SEACOAST BANKING CORP OF FLORIDA 10-Q

Item 1. Financial Statements SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended March 31, (In thousands, except per share data) 2024 2023 Interest and fees on loans $ 147,095 $ 135,168 Interest and dividends on securities 22,427 19,349 Interest on interest bearing deposits and other investments 6,184 3,474 Total Interest Income 175,706 157,991 Interest on deposits 47,534 16,033 Interest on time certificates 17,121 5,552 Interest on borrowed money 5,973 5,254 Total Interest Expense 70,628 26,839 Net Interest Income 105,078 131,152 Provision for credit losses 1,368 31,598 Net Interest Income after Provision for Credit Losses 103,710 99,554 Noninterest income: Service charges on deposit accounts 4,960 4,242 Interchange income 1,888 4,694 Wealth management income 3,540 3,063 Mortgage banking fees 381 426 Insurance agency income 1,291 1,101 SBA gains 739 322 BOLI income 2,264 1,916 Other 5,205 6,574 20,268 22,338 Securities gains, net 229 107 Total Noninterest Income 20,497 22,445 Noninterest Expense: Salaries and wages 40,304 47,616 Employee benefits 7,889 8,562 Outsourced data processing costs 12,118 14,553 Occupancy 8,037 8,019 Furniture and equipment 2,011 2,267 Marketing 2,655 2,238 Legal and professional fees 2,151 7,479 FDIC assessments 2,158 1,443 Amortization of intangibles 6,292 6,727 Other real estate owned expense and net (gain) loss on sale ( 26 ) 195 3 T a b l e o f C o n t e n t s Provision for credit losses on unfunded commitments 250 1,239 Other 6,532 7,137 Total Noninterest Expense 90,371 107,475 Income Before Income Taxes 33,836 14,524 Provision for income taxes 7,830 2,697 Net Income $ 26,006 $ 11,827 Share Data Net income per share of common stock Diluted $ 0.31 $ 0.15 Basic 0.31 0.15 Average common shares outstanding Diluted 85,270 80,717 Basic 84,908 80,151 See notes to unaudited consolidated financial statements. 4 T a b l e o f C o n t e n t s SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) (In thousands) Three Months Ended March 31, 2024 2023 Net Income $ 26,006 $ 11,827 Other comprehensive income (loss): Unrealized (losses) gains on available-for-sale securities, net of tax benefit of $ 1.6 million and tax expense of $ 5.9 million for the three months ended March 31, 2024 and March 31, 2023, respectively $ ( 7,916 ) $ 18,516 Amortization of unrealized gains on securities transferred to held-to-maturity, net of tax benefit of $ 3 thousand for each of the three months ended March 31, 2024 and March 31, 2023 ( 11 ) ( 10 ) Reclassification adjustment for losses (gains) included in net income, net of tax benefit of $ 1.0 million and tax expense of $ 1 thousand for the three months ended March 31, 2024 and March 31, 2023, respectively 2,806 ( 4 ) Unrealized gains on derivatives designated as fair value hedges, net of reclassifications to income, net of tax expense of $ 0.4 million for the three months ended March 31, 2024 1,043 — Unrealized gains on derivatives designated as cash flow hedges, net of reclassifications to income, net of tax expense of $ 33 thousand for the three months ended March 31, 2023 — 98 Total other comprehensive (loss) income $ ( 4,078 ) $ 18,600 Comprehensive Income $ 21,928 $ 30,427 See notes to unaudited consolidated financial statements. 5 T a b l e o f C o n t e n t s SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) March 31, December 31, (In thousands, except share data) 2024 2023 Assets Cash and due from banks $ 137,850 $ 167,511 Interest bearing deposits with other banks 544,874 279,671 Total cash and cash equivalents 682,724 447,182 Time deposits with other banks 7,856 5,857 Debt securities: Securities available-for-sale (at fair value) 1,949,463 1,836,020 Securities held-to-maturity (fair value $ 540.2 million at March 31, 2024 and $ 558.4 million at December 31, 2023) 669,896 680,313 Total debt securities 2,619,359 2,516,333 Loans held for sale (at fair value) 9,475 4,391 Loans 9,978,052 10,062,940 Less: Allowance for credit losses ( 146,669 ) ( 148,931 ) Loans, net of allowance for credit losses 9,831,383 9,914,009 Bank premises and equipment, net 110,787 113,304 Other real estate owned 7,315 7,560 Goodwill 732,417 732,417 Other intangible assets, net 89,377 95,645 Bank owned life insurance 301,229 298,974 Net deferred tax assets 111,539 113,232 Other assets 326,554 331,345 Total Assets $ 14,830,015 $ 14,580,249 Liabilities Deposits $ 12,015,840 $ 11,776,935 Securities sold under agreements to repurchase, maturing within 30 days 326,732 374,573 Federal Home Loan Bank (“FHLB”) borrowings 110,000 50,000 Long-term debt, net 106,468 106,302 Other liabilities 153,225 164,353 Total Liabilities 12,712,265 12,472,163 Shareholders’ Equity Common stock, par value $ 0.10 per share, authorized 120,000,000 shares, issued 85,555,007 and outstanding 84,935,054 at March 31, 2024, and authorized 120,000,000 , issued 85,480,183 and outstanding 84,861,498 shares at December 31, 2023 8,494 8,486 Additional paid-in-capital 1,811,941 1,808,883 Retained earnings 478,017 467,305 Less: Treasury stock ( 16,746 ) ( 16,710 ) 2,281,706 2,267,964 Accumulated other comprehensive loss, net ( 163,956 ) ( 159,878 ) Total Shareholders’ Equity 2,117,750 2,108,086 Total Liabilities and Shareholders’ Equity $ 14,830,015 $ 14,580,249 See notes to unaudited consolidated financial statements. 6 T a b l e o f C o n t e n t s SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31, (In thousands) 2024 2023 Cash Flows from Operating Activities Net income $ 26,006 $ 11,827 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 2,110 2,066 Accretion of discounts on securities, net ( 634 ) ( 44 ) Amortization of operating lease right-of-use assets 2,044 1,863 Other amortization and accretion, net 232 ( 6,636 ) Stock based compensation 2,217 2,642 Origination of loans designated for sale ( 31,264 ) ( 27,576 ) Sale of loans designated for sale 27,199 28,749 Provision for credit losses 1,368 31,598 Deferred income taxes 4,299 ( 17,952 ) Gains on sale of securities ( 229 ) ( 5 ) Gains on sale of loans ( 934 ) ( 860 ) Gains on sale and write-downs of other real estate owned ( 26 ) — Losses on disposition of fixed assets and write-downs upon transfer of bank premises to other real estate owned 286 1,154 Changes in operating assets and liabilities, net of effects from acquired companies: Net decrease in other assets 3,127 22,516 Net decrease in other liabilities ( 11,129 ) ( 36,297 ) Net cash provided by operating activities $ 24,672 $ 13,045 Cash Flows from Investing Activities Maturities and repayments of debt securities available-for-sale 50,888 36,850 Maturities and repayments of debt securities held-to-maturity 10,441 11,829 Proceeds from sale of debt securities available-for-sale 86,829 30,490 Purchases of debt securities available-for-sale ( 260,992 ) ( 22,402 ) Maturities of time deposits with other banks 989 — Purchases of time deposits with other banks ( 2,988 ) — Net new loans and principal repayments 87,371 25,883 Proceeds from sale of other real estate owned 1,243 — Proceeds from sale of FHLB and Federal Reserve Bank Stock 2,483 28,848 Purchase of FHLB and Federal Reserve Bank Stock ( 5,320 ) ( 54,642 ) Proceeds from sale of Visa Class B shares 4,104 — Net cash from bank acquisitions — 141,674 Additions to bank premises and equipment ( 762 ) ( 5,812 ) Net cash (used in) provided by investing activities $ ( 25,714 ) $ 192,718 See notes to unaudited consolidated financial statements. 7 T a b l e o f C o n t e n t s SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31, (In thousands) 2024 2023 Cash Flows from Financing Activities Net increase in deposits $ 238,906 $ 208,765 Net (decrease) increase in repurchase agreements ( 47,841 ) 95,577 Repayments of FHLB borrowings ( 50,000 ) — Proceeds from FHLB borrowings 110,000 90,000 Stock based employee benefit plans 813 3,617 Dividends paid ( 15,294 ) ( 14,419 ) Net cash provided by financing activities $ 236,584 $ 383,540 Net increase in cash and cash equivalents 235,542 589,303 Cash and cash equivalents at beginning of period 447,182 201,940 Cash and cash equivalents at end of period $ 682,724 $ 791,243 Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 70,378 $ 23,457 Cash paid during the period for taxes — 6 Recognition of operating lease right-of-use assets, other than through bank acquisitions, net of terminations — 1,610 Recognition of operating lease liabilities, other than through bank acquisitions, net of terminations — 1,610 Supplemental disclosure of non-cash investing activities: 1 Transfers from loans to other real estate owned 89 — Transfers from bank premises to other real estate owned 883 5,455 1 See "Note 11 - Business Combinations" for non cash transactions related to business combinations. See notes to unaudited consolidated financial statements. 