SEACOAST BANKING CORP OF FLORIDA - Quarter Report: 2021 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to __________________.

Commission File No. 0-13660

Seacoast Banking Corporation of Florida

(Exact Name of Registrant as Specified in its Charter)

Florida

59-2260678

(State or Other Jurisdiction of
Incorporation or Organization)

(I.R.S. Employer
Identification No.)

815 COLORADO AVENUE,

STUART

34994

(Address of Principal Executive Offices)

(Zip Code)


	(772)	287-4000
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	SBCF	Nasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No☒

Common Stock, $0.10 Par Value – 58,349,137 shares as of September 30, 2021

INDEX

SEACOAST BANKING CORPORATION OF FLORIDA


		PAGE #
Part I	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Condensed consolidated statements of income – Three and nine months ended September 30, 2021 and 2020	3

	Condensed consolidated statements of comprehensive income – Three and nine months ended September 30, 2021 and 2020	4

	Condensed consolidated balance sheets - September 30, 2021 and December 31, 2020	5

	Consolidated statements of cash flows – Nine months ended September 30, 2021 and 2020	6

	Consolidated statements of shareholders' equity - Three and nine months ended September 30, 2021 and 2020	8

	Notes to condensed consolidated financial statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	67

Item 4.	Controls and Procedures	68

Part II	OTHER INFORMATION

Item 1.	Legal Proceedings	68

Item 1A.	Risk Factors	69

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	69

Item 3.	Defaults upon Senior Securities	69

Item 4.	Mine Safety Disclosures	69

Item 5.	Other Information	70

Item 6.	Exhibits	71

SIGNATURES		73

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Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands, except per share data)	2021		2020		2021		2020
Interest and fees on loans	$	64,424	$	60,487	$	187,070	$	188,771

Interest and dividends on securities	7,918		7,097		21,070		23,609

Interest on interest bearing deposits and other investments	867		556		2,162		1,974

Total Interest Income	73,209		68,140		210,302		214,354


Interest on deposits	849		1,299		2,894		5,692

Interest on time certificates	583		2,673		2,294		11,261

Interest on borrowed money	453		665		1,378		3,449

Total Interest Expense	1,885		4,637		6,566		20,402


Net Interest Income	71,324		63,503		203,736		193,952


Provision for credit losses	5,091		(845)		(5,479)		36,279


Net Interest Income after Provision for Credit Losses	66,233		64,348		209,215		157,673


Noninterest income
Other income	19,058		16,942		52,220		45,387

Securities (losses) gains, net	(30)		4		(199)		1,253

Total Noninterest Income (Note I – Noninterest Income and Expense)	19,028		16,946		52,021		46,640


Total Noninterest Expenses (Note I – Noninterest Income and Expense)	55,268		51,674		147,172		141,871

Income Before Income Taxes	29,993		29,620		114,064		62,442

Provision for income taxes	7,049		6,992		25,991		14,025

Net Income	$	22,944	$	22,628	$	88,073	$	48,417


Share Data
Net income per share of common stock
Diluted	$	0.40	$	0.42	$	1.56	$	0.91

Basic	0.40		0.42		1.57		0.91

Average common shares outstanding
Diluted	57,645		54,301		56,441		53,325

Basic	57,148		53,978		55,954		52,926

See notes to unaudited condensed consolidated financial statements.

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SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2021		2020		2021		2020
Net Income	$	22,944	$	22,628	$	88,073	$	48,417

Other comprehensive income (loss):

Available-for-sale securities:
Unrealized gains (losses) on available-for-sale securities, net of tax benefit of $1.3 million and tax benefit of $4.3 million for the three and nine months ended September 30, 2021, respectively, and tax expense of $0.4 million and tax expense of $4.0 million for the three and nine months ended September 30, 2020, respectively	$	(4,459)	$	1,890	$	(15,014)	$	16,024

Amortization of unrealized gains and losses on securities transferred to held-to-maturity, net of tax expense of $5 thousand and $16 thousand for the three and nine months ended September 30, 2021, respectively, and tax expense of $12 thousand and $36 thousand for the three and nine months ended September 30, 2020, respectively	21		43		65		137
Reclassification adjustment for losses (gains) included in net income, net of tax benefit of $0 and $19 thousand for the three and nine months ended September 30, 2021, respectively, and tax expense of $0 and $0.3 million for the three and nine months ended September 30, 2020, respectively	—		(4)		91		(1,403)
Available-for-sale securities, net of tax	$	(4,438)	$	1,929	$	(14,858)	$	14,758

Unrealized losses on derivatives designated as cash flow hedges, net of reclassifications to income, net of tax benefit of $32 thousand and $83 thousand for the three and nine months ended September 30, 2021, respectively	(94)		—		(243)		—

Total other comprehensive income (loss)	$	(4,532)	$	1,929	$	(15,101)	$	14,758

Comprehensive Income	$	18,412	$	24,557	$	72,972	$	63,175

See notes to unaudited condensed consolidated financial statements.

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SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)


	September 30,		December 31,
(In thousands, except share data)	2021		2020
Assets
Cash and due from banks	$	199,460	$	86,630
Interest bearing deposits with other banks	1,028,235		317,458
Total cash and cash equivalents	1,227,695		404,088

Time deposits with other banks	750		750

Debt securities:
Securities available-for-sale (at fair value)	1,546,155		1,398,157
Securities held-to-maturity (fair value $518.5 million at September 30, 2021 and $192.2 million at December 31, 2020)	526,502		184,484
Total debt securities	2,072,657		1,582,641

Loans held for sale (at fair value)	49,597		68,890

Loans	5,905,884		5,735,349
Less: Allowance for credit losses	(87,823)		(92,733)
Loans, net of allowance for credit losses	5,818,061		5,642,616

Bank premises and equipment, net	71,250		75,117
Other real estate owned	13,628		12,750
Goodwill	252,154		221,176
Other intangible assets, net	16,153		16,745
Bank owned life insurance	193,747		131,776
Net deferred tax assets	24,187		23,629
Other assets	153,619		162,214
Total Assets	$	9,893,498	$	8,342,392

Liabilities
Deposits	$	8,334,172	$	6,932,561
Securities sold under agreements to repurchase, maturing within 30 days	105,548		119,609

Subordinated debt	71,576		71,365
Other liabilities	91,682		88,455
Total Liabilities	8,602,978		7,211,990

Shareholders' Equity
Common stock, par value $0.10 per share, authorized 120,000,000 shares, issued 58,742,223 and outstanding 58,349,137 at September 30, 2021, and authorized 120,000,000, issued 55,584,979 and outstanding 55,243,226 shares at December 31, 2020	5,835		5,524
Other shareholders' equity	1,284,685		1,124,878
Total Shareholders' Equity	1,290,520		1,130,402
Total Liabilities and Shareholders' Equity	$	9,893,498	$	8,342,392

See notes to unaudited condensed consolidated financial statements.

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SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


	Nine Months Ended September 30,
(In thousands)	2021		2020
Cash Flows from Operating Activities
Net income	$	88,073	$	48,417
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	4,139		4,531
Amortization of premiums and discounts on securities, net	5,353		2,890
Amortization of operating lease right-of-use assets	3,263		3,274
Other amortization and accretion, net	(11,715)		(4,402)
Stock based compensation	7,492		5,471
Origination of loans designated for sale	(406,392)		(378,069)
Sale of loans designated for sale	438,422		335,882
Provision for credit losses	(5,479)		36,279
Deferred income taxes	3,325		(6,257)
Losses (gains) on sale of securities	73		(1,102)
Gains on sale of loans	(12,450)		(10,585)
Gains on sale and write-downs of other real estate owned	(380)		(278)
Losses on disposition of fixed assets and write-downs upon transfer of bank premises to other real estate owned	684		790

Changes in operating assets and liabilities, net of effects from acquired companies:
Net decrease (increase) in other assets	4,899		(27,735)
Net (decrease) increase in other liabilities	(14,543)		9,174
Net cash provided by operating activities	$	104,764	$	18,280

Cash Flows from Investing Activities
Maturities and repayments of debt securities available-for-sale	417,189		211,798
Maturities and repayments of debt securities held-to-maturity	103,254		53,409
Proceeds from sale of debt securities available-for-sale	57,209		96,733
Purchases of debt securities available-for-sale	(848,122)		(626,731)
Purchases of debt securities held-to-maturity	(235,077)		—
Maturities of time deposits with other banks	—		1,495
Net new loans and principal repayments	559,920		(204,282)
Purchases of loans held for investment	(236,699)		—
Proceeds from sale of other real estate owned	4,954		6,174
Additions to other real estate owned	(2,134)		(2,004)
Proceeds from sale of FHLB and Federal Reserve Bank Stock	3,945		37,697
Purchase of FHLB and Federal Reserve Bank Stock	(59)		(26,976)

Net cash from bank acquisition	98,100		71,965
Purchase of bank owned life insurance	(50,000)		—
Additions to bank premises and equipment	(1,697)		(1,373)
Net cash used in investing activities	$	(129,217)	$	(382,095)

See notes to unaudited condensed consolidated financial statements.

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SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


	Nine Months Ended September 30,
(In thousands)	2021		2020
Cash Flows from Financing Activities
Net increase in deposits	$	906,690	$	826,686
Net (decrease) increase in repurchase agreements	(14,061)		3,387
Net decrease in FHLB borrowings with original maturities of three months or less	—		(235,000)
Repayments of FHLB borrowings with original maturities of more than three months	(33,000)		(80,000)
Proceeds from FHLB borrowings with original maturities of more than three months	—		35,000

Stock based employee benefit plans	3,287		(1,221)
Dividends paid	(14,856)		—
Net cash provided by financing activities	$	848,060	$	548,852
Net increase in cash and cash equivalents	823,607		185,037
Cash and cash equivalents at beginning of period	404,088		124,531
Cash and cash equivalents at end of period	$	1,227,695	$	309,568

Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	8,334	$	19,834
Cash paid during the period for taxes	28,200		21,712
Recognition of operating lease right-of-use assets, other than through bank acquisition	35		1,887
Recognition of operating lease liabilities, other than through bank acquisition	35		1,887

Supplemental disclosure of non-cash investing activities:
Transfer of debt securities from available-for-sale to held-to-maturity	$	210,805	$	—
Unsettled purchases of debt securities available-for-sale	8,064		—
Transfers from loans to other real estate owned	—		5,552
Transfers from bank premises to other real estate owned	3,318		1,289

See notes to unaudited condensed consolidated financial statements.

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SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)


													Accumulated Other Comprehensive Income (Loss)
	Common Stock			Paid-in Capital			Retained Earnings			Treasury Stock
(In thousands)	Shares	Amount													Total
Balance at June 30, 2021	55,436	$	5,544		$	862,598		$	314,584		$	(10,180)	$	9,801	$	1,182,347
Comprehensive income	—	—			—			22,944			—		(4,532)		18,412
Stock based compensation expense	23	—			2,358			—			—		—		2,358
Common stock transactions related to stock based employee benefit plans	25	5			(22)			—			34		—		17
Common stock issued for stock options	178	17			2,885			—			—		—		2,902
Issuance of common stock, pursuant to acquisition	2,687	269			86,218			—			—		—		86,487
Conversion of options, pursuant to acquisition	—	—			5,607			—			—		—		5,607
Dividends on common stock ($0.13 per share)	—	—			—			(7,610)			—		—		(7,610)
Three months ended September 30, 2021	2,913	291			97,046			15,334			34		(4,532)		108,173
Balance at September 30, 2021	58,349	$	5,835		$	959,644		$	329,918		$	(10,146)	$	5,269	$	1,290,520


													Accumulated Other Comprehensive Income (Loss)
	Common Stock			Paid-in Capital			Retained Earnings			Treasury Stock
(In thousands)	Shares	Amount													Total
Balance at June 30, 2020	52,991	$	5,299		$	811,321		$	204,726		$	(8,037)	$	17,294	$	1,030,603
Comprehensive income	—	—			—			22,628			—		1,929		24,557
Stock based compensation expense	39	—			1,948			—			—		—		1,948
Common stock transactions related to stock based employee benefit plans	18	6			(6)			—			96		—		96
Common stock issued for stock options	1	—			16			—			—		—		16

Issuance of common stock, pursuant to acquisition	2,120	212			40,909			—			—		—		41,121
Three months ended September 30, 2020	2,178	218			42,867			22,628			96		1,929		67,738
Balance at September 30, 2020	55,169	$	5,517		$	854,188		$	227,354		$	(7,941)	$	19,223	$	1,098,341


													Accumulated Other Comprehensive Income (Loss)
	Common Stock			Paid-in Capital			Retained Earnings			Treasury Stock
(In thousands)	Shares	Amount													Total
Balance at December 31, 2020	55,243	$	5,524		$	856,092		$	256,701		$	(8,285)	$	20,370	$	1,130,402
Comprehensive income	—	—			—			88,073			—		(15,101)		72,972
Stock based compensation expense	23	—			6,620			—			—		—		6,620
Common stock transactions related to stock based employee benefit plans	139	17			(40)			—			(1,861)		—		(1,884)
Common stock issued for stock options	257	25			5,147			—			—		—		5,172
Issuance of common stock, pursuant to acquisition	2,687	269			86,218			—			—		—		86,487
Conversion of options, pursuant to acquisition	—	—			5,607			—			—		—		5,607
Dividends on common stock ($0.13 per share)	—	—			—			(14,856)			—		—		(14,856)
Nine months ended September 30, 2021	3,106	311			103,552			73,217			(1,861)		(15,101)		160,118
Balance at September 30, 2021	58,349	$	5,835		$	959,644		$	329,918		$	(10,146)	$	5,269	$	1,290,520

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													Accumulated Other Comprehensive Income (Loss)
	Common Stock			Paid-in Capital			Retained Earnings			Treasury Stock
(In thousands)	Shares	Amount													Total
Balance at December 31, 2019	51,514	$	5,151		$	786,242		$	195,813		$	(6,032)	$	4,465	$	985,639
Comprehensive income	—	—			—			48,417			—		14,758		63,175
Stock based compensation expense	39	—			5,471			—			—		—		5,471
Common stock transactions related to stock based employee benefit plans	395	44			(53)			—			(1,909)		—		(1,918)
Common stock issued for stock options	58	6			692			—			—		—		698
Cumulative change in accounting principle upon adoption of new accounting pronouncement	—	—			—			(16,876)			—		—		(16,876)
Issuance of common stock, pursuant to acquisition	3,163	316			61,836			—			—		—		62,152
Nine months ended September 30, 2020	3,655	366			67,946			31,541			(1,909)		14,758		112,702
Balance at September 30, 2020	55,169	$	5,517		$	854,188		$	227,354		$	(7,941)	$	19,223	$	1,098,341

See notes to unaudited condensed consolidated financial statements.

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SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note A – Basis of Presentation

Basis of Presentation: The accompanying unaudited condensed 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 and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 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, 2020.

Use of Estimates: The preparation of these condensed 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 determination of the allowance for credit losses, acquisition accounting and purchased loans, intangible assets and impairment testing, other fair value measurements and contingent liabilities.

Note B – Recently Issued Accounting Standards, Not Yet Adopted

None applicable this period.

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Note C – Earnings per Share

Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted average number of shares of common stock outstanding during the period.

For the three and nine months ended September 30, 2021, no options to purchase shares of the Company's common stock were anti-dilutive, compared to 508,000 shares that were excluded in the computation of diluted earnings per share for both the three and nine months ended September 30, 2020.


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands, except per share data)	2021		2020		2021		2020
Basic earnings per share
Net income	$	22,944	$	22,628	$	88,073	$	48,417
Average common shares outstanding	57,148		53,978		55,954		52,926
Net income per share	$	0.40	$	0.42	$	1.57	$	0.91

Diluted earnings per share
Net income	$	22,944	$	22,628	$	88,073	$	48,417
Average common shares outstanding	57,148		53,978		55,954		52,926
Add: Dilutive effect of employee restricted stock and stock options	497		323		487		399
Average diluted shares outstanding	57,645		54,301		56,441		53,325
Net income per share	$	0.40	$	0.42	$	1.56	$	0.91
Net income has not been allocated to unvested restricted stock awards that are participating securities because the amounts that would be allocated are not material to net income per share of common stock. Unvested restricted stock awards that are participating securities represent less than one percent of all of the outstanding shares of common stock for each of the periods presented.

Note D – Securities

The amortized cost, gross unrealized gains and losses and fair value of securities available-for-sale and held-to-maturity at September 30, 2021 and December 31, 2020 are summarized as follows:


	September 30, 2021
(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Debt securities available-for-sale
U.S. Treasury securities and obligations of U.S. government agencies	$	6,785	$	371	$	(2)	$	7,154

Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities	1,147,743		12,378		(9,450)		1,150,671

Private mortgage-backed securities and collateralized mortgage obligations	75,754		1,710		(236)		77,228

Collateralized loan obligations	277,262		149		(105)		277,306

Obligations of state and political subdivisions	32,016		1,837		(57)		33,796

Totals	$	1,539,560	$	16,445	$	(9,850)	$	1,546,155


Debt securities held-to-maturity
Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities	$	526,502	$	4,702	$	(12,740)	$	518,464

Totals	$	526,502	$	4,702	$	(12,740)	$	518,464

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	December 31, 2020
(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Debt securities available-for-sale
U.S. Treasury securities and obligations of U.S. government agencies	$	8,250	$	528	$	(1)	$	8,777
Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities	1,038,437		23,457		(1,240)		1,060,654
Private mortgage-backed securities and collateralized mortgage obligations	89,284		2,131		(210)		91,205
Collateralized loan obligations	202,563		279		(647)		202,195
Obligations of state and political subdivisions	33,005		2,321		—		35,326
Totals	$	1,371,539	$	28,716	$	(2,098)	$	1,398,157

Debt securities held-to-maturity
Mortgage-backed securities of U.S. government-sponsored entities	$	184,484	$	7,818	$	(123)	$	192,179


Totals	$	184,484	$	7,818	$	(123)	$	192,179

Proceeds from sales of securities were $1.0 million for the three months ended September 30, 2021, with no gain or loss recognized. For the nine months ended September 30, 2021, proceeds from sales of securities were $57.2 million, resulting in gross gains of $0.2 million and gross losses of $0.3 million. For the three months ended September 30, 2020, proceeds from sales of securities were $4.4 million, which resulted in gross gains of $4 thousand and no gross losses. For the nine months ended September 30, 2020, proceeds from sales of securities were $96.7 million, which resulted in gross gains of $2.4 million and gross losses of $1.3 million.

Also included in “Securities gains (losses), net” is a decrease of $30 thousand and a decrease of $0.1 million for the three and nine months ended September 30, 2021, respectively, and increases of $0.1 million and $0.2 million for the three and nine months ended September 30, 2020, respectively, in the value of a CRA-qualified mutual fund.

During the first quarter of 2021, the Company reclassified debt securities with an amortized cost of $210.8 million from available-for-sale to held-to-maturity, as it has the ability and intent to hold these securities to maturity. These securities had net unrealized gains of $0.8 million at the date of transfer, which will continue to be reported in accumulated other comprehensive income, and will be amortized over the remaining life of the securities as an adjustment of yield. The effect on interest income of the amortization of net unrealized gains is offset by the amortization of the premium on the securities transferred.

At September 30, 2021, debt securities with a fair value of $385.5 million were pledged primarily as collateral for public deposits and secured borrowings.

The amortized cost and fair value of debt securities held-to-maturity and available-for-sale at September 30, 2021, 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.

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	September 30, 2021
	Held-to-Maturity				Available-for-Sale
(In thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in less than one year	$	—	$	—	$	1,418	$	1,442

Due after one year through five years	—		—		13,892		14,828

Due after five years through ten years	—		—		8,376		8,764

Due after ten years	—		—		15,115		15,916

	—		—		38,801		40,950

Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities	526,502		518,464		1,147,743		1,150,671

Private mortgage-backed securities and collateralized mortgage obligations	—		—		75,754		77,228

Collateralized loan obligations	—		—		277,262		277,306

Totals	$	526,502	$	518,464	$	1,539,560	$	1,546,155

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 flows analyses, or using observable market data. The tables below indicate the fair value of available-for-sale debt securities with unrealized losses for which no allowance for credit losses has been recorded.


	September 30, 2021
	Less Than 12 Months				12 Months or Longer				Total
(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	$	—	$	—	$	248	$	(2)	$	248	$	(2)

Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities	660,028		(8,696)		15,350		(754)		675,378		(9,450)

Private mortgage-backed securities and collateralized mortgage obligations	13,018		(206)		2,710		(30)		15,728		(236)

Collateralized loan obligations	64,232		(58)		9,459		(47)		73,691		(105)
Obligations of state and political subdivisions	5,443		(57)		—		—		5,443		(57)



Totals	$	742,721	$	(9,017)	$	27,767	$	(833)	$	770,488	$	(9,850)


	December 31, 2020
	Less Than 12 Months				12 Months or Longer				Total
(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	$	—	$	—	$	256	$	(1)	$	256	$	(1)
Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities	203,405		(1,218)		569		(22)		203,974		(1,240)
Private mortgage-backed securities and collateralized mortgage obligations	23,997		(210)		—		—		23,997		(210)
Collateralized loan obligations	104,697		(102)		72,513		(545)		177,210		(647)

Totals	$	332,099	$	(1,530)	$	73,338	$	(568)	$	405,437	$	(2,098)

At September 30, 2021, the Company had $9.4 million of unrealized losses on mortgage-backed securities and collateralized mortgage obligations issued by government-sponsored entities having a fair value of $675.4 million. 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

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guarantee of principal and interest payments and the high credit rating of the portfolio provide 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, at September 30, 2021, no allowance for credit losses has been recorded.

