What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-05-10 compared with 2022-11-04 · 352 added, 536 removed, 412 unchanged (68% of the section changed)

3 unchanged sentences

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.

The emphasis of this discussion will be on the three months ended March 31, 2023 compared to the three months ended March 31, 2022 for the consolidated statements of income.

For the consolidated balance sheets, the emphasis of this discussion will be the balances as of March 31, 2023 compared to December 31, 2022.

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.

7 unchanged sentences

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

• The impact of current and future economic and market conditions generally (including seasonality) and in the financial services industry, nationally and within Seacoast’s primary market areas, including the effects of inflationary pressures, changes in interest rates, slowdowns in economic growth, and the potential for high unemployment rates, as well as the financial stress on borrowers and changes to customer and client behavior and credit risk as a result of the foregoing;

• Potential impacts of the recent adverse developments in the banking industry highlighted by high-profile bank failures, including impacts on customer confidence, deposit outflows, liquidity and the regulatory response thereto;

• 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 and the possibility that the U.S.

could default on its debt obligations;

• The risks of changes in interest rates on the level and composition of deposits (as well as the cost of, and competition for, 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

• 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 accounting policies, rules and practices;

• Changes in retail distribution strategies, customer preferences and behavior generally and as a result of economic factors, including heightened inflation;

• 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;

• Seacoast's ability to comply with any regulatory requirements;

• The effects of problems encountered by other financial institutions that adversely affect Seacoast or the banking industry, including bank failures;

• 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;

• The impact on the valuation of Seacoast’s investments due to market volatility or counterparty payment risk, as well as the effect of a decline in stock market prices on our fee income from our wealth management business;

• Statutory and regulatory dividend restrictions;

2 unchanged sentences

• 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

• The Company’s ability to identify and address increased cybersecurity risks;

• Fraud or misconduct by internal or external parties, which Seacoast may not be able to prevent, detect or mitigate;

• 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

• 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 in the Company's footprint, 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”);

2 unchanged sentences

• 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

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;

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 estimate of reserves for expected credit losses;

• Risks related to environmental, social and governance ("ESG") matters, the scope and pace of which could alter Seacoast's reputation and shareholder, associate, customer and third-party affiliations;

• The risks relating to bank acquisitions including the the merger with Professional Holding Corp.

including, without limitation:

the diversion of management's time on issues related to the merger;

unexpected transaction costs, including the costs of integrating operations;

the risks that the businesses will not be integrated successfully or that such integration may be more difficult, time-consuming or costly than expected;

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

the risk of deposit and customer attrition;

regulatory enforcement and litigation risk;

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

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

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

increased competitive pressures and solicitations of customers by competitors;

as well as the difficulties and risks inherent with entering new markets;

• Other factors and risks described under “Risk Factors” herein and in any of the Company's subsequent reports filed with the SEC and available on its website at www.sec.gov.

All written or oral forward-looking statements that are made or are attributable to Seacoast are expressly qualified in their entirety by this cautionary notice.

1 unchanged sentence

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.

Acquisition of Professional Holding Corp.

On January 31, 2023, the Company completed the previously announced acquisition of Professional Holding Corp.

(“Professional”), parent company of Professional Bank, adding deposits of approximately $2.1 billion and loans of approximately $2.0 billion.

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.

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,

For the first quarter of 2023, the Company reported net income of $11.8 million, a decrease of $12.1 million, or 51%, from the fourth quarter of 2022 and a decrease of $8.8 million, or 43%, compared to the first quarter of 2022.

The first quarter of 2023 included $31.6 million in provision for credit losses, including $26.6 million recorded for loans acquired in the Professional acquisition.

The provision for credit losses in the fourth quarter of 2022 was $14.1 million, including $15.0 million recorded for the Apollo and Drummond acquisitions.

The prior year quarter provision of $6.6 million included a $5.1 million increase associated with the acquisitions of BBFC and Sabal Palm during the quarter.

Adjusted net income 1 for the first quarter of 2023 totaled $29.2 million, a decrease of $10.7 million, or 27%, compared to the fourth quarter of 2022 and an increase of $2.2 million, or 8%, compared to the first quarter of 2022.

Diluted earnings per common share (“EPS”) was $0.15 and adjusted diluted EPS 1 was $0.36 in the first quarter of 2023, compared to diluted EPS of $0.34 and adjusted diluted EPS 1 of $0.56 in the fourth quarter of 2022 and compared to diluted EPS of $0.33 and adjusted diluted EPS 1 of $0.44 in the first quarter of 2022.

Pre-tax pre-provision earnings 1 were $46.3 million in the first quarter of 2023, an increase of 1% compared to the fourth quarter of 2022 and an increase of 40% compared to the first quarter of 2022.

Adjusted pre-tax pre-provision earnings 1 were $71.1 million in the first quarter of 2023, an increase of 7% compared to the fourth quarter of 2022 and an increase of 70% compared to the first quarter of 2022.

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

First Fourth First

Quarter Quarter Quarter

2023 2022 2022

10 unchanged sentences

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.

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.

Net interest income for the first quarter of 2023 totaled $131.2 million, an increase of $11.4 million, or 10%, compared to the fourth quarter of 2022, and an increase of $54.6 million, or 71%, compared to the first quarter of 2022.

The increases reflect higher balances and higher yields on securities and loans, partially offset by the higher cost of deposits.

Net interest margin (on a fully tax equivalent basis) 1 was 4.31% in the first quarter of 2023, compared to 4.36% in the fourth quarter of 2022, and 3.25% in the first quarter of 2022.

The decrease during the first quarter of 2023 compared to prior quarter was driven by the continued effect of an inverted yield curve, and additional excess liquidity added to the balance sheet late in the quarter.

Compared to the fourth quarter of 2022, securities yields increased by eight basis points to 2.85% and loan yields increased by 57 basis points to 5.86% during the first quarter of 2023.

The effect on net interest margin of accretion of purchase discounts on acquired loans were increases of 53 basis points in the first quarter of 2023, 35 basis points in the fourth quarter of 2022, and 15 basis points in the first quarter of 2022.