8 T a b l e o f C o n t e n t s SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS ’ EQUITY (Unaudited) Common Stock Paid-in Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) (In thousands) Shares Amount Total Balance at December 31, 2023 84,861 $ 8,486 $ 1,808,883 $ 467,305 $ ( 16,710 ) $ ( 159,878 ) $ 2,108,086 Comprehensive income (loss) — — — 26,006 — ( 4,078 ) 21,928 Stock based compensation expense — 2,217 — — — 2,217 Common stock transactions related to stock based employee benefit plans 74 8 841 — ( 36 ) — 813 Dividends on common stock ($ 0.18 per share) — — — ( 15,294 ) — — ( 15,294 ) Three months ended March 31, 2024 74 8 3,058 10,712 ( 36 ) ( 4,078 ) 9,664 Balance at March 31, 2024 84,935 $ 8,494 $ 1,811,941 $ 478,017 $ ( 16,746 ) $ ( 163,956 ) $ 2,117,750 Common Stock Paid-in Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) (In thousands) Shares Amount Total Balance at December 31, 2022 71,618 $ 7,162 $ 1,377,802 $ 423,863 $ ( 13,019 ) $ ( 188,033 ) $ 1,607,775 Comprehensive income — — — 11,827 — 18,600 30,427 Stock based compensation expense — — 2,642 — — — 2,642 Common stock transactions related to stock based employee benefit plans 199 20 3,691 — ( 94 ) — 3,617 Issuance of common stock, pursuant to acquisition 12,792 1,279 409,459 $ — — — 410,738 Conversion of options, pursuant to acquisition — — 10,304 $ — — — 10,304 Dividends on common stock ($ 0.17 per share) — — — ( 14,419 ) — — ( 14,419 ) Three months ended March 31, 2023 12,991 1,299 426,096 ( 2,592 ) ( 94 ) 18,600 443,309 Balance at March 31, 2023 84,609 $ 8,461 $ 1,803,898 $ 421,271 $ ( 13,113 ) $ ( 169,433 ) $ 2,051,084 See notes to unaudited consolidated financial statements. 9 T a b l e o f C o n t e n t s SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1 – Basis of Presentation Basis of Presentation: The accompanying unaudited consolidated financial statements of Seacoast Banking Corporation of Florida and its subsidiaries (the “Company”) have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain prior period amounts have been reclassified to conform to the current period presentation. Operating results for the three months ended March 31, 2024, are not necessarily indicative of the results that may be expected for the year ending December 31, 2024, or any other period. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. Use of Estimates: The preparation of these consolidated financial statements requires management to make judgments in the application of certain 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. Specific areas, among others, requiring the application of management’s estimates include the determination of the allowance for credit losses, acquisition accounting and purchased loans, intangible assets and impairment testing, and other fair value measurements. Issued Accounting Standards In November 2023, the FASB issued ASU 2023-07, “Improvements to Reportable Segment Disclosures.” ASU 2023-07 requires disclosure of significant segment expenses and other segment items on an interim and annual basis. The standard is effective for fiscal years beginning after December 15, 2023 and for interim periods beginning after December 15, 2024. The Company is evaluating the impact of the changes to its existing disclosures. In December 2023, the FASB issued ASU 2023-09, “Improvements to Income Tax Disclosures.” ASU 2023-09 requires disclosure of specific categories in the income tax rate reconciliation and requires additional information for reconciling items that meet a quantitative threshold. The standard requires an annual disclosure of income taxes paid, net of refunds received, disaggregated by federal, state and foreign taxes and to disaggregate the information by jurisdiction based on a quantitative threshold. The standard is effective for fiscal years beginning after December 15, 2024 and early adoption is permitted. The Company does not expect the adoption of the standard to have a material impact on its disclosures. Note 2 – Earnings per Share Basic earnings per common share are computed by dividing net income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share are based on the 10 T a b l e o f C o n t e n t s weighted-average number of common shares outstanding during each period, plus common share equivalents, calculated for share-based awards outstanding using the treasury stock method. For the three months ended March 31, 2024, 327,006 options to purchase shares of the Company’s common stock were anti-dilutive. For the three months ended March 31, 2023, 161,251 options to purchase shares of the Company’s common stock were anti-dilutive. Three Months Ended March 31, (Dollars in thousands, except per share data) 2024 2023 Basic earnings per share Net income $ 26,006 $ 11,827 Average common shares outstanding 84,908 80,151 Net income per share $ 0.31 $ 0.15 Diluted earnings per share Net income $ 26,006 $ 11,827 Average common shares outstanding 84,908 80,151 Add: Dilutive effect of employee restricted stock and stock options 362 566 Average diluted shares outstanding 85,270 80,717 Net income per share $ 0.31 $ 0.15 Note 3 – Securities The amortized cost, gross unrealized gains and losses and fair value of securities available-for-sale (“AFS”) and held-to-maturity (“HTM”) at March 31, 2024 and December 31, 2023 are summarized as follows: March 31, 2024 (In thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Available-for-Sale Debt Securities U.S. Treasury securities and obligations of U.S. government agencies $ 34,245 $ 113 $ ( 530 ) $ 33,828 Residential mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities 1,360,816 1,159 ( 193,157 ) 1,168,818 Commercial mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities 316,950 1,577 ( 17,972 ) 300,555 Private mortgage-backed securities and collateralized mortgage obligations 136,585 66 ( 10,500 ) 126,151 Collateralized loan obligations 284,677 61 ( 111 ) 284,627 Obligations of state and political subdivisions 10,475 — ( 1,313 ) 9,162 Other debt securities 25,681 655 ( 14 ) 26,322 Totals $ 2,169,429 $ 3,631 $ ( 223,597 ) $ 1,949,463 Held-to-Maturity Debt Securities Residential mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities $ 580,626 $ — $ ( 118,761 ) $ 461,865 Commercial mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities 89,270 — ( 10,975 ) 78,295 Totals $ 669,896 $ — $ ( 129,736 ) $ 540,160 11 T a b l e o f C o n t e n t s December 31, 2023 (In thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Available-for-Sale Debt Securities U.S. Treasury securities and obligations of U.S. government agencies $ 37,718 $ 205 $ ( 478 ) $ 37,445 Residential mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities 1,152,753 780 ( 184,152 ) 969,381 Commercial mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities 385,013 2,824 ( 19,565 ) 368,272 Private mortgage-backed securities and collateralized mortgage obligations 135,878 36 ( 10,911 ) 125,003 Collateralized loan obligations 300,855 11 ( 1,411 ) 299,455 Obligations of state and political subdivisions 10,486 — ( 1,096 ) 9,390 Other debt securities 26,599 576 ( 101 ) 27,074 Totals $ 2,049,302 $ 4,432 $ ( 217,714 ) $ 1,836,020 Held-to-Maturity Debt Securities Residential mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities $ 590,676 $ — $ ( 111,746 ) $ 478,930 Commercial mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities 89,637 — ( 10,208 ) 79,429 Totals $ 680,313 $ — $ ( 121,954 ) $ 558,359 During the three months ended March 31, 2024, debt securities with a fair value of $ 86.8 million were sold, with gross losses of $ 3.8 million. During the three months ended March 31, 2023, debt securities with a fair value of $ 22.1 million obtained in the acquisition of Professional Holding Corp. (“Professional”) were sold. No gain or loss was recognized on the sale. There were $ 8.4 million in other sales of securities during the three months ended March 31, 2023, with gross gains of $ 24 thousand and gross losses of $ 19 thousand. Included in “Securities gains, net” is a decrease of $ 0.1 million for the three months ended March 31, 2024, and an increase of $ 0.1 million for the three months ended March 31, 2023, in the value of investments in mutual funds that invest in Community Reinvestment Act (“CRA”)-qualified debt securities. At March 31, 2024, debt securities with a fair value of $ 1.6 billion were pledged primarily as collateral for public deposits and secured borrowings. The amortized cost and fair value of securities as of March 31, 2024, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because prepayments of the underlying collateral for these securities may occur, due to the right to call or repay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately. 