SEACOAST BANKING CORP OF FLORIDA 10-K

Item 8. Financial Statements and Supplementary Data REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Shareholders and the Board of Directors of Seacoast Banking Corporation of Florida Stuart, Florida Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Seacoast Banking Corporation of Florida (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO. Basis for Opinions The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. As permitted, the Company has excluded the operations of Drummond Banking Company acquired during 2022, which is described in Note 17 of the consolidated financial statements, from the scope of management’s report on internal control over financial reporting. As such, it has also been excluded from the scope of our audit of internal control over financial reporting. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and 72 expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Allowance and Provision for Credit Losses on Loans The allowance for credit losses (the “ACL”) is an accounting estimate of expected credit losses over the contractual term of loans carried at amortized cost as described in Notes 1 and 5 of the consolidated financial statements. The Company's loan portfolio, which is measured at amortized cost, is required to be presented at the net amount expected to be collected. Estimates of expected credit losses for loans are based on information from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The Company estimates expected credit losses for loans at the individual loan level using a discounted cash flow methodology for its commercial loans and using a loss rate methodology for its consumer loans. Expected losses are estimated using a blend of forecast scenarios. Specifically, the forecast scenarios selected were the “U.S. Macroeconomic Outlook Baseline” and “Alternative Scenario 3 - Downside - 90th Percentile” scenarios. The forecasted credit losses also incorporate macroeconomic variables such as changes in expectations indicated by the commercial real estate price index, changes in the housing price index, and changes in the unemployment rate. The forecasts of future economic conditions are over a period that the Company has deemed reasonable and supportable, and in segments where it can no longer develop reasonable and supportable forecasts, the Company reverts to longer-term historical loss experience to estimate losses over the remaining life of the loans. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments. The Company may incorporate qualitative adjustments to modeled reserves based on an assessment of internal and external influences on credit quality not fully reflected in the quantitative components of the allowance model. These influences may include elements such as changes in concentration, macroeconomic conditions, recent observable asset quality trends, staff turnover, regional market conditions, employment levels, model risk, and loan growth. A significant amount of judgment was required when assessing the conceptual design and statistical methodology of the employed model and whether the model was relevant to the Company’s loan portfolio and suitable for use in the Company’s estimation process, which in turn involved especially complex and subjective judgment. The Company’s discounted cash flow methodology includes probability of default (“PD”) and loss given default (“LGD”) assumptions that required assessing the conceptual soundness and reasonableness of those assumptions. We utilized Crowe LLP employed valuation specialists (“Crowe VS”) to evaluate the soundness of the model’s methodology, conceptual design, and applicability to the Company. Crowe VS also performed procedures to assess the relationships between the Company’s PD and LGD rates and model rates during development. The principal considerations resulting in our determination included the following: • Significant auditor judgment in evaluating the selection and application of the reasonable and supportable forecasts of economic variables and reasonableness of other model assumptions. • Significant auditor effort in evaluating probability-weighted forecast scenarios with PD and LGD assumptions that involved the use of management judgment and a high degree of auditor judgment, including the need to involve Crowe VS. 73 • Significant audit effort related to testing the completeness and accuracy of internal data used and evaluating the relevance and reliability of proxy loan information. The primary procedures performed to address the critical audit matter included: • Testing the effectiveness of management’s internal controls over the appropriate application of management’s methodology, including the transition to an individual loan level tool, in accordance with generally accepted accounting principles. • Testing the effectiveness of controls over the completeness and accuracy of internal data inputs, including loan segmentation data used in the development of PD and LGD assumptions, and the relevance and reliability of third-party data used in the computation. • Testing the effectiveness of management’s internal controls over the Company’s significant model assumptions and judgments, qualitative adjustments, and information systems. • Testing the effectiveness of controls over the Company’s preparation and review of the allowance for credit losses calculation, including the reasonableness of management's judgments over the forecasted period and economic scenarios selected. • With the assistance of Crowe VS, evaluating the reasonableness of assumptions and judgments related to management’s methodology and transition to an individual loan level tool, as well as, the conceptual design of the credit losses estimation models. • Substantively testing the completeness and accuracy of internal loan level data used, loan segmentation, the relevance and reliability of third party data, and management’s judgments and assumptions for reasonableness. • Substantive univariate directionality testing with the assistance of Crowe VS and other substantive analytical procedures to test significant assumptions made by management, and testing the process of management’s assessment for the incorporation of qualitative adjustments. • Evaluating management’s judgments in the selection and application of reasonable and supportable forecasts, and the reasonableness of forecasted economic scenarios provided by a third-party, assisted by Crowe VS. /s/ Crowe LLP We have served as the Company's auditor since 2014. Fort Lauderdale, Florida February 28, 2023 74 SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME For the Year Ended December 31, (In thousands, except per share data) 2022 2021 2020 Interest Income Interest and dividends on securities Taxable $ 56,611 $ 29,206 $ 29,718 Nontaxable 546 577 454 Interest and fees on loans 315,717 251,471 254,366 Interest on interest bearing deposits and other investments 7,620 2,990 2,497 Total Interest Income 380,494 284,244 287,035 Interest Expense Interest on deposits 7,318 3,605 6,920 Interest on time certificates 2,642 2,788 13,365 Interest on securities sold under agreement to repurchase 986 141 283 Interest on Federal Home Loan Bank (“FHLB”) borrowings 330 — 1,540 Interest on subordinated debt 3,056 1,685 2,184 Total Interest Expense 14,332 8,219 24,292 Net Interest Income 366,162 276,025 262,743 Provision for credit losses 26,183 ( 9,421 ) 38,179 Net Interest Income After Provision for Credit Losses 339,979 285,446 224,564 Noninterest Income: Service charges on deposit accounts 13,709 9,777 9,429 Interchange income 17,171 16,231 13,711 Wealth management income 11,051 9,628 7,507 Mortgage banking fees 3,478 11,782 14,696 Marine finance fees 920 665 690 SBA gains 842 1,531 685 BOLI income 5,572 4,154 3,561 SBIC income 1,305 6,778 1,373 Other 13,139 10,759 8,683 67,187 71,305 60,335 Securities (losses) gains, net (includes $ 0 for 2022, net gains of $ 2.2 million for 2021 and net gains of $ 0.2 million for 2020 in other comprehensive income reclassifications) ( 1,096 ) ( 578 ) 1,235 Total Noninterest Income 66,091 70,727 61,570 Noninterest Expense: Salaries and wages 130,100 97,283 88,539 Employee benefits 19,026 17,873 15,544 Outsourced data processing costs 27,510 19,919 19,053 Telephone / data lines 3,799 3,223 2,984 Occupancy 18,539 14,140 14,150 Furniture and equipment 6,420 5,390 5,874 Marketing 6,286 4,583 4,833 75 Legal and professional fees 20,703 11,376 9,167 FDIC assessments 3,137 2,405 1,268 Amortization of intangibles 9,101 5,033 5,857 Foreclosed property expense and net (gain) loss on sale ( 1,534 ) ( 264 ) 2,263 Provision for credit losses on unfunded commitments 1,157 133 185 Other 23,690 16,341 15,835 Total Noninterest Expense 267,934 197,435 185,552 Income Before Income Taxes 138,136 158,738 100,582 Income taxes 31,629 34,335 22,818 Net Income $ 106,507 $ 124,403 $ 77,764 Per share data Net income per share of common stock Diluted $ 1.66 $ 2.18 $ 1.44 Basic 1.67 2.20 1.45 Average common shares outstanding (in thousands) Diluted 64,264 57,088 53,930 Basic 63,707 56,586 53,502 See notes to consolidated financial statements. 76 SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the Year Ended December 31, (In thousands) 2022 2021 2020 Net Income $ 106,507 $ 124,403 $ 77,764 Other comprehensive income (loss): Unrealized (losses) gains on available-for-sale securities, net of tax benefit of $ 57.1 million in 2022, tax benefit of $ 8.2 million in 2021 and tax expense of $ 5.0 million in 2020 $ ( 181,096 ) $ ( 27,377 ) $ 16,628 Amortization of unrealized (gains) losses on securities transferred to held-to-maturity, net of tax benefit of $ 7 thousand in 2022, tax expense of $ 21 thousand in 2021, and tax expense of $ 40 thousand in 2020 ( 20 ) 86 184 Reclassification adjustment for losses (gains) included in net income, net of tax benefit of $ 85 thousand in 2021 and tax expense of $ 314 thousand in 2020 — 278 ( 782 ) Unrealized gains (losses) on derivatives designated as cash flow hedges, net of reclassifications to income, net of tax benefit of $ 26 thousand in 2022, tax expense of $ 120 thousand in 2021, and tax expense of $ 42 thousand in 2020 77 ( 351 ) ( 125 ) Total other comprehensive (loss) income $ ( 181,039 ) $ ( 27,364 ) $ 15,905 Comprehensive (Loss) Income $ ( 74,532 ) $ 97,039 $ 93,669 See notes to consolidated financial statements. 