The cost of deposits was 77 basis points in the first quarter of 2023, compared to 21 basis points in the fourth quarter of 2022, and 6 basis points in the first quarter of 2022.

The higher cost of deposits in the first quarter of 2023 reflects the impact of the Professional acquisition and an increasingly competitive market for deposits.

The following table details the trend for net interest income and margin results (on a tax equivalent basis) 1 , the yield on earning assets and the rate paid on interest bearing liabilities for the periods specified:

3 unchanged sentences

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 %

First quarter 2023 $ 131,351 4.31 % 5.19 % 1.43 %

Fourth quarter 2022 119,858 4.36 % 4.63 % 0.48 %

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

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.

Total average loans increased $1.5 billion, or 18%, for the first quarter of 2023 compared to the fourth quarter of 2022, and increased $3.0 billion, or 48%, from the first quarter of 2022.

The increase compared to the prior quarter includes $2.0 billion in loans acquired from Professional.

Average loans as a percentage of average earning assets totaled 76% for the first quarter of 2023, 73% for the fourth quarter of 2022 and 66% for the first quarter of 2022.

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,

First Fourth First

Quarter Quarter Quarter

(In thousands) 2023 2022 2022

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

Commercial/commercial real estate loan pipeline at period end $ 297,380 $ 395,652 619,547

Commercial/commercial real estate loans closed 321,665 489,605 372,986

Residential pipeline - saleable at period end 6,614 4,207 25,745

2 unchanged sentences

Residential loans - retained 1

90,058 74,272 175,457

Consumer pipeline at period end 11,640 36,585 61,613

Consumer originations 59,538 74,634 79,010

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

1 Includes purchases of $111.3 million in 1Q’22

Commercial originations during the first quarter of 2023 were $321.7 million, a decrease of $167.9 million, or 34%, compared to the fourth quarter of 2022, and a decrease of $51.3 million, or 14%, compared to the first quarter of 2022.

Commercial pipelines were $297.4 million as of March 31, 2023, a decrease of 25% from $395.7 million at December 31, 2022, and a decrease of 52% from $619.5 million at March 31, 2022.

The declines were the result of the impact of higher rates on new production volumes and a more selective approach on new credit facilities given a cautious economic outlook.

Residential loans originated for sale in the secondary market totaled $13.9 million in the first quarter of 2023, compared to $10.7 million in the fourth quarter of 2022 and $51.2 million in the first quarter of 2022.

Residential saleable pipelines were $6.6 million as of March 31, 2023, compared to $4.2 million as of December 31, 2022 and $25.7 million as of March 31, 2022.

Residential loan production retained in the portfolio for the first quarter of 2023 was $90.1 million, compared to $74.3 million in the fourth quarter of 2022 and $175.5 million in the first quarter of 2022.

The pipeline of residential loans intended to be retained in the portfolio was $48.4 million as of March 31, 2023, compared to $17.1 million as of December 31, 2022, and $88.0 million as of March 31, 2022.

The increase in pipelines in residential lending during the first quarter of 2023 was a result of mortgage rates moving lower in conjunction with a declining 10-year Treasury rate.

Consumer originations totaled $59.5 million during the first quarter of 2023, compared to $74.6 million in the fourth quarter of 2022 and $79.0 million in the first quarter of 2022.

The consumer pipeline was $11.6 million as of March 31, 2023, compared to $36.6 million as of December 31, 2022 and $61.6 million at March 31, 2022.

The Company expects consumer demand to be lower moving forward as a result of higher rates.

Average investment securities increased $15.3 million, or 1%, during the first quarter of 2023 compared to the fourth quarter of 2022, and were $286.0 million, or 12%, higher compared to the first quarter of 2022.

Increases in the first quarter of 2023 include securities added through the Professional acquisition, partially offset by pay downs and maturities.

The cost of average interest-bearing liabilities increased 95 basis points in the first quarter of 2023 to 143 basis points from 48 basis points in the fourth quarter of 2022, and from 12 basis points in the first quarter of 2022.

The cost of average total deposits (including noninterest bearing demand deposits) was 77 basis points in the first quarter of 2023, 21 basis points in the fourth quarter of 2022 and 6 basis points in the first quarter of 2022.

During the first quarter of 2023, average noninterest demand deposits increased $61.0 million compared to the fourth quarter of 2022 and increased $1.0 billion compared to the first quarter of 2022.

The Company’s deposit mix remains favorable, with 93% of average deposit balances comprised of savings, money market, and demand deposits for the three months ended March 31, 2023.

Average balances of sweep repurchase agreements with customers increased $38.8 million, or 29%, from the fourth quarter.

For the three months ended March 31, 2023, the average balance was $173.5 million compared to an average balance of $134.7 million for the three months ended December 31, 2022, and $118.1 million for the three months ended March 31, 2022.

The average rate on customer sweep repurchase accounts was 2.02% for the three months ended March 31, 2023, compared to 1.60% for the three months ended December 31, 2022, and 0.13% for the three months ended March 31, 2022.

Subordinated debt balances averaged $98.4 million in the first quarter of 2023, $83.5 million in the fourth quarter of 2022, and $71.7 million in the first quarter of 2022.

The average rate on subordinated debt for the first quarter of 2023 was 6.65%, an increase of 79 basis points compared to the fourth quarter of 2022 and an increase of 418 basis points compared to the first quarter of 2022.

The subordinated debt is comprised of trust preferred securities issued by subsidiary trusts of the Company, and subordinated notes assumed in bank acquisitions in 2022 and 2023.

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

Third Quarter Second Quarter Third Quarter

First Quarter Fourth Quarter First Quarter

Average Yield/ Average Yield/ Average Yield/

5 unchanged sentences

Federal funds sold 106,778 1,294 4.91 155,815 1,410 3.59 738,588 350 0.19

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.

