, compared to $737.7 million at December 31, 2021. Higher cash and cash equivalent balances at June 30, 2022 reflect the benefit of deposits acquired from BBFC and Sabal Palm in addition to favorable organic deposit growth. 57 Table of Contents Contractual maturities for assets and liabilities are reviewed to meet current and expected future liquidity requirements. Sources of liquidity are maintained through a portfolio of high quality marketable assets, such as residential mortgage loans, debt securities available-for-sale and interest-bearing deposits. The Company is also able to provide short-term financing of its activities by selling, under an agreement to repurchase, United States Treasury and Government agency debt securities not pledged to secure public deposits or trust funds. At June 30, 2022, the Company had available unsecured lines of credit of $165.0 million and secured lines of credit, which are subject to change, of $2.2 billion. In addition, the Company had $2.1 billion of debt securities and $744.8 million in residential and commercial real estate loans available as collateral. In comparison, at December 31, 2021, the Company had available unsecured lines of $165.0 million and secured lines of credit of $1.6 billion, and $1.9 billion of debt securities and $614.2 million in residential and commercial real estate loans available as collateral. The Company has traditionally relied upon dividends from Seacoast Bank and securities offerings to provide funds to pay the Company’s expenses and to service the Company’s debt. During the second quarter of 2022, Seacoast Bank distributed $8.4 million to the Company and, at June 30, 2022, is eligible to distribute dividends to the Company of approximately $169.5 million without prior regulatory approval. At June 30, 2022, the Company had cash and cash equivalents at the parent of approximately $104.4 million compared to $98.5 million at December 31, 2021. Deposits and Borrowings Customer relationship funding is detailed in the following table for the periods specified: June 30, December 31, (In thousands, except ratios) 2022 2021 Noninterest demand $ 3,593,201 $ 3,075,534 Interest-bearing demand 2,269,148 1,890,212 Money market 1,911,847 1,651,881 Savings 946,738 895,019 Time certificates of deposit 468,019 554,943 Total deposits $ 9,188,953 $ 8,067,589 Customer sweep accounts $ 110,578 $ 121,565 Noninterest demand deposits as % of total deposits 39 % 38 % The Company’s balance sheet continues to be primarily funded by core deposits. Total deposits increased $1.1 billion, or 14%, to $9.2 billion at June 30, 2022, compared to $8.1 billion at December 31, 2021. The increase reflects growth in existing customer balances, the addition of new customers and the impact of the BBFC and Sabal Palm acquisitions, which added $166.3 million and $396.0 million, respectively, in deposits during the first quarter of 2022. Since December 31, 2021, interest bearing deposits (interest bearing demand, savings and money market deposits) increased $690.6 million, or 16%, to $5.1 billion, and CDs decreased $86.9 million, or 16%, to $468.0 million. Noninterest demand deposits were higher by $517.7 million, or 17%, compared to year-end 2021, totaling $3.6 billion. Noninterest demand deposits represented 39% of total deposits at both June 30, 2022 and December 31, 2021. As of June 30, 2022 and December 31, 2021, the Company did not hold any brokered CDs. Customer repurchase agreements totaled $110.6 million at June 30, 2022, decreasing $11.0 million from December 31, 2021. Repurchase agreements are offered by Seacoast to select customers who wish to sweep excess balances on a daily basis for investment purposes. Public funds comprise a significant amount of the outstanding balance. At June 30, 2022 and December 31, 2021, borrowings were comprised of subordinated debt of $71.8 million and $71.6 million, respectively, related to trust preferred securities issued by trusts organized or acquired by the Company, and there were no borrowings from FHLB during any of the periods presented. The weighted average interest rate of outstanding subordinated debt related to trust preferred securities was 2.85% and 2.40% for the six months ended June 30, 2022 and June 30, 2021, respectively. 58 Table of Contents Off-Balance Sheet Transactions In the normal course of business, the Company may engage in a variety of financial transactions that, under generally accepted accounting principles, either are not recorded on the balance sheet or are recorded on the balance sheet in amounts that differ from the full contract or notional amounts. These transactions involve varying elements of market, credit and liquidity risk. Lending commitments include unfunded loan commitments and standby and commercial letters of credit. For loan commitments, the contractual amount of a commitment represents the maximum potential credit risk that could result if the entire commitment had been funded, the borrower had not performed according to the terms of the contract, and no collateral had