# SEACOAST BANKING CORP OF FLORIDA (SBCF) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from SEACOAST BANKING CORP OF FLORIDA's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/730708/000073070824000070/sbcf-20231231.htm
Accession: 0000730708-24-000070
Filing date: 2024-02-27
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/SBCF/
All MD&A years: /company/SBCF/mda/
Previous year: /company/SBCF/mda/fy2022/ (FY 2022)
Next year: /company/SBCF/mda/fy2024/ (FY 2024)

Item 7. 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 Consolidated Financial Statements and the related notes included in this report.

The emphasis of this discussion will be on the years ended December 31, 2023 and 2022. Additional information about the Company’s financial condition and results of operations in 2021 and changes in the Company’s financial condition and results of operations from 2021 to 2022 may be found in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

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 “Special Cautionary Notice Regarding Forward-Looking Statements” 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. 

Overview – Strategy and Results

Seacoast Banking Corporation of Florida (“Seacoast” or the “Company”), a financial holding company, registered under the Bank Holding Company Act of 1956, as amended (the “BHC Act”), is one of the largest community banks in Florida, with $14.6 billion in assets and $11.8 billion in deposits as of December 31, 2023. Its principal subsidiary is Seacoast National Bank

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(“Seacoast Bank”), a wholly owned national banking association. The Company provides integrated financial services including commercial and consumer banking, wealth management, mortgage and insurance services to customers through advanced online and mobile banking solutions, and Seacoast Bank's network of 77 traditional branches and commercial banking centers.

Seacoast is executing a balanced growth strategy, combining organic growth with strategic acquisitions in Florida's most attractive growing markets. The Company has expanded its presence across the state with 16 acquisitions since 2014, strengthening market share, increasing the customer base and lowering operating costs through economies of scale. The acquisition of Professional Holding Corp. (“Professional”), parent company of Professional Bank, was completed on January 31, 2023. The transaction further expanded Seacoast’s presence in the tri-county South Florida market, which includes Miami-Dade, Broward, and Palm Beach counties, Florida’s largest MSA and the 8th largest in the nation.

The Company's acquisition strategy has not only increased customer households and been accretive to earnings, but has also opened markets and expanded Seacoast's customer base. The table below summarizes acquisition activity in the past ten years:

[[GREPCENT_TABLE]]
[["(In millions)","","Primary Market(s)","","Year of Acquisition","","Acquired Loans","","Acquired Deposits"],["Professional Bank/ Professional Holding Corp.","","Miami-Dade County and West Palm Beach","","2023","","$","1,986","","","$","2,119"],["Drummond Community Bank/ Drummond Banking Company","","Gainesville and Ocala","","2022","","545","","","881"],["Apollo Bank/ Apollo Bancshares, Inc.","","Miami-Dade County","","2022","","667","","","855"],["Florida Business Bank/ Business Bank of Florida, Corp.","","Melbourne","","2022","","122","","","166"],["Sabal Palm Bank/ Sabal Palm Bancorp, Inc.","","Sarasota","","2022","","246","","","396"],["Legacy Bank of Florida","","Boca Raton and Palm Beach","","2021","","477","","","495"],["Freedom Bank/ Fourth Street Banking Company","","Tampa- St. Petersburg","","2020","","303","","","330"],["First Bank of the Palm Beaches","","West Palm Beach","","2020","","147","","","174"],["First Green Bank/ First Green Bancorp, Inc.","","Orlando and Fort Lauderdale","","2018","","631","","","624"],["Palm Beach Community Bank","","West Palm Beach","","2017","","270","","","269"],["NorthStar Bank/ NorthStar Banking Corporation, Inc.","","Tampa- St. Petersburg","","2017","","137","","","182"],["GulfShore Bank/ GulfShore BancShares, Inc.","","Tampa- St. Petersburg","","2017","","251","","","285"],["Orlando banking operations of BMO Harris Bank, N.A.","","Orlando","","2016","","63","","","314"],["Floridian Bank/ Floridian Financial Group, Inc.","","Orlando","","2016","","266","","","337"],["Grand Bank & Trust of Florida/ Grand Bankshares, Inc.","","West Palm Beach","","2015","","111","","","188"],["BankFirst/ The BANKshares, Inc.","","Orlando","","2014","","365","","","516"]]
[[/GREPCENT_TABLE]]

Results of Operations

2023 Financial Performance Highlights

•Net income of $104 million, a decrease of $2.5 million, or 2%, compared to 2022, and adjusted net income1 of $154.7 million, an increase of $18.5 million, or 14%, compared to 2022.

•Net interest income increased $122.1 million, or 33%, to $488.2 million, and net interest margin (on a fully tax equivalent basis)1 increased to 3.77% in 2023 from 3.69% in 2022.

•Pre-tax pre-provision earnings1 were $172.6 million in 2023, an increase of 5% compared to 2022. Adjusted pre-tax pre-provision earnings1 were $242.6 million in 2023, an increase of 19% compared to 2022.

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

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•Continued strong capital, with a Tier 1 capital ratio of 14.5%, and the ratio of tangible common equity to tangible assets increasing to 9.31%.

•Tangible book value per share increased to $15.08 at December 31, 2023 from $14.69 at December 31, 2022.

•Executed strategic expense management actions in 2023 to optimize efficiency in 2024. Fourth quarter 2023 expenses were 8% lower than the prior quarter.

Net Interest Income and Margin

Net interest income for the year ended December 31, 2023, totaled $488.2 million, increasing $122.1 million, or 33%, compared to the year ended December 31, 2022. The increase in net interest income is primarily due to higher balances added through the Professional acquisition and higher yields on securities and loans, partially offset by the higher cost of deposits. Net interest income (on a fully taxable equivalent basis)1 for the year ended December 31, 2023, was $489.0 million, increasing $122.4 million, or 33%, compared to the year ended December 31, 2022. Accretion on acquired loans totaled $56.7 million for the year ended December 31, 2023, compared to $18.4 million for the year ended December 31, 2022. The year-over-year increase in accretion reflects the impact of purchase marks from bank acquisitions in late 2022 and early 2023.

Net interest margin (on a fully taxable equivalent basis)1 increased eight basis points to 3.77% for 2023 compared to 3.69% in 2022. Average interest earning assets increased $3.0 billion, or 31%, during 2023 to $13.0 billion compared to $9.9 billion in 2022, primarily the result of acquisitions in the fourth quarter of 2022 and the first quarter of 2023. During 2023, yields on interest earning assets increased to 5.32% from 3.84% in 2022 due to the higher interest rate environment. The cost of average interest-bearing liabilities in 2023 increased 215 basis points to 2.40% from 0.25% in 2022, reflecting the impact of higher interest rates.

During 2023, average securities increased $34.3 million to $2.6 billion, partially due to the acquisition of Professional. Yields on securities increased 97 basis points from 2.21% in 2022 to 3.18% in 2023, benefiting from the higher rate environment and favorable repricing on variable rate bonds.

Average loans totaled $9.9 billion for the year ended December 31, 2023, reflecting an increase of $3.1 billion, or 45%, compared to $6.8 billion for the year ended December 31, 2022, the result of acquisitions in late 2022 and early 2023. Yields on loans increased 126 basis points from 4.62% in 2022 to 5.88% in 2023, benefiting from higher rates on new production and increasing rates on variable rate loans. Accretion of purchase discounts on acquired loans added 57 basis points to loan yields in 2023, compared to 27 basis points in 2022.

During 2023, average transaction deposits (noninterest and interest bearing demand deposits) increased $0.9 billion, or 15%, compared to 2022. The Company’s deposit mix remains favorable, with 89% of average deposit balances comprised of savings, money market, and demand deposits in 2023. The cost of average total deposits (including noninterest bearing demand deposits) increased by 139 basis points to 1.50% in 2023, compared to 0.11% in 2022, primarily the result of higher short term interest rates and an increasingly competitive deposit market.

Sweep repurchase agreements with customers had an average balance of $271.0 million for the year ended December 31, 2023, increasing $149.7 million, or 123%, compared to $121.3 million for the year ended December 31, 2022. The average rate on customer repurchase accounts was 3.07% in 2023 compared to 0.81% in 2022.

The Company had an average balance of $175.2 million in FHLB borrowings outstanding for the year ended December 31, 2023, with an average interest rate of 3.64%. The average balance of FHLB borrowings was $10.3 million in 2022.

In 2023, average long-term debt of $104.2 million carried an average cost of 6.96%, up from 4.09% in 2022, reflecting the impact of higher interest rates.

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

32

The following table details the Company’s average balance sheets, interest income and expenses, and yields and rates1, for the past three years:

