What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-04 compared with 2022-08-04 · 310 added, 280 removed, 638 unchanged (48% of the section changed)

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

The emphasis of this discussion will be on the three and six months ended June 30, 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.

The emphasis of this discussion will be on the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021 for the consolidated statements of income.

For the consolidated balance sheets, the emphasis of this discussion will be the balances as of September 30, 2022 compared to December 31, 2021.

This discussion and analysis contain 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.

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• 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;

• The adverse impact of COVID-19 (economic and otherwise) on the Company and its customers, counterparties, employees, and third-party service providers, and the adverse impacts on 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;

• Governmental monetary and fiscal policies, including interest rate policies of the Board of Governors of the 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

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• Uncertainty related to the impact of LIBOR calculations on securities, loans, and debt

• 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 borrower credit risks and payment behaviors including as a result of the financial impact of COVID-19, inflation, and recessionary concerns

• Changes in retail distribution strategies, customer preferences, and behavior (including as a result of economic factors)

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

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

• Our 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;

• The Company’s concentration in commercial real estate loans and in real estate collateral in 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

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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;

• The risks of mergers, acquisitions and divestitures, including Seacoast’s ability to continue to identify acquisition targets, 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;

• The inability of Seacoast’s risk management framework to manage risks associated with the Company’s 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;

• Reduction in or the termination of Seacoast’s ability to use the online- or mobile-based platform that is 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 (including hurricanes), health emergencies, epidemics or pandemics, or other catastrophic events that may affect general economic conditions

• Unexpected outcomes of and the costs associated with, existing or new litigation involving the Company, including as a result of the Company’s participation in the Paycheck Protection Program (“PPP”)

• Seacoast’s ability to maintain adequate internal controls over financial reporting;

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

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

• The risks that deferred tax assets could be reduced if estimates of future taxable income from the Company’s 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

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

• 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.

• The risks relating to the Apollo Bancshares, Inc., Drummond Banking Company, and Professional Holding Corp.

mergers including, without limitation:

(i) the diversion of management's time on issues related to the mergers;

(ii) unexpected transaction costs, including the costs of integrating operations;

(iii) the risks that the businesses will not be

integrated successfully or that such integration may be more difficult, time-consuming or costly than expected;

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

(v) the risk of deposit and customer attrition;

any changes in deposit mix;

(vi) unexpected operating and other costs, which may differ or change from expectations;

(vii) the risks of customer and employee loss and business disruptions, including, without limitation, as the result of difficulties in maintaining relationships with employees;

(viii) increased competitive pressures and solicitations of customers by competitors;

(ix) the difficulties and risks inherent with entering new markets

• As well as the difficulties and risks inherent in entering new markets

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.

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Business Developments

Proposed Acquisition of Apollo Bancshares, Inc.

On March 29, 2022, the Company announced its proposed acquisition of Apollo Bancshares, Inc.

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.

Acquisition of Apollo Bancshares, Inc.

On October 7, 2022, the Company completed the previously announced acquisition of Apollo Bancshares, Inc.

(“Apollo”), which added approximately $718 million in loans and $857 million in deposits, and will provide expansion into Miami-Dade county, one of the fastest growing and most dynamic markets in the United States.

System conversion activities were completed immediately after the closing of the transaction.

Acquisition of Drummond Banking Company

Also on October 7, 2022, the Company completed the previously announced acquisition of Drummond Banking Company (“Drummond”), providing Seacoast with an entry point into Gainesville, Ocala, and surrounding markets adding low-cost core deposits and diversified business lines.

At the closing date, Drummond had approximately $590 million in loans and $882 million in deposits, providing a strong core deposit base, which highlights depository relationships that will provide a stable funding source for future loan growth and higher margins in a rising rate environment.

Full integration and system conversion activities are expected to be completed in the first quarter of 2023.

Acquisitions of Sabal Palm Bancorp, Inc.

and Business Bank of Florida, Corp.

In the first quarter of 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.

(“BBFC”) in Brevard County, which collectively added a combined $368 million in loans and $562 million in deposits.

Integration activities, including system conversion, were completed in the first quarter of 2022 for BBFC and in the second quarter of 2022 for Sabal Palm.

Proposed Acquisition of Professional Holding Corp.

On August 8, 2022, the Company announced its proposed acquisition of Professional Holding Corp.

(“Professional”) (NASDAQ:

PFHD), the sixth largest bank headquartered in South Florida.

The transaction, which is expected to close in the first quarter of 2023, will increase market share in Miami-Dade, Broward, and Palm Beach counties.

Full integration and system conversion activities are expected to be completed late in the second quarter of 2023.

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.

Seacoast’s balanced growth strategy includes organic growth initiatives across the state of Florida.

Thus far in 2022, Seacoast has expanded its footprint into Naples/Southwest Florida, Jacksonville/Northeast Florida, and Ocala 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.

Impact of Hurricane Ian

In late September 2022, communities across the Company’s footprint were impacted by Hurricane Ian.

The Company maintained uninterrupted digital and telephone access for its customers and branches were fully reopened shortly after the storm passed.

Recovery efforts in many areas continue and the full impacts to people and businesses in the most hard-hit regions are not fully known.

In light of these uncertainties, the Company added $2.1 million to the provision for credit losses during the third quarter 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.

