SEACOAST BANKING CORP OF FLORIDA 10-Q

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The purpose of this discussion and analysis is to aid in understanding significant changes in the financial condition of Seacoast Banking Corporation of Florida and its subsidiaries (“Seacoast” or the “Company”) and their results of operations. Nearly all of the Company’s operations are contained in its banking subsidiary, Seacoast National Bank (“Seacoast Bank” or the “Bank”). Such discussion and analysis should be read in conjunction with the Company’s Condensed Consolidated Financial Statements and the related notes included in this report. The emphasis of this discussion will be on the three and 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. For purposes of the following discussion, the words “Seacoast” or the “Company” refer to the combined entities of Seacoast Banking Corporation of Florida and its direct and indirect wholly owned subsidiaries. Special Cautionary Notice Regarding Forward-Looking Statements Certain statements made or incorporated by reference herein which are not statements of historical fact, including those under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere herein, are “forward-looking statements” within the meaning, and protections, of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements with respect to the Company's beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, and intentions about future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond the Company's control, and which may cause the actual results, performance or achievements of Seacoast Banking Corporation of Florida (“Seacoast” or the “Company”) or its wholly-owned banking subsidiary, Seacoast National Bank (“Seacoast Bank”), to be materially different from those set forth in the forward-looking statements. All statements other than statements of historical fact could be forward-looking statements. You can identify these forward-looking statements through the use of words such as “may,” “will,” “anticipate,” “assume,” “should,” “support,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “further,” “plan,” “point to,” “project,” “could,” “intend,” “target” or other similar words and expressions of the future. These forward-looking statements may not be realized due to a variety of factors, including, without limitation: • The effects of future economic and market conditions, including seasonality • The 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, as well as legislative, tax, and regulatory changes, including those that impact the money supply and inflation • Changes in accounting policies, rules, and practices, including the impact of the adoption of the current expected credit losses (“CECL”) methodology • The risks of changes in interest rates on the level and composition of deposits, loan demand, liquidity, and the values of loan collateral, securities, and interest rate sensitive assets and liabilities • Interest rate risks, sensitivities, and the shape of the yield curve • Uncertainty related to the impact of LIBOR calculations on securities, loans, and debt 40 Table of Contents • 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) • Changes in the availability and cost of credit and capital in the financial markets; changes in the prices, values, and sales volumes of residential and commercial real estate • 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 • 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 • The impact on the valuation of Seacoast’s investments due to market volatility or counterparty payment risk; statutory and regulatory dividend restrictions; increases in regulatory capital requirements for banking organizations generally • The risks of mergers, acquisitions and divestitures, including Seacoast’s ability to continue to identify acquisition targets, 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 • 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 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 • 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. • 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 41 Table of Contents 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. The Company assumes no obligation to update, revise or correct any forward-looking statements that are made from time to time, either as a result of future developments, new information or otherwise, except as may be required by law. Business Developments 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 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 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. 42 Table of Contents 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 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 Return on average tangible assets 1.17 % 1.29 % 1.00 % 1.11 % 1.37 % Return on average tangible shareholders' equity 11.53 13.01 9.56 10.82 12.89 Efficiency ratio 57.13 56.22 59.55 58.45 55.99 Adjusted return on average tangible assets 1 1.27 % 1.38 % 1.23 % 1.24 % 1.48 % Adjusted return on average tangible shareholders' equity 1 12.48 13.97 11.72 12.13 13.91 Adjusted efficiency ratio 1 53.28 53.15 51.50 53.73 52.29 1 Non-GAAP measure - see “Explanation of Certain Unaudited Non-GAAP Financial Measures” for more information and a reconciliation to GAAP. Net Interest Income and Margin Net interest income for the 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. 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. 43 Table of Contents 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: (In thousands, except ratios) Net Interest Income 1 Net Interest Margin 1 Yield on Earning Assets 1 Rate on Interest Bearing Liabilities Third quarter 2022 $ 88,399 3.67 % 3.80 % 0.22 % Second quarter 2022 81,764 3.38 % 3.46 % 0.14 % 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 $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. 44 Table of Contents Loan production and late-stage pipelines (loans in underwriting and approval or approved and not yet closed) are detailed in the following table for the periods specified: Third Second Third Nine Months Ended Quarter Quarter Quarter September 30, (In thousands) 2022 2022 2021 2022 2021 Commercial pipeline at period end 530,430 $ 476,693 368,907 $ 530,430 $ 368,907 Commercial loan originations 340,438 461,855 331,618 1,175,279 728,899 Residential pipeline - saleable at period end 6,563 14,700 42,847 6,563 42,847 Residential loans - sold 16,381 42,666 95,136 110,269 353,572 Residential pipeline - portfolio at period end 60,684 53,092 35,387 60,684 35,387 Residential loans - retained 69,272 102,996 250,820 347,725 415,566 Consumer pipeline at period end 43,732 75,532 30,980 43,732 30,980 Consumer originations 128,601 126,479 66,400 334,090 176,847 PPP originations — — — — 256,007 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 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 $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. 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 45 Table of Contents $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. 