At September 30, 2021, the Company had $0.2 million of unrealized losses on private label residential and commercial mortgage-backed securities and collateralized mortgage obligations having a fair value of $15.7 million. The collateral underlying these mortgage investments is primarily residential real estate. The securities have average credit support of 35%. 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, at September 30, 2021, no allowance for credit losses has been recorded.

At September 30, 2021, the Company had $0.1 million in unrealized losses in uncapped 3-month LIBOR floating rate collateralized loan obligations ("CLOs") having a fair value of $73.7 million. CLOs are special purpose vehicles and those in which the Company has invested acquire nearly all first-lien, broadly syndicated corporate loans across a diversified band of industries while providing support to senior tranche investors. As of September 30, 2021, these positions are in AAA and AA tranches, with average credit support of 37% and 24%, 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 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, at September 30, 2021, 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. While the potential for default on these securities may be something greater than zero, the long history with 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 default were to occur. As a result, as of September 30, 2021, no allowance for credit losses has been recorded.

Included in other assets at September 30, 2021 is $31.5 million of Federal Home Loan Bank and Federal Reserve Bank stock stated at par value. The Company has not identified events or changes in circumstances that may have a significant adverse effect on the fair value of these cost method investment securities. Also included in other assets is a $9.4 million investment in a CRA-qualified mutual fund carried at fair value. Accrued interest receivable on AFS and HTM debt securities of $3.7 million and $0.8 million at September 30, 2021, respectively, and $3.2 million and $0.4 million at December 31, 2020, respectively, is also included in other assets.

The Company holds 11,330 shares of Visa Class B stock, which, following resolution of Visa litigation, will be converted to Visa Class A shares. Under the current conversion ratio that became effective September 27, 2019, the Company would receive 1.6228 shares of Class A stock for each share of Class B stock for a total of 18,386 shares of Visa Class A stock. The ownership of Visa stock is related to prior ownership in Visa's network while Visa operated as a cooperative, and is recorded on the Company's financial records at a zero basis.

Note E – 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 construction, multi-family property 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 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 commercial property where occupancy by the borrower is not their primary intent. These loans are viewed

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primarily as cash flow loans, collateralized by the subject property, and the repayment of these loans is largely dependent on rental income from the successful operation 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 may be from the occupant of the residential property or from cash flows on rental income from the successful operation of the 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.

•Paycheck Protection Program ("PPP"): Loans originated under a temporary program established by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), and extended by the Economic Aid Act. Under the terms of the program, balances may be forgiven if the borrower uses the funds in a manner consistent with the program guidelines, and repayment is guaranteed by the U.S. government.

The following tables present net loan balances by segment as of:


	September 30, 2021
(In thousands)	Portfolio Loans		Acquired Non-PCD Loans		PCD Loans		Total
Construction and land development	$	190,344	$	37,067	$	48	$	227,459
Commercial real estate - owner-occupied	951,119		218,128		32,089		1,201,336
Commercial real estate - non owner-occupied	1,166,220		428,095		79,272		1,673,587
Residential real estate	1,278,138		181,344		7,847		1,467,329
Commercial and financial	865,064		97,642		19,846		982,552
Consumer	157,916		5,092		11		163,019
Paycheck Protection Program	153,842		36,760		—		190,602
Totals	$	4,762,643	$	1,004,128	$	139,113	$	5,905,884


	December 31, 2020
(In thousands)	Portfolio Loans		Acquired Non-PCD Loans		PCD Loans		Total
Construction and land development	$	216,420	$	26,250	$	2,438	$	245,108
Commercial real estate - owner occupied	854,769		247,090		39,451		1,141,310
Commercial real estate - non-owner occupied	1,043,459		323,273		29,122		1,395,854
Residential real estate	1,155,914		176,105		10,609		1,342,628
Commercial and financial	743,846		94,627		16,280		854,753
Consumer	181,797		6,660		278		188,735
Paycheck Protection Program	515,532		51,429		—		566,961
Totals	$	4,711,737	$	925,434	$	98,178	$	5,735,349

The amortized cost basis of loans at September 30, 2021 included net deferred costs of $32.1 million on non-PPP portfolio loans and net deferred fees of $5.4 million on PPP loans. At December 31, 2020, the amortized cost basis included net deferred costs of $22.6 million on non-PPP portfolio loans and net deferred fees of $9.5 million on PPP loans. At September 30, 2021, the remaining fair value adjustments on acquired loans were $26.6 million, or 2.3%, of the outstanding acquired loan balances, compared to $30.2 million, or 2.9%, of the acquired loan balances at December 31, 2020. These amounts are accreted into interest income over the remaining lives of the related loans on a level yield basis.

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Accrued interest receivable is included within Other Assets and was $15.2 million and $25.8 million at September 30, 2021 and December 31, 2020, respectively.

The following tables present the status of net loan balances as of September 30, 2021 and December 31, 2020. Loans on short-term payment deferral at the reporting date are reported as current.


	September 30, 2021
(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	$	190,310	$	—	$	—	$	—	$	34	$	190,344
Commercial real estate - owner-occupied	949,282		671		—		—		1,166		951,119
Commercial real estate - non owner-occupied	1,164,458		—		—		—		1,762		1,166,220
Residential real estate	1,267,081		340		35		—		10,682		1,278,138
Commercial and financial	856,579		1,179		99		1,814		5,393		865,064
Consumer	157,468		269		34		—		145		157,916
Paycheck Protection Program1	153,484		358		—		—		—		153,842
Total Portfolio Loans	$	4,738,662	$	2,817	$	168	$	1,814	$	19,182	$	4,762,643

Acquired Non-PCD Loans
Construction and land development	$	37,067	$	—	$	—	$	—	$	—	$	37,067
Commercial real estate - owner-occupied	217,436		—		692		—		—		218,128
Commercial real estate - non owner-occupied	427,170		—		—		—		925		428,095
Residential real estate	178,504		300		—		—		2,540		181,344
Commercial and financial	96,799		334		—		—		509		97,642
Consumer	4,639		15		—		—		438		5,092
Paycheck Protection Program1	36,760		—		—		—		—		36,760
Total Acquired Non-PCD Loans	$	998,375	$	649	$	692	$	—	$	4,412	$	1,004,128

PCD Loans
Construction and land development	$	42	$	—	$	—	$	—	$	6	$	48
Commercial real estate - owner-occupied	28,739		—		—		—		3,350		32,089
Commercial real estate - non owner-occupied	76,768		—		—		—		2,504		79,272
Residential real estate	6,007		24		—		—		1,816		7,847
Commercial and financial	17,678		743		83		—		1,342		19,846
Consumer	11		—				—				11
Total PCD Loans	$	129,245	$	767	$	83	$	—	$	9,018	$	139,113

Total Loans	$	5,866,282	$	4,233	$	943	$	1,814	$	32,612	$	5,905,884

1Paycheck Protection Program loans are not reflected as past due when forgiveness applications are being processed by the SBA. Repayment of principal and interest is fully guaranteed by the U.S. government.

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	December 31, 2020
(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	$	216,262	$	—	$	—	$	—	$	158	$	216,420
Commercial real estate - owner occupied	851,222		1,076		—		—		2,471		854,769
Commercial real estate - non-owner occupied	1,041,306		—		—		—		2,153		1,043,459
Residential real estate	1,142,893		3,002		1,427		61		8,531		1,155,914
Commercial and financial	737,362		135		1,967		—		4,382		743,846
Consumer	180,879		203		138		2		575		181,797
Paycheck Protection Program	515,532		—		—		—		—		515,532
Total Portfolio Loans	$	4,685,456	$	4,416	$	3,532	$	63	$	18,270	$	4,711,737

Acquired Non-PCD Loans
Construction and land development	$	26,250	$	—	$	—	$	—	$	—	$	26,250
Commercial real estate - owner occupied	244,486		—		—		—		2,604		247,090
Commercial real estate - non-owner occupied	322,264		—		—		—		1,009		323,273
Residential real estate	171,507		1,605		104		—		2,889		176,105
Commercial and financial	93,223		216		—		—		1,188		94,627
Consumer	6,640		20		—		—		—		6,660
Paycheck Protection Program	51,429		—		—		—		—		51,429
Total Acquired Non-PCD Loans	$	915,799	$	1,841	$	104	$	—	$	7,690	$	925,434

PCD Loans
Construction and land development	$	2,429	$	—	$	—	$	—	$	9	$	2,438
Commercial real estate - owner occupied	36,345		—		—		—		3,106		39,451
Commercial real estate - non-owner occupied	24,200		—		—		—		4,922		29,122
Residential real estate	9,537		—		—		—		1,072		10,609
Commercial and financial	15,121		125		—		—		1,034		16,280
Consumer	271		—		—		—		7		278
Total PCD Loans	$	87,903	$	125	$	—	$	—	$	10,150	$	98,178

Total Loans	$	5,689,158	$	6,382	$	3,636	$	63	$	36,110	$	5,735,349

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 $0.3 million and $0.1 million in interest income on nonaccrual loans during the three months ended September 30, 2021 and 2020, respectively. The Company recognized $0.9 million and $0.5 million in interest income on nonaccrual loans during the nine months ended September 30, 2021 and 2020, respectively.

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The following tables present net balances of loans on nonaccrual status and the related allowance for credit losses, if any, as of:


	September 30, 2021
(In thousands)	Nonaccrual Loans With No Related Allowance		Nonaccrual Loans With an Allowance		Total Nonaccrual Loans		Allowance for Credit Losses
Construction and land development	$	40	$	—	$	40	$	—
Commercial real estate - owner-occupied	3,490		1,026		4,516		417
Commercial real estate - non owner-occupied	3,739		1,452		5,191		95
Residential real estate	14,345		693		15,038		362
Commercial and financial	3,443		3,801		7,244		2,658
Consumer	33		550		583		550

Totals	$	25,090	$	7,522	$	32,612	$	4,082


	December 31, 2020
(In thousands)	Nonaccrual Loans With No Related Allowance		Nonaccrual Loans With an Allowance		Total Nonaccrual Loans		Allowance for Credit Losses
Construction and land development	$	148	$	19	$	167	$	8
Commercial real estate - owner-occupied	7,893		288		8,181		287
Commercial real estate - non owner-occupied	5,666		2,418		8,084		1,640
Residential real estate	9,520		2,972		12,492		1,587
Commercial and financial	3,175		3,429		6,604		2,235
Consumer	222		360		582		75
Totals	$	26,624	$	9,486	$	36,110	$	5,832

Collateral-Dependent Loans

Loans are considered collateral-dependent when the repayment, based on the Company's assessment as of the reporting date, is expected to be provided substantially through the operation or sale of the underlying collateral and there are no other available and reliable sources of repayment. The following table presents collateral-dependent loans as of:


(In thousands)	September 30, 2021		December 31, 2020
Construction and land development	$	31	$	189
Commercial real estate - owner-occupied	5,152		11,992
Commercial real estate - non owner-occupied	5,190		7,285
Residential real estate	15,039		16,652
Commercial and financial	9,302		11,198
Consumer	583		586
Totals	$	35,297	$	47,902

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.

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•Substandard: Loans with the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

•Substandard Impaired: Loans typically placed on nonaccrual and considered to be collateral-dependent or accruing TDRs.

•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. The principal balance of loans classified as doubtful are likely to be charged off.

The following tables present the risk rating of loans by year of origination as of:


	September 30, 2021
(In thousands)	2021		2020		2019		2018		2017		Prior		Revolving		Total
Construction and Land Development
Risk Ratings:
Pass	$	62,879	$	38,326	$	38,517	$	26,344	$	4,771	$	20,952	$	35,590	$	227,379
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—
Substandard Impaired	—		—		—		—		—		80		—		80
Doubtful	—		—		—		—		—		—		—		—
Total	$	62,879	$	38,326	$	38,517	$	26,344	$	4,771	$	21,032	$	35,590	$	227,459
Commercial real estate - owner-occupied
Risk Ratings:
Pass	$	155,499	$	159,752	$	186,442	$	142,027	$	132,413	$	385,244	$	8,951	$	1,170,328
Special Mention	—		6,588		5,416		655		220		5,690		—		18,569
Substandard	—		—		—		77		3,903		2,770		—		6,750
Substandard Impaired	—		—		2,811		256		1,104		1,518		—		5,689
Doubtful	—		—		—		—		—		—		—		—
Total	$	155,499	$	166,340	$	194,669	$	143,015	$	137,640	$	395,222	$	8,951	$	1,201,336
Commercial real estate - non owner-occupied
Risk Ratings:
Pass	$	248,842	$	201,940	$	303,903	$	202,400	$	123,851	$	513,792	$	7,203	$	1,601,931
Special Mention	—		—		2,363		—		1,620		8,397		—		12,380
Substandard	—		4,798		3,856		24,078		1,907		19,446		—		54,085
Substandard Impaired	—		—		1,052		—		—		4,139		—		5,191
Doubtful	—		—		—		—		—		—		—		—
Total	$	248,842	$	206,738	$	311,174	$	226,478	$	127,378	$	545,774	$	7,203	$	1,673,587
Residential real estate
Risk Ratings:
Pass	$	364,563	$	119,039	$	110,560	$	136,044	$	132,151	$	243,005	$	342,581	$	1,447,943
Special Mention	—		—		—		47		—		205		285		537
Substandard	—		—		—		—		—		160		35		195
Substandard Impaired	—		488		728		40		5,358		9,335		2,705		18,654
Doubtful	—		—		—		—		—		—		—		—
Total	$	364,563	$	119,527	$	111,288	$	136,131	$	137,509	$	252,705	$	345,606	$	1,467,329

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	September 30, 2021
(In thousands)	2021		2020		2019		2018		2017		Prior		Revolving		Total
Commercial and financial
Risk Ratings:
Pass	$	229,168	$	187,063	$	107,743	$	83,267	$	45,562	$	60,048	$	222,822	$	935,673
Special Mention	563		16,137		219		247		275		149		406		17,996
Substandard	—		388		4,502		3,666		1,491		3,333		25		13,405
Substandard Impaired	—		—		5,394		4,335		1,698		3,389		662		15,478
Doubtful	—		—		—		—		—		—		—		—
Total	$	229,731	$	203,588	$	117,858	$	91,515	$	49,026	$	66,919	$	223,915	$	982,552
Consumer
Risk Ratings:
Pass	$	32,239	$	34,927	$	30,164	$	19,961	$	12,050	$	18,097	$	12,838	$	160,276
Special Mention	—		38		90		57		42		50		1,477		1,754
Substandard	—		—		—		11		35		—		198		244
Substandard Impaired	—		15		59		25		79		129		438		745
Doubtful	—		—		—		—		—		—		—		—
Total	$	32,239	$	34,980	$	30,313	$	20,054	$	12,206	$	18,276	$	14,951	$	163,019
Paycheck Protection Program
Risk Ratings:
Pass	$	182,082	$	8,520	$	—	$	—	$	—	$	—	$	—	$	190,602


Total	$	182,082	$	8,520	$	—	$	—	$	—	$	—	$	—	$	190,602
Consolidated
Risk Ratings:
Pass	$	1,275,272	$	749,567	$	777,329	$	610,043	$	450,798	$	1,241,138	$	629,985	$	5,734,132
Special Mention	563		22,763		8,088		1,006		2,157		14,491		2,168		51,236
Substandard	—		5,186		8,358		27,832		7,336		25,709		258		74,679
Substandard Impaired	—		503		10,044		4,656		8,239		18,590		3,805		45,837
Doubtful	—		—		—		—		—		—		—		—
Total	$	1,275,835	$	778,019	$	803,819	$	643,537	$	468,530	$	1,299,928	$	636,216	$	5,905,884


	December 31, 2020
(In thousands)	2020		2019		2018		2017		2016		Prior		Revolving		Total
Construction and Land Development
Risk Ratings:
Pass	$	62,107	$	52,384	$	46,067	$	15,873	$	7,335	$	17,873	$	35,324	$	236,963
Special Mention	206		245		5,918		—		—		1,449		—		7,818
Substandard	—		—		—		—		—		51		—		51
Substandard Impaired	—		—		—		37		—		239		—		276
Doubtful	—		—		—		—		—		—		—		—
Total	$	62,313	$	52,629	$	51,985	$	15,910	$	7,335	$	19,612	$	35,324	$	245,108
Commercial real estate - owner-occupied
Risk Ratings:
Pass	$	155,953	$	198,559	$	156,276	$	138,341	$	148,389	$	287,772	$	14,255	$	1,099,545
Special Mention	5,773		1,858		3,305		—		4,471		4,050		2		19,459
Substandard	—		—		—		4,709		1,955		5,508		—		12,172
Substandard Impaired	—		3,151		747		1,362		—		4,874		—		10,134
Doubtful	—		—		—		—		—		—		—		—
Total	$	161,726	$	203,568	$	160,328	$	144,412	$	154,815	$	302,204	$	14,257	$	1,141,310

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	December 31, 2020
(In thousands)	2020		2019		2018		2017		2016		Prior		Revolving		Total
Commercial real estate - non owner-occupied
Risk Ratings:
Pass	$	159,299	$	313,287	$	201,112	$	123,357	$	175,623	$	356,943	$	8,596	$	1,338,217
Special Mention	—		431		9,487		7,580		10,240		114		—		27,852
Substandard	—		—		9,709		—		8,311		3,682		—		21,702
Substandard Impaired	—		2,418		—		—		125		5,540		—		8,083
Doubtful	—		—		—		—		—		—		—		—
Total	$	159,299	$	316,136	$	220,308	$	130,937	$	194,299	$	366,279	$	8,596	$	1,395,854
Residential real estate
Risk Ratings:
Pass	$	96,819	$	144,329	$	204,077	$	205,046	$	160,612	$	159,742	$	350,502	$	1,321,127
Special Mention	—		—		33		720		—		966		479		2,198
Substandard	350		—		—		896		—		1,452		100		2,798
Substandard Impaired	109		726		1,520		1,762		715		9,671		2,002		16,505
Doubtful	—		—		—		—		—		—		—		—
Total	$	97,278	$	145,055	$	205,630	$	208,424	$	161,327	$	171,831	$	353,083	$	1,342,628
Commercial and financial
Risk Ratings:
Pass	$	214,774	$	146,511	$	103,769	$	60,782	$	39,692	$	53,758	$	204,304	$	823,590
Special Mention	71		946		965		5,612		67		635		209		8,505
Substandard	154		41		3,016		1,609		553		3,239		764		9,376
Substandard Impaired	317		4,595		3,199		2,292		2,074		704		81		13,262
Doubtful1	—		—		—		—		—		—		20		20
Total	$	215,316	$	152,093	$	110,949	$	70,295	$	42,386	$	58,336	$	205,378	$	854,753
Consumer
Risk Ratings:
Pass	$	46,476	$	43,143	$	30,433	$	18,937	$	21,880	$	9,488	$	15,089	$	185,446
Special Mention	58		27		14		41		42		21		1,854		2,057
Substandard	—		—		—		42		4		151		228		425
Substandard Impaired	7		50		193		24		329		183		21		807
Doubtful	—		—		—		—		—		—		—		—
Total	$	46,541	$	43,220	$	30,640	$	19,044	$	22,255	$	9,843	$	17,192	$	188,735
Paycheck Protection Program
Risk Ratings:
Pass	$	566,961	$	—	$	—	$	—	$	—	$	—	$	—	$	566,961


Total	$	566,961	$	—	$	—	$	—	$	—	$	—	$	—	$	566,961
Consolidated
Risk Ratings:
Pass	$	1,302,389	$	898,213	$	741,734	$	562,336	$	553,531	$	885,576	$	628,070	$	5,571,849
Special Mention	6,108		3,507		19,722		13,953		14,820		7,235		2,544		67,889
Substandard	504		41		12,725		7,256		10,823		14,083		1,092		46,524
Substandard Impaired	433		10,940		5,659		5,477		3,243		21,211		2,104		49,067
Doubtful1	—		—		—		—		—		—		20		20
Total	$	1,309,434	$	912,701	$	779,840	$	589,022	$	582,417	$	928,105	$	633,830	$	5,735,349
1Loans classified as doubtful are fully reserved at December 31, 2020.

Loans Modified in Connection with COVID-19 Pandemic

The CARES Act, which was signed into law on March 27, 2020, and amended by the Consolidated Appropriations Act on December 27, 2020, encourages financial institutions to practice prudent efforts to work with borrowers financially impacted by the COVID-19 pandemic by providing an option to exclude from TDR consideration certain loan modifications that might otherwise be categorized as TDRs under ASC 310-40. This option is available for modifications that are deemed to be COVID-related, where the borrower was not more than 30 days past due on December 31, 2019, and the modification is executed between March 1, 2020 and the earlier of (i) January 1, 2022 or (ii) 60 days after the end of the COVID-19 national emergency.

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Federal banking regulators issued similar guidance that also allows lenders to conclude that short-term modifications for borrowers affected by the pandemic should not be considered TDRs if the borrower was current at the time of modification. Seacoast has provided financially impacted borrowers with loan accommodations, primarily consisting of payment deferrals of up to six months. At its peak on June 30, 2020, loans on deferral represented $1.1 billion, or 21%, of total non-PPP loans. In the second half of 2020, the large majority of these borrowers successfully resumed making contractual payments, and the level of loans with accommodations has decreased to $2.2 million, or 0.04%, of total non-PPP loans as of September 30, 2021. Types of accommodations have included a combination of one or more of the following: full payment deferral, partial payment deferral, reduction of interest rate, extension of the original maturity date, or re-amortization of the facility.

The following table presents the balance of loans with active payment accommodations at the specified dates, excluding PPP loans:


(In thousands)	September 30, 2021		December 31, 2020
Construction and land development	$	—	$	1,032
Commercial real estate - owner-occupied	582		14,248
Commercial real estate - non owner-occupied	—		32,549
Residential real estate	610		12,839
Commercial and financial	624		11,915
Consumer	338		1,479

Totals	$	2,154	$	74,062

Troubled Debt Restructured Loans

The Company’s TDR concessions granted to certain borrowers generally do not include forgiveness of principal balances, but may include interest rate reductions, an extension of the amortization period and/or converting the loan to interest only for a limited period of time. Loan modifications are not reported in calendar years after modification if the loans were modified at an interest rate equal to the yields of new loan originations with comparable risk and the loans are performing based on the terms of the restructuring agreements.