been provided. A large majority of loan commitments and standby letters of credit expire without being funded, and accordingly, total contractual amounts are not representative of actual future credit exposure or liquidity requirements. Loan commitments and letters of credit expose the Company to credit risk in the event that the customer draws on the commitment and subsequently fails to perform under the terms of the lending agreement. For commercial customers, loan commitments generally take the form of revolving credit arrangements. For retail customers, loan commitments generally are lines of credit secured by residential property. These instruments are not recorded on the balance sheet until funds are advanced under the commitment. Loan commitments were $2.2 billion at June 30, 2022 and $2.0 billion at December 31, 2021. Capital Resources The Company’s equity capital at June 30, 2022 increased $18.8 million, or 1%, from December 31, 2021 to $1.3 billion. Changes in equity included increases from net income of $53.3 million, and the issuance of $94.1 million in equity in connection with the BBFC and Sabal Palm acquisitions, partially offset by the issuance of a common stock dividend totaling $18.5 million and the decrease in accumulated other comprehensive income of $116.5 million attributed to the impact of rising interest rates on the market value of available-for-sale debt securities. The ratio of shareholders’ equity to period end total assets was 12.30% and 13.54% at June 30, 2022 and December 31, 2021, respectively. The ratio of tangible shareholders’ equity to tangible assets was 9.74% and 11.09% at June 30, 2022 and December 31, 2021, respectively. The decrease was due to growth in the balance sheet, the result of bank acquisitions and deposit growth, and the impact on equity of the decline in value of available-for-sale securities due to rising interest rates in the first half of 2022. Activity in shareholders’ equity for the six months ended June 30, 2022 and 2021 follows: (In thousands) 2022 2021 Beginning balance at December 31, 2021 and 2020 $ 1,310,736 $ 1,130,402 Net income 53,343 65,129 Common stock issued for stock options 3,442 2,270 Issuance of common stock and conversion of options pursuant to acquisitions 94,067 — Stock compensation, net of Treasury shares acquired 3,035 2,361 Issuance of common share dividend (18,510) (7,246) Change in accumulated other comprehensive income (116,538) (10,569) Ending balance at June 30, 2022 and 2021 $ 1,329,575 $ 1,182,347 Capital ratios are well above regulatory requirements for well-capitalized institutions. Seacoast management's use of risk-based capital ratios in its analysis of the Company’s capital adequacy are “non-GAAP” financial measures. Seacoast management uses these measures to assess the quality of capital and believes that investors may find it useful in their analysis of the Company. The capital measures are not necessarily comparable to similar capital measures that may be presented by other companies (see “ Note 8 – Equity Capital ”). See “Reconciliation of Non-GAAP Measures” for more information. 59 Table of Contents June 30, 2022 Seacoast (Consolidated) Seacoast Bank Minimum to be Well- Capitalized 1 Total Risk-Based Capital Ratio 17.70% 16.25% 10.00% Tier 1 Capital Ratio 16.77 15.33 8.00 Common Equity Tier 1 Ratio (CET1) 15.80 15.33 6.50 Leverage Ratio 11.61 10.61 5.00 1 For subsidiary bank only. The Company’s total risk-based capital ratio was 17.70% at June 30, 2022, a decrease from 18.21% at December 31, 2021, primarily due to growth including the acquisitions of Sabal Palm and BBFC. At June 30, 2022, the Bank’s leverage ratio (Tier 1 capital to adjusted total assets) was 10.61%, well above the minimum to be well capitalized under regulatory guidelines. The Company and Seacoast Bank are subject to various general regulatory policies and requirements relating to the payment of dividends, including requirements to maintain adequate capital above regulatory minimums. The appropriate federal bank regulatory authority may prohibit the payment of dividends where it has determined that the payment of dividends would be an unsafe or unsound practice. The Company is a legal entity separate and distinct from Seacoast Bank and its other subsidiaries, and the Company’s primary source of cash and liquidity, other than securities offerings and borrowings, is dividends from its bank subsidiary. Without Office of the Comptroller of the Currency (“OCC”) approval, Seacoast Bank can pay $169.5 million of dividends to the Company. The OCC and the Federal Reserve have policies that encourage banks and bank holding companies to pay dividends from current earnings, and have the general authority to limit the dividends paid by national banks and bank holding companies, respectively, if such payment may be deemed to constitute an unsafe or unsound practice. If, in the particular circumstances, either of these federal regulators determined that the payment of dividends would constitute an unsafe or unsound banking practice, either