Second First Second Six Months Ended

Quarter Quarter Quarter June 30,

For the third quarter of 2022, the Company reported net income of $29.2 million, or $0.47 per average diluted share, compared to $32.8 million, or $0.53 per average diluted share, for the second quarter of 2022 and $22.9 million, or $0.40 per average diluted share, for the third quarter of 2021.

For the nine months ended September 30, 2022, net income totaled $82.6 million, or $1.33 per average diluted share, a decrease of $5.5 million, or 6%, compared to the nine months ended September 30, 2021.

The current year results included $12.1 million in provision for credit losses, including $5.1 million in the first quarter of 2022 recorded for loans acquired in the Sabal Palm and BBFC acquisitions, and a $2.1 million increase in the third quarter of 2022 for estimated impacts from Hurricane Ian.

Prior year to date results included the reversal of provision for credit losses of $5.5 million, reflecting improvement at the time in post-COVID economic indicators.

Adjusted net income 1 for the third quarter of 2022 totaled $32.8 million, or $0.53 per average diluted share, compared to $36.3 million, or $0.59 per average diluted share, for the second quarter of 2022 and $29.4 million, or $0.51 per average diluted share, for the third quarter of 2021.

For the nine months ended September 30, 2022, adjusted net income 1 totaled $96.2 million, or $1.56 per average diluted share, compared to $98.1 million, or $1.74 per average diluted share for the nine months ended September 30, 2021.

Third Second Third Nine Months Ended

Quarter Quarter Quarter September 30,

2022 2022 2021 2022 2021

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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.

Net interest income for the third quarter of 2022 totaled $88.3 million, increasing $6.6 million, or 8%, compared to the second quarter of 2022, and increasing $17.0 million, or 24%, compared to the third quarter of 2021.

For the nine months ended September 30, 2022, net interest income totaled $246.5 million, an increase of $42.7 million, or 21%, compared to the nine months ended September 30, 2021.

The increases reflect higher balances and higher yields on securities and loans, while the cost of deposits continues to remain well controlled.

Net interest margin (on a fully tax equivalent basis) 1 was 3.67% in the third quarter of 2022, compared to 3.38% in the second quarter of 2022, and 3.22% in the third quarter of 2021.

The increase during the third quarter of 2022 reflects increases in yields on both securities and non-PPP loans.

Compared to the second quarter of 2022, securities yields increased by 38 basis points to 2.36% and non-PPP loan yields increased by sixteen basis points to 4.43% during the third quarter of 2022.

The effect on net interest margin of accretion of purchase discounts on acquired loans were increases of 9 basis points in the third quarter of 2022, 12 basis points in the second quarter of 2022, and 15 basis points in the third quarter of 2021.

The effect of interest and fees on PPP loans was an increase of one basis point in the third quarter of 2022, an increase of two basis points in the second quarter of 2022, and an increase of eighteen basis points in the third quarter of 2021.

The cost of deposits was nine basis points in the third quarter of 2022, six basis points in the second quarter of 2022 and seven basis points in the third 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.

Continued increases in interest rates are

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

expected in the fourth quarter of 2022 and 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 nine months ended September 30, 2022, net interest margin (on a fully tax equivalent basis) 1 was 3.44%, compared to 3.32% for the nine months ended September 30, 2021.

The yield on securities increased from 1.62% for the nine months ended September 30, 2021 to 2.02% for the nine months ended September 30, 2022, reflecting the impact of rising interest rates on variable rate holdings and as the Company makes new purchases on higher yielding securities.

The yield on non-PPP loans declined from 4.34% for the nine months ended September 30, 2021 to 4.32% for the nine months ended September 30, 2022, reflecting the impact of elevated levels of prepayments since mid-2020 up through the first half of 2022, and higher levels of purchase discount accretion in the 2021 period.

Offsetting and favorable was the decline in the cost of deposits from nine basis points for the nine months ended September 30, 2021 to seven basis points for the nine months ended September 30, 2022.

The effect on net interest margin of purchase discounts on acquired loans was an increase of 12 basis points for the nine months ended September 30, 2022 compared to an increase of 15 basis points for the nine months ended September 30, 2021.

The effect of interest and fees on PPP loans was an increase of 3 basis points for the nine months ended September 30, 2022, compared to an increase of 12 basis points for the nine months ended September 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:

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Bearing Liabilities

Second quarter 2022 $ 81,764 3.38 % 3.46 % 0.14 %

First quarter 2022 76,639 3.25 % 3.33 % 0.12 %

Third quarter 2022 $ 88,399 3.67 % 3.80 % 0.22 %

Second quarter 2022 81,764 3.38 % 3.46 % 0.14 %

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 %

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

Nine months ended September 30, 2022 246,802 3.44 % 3.53 % 0.16 %

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

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.

Total average loans increased $127.2 million, or 2%, for the third quarter of 2022 compared to the second quarter of 2022, and increased $903.9 million, or 16%, from the third quarter of 2021.

The increase compared to the prior quarter reflects organic loan growth while the increase compared to the prior year quarter includes organic loan growth and loans acquired from BBFC and Sabal Palm.

Average loans as a percentage of average earning assets totaled 69% for the third quarter of 2022, 67% for the second quarter of 2022 and 65% for the third 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,

Third Second Third Nine Months Ended

Quarter Quarter Quarter September 30,

(In thousands) 2022 2022 2021 2022 2021

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PPP originations — — — — 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.

