SEACOAST BANKING CORP OF FLORIDA 10-Q

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The purpose of this discussion and analysis is to aid in understanding significant changes in the financial condition of Seacoast Banking Corporation of Florida and its subsidiaries (“Seacoast” or the “Company”) and their results of operations. Nearly all of the Company’s operations are contained in its banking subsidiary, Seacoast National Bank (“Seacoast Bank” or the “Bank”). Such discussion and analysis should be read in conjunction with the Company’s Condensed Consolidated Financial Statements and the related notes included in this report. The emphasis of this discussion will be on the three and nine months ended September 30, 2023 compared to the three and nine months ended September 30, 2022 for the consolidated statements of income. For the consolidated balance sheets, the emphasis of this discussion will be the balances as of September 30, 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; • 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; • Changes in retail distribution strategies, customer preferences and behavior generally and as a result of economic factors, including heightened inflation; 42 Table of Contents • 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, especially as they relate to the value of collateral supporting the Company’s loans; • 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, including those impacting vendors and other third parties; • 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 and the conflict in Israel and the surrounding region, 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; • Seacoast’s ability to maintain adequate internal controls over financial reporting; • Potential claims, damages, penalties, fines and reputational damage resulting from pending or future litigation, regulatory proceedings and enforcement actions; • The risks that deferred tax assets could be reduced if estimates of future taxable income from the Company’s operations and tax planning strategies are less than currently estimated and sales of capital stock could trigger a reduction in the amount of net operating loss carryforwards that the Company may be able to utilize for income tax purposes; • The effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, non-bank financial technology providers, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in the Company’s market areas and elsewhere, including institutions operating regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone, computer and the Internet; 43 Table of Contents • 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; • A deterioration of the credit rating for U.S. long-term sovereign debt, actions that the U.S. government may take to avoid exceeding the debt ceiling, and uncertainties surrounding the debt ceiling and the federal budget; • The risk that the regulatory environment may not be conducive to or may prohibit the consummation of future mergers and/or business combinations, may increase the length of time and amount of resources required to consummate such transactions, and may reduce the anticipated benefit; 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, including the consolidation of five branches in the South Florida market, were completed in June 2023. Results of Operations For the third quarter of 2023, the Company reported net income of $31.4 million, or $0.37 per average diluted share, an increase of $0.2 million, or 1%, from the second quarter of 2023 and an increase of $2.2 million, or 7%, compared to the third quarter of 2022. For the nine months ended September 30, 2023, net income totaled $74.5 million, or $0.89 per average diluted share, a decrease of $8.1 million, or 10%, compared to the nine months ended September 30, 2022. Adjusted net income 1 for the third quarter of 2023 totaled $39.7 million, or $0.46 per average diluted share, a decrease of $9.5 million, or 19%, compared to the second quarter of 2023 and an increase of $6.9 million, or 21%, compared to the third quarter of 2022. For the nine months ended September 30, 2023, adjusted net income 1 totaled $118.2 million, or $1.41 per average diluted share, compared to $96.2 million, or $1.56 per average diluted share for the nine months ended September 30, 2022. Third Second Third Nine Months Ended Quarter Quarter Quarter September 30, 2023 2023 2022 2023 2022 Return on average tangible assets 1.04 % 1.06 % 1.17 % 0.88 % 1.11 % Return on average tangible shareholders' equity 11.90 12.08 11.53 10.09 10.82 Efficiency ratio 62.60 67.34 57.13 65.19 58.45 Adjusted return on average tangible assets 1 1.12 % 1.41 % 1.27 % 1.15 % 1.24 % Adjusted return on average tangible shareholders' equity 1 12.79 16.08 12.48 13.14 12.13 Adjusted efficiency ratio 1 60.19 56.44 53.28 56.47 53.73 1 Non-GAAP measure - see “Explanation of Certain Unaudited Non-GAAP Financial Measures” for more information and a reconciliation to GAAP. 1 Non-GAAP measure - see “Explanation of Certain Unaudited Non-GAAP Financial Measures” for more information and a reconciliation to GAAP. 44 Table of Contents Net Interest Income and Margin Net interest income for the third quarter of 2023 totaled $119.3 million, a decrease of $7.7 million, or 6% , compared to the second quarter of 2023, a nd an increase of $31.0 million, or 35%, c ompared to the third quarter of 2022. The decrease from prior quarter reflects higher interest expense on deposits driven by higher rates and changes in product mix and was partially offset by higher interest income. The increase from prior year is primarily due to 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 3.57% in the third quarter of 2023, compared to 3.86% in the second quarter of 2023, and 3.67% in the third quarter of 2022. The decrease during the third quarter of 2023 compared to the prior quarter was driven by the continued effect of an inverted yield curve and rising deposit costs. Compared to the second quarter of 2023, securities yields increased 19 basis points to 3.32% and loan yields increased to 5.93% during the third quarter of 2023. The effect on net interest margin of accretion of purchase discounts on acquired loans were increases of 44 basis points in the third quarter of 2023, 44 basis points in the second quarter of 2023, and 9 basis points in the third quarter of 2022. The cost of deposits was 1.79% in the third quarter of 2023, compared to 1.38% in the second quarter of 2023, and nine basis points in the third quarter of 2022. Notably impactful to deposit costs in the third quarter of 2023 was the Florida Bar Association’s IOTA program changes, enacted in May, requiring financial institutions to pay interest on these accounts at a specified spread to an index. This contributed approximately five basis points to the increase in deposits costs in the third quarter of 2023. For the nine months ended September 30, 2023, net interest margin (on a fully tax equivalent basis) 1 was 3.91%, compared to 3.44% for the nine months ended September 30, 2022. The yield on securities increased from 2.02% for the nine months ended September 30, 2022 to 3.10% for the nine months ended September 30, 2023, and the yield on total loans increased from 4.35% for the nine months ended September 30, 2022 to 5.89% for the nine months ended September 30, 2023, each reflecting the impact of the higher interest rate environment. The effect on net interest margin of purchase discounts on acquired loans was an increase of 47 basis points for the nine months ended September 30, 2023 compared to an increase of 12 basis points for the nine months ended September 30, 2022. The cost of deposits increased from seven basis points for the nine months ended September 30, 2022 to 1.33% for the nine months ended September 30, 2023. The higher cost of deposits during the year 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 Third quarter 2023 $ 119,505 3.57 % 5.38 % 2.76 % Second quarter 2023 127,153 3.86 % 5.30 % 2.26 % Third quarter 2022 88,399 3.67 % 3.80 % 0.22 % Nine months ended September 30, 2023 378,009 3.91 % 5.30 % 2.19 % Nine months ended September 30, 2022 246,803 3.44 % 3.53 % 0.16 % 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 decreased $57.6 million, or 0.6%, for the third quarter of 2023 compared to the second quarter of 2023, and increased $3.4 billion, or 52%, from the third quarter of 2022. Average loans as a percentage of average earning assets totaled 76% for the third quarter of 2023, 76% for the second quarter of 2023 and 69% for the third quarter of 2022. 