[[GREPCENT_TABLE]]
[["","","","For the Year Ended December 31,"],["","","","2023","","2022","","2021"],["(In thousands, except percentages)","","","Average Balance","","","Interest","","","Yield/ Rate","","Average Balance","","Interest","","Yield/ Rate","","Average Balance","","Interest","","Yield/ Rate"],["Assets"],["Earning Assets:"],["Securities"],["Taxable","","","$","2,611,299","","","","$","82,926","","","","3.18","%","","$","2,568,568","","","$","56,611","","","2.20","%","","$","1,839,619","","","$","29,206","","","1.59","%"],["Nontaxable","","","13,733","","","","438","","","","3.19","","","22,188","","","690","","","3.11","","","25,369","","","730","","","2.88"],["Total Securities","","","2,625,032","","","","83,364","","","","3.18","","","2,590,756","","","57,301","","","2.21","","","1,864,988","","","29,936","","","1.61"],["Federal funds sold","","","368,659","","","","18,871","","","","5.12","","","433,359","","","4,103","","","0.95","","","763,795","","","1,043","","","0.14"],["Other investments","","","90,692","","","","5,718","","","","6.30","","","69,604","","","3,517","","","5.05","","","65,533","","","1,947","","","2.97"],["Loans","","","9,889,070","","","","581,825","","","","5.88","","","6,838,266","","","316,073","","","4.62","","","5,751,064","","","251,834","","","4.38"],["Total Earning Assets","","","12,973,453","","","","689,778","","","","5.32","","","9,931,985","","","380,994","","","3.84","","","8,445,380","","","284,760","","","3.37"],["Allowance for credit losses on loans","","","(150,982)","","","","","","","","","(94,693)","","","","","","","(88,659)"],["Cash and due from banks","","","184,035","","","","","","","","","305,775","","","","","","","332,664"],["Bank premises and equipment, net","","","116,516","","","","","","","","","85,568","","","","","","","71,771"],["Intangible assets","","","816,662","","","","","","","","","360,217","","","","","","","249,089"],["Bank owned life insurance","","","290,218","","","","","","","","","214,468","","","","","","","156,599"],["Other assets","","","392,872","","","","","","","","","248,108","","","","","","","170,210"],["Total Assets","","","$","14,622,774","","","","","","","","","$","11,051,428","","","","","","","$","9,337,054"],["Liabilities and Shareholders' Equity"],["Interest-Bearing Liabilities:"],["Interest-bearing demand","","","$","2,686,936","","","","$","41,438","","","","1.54","%","","$","2,220,307","","","$","3,099","","","0.14","%","","$","1,787,234","","","$","895","","","0.05","%"],["Savings","","","851,347","","","","1,796","","","","0.21","","","989,997","","","397","","","0.04","","","805,816","","","383","","","0.05"],["Money market","","","2,941,916","","","","83,301","","","","2.83","","","1,925,176","","","3,824","","","0.20","","","1,765,444","","","2,327","","","0.13"],["Time deposits","","","1,348,152","","","","52,254","","","","3.88","","","500,471","","","2,642","","","0.53","","","602,739","","","2,788","","","0.46"],["Securities sold under agreements to repurchase","","","270,999","","","","8,323","","","","3.07","","","121,318","","","986","","","0.81","","","113,881","","","141","","","0.12"],["Federal Home Loan Bank borrowings","","","175,247","","","","6,378","","","","3.64","","","10,264","","","330","","","3.22","","","\u2014","","","\u2014","","","\u2014"],["Other borrowings","","","104,158","","","","7,245","","","","6.96","","","74,713","","","3,056","","","4.09","","","71,495","","","1,685","","","2.36"],["Total Interest-Bearing Liabilities","","","8,378,755","","","","200,735","","","","2.40","","","5,842,246","","","14,334","","","0.25","","","5,146,609","","","8,219","","","0.16"],["Noninterest demand","","","4,087,335","","","","","","","","","3,667,345","","","","","","","2,851,687"],["Other liabilities","","","131,302","","","","","","","","","122,982","","","","","","","123,446"],["Total Liabilities","","","12,597,392","","","","","","","","","9,632,573","","","","","","","8,121,742"],["Shareholders' equity","","","2,025,382","","","","","","","","","1,418,855","","","","","","","1,215,312"],["Total Liabilities & Shareholders' Equity","","","$","14,622,774","","","","","","","","","$","11,051,428","","","","","","","$","9,337,054"],["Cost of deposits","","","","","","","","","1.50","%","","","","","","0.11","%","","","","","","0.08","%"],["Interest expense as % of earning assets","","","","","","","","","1.55","%","","","","","","0.14","%","","","","","","0.10","%"],["Net interest income/yield on earning assets","","","","","","$","489,043","","","","3.77","%","","","","$","366,660","","","3.69","%","","","","$","276,541","","","3.27","%"],["1On a fully taxable equivalent basis. All yields and rates have been computed using amortized costs. Fees on loans have been included in interest on loans. Nonaccrual loans are included in loan balances."]]
[[/GREPCENT_TABLE]]

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The following table shows the impact of changes in volume and rate on earning assets and interest bearing liabilities1:

[[GREPCENT_TABLE]]
[["","","","2023 vs 2022 Due to Change in:","","2022 vs 2021 Due to Change in:"],["(In thousands)","","","Volume","","","Rate","","","Total","","Volume","","Rate","","Total"],["","","","Amount of increase (decrease)"],["Earning Assets:"],["Securities"],["Taxable","","","$","1,149","","","","$","25,166","","","","$","26,315","","","$","13,819","","","$","13,586","","","$","27,405"],["Nontaxable","","","(266)","","","","14","","","","(252)","","","(95)","","","55","","","(40)"],["Total Securities","","","883","","","","25,180","","","","26,063","","","13,724","","","13,641","","","27,365"],["Federal funds sold","","","(1,962)","","","","16,730","","","","14,768","","","(1,790)","","","4,850","","","3,060"],["Other investments","","","1,198","","","","1,003","","","","2,201","","","163","","","1,407","","","1,570"],["Loans","","","160,253","","","","105,499","","","","265,752","","","36,028","","","28,211","","","64,239"],["Total Earning Assets","","","160,372","","","","148,412","","","","308,784","","","48,125","","","48,109","","","96,234"],["Interest-Bearing Liabilities:"],["Interest-bearing demand","","","3,924","","","","34,415","","","","38,339","","","411","","","1,793","","","2,204"],["Savings","","","(174)","","","","1,573","","","","1,399","","","81","","","(67)","","","14"],["Money market accounts","","","15,404","","","","64,072","","","","79,476","","","264","","","1,233","","","1,497"],["Time deposits","","","18,665","","","","30,947","","","","49,612","","","(506)","","","360","","","(146)"],["Total Deposits","","","37,819","","","","131,007","","","","168,826","","","250","","","3,319","","","3,569"],["Securities sold under agreements to repurchase","","","2,907","","","","4,431","","","","7,338","","","35","","","810","","","845"],["Federal Home Loan Bank borrowings","","","5,654","","","","394","","","","6,048","","","330","","","\u2014","","","330"],["Other borrowings","","","1,626","","","","2,563","","","","4,189","","","104","","","1,267","","","1,371"],["Total Interest Bearing Liabilities","","","48,006","","","","138,395","","","","186,401","","","719","","","5,396","","","6,115"],["Net Interest Income","","","$","112,366","","","","$","10,017","","","","$","122,383","","","$","47,406","","","$","42,713","","","$","90,119"],["1On a fully taxable equivalent basis. All yields and rates have been computed using amortized costs. Fees on loans have been included in interest on loans. Nonaccrual loans are included in loan balances. Changes attributable to rate/volume (mix) are allocated to rate and volume on an equal basis."]]
[[/GREPCENT_TABLE]]

Provision for Credit Losses

The provision for credit losses was $37.5 million for the full year 2023 compared to $26.2 million for the full year 2022. Included is $26.6 million in 2023 and $20.2 million in 2022 of day-1 provision for credit losses on loans added through bank acquisitions.

Noninterest Income

Noninterest income (excluding securities gains and losses) totaled $82.0 million in 2023, an increase of $14.9 million, or 22%, compared to 2022. Noninterest income accounted for 14% of total revenue in 2023 and 16% in 2022 (net interest income plus noninterest income, excluding securities gains and losses).

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Noninterest income is detailed as follows:

[[GREPCENT_TABLE]]
[["","","","For the Year Ended December 31,"],["(In thousands, except percentages)","","","2023","","2022","","","","","% Change"],["Service charges on deposit accounts","","","$","18,278","","","$","13,709","","","","","","33%"],["Interchange income","","","13,877","","","17,171","","","","","","(19)"],["Wealth management income","","","12,780","","","11,051","","","","","","16"],["Mortgage banking fees","","","1,790","","","3,478","","","","","","(49)"],["Insurance agency income","","","4,510","","","805","","","","","","460"],["SBA gains","","","2,105","","","842","","","","","","150"],["BOLI income","","","8,401","","","5,572","","","","","","51"],["Other","","","20,304","","","14,559","","","","","","39"],["","","","82,045","","","67,187","","","","","","22"],["Securities losses, net","","","(2,893)","","","(1,096)","","","","","","164"],["Total Noninterest Income","","","$","79,152","","","$","66,091","","","","","","20%"]]
[[/GREPCENT_TABLE]]

Service charges on deposits for the year ended December 31, 2023 compared to the prior year increased $4.6 million, or 33%, to $18.3 million. This increase primarily reflects the benefit of an expanded deposit base, including from acquisitions, and the continued benefit of the expansion of treasury management services to commercial customers. Overdraft-related fees for both consumer and commercial accounts represented 35% of total service charges on deposits in 2023 compared to 37% in 2022.

Interchange revenue totaled $13.9 million in 2023, a decrease of 19% from $17.2 million in 2022. The decrease in interchange income was due to the impact of the Durbin amendment, which became effective for the first time for the Company on July 1, 2023, limiting network interchange fees earned on debit card transactions.

Wealth management revenues, including brokerage commissions and fees and trust income, increased $1.7 million, or 16%, to $12.8 million for the year ended December 31, 2023. The wealth management team continued to demonstrate notable success in building relationships, resulting in a 23% increase in assets under management year-over-year to $1.7 billion as of December 31, 2023.

Insurance agency income totaled $4.5 million in 2023, an increase of 460% from $0.8 million in 2022. The Company acquired a commercial insurance agency during the fourth quarter of 2022 in conjunction with the acquisition of Drummond, adding another source of noninterest income.

Mortgage banking fees decreased $1.7 million, or 49%, to $1.8 million for the year ended December 31, 2023 compared to 2022, reflecting lower saleable production due to the impact on demand of higher interest rates and limited housing inventory.

Gains on sale of the guaranteed portion of SBA loans totaled $2.1 million for the year ended December 31, 2023, an increase of $1.3 million compared to 2022.

Bank owned life insurance (“BOLI”) income totaled $8.4 million in 2023, an increase of $2.8 million, or 51%, compared to the prior year. The Company added $53.1 million in BOLI in the fourth quarter of 2022 and $55.1 million in the first quarter of 2023 from bank acquisitions.

Other income totaled $20.3 million in 2023, reflecting an increase of $5.7 million, or 39%, year-over-year. The increase was attributable to BOLI death benefits totaling $2.1 million in 2023, higher SBIC investment income, and increases in other fees correlating to growth in customers and accounts.