12 T a b l e o f C o n t e n t s Held-to-Maturity Available-for-Sale (In thousands) Amortized Cost Fair Value Amortized Cost Fair Value Due in less than one year $ — $ — $ 4,429 $ 4,421 Due after one year through five years — — 4,200 4,184 Due after five years through ten years — — 8,599 8,484 Due after ten years — — 27,492 25,901 — — 44,720 42,990 Residential mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities 580,626 461,865 1,360,816 1,168,818 Commercial mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities 89,270 78,295 316,950 300,555 Private mortgage-backed securities and collateralized mortgage obligations — — 136,585 126,151 Collateralized loan obligations — — 284,677 284,627 Other debt securities — — 25,681 26,322 Totals $ 669,896 $ 540,160 $ 2,169,429 $ 1,949,463 The estimated fair value of a security is determined based on market quotations when available or, if not available, by using quoted market prices for similar securities, pricing models, or discounted cash flow analyses, or using observable market data. The tables below indicate the fair value of AFS debt securities with unrealized losses for which no allowance for credit losses has been recorded. March 31, 2024 Less Than 12 Months 12 Months or Longer Total 1 (In thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses U.S. Treasury securities and obligations of U.S. government agencies $ 12,911 $ ( 75 ) $ 13,135 $ ( 455 ) $ 26,046 $ ( 530 ) Residential mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities 148,889 ( 2,159 ) 836,928 ( 190,998 ) 985,817 ( 193,157 ) Commercial mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities 17,741 ( 125 ) 209,223 ( 17,847 ) 226,964 ( 17,972 ) Private mortgage-backed securities and collateralized mortgage obligations 2,599 ( 28 ) 113,381 ( 10,472 ) 115,980 ( 10,500 ) Collateralized loan obligations 27,408 ( 17 ) 80,389 ( 94 ) 107,797 ( 111 ) Obligations of state and political subdivisions 323 ( 7 ) 5,679 ( 1,306 ) 6,002 ( 1,313 ) Other debt securities — — 3,138 ( 14 ) 3,138 ( 14 ) Totals $ 209,871 $ ( 2,411 ) $ 1,261,873 $ ( 221,186 ) $ 1,471,744 $ ( 223,597 ) 1 Comprised of 397 individual securities. 13 T a b l e o f C o n t e n t s December 31, 2023 Less Than 12 Months 12 Months or Longer Total 1 (In thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses U.S. Treasury securities and obligations of U.S. government agencies $ 24,933 $ ( 143 ) $ 3,594 $ ( 335 ) $ 28,527 $ ( 478 ) Residential mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities 91,867 ( 9,320 ) 826,324 ( 174,832 ) 918,191 ( 184,152 ) Commercial mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities 24,251 ( 1,270 ) 262,666 ( 18,295 ) 286,917 ( 19,565 ) Private mortgage-backed securities and collateralized mortgage obligations 3,945 ( 69 ) 119,475 ( 10,842 ) 123,420 ( 10,911 ) Collateralized loan obligations 60,087 ( 223 ) 232,545 ( 1,188 ) 292,632 ( 1,411 ) Obligations of state and political subdivisions 326 ( 2 ) 9,064 ( 1,094 ) 9,390 ( 1,096 ) Other debt securities 10,579 ( 101 ) — — 10,579 ( 101 ) Totals $ 215,988 $ ( 11,128 ) $ 1,453,668 $ ( 206,586 ) $ 1,669,656 $ ( 217,714 ) 1 Comprised of 504 individual securities. At March 31, 2024, the Company had unrealized losses of $ 0.5 million on U.S. Treasury securities and obligations of U.S. government agencies having a fair value of $ 26.0 million. These securities are either explicitly or implicitly guaranteed by the full faith and credit of the U.S. government. The Company does not expect individual securities issued by the U.S. Treasury, a U.S. agency, or a sponsored U.S. agency to incur future losses of principal. Based on the assessment of all relevant factors, the Company believes that the unrealized loss positions on these debt securities are a function of changes in investment spreads and interest rate movements and not changes in credit quality, and expects to recover the entire amortized cost basis of these securities. Therefore, on March 31, 2024, no allowance for credit losses has been recorded. At March 31, 2024, the Company had unrealized losses of $ 211.1 million on commercial and residential mortgage-backed securities and collateralized mortgage obligations issued by government-sponsored entities having a fair value of $ 1.2 billion. These securities are either explicitly or implicitly guaranteed by the U.S. government and have a long history of no credit losses. The implied government guarantee of principal and interest payments and the high credit rating of the portfolio provide a sufficient basis for the current expectation that there is no risk of loss if default were to occur. Based on the assessment of all relevant factors, the Company believes that the unrealized loss positions on these debt securities are a function of changes in investment spreads and interest rate movements and not changes in credit quality, and expects to recover the entire amortized cost basis of these securities. Therefore, on March 31, 2024, no allowance for credit losses has been recorded. At March 31, 2024, the Company had $ 10.5 million of unrealized losses on private label residential and commercial mortgage-backed securities and collateralized mortgage obligations having a fair value of $ 116.0 million. The securities have a weighted average credit support of 23 %. Based on the evaluation of available information relevant to collectibility, the Company believes that the unrealized loss positions on these debt securities are a function of changes in investment spreads and interest rate movements and not changes in credit quality, and expects to recover the entire amortized cost basis of these securities. Therefore, at March 31, 2024, no allowance for credit losses has been recorded. At March 31, 2024, the Company had $ 0.1 million of unrealized losses in floating rate collateralized loan obligations (“CLOs”) having a fair value of $ 107.8 million. CLOs are special purpose vehicles and those in which the Company has invested are nearly all first-lien, broadly syndicated corporate loans across a diversified band of industries while providing support to senior tranche investors. As of March 31, 2024, all positions held by the Company are in AAA and AA tranches, with weighted average credit support of 41 % and 28 %, respectively. The Company evaluates the securities for potential credit losses by modeling expected loan-level defaults, recoveries, and prepayments for each CLO security. Based on the evaluation of available information relevant to collectibility, the Company believes that the unrealized loss positions on these debt securities are a function of changes in investment spreads and interest rate movements and not changes in credit quality, and expects to recover the entire amortized cost basis of these securities. Therefore, at March 31, 2024, no allowance for credit losses has been recorded. 