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SBCF Seacoast Banking Corp. Of Florida

Filed: 5 Aug 21, 4:07pm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021
OR

 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to __________________.
Commission File No. 0-13660
 
Seacoast Banking Corporation of Florida
(Exact Name of Registrant as Specified in its Charter)
 
Florida 59-2260678
(State or Other Jurisdiction of
Incorporation or Organization)
 (I.R.S. Employer
Identification No.)
815 COLORADO AVENUE,STUARTFL 34994
(Address of Principal Executive Offices) (Zip Code)
(772)287-4000
(Registrant’s Telephone Number, Including Area Code)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common StockSBCFNasdaq Global Select Market

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

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

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

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

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

Common Stock, $0.10 Par Value – 55,436,036 shares as of June 30, 2021



INDEX
 SEACOAST BANKING CORPORATION OF FLORIDA

2

Part I. FINANCIAL INFORMATION
Item 1. Financial Statements

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended June 30,Six Months Ended June 30,
(In thousands, except per share data)2021202020212020
Interest and fees on loans$60,348 $64,844 $122,646 $128,284 
Interest and dividends on securities6,706 7,694 13,152 16,512 
Interest on interest bearing deposits and other investments709 684 1,295 1,418 
Total Interest Income67,763 73,222 137,093 146,214 
Interest on deposits980 1,203 2,045 4,393 
Interest on time certificates524 3,820 1,711 8,588 
Interest on borrowed money457 927 925 2,784 
Total Interest Expense1,961 5,950 4,681 15,765 
Net Interest Income65,802 67,272 132,412 130,449 
Provision for credit losses(4,855)7,611 (10,570)37,124 
Net Interest Income after Provision for Credit Losses70,657 59,661 142,982 93,325 
Noninterest income
Other income15,377 13,776 33,162 28,445 
Securities (losses) gains, net(55)1,230 (169)1,249 
Total Noninterest Income (Note I – Noninterest Income and Expense)15,322 15,006 32,993 29,694 
Total Noninterest Expenses (Note I – Noninterest Income and Expense)45,784 42,399 91,904 90,197 
Income Before Income Taxes40,195 32,268 84,071 32,822 
Provision for income taxes8,785 7,188 18,942 7,033 
Net Income$31,410 $25,080 $65,129 $25,789 
Share Data
Net income per share of common stock
Diluted$0.56 $0.47 $1.17 $0.49 
Basic0.57 0.47 1.18 0.49 
Average common shares outstanding
Diluted55,901 53,308 55,827 52,807 
Basic55,421 52,985 55,347 52,394 
See notes to unaudited condensed consolidated financial statements.
 


3

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
Three Months Ended June 30,Six Months Ended June 30,
(In thousands)2021202020212020
Net Income$31,410 $25,080 $65,129 $25,789 
Other comprehensive income (loss):
Available-for-sale securities:
Unrealized gains (losses) on available-for-sale securities, net of tax expense of $0.2 million and tax benefit of $3.0 million for the three and six months ended June 30, 2021, respectively, and tax expense of $3.6 million for each of the three and six months ended June 30, 2020$296 $14,004 $(10,555)$14,134 
Amortization of unrealized gains and losses on securities transferred to held-to-maturity, net of tax expense of $5 thousand and $11 thousand for the three and six months ended June 30, 2021, respectively, and tax expense of $12 thousand and $25 thousand for the three and six months ended June 30, 2020, respectively20 47 44 94 
Reclassification adjustment for losses (gains) included in net income, net of tax benefit of $19 thousand for each of the three and six months ended June 30, 2021, and tax expense of $0.3 million for each of the three and six months ended June 30, 202091 (1,516)91 (1,399)
Available-for-sale securities, net of tax$407 $12,535 $(10,420)$12,829 
Unrealized losses on derivatives designated as cash flow hedges, net of reclassifications to income, net of tax benefit of $4 thousand and $51 thousand for the three and six months ended June 30, 2021, respectively$(11)$(149)
Total other comprehensive income (loss)$396 $12,535 $(10,569)$12,829 
Comprehensive Income$31,806 $37,615 $54,560 $38,618 
See notes to unaudited condensed consolidated financial statements.

 


4

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
June 30,December 31,
(In thousands, except share data)20212020
Assets  
Cash and due from banks$97,468 $86,630 
Interest bearing deposits with other banks1,351,377 317,458 
Total cash and cash equivalents1,448,845 404,088 
Time deposits with other banks750 750 
Debt securities:
Securities available-for-sale (at fair value)1,322,776 1,398,157 
Securities held-to-maturity (fair value $489.3 million at June 30, 2021 and $192.2 million at December 31, 2020)493,467 184,484 
Total debt securities1,816,243 1,582,641 
Loans held for sale (at fair value)42,793 68,890 
Loans5,437,049 5,735,349 
Less: Allowance for credit losses(81,127)(92,733)
Loans, net of allowance for credit losses5,355,922 5,642,616 
Bank premises and equipment, net69,392 75,117 
Other real estate owned12,804 12,750 
Goodwill221,176 221,176 
Other intangible assets, net14,106 16,745 
Bank owned life insurance158,506 131,776 
Net deferred tax assets21,839 23,629 
Other assets154,457 162,214 
Total Assets$9,316,833 $8,342,392 
Liabilities
Deposits$7,836,436 $6,932,561 
Securities sold under agreements to repurchase, maturing within 30 days119,973 119,609 
Subordinated debt71,506 71,365 
Other liabilities106,571 88,455 
Total Liabilities8,134,486 7,211,990 
Shareholders' Equity
Common stock, par value $0.10 per share, authorized 120,000,000 shares, issued 55,830,068 and outstanding 55,436,036 at June 30, 2021, and authorized 120,000,000, issued 55,584,979 and outstanding 55,243,226 shares at December 31, 20205,544 5,524 
Other shareholders' equity1,176,803 1,124,878 
Total Shareholders' Equity1,182,347 1,130,402 
Total Liabilities and Shareholders' Equity$9,316,833 $8,342,392 
 See notes to unaudited condensed consolidated financial statements.

5

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
Six Months Ended June 30,
(In thousands)20212020
Cash Flows from Operating Activities  
Net income$65,129 $25,789 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation2,792 3,031 
Amortization of premiums and discounts on securities, net4,012 1,746 
Amortization of operating lease right-of-use assets2,127 2,363 
Other amortization and accretion, net(7,307)(366)
Stock based compensation4,262 3,524 
Origination of loans designated for sale(283,001)(203,935)
Sale of loans designated for sale318,479 174,450 
Provision for credit losses(10,570)37,124 
Deferred income taxes4,833 (3,328)
Losses (gains) on sale of securities73 (1,092)
Gains on sale of loans(9,411)(5,303)
Gains on sale and write-downs of other real estate owned(380)(485)
Losses on disposition of fixed assets and write-downs upon transfer of bank premises to other real estate owned316 220 
Changes in operating assets and liabilities, net of effects from acquired companies:
Net decrease (increase) in other assets1,086 (22,451)
Net (decrease) increase in other liabilities(10,726)19,139 
Net cash provided by operating activities81,714 30,426 
Cash Flows from Investing Activities
Maturities and repayments of debt securities available-for-sale288,171 134,488 
Maturities and repayments of debt securities held-to-maturity73,697 33,969 
Proceeds from sale of debt securities available-for-sale56,217 92,314 
Purchases of debt securities available-for-sale(468,430)(239,160)
Purchases of debt securities held-to-maturity(172,004)
Maturities of time deposits with other banks1,246 
Net new loans and principal repayments346,173 (431,182)
Purchases of loans held for investment(38,822)
Proceeds from sale of other real estate owned4,954 4,503 
Additions to other real estate owned(1,310)
Proceeds from sale of FHLB and Federal Reserve Bank Stock2,704 33,448 
Purchase of FHLB and Federal Reserve Bank Stock(59)(26,227)
Net cash from bank acquisition33,883 
Purchase of bank owned life insurance(25,000)
Additions to bank premises and equipment(701)(880)
Net cash provided by (used in) investing activities65,590 (363,598)
 See notes to unaudited condensed consolidated financial statements.

 
6

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30,
(In thousands)20212020
Cash Flows from Financing Activities  
Net increase in deposits$903,875 $908,288 
Net increase in repurchase agreements364 6,004 
Net decrease in FHLB borrowings with original maturities of three months or less(315,000)
Proceeds from FHLB borrowings with original maturities of more than three months135,000 
Stock based employee benefit plans369 (1,331)
Dividends paid(7,155)
Net cash provided by financing activities897,453 732,961 
Net increase in cash and cash equivalents1,044,757 399,789 
Cash and cash equivalents at beginning of period404,088 124,531 
Cash and cash equivalents at end of period$1,448,845 $524,320 
Supplemental disclosure of cash flow information:
Cash paid during the period for interest$6,462 $15,756 
Cash paid during the period for taxes17,700 3,492 
Recognition of operating lease right-of-use assets35 52 
Recognition of operating lease liabilities35 52 
Supplemental disclosure of non-cash investing activities:
Transfer of debt securities from available-for-sale to held-to-maturity$210,805 $
Unsettled purchases of debt securities available-for-sale28,750 
Transfers from loans to other real estate owned6,186 
Transfers from bank premises to other real estate owned3,318 1,289 
See notes to unaudited condensed consolidated financial statements.
 
7

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
Accumulated
Other
Comprehensive
Income (Loss)
 Common StockPaid-in
Capital
Retained
Earnings
Treasury
Stock
(In thousands)SharesAmountTotal
Balance at March 31, 202155,294 $5,529 $858,688 $290,420 $(8,693)$9,405 $1,155,349 
Comprehensive income— — — 31,410 — 396 31,806 
Stock based compensation expense— — 2,503 — — — 2,503 
Common stock transactions related to stock based employee benefit plans94 10 (18)— (1,487)— (1,495)
Common stock issued for stock options48 1,425 — — — 1,430 
Dividends on common stock ($0.13 per share)— — — (7,246)— — (7,246)
Three months ended June 30, 2021142 15 3,910 24,164 (1,487)396 26,998 
Balance at June 30, 202155,436 $5,544 $862,598 $314,584 $(10,180)$9,801 $1,182,347 
Accumulated
Other
Comprehensive
Income (Loss)
 Common StockPaid-in
Capital
Retained
Earnings
Treasury
Stock
(In thousands)SharesAmountTotal
Balance at March 31, 202052,709 $5,271 $809,533 $179,646 $(7,422)$4,759 $991,787 
Comprehensive income— — — 25,080 — 12,535 37,615 
Stock based compensation expense— — 1,523 — — — 1,523 
Common stock transactions related to stock based employee benefit plans262 26 (15)— (615)— (604)
Common stock issued for stock options20 280 — — — 282 
Three months ended June 30, 2020282 28 1,788 25,080 (615)12,535 38,816 
Balance at June 30, 202052,991 $5,299 $811,321 $204,726 $(8,037)$17,294 $1,030,603 
Accumulated
Other
Comprehensive
Income (Loss)
Common StockPaid-in
Capital
Retained
Earnings
Treasury
Stock
(In thousands)SharesAmountTotal
Balance at December 31, 202055,243 $5,524 $856,092 $256,701 $(8,285)$20,370 $1,130,402 
Comprehensive income— — — 65,129 — (10,569)54,560 
Stock based compensation expense— — 4,262 — — — 4,262 
Common stock transactions related to stock based employee benefit plans114 12 (18)— (1,895)— (1,901)
Common stock issued for stock options79 2,262 — — — 2,270 
Dividends on common stock ($0.13 per share)— — — (7,246)— — (7,246)
Six months ended June 30, 2021193 20 6,506 57,883 (1,895)(10,569)51,945 
Balance at June 30, 202155,436 $5,544 $862,598 $314,584 $(10,180)$9,801 $1,182,347 
Accumulated
Other
Comprehensive
Income (Loss)
Common StockPaid-in
Capital
Retained
Earnings
Treasury
Stock
(In thousands)SharesAmountTotal
Balance at December 31, 201951,514 $5,151 $786,242 $195,813 $(6,032)$4,465 $985,639 
Comprehensive income— — — 25,789 — 12,829 38,618 
Stock based compensation expense— — 3,523 — — — 3,523 
Common stock transactions related to stock based employee benefit plans377 38 (47)— (2,005)— (2,014)
Common stock issued for stock options57 676 — — — 682 
Cumulative change in accounting principle upon adoption of new accounting pronouncement— — — (16,876)— — (16,876)
Issuance of common stock, pursuant to acquisition1,043 104 20,927 — — — 21,031 
Six months ended June 30, 20201,477 148 25,079 8,913 (2,005)12,829 44,964 
Balance at June 30, 202052,991 $5,299 $811,321 $204,726 $(8,037)$17,294 $1,030,603 
 See notes to unaudited condensed consolidated financial statements.
8

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note A – Basis of Presentation
Basis of Presentation: The accompanying unaudited condensed consolidated financial statements of Seacoast Banking Corporation of Florida and its subsidiaries (the "Company") have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain prior period amounts have been reclassified to conform to the current period presentation.
Operating results for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 or any other period. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
Use of Estimates: The preparation of these condensed consolidated financial statements requires management to make judgments in the application of certain accounting policies that involve significant estimates and assumptions. The Company has established policies and control procedures that are intended to ensure valuation methods are well controlled and applied consistently from period to period. These estimates and assumptions, which may materially affect the reported amounts of certain assets, liabilities, revenues and expenses, are based on information available as of the date of the financial statements, and changes in this information over time and the use of revised estimates and assumptions could materially affect amounts reported in subsequent financial statements. Specific areas, among others, requiring the application of management’s estimates include determination of the allowance for credit losses, acquisition accounting and purchased loans, intangible assets and impairment testing, other fair value measurements and contingent liabilities.

Note B – Recently Issued Accounting Standards, Not Yet Adopted
None applicable this period.














9

Note C – Earnings per Share
Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted average number of shares of common stock outstanding during the period.
For the three and six months ended June 30, 2021, 0 options to purchase shares of the Company's common stock were anti-dilutive, compared to 508,000 and 489,000 shares that were excluded in the computation of diluted earnings per share for the three and six months ended June 30, 2020, respectively.
Three Months Ended June 30,Six Months Ended June 30,
(Dollars in thousands, except per share data)2021202020212020
Basic earnings per share  
Net income$31,410 $25,080 $65,129 $25,789 
Average common shares outstanding55,421 52,985 55,347 52,394 
Net income per share$0.57 $0.47 $1.18 $0.49 
Diluted earnings per share
Net income$31,410 $25,080 $65,129 $25,789 
Average common shares outstanding55,421 52,985 55,347 52,394 
Add: Dilutive effect of employee restricted stock and stock options480 323 480 413 
Average diluted shares outstanding55,901 53,308 55,827 52,807 
Net income per share$0.56 $0.47 $1.17 $0.49 
Net income has not been allocated to unvested restricted stock awards that are participating securities because the amounts that would be allocated are not material to net income per share of common stock. Unvested restricted stock awards that are participating securities represent less than one percent of all of the outstanding shares of common stock for each of the periods presented.