Commercial originations during the third quarter of 2022 were $340.4 million, a decrease of $121.4 million, or 26%, compared to the second quarter of 2022, and an increase of $8.8 million, or 3%, compared to the third quarter of 2021.

For the nine months ended September 30, 2022, commercial originations increased $446.4 million, or 61%, compared to the nine months ended September 30, 2021.

Commercial originations remained strong and reflect the addition of well-established commercial bankers and expansion into new markets across the state, generating disciplined growth in full relationships, including credit facilities, deposit relationships, and wealth opportunities.

The commercial pipeline increased $53.7 million, or 11%, to $530.4 million at September 30, 2022, compared to $476.7 million at June 30, 2022, and increased $161.5 million, or 44%, compared to September 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

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.

Despite this, the pipeline remains strong and continues to grow.

Residential loans originated for sale in the secondary market totaled $16.4 million in the third quarter of 2022, compared to $42.7 million in the second quarter of 2022 and $95.1 million in the third quarter of 2021.

For the nine months ended September 30, 2022, residential loans originated for sale in the secondary market totaled $110.3 million compared to $353.6 million for the nine months ended September 30, 2021, a decrease of $243.3 million, or 69%.

Limited housing inventory and slowing refinance activity contributed to lower production.

Residential saleable pipelines were $6.6 million as of September 30, 2022, compared to $14.7 million as of June 30, 2022 and $42.8 million as of September 30, 2021.

Residential loan production retained in the portfolio for the third quarter of 2022 was $69.3 million compared to $103.0 million in the second quarter of 2022 and $250.8 million in the third quarter of 2021.

For the nine months ended September 30, 2022, residential loan production retained in the portfolio totaled $347.7 million compared to $415.6 million for the nine months ended September 30, 2021, a decrease of $67.8 million, or 16%.

The first quarter of 2022 included the purchase of a $111.3 million wholesale residential home mortgage loan pool, and the third quarter of 2021 included the purchase of a $180.8 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 pipeline of residential loans intended to be retained in the portfolio was $60.7 million as of September 30, 2022, compared to $53.1 million as of June 30, 2022, and $35.4 million as of September 30, 2021.

Consumer originations totaled $128.6 million during the third quarter of 2022, compared to $126.5 million in the second quarter of 2022 and $66.4 million in the third quarter of 2021.

For the nine months ended September 30, 2022, consumer originations totaled $334.1 million compared to $176.8 million for the nine months ended September 30, 2021, an increase of $157.2 million, or 89%.

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 consumer pipeline was $43.7 million as of September 30, 2022, compared to $75.5 million as of June 30, 2022 and $31.0 million at September 30, 2021.

Average investment securities increased $146.8 million, or 6%, during the third quarter of 2022 compared to the second quarter of 2022, and were $690.3 million, or 35%, higher compared to the third quarter of 2021.

Increases reflect the prudent and disciplined investment of excess liquidity, partially offset by pay downs and maturities.

Average investment securities were

$2.6 billion for the nine months ended September 30, 2022, an increase of $809.3 million, or 46%, compared to the nine months ended September 30, 2021.

The cost of average interest-bearing liabilities increased eight basis points in the third quarter of 2022 to 22 basis points from 14 basis points in the second quarter of 2022, and 14 basis points in the third quarter of 2021.

For the nine months ended September 30, 2022, the cost of average interest-bearing liabilities was 0.16%, a decrease of one basis point compared to the nine months ended September 30, 2021.

The cost of average total deposits (including noninterest bearing demand deposits) was nine basis points in the third quarter of 2022, six basis points in the second quarter of 2022 and seven basis points in the third quarter of 2021.

For the nine months ended September 30, 2022, the cost of average total deposits (including noninterest bearing demand deposits) was seven basis points compared to nine basis points for the nine months ended September 30, 2021.

During the third quarter of 2022, average noninterest demand deposits increased $9.1 million compared to the second quarter of 2022 and increased $544.3 million compared to the third quarter of 2021.

Declines in other categories of deposits compared to the second quarter of 2022 are consistent with broader macroeconomic trends.

For the nine months ended September 30, 2022, average transaction deposits (noninterest and interest bearing demand) increased $1.2 billion, or 27%, compared to the nine months ended September 30, 2021.

The Company’s deposit mix remains favorable, with 94% of average deposit balances comprised of savings, money market, and demand deposits for the nine months ended September 30, 2022.

Average balances of sweep repurchase agreements with customers decreased $8.5 million, or 7% quarter-over quarter and $8.6 million, or 7%, year-over-year.

For the nine months ended September 30, 2022, the average balance was $116.8 million compared to an average balance of $116.3 million for the nine months ended September 30, 2021.

The average rate on customer sweep repurchase accounts was 0.51% for the nine months ended September 30, 2022, compared to 0.13% for the nine months ended September 30, 2021.

Subordinated debt balances averaged $71.8 million in the third quarter of 2022, $71.7 million in the second quarter of 2022, and $71.5 million in the third quarter of 2021.

The average rate on subordinated debt for the third quarter of 2022 was 4.46%, an increase of 122 basis points compared to the second quarter of 2022 and an increase of 214 basis points compared to the third quarter of 2021.