77 SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, (In thousands, except share data) 2022 2021 Assets Cash and due from banks $ 120,748 $ 238,750 Interest bearing deposits with other banks 81,192 498,979 Total cash and cash equivalents 201,940 737,729 Time deposits with other banks 3,236 — Debt securities: Securities available-for-sale (at fair value) 1,871,742 1,644,319 Securities held-to-maturity (fair value $ 617.7 million in 2022 and $ 627.4 million in 2021) 747,408 638,640 Total debt securities 2,619,150 2,282,959 Loans held for sale (at fair value) 3,151 31,791 Loans 8,144,724 5,925,029 Less: Allowance for credit losses ( 113,895 ) ( 83,315 ) Loans, net of allowance for credit losses 8,030,829 5,841,714 Bank premises and equipment, net 116,892 72,404 Other real estate owned 2,301 13,618 Goodwill 480,319 252,154 Other intangible assets, net 75,451 14,845 Bank owned life insurance 237,824 205,041 Net deferred tax assets 94,457 27,321 Other assets 280,212 201,857 Total Assets $ 12,145,762 $ 9,681,433 Liabilities Deposits Noninterest demand $ 4,070,973 $ 3,075,534 Interest-bearing demand 2,337,590 1,890,212 Savings 1,064,392 895,019 Money market 1,985,974 1,651,881 Other time deposits 369,389 404,601 Brokered time certificates 3,798 — Time certificates of more than $250,000 149,479 150,342 Total Deposits $ 9,981,595 $ 8,067,589 Securities sold under agreements to repurchase, maturing within 30 days 172,029 121,565 Federal Home Loan Bank (“FHLB”) borrowings 150,000 — Subordinated debt 84,533 71,646 Other liabilities 149,830 109,897 Total Liabilities $ 10,537,987 $ 8,370,697 78 December 31, (In thousands, except share data) 2022 2021 Commitments and Contingencies (See “Note 9 - Borrowings” and “Note 15 - Contingent Liabilities and Commitments with Off-Balance Sheet Risk”) Shareholders' Equity Common stock, par value $ 0.10 per share authorized 120,000,000 shares, issued 72,099,136 and outstanding 71,617,852 shares in 2022 and authorized 120,000,000 shares, issued 58,909,369 and outstanding 58,504,250 shares in 2021 7,162 5,850 Additional paid-in capital 1,377,802 963,851 Retained earnings 423,863 358,598 Less: Treasury stock ( 481,284 shares in 2022 and 405,119 shares in 2021), at cost ( 13,019 ) ( 10,569 ) 1,795,808 1,317,730 Accumulated other comprehensive loss, net ( 188,033 ) ( 6,994 ) Total Shareholders' Equity $ 1,607,775 $ 1,310,736 Total Liabilities & Shareholders' Equity $ 12,145,762 $ 9,681,433 See notes to consolidated financial statements. 79 SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS For the Year Ended December 31, (In thousands) 2022 2021 2020 Cash Flows From Operating Activities Net Income $ 106,507 $ 124,403 $ 77,764 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 6,115 5,482 6,020 Amortization of premiums and discounts on securities, net 576 6,220 5,019 Amortization of operating lease right-of-use assets 6,485 4,576 4,362 Other amortization and accretion, net ( 1,967 ) ( 13,908 ) ( 8,667 ) Stock based compensation 11,155 8,685 7,304 Origination of loans designated for sale ( 186,504 ) ( 490,426 ) ( 511,706 ) Sale of loans designated for sale 221,199 543,410 477,178 Provision for credit losses 26,183 ( 9,421 ) 38,179 Deferred income taxes ( 10,398 ) 3,836 ( 4,926 ) Losses (gains) on sale of securities — 363 ( 1,096 ) Gains on sale of loans ( 5,687 ) ( 15,276 ) ( 13,930 ) (Gains) losses on sale and write-downs of other real estate owned ( 1,749 ) ( 635 ) 1,139 Losses on disposition of fixed assets 1,394 817 791 Changes in operating assets and liabilities, net of effects from acquired companies: Net decrease (increase) in other assets 508 ( 42,437 ) ( 35,555 ) Net increase in other liabilities 22,042 28,883 18,776 Net Cash Provided by Operating Activities 195,859 154,572 60,652 Cash Flows From Investing Activities Maturities and repayments of available-for-sale debt securities 270,785 546,339 304,064 Maturities and repayments of held-to-maturity debt securities 96,925 132,916 75,861 Proceeds from sale of available-for-sale debt securities 515,183 84,972 96,732 Purchases of available-for-sale debt securities ( 693,625 ) ( 1,145,193 ) ( 830,300 ) Purchases of held-to-maturity debt securities ( 206,065 ) ( 377,159 ) — Maturities of time deposits with other banks 3,237 750 2,992 Net new loans and principal repayments ( 513,343 ) 566,348 ( 79,100 ) Purchases of loans held for investment ( 111,292 ) ( 259,267 ) — Proceeds from the sale of other real estate owned 15,951 5,598 8,521 Additions to other real estate owned ( 591 ) ( 2,513 ) ( 2,557 ) Proceeds from sale of FHLB and Federal Reserve Bank Stock — 3,945 39,185 Purchase of FHLB and Federal Reserve Bank Stock ( 11,924 ) ( 3,020 ) ( 28,278 ) Redemption of bank owned life insurance 25,782 — — Purchase of bank owned life insurance ( 25,000 ) ( 60,000 ) — Net cash from bank acquisitions 281,747 98,100 71,965 Additions to bank premises and equipment ( 12,645 ) ( 4,327 ) ( 1,587 ) Net Cash Used in Investing Activities ( 364,875 ) ( 412,511 ) ( 342,502 ) 80 For the Year Ended December 31, (In thousands) 2022 2021 2020 Cash Flows From Financing Activities Net (decrease) increase in deposits ( 384,403 ) 640,108 844,405 Net increase in repurchase agreements 50,464 1,956 33,488 Net decrease in FHLB borrowings with original maturities of three months or less ( 62,500 ) — ( 235,000 ) Repayments of FHLB borrowings with original maturities of more than three months ( 7,500 ) ( 33,000 ) ( 115,000 ) Proceeds from FHLB borrowings with original maturities of more than three months 75,000 — 35,000 Stock based employee benefit plans 3,408 5,022 ( 1,486 ) Dividends paid ( 41,242 ) ( 22,506 ) — Net Cash (Used in) Provided by Financing Activities ( 366,773 ) 591,580 561,407 Net (decrease) increase in cash and cash equivalents ( 535,789 ) 333,641 279,557 Cash and Cash Equivalents at Beginning of Year 737,729 404,088 124,531 Cash and Cash Equivalents at End of Year $ 201,940 $ 737,729 $ 404,088 Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 13,743 $ 9,977 $ 23,548 Cash paid during the period for taxes 29,591 30,887 27,712 Recognition of operating lease right-of-use assets, other than through bank acquisition, net of terminations 3,370 12,459 2,095 Recognition of operating lease liabilities, other than through bank acquisition, net of terminations 3,370 12,459 2,095 Supplemental disclosure of non-cash investing activities: 1 Transfer of debt securities from available-for-sale to held-to-maturity $ — $ 210,805 $ — Unsettled sales of debt securities available-for-sale — 17,147 — Transfer from loans to other real estate owned — — 5,624 Transfer from bank premises to other real estate owned 1,674 3,318 1,289 1 See "Note 17 - Business Combinations" for common stock issued in business combinations. See notes to consolidated financial statements. 81 SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Accumulated Other Common Stock Paid-in Retained Treasury Comprehensive (Dollars and shares in thousands) Shares Amount Capital Earnings Stock Income (Loss) Total Balance at December 31, 2019 51,514 $ 5,151 $ 786,242 $ 195,813 $ ( 6,032 ) $ 4,465 $ 985,639 Comprehensive income — — — 77,764 — 15,905 93,669 Stock based compensation expense 39 — 7,304 — — — 7,304 Common stock issued for stock based employee benefit plans 465 51 ( 50 ) — ( 2,253 ) — ( 2,252 ) Common stock issued for stock options 62 6 760 — — — 766 Cumulative change in accounting principle upon adoption of new accounting pronouncement — — — ( 16,876 ) — — ( 16,876 ) Issuance of common stock, pursuant to acquisitions 3,163 316 61,836 — — — 62,152 Balance at December 31, 2020 55,243 5,524 856,092 256,701 ( 8,285 ) 20,370 1,130,402 Comprehensive income (loss) — — — 124,403 — ( 27,364 ) 97,039 Stock based compensation expense 23 — 8,685 — — — 8,685 Common stock issued for stock based employee benefit plans 167 19 ( 49 ) — ( 2,284 ) — ( 2,314 ) Common stock issued for stock options 384 38 7,298 — — — 7,336 Issuance of common stock, pursuant to acquisition 2,687 269 86,218 — — — 86,487 Conversion of options, pursuant to acquisition — — 5,607 — — — 5,607 Dividends on common stock ($ 0.39 per share) — — — ( 22,506 ) — — ( 22,506 ) Balance at December 31, 2021 58,504 5,850 963,851 358,598 ( 10,569 ) ( 6,994 ) 1,310,736 Comprehensive income (loss) — — — 106,507 — ( 181,039 ) ( 74,532 ) Stock based compensation expense 21 — 11,155 — — — 11,155 Common stock issued for stock based employee benefit plans 367 40 ( 97 ) — ( 2,450 ) — ( 2,507 ) Common stock issued for stock options 522 52 5,864 — — — 5,916 Issuance of common stock, pursuant to acquisitions 12,204 1,220 396,016 — — — 397,236 Conversion of options, pursuant to acquisition — — 1,013 — — — 1,013 Dividends on common stock ($ 0.64 per share) — — — ( 41,242 ) — — ( 41,242 ) Balance at December 31, 2022 71,618 7,162 1,377,802 423,863 ( 13,019 ) ( 188,033 ) 1,607,775 See notes to consolidated financial statements. 82 N OTES TO C ONSOLIDATED F INANCIAL S TATEMENTS Seacoast Banking Corporation of Florida and Subsidiaries Note 1 - Significant Accounting Policies General: Seacoast Banking Corporation of Florida (“Seacoast” or the “Company”) is a single segment financial holding company with one operating subsidiary bank, Seacoast National Bank (“Seacoast Bank”). The Company provides integrated financial services including commercial and consumer banking, wealth management, and mortgage and insurance services to customers at 78 full-service branches across Florida, and through advanced mobile and online banking solutions. The consolidated financial statements include the accounts of Seacoast and all its majority-owned subsidiaries but exclude trusts created for the issuance of trust preferred securities. In consolidation, all significant intercompany accounts and transactions are eliminated. The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States of America, and they conform to general practices within the applicable industries. Certain prior period amounts have been reclassified to conform to the current period presentation. Use of Estimates: The preparation of 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. Cash and Cash Equivalents: Cash and cash equivalents include cash and due from banks and interest-bearing bank balances. Cash equivalents have original maturities of three months or less, and accordingly, the carrying amount of these instruments is deemed to be a reasonable estimate of fair value. Time Deposits with Other Banks: Time deposits with other banks consist of certificates of deposit with original maturities greater than three months and are carried at cost. Securities Purchased and Sold Agreements: Securities purchased under resale agreements and securities sold under repurchase agreements are generally accounted for as collateralized financing transactions and are recorded at the amount at which the securities were acquired or sold plus accrued interest. It is the Company’s policy to take possession of securities purchased under resale agreements, which are primarily U.S. government and government agency securities. The fair value of securities purchased and sold is monitored and collateral is obtained from or returned to the counterparty when appropriate. Securities: Debt securities are classified at date of purchase as available-for-sale or held-to-maturity. Debt securities that may be sold as part of the Company's asset/liability management or in response to, or in anticipation of, changes in interest rates and resulting prepayment risk, or for other factors are stated at fair value with unrealized gains or losses reflected as a component of shareholders' equity net of tax or included in noninterest income as appropriate. Debt securities that the Company has the ability and intent to hold to maturity are carried at amortized cost. Equity securities are stated at fair value with unrealized gains or losses included in noninterest income as securities gains or losses. 