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

Year to Date Year to Date

Average Yield/ Average Yield/

(In thousands, except ratios) Balance Interest Rate Balance Interest Rate

Earning assets:

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

Interest bearing deposits with other banks and other investments 178,463 2,180 4.95 141,179 1,717 4.83 44,999 583 5.25

Loans excluding PPP loans 9,363,873 135,329 5.86 7,905,843 105,398 5.29 6,276,964 65,675 4.24

2 unchanged sentences

Total Earning Assets 12,370,835 158,190 5.19 10,908,782 127,258 4.63 9,552,915 78,349 3.33

Allowance for loan losses (89,700) (88,717)

Allowance for credit losses (139,989) (109,509) (87,467)

Cash and due from banks 156,235 137,839 365,835

2 unchanged sentences

Bank owned life insurance 274,517 237,062 205,500

Other assets 220,790 167,775

Other assets including deferred tax assets 419,601 329,175 211,536

Total Assets $ 13,947,976 $ 12,139,856 $ 10,628,516

6 unchanged sentences

Securities sold under agreements to repurchase 173,498 864 2.02 134,709 544 1.60 118,146 39 0.13

Other borrowings 71,743 1,823 3.40 71,460 1,266 2.37

Federal Home Loan Bank borrowings 282,444 2,776 3.99 40,712 330 3.22 — — —

Subordinated debt 98,425 1,614 6.65 83,534 1,234 5.86 71,670 436 2.47

Total Interest-Bearing Liabilities 7,585,346 26,839 1.43 6,170,130 7,400 0.48 5,749,888 1,710 0.12

12 unchanged sentences

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 totaled $22.4 million for the first quarter of 2023, an increase of $4.8 million, or 27%, compared to the fourth quarter of 2022 and an increase of $7.1 million, or 46%, from the first quarter of 2022.

Noninterest income is detailed as follows:

Third Second Third Nine Months Ended

Quarter Quarter Quarter September 30,

First Fourth First

Quarter Quarter Quarter

(In thousands) 2023 2022 2022

3 unchanged sentences

Mortgage banking fees 426 426 1,686

Marine finance fees 209 312 152 712 518

Insurance agency income 1,101 805 —

SBA gains 322 105 156

2 unchanged sentences

22,338 17,633 15,825

Securities losses, net (362) (300) (30) (1,114) (199)

Securities gains (losses), net 107 18 (452)

Total $ 22,445 $ 17,651 $ 15,373

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.

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.

Service charges on deposits were $4.2 million in the first quarter of 2023, $4.0 million in the fourth quarter of 2022 and $2.8 million in the first quarter of 2022.

Increases in fees primarily reflect the benefit of an expanded deposit base, including from acquisitions.

Overdraft-related fees for both consumer and commercial accounts represent 38% of total service charges on deposits for the three months ended March 31, 2023, 37% for the three months ended December 31, 2022 and 43% for the three months ended March 31, 2022.

Interchange income was $4.7 million in both the first quarter of 2023, and the fourth quarter of 2022, compared to $4.1 million for the first quarter of 2022.

Wealth management income, including trust fees and brokerage commissions and fees, was $3.1 million in the first quarter of 2023, compared to $2.9 million for the fourth quarter of 2022 and $2.7 million for the first quarter of 2022.

The wealth management team continues to demonstrate notable success in building relationships.

The group added another $123 million in assets under management in the first quarter of 2023, bringing overall total assets under management to $1.5 billion, up 24% from the prior year.

Mortgage banking fees were $0.4 million in both the first quarter of 2023 and in the fourth quarter of 2022, and $1.7 million in the first quarter of 2022.

Mortgage banking fees decreased $1.3 million, or 75%, compared to the first quarter of 2022, reflecting lower saleable production due to significantly higher interest rates and limited housing inventory.

Insurance agency income increased $0.3 million, or 37%, compared to the fourth quarter of 2022 and totaled $1.1 million.

The Company acquired a commercial insurance agency during the fourth quarter of 2022 in conjunction with the acquisition of Drummond, adding another source of noninterest income.

SBA gains were $0.3 million in the first quarter of 2023, compared to $0.1 million in the fourth quarter of 2022, and $0.2 million in the first quarter of 2022.

Bank owned life insurance (“BOLI”) income was $1.9 million for the first quarter of 2023, an increase of $0.4 million, or 26%, compared to the fourth quarter of 2022 and an increase of $0.6 million, or 44%, compared to the first quarter of 2022.

The increases are attributed to additions of $53.1 million in BOLI for the fourth quarter of 2022 and $55.1 million in the first quarter of 2023 from bank acquisitions.

Other income was $6.6 million in the first quarter of 2023, an increase of $3.3 million quarter-over-quarter and an increase of $3.5 million year-over-year.

Changes amongst periods are attributable to increases in SBIC investment income of $0.4 million, loan-swap related income of $0.3 million, and BOLI death benefits of $2.1 million.

Securities gains in the first quarter of 2023 totaled $0.1 million, resulting from the increase in mark to market adjustments on the Company’s CRA qualified mutual funds.

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,

Noninterest expense for the first quarter of 2023 totaled $107.5 million, an increase of $16.0 million, or 17%, compared to the fourth quarter of 2022, and an increase of $48.6 million, or 82%, from the first quarter of 2022.

Noninterest expenses are detailed as follows:

First Fourth First

Quarter Quarter Quarter

(In thousands) 2023 2022 2022

Salaries and wages $ 47,616 $ 45,405 $ 28,219

Employee benefits 8,562 5,300 5,501

Outsourced data processing costs 14,553 9,918 6,156

Telephone/data lines 1,081 1,185 733

Occupancy 6,938 5,457 3,986

Furniture and equipment 2,267 1,944 1,426

Marketing 2,238 1,772 1,171

Legal and professional fees 7,479 9,174 4,789

FDIC assessments 1,443 889 789

Amortization of intangibles 6,727 4,763 1,446

Foreclosed property expense and net loss (gain) on sale 195 (411) (164)

Provision for credit losses on unfunded commitments 1,239 — 142

Other 7,137 6,114 4,723

Total $ 107,475 $ 91,510 $ 58,917

Salaries and wages totaled $47.6 million for the first quarter of 2023, $45.4 million for the fourth quarter of 2022, and $28.2 million for the first quarter of 2022.

