SEACOAST BANKING CORP OF FLORIDA 10-Q

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The purpose of this discussion and analysis is to aid in understanding significant changes in the financial condition of Seacoast Banking Corporation of Florida and its subsidiaries (“Seacoast” or the “Company”) and their results of operations. Nearly all of the Company’s operations are contained in its banking subsidiary, Seacoast National Bank (“Seacoast Bank” or the “Bank”). Such discussion and analysis should be read in conjunction with the Company’s Condensed Consolidated Financial Statements and the related notes included in this report. The emphasis of this discussion will be on the three 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. See the following section for additional information regarding forward-looking statements. For purposes of the following discussion, the words “Seacoast” or the “Company” refer to the combined entities of Seacoast Banking Corporation of Florida and its direct and indirect wholly owned subsidiaries. Special Cautionary Notice Regarding Forward-Looking Statements Certain statements made or incorporated by reference herein which are not statements of historical fact, including those under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere herein, are “forward-looking statements” within the meaning, and protections, of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements with respect to the Company's beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, and intentions about future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond the Company's control, and which may cause the actual results, performance or achievements of Seacoast Banking Corporation of Florida (“Seacoast” or the “Company”) or its wholly-owned banking subsidiary, Seacoast National Bank (“Seacoast Bank”), to be materially different from those set forth in the forward-looking statements. All statements other than statements of historical fact could be forward-looking statements. You can identify these forward-looking statements through the use of words such as “may,” “will,” “anticipate,” “assume,” “should,” “support,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “further,” “plan,” “point to,” “project,” “could,” “intend,” “target” or other similar words and expressions of the future. These forward-looking statements may not be realized due to a variety of factors, including, without limitation: • The 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; • Changes in accounting policies, rules and practices; 38 Table of Contents • 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; • 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, 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; increases in regulatory capital requirements for banking organizations generally; • The risks of mergers, acquisitions and divestitures, including Seacoast’s ability to continue to identify acquisition targets, successfully acquire and integrate desirable financial institutions and realize expected revenues and revenue synergies; • Changes in technology or products that may be more difficult, costly, or less effective than anticipated; • The Company’s ability to identify and address increased cybersecurity risks; • 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 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”); • Seacoast’s ability to maintain adequate internal controls over financial reporting; • Potential claims, damages, penalties, fines and reputational damage resulting from pending or future litigation, regulatory proceedings and enforcement actions; • The risks that deferred tax assets could be reduced if estimates of future taxable income from the Company’s operations and tax planning strategies are less than currently estimated and sales of capital stock could trigger a reduction in the amount of net operating loss carryforwards that the Company may be able to utilize for income tax purposes; • The effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, non-bank financial technology providers, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in the Company’s market areas and 39 Table of Contents 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; 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; and • Other factors and risks described under “Risk Factors” herein and in any of the Company's subsequent reports filed with the SEC and available on its website at www.sec.gov. All written or oral forward-looking statements that are made or are attributable to Seacoast are expressly qualified in their entirety by this cautionary notice. The Company assumes no obligation to update, revise or correct any forward-looking statements that are made from time to time, either as a result of future developments, new information or otherwise, except as may be required by law. Business Developments 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. Results of Operations 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. 