46 Table of Contents The following tables detail average balances, net interest income and margin results (on a tax equivalent basis, a non-GAAP measure) for the periods presented: Average Balances, Interest Income and Expenses, Yields and Rates 1 2022 2021 Third Quarter Second Quarter Third Quarter Average Yield/ Average Yield/ Average Yield/ (In thousands, except ratios) Balance Interest Rate Balance Interest Rate Balance Interest Rate Assets Earning assets: Securities: Taxable $ 2,665,104 $ 15,653 2.35 % $ 2,517,879 $ 12,387 1.97 % $ 1,971,520 $ 7,775 1.58 % Nontaxable 22,064 174 3.15 22,443 175 3.12 25,311 181 2.86 Total Securities 2,687,168 15,827 2.36 2,540,322 12,562 1.98 1,996,831 7,956 1.59 Federal funds sold 203,815 1,062 2.07 644,144 1,281 0.80 1,056,691 406 0.15 Other investments 45,193 581 5.10 46,257 636 5.51 35,306 461 5.18 Loans excluding PPP loans 6,597,828 73,730 4.43 6,454,444 68,647 4.27 5,422,350 58,600 4.29 PPP Loans 10,114 320 12.54 26,322 741 11.29 281,724 5,917 8.33 Total Loans 6,607,942 74,050 4.45 6,480,766 69,388 4.29 5,704,074 64,517 4.49 Total Earning Assets 9,544,118 91,520 3.80 9,711,489 83,867 3.46 8,792,902 73,340 3.31 Allowance for loan losses (91,348) (90,242) (88,412) Cash and due from banks 331,947 389,695 386,781 Premises and equipment 76,357 74,614 70,667 Intangible assets 305,935 307,411 254,980 Bank owned life insurance 208,193 206,839 164,879 Other assets 210,136 240,712 171,937 Total Assets $ 10,585,338 $ 10,840,518 $ 9,753,734 Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing demand $ 2,215,899 $ 757 0.14 % $ 2,262,408 $ 293 0.05 % $ 1,891,092 $ 219 0.05 % Savings 944,128 65 0.03 962,264 64 0.03 842,018 65 0.03 Money market 1,806,014 802 0.18 1,938,421 637 0.13 1,860,386 565 0.12 Time deposits 445,840 380 0.34 496,186 436 0.35 572,661 583 0.40 Securities sold under agreements to repurchase 111,902 309 1.10 120,437 94 0.31 120,507 35 0.12 Other borrowings 71,810 808 4.46 71,740 579 3.24 71,530 418 2.32 Total Interest-Bearing Liabilities 5,595,593 3,121 0.22 5,851,456 2,103 0.14 5,358,194 1,885 0.14 Noninterest demand 3,529,844 3,520,700 2,985,582 Other liabilities 110,426 117,794 161,411 Total Liabilities 9,235,863 9,489,950 8,505,187 Shareholders' equity 1,349,475 1,350,568 1,248,547 Total Liabilities & Equity $ 10,585,338 $ 10,840,518 $ 9,753,734 Cost of deposits 0.09 % 0.06 % 0.07 % Interest expense as a % of earning assets 0.13 % 0.09 % 0.09 % Net interest income as a % of earning assets $ 88,399 3.67 % $ 81,764 3.38 % $ 71,455 3.22 % 1 On a fully taxable equivalent basis, a non-GAAP measure - see "Explanation of Certain Unaudited Non-GAAP Financial Measures" for more information and a reconciliation to GAAP. All yields and rates have been computed on an annual basis using amortized cost. Fees on loans have been included in interest on loans. Nonaccrual loans are included in loan balances. 47 Table of Contents Average Balances, Interest Income and Expenses, Yields and Rates 1 2022 2021 Year to Date Year to Date Average Yield/ Average Yield/ (In thousands, except ratios) Balance Interest Rate Balance Interest Rate Assets Earning assets: Securities: Taxable $ 2,530,742 $ 38,081 2.01 % $ 1,718,671 $ 20,632 1.60 % Nontaxable 22,842 526 3.07 25,606 554 2.88 Total Securities 2,553,584 38,607 2.02 1,744,277 21,186 1.62 Federal funds sold 526,890 2,693 0.68 725,013 706 0.13 Other investments 45,483 1,800 5.29 75,826 1,456 2.57 Loans excluding PPP loans 6,444,253 208,052 4.32 5,222,629 169,417 4.34 PPP Loans 32,597 2,584 10.60 464,397 17,930 5.16 Total Loans 6,476,850 210,636 4.35 5,687,026 187,347 4.40 Total Earning Assets 9,602,807 253,736 3.53 8,232,142 210,695 3.42 Allowance for loan losses (89,700) (88,717) Cash and due from banks 362,369 323,693 Premises and equipment 75,617 71,644 Intangible assets 305,895 242,820 Bank owned life insurance 206,854 143,601 Other assets 220,790 167,775 Total Assets $ 10,684,632 $ 9,092,958 Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing demand $ 2,192,331 $ 1,240 0.08 % $ 1,728,985 $ 712 0.06 % Savings 943,982 194 0.03 785,447 320 0.05 Money market 1,906,407 1,951 0.14 1,736,519 1,862 0.14 Time deposits 500,482 1,284 0.34 605,269 2,294 0.51 Securities sold under agreements to repurchase 116,805 442 0.51 116,304 112 0.13 Other borrowings 71,743 1,823 3.40 71,460 1,266 2.37 Total Interest-Bearing Liabilities 5,731,750 6,934 0.16 5,043,984 6,566 0.17 Noninterest demand 3,462,931 2,741,115 Other liabilities 123,279 122,329 Total Liabilities 9,317,960 7,907,428 Shareholders' equity 1,366,672 1,185,530 Total Liabilities & Equity $ 10,684,632 $ 9,092,958 Cost of deposits 0.07 % 0.09 % Interest expense as a % of earning assets 0.10 % 0.11 % Net interest income as a % of earning assets $ 246,802 3.44 % $ 204,129 3.32 % 1 On a fully taxable equivalent basis, a non-GAAP measure - see "Explanation of Certain Unaudited Non-GAAP Financial Measures" for more information and a reconciliation to GAAP. All yields and rates have been computed on an annual basis using amortized cost. Fees on loans have been included in interest on loans. Nonaccrual loans are included in loan balances. 48 Table of Contents Noninterest Income 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: Third Second Third Nine Months Ended Quarter Quarter Quarter September 30, (In thousands) 2022 2022 2021 2022 2021 Service charges on deposit accounts $ 3,504 $ 3,408 $ 2,495 $ 9,713 $ 7,171 Interchange income 4,138 4,255 4,131 12,521 12,096 Wealth management income 2,732 2,774 2,562 8,165 7,272 Mortgage banking fees 434 932 2,550 3,052 9,752 Marine finance fees 209 312 152 712 518 SBA gains 108 473 812 737 1,331 BOLI income 1,363 1,349 1,128 4,046 2,859 Other income 3,977 3,761 5,228 10,608 11,221 16,465 17,264 19,058 49,554 52,220 Securities losses, net (362) (300) (30) (1,114) (199) Total $ 16,103 $ 16,964 $ 19,028 $ 48,440 $ 52,021 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. 49 Table of Contents 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 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 Noninterest expense, as reported $ 61,359 $ 56,148 $ 55,268 $ 176,424 $ 147,172 Merger-related charges (2,054) (3,039) (6,281) (11,785) (7,371) Amortization of intangibles (1,446) (1,446) (1,306) (4,338) (3,729) Branch reductions and other expense initiatives (960) — (870) (1,034) (1,982) Adjusted noninterest expense 1 $ 56,899 $ 51,663 $ 46,811 $ 159,267 $ 134,090 Foreclosed property expense and net gain on sale (9) 968 (66) 1,123 89 Provision for credit losses on unfunded commitments (1,015) — (133) (1,157) (133) Net adjusted noninterest expense 1 $ 55,875 $ 52,631 $ 46,612 $ 159,233 $ 134,046 Efficiency ratio 57.13 % 56.22 % 59.55 % 58.45 % 55.99 % Adjusted efficiency ratio 1,2 53.28 53.15 51.50 53.73 52.29 Adjusted noninterest expense as a percent of average tangible assets 1,2 2.16 2.00 1.95 2.05 2.03 1 Non-GAAP measure - see “Explanation of Certain Unaudited Non-GAAP Financial Measures” for more information and a reconciliation to GAAP. 2 Adjusted efficiency ratio is defined as noninterest expense, including adjustments to noninterest expense divided by aggregated tax equivalent net interest income and noninterest income, including adjustments to revenue. 