45 Table of Contents Loan production and late-stage pipelines (loans in underwriting and approval or approved and not yet closed) are detailed in the following table for the periods specified: Third Second Third Nine Months Ended Quarter Quarter Quarter September 30, (In thousands) 2023 2023 2022 2023 2022 Commercial/commercial real estate loan pipeline at period end $ 300,798 $ 217,574 $ 530,430 $ 300,798 $ 530,430 Commercial/commercial real estate loans closed 106,497 317,378 340,438 745,540 1,175,279 Residential pipeline - saleable at period end 6,820 11,492 6,563 6,820 6,563 Residential loans - sold 17,625 19,078 16,381 50,638 110,269 Residential pipeline - portfolio at period end 20,945 27,110 60,684 20,945 60,684 Residential loans - retained 43,962 85,294 69,272 219,314 347,725 Consumer pipeline at period end 24,482 28,446 43,732 24,482 43,732 Consumer originations 76,531 97,184 133,093 284,317 342,887 Commercial originations during the third quarter of 2023 were $106.5 million, a decrease of $210.9 million, or 66%, compared to the second quarter of 2023, and a decrease of $233.9 million, or 69%, compared to the third quarter of 2022. For the nine months ended September 30, 2023, commercial originations were $745.5 million, compared to $1.2 billion for the nine months ended September 30, 2022, a decrease of $429.7 million, or 37%. Lower originations were the result of the impact of higher rates and a continued selective approach on new credit facilities given a cautious economic outlook. Commercial pipelines were $300.8 million as of September 30, 2023, an increase of 38% from $217.6 million at June 30, 2023, and a decrease of 43% from $530.4 million at September 30, 2022. Residential loans originated for sale in the secondary market totaled $17.6 million in the third quarter of 2023, compared to $19.1 million in the second quarter of 2023 and $16.4 million in the third quarter of 2022. For the nine months ended September 30, 2023, residential loans originated for sale in the secondary market totaled $50.6 million, compared to $110.3 million for the nine months ended September 30, 2022, a decrease of $59.6 million, or 54%. Residential saleable pipelines were $6.8 million as of September 30, 2023, compared to $11.5 million as of June 30, 2023 and $6.6 million as of September 30, 2022. Residential loan production retained in the portfolio for the third quarter of 2023 was $44.0 million, compared to $85.3 million in the second quarter of 2023 and $69.3 million in the third quarter of 2022. The pipeline of residential loans intended to be retained in the portfolio was $20.9 million as of September 30, 2023, compared to $27.1 million as of June 30, 2023, and $60.7 million as of September 30, 2022. Consumer originations totaled $76.5 million during the third quarter of 2023, compared to $97.2 million in the second quarter of 2023 and $133.1 million in the third quarter of 2022. For the nine months ended September 30, 2023, consumer originations totaled $284.3 million compared to $342.9 million for the nine months ended September 30, 2022, a decrease of $58.6 million, or 17%. The consumer pipeline was $24.5 million as of September 30, 2023, compared to $28.4 million as of June 30, 2023 and $43.7 million at September 30, 2022. Average investment securities decreased $99.0 million, or 4%, during the third quarter of 2023 compared to the second quarter of 2023, and were $96.9 million, or 4%, lower compared to the third quarter of 2022. Average investment securities were $2.7 billion for the nine months ended September 30, 2023, an increase of $111.3 million, or 4%, compared to the nine months ended 2022. Increases during the year include securities added through the Professional acquisition, partially offset by paydowns and maturities. The cost of average interest-bearing liabilities increased 50 basis points in the third quarter of 2023 to 2.76% from 2.26% in the second quarter of 2023, and from 22 basis points in the third quarter of 2022. The cost of average total deposits (including noninterest bearing demand deposits) was 1.79% in the third quarter of 2023, 1.38% in the second quarter of 2023 and nine basis points in the third quarter of 2022. For the nine months ended September 30, 2023, the cost of average total deposits (including noninterest bearing demand deposits) was 1.33% compared to seven basis points for the nine months ended September 30, 2022. 46 Table of Contents During the third quarter of 2023, average transaction deposits (noninterest and interest bearing demand) decreased $168.6 million, or 2%, compared to the second quarter of 2023 and increased $1.0 billion, or 18%, compared to the third quarter of 2022. For the nine months ended September 30, 2023, average transaction deposits increased $1.2 billion, or 21%, compared to the nine months ended September 30, 2022. The Company’s deposit mix remains favorable, with 89% of average deposit balances comprised of savings, money market, and demand deposits for the nine months ended September 30, 2023. Average balances of sweep repurchase agreements with customers increased $82.9 million, or 34%, from the second quarter of 2023 and increased $215.8 million, or 193%, compared to the third quarter of 2022. The average rate on customer sweep repurchase accounts was 3.48% for the third quarter of 2023, compared to 2.61% for the second quarter of 2023, and 1.10% for the third quarter of 2022. For the nine months ended September 30, 2023, the average balance was $249.2 million compared to an average balance of $116.8 million for the nine months ended September 30, 2022. The average rate on customer sweep repurchase accounts was 2.86% for the nine months ended September 30, 2023, compared to 0.51% for the nine months ended September 30, 2022. Subordinated debt balances averaged $106.0 million in the third quarter of 2023, $105.9 million in the second quarter of 2023, and $71.8 million in the third quarter of 2022. The average rate on subordinated debt for the third quarter of 2023 was 7.18%, an increase of 38 basis points compared to the second quarter of 2023 and an increase of 272 basis points compared to the third quarter of 2022. For the nine months ended September 30, 2023, subordinated debt averaged $103.5 million, compared to $71.8 million for the nine months ended September 30, 2022. The average rate on subordinated debt for the nine months ended September 30, 2023 was 6.88%, an increase of 349 basis points compared to the nine months ended September 30, 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. 