40 Table of Contents First Fourth First Quarter Quarter Quarter 2023 2022 2022 Return on average tangible assets 0.52 % 0.94 % 0.85 % Return on average tangible shareholders' equity 5.96 10.36 8.02 Efficiency ratio 65.43 63.39 62.33 Adjusted return on average tangible assets 1 0.90 % 1.36 % 1.06 % Adjusted return on average tangible shareholders' equity 1 10.34 15.05 10.01 Adjusted efficiency ratio 1 53.10 51.52 54.86 1 Non-GAAP measure - see “Explanation of Certain Unaudited Non-GAAP Financial Measures” for more information and a reconciliation to GAAP. Net Interest Income and Margin Net interest income for the 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: (In thousands, except ratios) Net Interest Income 1 Net Interest Margin 1 Yield on Earning Assets 1 Rate on Interest Bearing Liabilities 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 $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. 41 Table of Contents Loan production and late-stage pipelines (loans in underwriting and approval or approved and not yet closed) are detailed in the following table for the periods specified: First Fourth First Quarter Quarter Quarter (In thousands) 2023 2022 2022 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 Residential loans - sold 13,935 10,652 51,222 Residential pipeline - portfolio at period end 48,371 17,149 87,950 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 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. 42 Table of Contents 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. 43 Table of Contents The following tables detail average balances, net interest income and margin results (on a tax equivalent basis, a non-GAAP measure) for the periods presented: Average Balances, Interest Income and Expenses, Yields and Rates 1 2023 2022 First Quarter Fourth Quarter First Quarter Average Yield/ Average Yield/ Average Yield/ (In thousands, except ratios) Balance Interest Rate Balance Interest Rate Balance Interest Rate Assets Earning assets: Securities: Taxable $ 2,700,122 $ 19,244 2.85 % $ 2,680,813 $ 18,530 2.76 % $ 2,406,399 $ 10,041 1.67 % Nontaxable 16,271 131 3.22 20,246 164 3.24 24,042 177 2.94 Total Securities 2,716,393 19,375 2.85 2,701,059 18,694 2.77 2,430,441 10,218 1.68 Federal funds sold 106,778 1,294 4.91 155,815 1,410 3.59 738,588 350 0.19 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 PPP Loans 5,328 12 0.91 4,886 39 3.19 61,923 1,523 9.98 Total Loans 9,369,201 135,341 5.86 7,910,729 105,437 5.29 6,338,887 67,198 4.30 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 credit losses (139,989) (109,509) (87,467) Cash and due from banks 156,235 137,839 365,835 Premises and equipment 116,083 115,095 75,876 Intangible assets 750,694 521,412 304,321 Bank owned life insurance 274,517 237,062 205,500 Other assets including deferred tax assets 419,601 329,175 211,536 Total Assets $ 13,947,976 $ 12,139,856 $ 10,628,516 Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing demand $ 2,452,113 $ 3,207 0.53 % $ 2,303,324 $ 1,859 0.32 % $ 2,097,383 $ 190 0.04 % Savings 1,053,220 400 0.15 1,126,540 203 0.07 925,348 65 0.03 Money market 2,713,224 12,426 1.86 1,980,870 1,872 0.37 1,976,660 512 0.11 Time deposits 812,422 5,552 2.77 500,441 1,358 1.08 560,681 468 0.34 Securities sold under agreements to repurchase 173,498 864 2.02 134,709 544 1.60 118,146 39 0.13 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 Noninterest demand 4,334,969 4,273,922 3,336,121 Other liabilities 130,616 122,100 141,972 Total Liabilities 12,050,931 10,566,152 9,227,981 Shareholders' equity 1,897,045 1,573,704 1,400,535 Total Liabilities & Equity $ 13,947,976 $ 12,139,856 $ 10,628,516 Cost of deposits 0.77 % 0.21 % 0.06 % Interest expense as a % of earning assets 0.88 % 0.27 % 0.07 % 44 Table of Contents Net interest income as a % of earning assets $ 131,351 4.31 % $ 119,858 4.36 % $ 76,639 3.25 % 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. Noninterest Income 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: First Fourth First Quarter Quarter Quarter (In thousands) 2023 2022 2022 Service charges on deposit accounts $ 4,242 $ 3,996 $ 2,801 Interchange income 4,694 4,650 4,128 Wealth management income 3,063 2,886 2,659 Mortgage banking fees 426 426 1,686 Insurance agency income 1,101 805 — SBA gains 322 105 156 BOLI income 1,916 1,526 1,334 Other income 6,574 3,239 3,061 22,338 17,633 15,825 Securities gains (losses), net 107 18 (452) Total $ 22,445 $ 17,651 $ 15,373 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. 45 Table of Contents 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 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. 46 Table of Contents 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. 47 Table of Contents First Fourth First Quarter Quarter Quarter (In thousands, except ratios) 2023 2022 2022 Noninterest expense, as reported $ 107,475 $ 91,510 $ 58,917 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) Branch reductions and other expense initiatives (1,291) (176) (74) Adjusted noninterest expense 1 $ 81,925 $ 70,431 $ 50,705 Foreclosed property expense and net gain on sale (195) 411 164 Provision for credit losses on unfunded commitments (1,239) — (142) Net adjusted noninterest expense 1 $ 80,491 $ 70,842 $ 50,727 Efficiency ratio 65.43 % 63.39 % 62.33 % Adjusted efficiency ratio 1,2 53.10 51.52 54.86 Adjusted noninterest expense as a percent of average tangible assets 1,2 2.47 2.42 1.99 1 Non-GAAP measure - see “Explanation of Certain Unaudited Non-GAAP Financial Measures” for more information and a reconciliation to GAAP. 2 Adjusted efficiency ratio is defined as noninterest expense, including adjustments to noninterest expense divided by aggregated tax equivalent net interest income and noninterest income, including adjustments to revenue. 