Note D – Securities
The amortized cost, gross unrealized gains and losses and fair value of securities available-for-sale and held-to-maturity at June 30, 2021 and December 31, 2020 are summarized as follows:
 June 30, 2021
(In thousands)Amortized
Cost
Gross
Unrealized
Gains
Gross Unrealized
Losses
Fair
Value
Debt securities available-for-sale    
U.S. Treasury securities and obligations of U.S. government agencies$7,412 $439 $(2)$7,849 
Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities987,402 14,224 (5,906)995,720 
Private mortgage-backed securities and collateralized mortgage obligations73,469 1,938 (218)75,189 
Collateralized loan obligations209,835 22 (165)209,692 
Obligations of state and political subdivisions32,288 2,038 34,326 
Totals$1,310,406 $18,661 $(6,291)$1,322,776 
Debt securities held-to-maturity
Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities$493,467 $5,697 $(9,875)$489,289 
Totals$493,467 $5,697 $(9,875)$489,289 
10

 December 31, 2020
(In thousands)Amortized
Cost
Gross Unrealized
Gains
Gross Unrealized
Losses
Fair
Value
Debt securities available-for-sale    
U.S. Treasury securities and obligations of U.S. government agencies$8,250 $528 $(1)$8,777 
Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities1,038,437 23,457 (1,240)1,060,654 
Private mortgage-backed securities and collateralized mortgage obligations89,284 2,131 (210)91,205 
Collateralized loan obligations202,563 279 (647)202,195 
Obligations of state and political subdivisions33,005 2,321 35,326 
Totals$1,371,539 $28,716 $(2,098)$1,398,157 
Debt securities held-to-maturity
Mortgage-backed securities of U.S. government-sponsored entities$184,484 $7,818 $(123)$192,179 
Totals$184,484 $7,818 $(123)$192,179 
Proceeds from sales of securities for the three and six months ended June 30, 2021 were $56.2 million, resulting in gross gains of $0.2 million and gross losses of $0.3 million. For the three months ended June 30, 2020, proceeds from sales of securities were $64.5 million, which resulted in gross gains of $2.3 million and gross losses of $1.1 million. For the six months ended June 30, 2020, proceeds from sales of securities were $92.3 million, which resulted in gross gains of $2.4 million and gross losses of $1.3 million.
Also included in “Securities gains (losses), net” is an increase of $18 thousand and a decrease of $0.1 million for the three and six months ended June 30, 2021, respectively, and increases of $0.1 million and $0.2 million for the three and six months ended June 30, 2020, respectively, in the value of a CRA-qualified mutual fund.
During the first quarter of 2021, the Company reclassified debt securities with an amortized cost of $210.8 million from available-for-sale to held-to-maturity, as it has the ability and intent to hold these securities to maturity. These securities had net unrealized gains of $0.8 million at the date of transfer, which will continue to be reported in accumulated other comprehensive income, and will be amortized over the remaining life of the securities as an adjustment of yield. The effect on interest income of the amortization of net unrealized gains is offset by the amortization of the premium on the securities transferred.
At June 30, 2021, debt securities with a fair value of $388.1 million were pledged primarily as collateral for public deposits and secured borrowings.
The amortized cost and fair value of debt securities held-to-maturity and available-for-sale at June 30, 2021, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because prepayments of the underlying collateral for these securities may occur, due to the right to call or repay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.
11

 Held-to-MaturityAvailable-for-Sale
(In thousands)Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Due in less than one year$$$400 $402 
Due after one year through five years12,316 13,175 
Due after five years through ten years8,505 8,923 
Due after ten years18,479 19,675 
 39,700 42,175 
Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities493,467 489,289 987,402 995,720 
Private mortgage-backed securities and collateralized mortgage obligations73,469 75,189 
Collateralized loan obligations209,835 209,692 
Totals$493,467 $489,289 $1,310,406 $1,322,776 
The estimated fair value of a security is determined based on market quotations when available or, if not available, by using quoted market prices for similar securities, pricing models or discounted cash flows analyses, or using observable market data. The tables below indicate the fair value of available-for-sale debt securities with unrealized losses for which no allowance for credit losses has been recorded.
 June 30, 2021
 Less Than 12 Months12 Months or LongerTotal
(In thousands)Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
U.S. Treasury securities and obligations of U.S. government agencies$$$251 $(2)$251 $(2)
Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities538,907 (5,866)4,389 (40)543,296 (5,906)
Private mortgage-backed securities and collateralized mortgage obligations14,979 (195)1,738 (23)16,717 (218)
Collateralized loan obligations82,191 (108)9,450 (57)91,641 (165)
Totals$636,077 $(6,169)$15,828 $(122)$651,905 $(6,291)
 December 31, 2020
 Less Than 12 Months12 Months or LongerTotal
(In thousands)Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
U.S. Treasury securities and obligations of U.S. government agencies$$$256 $(1)$256 $(1)
Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities203,405 (1,218)569 (22)203,974 (1,240)
Private mortgage-backed securities and collateralized mortgage obligations23,997 (210)23,997 (210)
Collateralized loan obligations104,697 (102)72,513 (545)177,210 (647)
Totals$332,099 $(1,530)$73,338 $(568)$405,437 $(2,098)
At June 30, 2021, the Company had $5.9 million of unrealized losses on mortgage-backed securities and collateralized mortgage obligations issued by government-sponsored entities having a fair value of $543.3 million. These securities are either explicitly or implicitly guaranteed by the U.S. government and have a long history of no credit losses. The implied government guarantee of principal and interest payments and the high credit rating of the portfolio provide sufficient basis for the current expectation that there is no risk of loss if default were to occur. Based on the assessment of all relevant factors, the Company believes that the unrealized loss positions on these debt securities are a function of changes in investment spreads and interest
12

rate movements and not changes in credit quality, and expects to recover the entire amortized cost basis of these securities. Therefore, at June 30, 2021, 0 allowance for credit losses has been recorded.
At June 30, 2021, the Company had $0.2 million of unrealized losses on private label residential and commercial mortgage-backed securities and collateralized mortgage obligations having a fair value of $16.7 million. The collateral underlying these mortgage investments is primarily residential real estate. The securities have average credit support of 35%. Based on the assessment of all relevant factors, the Company believes that the unrealized loss positions on these debt securities are a function of changes in investment spreads and interest rate movements and not changes in credit quality, and expects to recover the entire amortized cost basis of these securities. Therefore, at June 30, 2021, 0 allowance for credit losses has been recorded.
At June 30, 2021, the Company had $0.2 million in unrealized losses in uncapped 3-month LIBOR floating rate collateralized loan obligations ("CLOs") having a fair value of $91.6 million. CLOs are special purpose vehicles and those in which the Company has invested acquire nearly all first-lien, broadly syndicated corporate loans across a diversified band of industries while providing support to senior tranche investors. As of June 30, 2021, these positions are in AAA and AA tranches, with average credit support of 34% and 23%, respectively. The Company evaluates the securities for potential credit losses by modeling expected loan-level defaults, recoveries, and prepayments for each CLO security. Based on the assessment of all relevant factors, the Company believes that the unrealized loss positions on these debt securities are a function of changes in investment spreads and interest rate movements and not changes in credit quality, and expects to recover the entire amortized cost basis of these securities. Therefore, at June 30, 2021, 0 allowance for credit losses has been recorded.
All HTM debt securities are issued by government-sponsored entities, which are either explicitly or implicitly guaranteed by the U.S. government and have a long history of no credit losses. While the potential for default on these securities may be something greater than zero, the long history with no credit losses, the implied government guarantee of principal and interest payments and the high credit rating of the HTM portfolio provide sufficient basis for the current expectation that there is no risk of loss if default were to occur. As a result, as of June 30, 2021, 0 allowance for credit losses has been recorded.
Included in other assets at June 30, 2021 is $31.2 million of Federal Home Loan Bank and Federal Reserve Bank stock stated at par value. The Company has not identified events or changes in circumstances that may have a significant adverse effect on the fair value of these cost method investment securities. Also included in other assets is a $6.4 million investment in a CRA-qualified mutual fund carried at fair value. Accrued interest receivable on AFS and HTM debt securities of $2.6 million and $0.8 million at June 30, 2021, respectively, and $3.2 million and $0.4 million at December 31, 2020, respectively, is also included in other assets.
The Company holds 11,330 shares of Visa Class B stock, which, following resolution of Visa litigation, will be converted to Visa Class A shares. Under the current conversion ratio that became effective September 27, 2019, the Company would receive 1.6228 shares of Class A stock for each share of Class B stock for a total of 18,386 shares of Visa Class A stock. The ownership of Visa stock is related to prior ownership in Visa's network while Visa operated as a cooperative, and is recorded on the Company's financial records at a zero basis.

Note E – Loans
Loans held for investment are categorized into the following segments:
Construction and land development: Loans are extended to both commercial and consumer customers which are collateralized by and for the purpose of funding land development and construction projects, including 1-4 family residential construction, multi-family property and non-farm residential property where the primary source of repayment is from proceeds of the sale, refinancing or permanent financing of the property.
Commercial real estate - owner-occupied: Loans are extended to commercial customers for the purpose of acquiring real estate to be occupied by the borrower's business. These loans are collateralized by the subject property and the repayment of these loans is largely dependent on the performance of the company occupying the property.
Commercial real estate - non owner-occupied: Loans are extended to commercial customers for the purpose of acquiring commercial property where occupancy by the borrower is not their primary intent. These loans are viewed primarily as cash flow loans, collateralized by the subject property, and the repayment of these loans is largely dependent on rental income from the successful operation of the property.
Residential real estate: Loans are extended to consumer customers and collateralized primarily by 1-4 family residential properties and include fixed and variable rate mortgages, home equity mortgages, and home equity lines of
13

credit. Loans are primarily written based on conventional loan agency guidelines, including loans that exceed agency value limitations. Sources of repayment may be from the occupant of the residential property or from cash flows on rental income from the successful operation of the property.
Commercial and financial: Loans are extended to commercial customers. The purpose of the loans can be working capital, physical asset expansion, asset acquisition or other business purposes. Loans may be collateralized by assets owned by the borrower or the borrower's business. Commercial loans are based primarily on the historical and projected cash flow of the borrower's business and secondarily on the capacity of credit enhancements, guarantees and underlying collateral provided by the borrower.
Consumer: Loans are extended to consumer customers. The segment includes both installment loans and lines of credit which may be collateralized or non-collateralized.
Paycheck Protection Program ("PPP"): Loans originated under a temporary program established by the CARES Act, and extended by the Economic Aid Act. Under the terms of the program, balances may be forgiven if the borrower uses the funds in a manner consistent with the program guidelines, and repayment is guaranteed by the U.S. government.
The following tables present net loan balances by segment as of:
 June 30, 2021
(In thousands)Portfolio LoansAcquired Non-PCD LoansPCD LoansTotal
Construction and land development$223,412 $10,408 $527 $234,347 
Commercial real estate - owner-occupied889,221 203,847 34,572 1,127,640 
Commercial real estate - non owner-occupied1,112,290 274,772 25,377 1,412,439 
Residential real estate1,087,313 131,131 8,092 1,226,536 
Commercial and financial811,580 75,245 13,381 900,206 
Consumer166,806 4,949 14 171,769 
Paycheck Protection Program350,531 13,581 364,112 
Totals$4,641,153 $713,933 $81,963 $5,437,049 
 December 31, 2020
(In thousands)Portfolio LoansAcquired Non-PCD LoansPCD LoansTotal
Construction and land development$216,420 $26,250 $2,438 $245,108 
Commercial real estate - owner occupied854,769 247,090 39,451 1,141,310 
Commercial real estate - non-owner occupied1,043,459 323,273 29,122 1,395,854 
Residential real estate1,155,914 176,105 10,609 1,342,628 
Commercial and financial743,846 94,627 16,280 854,753 
Consumer181,797 6,660 278 188,735 
Paycheck Protection Program515,532 51,429 566,961 
Totals$4,711,737 $925,434 $98,178 $5,735,349 
The amortized cost basis of loans at June 30, 2021 included net deferred costs of $25.2 million on non-PPP portfolio loans and net deferred fees of $10.6 million on PPP loans. At December 31, 2020, the amortized cost basis included net deferred costs of $22.6 million on non-PPP portfolio loans and net deferred fees of $9.5 million on PPP loans. At June 30, 2021, the remaining fair value adjustments on acquired loans were $24.4 million, or 3.0%, of the outstanding acquired loan balances, compared to $30.2 million, or 2.9%, of the acquired loan balances at December 31, 2020. These amounts are accreted into interest income over the remaining lives of the related loans on a level yield basis.
Accrued interest receivable is included within Other Assets and was $15.7 million and $25.8 million at June 30, 2021 and December 31, 2020, respectively.
14

The following tables present the status of net loan balances as of June 30, 2021 and December 31, 2020. Loans on short-term payment deferral at the reporting date are reported as current.
 June 30, 2021
(In thousands)CurrentAccruing
30-59 Days
Past Due
Accruing
60-89 Days
Past Due
Accruing
Greater
Than
90 Days
NonaccrualTotal
Portfolio Loans      
Construction and land development$223,348 $$$$64 $223,412 
Commercial real estate - owner-occupied887,266 1,955 889,221 
Commercial real estate - non owner-occupied1,110,608 261 1,421 1,112,290 
Residential real estate1,076,165 199 50 10,899 1,087,313 
Commercial and financial804,139 2,890 4,551 811,580 
Consumer166,426 211 35 134 166,806 
Paycheck Protection Program350,531 350,531 
Total Portfolio Loans$4,618,483 $3,561 $85 $$19,024 $4,641,153 
Acquired Non-PCD Loans
Construction and land development$10,408 $$$$$10,408 
Commercial real estate - owner-occupied202,269 958 620 203,847 
Commercial real estate - non owner-occupied272,945 1,827 274,772 
Residential real estate128,579 71 2,481 131,131 
Commercial and financial71,814 423 1,998 339 671 75,245 
Consumer4,949 4,949 
Paycheck Protection Program13,581 13,581 
 Total Acquired Non-PCD Loans$704,545 $1,381 $2,069 $339 $5,599 $713,933 
PCD Loans
Construction and land development$520 $$$$$527 
Commercial real estate - owner-occupied30,673 1,084 2,815 34,572 
Commercial real estate - non owner-occupied21,508 3,869 25,377 
Residential real estate6,555 71 431 1,035 8,092 
Commercial and financial12,642 168 571 13,381 
Consumer14 14 
Total PCD Loans$71,912 $1,323 $431 $$8,297 $81,963 
Total Loans$5,394,940 $6,265 $2,585 $339 $32,920 $5,437,049 
 
15

 December 31, 2020
(In thousands)CurrentAccruing
30-59 Days
Past Due
Accruing
60-89 Days
Past Due
Accruing
Greater
Than
90 Days
NonaccrualTotal
Portfolio Loans      
Construction and land development$216,262 $$$$158 $216,420 
Commercial real estate - owner occupied851,222 1,076 2,471 854,769 
Commercial real estate - non-owner occupied1,041,306 2,153 1,043,459 
Residential real estate1,142,893 3,002 1,427 61 8,531 1,155,914 
Commercial and financial737,362 135 1,967 4,382 743,846 
Consumer180,879 203 138 575 181,797 
Paycheck Protection Program515,532 515,532 
 Total Portfolio Loans$4,685,456 $4,416 $3,532 $63 $18,270 $4,711,737 
Acquired Non-PCD Loans
Construction and land development$26,250 $$$$$26,250 
Commercial real estate - owner occupied244,486 2,604 247,090 
Commercial real estate - non-owner occupied322,264 1,009 323,273 
Residential real estate171,507 1,605 104 2,889 176,105 
Commercial and financial93,223 216 1,188 94,627 
Consumer6,640 20 6,660 
Paycheck Protection Program51,429 51,429 
 Total Acquired Non-PCD Loans$915,799 $1,841 $104 $$7,690 $925,434 
PCD Loans
Construction and land development$2,429 $$$$$2,438 
Commercial real estate - owner occupied36,345 3,106 39,451 
Commercial real estate - non-owner occupied24,200 4,922 29,122 
Residential real estate9,537 1,072 10,609 
Commercial and financial15,121 125 1,034 16,280 
Consumer271 278 
 Total PCD Loans$87,903 $125 $$$10,150 $98,178 
Total Loans$5,689,158 $6,382 $3,636 $63 $36,110 $5,735,349 
All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest subsequently received on such loans is accounted for under the cost-recovery method, whereby interest income is not recognized until the loan balance is reduced to zero. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, and future payments are reasonably assured. The Company recognized $0.4 million and $0.3 million in interest income on nonaccrual loans during the three months ended June 30, 2021 and 2020, respectively. The Company recognized $0.6 million and $0.4 million in interest income on nonaccrual loans during the six months ended June 30, 2021 and 2020, respectively.
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The following tables present net balances of loans on nonaccrual status and the related allowance for credit losses, if any, as of:
June 30, 2021
(In thousands)Nonaccrual Loans With No Related AllowanceNonaccrual Loans With an AllowanceTotal Nonaccrual LoansAllowance for Credit Losses
Construction and land development$71 $$71 $
Commercial real estate - owner-occupied4,340 1,050 5,390 467 
Commercial real estate - non owner-occupied3,248 3,869 7,117 1,708 
Residential real estate13,710 705 14,415 349 
Commercial and financial3,733 2,060 5,793 1,266 
Consumer37 97 134 97 
Totals$25,139 $7,781 $32,920 $3,887 
December 31, 2020
(In thousands)Nonaccrual Loans With No Related AllowanceNonaccrual Loans With an AllowanceTotal Nonaccrual LoansAllowance for Credit Losses
Construction and land development$148 $19 $167 $
Commercial real estate - owner-occupied7,893 288 8,181 287 
Commercial real estate - non owner-occupied5,666 2,418 8,084 1,640 
Residential real estate9,520 2,972 12,492 1,587 
Commercial and financial3,175 3,429 6,604 2,235 
Consumer222 360 582 75 
Totals$26,624 $9,486 $36,110 $5,832 
Collateral-Dependent Loans
Loans are considered collateral-dependent when the repayment, based on the Company's assessment as of the reporting date, is expected to be provided substantially through the operation or sale of the underlying collateral and there are no other available and reliable sources of repayment. The following table presents collateral-dependent loans as of:
(In thousands)June 30, 2021December 31, 2020
Construction and land development$71 $189 
Commercial real estate - owner-occupied6,662 11,992 
Commercial real estate - non owner-occupied6,480 7,285 
Residential real estate13,907 16,652 
Commercial and financial8,565 11,198 
Consumer89 586 
Totals$35,774 $47,902 
Loans by Risk Rating
The Company utilizes an internal asset classification system as a means of identifying problem and potential problem loans. The following classifications are used to categorize loans under the internal classification system:
Pass: Loans that are not problem loans or potential problem loans are considered to be pass-rated.
Special Mention: Loans that do not currently expose the Company to sufficient risk to warrant classification in the Substandard or Doubtful categories, but possess weaknesses that deserve management's close attention are deemed to be Special Mention.
17

Substandard: Loans with the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
Substandard Impaired: Loans typically placed on nonaccrual and considered to be collateral-dependent or accruing TDRs.
Doubtful: Loans that have all the weaknesses inherent in those classified Substandard with the added characteristic that the weakness present makes collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The principal balance of loans classified as doubtful are likely to be charged off.
The following tables present the risk rating of loans by year of origination as of:
June 30, 2021
(In thousands)20212020201920182017PriorRevolvingTotal
Construction and Land Development
Risk Ratings:
Pass$37,114 $55,457 $41,969 $26,223 $6,326 $23,567 $40,656 $231,312 
Special Mention372 2,517 2,889 
Substandard17 17 
Substandard Impaired37 92 129 
Doubtful
Total$37,114 $55,457 $42,341 $28,740 $6,363 $23,676 $40,656 $234,347 
Commercial real estate - owner-occupied
Risk Ratings:
Pass$87,486 $145,245 $184,017 $141,827 $130,013 $393,389 $12,018 $1,093,995 
Special Mention11,267 841 1,286 5,287 18,681 
Substandard3,805 4,356 8,161 
Substandard Impaired2,883 685 1,445 1,790 6,803 
Doubtful
Total$87,486 $156,512 $187,741 $143,798 $135,263 $404,822 $12,018 $1,127,640 
Commercial real estate - non owner-occupied
Risk Ratings:
Pass$121,245 $159,336 $292,367 $183,456 $100,887 $484,963 $8,018 $1,350,272 
Special Mention953 9,399 16,522 9,931 — 36,805 
Substandard9,718 8,528 18,246 
Substandard Impaired2,378 4,738 7,116 
Doubtful
Total$121,245 $159,336 $295,698 $202,573 $117,409 $508,160 $8,018 $1,412,439 
Residential real estate
Risk Ratings:
Pass$129,061 $107,121 $105,930 $149,520 $153,851 $241,216 $320,702 $1,207,401 
Special Mention30 218 221 469 
Substandard214 486 700 
Substandard Impaired496 741 77 4,462 9,879 2,311 17,966 
Doubtful
Total$129,061 $107,617 $106,671 $149,627 $158,313 $251,527 $323,720 $1,226,536 
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June 30, 2021
(In thousands)20212020201920182017PriorRevolvingTotal
Commercial and financial
Risk Ratings:
Pass$148,832 $201,500 $120,225 $87,159 $48,385 $70,755 $194,503 $871,359 
Special Mention5,795 864 891 270 33 1,130 8,983 
Substandard411 2,480 1,369 3,512 26 7,798 
Substandard Impaired5,478 3,258 1,427 1,811 92 12,066 
Doubtful
Total$148,832 $207,706 $126,567 $93,788 $51,451 $76,111 $195,751 $900,206 
Consumer
Risk Ratings:
Pass$23,549 $38,229 $33,441 $22,421 $13,837 $23,735 $13,959 $169,171 
Special Mention58 46 15 62 30 1,330 1,541 
Substandard35 14 655 704 
Substandard Impaired64 26 80 183 353 
Doubtful
Total$23,549 $38,287 $33,551 $22,497 $13,993 $23,948 $15,944 $171,769 
Paycheck Protection Program
Risk Ratings:
Pass$246,107 $118,005 $$$$$$364,112 
Total$246,107 $118,005 $$$$$$364,112 
Consolidated
Risk Ratings:
Pass$793,394 $824,893 $777,949 $610,606 $453,299 $1,237,625 $589,856 $5,287,622 
Special Mention17,120 3,076 14,138 16,854 15,499 2,681 69,368 
Substandard411 12,233 5,188 16,627 1,167 35,626 
Substandard Impaired496 11,544 4,046 7,451 18,493 2,403 44,433 
Doubtful
Total$793,394 $842,920 $792,569 $641,023 $482,792 $1,288,244 $596,107 $5,437,049 
December 31, 2020
(In thousands)20202019201820172016PriorRevolvingTotal
Construction and Land Development
Risk Ratings:
Pass$62,107 $52,384 $46,067 $15,873 $7,335 $17,873 $35,324 $236,963 
Special Mention206 245 5,918 1,449 7,818 
Substandard51 51 
Substandard Impaired37 239 276 
Doubtful
Total$62,313 $52,629 $51,985 $15,910 $7,335 $19,612 $35,324 $245,108 
Commercial real estate - owner-occupied
Risk Ratings:
Pass$155,953 $198,559 $156,276 $138,341 $148,389 $287,772 $14,255 $1,099,545 
Special Mention5,773 1,858 3,305 4,471 4,050 19,459 
Substandard4,709 1,955 5,508 12,172 
Substandard Impaired3,151 747 1,362 4,874 10,134 
Doubtful
Total$161,726 $203,568 $160,328 $144,412 $154,815 $302,204 $14,257 $1,141,310 
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December 31, 2020
(In thousands)20202019201820172016PriorRevolvingTotal
Commercial real estate - non owner-occupied
Risk Ratings:
Pass$159,299 $313,287 $201,112 $123,357 $175,623 $356,943 $8,596 $1,338,217 
Special Mention431 9,487 7,580 10,240 114 27,852 
Substandard9,709 8,311 3,682 21,702 
Substandard Impaired2,418 125 5,540 8,083 
Doubtful
Total$159,299 $316,136 $220,308 $130,937 $194,299 $366,279 $8,596 $1,395,854 
Residential real estate
Risk Ratings:
Pass$96,819 $144,329 $204,077 $205,046 $160,612 $159,742 $350,502 $1,321,127 
Special Mention33 720 966 479 2,198 
Substandard350 896 1,452 100 2,798 
Substandard Impaired109 726 1,520 1,762 715 9,671 2,002 16,505 
Doubtful
Total$97,278 $145,055 $205,630 $208,424 $161,327 $171,831 $353,083 $1,342,628 
Commercial and financial
Risk Ratings:
Pass$214,774 $146,511 $103,769 $60,782 $39,692 $53,758 $204,304 $823,590 
Special Mention71 946 965 5,612 67 635 209 8,505 
Substandard154 41 3,016 1,609 553 3,239 764 9,376 
Substandard Impaired317 4,595 3,199 2,292 2,074 704 81 13,262 
Doubtful1
20 20 
Total$215,316 $152,093 $110,949 $70,295 $42,386 $58,336 $205,378 $854,753 
Consumer
Risk Ratings:
Pass$46,476 $43,143 $30,433 $18,937 $21,880 $9,488 $15,089 $185,446 
Special Mention58 27 14 41 42 21 1,854 2,057 
Substandard42 151 228 425 
Substandard Impaired50 193 24 329 183 21 807 
Doubtful
Total$46,541 $43,220 $30,640 $19,044 $22,255 $9,843 $17,192 $188,735 
Paycheck Protection Program
Risk Ratings:
Pass$566,961 $$$$$$$566,961 
Total$566,961 $$$$$$$566,961 
Consolidated
Risk Ratings:
Pass$1,302,389 $898,213 $741,734 $562,336 $553,531 $885,576 $628,070 $5,571,849 
Special Mention6,108 3,507 19,722 13,953 14,820 7,235 2,544 67,889 
Substandard504 41 12,725 7,256 10,823 14,083 1,092 46,524 
Substandard Impaired433 10,940 5,659 5,477 3,243 21,211 2,104 49,067 
Doubtful1
20 20 
Total$1,309,434 $912,701 $779,840 $589,022 $582,417 $928,105 $633,830 $5,735,349 
1Loans classified as doubtful are fully reserved at December 31, 2020.
Loans Modified in Connection with COVID-19 Pandemic
The CARES Act, which was signed into law on March 27, 2020, and amended by the Consolidated Appropriations Act on December 27, 2020, encourages financial institutions to practice prudent efforts to work with borrowers financially impacted by the COVID-19 pandemic by providing an option to exclude from TDR consideration certain loan modifications that might otherwise be categorized as TDRs under ASC 310-40. This option is available for modifications that are deemed to be COVID-related, where the borrower was not more than 30 days past due on December 31, 2019, and the modification is executed between March 1, 2020 and the earlier of (i) January 1, 2022 or (ii) 60 days after the end of the COVID-19 national emergency.
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Federal banking regulators issued similar guidance that also allows lenders to conclude that short-term modifications for borrowers affected by the pandemic should not be considered TDRs if the borrower was current at the time of modification. Seacoast has provided financially impacted borrowers with loan accommodations, primarily consisting of payment deferrals of up to six months. At its peak on June 30, 2020, loans on deferral represented $1.1 billion, or 21%, of total non-PPP loans. In the second half of 2020, the large majority of these borrowers successfully resumed making contractual payments, and the level of loans with accommodations has decreased to $6.8 million, or 0.1%, of total non-PPP loans as of June 30, 2021. Types of outstanding accommodations at June 30, 2021 included a combination of one or more of the following: full payment deferral, partial payment deferral, reduction of interest rate, extension of the original maturity date, or re-amortization of the facility.
The following table presents the balance of loans with active payment accommodations at the specified dates, excluding PPP loans:
(In thousands)June 30, 2021December 31, 2020
Construction and land development$$1,032 
Commercial real estate - owner-occupied1,612 14,248 
Commercial real estate - non owner-occupied2,257 32,549 
Residential real estate1,702 12,839 
Commercial and financial811 11,915 
Consumer399 1,479 
Totals$6,781 $74,062 
Troubled Debt Restructured Loans
The Company’s TDR concessions granted to certain borrowers generally do not include forgiveness of principal balances, but may include interest rate reductions, an extension of the amortization period and/or converting the loan to interest only for a limited period of time. Loan modifications are not reported in calendar years after modification if the loans were modified at an interest rate equal to the yields of new loan originations with comparable risk and the loans are performing based on the terms of the restructuring agreements.
The following table presents loans that were modified in a troubled debt restructuring during the three and six months ended:
Three Months Ended June 30,
20212020
(In thousands)Number of ContractsPre-Modification Outstanding Recorded InvestmentPost-Modification Outstanding Recorded InvestmentNumber of ContractsPre-Modification Outstanding Recorded InvestmentPost-Modification Outstanding Recorded Investment
Construction and land development$$$12 $12 
Commercial real estate - owner-occupied
Commercial real estate - non owner-occupied
Residential real estate52 52 
Commercial and financial142 142 
Consumer47 47 
Totals$194 $194 $59 $59 
21

Six Months Ended June 30,
20212020
(In thousands)Number of ContractsPre-Modification Outstanding Recorded InvestmentPost-Modification Outstanding Recorded InvestmentNumber of ContractsPre-Modification Outstanding Recorded InvestmentPost-Modification Outstanding Recorded Investment
Construction and land development$$$12 $12 
Commercial real estate - owner-occupied
Commercial real estate - non owner-occupied
Residential real estate79 79 45 45 
Commercial and financial142 142 437 437 
Consumer47 47 
 Totals$221 $221 $541 $541 

The TDRs described above resulted in a specific allowance for credit losses of $0.2 million as of June 30, 2021 and $0.4 million as of June 30, 2020. During the six months ended June 30, 2021, there were 2 defaults totaling $0.1 million of loans that had been modified in TDRs within the preceding twelve months. During the six months ended June 30, 2020, there were 3 defaults totaling $1.4 million of loans to a single borrower that had been modified to a TDR within the preceding twelve months. The Company considers a loan to have defaulted when it becomes 90 days or more delinquent under the modified terms, has been transferred to nonaccrual status, is charged off or has been transferred to other real estate owned. For loans measured based on the present value of expected future cash flows, $6,000 and $21,000 for the three months ended June 30, 2021, and 2020, respectively, and $11,000 and $46,000 for the six months ended June 30, 2021, and 2020, respectively, was included in interest income and represents the change in present value attributable to the passage of time.

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Note F – Allowance for Credit Losses
Activity in the allowance for credit losses is summarized as follows:
 Three Months Ended June 30, 2021
(In thousands)Beginning
Balance
Provision
for Credit
Losses
Charge-
Offs
RecoveriesTDR
Allowance
Adjustments
Ending
Balance
Construction and land development$4,428 $(469)$$96 $(2)$4,053 
Commercial real estate - owner-occupied9,792 (1,116)8,676 
Commercial real estate - non owner-occupied36,229 (1,423)34,807 
Residential real estate14,353 (2,407)(21)621 (3)12,543 
Commercial and financial18,916 399 (1,564)265 18,016 
Consumer2,925 161 (199)146 (1)3,032 
Paycheck Protection Program
Totals$86,643 $(4,855)$(1,784)$1,129 $(6)$81,127 
 Three Months Ended June 30, 2020
(In thousands)Beginning
Balance
Provision
for Credit
Losses
Charge-
Offs
RecoveriesTDR
Allowance
Adjustments
Ending
Balance
Construction and land development$4,646 $2,478 $$37 $$7,161 
Commercial real estate - owner occupied5,327 229 18 (12)5,562 
Commercial real estate - non-owner occupied35,643 3,345 38,992 
Residential real estate19,899 574 (113)101 (8)20,453 
Commercial and financial15,470 1,319 (1,768)493 15,514 
Consumer4,426 (334)(614)91 (1)3,568 
Paycheck Protection Program
Totals$85,411 $7,611 $(2,495)$744 $(21)$91,250 
Six Months Ended June 30, 2021
(In thousands)Beginning
Balance
Provision
for Credit
Losses
Charge-
Offs
RecoveriesTDR
Allowance
Adjustments
Ending
Balance
Construction and land development$4,920 $(979)$$114 $(2)$4,053 
Commercial real estate - owner-occupied9,868 (1,192)8,676 
Commercial real estate - non owner-occupied38,266 (3,461)34,807 
Residential real estate17,500 (5,779)(21)850 (7)12,543 
Commercial and financial18,690 1,174 (2,320)472 18,016 
Consumer3,489 (333)(384)262 (2)3,032 
Paycheck Protection Program
Totals$92,733 $(10,570)$(2,725)$1,700 $(11)$81,127 

23

Six Months Ended June 30, 2020
(In thousands)Beginning BalanceImpact of Adoption of ASC 326Initial Allowance on PCD Loans Acquired During the PeriodProvision for Credit LossesCharge- OffsRecoveriesTDR Allowance AdjustmentsEnding Balance
Construction and land development$1,842 $1,479 $48 $3,727 $$66 $(1)$7,161 
Commercial real estate - owner occupied5,361 80 207 (34)(45)18 (25)5,562 
Commercial real estate - non-owner occupied7,863 9,341 140 21,628 (12)32 38,992 
Residential real estate7,667 5,787 97 6,834 (131)218 (19)20,453 
Commercial and financial9,716 3,677 11 4,063 (2,866)913 15,514 
Consumer2,705 862 13 906 (1,087)170 (1)3,568 
Paycheck Protection Program
Totals$35,154 $21,226 $516 $37,124 $(4,141)$1,417 $(46)$91,250 
Management establishes the allowance using relevant available information from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts to project losses over a three-year forecast period. Forecast data is sourced primarily from Moody’s Analytics, a firm widely recognized for its research, analysis, and economic forecasts. For portfolio segments with a weighted average life longer than three years, the Company reverts to longer-term historical loss experience to estimate losses over the remaining life of the loans within each segment.

Historical credit losses provide the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, loan to value ratios, borrower credit characteristics, loan seasoning or term as well as for changes in current and forecasted environmental conditions, such as changes in unemployment rates, property values, occupancy rates, and other macroeconomic metrics.
As of June 30, 2021, the Company utilized Moody’s most recent “U.S. Macroeconomic Outlook Baseline” scenario and considered the uncertainty associated with the assumptions in the Baseline scenario, including the potential for increasing COVID-19 infections, including from variants, and the resulting potential erosion in consumer confidence, and the risk that government stimulus programs are less effective than expected. Outcomes in any or all of these factors could differ from the Baseline scenario, and the Company incorporated qualitative considerations reflecting the risk of uncertain economic conditions, and for additional dimensions of risk not captured in the quantitative model.
In the Construction and Land Development segment, the decrease in reserves during the quarter reflects improved economic variables relating to residential real estate. In this segment, the primary source of repayment is typically from proceeds of the sale, refinancing, or permanent financing of the underlying property; therefore, industry and collateral type and estimated collateral values are among the relevant factors in assessing expected losses.
In the Commercial Real Estate - Owner-Occupied segment, the decrease in reserves is primarily the result of improved economic variables relating to unemployment. Risk characteristics include but are not limited to, collateral type, loan seasoning, and lien position.
In the Commercial Real Estate - Non Owner-Occupied segment, the decrease in reserves reflects lower loan balances and improved economic forecast variables including lower unemployment. Repayment is often dependent upon rental income from the successful operation of the underlying property. Loan performance may be adversely affected by general economic conditions or conditions specific to the real estate market, including property types. Collateral type, loan seasoning, and lien position are among the risk characteristics analyzed for this segment.
The Residential Real Estate segment includes first mortgages secured by residential property, and home equity lines of credit. The decrease in reserves reflects lower loan balances and improved economic forecast variables including lower unemployment. Risk characteristics considered for this segment include, but are not limited to, collateral type, lien position, loan to value ratios, and loan seasoning.
In the Commercial and Financial segment, borrowers are primarily small to medium sized professional firms and other businesses, and loans are generally supported by projected cash flows of the business, collateralized by business assets, and/or guaranteed by the business owners. The decrease in reserves is primarily attributed to improvement in economic forecast
24

variables including unemployment, partially offset by higher loan balances. Industry, collateral type, estimated collateral values and loan seasoning are among the relevant factors in assessing expected losses.
Consumer loans include installment and revolving lines, loans for automobiles, boats, and other personal or family purposes. Risk characteristics considered for this segment include, but are not limited to, collateral type, loan to value ratios, loan seasoning and FICO score. Nominal changes in the reserve during the quarter reflect changes in underlying economic variables.
Balances outstanding under the Paycheck Protection Program are guaranteed by the U.S. government and have not been assigned a reserve.
The allowance for credit losses is composed of specific allowances for loans individually evaluated and general allowances for loans grouped into loan pools based on similar characteristics, which are collectively evaluated. The Company’s loan portfolio and related allowance at June 30, 2021 and December 31, 2020 is shown in the following tables:
 June 30, 2021
 Individually EvaluatedCollectively EvaluatedTotal
(In thousands)Recorded
Investment
Associated
Allowance
Recorded
Investment
Associated
Allowance
Recorded
Investment
Associated
Allowance
Construction and land development$129 $$234,218 $4,050 $234,347 $4,053 
Commercial real estate - owner occupied7,209 503 1,120,431 8,173 1,127,640 8,676 
Commercial real estate - non owner-occupied7,217 1,708 1,405,222 33,099 1,412,439 34,807 
Residential real estate18,651 504 1,207,885 12,039 1,226,536 12,543 
Commercial and financial12,632 2,142 887,574 15,874 900,206 18,016 
Consumer352 122 171,417 2,910 171,769 3,032 
Paycheck Protection Program364,112 364,112 
Totals$46,190 $4,982 $5,390,859 $76,145 $5,437,049 $81,127 

 December 31, 2020
 Individually EvaluatedCollectively Evaluated
 Total
(In thousands)Recorded
Investment
Associated
Allowance
Recorded
Investment
Associated
Allowance
Recorded
Investment
Associated
Allowance
Construction and land development$276 $13 $244,832 $4,907 $245,108 $4,920 
Commercial real estate - owner occupied10,243 402 1,131,067 9,466 1,141,310 9,868 
Commercial real estate - non owner-occupied8,083 1,640 1,387,771 36,626 1,395,854 38,266 
Residential real estate16,506 2,064 1,326,122 15,436 1,342,628 17,500 
Commercial and financial13,281 3,498 841,472 15,192 854,753 18,690 
Consumer807 91 187,928 3,398 188,735 3,489 
Paycheck Protection Program566,961 566,961 
Totals$49,196 $7,708 $5,686,153 $85,025 $5,735,349 $92,733 

25

Note G – Derivatives
Back-to-Back Swaps
The Company offers interest rate swaps when requested by customers to allow them to hedge the risk of rising interest rates on their variable rate loans. Upon entering into these swaps, the Company enters into offsetting positions with counterparties in order to minimize the interest rate risk. These back-to-back swaps qualify as freestanding financial derivatives with the fair values reported in other assets and other liabilities. The Company is party to master netting arrangements with its financial institution counterparties; however, the Company does not offset assets and liabilities under the arrangements for financial statement presentation purposes. Gains and losses on these back-to-back swaps, which offset, are recorded through noninterest income. No net gains or losses have been recognized to date on these instruments. As of June 30, 2021, the interest rate swaps had an aggregate notional value of $182.1 million, with a fair value of $9.5 million recorded in other assets and other liabilities. As of December 31, 2020, the interest rate swaps had an aggregate notional value of $182.4 million, with a fair value of $13.3 million recorded in other assets and other liabilities. The weighted average maturity was 7.2 years at June 30, 2021 and 7.5 years at December 31, 2020.
Interest Rate Floors Designated as Cash Flow Hedges
The Company has entered into interest rate floor contracts to mitigate exposure to the variability of future cash flows due to changes in interest rates on certain segments of its variable-rate loans. During 2020, the Company entered into 2 interest rate floor contracts, each with a notional amount of $150.0 million, maturing in October 2023 and November 2023. The Company considers these derivatives to be highly effective at achieving offsetting changes in cash flows attributable to changes in interest rates and has designated them as cash flow hedges. Therefore, changes in the fair value of these derivative instruments are recognized in other comprehensive income. Amortization of the premium paid on cash flow hedges is recognized in earnings over the term of the hedge in the same caption as the hedged item. For the three and six months ended June 30, 2021, the Company recognized a loss through other comprehensive income of $0.1 million and $0.3 million, respectively, and reclassified $57 thousand and $100 thousand, respectively, out of accumulated other comprehensive income and into interest income. As of June 30, 2021 and December 31, 2020, the interest rate floors had a fair value of $0.7 million and $1.0 million, respectively, recorded in other assets in the consolidated balance sheet. Over the next twelve months the Company expects to reclassify $0.3 million from accumulated other comprehensive income into interest income related to these agreements.
(In thousands)Notional AmountFair ValueBalance Sheet Category
At June 30, 2021
Back-to-back swaps$182,058 $9,497 Other Assets and Other Liabilities
Interest rate floors300,000 705 Other Assets
At December 31, 2020
Back-to-back swaps$182,379 $13,339 Other Assets and Other Liabilities
Interest rate floors300,000 1,004 Other Assets

Note H – Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase are accounted for as secured borrowings. For securities sold under agreements to repurchase, the Company is required to pledge collateral with value sufficient to fully collateralized borrowings. Company securities pledged were as follows by collateral type and maturity as of: 
(In thousands)June 30, 2021December 31, 2020
Fair value of pledged securities - overnight and continuous:
Mortgage-backed securities and collateralized mortgage obligations of U.S. government sponsored entities$136,619 $137,268 

26

Note I – Noninterest Income and Expense
Details of noninterest income and expenses for the three and six months ended June 30, 2021 and 2020 are as follows:
 Three Months Ended June 30,Six Months Ended June 30,
(In thousands)2021202020212020
Noninterest income  
Service charges on deposit accounts$2,338 $1,939 $4,676 $4,764 
Interchange income4,145 3,187 7,965 6,433 
Wealth management income2,387 1,719 4,710 3,586 
Mortgage banking fees2,977 3,559 7,202 5,767 
Marine finance fees177 157 366 303 
SBA gains232 181 519 320 
BOLI income872 887 1,731 1,773 
Other income2,249 2,147 5,993 5,499 
 15,377 13,776 33,162 28,445 
 Securities (losses) gains, net(55)1,230 (169)1,249 
 Total$15,322 $15,006 $32,993 $29,694 
Noninterest expense
Salaries and wages$22,966 $20,226 $44,359 $43,924 
Employee benefits3,953 3,379 8,933 7,634 
Outsourced data processing costs4,676 4,059 9,144 8,692 
Telephone/data lines838 791 1,623 1,505 
Occupancy3,310 3,385 7,099 6,738 
Furniture and equipment1,166 1,358 2,420 2,981 
Marketing1,002 997 2,170 2,275 
Legal and professional fees2,182 2,277 4,764 5,640 
FDIC assessments515 266 1,041 266 
Amortization of intangibles1,212 1,483 2,423 2,939 
Foreclosed property expense and net (gain) loss on sale(90)245 (155)(70)
Provision for credit losses on unfunded commitments178 224 
Other4,054 3,755 8,083 7,449 
 Total$45,784 $42,399 $91,904 $90,197 

Note J – Equity Capital
The Company is well capitalized and at June 30, 2021, the Company and the Company’s principal banking subsidiary, Seacoast Bank, exceeded the common equity Tier 1 (CET1) capital ratio regulatory threshold of 6.5% for well-capitalized institutions under the Basel III standardized transition approach, as well as risk-based and leverage ratio requirements for well capitalized banks under the regulatory framework for prompt corrective action.

Note K – Contingent Liabilities
The Company and its subsidiaries, because of the nature of their business, are at all times subject to numerous legal actions, threatened or filed. Management presently believes that none of the legal proceedings to which it is a party are likely to have a materially adverse effect on the Company’s consolidated financial condition, operating results or cash flows.

27

Note L – Fair Value
Under ASC Topic 820, fair value measurements for items measured at fair value on a recurring and nonrecurring basis at June 30, 2021 and December 31, 2020 included:
(In thousands)Fair Value
Measurements
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
At June 30, 2021    
Financial Assets
Available-for-sale debt securities1
$1,322,776 $199 $1,322,577 $
Derivative financial instruments2
10,202 10,202 
Loans held for sale2
42,793 42,793 
Loans3
10,212 1,073 9,139 
Other real estate owned4
12,804 390 12,414 
Equity securities5
6,434 6,434 
Financial Liabilities
Derivative financial instruments2
$9,497 $$9,497 $
At December 31, 2020
Financial Assets
Available-for-sale debt securities1
$1,398,157 $101 $1,398,056 $
Derivative financial instruments2
14,343 14,343 
Loans held for sale2
68,890 68,890 
Loans3
8,806 1,900 6,906 
Other real estate owned4
12,750 72 12,678 
Equity securities5
6,530 6,530 
Financial Liabilities
Derivative financial instruments2
$13,339 $$13,339 $
1See “Note D – Securities” for further detail of fair value of individual investment categories.
2Recurring fair value basis determined using observable market data.
3SeeNote E – Loans.” Nonrecurring fair value adjustments to collateral-dependent loans reflect full or partial write-downs that are based on current appraised values of the collateral in accordance with ASC Topic 310.
4Fair value is measured on a nonrecurring basis in accordance with ASC Topic 360.
5An investment in shares of a mutual fund that invests primarily in CRA-qualified debt securities, reported at fair value in Other Assets. Recurring fair value basis is determined using market quotations.
Available-for-sale debt securities: Level 1 securities consist of U.S. Treasury securities. Other securities are reported at fair value utilizing Level 2 inputs. The estimated fair value of a security is determined based on market quotations when available or, if not available, by using quoted market prices for similar securities, pricing models or discounted cash flow analyses, using observable market data where available.
The Company reviews the prices supplied by independent pricing services, as well as their underlying pricing methodologies, for reasonableness and to ensure such prices are aligned with traditional pricing matrices. The fair value of collateralized loan obligations is determined from broker quotes. From time to time, the Company will validate, on a sample basis, prices supplied by the independent pricing service by comparison to prices obtained from other brokers and third-party sources or derived using internal models.
Derivative financial instruments: The Company offers interest rate swaps to certain loan customers to allow them to hedge the risk of rising interest rates on their variable rate loans. The Company originates a variable rate loan and enters into a variable-to-fixed interest rate swap with the customer. The Company also enters into an offsetting swap with a correspondent bank. These back-to-back agreements are intended to offset each other and allow the Company to originate a variable rate loan, while
28

providing a contract for fixed interest payments for the customer. The fair value of these derivatives is based on a discounted cash flow approach. Due to the observable nature of the inputs used in deriving the fair value of these derivative contracts, the valuation of interest rate swaps is classified as Level 2. Other derivatives consist of interest rate floors designated as cash flow hedges. The fair values of these instruments are based upon the estimated amount the Company would receive or pay to terminate the instruments, taking into account current interest rates and, when appropriate, the current creditworthiness of the counterparties. Interest rate floors designated as cash flow hedges are classified within Level 2.
Loans held for sale: Fair values are based upon estimated values to be received from independent third party purchasers. These loans are intended for sale and the Company believes that the fair value is the best indicator of the resolution of these loans. Fair market value changes occur due to changes in interest rates, the borrower’s credit, the secondary loan market and the market for a borrower’s debt. Interest income is recorded based on the contractual terms of the loan and in accordance with the Company’s policy on loans held for investment. None of the loans were 90 days or more past due or on nonaccrual as of June 30, 2021 and December 31, 2020.
The aggregate fair value and contractual balance of loans held for sale as of June 30, 2021 and December 31, 2020 is as follows:
(In thousands)June 30, 2021December 31, 2020
Aggregate fair value$42,793 $68,890 
Contractual balance41,629 66,415 
Excess1,164 2,475 
Loans: Loans carried at fair value consist of collateral-dependent real estate loans. Fair value is based on recent real estate appraisals less estimated costs of sale. These evaluations may use either a single valuation approach or a combination of approaches, such as comparative sales, cost and/or income approach. A significant unobservable input in the income approach is the estimated capitalization rate for a given piece of collateral. At June 30, 2021 capitalization rates utilized to determine fair value of the underlying collateral averaged approximately 7.2%. Adjustments to comparable sales may be made by an appraiser to reflect local market conditions or other economic factors and may result in changes in the fair value of an asset over time. As such, the fair value of these loans is considered level 3 in the fair value hierarchy. Collateral-dependent loans measured at fair value totaled $14.3 million with a specific reserve of $4.1 million at June 30, 2021, compared to $16.5 million with a specific reserve of $7.7 million at December 31, 2020.
For loans classified as Level 3, changes included loan additions of $3.7 million offset by $1.5 million in paydowns and charge-offs for the six months ended June 30, 2021.
Other real estate owned: When appraisals are used to determine fair value and the appraisals are based on a market approach, the fair value of other real estate owned (“OREO”) is classified as a Level 2 input. When the fair value of OREO is based on appraisals which require significant adjustments to market-based valuation inputs or apply an income approach based on unobservable cash flows, the fair value of OREO is classified as Level 3.
For OREO classified as Level 3 at June 30, 2021, changes during the six months ended included additions of $1.3 million offset by sales and writedowns of $1.6 million.
Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Company’s monthly and/or quarterly valuation process. There were no such transfers during the six months ended June 30, 2021 and 2020.
29

The carrying amount and fair value of the Company’s other financial instruments that were not disclosed previously in the balance sheet and for which carrying amount is not fair value as of June 30, 2021 and December 31, 2020 is as follows:
(In thousands)Carrying AmountQuoted Prices in Active Markets for Identical Assets
(Level 1)
Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
June 30, 2021    
Financial Assets    
Debt securities held-to-maturity1
$493,467 $$489,289 $
Time deposits with other banks750 759 
Loans, net5,345,710 5,367,748 
Financial Liabilities
Deposit liabilities7,836,436 7,838,507 
Subordinated debt71,506 58,342 
December 31, 2020
Financial Assets
Debt securities held-to-maturity1

$184,484 $$192,179 $
Time deposits with other banks750 762 
Loans, net5,633,810 5,686,019 
Financial Liabilities
Deposit liabilities6,932,561 6,936,097 
Subordinated debt71,365 58,227 
1See “Note D – Securities” for further detail of individual investment categories.
The short maturity of Seacoast’s assets and liabilities results in having a significant number of financial instruments whose fair value equals or closely approximates carrying value. Such financial instruments are reported in the following balance sheet captions: cash and due from banks, interest bearing deposits with other banks, FHLB borrowings and securities sold under agreements to repurchase, maturing within 30 days.
The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value at June 30, 2021 and December 31, 2020:
Held-to-maturity debt securities: These debt securities are reported at fair value utilizing level 2 inputs. The estimated fair value of a security is determined based on market quotations when available or, if not available, by using quoted market prices for similar securities, pricing models or discounted cash flow analyses, using observable market data where available.
The Company reviews the prices supplied by independent pricing services, as well as their underlying pricing methodologies, for reasonableness and to ensure such prices are aligned with traditional pricing matrices. From time to time, the Company will validate, on a sample basis, prices supplied by the independent pricing service by comparison to prices obtained from other brokers and third-party sources or derived using internal models.
Loans: Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type, such as commercial or mortgage. Each loan category is further segmented into fixed and adjustable-rate interest terms as well as performing and nonperforming categories. The fair value of loans is calculated by discounting scheduled cash flows through the estimated life including prepayment considerations, using estimated market discount rates that reflect the risks inherent in the loan. The fair value approach considers market-driven variables including credit related factors and reflects an “exit price” as defined in ASC Topic 820.
Deposit liabilities: The fair value of demand deposits, savings accounts and money market deposits is the amount payable at the reporting date. The fair value of fixed maturity certificates of deposit is estimated using the rates currently offered for funding of similar remaining maturities.
30


Note M – Business Combinations
Proposed Acquisition of Legacy Bank of Florida
On March 23, 2021, the Company announced that it had entered into an agreement and plan of merger with Legacy Bank of Florida (“Legacy”). Pursuant to the terms of the merger agreement, Legacy, headquartered in Boca Raton, FL, will be merged with and into Seacoast Bank. Legacy operates 5 branches in Broward and Palm Beach counties in Florida’s largest metropolitan statistical area with $476.0 million in loans and $485.6 million in deposits as of June 30, 2021. All regulatory and shareholder approvals have been received and the acquisition is expected to close in August 2021.
Acquisition of Fourth Street Banking Company
On August 21, 2020, the Company completed its acquisition of Fourth Street Banking Company (“Fourth Street”). Simultaneously, upon completion of the merger of Fourth Street and the Company, Fourth Street's wholly owned subsidiary bank, Freedom Bank, was merged with and into Seacoast Bank. Prior to the acquisition, Freedom Bank operated 2 branches in St. Petersburg, Florida.
As a result of this acquisition, the Company expects to enhance its presence in St. Petersburg, expand its customer base and leverage operating cost through economies of scale, and positively affect the Company’s operating results.
The Company acquired 100% of the outstanding common stock of Fourth Street. Under the terms of the definitive agreement, each share of Fourth Street common stock was converted into the right to receive 0.1275 share of Seacoast common stock.
(In thousands, except per share data)August 21, 2020
Number of Fourth Street common shares outstanding11,220 
Shares issued upon conversion of convertible debt5,405 
Per share exchange ratio0.1275 
Number of shares of common stock issued2,120 
Multiplied by common stock price per share on August 21, 2020$19.40 
Value of common stock issued41,121 
Cash paid for Fourth Street vested stock options596 
Total purchase price$41,717 
The acquisition of Fourth Street was accounted for under the acquisition method in accordance with ASC Topic 805, Business Combinations. The Company recognized goodwill of $9.0 million for this acquisition that is nondeductible for tax purposes. Determining fair values of assets and liabilities, especially the loan portfolio, core deposit intangibles, and deferred taxes, is a complicated process involving significant judgment regarding methods and assumptions used to calculate estimated fair values. The fair values initially assigned to assets acquired and liabilities assumed are preliminary and could change for up to one year after the closing date of the acquisition as new information and circumstances relative to closing date fair values becomes known.
31

(In thousands)Initially Measured
August 21, 2020
Assets: 
Cash$38,082 
Investment securities3,498 
Loans303,434 
Bank premises and equipment9,480 
Core deposit intangibles1,310 
Goodwill9,030 
Other assets7,088 
Total assets$371,922 
Liabilities:
Deposits$329,662 
Other liabilities543 
Total liabilities$330,205 
The table below presents information with respect to the fair value and unpaid principal balance of acquired loans at the acquisition date.
August 21, 2020
(In thousands)Book BalanceFair Value
Loans:  
Construction and land development$9,197 $8,851 
Commercial real estate - owner-occupied77,936 75,215 
Commercial real estate - non owner-occupied76,014 71,171 
Residential real estate23,548 23,227 
Commercial and financial72,745 68,096 
Consumer2,748 2,694 
PPP loans55,005 54,180 
Total acquired loans$317,193 $303,434 
The table below presents the carrying amount of loans for which, at the date of acquisition, there was evidence of more than insignificant deterioration of credit quality since origination:
(In thousands)August 21, 2020
Book balance of loans at acquisition$59,455 
Allowance for credit losses at acquisition(5,763)
Non-credit related discount(4,319)
Total PCD loans acquired$49,373 
The Company believes the deposits assumed in the acquisition have an intangible value. In determining the valuation amount, deposits were analyzed based on factors such as type of deposit, deposit retention, interest rates and age of deposit relationships.
Acquisition of First Bank of the Palm Beaches
On March 13, 2020, the Company completed its acquisition of First Bank of the Palm Beaches (“FBPB”). FBPB was merged with and into Seacoast Bank. FBPB operated 2 branches in the Palm Beach market.
As a result of this acquisition, the Company expects to enhance its presence in the Palm Beach market, expand its customer base and leverage operating cost through economies of scale, and positively affect the Company’s operating results.
32

The Company acquired 100% of the outstanding common stock of FBPB. Under the terms of the definitive agreement, each share of FBPB common stock was converted into the right to receive 0.2000 share of Seacoast common stock.
(In thousands, except per share data)March 13, 2020
Number of FBPB common shares outstanding5,213 
Per share exchange ratio0.2000 
Number of shares of common stock issued1,043 
Multiplied by common stock price per share on March 13, 2020$20.17 
Value of common stock issued21,031 
Cash paid for FBPB vested stock options866 
Total purchase price$21,897 
The acquisition of FBPB was accounted for under the acquisition method in accordance with ASC Topic 805, Business Combinations. The Company recognized goodwill of $6.9 million for this acquisition that is nondeductible for tax purposes. Determining fair values of assets and liabilities, especially the loan portfolio, core deposit intangibles, and deferred taxes, is a complicated process involving significant judgment regarding methods and assumptions used to calculate estimated fair values. The adjustment reflected in the table below are the result of information obtained subsequent to the initial measurement.
(In thousands)Initially Measured
March 13, 2020
Measurement Period AdjustmentsAs Adjusted March 13, 2020
Assets: 
Cash$34,749 $$34,749 
Investment securities447 447 
Loans146,839 (62)146,777 
Bank premises and equipment6,086 6,086 
Core deposit intangibles819 819 
Goodwill6,799 62 6,861 
Other assets1,285 20 1,305 
Total assets$197,024 $20 $197,044 
Liabilities:
Deposits$173,741 $$173,741 
Other liabilities1,386 20 1,406 
Total liabilities$175,127 $20 $175,147 
The table below presents information with respect to the fair value and unpaid principal balance of acquired loans at the acquisition date.
March 13, 2020
(In thousands)Book BalanceFair Value
Loans:  
Construction and land development$9,493 $9,012 
Commercial real estate - owner-occupied46,221 45,171 
Commercial real estate - non owner-occupied36,268 35,079 
Residential real estate47,569 47,043 
Commercial and financial9,659 9,388 
Consumer1,132 1,084 
Total acquired loans$150,342 $146,777 
The table below presents the carrying amount of loans for which, at the date of acquisition, there was evidence of more than insignificant deterioration of credit quality since origination:
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(In thousands)March 13, 2020
Book balance of loans at acquisition$43,682 
Allowance for credit losses at acquisition(516)
Non-credit related discount(128)
Total PCD loans acquired$43,038 
The Company believes the deposits assumed in the acquisition have an intangible value. In determining the valuation amount, deposits were analyzed based on factors such as type of deposit, deposit retention, interest rates and age of deposit relationships.

34

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
The purpose of this discussion and analysis is to aid in understanding significant changes in the financial condition of Seacoast Banking Corporation of Florida and its subsidiaries ("Seacoast" or the “Company”) and their results of operations. Nearly all of the Company’s operations are contained in its banking subsidiary, Seacoast National Bank (“Seacoast Bank” or the “Bank”). Such discussion and analysis should be read in conjunction with the Company’s Condensed Consolidated Financial Statements and the related notes included in this report.
The emphasis of this discussion will be on the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020 for the consolidated statements of income. For the consolidated balance sheets, the emphasis of this discussion will be the balances as of June 30, 2021 compared to December 31, 2020.
This discussion and analysis contains statements that may be considered “forward-looking statements” as defined in, and subject to the protections of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. See the following section for additional information regarding forward-looking statements.
For purposes of the following discussion, the words “Seacoast" or the "Company” refer to the combined entities of Seacoast Banking Corporation of Florida and its direct and indirect wholly owned subsidiaries.

Special Cautionary Notice Regarding Forward-Looking Statements
Certain statements made or incorporated by reference herein which are not statements of historical fact, including those under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere herein, are “forward-looking statements” within the meaning, and protections, of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements with respect to the Company's beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, and intentions about future performance, and involve known and unknown risks, uncertainties and other factors, any of which may be impacted by the COVID-19 pandemic and related effects on the U.S. economy, which may be beyond the Company's control, and which may cause the actual results, performance or achievements of Seacoast Banking Corporation of Florida (“Seacoast” or the “Company”) or its wholly-owned banking subsidiary, Seacoast National Bank (“Seacoast Bank), to be materially different from those set forth in the forward-looking statements.
All statements other than statements of historical fact could be forward-looking statements. You can identify these forward-looking statements through the use of words such as "may," "will," "anticipate," "assume," "should," "support," "indicate," "would," "believe," "contemplate," "expect," "estimate," "continue," "further," "plan," "point to," "project," "could," "intend," "target" or other similar words and expressions of the future. These forward-looking statements may not be realized due to a variety of factors, including, without limitation:
the effects of future economic and market conditions, including seasonality;
the adverse impact of COVID-19 and variants thereof (economic and otherwise) on the Company and its customers, counterparties, employees, and third-party service providers, and the adverse impacts to our business, financial position, results of operations, and prospects, including the ongoing potential to adversely affect Seacoast’s revenues and values of its assets and liabilities, lead to a tightening of credit, and increase stock price volatility;
government or regulatory responses to the COVID-19 pandemic, including the risk of inflation and interest rate increases resulting from monetary and fiscal stimulus response, which may have unanticipated adverse effects on our customers, and our financial condition and results of operations;
governmental monetary and fiscal policies, including interest rate policies of the Board of Governors of the Federal Reserve ("Federal Reserve"), as well as legislative, tax and regulatory changes;
changes in accounting policies, rules and practices, including the impact of the adoption of the current expected credit losses (“CECL”) methodology;
our participation in the Paycheck Protection Program (“PPP”);
the risks of changes in interest rates on the level and composition of deposits, loan demand, liquidity and the values of loan collateral, securities, and interest rate sensitive assets and liabilities;
35

interest rate risks, sensitivities and the shape of the yield curve; uncertainty related to the impact of LIBOR calculations on securities, loans and debt;
governmental actions to stimulate the economy and provide support for small businesses have resulted in material increases to the Company’s liquidity position, adversely affecting the net interest margin. The duration of this liquidity remaining on the balance sheet is uncertain;
changes in borrower credit risks and payment behaviors, including as a result of the financial impact of COVID-19;
changes in retail distribution strategies, customer preferences and behavior;
changes in the availability and cost of credit and capital in the financial markets;
changes in the prices, values and sales volumes of residential and commercial real estate;
the Company's ability to comply with any regulatory requirements;
the effects of problems encountered by other financial institutions that adversely affect Seacoast or the banking industry;
Seacoast's concentration in commercial real estate loans and in real estate collateral in the state of Florida;
inaccuracies or other failures from the use of models, including the failure of assumptions and estimates, as well as differences in, and changes to, economic, market and credit conditions;
the impact on the valuation of Seacoast's investments due to market volatility or counterparty payment risk;
statutory and regulatory dividend restrictions;
increases in regulatory capital requirements for banking organizations generally;
the risks of mergers, acquisitions and divestitures, including Seacoast's ability to continue to identify acquisition targets and successfully acquire and integrate desirable financial institutions;
changes in technology or products that may be more difficult, costly, or less effective than anticipated;
the Company's ability to identify and address increased cybersecurity risks, including as a result of employees working remotely;
inability of Seacoast's risk management framework to manage risks associated with the business;
dependence on key suppliers or vendors to obtain equipment or services for the business on acceptable terms;
reduction in or the termination of Seacoast's ability to use the mobile-based platform that is critical to the Company's business growth strategy;
the effects of war or other conflicts, acts of terrorism, natural disasters, health emergencies, epidemics or pandemics, or other catastrophic events that may affect general economic conditions;
unexpected outcomes of, and the costs associated with, existing or new litigation involving the Company, including as a result of the Company’s participation in the PPP;
Seacoast's ability to maintain adequate internal controls over financial reporting;
potential claims, damages, penalties, fines and reputational damage resulting from pending or future litigation, regulatory proceedings and enforcement actions;
the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, non-bank financial technology providers, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in the Company's market areas and elsewhere, including institutions operating regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone, computer and the Internet;
36

the failure of assumptions underlying the establishment of reserves for possible credit losses;
the risks relating to the Legacy Bank of Florida proposed merger including, without limitation: the timing to consummate the proposed merger; the risk that a condition to closing of the proposed merger may not be satisfied; the risk that the merger may not be completed at all; the diversion of management time on issues related to the proposed merger; unexpected transaction costs, including the costs of integrating operations; the risks that the businesses will not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected; the potential failure to fully or timely realize expected revenues and revenue synergies, including as the result of revenues following the merger being lower than expected; the risk of deposit and customer attrition; any changes in deposit mix; unexpected operating and other costs, which may differ or change from expectation; the risk of customer and employee loss and business disruptions, including, without limitation, as the result of difficulties in maintaining relationships with employees; increased competitive pressures on solicitations of customers by competitors; as well as difficulties and risks inherent with entering new markets; and,
other factors and risks described under “Risk Factors” herein and in any of the Company's subsequent reports filed with the SEC and available on its website at www.sec.gov.
All written or oral forward-looking statements that are made or are attributable to Seacoast are expressly qualified in their entirety by this cautionary notice. The Company assumes no obligation to update, revise or correct any forward-looking statements that are made from time to time, either as a result of future developments, new information or otherwise, except as may be required by law.

Business Developments
Impact of COVID-19 Pandemic
The COVID-19 pandemic and related restrictive measures taken by governments, businesses and individuals have caused unprecedented uncertainty, volatility and disruption in financial markets and in governmental, commercial and consumer activity in the United States and globally, including the markets that we serve. As the restrictive measures have been eased during 2020 and into 2021, the U.S. economy has begun to recover and with the availability and distribution of multiple COVID-19 vaccines, we anticipate continued improvements in commercial and consumer activity and the U.S. economy. While the overall outlook has improved based on the availability of the vaccine to all adults and older children, there has been a recent rise in hospitalization and infection rates in the country, but especially in our footprint, caused by the Delta variant, a rapidly spreading strain of coronavirus. Therefore, the risk of further resurgence and possible reimplementation of restrictions remains.
While indications of recovery exist, we recognize that our business and consumer customers are experiencing varying degrees of financial distress, which is expected to continue into the second half of 2021, especially if new COVID-19 variant infections increase (or are not adequately contained) and new economic restrictions are mandated. Changing consumer behavior and the impact of government support programs including the PPP have contributed to higher customer deposit balances, which may adversely affect our net interest income and net interest margin. Commercial activity has improved, but has not returned to the levels existing prior to the outbreak of the pandemic, which may result in our customers’ inability to meet their loan obligations to us. In addition, the economic pressures and uncertainties related to the COVID-19 pandemic have resulted in changes in consumer spending behaviors, which may negatively impact the demand for loans and other services we offer. Our borrowers include customers in industries such as hotel/lodging, restaurants and retail and commercial real estate, all of which have been significantly impacted by the COVID-19 pandemic, or remain at heightened risk of future negative economic impact, which may be caused or exacerbated by increased COVID-19 variant infections, vaccine hesitancy, or new economic restrictions in our footprint. We recognize that these industries may take longer to recover as consumers may be hesitant to return to full social interaction or may change their spending habits on a more permanent basis as a result of the pandemic. We continue to monitor these customers closely.
We have taken deliberate actions to maintain our balance sheet strength to serve our clients and communities, including maintaining higher levels of liquidity and managing our assets and liabilities in order to maintain a strong capital position and support business growth and acquisition opportunities; however, future economic conditions are subject to significant uncertainty. Uncertainties associated with the pandemic include the duration of the COVID-19 outbreak and any related variant infections, the availability, acceptance, and effectiveness of COVID-19 vaccines, the impact to our customers, employees and vendors and the impact to the economy as a whole. We continuously seek to monitor and anticipate developments, but cannot predict all of the various adverse effects COVID-19 will have on our business, financial condition, liquidity or results of operations.
37


Results of Operations
For the second quarter of 2021, the Company reported net income of $31.4 million, or $0.56 per average diluted share, compared to $33.7 million, or $0.60, for the first quarter of 2021 and $25.1 million, or $0.47, for the second quarter of 2020. For the six months ended June 30, 2021, net income totaled $65.1 million or $1.17 per average diluted share, an increase of $39.3 million, or 153%, compared to the six months ended June 30, 2020. Adjusted net income1 for the second quarter of 2021 totaled $33.3 million, or $0.59 per average diluted share, compared to $35.5 million, or $0.63, for the first quarter of 2021 and $25.5 million, or $0.48, for the second quarter of 2020. For the six months ended June 30, 2021, adjusted net income1 totaled $68.7 million, or $1.23 per average diluted share, compared to $30.9 million, or $0.59 per average diluted share for the six months ended June 30, 2020.
SecondFirstSecondSix Months Ended
QuarterQuarterQuarterJune 30,
20212021202020212020
Return on average tangible assets1.48 %1.70 %1.37 %1.58 %0.78 %
Return on average tangible shareholders' equity13.88 15.62 13.47 14.73 7.27 
Efficiency ratio54.93 53.21 50.11 54.05 54.88 
Adjusted return on average tangible assets1
1.52 %1.75 %1.33 %1.63 %0.86 %
Adjusted return on average tangible shareholders' equity1
14.27 16.01 13.09 15.12 8.02 
Adjusted efficiency ratio1
53.49 51.99 49.60 52.72 51.53 
1Non-GAAP measure - see “Explanation of Certain Unaudited Non-GAAP Financial Measures” for more information and a reconciliation to GAAP.
Net Interest Income and Margin
Net interest income for the second quarter of 2021 totaled $65.8 million, decreasing $0.8 million, or 1%, compared to the first quarter of 2021, and decreasing $1.5 million, or 2%, compared to the second quarter of 2020. For the six months ended June 30, 2021, net interest income totaled $132.4 million, an increase of $2.0 million, or 2%, compared to the six months ended June 30, 2020. The decrease quarter-over-quarter reflects lower income on Paycheck Protection Program (“PPP”) loans, partially offset by lower interest expense on deposits, while the decrease from the second quarter of 2020 reflects the impact of the lower interest rate environment. Net interest margin (on a fully tax equivalent basis)1 was 3.23% in the second quarter of 2021, compared to 3.51% in the first quarter of 2021 and 3.70% in the second quarter of 2020. The decrease during the second quarter of 2021 was largely the result of significant growth in transaction account deposit balances. This increase in funding occurred across our customer base at near-zero rates, as new clients were onboarded and existing clients continue to see expansion in cash balances. The resulting increase in liquidity negatively impacted net interest margin by 23 basis points in the second quarter of 2021. Excluding this increase in liquidity, the remaining decline in net interest margin compared to the first quarter of 2021 is attributed to lower PPP interest and fees as a result of declining balances as PPP loans are forgiven. Compared to the first quarter of 2021, securities yields declined by only two basis points to 1.63% and non-PPP loan yields declined by only one basis point to 4.36% during the second quarter of 2021. Offsetting and favorable was the decline in the cost of deposits from 13 basis points in the first quarter of 2021 to eight basis points in the second quarter of 2021. The effect on net interest margin of purchase discounts on acquired loans was an increase of 14 basis points in the second quarter of 2021 compared to an increase of 15 basis points in the first quarter of 2021 and an increase of 16 basis points in the second quarter of 2020. The effect of interest and fees on PPP loans was an increase of six basis points in the second quarter of 2021, an increase of 11 basis points in the first quarter of 2021 and an increase of eight basis points in the second quarter of 2020. For the six months ended June 30, 2021, net interest margin (on a fully tax equivalent basis)1 was 3.37%, compared to 3.81% for the six months ended June 30, 2020. The yield on securities declined from 2.85% for the six months ended June 30, 2020 to 1.64% for the six months ended June 30, 2021, reflecting the impact of a lower interest rate environment including the payoff of higher yielding securities being replaced with lower yields on new purchases. The yield on non-PPP loans declined from 4.72% for the six months ended June 30, 2020 to 4.36% for the six months ended June 30, 2021, reflecting the impact of the lower interest rate environment. Offsetting and favorable was the decline in the cost of deposits from 43 basis points for the six months ended June 30, 2020 to 10 basis points for the six months ended June 30, 2021.
The effect on net interest margin of purchase discounts on acquired loans was an increase of 15 basis points for the six months ended June 30, 2021 compared to an increase of 21 basis points for the six months ended June 30, 2020. The effect of interest
1Non-GAAP measure - see “Explanation of Certain Unaudited Non-GAAP Financial Measures” for more information and a reconciliation to GAAP.
38

and fees on PPP loans was an increase of eight basis points for the six months ended June 30, 2021,compared to an increase of four basis points for the six months ended June 30, 2020.
The cost of deposits declined to eight basis points in the second quarter of 2021, compared to 13 basis points in the first quarter of 2021 and 31 basis points in the second quarter of 2020. Lower cost of deposits reflects lower market rates, and a favorable shift in product mix to include a higher proportion of noninterest bearing demand deposits to total deposits. For the six months ended June 30, 2021, the cost of deposits was ten basis points, a decrease of 33 basis points compared to the six months ended June 30, 2020.
The following table details the trend for net interest income and margin results (on a tax equivalent basis)1, the yield on earning assets and the rate paid on interest bearing liabilities for the periods specified:
(In thousands, except ratios)
Net Interest
Income1
Net Interest
Margin1
Yield on
Earning Assets1
Rate on Interest
Bearing Liabilities
Second quarter 2021$65,933 3.23 %3.33 %0.16 %
First quarter 202166,741 3.51 %3.65 %0.23 %
Second quarter 202067,388 3.70 %4.03 %0.51 %
Six months ended June 30, 2021132,674 3.37 %3.49 %0.19 %
Six months ended June 30, 2020130,679 3.81 %4.27 %0.70 %
1On tax equivalent basis, a non-GAAP measure - see "Explanation of Certain Unaudited Non-GAAP Financial Measures" for more information and a reconciliation to GAAP.
Total average loans decreased $161.1 million, or 3%, for the second quarter of 2021 compared to the first quarter of 2021, and decreased $130.3 million, or 2%, from the second quarter of 2020. The decrease from the prior quarter reflects a net decrease in PPP loans as a result of loan forgiveness. The decrease from the prior year reflects PPP loan forgiveness and a conservative slowdown in originations of commercial and consumer loans, partially offset by loans acquired from Freedom Bank.
Average loans as a percentage of average earning assets totaled 68% for the second quarter of 2021, 75% for the first quarter of 2021 and 78% for the second quarter of 2020.
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Loan production and pipelines (loans in underwriting and approval or approved and not yet closed) are detailed in the following table for the periods specified:
SecondFirstSecondSix Months Ended
QuarterQuarterQuarterJune 30,
(In thousands)20212021202020212020
Commercial pipeline at period end$322,014 $240,871 $117,042 $322,014 $117,042 
Commercial loan originations193,028 204,253 106,857 397,281 290,187 
Residential pipeline - saleable at period end60,585 92,141 94,666 60,585 94,666 
Residential loans - sold120,099 138,337 122,459 258,436 185,324 
Residential pipeline - portfolio at period end54,132 72,448 13,199 54,132 13,199 
Residential loans - retained118,126 46,620 23,539 164,746 49,315 
Consumer pipeline at period end31,748 28,127 30,647 31,748 30,647 
Consumer originations63,702 46,745 57,956 110,447 109,472 
PPP originations23,529 232,478 590,718 256,007 590,718 
Commercial originations during the second quarter of 2021 were $193.0 million, a decrease of $11.2 million, or 5%, compared to the first quarter of 2021, and an increase of $86.2 million, or 81%, compared to the second quarter of 2020.
The commercial pipeline increased $81.1 million, or 34%, to $322.0 million at June 30, 2021, compared to March 31, 2021, and increased $205.0 million, or 175%, compared to June 30, 2020. The increases reflect increasing demand in line with Florida’s expanding economy and the addition of new commercial bankers.
The Company originates residential mortgage loans identified for sale to investors in the secondary market. The Company uses rate locks with investors at the time of application, thereby eliminating interest rate risk. Residential loans originated for sale in the secondary market totaled $120.1 million in the second quarter of 2021, compared to $138.3 million in the first quarter of 2021 and $122.5 million in the second quarter of 2020, a decrease of 13% and a decrease of 2%, respectively. Refinance activity has slowed from the peaks seen in the last several quarters, and housing inventory is low. Residential saleable pipelines were $60.6 million as of June 30, 2021, compared to $92.1 million as of March 31, 2021 and $94.7 million as of June 30, 2020.
Residential loan production retained in the portfolio for the second quarter of 2021 was $118.1 million compared to $46.6 million in the first quarter of 2021 and $23.5 million in the second quarter of 2020, an increase of 153% and an increase of 402%, respectively. The pipeline of residential loans intended to be retained in the portfolio was $54.1 million as of June 30, 2021, compared to $72.4 million as of March 31, 2021, and $13.2 million as of June 30, 2020. Residential loans retained in the second quarter of 2021 includes a $38.4 million purchased pool consisting of 30-year fixed rate jumbo residential loans.
Consumer originations totaled $63.7 million during the second quarter of 2021, an increase of $17.0 million, or 36%, from the first quarter of 2021 and an increase of $5.7 million, or 10%, from the second quarter of 2020. The consumer pipeline was $31.7 million as of June 30, 2021, compared to $28.1 million as of March 31, 2021 and $30.6 million at June 30, 2020.
In March 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law. The CARES Act includes provisions for the Paycheck Protection Program (“PPP”) offered through the U.S. Small Business Administration (“SBA”). Loans originated under this program have a contractual rate of interest of 1% with principal and interest that may be forgiven, provided that the borrower uses the funds in a manner consistent with PPP guidelines. Seacoast has assisted more than 8,000 borrowers through the PPP since inception, $529.7 million in PPP loan balances have been forgiven, and remaining outstanding balances total $364.1 million at June 30, 2021.
Average debt securities increased $78.6 million, or 5%, during the second quarter of 2021 compared to the first quarter of 2021, and were $499.9 million, or 43%, higher compared to the second quarter of 2020. Increases reflect the investment of excess liquidity, partially offset by paydowns and maturities.
The cost of average interest-bearing liabilities contracted in the second quarter of 2021 to 16 basis points from 23 basis points for the first quarter of 2021, and from 51 basis points for the second quarter of 2020. The cost of average total deposits (including noninterest bearing demand deposits) in the second quarter of 2021 was 8 basis points compared to 13 basis points in
40

the first quarter of 2021 and 31 basis points in the second quarter of 2020, reflecting continued repricing downward of interest-bearing deposits and time deposits.
During the second quarter of 2021, average transaction deposits (noninterest and interest bearing demand) increased $459.3 million, or 11%, compared to the first quarter of 2021 and increased $1.1 billion, or 32%, compared to the second quarter of 2020, reflecting the inflow of new customers and higher deposit balances for existing customers.
The Company’s deposit mix remains favorable, with 93% of average deposit balances comprised of savings, money market, and demand deposits for the six months ended June 30, 2021. Seacoast's average cost of deposits, including noninterest bearing demand deposits, decreased to 10 basis points for the six months ended June 30, 2021 compared to 43 basis points for the six months ended June 30, 2020, reflecting the lower interest rate environment and shifts in deposit mix with a higher proportion of low cost deposits. Brokered CDs totaled $20.0 million at June 30, 2021, with a weighted average rate of 0.32%.
Sweep repurchase agreements with customers increased $41.3 million, or 57%, year-over-year. For the six months ended June 30, 2021, the average balance was $114.2 million compared to an average balance of $72.9 million for the six months ended June 30, 2020. The average rate on customer sweep repurchase accounts was 0.13% for the six months ended June 30, 2021, compared to 0.55% for the six months ended June 30, 2020. No federal funds purchased were utilized at June 30, 2021 nor June 30, 2020.
The Company had no FHLB borrowings during the six months ended June 30, 2021 compared to $224.9 million with an average rate of 1.14% for the six months ended June 30, 2020. The decrease reflects the impact of higher average deposit balances that were sufficient to fund the Company’s liquidity needs during 2021.
For the six months ended June 30, 2021, subordinated debt averaged $71.4 million, compared to $71.1 million for the six months ended June 30, 2020. The average rate on subordinated debt for the six months ended June 30, 2021 was 2.40%, compared to 3.69% for the six months ended June 30, 2020. The subordinated debt relates to trust preferred securities issued by subsidiary trusts of the Company.

41

The following tables detail average balances, net interest income and margin results (on a tax equivalent basis, a non-GAAP measure) for the periods presented:
Average Balances, Interest Income and Expenses, Yields and Rates1
 20212020
 Second QuarterFirst QuarterSecond Quarter
 Average Yield/Average Yield/Average Yield/
(In thousands, except ratios)BalanceInterestRateBalanceInterestRateBalanceInterestRate
Assets
Earning assets:
Securities:
Taxable$1,629,410 $6,559 1.61 %$1,550,457 $6,298 1.62 %$1,135,698 $7,573 2.67 %
Nontaxable25,581 186 2.90 25,932 187 2.89 19,347 152 3.14 
Total Securities1,654,991 6,745 1.63 1,576,389 6,485 1.65 1,155,045 7,725 2.68 
Federal funds sold and other investments925,323 709 0.31 377,344 586 0.63 433,626 684 0.63 
Loans excluding PPP loans5,092,897 55,313 4.36 5,149,642 55,504 4.37 5,304,381 59,861 4.54 
PPP Loans505,339 5,127 4.07 609,733 6,886 4.58 424,171 5,068 4.81 
Total Loans5,598,236 60,440 4.33 5,759,375 62,390 4.39 5,728,552 64,929 4.56 
Total Earning Assets8,178,550 67,894 3.33 7,713,108 69,461 3.65 7,317,223 73,338 4.03 
Allowance for loan losses(86,042)(91,735)(84,965)
Cash and due from banks327,171 255,685 103,919 
Premises and equipment70,033 74,272 71,173 
Intangible assets235,964 237,323 230,871 
Bank owned life insurance133,484 132,079 127,386 
Other assets166,686 164,622 147,395 
Total Assets$9,025,846 $8,485,354 $7,913,002 
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing demand$1,692,178 $235 0.06 %$1,600,490 $258 0.07 %$1,298,639 $297 0.09 %
Savings790,734 118 0.06 722,274 137 0.08 591,040 165 0.11 
Money market1,736,481 627 0.14 1,609,938 670 0.17 1,193,969 741 0.25 
Time deposits533,350 524 0.39 711,320 1,187 0.68 1,293,766 3,820 1.19 
Securities sold under agreements to repurchase115,512 35 0.12 112,834 41 0.15 74,717 34 0.18 
Federal Home Loan Bank borrowings— — — — — — 199,698 312 0.63 
Other borrowings71,460 422 2.37 71,390 427 2.43 71,185 581 3.28 
Total Interest-Bearing Liabilities4,939,715 1,961 0.16 4,828,246 2,720 0.23 4,723,014 5,950 0.51 
Noninterest demand2,799,643 2,432,038 2,097,038 
Other liabilities116,093 88,654 79,855 
Total Liabilities7,855,451 7,348,938 6,899,907 
Shareholders' equity1,170,395 1,136,416 1,013,095 
Total Liabilities & Equity$9,025,846 $8,485,354 $7,913,002 
Cost of deposits0.08 %0.13 %0.31 %
Interest expense as a % of earning assets0.10 %0.14 %0.33 %
Net interest income as a % of earning assets$65,933 3.23 %$66,741 3.51 %$67,388 3.70 %
1On a fully taxable equivalent basis, a non-GAAP measure - see "Explanation of Certain Unaudited Non-GAAP Financial Measures" for more information and a reconciliation to GAAP. All yields and rates have been computed on an annual basis using amortized cost. Fees on loans have been included in interest on loans. Nonaccrual loans are included in loan balances.
42

Average Balances, Interest Income and Expenses, Yields and Rates1
 20212020
 Year to DateYear to Date
 Average Yield/Average Yield/
(In thousands, except ratios)BalanceInterestRateBalanceInterestRate
Assets
Earning assets:
Securities:
Taxable$1,590,152 $12,857 1.62 %$1,144,086 $16,269 2.84 %
Nontaxable25,756 373 2.90 19,544 304 3.11 
Total Securities1,615,908 13,230 1.64 1,163,630 16,573 2.85 
Federal funds sold and other investments652,847 1,295 0.40 260,775 1,418 1.09 
Loans excluding PPP loans5,121,114 110,817 4.36 5,259,808 123,385 4.72 
PPP Loans557,247 12,013 4.35 212,085 5,068 4.81 
Total Loans5,678,361 122,830 4.36 5,471,893 128,453 4.72 
Total Earning Assets7,947,116 137,355 3.49 6,896,298 146,444 4.27 
Allowance for loan losses(88,873)(70,948)
Cash and due from banks291,626 97,002 
Premises and equipment72,141 69,379 
Intangible assets236,640 228,791 
Bank owned life insurance132,785 126,939 
Other assets165,658 136,811 
Total Assets$8,757,093 $7,484,272 
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing demand$1,646,587 $493 0.06 %$1,236,285 $1,131 0.18 %
Savings756,693 255 0.07 558,883 513 0.18 
Money market1,673,559 1,297 0.16 1,161,363 2,749 0.48 
Time deposits621,844 1,711 0.55 1,222,758 8,588 1.41 
Securities sold under agreements to repurchase114,181 76 0.13 72,891 201 0.55 
Federal Home Loan Bank borrowings— — — 224,860 1,279 1.14 
Other borrowings71,425 849 2.40 71,149 1,304 3.69 
Total Interest-Bearing Liabilities4,884,289 4,681 0.19 4,548,189 15,765 0.70 
Noninterest demand2,616,856 1,861,126 
Other liabilities102,450 71,413 
Total Liabilities7,603,595 6,480,728 
Shareholders' equity1,153,498 1,003,544 
Total Liabilities & Equity$8,757,093 $7,484,272 
Cost of deposits0.10 %0.43 %
Interest expense as a % of earning assets0.12 %0.46 %
Net interest income as a % of earning assets$132,674 3.37 %$130,679 3.81 %
1On a fully taxable equivalent basis, a non-GAAP measure - see "Explanation of Certain Unaudited Non-GAAP Financial Measures" for more information and a reconciliation to GAAP. All yields and rates have been computed on an annual basis using amortized cost. Fees on loans have been included in interest on loans. Nonaccrual loans are included in loan balances.
43

Noninterest Income
Noninterest income totaled $15.3 million for the second quarter of 2021, a decrease of $2.3 million, or 13%, compared to the first quarter of 2021 and an increase of $0.3 million, or 2%, from the second quarter of 2020. Noninterest income totaled $33.0 million for the six months ended June 30, 2021, an increase of $3.3 million, or 11%, compared to the six months ended June 30, 2020.
Noninterest income is detailed as follows:
SecondFirstSecondSix Months Ended
QuarterQuarterQuarterJune 30,
(In thousands)20212021202020212020
Service charges on deposit accounts$2,338 $2,338 $1,939 $4,676 $4,764 
Interchange income4,145 3,820 3,187 7,965 6,433 
Wealth management income2,387 2,323 1,719 4,710 3,586 
Mortgage banking fees2,977 4,225 3,559 7,202 5,767 
Marine finance fees177 189 157 366 303 
SBA gains232 287 181 519 320 
BOLI income872 859 887 1,731 1,773 
Other income2,249 3,744 2,147 5,993 5,499 
 15,377 17,785 13,776 33,162 28,445 
Securities (losses) gains, net(55)(114)1,230 (169)1,249 
Total$15,322 $17,671 $15,006 $32,993 $29,694 
Service charges on deposits were $2.3 million in the second quarter of 2021, $2.3 million in the first quarter of 2021 and $1.9 million in the second quarter of 2020. For the six months ended June 30, 2021, service charges on deposits totaled $4.7 million, a decrease of $0.1 million, or 2%, compared to the six months ended June 30, 2020. The decrease in service charges for the six-month period reflects the impact on overdraft fees of higher average deposit balances in the 2021 period. Overdraft fees represent 39% of total service charges on deposits for the six months ended June 30, 2021 and 46% for the six months ended June 30, 2020.
Interchange income reached a record $4.1 million for the three months ended June 30, 2021, an increase of $0.3 million, or 9%, compared to the three months ended March 31, 2021, and an increase of $1.0 million, or 30%, compared to the three months ended June 30, 2020. For the six months ended June 30, 2021, interchange income totaled $8.0 million, an increase of $1.5 million, or 24%, compared to the six months ended June 30, 2020. The 2021 periods reflect higher transactional volume and higher per-card spending with the first half of 2020 negatively impacted by the effect of COVID-19-related shutdowns on consumer consumption.
Wealth management income, including trust fees and brokerage commissions and fees, was a record $2.4 million in the second quarter of 2021, increasing $0.1 million, or 3%, from the first quarter of 2021 and increasing $0.7 million, or 39%, compared to the second quarter of 2020. For the six months ended June 30, 2021, wealth management income totaled $4.7 million, an increase of $1.1 million, or 31%, compared to the six months ended June 30, 2020. Assets under management have grown significantly as the team continues to deliver strong growth through the addition of new relationships. Assets under management have increased $451 million from June 30, 2020 to exceed $1.2 billion at June 30, 2021.
Mortgage banking fees decreased by $1.2 million, or 30%, to $3.0 million in the second quarter of 2021 compared to the first quarter of 2021, and decreased $0.6 million, or 16%, compared to the second quarter of 2020, reflecting the impact of slowing refinance activity and low housing inventory levels. For the six months ended June 30, 2021, mortgage banking fees totaled $7.2 million, an increase of $1.4 million, or 25%, compared to the six months ended June 30, 2020.
SBA gains totaled $0.2 million, a decrease of $0.1 million, or 19%, compared to the first quarter of 2021 and an increase of $0.1 million, or 28%, compared to the second quarter of 2020. For the six months ended June 30, 2021, SBA gains totaled $0.5 million, an increase of $0.2 million, or 62%, compared to the six months ended June 30, 2020.
Bank owned life insurance (“BOLI”) income totaled $0.9 million for the second quarter of 2021, in line with comparative periods. BOLI income totaled $1.7 million for the six months ended June 30, 2021 and $1.8 million for the six months ended
44

June 30, 2020. The Company purchased $25.0 million of BOLI late in the second quarter of 2021 with a tax equivalent first year yield of 4.50% that will positively impact future periods.
Other income was $2.2 million in the second quarter of 2021, a decrease of $1.5 million, or 40%, quarter-over-quarter and an increase of $0.1 million, or 5%, year-over-year. For the six months ended June 30, 2021, other income totaled $6.0 million, an increase of $0.5 million, or 9%, compared to the six months ended June 30, 2020. Included in other income in the first quarter of 2021 was $1.7 million in income associated with the resolution of contingencies on two loans acquired in 2017. Similar activity is not expected in subsequent periods.
Noninterest Expenses
The Company has demonstrated its commitment to efficiency through disciplined, proactive management of its cost structure. For the second quarter of 2021, the efficiency ratio, defined as noninterest expense less amortization of intangibles and gains, losses, and expenses on foreclosed properties divided by net operating revenue (net interest income on a fully taxable equivalent basis plus noninterest income excluding securities gains and losses), was 54.93% compared to 53.21% for the first quarter of 2021 and 50.11% for the second quarter of 2020. The increase in the efficiency ratio quarter-over-quarter primarily reflects lower PPP income and lower mortgage banking gains from slowing refinance activity and low housing inventory levels, partially offset by lower cost of deposits and lower noninterest expense. The increase in the efficiency ratio when compared to the prior year quarter reflects higher noninterest expense primarily associated with lower deferrals of salary costs attributed to lower PPP loan production in the second quarter of 2021, and the impact of the lower rate environment on interest income, partially offset by lower cost of deposits. For the six months ended June 30, 2021, the efficiency ratio was 54.05% compared to 54.88% for the six months ended June 30, 2020.
The adjusted efficiency ratio1 was 53.49% in the second quarter of 2021, compared to 51.99% in the first quarter of 2021 and 49.60% in the second quarter of 2020. The increase in the adjusted efficiency ratio quarter-over-quarter primarily reflects lower PPP income, and lower mortgage banking gains from slowing refinance activity and low housing inventory levels, partially offset by lower cost of deposits. The increase in the efficiency ratio when compared to the prior year quarter reflects higher noninterest expense primarily associated with lower deferrals of salary costs attributed to lower PPP loan production in the second quarter of 2021, and the impact of the lower rate environment on interest income, partially offset by lower cost of deposits. At June 30, 2021, adjusted noninterest expense1 as a percent of average tangible assets was 1.98% for the second quarter of 2021 compared to 2.16% for the first quarter of 2021 and 2.11% for the second quarter of 2020. For the six months ended June 30, 2021 the adjusted efficiency ratio1 was 52.72% compared to 51.53% for the six months ended June 30, 2020.
45

SecondFirstSecondSix Months Ended
QuarterQuarterQuarterJune 30,
(In thousands, except ratios)20212021202020212020
Noninterest expense, as reported$45,784 $46,120 $42,399 $91,904 $90,197 
Merger-related charges(509)(581)(240)(1,090)(4,793)
Amortization of intangibles(1,212)(1,211)(1,483)(2,423)(2,939)
Business continuity expenses— — — — (307)
Branch reductions and other expense initiatives(663)(449)— (1,112)— 
Adjusted noninterest expense1
$43,400 $43,879 $40,676 $87,279 $82,158 
Foreclosed property expense and net (loss)/gain on sale90 65 (245)155 70 
Provision for credit losses on unfunded commitments— — (178)— (224)
Net adjusted noninterest expense1
$43,490 $43,944 $40,253 $87,434 $82,004 
Efficiency ratio54.93 %53.21 %50.11 %54.05 %54.88 %
Adjusted efficiency ratio1,2
53.49 51.99 49.60 52.72 51.53 
Adjusted noninterest expense as a percent of average tangible assets1,2
1.98 2.16 2.11 2.07 2.28 
1Non-GAAP measure - see “Explanation of Certain Unaudited Non-GAAP Financial Measures” for more information and a reconciliation to GAAP.
2Adjusted efficiency ratio is defined as noninterest expense, including adjustments to noninterest expense divided by aggregated tax equivalent net interest income and noninterest income, including adjustments to revenue.
Noninterest expense for the second quarter of 2021 totaled $45.8 million, a decrease of $0.3 million, or 1%, compared to the first quarter of 2021, and an increase of $3.4 million, or 8%, from the second quarter of 2020. For the six months ended June
46

30, 2021, noninterest expenses totaled $91.9 million, an increase of $1.7 million, or 2%, compared to the six months ended June 30, 2020. Noninterest expenses are detailed as follows:
SecondFirstSecondSix Months Ended
QuarterQuarterQuarterJune 30,
(In thousands)20212021202020212020
Salaries and wages$22,966 $21,393 $20,226 $44,359 $43,924 
Employee benefits3,953 4,980 3,379 8,933 7,634 
Outsourced data processing costs4,676 4,468 4,059 9,144 8,692 
Telephone/data lines838 785 791 1,623 1,505 
Occupancy3,310 3,789 3,385 7,099 6,738 
Furniture and equipment1,166 1,254 1,358 2,420 2,981 
Marketing1,002 1,168 997 2,170 2,275 
Legal and professional fees2,182 2,582 2,277 4,764 5,640 
FDIC assessments515 526 266 1,041 266 
Amortization of intangibles1,212 1,211 1,483 2,423 2,939 
Foreclosed property expense and net (gain) loss on sale(90)(65)245 (155)(70)
Provision for credit losses on unfunded commitments— — 178 — 224 
Other4,054 4,029 3,755 8,083 7,449 
Total$45,784 $46,120 $42,399 $91,904 $90,197 
Salaries and wages totaled $23.0 million for the second quarter of 2021, $21.4 million for the first quarter of 2021, and $20.2 million for the second quarter of 2020. Lower PPP loan production in the second quarter of 2021 resulted in lower deferrals of related salary costs. For the six months ended June 30, 2021, salaries and wages totaled $44.4 million, an increase of $0.4 million, or 1%, compared to the six months ended June 30, 2020. The increase compared to the prior year reflects higher salaries from headcount added through acquisition and investments made to support organic growth.
During the second quarter of 2021, employee benefit costs, which include costs associated with the Company's self-funded health insurance benefits, 401(k) plan, payroll taxes, and unemployment compensation, were $4.0 million, a decrease of $1.0 million, or 21%, compared to the first quarter of 2021 and an increase of $0.6 million, or 17%, compared to the second quarter of 2020. The first quarter of 2021 included higher seasonal payroll taxes and 401(k) plan contributions, as well as higher healthcare-related costs. For the six months ended June 30, 2021, employee benefit costs totaled $8.9 million, an increase of $1.3 million, or 17%, compared to the six months ended June 30, 2020. The increase reflects the impact of higher health insurance related costs and payroll taxes resulting from headcount added through acquisition and investments made to support organic growth.
The Company utilizes third parties for its core data processing systems. Ongoing data processing costs are directly related to the number of transactions processed and the negotiated rates associated with those transactions. Outsourced data processing costs totaled $4.7 million, $4.5 million and $4.1 million for the second quarter of 2021, first quarter of 2021 and second quarter of 2020, respectively. For the six months ended June 30, 2021, outsourced data processing costs totaled $9.1 million, an increase of $0.5 million, or 5%, compared to the six months ended June 30, 2020. The Company continues to improve and enhance mobile and other digital products and services through key third parties. Outsourced data processing costs may increase in the future as customers adopt improved products and as business volumes grow.
Telephone and data line expenditures, including electronic communications with customers and between branch and customer support locations and personnel, as well as with third-party data processors, remained flat at $0.8 million for the second quarter of 2021, first quarter of 2021, and second quarter of 2020, respectively. For the six months ended June 30, 2021, telephone and data line expenditures totaled $1.6 million, an increase of $0.1 million, or 8%, compared to the six months ended June 30, 2020.
Total occupancy, furniture and equipment expenses were $4.5 million for the second quarter of 2021, $5.0 million in the first quarter of 2021, and $4.7 million in the second quarter of 2020. For the six months ended June 30, 2021, total occupancy, furniture and equipment expenses totaled $9.5 million, an increase of $0.2 million, or 2%, compared to the six months ended June 30, 2020.
47

Marketing expenses totaled $1.0 million in the second quarter of 2021, $1.2 million in the first quarter of 2021 and $1.0 million in the second quarter of 2020. For the six months ended June 30, 2021, marketing expenses totaled $2.2 million, a decrease of $0.1 million, or 5%, compared to the six months ended June 30, 2020. Targeted marketing campaigns allow the Company to engage new and existing customers while maintaining a controlled expense base.
Legal and professional fees for the second quarter of 2021 were $2.2 million, a decrease of $0.4 million, or 15%, compared to the first quarter of 2021, and a decrease of $0.1 million, or 4%, compared to the second quarter of 2020. For the six months ended June 30, 2021, legal and professional fees totaled $4.8 million, a decrease of $0.9 million, or 16%, compared to the six months ended June 30, 2020. Acquisition-related expenses were $0.5 million in the second quarter of 2021, $0.6 million in the first quarter of 2021 and $0.2 million in the second quarter of 2020. Acquisition-related expenses were $1.1 million in the six months ended June 30, 2021 and $1.4 million for the six months ended June 30, 2020.
FDIC assessments were $0.5 million for the second quarter of 2021 and $0.5 million the first quarter of 2021, while the second quarter of 2020 benefited from FDIC small bank assessment credits to offset expenses. These credits were fully utilized by the second quarter of 2020. For the six months ended June 30, 2021, FDIC assessments totaled $1.0 million compared to $0.3 million for the six months ended June 30, 2020.
During the second quarter of 2021, the Company recorded gains on the sale of OREO, net of other expenses of $0.1 million compared to gains of $0.1 million in the first quarter of 2021 and write-downs of $0.2 million in the second quarter of 2020 (see “Nonperforming Loans, Troubled Debt Restructurings, Other Real Estate Owned, and Credit Quality” for more discussion). For the six months ended June 30, 2021, the Company recorded gains on the sale of OREO, net of other expenses of $0.2 million compared to gains of $0.1 million for the six months ended June 30, 2020.
No adjustment to the reserve for credit losses on unfunded lending commitments was recorded in the first or second quarter of 2021, compared to a $0.2 million increase in reserves in the second quarter of 2020.
Other expense totaled $4.1 million, $4.0 million and $3.8 million for the second quarter of 2021, the first quarter of 2021 and the second quarter of 2020, respectively. For the six months ended June 30, 2021, other expense totaled $8.1 million, an increase of $0.6 million, or 9%, compared to the six months ended June 30, 2020.
Income Taxes
For the second quarter of 2021, the Company recorded tax expense of $8.8 million compared to tax expense of $10.2 million in the first quarter of 2021 and $7.2 million in the second quarter of 2020. For the six months ended June 30, 2021, tax expense totaled $18.9 million, an increase of $11.9 million, or 169%, compared to the six months ended June 30, 2020. A tax benefit related to stock-based compensation totaled $0.6 million in the second quarter of 2021, compared to a tax benefit of $0.1 million in the first quarter of 2021 and tax expense of $0.2 million in the second quarter of 2020.
Explanation of Certain Unaudited Non-GAAP Financial Measures
This report contains financial information determined by methods other than Generally Accepted Accounting Principles (“GAAP”). The financial highlights provide reconciliations between GAAP and adjusted financial measures including net income, fully taxable equivalent net interest income, noninterest income, noninterest expense, tax adjustments, net interest margin and other financial ratios. Management uses these non-GAAP financial measures in its analysis of the Company’s performance and believes these presentations provide useful supplemental information, and a clearer understanding of the Company’s performance. The Company believes the non-GAAP measures enhance investors’ understanding of the Company’s business and performance and if not provided would be requested by the investor community. These measures are also useful in understanding performance trends and facilitate comparisons with the performance of other financial institutions. The limitations associated with operating measures are the risk that persons might disagree as to the appropriateness of items comprising these measures and that different companies might define or calculate these measures differently. The Company provides reconciliations between GAAP and these non-GAAP measures. These disclosures should not be considered an alternative to GAAP.
Reconciliation of Non-GAAP Measures
SecondFirstSecondSix Months Ended
QuarterQuarterQuarterJune 30,
(In thousands, except per share data)20212021202020212020
Net income, as reported:     
Net income$31,410 $33,719 $25,080 $65,129 $25,789 
48

SecondFirstSecondSix Months Ended
QuarterQuarterQuarterJune 30,
(In thousands, except per share data)20212021202020212020
Diluted earnings per share$0.56 $0.60 $0.47 $1.17 $0.49 
Noninterest Income$15,322 $17,671 $15,006 $32,993 $29,694 
Securities (gains) losses, net55 114 (1,230)169 (1,249)
Total adjustments to noninterest income55 114 (1,230)169 (1,249)
Total Adjusted Noninterest Income$15,377 $17,785 $13,776 $33,162 $28,445 
Noninterest Expense45,784 $46,120 $42,399 $91,904 $90,197 
Merger-related charges(509)(581)(240)(1,090)(4,793)
Amortization of intangibles(1,212)(1,211)(1,483)(2,423)(2,939)
Business continuity expenses— — — — (307)
Branch reductions and other expense initiatives1
(663)(449)— (1,112)— 
Total adjustments to noninterest expense(2,384)(2,241)(1,723)(4,625)(8,039)
Total Adjusted Noninterest Expense$43,400 $43,879 $40,676 $87,279 $82,158 
Income Taxes$8,785 $10,157 $7,188 $18,942 $7,033 
Tax effect of adjustments598 577 121 1,175 1,665 
Total adjustments to income taxes598 577 121 1,175 1,665 
Adjusted income taxes9,383 10,734 7,309 20,117 8,698 
Adjusted net income$33,251 $35,497 $25,452 $68,748 $30,914 
Earnings per diluted share, as reported$0.56 $0.60 $0.47 $1.17 $0.49 
Adjusted diluted earnings per share0.59 0.63 0.48 1.23 0.59 
Average diluted shares outstanding55,901 55,992 53,308 55,827 52,807 
Adjusted Noninterest Expense$43,400 $43,879 $40,676 $87,279 $82,158 
Foreclosed property expense and net (loss) gain on sale90 65 (245)155 70 
Provision for unfunded commitments— — (178)— (224)
Net Adjusted Noninterest Expense$43,490 $43,944 $40,253 $87,434 $82,004 
Revenue$81,124 $84,281 $82,278 $165,405 $160,143 
Total adjustments to revenue55 114 (1,230)169 (1,249)
Impact of FTE adjustment131 131 116 262 230 
Adjusted revenue on a fully tax equivalent basis$81,310 $84,526 $81,164 $165,836 $159,124 
Adjusted Efficiency Ratio53.49 %51.99 %49.60 %52.72 %51.53 %
Net Adjusted Noninterest Expense as a Percent of Average Tangible Assets2
1.98 %2.16 %2.11 %2.07 %2.28 %
Net Interest Income$65,802 $66,610 $67,272 $132,412 $130,449 
Impact of FTE adjustment131 131 116 262 230 
Net interest income including FTE adjustment65,933 66,741 67,388 132,674 130,679 
Noninterest income15,322 17,671 15,006 32,993 29,694 
Noninterest expense45,784 46,120 42,399 91,904 90,197 
Pre-Tax Pre-Provision Earnings35,471 38,292 39,995 73,763 70,176 
Adjustments to noninterest income55 114 (1,230)169 (1,249)
Adjustments to noninterest expense(2,294)(2,176)(2,146)(4,470)(8,193)
Adjusted Pre-Tax Pre-Provision Earnings$37,820 $40,582 $40,911 $78,402 $77,120 
49

SecondFirstSecondSix Months Ended
QuarterQuarterQuarterJune 30,
(In thousands, except per share data)20212021202020212020
Average Assets$9,025,846 $8,485,354 $7,913,002 $8,757,093 $7,484,272 
Less average goodwill and intangible assets(235,964)(237,323)(230,871)(236,640)(228,791)
Average Tangible Assets$8,789,882 $8,248,031 $7,682,131 $8,520,453 $7,255,481 
Return on Average Assets (ROA)1.40 %1.61 %1.27 %1.50 %0.69 %
Impact of removing average intangible assets and related amortization0.08 0.09 0.10 0.08 0.09 
Return on Average Tangible Assets (ROTA)1.48 1.70 1.37 1.58 0.78 
Impact of other adjustments for Adjusted Net Income0.04 0.05 (0.04)0.05 0.08 
Adjusted Return on Average Tangible Assets1.52 %1.75 %1.33 %1.63 %0.86 %
Average Shareholders' Equity$1,170,395 $1,136,416 $1,013,095 $1,153,498 $1,003,544 
Less average goodwill and intangible assets(235,964)(237,323)(230,871)(236,640)(228,791)
Average Tangible Equity$934,431 $899,093 $782,224 $916,858 $774,753 
Return on Average Shareholders' Equity10.76 %12.03 %9.96 %11.39 %5.17 %
Impact of removing average intangible assets and related amortization3.12 3.59 3.51 3.34 2.10 
Return on Average Tangible Common Equity (ROTCE)13.88 15.62 13.47 14.73 7.27 
Impact of other adjustments for Adjusted Net Income0.39 0.39 (0.38)0.39 0.75 
Adjusted Return on Average Tangible Common Equity14.27 %16.01 %13.09 %15.12 %8.02 %
Loan Interest Income2
$60,440 $62,390 $64,929 $122,830 $128,453 
Accretion on acquired loans(2,886)(2,868)(2,988)(5,754)(7,275)
Interest and fees on PPP loans(5,127)(6,886)(5,068)(12,013)(5,068)
Loan interest income excluding PPP and accretion on acquired loans2
$52,427 $52,636 $56,873 $105,063 $116,110 
Yield on Loans2
4.33 %4.39 %4.56 %4.36 %4.72 %
Impact of accretion on acquired loans(0.21)(0.20)(0.21)(0.20)(0.27)
Impact of PPP loans0.01 (0.04)(0.04)(0.02)(0.01)
Yield on loans excluding PPP and accretion on acquired loans2
4.13 %4.15 %4.31 %4.14 %4.44 %
Net Interest Income2
$65,933 $66,741 $67,388 $132,674 $130,679 
Accretion on acquired loans(2,886)(2,868)(2,988)(5,754)(7,275)
Interest and fees on PPP loans(5,127)(6,886)(5,068)(12,013)(5,068)
Net interest income excluding PPP and accretion on acquired loans2
$57,920 $56,987 $59,332 $114,907 $118,336 
Net Interest Margin2
3.23 %3.51 %3.70 %3.37 %3.81 %
Impact of accretion on acquired loans(0.14)(0.15)(0.16)(0.15)(0.21)
Impact of PPP loans(0.06)(0.11)(0.08)(0.08)(0.04)
Net interest margin excluding PPP and accretion on acquired loans2
3.03 %3.25 %3.46 %3.14 %3.56 %
Loan Interest Income2
$60,440 $62,390 $64,929 $122,830 $128,453 
Tax equivalent adjustment to loans(92)(92)(85)(184)(169)
Loan interest income excluding tax equivalent adjustment$60,348 $62,298 $64,844 $122,646 $128,284 
50

SecondFirstSecondSix Months Ended
QuarterQuarterQuarterJune 30,
(In thousands, except per share data)20212021202020212020
Securities Interest Income2
$6,745 $6,485 $7,725 $13,230 $16,573 
Tax equivalent adjustment to securities(39)(39)(31)(78)(61)
Securities interest income excluding tax equivalent adjustment$6,706 $6,446 $7,694 $13,152 $16,512 
Net Interest Income2
$65,933 $66,741 $67,388 $132,674 $130,679 
Tax equivalent adjustments to loans(92)(92)(85)(184)(169)
Tax equivalent adjustments to securities(39)(39)(31)(78)(61)
Net interest income excluding tax equivalent adjustments$65,802 $66,610 $67,272 $132,412 $130,449 
1Includes severance, contract termination costs, disposition of branch premises and fixed assets, and other costs to effect the Company's branch consolidation and other expense reduction strategies.
2On a fully taxable equivalent basis. All yields and rates have been computed using amortized cost.

Financial Condition
Total assets increased $1.0 billion at June 30, 2021, or 12%, from December 31, 2020, reflecting higher cash balances due to higher customer deposit balances, as well as the origination of PPP loans under the renewed program.
Securities
Information related to maturities, carrying values and fair value of the Company’s debt securities is set forth in “Note D – Securities” of the Company’s condensed consolidated financial statements.
At June 30, 2021, the Company had $1.3 billion in debt securities available-for-sale and $493.5 million in debt securities held-to-maturity. The Company's total debt securities portfolio increased $233.6 million, or 15%, from December 31, 2020.
During the first quarter of 2021, the Company reclassified debt securities with an amortized cost of $210.8 million from available-for-sale to held-to-maturity. These securities had net unrealized gains of $0.8 million at the date of transfer, which will continue to be reported in accumulated other comprehensive income and will be amortized over the remaining life of the securities as an adjustment of yield. The effect on interest income of the amortization of net unrealized gains is offset by the amortization of the premium on the securities transferred. The Company has the intent and ability to retain these securities until maturity.
During the six months ended June 30, 2021, there were $669.2 million of debt security purchases and $361.9 million in aggregated paydowns and maturities. For the six months ended June 30, 2021, the Company had $56.2 million in proceeds from sales of securities with net losses of $0.1 million. For the six months ended June 30, 2020, there were $239.2 million debt security purchases and aggregated maturities and principal paydowns totaled $140.3 million. Proceeds from sales of securities during the six months ended June 30, 2020 totaled $92.3 million, with net gains of $1.1 million.
Debt securities generally return principal and interest monthly. At June 30, 2021, available-for-sale debt securities had gross unrealized losses of $6.3 million and gross unrealized gains of $18.7 million, compared to gross unrealized losses of $2.1 million and gross unrealized gains of $28.7 million at December 31, 2020. The modified duration of the available-for-sale portfolio at June 30, 2021 was 3.2 years, compared to 3.8 years at December 31, 2020.
The credit quality of the Company’s securities holdings is primarily investment grade. U.S. Treasuries, obligations of U.S. government agencies and obligations of U.S. government sponsored entities totaled $1.5 billion, or 82%, of the total portfolio.
The portfolio includes $73.5 million, with a fair value of $75.2 million, in private label residential and commercial mortgage-backed securities and collateralized mortgage obligations. Included are $48.4 million, with a fair value of $49.0 million, in private label mortgage-backed residential securities with weighted average credit support of 34%. The collateral underlying these mortgage investments includes both fixed-rate and adjustable-rate mortgage loans. Non-guaranteed agency commercial securities total $25.0 million, with a fair value of $26.2 million. These securities have weighted average credit support of 11%. The collateral underlying these mortgages are primarily pooled multifamily loans.
The Company also has invested $209.8 million, with a fair value of $209.7 million, in uncapped 3-month LIBOR floating rate collateralized loan obligations (“CLOs”). CLOs are special purpose vehicles, and the Company’s holdings purchase nearly all
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first lien broadly syndicated corporate loans across a diversified band of industries while providing support to senior tranche investors. As of June 30, 2021, the Company held 26 total positions, all of which were in AAA/AA tranches with average credit support of 31%. The Company utilizes credit models with assumptions of loan level defaults, recoveries, and prepayments to evaluate each security for potential credit losses. The result of this analysis did not indicate expected credit losses.
Held-to-maturity securities consist solely of mortgage-backed securities and collateralized mortgage obligations guaranteed by government agencies.
At June 30, 2021, the Company has determined that all debt securities in an unrealized loss position are the result of both broad investment type spreads and the current interest rate environment. Management believes that each investment will recover any price depreciation over its holding period as the debt securities move to maturity, and management has the intent and ability to hold these investments to maturity if necessary. Therefore, at June 30, 2021, no allowance for credit losses has been recorded.
Loan Portfolio
Loans, net of unearned income and excluding the allowance for credit losses, were $5.4 billion at June 30, 2021, a $298.3 million decrease from December 31, 2020. During the six months ended June 30, 2021, the Company participated in the most recent round of the PPP, resulting in originations of $256.0 million. This was offset by $457.0 million in PPP loans that were forgiven by the SBA during the six months ended June 30, 2021. Remaining decreases in loans reflect the impact of continued paydowns, as loan growth is expected to return in the second half of 2021.
For the six months ended June 30, 2021, the Company originated $397.3 million in commercial and commercial real estate loans, compared to $290.2 million for the six months ended June 30, 2020, an increase of $107.1 million, or 37%. The loan pipeline for commercial and commercial real estate loans totaled $322.0 million at June 30, 2021. Prior year’s production and pipeline reflect the impact of the onset of the COVID-19 pandemic where the Company purposefully slowed originations. The current year activity reflects the Company’s return to its pre-pandemic credit policy and strict underwriting guidelines.
The Company originated $164.7 million in residential loans retained in the portfolio during the six months ended June 30, 2021, compared to $49.3 million during the six months ended June 30, 2020, an increase of $115.4 million, or 234%. Residential loans retained in the portfolio in the second quarter of 2021 includes a $38.4 million purchased pool consisting of 30-year fixed rate jumbo residential loans. Saleable production increased for the six months ended June 30, 2021, representing $258.4 million versus $185.3 million during the six months ended June 30, 2020, an increase of 39%.
Consumer originations totaled $110.4 million for the six months ended June 30, 2021, an increase of $1.0 million, or 1%, compared to the six months ended June 30, 2020.
The Company remains committed to sound risk management procedures. Lending policies contain guardrails that pertain to lending by type of collateral and purpose, along with limits regarding loan concentrations and the principal amount of loans. The Company's exposure to commercial real estate lending remains well below regulatory limits (see “Loan Concentrations”).
The following tables detail loan portfolio composition at June 30, 2021 and December 31, 2020 for portfolio loans, purchased credit deteriorated (“PCD”) and loans purchased which are not considered purchased credit deteriorated (“Non-PCD”) as defined in Note E-Loans.
 June 30, 2021
(In thousands)Portfolio LoansAcquired Non-PCD LoansPCD LoansTotal
Construction and land development$223,412 $10,408 $527 $234,347 
Commercial real estate - owner-occupied