The first quarter of 2023 reflects $4.2 million in merger-related expenses compared to $5.7 million in the fourth quarter of 2022 and $3.0 million in the first quarter of 2022.

Excluding merger-related expenses, the increases in the first quarter of 2023 compared to the fourth quarter of 2022 and to the prior year quarter were the result of the net addition of branch locations and associates, as well as new bankers and operational staff associated with the acquisitions.

During the first quarter of 2023, 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 $8.6 million, an increase of $3.3 million, or 62%, compared to the fourth quarter of 2022, and an increase of $3.1 million, or 56%, compared to the first quarter of 2022.

The increases from both the fourth quarter of 2022 and the first quarter of 2022 reflect higher seasonal payroll taxes, 401(k) contributions and healthcare-related costs attributed to higher headcount.

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 $14.6 million, $9.9 million, and $6.2 million for the first quarter of 2023, fourth quarter of 2022, and first quarter of 2022, respectively.

Higher expenses in the first quarter of 2023 included $6.6 million in direct acquisition-related costs, compared to $2.6 million in the fourth quarter of 2022 and $0.6 million in the first quarter of 2022.

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 $1.1 million, $1.2 million, and $0.7 million for the first quarter of 2023, fourth quarter of 2022, and first quarter of 2022, respectively.

Total occupancy, furniture and equipment expenses were $9.2 million in the first quarter of 2023, $7.4 million in the fourth quarter of 2022, and $5.4 million in the first quarter of 2022.

Increases in the first quarter reflect the impact of the Company’s expansion of its footprint across Florida.

Marketing expenses totaled $2.2 million in the first quarter of 2023, $1.8 million in the fourth quarter of 2022, and $1.2 million in the first quarter of 2022.

Legal and professional fees for the first quarter of 2023 were $7.5 million, a decrease of $1.7 million, or 18%, compared to the fourth quarter of 2022, and an increase of $2.7 million, or 56%, compared to the first quarter of 2022.

Acquisition-related expenses were $4.8 million in the first quarter of 2023, $6.5 million in the fourth quarter of 2022, and $2.9 million in the first quarter of 2022.

FDIC assessments were $1.4 million for the first quarter of 2023, $0.9 million in the fourth quarter of 2022, and $0.8 million in the first quarter of 2022.

Amortization of intangibles increased by $2.0 million compared to the fourth quarter of 2022 and $5.3 million compared to the first quarter of 2022.

The acquisition of Professional added $48.9 million in core deposit intangible assets, which will be amortized using an accelerated amortization method.

Foreclosed property expense and net loss (gain) on sale was $0.2 million in the first of 2023, net gain of $0.4 million in the fourth quarter of 2022, and net gain of $0.2 million in the first quarter of 2022.

A provision of $1.2 million was recorded for potential credit losses on unfunded lending commitments in the first quarter of 2023, which included $1.0 million associated with the acquisition of Professional.

This compares to no provision recorded during the fourth quarter of 2022, and $0.1 million for the first quarter of 2022.

Other expenses totaled $7.1 million, $6.1 million and $4.7 million for the first quarter of 2023, the fourth quarter of 2022 and the first quarter of 2022, respectively.

Increases reflect higher costs in general business and customer support activities resulting from growth in the customer base and the expanded branch footprint.

For the first quarter of 2023, 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 65.43%, compared to 63.39% for the fourth quarter of 2022 and 62.33% for the first quarter of 2022.

The adjusted efficiency ratio 1 was 53.10% in the first quarter of 2023, compared to 51.52% in the fourth quarter of 2022 and 54.86% in the first quarter of 2022.

In the first quarter of 2023, adjusted noninterest expense 1 as a percent of average tangible assets was 2.47%, compared to 2.42% for the fourth quarter of 2022 and 1.99% for the first quarter of 2022.

The Company expects that the adjusted efficiency ratio 1 will benefit from merger-related expense synergies beginning in the third quarter of 2023.

First Fourth First

Quarter Quarter Quarter

(In thousands, except ratios) 2023 2022 2022

1 unchanged sentence

Merger related charges

Salaries and wages (4,240) (5,680) (2,953)

Outsourced data processing costs (6,551) (2,582) (632)

Legal and professional fees (4,789) (6,485) (2,883)

Other categories (1,952) (1,393) (224)

Total merger related charges (17,532) (16,140) (6,692)

Amortization of intangibles (6,727) (4,763) (1,446)

13 unchanged sentences

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.

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

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.

The Company continues to be keenly focused on disciplined expense control and expects to benefit from merger-related expense synergies beginning in the third quarter of 2023.

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.

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.

The provision for credit losses was $31.6 million for the first quarter of 2023, compared to $14.1 million for the fourth quarter of 2022 and $6.6 million for the first quarter of 2022.

Each quarter included an increase in provision related to loans acquired through bank acquisitions, representing $26.6 million, $15.0 million, and $5.1 million, respectively.

The provision for credit losses in the first quarter of 2023 on the Professional acquisition was in line with the allowance coverage rate expected at the announcement of the transaction.

For the first quarter of 2023, the Company recorded tax expense of $2.7 million, compared to $7.8 million in the fourth quarter of 2022 and $5.8 million in the first quarter of 2022, with an effective tax rate of 18.6%, 24.6% and 22.1%, respectively.

The first quarter of 2023 included a discrete benefit of $0.6 million related to the BOLI distribution, which combined with lower overall pre-tax income, resulted in a lower effective tax rate when compared to prior quarters.

Tax benefits related to stock-based compensation totaled $0.2 million in the first quarter of 2023, $0.2 million in the fourth quarter of 2022, and $0.5 million in the first quarter of 2022.

The presentation of adjusted results excludes the discrete benefit associated with BOLI, and applies an incremental tax rate of 25.3% on adjusted expenses.

The resulting effective tax rate on adjusted net income 1 is 22.7%.