47 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 Third Quarter Second Quarter Third Quarter Average Yield/ Average Yield/ Average Yield/ (In thousands, except ratios) Balance Interest Rate Balance Interest Rate Balance Interest Rate Assets Earning assets: Securities: Taxable $ 2,575,002 $ 21,401 3.32 % $ 2,673,633 $ 20,898 3.13 % $ 2,665,104 $ 15,653 2.35 % Nontaxable 15,280 119 3.11 15,621 120 3.08 22,064 174 3.15 Total Securities 2,590,282 21,520 3.32 2,689,254 21,018 3.13 2,687,168 15,827 2.36 Federal funds sold 547,576 7,415 5.37 327,433 4,313 5.28 203,815 1,062 2.07 Interest bearing deposits with other banks and other investments 90,039 1,062 4.68 90,783 710 3.14 45,193 581 5.10 Loans excluding PPP loans 10,039,270 150,037 5.93 10,096,394 148,420 5.90 6,597,828 73,730 4.43 PPP Loans 4,341 11 1.01 4,834 12 1.00 10,114 320 12.54 Total Loans 10,043,611 150,048 5.93 10,101,228 148,432 5.89 6,607,942 74,050 4.45 Total Earning Assets 13,271,508 180,045 5.38 13,208,698 174,473 5.30 9,544,118 91,520 3.80 Allowance for credit losses (158,440) (156,207) (91,348) Cash and due from banks 168,931 165,625 331,947 Premises and equipment 116,704 117,726 76,357 Intangible assets 839,787 842,988 305,935 Bank owned life insurance 295,272 293,251 208,193 Other assets including deferred tax assets 372,241 415,208 210,136 Total Assets $ 14,906,003 $ 14,887,289 $ 10,585,338 Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing demand $ 2,804,243 $ 15,013 2.12 % $ 2,666,314 $ 7,560 1.14 % $ 2,215,899 $ 757 0.14 % Savings 770,503 465 0.24 906,936 427 0.19 944,128 65 0.03 Money market 2,972,495 22,918 3.06 2,806,672 19,196 2.74 1,806,014 802 0.18 Time deposits 1,619,572 16,461 4.03 1,425,344 14,477 4.07 445,840 380 0.34 Securities sold under agreements to repurchase 327,711 2,876 3.48 244,824 1,593 2.61 111,902 309 1.10 Federal Home Loan Bank borrowings 111,087 888 3.17 251,596 2,272 3.62 — — — Subordinated debt 106,036 1,919 7.18 105,861 1,795 6.80 71,810 808 4.46 Total Interest-Bearing Liabilities 8,711,647 60,540 2.76 8,407,547 47,320 2.26 5,595,593 3,121 0.22 Noninterest demand 3,987,761 4,294,251 3,529,844 Other liabilities 133,846 114,962 110,426 Total Liabilities 12,833,254 12,816,760 9,235,863 Shareholders' equity 2,072,747 2,070,529 1,349,475 Total Liabilities & Equity $ 14,906,003 $ 14,887,289 $ 10,585,338 Cost of deposits 1.79 % 1.38 % 0.09 % Interest expense as a % of earning assets 1.81 % 1.44 % 0.13 % 48 Table of Contents Net interest income as a % of earning assets $ 119,505 3.57 % $ 127,153 3.86 % $ 88,399 3.67 % 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. 49 Table of Contents Average Balances, Interest Income and Expenses, Yields and Rates 1 2023 2022 Year to Date Year to Date Average Yield/ Average Yield/ (In thousands, except ratios) Balance Interest Rate Balance Interest Rate Assets Earning assets: Securities: Taxable $ 2,649,127 $ 61,543 3.10 % $ 2,530,742 $ 38,081 2.01 % Nontaxable 15,721 370 3.14 22,842 526 3.07 Total Securities 2,664,848 61,913 3.10 2,553,584 38,607 2.02 Federal funds sold 336,022 12,444 4.95 526,890 2,693 0.68 Interest bearing deposits with other banks and other investments 90,511 4,530 6.69 45,483 1,800 5.29 Loans excluding PPP loans 9,835,653 433,786 5.90 6,444,253 208,052 4.32 PPP Loans 4,831 35 0.97 32,597 2,584 10.60 Total Loans 9,840,484 433,821 5.89 6,476,850 210,636 4.35 Total Earning Assets 12,931,865 512,708 5.30 9,602,807 253,736 3.53 Allowance for credit losses (151,613) (89,700) Cash and due from banks 185,426 362,369 Premises and equipment 116,840 75,617 Intangible assets 811,483 305,895 Bank owned life insurance 287,756 206,854 Other assets including deferred tax assets 402,175 220,790 Total Assets $ 14,583,932 $ 10,684,632 Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing demand $ 2,642,180 $ 25,780 1.30 % $ 2,192,331 $ 1,240 0.08 % Savings 909,184 1,292 0.19 943,982 194 0.03 Money market 2,831,747 54,540 2.58 1,906,407 1,951 0.14 Time deposits 1,288,736 36,490 3.79 500,482 1,284 0.34 Securities sold under agreements to repurchase 249,242 5,333 2.86 116,805 442 0.51 Federal Home Loan Bank borrowings 214,415 5,936 3.70 — — — Subordinated debt 103,469 5,328 6.88 71,741 1,823 3.40 Total Interest-Bearing Liabilities 8,238,973 134,699 2.19 5,731,748 6,934 0.16 Noninterest demand 4,204,389 3,462,931 Other liabilities 126,487 123,281 Total Liabilities 12,569,849 9,317,960 Shareholders' equity 2,014,083 1,366,672 Total Liabilities & Equity $ 14,583,932 $ 10,684,632 Cost of deposits 1.33 % 0.07 % Interest expense as a % of earning assets 1.39 % 0.10 % Net interest income as a % of earning assets $ 378,009 3.91 % $ 246,802 3.44 % 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. 50 Table of Contents Noninterest Income Noninterest income totaled $17.8 million for the third quarter of 2023, a decrease of $3.8 million, or 18%, compared to the second quarter of 2023 and an increase of $1.7 million, or 10%, from the third quarter of 2022. Noninterest income totaled $61.8 million for the nine months ended September 30, 2023, an increase of $13.4 million, or 28%, compared to the nine months ended September 30, 2022. Noninterest income is detailed as follows: Third Second Third Nine Months Ended Quarter Quarter Quarter September 30, (In thousands) 2023 2023 2022 2023 2022 Service charges on deposit accounts $ 4,648 $ 4,560 $ 3,504 $ 13,450 $ 9,713 Interchange income 1,684 5,066 4,138 11,444 12,521 Wealth management income 3,138 3,318 2,732 9,519 8,165 Mortgage banking fees 410 576 434 1,412 3,052 Insurance agency income 1,183 1,160 — 3,444 — SBA gains 613 249 108 1,184 737 BOLI income 2,197 2,068 1,363 6,181 4,046 Other income 4,307 4,755 4,186 15,636 11,320 18,180 21,752 16,465 62,270 49,554 Securities (losses) gains, net (387) (176) (362) (456) (1,114) Total $ 17,793 $ 21,576 $ 16,103 $ 61,814 $ 48,440 Service charges on deposits were $4.6 million in both the second and third quarters of 2023 and $3.5 million in the third quarter of 2022. For the nine months ended September 30, 2023, service charges on deposits totaled $13.5 million, an increase of $3.7 million, or 38%, compared to the nine months ended September 30, 2022. Increases in fees primarily reflect the benefit of an expanded deposit base, including from acquisitions, and the continued benefit of the expansion of treasury management services to commercial customers. Overdraft-related fees for both consumer and commercial accounts represent 35% of total service charges on deposits for the nine months ended September 30, 2023, and 37% for the nine months ended September 30, 2022. Interchange income decreased to $1.7 million for the third quarter of 2023, compared to $5.1 million for the second quarter of 2023, and $4.1 million for the third quarter of 2022. For the nine months ended September 30, 2023, interchange income totaled $11.4 million, a decrease of $1.1 million, or 9%, compared to the nine months ended September 30, 2022. The decrease in interchange income is due to the impact of the Durbin amendment, which became effective for the first time for the Company on July 1, 2023, limiting network interchange fees earned on debit card transactions. Wealth management income, including trust fees and brokerage commissions and fees, was $3.1 million in the third quarter of 2023, compared to $3.3 million for the second quarter of 2023 and $2.7 million for the third quarter of 2022. Assets under management increased by $0.7 million in the third quarter of 2023, bringing total assets under management to $1.6 billion. For the nine months ended September 30, 2023, wealth management income