14 T a b l e o f C o n t e n t s At March 31, 2024, the Company had $ 1.3 million of unrealized losses on municipal securities having a fair value of $ 6.0 million. These securities are highly rated issuances of state or local municipalities, all of which are continuing to make timely contractual payments. Based on the evaluation of available information relevant to collectibility, the Company believes that the unrealized loss positions on these debt securities are a function of changes in investment spreads and interest rate movements and not changes in credit quality, and expects to recover the entire amortized cost basis of these securities. As a result, as of March 31, 2024, no allowance for credit losses has been recorded. All HTM debt securities are issued by government-sponsored entities, which are either explicitly or implicitly guaranteed by the U.S. government and have a long history of no credit losses. The implied government guarantee of principal and interest payments, and the high credit rating of the HTM portfolio provide sufficient basis for the current expectation that there is no risk of loss if a default were to occur. As a result, as of March 31, 2024, no allowance for credit losses has been recorded. The Company has the intent and ability to hold these securities until maturity. Included in Other Assets at March 31, 2024 is $ 70.6 million of FHLB and Federal Reserve Bank (“FRB”) stock stated at par value. The Company has not identified events or changes in circumstances which may have a significant adverse effect on the fair value of these cost method investment securities. Accrued interest receivable on AFS and HTM debt securities of $ 8.5 million and $ 1.1 million, respectively, at March 31, 2024, and $ 7.9 million and $ 1.1 million, respectively, at December 31, 2023, is included in Other Assets. Also included in Other Assets are investments in CRA-qualified mutual funds carried at fair value of $ 13.5 million and $ 13.6 million at March 31, 2024 and December 31, 2023, respectively. At December 31, 2023, the Company held 11,330 shares of Visa Class B stock. The ownership of Visa stock was related to prior ownership in Visa’s network while Visa operated as a cooperative, and was recorded on the Company’s financial records at a zero basis. During the three months ended March 31, 2024, the Company sold all of its Visa Class B stock, receiving net proceeds of $ 4.1 million. Note 4 – Loans Loans held for investment are categorized into the following segments: • Construction and land development: Loans are extended to both commercial and consumer customers which are collateralized by and for the purpose of funding land development and construction projects, including 1-4 family residential, multi-family, and non-farm residential property where the primary source of repayment is from proceeds of the sale, refinancing or permanent financing of the property. • Commercial real estate - owner occupied: Loans are extended to commercial customers for the purpose of acquiring or refinancing real estate to be occupied by the borrower’s business. These loans are collateralized by the subject property and the repayment of these loans is largely dependent on the performance of the company occupying the property. • Commercial real estate - non-owner occupied: Loans are extended to commercial customers for the purpose of acquiring or refinancing commercial property where occupancy by the borrower is not their primary intent. These loans are viewed primarily as cash flow loans, collateralized by the subject property, and the repayment of these loans is largely dependent on rental income from third parties or from the sale of the property. • Residential real estate: Loans are extended to consumer customers and collateralized primarily by 1-4 family residential properties and include fixed and variable rate mortgages, home equity mortgages, and home equity lines of credit. Loans are primarily written based on conventional loan agency guidelines, including loans that exceed agency value limitations. Sources of repayment are largely dependent on the occupant of the residential property. • Commercial and financial: Loans are extended to commercial customers. The purpose of the loans can be working capital, physical asset expansion, asset acquisition, or other business purposes. Loans may be collateralized by assets owned by the borrower or the borrower’s business. Commercial loans are based primarily on the historical and projected cash flow of the borrower’s business and secondarily on the capacity of credit enhancements, guarantees, and underlying collateral provided by the borrower. • Consumer: Loans are extended to consumer customers. The segment includes both installment loans and lines of credit which may be collateralized or non-collateralized. 15 T a b l e o f C o n t e n t s The following tables present net loan balances by segment for portfolio loans, purchased credit deteriorated loans (“PCD”) and loans purchased which are not considered credit deteriorated (“Non-PCD”) as of: March 31, 2024 (In thousands) Portfolio Loans Acquired Non-PCD Loans PCD Loans Total Construction and land development $ 454,591 $ 168,116 $ 539 $ 623,246 Commercial real estate - owner occupied 1,088,086 532,259 35,785 1,656,130 Commercial real estate - non-owner occupied 1,934,419 1,293,008 140,912 3,368,339 Residential real estate 1,756,236 745,349 19,814 2,521,399 Commercial and financial 1,216,045 305,200 44,954 1,566,199 Consumer 164,387 77,677 675 242,739 Totals $ 6,613,764 $ 3,121,609 $ 242,679 $ 9,978,052 December 31, 2023 (In thousands) Portfolio Loans Acquired Non-PCD Loans PCD Loans Total Construction and land development $ 519,426 $ 247,654 $ 542 $ 767,622 Commercial real estate - owner occupied 1,079,633 552,627 38,021 1,670,281 Commercial real estate - non-owner occupied 1,844,588 1,323,222 152,080 3,319,890 Residential real estate 1,714,748 710,129 20,815 2,445,692 Commercial and financial 1,237,090 318,683 52,115 1,607,888 Consumer 175,969 74,854 744 251,567 Totals $ 6,571,454 $ 3,227,169 $ 264,317 $ 10,062,940 The amortized cost basis of loans at March 31, 2024 included net deferred costs of $ 44.9 million. At December 31, 2023, the amortized cost basis included net deferred costs of $ 43.1 million. At March 31, 2024, the remaining fair value adjustments on acquired loans were $ 163.4 million, or 4.6 % of the outstanding acquired loan balances, compared to $ 174.0 million, or 4.8 % of the acquired loan balances at December 31, 2023. The discount is accreted into interest income over the remaining lives of the related loans on a level yield basis. Accrued interest receivable is included within Other Assets and was $ 39.5 million and $ 39.4 million at March 31, 2024 and December 31, 2023, respectively. 16 T a b l e o f C o n t e n t s The following tables present the status of net loan balances as of March 31, 2024 and December 31, 2023. March 31, 2024 (In thousands) Current Accruing 30-59 Days Past Due Accruing 60-89 Days Past Due Accruing Greater Than 90 Days Nonaccrual Total Portfolio Loans Construction and land development $ 454,468 $ 85 $ — $ — $ 38 $ 454,591 Commercial real estate - owner occupied 1,083,721 512 520 — 3,333 1,088,086 Commercial real estate - non-owner occupied 1,931,093 — — — 3,326 1,934,419 Residential real estate 1,741,619 5,314 1,433 416 7,454 1,756,236 Commercial and financial 1,199,204 4,026 686 35 12,094 1,216,045 Consumer 163,006 771 173 45 392 164,387 Total Portfolio Loans $ 6,573,111 $ 10,708 $ 2,812 $ 496 $ 26,637 $ 6,613,764 Acquired Non-PCD Loans Construction and land development $ 166,889 $ 471 $ — $ — $ 756 $ 168,116 Commercial real estate - owner occupied 528,431 488 821 — 2,519 532,259 Commercial real estate - non-owner occupied 1,274,008 4,867 — — 14,133 1,293,008 Residential real estate 739,085 2,227 649 168 3,220 745,349 Commercial and financial 300,642 64 — 35 4,459 305,200 Consumer 73,885 1,030 508 1,258 996 77,677 Total Acquired Non-PCD Loans $ 3,082,940 $ 9,147 $ 1,978 $ 1,461 $ 26,083 $ 3,121,609 PCD Loans Construction and land development $ 441 $ — $ — $ — $ 98 $ 539 Commercial real estate - owner occupied 29,431 984 — — 5,370 35,785 Commercial real estate - non-owner occupied 137,184 — — — 3,728 140,912 Residential real estate 17,891 254 618 — 1,051 19,814 Commercial and financial 29,723 990 — 3 14,238 44,954 Consumer 