the OCC or the Federal Reserve may, among other things, issue a cease and desist order prohibiting the payment of dividends by Seacoast Bank or us, respectively. The board of directors of a bank holding company must consider different factors to ensure that its dividend level, if any, is prudent relative to the organization’s financial position and is not based on overly optimistic earnings scenarios such as any potential events that may occur before the payment date that could affect its ability to pay, while still maintaining a strong financial position. As a general matter, the Federal Reserve has indicated that the board of directors of a bank holding company, such as Seacoast, should consult with the Federal Reserve and eliminate, defer, or significantly reduce the bank holding company’s dividends if: (i) its net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (ii) its prospective rate of earnings retention is not consistent with its capital needs and overall current and prospective financial condition; or (iii) it will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios. The Company has paid quarterly dividends since the second quarter of 2021. Whether the Company continues to pay quarterly dividends and the amount of any such dividends will be at the discretion of the Company's Board of Directors and will depend on the Company's earnings, financial condition, results of operations, business prospects, capital requirements, regulatory restrictions, and other factors that the Board of Directors may deem relevant. In the second quarter of 2022, the Company's Board of Directors approved a quarterly increase from $0.13 to $0.17 per share. The Company has seven wholly owned trust subsidiaries that have issued trust preferred stock. Trust preferred securities from acquisitions were recorded at fair value when acquired. All trust preferred securities are guaranteed by the Company on a junior subordinated basis. The Federal Reserve’s rules permit qualified trust preferred securities and other restricted capital elements to be included under Basel III capital guidelines, with limitations, and net of goodwill and intangibles. The Company believes that its trust preferred securities qualify under these revised regulatory capital rules and believes that it can treat all $71.8 million of trust preferred securities as Tier 1 capital. For regulatory purposes, the trust preferred securities are added to the Company’s tangible common shareholders’ equity to calculate Tier 1 capital. 60 Table of Contents Critical Accounting Policies and Estimates The Company’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles, (“GAAP”), including prevailing practices within the financial services industry. The preparation of consolidated financial statements requires management to make judgments in the application of certain of its accounting policies that involve significant estimates and assumptions. The Company has established policies and control procedures that are intended to ensure valuation methods are well controlled and applied consistently from period to period. These estimates and assumptions, which may materially affect the reported amounts of certain assets, liabilities, revenues and expenses, are based on information available as of the date of the financial statements, and changes in this information over time and the use of revised estimates and assumptions could materially affect amounts reported in subsequent financial statements. Management, after consultation with the Company’s Audit Committee, believes the most critical accounting estimates and assumptions that involve the most difficult, subjective and complex assessments are: • the allowance and the provision for credit losses; • acquisition accounting and purchased loans; • intangible assets and impairment testing; • other fair value measurements; • impairment of debt securities; and • contingent liabilities. The following is a discussion of the critical accounting policies intended to facilitate a reader’s understanding of the judgments, estimates and assumptions underlying these accounting policies and the possible or likely events or uncertainties known to the Company that could have a material effect on reported financial information. For more information regarding management’s judgments relating to significant accounting policies and recent accounting pronouncements, see “Note 1-Basis of Presentation” to the Company’s consolidated financial statements. Allowance for Credit Losses – Critical Accounting Policies and Estimates 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. For loans, management estimates the allowance for credit losses using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit losses provide the basis for estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, loan to value ratios, borrower credit characteristics, loan seasoning or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values, occupancy rates, and other macroeconomic metrics. The allowance for credit losses is measured on a collective basis when similar risk characteristics exist. The Company has developed an allowance model based on an analysis of probability of default (“PD”) and loss given default (“LGD”) to determine an expected loss by loan segment. PDs and LGDs are developed by analyzing the average historical loss migration of loans to default. The allowance estimation process also applies an economic forecast scenario over a three year forecast period. The forecast may utilize one scenario or a composite of scenarios based on management's judgment and expectations around the current and future macroeconomic outlook. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. For portfolio segments with a weighted average life longer than three years, the Company reverts to longer term historical loss experience, adjusted for prepayments, to estimate losses over the remaining life of the loans within each segment. Adjustments may be made to baseline reserves for some of the loan pools based on an assessment of internal and external influences on credit quality not fully reflected in the quantitative components of the allowance model. These influences may include elements such as changes in concentration, macroeconomic conditions, recent observable asset quality trends, staff turnover, regional market conditions, employment levels and loan growth. Based upon management's assessments of these factors, the Company may apply qualitative adjustments to the allowance. 61 Table of Contents Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. When management determines that foreclosure is probable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. The contractual term of a loan excludes expected extensions, renewals, and modification unless either of the following applies: management has a reasonable expectation at the reporting date that a troubled debt restructuring (“TDR”) will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and not unconditionally cancellable by the Company. The allowance for credit losses on TDRs is measured using the same method as all other loans held for investment, except when the value of a concession cannot be measured using a method other than the discounted cash flow method. When the value of a concession is measured using the discounted cash flow method, the allowance for credit losses is determining by discounting the expected future cash flows at the original interest rate of the loan. It is the Company's practice to ensure that the charge-off policy meets or exceeds regulatory requirements. Losses on unsecured consumer loans are recognized at 90 days past due, compared to the regulatory loss criteria of 120 days. In compliance with Federal Financial Institution Examination Council guidelines, secured consumer loans, including residential real estate, are typically charged off or charged down between 120 and 180 days past due, depending on the collateral type. Commercial loans and real estate loans are typically placed on nonaccrual status when principal or interest is past due for 90 days or more, unless the loan is both secured by collateral having realizable value sufficient to discharge the debt in-full and the loan is in process of collection. Loans provided with short-term payment deferrals under the CARES Act or interagency guidance are not considered past due if in compliance with the terms of their deferral. Secured loans may be charged down to the estimated value of the collateral with previously accrued unpaid interest reversed against interest income. Subsequent charge-offs may be required as a result of changes in the market value of collateral or other repayment prospects. Initial charge-off amounts are based on valuation estimates derived from appraisals, broker price opinions, or other market information. Generally, new appraisals are not received until the foreclosure process is completed; however, collateral values are evaluated periodically based on market information and incremental charge-offs are recorded if it is determined that collateral values have declined from their initial estimates. Note 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. Acquisition Accounting and Purchased Loans – Critical Accounting Policies and Estimates The Company accounts for acquisitions under ASC Topic 805, Business Combinations , which requires the use of the acquisition method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. All loans acquired are recorded at fair value in accordance with the fair value methodology prescribed in ASC Topic 820, Fair Value Measurement . The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of expected principal, interest and other cash flows. Loans are identified as purchased credit deteriorated (“PCD”) when they have experienced more-than-insignificant deterioration in credit quality since origination. An allowance for expected credit losses on PCD loans is recorded at the date of acquisition through an adjustment to the loans’ amortized cost basis. In contrast, expected credit losses on loans not considered PCD are