1 2 Non-GAAP measure - see “Explanation of Certain Unaudited Non-GAAP Financial Measures” for more information and a reconciliation to GAAP. 50 Table of Contents 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: Third Second Third Nine Months Ended Quarter Quarter Quarter September 30, (In thousands) 2022 2022 2021 2022 2021 Salaries and wages $ 28,420 $ 28,056 $ 27,919 $ 84,695 $ 72,278 Employee benefits 4,074 4,151 4,177 13,726 13,110 Outsourced data processing costs 5,393 6,043 5,610 17,592 14,754 Telephone/data lines 973 908 810 2,614 2,433 Occupancy 5,046 4,050 3,541 13,082 10,640 Furniture and equipment 1,462 1,588 1,567 4,476 3,987 Marketing 1,461 1,882 1,353 4,514 3,523 Legal and professional fees 3,794 2,946 4,151 11,529 8,915 FDIC assessments 760 699 651 2,248 1,692 Amortization of intangibles 1,446 1,446 1,306 4,338 3,729 Foreclosed property expense and net gain on sale 9 (968) 66 (1,123) (89) Provision for credit losses on unfunded commitments 1,015 — 133 1,157 133 Other 7,506 5,347 3,984 17,576 12,067 Total $ 61,359 $ 56,148 $ 55,268 $ 176,424 $ 147,172 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 $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 51 Table of Contents 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 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 $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. Income Taxes 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 $0.2 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. 52 Table of Contents Explanation of Certain Unaudited Non-GAAP Financial Measures This report contains financial information determined by methods other than Generally Accepted Accounting Principles (“GAAP”). The financial highlights provide reconciliations between GAAP and adjusted financial measures including net income, fully taxable equivalent net interest income, noninterest income, noninterest expense, tax adjustments, net interest margin and other financial ratios. Management uses these non-GAAP financial measures in its analysis of the Company’s performance and believes these presentations provide useful supplemental information, and a clearer understanding of the Company’s performance. The Company believes the non-GAAP measures enhance investors’ understanding of the Company’s business and performance and if not provided would be requested by the investor community. These measures are also useful in understanding performance trends and facilitate comparisons with the performance of other financial institutions. The limitations associated with operating measures are the risk that persons might disagree as to the appropriateness of items comprising these measures and that different companies might define or calculate these measures differently. The Company provides reconciliations between GAAP and these non-GAAP measures. These disclosures should not be considered an alternative to GAAP. 53 Table of Contents Reconciliation of Non-GAAP Measures Third Second Third Nine Months Ended Quarter Quarter Quarter September 30, (In thousands, except per share data) 2022 2022 2021 2022 2021 Net income, as reported: Net income $ 29,237 $ 32,755 $ 22,944 $ 82,580 $ 88,073 Noninterest Income $ 16,103 $ 16,964 $ 19,028 $ 48,440 $ 52,021 Securities losses, net 362 300 30 1,114 199 Total adjustments to noninterest income 362 300 30 1,114 199 Total Adjusted Noninterest Income $ 16,465 $ 17,264 $ 19,058 $ 49,554 $ 52,220 Noninterest Expense 61,359 $ 56,148 $ 55,268 $ 176,424 $ 147,172 Merger-related charges (2,054) (3,039) (6,281) (11,785) (7,371) Amortization of intangibles (1,446) (1,446) (1,306) (4,338) (3,729) Branch reductions and other expense initiatives 1 (960) — (870) (1,034) (1,982) Total adjustments to noninterest expense (4,460) (4,485) (8,457) (17,157) (13,082) Total Adjusted Noninterest Expense $ 56,899 $ 51,663 $ 46,811 $ 159,267 $ 134,090 Income Taxes $ 9,115 $ 8,886 $ 7,049 $ 23,835 $ 25,991 Tax effect of adjustments 1,222 1,213 2,081 4,631 3,256 Total adjustments to income taxes 1,222 1,213 2,081 4,631 3,256 Adjusted income taxes 10,337 10,099 9,130 28,466 29,247 Adjusted net income $ 32,837 $ 36,327 $ 29,350 $ 96,220 $ 98,098 Earnings per diluted share, as reported $ 0.47 $ 0.53 $ 0.40 $ 1.33 $ 1.56 Adjusted diluted earnings per share 0.53 0.59 0.51 1.56 1.74 Average diluted shares outstanding 61,961 61,923 57,645 61,867 56,441 Adjusted Noninterest Expense $ 56,899 $ 51,663 $ 46,811 $ 159,267 $ 134,090 Foreclosed property expense and net (loss) gain on sale (9) 968 (66) 1,123 89 Provision for credit losses on unfunded commitments (1,015) — (133) (1,157) (133) Net Adjusted Noninterest Expense $ 55,875 $ 52,631 $ 46,612 $ 159,233 $ 134,046 Revenue $ 104,387 $ 98,611 $ 90,352 $ 294,893 $ 255,757 Total adjustments to revenue 362 300 30 1,114 199 Impact of FTE adjustment 115 117 131 349 393 Adjusted revenue on a fully tax equivalent basis $ 104,864 $ 99,028 $ 90,513 $ 296,356 $ 256,349 Adjusted Efficiency Ratio 53.28 % 53.15 % 51.50 % 53.73 % 52.29 % Net Adjusted Noninterest Expense as a Percent of Average Tangible Assets 2 2.16 % 2.00 % 1.95 % 2.05 % 2.03 % Net Interest Income $ 88,284 $ 81,647 $ 71,324 $ 246,453 $ 203,736 Impact of FTE adjustment 115 117 131 349 393 Net interest income including FTE adjustment 88,399 81,764 71,455 246,802 204,129 Noninterest income 16,103 16,964 19,028 48,440 52,021 Noninterest expense 61,359 56,148 55,268 176,424 147,172 Pre-Tax Pre-Provision Earnings 43,143 42,580 35,215 118,818 108,978 Adjustments to noninterest income 362 300 30 1,114 199 Adjustments to noninterest expense (5,484) (3,517) (8,656) (17,191) (13,126) Adjusted Pre-Tax Pre-Provision Earnings $ 48,989 $ 46,397 $ 43,901 $ 137,123 $ 122,303 54 Table of Contents Third Second Third Nine Months Ended Quarter Quarter Quarter September 30, (In thousands, except per share data) 2022 2022 2021 2022 2021 Average Assets $ 10,585,338 $ 10,840,518 $ 9,753,734 $ 10,684,632 $ 9,092,958 Less average goodwill and intangible assets (305,935) (307,411) (254,980) (305,895) (242,820) Average Tangible Assets $ 10,279,403 $ 10,533,107 $ 9,498,754 $ 10,378,737 $ 8,850,138 Return on Average Assets (ROA) 1.10 % 1.21 % 0.93 % 1.03 % 1.29 % Impact of removing average intangible assets and related amortization 0.07 0.08 0.07 0.08 0.08 Return on Average Tangible Assets (ROTA) 1.17 1.29 1.00 1.11 1.37 Impact of other adjustments for Adjusted Net Income 0.10 0.09 0.23 0.13 0.11 Adjusted Return on Average Tangible Assets 1.27 % 1.38 % 1.23 % 1.24 % 1.48 % Average Shareholders' Equity $ 1,349,475 $ 1,350,568 $ 1,248,547 $ 1,366,672 $ 1,185,530 Less average goodwill and intangible assets (305,935) (307,411) (254,980) (305,895) (242,820) Average Tangible Equity $ 1,043,540 $ 1,043,157 $ 993,567 $ 1,060,777 $ 942,710 Return on Average Shareholders' Equity 8.60 % 9.73 % 7.29 % 8.08 % 9.93 % Impact of removing average intangible assets and related amortization 2.93 3.28 2.27 2.74 2.96 Return on Average Tangible Common Equity (ROTCE) 11.53 13.01 9.56 10.82 12.89 Impact of other adjustments for Adjusted Net Income 0.95 0.96 2.16 1.31 1.02 Adjusted Return on Average Tangible Common Equity 12.48 % 13.97 % 11.72 % 12.13 % 13.91 % Loan Interest Income 2 $ 74,050 $ 69,388 $ 64,517 $ 210,636 $ 187,347 Accretion on acquired loans (2,242) (2,720) (3,483) (8,679) (9,237) Interest and fees on PPP loans (320) (741) (5,917) (2,584) (17,930) Loan interest income excluding PPP and accretion on acquired loans 2 $ 71,488 $ 65,927 $ 55,117 $ 199,373 $ 160,180 Yield on Loans 2 4.45 % 4.29 % 4.49 % 4.35 % 4.40 % Impact of accretion on acquired loans (0.14) (0.16) (0.24) (0.18) (0.21) Impact of PPP loans (0.01) (0.03) (0.22) (0.03) (0.09) Yield on loans excluding PPP and accretion on acquired loans 2 4.30 % 4.10 % 4.03 % 4.14 % 4.10 % Net Interest Income 2 $ 88,399 $ 81,764 $ 71,455 $ 246,802 $ 204,129 Accretion on acquired loans (2,242) (2,720) (3,483) (8,679) (9,237) Interest and fees on PPP loans (320) (741) (5,917) (2,584) (17,930) Net interest income excluding PPP and accretion on acquired loans 2 $ 85,837 $ 78,303 $ 62,055 $ 235,539 $ 176,962 Net Interest Margin 2 3.67 % 3.38 % 3.22 % 3.44 % 3.32 % Impact of accretion on acquired loans (0.09) (0.12) (0.15) (0.12) (0.15) Impact of PPP loans (0.01) (0.02) (0.18) (0.03) (0.12) Net interest margin excluding PPP and accretion on acquired loans 2 3.57 % 3.24 % 2.89 % 3.29 % 3.05 % Loan Interest Income 2 $ 74,050 $ 69,388 $ 64,517 $ 210,636 $ 187,347 Tax equivalent adjustment to loans (80) (81) (93) (241) (277) Loan interest income excluding tax equivalent adjustment $ 73,970 $ 69,307 $ 64,424 $ 210,395 $ 187,070 55 Table of Contents Third Second Third Nine Months Ended Quarter Quarter Quarter September 30, (In thousands, except per share data) 2022 2022 2021 2022 2021 Securities Interest Income 2 $ 15,827 $ 12,562 $ 7,956 $ 38,607 $ 21,186 Tax equivalent adjustment to securities (35) (36) (38) (108) (116) Securities interest income excluding tax equivalent adjustment $ 15,792 $ 12,526 $ 7,918 $ 38,499 $ 21,070 Net Interest Income 2 $ 88,399 $ 81,764 $ 71,455 $ 246,802 $ 204,129 Tax equivalent adjustments to loans (80) (81) (93) (241) (277) Tax equivalent adjustments to securities (35) (36) (38) (108) (116) Net interest income excluding tax equivalent adjustments $ 88,284 $ 81,647 $ 71,324 $ 246,453 $ 203,736 1 Includes severance, contract termination costs, disposition of branch premises and fixed assets, and other costs to effect the Company's branch consolidation and other expense reduction strategies. 2 On a fully taxable equivalent basis. All yields and rates have been computed using amortized cost. Financial Condition Total assets 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. Securities Information related to yields, maturities, carrying values and fair value of the Company’s debt securities is set forth in “ Note 3 – Securities ” of the Company’s condensed consolidated financial statements. At 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 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 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 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 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. U.S. Treasury and U.S. government agencies and obligations of U.S. government sponsored entities totaled $2.1 billion, or 81%, of the total portfolio. The portfolio includes $183.7 million, with a fair value of $172.0 million, in private label residential and commercial mortgage-backed securities and collateralized mortgage obligations. Included are $166.5 million, with a fair value of $155.7 million, in private label mortgage-backed residential securities with weighted average credit support of 24%. The collateral underlying these mortgage investments includes both fixed-rate and adjustable-rate mortgage loans. Non-guaranteed agency commercial 56 Table of Contents 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 $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 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. The result of this analysis did not indicate expected credit losses. Held-to-maturity securities consist solely of mortgage-backed securities and collateralized mortgage obligations guaranteed by government agencies. At September 30, 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 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 $6.7 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 $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 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. The Company remains committed to sound risk management procedures. Lending policies contain guardrails that pertain to lending by type of collateral and purpose, along with limits regarding loan concentrations and the principal amount of loans. The Company's exposure to commercial real estate lending remains well below regulatory limits (see “Loan Concentrations”). 57 Table of Contents 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 Construction and land development $ 338,070 $ 23,808 $ 35 $ 361,913 Commercial real estate - owner-occupied 988,614 245,943 18,902 1,253,459 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 Consumer 176,895 3,521 — 180,416 Paycheck Protection Program 1,616 3,678 — 5,294 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 (In thousands) Portfolio Loans Acquired Non-PCD Loans PCD Loans Total Construction and land development $ 199,341 $ 31,438 $ 45 $ 230,824 Commercial real estate - owner-occupied 983,517 186,812 27,445 1,197,774 Commercial real estate - non owner-occupied 1,278,180 382,554 75,705 1,736,439 Residential real estate 1,261,306 156,957 7,091 1,425,354 Commercial and financial 968,318 84,395 16,643 1,069,356 Consumer 169,507 4,658 10 174,175 Paycheck Protection Program 69,503 21,604 — 91,107 Totals $ 4,929,672 $ 868,418 $ 126,939 $ 5,925,029 The amortized cost basis of loans at 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 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 $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. 58 Table of Contents 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 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 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 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 $1.6 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 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. On a consolidated basis, construction and land development and commercial real estate loans represent 28% and 175%, respectively, of total consolidated risk based capital. To determine these ratios, the Company defines CRE in accordance with the guidance on “Concentrations in Commercial Real Estate Lending” (the “Guidance”) issued by the federal bank regulatory agencies in 2006 (and reinforced in 2015), which defines CRE loans as exposures secured by land development and construction, including 1-4 family residential construction, multi-family property, and non-farm nonresidential property where the primary or a significant source of repayment is derived from rental income associated with the property (i.e., loans for which 50 percent or more of the source of repayment comes from third party, non-affiliated, rental income) or the proceeds of the sale, refinancing, or permanent financing of the property. Loans to real estate investment trusts (“REITs”) and unsecured loans to developers that closely correlate to the inherent risks in CRE markets would also be considered CRE loans under the Guidance. Loans on owner-occupied CRE are generally excluded. At 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 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 September 30, 2022, approximately 64% of nonaccrual loans were secured with real estate. See the tables below for details about nonaccrual loans. At September 30, 2022, nonaccrual loans reflected cumulative write downs of approximately $5.8 million, including reserves on individually evaluated loans. 