For the nine months ended September 30, 2022, subordinated debt averaged $71.7 million, compared to $71.5 million for the nine months ended September 30, 2021.

The average rate on subordinated debt for the nine months ended September 30, 2022 was 3.40%, compared to 2.37% for the nine months ended September 30, 2021.

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

1 unchanged sentence

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

Second Quarter First Quarter Second Quarter

Third Quarter Second Quarter Third Quarter

Average Yield/ Average Yield/ Average Yield/

81 unchanged sentences

Noninterest Income

Noninterest income totaled $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 totaled $16.1 million for the third quarter of 2022, a decrease of $0.9 million, or 5%, compared to the second quarter of 2022 and a decrease of $2.9 million, or 15%, from the third quarter of 2021.

Noninterest income totaled $48.4 million for the nine months ended September 30, 2022, a decrease of $3.6 million, or 7%, compared to the nine months ended September 30, 2021.

Noninterest income is detailed as follows:

Second First Second Six Months Ended

Quarter Quarter Quarter June 30,

Third Second Third Nine Months Ended

Quarter Quarter Quarter September 30,

(In thousands) 2022 2022 2021 2022 2021

10 unchanged sentences

Total $ 16,103 $ 16,964 $ 19,028 $ 48,440 $ 52,021

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.

Service charges on deposits were $3.5 million in the third quarter of 2022, $3.4 million in the second quarter of 2022 and $2.5 million in the third quarter of 2021.

For the nine months ended September 30, 2022, service charges on deposits totaled $9.7 million, an increase of $2.5 million, or 35%, compared to the nine months ended September 30, 2021.

Increases in fees primarily reflect growth in commercial deposit relationships.

Overdraft-related fees for both consumer and commercial accounts represent 37% of total service charges on deposits for the nine months ended September 30, 2022, and 40% for the nine months ended September 30, 2021.

Interchange income was $4.1 million for the third quarter of 2022, compared to $4.3 million for the second quarter of 2022, and $4.1 million for the third quarter of 2021.

For the nine months ended September 30, 2022, interchange income totaled $12.5 million, an increase of $0.4 million, or 4%, compared to the nine months ended September 30, 2021.

Wealth management income, including trust fees and brokerage commissions and fees, was $2.7 million in the third quarter of 2022, compared to $2.8 million for the second quarter of 2022 and $2.6 million for the third quarter of 2021.

For the nine months ended September 30, 2022, wealth management income totaled $8.2 million, an increase of $0.9 million, or 12%, compared to the nine months ended September 30, 2021, as the team continues to demonstrate success in building new relationships.

Mortgage banking fees decreased by $0.5 million, or 53%, to $0.4 million in the third quarter of 2022 compared to the second quarter of 2022, and decreased $2.1 million, or 83%, compared to the third quarter of 2021, reflecting lower saleable production due to significantly higher interest rates and limited housing inventory.

For the nine months ended September 30, 2022, mortgage banking fees totaled $3.1 million, a decrease of $6.7 million, or 69%, compared to the nine months ended September 30, 2021.

SBA gains were $0.1 million in the third quarter of 2022, compared to $0.5 million in the second quarter of 2022, and $0.8 million in the third quarter of 2021.

For the nine months ended September 30, 2022, SBA gains totaled $0.7 million, a decrease of $0.6 million, or 45%, compared to the nine months ended September 30, 2021.

Bank owned life insurance (“BOLI”) income was $1.4 million for the third quarter of 2022, a nominal increase compared to the second quarter of 2022 and an increase of $0.2 million, or 21% compared to the third quarter of 2021.

BOLI income totaled $4.0 million for the nine months ended September 30, 2022 and $2.9 million for the nine months ended September 30, 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.

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.

Other income was $4.0 million in the third quarter of 2022, an increase of $0.2 million quarter-over-quarter and a decrease of $1.3 million year-over-year.

Changes amongst periods are attributed to changes in SBIC investment income and loan-swap related income.

For the nine months ended September 30, 2022, other income totaled $10.6 million, a decrease of $0.6 million, or 5%, compared to the nine months ended September 30, 2021.

The Company recognized losses from mark to market adjustments on the Company’s CRA qualified mutual fund of $0.4 million in the third quarter of 2022 compared to $0.3 million in the second quarter of 2022 and nominal losses in the third 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,

For the third 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 57.13% compared to 56.22% for the second quarter of 2022 and 59.55% for the third quarter of 2021.

For the nine months ended September 30, 2022, the efficiency ratio was 58.45% compared to 55.99% for the nine months ended September 30, 2021.

The adjusted efficiency ratio 1 2 was 53.28% in the third quarter of 2022, compared to 53.15% in the second quarter of 2022 and 51.50% in the third quarter of 2021.

In the third quarter of 2022, adjusted noninterest expense 1 as a percent of average tangible assets was 2.16% compared to 2.00% for the second quarter of 2022 and 1.95% for the third quarter of 2021.

For the nine months ended September 30, 2022 the adjusted efficiency ratio 1 was 53.73% compared to 52.29% for the nine months ended September 30, 2021.

The Company expects that the adjusted efficiency ratio 1 will continue to be in the low to mid 50s in the fourth quarter of 2022.