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 $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. Income Taxes 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%. 48 Table of Contents Explanation of Certain Unaudited Non-GAAP Financial Measures This report contains financial information determined by methods other than Generally Accepted Accounting Principles (“GAAP”). The financial highlights provide reconciliations between GAAP and adjusted financial measures including net income, fully taxable equivalent net interest income, noninterest income, noninterest expense, tax adjustments, net interest margin and other financial ratios. Management uses these non-GAAP financial measures in its analysis of the Company’s performance and believes these presentations provide useful supplemental information, and a clearer understanding of the Company’s performance. The Company believes the non-GAAP measures enhance investors’ understanding of the Company’s business and performance and if not provided would be requested by the investor community. These measures are also useful in understanding performance trends and facilitate comparisons with the performance of other financial institutions. The limitations associated with operating measures are the risk that persons might disagree as to the appropriateness of items comprising these measures and that different companies might define or calculate these measures differently. The Company provides reconciliations between GAAP and these non-GAAP measures. These disclosures should not be considered an alternative to GAAP. 49 Table of Contents Reconciliation of Non-GAAP Measures First Fourth First Quarter Quarter Quarter (In thousands, except per share data) 2023 2022 2022 Net income, as reported: Net income $ 11,827 $ 23,927 $ 20,588 Noninterest Income $ 22,445 $ 17,651 $ 15,373 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 Total Adjusted Noninterest Income $ 20,221 $ 17,633 $ 15,825 Noninterest Expense 107,475 91,510 58,917 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) Branch reductions and other expense initiatives 1 (1,291) (176) (74) Total adjustments to noninterest expense (25,550) (21,079) (8,212) Total Adjusted Noninterest Expense $ 81,925 $ 70,431 $ 50,705 Income Taxes $ 2,697 $ 7,794 $ 5,834 Tax effect of adjustments 5,912 5,062 2,196 Adjusted income taxes 8,609 12,856 8,030 Adjusted net income $ 29,241 $ 39,926 $ 27,056 Earnings per diluted share, as reported $ 0.15 $ 0.34 $ 0.33 Adjusted diluted earnings per share 0.36 0.56 0.44 Average diluted shares outstanding 80,717 71,374 61,704 Adjusted Noninterest Expense $ 81,925 $ 70,431 $ 50,705 Foreclosed property expense and net (loss) gain on sale (195) 411 164 Provision for credit losses on unfunded commitments (1,239) — (142) Net Adjusted Noninterest Expense $ 80,491 $ 70,842 $ 50,727 Revenue $ 153,597 $ 137,360 $ 91,895 Total adjustments to revenue (2,224) (18) 452 Impact of FTE adjustment 199 149 117 Adjusted revenue on a fully tax equivalent basis $ 151,572 $ 137,491 $ 92,464 Adjusted Efficiency Ratio 53.10 % 51.52 % 54.86 % Net Interest Income $ 131,152 $ 119,709 $ 76,522 Impact of FTE adjustment 199 149 117 Net interest income including FTE adjustment 131,351 119,858 76,639 Noninterest income 22,445 17,651 15,373 Noninterest expense 107,475 91,510 58,917 50 Table of Contents 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 Adjustments to noninterest income (2,224) (18) 452 Adjustments to noninterest expense (26,984) (20,668) (8,190) Adjusted Pre-Tax Pre-Provision Earnings $ 71,081 $ 66,649 $ 41,737 Average Assets $ 13,947,976 $ 12,139,856 $ 10,628,516 Less average goodwill and intangible assets (750,694) (521,412) (304,321) Average Tangible Assets $ 13,197,282 $ 11,618,444 $ 10,324,195 Return on Average Assets (ROA) 0.34 % 0.78 % 0.79 % Impact of removing average intangible assets and related amortization 0.18 0.16 0.06 Return on Average Tangible Assets (ROTA) 0.52 0.94 0.85 Impact of other adjustments for Adjusted Net Income 0.38 0.42 0.21 Adjusted Return on Average Tangible Assets 0.90 % 1.36 % 1.06 % Average Shareholders' Equity $ 1,897,045 $ 1,573,704 $ 1,400,535 Less average goodwill and intangible assets (750,694) (521,412) (304,321) Average Tangible Equity $ 1,146,351 $ 1,052,292 $ 1,096,214 Return on Average Shareholders' Equity 2.53 % 6.03 % 5.96 % Impact of removing average intangible assets and related amortization 3.43 4.33 2.06 Return on Average Tangible Common Equity (ROTCE) 5.96 10.36 8.02 Impact of other adjustments for Adjusted Net Income 4.38 4.69 1.99 Adjusted Return on Average Tangible Common Equity 10.34 % 15.05 % 10.01 % Loan Interest Income 2 $ 135,341 $ 105,437 $ 67,198 Accretion on acquired loans (15,942) (9,710) (3,717) Loan interest income excluding accretion on acquired loans 2 $ 119,399 $ 95,727 $ 63,481 Yield on Loans 2 5.86 % 5.29 % 4.30 % Impact of accretion on acquired loans (0.69) (0.49) (0.24) Yield on loans excluding accretion on acquired loans 2 5.17 % 4.80 % 4.06 % Net Interest Income 2 $ 131,351 $ 119,858 $ 76,639 Accretion on acquired loans (15,942) (9,710) — (3,717) Net interest income excluding accretion on acquired loans 2 $ 115,409 $ 110,148 — $ 72,922 — Net Interest Margin 2 4.31 % 4.36 % — 3.25 % Impact of accretion on acquired loans (0.53) (0.35) — (0.15) Net interest margin excluding accretion on acquired loans 2 3.78 % 4.01 % 3.10 % Loan Interest Income 2 $ 135,341 $ 105,437 $ 67,198 Tax equivalent adjustment to loans (173) (115) (80) Loan interest income excluding tax equivalent adjustment $ 135,168 $ 105,322 $ 67,118 51 Table of Contents First Fourth First Quarter Quarter Quarter (In thousands, except per share data) 2023 2022 2022 Securities Interest Income 2 $ 19,375 $ 18,694 $ 10,218 Tax equivalent adjustment to securities (26) (34) (37) Securities interest income excluding tax equivalent adjustment $ 19,349 $ 18,660 $ 10,181 Net Interest Income 2 $ 131,351 $ 119,858 $ 76,639 Tax equivalent adjustments to loans (173) (115) (80) Tax equivalent adjustments to securities (26) (34) (37) Net interest income excluding tax equivalent adjustments $ 131,152 $ 119,709 $ 76,522 1 Includes severance, contract termination costs, disposition of branch premises and fixed assets, and other costs to effect the Company's branch consolidation and other expense reduction strategies. 2 On a fully taxable equivalent basis. All yields and rates have been computed using amortized cost. Financial Condition Total assets as of 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. Securities Information related to yields, maturities, carrying values and fair value of the Company’s debt securities is set forth in “Note 3 – Securities” of the Company’s condensed consolidated financial statements. At 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 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 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 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. U.S. Treasury and U.S. government agencies and obligations of U.S. government sponsored entities totaled $2.2 billion, or 81%, of the total portfolio. The portfolio includes $175.6 million, with a fair value of $163.4 million, in private label residential and commercial mortgage-backed securities and collateralized mortgage obligations. Included are $158.6 million, with a fair value of $147.0 million, in private label mortgage-backed residential securities with weighted average credit support of 19%. The collateral underlying these mortgage investments includes both fixed-rate and adjustable-rate mortgage loans. 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%. The collateral underlying these mortgages is primarily pooled multifamily loans. The Company also has invested $312.1 million in floating rate collateralized loan obligations. Collateralized loan obligations are special purpose vehicles that purchase first lien broadly syndicated corporate loans while providing support to senior tranche investors. As of 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 52 Table of Contents 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 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 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 $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 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 Construction and land development $ 358,960 $ 370,353 $ 28,522 $ 757,835 Commercial real estate - owner occupied 998,479 613,636 40,376 1,652,491 Commercial real estate - non-owner occupied 1,787,839 1,476,543 147,669 3,412,051 Residential real estate 1,589,025 739,396 25,973 2,354,394 Commercial and financial 1,143,961 447,593 58,931 1,650,485 Consumer 169,088 128,865 3,787 301,740 PPP Loans 1,101 4,298 — 5,399 Totals $ 6,048,453 $ 3,780,684 $ 305,258 $ 10,134,395 53 Table of Contents December 31, 2022 (In thousands) Portfolio Loans Acquired Non-PCD Loans PCD Loans Total Construction and land development $ 364,900 $ 201,333 $ 21,100 $ 587,332 Commercial real estate - owner occupied 995,154 451,202 31,946 1,478,302 Commercial real estate - non-owner occupied 1,695,411 767,138 127,225 2,589,774 Residential real estate 1,558,643 271,378 19,482 1,849,503 Commercial and financial 1,151,273 182,124 15,238 1,348,636 Consumer 177,338 89,458 19,791 286,587 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 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. 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. 54 Table of Contents 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. 