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. Realized gains and losses are included in noninterest income as investment securities gains (losses). Interest and dividends on securities, including amortization of premiums and accretion of discounts on debt securities, is recognized in interest income on an accrual basis using the interest method. The Company anticipates prepayments of principal in the calculation of the effective yield for collateralized mortgage obligations and mortgage backed securities by obtaining estimates of prepayments from independent third parties. The adjusted cost of each specific security sold is used to compute realized gains or losses on the sale of securities on a trade date basis. 83 Credit losses on securities: For securities classified as held-to-maturity, management estimates expected credit losses over the remaining expected life and recognizes this estimate as an allowance for credit losses. Debt securities that are available-for-sale are considered impaired if the fair value is less than amortized cost. Impairments are analyzed at an individual security level on a quarterly basis and both quantitative and qualitative assessments are utilized to determine if a security has a credit loss. Qualitative assessments consider a range of factors including: percent decline in fair value, rating downgrades, subordination, duration, amortized loan-to-value, and the ability of the issuers to pay all amounts due in accordance with the contractual terms. Quantitative assessments are based on a discounted cash flow analysis, which includes evaluating the timing and amount of the expected cash flows. If any portion of the decline in fair value is related to credit, then the credit loss is recognized as an allowance for credit loss and the noncredit portion is recognized in other comprehensive income. Both quantitative and qualitative assessments are utilized to determine if a security has a credit loss. Quantitative assessments are based on a discounted cash flow method. Qualitative assessments consider a range of factors including: percent decline in fair value, rating downgrades, subordination, duration, amortized loan-to-value, and the ability of the issuers to pay all amounts due in accordance with the contractual terms. Loans Held for Sale: The Company has elected to account for residential mortgage loans originated as held for sale at fair value. Changes in fair value are measured and recorded in Mortgage Banking Fees in noninterest income each period. The Company designates other loans as held for sale when it has the intent to sell them. Such loans are transferred to held for sale at the lower of cost or estimated fair value less cost to sell. At the time of transfer, write-downs on the loans are recorded as charge-offs, establishing a new cost basis upon transfer. Loans Held for Investment: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are considered held for investment. Loans originated by Seacoast and held for investment are recognized at the principal amount outstanding, net of unearned income and amounts charged off. Unearned income includes discounts, premiums and deferred loan origination fees reduced by loan origination costs. Unearned income on loans is amortized to interest income over the life of the related loan using the effective interest rate method. Interest income is recognized on an accrual basis. Loans acquired through business acquisitions are recorded at fair value on the acquisition date. Loans that, as of the date of acquisition, have experienced a more-than-insignificant deterioration in credit quality since origination are classified as purchased credit deteriorated (“PCD”). Acquired loans that do not meet the definition of PCD are classified by the Company as acquired Non-PCD. Expected credit losses on loans not considered PCD are recognized through the provision for credit losses when the initial allowance is recorded. A loan for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulty, is considered to be a troubled debt restructuring (“TDR”). The allowance for credit losses policy discusses the measurement of allowance for TDRs. Allowance for credit losses on loans: The allowance for credit losses represents management's best estimate of expected future credit losses related to the loan portfolio at the balance sheet date. The allowance for credit losses is a valuation account that is deducted from the loans' amortized cost basis to present the net amount to be collected on loans. Loan balances deemed uncollectible are charged off against the allowance for credit losses and recoveries are credited to the allowance. In order to adjust the allowance to the current estimate of expected credit losses, charges or credits to the provision for credit losses are reflected in the Consolidated Statements of Income. The Company excludes accrued interest on loans from its determination of allowance. Portfolio segments represent the level at which the Company develops and documents its methodology for determining its allowance for credit losses. See Note 4 - Loans, for a description of each of the segments, which are disaggregated by similar risk characteristics such as customer and/or collateral type. The allowance for credit losses is measured on a collective basis when similar risk characteristics exist. 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. Forecast data is sourced from Moody’s Analytics (“Moody’s”), a firm recognized for its research, analysis, and economic forecasts. The forecasts of future economic conditions are over a period that has been deemed reasonable and supportable, and in segments where it can no longer develop reasonable and supportable forecasts, the Company reverts to longer-term historical loss experience to estimate losses over the remaining life of the loans. The forecast may utilize one scenario or a composite of scenarios based on management's judgment and expectations around the current and future macroeconomic outlook. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. 84 In the implementation of CECL at January 1, 2020 and through June 30, 2022, the Company utilized a top-down allowance model based on an analysis of the probability of default (“PD”) and loss given default (“LGD”) to determine an expected loss by loan segment. During the third quarter of 2022, the Company transitioned to a tool that calculates the quantitative portion of expected credit losses at the individual loan level using a discounted cash flow methodology for its commercial loans and using a loss rate methodology for its consumer loans. The new tool being utilized produces more granular results of expected loan loss, incorporates more extensive historical loss data, and allows for a more efficient process. This change did not result in a material impact to the Company’s financial statements. Adjustments may be made to baseline reserves based on an assessment of internal and external influences on credit quality not fully reflected in the quantitative components of the allowance model. These influences may include elements such as changes in concentration, macroeconomic conditions, recent observable asset quality trends, staff turnover, regional market conditions, employment levels, model risk, and loan growth. Based upon management's assessments of these factors, the Company may apply qualitative adjustments to the allowance. Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. For loans that are individually evaluated, the allowance is determined through review of data specific to the borrower and the related collateral, if any. When management determines that foreclosure is probable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. The contractual term of a loan excludes expected extensions, renewals, and modification unless either of the following applies: management has a reasonable expectation at the reporting date that a TDR will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and not unconditionally cancellable by the Company. The allowance for PCD loans is determined at the time of acquisition as the estimated expected credit loss of the outstanding balance or par value, based on the methodologies described previously for loans. The allowance recognized at acquisition is added to the acquisition date purchase price to determine the asset’s amortized cost basis. The allowance for credit losses on TDRs is measured using the fair value of the collateral method when the repayment is expected to be provided substantially through the operation or sale of the collateral. Otherwise, when the value of a concession can only be measured using the discounted cash flow method, the allowance for credit losses is determined by discounting the expected future cash flows at the original interest rate of the loan. It is the Company's practice to ensure that the charge-off policy meets or exceeds regulatory requirements. Losses on unsecured consumer loans are recognized at 90 days past due, compared to the regulatory loss criteria of 120 days. In compliance with Federal Financial Institution Examination Council guidelines, secured consumer loans, including residential real estate, are typically charged off or charged down between 120 and 180 days past due, depending on the collateral type. Commercial loans and real estate loans are typically placed on nonaccrual status when principal or interest is past due for 90 days or more, unless the loan is both secured by collateral having realizable value sufficient to discharge the debt in-full and the loan is in process of collection. Secured loans may be charged down to the estimated value of the collateral with previously accrued unpaid interest reversed against interest income. Subsequent charge-offs may be required as a result of changes in the market value of collateral or other repayment prospects. Initial charge-off amounts are based on valuation estimates derived from appraisals or other market information. Generally, new appraisals are not received until the foreclosure process is completed; however, collateral values are evaluated periodically based on market information and incremental charge-offs are recorded if it is determined that collateral values have declined from their initial estimates. Derivative Instruments and Hedging Activities : The Company enters into derivative contracts, including swaps and floors, to meet the needs of customers who request such services and to manage the Company's exposure to interest rate fluctuations. Derivative contracts are carried at