Securities losses in 2023 totaled $2.9 million, resulting from the sale in the fourth quarter of 2023 of approximately $82.9 million, or 3%, of the bank’s investment securities portfolio. The Company recognized an opportunity to sell low-yielding holdings with modest losses and use the proceeds to reinvest into higher-yielding bonds with strong prepayment protection and good convexity, expecting an earnback period of only 1.3 years. Securities losses in 2022 totaled $1.1 million resulting solely from the decline in the market value of the CRA-qualified mutual fund investment.

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Noninterest Expense

The Company has demonstrated its commitment to efficiency through disciplined, proactive management of its cost structure. Noninterest expenses in 2023 totaled $395.6 million, including $33.2 million in acquisition-related expenses, and $5.2 million related to branch consolidation and other expense reduction initiatives. In 2022, noninterest expenses totaled $267.9 million, including $27.9 million in acquisition-related expenses and $1.2 million in expenses related to branch consolidation and other expense reduction initiatives. Adjusted noninterest expense1 in 2023 totaled $328.5 million, an increase of 43% from 2022, reflecting overall growth of the organization.

[[GREPCENT_TABLE]]
[["","","","For the Year Ended December 31,"],["(In thousands, except percentages)","","","2023","","2022","","","","","% Change"],["Salaries and wages","","","$","177,637","","","$","130,100","","","","","","37%"],["Employee benefits","","","29,918","","","19,026","","","","","","57"],["Outsourced data processing costs","","","52,098","","","27,510","","","","","","89"],["Telephone / data lines","","","5,204","","","3,799","","","","","","37"],["Occupancy","","","26,668","","","18,539","","","","","","44"],["Furniture and equipment","","","8,692","","","6,420","","","","","","35"],["Marketing","","","9,156","","","6,286","","","","","","46"],["Legal and professional fees","","","17,514","","","20,703","","","","","","(15)"],["FDIC assessments","","","8,630","","","3,137","","","","","","175"],["Amortization of intangibles","","","28,726","","","9,101","","","","","","216"],["Other real estate owned expense and net loss (gain) on sale","","","985","","","(1,534)","","","","","","N/A"],["Provision for credit losses on unfunded commitments","","","1,239","","","1,157","","","","","","7"],["Other","","","29,155","","","23,690","","","","","","23"],["Total Noninterest Expense","","","$","395,622","","","$","267,934","","","","","","48%"]]
[[/GREPCENT_TABLE]]

Salaries and wages totaled $177.6 million in 2023, an increase of $47.5 million, or 37%, compared to 2022. Results in 2023 include $10.4 million in bank acquisition-related charges compared to $9.2 million in 2022. Excluding merger-related charges, the increase is the result of the net addition of branch locations, associates, and bankers from recent acquisitions. In the third quarter of 2023, the Company completed a 6% reduction in headcount, resulting in $3.2 million in severance-related expenses.

During 2023, employee benefit costs, which include costs associated with the Company's self-funded health insurance benefits, 401(k) plan, payroll taxes, and unemployment compensation, increased $10.9 million, or 57%, compared to 2022. The increase reflects the overall growth of the organization, including as a result of the acquisitions completed in 2023 and 2022.

The Company utilizes third parties for 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 $52.1 million in 2023, an increase of $24.6 million, or 89%, compared to 2022. Results in 2023 include $17.4 million in direct acquisition-related costs, including termination penalties on acquired technology contracts upon system conversion, compared to $3.4 million in 2022. The remainder of the increase reflects the overall growth of the organization.

Total occupancy, furniture, equipment, and communication expenses in 2023 totaled $40.6 million, an increase of $11.8 million, or 41%, compared to 2022, primarily due to expansion of the Company's footprint across Florida.

During 2023, marketing expenses totaled $9.2 million, an increase of $2.9 million, or 46%, compared to $6.3 million in 2022. The Company has increasingly invested in targeted marketing campaigns focused on deposit growth, and on advertising and branding campaigns across the footprint.

Legal and professional fees decreased by $3.2 million in 2023, or 15%, to $17.5 million, and included $6.5 million in merger-related expenses in 2023, compared to $10.3 million in 2022.

FDIC assessments were $8.6 million in 2023, compared to $3.1 million in 2022. The increase reflects the Company's growth in asset size.

36

Amortization of intangibles increased $19.6 million, or 216%, to $28.7 million during 2023 from $9.1 million in 2022. The acquisitions in 2022 and in 2023 added $118.8 million in core deposit intangible assets, which are amortized using an accelerated amortization method.

Other real estate owned expense and net loss (gain) on sale was a net loss of $1.0 million in 2023, compared to a net gain of $1.5 million in 2022. Charges during 2023 related to valuation adjustments on former branch properties. The Company expects the final disposition of several properties in the first quarter of 2024.

Provision for credit losses on unfunded commitments totaled $1.2 million in both 2023 and 2022. The expense in each period is primarily related to the increase in customer relationships from bank acquisitions.

Other expense totaled $29.2 million and $23.7 million in 2023 and 2022, respectively. The increase of $5.5 million, or 23%, includes higher costs in general business and customer support activities resulting from growth in the customer base and the expanded branch footprint and to maintaining parallel activities and processes prior to the conversion of Professional in June 2023.

Income Taxes

In 2023, the provision for income taxes totaled $30.2 million, compared to $31.6 million in 2022. The decrease reflects lower pre-tax income in 2023. Discrete tax benefits related to share-based compensation were $0.5 million and $1.1 million in 2023 and 2022, respectively.

Fourth Quarter Results and Analysis

Net income totaled $29.5 million in the fourth quarter of 2023, a decrease of $1.9 million, or 6%, from the third quarter of 2023, and an increase of $5.6 million, or 23%, compared to the fourth quarter of 2022. Adjusted net income1 totaled $36.5 million, a decrease of $3.2 million, or 8%, from the third quarter of 2023, and a decrease of $3.4 million, or 9%, compared to the fourth quarter of 2022. Diluted earnings per share (“EPS”) was $0.35 and adjusted diluted EPS12was $0.43 in the fourth quarter of 2023, compared to diluted EPS of $0.37 and adjusted diluted EPS1 of $0.46 in the third quarter of 2023 and compared to diluted EPS of $0.34 and adjusted diluted EPS1 of $0.56 in the fourth quarter of 2022.

Net revenues, which are calculated as net interest income on a fully taxable equivalent basis plus noninterest income excluding securities gains and losses were $128.2 million, a decrease of $8.9 million, or 7%, from the third quarter of 2023 and a decrease of $9.2 million, or 7%, from the fourth quarter of 2022.

Net interest income totaled $110.8 million in the fourth quarter of 2023, a decrease of $8.5 million, or 7%, from the third quarter of 2023 and a decrease of $8.9 million, or 7%, compared to the fourth quarter of 2022. During the fourth quarter of 2023, higher interest expense on deposits was driven by higher rates and changes in product mix. Accretion on acquired loans totaled $11.3 million in the fourth quarter of 2023, $14.8 million in the third quarter of 2023, and $9.7 million in the fourth quarter of 2022.

Net interest margin decreased 21 basis points to 3.36% in the fourth quarter of 2023 compared to 3.57% in the third quarter of 2023. Excluding the effects of accretion on acquired loans, net interest margin decreased 11 basis points to 3.02% in the fourth quarter of 2023 compared to 3.13% in the third quarter of 2023. Loan yields contracted eight basis points from the prior quarter to 5.85% due to lower accretion of purchase discount on acquired loans. Excluding the effects of accretion on acquired loans, loan yields increased six basis points, from 5.34% in the third quarter of 2023 to 5.40% in the fourth quarter of 2023. Securities yields increased 10 basis points to 3.42%, compared to 3.32% in the prior quarter. The cost of deposits increased 21 basis points, from 1.79% in the prior quarter, to 2.00% for the fourth quarter of 2023.

The provision for credit losses was $4.0 million in the fourth quarter of 2023, compared to $2.7 million in the third quarter of 2023 and $14.1 million in the fourth quarter of 2022. Included in the fourth quarter of 2022 was a $15.0 million day-1 provision associated with two bank acquisitions.

Noninterest income, excluding securities gains and losses, totaled $19.8 million for the fourth quarter of 2023, an increase of $1.6 million, or 9%, when compared to the third quarter of 2023, and an increase of $2.1 million, or 12%, compared to the fourth quarter of 2022.

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

37

•Interchange income increased $0.7 million, or 44%, to $2.4 million, benefiting from an annual volume-based incentive earned from the payment network provider.

•SBA gains increased $0.3 million, or 50%, to $0.9 million due to higher saleable originations.

•Other income increased $0.4 million, or 8%, to $4.7 million, reflecting higher loan swap-related income.

Noninterest expenses for the fourth quarter of 2023 totaled $86.4 million, a decrease of $7.5 million, or 8%, from the third quarter of 2023 and a decrease of $5.1 million, or 6%, from the fourth quarter of 2022.

•Salaries and wages decreased $8.0 million to $38.4 million. The third quarter of 2023 included $3.2 million in severance-related expenses arising from the Company’s reduction in workforce. Of the remaining $4.8 million decrease, $1.7 million reflects the full quarter impact of the workforce reduction on salaries expense, and $2.8 million is attributed to higher loan production resulting in higher deferral of salary-related costs.

•Marketing expense increased $1.1 million to $3.0 million reflecting additional investments in branding and targeted campaigns.

•Legal and professional fees increased $0.6 million to $3.3 million in the fourth quarter of 2023, primarily the result of one-time legal fees associated with a closed matter.

•FDIC assessments increased $0.6 million to $2.8 million, with the full year expense reflecting the year-over-year growth in the Company’s asset size.

•Other real estate owned expense increased $0.3 million to $0.6 million in the fourth quarter of 2023 due to write-downs in the value of properties previously used in bank operations.

•Other noninterest expenses decreased $0.7 million to $6.5 million, benefiting from ongoing expense discipline.

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.