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 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 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. On a consolidated basis, construction and land development and commercial real estate loans represent 44% and 236%, respectively, of total consolidated risk based capital. To determine these ratios, the Company defines CRE in accordance with the guidance on “Concentrations in Commercial Real Estate Lending” (the “Guidance”) issued by the federal bank regulatory agencies in 2006 (and reinforced in 2015), which defines CRE loans as exposures secured by land development and construction, including 1-4 family residential construction, multi-family property, and non-farm nonresidential property where the primary or a significant source of repayment is derived from rental income associated with the property (i.e., loans for which 50 percent or more of the source of repayment comes from third party, non-affiliated, rental income) or the proceeds of the sale, refinancing, or permanent financing of the property. Loans to real estate investment trusts (“REITs”) and unsecured loans to developers that closely correlate to the inherent risks in CRE markets would also be considered CRE loans under the Guidance. Loans on owner-occupied CRE are generally excluded. In addition, the Company is subject to a geographic concentration of credit because it primarily operates in Florida. 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 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. 55 Table of Contents March 31, 2023 Nonaccrual Loans (In thousands) Non-Current Current Total Construction and land development $ — $ 8 $ 8 Commercial real estate - owner occupied $ 602 $ 4,227 $ 4,829 Commercial real estate - non-owner occupied $ 3,090 $ 20,166 $ 23,256 Residential real estate $ 4,323 $ 5,666 $ 9,989 Commercial and financial $ 6,888 $ 5,425 $ 12,313 Consumer $ 78 $ 314 $ 392 Total $ 14,981 $ 35,806 $ 50,787 December 31, 2022 Nonaccrual Loans (In thousands) Non-Current Current Total Construction and land development $ 53 $ 562 $ 615 Commercial real estate - owner occupied — 2,597 2,597 Commercial real estate - non-owner occupied 2,892 1,292 4,184 Residential real estate 2,213 6,896 9,109 Commercial and financial 4,189 7,426 11,615 Consumer 18 705 723 Total $ 9,365 $ 19,478 $ 28,843 In accordance with regulatory reporting requirements, loans are placed on nonaccrual following the Retail Classification of Loan interagency guidance. The accrual of interest is generally discontinued on loans, except consumer loans, that become 90 days past due as to principal or interest unless collection of both principal and interest is assured by way of collateralization, guarantees or other security. Consumer loans that become 120 days past due are generally charged off. The loan carrying value is analyzed and any changes are appropriately made as described above quarterly. 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 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. 56 Table of Contents LIBOR Transition The Company’s LIBOR transition steering committee is responsible for overseeing the execution of the Company’s enterprise-wide LIBOR transition program, and for evaluating and mitigating risks associated with the transition from LIBOR. The LIBOR transition program includes a comprehensive review of the financial products, agreements, contracts, and business processes that may use LIBOR as a reference rate, and the development and execution of strategy to transition away from LIBOR, with appropriate consideration of the potential financial, customer, counterpart, regulatory and legal impacts. The Company continues to execute its LIBOR transition program, and to monitor regulatory and legislative activity to identify any necessary actions and facilitate the transition to alternative reference rates. 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”). ISDA has developed fallback language for swap agreements and has established a protocol to allow counterparties to modify legacy trades to include the new fallback language. The Company also invests in securities and has issued subordinated debt tied to LIBOR. The Company continues to monitor regulatory and legislative activity with regard to these products to identify and execute necessary actions to facilitate the transition to alternative reference rates. At this time, alternative reference rates are predominantly SOFR based. Cash and Cash Equivalents and Liquidity Risk Management Liquidity risk involves the risk of being unable to fund assets with the appropriate duration and rate-based liability, as well as the risk of not being able to meet unexpected cash needs. Liquidity planning and management are necessary to ensure the ability to fund operations cost effectively and to meet current and future potential obligations such as loan commitments and unexpected deposit outflows. Funding sources include primarily customer-based deposits, collateral-backed borrowings, brokered deposits, cash flows from operations, cash flows from the loan and investment portfolios and asset sales, primarily secondary marketing for residential real estate mortgages and marine loans. Cash flows from operations are a significant component of liquidity risk management and the Company considers both deposit maturities and the scheduled cash flows from loan and investment maturities and payments when managing risk. 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 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. 