623 5 47 — — 675 Total PCD Loans $ 215,293 $ 2,233 $ 665 $ 3 $ 24,485 $ 242,679 Total Loans $ 9,871,344 $ 22,088 $ 5,455 $ 1,960 $ 77,205 $ 9,978,052 17 T a b l e o f C o n t e n t s December 31, 2023 (In thousands) Current Accruing 30-59 Days Past Due Accruing 60-89 Days Past Due Accruing Greater Than 90 Days Nonaccrual Total Portfolio Loans Construction and land development $ 519,383 $ 19 $ — $ — $ 24 $ 519,426 Commercial real estate - owner occupied 1,078,732 — — — 901 1,079,633 Commercial real estate - non-owner occupied 1,840,485 685 — — 3,418 1,844,588 Residential real estate 1,701,862 4,373 1,515 169 6,829 1,714,748 Commercial and financial 1,221,941 1,372 145 50 13,582 1,237,090 Consumer 174,798 763 290 — 118 175,969 Total Portfolio Loans $ 6,537,201 $ 7,212 $ 1,950 $ 219 $ 24,872 $ 6,571,454 Acquired Non-PCD Loans Construction and land development $ 245,674 $ 891 $ 289 $ — $ 800 $ 247,654 Commercial real estate - owner occupied 545,374 1,691 133 — 5,429 552,627 Commercial real estate - non-owner occupied 1,310,100 11,577 — — 1,545 1,323,222 Residential real estate 704,417 2,586 888 153 2,085 710,129 Commercial and financial 315,229 50 36 35 3,333 318,683 Consumer 71,986 568 618 618 1,064 74,854 Total Acquired Non-PCD Loans $ 3,192,780 $ 17,363 $ 1,964 $ 806 $ 14,256 $ 3,227,169 PCD Loans Construction and land development $ 442 $ 100 $ — $ — $ — $ 542 Commercial real estate - owner occupied 34,667 — — — 3,354 38,021 Commercial real estate - non-owner occupied 148,308 — — — 3,772 152,080 Residential real estate 18,923 497 169 154 1,072 20,815 Commercial and financial 34,337 — — — 17,778 52,115 Consumer 651 85 8 — — 744 Total PCD Loans $ 237,328 $ 682 $ 177 $ 154 $ 25,976 $ 264,317 Total Loans $ 9,967,309 $ 25,257 $ 4,091 $ 1,179 $ 65,104 $ 10,062,940 All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest subsequently received on such loans is accounted for under the cost-recovery method, whereby interest income is not recognized until the loan balance is reduced to zero. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, and future payments are reasonably assured. The Company recognized $ 0.2 million in interest income on nonaccrual loans during the three months ended March 31, 2024. The Company recognized $ 0.1 million in interest income on nonaccrual loans during the three months ended March 31, 2023. 18 T a b l e o f C o n t e n t s The following tables present net balances of loans on nonaccrual status and the related allowance for credit losses, if any, as of: March 31, 2024 (In thousands) Nonaccrual Loans With No Related Allowance Nonaccrual Loans With an Allowance Total Nonaccrual Loans Allowance for Credit Losses Construction and land development $ 99 $ 793 $ 892 $ 222 Commercial real estate - owner occupied 8,536 2,686 11,222 508 Commercial real estate - non-owner occupied 17,715 3,472 21,187 1,617 Residential real estate 2,370 9,355 11,725 313 Commercial and financial 5,918 24,873 30,791 13,760 Consumer — 1,388 1,388 209 Totals $ 34,638 $ 42,567 $ 77,205 $ 16,629 December 31, 2023 (In thousands) Nonaccrual Loans With No Related Allowance Nonaccrual Loans With an Allowance Total Nonaccrual Loans Allowance for Credit Losses Construction and land development $ — $ 824 $ 824 $ — Commercial real estate - owner occupied 4,859 4,825 9,684 41 Commercial real estate - non-owner occupied 3,938 4,797 8,735 230 Residential real estate 1,792 8,194 9,986 58 Commercial and financial 4,868 29,825 34,693 2,319 Consumer — 1,182 1,182 257 Totals $ 15,457 $ 49,647 $ 65,104 $ 2,905 Loans by Risk Rating The Company utilizes an internal asset classification system as a means of identifying problem and potential problem loans. The following classifications are used to categorize loans under the internal classification system: • Pass: Loans that are not problem loans or potential problem loans are considered to be pass-rated. • Special Mention: Loans that do not currently expose the Company to sufficient risk to warrant classification in the Substandard or Doubtful categories, but possess weaknesses that deserve management’s close attention are deemed to be Special Mention. • Substandard: Loans with the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. • Doubtful: Loans that have all the weaknesses inherent in those classified Substandard with the added characteristic that the weakness present makes collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. 19 T a b l e o f C o n t e n t s The following tables present the risk rating of loans and year-to-date gross charge offs by year of origination as of: March 31, 2024 (In thousands) 2024 2023 2022 2021 2020 Prior Revolving Total Construction and Land Development Risk Ratings: Pass $ 13,176 $ 89,480 $ 241,691 $ 77,568 $ 9,467 $ 40,599 $ 149,619 $ 621,600 Special Mention — — — — — 395 360 755 Substandard — — 212 — — 580 99 891 Doubtful — — — — — — — — Total $ 13,176 $ 89,480 $ 241,903 $ 77,568 $ 9,467 $ 41,574 $ 150,078 $ 623,246 Gross Charge Offs $ — $ — $ — $ — $ — $ — $ — $ — Commercial real estate - owner occupied Risk Ratings: Pass $ 21,932 $ 142,467 $ 273,030 $ 277,164 $ 166,881 $ 696,218 $ 31,147 $ 1,608,839 Special Mention 2,064 — 368 1,320 — 9,502 — 13,254 Substandard — — 6,431 1,224 6,922 19,460 — 34,037 Doubtful — — — — — — — — Total $ 23,996 $ 142,467 $ 279,829 $ 279,708 $ 173,803 $ 725,180 $ 31,147 $ 1,656,130 Gross Charge Offs $ — $ — $ — $ — $ — $ — $ — $ — Commercial real estate - non-owner occupied Risk Ratings: Pass $ 61,739 $ 235,785 $ 814,204 $ 671,176 $ 287,896 $ 1,179,616 $ 23,637 $ 3,274,053 Special Mention — — 29,348 6,418 2,952 10,352 — 49,070 Substandard — — — 8,606 9,264 27,096 250 45,216 Doubtful — — — — — — — — Total $ 61,739 $ 235,785 $ 843,552 $ 686,200 $ 300,112 $ 1,217,064 $ 23,887 $ 3,368,339 Gross Charge Offs $ — $ — $ — $ — $ 84 $ — $ — $ 84 Residential real estate Risk Ratings: Pass $ 35,352 $ 176,395 $ 472,223 $ 647,547 $ 157,927 $ 497,194 $ 513,044 $ 2,499,682 Special Mention — 112 — 721 39 1,134 4,052 6,058 Substandard — 259 112 91 152 9,362 5,683 15,659 Doubtful — — — — — — — — Total $ 35,352 $ 176,766 $ 472,335 $ 648,359 $ 158,118 $ 507,690 $ 522,779 $ 2,521,399 Gross Charge Offs $ — $ — $ — $ — $ — $ — $ — $ — Commercial and financial Risk Ratings: Pass $ 49,338 $ 233,844 $ 312,888 $ 322,298 $ 120,778 $ 141,193 $ 318,118 $ 1,498,457 Special Mention — 1,082 1,206 935 985 1,468 1,742 7,418 Substandard — — 19,090 20,920 1,354 14,886 4,074 60,324 Doubtful — — — — — — — — Total $ 49,338 $ 234,926 $ 333,184 $ 344,153 $ 123,117 $ 157,547 $ 323,934 $ 1,566,199 Gross Charge Offs $ — $ — $ 85 $ 266 $ — $ 2,031 $ 274 $ 2,656 Consumer Risk Ratings: Pass $ 4,354 $ 17,757 $ 49,663 $ 39,083 $ 18,337 $ 45,641 $ 61,400 $ 236,235 Special Mention — — 235 217 60 95 88 695 Substandard — 70 3,315 1,780 161 392 91 5,809 Doubtful — — — — — — — — Total $ 4,354 $ 17,827 $ 53,213 $ 41,080 $ 18,558 $ 46,128 $ 61,579 $ 242,739 Gross Charge Offs $ — $ 215 $ 74 $ 1,493 $ 55 $ 36 $ 15 $ 1,888 Consolidated Total $ 187,955 $ 897,251 $ 2,224,016 $ 2,077,068 $ 783,175 $ 2,695,183 $ 1,113,404 $ 9,978,052 Gross Charge Offs $ — $ 215 $ 159 $ 1,759 $ 139 $ 2,067 $ 289 $ 4,628 20 T a b l e o f C o n t e n t s December 31, 2023 (In thousands) 2023 2022 2021 2020 2019 Prior Revolving Total Construction and Land Development Risk Ratings: Pass $ 80,750 $ 295,043 $ 107,158 $ 20,199 $ 21,942 $ 28,902 $ 210,716 $ 764,710 Special Mention — 1,407 — — — 393 289 2,089 Substandard — — — — — 499 324 823 Doubtful — — — — — — — — Total $ 80,750 $ 296,450 $ 107,158 $ 20,199 $ 21,942 $ 29,794 $ 211,329 $ 767,622 Gross Charge Offs $ — $ — $ — $ — $ — $ — $ — $ — Commercial real estate - owner occupied Risk Ratings: Pass $ 145,642 $ 272,384 $ 281,870 $ 165,475 $ 171,897 $ 551,177 $ 36,952 $ 1,625,397 Special Mention — 159 1,335 — 524 9,122 1 11,141 Substandard — 6,024 1,057 6,991 7,116 12,491 64 33,743 Doubtful — — — — — — — — Total $ 145,642 $ 278,567 $ 284,262 $ 172,466 $ 179,537 $ 572,790 $ 37,017 $ 1,670,281 Gross Charge Offs $ — $ — $ — $ — $ — $ — $ — $ — Commercial real estate - non-owner occupied Risk Ratings: Pass $ 234,226 $ 784,525 $ 657,499 $ 288,747 $ 397,031 $ 841,062 $ 25,954 $ 3,229,044 Special Mention — 29,381 2,092 2,964 — 