The following table presents loans that were modified in a troubled debt restructuring during the three and nine months ended:


	Three Months Ended September 30,
	2021					2020
(In thousands)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Construction and land development	—	$	—	$	—	—	$	—	$	—
Commercial real estate - owner-occupied	—	—		—		—	—		—
Commercial real estate - non owner-occupied	—	—		—		—	—		—
Residential real estate	1	152		152		—	—		—
Commercial and financial	—	—		—		—	—		—
Consumer	—	—		—		1	41		41
Totals	1	$	152	$	152	1	$	41	$	41

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	Nine Months Ended September 30,
	2021					2020
(In thousands)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Construction and land development	—	$	—	$	—	—	$	—	$	—
Commercial real estate - owner-occupied	—	—		—		—	—		—
Commercial real estate - non owner-occupied	—	—		—		—	—		—
Residential real estate	4	231		231		1	45		45
Commercial and financial	1	142		142		4	437		437
Consumer	—	—		—		3	88		88
Totals	5	$	373	$	373	8	$	570	$	570

The TDRs described above resulted in a specific allowance for credit losses of $0.2 million as of September 30, 2021 and September 30, 2020. During the nine months ended September 30, 2021, there were two defaults totaling $0.1 million of loans that had been modified in TDRs within the preceding twelve months. During the nine months ended September 30, 2020, there were four defaults totaling $1.4 million of loans that had been modified to a TDR within the preceding twelve months. The Company considers a loan to have defaulted when it becomes 90 days or more delinquent under the modified terms, has been transferred to nonaccrual status, is charged off or has been transferred to other real estate owned. For loans measured based on the present value of expected future cash flows, $9,000 and $19,000 for the three months ended September 30, 2021, and 2020, respectively, and $20,000 and $65,000 for the nine months ended September 30, 2021, and 2020, respectively, was included in interest income and represents the change in present value attributable to the passage of time.

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Note F – Allowance for Credit Losses

Activity in the allowance for credit losses is summarized as follows:


	Three Months Ended September 30, 2021
(In thousands)	Beginning Balance		Initial Allowance on PCD Loans Acquired During the Period		Provision for Credit Losses		Charge- Offs		Recoveries		TDR Allowance Adjustments		Ending Balance
Construction and land development	$	4,053	$	—	$	(1,459)	$	—	$	10	$	(1)	$	2,603
Commercial real estate - owner-occupied	8,676		—		(24)		—		—		—		8,652
Commercial real estate - non owner-occupied	34,807		1,327		5,278		(1,327)		—		—		40,085
Residential real estate	12,543		—		1,456		(27)		158		(3)		14,127
Commercial and financial	18,016		1,719		(2)		(535)		326		—		19,524
Consumer	3,032		—		(158)		(163)		126		(5)		2,832
Paycheck Protection Program	—		—		—		—		—		—		—
Totals	$	81,127	$	3,046	$	5,091	$	(2,052)	$	620	$	(9)	$	87,823


	Three Months Ended September 30, 2020
(In thousands)	Beginning Balance		Initial Allowance on PCD Loans Acquired During the Period		Provision for Credit Losses		Charge- Offs		Recoveries		TDR Allowance Adjustments		Ending Balance
Construction and land development	$	7,161	$	39	$	475	$	—	$	26	$	—	$	7,701
Commercial real estate - owner occupied	5,562		954		689		—		26		(12)		7,219
Commercial real estate - non-owner occupied	38,992		2,096		(7,050)		(25)		5		—		34,018
Residential real estate	20,453		27		(3,196)		(19)		65		(5)		17,325
Commercial and financial	15,514		2,632		8,081		(1,776)		203		—		24,654
Consumer	3,568		15		(244)		(355)		114		(2)		3,096

Paycheck Protection Program	—		—		—		—		—		—		—
Totals	$	91,250	$	5,763	$	(1,245)	$	(2,175)	$	439	$	(19)	$	94,013



	Nine Months Ended September 30, 2021
(In thousands)	Beginning Balance		Initial Allowance on PCD Loans Acquired During the Period		Provision for Credit Losses		Charge- Offs		Recoveries		TDR Allowance Adjustments		Ending Balance
Construction and land development	$	4,920	$	—	$	(2,438)	$	—	$	124	$	(3)	$	2,603
Commercial real estate - owner-occupied	9,868		—		(1,216)		—		—		—		8,652
Commercial real estate - non owner-occupied	38,266		1,327		1,817		(1,327)		2		—		40,085
Residential real estate	17,500		—		(4,323)		(48)		1,008		(10)		14,127
Commercial and financial	18,690		1,719		1,172		(2,855)		798		—		19,524
Consumer	3,489		—		(491)		(547)		388		(7)		2,832
Paycheck Protection Program	—				—		—		—		—		—
Totals	$	92,733	$	3,046	$	(5,479)	$	(4,777)	$	2,320	$	(20)	$	87,823

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	Nine Months Ended September 30, 2020
(In thousands)	Beginning Balance		Impact of Adoption of ASC 326		Initial Allowance on PCD Loans Acquired During the Period		Provision for Credit Losses		Charge- Offs		Recoveries		TDR Allowance Adjustments		Ending Balance
Construction and land development	$	1,842	$	1,479	$	87	$	4,202	$	—	$	92	$	(1)	$	7,701
Commercial real estate - owner occupied	5,361		80		1,161		655		(45)		44		(37)		7,219
Commercial real estate - non-owner occupied	7,863		9,341		2,236		14,578		(37)		37		—		34,018
Residential real estate	7,667		5,787		124		3,638		(150)		283		(24)		17,325
Commercial and financial	9,716		3,677		2,643		12,144		(4,642)		1,116		—		24,654
Consumer	2,705		862		28		662		(1,442)		284		(3)		3,096
Paycheck Protection Program	—		—		—		—		—		—		—		—
Totals	$	35,154	$	21,226	$	6,279	$	35,879	$	(6,316)	$	1,856	$	(65)	$	94,013

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 to project losses over a three-year forecast period. Forecast data is sourced primarily from Moody’s Analytics, a firm widely recognized for its research, analysis, and economic forecasts. For portfolio segments with a weighted average life longer than three years, the Company reverts to longer-term historical loss experience to estimate losses over the remaining life of the loans within each segment.

Historical credit losses provide the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, loan to value ratios, borrower credit characteristics, loan seasoning or term as well as for changes in current and forecasted environmental conditions, such as changes in unemployment rates, property values, occupancy rates, and other macroeconomic metrics.

As of September 30, 2021, the Company utilized Moody’s most recent “U.S. Macroeconomic Outlook Baseline” scenario and considered the uncertainty associated with the assumptions in the Baseline scenario, including the potential for increasing COVID-19 infections, including from variants, and the resulting potential erosion in consumer confidence, and the risk that government stimulus programs are less effective than expected. Outcomes in any or all of these factors could differ from the Baseline scenario, and the Company incorporated qualitative considerations reflecting the risk of uncertain economic conditions, and for additional dimensions of risk not captured in the quantitative model.

In the Construction and Land Development segment, the decrease in reserves during the quarter reflects lower loan balances and improved economic variables relating to residential real estate. 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, increases in the allowance resulting from loan growth were offset by the impact of improved economic variables relating to unemployment. Risk characteristics include but are not limited to, collateral type, loan seasoning, and lien position.

In the Commercial Real Estate - Non Owner-Occupied segment, the increase in reserves reflects higher loan balances, partially offset by improved economic forecast variables including lower unemployment. 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, loan seasoning, and lien position 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 increase in reserves reflects the impact of higher loan balances resulting from organic growth and loans acquired, partially offset by improved economic forecast variables including lower unemployment. Risk characteristics considered for this segment include, but are not limited to, collateral type, 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

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guaranteed by the business owners. The increase in reserves is attributed to higher 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 decline in the reserve during the quarter reflects lower loan balances and improved economic forecast variables.

Balances outstanding under the Paycheck Protection Program are guaranteed by the U.S. government and have not been assigned a reserve.

The allowance for credit losses is composed of specific allowances for loans individually evaluated and general allowances for loans grouped into loan pools based on similar characteristics, which are collectively evaluated. The Company’s loan portfolio and related allowance at September 30, 2021 and December 31, 2020 is shown in the following tables:


	September 30, 2021
	Individually Evaluated				Collectively Evaluated				Total
(In thousands)	Recorded Investment		Associated Allowance		Recorded Investment		Associated Allowance		Recorded Investment		Associated Allowance
Construction and land development	$	80	$	3	$	227,379	$	2,600	$	227,459	$	2,603
Commercial real estate - owner occupied	5,689		420		1,195,647		8,232		1,201,336		8,652
Commercial real estate - non owner-occupied	5,190		95		1,668,397		39,990		1,673,587		40,085
Residential real estate	18,654		513		1,448,675		13,614		1,467,329		14,127
Commercial and financial	15,478		3,350		967,074		16,174		982,552		19,524
Consumer	746		565		162,273		2,267		163,019		2,832
Paycheck Protection Program	—		—		190,602		—		190,602		—
Totals	$	45,837	$	4,946	$	5,860,047	$	82,877	$	5,905,884	$	87,823


	December 31, 2020
	Individually Evaluated				Collectively Evaluated				Total
(In thousands)	Recorded Investment		Associated Allowance		Recorded Investment		Associated Allowance		Recorded Investment		Associated Allowance
Construction and land development	$	276	$	13	$	244,832	$	4,907	$	245,108	$	4,920
Commercial real estate - owner occupied	10,243		402		1,131,067		9,466		1,141,310		9,868
Commercial real estate - non owner-occupied	8,083		1,640		1,387,771		36,626		1,395,854		38,266
Residential real estate	16,506		2,064		1,326,122		15,436		1,342,628		17,500
Commercial and financial	13,281		3,498		841,472		15,192		854,753		18,690
Consumer	807		91		187,928		3,398		188,735		3,489
Paycheck Protection Program	—		—		566,961		—		566,961		—
Totals	$	49,196	$	7,708	$	5,686,153	$	85,025	$	5,735,349	$	92,733

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Note G – 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 qualify as 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. No net gains or losses have been recognized to date on these instruments. As of September 30, 2021, the interest rate swaps had an aggregate notional value of $180.6 million, with a fair value of $9.1 million recorded in other assets and other liabilities. As of December 31, 2020, the interest rate swaps had an aggregate notional value of $182.4 million, with a fair value of $13.3 million recorded in other assets and other liabilities. The weighted average maturity was 6.9 years at September 30, 2021 and 7.5 years at December 31, 2020.

Interest Rate Floors Designated as Cash Flow Hedges

The Company has entered into interest rate floor contracts to mitigate exposure to the variability of future cash flows due to changes in interest rates on certain segments of its variable-rate loans. During 2020, the Company entered into two interest rate floor contracts, each with a notional amount of $150.0 million, maturing in October 2023 and November 2023. The Company considers these derivatives to be highly effective at achieving offsetting changes in cash flows attributable to changes in interest rates and has designated them as cash flow hedges. Therefore, changes in the fair value of these derivative instruments are recognized in other comprehensive income. Amortization of the premium paid on cash flow hedges is recognized in earnings over the term of the hedge in the same caption as the hedged item. For the three and nine months ended September 30, 2021, the Company recognized a loss through other comprehensive income of $0.2 million and $0.5 million, respectively, and reclassified $0.1 million and $0.2 million, respectively, out of accumulated other comprehensive income and into interest income. As of September 30, 2021 and December 31, 2020, the interest rate floors had a fair value of $0.5 million and $1.0 million, respectively, recorded in other assets in the consolidated balance sheet. Over the next twelve months the Company expects to reclassify $0.4 million from accumulated other comprehensive income into interest income related to these agreements.


(In thousands)	Notional Amount		Fair Value		Balance Sheet Category
At September 30, 2021
Back-to-back swaps	$	180,610	$	9,110	Other Assets and Other Liabilities
Interest rate floors	300,000		514		Other Assets

At December 31, 2020
Back-to-back swaps	$	182,379	$	13,339	Other Assets and Other Liabilities
Interest rate floors	300,000		1,004		Other Assets

Note H – 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 collateralized borrowings. Company securities pledged were as follows by collateral type and maturity as of:


(In thousands)	September 30, 2021		December 31, 2020
Fair value of pledged securities - overnight and continuous:
Mortgage-backed securities and collateralized mortgage obligations of U.S. government sponsored entities	$	134,801	$	137,268

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Note I – Noninterest Income and Expense

Details of noninterest income and expenses for the three and nine months ended September 30, 2021 and 2020 are as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2021		2020		2021		2020
Noninterest income
Service charges on deposit accounts	$	2,495	$	2,242	$	7,171	$	7,006
Interchange income	4,131		3,682		12,096		10,115
Wealth management income	2,562		1,972		7,272		5,558
Mortgage banking fees	2,550		5,283		9,752		11,050
Marine finance fees	152		242		518		545
SBA gains	812		252		1,331		572
BOLI income	1,128		899		2,859		2,672
Other income	5,228		2,370		11,221		7,869
	19,058		16,942		52,220		45,387
Securities (losses) gains, net	(30)		4		(199)		1,253
Total	$	19,028	$	16,946	$	52,021	$	46,640

Noninterest expense
Salaries and wages	$	27,919	$	23,125	$	72,278	$	67,049
Employee benefits	4,177		3,995		13,110		11,629
Outsourced data processing costs	5,610		6,128		14,754		14,820
Telephone/data lines	810		705		2,433		2,210
Occupancy	3,541		3,858		10,640		10,596
Furniture and equipment	1,567		1,576		3,987		4,557
Marketing	1,353		1,513		3,523		3,788
Legal and professional fees	4,151		3,018		8,915		8,658
FDIC assessments	651		474		1,692		740
Amortization of intangibles	1,306		1,497		3,729		4,436
Foreclosed property expense and net (gain) loss on sale	66		512		(89)		442
Provision for credit losses on unfunded commitments	133		756		133		980
Other	3,984		4,517		12,067		11,966
Total	$	55,268	$	51,674	$	147,172	$	141,871

Note J – Equity Capital

The Company is well capitalized and at September 30, 2021, 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 K – 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.

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Note L – Fair Value

Under ASC Topic 820, fair value measurements for items measured at fair value on a recurring and nonrecurring basis at September 30, 2021 and December 31, 2020 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 September 30, 2021
Financial Assets
Available-for-sale debt securities1	$	1,546,155	$	199	$	1,545,956	$	—
Derivative financial instruments2	9,624		—		9,624		—
Loans held for sale2	49,597		—		49,597		—
Loans3	9,945		—		942		9,003
Other real estate owned4	13,628		—		390		13,238
Equity securities5	9,404		9,404		—		—
Financial Liabilities
Derivative financial instruments2	$	9,110	$	—	$	9,110	$	—

At December 31, 2020
Financial Assets
Available-for-sale debt securities1	$	1,398,157	$	101	$	1,398,056	$	—
Derivative financial instruments2	14,343		—		14,343		—
Loans held for sale2	68,890		—		68,890		—
Loans3	8,806		—		1,900		6,906
Other real estate owned4	12,750		—		72		12,678
Equity securities5	6,530		6,530		—		—
Financial Liabilities
Derivative financial instruments2	$	13,339	$	—	$	13,339	$	—
1See “Note D – Securities” for further detail of fair value of individual investment categories.
2Recurring fair value basis determined using observable market data.
3See “Note E – 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 in accordance with ASC Topic 310.
4Fair value is measured on a nonrecurring basis in accordance with ASC Topic 360.
5An investment in shares of a mutual fund that invests primarily in CRA-qualified debt securities, reported at fair value in Other Assets. Recurring fair value basis is determined using market quotations.

Available-for-sale debt securities: Level 1 securities consist of U.S. Treasury securities. Other 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. The fair value of collateralized loan obligations is determined from broker quotes. 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.

Derivative financial instruments: The Company offers interest rate swaps to certain loan customers to allow them to hedge the risk of rising interest rates on their variable rate loans. The Company originates a variable rate loan and enters into a variable-to-fixed interest rate swap with the customer. The Company also enters into an offsetting swap with a correspondent bank.

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These back-to-back agreements are intended to offset each other and allow the Company to originate a variable rate loan, while providing a contract for fixed interest payments for the customer. The fair value of these derivatives is based on a discounted cash flow approach. Due to the observable nature of the inputs used in deriving the fair value of these derivative contracts, the valuation of interest rate swaps is classified as Level 2. Other derivatives consist of interest rate floors designated as cash flow hedges. The fair values of these instruments are based upon the estimated amount the Company would receive or pay to terminate the instruments, taking into account current interest rates and, when appropriate, the current creditworthiness of the counterparties. Interest rate floors designated as cash flow hedges are classified within Level 2.

Loans held for sale: Fair values are based upon estimated values to be received from independent third party purchasers. These loans are intended for sale and the Company believes that the fair value is the best indicator of the resolution of these loans. Fair market value changes occur due to changes in interest rates, the borrower’s credit, the secondary loan market and the market for a borrower’s debt. Interest income is recorded based on the contractual terms of the loan and in accordance with the Company’s policy on loans held for investment. None of the loans were 90 days or more past due or on nonaccrual as of September 30, 2021 and December 31, 2020.

The aggregate fair value and contractual balance of loans held for sale as of September 30, 2021 and December 31, 2020 is as follows:


(In thousands)	September 30, 2021		December 31, 2020
Aggregate fair value	$	49,597	$	68,890
Contractual balance	48,172		66,415
Excess	1,425		2,475

Loans: Loans carried at fair value consist of collateral-dependent real estate loans. Fair value is based on recent real estate appraisals less estimated costs of sale. These evaluations may use either a single valuation approach or a combination of approaches, such as comparative sales, cost and/or income approach. A significant unobservable input in the income approach is the estimated capitalization rate for a given piece of collateral. At September 30, 2021 capitalization rates utilized to determine fair value of the underlying collateral averaged approximately 7.0%. Adjustments to comparable sales may be made by an appraiser to reflect local market conditions or other economic factors and may result in changes in the fair value of an asset over time. As such, the fair value of these loans is considered level 3 in the fair value hierarchy. Collateral-dependent loans measured at fair value totaled $14.2 million with a specific reserve of $4.3 million at September 30, 2021, compared to $16.5 million with a specific reserve of $7.7 million at December 31, 2020.

For loans classified as Level 3, changes included loan additions of $5.4 million offset by $2.6 million in paydowns and charge-offs and $0.7 million in loans that returned to accruing status for the nine months ended September 30, 2021.

Other real estate owned: When appraisals are used to determine fair value and the appraisals are based on a market approach, the fair value of other real estate owned (“OREO”) is classified as a Level 2 input. When the fair value of OREO is based on appraisals which require significant adjustments to market-based valuation inputs or apply an income approach based on unobservable cash flows, the fair value of OREO is classified as Level 3.

For OREO classified as Level 3 at September 30, 2021, changes during the nine months ended included additions of $2.1 million offset by sales and write--downs of $1.6 million.

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. There were no such transfers during the nine months ended September 30, 2021 and 2020.

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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 September 30, 2021 and December 31, 2020 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)
September 30, 2021
Financial Assets
Debt securities held-to-maturity1	$	526,502	$	—	$	518,464	$	—
Time deposits with other banks	750		—		757		—
Loans, net	5,808,116		—		—		5,810,038
Financial Liabilities
Deposit liabilities	8,334,172		—		—		8,336,134

Subordinated debt	71,576		—		58,399		—

December 31, 2020
Financial Assets
Debt securities held-to-maturity1	$	184,484	$	—	$	192,179	$	—
Time deposits with other banks	750		—		762		—
Loans, net	5,633,810		—		—		5,686,019
Financial Liabilities
Deposit liabilities	6,932,561		—		—		6,936,097

Subordinated debt	71,365		—		58,227		—
1See “Note D – Securities” for further detail of individual investment categories.

The short maturity of Seacoast’s assets and liabilities results in having 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, FHLB borrowings and securities sold under agreements to repurchase, maturing within 30 days.

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 September 30, 2021 and December 31, 2020:

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.

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.

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Note M – Business Combinations

Proposed Acquisition of Sabal Palm Bancorp, Inc.

On August 23, 2021, the Company announced that it had entered into an agreement and plan of merger with Sabal Palm Bancorp, Inc. (“Sabal Palm”) and its wholly-owned subsidiary, Sabal Palm Bank. Sabal Palm operates three branches across the Sarasota, FL market with $255 million in loans and $389 million in deposits as of September 30, 2021. The acquisition is expected to close in the first quarter of 2022, pending receipt of regulatory and shareholder approvals.

Proposed Acquisition of Business Bank of Florida, Inc.

On August 23, 2021, the Company announced that it had entered into an agreement and plan of merger with Business Bank of Florida, Corp (“BBFC”) and its wholly-owned subsidiary, Florida Business Bank. BBFC operates one branch in Melbourne, FL with $139 million in loans and $169 million in deposits as of September 30, 2021. The acquisition is expected to close in the first quarter of 2022 pending receipt of regulatory and shareholder approvals.

Acquisition of Legacy Bank of Florida

On August 6, 2021, the Company completed its acquisition of Legacy Bank of Florida (“Legacy Bank”). Prior to the acquisition, Legacy Bank operated five branches in Broward and Palm Beach counties.

As a result of this acquisition, the Company expects to expand its customer base and leverage operating cost through economies of scale, and positively affect the Company’s operating results.

The Company acquired 100% of the outstanding common stock of Legacy Bank. Under the terms of the definitive agreement, each share of Legacy Bank common stock was converted into the right to receive 0.1703 share of Seacoast common stock.