totaled $9.5 million, an increase of $1.4 million, or 17%, compared to the nine months ended September 30, 2022. The wealth management team continues to demonstrate notable success in building relationships. Mortgage banking fees totaled $0.4 million in the third quarter of 2023, compared to $0.6 million the second quarter of 2023, and $0.4 million in the third quarter of 2022. For the nine months ended September 30, 2023, mortgage banking fees totaled $1.4 million, a decrease of $1.6 million, or 54%, compared to the nine months ended September 30, 2022, reflecting lower saleable production due to significantly higher interest rates and limited housing inventory. Insurance agency income increased $22 thousand, or 2%, compared to the second quarter of 2023 and totaled $1.2 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 $0.6 million in the third quarter of 2023, compared to $0.2 million in the second quarter of 2023, and $0.1 million in the third quarter of 2022. For the nine months ended September 30, 2023, SBA gains totaled $1.2 million, an increase of $0.4 million, or 61%, compared to the nine months ended September 30, 2022. 51 Table of Contents Bank owned life insurance (“BOLI”) income was $2.2 million for the third quarter of 2023, an increase of $0.1 million, or 6%, compared to the second quarter of 2023 and an increase of $0.8 million, or 61%, compared to the third quarter of 2022. The increases compared to the prior year quarter are attributed to additions of $53.1 million in BOLI in the fourth quarter of 2022 and $55.1 million in the first quarter of 2023 from bank acquisitions. BOLI income totaled $6.2 million for the nine months ended September 30, 2023 and $4.0 million for the nine months ended September 30, 2022. Other income was $4.3 million in the third quarter of 2023, a decrease of $0.4 million compared to the second quarter of 2023, and an increase of $0.1 million, compared to the third quarter of 2022. For the nine months ended September 30, 2023, other income totaled $15.6 million, an increase of $4.3 million, or 38%, compared to the nine months ended September 30, 2022. The Company recognized losses from mark to market adjustments on its investments in CRA qualified mutual funds, totaling $0.4 million in the third quarter of 2023, $0.2 million in the second quarter of 2023, and $0.4 million in the third quarter of 2022. Noninterest Expenses Noninterest expense for the third quarter of 2023 totaled $93.9 million, a decrease of $14.0 million, or 13%, compared to the second quarter of 2023, and an increase of $32.6 million, or 53%, from the third quarter of 2022. For the nine months ended September 30, 2023, noninterest expense totaled $309.3 million, an increase of $132.8 million, or 75%, compared to the nine months ended September 30, 2022. Noninterest expenses are detailed as follows: Third Second Third Nine Months Ended Quarter Quarter Quarter September 30, (In thousands) 2023 2023 2022 2023 2022 Salaries and wages $ 46,431 $ 45,155 $ 28,420 $ 139,202 $ 84,695 Employee benefits 7,206 7,472 4,074 23,240 13,726 Outsourced data processing costs 8,714 20,222 5,393 43,489 17,592 Telephone/data lines 1,409 1,518 973 4,008 2,614 Occupancy 6,349 7,065 5,046 20,352 13,082 Furniture and equipment 2,052 2,345 1,462 6,664 4,476 Marketing 1,876 2,047 1,461 6,161 4,514 Legal and professional fees 2,679 4,062 3,794 14,220 11,529 FDIC assessments 2,258 2,116 760 5,817 2,248 Amortization of intangibles 7,457 7,654 1,446 21,838 4,338 Foreclosed property expense and net (gain) loss on sale 274 (57) 9 412 (1,123) Provision for credit losses on unfunded commitments — — 1,015 1,239 1,157 Other 7,210 8,266 7,506 22,613 17,576 Total $ 93,915 $ 107,865 $ 61,359 $ 309,255 $ 176,424 Salaries and wages totaled $46.4 million for the third quarter of 2023, $45.2 million for the second quarter of 2023, and $28.4 million for the third quarter of 2022. The Company completed a reduction in force in the third quarter of 2023, reducing headcount by 6%, and incurring $3.2 million in severance-related expenses. For the nine months ended September 30, 2023, salaries and wages totaled $139.2 million, an increase of $54.5 million, or 64%, compared to the nine months ended September 30, 2022, reflecting the overall growth of the organization, including as a result of the acquisitions completed in the fourth quarter of 2022 and first quarter of 2023. During the third 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 $7.2 million, a decrease of $0.3 million, or 4%, compared to the second quarter of 2023, and an increase of $3.1 million, or 77%, compared to the third quarter of 2022. For the nine months ended September 30, 2023, employee benefit costs totaled $23.2 million, an increase of $9.5 million, or 69%, compared to the nine months ended September 30, 2022, reflecting the overall growth of the organization, including as a result of the acquisitions completed in the fourth quarter of 2022 and first quarter of 2023. 52 Table of Contents 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 $8.7 million, $20.2 million, and $5.4 million for the third quarter of 2023, second quarter of 2023, and third quarter of 2022, respectively. The second quarter of 2023 included $10.9 million in direct acquisition-related costs, including termination penalties on acquired technology contracts upon system conversion. For the nine months ended September 30, 2023 and September 30, 2022, outsourced data processing costs totaled $43.5 million and $17.6 million, respectively. 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 $1.4 million, $1.5 million, and $1.0 million for the third quarter of 2023, second quarter of 2023, and third quarter of 2022, respectively. For the nine months ended September 30, 2023, telephone and data line expenditures totaled $4.0 million, an increase of $1.4 million, or 53%, compared to the nine months ended September 30, 2022. The increases during 2023 reflect the expansion of the Company’s branch footprint. Total occupancy, furniture and equipment expenses were $8.4 million in the third quarter of 2023, $9.4 million in the second quarter of 2023, and $6.5 million in the third quarter of 2022. For the nine months ended September 30, 2023, total occupancy, furniture and equipment expenses totaled $27.0 million, an increase of $9.5 million, or 54%, compared to the nine months ended September 30, 2022. Year over year increases reflect the expansion of the Company’s footprint across Florida. Marketing expenses totaled $1.9 million in the third quarter of 2023, $2.0 million in the second quarter of 2023, and $1.5 million in the third quarter of 2022. For the nine months ended September 30, 2023, marketing expenses totaled $6.2 million, an increase of $1.6 million, or 36%, compared to the nine months ended September 30, 2022. Additional investments in marketing are expected in the fourth quarter of 2023 focused on supporting deposit growth. Legal and professional fees for the third quarter of 2023 were $2.7 million, a decrease of $1.4 million, or 34%, compared to the second quarter of 2023, and a decrease of $1.1 million, or 29%, compared to the third quarter of 2022. There were no acquisition-related expenses in the third quarter of 2023, $1.7 million in the second quarter of 2023, and $1.8 million in the third quarter of 2022. For the nine months ended September 30, 2023, legal and professional fees totaled $14.2 million, an increase of $2.7 million, or 23%, compared to the nine months ended September 30, 2022. Acquisition-related expenses were $6.5 million for the nine