fair value and recorded in the consolidated balance sheet within other assets or other liabilities. The gain or loss resulting from changes in the fair value of interest rate swaps designated and qualifying as cash flow hedging instruments is initially reported as a component of other comprehensive income and subsequently reclassified into earnings through interest income in the same period in which the hedged transaction affects earnings. The Company discontinues hedge accounting prospectively when it is determined that the derivative contract is no longer effective in offsetting changes in the cash flows of the hedged item, the derivative expires or is terminated, management determines that the designation of the derivative as a hedging instrument is no longer appropriate or, for a cash flow hedge, the occurrence of the forecasted transaction is no longer probable. When hedge accounting on a cash flow hedge is discontinued, any subsequent changes in fair value of the derivative are recognized in earnings. The cumulative unrealized gain or loss related to a discontinuing cash flow hedge continues to be reported in Accumulated Other Comprehensive Income (“AOCI”) and is subsequently reclassified into earnings in the same period in which the hedged transactions affects earnings, unless it is 85 probable that the forecasted transaction will not occur by the end of the originally specified time period, in which case the cumulative unrealized gain or loss in AOCI is reclassified into earnings immediately. Cash flows resulting from derivative financial instruments that are accounted for as hedges are classified in the cash flow statement in the same category as the cash flows from the hedged items. See additional disclosures related to derivative instruments and hedging activities in “Note 6 – Derivatives”. Loan Commitments and Letters of Credit: Loan commitments and letters of credit are an off-balance sheet item and represent commitments to make loans or lines of credit available to borrowers. The face amount of these commitments represents an exposure to loss, before considering customer collateral or ability to repay. Such commitments are recognized as loans when funded. The Company estimates a reserve for potential losses on unfunded commitments, which is reported separately from the allowance for credit losses within Other Liabilities. The reserve is based upon the same quantitative and qualitative factors applied to the collectively evaluated loan portfolio. Fees received for providing loan commitments and letters of credit that may result in loans are typically deferred and amortized to interest income over the life of the related loan, beginning with the initial borrowing. Fees on commitments and letters of credit are amortized to noninterest income as banking fees and commissions on a straight-line basis over the commitment period when funding is not expected. Fair Value Measurements: The Company measures or monitors the fair value of many of its assets and liabilities. Certain assets are measured on a recurring basis, including available-for-sale securities and loans held for sale. These assets are carried at fair value on the Company’s balance sheets. Additionally, fair value is measured on a non-recurring basis to evaluate assets or liabilities for impairment or for disclosure purposes. Examples include collateral-dependent loans, other real estate owned, loan servicing rights, goodwill, and long-lived assets. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, the Company uses various valuation techniques and assumptions when estimating fair value. The Company applies the following fair value hierarchy: Level 1 – Assets or liabilities for which the identical item is traded on an active exchange, such as publicly-traded instruments or futures contracts. Level 2 – Assets and liabilities valued based on observable market data for similar instruments. Level 3 – Assets and liabilities for which significant valuation assumptions are not readily observable in the market; instruments valued based on the best available data, some of which is internally-developed, and considers risk premiums that a market participant would require. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at and/or marked to fair value, the Company considers the principal market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability. When possible, the Company looks to active and observable markets to price identical assets or liabilities. When identical assets and liabilities are not traded in active markets, the Company looks to market observable data for similar assets and liabilities. Certain assets and liabilities are not actively traded in observable markets and the Company must use alternative valuation techniques to derive a fair value measurement. Bank Premises and Equipment: Bank premises and equipment are stated at cost, less accumulated depreciation and amortization. Premises and equipment include certain costs associated with the acquisition of leasehold improvements. Depreciation and amortization are recognized principally by the straight-line method, over the estimated useful lives as follows: buildings - 25 - 40 years, leasehold improvements - 5 - 25 years, furniture and equipment - 3 - 12 years. Leasehold improvements amortize over the shorter of lease terms or estimated useful life. Premises and equipment and other long-term assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are written down to fair value with a corresponding increase to noninterest expense. Other Real Estate Owned: Other real estate owned (“OREO”) consists primarily of real estate acquired in lieu of unpaid loan balances. These assets are carried at an amount equal to the loan balance prior to foreclosure plus costs incurred for improvements to the property, but no more than the estimated fair value of the property less estimated selling costs. Any valuation adjustments required at the date of transfer are charged to the allowance for credit losses. Subsequently, unrealized 86 losses and realized gains and losses are included in other noninterest expense. Operating results from OREO are recorded in other noninterest expense. OREO may also include bank premises no longer utilized in the course of the Company's business (closed branches) that are initially recorded at the lower of carrying value or fair value, less costs to sell. If the fair value of the premises is less than amortized book value, a write down is recorded through noninterest expense. Costs to maintain the property are expensed. Intangible Assets. The Company’s intangible assets consist of goodwill, core deposit intangibles (CDIs), customer relationship intangibles and loan servicing rights. Goodwill results from business combinations and represents the difference between the purchase price and the fair value of net assets acquired. Goodwill may be adjusted for up to one year from the acquisition date in the event new information is obtained which, if known at the date of the acquisition would have impacted the fair value of the acquired assets and liabilities. Goodwill is considered to have an indefinite useful life and is not amortized, but rather tested for impairment annually in the fourth quarter, or more often if circumstances arise that may indicate risk of impairment. If impaired, goodwill is written down with a corresponding impact to noninterest expense. The Company recognizes CDIs that result from either whole bank acquisitions or branch acquisitions. They are initially measured at fair value and then amortized over periods ranging from six to eight years generally on an accelerated basis. Customer relationship intangibles are measured at fair value and amortized on a straight-line basis over ten years . The Company evaluates other identifiable intangibles for impairment annually, or more often if circumstances arise that may indicate risk of impairment. If impaired, the intangible asset is written down with a corresponding increase to noninterest expense. Bank Owned Life Insurance (BOLI): The Company, through its subsidiary bank, has purchased or acquired through bank acquisitions, life insurance policies on certain key executives. BOLI is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement. Other Investments: Included in Other Assets are investments in funds generating affordable housing tax credits, and investments in Small Business Investment Companies (“SBICs”), which are privately owned and operated companies licensed by the U.S. Small Business Administration (“SBA”) to invest in small businesses. Investments generating tax credits are accounted for using the proportional amortization method. Under this method, the investor amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits allocated to the investor. SBIC investments are held at cost less impairment, if any. Income from SBIC investments will vary amongst periods and is recognized in noninterest income. Seacoast Bank is a member of the Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) systems. Members are required to own a certain amount of FHLB and FRB stock based on the level of borrowings and other factors, and may invest in additional amounts. The FHLB and FRB stock are accounted for at cost less impairment, if any. Both cash and stock dividends are recognized in earnings. Leases: Arrangements are analyzed at inception to determine the existence of a lease. Right-of-use assets (ROUAs) represent the right to use the underlying asset and lease liabilities represent the obligation to make lease payments for the lease term. Operating lease ROUAs and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the appropriate term and information available at commencement date in determining the present value of lease payments. The lease term may include options to extend the lease when it is reasonably certain that the option will be exercised. ROUAs and operating lease liabilities are reported in Other Assets and Other Liabilities, respectively, in the Consolidated Balance Sheet. Lease expense for lease payments is recognized on a straight-line basis over the lease term and is classified as Occupancy or Furniture and Equipment expense based on the subject asset. Revenue Recognition: Revenue recognized reflects the consideration to which the Company expects to be entitled in exchange for the services provided and is recognized when the promised services (performance obligations) are transferred to a customer, requiring the application of the following five-steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation. Relevant activity includes: • Service Charges on Deposits: Seacoast Bank offers a variety of deposit-related services to its customers through several delivery channels including branch offices, ATMs, telephone, mobile, and internet banking. Transaction-based fees are recognized when services, each of which represents a performance obligation, are satisfied. Service fees may be