Explanation of Certain Unaudited Non-GAAP Financial Measures

8 unchanged sentences

Reconciliation of Non-GAAP Measures

Third Second Third Nine Months Ended

Quarter Quarter Quarter September 30,

First Fourth First

Quarter Quarter Quarter

(In thousands, except per share data) 2023 2022 2022

3 unchanged sentences

Securities losses, net (107) (18) 452

BOLI benefits on death (included in other income) (2,117) — —

Total adjustments to noninterest income (2,224) (18) 452

1 unchanged sentence

Noninterest Expense 107,475 91,510 58,917

Merger-related charges (2,054) (3,039) (6,281) (11,785) (7,371)

Salaries and wages (4,240) (5,680) (2,953)

Outsourced data processing costs (6,551) (2,582) (632)

Legal and professional fees (4,789) (6,485) (2,883)

Other categories (1,952) (1,393) (224)

Total merger-related charges (17,532) -17532000 (16,140) (6,692)

Amortization of intangibles (6,727) (4,763) (1,446)

5 unchanged sentences

Tax effect of adjustments 5,912 5,062 2,196

Total adjustments to income taxes 1,222 1,213 2,081 4,631 3,256

Adjusted income taxes 8,609 12,856 8,030

12 unchanged sentences

Adjusted Efficiency Ratio 53.10 % 51.52 % 54.86 %

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 $ 131,152 $ 119,709 $ 76,522

3 unchanged sentences

Noninterest expense 107,475 91,510 58,917

First Fourth First

Quarter Quarter Quarter

(In thousands, except per share data) 2023 2022 2022

Pre-Tax Pre-Provision Earnings 46,321 45,999 33,095

2 unchanged sentences

Adjusted Pre-Tax Pre-Provision Earnings $ 71,081 $ 66,649 $ 41,737

Third Second Third Nine Months Ended

Quarter Quarter Quarter September 30,

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

Average Assets $ 13,947,976 $ 12,139,856 $ 10,628,516

17 unchanged sentences

Accretion on acquired loans (15,942) (9,710) (3,717)

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

Loan interest income excluding accretion on acquired loans 2

$ 119,399 $ 95,727 $ 63,481

2 unchanged sentences

Impact of accretion on acquired loans (0.69) (0.49) (0.24)

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

Yield on loans excluding accretion on acquired loans 2

5.17 % 4.80 % 4.06 %

2 unchanged sentences

Accretion on acquired loans (15,942) (9,710) — (3,717)

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

Net interest income excluding accretion on acquired loans 2

$ 115,409 $ 110,148 — $ 72,922

2 unchanged sentences

Impact of accretion on acquired loans (0.53) (0.35) — (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

Net interest margin excluding accretion on acquired loans 2

3.78 % 4.01 % 3.10 %

3 unchanged sentences

Loan interest income excluding tax equivalent adjustment $ 135,168 $ 105,322 $ 67,118

Third Second Third Nine Months Ended

Quarter Quarter Quarter September 30,

First Fourth First

Quarter Quarter Quarter

(In thousands, except per share data) 2023 2022 2022

12 unchanged sentences

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.

Total assets as of March 31, 2023 were $15.3 billion, an increase of $3.1 billion, or 26%, from December 31, 2022.

The increase primarily reflects the acquisition of Professional on January 31, 2023, which added $2.7 billion in assets.

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

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

At March 31, 2023, the Company had $2.0 billion in securities available-for-sale and $737.9 million in securities held-to-maturity.

The Company's total debt securities portfolio increased $134.7 million, or 5%, from December 31, 2022.

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.

During the three months ended March 31, 2023, there were $22.4 million of debt securities purchased, $167.1 million acquired through the acquisition of Professional and $48.7 million in paydowns and maturities over the same period.

$22.1 million of the securities acquired from Professional were immediately sold with no gain or loss recognized.

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 modified duration of the available-for-sale portfolio at March 31, 2023 was 3.8 years, compared to 3.7 years at December 31, 2022.

At March 31, 2023, available-for-sale securities had gross unrealized losses of $224.8 million and gross unrealized gains of $1.6 million, compared to gross unrealized losses of $248.7 million and gross unrealized gains of $1.1 million at December 31, 2022.

The increase in market value was the result of the change in benchmark interest rates and product 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.

As of March 31, 2023, 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.

5 unchanged sentences

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

Non-guaranteed agency commercial

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

Non-guaranteed agency commercial securities totaled $17.0 million, with a fair value of $16.3 million.

These securities have weighted average credit support of 33%.

2 unchanged sentences

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.

As of March 31, 2023, all of the Company’s collateralized loan obligations were in AAA/AA tranches with average credit support of 32%.

The Company utilizes credit models with assumptions of loan level defaults, recoveries, and

prepayments to evaluate each security for potential credit losses.

The result of this analysis did not indicate expected credit losses.

Held-to-maturity securities consist solely of mortgage-backed securities and collateralized mortgage obligations guaranteed by government agencies.

At 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.

Held-to-maturity securities consist solely of mortgage-backed securities and collateralized mortgage obligations guaranteed by U.S.

government agencies, each of which is expected to recover any price depreciation over its holding period as the debt securities move to maturity.

The Company has significant liquidity and available borrowing capacity through other sources if needed, and has the intent and ability to hold these investments to maturity.

At March 31, 2023, 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.

Therefore, at March 31, 2023, 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.

Loans, net of unearned income and excluding the allowance for credit losses, were $10.1 billion at March 31, 2023, a $2.0 billion increase from December 31, 2022.

The increase during the first quarter of 2023 included $2.0 billion added through the Professional acquisition.

The Company remains committed to sound risk management procedures.

Portfolio diversification in terms of asset mix, industry, and loan type has been an important element of the Company's lending strategy.

The average loan size is only $289 thousand, and the average commercial loan size is only $717 thousand at March 31, 2023, reflecting the Company's longtime focus on granularity and on creating valuable customer relationships.

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”).