57 Table of Contents Contractual maturities for assets and liabilities are reviewed to meet current and expected future liquidity requirements. Sources of liquidity are maintained through a portfolio of high quality marketable assets, such as residential mortgage loans, debt securities available-for-sale and interest-bearing deposits. The Company is also able to provide short-term financing of its activities by selling, under an agreement to repurchase, United States Treasury and Government agency debt securities not pledged to secure public deposits or trust funds. 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 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: March 31, December 31, (In thousands, except ratios) 2023 2022 Noninterest demand $ 4,554,509 $ 4,070,973 Interest-bearing demand 2,676,320 2,337,590 Money market 2,893,128 1,985,974 Savings 940,702 1,064,392 Time certificates of deposit 1,245,042 522,666 Total deposits $ 12,309,701 $ 9,981,595 Customer sweep accounts $ 267,606 $ 172,029 Noninterest demand deposits as % of total deposits 37 % 41 % The Company’s balance sheet continues to be primarily funded by core deposits. 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. 58 Table of Contents 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 In the normal course of business, the Company may engage in a variety of financial transactions that, under generally accepted accounting principles, either are not recorded on the balance sheet or are recorded on the balance sheet in amounts that differ from the full contract or notional amounts. These transactions involve varying elements of market, credit and liquidity risk. Lending commitments include unfunded loan commitments and standby and commercial letters of credit. For loan commitments, the contractual amount of a commitment represents the maximum potential credit risk that could result if the entire commitment had been funded, the borrower had not performed according to the terms of the contract, and no collateral had been provided. A large majority of loan commitments and standby letters of credit expire without being funded, and accordingly, total contractual amounts are not representative of actual future credit exposure or liquidity requirements. Loan commitments and letters of credit expose the Company to credit risk in the event that the customer draws on the commitment and subsequently fails to perform under the terms of the lending agreement. For commercial customers, loan commitments generally take the form of revolving credit arrangements. For retail customers, loan commitments generally are lines of credit secured by residential property. These instruments are not recorded on the balance sheet until funds are advanced under the commitment. 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 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 Beginning balance at December 31, 2022 and 2021 $ 1,607,775 1,310,736 Net income 11,827 20,588 Common stock issued for stock options 3,782 3,403 Issuance of common stock and conversion of options pursuant to acquisitions 421,042 94,067 Stock compensation, net of Treasury shares acquired 2,477 1,525 Issuance of common share dividend (14,419) (7,994) Change in accumulated other comprehensive income 18,600 (66,040) Ending balance at March 31, 2023 and 2022 $ 2,051,084 $ 1,356,285 Capital ratios are well above regulatory requirements for well-capitalized institutions. Management’s use of risk-based capital ratios in its analysis of the Company’s capital adequacy are not GAAP financial measures. Seacoast’s management uses these 59 Table of Contents 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”). March 31, 2023 Seacoast (Consolidated) Seacoast Bank Minimum to be Well- Capitalized 1 Total Risk-Based Capital Ratio 14.62% 13.59% 10.00% Tier 1 Capital Ratio 13.37 12.40 8.00 Common Equity Tier 1 Ratio (CET1) 12.73 12.40 6.50 Leverage Ratio 11.34 10.32 5.00 1 For subsidiary bank only. 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. The appropriate federal bank regulatory authority may prohibit the payment of dividends where it has determined that the payment of dividends would be an unsafe or unsound practice. The Company is a legal entity separate and distinct from Seacoast Bank and its other subsidiaries, and the Company’s primary source of cash and liquidity, other than securities offerings and borrowings, is dividends from its bank subsidiary. Without Office of the Comptroller of the Currency (“OCC”) approval, Seacoast Bank can pay $141.9 million of dividends to the Company. The OCC and the Federal Reserve have policies that encourage banks and bank holding companies to pay dividends from current earnings, and have the general authority to limit the dividends paid by national banks and bank holding companies, respectively, if such payment may be deemed to constitute an unsafe or unsound practice. If, in the particular circumstances, either of these federal regulators determined that the payment of dividends would constitute an unsafe or unsound banking practice, either the OCC or the Federal Reserve may, among other things, issue a cease and desist order prohibiting