assessed monthly, quarterly, or annually; however, the account agreements to which these fees relate can be 87 canceled at any time by Seacoast and/or the customer. Therefore, the contract term is considered a single day (a day-to-day contract). • Wealth Management Income: The Company earns trust fees from fiduciary services provided to trust customers, which include custody of assets, recordkeeping, collection and distribution of funds. Fees are earned over time and accrued monthly as the Company provides services, and are generally assessed based on the market value of the trust assets under management at a particular date or over a particular period. The Company also earns commissions and fees from investment brokerage services provided to its customers through an arrangement with a third-party service provider. Commissions received from the third-party service provider are recorded monthly and are based upon customer activity. Fees are earned over time and accrued monthly as services are provided. The Company acts as an agent in this arrangement and therefore presents the brokerage commissions and fees net of related costs. • Interchange Income: Fees earned on card transactions depend upon the volume of activity, as well as the fees permitted by the payment network. Such fees are recognized by the Company upon fulfilling its performance obligation to approve the card transaction. Treasury Stock: The Company's repurchase of shares of its common stock are recorded at cost as treasury stock and result in a reduction of shareholders' equity. Activity in treasury stock represents shares traded to offset employee payroll taxes on vested shares. Shares held in treasury are used for employee share purchases through the Company's stock purchase plan. Stock-Based Compensation: The stock option plans are accounted for under ASC Topic 718 - Compensation - Stock Compensation and the fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with market assumptions. This amount is amortized on a straight-line basis over the vesting period, generally five years . For restricted stock awards, which generally vest based on continued service with the Company, the deferred compensation is measured as the fair value of the shares on the date of grant, and the deferred compensation is amortized as salaries and employee benefits in accordance with the applicable vesting schedule, generally straight-line over three years . Some shares vest based upon the Company achieving certain performance goals and salary amortization expense is based on an estimate of the most likely results on a straight line basis. The Company accounts for forfeitures as they occur. Income Taxes : The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are determined based on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and their related tax bases and are measured using the enacted tax rates and laws that are in effect. A valuation allowance is recognized for a deferred tax asset if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. The effect on deferred tax assets and liabilities of a change in rates is recognized as income or expense in the period in which the change occurs. Recently Issued Accounting Standards In March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-02, Financial Instruments - Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclo sures. ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings (“TDRs”) in ASC 310-40, Receivables - Troubled Debt Restructurings by Creditors , and introduces new disclosures related to modifications with borrowers that are experiencing financial difficulties. ASU 2022-02 also requires the disclosure of current-period gross write-offs by year of origination for financing receivables held at amortized cost. The Company adopted the standard effective January 1, 2023, and the adoption did not have a material impact to the consolidated financial statements. Note 2 - Earnings Per Share Basic earnings per share are computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during each period. Diluted earnings per share are based on the weighted-average number of common shares outstanding during each period, plus common share equivalents, calculated for share-based awards outstanding using the treasury stock method. In 2022 and 2020, options to purchase 1,505 and 508,000 shares of the Company's common stock, respectively, were antidilutive and accordingly were excluded in determining diluted earnings per share. In 2021, no options were antidilutive. 88 For the Year Ended December 31, (In thousands, except per share data) 2022 2021 2020 Basic earnings per share Net Income $ 106,507 $ 124,403 $ 77,764 Total weighted average common stock outstanding 63,707 56,586 53,502 Net income per share $ 1.67 $ 2.20 $ 1.45 Diluted earnings per share Net Income $ 106,507 $ 124,403 $ 77,764 Total weighted average common stock outstanding 63,707 56,586 53,502 Add: Dilutive effect of share-based awards outstanding 557 502 428 Total weighted average diluted stock outstanding 64,264 57,088 53,930 Net income per share $ 1.66 $ 2.18 $ 1.44 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. 89 Note 3 - Securities The amortized cost, gross unrealized gains and losses and fair value of available-for-sale ("AFS") and held-to-maturity ("HTM") securities at December 31, 2022 and December 31, 2021 are summarized as follows: December 31, 2022 (In thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Available-for-Sale Debt Securities U.S. Treasury securities and obligations of U.S. government agencies $ 13,813 $ 173 $ ( 339 ) $ 13,647 Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities 1,561,197 539 ( 223,083 ) 1,338,653 Private mortgage-backed securities and collateralized mortgage obligations 179,148 70 ( 12,831 ) 166,387 Collateralized loan obligations 313,155 — ( 10,251 ) 302,904 Obligations of state and political subdivisions 29,350 122 ( 1,731 ) 27,741 Other debt securities 22,640 197 ( 427 ) 22,410 Totals $ 2,119,303 $ 1,101 $ ( 248,662 ) $ 1,871,742 Held-to-Maturity Debt Securities Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities $ 747,408 $ 64 $ ( 129,731 ) $ 617,741 Totals $ 747,408 $ 64 $ ( 129,731 ) $ 617,741 December 31, 2021 (In thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Available-for-Sale Debt Securities U.S. Treasury securities and obligations of U.S. government agencies $ 6,466 $ 316 $ ( 3 ) $ 6,779 Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities 1,234,721 8,308 ( 20,309 ) 1,222,720 Private mortgage-backed securities and collateralized mortgage obligations 88,096 1,091 ( 420 ) 88,767 Collateralized loan obligations 292,751 63 ( 124 ) 292,690 Obligations of state and political subdivisions 31,624 1,740 ( 1 ) 33,363 Totals $ 1,653,658 $ 11,518 $ ( 20,857 ) $ 1,644,319 Held-to-Maturity Debt Securities Mortgage-backed securities of U.S. government-sponsored entities $ 638,640 $ 3,828 $ ( 15,070 ) $ 627,398 Totals $ 638,640 $ 3,828 $ ( 15,070 ) $ 627,398 During 2022, debt securities with a fair value of $ 515.2 million obtained in bank acquisitions were sold. No gain or loss was recognized on these sales, and there were no other sales of securities in 2022. During 2021, debt securities with a fair value of $ 102.1 million were sold with gross gains of $ 0.3 million and gross losses of $ 0.6 million. Debt securities with a fair value of $ 96.7 million were sold during 2020, with gross gains of $ 2.4 million and gross losses of $ 1.3 million. Also included in “Securities gains (losses) net” are decreases of $ 1.1 million and $ 0.2 million in 2022 and 2021, respectively, and an increase of $ 0.1 million in 2020 in the value of an investment in shares of a mutual fund that invests in CRA-qualified debt securities. 90 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 December 31, 2022, debt securities with a fair value of $ 484.2 million were pledged primarily as collateral for public deposits and secured borrowings. The amortized cost and fair value of securities at December 31, 2022, 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. Held-to-Maturity Available-for-Sale (In thousands) Amortized Cost Fair Value Amortized Cost Fair Value Due in less than one year $ — $ — $ 1,990 $ 2,087 Due after one year through five years — — 17,509 17,419 Due after five years through ten years — — 3,123 3,030 Due after ten years — — 20,541 18,852 — — 43,163 41,388 Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities $ 747,408 $ 617,741 $ 1,561,197 $ 1,338,653 Private mortgage-backed securities and collateralized mortgage obligations — — 179,148 166,387 Collateralized loan obligations — — 313,155 302,904 Other debt securities — — 22,640 22,410 Totals $ 747,408 $ 617,741 $ 2,119,303 $ 1,871,742 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, using observable market data where available. 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. December 31, 2022 Less than 12 months 12 months or longer Total (In thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses U.S. Treasury securities and obligations of U.S. government agencies $ 3,788 $ ( 328 ) $ 249 $ ( 11 ) $ 4,037 $ ( 339 ) Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities 646,651 ( 54,956 ) 667,520 ( 168,127 ) 1,314,171 ( 223,083 ) Private mortgage-backed securities and collateralized mortgage obligations 130,488 ( 8,255 ) 25,234 ( 4,576 ) 155,722 ( 12,831 ) Collateralized loan obligations 242,370 ( 8,343 ) 60,534 ( 1,908 ) 302,904 ( 10,251 ) Obligations of state and political subdivisions 23,804 ( 1,656 ) 425 ( 75 ) 24,229 ( 1,731 ) Other debt securities 11,459 ( 427 ) — — 11,459 ( 427 ) Totals $ 1,058,560 $ ( 73,965 ) $ 753,962 $ ( 174,697 ) $ 1,812,522 $ ( 248,662 ) 91 December 31, 2021 Less than 12 months 12 months or longer Total (In thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses U.S. Treasury securities and obligations of U.S. government agencies $ 97 $ ( 1 ) $ 245 $ ( 2 ) $ 342 $ ( 3 ) Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities 955,881 ( 19,575 ) 11,953 ( 734 ) 967,834 ( 20,309 ) Private mortgage-backed securities and collateralized mortgage obligations 33,640 ( 173 ) 9,628 ( 247 ) 43,268 ( 420 ) Collateralized loan obligations 123,202 ( 81 ) 9,461 ( 43 ) 132,663 ( 124 ) Obligations of state and political subdivisions 499 ( 1 ) — — 499 ( 1 ) Totals $ 1,113,319 $ ( 19,831 ) $ 31,287 $ ( 1,026 ) $ 1,144,606 $ ( 20,857 ) At December 31, 2022, the Company had unrealized losses of $ 223.1 million on mortgage-backed securities and collateralized mortgage obligations issued by government-sponsored entities having a fair value of $ 1.3 billion. 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 rate movements and not changes in credit quality, and expects to recover the entire amortized cost basis of these securities. Therefore, at December 31, 2022, no allowance for credit losses has been recorded. At December 31, 2022, the Company had $ 12.8 million of unrealized losses on private label residential and commercial mortgage-backed securities and collateralized mortgage obligations having a fair value of $ 155.7 million. The securities have average credit support of 24 %. 