59 Table of Contents 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. The Company pursues loan restructurings in select cases where it expects to realize better values than may be expected through traditional collection activities. The Company has worked with retail mortgage customers, when possible, to achieve lower payment structures in an effort to avoid foreclosure. Troubled debt restructurings (“TDRs”) have been a part of the Company’s loss mitigation activities and can include rate reductions, payment extensions and principal deferrals. Company policy requires TDRs that are classified as nonaccrual loans after restructuring remain on nonaccrual until performance can be verified, which usually requires six months of performance under the restructured loan terms. Accruing TDRs totaled $4.1 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. September 30, 2022 Nonaccrual Loans Accruing Restructured Loans (In thousands) Non-Current Current Total Construction and land development $ — $ 9 $ 9 $ 2 Commercial real estate - owner-occupied 544 1,095 1,639 387 Commercial real estate - non owner-occupied 2,892 1,331 4,223 — Residential real estate 962 6,956 7,918 3,318 Commercial and financial 2,938 4,401 7,339 295 Consumer 34 302 336 146 Total $ 7,370 $ 14,094 $ 21,464 $ 4,148 December 31, 2021 Nonaccrual Loans Accruing Restructured Loans (In thousands) Non-Current Current Total Construction and land development $ — $ 259 $ 259 $ 12 Commercial real estate - owner-occupied 261 3,705 3,966 101 Commercial real estate - non owner-occupied 3,218 2,687 5,905 — Residential real estate 5,130 7,915 13,045 3,298 Commercial and financial 2,914 3,955 6,869 318 Consumer 46 508 554 188 Total $ 11,569 $ 19,029 $ 30,598 $ 3,917 At 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 Maturity extended 47 $ 4,607 56 $ 5,385 Rate reduction 18 993 25 2,769 Chapter 7 bankruptcies 5 199 1 39 Not elsewhere classified 7 417 12 378 Total 77 $ 6,216 94 $ 8,571 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 60 Table of Contents restructured loan is considered in default when it becomes 90 days or more past due under the modified terms, has been transferred to nonaccrual status, has been charged off or has been transferred to OREO. In accordance with regulatory reporting requirements, loans are placed on nonaccrual following the Retail Classification of Loan interagency guidance. The accrual of interest is generally discontinued on loans, except consumer loans, that become 90 days past due as to principal or interest unless collection of both principal and interest is assured by way of collateralization, guarantees or other security. Consumer loans that become 120 days past due are generally charged off. The loan carrying value is analyzed and any changes are appropriately made as described above quarterly. Allowance for Credit Losses on Loans Management estimates the allowance using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit losses provide the basis for estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, loan to value ratios, borrower credit characteristics, loan seasoning or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values, occupancy rates, and other macroeconomic metrics. During the 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 The Company’s LIBOR transition steering committee is responsible for overseeing the execution of the Company’s enterprise-wide LIBOR transition program, and for evaluating and mitigating risks associated with the transition from LIBOR. The LIBOR transition program includes a comprehensive review of the financial products, agreements, contracts, and business processes that may use LIBOR as a reference rate, and the development and execution of strategy to transition away from LIBOR, with appropriate consideration of the potential financial, customer, counterpart, regulatory and legal impacts. The Company continues to execute its LIBOR transition program, and to monitor regulatory and legislative activity to identify any necessary actions and facilitate the transition to alternative reference rates. As of December 31, 2021, the Company ceased issuance of new LIBOR loans. As of 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”). ISDA has developed fallback language for swap agreements and has established a protocol to allow counterparties to modify legacy trades to include the new fallback language. The Company also invests in securities and has issued subordinated debt tied to LIBOR. The Company continues to monitor regulatory and legislative activity with regard to these products to identify and execute necessary actions to facilitate the transition to alternative reference rates. Cash and Cash Equivalents and Liquidity Risk Management Liquidity risk involves the risk of being unable to fund assets with the appropriate duration and rate-based liability, as well as the risk of not being able to meet unexpected cash needs. Liquidity planning and management are necessary to ensure the ability to fund operations cost effectively and to meet current and future potential obligations such as loan commitments and unexpected deposit outflows. Funding sources include primarily customer-based deposits, collateral-backed borrowings, brokered deposits, cash flows from operations, cash flows from the loan and investment portfolios and asset sales, primarily secondary marketing for residential real estate mortgages and marine loans. Cash flows from operations are a significant component of liquidity risk management and the Company considers both deposit maturities and the scheduled cash flows from loan and investment maturities and payments when managing risk. Deposits are a primary source of liquidity. The stability of this funding source is affected by numerous factors, including returns available to customers on alternative investments, the quality of customer service levels, perception of safety and competitive forces. The Company routinely uses debt securities and loans as collateral for secured borrowings. In the event of severe market 61 Table of Contents 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 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. Sources of liquidity are maintained through a portfolio of high quality marketable assets, such as residential mortgage loans, debt securities available-for-sale and interest-bearing deposits. The Company is also able to provide short-term financing of its activities by selling, under an agreement to repurchase, United States Treasury and Government agency debt securities not pledged to secure public deposits or trust funds. At September 30, 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 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 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: September 30, December 31, (In thousands, except ratios) 2022 2021 Noninterest demand $ 3,529,489 $ 3,075,534 Interest-bearing demand 2,170,251 1,890,212 Money market 1,700,737 1,651,881 Savings 938,081 895,019 Time certificates of deposit 426,856 554,943 Total deposits $ 8,765,414 $ 8,067,589 Customer sweep accounts $ 94,191 $ 121,565 Noninterest demand deposits as % of total deposits 40 % 38 % The Company’s balance sheet continues to be primarily funded by core deposits. 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. Since December 31, 2021, interest bearing deposits (interest bearing demand, savings and money market deposits) increased $372.0 million, or 8%, to $4.8 billion, and CDs decreased $128.1 million, or 23%, to $426.9 million. Noninterest demand deposits were higher by $454.0 million, or 15%, compared to year-end 2021, totaling $3.5 billion. Noninterest demand deposits represented 40% of total deposits at September 30, 2022 and 38% at December 31, 2021. 62 Table of Contents 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. 