months ended September 30, 2023 and $6.1 million for the nine months ended September 30, 2022. FDIC assessments were $2.3 million for the third quarter of 2023, $2.1 million in the second quarter of 2023, and $0.8 million in the third quarter of 2022. For the nine months ended September 30, 2023, FDIC assessments totaled $5.8 million compared to $2.2 million for the nine months ended September 30, 2022. The increases reflect deposit growth from acquisitions in the fourth quarter of 2022 and first quarter of 2023. Amortization of intangibles decreased by $0.2 million compared to the second quarter of 2023 and increased $6.0 million compared to the third quarter of 2022. For the nine months ended September 30, 2023, amortization of intangibles totaled $21.8 million compared to $4.3 million for the nine months ended September 30, 2022. The acquisitions in the fourth quarter of 2022 and first quarter of 2023 added $110.6 million in core deposit intangible assets, which are amortized using an accelerated amortization method. Foreclosed property expense and net gain/loss on sale was a net loss of $0.3 million in the third quarter of 2023, a net gain of $0.1 million in the second quarter of 2023, and a net loss of $9 thousand in the third quarter of 2022. No adjustments were recorded to the reserve for potential credit losses on unfunded lending commitments in the third or second quarters of 2023. This compares to $1.0 million in provision recorded during the third quarter of 2022, reflecting adjustments to the modeled results for changes in economic factors. Other expenses totaled $7.2 million, $8.3 million and $7.5 million for the third quarter of 2023, the second quarter of 2023 and the third quarter of 2022, respectively. For the nine months ended September 30, 2023, other expense totaled $22.6 million, an increase of $5.0 million, or 29%, compared to the nine months ended September 30, 2022. Increases year-over-year reflect higher costs in general business and customer support activities resulting from growth in the customer base and the expanded branch footprint, and to maintaining parallel activities and processes prior to the conversion of Professional in June 2023. For the third 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 62.60%, compared to 67.34% for the second quarter of 2023 and 57.13% for the third quarter of 2022. For the nine months ended September 30, 2023, the efficiency ratio was 65.19%, compared to 58.45% for the nine months ended September 30, 2022. The adjusted efficiency ratio 1 was 60.19% in the third quarter of 2023, compared to 56.44% in the second quarter of 2023 and 53.28% in the third quarter of 2022. 53 Table of Contents The increase in the adjusted efficiency ratio in the third quarter of 2023 reflects the impact of higher deposit rates, including the first full quarter of the Florida Bar Association's change to rates required to be paid on certain trust accounts, and the first time impact of the Durbin Amendment on interchange income. For the nine months ended September 30, 2023, the adjusted efficiency ratio 1 was 56.47%, compared to 53.73% for the nine months ended September 30, 2022. Third Second Third Nine Months Ended Quarter Quarter Quarter September 30, (In thousands, except ratios) 2023 2023 2022 2023 2022 Noninterest expense, as reported $ 93,915 $ 107,865 $ 61,359 $ 309,255 $ 176,424 Merger related charges Salaries and wages — (1,573) — (5,813) (3,605) Outsourced data processing costs — (10,904) — (17,455) (1,052) Legal and professional fees — (1,664) (1,791) (6,453) (6,055) Other categories — (1,507) (263) (3,459) (1,073) Total merger related charges — (15,648) (2,054) (33,180) (11,785) Amortization of intangibles (7,457) (7,654) (1,446) (21,838) (4,338) Branch reductions and other expense initiatives (3,305) (571) (960) (5,167) (1,034) Adjusted noninterest expense 1 $ 83,153 $ 83,992 $ 56,899 $ 249,070 $ 159,267 Foreclosed property expense and net gain (loss) on sale (274) 57 (9) (412) 1,123 Provision for credit losses on unfunded commitments — — (1,015) (1,239) (1,157) Net adjusted noninterest expense 1 $ 82,879 $ 84,049 $ 55,875 $ 247,419 $ 159,233 Efficiency ratio 62.60 % 67.34 % 57.13 % 65.19 % 58.45 % Adjusted efficiency ratio 1,2 60.19 56.44 53.28 56.47 53.73 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. Provision for Credit Losses The provision for credit losses was $2.7 million for the third quarter of 2023, compared to a net benefit of $0.8 million for the second quarter of 2023, and provision expense of $4.7 million for the third quarter of 2022. Income Taxes For the third quarter of 2023, the Company recorded tax expense of $9.1 million, compared to $10.2 million in the second quarter of 2023 and $9.1 million in the third quarter of 2022. For the nine months ended September 30, 2023, tax expense totaled $22.0 million, a decrease of $1.9 million, or 8%, compared to the nine months ended September 30, 2022 due to lower pre-tax income. 54 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. 55 Table of Contents Reconciliation of Non-GAAP Measures Third Second Third Nine Months Ended Quarter Quarter Quarter September 30, (In thousands, except per share data) 2023 2023 2022 2023 2022 Net income, as reported: Net income $ 31,414 $ 31,249 $ 29,237 $ 74,490 $ 82,580 Noninterest Income $ 17,793 $ 21,576 $ 16,103 $ 61,814 $ 48,440 Securities losses (gains), net 387 176 362 456 1,114 BOLI benefits on death (included in other income) — — — (2,117) — Total adjustments to noninterest income 387 176 362 (1,661) 1,114 Total Adjusted Noninterest Income $ 18,180 $ 21,752 $ 16,465 $ 60,153 $ 49,554 Noninterest Expense $ 93,915 $ 107,865 $ 61,359 $ 309,255 $ 176,424 Salaries and wages — (1,573) — (5,813) (3,605) Outsourced data processing costs — (10,904) — (17,455) (1,052) Legal and professional fees — (1,664) (1,791) (6,453) (6,055) Other categories — (1,507) (263) (3,459) (1,073) Total merger-related charges — (15,648) (2,054) (33,180) (11,785) Amortization of intangibles (7,457) (7,654) (1,446) (21,838) (4,338) Branch reductions and other expense initiatives 1 (3,305) (571) (960) (5,167) (1,034) Total adjustments to noninterest expense (10,762) (23,873) (4,460) (60,185) (17,157) Total Adjusted Noninterest Expense $ 83,153 $ 83,992 $ 56,899 $ 249,070 $ 159,267 Income Taxes $ 9,076 $ 10,189 $ 9,115 $ 21,962 $ 23,835 Tax effect of adjustments 2,826 6,095 1,222 14,833 4,631 Adjusted income taxes 11,902 16,284 10,337 36,795 28,466 Adjusted net income $ 39,737 $ 49,203 $ 32,837 $ 118,181 $ 96,220 Earnings per diluted share, as reported $ 0.37 $ 0.37 $ 0.47 $ 0.89 $ 1.33 Adjusted diluted earnings per share 0.46 0.58 0.53 1.41 1.56 Average diluted shares outstanding 85,666 85,536 61,961 83,993 61,867 Adjusted Noninterest Expense $ 83,153 $ 83,992 $ 56,899 $ 249,070 $ 159,267 Provision for credit losses on unfunded commitments — — (1,015) (1,239) (1,157) Foreclosed property expense and net gain (loss) on sale (274) 57 (9) (412) 1,123 Net Adjusted Noninterest Expense $ 82,879 $ 84,049 $ 55,875 $ 247,419 $ 159,233 Revenue $ 137,099 $ 148,539 $ 104,387 $ 439,235 $ 294,893 Total adjustments to revenue 387 176 362 (1,661) 1,114 Impact of FTE adjustment 199 190 115 588 349 Adjusted revenue on a fully tax equivalent basis $ 137,685 $ 148,905 $ 104,864 $ 438,162 $ 296,356 Adjusted Efficiency Ratio 60.19 % 56.44 % 53.28 % 56.47 % 53.73 % Net Interest Income $ 119,306 $ 126,963 $ 88,284 $ 377,421 $ 246,453 Impact of FTE adjustment 199 190 115 588 349 Net interest income including FTE adjustment 119,505 127,153 88,399 378,009 246,802 56 Table