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 December 31, 2022, no allowance for credit losses has been recorded. At December 31, 2022, the Company had $ 10.3 million of unrealized losses in floating rate collateralized loan obligations (“CLOs”) having a fair value of $ 302.9 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 December 31, 2022, all positions held by the Company are in AAA and AA tranches, with average credit support of 38 % and 25 % 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 movement and not changes in credit quality, and expects to recover the entire amortized cost basis of these securities. Therefore, at December 31, 2022, no allowance for credit losses has been recorded. At December 31, 2022, the Company had $ 1.7 million of unrealized losses on municipal securities having a fair value of $ 24.2 million. These securities are highly rated issuances of state or local municipalities, all of which are continuing to make timely contractual payments. 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. As a result, as of December 31, 2022, no allowance for credit losses has been recorded. At December 31, 2022, the Company had $ 0.4 million of unrealized losses on floating rate student loan asset-backed securities having a fair value of $ 11.5 million. These securities were issued under the U.S. Department of Education’s Federal Family Education Loan program, which generally provides a minimum of 97% U.S. Department of Education guarantee of principal. These securities also have added credit enhancement through over-collateralization and have an average credit support of 8 %. Based on the assessment of all relevant factors, the Company believes any unrealized loss positions are a function of changes in investment spreads and interest rate movement and not changes in credit quality, and expects to recover the entire amortized cost basis of these securities. Therefore, at December 31, 2022, no allowance for credit losses has been recorded. All HTM debt securities are issued by government-sponsored entities, which are either explicitly or implicitly guaranteed by the U.S. government and have a long history of no credit losses. While the potential for default on these securities may be 92 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 December 31, 2022, no allowance for credit losses has been recorded. Included in Other Assets at December 31, 2022 is $ 45.6 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 which may have a significant adverse effect on the fair value of these cost method investment securities. Accrued interest receivable on AFS and HTM debt securities of $ 7.0 million and $ 1.3 million, respectively, at December 31, 2022, and $ 3.4 million and $ 1.0 million, respectively, at December 31, 2021, is included in Other Assets . Also included in Other Assets is an investment in a CRA-qualified mutual fund carried at fair value of $ 8.2 million and $ 9.3 million at December 31, 2022 and December 31, 2021, respectively. 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 December 29, 2022, the Company would receive 1.5991 shares of Class A stock for each share of Class B stock for a total of 18,117 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. This ownership is recorded in the Company's financial records at zero basis. Note 4 - 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 credit. Loans are primarily written based on conventional loan agency guidelines, including loans that exceed agency value limitations. Sources of repayment are largely dependent on the occupant of the residential property. • Commercial and financial: Loans are extended to commercial customers. The purpose of the loans can be working capital, physical asset expansion, asset acquisition or other business purposes. Loans may be collateralized by assets owned by the borrower or the borrower's business. Commercial loans are based primarily on the historical and projected cash flow of the borrower's business and secondarily on the capacity of credit enhancements, guarantees and underlying collateral provided by the borrower. • Consumer: Loans are extended to consumer customers. The segment includes both installment loans and lines of credit which may be collateralized or non-collateralized. • Paycheck Protection Program (“PPP”): Loans originated under a temporary program established by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), and extended by the Economic Aid Act. Under the terms of the program, balances may be forgiven if the borrower uses the funds in a manner consistent with the program guidelines, and repayment is guaranteed by the U.S. government. In the third quarter of 2022, to align with the Company’s transition of the calculation of expected credit losses to a new modeling tool, $ 100 million in loans to commercial borrowers collateralized by residential properties were reclassified from “Residential real estate” to “Commercial real estate - non owner-occupied.” The following tables present net loan balances by segment as of: 93 December 31, 2022 (In thousands) Portfolio Loans Acquired Non-PCD Loans PCD Loans Total Construction and land development $ 364,900 $ 201,333 $ 21,100 $ 587,332 Commercial real estate - owner occupied 995,154 451,202 31,946 1,478,302 Commercial real estate - non-owner occupied 1,695,411 767,138 127,225 2,589,774 Residential real estate 1,558,643 271,378 19,482 1,849,503 Commercial and financial 1,151,273 182,124 15,238 1,348,636 Consumer 177,338 89,458 19,791 286,587 Paycheck Protection Program 1,474 3,116 — 4,590 Totals $ 5,944,193 $ 1,965,749 $ 234,782 $ 8,144,724 December 31, 2021 (In thousands) Portfolio Loans Acquired Non-PCD Loans PCD Loans Total Construction and land development $ 199,341 $ 31,438 $ 45 $ 230,824 Commercial real estate - owner occupied 983,517 186,812 27,445 1,197,774 Commercial real estate - non-owner occupied 1,278,180 382,554 75,705 1,736,439 Residential real estate 1,261,306 156,957 7,091 1,425,354 Commercial and financial 968,318 84,395 16,643 1,069,356 Consumer 169,507 4,658 10 174,175 Paycheck Protection Program 69,503 21,604 — 91,107 Totals $ 4,929,672 $ 868,418 $ 126,939 $ 5,925,029 The amortized cost basis of loans at December 31, 2022 and 2021 included net deferred costs of $ 35.1 million and $ 28.6 million, respectively. At December 31, 2022, the remaining fair value adjustments on acquired loans were $ 97.7 million, or 4.3 % of the outstanding acquired loan balances, compared to $ 23.1 million, or 2.3 % of the acquired loan balances at December 31, 2021. The discount is 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 $ 28.2 million and $ 14.7 million at December 31, 2022 and 2021, respectively. Loans to directors and executive officers totaled $ 0.4 million and $ 0.6 million at December 31, 2022 and 2021, respectively. Two new loans were originated to officers or directors in 2022. 94 The following table presents the status of net loan balances as of December 31, 2022 and December 31, 2021. December 31, 2022 (In thousands) Current Accruing 30-59 Days Past Due Accruing 60-89 Days Past Due Accruing Greater Than 90 Days Nonaccrual Total Portfolio Loans Construction and land development $ 364,841 $ — $ — $ — $ 59 $ 364,900 Commercial real estate - owner occupied 993,690 — 67 440 957 995,154 Commercial real estate - non-owner occupied 1,695,381 — — — 30 1,695,411 Residential real estate 1,550,040 1,172 147 — 7,284 1,558,643 Commercial and financial 1,142,536 1,032 476 — 7,229 1,151,273 Consumer 176,444 550 252 1 91 177,338 Paycheck Protection Program 1,099 33 — 342 — 1,474 Total Portfolio Loans $ 5,924,031 $ 2,787 $ 942 $ 783 $ 15,650 $ 5,944,193 Acquired Non-PCD Loans Construction and land development $ 201,263 $ — $ — $ — $ 70 $ 201,333 Commercial real estate - owner occupied 450,109 796 297 — — 451,202 Commercial real estate - non-owner occupied 765,633 162 — — 1,343 767,138 Residential real estate 270,215 577 — — 586 271,378 Commercial and financial 180,837 790 87 — 410 182,124 Consumer 87,317 779 616 525 221 89,458 Paycheck Protection Program 3,116 — — — — 3,116 Total Acquired Non-PCD Loans $ 1,958,490 $ 3,104 $ 1,000 $ 525 $ 2,630 $ 1,965,749 PCD Loans Construction and land development $ 20,680 $ — $ — $ — $ 420 $ 21,100 Commercial real estate - owner occupied 30,517 23 23 — 1,383 31,946 Commercial real estate - non-owner occupied 124,115 — — — 3,110 127,225 Residential real estate 17,885 10 — — 1,587 19,482 Commercial and financial 11,201 4 — — 4,033 15,238 Consumer 17,884 1,001 336 540 30 19,791 Total PCD Loans $ 222,282 $ 1,038 $ 359 $ 540 $ 10,563 $ 234,782 Total Loans $ 8,104,803 $ 6,929 $ 2,301 $ 1,848 $ 28,843 $ 8,144,724 95 December 31, 2021 (In thousands) Current Accruing 30-59 Days Past Due Accruing 60-89 Days Past Due Accruing Greater Than 90 Days Nonaccrual Total Portfolio Loans Construction and land development $ 199,087 $ — $ — $ — $ 254 $ 199,341 Commercial real estate - owner occupied 982,804 — — — 713 983,517 Commercial real estate - non-owner occupied 1,276,582 — — — 1,598 1,278,180 Residential real estate 1,248,160 3,457 143 — 9,546 1,261,306 Commercial and financial 963,828 851 41 — 3,598 968,318 Consumer 168,791 565 23 15 113 169,507 Paycheck Protection Program 69,434 — — 69 — 69,503 Total Portfolio Loans $ 4,908,686 $ 4,873 $ 207 $ 84 $ 15,822 $ 4,929,672 Acquired Non-PCD Loans Construction and land development $ 31,438 $ — $ — $ — $ — $ 31,438 Commercial real estate - owner occupied 186,652 — 160 — — 186,812 Commercial real estate - non-owner occupied 381,510 — — — 1,044 382,554 Residential real estate 154,981 182 — — 1,794 156,957 Commercial and financial 84,180 — 40 — 175 84,395 Consumer 4,082 135 — — 441 4,658 Paycheck Protection Program 21,567 — — 37 — 21,604 Total Acquired Non-PCD Loans $ 864,410 $ 317 $ 200 $ 37 $ 3,454 $ 868,418 PCD Loans Construction and land development $ 40 $ — $ — $ — $ 5 $ 45 Commercial real estate - owner occupied 24,192 — — — 3,253 27,445 Commercial real estate - non-owner occupied 72,442 — — — 3,263 75,705 Residential real estate 5,386 — — — 1,705 7,091 Commercial and financial 13,547 — — — 3,096 16,643 Consumer 10 — — — — 10 Total PCD Loans $ 115,617 $ — $ — $ — $ 11,322 $ 126,939 Total Loans $ 5,888,713 $ 5,190 $ 407 $ 121 $ 30,598 $ 5,925,029 96 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 $ 1.6 million, $ 1.2 million, and $ 0.9 million in interest income on nonaccrual loans during the years ended December 31, 2022, 2021, and 2020, respectively. The following tables present net balances of loans on nonaccrual status and the related allowance for credit losses, if any, as of: December 31, 2022 (In thousands) Nonaccrual Loans With No Related Allowance Nonaccrual Loans With an Allowance Total Nonaccrual Loans Allowance for