Third Second Third Nine Months Ended

Quarter Quarter Quarter September 30,

(In thousands, except ratios) 2022 2022 2021 2022 2021

17 unchanged sentences

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

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 expense for the third quarter of 2022 totaled $61.4 million, an increase of $5.2 million, or 9%, compared to the second quarter of 2022, and an increase of $6.1 million, or 11%, from the third quarter of 2021.

For the nine months ended September 30, 2022, noninterest expenses totaled $176.4 million, an increase of $29.3 million, or 20%, compared to the nine months ended September 30, 2021.

Noninterest expenses are detailed as follows:

Second First Second Six Months Ended

Quarter Quarter Quarter June 30,

Third Second Third Nine Months Ended

Quarter Quarter Quarter September 30,

(In thousands) 2022 2022 2021 2022 2021

13 unchanged sentences

Total $ 61,359 $ 56,148 $ 55,268 $ 176,424 $ 147,172

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.

Salaries and wages totaled $28.4 million for the third quarter of 2022, $28.1 million for the second quarter of 2022, and $27.9 million for the third quarter of 2021.

The third quarter of 2022 reflects the addition of a seasoned commercial and industrial (“C&I”) focused commercial banking team in North Florida and the expansion of our West and Central Florida teams.

The Company also added numerous support and treasury roles supporting the Company’s successful strategy of banking middle market operating companies.

For the nine months ended September 30, 2022, salaries and wages totaled $84.7 million, an increase of $12.4 million, or 17%, compared to the nine months ended September 30, 2021.

The increase compared to the prior year period reflects higher salaries from investments in talent made to support organic growth.

During the third 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 $4.1 million, a decrease of $0.1 million, or 2%, compared to the second quarter of 2022, and a decrease of $0.1 million, or 2%, compared to the third quarter of 2021.

For the nine months ended September 30, 2022, employee benefit costs totaled $13.7 million, an increase of $0.6 million, or 5%, compared to the nine months ended September 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.

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.

Outsourced data processing costs totaled $5.4 million, $6.0 million, and $5.6 million for the third quarter of 2022, second quarter of 2022, and third quarter of 2021, respectively.

Higher expenses in the second quarter of 2022 are attributed to merger related data conversion costs.

For the nine months ended September 30, 2022 and September 30, 2021, outsourced data processing costs totaled $17.6 million and $14.8 million, respectively.

The increase year-over-year reflects increased cost associated with growth 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 $1.0 million, $0.9 million, and $0.8 million for the third quarter of 2022, second quarter of 2022, and third quarter of 2021, respectively.

Telephone and data line expenditures totaled $2.6 million and $2.4 million for the nine months ended September 30, 2022 and September 30, 2021, respectively.

Total occupancy, furniture and equipment expenses were $6.5 million in the third quarter of 2022, $5.6 million in the second quarter of 2022, and $5.1 million in the third quarter of 2021.

Increases in the third quarter reflect the impact of the Company’s purchase of two branches which were previously leased, resulting in $0.9 million in lease asset write-offs.

The Company expects to save $0.3 million annually on net occupancy expenses as a result of these purchases.

For the nine months ended

September 30, 2022, total occupancy, furniture and equipment expenses totaled $17.6 million, compared to $14.6 million for the nine months ended September 30, 2021, reflecting additional expenses as the Company expands its footprint through acquisition and organic growth.

Marketing expenses totaled $1.5 million in the third quarter of 2022, $1.9 million in the second quarter of 2022, and $1.4 million in the third quarter of 2021.

For the nine months ended September 30, 2022, marketing expenses totaled $4.5 million, an increase of $1.0 million, or 28%, compared to the nine months ended September 30, 2021.

Legal and professional fees for the third quarter of 2022 were $3.8 million, an increase of $0.8 million, or 29%, compared to the second quarter of 2022, and a decrease of $0.4 million, or 9%, compared to the third quarter of 2021.

For the nine months ended September 30, 2022, legal and professional fees totaled $11.5 million, an increase of $2.6 million, or 29%, compared to the nine months ended September 30, 2021.

Acquisition-related expenses were $1.8 million in the third quarter of 2022, $1.4 million in the second quarter of 2022, and $2.0 million in the third quarter of 2021.

FDIC assessments were $0.8 million for the third quarter of 2022, $0.7 million in the second quarter of 2022, and $0.7 million in the third quarter of 2021.

For the nine months ended September 30, 2022, FDIC assessments totaled $2.2 million compared to $1.7 million for the nine months ended September 30, 2021.

The second quarter of 2022 included a $1.0 million gain on sale of an OREO property.

No OREO sale activity occurred in the other periods presented.

A provision of $1.0 million was recorded for potential credit losses on unfunded lending commitments reflecting modeled results of changes in economic factors.

Other expenses totaled $7.5 million, $5.3 million and $4.0 million for the third quarter of 2022, the second quarter of 2022 and the third quarter of 2021, respectively.

Increases in the third quarter of 2022 reflect higher recruiting and other one-time costs associated with key talent additions.

For the nine months ended September 30, 2022, other expense totaled $17.6 million, an increase of $5.5 million, or 46%, compared to the nine months ended September 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.

Expenses in the fourth quarter of 2022 are expected to increase, primarily as a result of the Apollo and Drummond acquisitions as well as 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.

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.

The provision for credit losses was $4.7 million for the third quarter of 2022 compared to $0.8 million for the second quarter of 2022 and $5.1 million for the third quarter of 2021.