of Contents Third Second Third Nine Months Ended Quarter Quarter Quarter September 30, (In thousands, except per share data) 2023 2023 2022 2023 2022 Noninterest income 17,793 21,576 16,103 61,814 48,440 Noninterest expense 93,915 107,865 61,359 309,255 176,424 Pre-Tax Pre-Provision Earnings 43,383 40,864 43,143 130,568 118,818 Adjustments to noninterest income 387 176 362 (1,661) 1,114 Adjustments to noninterest expense (11,036) (23,816) (5,484) (61,836) (17,191) Adjusted Pre-Tax Pre-Provision Earnings $ 54,806 $ 64,856 $ 48,989 $ 190,743 $ 137,123 Average Assets $ 14,906,003 $ 14,887,289 $ 10,585,338 $ 14,583,932 $ 10,684,632 Less average goodwill and intangible assets (839,787) (842,988) (305,935) (811,483) (305,895) Average Tangible Assets $ 14,066,216 $ 14,044,301 $ 10,279,403 $ 13,772,449 $ 10,378,737 Return on Average Assets (ROA) 0.84 % 0.84 % 1.10 % 0.68 % 1.03 % Impact of removing average intangible assets and related amortization 0.20 0.22 0.07 0.20 0.08 Return on Average Tangible Assets (ROTA) 1.04 1.06 1.17 0.88 1.11 Impact of other adjustments for Adjusted Net Income 0.08 0.35 0.10 0.27 0.13 Adjusted Return on Average Tangible Assets 1.12 % 1.41 % 1.27 % 1.15 % 1.24 % Pre-Tax Pre-Provision return on Average Tangible Assets 1.38 % 1.33 % 1.71 % 1.43 % 1.57 % Impact of adjustments on Pre-Tax Pre-Provision earnings 0.17 0.52 0.18 0.42 0.20 Adjusted Pre-Tax Pre-Provision Return on Tangible Assets 1.55 % 1.85 % 1.89 % 1.85 % 1.77 % Average Shareholders' Equity $ 2,072,747 $ 2,070,529 $ 1,349,475 $ 2,014,083 $ 1,366,672 Less average goodwill and intangible assets (839,787) (842,988) (305,935) (811,483) (305,895) Average Tangible Equity $ 1,232,960 $ 1,227,541 $ 1,043,540 $ 1,202,600 $ 1,060,777 Return on Average Shareholders' Equity 6.01 % 6.05 % 8.60 % 4.94 % 8.08 % Impact of removing average intangible assets and related amortization 5.89 6.03 2.93 5.15 2.74 Return on Average Tangible Common Equity (ROTCE) 11.90 12.08 11.53 10.09 10.82 Impact of other adjustments for Adjusted Net Income 0.89 4.00 0.95 3.05 1.31 Adjusted Return on Average Tangible Common Equity 12.79 % 16.08 % 12.48 % 13.14 % 12.13 % Loan Interest Income 2 $ 150,048 $ 148,432 $ 74,050 $ 433,821 $ 210,636 Accretion on acquired loans (14,843) (14,580) (2,242) (45,365) (8,679) Loan interest income excluding accretion on acquired loans 2 $ 135,205 $ 133,852 $ 71,808 $ 388,456 $ 201,957 Yield on Loans 2 5.93 % 5.89 % 4.45 % 5.89 % 4.35 % Impact of accretion on acquired loans (0.59) (0.58) (0.14) (0.61) (0.18) Yield on loans excluding accretion on acquired loans 2 5.34 % 5.31 % 4.31 % 5.28 % 4.17 % Net Interest Income 2 $ 119,505 $ 127,153 $ 88,399 $ 378,009 $ 246,802 Accretion on acquired loans (14,843) (14,580) (2,242) (45,365) (8,679) Net interest income excluding accretion on acquired loans 2 $ 104,662 $ 112,573 $ 86,157 $ 332,644 $ 238,123 57 Table of Contents Third Second Third Nine Months Ended Quarter Quarter Quarter September 30, (In thousands, except per share data) 2023 2023 2022 2023 2022 Net Interest Margin 2 3.57 % 3.86 % 3.67 % 3.91 % 3.44 % Impact of accretion on acquired loans (0.44) (0.44) (0.09) (0.47) (0.12) Net interest margin excluding accretion on acquired loans 2 3.13 % 3.42 % 3.58 % 3.44 % 3.32 % Securities Interest Income 2 $ 21,520 $ 21,018 $ 15,827 $ 61,913 $ 38,607 Tax equivalent adjustment to securities (22) (23) (35) (71) (108) Securities interest income excluding tax equivalent adjustment $ 21,498 $ 20,995 $ 15,792 $ 61,842 $ 38,499 Loan Interest Income 2 $ 150,048 $ 148,432 $ 74,050 $ 433,821 $ 210,636 Tax equivalent adjustment to loans (177) (167) (80) (517) (241) Loan interest income excluding tax equivalent adjustment $ 149,871 $ 148,265 $ 73,970 $ 433,304 $ 210,395 Net Interest Income 2 $ 119,505 $ 127,153 $ 88,399 $ 378,009 $ 246,802 Tax equivalent adjustments to securities (22) (23) (35) (71) (108) Tax equivalent adjustments to loans (177) (167) (80) (517) (241) Net interest income excluding tax equivalent adjustments $ 119,306 $ 126,963 $ 88,284 $ 377,421 $ 246,453 1 Includes severance, contract termination costs, disposition of branch premises and fixed assets, and other costs to effect the Company's branch consolidation and other expense reduction strategies. 2 On a fully taxable equivalent basis. All yields and rates have been computed using amortized cost. Financial Condition Total assets as of September 30, 2023 were $14.8 billion, an increase of $2.7 billion, or 22%, 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 September 30, 2023, the Company had $1.8 billion in securities available-for-sale and $691.4 million in securities held-to-maturity. The Company's total debt securities portfolio decreased $85.9 million from December 31, 2022. During the nine months ended September 30, 2023, there were $28.1 million of debt securities purchased, $167.1 million acquired through the acquisition of Professional and $212.2 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, 2023 was 4.1, compared to 3.7 at December 31, 2022. At September 30, 2023, available-for-sale securities had gross unrealized losses of $287.3 million and gross unrealized gains of $0.7 million, compared to gross unrealized losses of $248.7 million and gross unrealized gains of $1.1 million at December 31, 2022. The changes were the result of changes 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, 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 securities, obligations of U.S. government agencies, and obligations of U.S. government sponsored entities totaled $2.1 billion, or 81%, of the total portfolio. 58 Table of Contents The portfolio includes $139.1 million, with a fair value of $125.2 million, in private label residential and commercial mortgage-backed securities and collateralized mortgage obligations. Included are $126.8 million, with a fair value of $114.1 million, in private label mortgage-backed residential securities with weighted average credit support of 22%. The collateral underlying these mortgage investments includes both fixed-rate and adjustable-rate mortgage loans. Non-guaranteed agency commercial securities totaled $12.2 million, with a fair value of $11.1 million. These securities have weighted average credit support of 22%. The collateral underlying these mortgages is primarily pooled multifamily loans. The Company also has invested $307.7 million in floating rate collateralized loan obligations. Collateralized loan obligations are special purpose vehicles that purchase first lien broadly syndicated corporate loans while providing support to senior tranche investors. As of September 30, 2023, all of the Company’s collateralized loan obligations were in AAA/AA tranches with weighted average credit support of 33%. 