12,120 — 46,557 Substandard — 685 8,723 9,398 10,427 14,806 250 44,289 Doubtful — — — — — — — — Total $ 234,226 $ 814,591 $ 668,314 $ 301,109 $ 407,458 $ 867,988 $ 26,204 $ 3,319,890 Gross Charge Offs $ — $ — $ 11 $ — $ — $ — $ 109 $ 120 Residential real estate Risk Ratings: Pass $ 177,000 $ 450,366 $ 649,086 $ 160,889 $ 95,288 $ 413,719 $ 479,047 $ 2,425,395 Special Mention 208 — — — 58 482 4,004 4,752 Substandard 95 — 919 123 314 8,960 5,134 15,545 Doubtful — — — — — — — — Total $ 177,303 $ 450,366 $ 650,005 $ 161,012 $ 95,660 $ 423,161 $ 488,185 $ 2,445,692 Gross Charge Offs $ — $ — $ — $ 44 $ — $ 159 $ 153 $ 356 Commercial and financial Risk Ratings: Pass $ 315,560 $ 336,071 $ 333,113 $ 127,069 $ 66,165 $ 89,002 $ 269,108 $ 1,536,088 Special Mention 136 2,167 1,064 1,005 503 1,103 2,191 8,169 Substandard — 18,558 21,643 1,380 5,889 11,842 3,961 63,273 Doubtful — — — — — 358 — 358 Total $ 315,696 $ 356,796 $ 355,820 $ 129,454 $ 72,557 $ 102,305 $ 275,260 $ 1,607,888 Gross Charge Offs $ 1,198 $ 117 $ 659 $ 3,007 $ 582 $ 12,584 $ 418 $ 18,565 Consumer Risk Ratings: Pass $ 20,557 $ 66,699 $ 45,534 $ 19,747 $ 20,300 $ 19,080 $ 56,473 $ 248,390 Special Mention 5 334 279 77 5 194 65 959 Substandard 66 930 891 103 51 177 — 2,218 Doubtful — — — — — — — — Total $ 20,628 $ 67,963 $ 46,704 $ 19,927 $ 20,356 $ 19,451 $ 56,538 $ 251,567 Gross Charge Offs $ 74 $ 1,910 $ 2,218 $ 362 $ 263 $ 666 $ 261 $ 5,754 Consolidated Total $ 974,245 $ 2,264,733 $ 2,112,263 $ 804,167 $ 797,510 $ 2,015,489 $ 1,094,533 $ 10,062,940 Gross Charge Offs $ 1,272 $ 2,027 $ 2,888 $ 3,413 $ 845 $ 13,409 $ 941 $ 24,795 21 T a b l e o f C o n t e n t s Troubled Borrower Modifications The following table presents the amortized cost of troubled borrower modification (“TBM”) loans that were modified during the three months ended March 31, 2024. There was one loan for $ 29 thousand modified as a TBM for the three months ended March 31, 2023. March 31, 2024 (In thousands) Rate Reduction or Rate Reduction with Term Extension Term Extension and/or Payment Delay Total 1 % of Total Class of Loans Commercial real estate - owner occupied $ 3,324 $ — $ 3,324 0.20 % Commercial real estate - non-owner occupied 810 — 810 0.02 % Residential real estate — 31 31 — % Commercial and financial 2,631 57 2,688 0.17 % Consumer — 523 523 0.22 % Totals $ 6,765 $ 611 $ 7,376 0.07 % 1 At March 31, 2024, there were no unfunded lending related commitments associated with TBMs. The following table presents the payment status of TBM loans that were modified in the twelve months prior to March 31, 2024. March 31, 2024 (In thousands) Current Accruing 30-59 Days Past Due Accruing 60-89 Days Past Due Accruing Greater Than 90 Days Nonaccrual Total Commercial real estate - owner occupied 522 — — — 2,802 3,324 Commercial real estate - non-owner occupied — — — — 810 810 Residential real estate 31 — — — — 31 Commercial and financial 2,185 — — — 13,016 15,201 Consumer 2,299 290 148 231 143 3,111 Totals $ 5,037 $ 290 $ 148 $ 231 $ 16,771 $ 22,477 During the three months ended March 31, 2024, there were no subsequent defaults of TBMs modified in the prior 12 months. 22 T a b l e o f C o n t e n t s Note 5 – Allowance for Credit Losses Activity in the allowance for credit losses is summarized as follows: Three Months Ended March 31, 2024 (In thousands) Beginning Balance Provision for Credit Losses Charge- Offs Recoveries Ending Balance Construction and land development $ 8,637 $ ( 1,640 ) $ — $ 4 $ 7,001 Commercial real estate - owner occupied 5,529 4,484 — 4 10,017 Commercial real estate - non-owner occupied 48,288 ( 1,621 ) ( 84 ) 18 46,601 Residential real estate 39,016 ( 631 ) — 243 38,628 Commercial and financial 34,343 ( 1,501 ) ( 2,656 ) 521 30,707 Consumer 13,118 2,277 ( 1,888 ) 208 13,715 Totals $ 148,931 $ 1,368 $ ( 4,628 ) $ 998 $ 146,669 Three Months Ended March 31, 2023 (In thousands) Beginning Balance Allowance on PCD Loans Acquired During the Period Provision for Credit Losses Charge- Offs Recoveries Ending Balance Construction and land development $ 6,464 $ 5 $ 69 $ — $ 2 $ 6,540 Commercial real estate - owner occupied 6,051 139 101 — 1 6,292 Commercial real estate - non-owner occupied 43,258 647 9,715 ( 109 ) 64 53,575 Residential real estate 29,605 400 9,898 ( 159 ) 150 39,894 Commercial and financial 15,648 11,983 6,414 ( 2,642 ) 190 31,593 Consumer 12,869 161 5,401 ( 695 ) 10 17,746 Totals $ 113,895 $ 13,335 $ 31,598 $ ( 3,605 ) $ 417 $ 155,640 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. Forecast data is sourced from Moody’s Analytics (“Moody’s”), a firm widely recognized for its research, analysis, and economic forecasts. The forecasts of future economic conditions are over the expected remaining life of the loan using economic forecasts that revert to long-term historical averages over time. As of March 31, 2024 and December 31, 2023, the Company utilized a multiple scenario model comprised of a blend of Moody’s economic scenarios and considered the uncertainty associated with the assumptions in the scenarios, including continued actions taken by the Federal Reserve with regard to monetary policy and interest rates and the potential impact of those actions, the conflicts in the Middle East and Russia-Ukraine and the magnitude of the resulting market disruptions, and the potential impact of persistent high inflation on the economy. Outcomes in any or all of these factors could differ from the scenarios utilized, and the Company incorporated qualitative considerations reflecting the risk of uncertain economic conditions, and for additional dimensions of risk that may not be captured in the quantitative model. The following section discusses changes in the level of the allowance for credit losses for the three months ended March 31, 2024. 23 T a b l e o f C o n t e n t s In the Construction and Land Development segment, the decrease in the allowance is due to a decrease in loan balances. In this segment, the primary source of repayment is typically from proceeds of the sale, refinancing, or permanent financing of the underlying property; therefore, industry and collateral type and estimated collateral values are among the relevant factors in assessing expected losses. In the Commercial Real Estate - Owner-Occupied segment, the allowance increased due to continued uncertainty in connection with commercial real estate valuations broadly, and the collateral values associated with the underlying loans. Risk characteristics include but are not limited to, collateral type, note structure and loan seasoning. In the Commercial Real Estate - Non Owner-Occupied segment, the decrease in the allowance is primarily attributed to improvement in the forecast for macroeconomic factors, partially offset by higher loan balances. Repayment is often dependent upon rental income from the successful operation of the underlying property. Loan performance may be adversely affected by general economic conditions or conditions specific to the real estate market, including property types. Collateral type, note structure, and loan seasoning are among the risk characteristics analyzed for this segment. The Residential Real Estate segment includes first mortgages secured by residential property, and home equity lines of credit. The decrease in the allowance is due to an improvement in the forecast for macroeconomic factors, partially offset by an increase in loan balances. Risk characteristics considered for this segment include, but are not limited to, borrower FICO score, lien position, loan to value ratios, and loan seasoning. In the Commercial and Financial segment, borrowers are primarily small to medium sized professional firms and other businesses, and loans are generally supported by projected cash flows of the business, collateralized by business assets, and/or guaranteed by the business owners. The decrease in the allowance is due to a decrease in loan balances. Industry, collateral type, estimated collateral values, and loan seasoning are among the relevant factors in assessing expected losses. Consumer loans include installment and revolving lines, loans for automobiles, boats, and other personal or family purposes. Risk characteristics considered for