The third quarter of 2022 included the impacts of loan growth, along with changes in economic forecast factors, and losses that may result from the impact of Hurricane Ian on the Company’s borrowers.

For the third quarter of 2022, the Company recorded tax expense of $9.1 million compared to $8.9 million in the second quarter of 2022 and $7.0 million in the third 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.

Tax benefits related to stock-based compensation totaled $0.2 million in the third quarter of 2022, $0.4 million in the second quarter of 2022, and $0.3 million in the third quarter of 2021.

For the nine months ended September 30, 2022, tax expense totaled $23.8 million, a decrease of $2.2 million, or 8%, compared to the nine months ended September 30, 2021 due primarily to lower pre-tax income.

Explanation of Certain Unaudited Non-GAAP Financial Measures

8 unchanged sentences

Reconciliation of Non-GAAP Measures

Second First Second Six Months Ended

Quarter Quarter Quarter June 30,

Third Second Third Nine Months Ended

Quarter Quarter Quarter September 30,

(In thousands, except per share data) 2022 2022 2021 2022 2021

40 unchanged sentences

Adjusted Pre-Tax Pre-Provision Earnings $ 48,989 $ 46,397 $ 43,901 $ 137,123 $ 122,303

Second First Second Six Months Ended

Quarter Quarter Quarter June 30,

Third Second Third Nine Months Ended

Quarter Quarter Quarter September 30,

(In thousands, except per share data) 2022 2022 2021 2022 2021

43 unchanged sentences

Loan interest income excluding tax equivalent adjustment $ 73,970 $ 69,307 $ 64,424 $ 210,395 $ 187,070

Second First Second Six Months Ended

Quarter Quarter Quarter June 30,

Third Second Third Nine Months Ended

Quarter Quarter Quarter September 30,

(In thousands, except per share data) 2022 2022 2021 2022 2021

12 unchanged sentences

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.

Total assets as of September 30, 2022 were $10.3 billion, an increase of $0.7 billion, or 7%, from December 31, 2021.

The increase reflects the impact of organic growth and the acquisitions of BBFC and Sabal Palm, which combined added $661.0 million in assets.

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.

At September 30, 2022, the Company had $1.9 billion in securities available-for-sale and $774.7 million in securities held-to-maturity.

The Company's total debt securities portfolio increased $352.5 million, or 15%, 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.

During the nine months ended September 30, 2022, there were $879.7 million of debt security purchases and $289.5 million in pay downs 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.

For the nine months ended September 30, 2021, there were $1.1 billion of debt security purchases and $520.4 million in pay downs and maturities over the same period.

For the nine months ended September 30, 2021, the Company had $57.2 million in proceeds from the sales of securities with a net losses 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 modified duration of the available-for-sale portfolio at September 30, 2022 was 3.5, compared to 3.1 at December 31, 2021.

At September 30, 2022, available-for-sale securities had gross unrealized losses of $246.7 million and gross unrealized gains of $0.3 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.

As of September 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.

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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.

Non-guaranteed agency commercial

securities totaled $17.2 million, with a fair value of $16.3 million.

These securities have weighted average credit support of 19%.

The collateral underlying these mortgages is primarily pooled multifamily loans.

The Company also has invested $315.2 million in uncapped 3-month LIBOR floating rate collateralized loan obligations.

The Company also has invested $314.2 million in 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%.

As of September 30, 2022, all of the Company’s collateralized loan obligations were in AAA/AA tranches with average credit support of 37%.

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

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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.

At September 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.

Therefore, at September 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.

Loans, net of unearned income and excluding the allowance for credit losses, were $6.7 billion at September 30, 2022, a $765.8 million increase from December 31, 2021.

Changes during the first nine months 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, and grew 10% on an annualized basis in the third quarter of 2022.

The Company expects loan growth to continue, with an annualized loan growth rate, excluding acquisitions, in the high single digits in the fourth quarter of 2022.

For the nine months ended September 30, 2022, the Company originated $1.2 billion in commercial and commercial real estate loans, compared to $728.9 million for the nine months ended September 30, 2021, an increase of $446.4 million, or 61%.

The late-stage loan pipeline for commercial and commercial real estate loans totaled $530.4 million at September 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%.

The Company originated $347.7 million in residential loans retained in the portfolio during the nine months ended September 30, 2022, compared to $415.6 million during the nine months ended September 30, 2021, a decrease of $67.8 million, or 16%.

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.

Saleable production decreased for the nine months ended September 30, 2022, to $110.3 million compared to $353.6 million during the nine months ended September 30, 2021, reflecting the impact of increasing interest rates and limited housing inventory.

Consumer originations totaled $334.1 million for the nine months ended September 30, 2022, an increase of $157.2 million, or 89%, compared to the nine months ended September 30, 2021.

The increase is primarily the result of consumer lending teams that joined in late 2021.

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

The following tables detail loan portfolio composition at June 30, 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

The following tables detail loan portfolio composition at September 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.

September 30, 2022

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

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Commercial real estate - non owner-occupied 1

1,568,138 469,363 70,113 2,107,614

Residential real estate 1

1,488,359 106,597 4,809 1,599,765

Commercial and financial 1,091,665 78,406 12,313 1,182,384

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Totals $ 5,653,357 $ 931,316 $ 106,172 $ 6,690,845

1 In 3Q’22, $100 million in loans to commercial borrowers collateralized by residential properties were reclassified from “Residential real estate” to “Commercial real estate - non-owner occupied

December 31, 2021

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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.