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 U.S. government-sponsored entities, 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 September 30, 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, 2023, no allowance for credit losses has been recorded. Loan Portfolio Loans, net of unearned income and excluding the allowance for credit losses, were $10.0 billion at September 30, 2023, a $1.9 billion, or 23%, increase from December 31, 2022. The increase during 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 $306 thousand, and the average commercial loan size is only $683 thousand at September 30, 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 September 30, 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. September 30, 2023 (In thousands) Portfolio Loans Acquired Non-PCD Loans PCD Loans Total Construction and land development $ 474,788 $ 308,429 $ 10,519 $ 793,736 Commercial real estate - owner occupied 1,056,521 580,725 38,635 1,675,881 Commercial real estate - non-owner occupied 1,774,919 1,357,624 153,431 3,285,974 Residential real estate 1,693,169 703,628 22,106 2,418,903 Commercial and financial 1,187,340 340,412 56,298 1,584,050 Consumer 155,576 92,122 842 248,540 PPP Loans 809 3,293 — 4,102 Totals $ 6,343,122 $ 3,386,233 $ 281,831 $ 10,011,186 59 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 included net deferred costs of $38.1 million at September 30, 2023 and $35.1 million at December 31, 2022. At September 30, 2023, the remaining fair value adjustments on acquired loans were $186.5 million, or 4.9%, 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. September 30, 2023 (In thousands) Amortized Cost Basis % of Total Loans Commercial real estate - non-owner occupied Retail $ 1,041,818 10.41 % Office 595,381 5.95 Multifamily 5+ 501,614 5.01 Hotel/Motel 394,367 3.94 Industrial/Warehouse 355,213 3.55 Other 397,581 3.96 Total commercial real estate - non-owner occupied $ 3,285,974 32.82 % Commercial real estate (“CRE”) non-owner occupied loans increased by $696.2 million in the nine months ended September 30, 2023, totaling $3.3 billion at September 30, 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 September 30, 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 $2.0 million. The second-largest segment in the non-owner occupied CRE portfolio is Office properties, which totaled approximately $595.4 million at September 30, 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 $197.6 million in the nine months ended September 30, 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 $235.4 million, or 17%, totaling $1.6 billion at September 30, 2023, largely attributed to the Professional acquisition. 60 Table of Contents Residential mortgage loans increased $569.4 million to $2.4 billion during the nine months ended September 30, 2023. Included in the balance as of September 30, 2023, were $1.0 billion of fixed rate mortgages, $840.1 million of adjustable rate mortgages and $478.6 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 752. 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 31% of the loans being in first lien position at September 30, 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 decreased $38.0 million, or 13%, to total $248.5 million at September 30, 2023, compared to $286.6 million at December 31, 2022. At September 30, 2023, the Company had unfunded commitments to extend credit of $3.9 billion, compared to $2.8 billion at December 31, 2022. Loan Concentrations The Company has developed guardrails to manage loan types that are most impacted by stressed market conditions to minimize credit risk concentration to capital. Outstanding balances for commercial and CRE loans individually greater than $15 million totaled $574.9 million and represented 6% of the total portfolio at September 30, 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 51% and 248%, respectively, at September 30, 2023, compared to 45% and 230%, respectively, at December 31, 2022. The increase 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 48% and 234%, 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 September 30, 2023 totaled $48.7 million, and were comprised of $41.5 million of nonaccrual loans, and $7.2 million of other real estate owned (“OREO”). Compared to December 31, 2022, nonaccrual loans increased $12.7 million, or 44%, including loans acquired from Professional. The $4.9 million increase in OREO is the result of closures of three branch properties in the first quarter of 2023. Overall, NPAs increased $17.6 million, or 56%, from $31.1 million as of December 31, 2022. At September 30, 2023, approximately 67% of nonaccrual loans were secured with real estate. See the tables below for details about nonaccrual loans. At September 30, 2023, nonaccrual loans reflected cumulative write downs of approximately $6.5 million, including reserves on individually evaluated loans. Nonperforming loans to total loans outstanding at September 30, 2023 increased to 0.41% from 0.35% at December 31, 2022. Nonperforming assets to total assets at September 30, 2023 increased to 0.33% from 0.26% at December 31, 2022. 61 Table of Contents The table below sets forth details related to nonaccrual loans. September 30, 2023 Nonaccrual Loans (In thousands) Non-Current Current Total Construction and land development $ 142 $ 14 $ 156 Commercial real estate - owner occupied 2,015 5,947 7,962 Commercial real estate - non-owner occupied 4,308 5,342 9,650 Residential real estate 4,761 5,307 10,068 Commercial and financial 6,338 5,984 12,322 Consumer 1,274 76 1,350 Total $ 18,838 $ 22,670 $ 41,508 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. As of September 30, 2023, there were eight loans totaling $2.2 million that were TBMs, 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 nine months ended September 30, 2023, the Company recorded provision expense of $33.5 million. The provision expense included $26.6 million for loans acquired in the Professional acquisition. The Company reported net charge-offs for the nine months ended September 30, 2023 of $16.6 million. The ratio of allowance for credit losses to total loans was 1.49% at September 30, 2023, 1.40% at December 31, 2022, and 1.42% at September 30, 2022. 62 Table of Contents LIBOR Transition The Company’s LIBOR transition steering committee has been 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 remaining tenors of U.S. dollar LIBOR ceased publication after June 30, 2023. The Company reviewed its LIBOR loan contracts and customer swap agreements to identify required remediation to support the transition away from LIBOR. As of June 30, 2023, substantially all of these contracts included standardized fallback language or were amended to new reference rates, which are predominantly SOFR-based. The Company also invests in securities and has issued subordinated debt indexed to LIBOR which, as expected, have transitioned to SOFR-based reference rates or will transition on their next reset date in accordance with existing fallback provisions of the LIBOR Act. The transition did not have a material impact on the Company’s financial position or results of operations. 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. 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 $696.0 million at September 30, 2023, compared to $201.9 million at December 31, 2022. Higher cash and cash equivalent balances at September 30, 2023 reflect the Company’s increased liquidity position strategy during the year. 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 34% of overall deposit accounts at September 30, 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 29% 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 158% of uninsured deposits, and 182% of uninsured and uncollateralized deposits. In addition to $696.0 million in cash and cash equivalents at September 30, 2023, the Company had $5.7 billion in available borrowing capacity, including $4.8 billion in available collateralized lines of credit, $0.6 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 September 30, 2023, December 31, 2022, and September 30, 2022 totaled $308.0 million, $58.6 million, and $81.8 million, respectively. 