Credit Losses Construction and land development $ 615 $ — $ 615 $ — Commercial real estate - owner-occupied 957 1,641 2,597 41 Commercial real estate - non-owner occupied 3,347 837 4,184 230 Residential real estate 8,072 1,036 9,109 58 Commercial and financial 4,724 6,891 11,615 2,319 Consumer 40 683 723 257 Totals $ 17,755 $ 11,088 $ 28,843 $ 2,905 December 31, 2021 (In thousands) Nonaccrual Loans With No Related Allowance Nonaccrual Loans With an Allowance Total Nonaccrual Loans Allowance for Credit Losses Construction and land development $ 37 $ 222 $ 259 $ 92 Commercial real estate - owner-occupied 2,976 990 3,966 419 Commercial real estate - non-owner occupied 4,490 1,415 5,905 27 Residential real estate 12,358 687 13,045 357 Commercial and financial 2,676 4,193 6,869 2,384 Consumer 29 525 554 525 Totals $ 22,566 $ 8,032 $ 30,598 $ 3,804 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) December 31, 2022 December 31, 2021 Construction and land development $ 59 $ 271 Commercial real estate - owner-occupied 2,733 4,706 Commercial real estate - non-owner occupied 1,698 4,923 Residential real estate 11,333 16,334 Commercial and financial 10,448 8,741 Consumer 426 741 Totals $ 26,697 $ 35,716 97 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. • 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. Some portion of the principal balance of loans classified as doubtful are likely to be charged off. 98 The following tables present the risk rating of loans by year of origination as of: December 31, 2022 (In thousands) 2022 2021 2020 2019 2018 Prior Revolving Total Construction and Land Development Risk Ratings: Pass $ 223,204 $ 209,738 $ 18,239 $ 24,600 $ 12,783 $ 19,022 $ 50,960 $ 558,546 Special Mention 14,523 452 — 3,153 — — 15 18,143 Substandard — 9,227 — — 959 — — 10,186 Substandard Impaired — 52 — — — 405 — 457 Doubtful — — — — — — — — Total $ 237,727 $ 219,469 $ 18,239 $ 27,753 $ 13,742 $ 19,427 $ 50,975 $ 587,332 Commercial real estate - owner occupied Risk Ratings: Pass $ 215,453 $ 251,638 $ 180,081 $ 185,286 $ 121,568 $ 467,963 $ 32,253 $ 1,454,242 Special Mention 694 — 2,363 4,403 2,548 2,869 — 12,877 Substandard — — 667 2,625 573 4,444 — 8,309 Substandard Impaired — — — 311 294 2,269 — 2,874 Doubtful — — — — — — — — Total $ 216,147 $ 251,638 $ 183,111 $ 192,625 $ 124,983 $ 477,545 $ 32,253 $ 1,478,302 Commercial real estate - non-owner occupied Risk Ratings: Pass $ 593,364 $ 530,462 $ 231,693 $ 331,173 $ 228,077 $ 575,656 $ 35,326 $ 2,525,751 Special Mention — 16,257 735 5,438 — 4,975 — 27,405 Substandard — 192 19,315 — 5,515 7,412 — 32,434 Substandard Impaired — — 1,044 1,849 30 1,261 — 4,184 Doubtful — — — — — — — — Total $ 593,364 $ 546,911 $ 252,787 $ 338,460 $ 233,622 $ 589,304 $ 35,326 $ 2,589,774 Residential real estate Risk Ratings: Pass $ 270,054 $ 552,950 $ 121,879 $ 77,100 $ 97,900 $ 292,867 $ 423,764 $ 1,836,514 Special Mention — — 50 — 25 269 884 1,228 Substandard — — — — — 343 85 428 Substandard Impaired — — 133 32 83 9,515 1,570 11,333 Doubtful — — — — — — — — Total $ 270,054 $ 552,950 $ 122,062 $ 77,132 $ 98,008 $ 302,994 $ 426,303 $ 1,849,503 Commercial and financial Risk Ratings: Pass $ 359,833 $ 320,307 $ 140,450 $ 77,562 $ 57,924 $ 58,648 $ 292,818 $ 1,307,542 Special Mention 1,244 423 106 474 195 259 2,998 5,699 Substandard — 67 942 6,304 1,603 1,683 13,114 23,713 Substandard Impaired 5 58 5,109 147 3,642 2,545 176 11,682 Doubtful — — — — — — — — Total $ 361,082 $ 320,855 $ 146,607 $ 84,487 $ 63,364 $ 63,135 $ 309,106 $ 1,348,636 99 December 31, 2022 (In thousands) 2022 2021 2020 2019 2018 Prior Revolving Total Consumer Risk Ratings: Pass $ 93,012 $ 77,889 $ 27,982 $ 28,772 $ 11,690 $ 16,480 $ 29,725 $ 285,550 Special Mention — — — 250 2 134 30 416 Substandard — — 11 — — 191 — 202 Substandard Impaired — — 18 55 36 103 207 419 Doubtful — — — — — — — — Total $ 93,012 $ 77,889 $ 28,011 $ 29,077 $ 11,728 $ 16,908 $ 29,962 $ 286,587 Paycheck Protection Program Risk Ratings: Pass $ — $ 2,708 $ 1,882 $ — $ — $ — $ — $ 4,590 Total $ — $ 2,708 $ 1,882 $ — $ — $ — $ — $ 4,590 Consolidated Risk Ratings: Pass $ 1,754,920 $ 1,945,692 $ 722,206 $ 724,493 $ 529,942 $ 1,430,636 $ 864,846 $ 7,972,735 Special Mention 16,461 17,132 3,254 13,718 2,770 8,506 3,927 65,768 Substandard — 9,486 20,935 8,929 8,650 14,073 13,199 75,272 Substandard Impaired 5 110 6,304 2,394 4,085 16,098 1,953 30,949 Doubtful — — — — — — — — Total $ 1,771,386 $ 1,972,420 $ 752,699 $ 749,534 $ 545,447 $ 1,469,313 $ 883,925 $ 8,144,724 December 31, 2021 (In thousands) 2020 2019 2018 2017 2016 Prior Revolving Total Construction and Land Development Risk Ratings: Pass $ 94,318 $ 23,860 $ 38,058 $ 25,507 $ 3,995 $ 15,466 $ 29,349 $ 230,553 Special Mention — — — — — — — — Substandard — — — — — — — — Substandard Impaired — — — 222 — 49 — 271 Doubtful — — — — — — — — Total $ 94,318 $ 23,860 $ 38,058 $ 25,729 $ 3,995 $ 15,515 $ 29,349 $ 230,824 Commercial real estate - owner occupied Risk Ratings: Pass $ 205,404 $ 154,432 $ 179,786 $ 132,353 $ 125,763 $ 363,986 $ 10,005 $ 1,171,729 Special Mention — 6,527 5,370 649 218 3,250 — 16,014 Substandard — — — — 3,290 1,610 — 4,900 Substandard Impaired — — 2,742 310 596 1,483 — 5,131 Doubtful — — — — — — — — Total $ 205,404 $ 160,959 $ 187,898 $ 133,312 $ 129,867 $ 370,329 $ 10,005 $ 1,197,774 Commercial real estate - non-owner occupied Risk Ratings: Pass $ 395,308 $ 207,824 $ 298,021 $ 186,339 $ 110,990 $ 460,435 $ 6,477 $ 1,665,394 Special Mention — — 844 — 289 13,850 — 14,983 100 Substandard — 4,776 3,009 23,206 1,900 17,266 — 50,157 Substandard Impaired — 1,044 1,849 — 326 2,686 — 5,905 Doubtful — — — — — — — — Total $ 395,308 $ 213,644 $ 303,723 $ 209,545 $ 113,505 $ 494,237 $ 6,477 $ 1,736,439 Residential real estate Risk Ratings: Pass $ 394,547 $ 114,364 $ 90,566 $ 119,836 $ 118,556 $ 213,950 $ 354,439 $ 1,406,258 Special Mention — — — 70 — 1,243 532 1,845 Substandard — 340 — — 58 422 86 906 Substandard Impaired — 149 724 39 4,415 8,507 2,511 16,345 Doubtful — — — — — — — — Total $ 394,547 $ 114,853 $ 91,290 $ 119,945 $ 123,029 $ 224,122 $ 357,568 $ 1,425,354 Commercial and financial Risk Ratings: Pass $ 340,826 $ 180,677 $ 97,072 $ 68,232 $ 39,331 $ 56,053 $ 246,568 $ 1,028,759 Special Mention 530 15,587 — 237 251 84 876 17,565 Substandard — 371 2,605 3,594 1,436 3,217 339 11,562 Substandard Impaired — 196 4,561 3,694 1,371 1,520 128 11,470 Doubtful — — — — — — — — Total $ 341,356 $ 196,831 $ 104,238 $ 75,757 $ 42,389 $ 60,874 $ 247,911 $ 1,069,356 Consumer Risk Ratings: Pass $ 45,063 $ 31,342 $ 26,194 $ 17,300 $ 9,979 $ 16,019 $ 25,418 $ 171,315 Special Mention — 24 431 37 167 3 1,199 1,861 Substandard — — 18 — 17 — 223 258 Substandard Impaired — — 92 23 74 118 434 741 Doubtful — — — — — — — — Total $ 45,063 $ 31,366 $ 26,735 $ 17,360 $ 10,237 $ 16,140 $ 27,274 $ 174,175 Paycheck Protection Program Risk Ratings: Pass $ 87,036 $ 4,071 $ — $ — $ — $ — $ — $ 91,107 Total $ 87,036 $ 4,071 $ — $ — $ — $ — $ — $ 91,107 Consolidated Risk Ratings: Pass $ 1,562,502 $ 716,570 $ 729,697 $ 549,567 $ 408,614 $ 1,125,909 $ 672,256 $ 5,765,115 Special Mention 530 22,138 6,645 993 925 18,430 2,607 52,268 Substandard — 5,487 5,632 26,800 6,701 22,515 648 67,783 Substandard Impaired — 5,460 9,968 4,288 6,782 14,363 3,073 43,934 Doubtful — — — — — — — — Total $ 1,563,032 $ 745,584 $ 751,942 $ 581,648 $ 423,022 $ 1,181,217 $ 678,584 $ 5,925,029 Troubled Debt Restructured Loans The Company’s TDR concessions granted to certain borrowers 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. The Company typically does not provide forgiveness of principal as a concession. Loan modifications are not reported in calendar years after modification if the 101 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. There were nine loans totaling $ 0.9 million modified in TDRs in 2022, 12 loans totaling $ 0.8 million in 2021, and 10 loans totaling $ 0.7 million in 2020. The TDRs resulted in a specific allowance for credit losses of $ 0.2 million as of December 31, 2022 and 2021. During the year ended December 31, 2022, there were three defaults totaling $ 41 thousand on loans that had been modified in TDRs within the preceding twelve months compared to three defaults totaling $ 0.2 million in 2021. 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, $ 37 thousand, $ 16 thousand and $ 0.1 million for the years ended December 31, 2022, 2021, and 2020, respectively, was included in interest income and represents the change in present value attributable to the passage of time. Note 5 - Allowance for Credit Losses Activity in the allowance for credit losses is summarized as follows: For the Year Ended December 31, 2022 (In thousands) Beginning Balance Initial Allowance on PCD Loans Acquired During the Period Provision for Loan Losses Charge- Offs Recoveries TDR Allowance Adjustments Ending Balance Construction and land development $ 2,751 $ 518 $ 3,127 $ — $ 68 $ — $ 6,464 Commercial real estate - owner occupied 8,579 38 ( 2,566 ) — — — 6,051 Commercial real estate - non-owner occupied 36,617 880 5,871 ( 179 ) 69 — 43,258 Residential real estate 12,811 229 16,284 ( 84 ) 393 ( 28 ) 29,605 Commercial and financial 19,744 1,699 ( 5,367 ) ( 1,233 ) 807 ( 2 ) 15,648 Consumer 2,813 1,911 8,834 ( 1,415 ) 733 ( 7 ) 12,869 Total $ 83,315 $ 5,275 $ 26,183 $ ( 2,911 ) $ 2,070 $ ( 37 ) $ 113,895 For the Year Ended December 31, 2021 (In thousands) Beginning Balance Initial Allowance on PCD Loans Acquired During the Period Provision for Credit Losses Charge- Offs Recoveries TDR Allowance Adjustments Ending Balance Construction and land development $ 4,920 $ — $ ( 2,300 ) $ — $ 133 $ ( 2 ) $ 2,751 Commercial real estate - owner occupied 9,868 — ( 1,289 ) — — — 8,579 Commercial real estate - non-owner occupied 38,266 1,327 ( 1,664 ) ( 1,327 ) 15 — 36,617 Residential real estate 17,500 — ( 5,822 ) ( 57 ) 1,196 ( 6 ) 12,811 Commercial and financial 18,690 1,719 2,292 ( 3,987 ) 1,030 — 19,744 Consumer 3,489 — ( 638 ) ( 727 ) 697 ( 8 ) 2,813 Total $ 92,733 $ 3,046 $ ( 9,421 ) $ ( 6,098 ) $ 3,071 $ ( 16 ) $ 83,315 102 For the Year Ended December 31, 2020 (In thousands) Beginning Balance Impact of Adoption of ASC 326 Initial Allowance on PCD Loans Acquired During the Period Provision for Loan Losses 1 Charge- Offs Recoveries TDR Allowance Adjustments Ending Balance Construction and land development $ 1,842 $ 1,479 $ 87 $ 1,399 $ — $ 114 $ ( 1 ) $ 4,920 Commercial real estate - owner occupied 5,361 80 1,161 3,632 ( 310 ) 18 ( 74 ) 9,868 Commercial real estate - non-owner occupied 7,863 9,341 2,236 18,966 ( 177 ) 37 — 38,266 Residential real estate 7,667 5,787 124 3,840 ( 240 ) 350 ( 28 ) 17,500 Commercial and financial 9,716 3,677 2,643 8,329 ( 7,091 ) 1,416 — 18,690 Consumer 2,705 862 28 1,613 ( 2,024 ) 316 ( 11 ) 3,489 Total $ 35,154 $ 21,226 $ 6,279 $ 37,779 $ ( 9,842 ) $ 2,251 $ ( 114 ) $ 92,733 1 In addition, the Company recorded a $ 0.4 million provision to establish a valuation allowance on accrued interest receivable. 