The amortized cost basis of loans at September 30, 2022 included net deferred costs of $30.1 million.

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 September 30, 2022, the remaining fair value adjustments on acquired loans was a net discount of $19.1 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.

Commercial real estate (“CRE”) loans, inclusive of owner-occupied CRE, increased by $426.9 million, or 15%, in the nine months ended September 30, 2022, totaling $3.4 billion at September 30, 2022 compared to $2.9 billion at December 31, 2021.

Owner-occupied CRE loans represent $1.3 billion, or 37%, 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.

Residential real estate loans increased $174.4 million, or 12%, to $1.6 billion as of September 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.

At September 30, 2022, approximately $263.7 million, or 16%, 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 $922.6 million, or 58%, at September 30, 2022, compared to $773.7 million, or 54%, at December 31, 2021.

Home equity lines of credit (“HELOCs”), primarily floating rates, totaled $413.5 million at September 30, 2022 and $336.6 million at December 31, 2021.

Borrowers in the residential real estate portfolio have an average credit score of 751.

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.

The average LTV of our HELOC portfolio is 67% with 37% of the portfolio being in first lien position at September 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 increased $6.2 million, or 4%, to total $180.4 million, compared to $174.2 million at December 31, 2021.

Borrowers in the consumer portfolio have an average credit score of 737.

At June 30, 2022, the Company had unfunded loan commitments of $2.2 billion, compared to $2.0 billion at December 31, 2021.

At September 30, 2022, the Company had unfunded commitments to extend credit of $2.5 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.

Outstanding balances for commercial and CRE loan relationships greater than $10 million totaled $1.6 billion and represented 25% of the total portfolio at September 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 September 30, 2022 aggregated to $432.6 million, of which $271.0 million was funded, compared to $312.0 million at December 31, 2021, of which $157.8 million was funded.

The Company had 191 commercial and commercial real estate relationships in excess of $5 million totaling $2.4 billion, of which $1.7 billion was funded at September 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.

Construction and land development and CRE loan concentrations as a percentage of subsidiary bank total risk based capital were 30% and 191%, respectively, at September 30, 2022, compared to 22% and 189%, respectively, at December 31, 2021.

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

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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.

At September 30, 2022, the Company had $1.6 billion in loans secured by residential real estate and $3.4 billion in loans secured by commercial real estate, representing 24% and 50% 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.

Nonperforming assets (“NPAs”) at September 30, 2022 totaled $23.9 million, and were comprised of $21.5 million of nonaccrual loans, and $2.4 million of other real estate owned (“OREO”).

Compared to December 31, 2021, nonaccrual loans decreased $9.1 million, primarily the result of pay downs.

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 $20.3 million, or 46%, from $44.2 million as of December 31, 2021.

At June 30, 2022, approximately 66% of nonaccrual loans were secured with real estate.

At September 30, 2022, approximately 64% 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.

At September 30, 2022, nonaccrual loans reflected cumulative write downs of approximately $5.8 million, including reserves on individually evaluated loans.

Nonperforming loans to total loans outstanding at September 30, 2022 decreased to 0.32% from 0.52% at December 31, 2021.

Nonperforming assets to total assets at September 30, 2022 decreased to 0.23% from 0.46% at December 31, 2021.

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

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

Accruing TDRs totaled $4.0 million at June 30, 2022, compared to $3.9 million at December 31, 2021.

Accruing TDRs totaled $4.1 million at September 30, 2022, compared to $3.9 million at December 31, 2021.

Accruing TDRs are excluded from the nonperforming asset ratios.

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

June 30, 2022

September 30, 2022

Nonaccrual Loans Accruing

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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

At September 30, 2022 and December 31, 2021, total TDRs (performing and nonperforming) were comprised of the following loans by type of modification:

September 30, 2022 December 31, 2021

(In thousands) Number Amount Number Amount

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Total 77 $ 6,216 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.

During the nine months ended September 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 nine months ended September 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.

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.

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

Historical credit losses provide the basis for

estimation of expected credit losses.

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

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

During the second quarter of 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.

During the nine months ended September 30, 2022, the Company recorded a provision of $12.1 million, including $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 charge-offs for the third quarter of 2022 of $0.1 million and, for the four most recent quarters, net charge-offs averaged 0.01% of outstanding loans.

The ratio of allowance for credit losses to total loans was 1.42% at September 30, 2022, 1.39% at June 30, 2022, and 1.49% at September 30, 2021.

Excluding PPP loans, the ratio of allowance for credit losses to total loans was 1.43% at September 30, 2022, 1.39% at June 30, 2022, and 1.54% at September 30, 2021.

LIBOR Transition

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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.

As of September 30, 2022, the Company has approximately $202 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”).

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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.

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.

Brokered deposits at September 30, 2022 were comprised of $81.8 million in interest-bearing demand accounts.

At December 31, 2021, brokered deposits were comprised of $8.0 million in money market accounts, and at September 30, 2021, brokered deposits included $196.5 million in money market accounts and $20.0 million in time certificates of deposit.