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

The following table details loan portfolio composition at March 31, 2023 and December 31, 2022 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.

March 31, 2023

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

2 unchanged sentences

Commercial real estate - non-owner occupied 1,787,839 1,476,543 147,669 3,412,051

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

Residential real estate 1,589,025 739,396 25,973 2,354,394

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

Commercial and financial 1,143,961 447,593 58,931 1,650,485

Consumer 169,088 128,865 3,787 301,740

Paycheck Protection Program 1,616 3,678 — 5,294

PPP Loans 1,101 4,298 — 5,399

Totals $ 6,048,453 $ 3,780,684 $ 305,258 $ 10,134,395

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, 2022

6 unchanged sentences

Consumer 177,338 89,458 19,791 286,587

Paycheck Protection Program 69,503 21,604 — 91,107

PPP Loans 1,474 3,116 — 4,590

Totals $ 5,944,193 $ 1,965,749 $ 234,782 $ 8,144,724

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 amortized cost basis of loans at March 31, 2023 included net deferred costs of $35.7 million and included $35.1 million at December 31, 2022.

At March 31, 2023, the remaining fair value adjustments on acquired loans were $216.0 million, or 5.0%, of the outstanding acquired loan balances, compared to $97.7 million, or 4.3%, of the acquired loan balances at December 31, 2022.

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.

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.

The following table details commercial real estate - non-owner occupied loans.

March 31, 2023

(In thousands) Amortized Cost Basis % of Total Loans

Commercial real estate - non-owner occupied

Retail $ 1,005,724 9.92 %

Office 618,377 6.10

Multifamily 5+ 475,261 4.69

Hotel/Motel 407,388 4.02

Industrial/Warehouse 358,620 3.54

Other 546,681 5.39

Total commercial real estate - non-owner occupied $ 3,412,051 33.66 %

Commercial real estate (“CRE”) non-owner occupied loans increased by $822.3 million in the three months ended March 31, 2023, totaling $3.4 billion at March 31, 2023 compared to $2.6 billion at December 31, 2022.

Non-owner occupied CRE loans are collateralized by properties where the source of repayment is typically from the sale or lease of the property.

Within the non-owner occupied CRE portfolio, the largest segment is Retail properties, which totaled approximately $1.0 billion at March 31, 2023.

This segment targets grocery or credit tenant-anchored shopping plazas, single credit tenant retail buildings, smaller outparcels, and other small retail units.

Loans in this segment have a weighted average loan to value of 52% and an average loan size of $1.9 million.

The second-largest segment in the non-owner occupied CRE portfolio is Office properties, which totaled approximately $618 million at March 31, 2023.

This segment targets low- to mid-rise suburban offices, and is broadly diversified across many types of professional services.

There is limited exposure to central business districts.

Loans in this segment have a weighted average loan to value of 55% and an average loan size of $1.6 million.

Owner-occupied CRE loans increased by $174.2 million in the three months ended March 31, 2023 to $1.7 billion.

Owner-occupied CRE is used by the owner, where the primary source of repayment is the cash flow from business operations housed within the property.

Commercial and financial loans are extended to commercial customers for working capital, physical asset expansion, asset acquisition or other business purposes.

Balances increased from December 31, 2022 by $301.8 million, or 22%, totaling $1.7 billion at March 31, 2023, largely attributed to the Professional acquisition.

Residential mortgage loans increased $504.9 million to $2.4 billion as of March 31, 2023.

Included in the balance as of March 31, 2023, were $1.1 billion of fixed rate mortgages, $823.4 million of adjustable rate mortgages and $479.0 million in primarily floating rate home equity lines of credit (“HELOCs”), compared to $964.3 million, $402.3 million and $482.9 million, respectively, at December 31, 2022.

The increases from December 31, 2022 include approximately $483.6 million acquired through the Professional acquisition.

Borrowers in the residential real estate portfolio have an average credit score of 757.

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.

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

The average LTV of our HELOC portfolio is 63%, with 32% of the loans being in first lien position at March 31, 2023, compared to an average LTV of 69%, with 31% of the portfolio being in the first lien position at December 31, 2022.

The Company also provides consumer loans, which include installment loans, auto loans, marine loans, and other consumer loans, which increased $15.2 million, or 5%, to total $301.7 million at March 31, 2023, compared to $286.6 million at December 31, 2022.

At March 31, 2023, the Company had unfunded commitments to extend credit of $3.8 billion, compared to $2.8 billion at December 31, 2022.

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.

Outstanding balances for commercial and CRE loans individually greater than $15 million totaled $585.6 million and represented 6% of the total portfolio at March 31, 2023.

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.

Construction and land development and CRE loan concentrations as a percentage of subsidiary bank total risk based capital were 48% and 258%, respectively, at March 31, 2023, compared to 45% and 230%, respectively, at December 31, 2022.

The increase quarter over quarter was primarily the result of the acquisition of Professional Bank.

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

3 unchanged sentences

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.

Nonperforming Loans, Troubled Borrower Modifications, Other Real Estate Owned and Credit Quality

Nonperforming assets (“NPAs”) at March 31, 2023 totaled $58.5 million, and were comprised of $50.8 million of nonaccrual loans, and $7.8 million of other real estate owned (“OREO”).

Compared to December 31, 2022, nonaccrual loans increased $21.9 million, primarily the result of the addition of one CRE non-owner occupied relationship.

The $5.5 million increase in OREO is the result of closures of three branch properties.

Overall, NPAs increased $27.4 million from $31.1 million as of December 31, 2022.

At March 31, 2023, approximately 75% 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.

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

At March 31, 2023, nonaccrual loans reflected cumulative write downs of approximately $9.2 million, including reserves on individually evaluated loans.

Nonperforming loans to total loans outstanding at March 31, 2023 increased to 0.50% from 0.35% at December 31, 2022.

Nonperforming assets to total assets at March 31, 2023 increased to 0.38% from 0.26% at December 31, 2022.

The table below sets forth details related to nonaccrual loans.