recognized in net income at the date of acquisition. Fair value estimates for acquired assets and assumed liabilities are based on the information available, and are subject to change for up to one year after the closing date of the acquisition as additional information relative to closing date fair values becomes available. Intangible Assets and Impairment Testing – Critical Accounting Policies and Estimates Intangible assets consist of goodwill, core deposit intangibles and loan servicing rights. Goodwill represents the excess purchase price over the fair value of net assets acquired in business acquisitions. The core deposit intangible represents the excess intangible value of acquired deposit customer relationships as determined by valuation specialists. Core deposit intangibles are amortized on a straight-line basis, and are evaluated for indications of potential impairment at least annually. Goodwill is not amortized but rather is evaluated for impairment on at least an annual basis. We performed an annual 62 Table of Contents 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. Other Fair Value Measurements – Critical Accounting Policies and Estimates The fair value of collateral-dependent loans, OREO and repossessed assets is typically based on current appraisals, which are reviewed quarterly to determine if fair value adjustments are necessary based on known changes in the market and/or the project assumptions. When necessary, the appraised value may be adjusted based on more recent appraisal assumptions received by the Company on other similar properties, the tax assessed market value, comparative sales and/or an internal valuation. Collateral-dependent loans are loans where repayment is solely dependent on the liquidation of the collateral or operation of the collateral for repayment. The Company 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 June 29, 2022, the Company expects to receive 1.6059 shares of Class A stock for each share of Class B stock for a total of 18,194 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. This ownership is recorded on the Company's financial records at a zero basis. Impairment of Debt Securities – Critical Accounting Policies and Estimates On January 1, 2020, the Company adopted ASC Topic 326 – Financial Instruments – Credit Losses , which requires expected credit losses on both held-to-maturity (“HTM”) and available-for-sale (“AFS”) securities to be recognized through a valuation allowance instead of as a direct write-down to the amortized cost basis of the security. For HTM securities, the guidance requires management to estimate expected credit losses over the remaining expected life and recognize this estimate as an allowance for credit losses. An AFS security is considered impaired if the fair value is less than amortized cost basis. For AFS securities, if any portion of the decline in fair value is related to credit, the amount of allowance is determined as the portion related to credit, limited to the difference between the amortized cost basis and the fair value of the security. If the fair value of the security increases in subsequent periods, or changes in factors used within the credit loss assessment result in a change in the estimated credit loss, the Company would reflect the change by decreasing the allowance. If the Company has the intent to sell or believes it is more likely than not that it will be required to sell an impaired AFS security before recovery of the amortized cost basis, the credit loss is recorded as a direct write-down of the amortized cost basis. Declines in the fair value of AFS securities that are not considered credit related are recognized in Accumulated Other Comprehensive Income on the Company’s Consolidated Balance Sheet. Seacoast analyzes AFS debt securities quarterly for credit losses. The analysis is performed on an individual security basis for all securities where fair value has declined below amortized cost. Fair value is based upon pricing obtained from third party pricing services. Based on internal review procedures and the fair values provided by the pricing services, the Company believes that the fair values provided by the pricing services are consistent with the principles of ASC Topic 820, Fair Value Measurement . However, on occasion pricing provided by the pricing services may not be consistent with other observed prices in the market for similar securities. Using observable market factors, including interest rate and yield curves, volatilities, prepayment speeds, loss severities and default rates, the Company may at times validate the observed prices using a discounted cash flow model and using the observed prices for similar securities to determine the fair value of its securities. The Company utilizes both quantitative and qualitative assessments to determine if a security has a credit loss. Quantitative assessments are based on a discounted cash flow method. Qualitative assessments consider a range of factors including: percent decline in fair value, rating