The following table provides reconciliations between GAAP and adjusted (non-GAAP) financial measures.

[[GREPCENT_TABLE]]
[["","","Quarters"],["","","Fourth","","Third","","","","Fourth","","Full Year","","Full Year"],["(In thousands except per share data)","","2023","","2023","","","","2022","","2023","","2022"],["Net income","","$","29,543","","","$","31,414","","","","","$","23,927","","","$","104,033","","","$","106,507"],["Total noninterest income","","$","17,338","","","$","17,793","","","","","$","17,651","","","$","79,152","","","$","66,091"],["Securities losses (gains), net","","2,437","","","387","","","","","(18)","","","2,893","","","1,096"],["BOLI benefits on death (included in other income)","","\u2014","","","\u2014","","","","","\u2014","","","(2,117)","","","\u2014"],["Total Adjustments to Noninterest Income","","2,437","","","387","","","","","(18)","","","776","","","1,096"],["Total Adjusted Noninterest Income","","$","19,775","","","$","18,180","","","","","$","17,633","","","$","79,928","","","$","67,187"],["Noninterest expense","","$","86,367","","","$","93,915","","","","","$","91,510","","","$","395,622","","","$","267,934"],["Merger-related charges","","\u2014","","","\u2014","","","","","(16,140)","","","(33,180)","","","(27,925)"],["Amortization of intangibles","","(6,888)","","","(7,457)","","","","","(4,763)","","","(28,726)","","","(9,101)"],["Branch reductions and other expense initiatives","","\u2014","","","(3,305)","","","","","(176)","","","(5,167)","","","(1,210)"]]
[[/GREPCENT_TABLE]]

38

[[GREPCENT_TABLE]]
[["","","Quarters"],["","","Fourth","","Third","","","","Fourth","","Full Year","","Full Year"],["(In thousands except per share data)","","2023","","2023","","","","2022","","2023","","2022"],["Total Adjustments to Noninterest Expense","","(6,888)","","","(10,762)","","","","","(21,079)","","","(67,073)","","","(38,236)"],["Total Adjusted Noninterest Expense","","$","79,479","","","$","83,153","","","","","$","70,431","","","$","328,549","","","$","229,698"],["Income Taxes","","$","8,257","","","$","9,076","","","","","$","7,794","","","$","30,219","","","$","31,629"],["Tax effect of adjustments","","2,363","","","2,826","","","","","5,062","","","17,196","","","9,693"],["Adjusted Income Taxes","","10,620","","","11,902","","","","","12,856","","","47,415","","","41,322"],["Adjusted Net Income","","$","36,505","","","$","39,737","","","","","$","39,926","","","$","154,686","","","$","136,146"],["Earnings per diluted share, as reported","","$","0.35","","","$","0.37","","","","","$","0.34","","","$","1.23","","","$","1.66"],["Adjusted Earnings per Diluted Share","","0.43","","","0.46","","","","","0.56","","","1.83","","","2.12"],["Average diluted shares outstanding","","85,336","","","85,666","","","","","71,374","","","84,329","","","64,264"],["Adjusted Noninterest Expense","","$","79,479","","","$","83,153","","","","","$","70,431","","","$","328,549","","","$","229,698"],["Provision for credit losses on unfunded commitments","","\u2014","","","\u2014","","","","","\u2014","","","(1,239)","","","(1,157)"],["Other real estate owned expense and net (loss) gain on sale","","(573)","","","(274)","","","","","411","","","(985)","","","1,534"],["Net Adjusted Noninterest Expense","","$","78,906","","","$","82,879","","","","","$","70,842","","","$","326,325","","","$","230,075"],["Revenue","","$","128,157","","","$","137,099","","","","","$","137,360","","","$","567,392","","","$","432,253"],["Total Adjustments to Revenue","","2,437","","","387","","","","","(18)","","","776","","","1,096"],["Impact of FTE adjustment","","216","","","199","","","","","149","","","803","","","498"],["Adjusted revenue on a fully tax equivalent basis","","$","130,810","","","$","137,685","","","","","$","137,491","","","$","568,971","","","$","433,847"],["Adjusted Efficiency Ratio","","60.32","%","","60.19","%","","","","51.52","%","","57.35","%","","53.03","%"],["Net Interest Income","","$","110,819","","","$","119,306","","","","","$","119,709","","","$","488,240","","","$","366,162"],["Impact of FTE Adjustment","","216","","","199","","","","","149","","","803","","","498"],["Net interest income including FTE adjustment","","111,035","","","119,505","","","","","119,858","","","489,043","","","366,660"],["Total noninterest income","","17,338","","","17,793","","","","","17,651","","","79,152","","","66,091"],["Total noninterest expense","","86,367","","","93,915","","","","","91,510","","","395,622","","","267,934"],["Pre-Tax Pre-Provision Earnings","","42,006","","","43,383","","","","","45,999","","","172,573","","","164,817"],["Total Adjustments to Noninterest Income","","2,437","","","387","","","","","(18)","","","776","","","1,096"],["Total Adjustments to Noninterest Expense","","(7,461)","","","(11,036)","","","","","(20,668)","","","(69,297)","","","(37,859)"],["Adjusted Pre-Tax Pre-Provision Earnings","","$","51,904","","","$","54,806","","","","","$","66,649","","","$","242,646","","","$","203,772"],["Average Assets","","$","14,738,034","","$","14,906,003","","","","$","12,139,856","","$","14,622,774","","$","11,051,428"],["Less average goodwill and intangible assets","","(832,029)","","(839,787)","","","","(521,412)","","(816,662)","","(360,217)"],["Average Tangible Assets","","$","13,906,005","","$","14,066,216","","","","$","11,618,444","","$","13,806,112","","$","10,691,211"],["Return on Average Assets (\u201cROA\u201d)","","0.80","%","","0.84","%","","","","0.78","%","","0.71","%","","0.96","%"],["Impact of removing average intangible assets and related amortization","","0.19","","","0.20","","","","","0.16","","","0.20","","","0.10"],["Return on Average Tangible Assets (\u201cROTA\u201d)","","0.99","","","1.04","","","","","0.94","","","0.91","","","1.06"],["Impact of other adjustments for Adjusted Net Income","","0.05","","","0.08","","","","","0.42","","","0.21","","","0.21"],["Adjusted Return on Average Tangible Assets","","1.04","%","","1.12","%","","","","1.36","%","","1.12","%","","1.27","%"],["Pre-Tax Pre-Provision Return on average tangible assets","","1.35","%","","1.38","%","","","","1.69","%","","1.41","%","","1.61","%"],["Impact of adjustments on Pre-Tax Pre-Provision earnings","","0.13","","","0.17","","","","","0.59","","","0.35","","","0.30"],["Adjusted Pre-Tax Pre-Provision Return on Tangible Assets","","1.48","","","1.55","","","","","2.28","","","1.76","","","1.91"],["Average Shareholders' Equity","","$","2,058,912","","$","2,072,747","","","","$","1,573,704","","$","2,025,382","","$","1,418,855"],["Less average goodwill and intangible assets","","(832,029)","","(839,787)","","","","(521,412)","","(816,662)","","(360,217)"]]
[[/GREPCENT_TABLE]]

39

[[GREPCENT_TABLE]]
[["","","Quarters"],["","","Fourth","","Third","","","","Fourth","","Full Year","","Full Year"],["(In thousands except per share data)","","2023","","2023","","","","2022","","2023","","2022"],["Average Tangible Equity","","$","1,226,883","","$","1,232,960","","","","$","1,052,292","","$","1,208,720","","$","1,058,638"],["Return on Average Shareholders' Equity","","5.69","%","","6.01","%","","","","6.03","%","","5.14","%","","7.51","%"],["Impact of removing average intangible assets and related amortization","","5.53","","","5.89","","","","","4.33","","","5.24","","","3.19"],["Return on Average Tangible Common Equity (\u201cROTCE\u201d)","","11.22","","","11.90","","","","","10.36","","","10.38","","","10.70"],["Impact of other adjustments for Adjusted Net Income","","0.58","","","0.89","","","","","4.69","","","2.42","","","2.16"],["Adjusted Return on Average Tangible Common Equity","","11.80","%","","12.79","%","","","","15.05","%","","12.80","%","","12.86","%"],["Loan interest income1","","$","148,004","","","$","150,048","","","","","$","105,437","","","$","581,825","","","$","316,073"],["Accretion on acquired loans","","(11,324)","","","(14,843)","","","","","(9,710)","","","(56,689)","","","(18,389)"],["Loan interest income excluding accretion on acquired loans","","$","136,680","","","$","135,205","","","","","$","95,727","","","$","525,136","","","$","297,684"],["Yield on loans1","","5.85","%","","5.93","%","","","","5.29","%","","5.88","%","","4.62","%"],["Impact of accretion on acquired loans","","(0.45)","","","(0.59)","","","","","(0.49)","","","(0.57)","","","(0.27)"],["Yield on loans excluding accretion on acquired loans","","5.40","%","","5.34","%","","","","4.80","%","","5.31","%","","4.35","%"],["Net interest income1","","$","111,035","","","$","119,505","","","","","$","119,858","","","$","489,043","","","$","366,660"],["Accretion on acquired loans","","(11,324)","","","(14,843)","","","","","(9,710)","","","(56,689)","","","(18,389)"],["Net interest income excluding accretion on acquired loans","","$","99,711","","","$","104,662","","","","","$","110,148","","","$","432,354","","","$","348,271"],["Net interest margin","","3.36","%","","3.57","%","","","","4.36","%","","3.77","%","","3.69","%"],["Impact of accretion on acquired loans","","(0.34)","","","(0.44)","","","","","(0.35)","","","(0.44)","","","(0.18)"],["Net interest margin excluding accretion on acquired loans","","3.02","%","","3.13","%","","","","4.01","%","","3.33","%","","3.51","%"],["Security interest income1","","$","21,451","","","$","21,520","","","","","$","18,694","","","$","83,364","","","$","57,301"],["Tax equivalent adjustment to securities","","(13)","","","(22)","","","","","(34)","","","(83)","","","(142)"],["Securities interest income excluding tax equivalent adjustment","","$","21,438","","","$","21,498","","","","","$","18,660","","","$","83,281","","","$","57,159"],["Loan interest income1","","$","148,004","","","$","150,048","","","","","$","105,437","","","$","581,825","","","$","316,073"],["Tax equivalent adjustment to loans","","(203)","","","(177)","","","","","(115)","","","(720)","","","(356)"],["Loan interest income excluding tax equivalent adjustment","","$","147,801","","","$","149,871","","","","","$","105,322","","","$","581,105","","","$","315,717"],["Net Interest Income1","","$","111,035","","","$","119,505","","","","","$","119,858","","","$","489,043","","","$","366,660"],["Tax equivalent adjustment to securities","","(13)","","","(22)","","","","","(34)","","","(83)","","","(142)"],["Tax equivalent adjustment to loans","","(203)","","","(177)","","","","","(115)","","","(720)","","","(356)"],["Net interest income excluding tax equivalent adjustments","","$","110,819","","","$","119,306","","","","","$","119,709","","","$","488,240","","","$","366,162"],["1On a fully taxable equivalent basis. All yields and rates have been computed using amortized cost."]]
[[/GREPCENT_TABLE]]

40

Financial Condition

Total assets increased $2.4 billion, or 20%, year-over-year to $14.6 billion at December 31, 2023, largely the result of the acquisition of Professional in January 2023.