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 In the normal course of business, the Company may engage in a variety of financial transactions that, under generally accepted accounting principles, either are not recorded on the balance sheet or are recorded on the balance sheet in amounts that differ from the full contract or notional amounts. These transactions involve varying elements of market, credit and liquidity risk. Lending commitments include unfunded loan commitments and standby and commercial letters of credit. For loan commitments, the contractual amount of a commitment represents the maximum potential credit risk that could result if the entire commitment had been funded, the borrower had not performed according to the terms of the contract, and no collateral had been provided. A large majority of loan commitments and standby letters of credit expire without being funded, and accordingly, total contractual amounts are not representative of actual future credit exposure or liquidity requirements. Loan commitments and letters of credit expose the Company to credit risk in the event that the customer draws on the commitment and subsequently fails to perform under the terms of the lending agreement. For commercial customers, loan commitments generally take the form of revolving credit arrangements. For retail customers, loan commitments generally are lines of credit secured by residential property. These instruments are not recorded on the balance sheet until funds are advanced under the commitment. Loan commitments were $2.5 billion at September 30, 2022 and $2.0 billion at December 31, 2021. Capital Resources 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 12.45% 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. 63 Table of Contents Activity in shareholders’ equity for the nine months ended September 30, 2022 and 2021 follows: (In thousands) 2022 2021 Beginning balance at December 31, 2021 and 2020 $ 1,310,736 $ 1,130,402 Net income 82,580 88,073 Common stock issued for stock options 4,049 — Issuance of common stock and conversion of options pursuant to acquisitions 94,067 92,094 Stock compensation, net of Treasury shares acquired 5,602 9,908 Issuance of common share dividend (29,012) (14,856) Change in accumulated other comprehensive income (180,220) (15,101) 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. 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 Bank Minimum to be Well- Capitalized 1 Total Risk-Based Capital Ratio 17.48% 16.04% 10.00% Tier 1 Capital Ratio 16.51 15.08 8.00 Common Equity Tier 1 Ratio (CET1) 15.58 15.08 6.50 Leverage Ratio 12.08 11.03 5.00 1 For subsidiary bank only. 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. The appropriate federal bank regulatory authority may prohibit the payment of dividends where it has determined that the payment of dividends would be an unsafe or unsound practice. The Company is a legal entity separate and distinct from Seacoast Bank and its other subsidiaries, and the Company’s primary source of cash and liquidity, other than securities offerings and borrowings, is dividends from its bank subsidiary. Without Office of the Comptroller of the Currency (“OCC”) approval, Seacoast Bank can pay $156.2 million of dividends to the Company. The OCC and the Federal Reserve have policies that encourage banks and bank holding companies to pay dividends from current earnings, and have the general authority to limit the dividends paid by national banks and bank holding companies, respectively, if such payment may be deemed to constitute an unsafe or unsound practice. If, in the particular circumstances, either of these federal regulators determined that the payment of dividends would constitute an unsafe or unsound banking practice, either the OCC or the Federal Reserve may, among other things, issue a cease and desist order prohibiting the payment of dividends by Seacoast Bank or us, respectively. The board of directors of a bank holding company must consider different factors to ensure that its dividend level, if any, is prudent relative to the organization’s financial position and is not based on overly optimistic earnings scenarios such as any potential events that may occur before the payment date that could affect its ability to pay, while still maintaining a strong financial position. As a general matter, the Federal Reserve has indicated that the board of directors of a bank holding company, such as Seacoast, should consult with the Federal Reserve and eliminate, defer, or significantly reduce the bank holding company’s dividends if: (i) its net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (ii) its prospective rate of earnings retention is not consistent with its capital needs and overall current and prospective financial condition; or (iii) it will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios. The Company has paid quarterly dividends since the second quarter of 2021. Whether the Company continues to pay quarterly dividends and the amount of any such dividends will be at the discretion of the Company's Board of Directors and will depend 64 Table of Contents 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. Trust preferred securities from acquisitions were recorded at fair value when acquired. All trust preferred securities are guaranteed by the Company on a junior subordinated basis. The Federal Reserve’s rules permit qualified trust preferred securities and other restricted capital elements to be included under Basel III capital guidelines, with limitations, and net of goodwill and intangibles. The Company believes that its trust preferred securities qualify under these revised regulatory capital rules and believes that it can treat all $71.9 million of trust preferred securities as Tier 1 capital. For regulatory purposes, the trust preferred securities are added to the Company’s tangible common shareholders’ equity to calculate Tier 1 capital. Critical Accounting Policies and Estimates The Company’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles, (“GAAP”), including prevailing practices within the financial services industry. The preparation of consolidated financial statements requires management to make judgments in the application of certain of its accounting policies that involve significant estimates and assumptions. The Company has established policies and control procedures that are intended to ensure valuation methods are well controlled and applied consistently from period to period. These estimates and assumptions, which may materially affect the reported amounts of certain assets, liabilities, revenues and expenses, are based on information available as of the date of the financial statements, and changes in this information over time and the use of revised estimates and assumptions could materially affect amounts reported in subsequent financial statements. Management, after consultation with the Company’s Audit Committee, believes the most critical accounting estimates and assumptions that involve the most difficult, subjective and complex assessments are: • the allowance and the provision for credit losses; • acquisition accounting and purchased loans; • intangible assets and impairment testing; • other fair value measurements; • impairment of debt securities; and • contingent liabilities. The following is a discussion of the critical accounting policies intended to facilitate a reader’s understanding of the judgments, estimates and assumptions underlying these accounting policies and the possible or likely events or uncertainties known to the Company that could have a material effect on reported financial information. For more information regarding management’s judgments relating to significant accounting policies and recent accounting pronouncements, see “Note 1-Basis of Presentation” to the Company’s consolidated financial statements. Allowance for Credit Losses – Critical Accounting Policies and Estimates On January 1, 2020, the Company adopted ASC Topic 326 - Financial Instruments - Credit Losses , which replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. For loans, management estimates the allowance for credit losses using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit losses provide the basis for estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, loan to value ratios, borrower credit characteristics, loan seasoning or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values, occupancy rates, and other macroeconomic metrics. The allowance for credit losses is measured on a collective basis when similar risk characteristics exist. The Company 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 65 Table of Contents 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. 