(In thousands, except per share data)	August 6, 2021
Number of Legacy Bank common shares outstanding	15,778

Per share exchange ratio	0.1703
Number of shares of common stock issued	2,687
Multiplied by common stock price per share on August 6, 2021	$	32.19
Value of common stock issued	86,487
Cash paid for fractional shares	7
Fair value of options converted	4,736
Total purchase price	$	91,230

The acquisition of Legacy Bank was accounted for under the acquisition method in accordance with ASC Topic 805, Business Combinations. The Company recognized goodwill of $31.0 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. The fair values initially assigned to assets acquired and liabilities assumed are preliminary and could change for up to one year after the closing date of the acquisition as new information and circumstances relative to closing date fair values becomes known.

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(In thousands)	Initially Measured August 6, 2021
Assets:
Cash	$	98,107
Investment securities	992
Loans	477,215
Bank premises and equipment	2,577
Core deposit intangibles	3,454
Goodwill	30,978
Other assets	15,532
Total assets	$	628,855
Liabilities:
Deposits	494,921
Other liabilities	42,705
Total liabilities	$	537,626

The table below presents information with respect to the fair value and unpaid principal balance of acquired loans at the acquisition date.


	August 6, 2021
(In thousands)	Book Balance		Fair Value
Loans:
Construction and land development	$	37,558	$	36,651
Commercial real estate - owner-occupied	35,765		35,363
Commercial real estate - non owner-occupied	241,322		237,091
Residential real estate	71,118		70,541
Commercial and financial	61,274		58,324
Consumer	647		647
PPP loans	38,598		38,598
Total acquired loans	$	486,282	$	477,215

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)	August 6, 2021
Book balance of loans at acquisition	$	66,371
Allowance for credit losses at acquisition	(3,046)
Non-credit related discount	(736)
Total PCD loans acquired	$	62,589

The acquisition of Legacy Bank resulted in the addition of $11.2 million in allowance for credit losses, including the $3.0 million identified in the table above for PCD loans, and $8.2 million for non-PCD loans recorded through the provision for credit losses at the date of acquisition.

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.

Acquisition of Fourth Street Banking Company

On August 21, 2020, the Company completed its acquisition of Fourth Street Banking Company (“Fourth Street”). Simultaneously, upon completion of the merger of Fourth Street and the Company, Fourth Street's wholly owned subsidiary

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bank, Freedom Bank, was merged with and into Seacoast Bank. Prior to the acquisition, Freedom Bank operated two branches in St. Petersburg, Florida.

As a result of this acquisition, the Company expects to enhance its presence in St. Petersburg, expand its customer base and leverage operating cost through economies of scale, and positively affect the Company’s operating results.

The Company acquired 100% of the outstanding common stock of Fourth Street. Under the terms of the definitive agreement, each share of Fourth Street common stock was converted into the right to receive 0.1275 share of Seacoast common stock.


(In thousands, except per share data)	August 21, 2020
Number of Fourth Street common shares outstanding	11,220
Shares issued upon conversion of convertible debt	5,405
Per share exchange ratio	0.1275
Number of shares of common stock issued	2,120
Multiplied by common stock price per share on August 21, 2020	$	19.40
Value of common stock issued	41,121
Cash paid for Fourth Street vested stock options	596
Total purchase price	$	41,717

The acquisition of Fourth Street was accounted for under the acquisition method in accordance with ASC Topic 805, Business Combinations. The Company recognized goodwill of $9.0 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.


(In thousands)	August 21, 2020
Assets:
Cash	$	38,082
Investment securities	3,498
Loans	303,434
Bank premises and equipment	9,480
Core deposit intangibles	1,310
Goodwill	9,030
Other assets	7,088
Total assets	$	371,922
Liabilities:
Deposits	$	329,662
Other liabilities	543
Total liabilities	$	330,205

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The table below presents information with respect to the fair value and unpaid principal balance of acquired loans at the acquisition date.


	August 21, 2020
(In thousands)	Book Balance		Fair Value
Loans:
Construction and land development	$	9,197	$	8,851
Commercial real estate - owner-occupied	77,936		75,215
Commercial real estate - non owner-occupied	76,014		71,171
Residential real estate	23,548		23,227
Commercial and financial	72,745		68,096
Consumer	2,748		2,694
PPP loans	55,005		54,180
Total acquired loans	$	317,193	$	303,434

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)	August 21, 2020
Book balance of loans at acquisition	$	59,455
Allowance for credit losses at acquisition	(5,763)
Non-credit related discount	(4,319)
Total PCD loans acquired	$	49,373

The acquisition of Fourth Street resulted in the addition of $10.4 million in allowance for credit losses, including the $5.8 million identified in the table above for PCD loans, and $4.6 million for non-PCD loans recorded through the provision for credit losses at the date of acquisition.

Acquisition of First Bank of the Palm Beaches

On March 13, 2020, the Company completed its acquisition of First Bank of the Palm Beaches (“FBPB”). FBPB was merged with and into Seacoast Bank. FBPB operated two branches in the Palm Beach market.

As a result of this acquisition, the Company expects to enhance its presence in the Palm Beach market, expand its customer base and leverage operating cost through economies of scale, and positively affect the Company’s operating results.

The Company acquired 100% of the outstanding common stock of FBPB. Under the terms of the definitive agreement, each share of FBPB common stock was converted into the right to receive 0.2000 share of Seacoast common stock.


(In thousands, except per share data)	March 13, 2020
Number of FBPB common shares outstanding	5,213
Per share exchange ratio	0.2000
Number of shares of common stock issued	1,043
Multiplied by common stock price per share on March 13, 2020	$	20.17
Value of common stock issued	21,031
Cash paid for FBPB vested stock options	866
Total purchase price	$	21,897

The acquisition of FBPB was accounted for under the acquisition method in accordance with ASC Topic 805, Business Combinations. The Company recognized goodwill of $6.9 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

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complicated process involving significant judgment regarding methods and assumptions used to calculate estimated fair values. The adjustments reflected in the table below are the result of information obtained subsequent to the initial measurement.


(In thousands)	Initially Measured March 13, 2020		Measurement Period Adjustments		As Adjusted March 13, 2020
Assets:
Cash	$	34,749	$	—	$	34,749
Investment securities	447		—		447
Loans	146,839		(62)		146,777
Bank premises and equipment	6,086		—		6,086
Core deposit intangibles	819		—		819
Goodwill	6,799		62		6,861
Other assets	1,285		20		1,305
Total assets	$	197,024	$	20	$	197,044
Liabilities:
Deposits	$	173,741	$	—	$	173,741
Other liabilities	1,386		20		1,406
Total liabilities	$	175,127	$	20	$	175,147

The table below presents information with respect to the fair value and unpaid principal balance of acquired loans at the acquisition date.


	March 13, 2020
(In thousands)	Book Balance		Fair Value
Loans:
Construction and land development	$	9,493	$	9,012
Commercial real estate - owner-occupied	46,221		45,171
Commercial real estate - non owner-occupied	36,268		35,079
Residential real estate	47,569		47,043
Commercial and financial	9,659		9,388
Consumer	1,132		1,084
Total acquired loans	$	150,342	$	146,777

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)	March 13, 2020
Book balance of loans at acquisition	$	43,682
Allowance for credit losses at acquisition	(516)
Non-credit related discount	(128)
Total PCD loans acquired	$	43,038

The acquisition of FBPB resulted in the addition of $2.3 million in allowance for credit losses, including the $0.5 million identified in the table above for PCD loans, and $1.8 million for non-PCD loans recorded through the provision for credit losses at the date of acquisition.

Pro-Forma Information

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Pro-forma data for the three and nine months ended September 30, 2021 presents information as if the acquisition of Legacy Bank occurred at the beginning of 2020, as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands, except per share amounts)	2021		2020		2021		2020
Net interest income	$	73,309	$	68,164	$	216,682	$	207,388
Net income	43,401		24,098		104,521		39,930
EPS - basic	$	0.75	$	0.42	$	1.81	$	0.72
EPS - diluted	0.74		0.44		1.79		0.71

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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, 2021 compared to the three and nine months ended September 30, 2020 for the consolidated statements of income. For the consolidated balance sheets, the emphasis of this discussion will be the balances as of September 30, 2021 compared to December 31, 2020.

This discussion and analysis contains 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, any of which may be impacted by the COVID-19 pandemic and related effects on the U.S. economy, which may be beyond the Company's control, and which may cause the actual results, performance or achievements of Seacoast Banking Corporation of Florida (“Seacoast” or the “Company”) or its wholly-owned banking subsidiary, Seacoast National Bank (“Seacoast Bank), to be materially different from those set forth in the forward-looking statements.

All statements other than statements of historical fact could be forward-looking statements. You can identify these forward-looking statements through the use of words such as "may," "will," "anticipate," "assume," "should," "support," "indicate," "would," "believe," "contemplate," "expect," "estimate," "continue," "further," "plan," "point to," "project," "could," "intend," "target" or other similar words and expressions of the future. These forward-looking statements may not be realized due to a variety of factors, including, without limitation:

•the effects of future economic and market conditions, including seasonality;

•the adverse impact of COVID-19 and variants thereof (economic and otherwise) on the Company and its customers, counterparties, employees, and third-party service providers, and the adverse impacts to our business, financial position, results of operations, and prospects, including the ongoing potential to adversely affect Seacoast’s revenues and values of its assets and liabilities, lead to a tightening of credit, and increase stock price volatility;

•government or regulatory responses to the COVID-19 pandemic, including the risk of inflation and interest rate increases resulting from monetary and fiscal stimulus response, which may have unanticipated adverse effects on our customers, and our financial condition and results of operations;

•governmental monetary and fiscal policies, including interest rate policies of the Board of Governors of the Federal Reserve ("Federal Reserve"), as well as legislative, tax and regulatory changes;

•changes in accounting policies, rules and practices, including the impact of the adoption of the current expected credit losses (“CECL”) methodology;

•our participation in the Paycheck Protection Program (“PPP”);

•the risks of changes in interest rates on the level and composition of deposits, loan demand, liquidity and the values of loan collateral, securities, and interest rate sensitive assets and liabilities;

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•interest rate risks, sensitivities and the shape of the yield curve; uncertainty related to the impact of LIBOR calculations on securities, loans and debt;

•governmental actions to stimulate the economy and provide support for small businesses have resulted in material increases to the Company’s liquidity position, adversely affecting the net interest margin. The duration of this liquidity remaining on the balance sheet is uncertain;

•changes in borrowing, borrower credit risks, payment behaviors, spending, or saving by businesses or households including as a result of the financial impact of COVID-19;

•changes in retail distribution strategies, customer preferences and behavior;

•changes in the availability and cost of credit and capital in the financial markets;

•changes in the prices, values and sales volumes of residential and commercial real estate;

•the Company's ability to comply with any regulatory requirements, including such requirements that may become applicable as the Company increases its total assets;

•the effects of problems encountered by other financial institutions that adversely affect Seacoast or the banking industry;

•Seacoast's concentration in commercial real estate loans and in real estate collateral in the state of Florida;

•inaccuracies or other failures from the use of models, including the failure of assumptions and estimates, as well as differences in, and changes to, economic, market and credit conditions;

•the impact on the valuation of Seacoast's investments due to market volatility or counterparty payment risk;

•statutory and regulatory dividend restrictions;

•increases in regulatory capital requirements for banking organizations generally;

•the risks of mergers, acquisitions and divestitures, including Seacoast's ability to continue to identify acquisition targets and successfully acquire and integrate desirable financial institutions;

•changes in technology or products that may be more difficult, costly, or less effective than anticipated;

•the Company's ability to identify and address increased cybersecurity risks, including as a result of employees working remotely;

•inability of Seacoast's risk management framework to manage risks associated with the business;

•dependence on key suppliers or vendors to obtain equipment or services for the business on acceptable terms;

•reduction in or the termination of Seacoast's ability to use the mobile-based platform that is critical to the Company's business growth strategy, as well as risks related to transitioning to new or different platforms and service providers;

•the effects of war or other conflicts, acts of terrorism, natural disasters, health emergencies, epidemics or pandemics, or other catastrophic events that may affect general economic conditions;

•unexpected outcomes of, and the costs associated with, existing or new litigation involving the Company, including as a result of the Company’s participation in the PPP;

•Seacoast's ability to maintain adequate internal controls over financial reporting;

•potential claims, damages, penalties, fines and reputational damage resulting from pending or future litigation, regulatory proceedings and enforcement actions;

•the 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,

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including institutions operating regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone, computer and the Internet;

•the failure of assumptions underlying the establishment of reserves for possible credit losses;

•the risks relating to the recently completed merger including, without limitation: unexpected transaction costs, including the costs of integrating operations; the risks that the business will not be integrated successfully or that such integration may be more difficult, time-consuming or costly than expected; the potential failure to fully or timely realize expected revenues and revenue synergies, including as the result of revenues being lower than expected;

•the risks relating to the proposed mergers including, without limitation: the timing to consummate the proposed mergers; the risk that a condition to closing of the proposed mergers may not be satisfied; the risk that the mergers may not be completed at all; the diversion of management time on issues related to the proposed mergers; unexpected transaction costs, including the costs of integrating operations; the risks that the businesses will not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected; the potential failure to fully or timely realize expected revenues and revenue synergies, including as the result of revenues following the mergers being lower than expected; the risk of deposit and customer attrition; any changes in deposit mix; unexpected operating and other costs, which may differ or change from expectation; the risk of customer and employee loss and business disruptions, including, without limitation, as the result of difficulties in maintaining relationships with employees; increased competitive pressures on solicitations of customers by competitors; as well as difficulties and risks inherent with entering new markets; and,

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

All written or oral forward-looking statements that are made or are attributable to Seacoast are expressly qualified in their entirety by this cautionary notice. The Company assumes no obligation to update, revise or correct any forward-looking statements that are made from time to time, either as a result of future developments, new information or otherwise, except as may be required by law.

Business Developments

Impact of COVID-19 Pandemic

The COVID-19 pandemic and related restrictive measures taken by governments, businesses and individuals have caused unprecedented uncertainty, volatility and disruption in financial markets and in governmental, commercial and consumer activity in the United States and globally, including the markets that we serve. As the restrictive measures eased during 2020 and over the course of 2021, the U.S. economy has begun to recover and with the availability and distribution of multiple COVID-19 vaccines, we anticipate continued improvements in commercial and consumer activity and the U.S. economy. While the overall outlook has improved based on the availability of the vaccine to all adults and older children, there continues to be the risk of increases in infection rates in the country, as well as within the State of Florida, attributed to variants, including the Delta variant. Therefore, the risk of further resurgence and possible reimplementation of business restrictions remains.

While indications of recovery exist, we recognize that our business and consumer customers are experiencing varying degrees of financial distress, which is expected to continue through the remainder of 2021, especially if new COVID-19 variant infections increase (or are not adequately contained) and new economic restrictions are mandated. Changing consumer behavior and the impact of government support programs including the PPP have contributed to higher customer deposit balances, which may adversely affect our net interest income and net interest margin. Commercial activity has improved, but has not returned in all industries to the levels existing prior to the outbreak of the pandemic, which may result in our customers’ inability to meet their loan obligations to us. In addition, the economic pressures and uncertainties related to the COVID-19 pandemic have resulted in changes in consumer spending behaviors, which may negatively impact the demand for loans and other services we offer. Our borrowers include customers in industries such as hotel/lodging, restaurants and retail and commercial real estate, all of which have been significantly impacted by the COVID-19 pandemic, or remain at heightened risk of future negative economic impact, which may be caused or exacerbated by increased COVID-19 variant infections, vaccine hesitancy, or new economic restrictions in our footprint. We recognize that these industries may take longer to recover as consumers may be hesitant to return to full social interaction or may change their spending habits on a more permanent basis as a result of the pandemic. We continue to monitor these customers closely.

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We have taken deliberate actions to maintain our balance sheet strength to serve our clients and communities, including maintaining higher levels of liquidity and managing our assets and liabilities in order to maintain a strong capital position and support business growth and acquisition opportunities; however, future economic conditions are subject to significant uncertainty. Uncertainties associated with the pandemic include the duration of the COVID-19 outbreak and any related variant infections, and effectiveness of COVID-19 vaccines, the impact to our customers, employees and vendors and the impact to the economy as a whole. We continuously seek to monitor and anticipate developments, but cannot predict all of the various adverse effects COVID-19 will have on our business, financial condition, liquidity or results of operations.

Acquisition of Legacy Bank of Florida

In August 2021, the Company completed the acquisition of Legacy Bank of Florida (“Legacy Bank”), which added $477 million in loans and $495 million in deposits. The acquisition strengthens the Company’s position in South Florida, one of the strongest and fastest growing markets in the country, and complements prior acquisitions in the market. Consolidation activities and related expenses are substantially complete.

Announcement of Sabal Palm Bancorp, Inc. Acquisition

Announcement of Business Bank of Florida, Corp. Acquisition

On August 23, 2021, the Company announced that it had entered into an agreement and plan of merger with Business Bank of Florida, Corp. (“BBFC”) and its wholly-owned subsidiary, Florida Business Bank. BBFC operates one branch in Melbourne, FL with $139 million in loans and $169 million in deposits as of September 30, 2021. The acquisition is expected to close in the first quarter of 2022 pending receipt of regulatory and shareholder approvals. The acquisition will deepen the Company’s presence in Brevard County, which is located in the Palm Bay-Melbourne-Titusville MSA.

Results of Operations

For the third quarter of 2021, the Company reported net income of $22.9 million, or $0.40 per average diluted share, compared to $31.4 million, or $0.56, for the second quarter of 2021 and $22.6 million, or $0.42, for the third quarter of 2020. For the nine months ended September 30, 2021, net income totaled $88.1 million or $1.56 per average diluted share, an increase of $39.7 million, or 82%, compared to the nine months ended September 30, 2020. Adjusted net income1 for the third quarter of 2021 totaled $29.4 million, or $0.51 per average diluted share, compared to $33.3 million, or $0.59, for the second quarter of 2021 and $27.3 million, or $0.50, for the third quarter of 2020. For the nine months ended September 30, 2021, adjusted net income1 totaled $98.1 million, or $1.74 per average diluted share, compared to $58.3 million, or $1.09 per average diluted share for the nine months ended September 30, 2020.


	Third		Second		Third		Nine Months Ended
	Quarter		Quarter		Quarter		September 30,
	2021		2021		2020		2021		2020
Return on average tangible assets	1.00	%	1.48	%	1.20	%	1.37	%	0.93	%
Return on average tangible shareholders' equity	9.56		13.88		11.35		12.89		8.71
Efficiency ratio	59.55		54.93		61.65		55.99		57.15

Adjusted return on average tangible assets1	1.23	%	1.52	%	1.38	%	1.48	%	1.04	%
Adjusted return on average tangible shareholders' equity1	11.72		14.27		13.06		13.91		9.80
Adjusted efficiency ratio1	51.50		53.49		54.82		52.29		52.64
1Non-GAAP measure - see “Explanation of Certain Unaudited Non-GAAP Financial Measures” for more information and a reconciliation to GAAP.

Net Interest Income and Margin

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

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Net interest income for the third quarter of 2021 totaled $71.3 million, increasing $5.5 million, or 8%, compared to the second quarter of 2021, and increasing $7.8 million, or 12%, compared to the third quarter of 2020. For the nine months ended September 30, 2021, net interest income totaled $203.7 million, an increase of $9.8 million, or 5%, compared to the nine months ended September 30, 2020. The increase quarter over quarter and compared to the prior year quarter reflects higher loan and securities balances, and higher recognition of fees on Paycheck Protection Program (“PPP”) loans attributed to higher loan forgiveness. Furthermore, lower interest expense reflects the continued low rate environment and the Company’s efforts to proactively manage rates paid on interest bearing deposits. Net interest margin (on a fully tax equivalent basis)1 was 3.22% in the third quarter of 2021, compared to 3.23% in the second quarter of 2021 and 3.40% in the third quarter of 2020. The decrease during the third quarter of 2021 reflects decreases in yields on both securities and non-PPP loans, partially offset by the impact of higher fees due to higher loan forgiveness on PPP loans and lower rates on interest bearing deposits. Compared to the second quarter of 2021, securities yields declined by four basis points to 1.59% and non-PPP loan yields declined by seven basis points to 4.29% during the third quarter of 2021. Offsetting and favorable was the increase in yields on PPP loans from 4.07% to 8.33%, which includes the impact of higher fee accretion in the current quarter, and a decrease in the cost of deposits from eight basis points in the second quarter of 2021 to seven basis points in the third quarter of 2021. The effect on net interest margin of purchase discounts on acquired loans was an increase of 15 basis points in the third quarter of 2021 compared to an increase of 14 basis points in the second quarter of 2021 and an increase of 17 basis points in the third quarter of 2020. The effect of interest and fees on PPP loans was an increase of 18 basis points in the third quarter of 2021, an increase of six basis points in the second quarter of 2021 and an increase of seven basis points in the third quarter of 2020.

For the nine months ended September 30, 2021, net interest margin (on a fully tax equivalent basis)1 was 3.32%, compared to 3.67% for the nine months ended September 30, 2020. The yield on securities declined from 2.58% for the nine months ended September 30, 2020 to 1.62% for the nine months ended September 30, 2021, reflecting the impact of a lower interest rate environment including the payoff of higher yielding securities being replaced with lower yields on new purchases. The yield on non-PPP loans declined from 4.63% for the nine months ended September 30, 2020 to 4.34% for the nine months ended September 30, 2021, reflecting the impact of the lower interest rate environment. Offsetting and favorable was the increase in yield on PPP loans, which increased from 2.60% for the nine months ended September 30, 2020 to 5.16% for the nine months ended September 30, 2021 as well as the decline in the cost of deposits from 36 basis points for the nine months ended September 30, 2020 to 9 basis points for the nine months ended September 30, 2021. The effect on net interest margin of purchase discounts on acquired loans was an increase of 15 basis points for the nine months ended September 30, 2021 compared to an increase of 20 basis points for the nine months ended September 30, 2020. The effect of interest and fees on PPP loans was an increase of 12 basis points for the nine months ended September 30, 2021, compared to an increase of four basis points for the nine months ended September 30, 2020.