Securities

Information related to yields, maturities, carrying values and fair value of the Company’s securities is set forth in Tables 7 and 8 and “Note 3 - Securities” of the Company’s consolidated financial statements.

At December 31, 2023, the Company had $1.8 billion in securities available-for-sale, and $680.3 million in securities held-to-maturity. The Company's total debt securities portfolio decreased $102.8 million, or 4%, from December 31, 2022.

During the year ended December 31, 2023, there were $100.9 million of debt securities purchased, $167.1 million acquired through the acquisition of Professional and $287.9 million in paydowns and maturities over the same period. $113.4 million of securities were sold in 2023, with $2.9 million in realized losses. During the year ended December 31, 2022, there were $899.7 million of debt security purchases and $367.7 million in paydowns and maturities over the same period. For the year ended December 31, 2022, debt securities with a fair value of $515.2 million obtained through bank acquisitions were sold with no gains or losses recognized.

Debt securities generally return principal and interest monthly. The modified duration of the available-for-sale securities portfolio and the total portfolio was 4.5 and 4.9, respectively, at December 31, 2023, compared to 3.7 and 4.2, respectively, at December 31, 2022.

At December 31, 2023, available-for-sale securities had gross unrealized losses of $217.7 million and gross unrealized gains of $4.4 million, compared to gross unrealized losses of $248.7 million and gross unrealized gains of $1.1 million at December 31, 2022.

The credit quality of the Company’s securities holdings is primarily investment grade. U.S. Treasury securities, obligations of U.S. government agencies, and obligations of U.S. government sponsored entities totaled $2.1 billion, or 82%, of the total portfolio.

The portfolio includes $135.9 million, with a fair value of $125.0 million, in private label residential and commercial mortgage-backed securities and collateralized mortgage obligations. Included are $123.6 million, with a fair value of $113.5 million, in private label residential securities with weighted average credit support of 23%. The collateral underlying these mortgage investments includes both fixed-rate and adjustable-rate residential mortgage loans. Commercial securities totaled $12.2 million, with a fair value of $11.5 million. These securities have weighted average credit support of 22%. The collateral underlying these mortgages are primarily pooled multifamily loans.

The Company also has invested $300.9 million in floating rate collateralized loan obligations. Collateralized loan obligations are special purpose vehicles that purchase first lien broadly syndicated corporate loans while providing support to senior tranche investors. As of December 31, 2023, all of the Company's collateralized loan obligations were in AAA/AA tranches with weighted average credit support of 33%. The Company utilizes credit models with assumptions of loan level defaults, recoveries, and prepayments to evaluate each security for potential credit losses. The result of this analysis did not indicate expected credit losses.

Held-to-maturity securities consist solely of mortgage-backed securities and collateralized mortgage obligations guaranteed by U.S. government-sponsored entities, each of which is expected to recover any price depreciation over its holding period as the debt securities move to maturity. The Company has significant liquidity and available borrowing capacity through other sources if needed, and has the intent and ability to hold these investments to maturity.

At December 31, 2023, the Company has determined that all debt securities in an unrealized loss position are the result of both broad investment type spreads and the current interest rate environment. Management believes that each investment will recover any price depreciation over its holding period as the debt securities move to maturity, and management has the intent and ability to hold these investments to maturity, if necessary. Therefore, at December 31, 2023, no allowance for credit losses has been recorded.

41

Loan Portfolio

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”).

The following table details loan portfolio composition at December 31, 2023 and 2022 for portfolio loans, purchased credit deteriorated loans (“PCD”) and loans purchased which are not considered credit deteriorated (“Non-PCD”) as defined in “Note 4 - Loans”.

[[GREPCENT_TABLE]]
[["","","December 31, 2023"],["(In thousands)","","Portfolio Loans","","Acquired Non-PCD Loans","","PCD Loans","","Total"],["Construction and land development","","$","519,426","","","$","247,654","","","$","542","","","$","767,622"],["Commercial real estate - owner occupied","","1,079,633","","","552,627","","","38,021","","","1,670,281"],["Commercial real estate - non-owner occupied","","1,844,588","","","1,323,222","","","152,080","","","3,319,890"],["Residential real estate","","1,714,748","","","710,129","","","20,815","","","2,445,692"],["Commercial and financial","","1,237,090","","","318,683","","","52,115","","","1,607,888"],["Consumer","","175,969","","","74,854","","","744","","","251,567"],["Totals","","$","6,571,454","","","$","3,227,169","","","$","264,317","","","$","10,062,940"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","December 31, 2022"],["(In thousands)","","Portfolio Loans","","Acquired Non-PCD Loans","","PCD Loans","","Total"],["Construction and land development","","$","364,900","","","$","201,333","","","$","21,100","","","$","587,332"],["Commercial real estate - owner occupied","","995,154","","","451,202","","","31,946","","","1,478,302"],["Commercial real estate - non-owner occupied","","1,695,411","","","767,138","","","127,225","","","2,589,774"],["Residential real estate","","1,558,643","","","271,378","","","19,482","","","1,849,503"],["Commercial and financial","","1,152,747","","","185,240","","","15,238","","","1,353,225"],["Consumer","","177,338","","","89,458","","","19,791","","","286,587"],["Totals","","$","5,944,193","","","$","1,965,749","","","$","234,782","","","$","8,144,724"]]
[[/GREPCENT_TABLE]]

Loans, net of unearned income and excluding the allowance for credit losses, were $10.1 billion at December 31, 2023, an increase of $1.9 billion, or 24%, compared to December 31, 2022. The increase includes the addition of $2.0 billion in loans from the Professional acquisition in the first quarter of 2023.

The amortized cost basis of loans at December 31, 2023, and 2022 included net deferred costs of $43.1 million and $35.1 million, respectively. At December 31, 2023, the remaining fair value adjustments on acquired loans were $174.0 million, or 4.8%, of the outstanding acquired loan balances, compared to $97.7 million, or 4.3% of the acquired loan balances at December 31, 2022. The discount is accreted into interest income over the remaining lives of the related loans on a level yield basis.

Construction and land development loans increased $180.3 million, or 31%, totaling $767.6 million at December 31, 2023, compared to December 31, 2022. In the first quarter of 2023, the Company acquired $151.0 million in construction and land development loans from Professional.

Commercial real estate owner occupied loans totaled $1.7 billion at December 31, 2023, an increase of $192 million, or 13%, compared to December 31, 2022. In the first quarter of 2023, the Company acquired $274.1 million in commercial real estate owner occupied loans from Professional.

Commercial real estate non-owner occupied loans, increased $0.7 billion, or 28%, totaling $3.3 billion at December 31, 2023, compared to December 31, 2022. In the first quarter of 2023, the Company acquired $692.7 million in commercial real estate non-owner occupied loans from Professional.

42

Collateral types and characteristics of non-owner occupied commercial real estate loans as of December 31, 2023 were as follows:

[[GREPCENT_TABLE]]
[["","December 31, 2023"],["(In thousands)","Balance","","Balance % of Total Loans","","Average Loan Size","","30+ Days Past-Accruing","","Non Accrual","","Weighted Avg LTV1"],["Retail","$","1,091,605","","","10.8","%","","$","2,059","","","$","\u2014","","","$","\u2014","","","51","%"],["Office","576,840","","","5.7","","","1,638","","","11,510","","","334","","","55"],["Multifamily 5+","353,184","","","3.5","","","1,799","","","\u2014","","","\u2014","","","55"],["Hotel/Motel","389,180","","","3.9","","","3,819","","","\u2014","","","1,012","","","51"],["Industrial/Warehouse","357,947","","","3.6","","","1,767","","","\u2014","","","861","","","54"],["Other","551,134","","","5.5","","","1,447","","","752","","","6,528","","","51"],["Total","$","3,319,890","","","33.0","%","","$","1,917","","","$","12,262","","","$","8,735","","","53","%"],["1Loan-to-value is calculated based on the real estate value at the time of origination, renewal, or update, whichever is more recent."]]
[[/GREPCENT_TABLE]]

Loans in the retail segment are generally grocery or credit tenant anchored shopping plazas, single credit tenant retail buildings, smaller outparcels and other retail units. The office segment targets low to mid-rise suburban offices, and is broadly diversified across many categories of professional services. Two loans in the office segment (2.0% of office exposure) were past due 30-59 days at December 31, 2023.