this segment include, but are not limited to, collateral type, loan to value ratios, loan seasoning and FICO score. The increase in the allowance reflects an increase in expected losses, partly offset by a decrease in loan balances. Note 6 – Derivatives Back-to-Back Swaps The Company offers interest rate swaps when requested by customers to allow them to hedge the risk of rising interest rates on their variable rate loans. Upon entering into these swaps, the Company enters into offsetting positions with counterparties in order to minimize the interest rate risk. These back-to-back swaps are freestanding financial derivatives with the fair values reported in Other Assets and Other Liabilities. The Company is party to master netting arrangements with its financial institution counterparties; however, the Company does not offset assets and liabilities under the arrangements for financial statement presentation purposes. Gains and losses on these back-to-back swaps, which offset, are recorded through noninterest income. Interest Rate Swaps Designated as Fair Value Hedges In the second quarter of 2023, the Company entered into interest rate swap contracts to hedge the risk of changes in fair value of the AFS securities portfolio due to changes in the Secured Overnight Financing Rate (“SOFR”). The Company considers these derivatives to be highly effective at offsetting changes in interest rates and will assess the effectiveness on a quarterly basis. The changes in interest rates affecting the fair value of these derivative contracts are recognized in other comprehensive income. These derivative instruments are primarily for risk management purposes. For the three months ended March 31, 2024, the Company recognized gains through other comprehensive income of $ 4.0 million and reclassified gains of $ 61 thousand out of accumulated other comprehensive income into interest income. The Company entered into interest rate swap contracts to hedge the risk of changes in the fair value of a pool of residential mortgages due to changes in SOFR. These fair values hedges utilize the portfolio layer method. The Company considers these derivatives to be highly effective at offsetting changes in interest rates and will assess the effectiveness on a quarterly basis. The changes in interest rates affecting the fair value of these derivative contracts are recognized in interest income. These derivative instruments are primarily for risk management purposes. For the three months ended March 31, 2024, the Company recognized gains through interest income of $ 0.4 million. 24 T a b l e o f C o n t e n t s (In thousands) Notional Amount Fair Value Balance Sheet Category March 31, 2024 Back-to-back swaps 1 $ 622,857 $ 30,037 Other Assets and Other Liabilities Securities fair value hedges 400,000 4,018 Other Assets Residential mortgage fair value hedges 200,000 880 Other Assets December 31, 2023 Back-to-back swaps 1 $ 605,735 $ 28,804 Other Assets and Other Liabilities Securities fair value hedges 400,000 2,677 Other Assets Residential mortgage fair value hedges 200,000 75 Other Liabilities 1 Back-to-back swaps include risk participation agreements with notional amounts of $ 9.4 million and nominal fair value at March 31, 2024, and December 31, 2023, respectively. The following table presents amounts recorded on the Consolidated Balance Sheet related to cumulative basis adjustments for fair value hedges. Carrying amount of the hedged items Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged items (In thousands) March 31, 2024 December 31, 2023 March 31, 2024 December 31, 2023 Securities available-for-sale 1 $ 555,920 $ 584,108 $ 4,044 $ 2,643 Loans, net 2 627,213 633,693 937 44 1 At March 31, 2024, and December 31, 2023, the amortized cost basis and unallocated basis adjustments used in hedging relationships was $ 657.5 million and $ 680.6 million, respectively. Refer to “Note 3 - Securities” for a reconciliation of the amortized cost and fair value of AFS securities. 2 These amounts represent the amortized cost basis of closed portfolios used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolios anticipated to be outstanding for the designated hedge period. At March 31, 2024 and December 31, 2023, the portfolio layer method was $ 200 million, of which $ 200 million was designated as hedged. Note 7 – Securities Sold Under Agreements to Repurchase Securities sold under agreements to repurchase are accounted for as secured borrowings. For securities sold under agreements to repurchase, the Company is required to pledge collateral with value sufficient to fully collateralize borrowings. Company securities pledged were as follows by collateral type and maturity as of: (In thousands) March 31, 2024 December 31, 2023 Fair value of pledged securities - overnight and continuous: Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities $ 384,959 $ 396,378 Note 8 – Regulatory Capital The Company is well-capitalized and at March 31, 2024, the Company and the Company’s principal banking subsidiary, Seacoast Bank, exceeded the Common Equity Tier 1 “(CET1)” capital ratio regulatory threshold of 6.5 % for well-capitalized institutions under the Basel III standardized transition approach, as well as risk-based and leverage ratio requirements for well-capitalized banks under the regulatory framework for prompt corrective action. Note 9 – Contingent Liabilities The Company and its subsidiaries, because of the nature of their business, are at all times subject to numerous legal actions, threatened or filed. Management presently believes that none of the legal proceedings to which it is a party are likely to have a materially adverse effect on the Company’s consolidated financial condition, operating results or cash flows. 25 T a b l e o f C o n t e n t s Note 10 – Fair Value Under ASC Topic 820, fair value measurements for items measured at fair value on a recurring and nonrecurring basis at March 31, 2024 and December 31, 2023 included: (In thousands) Fair Value Measurements Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) At March 31, 2024 Financial Assets Debt securities available-for-sale 1 $ 1,949,463 $ 192 $ 1,949,271 $ — Derivative financial instruments 2 34,935 — 34,935 — Loans held for sale 2 9,475 — 9,475 — Loans 3 2,504 — — 2,504 Other real estate owned 4 7,315 — — 7,315 Equity securities 5 13,506 13,506 — — Financial Liabilities Derivative financial instruments 2 $ 30,037 $ — $ 30,037 $ — At December 31, 2023 Financial Assets Debt securities available-for-sale 1 $ 1,836,020 $ 192 $ 1,835,828 $ — Derivative financial instruments 2 31,481 — 31,481 — Loans held for sale 2 4,391 — 4,391 — Loans 3 15,242 — — 15,242 Other real estate owned 4 7,560 — — 7,560 Equity securities 5 13,623 13,623 — — Financial Liabilities Derivative financial instruments 2 $ 28,879 $ — $ 28,879 $ — 1 See “Note 3 – Securities” for further detail of fair value of individual investment categories. 2 Recurring fair value basis determined using observable market data. 3 See “Note 4 – Loans.” Nonrecurring fair value adjustments to collateral-dependent loans reflect full or partial write-downs that are based on current appraised values of the collateral. 4 Fair value is measured on a nonrecurring basis in accordance with ASC Topic 360, Property, Plant, and Equipment. 5 Investment in shares of mutual funds that invest primarily in CRA-qualified debt securities, reported at fair value in Other Assets. Recurring fair value basis is determined using market quotations. For recurring fair value measurements, transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Company’s monthly and/or quarterly valuation process. During the three months ended March 31, 2024, there were no such transfers. For additional information on the valuation techniques and significant inputs for Level 2 and Level 3 assets and liabilities that are measured at fair value on a recurring basis, see “Note 16 - Fair Value” of the Annual Report on Form 10-K for the year ended December 31, 2023. 