downgrades, subordination, duration, amortized loan-to-value, and the ability of the issuers to pay all amounts due in accordance with the contractual terms. Contingent Liabilities – Critical Accounting Policies and Estimates Seacoast is subject to contingent liabilities, including judicial, regulatory and arbitration proceedings, and tax and other claims arising from the conduct of the Company's business activities. These proceedings include actions brought against the Company and/or its subsidiaries with respect to transactions in which the Company and/or its subsidiaries acted as a lender, a financial adviser, a broker or acted in a related activity. Accruals are established for legal and other claims when it becomes probable that the Company will incur an expense and the amount can be reasonably estimated. Company management, together with attorneys, consultants and other professionals, assesses the probability and estimated amounts involved in a contingency. Throughout the life of a contingency, the Company or its advisers may learn of additional information that can affect the 63 Table of Contents assessments about probability or about the estimates of amounts involved. Changes in these assessments can lead to changes in recorded reserves. In addition, the actual costs of resolving these claims may be substantially higher or lower than the amounts reserved for the claims. At June 30, 2022 and December 31, 2021, the Company had no significant accruals for contingent liabilities and had no known pending matters that could potentially be significant. Interest Rate Sensitivity Fluctuations in interest rates may result in changes in the fair value of the Company’s financial instruments, cash flows and net interest income. This risk is managed using simulation modeling to calculate the most likely interest rate risk utilizing estimated loan and deposit growth. The objective is to optimize the Company’s financial position, liquidity, and net interest income while limiting their volatility. Senior management regularly reviews the overall interest rate risk position and evaluates strategies to manage the risk. The Company's Asset and Liability Management Committee (“ALCO”) uses simulation analysis to monitor changes in net interest income due to changes in market interest rates. The simulation of rising, declining and flat interest rate scenarios allows management to monitor and adjust interest rate sensitivity to minimize the impact of market interest rate swings. The analysis of the impact on net interest income over a twelve-month period is subjected to instantaneous changes in market rates of 100 basis point increases up to 200 basis points of change on net interest income and is monitored on a quarterly basis. The following table presents the ALCO simulation model's projected impact of a change in interest rates on the projected baseline net interest income for the 12 and 24 month periods beginning on July 1, 2022, holding all balances on the balance sheet static. This change in interest rates assumes parallel shifts in the yield curve and does not take into account changes in the slope of the yield curve. % Change in Projected Baseline Net Change in Interest Rates Interest Income 1-12 months 13-24 months +2.00% 10.3% 14.6% +1.00% 5.1% 7.2% Current —% —% -1.00% (3.4%) (7.7%) The Company had a positive gap position based on contractual and prepayment assumptions for the next 12 months, with a positive cumulative interest rate sensitivity gap as a percentage of total earning assets of 27.1% at June 30, 2022. This result includes assumptions for core deposit re-pricing from a statistical study commissioned from a third party consulting group. The computations of interest rate risk do not necessarily include certain actions management may undertake to manage this risk in response to changes in interest rates. Derivative financial instruments, such as interest rate swaps, options, caps, floors, futures and forward contracts may be utilized as components of the Company’s risk management profile. Effects of Inflation and Changing Prices The condensed consolidated financial statements and related financial data presented herein have been prepared in accordance with U.S. GAAP, which require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money, over time, due to inflation. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution’s performance than the general level of inflation. However, inflation affects financial institutions by increasing their cost of goods and services purchased, as well as the cost of salaries and benefits, occupancy expense, and similar items. Inflation and related increases in interest rates generally decrease the market value of investments and loans held and may adversely affect liquidity, earnings, and shareholders’ equity. Mortgage originations and re-financings tend to slow as interest rates increase, and higher interest rates likely will reduce the Company’s earnings from such activities and the income from the sale of residential mortgage loans in the secondary market.