Residential mortgage loans increased $596.2 million, or 32%, year-over-year to $2.4 billion as of December 31, 2023. Included in the balance as of December 31, 2023 were $1.0 billion of fixed rate mortgages, $865.2 million of adjustable rate mortgages, and $488.2 million in home equity loans and home equity lines of credit ("HELOCs"), compared to $964.3 million, $402.3 million and $482.9 million, respectively, as of December 31, 2022. In the first quarter of 2023, the Company acquired $483.6 million residential loans from Professional. Substantially all residential mortgage originations have been underwritten to conventional loan agency standards, including loans having balances that exceed agency value limitations. The average LTV of our HELOC portfolio is 63% with 35% of the portfolio being in the first lien position at December 31, 2023, compared to an average LTV of 69% with 31% of the portfolio being in the first lien position at December 31, 2022.

Commercial and financial loans increased year-over-year by $254.7 million, or 19%, totaling $1.6 billion at December 31, 2023. The addition of well-established commercial bankers and expansion into new markets across the state have generated disciplined loan growth. In the first quarter of 2023, the Company acquired $350.6 million in commercial and financial loans from Professional.

The Company also provides consumer loans, which include installment loans, auto loans, marine loans and other consumer loans, which decreased $35.0 million, or 12%, year-over-year to a total of $251.6 million at December 31, 2023, compared to $286.6 million at December 31, 2022.

43

At December 31, 2023, the Company had unfunded commitments to extend credit of $2.7 billion, compared to $2.8 billion at December 31, 2022 (see “Note 15 - Contingent Liabilities and Commitments with Off-Balance Sheet Risk” to the Company’s consolidated financial statements).

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:

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31,"],["(In thousands)","","2023","","2022"],["Commercial/commercial real estate loan pipeline at period end","","$","306,531","","","$","389,697"],["Commercial/commercial real estate loans closed","","1,055,889","","","1,637,402"],["SBA pipeline at period end","","$","20,600","","","$","5,955"],["SBA originations","","48,914","","","27,482"],["Residential pipeline - saleable at period end","","$","2,657","","","$","4,207"],["Residential loans - sold","","66,252","","","120,921"],["Residential pipeline - portfolio at period end","","$","44,422","","","$","17,149"],["Residential loans - retained","","260,500","","","421,997"],["Consumer pipeline at period end","","$","18,745","","","$","36,585"],["Consumer originations","","346,164","","","431,633"]]
[[/GREPCENT_TABLE]]

Commercial and commercial real estate originations in 2023 totaled $1.1 billion, compared to $1.6 billion in 2022. Lower originations were the result of the impact of higher rates and a continued selective approach on new credit facilities given a cautious economic outlook. Commercial and commercial real estate pipelines were $306.5 million as of December 31, 2023, a decrease of 17% from $389.7 million at December 31, 2022.

SBA originations totaled $48.9 million in 2023, an increase of $21.4 million from 2022. The SBA pipeline increased to $20.6 million at December 31, 2023 from $6.0 million at December 31, 2022.

Residential loans originated for sale in the secondary market totaled $66.3 million in 2023, a decrease of 45% compared to $120.9 million in 2022. Residential saleable pipelines were $2.7 million as of December 31, 2023, compared to $4.2 million as of December 31, 2022.

Residential loan production retained in the portfolio for 2023 was $260.5 million, compared to $422.0 million in 2022. Included in 2022 are purchases of $111.3 million in residential loans from the wholesale market. The pipeline of residential loans intended to be retained in the portfolio was $44.4 million as of December 31, 2023, compared to $17.1 million as of December 31, 2022.

Consumer originations, which includes HELOCs, totaled $346.2 million during 2023, compared to $431.6 million during 2022, reflecting a decrease of $85.47 million, or 20%. The consumer pipeline was $18.7 million as of December 31, 2023, compared to $36.6 million as of December 31, 2022.

Loan Concentrations

The Company has developed prudent guardrails to manage loan types that are most impacted by stressed market conditions in order to minimize credit risk concentration to capital. Outstanding balances for commercial and commercial real estate loan relationships greater than $10 million totaled $2.3 billion, representing 23% of the total portfolio at December 31, 2023, compared to $2.2 billion, or 27%, at December 31, 2022. The Company’s ten largest commercial and commercial real estate funded and unfunded relationships at December 31, 2023 aggregated to $505.7 million, of which $348.3 million was funded, compared to $468.9 million at December 31, 2022, of which $312.4 million was funded.

Concentrations in total construction and land development loans and total commercial real estate loans are maintained well below regulatory limits. Construction and land development and commercial real estate loan concentrations as a percentage of subsidiary bank total risk based capital, were 48% and 244%, respectively, at December 31, 2023, compared to 45% and 230% as of December 31, 2022. Regulatory guidance suggests limits of 100% and 300%, respectively. On a consolidated basis,

44

construction and land development and commercial real estate loans represent 45% and 228%, respectively, of total consolidated risk based capital. To determine these ratios, the Company defines commercial real estate 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 commercial real estate loans as exposures secured by land development and construction, including 1-4 family residential construction, multifamily 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 commercial real estate markets would also be considered commercial real estate loans under the Guidance. Loans on owner-occupied commercial real estate are generally excluded. In addition, the Company is subject to a geographic concentration of credit because it primarily operates in Florida.

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

Table 6 provides certain information concerning nonperforming assets for the years indicated.

Nonperforming assets (“NPAs”) at December 31, 2023 totaled $72.7 million, an increase of $41.5 million, or 133.3%, compared to 2022, and were comprised of $65.1 million of nonaccrual loans, and $7.6 million of other real estate owned (“OREO”), including $7.3 million of branches taken out of service. Compared to December 31, 2022, nonaccrual loans totaled $28.8 million and OREO of $2.3 million that includes $1.8 million of branches taken out of service. Approximately 45% of nonaccrual loans were secured with real estate at December 31, 2023. Nonperforming loans to total loans outstanding at December 31, 2023 increased to 0.65% from 0.35% at December 31, 2022. Nonperforming assets to total assets at December 31, 2023 increased to 0.50% from 0.26% at December 31, 2022. The increases are largely attributed to overall growth including from the acquisition of Professional in January 2023.

The table below sets forth details related to nonaccrual loans.

[[GREPCENT_TABLE]]
[["","","December 31, 2023"],["","","Nonaccrual Loans"],["(In thousands)","","Non-Current","","Current","","Total"],["Construction & land development","","$","109","","","$","715","","","$","824"],["Commercial real estate mortgages - owner occupied","","5,234","","","4,450","","","9,684"],["Commercial real estate mortgages - non-owner occupied","","4,179","","","4,556","","","8,735"],["Residential real estate","","3,864","","","6,122","","","9,986"],["Commercial and financial","","7,304","","","27,389","","","34,693"],["Consumer","","779","","","403","","","1,182"],["Total loans","","$","21,469","","","$","43,635","","","$","65,104"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","December 31, 2022"],["","","Nonaccrual Loans"],["(In thousands)","","Non-Current","","Current","","Total"],["Construction & land development","","$","53","","","$","562","","","$","615"],["Commercial real estate mortgages - owner occupied","","\u2014","","","2,597","","","2,597"],["Commercial real estate mortgages - non-owner occupied","","2,892","","","1,292","","","4,184"],["Residential real estate","","2,213","","","6,896","","","9,109"],["Commercial and financial","","4,189","","","7,426","","","11,615"],["Consumer","","18","","","705","","","723"],["Total loans","","$","9,365","","","$","19,478","","","$","28,843"]]
[[/GREPCENT_TABLE]]

As of December 31, 2023, the Company had troubled borrower modification ("TBM") loans with an amortized cost of $17.5 million.

45

Allowance for Credit Losses on Loans

Management establishes the allowance using relevant available information from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The forecasts of future economic conditions are over a period that has been deemed reasonable and supportable, and in segments where it can no longer develop reasonable and supportable forecasts, the Company reverts to longer-term historical loss experience to estimate losses over the remaining life of the loans. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments.

The provision for credit losses was $37.5 million for the year ended December 31, 2023, compared to $26.2 million for the year ended December 31, 2022. The 2023 provision includes $26.6 million for loans acquired in the Professional acquisition, along with increases reflecting organic loan growth and changes in economic forecast factors. The 2022 provision included $20.2 million in initial provisioning for loans acquired through bank acquisitions. Net charge-offs for 2023 were $21.4 million, or 0.22% of average loans, compared to $0.8 million, or 0.01%, for 2022. Activity in 2023 included the complete charge-off of an $11.3 million acquired loan. The charge-off had no impact on earnings or capital, as the Company expected and fully reserved for the loss at acquisition through purchase accounting. The ratio of allowance to total loans increased to 1.48% at December 31, 2023 from 1.40% at December 31, 2022.

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

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31, 2023"],["(In thousands)","","Beginning Balance","","Allowance on PCD Loans Acquired During the Period","","Provision for Credit Losses","","Charge- Offs","","Recoveries","","","","Ending Balance"],["Construction and land development","","$","6,464","","","$","5","","","$","2,160","","","$","\u2014","","","$","8","","","","","$","8,637"],["Commercial real estate - owner occupied","","6,051","","","139","","","(663)","","","\u2014","","","2","","","","","5,529"],["Commercial real estate - non-owner occupied","","43,258","","","647","","","4,315","","","(120)","","","188","","","","","48,288"],["Residential real estate","","29,605","","","400","","","8,858","","","(356)","","","509","","","","","39,016"],["Commercial and financial","","15,648","","","17,527","","","17,644","","","(18,565)","","","2,089","","","","","34,343"],["Consumer","","12,869","","","161","","","5,204","","","(5,754)","","","638","","","","","13,118"],["Total","","$","113,895","","","$","18,879","","","$","37,518","","","$","(24,795)","","","$","3,434","","","","","$","148,931"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31, 2022"],["(In thousands)","","Beginning Balance","","Allowance on PCD Loans Acquired During the Period","","Provision for Credit Losses","","Charge- Offs","","Recoveries","","TDR Allowance Adjustments","","Ending Balance"],["Construction and land development","","$","2,751","","","$","518","","","$","3,127","","","$","\u2014","","","$","68","","","$","\u2014","","","$","6,464"],["Commercial real estate - owner-occupied","","8,579","","","38","","","(2,566)","","","\u2014","","","\u2014","","","\u2014","","","6,051"],["Commercial real estate - non owner-occupied","","36,617","","","880","","","5,871","","","(179)","","","69","","","\u2014","","","43,258"],["Residential real estate","","12,811","","","229","","","16,284","","","(84)","","","393","","","(28)","","","29,605"],["Commercial and financial","","19,744","","","1,699","","","(5,367)","","","(1,233)","","","807","","","(2)","","","15,648"],["Consumer","","2,813","","","1,911","","","8,834","","","(1,415)","","","733","","","(7)","","","12,869"],["Totals","","$","83,315","","","5,275","","","$","26,183","","","$","(2,911)","","","$","2,070","","","$","(37)","","","$","113,895"]]
[[/GREPCENT_TABLE]]

Cash and Cash Equivalents, Liquidity Risk Management and Contractual Commitments

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.