The cost of deposits declined to seven basis points in the third quarter of 2021, compared to eight basis points in the second quarter of 2021 and 24 basis points in the third quarter of 2020. For the nine months ended September 30, 2021, the cost of deposits was nine basis points, a decrease of 27 basis points compared to the nine months ended September 30, 2020. Lower cost of deposits reflects lower market rates, and a favorable shift in product mix to include a higher proportion of noninterest bearing demand deposits to total 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 Income1		Net Interest Margin1		Yield on Earning Assets1		Rate on Interest Bearing Liabilities
Third quarter 2021	$	71,455	3.22	%	3.31	%	0.14	%
Second quarter 2021	65,933		3.23	%	3.33	%	0.16	%
Third quarter 2020	63,621		3.40	%	3.65	%	0.40	%

Nine months ended September 30, 2021	204,129		3.32	%	3.42	%	0.17	%
Nine months ended September 30, 2020	194,300		3.67	%	4.05	%	0.59	%
1On tax equivalent basis, a non-GAAP measure - see "Explanation of Certain Unaudited Non-GAAP Financial Measures" for more information and a reconciliation to GAAP.

Total average loans increased $105.8 million, or 2%, for the third quarter of 2021 compared to the second quarter of 2021, and decreased $156.8 million, or 3%, from the third quarter of 2020. The increase compared to the prior quarter reflects loan growth including loans acquired from Legacy Bank, partially offset by a decrease in PPP loans attributed to loan forgiveness. The decrease compared to the prior year quarter reflects the impact of PPP loan forgiveness.

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Average loans as a percentage of average earning assets totaled 65% for the third quarter of 2021, 68% for the second quarter of 2021 and 79% for the third quarter of 2020.

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)	2021		2021		2020		2021		2020
Commercial pipeline at period end	$	368,907	$	322,014	$	256,191	$	368,907	$	256,191
Commercial loan originations	331,618		193,028		88,245		728,899		378,432

Residential pipeline - saleable at period end	42,847		60,585		149,896		42,847		149,896
Residential loans - sold	95,136		120,099		162,468		353,572		347,792

Residential pipeline - portfolio at period end	35,387		54,132		33,374		35,387		33,374
Residential loans - retained	250,820		118,126		25,404		415,566		74,719

Consumer pipeline at period end	30,980		31,748		17,094		30,980		17,094
Consumer originations	66,400		63,702		62,293		176,847		171,765

PPP originations	—		23,529		8,276		256,007		598,994

Commercial originations during the third quarter of 2021 were $331.6 million, an increase of $138.6 million, or 72%, compared to the second quarter of 2021, and an increase of $243.4 million, or 276%, compared to the third quarter of 2020. Recent investments in commercial banking talent contributed to the increase in production quarter-over-quarter. Commercial originations for the third quarter of 2021 also includes a $17.1 million purchased loan pool.

The commercial pipeline increased $46.9 million, or 15%, to $368.9 million at September 30, 2021, compared to June 30, 2021, and increased $112.7 million, or 44%, compared to September 30, 2020, also reflecting the benefit of investments in commercial banking talent.

The Company originates residential mortgage loans identified for sale to investors in the secondary market. The Company uses rate locks with investors at the time of application, thereby eliminating interest rate risk. Residential loans originated for sale in the secondary market totaled $95.1 million in the third quarter of 2021, compared to $120.1 million in the second quarter of 2021 and $162.5 million in the third quarter of 2020, a decrease of 21% and a decrease of 41%, respectively. Refinance activity has slowed from the peaks seen in 2020, and Florida’s housing inventory remains limited. Residential saleable pipelines were $42.8 million as of September 30, 2021, compared to $60.6 million as of June 30, 2021 and $149.9 million as of September 30, 2020.

Residential loan production retained in the portfolio for the third quarter of 2021 was $250.8 million compared to $118.1 million in the second quarter of 2021 and $25.4 million in the third quarter of 2020. Residential loans retained in the third quarter of 2021 includes $180.8 million in purchased loan pools compared to $38.4 million purchased during the second quarter of 2021. The Company fully underwrites acquired loans prior to executing transactions. The pipeline of residential loans intended to be retained in the portfolio was $35.4 million as of September 30, 2021, compared to $54.1 million as of June 30, 2021, and $33.4 million as of September 30, 2020.

Consumer originations totaled $66.4 million during the third quarter of 2021, an increase of $2.7 million, or 4%, from the second quarter of 2021 and an increase of $4.1 million, or 7%, from the third quarter of 2020. The consumer pipeline was $31.0 million as of September 30, 2021, compared to $31.7 million as of June 30, 2021 and $17.1 million at September 30, 2020.

In March 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law. The CARES Act includes provisions for the Paycheck Protection Program (“PPP”) offered through the U.S. Small Business Administration (“SBA”). Loans originated under this program have a contractual rate of interest of 1% with principal and interest that may be forgiven, provided that the borrower uses the funds in a manner consistent with PPP guidelines. Seacoast has assisted more than 8,000 borrowers through the PPP since inception, $675.7 million in PPP loan balances have been forgiven, and remaining outstanding balances total $190.6 million at September 30, 2021.

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Average debt securities increased $341.8 million, or 21%, during the third quarter of 2021 compared to the second quarter of 2021, and were $651.1 million, or 48%, higher compared to the third quarter of 2020. Increases reflect the investment of excess liquidity, partially offset by paydowns and maturities.

The cost of average interest-bearing liabilities contracted in the third quarter of 2021 to 14 basis points from 16 basis points in the second quarter of 2021, and from 40 basis points in the third quarter of 2020. The cost of average total deposits (including noninterest bearing demand deposits) in the third quarter of 2021 was 7 basis points compared to 8 basis points in the second quarter of 2021 and 24 basis points in the third quarter of 2020, reflecting continued repricing downward of interest-bearing deposits and time deposits.

During the third quarter of 2021, average transaction deposits (noninterest and interest bearing demand) increased $384.9 million, or 9%, compared to the second quarter of 2021 and increased $1.2 billion, or 34%, compared to the third quarter of 2020, reflecting the acquisition of Legacy Bank, the inflow of new customers, and higher deposit balances for existing customers.

The Company’s deposit mix remains favorable, with 93% of average deposit balances comprised of savings, money market, and demand deposits for the nine months ended September 30, 2021. Seacoast's average cost of deposits, including noninterest bearing demand deposits, decreased to 9 basis points for the nine months ended September 30, 2021 compared to 36 basis points for the nine months ended September 30, 2020, reflecting the lower interest rate environment and shifts in deposit mix with a higher proportion of low cost deposits. Brokered CDs totaled $20.0 million at September 30, 2021, with a weighted average rate of 0.32%. The Company participates in programs with third party deposit networks as part of its liquidity management strategy, particularly as it approaches $10 billion in assets. Through these programs, the Company can offer its customers access to FDIC insurance on large balances, and the Company can retain or sell, on an overnight basis, the underlying deposits. The Company expects to remain below $10 billion in assets at year end 2021, and at September 30, 2021, the Company had sold, on an overnight basis, $233.1 million in deposits, compared to $112.7 million at December 31, 2020. These deposits are not included in the Consolidated Balance Sheet.

Sweep repurchase agreements with customers increased $37.5 million, or 48%, year-over-year. For the nine months ended September 30, 2021, the average balance was $116.3 million compared to an average balance of $78.8 million for the nine months ended September 30, 2020. The average rate on customer sweep repurchase accounts was 0.13% for the nine months ended September 30, 2021, compared to 0.41% for the nine months ended September 30, 2020. No federal funds purchased were utilized at September 30, 2021 nor September 30, 2020.

In connection with the Legacy Bank transaction, the Company acquired $33.0 million in FHLB borrowings during the third quarter of 2021, which were immediately repaid for a nominal fee. The Company had no other FHLB borrowings during the nine months ended September 30, 2021 compared to $180.9 million with an average rate of 1.08% for the nine months ended September 30, 2020. The decrease reflects the impact of higher average deposit balances that were sufficient to fund the Company’s liquidity needs during 2021.

For the nine months ended September 30, 2021, subordinated debt averaged $71.5 million, compared to $71.2 million for the nine months ended September 30, 2020. The average rate on subordinated debt for the nine months ended September 30, 2021 was 2.37%, compared to 3.28% for the nine months ended September 30, 2020. The subordinated debt relates to trust preferred securities issued by subsidiary trusts of the Company.

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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 Rates1

	2021												2020
	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	$	1,971,520	$	7,775	1.58	%	$	1,629,410	$	6,559	1.61	%	$	1,322,160	$	6,972	2.11	%
Nontaxable	25,311		181		2.86		25,581		186		2.90		23,570		157		2.67
Total Securities	1,996,831		7,956		1.59		1,654,991		6,745		1.63		1,345,730		7,129		2.12

Federal funds sold and other investments	1,091,997		867		0.31		925,323		709		0.31		239,511		556		0.92

Loans excluding PPP loans	5,422,350		58,600		4.29		5,092,897		55,313		4.36		5,242,776		58,854		4.47
PPP Loans	281,724		5,917		8.33		505,339		5,127		4.07		618,088		1,719		1.11
Total Loans	5,704,074		64,517		4.49		5,598,236		60,440		4.33		5,860,864		60,573		4.11

Total Earning Assets	8,792,902		73,340		3.31		8,178,550		67,894		3.33		7,446,105		68,258		3.65

Allowance for loan losses	(88,412)						(86,042)						(92,151)
Cash and due from banks	386,781						327,171						138,749
Premises and equipment	70,667						70,033						72,572
Intangible assets	254,980						235,964						228,801
Bank owned life insurance	164,879						133,484						129,156
Other assets	171,937						166,686						163,658
Total Assets	$	9,753,734					$	9,025,846					$	8,086,890

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing demand	$	1,891,092	$	219	0.05	%	$	1,692,178	$	235	0.06	%	$	1,364,947	$	330	0.10	%
Savings	842,018		65		0.03		790,734		118		0.06		648,319		170		0.10
Money market	1,860,386		565		0.12		1,736,481		627		0.14		1,328,931		799		0.24
Time deposits	572,661		583		0.40		533,350		524		0.39		1,051,316		2,673		1.01
Securities sold under agreements to repurchase	120,507		35		0.12		115,512		35		0.12		90,357		40		0.18
Federal Home Loan Bank borrowings	—		—		—		—		—		—		93,913		181		0.77
Other borrowings	71,530		418		2.32		71,460		422		2.37		71,258		444		2.48
Total Interest-Bearing Liabilities	5,358,194		1,885		0.14		4,939,715		1,961		0.16		4,649,041		4,637		0.40
Noninterest demand	2,985,582						2,799,643						2,279,584
Other liabilities	161,411						116,093						96,458
Total Liabilities	8,505,187						7,855,451						7,025,083

Shareholders' equity	1,248,547						1,170,395						1,061,807

Total Liabilities & Equity	$	9,753,734					$	9,025,846					$	8,086,890

Cost of deposits					0.07	%					0.08	%					0.24	%
Interest expense as a % of earning assets					0.09	%					0.10	%					0.25	%
Net interest income as a % of earning assets			$	71,455	3.22	%			$	65,933	3.23	%			$	63,621	3.40	%

1On 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.

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Average Balances, Interest Income and Expenses, Yields and Rates1

	2021						2020
	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	$	1,718,671	$	20,632	1.60	%	$	1,203,877	$	23,241	2.57	%
Nontaxable	25,606		554		2.88		20,895		461		2.94
Total Securities	1,744,277		21,186		1.62		1,224,772		23,702		2.58

Federal funds sold and other investments	800,839		2,162		0.36		253,635		1,974		1.04

Loans excluding PPP loans	5,222,629		169,417		4.34		5,254,089		182,239		4.63
PPP Loans	464,397		17,930		5.16		348,407		6,787		2.60
Total Loans	5,687,026		187,347		4.40		5,602,496		189,026		4.51

Total Earning Assets	8,232,142		210,695		3.42		7,080,903		214,702		4.05

Allowance for loan losses	(88,717)						(78,067)
Cash and due from banks	323,693						111,019
Premises and equipment	71,644						70,451
Intangible assets	242,820						228,795
Bank owned life insurance	143,601						127,683
Other assets	167,775						145,827
Total Assets	$	9,092,958					$	7,686,611

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing demand	$	1,728,985	$	712	0.06	%	$	1,279,485	$	1,461	0.15	%
Savings	785,447		320		0.05		588,913		683		0.15
Money market	1,736,519		1,862		0.14		1,217,627		3,548		0.39
Time deposits	605,269		2,294		0.51		1,165,194		11,261		1.29
Securities sold under agreements to repurchase	116,304		112		0.13		78,755		241		0.41
Federal Home Loan Bank borrowings	—		—		—		180,893		1,460		1.08
Other borrowings	71,460		1,266		2.37		71,186		1,748		3.28
Total Interest-Bearing Liabilities	5,043,984		6,566		0.17		4,582,053		20,402		0.59
Noninterest demand	2,741,115						2,001,630
Other liabilities	122,329						79,821
Total Liabilities	7,907,428						6,663,504

Shareholders' equity	1,185,530						1,023,107

Total Liabilities & Equity	$	9,092,958					$	7,686,611

Cost of deposits					0.09	%					0.36	%
Interest expense as a % of earning assets					0.11	%					0.38	%
Net interest income as a % of earning assets			$	204,129	3.32	%			$	194,300	3.67	%

1On 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.

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Noninterest Income

Noninterest income totaled $19.0 million for the third quarter of 2021, an increase of $3.7 million, or 24%, compared to the second quarter of 2021 and an increase of $2.1 million, or 12%, from the third quarter of 2020. Noninterest income totaled $52.0 million for the nine months ended September 30, 2021, an increase of $5.4 million, or 12%, compared to the nine months ended September 30, 2020.

Noninterest income is detailed as follows:


	Third		Second		Third		Nine Months Ended
	Quarter		Quarter		Quarter		September 30,
(In thousands)	2021		2021		2020		2021		2020
Service charges on deposit accounts	$	2,495	$	2,338	$	2,242	$	7,171	$	7,006
Interchange income	4,131		4,145		3,682		12,096		10,115
Wealth management income	2,562		2,387		1,972		7,272		5,558
Mortgage banking fees	2,550		2,977		5,283		9,752		11,050
Marine finance fees	152		177		242		518		545
SBA gains	812		232		252		1,331		572
BOLI income	1,128		872		899		2,859		2,672
Other income	5,228		2,249		2,370		11,221		7,869
	19,058		15,377		16,942		52,220		45,387
Securities (losses) gains, net	(30)		(55)		4		(199)		1,253
Total	$	19,028	$	15,322	$	16,946	$	52,021	$	46,640

Service charges on deposits were $2.5 million in the third quarter of 2021, $2.3 million in the second quarter of 2021 and $2.2 million in the third quarter of 2020. For the nine months ended September 30, 2021, service charges on deposits totaled $7.2 million, an increase of $0.2 million, or 2%, compared to the nine months ended September 30, 2020. The increase in service charges for the nine-month period reflects an increase in customer deposit accounts. Overdraft fees represent 40% of total service charges on deposits for the nine months ended September 30, 2021 and 44% for the nine months ended September 30, 2020.

Interchange income remained flat at $4.1 million for the three months ended September 30, 2021, compared to the three months ended June 30, 2021, and increased $0.4 million, or 12%, compared to the three months ended September 30, 2020. Third quarter activity reflects stable transaction volume despite the impact of the COVID-19 delta variant on spending early in the third quarter. For the nine months ended September 30, 2021, interchange income totaled $12.1 million, an increase of $2.0 million, or 20%, compared to the nine months ended September 30, 2020. The 2021 periods reflect the return of transactional volume and higher per-card spending in the current year when compared to the prior year, which was negatively affected by COVID-19-related shutdowns and reduced consumer consumption.

Wealth management income, including trust fees and brokerage commissions and fees, was a record $2.6 million in the third quarter of 2021, increasing $0.2 million, or 7%, from the second quarter of 2021 and increasing $0.6 million, or 30%, compared to the third quarter of 2020. For the nine months ended September 30, 2021, wealth management income totaled $7.3 million, an increase of $1.7 million, or 31%, compared to the nine months ended September 30, 2020. The wealth management team continues to successfully win business with commercial relationships and high net worth families across the Company’s footprint, as reflected through the growth of assets under management from $792.6 million at September 30, 2020 to $1.2 billion at September 30, 2021.

Mortgage banking fees decreased by $0.4 million, or 14%, to $2.5 million in the third quarter of 2021 compared to the second quarter of 2021, and decreased $2.7 million, or 52%, compared to the third quarter of 2020, reflecting the impact of lower refinance activity and low housing inventory levels. For the nine months ended September 30, 2021, mortgage banking fees totaled $9.8 million, a decrease of $1.3 million, or 12%, compared to the nine months ended September 30, 2020.

SBA gains were a record $0.8 million, an increase of $0.6 million, compared to the second quarter of 2021 and an increase of $0.6 million, compared to the third quarter of 2020. Higher saleable loan production reflects a renewed focus on saleable activity as the PPP program winds down. For the nine months ended September 30, 2021, SBA gains totaled $1.3 million, an increase of $0.8 million, or 133%, compared to the nine months ended September 30, 2020.

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Bank owned life insurance (“BOLI”) income was $1.1 million for the third quarter of 2021, an increase of $0.3 million compared to both the second quarter of 2021 and the third quarter of 2020. The increase is attributed to additions to BOLI, including $25.0 million purchased late in the second quarter, with a tax equivalent yield of 4.50%. In addition, the Company acquired $9.1 million in BOLI from Legacy Bank, and an additional $25.0 million was purchased late in the third quarter of 2021. BOLI income totaled $2.9 million for the nine months ended September 30, 2021 and $2.7 million for the nine months ended September 30, 2020.

Other income was $5.2 million in the third quarter of 2021, an increase of $3.0 million quarter-over-quarter and an increase of $2.9 million year-over-year, reflecting the impact of gains on SBIC investments during the quarter. Returns recognized on these investments will vary and are not expected to occur on a routine basis. For the nine months ended September 30, 2021, other income totaled $11.2 million, an increase of $3.4 million, or 43%, compared to the nine months ended September 30, 2020.

Noninterest Expenses

The Company has demonstrated its commitment to efficiency through disciplined, proactive management of its cost structure. For the third quarter of 2021, 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 59.55% compared to 54.93% for the second quarter of 2021 and 61.65% for the third quarter of 2020. The increase in the efficiency ratio quarter over quarter primarily reflects higher net interest income and higher non-interest income, which was more than offset by the impact of higher expenses, primarily resulting from the Legacy Bank acquisition during the third quarter of 2021. The decrease in the efficiency ratio when compared to the prior year quarter reflects higher net interest income and higher noninterest income. Both periods reflected the impact of higher expenses from acquisitions with the completion of the Freedom Bank acquisition in the third quarter of 2020. For the nine months ended September 30, 2021, the efficiency ratio was 55.99% compared to 57.15% for the nine months ended September 30, 2020.

The adjusted efficiency ratio12was 51.50% in the third quarter of 2021, compared to 53.49% in the second quarter of 2021 and 54.82% in the third quarter of 2020. The decrease in the adjusted efficiency ratio1 compared to the prior quarter and the prior year quarter primarily reflects higher net interest income and higher noninterest income. At September 30, 2021, adjusted noninterest expense1 as a percent of average tangible assets was 1.95% for the third quarter of 2021 compared to 1.98% for the second quarter of 2021 and 2.24% for the third quarter of 2020. For the nine months ended September 30, 2021 the adjusted efficiency ratio1 was 52.29% compared to 52.64% for the nine months ended September 30, 2020.

12Non-GAAP measure - see “Explanation of Certain Unaudited Non-GAAP Financial Measures” for more information and a reconciliation to GAAP.

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	Third			Second			Third			Nine Months Ended
	Quarter			Quarter			Quarter			September 30,
(In thousands, except ratios)	2021			2021			2020			2021			2020
Noninterest expense, as reported	$	55,268		$	45,784		$	51,674		$	147,172		$	141,871

Merger-related charges	(6,281)			(509)			(4,281)			(7,371)			(9,074)
Amortization of intangibles	(1,306)			(1,212)			(1,497)			(3,729)			(4,436)
Business continuity expenses	—			—			—			—			(307)
Branch reductions and other expense initiatives	(870)			(663)			(464)			(1,982)			(464)
Adjusted noninterest expense1	$	46,811		$	43,400		$	45,432		$	134,090		$	127,590

Foreclosed property expense and net (loss)/gain on sale	(66)			90			(512)			89			(442)
Provision for credit losses on unfunded commitments	(133)			—			(756)			(133)			(980)

Net adjusted noninterest expense1	$	46,612		$	43,490		$	44,164		$	134,046		$	126,168

Efficiency ratio	59.55		%	54.93		%	61.65		%	55.99		%	57.15		%
Adjusted efficiency ratio1,2	51.50			53.49			54.82			52.29			52.64
Adjusted noninterest expense as a percent of average tangible assets1,2	1.95			1.98			2.24			2.03			2.26
1Non-GAAP measure - see “Explanation of Certain Unaudited Non-GAAP Financial Measures” for more information and a reconciliation to GAAP.
2Adjusted 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.