26 T a b l e o f C o n t e n t s The carrying amount and fair value of the Company’s other financial instruments that were not disclosed previously in the balance sheet and for which carrying amount is not fair value as of March 31, 2024 and December 31, 2023 is as follows: (In thousands) Carrying Amount Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) March 31, 2024 Financial Assets Held-to-maturity debt securities 1 $ 669,896 $ — $ 540,160 $ — Time deposits with other banks 7,856 — 7,820 — Loans, net 9,828,879 — — 9,580,648 Financial Liabilities Deposits 12,015,840 — — 12,014,568 FHLB borrowings 110,000 — 110,001 — Long-term debt 106,468 — 101,008 — December 31, 2023 Held-to-maturity debt securities 1 $ 680,313 $ — $ 558,359 $ — Time deposits with other banks 5,857 — 5,756 — Loans, net 9,898,767 — — 9,805,693 Financial Liabilities Deposits 11,776,935 — — 11,775,613 FHLB borrowings 50,000 — 49,745 — Long-term debt 109,458 — 100,851 — 1 See “Note 3 – Securities” for further detail of recurring fair value basis of individual investment categories. The short maturity of Seacoast’s assets and liabilities results in a significant number of financial instruments whose fair value equals or closely approximates carrying value. Such financial instruments are reported in the following balance sheet captions: cash and due from banks, interest bearing deposits with other banks, and securities sold under agreements to repurchase. The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value at March 31, 2024 and December 31, 2023: Held-to-maturity debt securities : These debt securities are reported at fair value utilizing Level 2 inputs. The estimated fair value of a security is determined based on market quotations when available or, if not available, by using quoted market prices for similar securities, pricing models or discounted cash flow analyses, using observable market data where available. The Company reviews the prices supplied by independent pricing services, as well as their underlying pricing methodologies, for reasonableness and to ensure such prices are aligned with traditional pricing matrices. From time to time, the Company will validate, on a sample basis, prices supplied by the independent pricing service by comparison to prices obtained from other brokers and third-party sources or derived using internal models. Loans : Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type, such as commercial or mortgage. Each loan category is further segmented into fixed and adjustable-rate interest terms as well as performing and nonperforming categories. The fair value of loans is calculated by discounting scheduled cash flows through the estimated life including prepayment considerations, using estimated market discount rates that reflect the risks inherent in the loan. The fair value approach considers market-driven variables including credit related factors and reflects an “exit price” as defined in ASC Topic 820. 27 T a b l e o f C o n t e n t s Deposit liabilities : The fair value of demand deposits, savings accounts and money market deposits is the amount payable at the reporting date. The fair value of fixed maturity certificates of deposit is estimated using the rates currently offered for funding of similar remaining maturities. Note 11 – Business Combinations Acquisition of Professional Holding Corp. On January 31, 2023, the Company completed its acquisition of Professional Holding Corp. (“Professional”). Simultaneously, upon completion of the merger of Professional and the Company, Professional Bank was merged with and into Seacoast Bank. Prior to the acquisition, Professional Bank operated nine branches across South Florida. The transaction further expanded the Company’s presence in the tri-county South Florida market, which includes Miami-Dade, Broward, and Palm Beach counties, Florida’s largest metropolitan statistical area and the 8th largest in the nation. The Company acquired 100 % of the outstanding common stock of Professional. Under the terms of the merger agreement, Professional shareholders received 0.8909 shares of Seacoast common stock for each share of Professional common stock held immediately prior to the merger, and Professional option holders received options to purchase Seacoast common stock, with the number of shares underlying each such option and the applicable exercise price adjusted using the same 0.8909 exchange ratio. (In thousands, except per share data) January 31, 2023 Number of Professional common shares outstanding 14,358 Per share exchange ratio 0.8909 Number of shares of SBCF common stock issued 12,792 Multiplied by common stock price per share at January 31, 2023 $ 32.11 Value of SBCF common stock issued $ 410,738 Cash paid for fractional shares 5 Fair value of Professional options converted 10,304 Total purchase price $ 421,047 The acquisition of Professional was accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. The Company recognized goodwill of $ 251.7 million for this acquisition that is nondeductible for tax purposes. Determining fair values of assets and liabilities, especially the loan portfolio, core deposit intangibles, and deferred taxes, is a complicated process involving significant judgment regarding methods and assumptions used to calculate estimated fair values. As part of the acquisition of Professional, options were granted to replace outstanding Professional options. These options were fully vested upon acquisition. The full value of the replacement options, $ 10.3 million, was associated with pre-combination service and was therefore included in the calculation of the total purchase consideration. 28 T a b l e o f C o n t e n t s Initially Measured Measurement As Adjusted (In thousands) January 31, 2023 Period Adjustments January 31, 2023 Assets: Cash and cash equivalents $ 141,680 $ — $ 141,680 Investment securities 167,059 — 167,059 Loans 1,991,713 ( 5,544 ) 1,986,169 Bank premises and equipment 2,478 — 2,478 Core deposit intangibles 48,885 — 48,885 Goodwill 248,091 3,583 251,674 BOLI 55,071 — 55,071 Other Assets 74,232 2,561 76,793 Total Assets $ 2,729,209 $ 600 $ 2,729,809 Liabilities: Deposits $ 2,119,341 $ — $ 2,119,341 Subordinated debt 21,141 — 21,141 Other Liabilities 167,680 600 168,280 Total Liabilities $ 2,308,162 $ 600 $ 2,308,762 The table below presents information with respect to the fair value and unpaid principal balance of acquired loans at the acquisition date. January 31, 2023 (In thousands) Book Balance Fair Value Loans: Construction and land development $ 156,048 $ 151,012 Commercial real estate - owner occupied 293,473 274,068 Commercial real estate - non-owner occupied 752,393 692,746 Residential real estate 509,305 483,611 Commercial and financial 392,396 350,628 Consumer 33,656 32,153 PPP Loans 1,951 1,951 Total acquired loans $ 2,139,222 $ 1,986,169 29 T a b l e o f C o n t e n t s The table below presents the carrying amount of loans for which, at the date of acquisition, there was evidence of more than insignificant deterioration of credit quality since origination: (In thousands) January 31, 2023 Book balance of loans at acquisition $ 155,031 Allowance for credit losses at acquisition ( 18,879 ) Non-credit related discount ( 12,361 ) Total PCD loans acquired $ 123,791 The acquisition of Professional resulted in the addition of $ 45.5 million in allowance for credit losses, including the $ 18.9 million identified in the table above for PCD loans, and $ 26.6 million for non-PCD loans recorded through the provision for credit losses at the date of acquisition. Included within the $ 18.9 million initial PCD allowance is $ 5.5 million recorded as a measurement period adjustment during the three months ended June 30, 2023, reflecting information obtained by the Company relating to events or circumstances existing at the acquisition date. The Company believes the deposits assumed in the acquisition have an intangible value. In determining the valuation amount, deposits were analyzed based on factors such as type of deposit, deposit retention, interest rates and age of deposit relationships. The core deposit intangible asset acquired from Professional is being amortized over eight years using an accelerated method of amortization. Acquisition Costs Acquisition costs included in the Company's income statement for the three months ended March 31, 2023 were $ 17.5 million.