March 31, 2023

Nonaccrual Loans

(In thousands) Non-Current Current Total

7 unchanged sentences

December 31, 2022

Nonaccrual Loans Accruing

Restructured Loans

Nonaccrual Loans

(In thousands) Non-Current Current Total

6 unchanged sentences

Total $ 9,365 $ 19,478 $ 28,843

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.

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.

2 unchanged sentences

The loan carrying value is analyzed and any changes are appropriately made as described above quarterly.

On January 1, 2023, the Company adopted ASU 2022-02 which includes disclosure requirements related to certain modifications of loans to borrowers experiencing financial difficulty, which the Company refers to as troubled borrower modifications (“TBMs”).

TBMs are typically in the form of an interest rate reduction, an extension of the amortization period and/or converting the loan to interest only for a limited period of time.

In addition to the change in payment terms, the Company seeks to obtain additional collateral and/or guarantors to provide additional support for the loan.

The Company does not typically provide forgiveness of principal as a modification.

During the quarter ending March 31, 2023, there was one loan totaling $29 thousand that was a TBM, which is considered immaterial.

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.

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

The forecasts of future economic conditions are over a period that has been deemed reasonable and supportable, and in segments where 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.

Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments.

During the three months ended March 31, 2023, the Company recorded a provision of $31.6 million, including $26.6 million for loans acquired in the Professional acquisition.

The Company reported net charge-offs for the first quarter of 2023 of $3.2 million and, for the four most recent quarters, net charge-offs averaged 0.05% of outstanding loans.

The ratio of allowance for credit losses to total loans was 1.54% at March 31, 2023, 1.40% at December 31, 2022, and 1.39% at March 31, 2022.

LIBOR Transition

2 unchanged sentences

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.

In 2021, the Company ceased issuance of new LIBOR loans, and as of March 31, 2023, the Company has approximately $277.2 million in existing loans for which the repricing index is tied to LIBOR.

The Company is actively working to address contracts without an alternative rate or sufficient fallback language in advance of cessation of LIBOR in June 2023;

however, the Company expects to leverage the LIBOR Act for its intended purpose, to address LIBOR exposures when necessary.

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

2 unchanged sentences

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.

At this time, alternative reference rates are predominantly SOFR based.

Cash and Cash Equivalents and Liquidity Risk Management

3 unchanged sentences

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.

Cash and cash equivalents, including interest bearing deposits, totaled $791.2 million at March 31, 2023, compared to $201.9 million at December 31, 2022.

Higher cash and cash equivalent balances at March 31, 2023 reflect the Company’s increased liquidity position strategy during the quarter.

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.

Uninsured deposits represented only 36% of overall deposit accounts at March 31, 2023.

This includes public funds under the Florida Qualified Public Depository program, which provides loss protection to depositors beyond FDIC insurance limits.

Excluding such balances, the uninsured and uncollateralized deposits were 32% of total deposits.

The Company routinely uses debt securities and loans as collateral for secured borrowings.

In the event of severe market

disruptions, the Company has access to secured borrowings through the FHLB and the Federal Reserve Bank of Atlanta under its borrower-in-custody program.

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

Brokered deposits at 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.

In the event of severe market disruptions, the Company has access to secured borrowings through the FHLB and the Federal Reserve Bank of Atlanta under its borrower-in-custody program.

The Company has liquidity sources as discussed below, including cash and lines of credit with the Federal Reserve and FHLB, that represent 141% of uninsured deposits, and 163% of uninsured and uncollateralized deposits.

In addition to $0.8 billion in cash and cash equivalents at March 31, 2023, the Company had $5.6 billion in available borrowing capacity, including $4.6 billion in available collateralized lines of credit, $0.7 billion of unpledged debt securities available as collateral for potential additional borrowings, and available unsecured lines of credit of $0.3 billion.

Included in available borrowing capacity is approximately $0.4 billion under the Federal Reserve's Bank Term Funding Program, which the Company has not utilized and does not plan to utilize.

The Company may also access funding by acquiring brokered deposits.

Brokered deposits at March 31, 2023, December 31, 2022, and March 31, 2022 totaled $415.9 million, $58.6 million, and $126.2 million, respectively.

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

1 unchanged sentence

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.

During the first quarter of 2023, Seacoast Bank distributed $9.9 million to the Company and, at March 31, 2023, is eligible to distribute dividends to the Company of approximately $141.9 million without prior regulatory approval.

At March 31, 2023, the Company had cash and cash equivalents at the parent of approximately $128.8 million, compared to $111.8 million at December 31, 2022.

Deposits and Borrowings

Customer relationship funding is detailed in the following table for the periods specified:

September 30, December 31,

March 31, December 31,

(In thousands, except ratios) 2023 2022

8 unchanged sentences

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.

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.

Consumer deposits represent 40% of total deposits, with an average balance per account of $22 thousand.

Business deposits represent 60% of total deposits, with an average balance per account of $101 thousand.

Highlighting the Company's longstanding relationship-based strategy, the average tenure for a Seacoast customer is 9.8 years.

Total deposits increased $2.3 billion, or 23%, to $12.3 billion at March 31, 2023, compared to $10.0 billion at December 31, 2022.

The increase primarily reflects the impact of the Professional acquisition, which added $2.1 billion in deposits during the first quarter of 2023.

Noninterest demand deposits represented 37% of total deposits at March 31, 2023 and 41% at December 31, 2022.

Transaction account balances (noninterest demand and interest-bearing demand) represented 59% of total deposits at March 31, 2023, compared to 64% at December 31, 2022.

Though the proportion of total deposits decreased as a result of the addition of higher-rate deposits during the quarter, balances in transaction accounts remained steady throughout the period.

Customer repurchase agreements totaled $267.6 million at March 31, 2023, increasing $95.6 million from December 31, 2022.

Repurchase agreements are offered by Seacoast to select customers who wish to sweep excess balances on a daily basis for investment purposes, and during the first quarter of 2023, approximately $100 million in deposits migrated to customer sweep balances.