Noninterest expense for the third quarter of 2021 totaled $55.3 million, an increase of $9.5 million, or 21%, compared to the second quarter of 2021, and an increase of $3.6 million, or 7%, from the third quarter of 2020. For the nine months ended

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September 30, 2021, noninterest expenses totaled $147.2 million, an increase of $5.3 million, or 4%, compared to the nine months ended September 30, 2020. Noninterest expenses are detailed as follows:


	Third		Second		Third		Nine Months Ended
	Quarter		Quarter		Quarter		September 30,
(In thousands)	2021		2021		2020		2021		2020

Salaries and wages	$	27,919	$	22,966	$	23,125	$	72,278	$	67,049
Employee benefits	4,177		3,953		3,995		13,110		11,629
Outsourced data processing costs	5,610		4,676		6,128		14,754		14,820
Telephone/data lines	810		838		705		2,433		2,210
Occupancy	3,541		3,310		3,858		10,640		10,596
Furniture and equipment	1,567		1,166		1,576		3,987		4,557
Marketing	1,353		1,002		1,513		3,523		3,788
Legal and professional fees	4,151		2,182		3,018		8,915		8,658
FDIC assessments	651		515		474		1,692		740
Amortization of intangibles	1,306		1,212		1,497		3,729		4,436
Foreclosed property expense and net loss (gain) on sale	66		(90)		512		(89)		442
Provision for credit losses on unfunded commitments	133		—		756		133		980
Other	3,984		4,054		4,517		12,067		11,966
Total	$	55,268	$	45,784	$	51,674	$	147,172	$	141,871

Salaries and wages totaled $27.9 million for the third quarter of 2021, $23.0 million for the second quarter of 2021, and $23.1 million for the third quarter of 2020. The third quarter includes $2.6 million in merger-related expenses, as well as increases relating to the addition of the Legacy Bank branch franchise, and increases resulting from investments in commercial banking talent. For the nine months ended September 30, 2021, salaries and wages totaled $72.3 million, an increase of $5.2 million, or 8%, compared to the nine months ended September 30, 2020. The increase compared to the prior year reflects higher salaries from headcount added through acquisitions and investments made to support organic growth.

During the third quarter of 2021, employee benefit costs, which include costs associated with the Company's self-funded health insurance benefits, 401(k) plan, payroll taxes, and unemployment compensation, were $4.2 million, an increase of $0.2 million, or 6%, compared to the second quarter of 2021 and an increase of $0.2 million, or 5%, compared to the third quarter of 2020. The third quarter of 2021 included higher healthcare-related costs attributed to increased headcount. For the nine months ended September 30, 2021, employee benefit costs totaled $13.1 million, an increase of $1.5 million, or 13%, compared to the nine months ended September 30, 2020. The increase reflects the impact of higher health insurance related costs and payroll taxes resulting from headcount added through acquisitions and investments made to support organic growth.

The Company utilizes third parties for its core data processing systems. Ongoing data processing costs are directly related to the number of transactions processed and the negotiated rates associated with those transactions. Outsourced data processing costs totaled $5.6 million, $4.7 million and $6.1 million for the third quarter of 2021, second quarter of 2021 and third quarter of 2020, respectively. The third quarter of 2021 included $0.9 million in merger-related costs related to data conversion, while the third quarter of 2020 included $1.9 million in merger-related costs. For the nine months ended September 30, 2021 and September 30, 2020, outsourced data processing costs totaled $14.8 million. The Company continues to improve and enhance mobile and other digital products and services through key third parties. Outsourced data processing costs may increase in the future as customers adopt improved products and as business volumes grow.

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 $0.8 million, $0.8 million, and $0.7 million for the third quarter of 2021, second quarter of 2021, and third quarter of 2020, respectively. For the nine months ended September 30, 2021, telephone and data line expenditures totaled $2.4 million, an increase of $0.2 million, or 10%, compared to the nine months ended September 30, 2020.

Total occupancy, furniture and equipment expenses were $5.1 million in the third quarter of 2021, $4.5 million in the second quarter of 2021, and $5.4 million in the third quarter of 2020. Increases in the third quarter reflect merger-related equipment disposals, as well as increases relating to the addition of the Legacy Bank branch franchise. For the nine months ended

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September 30, 2021, total occupancy, furniture and equipment expenses totaled $14.6 million, a decrease of $0.5 million, or 3%, compared to the nine months ended September 30, 2020.

Marketing expenses totaled $1.4 million in the third quarter of 2021, $1.0 million in the second quarter of 2021 and $1.5 million in the third quarter of 2020. For the nine months ended September 30, 2021, marketing expenses totaled $3.5 million, a decrease of $0.3 million, or 7%, compared to the nine months ended September 30, 2020. Targeted marketing campaigns allow the Company to engage new and existing customers while maintaining a controlled expense base.

Legal and professional fees for the third quarter of 2021 were $4.2 million, an increase of $2.0 million, or 90%, compared to the second quarter of 2021, and an increase of $1.1 million, or 38%, compared to the third quarter of 2020. For the nine months ended September 30, 2021, legal and professional fees totaled $8.9 million, an increase of $0.3 million, or 3%, compared to the nine months ended September 30, 2020. Acquisition-related expenses were $2.0 million in the third quarter of 2021, $0.5 million in the second quarter of 2021, and $1.3 million in the third quarter of 2020.

FDIC assessments were $0.7 million for the third quarter of 2021 and $0.5 million in both the second quarter of 2021 and the third quarter of 2020. For the nine months ended September 30, 2021, FDIC assessments totaled $1.7 million compared to $0.7 million for the nine months ended September 30, 2020 with 2020 benefiting from the FDIC small bank assessment credits which offset expense.

A provision of $0.1 million was recorded for credit losses on unfunded lending commitments in the third quarter of 2021 attributed to the acquisition of Legacy Bank, compared to no adjustment in the second quarter of 2021 and a $0.8 million provision in the third quarter of 2020 with the acquisition of Freedom Bank.

Other expense totaled $4.0 million, $4.1 million and $4.5 million for the third quarter of 2021, the second quarter of 2021 and the third quarter of 2020, respectively. For the nine months ended September 30, 2021, other expense totaled $12.1 million, an increase of $0.1 million, or 1%, compared to the nine months ended September 30, 2020.

Income Taxes

For the third quarter of 2021, the Company recorded tax expense of $7.0 million compared to tax expense of $8.8 million in the second quarter of 2021 and $7.0 million in the third quarter of 2020. For the nine months ended September 30, 2021, tax expense totaled $26.0 million, an increase of $12.0 million, or 85%, compared to the nine months ended September 30, 2020 due to higher pre-tax income. A tax benefit related to stock-based compensation totaled $0.3 million in the third quarter of 2021, compared to a tax benefit of $0.6 million in the second quarter of 2021 and nominal impact in the third quarter of 2020.

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.

Reconciliation of Non-GAAP Measures


	Third		Second		Third		Nine Months Ended
	Quarter		Quarter		Quarter		September 30,
(In thousands, except per share data)	2021		2021		2020		2021		2020
Net income, as reported:
Net income	$	22,944	$	31,410	$	22,628	$	88,073	$	48,417

Diluted earnings per share	$	0.40	$	0.56	$	0.42	$	1.56	$	0.91

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	Third			Second			Third			Nine Months Ended
	Quarter			Quarter			Quarter			September 30,
(In thousands, except per share data)	2021			2021			2020			2021			2020
Noninterest Income	$	19,028		$	15,322		$	16,946		$	52,021		$	46,640
Securities (gains) losses, net	30			55			(4)			199			(1,253)

Total adjustments to noninterest income	30			55			(4)			199			(1,253)
Total Adjusted Noninterest Income	$	19,058		$	15,377		$	16,942		$	52,220		$	45,387

Noninterest Expense	55,268			$	45,784		$	51,674		$	147,172		$	141,871
Merger-related charges	(6,281)			(509)			(4,281)			(7,371)			(9,074)
Amortization of intangibles	(1,306)			(1,212)			(1,497)			(3,729)			(4,436)
Business continuity expenses	—			—			—			—			(307)
Branch reductions and other expense initiatives1	(870)			(663)			(464)			(1,982)			(464)
Total adjustments to noninterest expense	(8,457)			(2,384)			(6,242)			(13,082)			(14,281)
Total Adjusted Noninterest Expense	$	46,811		$	43,400		$	45,432		$	134,090		$	127,590

Income Taxes	$	7,049		$	8,785		$	6,992		$	25,991		$	14,025
Tax effect of adjustments	2,081			598			1,530			3,256			3,195


Total adjustments to income taxes	2,081			598			1,530			3,256			3,195
Adjusted income taxes	9,130			9,383			8,522			29,247			17,220
Adjusted net income	$	29,350		$	33,251		$	27,336		$	98,098		$	58,250

Earnings per diluted share, as reported	$	0.40		$	0.56		$	0.42		$	1.56		$	0.91
Adjusted diluted earnings per share	0.51			0.59			0.50			1.74			1.09
Average diluted shares outstanding	57,645			55,901			54,301			56,441			53,325

Adjusted Noninterest Expense	$	46,811		$	43,400		$	45,432		$	134,090		$	127,590
Foreclosed property expense and net (loss) gain on sale	(66)			90			(512)			89			(442)
Provision for unfunded commitments	(133)			—			(756)			(133)			(980)
Net Adjusted Noninterest Expense	$	46,612		$	43,490		$	44,164		$	134,046		$	126,168

Revenue	$	90,352		$	81,124		$	80,449		$	255,757		$	240,592
Total adjustments to revenue	30			55			(4)			199			(1,253)
Impact of FTE adjustment	131			131			118			393			348
Adjusted revenue on a fully tax equivalent basis	$	90,513		$	81,310		$	80,563		$	256,349		$	239,687
Adjusted Efficiency Ratio	51.50		%	53.49		%	54.82		%	52.29		%	52.64		%
Net Adjusted Noninterest Expense as a Percent of Average Tangible Assets2	1.95		%	1.98		%	2.24		%	2.03		%	2.26		%

Net Interest Income	$	71,324		$	65,802		$	63,503		$	203,736		$	193,952
Impact of FTE adjustment	131			131			118			393			348
Net interest income including FTE adjustment	71,455			65,933			63,621			204,129			194,300
Noninterest income	19,028			15,322			16,946			52,021			46,640
Noninterest expense	55,268			45,784			51,674			147,172			141,871
Pre-Tax Pre-Provision Earnings	35,215			35,471			28,893			108,978			99,069
Adjustments to noninterest income	30			55			(4)			199			(1,253)
Adjustments to noninterest expense	(8,656)			(2,294)			(7,510)			(13,126)			(15,703)
Adjusted Pre-Tax Pre-Provision Earnings	$	43,901		$	37,820		$	36,399		$	122,303		$	113,519

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	Third			Second			Third			Nine Months Ended
	Quarter			Quarter			Quarter			September 30,
(In thousands, except per share data)	2021			2021			2020			2021			2020
Average Assets	$	9,753,734		$	9,025,846		$	8,086,890		$	9,092,958		$	7,686,611
Less average goodwill and intangible assets	(254,980)			(235,964)			(228,801)			(242,820)			(228,795)
Average Tangible Assets	$	9,498,754		$	8,789,882		$	7,858,089		$	8,850,138		$	7,457,816

Return on Average Assets (ROA)	0.93		%	1.40		%	1.11		%	1.29		%	0.84		%
Impact of removing average intangible assets and related amortization	0.07			0.08			0.09			0.08			0.09
Return on Average Tangible Assets (ROTA)	1.00			1.48			1.20			1.37			0.93
Impact of other adjustments for Adjusted Net Income	0.23			0.04			0.18			0.11			0.11
Adjusted Return on Average Tangible Assets	1.23		%	1.52		%	1.38		%	1.48		%	1.04		%

Average Shareholders' Equity	$	1,248,547		$	1,170,395		$	1,061,807		$	1,185,530		$	1,023,107
Less average goodwill and intangible assets	(254,980)			(235,964)			(228,801)			(242,820)			(228,795)
Average Tangible Equity	$	993,567		$	934,431		$	833,006		$	942,710		$	794,312

Return on Average Shareholders' Equity	7.29		%	10.76		%	8.48		%	9.93		%	6.32		%
Impact of removing average intangible assets and related amortization	2.27			3.12			2.87			2.96			2.39
Return on Average Tangible Common Equity (ROTCE)	9.56			13.88			11.35			12.89			8.71
Impact of other adjustments for Adjusted Net Income	2.16			0.39			1.71			1.02			1.09
Adjusted Return on Average Tangible Common Equity	11.72		%	14.27		%	13.06		%	13.91		%	9.80		%

Loan Interest Income2	$	64,517		$	60,440		$	60,573		$	187,347		$	189,026
Accretion on acquired loans	(3,483)			(2,886)			(3,254)			(9,237)			(10,529)
Interest and fees on PPP loans	(5,917)			(5,127)			(1,719)			(17,930)			(6,787)
Loan interest income excluding PPP and accretion on acquired loans2	$	55,117		$	52,427		$	55,600		$	160,180		$	171,710

Yield on Loans2	4.49		%	4.33		%	4.11		%	4.40		%	4.51		%

Impact of accretion on acquired loans	(0.24)			(0.21)			(0.22)			(0.21)			(0.25)
Impact of PPP loans	(0.22)			0.01			0.33			(0.09)			0.11
Yield on loans excluding PPP and accretion on acquired loans2	4.03		%	4.13		%	4.22		%	4.10		%	4.37		%

Net Interest Income2	$	71,455		$	65,933		$	63,621		$	204,129		$	194,300
Accretion on acquired loans	(3,483)			(2,886)			(3,254)			(9,237)			(10,529)
Interest and fees on PPP loans	(5,917)			(5,127)			(1,719)			(17,930)			(6,787)
Net interest income excluding PPP and accretion on acquired loans2	$	62,055		$	57,920		$	58,648		$	176,962		$	176,984

Net Interest Margin2	3.22		%	3.23		%	3.40		%	3.32		%	3.67		%
Impact of accretion on acquired loans	(0.15)			(0.14)			(0.17)			(0.15)			(0.20)
Impact of PPP loans	(0.18)			(0.06)			0.19			(0.12)			0.04
Net interest margin excluding PPP and accretion on acquired loans2	2.89		%	3.03		%	3.42		%	3.05		%	3.51		%

Loan Interest Income2	$	64,517		$	60,440		$	60,573		$	187,347		$	189,026
Tax equivalent adjustment to loans	(93)			(92)			(86)			(277)			(255)
Loan interest income excluding tax equivalent adjustment	$	64,424		$	60,348		$	60,487		$	187,070		$	188,771

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	Third		Second		Third		Nine Months Ended
	Quarter		Quarter		Quarter		September 30,
(In thousands, except per share data)	2021		2021		2020		2021		2020
Securities Interest Income2	$	7,956	$	6,745	$	7,129	$	21,186	$	23,702
Tax equivalent adjustment to securities	(38)		(39)		(32)		(116)		(93)
Securities interest income excluding tax equivalent adjustment	$	7,918	$	6,706	$	7,097	$	21,070	$	23,609

Net Interest Income2	$	71,455	$	65,933	$	63,621	$	204,129	$	194,300
Tax equivalent adjustments to loans	(93)		(92)		(86)		(277)		(255)
Tax equivalent adjustments to securities	(38)		(39)		(32)		(116)		(93)
Net interest income excluding tax equivalent adjustments	$	71,324	$	65,802	$	63,503	$	203,736	$	193,952
1Includes 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.
2On a fully taxable equivalent basis. All yields and rates have been computed using amortized cost.

Financial Condition

Total assets increased $1.6 billion at September 30, 2021, or 19%, from December 31, 2020, reflecting the acquisition of Legacy Bank, which added $628.9 million in assets, as well as higher cash balances due to higher customer deposit balances, and additional investments in debt securities.

Securities

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

At September 30, 2021, the Company had $1.5 billion in debt securities available-for-sale and $526.5 million in debt securities held-to-maturity. The Company's total debt securities portfolio increased $490.0 million, or 31%, from December 31, 2020.

During the first quarter of 2021, the Company reclassified debt securities with an amortized cost of $210.8 million from available-for-sale to held-to-maturity. These securities had net unrealized gains of $0.8 million at the date of transfer, which will continue to be reported in accumulated other comprehensive income and will be amortized over the remaining life of the securities as an adjustment of yield. The effect on interest income of the amortization of net unrealized gains is offset by the amortization of the premium on the securities transferred. The Company has the intent and ability to retain these securities until maturity.

During the nine months ended September 30, 2021, there were $1.1 billion of debt security purchases and $520.4 million in aggregated paydowns and maturities. For the nine months ended September 30, 2021, the Company had $57.2 million in proceeds from sales of securities with net losses of $0.1 million. For the nine months ended September 30, 2020, there were $626.7 million debt security purchases and aggregated maturities and principal paydowns totaled $237.1 million. Proceeds from sales of securities during the nine months ended September 30, 2020 totaled $96.7 million, with net gains of $1.1 million.

Debt securities generally return principal and interest monthly. At September 30, 2021, available-for-sale debt securities had gross unrealized losses of $9.9 million and gross unrealized gains of $16.4 million, compared to gross unrealized losses of $2.1 million and gross unrealized gains of $28.7 million at December 31, 2020. The modified duration of the available-for-sale portfolio at September 30, 2021 was 3.2, compared to 3.8 at December 31, 2020.

The credit quality of the Company’s securities holdings is primarily investment grade. U.S. Treasuries, obligations of U.S. government agencies and obligations of U.S. government sponsored entities totaled $1.7 billion, or 81%, of the total portfolio.

The portfolio includes $75.8 million, with a fair value of $77.2 million, in private label residential and commercial mortgage-backed securities and collateralized mortgage obligations. Included are $50.7 million, with a fair value of $51.2 million, in private label mortgage-backed residential securities with weighted average credit support of 34%. The collateral underlying these mortgage investments includes both fixed-rate and adjustable-rate mortgage loans. Non-guaranteed agency commercial securities total $25.0 million, with a fair value of $26.0 million. These securities have weighted average credit support of 12%. The collateral underlying these mortgages are primarily pooled multifamily loans.

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The Company also has invested $277.3 million, with a fair value of $277.3 million, in uncapped 3-month LIBOR floating rate collateralized loan obligations (“CLOs”). CLOs are special purpose vehicles, and the Company’s holdings purchase nearly all first lien broadly syndicated corporate loans across a diversified band of industries while providing support to senior tranche investors. As of September 30, 2021, the Company held 32 total positions, all of which were in AAA/AA tranches with average credit support of 31%. The Company utilizes credit models with assumptions of loan level defaults, recoveries, and prepayments to evaluate each security for potential credit losses. The result of this analysis did not indicate expected credit losses.

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

At September 30, 2021, 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, 2021, no allowance for credit losses has been recorded.

Loan Portfolio

Loans, net of unearned income and excluding the allowance for credit losses, were $5.9 billion at September 30, 2021, a $170.5 million increase from December 31, 2020. Increases include organic growth, along with the acquisition of Legacy Bank and the purchase of loan pools. During the nine months ended September 30, 2021, the Company participated in the most recent round of the PPP, resulting in loan originations of $256.0 million. Increases were offset by $675.1 million in PPP loans forgiven by the SBA during the nine months ended September 30, 2021.

For the nine months ended September 30, 2021, the Company originated $728.9 million in commercial and commercial real estate loans, compared to $378.4 million for the nine months ended September 30, 2020, an increase of $350.5 million, or 93%. The late-stage loan pipeline for commercial and commercial real estate loans totaled $368.9 million at September 30, 2021. Prior year’s production and pipeline reflect the impact of the onset of the COVID-19 pandemic when the Company purposefully slowed originations. The current year activity reflects the Company’s return to its pre-pandemic credit policy and continuation of strict underwriting guidelines.

The Company originated $415.6 million in residential loans retained in the portfolio during the nine months ended September 30, 2021, compared to $74.7 million during the nine months ended September 30, 2020, an increase of $340.8 million, or 456%. Residential loans retained in the portfolio includes $180.8 million in purchased pools consisting of 30-year fixed rate jumbo residential loans purchased in the third quarter of 2021 and a $38.4 million purchased pool consisting of 30-year fixed rate jumbo residential loans purchased in the second quarter of 2021. Saleable production increased for the nine months ended September 30, 2021, representing $353.6 million versus $347.8 million during the nine months ended September 30, 2020, an increase of 2%.

Consumer originations totaled $176.8 million for the nine months ended September 30, 2021, an increase of $5.1 million, or 3%, compared to the nine months ended September 30, 2020.

The Company remains committed to sound risk management procedures. Lending policies contain guardrails that pertain to lending by type of collateral and purpose, along with limits regarding loan concentrations and the principal amount of loans. The Company's exposure to commercial real estate lending remains well below regulatory limits (see “Loan Concentrations”).

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The following tables detail loan portfolio composition at September 30, 2021 and December 31, 2020 for portfolio loans, purchased credit deteriorated (“PCD”) and loans purchased which are not considered purchased credit deteriorated (“Non-PCD”) as defined in Note E-Loans.