the payment of dividends by Seacoast Bank or us, respectively. The board of directors of a bank holding company must consider different factors to ensure that its dividend level, if any, is prudent relative to the organization’s financial position and is not based on overly optimistic earnings scenarios such as any potential events that may occur before the payment date that could affect its ability to pay, while still maintaining a strong financial position. As a general matter, the Federal Reserve has indicated that the board of directors of a bank holding company, such as Seacoast, should consult with the Federal Reserve and eliminate, defer, or significantly reduce the bank holding company’s dividends if: (i) its net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (ii) its prospective rate of earnings retention is not consistent with its capital needs and overall current and prospective financial condition; or (iii) it will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios. The Company has paid quarterly dividends since the second quarter of 2021. Whether the Company continues to pay quarterly dividends and the amount of any such dividends will be at the discretion of the Company's Board of Directors and will depend on the Company's earnings, financial condition, results of operations, business prospects, capital requirements, regulatory restrictions, and other factors that the Board of Directors may deem relevant. The Company has seven wholly owned trust subsidiaries that have issued trust preferred stock. Trust preferred securities from acquisitions were recorded at fair value when acquired. All trust preferred securities are guaranteed by the Company on a junior subordinated basis. The Federal Reserve’s rules permit qualified trust preferred securities and other restricted capital elements to be included under Basel III capital guidelines, with limitations, and net of goodwill and intangibles. The Company believes that its trust preferred securities qualify under these revised regulatory capital rules and believes that it can treat all 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. 60 Table of Contents Critical Accounting Policies and Estimates The Company’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles, (“GAAP”), including prevailing practices within the financial services industry. The preparation of consolidated financial statements requires management to make judgments in the application of certain of its accounting policies that involve significant estimates and assumptions. The Company has established policies and control procedures that are intended to ensure valuation methods are well controlled and applied consistently from period to period. These estimates and assumptions, which may materially affect the reported amounts of certain assets, liabilities, revenues and expenses, are based on information available as of the date of the financial statements, and changes in this information over time and the use of revised estimates and assumptions could materially affect amounts reported in subsequent financial statements. Management, after consultation with the Company’s Audit Committee, believes the most critical accounting estimates and assumptions that involve the most difficult, subjective and complex assessments are: • the allowance and the provision for credit losses; • acquisition accounting and purchased loans; • intangible assets and impairment testing; • other fair value measurements; • impairment of debt securities; and • contingent liabilities. The 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 Fluctuations in interest rates may result in changes in the fair value of the Company’s financial instruments, cash flows and net interest income. This risk is managed using simulation modeling to calculate the most likely interest rate risk utilizing estimated loan and deposit growth. The objective is to optimize the Company’s financial position, liquidity, and net interest income while limiting 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 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 Change in Interest Rates Interest Income 1-12 months 13-24 months +2.00% 3.5% 7.3% +1.00% 1.7% 3.6% Current —% —% -1.00% (2.3%) (4.8%) -2.00% (5.7%) (12.3%) 61 Table of Contents 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. 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 The condensed consolidated financial statements and related financial data presented herein have been prepared in accordance with U.S. GAAP, which require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money, over time, due to inflation. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution’s performance than the general level of inflation. However, inflation affects financial institutions by increasing their cost of goods and services purchased, as well as the cost of salaries and benefits, occupancy expense, and similar items. Inflation and related increases in interest rates generally decrease the market value of investments and loans held and may adversely affect liquidity, earnings, and shareholders’ equity. Mortgage 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.