46

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

Cash and cash equivalents, including interest bearing deposits, totaled $447.2 million at December 31, 2023, compared to $201.9 million at December 31, 2022. Higher cash and cash equivalent balances at December 31, 2023 are consistent with the Company’s strategic balance sheet management.

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. Total uninsured deposits were estimated to be $4.1 billion at December 31, 2023, representing 35% of overall deposit accounts. This includes public funds under the Florida Qualified Public Depository program, which provides loss protection to depositors beyond FDIC insurance limits. Excluding such balances, the uninsured and uncollateralized deposits were 29% of total deposits. The Company has liquidity sources as discussed below, including cash and lines of credit with the FRB and FHLB, that represent 145% of uninsured deposits, and 176% of uninsured and uncollateralized deposits.

In addition to $447.2 million in cash and cash equivalents at December 31, 2023, the Company had $5.5 billion in available borrowing capacity, including $4.5 billion in available collateralized lines of credit, $700.0 million of unpledged debt securities available as collateral for potential additional borrowings, and available unsecured lines of credit of $300.0 million. Included in available borrowing capacity is $215.0 million under the FRB's Bank Term Funding Program, which the Company has not utilized and does not plan to utilize. The Company may also access funding by acquiring brokered deposits. Brokered deposits at December 31, 2023 totaled $122.3 million compared to $58.6 million at December 31, 2022.

Contractual maturities for assets and liabilities are reviewed to meet current and expected future liquidity requirements. Sources of liquidity are maintained through a portfolio of high quality marketable assets, such as residential mortgage loans, debt securities available-for-sale and interest-bearing deposits. The Company is also able to provide short-term financing of its activities by selling, under an agreement to repurchase, United States Treasury and Government agency debt securities not pledged to secure public deposits or trust funds.

The Company has traditionally relied upon dividends from Seacoast Bank and securities offerings to provide funds to pay the Company’s expenses and to service the Company’s debt. During 2023, Seacoast Bank distributed $40.7 million to the Company and, at December 31, 2023, is eligible to distribute dividends to the Company of approximately $205.7 million without prior regulatory approval. At December 31, 2023, the Company had cash and cash equivalents at the parent of $101.7 million, compared to $111.8 million at December 31, 2022.

The following table presents contractual obligations by remaining maturity. All deposits presented in the table with indeterminate maturities such as interest bearing and noninterest bearing demand deposits, savings accounts and money market accounts are presented as having a maturity of one year or less. The Company considers these low cost deposits to be its largest, most stable funding source, despite having no contracted maturity.

[[GREPCENT_TABLE]]
[["","","December 31, 2023"],["","","","","One Year","","Over One Year Through","","Over Three Years Through","","Over Five"],["(In thousands)","","Total","","or Less","","Three Years","","Five Years","","Years"],["Deposits","","$","11,776,935","","","$","11,647,102","","","$","54,303","","","$","28,573","","","$","46,957"],["Securities sold under agreements to repurchase","","374,573","","","374,573","","","\u2014","","","\u2014","","","\u2014"],["FHLB borrowings1","","50,000","","","\u2014","","","\u2014","","","50,000","","","\u2014"],["Long-term debt","","106,302","","","\u2014","","","\u2014","","","\u2014","","","106,302"],["Operating leases","","58,803","","","10,465","","","18,332","","","13,825","","","16,181"],["Total","","$","12,366,613","","","$","12,032,140","","","$","72,635","","","$","92,398","","","$","169,440"],["1Callable advance structure which, as of December 31, 2023, may be called at three month intervals with a maturity of up to five years."]]
[[/GREPCENT_TABLE]]

47

Deposits and Borrowings

The following table details the Company's customer relationship funding as of:

[[GREPCENT_TABLE]]
[["","","December 31,"],["(In thousands, except percentages)","","2023","","2022"],["Noninterest demand","","$","3,544,981","","","$","4,070,973"],["Interest-bearing demand","","2,790,210","","","2,282,813"],["Money market","","3,314,288","","","1,985,974"],["Savings","","651,454","","","1,064,392"],["Time certificates of deposit","","1,353,655","","","518,868"],["Brokered deposits","","122,347","","","58,575"],["Total deposits","","$","11,776,935","","","$","9,981,595"],["Customer sweep accounts","","374,573","","","172,029"],["Total customer funding1","","$","12,029,161","","","$","10,095,049"],["Noninterest demand deposit mix","","30","%","","41","%"],["1Total deposits and customer sweep accounts, excluding brokered deposits."]]
[[/GREPCENT_TABLE]]

The Company benefits from a diverse and granular deposit base that serves as a significant source of strength. Total deposits increased $1.8 billion, or 18%, to $11.8 billion at December 31, 2023 compared to December 31, 2022. The increase includes the addition of $2.1 billion in deposits from the Professional acquisition in the first quarter of 2023.

Noninterest demand deposits represented 30% of total deposits at December 31, 2023 compared to 41% at December 31, 2022 primarily driven by the higher interest rate environment driving a mix shift to interest bearing products. Transaction account balances (noninterest demand and interest-bearing demand) represented 54% of total deposits at December 31, 2023, compared to 64% at December 31, 2022.

Time deposits over $250,000 were $550.3 million and $149.5 million at December 31, 2023 and December 31, 2022, respectively. The following table details the maturities of time deposits of $250,000 and greater at December 31, 2023 and December 31, 2022:

[[GREPCENT_TABLE]]
[["","","","December 31,","","% of","","December 31,","","% of"],["(In thousands, except percentages)","","","2023","","Total","","2022","","Total"],["Certificates of Deposit of $250,000 and Greater"],["Maturity Group:"],["Three months or less","","","$","106,940","","","19%","","$","28,083","","","19%"],["Over three through six months","","","14,743","","","3","","40,511","","","27"],["Over six through 12 months","","","381,922","","","69","","68,826","","","46"],["Over 12 months","","","46,657","","","9","","12,059","","","8"],["Total Certificates of Deposit of $250,000 and Greater","","","$","550,262","","","100%","","$","149,479","","","100%"]]
[[/GREPCENT_TABLE]]

Customer repurchase agreements totaled $374.6 million at December 31, 2023, increasing $202.5 million, or 118%, from December 31, 2022. Repurchase agreements are offered by Seacoast to select customers who wish to sweep excess balances on a daily basis for investment purposes.

At December 31, 2023 and December 31, 2022, long-term debt included $72.2 million and $71.9 million, respectively, related to trust preferred securities issued by trusts organized or acquired by the Company. At December 31, 2023, the average interest rate in effect on our outstanding subordinated debt related to trust preferred securities was 7.34%, compared to 6.46% at December 31, 2022. The acquired junior subordinated debentures were recorded at fair value, which collectively was $3.1 million lower than face value at December 31, 2023. This amount is being amortized into interest expense over the acquired subordinated debts' remaining term to maturity. All trust preferred securities are guaranteed by the Company on a junior subordinated basis.

48

Under Basel III and FRB rules, qualified trust preferred securities and other restricted capital elements can be included as Tier 1 capital, within limitations. The Company believes that its trust preferred securities qualify under these capital rules.     

In 2022, the Company acquired $12.3 million in senior debt through the acquisition of Apollo. Contractual interest is paid on a semiannual basis at a fixed rate of 5.50% until April 30, 2025, at which point the rate converts to a floating rate of 3-month SOFR plus 533 basis points. The debt was recorded at fair value, resulting in a $0.4 million premium that is being amortized into interest expense over the remaining term to maturity.

In 2023, the Company acquired $25.0 million in subordinated debt through the acquisition of Professional that qualifies as Tier 2 Capital. Contractual interest is paid on a semiannual basis at a fixed interest rate of 3.375% until January 30, 2027, at which point the rate converts to a 3-month SOFR rate plus 203 basis points paid quarterly. The debt was recorded at fair value, resulting in a $3.9 million discount that is being accreted into interest expense over the remaining term to maturity.

Federal Home Loan Bank advances totaled $50 million at December 31, 2023 with an interest rate of 3.23%, compared to $150.0 million at December 31, 2022 with a weighted average interest rate of 3.42%.

See “Note 9 - Borrowings” to the Company's consolidated financial statements for more detailed information pertaining to borrowings.

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 our actual future credit exposure or liquidity requirements. Loan commitments and letters of credit expose the Company to credit risk in the event that the customer draws on the commitment and subsequently fails to perform under the terms of the lending agreement.

For commercial customers, loan commitments generally take the form of revolving credit arrangements. For retail customers, loan commitments generally are lines of credit secured by residential property. These instruments are not recorded on the balance sheet until funds are advanced under the commitment. Unfunded commitments to extend credit were $2.7 billion at December 31, 2023, and $2.8 billion at December 31, 2022 (see “Note 15 - Contingent Liabilities and Commitments with Off-Balance Sheet Risk” to the Company’s consolidated financial statements).

In the normal course of business, the Company and Seacoast Bank enter into agreements, or are subject to regulatory agreements that result in cash, debt and dividend restrictions. A summary of the most restrictive items follows:

Seacoast Bank may be required to maintain reserve balances with the Federal Reserve Bank. There was no reserve requirement at December 31, 2023 or December 31, 2022.

Under FRB regulation, Seacoast Bank is limited as to the amount it may loan to its affiliates, including the Company, unless such loans are collateralized by specified obligations. At December 31, 2023, the maximum amount available for transfer from Seacoast Bank to the Company in the form of loans approximated $183.8 million, if the Company has sufficient acceptable collateral. There were no loans made to affiliates during the periods ending December 31, 2023 and 2022.

Capital Resources and Management

Table 1 summarizes the Company’s capital position and selected ratios.

The Company's equity capital at December 31, 2023 increased $500.3 million, or 31%, from December 31, 2022, to $2.1 billion. Changes in equity included increases from net income of $104.0 million, the issuance of $421.0 million in equity in conjunction with the Professional acquisition, and an increase in accumulated other comprehensive income of $28.2 million due to increases in the value of available-for-sale securities associated with changes in the interest rate environment, partially offset by the issuance of common stock dividends totaling $60.6 million.

49

The ratio of shareholders’ equity to period end total assets was 14.46% and 13.24% at December 31, 2023 and December 31, 2022, respectively. The ratio of tangible shareholders’ equity to tangible assets was 9.31% and 9.08% at December 31, 2023 and December 31, 2022, respectively. Changes in the value of securities are not reflected in Shareholders' Equity under GAAP; however, illustratively, if all held-to-maturity securities were presented at fair value, the tangible common equity ratio would have been 8.68% at December 31, 2023.

Activity in shareholders’ equity for the years ended December 31, 2023 and December 31, 2022 follows: 

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31,"],["(In thousands)","","2023","","2022"],["Beginning balance at January 1, 2023 and 2022","","$","1,607,775","","","$","1,310,736"],["Net income","","104,033","","","106,507"],["Issuance of common stock and conversion of options, pursuant to acquisitions","","421,042","","","398,249"],["Stock compensation (net of Treasury shares acquired)","","18,540","","","14,564"],["Dividends on common stock","","(60,591)","","","(41,242)"],["Change in other comprehensive income","","28,155","","","(181,039)"],["Repurchases of common stock","","(10,868)","","","\u2014"],["Ending balance at December 31, 2023 and 2022","","$","2,108,086","","","$","1,607,775"]]
[[/GREPCENT_TABLE]]

Capital ratios are well above regulatory requirements for well-capitalized institutions. Management’s use of risk-based capital ratios in its analysis of the Company’s capital adequacy are not GAAP financial measures. Seacoast’s management uses these measures to assess the quality of capital and believes that investors may find it useful in their analysis of the Company. The capital measures are not necessarily comparable to similar capital measures that may be presented by other companies and Seacoast does not nor should investors consider such non-GAAP financial measures in isolation from, or as a substitute for GAAP financial information (see “Table 1 - Capital Resources” and “Note 13 - Regulatory Capital”).

[[GREPCENT_TABLE]]
[["","","Seacoast (Consolidated)","","Seacoast Bank","","Minimum to beWell-Capitalized1"],["Total Risk-Based Capital Ratio","","15.92%","","14.82%","","10.00%"],["Tier 1 Capital Ratio","","14.54","","13.64","","8.00"],["Common Equity Tier 1 Ratio (CET1)","","13.87","","13.64","","6.50"],["Leverage Ratio","","11.00","","10.32","","5.00"],["1For subsidiary bank only."]]
[[/GREPCENT_TABLE]]

The Company’s total risk-based capital ratio was 15.92% at December 31, 2023, an increase from 15.79% at December 31, 2022. As of December 31, 2023, the Bank’s leverage ratio (Tier 1 capital to adjusted total assets) was 10.32%, compared to 10.44% at December 31, 2022, 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 up to $205.7 million of dividends to the Company (see “Part I. Item 1. Business”).

The OCC and the FRB 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 FRB 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 FRB has indicated that the board of directors of a bank holding company, such as Seacoast, should consult with the FRB 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

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period, is not sufficient to fully fund the dividends; (ii) its prospective rate of earnings retention is not consistent with its capital needs and overall current and prospective financial condition; or (iii) it will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.

The Company has paid quarterly dividends since the second quarter of 2021. Whether the Company continues to pay quarterly dividends and the amount of any such dividends will be at the discretion of the Company's Board of Directors and will depend on the Company's earnings, financial condition, results of operations, business prospects, capital requirements, regulatory restrictions, and other factors that the Board of Directors may deem relevant.

The Company has seven wholly owned trust subsidiaries that have issued trust preferred stock. Trust preferred securities from acquisitions were recorded at fair value when acquired. All trust preferred securities are guaranteed by the Company on a junior subordinated basis. The FRB’s rules permit qualified trust preferred securities and other restricted capital elements to be included under Basel III capital guidelines, with limitations, and net of goodwill and intangibles. The Company believes that its trust preferred securities qualify under these revised regulatory capital rules and believes that it can treat all its trust preferred securities as Tier 1 capital. For regulatory purposes, the trust preferred securities are added to the Company’s tangible common shareholders’ equity to calculate Tier 1 capital.

Critical Accounting Policies and Estimates

The Company’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles, (“GAAP”), including prevailing practices within the financial services industry. The preparation of consolidated financial statements requires management to make judgments in the application of certain of its accounting policies that involve significant estimates and assumptions. The Company has established policies and control procedures that are intended to ensure valuation methods are well controlled and applied consistently from period to period. These estimates and assumptions, which may materially affect the reported amounts of certain assets, liabilities, revenues and expenses, are based on information available as of the date of the financial statements, and changes in this information over time and the use of revised estimates and assumptions could materially affect amounts reported in subsequent financial statements. Management, after consultation with the Company’s Audit Committee, believes the most critical accounting estimates and assumptions that involve the most difficult, subjective and complex assessments are: 

•the allowance and the provision for credit losses;

•acquisition accounting and purchased loans;

•intangible assets and impairment testing, and;

•impairment of debt securities.

The following is a discussion of the critical accounting policies intended to facilitate a reader’s understanding of the judgments, estimates and assumptions underlying these accounting policies and the possible or likely events or uncertainties known to the Company that could have a material effect on reported financial information. For more information regarding management’s judgments relating to significant accounting policies and recent accounting pronouncements, see “Note 1 – Significant Accounting Policies” to the Company’s consolidated financial statements.

Allowance for Credit Losses – Critical Accounting Policies and Estimates

The Allowance for Credit Losses (ACL) represents management’s best estimate of expected future credit losses related to the loan portfolio at the balance sheet date. The estimate of the ACL requires significant judgment and is based on a variety of factors.

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. Economic forecast data is sourced from Moody’s Analytics (“Moody’s”), a firm widely recognized for its research, analysis, and economic forecasts. 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. The forecasts of future economic conditions are over a period that has been deemed reasonable and supportable, and in segments where it can no longer develop reasonable and supportable forecasts, the Company reverts to longer-term historical loss experience to estimate losses over the remaining life of the loans. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments.

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One of the most significant judgments in estimating the Allowance for credit losses relates to the macroeconomic forecasts. As of December 31, 2023, the Company utilized a blend of Moody’s most recent “U.S. Macroeconomic Outlook Baseline” and “Alternative Scenario 3 - Downside - 90th Percentile” scenarios. The weighting applied in the December 31, 2023 analysis reflects a deterioration in the economic outlook as compared to the December 31, 2022 analysis and considers the continued actions taken by the FRB with regard to monetary policy and interest rates and the potential impact of those actions. The forecasted credit losses incorporate numerous macroeconomic variables, although specific variables have a greater impact on the outcome than others. Specifically, changes in expectations indicated by the Commercial Real Estate Price Index have the most significant impact on the estimate of expected losses for commercial real estate non-owner-occupied loans and construction and land development loans, the housing price index is the economic forecast variable most significantly impacting the estimate of expected losses for residential loans, and the unemployment rate is a significant contributor to commercial and consumer loans. Changes in the assumptions and forecasts of economic conditions could significantly affect the Company’s estimate of expected credit losses at the balance sheet date or lead to significant changes in the estimate from one reporting period to the next.

Qualitative adjustments may be made to modeled reserves based on an assessment of internal and external influences on credit quality not fully reflected in the quantitative components of the allowance model. These influences may include elements such as changes in concentration, macroeconomic conditions, recent observable asset quality trends, staff turnover, regional market conditions, employment levels, model risk, and loan growth.

For additional information regarding the Company's methodology for calculating the Allowance for Credit Losses, see Note 1 – Significant Accounting Policies and Note 5 – Allowance for Credit Losses in the Notes to the Consolidated Financial Statements.

Acquisition Accounting and Purchased Loans – Critical Accounting Policies and Estimates

The Company accounts for acquisitions using 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 through the provision for credit losses at the date of acquisition.

The non-credit discount or premium related to PCD loans and the fair value adjustment on non-PCD loans are amortized or accreted to Interest and fees on loans over the contractual life of the loans using the effective interest method. In the event of prepayment, unamortized discounts or premiums are recognized in Interest and fees on loans.

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 intangible, customer relationship intangibles, and loan servicing rights. Goodwill represents the excess purchase price over the fair value of net assets acquired in business acquisitions. The core deposit intangible represents the excess intangible value of acquired deposit customer relationships. Core deposit intangibles are

amortized using an amortization method that reflects the expected value over time, and are evaluated for indications of potential

impairment at least annually. Goodwill is not amortized but rather is evaluated for impairment on at least an annual basis. We performed an annual impairment test of goodwill in the fourth quarter of 2023 and concluded that no impairment existed. Fair value estimates for acquired assets and assumed liabilities are based on the information available, and are subject to change for up to one year after the closing date of the acquisition as additional information relative to closing date fair values becomes available.

Impairment of Debt Securities – Critical Accounting Policies and Estimates

For held-to-maturity (“HTM”) securities, expected credit losses are estimated over the remaining expected life and this estimate is recognized as an allowance for credit losses. Available-for-sale (“AFS”) securities are 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

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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. 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.