	September 30, 2021
(In thousands)	Portfolio Loans		Acquired Non-PCD Loans		PCD Loans		Total
Construction and land development	$	190,344	$	37,067	$	48	$	227,459
Commercial real estate - owner-occupied	951,119		218,128		32,089		1,201,336
Commercial real estate - non owner-occupied	1,166,220		428,095		79,272		1,673,587
Residential real estate	1,278,138		181,344		7,847		1,467,329
Commercial and financial	865,064		97,642		19,846		982,552
Consumer	157,916		5,092		11		163,019
Paycheck Protection Program	153,842		36,760		—		190,602
Totals	$	4,762,643	$	1,004,128	$	139,113	$	5,905,884


	December 31, 2020
(In thousands)	Portfolio Loans		Acquired Non-PCD Loans		PCD Loans		Total
Construction and land development	$	216,420	$	26,250	$	2,438	$	245,108
Commercial real estate - owner-occupied	854,769		247,090		39,451		1,141,310
Commercial real estate - non owner-occupied	1,043,459		323,273		29,122		1,395,854
Residential real estate	1,155,914		176,105		10,609		1,342,628
Commercial and financial	743,846		94,627		16,280		854,753
Consumer	181,797		6,660		278		188,735
Paycheck Protection Program	515,532		51,429		—		566,961
Totals	$	4,711,737	$	925,434	$	98,178	$	5,735,349

The amortized cost basis of loans at September 30, 2021 included net deferred costs of $32.1 million on non-PPP portfolio loans and net deferred fees of $5.4 million on PPP loans. At December 31, 2020, the amortized cost basis included net deferred costs of $22.6 million on non-PPP portfolio loans and net deferred fees of $9.5 million on PPP loans. At September 30, 2021, the remaining fair value adjustments on acquired loans was $26.6 million, or 2.3%, of the outstanding acquired loan balances. At December 31, 2020, the remaining fair value adjustments for acquired loans was $30.2 million, or 2.9%, of the acquired loan balances. These amounts are accreted into interest income over the remaining lives of the related loans on a level yield basis.

Commercial real estate (“CRE”) loans, inclusive of owner-occupied commercial real estate, increased by $337.8 million, or 13%, in the nine months ended September 30, 2021, totaling $2.9 billion at September 30, 2021 compared to $2.5 billion at December 31, 2020. Owner-occupied commercial real estate loans represent $1.2 billion, or 42%, of the commercial real estate portfolio.

Fixed-rate and adjustable-rate loans secured by commercial real estate, excluding construction loans, totaled approximately $2.5 billion and $412.6 million, respectively, at September 30, 2021, compared to $2.1 billion and $453.7 million, respectively, at December 31, 2020.

During the nine months ended September 30, 2021, the Company participated in the most recent round of the PPP and originated 2,782 loans totaling $256.0 million. Also during the nine months ended September 30, 2021, $675.1 million in PPP loans were forgiven by the SBA.

At September 30, 2021, Seacoast had $2.2 million of loans with payment accommodations to borrowers financially impacted by the COVID-19 pandemic, none of which have been classified as TDRs, compared to $74.1 million at December 31, 2020. Interest and fees have continued to accrue on these loans during any payment deferral period.

Residential real estate loans increased $124.7 million, or 9%, to $1.5 billion as of September 30, 2021, compared to December 31, 2020. Substantially all residential mortgage originations have been underwritten to conventional loan agency standards, including loans having balances that exceed agency value limitations. At September 30, 2021, approximately $315.3 million, or

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21%, of the Company’s residential mortgage balances were adjustable 1-4 family mortgage loans, which includes hybrid adjustable-rate mortgages, compared to $436.3 million, or 32% at December 31, 2020. Fixed-rate mortgages totaled approximately $0.8 billion, or 56%, at September 30, 2021, compared to $499.0 million, or 37% at December 31, 2020. Home equity lines of credit ("HELOCs"), primarily floating rates, totaled $325.3 million at September 30, 2021 and $341.6 million at December 31, 2020. Borrowers in the residential real estate portfolio have an average credit score of 749. Specifically for HELOCs, borrowers have an average credit score of 763. The average LTV of our HELOC portfolio is 67% with 43% of the portfolio being in first lien position at September 30, 2021, compared to an average LTV of 68% with 45% of the portfolio being in the first lien position at December 31, 2020.

The Company also provides consumer loans, which include installment loans, auto loans, marine loans, and other consumer loans, which decreased $25.7 million, or 14%, to total $163.0 million compared to $188.7 million at December 31, 2020. Borrowers in the consumer portfolio have an average credit score of 734.

At September 30, 2021, the Company had unfunded loan commitments of $1.8 billion compared to $1.5 billion at December 31, 2020.

Loan Concentrations

The Company has developed prudent guardrails to manage loan types that are most impacted by stressed market conditions in order to minimize credit risk concentration to capital. Outstanding balances for commercial and CRE loan relationships greater than $10 million totaled $1.1 billion and represented 18% of the total portfolio at September 30, 2021 compared to $753.7 million, or 13%, at year-end 2020.

The Company’s ten largest commercial and commercial real estate funded and unfunded loan relationships at September 30, 2021 aggregated to $294.0 million, of which $193.9 million was funded compared to $254.3 million at December 31, 2020, of which $188.0 million was funded. The Company had 180 commercial and commercial real estate relationships in excess of $5 million totaling $1.8 billion, of which $1.5 billion was funded at September 30, 2021 compared to 135 relationships totaling $1.3 billion at December 31, 2020, of which $1.2 billion was funded.

Concentrations in total construction and land development loans and total CRE loans are maintained well below regulatory limits. Construction and land development and CRE loan concentrations as a percentage of subsidiary bank total risk based capital were 21% and 175%, respectively, at September 30, 2021, compared to 23% and 168%, respectively, at December 31, 2020. Regulatory guidance suggests limits of 100% and 300%, respectively. On a consolidated basis, construction and land development and commercial real estate loans represent 19% and 160%, 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 Debt Restructurings, Other Real Estate Owned, and Credit Quality

Nonperforming assets (“NPAs”) at September 30, 2021 totaled $46.2 million, and were comprised of $32.6 million of nonaccrual loans, and $13.6 million of other real estate owned (“OREO”). Compared to December 31, 2020, nonaccrual loans decreased $3.5 million, primarily the result of paydowns. The increase in OREO of $0.9 million reflects additions of $3.3 million, and $2.1 million of capital expenditures, offset by $4.1 million in sales and $0.4 million in write-downs. Overall, NPAs decreased $2.6 million, or 5%, from $48.9 million as of December 31, 2020. At September 30, 2021, approximately 76% of nonaccrual loans were secured with real estate. See the tables below for details about nonaccrual loans. At September 30, 2021, nonaccrual loans were written down by approximately $7.1 million, including reserves on individually evaluated loans.

Nonperforming loans to total loans outstanding at September 30, 2021 decreased to 0.55% from 0.63% at December 31, 2020. Nonperforming assets to total assets at September 30, 2021 decreased to 0.47% from 0.59% at December 31, 2020.

The Company’s asset mitigation staff handles all foreclosure actions together with outside legal counsel.

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The Company pursues loan restructurings in select cases where it expects to realize better values than may be expected through traditional collection activities. The Company has worked with retail mortgage customers, when possible, to achieve lower payment structures in an effort to avoid foreclosure. Troubled debt restructurings (“TDRs”) have been a part of the Company’s loss mitigation activities and can include rate reductions, payment extensions and principal deferrals. Company policy requires TDRs that are classified as nonaccrual loans after restructuring remain on nonaccrual until performance can be verified, which usually requires six months of performance under the restructured loan terms. Accruing TDRs totaled $4.0 million at September 30, 2021 compared to $4.2 million at December 31, 2020. Accruing TDRs are excluded from the nonperforming asset ratios.

Beginning in March 2020, in response to the economic downturn resulting from the COVID-19 pandemic, the Company has offered short-term payment deferrals to affected borrowers. As of September 30, 2021, pandemic-related deferrals totaled $2.2 million and are not considered TDRs. If economic conditions deteriorate, these borrowers may be unable to resume scheduled payments, which may result in further modification of terms and the potential for classification as a TDR in future periods.

The table below sets forth details related to nonaccrual and accruing restructured loans.


	September 30, 2021
	Nonaccrual Loans						Accruing Restructured Loans
(In thousands)	Non-Current		Current		Total
Construction and land development	$	—	$	40	$	40	$	39
Commercial real estate - owner-occupied	256		4,260		4,516		103
Commercial real estate - non owner-occupied	1,473		3,718		5,191		—
Residential real estate	6,816		8,222		15,038		3,616
Commercial and financial	5,059		2,185		7,244		126
Consumer	62		521		583		163
Total	$	13,665	$	18,947	$	32,612	$	4,047


	December 31, 2020
	Nonaccrual Loans						Accruing Restructured Loans
(In thousands)	Non-Current		Current		Total
Construction and land development	$	37	$	129	$	166	$	109
Commercial real estate - owner-occupied	5,682		2,500		8,182		109
Commercial real estate - non owner-occupied	2,030		6,053		8,083		—
Residential real estate	4,074		8,418		12,492		3,740
Commercial and financial	3,777		2,827		6,604		—
Consumer	543		40		583		224
Total	$	16,143	$	19,967	$	36,110	$	4,182

At September 30, 2021 and December 31, 2020, total TDRs (performing and nonperforming) were comprised of the following loans by type of modification:


	September 30, 2021			December 31, 2020
(In thousands)	Number	Amount		Number	Amount
Maturity extended	52	$	5,263	51	$	5,438
Rate reduction	27	3,119		37	4,275
Chapter 7 bankruptcies	9	313		13	417
Not elsewhere classified	6	161		5	160
Total	94	$	8,856	106	$	10,290

During the nine months ended September 30, 2021, there were two defaults totaling $0.1 million of loans that had been modified in TDRs within the preceding twelve months. During the nine months ended September 30, 2020, there were four defaults totaling $1.4 million of loans that had been modified to a TDR within the preceding twelve months. Loan modifications are not reported in calendar years after modification if the loans were modified at an interest rate equal to the yields of new loan originations with comparable risk and the loans are performing based on the terms of the restructuring

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agreements. A restructured loan is considered in default when it becomes 90 days or more past due under the modified terms, has been transferred to nonaccrual status, has been charged off or has been transferred to OREO.

In accordance with regulatory reporting requirements, loans are placed on nonaccrual following the Retail Classification of Loan interagency guidance. The accrual of interest is generally discontinued on loans, except consumer loans, that become 90 days past due as to principal or interest unless collection of both principal and interest is assured by way of collateralization, guarantees or other security. Consumer loans that become 120 days past due are generally charged off. The loan carrying value is analyzed and any changes are appropriately made as described above quarterly.

Allowance for Credit Losses on Loans

Management estimates the allowance using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit losses provide the basis for estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, loan to value ratios, borrower credit characteristics, loan seasoning or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values, occupancy rates, and other macroeconomic metrics.

During the third quarter of 2021, the Company recorded a provision of $5.1 million, reflecting the impact of higher loans outstanding, including loans acquired in the Legacy Bank acquisition. Net charge-offs for the third quarter of 2021 were $1.4 million, or 0.10% of average loans and, for the four most recent quarters, averaged 0.10% of outstanding loans. Excluding PPP loans, the ratio of allowance to total loans decreased to 1.54% at September 30, 2021 from 1.60% at June 30, 2021.

The following tables present the activity in the allowance for credit losses on loans by segment:


	Three Months Ended September 30, 2021
(In thousands)	Beginning Balance		Initial Allowance on PCD Loans Acquired During the Period		Provision for Credit Losses		Charge- Offs		Recoveries		TDR Allowance Adjustments		Ending Balance
Construction and land development	$	4,053	$	—	$	(1,459)	$	—	$	10	$	(1)	$	2,603
Commercial real estate - owner-occupied	8,676		—		(24)		—		—		—		8,652
Commercial real estate - non owner-occupied	34,807		1,327		5,278		(1,327)		—		—		40,085
Residential real estate	12,543		—		1,456		(27)		158		(3)		14,127
Commercial and financial	18,016		1,719		(2)		(535)		326		—		19,524
Consumer	3,032		—		(158)		(163)		126		(5)		2,832
Paycheck Protection Program	—		—		—		—		—		—		—
Totals	$	81,127	$	3,046	$	5,091	$	(2,052)	$	620	$	(9)	$	87,823

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	Nine Months Ended September 30, 2021
(In thousands)	Beginning Balance		Initial Impact on Allowance of PCD Loans Acquired During the Period		Provision for Credit Losses		Charge- Offs		Recoveries		TDR Allowance Adjustments		Ending Balance
Construction and land development	$	4,920	$	—	$	(2,438)	$	—	$	124	$	(3)	$	2,603
Commercial real estate - owner-occupied	9,868		—		(1,216)		—		—		—		8,652
Commercial real estate - non owner-occupied	38,266		1,327		1,817		(1,327)		2		—		40,085
Residential real estate	17,500		—		(4,323)		(48)		1,008		(10)		14,127
Commercial and financial	18,690		1,719		1,172		(2,855)		798		—		19,524
Consumer	3,489		—		(491)		(547)		388		(7)		2,832
Paycheck Protection Program	—		—		—		—		—		—		—
Totals	$	92,733	$	3,046	$	(5,479)	$	(4,777)	$	2,320	$	(20)	$	87,823

At September 30, 2021, the Company had $1.5 billion in loans secured by residential real estate and $2.9 billion in loans secured by commercial real estate, representing 25% and 49% of total loans outstanding, respectively. In addition, the Company is subject to a geographic concentration of credit because it primarily operates in Florida.

LIBOR Transition

The Company’s LIBOR transition steering committee is responsible for overseeing the execution of the Company’s enterprise-wide LIBOR transition program, and for evaluating and mitigating risks associated with the transition from LIBOR. The LIBOR transition program includes a comprehensive review of the financial products, agreements, contracts, and business processes that may use LIBOR as a reference rate, and the development and execution of strategy to transition away from LIBOR, with appropriate consideration of the potential financial, customer, counterpart, regulatory and legal impacts. The Company continues to execute its LIBOR transition program, and to monitor regulatory and legislative activity to identify any necessary actions and facilitate the transition to alternative reference rates.

Cash and Cash Equivalents and Liquidity Risk Management

Liquidity risk involves the risk of being unable to fund assets with the appropriate duration and rate-based liability, as well as the risk of not being able to meet unexpected cash needs. Liquidity planning and management are necessary to ensure the ability to fund operations cost effectively and to meet current and future potential obligations such as loan commitments and unexpected deposit outflows.

Funding sources include primarily customer-based deposits, collateral-backed borrowings, brokered deposits, cash flows from operations, cash flows from the loan and investment portfolios and asset sales, primarily secondary marketing for residential real estate mortgages and marine loans. Cash flows from operations are a significant component of liquidity risk management and the Company considers both deposit maturities and the scheduled cash flows from loan and investment maturities and payments when managing risk.

Deposits are a primary source of liquidity. The stability of this funding source is affected by numerous factors, including returns available to customers on alternative investments, the quality of customer service levels, perception of safety and competitive forces. The Company routinely uses debt securities and loans as collateral for secured borrowings. In the event of severe market disruptions, the Company has access to secured borrowings through the FHLB and the Federal Reserve Bank of Atlanta under its borrower-in-custody program.

The Company does not rely on and is not dependent upon off-balance sheet financing or significant amounts of wholesale funding. Brokered certificates of deposit (“CDs”) at September 30, 2021 were $20.0 million, a decrease of $213.8 million, or 91%, from December 31, 2020.

Cash and cash equivalents, including interest bearing deposits, totaled $1.2 billion on a consolidated basis at September 30, 2021, compared to $404.1 million at December 31, 2020. Higher cash and cash equivalent balances at September 30, 2021 reflect the benefit of deposits acquired from Legacy Bank in addition to favorable organic deposit growth.

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Contractual maturities for assets and liabilities are reviewed to meet current and expected future liquidity requirements. Sources of liquidity are maintained through a portfolio of high quality marketable assets, such as residential mortgage loans, debt securities available-for-sale and interest-bearing deposits. The Company is also able to provide short-term financing of its activities by selling, under an agreement to repurchase, United States Treasury and Government agency debt securities not pledged to secure public deposits or trust funds. At September 30, 2021, the Company had available unsecured lines of credit of $165.0 million and secured lines of credit, which are subject to change, of $1.3 billion. In addition, the Company had $1.7 billion of debt securities and $694.6 million in residential and commercial real estate loans available as collateral. In comparison, at December 31, 2020, the Company had available unsecured lines of $135.0 million and secured lines of credit of $1.8 billion, and $1.2 billion of debt securities and $733.3 million in residential and commercial real estate loans available as collateral.

The Company has traditionally relied upon dividends from Seacoast Bank and securities offerings to provide funds to pay the Company’s expenses and to service the Company’s debt. During the third quarter of 2021, Seacoast Bank distributed $38.3 million to the Company and, at September 30, 2021, is eligible to distribute dividends to the Company of approximately $194.4 million without prior regulatory approval. At September 30, 2021, the Company had cash and cash equivalents at the parent of approximately $95.5 million compared to $70.1 million at December 31, 2020.

Deposits and Borrowings

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



	September 30,			December 31,
(In thousands, except ratios)	2021			2020
Noninterest demand	$	3,086,466		$	2,289,787
Interest-bearing demand	1,845,165			1,566,069
Money market	1,951,639			1,556,370
Savings	834,309			689,179
Time certificates of deposit	616,593			831,156
Total deposits	$	8,334,172		$	6,932,561

Customer sweep accounts	$	105,548		$	119,609

Noninterest demand deposits as % of total deposits	37		%	33		%

The Company’s balance sheet continues to be primarily funded by core deposits.

Total deposits increased $1.4 billion, or 20%, to $8.3 billion at September 30, 2021, compared to $6.9 billion at December 31, 2020. The increase is largely the result of significant growth in transaction account deposit balances as new clients were onboarded and existing clients continue to see expansion in cash balances.

Since December 31, 2020, interest bearing deposits (interest bearing demand, savings and money market deposits) increased $819.5 million, or 21%, to $4.6 billion, and CDs (excluding brokered CDs) decreased $0.7 million, or 0.1%, to $596.6 million. Noninterest demand deposits were higher by $796.7 million, or 35%, compared to year-end 2020, totaling $3.1 billion. Noninterest demand deposits represented 37% of total deposits at September 30, 2021 and 33% at December 31, 2020.

During the nine months ended September 30, 2021, $213.8 million of brokered CDs at an average rate of 1.14% matured. Brokered CDs at September 30, 2021 totaled $20.0 million, compared to $233.8 million at December 31, 2020, and mature in the fourth quarter of 2021.

Customer repurchase agreements totaled $105.5 million at September 30, 2021, decreasing $14.1 million from December 31, 2020. Repurchase agreements are offered by Seacoast to select customers who wish to sweep excess balances on a daily basis for investment purposes. Public funds comprise a significant amount of the outstanding balance.

The Company participates in programs with third party deposit networks as part of its liquidity management strategy, particularly as it approaches $10 billion in assets. Through these programs, the Company can offer its customers access to FDIC insurance on large balances, and the Company can retain or sell, on an overnight basis, the underlying deposits. The Company expects to remain below $10 billion in assets at year end 2021, and at September 30, 2021, the Company had sold, on an

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overnight basis, $233.1 million in deposits, compared to $112.7 million at December 31, 2020. These deposits are not included in the Consolidated Balance Sheet.

No unsecured federal funds purchased were outstanding at September 30, 2021.

At September 30, 2021 and December 31, 2020, borrowings were comprised of subordinated debt of $71.6 million and $71.4 million, respectively, related to trust preferred securities issued by trusts organized or acquired by the Company, and there were no borrowings from FHLB. For the nine months ended September 30, 2020, FHLB borrowings averaged $180.9 million with a weighted average rate of 1.08%.

The weighted average interest rate of outstanding subordinated debt related to trust preferred securities was 2.37% and 3.28% for the nine months ended September 30, 2021 and September 30, 2020, respectively.

Off-Balance Sheet Transactions

In the normal course of business, the Company may engage in a variety of financial transactions that, under generally accepted accounting principles, either are not recorded on the balance sheet or are recorded on the balance sheet in amounts that differ from the full contract or notional amounts. These transactions involve varying elements of market, credit and liquidity risk.

Lending commitments include unfunded loan commitments and standby and commercial letters of credit. For loan commitments, the contractual amount of a commitment represents the maximum potential credit risk that could result if the entire commitment had been funded, the borrower had not performed according to the terms of the contract, and no collateral had been provided. A large majority of loan commitments and standby letters of credit expire without being funded, and accordingly, total contractual amounts are not representative of actual future credit exposure or liquidity requirements. Loan commitments and letters of credit expose the Company to credit risk in the event that the customer draws on the commitment and subsequently fails to perform under the terms of the lending agreement.

For commercial customers, loan commitments generally take the form of revolving credit arrangements. For retail customers, loan commitments generally are lines of credit secured by residential property. These instruments are not recorded on the balance sheet until funds are advanced under the commitment. Loan commitments were $1.8 billion at September 30, 2021 and $1.5 billion at December 31, 2020.

Capital Resources

The Company’s equity capital at September 30, 2021 increased $160.1 million, or 14%, from December 31, 2020 to $1.3 billion. Changes in equity included increases from net income of $88.1 million, partially offset by the issuance of a common stock dividend totaling $14.9 million and the decrease in accumulated other comprehensive income of $15.1 million primarily attributed to the decrease in market value of available-for-sale debt securities.

The ratio of shareholders’ equity to period end total assets was 13.04% and 13.55% at September 30, 2021 and December 31, 2020, respectively. The ratio of tangible shareholders’ equity to tangible assets was 10.62% and 11.01% at September 30, 2021 and December 31, 2020, respectively. The decrease was due to growth in the balance sheet, the result of bank acquisitions, PPP loans and associated liquidity.

Activity in shareholders’ equity for the nine months ended September 30, 2021 and 2020 follows:


(In thousands)	2021		2020
Beginning balance at December 31, 2020 and 2019	$	1,130,402	$	985,639
Net income	88,073		48,417
Cumulative change in accounting principle upon adoption of new accounting pronouncement	—		(16,876)
Issuance of common stock and conversion of options pursuant to acquisition	92,094		62,152
Stock compensation, net of Treasury shares acquired	9,908		4,251
Issuance of common share dividend	(14,856)		—
Change in accumulated other comprehensive income	(15,101)		14,758
Ending balance at September 30, 2021 and 2020	$	1,290,520	$	1,098,341

Capital ratios are well above regulatory requirements for well-capitalized institutions. Seacoast management's use of risk-based capital ratios in its analysis of the Company’s capital adequacy are “non-GAAP” financial measures. Seacoast management

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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 (see “Note J – Equity Capital”).