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 third quarter of 2023, Seacoast Bank distributed $12.8 million to the Company and, at September 30, 2023, is eligible to distribute dividends to the Company of approximately $188.3 63 Table of Contents million without prior regulatory approval. At September 30, 2023, the Company had cash and cash equivalents at the parent of approximately $115.0 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, (In thousands, except ratios) 2023 2022 Noninterest demand $ 3,868,132 $ 4,070,973 Interest-bearing demand 2,800,152 2,337,590 Money market 3,143,897 1,985,974 Savings 721,558 1,064,392 Time certificates of deposit 1,574,095 522,666 Total deposits $ 12,107,834 $ 9,981,595 Customer sweep accounts $ 276,450 $ 172,029 Noninterest demand deposits as % of total deposits 32 % 41 % The Company’s balance sheet continues to be primarily funded by core deposits. Consumer deposits represent 43% of total deposits, with an average balance per account of $24 thousand. Business deposits represent 57% of total deposits, with an average balance per account of $111 thousand. Highlighting the Company's longstanding relationship-based strategy, the average tenure for a Seacoast customer is 9.7 years. Total deposits increased $2.1 billion, or 21%, to $12.1 billion at September 30, 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 32% of total deposits at September 30, 2023 and 41% at December 31, 2022. Transaction account balances (noninterest demand and interest-bearing demand) represented 55% of total deposits at September 30, 2023, compared to 64% at December 31, 2022. Customer repurchase agreements totaled $276.5 million at September 30, 2023, increasing $104.4 million, or 61%, 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. At September 30, 2023 and December 31, 2022, borrowings included $72.1 million and $71.9 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 acquired $25.0 million in subordinated debt through the acquisition of Professional. Contractual interest is paid on a semiannual basis at a fixed interest rate of 3.375% until January 30, 2027, at which point the rate converts to a 3-month SOFR rate plus 203 basis points paid quarterly. The debt was recorded at fair value, resulting in a $3.9 million discount that is being accreted into interest expense over the remaining term to maturity. The weighted average interest rate of outstanding subordinated debt was 6.88% and 3.40% for the nine months ended September 30, 2023 and September 30, 2022, respectively. Federal Home Loan Bank advances totaled $110.0 million at September 30, 2023 with a weighted average interest rate of 2.88%, compared to $150.0 million at December 31, 2022 with a weighted average interest rate of 3.42%. 64 Table of Contents Off-Balance Sheet Transactions In the normal course of business, the Company may engage in a variety of financial transactions that, under generally accepted accounting principles, either are not recorded on the balance sheet or are recorded on the balance sheet in amounts that differ from the full contract or notional amounts. These transactions involve varying elements of market, credit and liquidity risk. Lending commitments include unfunded loan commitments and standby and commercial letters of credit. For loan commitments, the contractual amount of a commitment represents the maximum potential credit risk that could result if the entire commitment had been funded, the borrower had not performed according to the terms of the contract, and no collateral had been provided. A large majority of loan commitments and standby letters of credit expire without being funded, and accordingly, total contractual amounts are not representative of actual future credit exposure or liquidity requirements. Loan commitments and letters of credit expose the Company to credit risk in the event that the customer draws on the commitment and subsequently fails to perform under the terms of the lending agreement. For commercial customers, loan commitments generally take the form of revolving credit arrangements. For retail customers, loan commitments generally are lines of credit secured by residential property. These instruments are not recorded on the balance sheet until funds are advanced under the commitment. Unfunded commitments to extend credit were $3.9 billion at September 30, 2023 and $2.8 billion at December 31, 2022. Capital Resources The Company’s equity capital at September 30, 2023 increased $440.6 million, or 27%, from December 31, 2022 to $2.0 billion. Changes in equity included increases in net income of $74.5 million and the issuance of $421.0 million in equity in connection with the Professional acquisition, partially offset by the issuance of common stock dividends totaling $45.2 million and a decrease in accumulated other comprehensive income of $24.2 million. The ratio of shareholders’ equity to period end total assets was 13.82% and 13.24% at September 30, 2023 and December 31, 2022, respectively. The ratio of tangible shareholders’ equity to tangible assets was 8.68% and 9.08% at September 30, 2023 and December 31, 2022, respectively. The decrease in the tangible common equity ratio 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 7.89% at September 30, 2023. Activity in shareholders’ equity for the nine months ended September 30, 2023 and 2022 follows: (In thousands) 2023 2022 Beginning balance at December 31, 2022 and 2021 $ 1,607,775 $ 1,310,736 Net income 74,490 82,580 Common stock transactions related to stock based employee benefit plans 4,316 — Issuance of common stock and conversion of options pursuant to acquisitions 421,042 94,067 Stock compensation, net of Treasury shares acquired 10,290 9,651 Issuance of common share dividend (45,236) (29,012) Change in accumulated other comprehensive income (24,238) (180,220) Repurchase of common stock (45) — Ending balance at September 30, 2023 and 2022 $ 2,048,394 $ 1,287,802 Capital ratios are well above regulatory requirements for well-capitalized institutions. Management’s use of risk-based capital ratios in its analysis of the Company’s capital adequacy are not GAAP financial measures. Seacoast’s management uses these measures to assess the quality of capital and believes that investors may find it useful in their analysis of the Company. The capital measures are not necessarily comparable to similar capital measures that may be presented by other companies and Seacoast does not nor should investors consider such non-GAAP financial measures in isolation from, or as a substitute for GAAP financial information (see “Note 8 – Equity Capital”). 65 Table of Contents September 30, 2023 Seacoast (Consolidated) Seacoast Bank Minimum to be Well- Capitalized 1 Total Risk-Based Capital Ratio 15.09% 14.26% 10.00% Tier 1 Capital Ratio 14.00 13.17 8.00 Common Equity Tier 1 Ratio (CET1) 13.34 13.17 6.50 Leverage Ratio 10.71 10.05 5.00 1 For subsidiary bank only. The Company’s total risk-based capital ratio was 15.09% at September 30, 2023, a decrease from 15.79% at December 31, 2022, primarily due to growth including the acquisition of Professional. At September 30, 2023, the Bank’s leverage ratio (Tier 1 capital to adjusted total assets) was 10.05%, 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 $188.3 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. 66 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 month period beginning October 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. 67 Table of Contents % Change in Projected Baseline Change in Interest Rates Net Interest Income 1-12 months +3.00% (14.3)% +2.00% (7.0)% +1.00% (3.6)% Current —% -1.00% 0.9% -2.00% (0.3%) -3.00% (1.3%) 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. 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.