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, model risk, and loan growth. Based upon management's assessments of these factors, the Company may apply qualitative adjustments to the allowance. Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. When management determines that foreclosure is probable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. The contractual term of a loan excludes expected extensions, renewals, and modification unless either of the following applies: management has a reasonable expectation at the reporting date that a troubled debt restructuring (“TDR”) will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and not unconditionally cancellable by the Company. The allowance for credit losses on TDRs is measured using the same method as all other loans held for investment, except when the value of a concession cannot be measured using a method other than the discounted cash flow method. When the value of a concession is measured using the discounted cash flow method, the allowance for credit losses is determining by discounting the expected future cash flows at the original interest rate of the loan. It is the Company's practice to ensure that the charge-off policy meets or exceeds regulatory requirements. Losses on unsecured consumer loans are recognized at 90 days past due, compared to the regulatory loss criteria of 120 days. In compliance with Federal Financial Institution Examination Council guidelines, secured consumer loans, including residential real estate, are typically charged off or charged down between 120 and 180 days past due, depending on the collateral type. Commercial loans and real estate loans are typically placed on nonaccrual status when principal or interest is past due for 90 days or more, unless the loan is both secured by collateral having realizable value sufficient to discharge the debt in-full and the loan is in process of collection. Loans provided with short-term payment deferrals under the CARES Act or interagency guidance are not considered past due if in compliance with the terms of their deferral. Secured loans may be charged down to the estimated value of the collateral with previously accrued unpaid interest reversed against interest income. Subsequent charge-offs may be required as a result of changes in the market value of collateral or other repayment prospects. Initial charge-off amounts are based on valuation estimates derived from appraisals, broker price opinions, or other market information. Generally, new appraisals are not received until the foreclosure process is completed; however, collateral values are evaluated periodically based on market information and incremental charge-offs are recorded if it is determined that collateral values have declined from their initial estimates. Note 5 to the financial statements (titled “Allowance for Credit Losses”) summarizes the Company’s allocation of the allowance for credit losses on loans by loan segment and provides detail regarding charge-offs and recoveries for each loan segment and the composition of the loan portfolio. Acquisition Accounting and Purchased Loans – Critical Accounting Policies and Estimates The Company accounts for acquisitions under ASC Topic 805, Business Combinations , which requires the use of the acquisition method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. All loans acquired are recorded at fair value in accordance with the fair value methodology prescribed in ASC Topic 820, Fair Value Measurement . The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of expected principal, interest, and other cash flows. Loans are identified as purchased credit deteriorated (“PCD”) when they have experienced more-than-insignificant deterioration in credit quality since origination. An allowance for expected credit losses on PCD loans is recorded at the date of acquisition through an adjustment to the loans’ amortized cost basis. In contrast, expected credit losses on loans not considered PCD are recognized in net income at the date of acquisition. Fair value estimates for acquired assets and assumed liabilities are based on the information available and are subject to change for up to one year after the closing date of the acquisition as additional information relative to closing date fair values becomes available. 66 Table of Contents Intangible Assets and Impairment Testing – Critical Accounting Policies and Estimates Intangible assets consist of goodwill, core deposit intangibles and loan servicing rights. Goodwill represents the excess purchase price over the fair value of net assets acquired in business acquisitions. The core deposit intangible represents the excess intangible value of acquired deposit customer relationships as determined by valuation specialists. Core deposit intangibles are amortized on a straight-line basis, and are evaluated for indications of potential impairment at least annually. Goodwill is not amortized but rather is evaluated for impairment on at least an annual basis. We performed an annual impairment test of goodwill, as required by ASC Topic 350, Intangibles—Goodwill and Other , in the fourth quarter of 2021, and concluded that no impairment existed. Fair value estimates for acquired assets and assumed liabilities are based on the information available, and are subject to change for up to one year after the closing date of the acquisition as additional information relative to closing date fair values becomes available. Other Fair Value Measurements – Critical Accounting Policies and Estimates The fair value of collateral-dependent loans, OREO and repossessed assets is typically based on current appraisals, which are reviewed quarterly to determine if fair value adjustments are necessary based on known changes in the market and/or the project assumptions. When necessary, the appraised value may be adjusted based on more recent appraisal assumptions received by the Company on other similar properties, the tax assessed market value, comparative sales and/or an internal valuation. Collateral-dependent loans are loans where repayment is solely dependent on the liquidation of the collateral or operation of the collateral for repayment. The Company also holds 11,330 shares of Visa Class B stock, which, following resolution of Visa’s litigation, will be converted to Visa Class A shares. Under the current conversion rate that became effective June 29, 2022, the Company expects to receive 1.6059 shares of Class A stock for each share of Class B stock for a total of 18,194 shares of Visa Class A stock. The Company’s ownership is