September 30, 2021	Seacoast (Consolidated)	Seacoast Bank	Minimum to be Well- Capitalized1
Total Risk-Based Capital Ratio	18.56%	17.00%	10.00%
Tier 1 Capital Ratio	17.66	16.10	8.00
Common Equity Tier 1 Ratio (CET1)	16.53	16.10	6.50
Leverage Ratio	11.74	10.71	5.00
1For subsidiary bank only.

The Company’s total risk-based capital ratio was 18.56% at September 30, 2021, an increase from 18.51% at December 31, 2020. During the first quarter of 2020, the Company adopted interagency guidance which delays the impact of CECL adoption on capital for two years followed by a three-year phase-in period. At September 30, 2021, the Bank’s leverage ratio (Tier 1 capital to adjusted total assets) was 10.71%, 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 $194.4 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 seven wholly owned trust subsidiaries that have issued trust preferred stock. Trust preferred securities from acquisitions were recorded at fair value when acquired. All trust preferred securities are guaranteed by the Company on a junior subordinated basis. The Federal Reserve’s rules permit qualified trust preferred securities and other restricted capital elements to be included under Basel III capital guidelines, with limitations, and net of goodwill and intangibles. The Company believes that its trust preferred securities qualify under these revised regulatory capital rules and believes that it can treat all $71.6 million of trust preferred securities as Tier 1 capital. For regulatory purposes, the trust preferred securities are added to the Company’s tangible common shareholders’ equity to calculate Tier 1 capital.

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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 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 on loans;

•acquisition accounting and purchased loans;

•intangible assets and impairment testing;

•other fair value adjustments;

•impairment of debt securities;, and;

•contingent liabilities.

The following is a discussion of the critical accounting policies intended to facilitate a reader’s understanding of the judgments, estimates and assumptions underlying these accounting policies and the possible or likely events or uncertainties known to the Company that could have a material effect on reported financial information.

Allowance and Provision for Credit Losses on Loans– Critical Accounting Policies and Estimates

For loans, management estimates the allowance for credit losses using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit losses provide the basis for estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, loan to value ratios, borrower credit characteristics, loan seasoning or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values, occupancy rates, and other macroeconomic metrics.

The allowance for credit losses is measured on a collective basis when similar risk characteristics exist. The Company has developed an allowance model based on an analysis of probability of default ("PD") and loss given default ("LGD") to determine an expected loss by loan segment. PDs and LGDs are developed by analyzing the average historical loss migration of loans to default.

The allowance estimation process also applies an economic forecast scenario over a three year forecast period. The forecast may utilize one scenario or a composite of scenarios based on management's judgment and expectations around the current and future macroeconomic outlook. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. For portfolio segments with a weighted average life longer than three years, the Company reverts to longer term historical loss experience, adjusted for prepayments, to estimate losses over the remaining life of the loans within each segment.

Adjustments may be made to baseline reserves for some of the loan pools based on an assessment of internal and external influences on credit quality not fully reflected in the quantitative components of the allowance model. These influences may include elements such as changes in concentration, macroeconomic conditions, recent observable asset quality trends, staff turnover, regional market conditions, employment levels and loan growth. Based upon management's assessments of these factors, the Company may apply qualitative adjustments to the allowance.

Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. When management determines that foreclosure is probable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

The allowance for credit losses on troubled debt restructurings (“TDRs”) is measured using the same method as all other loans held for investment, except when the value of a concession cannot be measured using a method other than the discounted cash

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flow method. When the value of a concession is measured using the discounted cash flow method, the allowance for credit losses is determining by discounting the expected future cash flows at the original interest rate of the loan.

It is the Company's practice to ensure that the charge-off policy meets or exceeds regulatory requirements. Losses on unsecured consumer loans are recognized at 90 days past due, compared to the regulatory loss criteria of 120 days. In compliance with Federal Financial Institution Examination Council guidelines, secured consumer loans, including residential real estate, are typically charged off or charged down between 120 and 180 days past due, depending on the collateral type. Commercial loans and real estate loans are typically placed on nonaccrual status when principal or interest is past due for 90 days or more, unless the loan is both secured by collateral having realizable value sufficient to discharge the debt in-full and the loan is in process of collection. Loans provided with short-term payment deferrals under the CARES Act or interagency guidance are not considered past due if in compliance with the terms of their deferral. Secured loans may be charged down to the estimated value of the collateral with previously accrued unpaid interest reversed against interest income. Subsequent charge-offs may be required as a result of changes in the market value of collateral or other repayment prospects. Initial charge-off amounts are based on valuation estimates derived from appraisals, broker price opinions, or other market information. Generally, new appraisals are not received until the foreclosure process is completed; however, collateral values are evaluated periodically based on market information and incremental charge-offs are recorded if it is determined that collateral values have declined from their initial estimates.

Note F to the financial statements (titled “Allowance for Credit Losses”) summarizes the Company’s allocation of the allowance for credit losses on loans by loan segment and provides detail regarding charge-offs and recoveries for each loan segment and the composition of the loan portfolio at September 30, 2021 and December 31, 2020.

Acquisition Accounting and Purchased Loans – Critical Accounting Policies and Estimates

The Company accounts for acquisitions under ASC Topic 805, Business Combinations, which requires the use of the acquisition method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. All loans acquired are recorded at fair value in accordance with the fair value methodology prescribed in ASC Topic 820, Fair Value Measurement. The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of expected principal, interest and other cash flows. Loans are identified as purchased credit deteriorated (“PCD”) when they have experienced more-than-insignificant deterioration in credit quality since origination. An allowance for expected credit losses on PCD loans is recorded at the date of acquisition through an adjustment to the loans’ amortized cost basis. In contrast, expected credit losses on loans not considered PCD are recognized in net income at the date of acquisition.

Fair value estimates for acquired assets and assumed liabilities are based on the information available, and are subject to change for up to one year after the closing date of the acquisition as additional information relative to closing date fair values becomes available.

Intangible Assets and Impairment Testing – Critical Accounting Policies and Estimates

Intangible assets consist of goodwill, core deposit intangibles and mortgage servicing rights. Goodwill represents the excess purchase price over the fair value of net assets acquired in business acquisitions. The core deposit intangible represents the excess intangible value of acquired deposit customer relationships. Core deposit intangibles are amortized on a straight-line basis, and are evaluated for indications of potential impairment at least annually. Goodwill is not amortized but rather is evaluated for impairment on at least an annual basis. The Company performed an annual impairment test of goodwill, as required by ASC Topic 350, Intangibles—Goodwill and Other, in the fourth quarter of 2020, and concluded that no impairment existed.

Other Fair Value Measurements – Critical Accounting Policies and Estimates

The fair value of collateral-dependent loans, OREO and repossessed assets is typically based on current appraisals, which are reviewed quarterly to determine if fair value adjustments are necessary based on known changes in the market and/or the project assumptions. When necessary, the appraised value may be adjusted based on more recent appraisal assumptions received by the Company on other similar properties, the tax assessed market value, comparative sales and/or an internal

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valuation. Collateral-dependent loans are loans where repayment is solely dependent on the liquidation of the collateral or operation of the collateral for repayment.

Impairment of Debt Securities – Critical Accounting Policies and Estimates

Expected credit losses on both held-to-maturity (“HTM”) and available-for-sale (“AFS”) securities are recognized through a valuation allowance. For HTM securities, management estimates expected credit losses over the remaining expected life and recognizes this estimate as an allowance for credit losses. An AFS security is considered impaired if the fair value is less than amortized cost basis. For AFS securities, if any portion of the decline in fair value is related to credit, the amount of allowance is determined as the portion related to credit, limited to the difference between the amortized cost basis and the fair value of the security. If the fair value of the security increases in subsequent periods, or changes in factors used within the credit loss assessment result in a change in the estimated credit loss, the Company would reflect the change by decreasing the allowance. If the Company has the intent to sell or believes it is more likely than not that it will be required to sell an impaired AFS security before recovery of the amortized cost basis, the credit loss is recorded as a direct write-down of the amortized cost basis. Declines in the fair value of AFS securities that are not considered credit related are recognized in Accumulated Other Comprehensive Income on the Company’s Consolidated Balance Sheet.

Seacoast analyzes AFS debt securities quarterly for credit losses. The analysis is performed on an individual security basis for all securities where fair value has declined below amortized cost. Fair value is based upon pricing obtained from third party pricing services. Based on internal review procedures and the fair values provided by the pricing services, the Company believes that the fair values provided by the pricing services are consistent with the principles of ASC Topic 820, Fair Value Measurement. However, on occasion pricing provided by the pricing services may not be consistent with other observed prices in the market for similar securities. Using observable market factors, including interest rate and yield curves, volatilities, prepayment speeds, loss severities and default rates, the Company may at times validate the observed prices using a discounted cash flow model and using the observed prices for similar securities to determine the fair value of its securities.

The Company utilizes both quantitative and qualitative assessments to determine if a security has a credit loss. Quantitative assessments are based on a discounted cash flow method. Qualitative assessments consider a range of factors including: percent decline in fair value, rating downgrades, subordination, duration, amortized loan-to-value, and the ability of the issuers to pay all amounts due in accordance with the contractual terms.

Contingent Liabilities – Critical Accounting Policies and Estimates

Seacoast is subject to contingent liabilities, including judicial, regulatory and arbitration proceedings, and tax and other claims arising from the conduct of the Company's business activities. These proceedings include actions brought against the Company and/or its subsidiaries with respect to transactions in which the Company and/or its subsidiaries acted as a lender, a financial adviser, a broker or acted in a related activity. Accruals are established for legal and other claims when it becomes probable that the Company will incur an expense and the amount can be reasonably estimated. Company management, together with attorneys, consultants and other professionals, assesses the probability and estimated amounts involved in a contingency. Throughout the life of a contingency, the Company or its advisers may learn of additional information that can affect the assessments about probability or about the estimates of amounts involved. Changes in these assessments can lead to changes in recorded reserves. In addition, the actual costs of resolving these claims may be substantially higher or lower than the amounts reserved for the claims. At September 30, 2021 and December 31, 2020, the Company had no significant accruals for contingent liabilities and had no known pending matters that could potentially be significant.

Interest Rate Sensitivity

Fluctuations in interest rates may result in changes in the fair value of the Company’s financial instruments, cash flows and net interest income. This risk is managed using simulation modeling to calculate the most likely interest rate risk utilizing estimated loan and deposit growth. The objective is to optimize the Company’s financial position, liquidity, and net interest income while limiting their volatility.

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Senior management regularly reviews the overall interest rate risk position and evaluates strategies to manage the risk. The Company's Asset and Liability Management Committee ("ALCO") uses simulation analysis to monitor changes in net interest income due to changes in market interest rates. The simulation of rising, declining and flat interest rate scenarios allows management to monitor and adjust interest rate sensitivity to minimize the impact of market interest rate swings. The analysis of the impact on net interest income over a twelve-month period is subjected to instantaneous changes in market rates of 100 basis point increases up to 200 basis points of change on net interest income and is monitored on a quarterly basis.

The following table presents the ALCO simulation model's projected impact of a change in interest rates on the projected baseline net interest income for the 12 and 24 month periods beginning on October 1, 2021, holding all other changes in the balance sheet static. This change in interest rates assumes parallel shifts in the yield curve and does not take into account changes in the slope of the yield curve.


	% Change in Projected Baseline Net
Change in Interest Rates	Interest Income
	1-12 months	13-24 months
+2.00%	11.4%	15.1%
+1.00%	5.6%	7.7%
Current	—%	—%
-1.00%	(1.8%)	(7.5%)

The Company had a positive gap position based on contractual and prepayment assumptions for the next 12 months, with a positive cumulative interest rate sensitivity gap as a percentage of total earning assets of 30.8% at September 30, 2021. This result includes assumptions for core deposit re-pricing validated for the Company by an independent third party consulting group.

The computations of interest rate risk do not necessarily include certain actions management may undertake to manage this risk in response to changes in interest rates. Derivative financial instruments, such as interest rate swaps, options, caps, floors, futures and forward contracts may be utilized as components of the Company’s risk management profile.

Effects of Inflation and Changing Prices

The condensed consolidated financial statements and related financial data presented herein have been prepared in accordance with U.S. GAAP, which require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money, over time, due to inflation.

Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution’s performance than the general level of inflation. However, inflation affects financial institutions by increasing their cost of goods and services purchased, as well as the cost of salaries and benefits, occupancy expense, and similar items. Inflation and related increases in interest rates generally decrease the market value of investments and loans held and may adversely affect liquidity, earnings, and shareholders’ equity. Mortgage originations and re-financings tend to slow as interest rates increase, and higher interest rates likely will reduce the Company’s earnings from such activities and the income from the sale of residential mortgage loans in the secondary market.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See Management’s discussion and analysis “Interest Rate Sensitivity.”

Market risk refers to potential losses arising from changes in interest rates, and other relevant market rates or prices.

Interest rate risk, defined as the exposure of net interest income and Economic Value of Equity, or “EVE,” to adverse movements in interest rates, is the Company’s primary market risk, and mainly arises from the structure of the balance sheet (non-trading activities). The Company is also exposed to market risk in its investing activities. The Company’s Asset/Liability Committee, or “ALCO,” meets regularly and is responsible for reviewing the interest rate sensitivity position of the Company and establishing policies to monitor and limit exposure to interest rate risk. The policies established by the ALCO are reviewed and approved by the Company’s Board of Directors. The primary goal of interest rate risk management is to control exposure to

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interest rate risk, within policy limits approved by the Board. These limits reflect the Company’s tolerance for interest rate risk over short-term and long-term horizons.

The Company also performs valuation analyses, which are used for evaluating levels of risk present in the balance sheet that might not be taken into account in the net interest income simulation analyses. Whereas net interest income simulation highlights exposures over a relatively short time horizon, valuation analysis incorporates all cash flows over the estimated remaining life of all balance sheet positions. The valuation of the balance sheet, at a point in time, is defined as the discounted present value of asset cash flows minus the discounted value of liability cash flows, the net result of which is the EVE. The sensitivity of EVE to changes in the level of interest rates is a measure of the longer-term re-pricing risks and options risks embedded in the balance sheet. In contrast to the net interest income simulation, which assumes interest rates will change over a period of time, EVE uses instantaneous changes in rates.

As with the net interest income simulation model, assumptions about the timing and variability of balance sheet cash flows are critical in the EVE analysis. Particularly important are the assumptions driving prepayments and the expected changes in balances and pricing of the indeterminate life deposit portfolios. Core deposits are a more significant funding source for the Company, making the lives attached to core deposits more important to the accuracy of EVE modeling. The Company periodically reassesses its assumptions regarding the indeterminate lives of core deposits utilizing an independent third party resource to assist. With lower interest rates over a prolonged period, the average lives of core deposits have trended higher and favorably impacted model estimates of EVE for higher rates.

The following table presents the projected impact of a change in interest rates on the balance sheet. This change in interest rates assumes parallel shifts in the yield curve and does not take into account changes in the slope of the yield curve.


						% Change in
Change in Interest Rates						Economic Value of
						Equity
+2.00%						20.7%
+1.00%						11.2%
Current						—%
-1.00%						(12.1%)

While an instantaneous and severe shift in interest rates is used in this analysis to provide an estimate of exposure under an extremely adverse scenario, a gradual shift in interest rates would have a much more modest impact. Since EVE measures the discounted present value of cash flows over the estimated lives of instruments, the change in EVE does not directly correlate to the degree that earnings would be impacted over a shorter time horizon, i.e., the next fiscal year. Further, EVE does not take into account factors such as future balance sheet growth, changes in product mix, change in yield curve relationships, and changing product spreads that could mitigate the adverse impact of changes in interest rates.

Item 4. CONTROLS AND PROCEDURES

The Company’s management, with the participation of its chief executive officer and chief financial officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) as of September 30, 2021 and concluded that those disclosure controls and procedures are effective.

During the quarter ended September 30, 2021, there have been no changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

Part II OTHER INFORMATION

Item 1. Legal Proceedings

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Item 1A. Risk Factors

In addition to the other information set forth in this report, you should consider the factors discussed in “Part I, Item 1A. Risk Factors” in our report on Form 10-K for the year ended December 31, 2020, which could materially affect our business, financial condition and prospective results. The risks described in this report, in our Form 10-K or our other SEC filings are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results. There have been no material changes with respect to the risk factors disclosed in our Annual Report on form 10-K for the year ended December 31, 2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the nine month period ended September 30, 2021, the Company repurchased shares of its common stock as indicated in the following table:


Period	Total Number of Shares Purchased1	Average Price Paid Per Share		Total Number of Shares Purchased as part of Public Announced Plan	Maximum Value of Shares that May Yet be Purchased Under the Plan (in thousands)
1/1/21 to 1/31/21	4,776	$	29.45	—	$	100,000
2/1/21 to 2/28/21	—	—		—	100,000
3/1/21 to 3/31/21	10,127	36.90		—	100,000
Total - 1st Quarter	14,903	$	34.51	—	$	100,000
4/1/21 to 4/30/21	44,152	36.52		—	100,000
5/1/21 to 5/31/21	45	37.07		—	100,000
6/1/21 to 6/30/21	—	—		—	100,000
Total - 2nd Quarter	44,197	$	36.52	—	$	100,000
7/1/21 to 7/31/21	3,051	34.26		—	100,000
8/1/21 to 8/31/21	199	30.39		—	100,000
9/1/21 to 9/30/21	—	—		—	100,000
Total - 3rd Quarter	3,250	$	34.30	—	100,000
Year to Date 2021	62,350	$	35.91	—	$	100,000
1Shares purchased from January 1, 2021 through September 30, 2021 represent shares surrendered to the Company to satisfy tax withholding related to the exercise of stock options and the vesting of share-based awards.

On December 17, 2020, the Company's Board of Directors authorized the Company to repurchase up to $100 million of its shares of outstanding common stock. Under the share repurchase program, which will expire on December 31, 2021, repurchases will be made, if at all, in accordance with applicable securities laws and may be made from time to time in the open market, by block purchase or by negotiated transactions. The amount and timing of repurchases, if any, will be based on a variety of factors, including share acquisition price, regulatory limitations, market conditions and other factors. The program does not obligate the Company to purchase any of its shares, and may be terminated or amended by the Board of Directors at any time prior to its expiration date. As of September 30, 2021, no shares of the Company's common stock had been repurchased under the program.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

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None.

Item 5. Other Information

None.

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Item 6. Exhibits



			Exhibit 2.1 Agreement and Plan of Merger dated August 23, 2021 by and among the Company, Seacoast Bank, Business Bank of Florida, Corp. and Florida Business Bank incorporated herein by reference from Exhibit 2.1 to the Company’s Form 8-K, filed August 27, 2021.

			Exhibit 2.2 Agreement and Plan of Merger dated August 23, 2021 by and among the Company, Seacoast Bank, Sabal Palm Bancorp, Inc. and Sabal Palm Bank incorporated herein by reference from Exhibit 2.2 to the Company’s Form 8-K, filed August 27, 2021.

			Exhibit 3.1.1 Amended and Restated Articles of Incorporation Incorporated herein by reference from Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q, filed May 10, 2006.

			Exhibit 3.1.2 Articles of Amendment to the Amended and Restated Articles of Incorporation Incorporated herein by reference from Exhibit 3.1 to the Company’s Form 8-K, filed December 23, 2008.

			Exhibit 3.1.3 Articles of Amendment to the Amended and Restated Articles of Incorporation Incorporated herein by reference from Exhibit 3.4 to the Company's Form S-1, filed June 22, 2009.

			Exhibit 3.1.4 Articles of Amendment to the Amended and Restated Articles of Incorporation Incorporated herein by reference from Exhibit 3.1 to the Company's Form 8-K, filed July 20, 2009.

			Exhibit 3.1.5 Articles of Amendment to the Amended and Restated Articles of Incorporation Incorporated herein by reference from Exhibit 3.1 to the Company’s Form 8-K, filed December 3, 2009.

			Exhibit 3.1.6 Articles of Amendment to the Amended and Restated Articles of Incorporation Incorporated herein by reference from Exhibit 3.1 to the Company’s Form 8-K/A, filed July 14, 2010.

			Exhibit 3.1.7 Articles of Amendment to the Amended and Restated Articles of Incorporation Incorporated herein by reference from Exhibit 3.1 to the Company’s Form 8-K, filed June 25, 2010.

			Exhibit 3.1.8 Articles of Amendment to the Amended and Restated Articles of Incorporation Incorporated herein by reference from Exhibit 3.1 to the Company’s Form 8-K, filed June 1, 2011.

			Exhibit 3.1.9 Articles of Amendment to the Amended and Restated Articles of Incorporation Incorporated herein by reference from Exhibit 3.1 to the Company’s Form 8-K, filed December 13, 2013.

			Exhibit 3.1.10 Articles of Amendment to the Amended and Restated Articles of Incorporation Incorporated herein by reference from Exhibit 3.1 to the Company's Form 8K, filed May 30, 2018.

			Exhibit 3.2 Amended and Restated By-laws of the Company Incorporated herein by reference from Exhibit 3.1 to the Company’s Form 8-K, filed October 26, 2020.



			Exhibit 31.1			Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
			Exhibit 31.2			Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
			Exhibit 32.1			Statement of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
			Exhibit 32.2			Statement of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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			Exhibit 101			The following materials from Seacoast Banking Corporation of Florida’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 formatted in Inline XBRL: (i) the Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Shareholders' Equity and (vi) the Notes to the Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
			Exhibit 104			The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in Inline XBRL.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			SEACOAST BANKING CORPORATION OF FLORIDA


November 3, 2021			/s/ Charles M. Shaffer
			Charles M. Shaffer
			President and Chief Executive Officer


November 3, 2021			/s/ Tracey L. Dexter
			Tracey L. Dexter
			Executive Vice President and Chief Financial Officer