At March 31, 2023 and December 31, 2022, borrowings included $72.0 million and $71.6 million, respectively, related to trust preferred securities issued by trusts organized or acquired by the Company.

On October 7, 2022 the Company acquired $12.3 million in subordinated debt through the acquisition of Apollo.

Contractual interest is paid on a semiannual basis at a fixed rate of 5.50% until April 30, 2025, at which point the rate converts to a floating rate of 3-month SOFR plus 533 basis points.

The debt was recorded at fair value, resulting in a $0.4 million premium that is being amortized into interest expense over the remaining term to maturity.

On January 31, 2023, the Company assumed subordinated debt in the acquisition of Professional having an outstanding principal amount of $25.0 million and estimated fair value of $21.1 million.

The acquired debt carries a fixed interest rate of 3.375% until 2027, then converts to a floating rate note until maturity in 2032.

The weighted average interest rate of outstanding subordinated debt was 6.65% and 2.47% for the three months ended March 31, 2023 and March 31, 2022, respectively.

The Company increased borrowings to bolster its liquidity position during the first quarter.

Federal Home Loan Bank advances totaled $385.0 million at March 31, 2023 with a weighted average interest rate of 4.26%.

Off-Balance Sheet Transactions

8 unchanged sentences

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.

Unfunded commitments to extend credit were $3.8 billion at March 31, 2023 and $2.8 billion at December 31, 2022.

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.

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

The Company’s equity capital at March 31, 2023 increased $443.3 million, or 28%, from December 31, 2022 to $2.1 billion.

Changes in equity included increases from net income of $11.8 million, the issuance of $421.0 million in equity in connection with the Professional acquisition, and an increase in accumulated other comprehensive income of $18.6 million, partially offset by the issuance of a common stock dividend totaling $14.4 million.

The ratio of shareholders’ equity to period end total assets was 13.44% and 13.24% at March 31, 2023 and December 31, 2022, respectively.

The ratio of tangible shareholders’ equity to tangible assets was 8.36% and 9.08% at March 31, 2023 and December 31, 2022, respectively.

The decrease during the first quarter of 2023 was due to growth in the balance sheet from the Professional acquisition.

Changes in the value of held-to-maturity securities are not reflected under GAAP;

however, illustratively, if all held-to-maturity securities were presented at fair value, the tangible common equity ratio would have been 7.77% at March 31, 2023.

Activity in shareholders’ equity for the three months ended March 31, 2023 and 2022 follows:

(In thousands) 2023 2022

7 unchanged sentences

Change in accumulated other comprehensive income 18,600 (66,040)

Ending balance at September 30, 2022 and 2021

Ending balance at March 31, 2023 and 2022

$ 2,051,084 $ 1,356,285

1 unchanged sentence

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.

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

March 31, 2023 Seacoast

(Consolidated) Seacoast

5 unchanged sentences

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’s total risk-based capital ratio was 14.62% at March 31, 2023, a decrease from 15.79% at December 31, 2022, primarily due to growth including the acquisition of Professional.

At March 31, 2023, the Bank’s leverage ratio (Tier 1 capital to adjusted total assets) was 10.32%, 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.

10 unchanged sentences

The Company has paid quarterly dividends since the second quarter of 2021.

Whether the Company continues to pay quarterly dividends and the amount of any such dividends will be at the discretion of the Company's Board of Directors and will depend

on the Company's earnings, financial condition, results of operations, business prospects, capital requirements, regulatory restrictions, and other factors that the Board of Directors may deem relevant.

Whether the Company continues to pay quarterly dividends and the amount of any such dividends will be at the discretion of the Company's Board of Directors and will depend on the Company's earnings, financial condition, results of operations, business prospects, capital requirements, regulatory restrictions, and other factors that the Board of Directors may deem relevant.

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

2 unchanged sentences

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.

The Company believes that its trust preferred securities qualify under these revised regulatory capital rules and believes that it can treat all its 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.

12 unchanged sentences

• 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.

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

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.

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

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.

The critical accounting policies are discussed in MD&A in Seacoast’s Annual Report on Form 10-K for the year ended December 31, 2022.

Significant accounting policies and changes in accounting principles and effects of recently issued accounting pronouncements are discussed in “Note 1 – Significant Accounting Policies” in Form 10-K for the year ended December 31, 2022.

Disclosures regarding the effects of new accounting pronouncements are included in “Note 1 – Basis of Presentation” in this report.

There have been no changes to the Company’s critical accounting policies during 2023.

Interest Rate Sensitivity

1 unchanged sentence

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.

The objective is to optimize the Company’s financial position, liquidity, and net interest income while limiting 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.

The simulation of rising, declining and flat interest rate scenarios allows management to monitor and adjust interest rate sensitivity to assess 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 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 April 1, 2023, holding all balances on the balance sheet static.

This change in interest rates assumes parallel shifts in the yield curve and does not consider changes in the slope of the yield curve.

In particular, the steepening or inversion of the yield curve as well as gradually changing interest rate changes could result in different outcomes when compared to the parallel shifts contemplated below.

% Change in Projected Baseline Net

5 unchanged sentences

-1.00% (2.3%) (4.8%)

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.

-2.00% (5.7%) (12.3%)

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.

Management may adjust asset or liability pricing or structure in order to manage interest rate risk through an interest rate cycle.

This may include the use of investment portfolio purchases or sales or the use of derivative financial instruments, such as interest rate swaps, options, caps, floors, futures or forward contracts.

Effects of Inflation and Changing Prices

3 unchanged sentences

As a result, interest rates have a more significant impact on a financial institution’s performance than the general level of inflation.

However, inflation affects financial institutions by increasing their cost of goods and services purchased, as well as the cost of

salaries and benefits, occupancy expense, and similar items.

However, inflation affects financial institutions by increasing their cost of goods and services purchased, as well as the cost of salaries and benefits, occupancy expense, and similar items.

Inflation and related increases in interest rates generally decrease the market value of investments and loans held and may adversely affect liquidity, earnings, and shareholders’ equity.

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.

Mortgage origination and refinancing tends 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.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis