SEACOAST BANKING CORP OF FLORIDA (SBCF) FY 2021 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The purpose of this discussion and analysis is to aid in understanding significant changes in the financial condition of Seacoast Banking Corporation of Florida and its subsidiaries (“Seacoast” or the “Company”) and their results of operations. Nearly all of the Company’s operations are contained in its banking subsidiary, Seacoast National Bank (“Seacoast Bank” or the “Bank”). Such discussion and analysis should be read in conjunction with the Company's Condensed Consolidated Financial Statements and the related notes included in this report.

The emphasis of this discussion will be on the years ended December 31, 2021 and 2020. Additional information about the Company’s financial condition and results of operations in 2019 and changes in the Company’s financial condition and results of operations from 2019 to 2020 may be found in the Company’s Annual Report on Form 10-K for the year ended 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 “Special Cautionary Notice Regarding Forward-Looking Statements” for additional information regarding forward-looking statements.

For purposes of the following discussion, the words “Seacoast,” or the “Company,” refer to the combined entities of Seacoast Banking Corporation of Florida and its direct and indirect wholly owned subsidiaries.

Overview – Strategy and Results

Seacoast Banking Corporation of Florida (“Seacoast” or the “Company”), a financial holding company, registered under the Bank Holding Company Act of 1956, as amended (the “BHC Act”), is one of the largest community banks in Florida, with $9.7 billion in assets and $8.1 billion in deposits as of December 31, 2021. Its principal subsidiary is Seacoast National Bank (“Seacoast Bank”), a wholly owned national banking association. The Company provides integrated financial services including commercial and consumer banking, wealth management, and mortgage services to customers through advanced online and mobile banking solutions, and Seacoast Bank's network of 54 traditional branches and commercial banking centers. Seacoast operates primarily in Florida, with concentrations in the state's fastest growing markets, each with unique characteristics and opportunities. The Company's offices stretch from the southeast, including Fort Lauderdale, Boca Raton and Palm Beach, north along the east coast to the Daytona area, into Orlando and Central Florida and the adjacent Tampa market, and west to

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Okeechobee and surrounding counties. In the first quarter of 2022, the footprint has expanded to include Naples, Sarasota, and Jacksonville.

The Company delivers integrated banking services, combining traditional retail locations with online and mobile technology and a convenient telephone banking center. Seacoast has built a fully integrated distribution platform across all channels to provide customers with the ability to choose their path of convenience to satisfy their banking needs, allowing the Company an opportunity to reach customers through a variety of sales channels. The Company believes its digital delivery and products are contributing to the franchise's growth.

Seacoast is executing a balanced growth strategy, combining organic growth with strategic acquisitions in Florida's most attractive growing markets. In Orlando, Seacoast is now the largest Florida-based bank and a top-10 bank in the Orlando market overall. In other key markets, including Palm Beach County, Fort Lauderdale, and Tampa, the Company has enhanced its footprint with 13 acquisitions since 2014, generating continued expansion and strengthening market share, increasing the customer base and lowering operating costs through economies of scale.

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

Impact of COVID-19, the CARES Act and the Paycheck Protection Program on Comparability Among Periods

The COVID-19 pandemic and related responses 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. The impact of the economic downturn caused by the pandemic was experienced differently across geographic areas, business sectors and demographic groups. The Florida economy has experienced positive trends including population growth and lower unemployment than much of the rest of the country. While the overall economic outlook has improved, there continues to be the risk of further resurgence of infections, including from variants, and possible reimplementation of business restrictions.

The Coronavirus Aid, Relief and Economic Security (“CARES”) Act encouraged financial institutions to provide loan modifications to assist borrowers financially impacted by COVID-19. Seacoast began offering payment accommodations to eligible borrowers in March 2020 and, at June 30, 2020, loans with active payment accommodations peaked at $1.1 billion. Nearly all such modifications have expired and borrowers returned to making payments under the original loan terms. At

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December 31, 2021 and 2020, loans with active payment accommodations totaled $1.2 million and $74.1 million, respectively. In 2020, uncertainty related to the impact of the pandemic on the economy and on borrowers’ ability to repay loan obligations resulted in increases in the provisioning for credit losses during 2020. As the overall economic outlook has improved and loan portfolio credit indicators have remained strong, the Company has reduced the level of allowance for credit losses in 2021 compared to 2020. The future effects of the COVID-19 pandemic on economic activity remain uncertain, and future additional provisions for credit losses could be necessary.

The CARES Act also included 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 assisted borrowers with nearly 9,000 loans originated through the PPP. The SBA established a fee structure based on loan size, and fees received by Seacoast, net of related costs, totaled $26.7 million, which were deferred and are being recognized as an adjustment to yield over time. During 2020, Seacoast recognized net fees of $7.8 million and contractual interest of $4.2 million on PPP loans. During 2021, Seacoast recognized net fees of $17.5 million and contractual interest of $3.8 million on PPP loans. PPP loan balances outstanding at December 31, 2021 totaled $91.1 million, and the remaining $2.4 million in deferred PPP loan fees will be recognized over the loans' remaining contractual maturity or sooner, as loans are forgiven.

2021 Financial Performance Highlights

•Record net income of $124.4 million, or $2.18 per diluted share, for the year ended December 31, 2021, an increase of 60% year-over-year.

•Steady build of shareholder value through consistent growth in tangible book value per share, which ended the period at $17.84, an increase of 10% year-over-year.

•The tangible common equity ratio of 11.09% supports Seacoast's ability to deploy capital for organic growth and opportunistic acquisitions.

•Increasing commercial loan originations, with the fourth quarter of 2021 increasing 47% over the prior year to a record $408.9 million, and a record commercial pipeline of $397.8 million at December 31, 2021.

•Growth in fee based revenues with year-over-year increases in interchange income of 18% to $16.2 million, wealth management income, which increased 28% to $9.6 million and SBA gains, which increased 124% to $1.5 million for the full year.

•Disciplined expense management with a focus on balancing investments by streamlining business and cost savings processes, maintaining a 2021 efficiency ratio of 55%, which includes the impact of merger-related expenses incurred during the year. On an adjusted basis1, efficiency ratio was 53%.

•The successful acquisition of Legacy Bank of Florida in the third quarter of 2021 added experienced bankers and a net four new branches in Broward and Palm Beach counties.

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Results of Operations

Earnings Summary

For the year ended December 31, 2021, net income totaled $124.4 million, or $2.18 per diluted share, compared to $77.8 million, or $1.44 per diluted share, for the year ended December 31, 2020. Return on average assets (“ROA”) was 1.33% and return on average equity (“ROE”) was 10.24% in 2021 compared to 0.99% and 7.44%, respectively, in 2020.

Adjusted net income1 for the year ended December 31, 2021 totaled $135.0 million, or $2.36 per diluted share, compared to $89.0 million, or $1.65 per diluted share, in 2020.

During 2020, uncertainty related to the impact of COVID-19 resulted in increased provisioning for credit losses. A strong economic recovery in the state of Florida as well as an improving economic outlook have resulted in a release of reserves throughout 2021.

In 2021, the Company's efficiency ratio, defined as noninterest expense less foreclosed property expense and amortization of intangibles divided by net operating revenue (net interest income on a fully tax equivalent basis plus noninterest income excluding securities gains and losses), was 55.39%, compared to 54.84% for 2020. Changes from the prior year reflect higher 2021 expenses, resulting from organic and acquisition related expansion of the Company's footprint and investments in commercial banking talent, partially offset by lower funding costs and increases in noninterest income. The adjusted efficiency ratio1 in 2021 was 52.59% compared to 51.63% in 2020.

Net Interest Income and Margin

Net interest income for the year ended December 31, 2021 totaled $276.0 million, increasing $13.3 million, or 5%, compared to the year ended December 31, 2020. Net interest income (on a fully taxable equivalent basis)1 for the year ended December 31, 2021 was $276.5 million, increasing $13.3 million, or 5%, compared to the year ended December 31, 2020. In 2021 and 2020, net interest margin (on a fully tax equivalent basis)1 was 3.27% and 3.65%, respectively.

The continued low interest rate environment during 2021 resulted in lower yields on securities and non-PPP loans. Yield on securities contracted by 72 basis points from 2.33% to 1.61% while the yield on non-PPP loans declined 33 basis points from 4.62% to 4.29% as higher yielding securities and loans paid down and were replaced with lower yielding assets. Yield on PPP loans increased from 2.86% to 5.57% resulting from loan forgiveness during the year. The effect on net interest margin of interest and fees from PPP loans was an increase of 11 basis points in 2021 compared to a decrease of 3 basis points in 2020. The effect on net interest margin of purchase discounts on acquired loans was an increase of 15 basis points in 2021 compared to 21 basis points in 2020.

The cost of deposits decreased by 24 basis points to 8 basis points in 2021, reflecting the impact of the continued low interest rate environment as well as a shift in product mix to include a higher proportion of noninterest bearing demand deposits to total deposits.

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

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

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

Total average loans increased $72.3 million, or 1%, during 2021 compared to 2020. Average loans (the highest yielding component of earning assets) as a percentage of average earning assets totaled 68% in 2021, compared to 79% in 2020. Loans secured by commercial real estate represented 53% of total loans, excluding PPP loans, at December 31, 2021, compared to 52% at December 31, 2020. Residential loan balances with individuals (including home equity loans and lines and personal construction loans) represented 26% of total loans, excluding PPP loans, at December 31, 2021, compared to 28% at December 31, 2020 (see “Loan Portfolio”).

Average debt securities increased $565.4 million, or 44%, from 2020 reflecting the investment of excess liquidity into the securities portfolio. Securities comprised 22% and 18% of average earning assets in 2021 and 2020, respectively. Yields on securities decreased from 2.33% in 2020 to 1.61% in 2021.

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Loan production is detailed in the following table for the periods specified:

Commercial and commercial real estate loan production in 2021 totaled $1.1 billion, compared to $655.8 million in 2020. Included in 2021 are $36.4 million in fixed-rate commercial real estate loans acquired through the wholesale market. The combination of economic expansion and a focus on building the leading commercial bank in Florida with the addition of top talent resulted in significant growth in loan production during 2021.

Residential loan production totaled $887.4 million in 2021, compared to $638.6 million in 2020. Included in 2021 are purchases of $219.2 million in residential loans from the wholesale market. No purchases were made in the wholesale market during 2020.

Consumer originations totaled $249.5 million during 2021, compared to $219.3 million during 2020.

Seacoast originated $256.0 million in PPP loans during 2021 and $599.0 million in 2020. No additional PPP originations are expected.

In 2021, the cost of average interest-bearing liabilities decreased 37 basis points to 0.16% from 2020, reflecting the impact of the continued low interest rate environment as well as a shift in product mix to include a higher proportion of noninterest bearing demand deposits to total deposits. The low overall cost of funding reflects the Company’s successful core deposit focus that produced strong growth in customer relationships over the past several years. Noninterest bearing demand deposits at December 31, 2021 represented 38% of total deposits, compared to 33% at December 31, 2020. The cost of average total deposits (including noninterest bearing demand deposits) in 2021 was 0.08%, compared to 0.32% in 2020.

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

The Company’s focus on convenience, with high-quality customer service, expanded digital offerings and distribution channels provides stable, low-cost core deposit funding. Over the past several years, the Company has strengthened its retail deposit franchise using new strategies and product offerings, while maintaining a focus on growing customer relationships. Seacoast believes that digital product offerings are central to core deposit growth and have proved to be of meaningful value to its customers. Seacoast's call center and retail associates continue to lead the market in availability and customer service standards, with the call center out-performing large bank call center wait times and service level standards. The impact of various government stimulus programs, as well as the acquisition of Legacy Bank of Florida in the third quarter of 2021, have also contributed to higher deposit balances. During 2021, average transaction deposits (noninterest and interest bearing demand deposits) increased $1.2 billion, or 35%, compared to 2020.

Growth in core deposits has also provided low funding costs. The Company’s deposit mix remains favorable, with 92% of average deposit balances comprised of savings, money market, and demand deposits in 2021.

Sweep repurchase agreements with customers increased $2.0 million, or 2%, to $121.6 million at December 31, 2021 compared to $119.6 million at December 31, 2020. The average rate on customer repurchase accounts was 0.12% in 2021 compared to 0.33% in 2020. No federal funds purchased were utilized at December 31, 2021 or 2020.

The Company had no FHLB borrowings during the year ended December 31, 2021 or at December 31, 2020. FHLB borrowings averaged $139.4 million at an average rate of 1.10% for the full year 2020 (see “Note 9 - Borrowings” to the Company’s consolidated financial statements).

In 2021, average subordinated debt of $71.5 million related to trust preferred securities issued by subsidiary trusts of the Company carried an average cost of 2.36%, down from 3.07% in 2020, reflecting the impact of lower interest rates as the subordinated debt cost is based on LIBOR plus a spread (see “Note 9 - Borrowings”).

Provision for Credit Losses

The provision for credit losses was a net benefit of $9.4 million for the full year 2021 compared to a provision of $38.2 million for the full year 2020. The provision in 2021 reflects an improved economic outlook compared to heightened uncertainty in 2020 relating to the impact of COVID-19 on the economic environment. On January 1, 2020, the Company adopted ASC Topic 326 - Financial Instruments - Credit Losses. Under the CECL approach, the Company reserves for the full amount of expected credit losses over the life of the loans, which also contributed to the increase in provision in 2020.

Noninterest Income

Noninterest income (excluding securities gains and losses) totaled $71.3 million in 2021, an increase of $11.0 million, or 18%, compared to 2020. Noninterest income accounted for 21% of total revenue in 2021 and 19% in 2020 (net interest income plus noninterest income, excluding securities gains and losses).

Noninterest income is detailed as follows:

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Service charges on deposits for the year ended December 31, 2021 compared to the year ended December 31, 2020 increased $0.3 million, or 4%, to $9.8 million. This increase reflects a return to more normalized fee activity compared to the prior year, in part due to the waiver of certain account charges during the first half of 2020 in response to the COVID-19 pandemic. Overdraft fees on business and consumer accounts represented 41% of total service charges on deposits in 2021 compared to 44% in 2020.

Interchange revenue totaled $16.2 million in 2021, an increase of 18% from $13.7 million in 2020. Growth in the number of commercial and consumer customers, targeted marketing campaigns and a continued economic recovery all contributed to higher transaction volume and per-card spending for both consumer and commercial customers for the year.

Wealth management revenues, including brokerage commissions and fees and trust income, increased $2.1 million, or 28%, to $9.6 million for the year ended December 31, 2021. The wealth management team has continued to grow relationships, resulting in an increase in assets under management of 42% year-over-year to $1.2 billion as of December 31, 2021.

Mortgage banking fees decreased by $2.9 million, or 20%, to $11.8 million for the year ended December 31, 2021 compared to 2020. The prior year results benefited from a significant decrease in interest rates which resulted in a strong refinance market, while 2021 results reflect a slowdown in refinance activity and lower housing inventory.

Gains on sale of the guaranteed portion of SBA loans totaled $1.5 million for the year ended December 31, 2021, an increase of $0.8 million compared to 2020. PPP loan production ended in the second quarter of 2021, resulting in a shift back to SBA borrowing in the second half of 2021.

Bank owned life insurance (“BOLI”) income totaled $4.2 million in 2021, an increase of $0.6 million, or 17%, compared to the prior year. The Company purchased or added through bank acquisition $69.1 million in BOLI in 2021.

Income from the Company's investments in Small Business Investment Companies (“SBICs”) increased by $5.4 million to $6.8 million compared to 2020. The amounts recognized on SBIC investments will vary amongst periods.

Other income increased by $2.1 million year-over-year, reflecting $1.7 million from the resolution of contingencies on two loans acquired in 2017, and the sale of an internet domain name for $0.8 million. These increases were partially offset by a decrease in loan swap fees.

Securities losses in 2021 totaled $0.6 million, resulting from a $0.4 million net loss on the sale of debt securities with a fair value of $102.1 million, and a $0.2 million decrease in the value of the CRA-qualified mutual fund investment. Securities gains in 2020 totaled $1.2 million, resulting from net gains on the sale of $96.7 million of debt securities, and a $0.1 million increase in the value of the CRA-qualified mutual fund investment.

Noninterest Expense

The Company has demonstrated its commitment to efficiency through disciplined, proactive management of its cost structure. Noninterest expenses in 2021 totaled $197.4 million and included acquisition-related expenses of $7.9 million, and expenses related to branch consolidation and other expense reduction initiatives of $2.2 million. In 2020, noninterest expenses totaled

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$185.6 million, including $9.1 million in acquisition-related expenses, $0.8 million in expenses related to branch consolidation and other expense reduction initiatives, and $0.3 million in bonuses to retail associates for keeping critical functions operating at full capacity through the initial stages of the Company's response to the COVID-19 pandemic. Adjusted noninterest expense1 in 2021 totaled $182.4 million, an increase of 8% from 2020, reflecting overall growth of the organization. Changes in the categories of noninterest expense for the year ended 2021 compared to 2020 are further described below.

Salaries and wages totaled $97.3 million in 2021, an increase of $8.7 million, or 10%, compared to 2020. Results in 2021 include $2.6 million in bank acquisition-related charges compared to $2.8 million in 2020. The remaining increase compared to the prior year reflects higher salaries from headcount added through acquisitions and investments made to support organic growth.

During 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, increased $2.3 million, or 15%, compared to 2020. The increase reflects the impact of higher health insurance related costs and payroll taxes resulting from headcount added through acquisitions and investments made to support organic growth.

The Company utilizes third parties for 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 $19.9 million in 2021, an increase of $0.9 million, or 5%. Results include $0.9 million in acquisition-related charges compared to $2.7 million in 2020. Investments in 2021 included improvements to the digital commercial loan origination platform that has provided a quicker renewal process and a streamlined workflow for bankers and underwriters, and an automated PPP forgiveness solution integrated with the Company's existing technology infrastructure. The Company continues to improve and enhance mobile and digital products and services through key third parties, and in the first quarter of 2022 upgraded its online and mobile banking platform, providing an enhanced digital experience for customers. Outsourced data processing costs may increase in the future as customers adopt improved products and as business volumes grow.

Telephone and data line expenses, including electronic communications with customers, between branch locations and personnel, and with third party data processors, increased by $0.2 million in 2021 to $3.2 million.

Total occupancy, furniture and equipment expenses in 2021 totaled $19.5 million, a decrease of $0.5 million, or 2%, compared to 2020. The Company continues to evolve its branch footprint in order to redirect capacity into attractive growth markets. In alignment with this strategy, four banking center locations were consolidated in 2021, and two new branches opened.

In 2021 and 2020, marketing expenses totaled $4.6 million and $4.8 million, respectively. The Company continues to carefully manage the use of marketing campaigns to target potential high value customers in a cost effective manner through a mix of digital communications, direct mail, event sponsorships and donations.

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Legal and professional fees increased by $2.2 million in 2021, or 24%, to $11.4 million, which includes $3.5 million in merger-related expenses in 2021, compared to $2.7 million in 2020.

FDIC assessments were $2.4 million in 2021, compared to $1.3 million in 2020. Expenses in the prior year were partially offset by $0.7 million in FDIC deposit insurance assessment credits.

For the year ended December 31, 2021, foreclosed property expenses were more than offset by net gains on sale, resulting in a benefit of $0.3 million, compared to foreclosed property expense and net losses on sale of $2.3 million in 2020. Results in 2021 were the result of gains on the sale of OREO properties, while the prior year was impacted primarily by the write-downs of two properties.

Other expense totaled $16.3 million and $15.8 million in 2021 and 2020, respectively. The increase of $0.5 million, or 3%, includes higher loan production-related expenses.

Income Taxes

In 2021, the provision for income taxes totaled $34.3 million, compared to $22.8 million in 2020. The increase reflects higher pre-tax income and is partially offset by a temporary reduction in the corporate state tax rate in 2021 to 3.535% compared to 4.5% for 2020. The state tax rate increased to 5.5% effective January 1, 2022, resulting in an additional tax benefit of $0.8 million recognized in the fourth quarter of 2021 upon the adjustment of the value of deferred tax assets affected by the change. Discrete tax benefits related to share-based compensation were $0.9 million in 2021 and $0.1 million in 2020.

Fourth Quarter Results and Analysis

Net income totaled $36.3 million in the fourth quarter of 2021, an increase of $13.4 million, or 58%, from the third quarter of 2021, and an increase of $7.0 million, or 24%, compared to the fourth quarter of 2020. Adjusted net income1 totaled $36.9 million, an increase of $7.5 million, or 26%, from the third quarter of 2021, and an increase of $6.2 million, or 20%, compared to the fourth quarter of 2020. Diluted earnings per common share (“EPS”) was $0.62 and adjusted diluted EPS12was $0.62 in the fourth quarter of 2021, compared to diluted EPS of $0.40 and adjusted diluted EPS1 of $0.51 in the third quarter of 2021 and compared to diluted EPS of $0.53 and adjusted diluted EPS1 of $0.55 in the fourth quarter of 2020.

Revenues increased $0.6 million, or 1%, from the third quarter of 2021 and increased $7.3 million, or 9%, from the fourth quarter of 2020. Net interest income increased $1.0 million, or 1%, compared to the third quarter of 2021 and increased $3.5 million, or 5%, compared to the fourth quarter of 2020.

Net interest income (on a tax-equivalent basis), for the fourth quarter of 2021 totaled $72.4 million, an increase of $1.0 million, or 1%, from the third quarter of 2021, and an increase of $3.5 million, or 5%, from the fourth quarter 2020. Net interest margin (on a tax-equivalent basis), contracted six basis points to 3.16% from 3.22% in the third quarter of 2021.

Noninterest income, excluding securities gains and losses, totaled $19.1 million for the fourth quarter of 2021, in line with the third quarter of 2021 and an increase of $4.1 million, or 28%, from the fourth quarter of 2020.

Included in the fourth quarter was a gain of $0.8 million on the sale of a website domain name obtained in a prior bank acquisition, and an increase of $0.7 million in SBIC investment income compared to the third quarter of 2021. These increases were offset by lower mortgage banking fees, which decreased by $0.5 million, due to slowing refinance activity and continuing low housing inventory levels, and lower SBA gains, which decreased by $0.6 million due to lower saleable production.

Noninterest expenses for the fourth quarter of 2021 totaled $50.3 million, a decrease of $5.0 million, or 9% from the prior quarter and an increase of $6.6 million, or 15%, from the fourth quarter of 2020. Costs associated with bank acquisitions and expense initiatives were lower by $6.5 million in the fourth quarter of 2021 compared to the prior quarter. Offsetting were increases in employee benefits expense associated with higher employee health insurance costs, and expenses incurred in preparing for the 2022 upgrade of the online and mobile banking platform.

The provision for loan losses was a net benefit of $3.9 million in the fourth quarter of 2021, reflecting continued improvement in the economic outlook, compared to a provision of $5.1 million in the prior quarter. The prior quarter included an increase associated with onboarding the Legacy Bank of Florida acquisition. The ratio of allowance for credit losses to total loans was 1.41% at December 31, 2021, compared to 1.49% at September 30, 2021. Excluding PPP loans, the ratio was 1.43% at December 31, 2021, compared to 1.54% at September 30, 2021.

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

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Explanation of Certain Unaudited Non-GAAP Financial Measures

This report contains financial information determined by methods other than Generally Accepted Accounting Principles (“GAAP”). The financial highlights provide reconciliations between GAAP and adjusted financial measures including net income, fully taxable equivalent net interest income, noninterest income, noninterest expense, tax adjustments, net interest margin and other financial ratios. Management uses these non-GAAP financial measures in its analysis of the Company’s performance and believes these presentations provide useful supplemental information, and a clearer understanding of the Company’s performance. The Company believes the non-GAAP measures enhance investors’ understanding of the Company’s business and performance and if not provided would be requested by the investor community. These measures are also useful in understanding performance trends and facilitate comparisons with the performance of other financial institutions. The limitations associated with operating measures are the risk that persons might disagree as to the appropriateness of items comprising these measures and that different companies might define or calculate these measures differently. The Company provides reconciliations between GAAP and these non-GAAP measures. These disclosures should not be considered an alternative to GAAP.

The following tables provide reconciliation between GAAP and adjusted (non-GAAP) financial measures.

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Financial Condition

Total assets increased $1.3 billion, or 16%, year-over-year to $9.7 billion at December 31, 2021, reflecting a combination of organic growth and acquisitions, partially offset by PPP forgiveness.

Securities

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

At December 31, 2021, the Company had $1.6 billion in securities available-for-sale, and $638.6 million in securities held-to-maturity. The Company's total debt securities portfolio increased $700.3 million, or 44%, 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 year ended December 31, 2021, there were $1.5 billion of debt security purchases and $679.3 million in paydowns and maturities over the same period. For the year ended December 31, 2021, debt securities with a fair value of $102.1 million were sold with net losses of $0.4 million. During the year ended December 31, 2020, there were $830.3 million of debt security purchases and $379.9 million in paydowns and maturities over the same period. For the year ended December 31, 2020, debt securities with a fair value of $96.7 million were sold with net gains of $1.1 million.

Debt securities generally return principal and interest monthly. The modified duration of the securities portfolio at both December 31, 2021 and December 31, 2020 was 3.8 years.

At December 31, 2021, available-for-sale securities had gross unrealized losses of $20.9 million and gross unrealized gains of $11.5 million, compared to gross unrealized losses of $2.1 million and gross unrealized gains of $28.7 million at December 31, 2020. The Company assesses securities in an unrealized loss position on a quarterly basis. As of December 31, 2021, the Company expected to recover the entire amortized cost basis of these securities and therefore no allowance for credit losses was recorded.

The credit quality of the Company’s securities holdings are primarily investment grade. U.S. Treasury and U.S. government agencies and obligations of U.S. government-sponsored entities totaled $1.9 billion, or 82%, of the total portfolio.

The portfolio includes $88.1 million, with a fair value of $88.8 million, in private label residential and commercial mortgage-backed securities and collateralized mortgage obligations. Included are $63.0 million, with a fair value of $63.1 million, in private label mortgage-backed residential securities with weighted average credit support of 28%. The collateral underlying these mortgage investments includes both fixed-rate and adjustable-rate mortgage loans. Non-guaranteed agency commercial securities total $25.1 million, with a fair value of $25.7 million. These securities have weighted average credit support of 12%. The collateral underlying these mortgages are primarily pooled multifamily loans.

The Company also has invested $292.7 million in uncapped 3-month LIBOR floating rate collateralized loan obligations. Collateralized loan obligations are special purpose vehicles that purchase first lien broadly syndicated corporate loans while providing support to senior tranche investors. As of December 31, 2021, all of the Company's collateralized loan obligations were in AAA/AA tranches with average credit support of 32%. 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 December 31, 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 December 31, 2021, no allowance for credit losses has been recorded.

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Loan Portfolio

Loans, net of unearned income and excluding the allowance for credit losses, were $5.9 billion at December 31, 2021, an increase of $189.7 million, or 3%, compared to December 31, 2020. Increases reflect organic growth, along with the acquisition of Legacy Bank of Florida and the purchase of select loan pools, offset by PPP forgiveness. During the first half of 2021, the Company participated in the second round of the PPP program, resulting in originations of $256.0 million. Increases were offset by $777.6 million in PPP loans forgiven by the SBA during the year ended December 31, 2021. In the third quarter of 2021, the Company successfully completed the acquisition of Legacy Bank of Florida, resulting in the addition of $477.2 million in loans.

For the year ended December 31, 2021, the Company originated $1.1 billion in commercial and commercial real estate loans, compared to $655.8 million for the year ended December 31, 2020, an increase of $482.0 million, or 73%. The late-stage pipeline for commercial and commercial real estate loans totaled $397.8 million at December 31, 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 continuation of strict underwriting guidelines.

The Company originated $245.4 million in residential loans retained in the portfolio during the year ended December 31, 2021, compared to originations of $129.2 million during the year ended December 31, 2020, an increase of $116.2 million, or 90%. Residential loans retained in the portfolio includes a $180.8 million purchased pool consisting of 30-year fixed rate jumbo residential loans purchased in the third quarter of 2021 and a $38.4 million purchased pool consisting of 30-year jumbo rate residential loans purchased in the second quarter of 2021. Saleable production decreased for the year ended December 31, 2021, representing $422.8 million versus $509.4 million during the year ended December 31, 2020, a decrease of 17%.

The Company originated $249.5 million consumer loans during the year ended December 31, 2021 compared to $219.3 million originated in the year ended December 31, 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 table details loan portfolio composition at December 31, 2021 and 2020 for portfolio loans, purchased credit deteriorated loans (“PCD”) and loans purchased which are not considered credit deteriorated (“Non-PCD”) as defined in “Note 4 - Loans”.

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The amortized cost basis of loans at December 31, 2021 included net deferred costs of $31.0 million on non-PPP portfolio loans and net deferred fees of $2.4 million on PPP loans. At December 31, 2020, the amortized cost basis included net deferred costs of $22.6 million on non-PPP portfolio loans and net deferred fees of $9.5 million on PPP loans. At December 31, 2021, the remaining fair value adjustments on acquired loans was $23.1 million, or 2.3% of the outstanding acquired loan balances. At December 31, 2020, the remaining fair value adjustments on acquired loans was $30.2 million, or 2.9% of the acquired loan balances. These amounts are accreted into interest income over the remaining lives of the related loans on a level yield basis.

Commercial real estate (“CRE) loans, inclusive of owner-occupied commercial real estate, increased $397.0 million, or 16%, totaling $2.9 billion at December 31, 2021, compared to December 31, 2020. Owner-occupied commercial real estate loans represent $1.2 billion, or 41%, of the commercial real estate portfolio.

During the year ended December 31, 2021, the Company participated in the most recent round of the PPP and originated 2,782 loans totaling $256.0 million. Also during the year ended December 31, 2021, $777.6 million in PPP loans were forgiven by the SBA.

At December 31, 2021, Seacoast had $1.2 million of loans with payment accommodations to borrowers financially impacted by the COVID-19 pandemic, none of which have been classified as TDRs, compared to $74.1 million at December 31, 2020.

Residential mortgage loans increased $82.7 million, or 6%, year-over-year to $1.4 billion as of December 31, 2021. Substantially all residential originations have been underwritten to conventional loan agency standards, including loans having balances that exceed agency value limitations. At December 31, 2021, approximately $278.9 million, or 20%, of the Company’s residential mortgage balances were adjustable 1-4 family mortgage loans (including hybrid adjustable rate mortgages). Fixed rate mortgages totaled $773.7 million, or 54%, of the residential mortgage portfolio at December 31, 2021, of which 15- and 30-year mortgages totaled $37.1 million and $399.6 million, respectively. Remaining fixed rate balances were comprised of home improvement loans totaling $373.1 million, most with maturities of 10 years or less. Home equity lines of credit (“HELOCs”), primarily floating rates, totaled $336.6 million at December 31, 2021. Borrowers in the residential real estate portfolio have an average credit score of 749. Specifically for HELOCs, borrowers have an average credit score of 763. The average LTV of our HELOC portfolio is 69% with 42% of the portfolio being in the first lien position at December 31, 2021, compared to an average LTV of 68% with 45% of the portfolio being in the first lien position at December 31, 2020.

The Company also provides consumer loans, which include installment loans, auto loans, marine loans and other consumer loans, which decreased $14.6 million, or 8%, year-over-year to a total of $174.2 million at December 31, 2021, compared to $188.7 million at December 31, 2020. Borrowers in the consumer portfolio have an average credit score of 734.

At December 31, 2021, the Company had unfunded commitments to make loans of $2.0 billion, compared to $1.5 billion at December 31, 2020 (see “Note 15 - Contingent Liabilities and Commitments with Off-Balance Sheet Risk” to the Company’s consolidated financial statements).

Loan Concentrations

The Company has developed prudent guardrails to manage loan types that are most impacted by stressed market conditions in order to minimize credit risk concentration to capital. Outstanding balances for commercial and commercial real estate (“CRE”) loan relationships greater than $10 million totaled $1.2 billion, representing 20% of the total portfolio at December 31, 2021, compared to $753.7 million, or 13%, at December 31, 2020.

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The Company’s ten largest commercial and commercial real estate funded and unfunded loan relationships at December 31, 2021 aggregated to $312.0 million, of which $157.8 million was funded, compared to $254.3 million at December 31, 2020, of which $188.0 million was funded. The Company had 174 commercial and commercial real estate relationships in excess of $5 million totaling $1.9 billion, of which $1.4 billion was funded at December 31, 2021, compared to 135 relationships totaling $1.3 billion at December 31, 2020, of which $1.2 billion was funded.

Concentrations in total construction and land development loans and total CRE loans are maintained well below regulatory limits. Construction and land development and CRE loan concentrations as a percentage of total risk based capital, were 21% and 177%, respectively, at December 31, 2021, compared to 26% and 169% as of December 31, 2020. Regulatory guidance suggests limits of 100% and 300%, respectively. On a consolidated basis, construction and land development and commercial real estate loans represent 19% and 162%, respectively, of total consolidated risk based capital. To determine these ratios, the Company defines CRE in accordance with the guidance on “Concentrations in Commercial Real Estate Lending” (the “Guidance”) issued by the federal bank regulatory agencies in 2006 (and reinforced in 2015), which defines CRE loans as exposures secured by land development and construction, including 1-4 family residential construction, multifamily property, and non-farm nonresidential property where the primary or a significant source of repayment is derived from rental income associated with the property (i.e. loans for which 50 percent or more of the source of repayment comes from third party, non-affiliated, rental income) or the proceeds of the sale, refinancing, or permanent financing of the property. Loans to real estate investment trusts (“REITs”) and unsecured loans to developers that closely correlate to the inherent risks in CRE markets would also be considered CRE loans under the Guidance. Loans on owner-occupied CRE are generally excluded. In addition, the Company is subject to a geographic concentration of credit because it primarily operates in Florida.

Nonperforming Loans, Troubled Debt Restructurings, Other Real Estate Owned, and Credit Quality

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

Nonperforming assets (“NPAs”) at December 31, 2021 totaled $44.2 million, a decrease of $4.6 million, or 9.5%, compared to 2020, and were comprised of $30.6 million of nonaccrual loans and other real estate owned (“OREO”) of $13.6 million that includes $1.4 million of branches taken out of service. Compared to December 31, 2020, nonaccrual loans decreased by $5.5 million, or 15%, and non-branch OREO increased $2.0 million, or 20%, due to $2.5 million in capital expenditures, partially offset by writedowns of $0.4 million. Approximately 76% of nonaccrual loans were secured with real estate at December 31, 2021. Nonaccrual loans have been written down by approximately $7.1 million, including reserves on individually evaluated loans.

Nonperforming loans to total loans outstanding at December 31, 2021 decreased to 0.52% from 0.63% at December 31, 2020. Nonperforming assets to total assets at December 31, 2021 decreased to 0.46% from 0.59% at December 31, 2020.

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

The Company pursues loan restructurings in selected cases where it expects to realize better values than may be expected through traditional collection activities. The Company has worked with retail mortgage customers, when possible, to achieve lower payment structures in an effort to avoid foreclosure. Troubled debt restructurings (“TDRs”) have been a part of the Company’s loss mitigation activities and can include rate reductions, payment extensions and principal deferrals. Company policy requires TDRs that are classified as nonaccrual loans after restructuring remain on nonaccrual until performance can be verified, which usually requires six months of performance under the restructured loan terms. Accruing restructured loans totaled $3.9 million at December 31, 2021, compared to $4.2 million at December 31, 2020. Accruing TDRs are excluded from nonperforming asset ratios.

Beginning in March 2020, in response to the economic downturn resulting from the COVID-19 pandemic, the Company offered short-term payment deferrals to affected borrowers. As of December 31, 2021, pandemic-related accommodations totaled $1.2 million and are not considered troubled debt restructurings (“TDRs”).

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

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