related to prior ownership in Visa's network while Visa operated as a cooperative. This ownership is recorded on the Company's financial records at a zero basis. Impairment of Debt Securities – Critical Accounting Policies and Estimates On January 1, 2020, the Company adopted ASC Topic 326 – Financial Instruments – Credit Losses , which requires expected credit losses on both 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. An AFS security is considered impaired if the fair value is less than amortized cost basis. For AFS securities, if any portion of the decline in fair value is related to credit, the amount of allowance is determined as the portion related to credit, limited to the difference between the amortized cost basis and the fair value of the security. If the fair value of the security increases in subsequent periods, or changes in factors used within the credit loss assessment result in a change in the estimated credit loss, the Company would reflect the change by decreasing the allowance. If the Company has the intent to sell or believes it is more likely than not that it will be required to sell an impaired AFS security before recovery of the amortized cost basis, the credit loss is recorded as a direct write-down of the amortized cost basis. Declines in the fair value of AFS securities that are not considered credit related are recognized in Accumulated Other Comprehensive Income on the Company’s Consolidated Balance Sheet. Seacoast analyzes AFS debt securities quarterly for credit losses. The analysis is performed on an individual security basis for all securities where fair value has declined below amortized cost. Fair value is based upon pricing obtained from third party pricing services. Based on internal review procedures and the fair values provided by the pricing services, the Company believes that the fair values provided by the pricing services are consistent with the principles of ASC Topic 820, Fair Value Measurement . However, on occasion pricing provided by the pricing services may not be consistent with other observed prices in the market for similar securities. Using observable market factors, including interest rate and yield curves, volatilities, prepayment speeds, loss severities and default rates, the Company may at times validate the observed prices using a discounted cash flow model and using the observed prices for similar securities to determine the fair value of its securities. The Company utilizes both quantitative and qualitative assessments to determine if a security has a credit loss. Quantitative assessments are based on a discounted cash flow method. Qualitative assessments consider a range of factors including: percent decline in fair value, rating downgrades, subordination, duration, amortized loan-to-value, and the ability of the issuers to pay all amounts due in accordance with the contractual terms. Contingent Liabilities – Critical Accounting Policies and Estimates 67 Table of Contents Seacoast is subject to contingent liabilities, including judicial, regulatory and arbitration proceedings, and tax and other claims arising from the conduct of the Company's business activities. These proceedings include actions brought against the Company and/or its subsidiaries with respect to transactions in which the Company and/or its subsidiaries acted as a lender, a financial adviser, a broker or acted in a related activity. Accruals are established for legal and other claims when it becomes probable that the Company will incur an expense and the amount can be reasonably estimated. Company management, together with attorneys, consultants and other professionals, assesses the probability and estimated amounts involved in a contingency. Throughout the life of a contingency, the Company or its advisers may learn of additional information that can affect the assessments about probability or about the estimates of amounts involved. Changes in these assessments can lead to changes in recorded reserves. In addition, the actual costs of resolving these claims may be substantially higher or lower than the amounts reserved for the claims. At September 30, 2022 and December 31, 2021, the Company had no significant accruals for contingent liabilities and had no known pending matters that could potentially be significant. Interest Rate Sensitivity Fluctuations in interest rates may result in changes in the fair value of the Company’s financial instruments, cash flows and net interest income. This risk is managed using simulation modeling to calculate the most likely interest rate risk utilizing estimated loan and deposit growth. The objective is to optimize the Company’s financial position, liquidity, and net interest income while limiting their volatility. Senior management regularly reviews the overall interest rate risk position and evaluates strategies to manage the risk. The Company's Asset and Liability Management Committee (“ALCO”) uses simulation analysis to monitor changes in net interest income due to changes in market interest rates. The simulation of rising, declining and flat interest rate scenarios allows management to monitor and adjust interest rate sensitivity to minimize the impact of market interest rate swings. The analysis of the impact on net interest income over a twelve-month period is subjected to instantaneous changes in market rates of 100 basis point increases up to 200 basis points of change on net interest income and is monitored on a quarterly basis. The following table presents the ALCO simulation model's projected impact of a change in interest rates on the projected baseline net interest income for the 12 and 24 month periods beginning on 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. % Change in Projected Baseline Net Change in Interest Rates Interest Income 1-12 months 13-24 months +2.00% 9.6% 13.4% +1.00% 4.8% 6.6% Current —% —% -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 24.5% at September 30, 2022. This result includes assumptions for core deposit re-pricing from a statistical study commissioned from a third party consulting group. The computations of interest rate risk do not necessarily include certain actions management may undertake to manage this risk in response to changes in interest rates. Derivative financial instruments, such as interest rate swaps, options, caps, floors, futures and forward contracts may be utilized as components of the Company’s risk management profile. Effects of Inflation and Changing Prices The condensed consolidated financial statements and related financial data presented herein have been prepared in accordance with U.S. GAAP, which require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money, over time, due to inflation. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution’s performance than the general level of inflation. However, inflation affects financial institutions by increasing their cost of goods and services purchased, as well as the cost of 68 Table of Contents salaries and benefits, occupancy expense, and similar items. Inflation and related increases in interest rates generally decrease the market value of investments and loans held and may adversely affect liquidity, earnings, and shareholders’ equity. Mortgage originations and re-financings tend to slow as interest rates increase, and higher interest rates likely will reduce the Company’s earnings from such activities and the income from the sale of residential mortgage loans in the secondary market.