Cash and cash equivalents, including interest bearing deposits, totaled $218.6 million at September 30, 2022, compared to $737.7 million at December 31, 2021.

Lower cash and cash equivalent balances at September 30, 2022 reflect investment in securities and loan growth over the course of the year.

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

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

At June 30, 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.

At September 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 $2.1 billion.

In addition, the Company had $2.1 billion of debt securities and $880.6 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.

In comparison, at December 31, 2021, the Company had available unsecured lines of credit 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.

During the third quarter of 2022, Seacoast Bank distributed $13.3 million to the Company and, at September 30, 2022, is eligible to distribute dividends to the Company of approximately $156.2 million without prior regulatory approval.

At September 30, 2022, the Company had cash and cash equivalents at the parent of approximately $107.0 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,

September 30, December 31,

(In thousands, except ratios) 2022 2021

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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.

Total deposits increased $697.8 million, or 9%, to $8.8 billion at September 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.

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Noninterest demand deposits were higher by $454.0 million, or 15%, compared to year-end 2021, totaling $3.5 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.

Noninterest demand deposits represented 40% of total deposits at September 30, 2022 and 38% at December 31, 2021.

As of September 30, 2022 and December 31, 2021, the Company did not hold any brokered CDs.

Customer repurchase agreements totaled $94.2 million at September 30, 2022, decreasing $27.4 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.

At September 30, 2022 and December 31, 2021, borrowings were comprised of subordinated debt of $71.9 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 3.40% and 2.37% for the nine months ended September 30, 2022 and September 30, 2021, respectively.

Off-Balance Sheet Transactions

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

Loan commitments were $2.2 billion at June 30, 2022 and $2.0 billion at December 31, 2021.

Loan commitments were $2.5 billion at September 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.

The Company’s equity capital at September 30, 2022 decreased $22.9 million, or 2%, from December 31, 2021 to $1.3 billion.

Changes in equity included increases from net income of $82.6 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 $29.0 million and the decrease in accumulated other comprehensive income of $180.2 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 ratio of shareholders’ equity to period end total assets was 12.45% and 13.54% at September 30, 2022 and December 31, 2021, respectively.

The ratio of tangible shareholders’ equity to tangible assets was 9.79% and 11.09% at September 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:

Activity in shareholders’ equity for the nine months ended September 30, 2022 and 2021 follows:

(In thousands) 2022 2021

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Change in accumulated other comprehensive income (180,220) (15,101)

Ending balance at June 30, 2022 and 2021

Ending balance at September 30, 2022 and 2021

$ 1,287,802 $ 1,290,520

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.

June 30, 2022 Seacoast

Management’s use of risk-based capital ratios in its analysis of the Company’s capital adequacy are not GAAP financial measures.

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

The capital measures are not necessarily comparable to similar capital measures that may be presented by other companies and Seacoast does not nor should investors consider such non-GAAP financial measures in isolation from, or as a substitute for GAAP financial information (see “ Note 8 – Equity Capital ”).

September 30, 2022 Seacoast

(Consolidated) Seacoast

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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’s total risk-based capital ratio was 17.48% at September 30, 2022, a decrease from 18.21% at December 31, 2021, primarily due to growth including the acquisitions of Sabal Palm and BBFC.

At September 30, 2022, the Bank’s leverage ratio (Tier 1 capital to adjusted total assets) was 11.03%, well above the minimum to be well capitalized under regulatory guidelines.

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

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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.

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.

The Company has seven wholly owned trust subsidiaries that have issued trust preferred stock.

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The allowance for credit losses is measured on a collective basis when similar risk characteristics exist.

The Company has developed an allowance model based on an analysis of probability of default (“PD”) and loss given default (“LGD”) to determine an expected loss by loan segment.

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.

The Company estimates expected credit losses using a discounted cash flow approach for commercial loans and a loss rate approach for consumer loans.

The allowance estimation process applies an economic forecast scenario over a period that has been deemed reasonable and supportable and when it can no longer develop reasonable and supportable forecasts, the Company reverts to longer-term historical loss experience to estimate losses over the remaining life of the loans within each segment.

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.

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

We performed an annual

impairment test of goodwill, as required by ASC Topic 350, Intangibles—Goodwill and Other , in the fourth quarter of 2021, and concluded that no impairment existed.

We performed an annual impairment test of goodwill, as required by ASC Topic 350, Intangibles—Goodwill and Other , in the fourth quarter of 2021, and concluded that no impairment existed.

Fair value estimates for acquired assets and assumed liabilities are based on the information available, and are subject to change for up to one year after the closing date of the acquisition as additional information relative to closing date fair values becomes available.

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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.

On January 1, 2020, the Company adopted ASC Topic 326 – Financial Instruments – Credit Losses , which requires expected credit losses on both HTM and 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.

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Company management, together with attorneys, consultants and other professionals, assesses the probability and estimated amounts involved in a contingency.

Throughout the life of a contingency, the Company or its advisers may learn of additional information that can affect the

assessments about probability or about the estimates of amounts involved.

Throughout the life of a contingency, the Company or its advisers may learn of additional information that can affect the assessments about probability or about the estimates of amounts involved.

Changes in these assessments can lead to changes in recorded reserves.

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

At 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.

At September 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

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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.

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

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-1.00% (5.9%) (9.2%)

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.

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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.

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.

1 unchanged sentence

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis