Fair Value

12 Months Ended

Dec. 31, 2022

Under ASC Topic 820, fair value measurements for items measured at fair value on a recurring and nonrecurring basis at December 31, 2022 and December 31, 2021 included:


	Fair Value		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Other Unobservable Inputs
(In thousands)	Measurements		Level 1		Level 2		Level 3
At December 31, 2022
Financial Assets
Available-for-sale debt securities1	$	1,871,742	$	186	$	1,871,556	$	—
Derivative financial instruments2	23,142		—		23,142		—
Loans held for sale2	3,151		—		3,151		—
Loans3	8,513		—		1,183		7,330
Other real estate owned4	2,301		—		2,301		—
Equity securities5	8,220		8,220		—		—
Financial Liabilities
Derivative financial instruments2	$	23,142	$	—	$	23,142	$	—

At December 31, 2021
Financial Assets
Available-for-sale debt securities1	$	1,644,319	$	197	$	1,644,122	$	—
Derivative financial instruments2	8,312		—		8,312		—
Loans held for sale2	31,791		—		31,791		—
Loans3	8,443		—		1,558		6,885
Other real estate owned4	13,618		—		—		13,618
Equity securities5	9,316		9,316		—		—
Financial Liabilities
Derivative financial instruments2	8,022		—		8,022		—
1See “Note 3 - Securities” for further detail of fair value of individual investment categories.
2Recurring fair value basis determined using observable market data.
3See “Note 4 - Loans”. Nonrecurring fair value adjustments to collateral-dependent loans reflect full or partial write-downs that are based on current appraised values of the collateral.
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 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 credit worthiness 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 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 contractual terms of the loan in accordance with Company policy on loans held for investment. None of the loans are 90 days or more past due or on nonaccrual as of December 31, 2022 and 2021.

The aggregate fair value and contractual balance of loans held for sale as of December 31, 2022 and 2021 is as follows:


	December 31,
(In thousands)	2022		2021
Aggregate fair value	$	3,151	$	31,791
Contractual balance	3,071		30,963
Excess	80		828

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. For these loans, 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 December 31, 2022, capitalization rates utilized to determine fair value of the underlying collateral averaged approximately 6.7%. 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 $10.2 million with a specific reserve of $2.9 million at December 31, 2022, compared to $13.1 million with a specific reserve of $4.7 million at December 31, 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 level 2. 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. During the year ended December 31, 2022, two of the three properties held in OREO at the beginning of the year were sold. Properties remaining in OREO at December 31, 2022 are valued based on appraisals using a market approach.

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 twelve months ended December 31, 2022 and 2021.

The carrying amount and fair value of the Company's other significant financial instruments that were not disclosed previously in the balance sheet and for which carrying amount is not fair value as of December 31, 2022 and December 31, 2021 is as follows:


	Carrying		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Other Unobservable Inputs
(In thousands)	Amount		Level 1		Level 2		Level 3
At December 31, 2022
Financial Assets
Held-to-maturity debt securities1	$	747,408	$	—	$	617,741	$	—
Time deposits with other banks	3,236		—		2,989		—
Loans, net	8,022,316		—		—		7,845,375
Financial Liabilities
Deposits	9,981,595		—		—		9,976,125
Federal Home Loan Bank (FHLB) borrowings	150,000		—		—		149,450
Subordinated debt	84,533		—		82,226		—

At December 31, 2021
Financial Assets
Held-to-maturity debt securities1	$	638,640	$	—	$	627,398	$	—

Loans, net	5,833,271		—		—		5,907,447
Financial Liabilities
Deposits	8,067,589		—		—		8,067,995

Subordinated debt	71,646		—		69,348		—
1See “Note 3 - Securities” for further detail of recurring fair value basis of individual investment categories.

The short maturity of Seacoast’s assets and liabilities results in 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, short-term FHLB borrowings and securities sold under agreement to repurchase.

The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value at December 31, 2022 and December 31, 2021:

Loans: Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, mortgage, etc. Each loan category is further segmented into fixed and adjustable rate interest terms and by 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.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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