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. Forecast data is sourced from Moody’s Analytics (“Moody’s”), a firm widely recognized for its research, analysis, and economic forecasts. The forecasts of future economic conditions are over a period that has been deemed reasonable and supportable, and in segments where it can no longer develop reasonable and supportable forecasts, the Company reverts to longer-term historical loss experience to estimate losses over the remaining life of the loans. In the implementation of CECL at January 1, 2020 and through June 30, 2022, the Company utilized a top-down allowance model based on an analysis of the probability of default (“PD”) and loss given default (“LGD”) to determine an expected loss by loan segment. During the third quarter of 2022, the Company transitioned to a tool that calculates the quantitative portion of expected credit losses using a discounted cash flow methodology for its commercial loans and using a loss rate methodology for its consumer loans. The new tool being utilized produces more granular results of expected loan loss, allows for greater differentiation and a more efficient process. This change did not result in a material impact to the Company’s financial statements. As of December 31, 2022 and 2021, the Company utilized a blend of Moody’s most recent “U.S. Macroeconomic Outlook Baseline” and “Alternative Scenario 3 - Downside - 90th Percentile” scenarios and considered the uncertainty associated with the assumptions in both scenarios, including for the 2022 analysis the continued actions taken by the Federal Reserve with regard to monetary policy and interest rates and the potential impact of those actions, the ongoing Russia-Ukraine conflict and the magnitude of the resulting market disruption, the potential impact of persistent high inflation on economic growth, and expectations around a recession occurring over the next 12 to 24 months. Outcomes in any or all of these factors could differ from the scenarios identified above, 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. The following section discusses changes in the level of the allowance for credit losses for the year ended December 31, 2022. In the Construction and Land Development segment, the increase in the allowance during the year is primarily attributed to higher loan balances. 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 the allowance reflects the transition to a discounted cash flow approach which, while continuing to consider relevant macroeconomic forecast variables, also considers loan-specific available collateral. The decrease is partially offset by increases due to loan growth. Risk characteristics include but are not limited to, collateral type, note structure, and loan seasoning. In the Commercial Real Estate - Non Owner-Occupied segment, the increase in the allowance reflects higher loan balances, partially offset by the impact of transitioning from a portfolio level estimate to a discounted cash flow approach, utilizing macroeconomic variables specific to the loan segment. Repayment is often dependent upon rental income from the successful 103 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, note structure, and loan seasoning are among the risk characteristics analyzed for this segment. The Residential Real Estate segment includes first mortgages secured by residential property, and home equity lines of credit. The increase in the allowance reflects both higher loan balances and deterioration in the economic forecast, including the transition to a loss rate tool for estimating credit losses, utilizing macroeconomic variables specific to the loan segment. Risk characteristics considered for this segment include, but are not limited to, borrower FICO score, 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 attributed to the transition from a portfolio level estimate to a discounted cash flow tool, utilizing macroeconomic variables specific to the loan segment. The decrease was partially offset by the impact of higher loan balances. Industry, collateral type, estimated collateral values and loan seasoning are among the relevant factors in assessing expected losses. Consumer loans include installment and revolving lines, loans for automobiles, boats, and other personal or family purposes. Risk characteristics considered for this segment include, but are not limited to, collateral type, loan to value ratios, loan seasoning and FICO score. The increase in the reserve during the year reflects higher loan balances and an increasing likelihood of economic recession reflected within the forecast. 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 comprised 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 December 31, 2022 and 2021 is shown in the following tables. 104 December 31, 2022 Individually Evaluated Collectively Evaluated Total (In thousands) Recorded Investment Associated Allowance Recorded Investment Associated Allowance Recorded Investment Associated Allowance Construction and land development $ 59 $ — $ 587,273 $ 6,464 $ 587,332 $ 6,464 Commercial real estate - owner occupied 3,346 41 1,474,956 6,010 1,478,302 6,051 Commercial real estate - non-owner occupied 4,183 230 2,585,591 43,028 2,589,774 43,258 Residential real estate 11,333 275 1,838,170 29,330 1,849,503 29,605 Commercial and financial 12,167 2,639 1,336,469 13,009 1,348,636 15,648 Consumer 426 362 286,161 12,507 286,587 12,869 Paycheck Protection Program — — 4,590 — 4,590 — Total $ 31,514 $ 3,547 $ 8,113,210 $ 110,348 $ 8,144,724 $ 113,895 December 31, 2021 Individually Evaluated Collectively Evaluated Total (In thousands) Recorded Investment Associated Allowance Recorded Investment Associated Allowance Recorded Investment Associated Allowance Construction and land development $ 271 $ 92 $ 230,553 $ 2,659 $ 230,824 $ 2,751 Commercial real estate - owner occupied 5,131 419 1,192,643 8,160 1,197,774 8,579 Commercial real estate - non-owner occupied 5,905 27 1,730,534 36,590 1,736,439 36,617 Residential real estate 16,345 646 1,409,009 12,165 1,425,354 12,811 Commercial and financial 11,470 2,885 1,057,886 16,859 1,069,356 19,744 Consumer 741 685 173,434 2,128 174,175 2,813 Paycheck Protection Program — — 91,107 — 91,107 — Total $ 39,863 $ 4,754 $ 5,885,166 $ 78,561 $ 5,925,029 $ 83,315 Note 6 – 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 December 31, 2022, the interest rate swaps had an aggregate notional value of $ 312.8 million, with a fair value of $ 23.1 million recorded in Other Assets and Other Liabilities. As of December 31, 2021, the interest rate swaps had an aggregate notional value of $ 175.4 million with a fair value of $ 8.0 million. The weighted average maturity was 6.7 years at both December 31, 2022 and 2021. Interest Rate Floors Designated as Cash Flow Hedges The Company has entered into interest rate floor contracts to mitigate exposure to the variability of future cash flows due to changes in interest rates on certain segments of its variable-rate loans. During 2020, the Company entered into two interest rate floor contracts, each with a notional amount of $ 150.0 million, maturing in October 2023 and November 2023. The Company considers these derivatives to be highly effective at achieving offsetting changes in cash flows attributable to changes in interest 105 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. As of December 31, 2022 and 2021, the interest rate floors had a fair value of $ 2 thousand and $ 0.3 million, respectively, and are recorded in Other Assets in the consolidated balance sheet. For the years ended December 31, 2022 and 2021, the Company recognized losses through other comprehensive income of $ 0.3 million and $ 0.7 million, respectively, and reclassified $ 0.4 million and $ 0.2 million, respectively, out of accumulated other comprehensive income and into interest income. Over the next 12 months the Company expects to reclassify $ 0.5 million from accumulated other comprehensive income into interest income related to these agreements. (In thousands) Notional Amount Fair Value Balance Sheet Category December 31, 2022 Back-to-back swaps $ 312,808 $ 23,140 Other Assets and Other Liabilities Interest rate floors 300,000 2 Other Assets December 31, 2021 Back-to-back swaps $ 175,392 $ 8,022 Other Assets and Other Liabilities Interest rate floors 300,000 290 Other Assets Note 7 - Bank Premises and Equipment Bank premises and equipment consisted of the following: (In thousands) Cost Accumulated Depreciation & Amortization Net Carrying Value December 31, 2022 Premises (including land of $ 37,516 ) $ 138,447 $ ( 33,037 ) $ 105,410 Furniture and equipment 40,354 ( 28,872 ) 11,482 Total $ 178,801 $ ( 61,909 ) $ 116,892 December 31, 2021 Premises (including land of $ 23,359 ) $ 95,810 $ ( 30,913 ) $ 64,897 Furniture and equipment 34,044 ( 26,537 ) 7,507 Total $ 129,854 $ ( 57,450 ) $ 72,404 Note 8 - Goodwill and Acquired Intangible Assets The following table presents changes in the carrying amount of goodwill: For the Year Ended December 31, (In thousands) 2022 2021 2020 Beginning of year $ 252,154 $ 221,176 $ 205,286 Changes from business combinations 228,165 30,978 15,890 Total $ 480,319 $ 252,154 $ 221,176 The Company performs an analysis for goodwill impairment annually in the fourth quarter or more frequently as considered necessary. The Company performed a qualitative goodwill assessment in the fourth quarter of 2022, and concluded that a quantitative goodwill impairment test was not necessary as it was not more likely-than-not that the fair value of the Company’s reporting unit was below the carrying amount. Based on the analyses performed, the Company concluded that goodwill was not impaired during the periods presented. 106 Acquired intangible assets primarily consist of core deposit intangibles (“CDI”), which are intangible assets arising from the purchase of deposits separately or from bank acquisitions. The change in balance for CDI is as follows: For the Year Ended December 31, (In thousands) 2022 2021 2020 Beginning of year $ 12,998 $ 14,577 $ 18,305 Acquired CDI, including measurement period adjustments 67,388 3,454 2,129 Amortization expense ( 9,101 ) ( 5,033 ) ( 5,857 ) End of year $ 71,285 $ 12,998 $ 14,577 (In months) Remaining average amortization period for CDI 49 39 44 The gross carrying amount and accumulated amortization of the Company's CDI subject to amortization as of: December 31, 2022 December 31, 2021 (In thousands) Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Core deposit intangible $ 97,778 $ ( 26,493 ) $ 41,596 $ ( 28,598 ) The annual amortization expense for the Company's CDI for each of the five years subsequent to December 31, 2022 is $ 17.7 million, $ 13.4 million, $ 11.3 million, $ 9.4 million and $ 7.7 million, respectively. Certain customer relationships were acquired through the acquisition of Drummond and its insurance agency subsidiary. The value assigned to these relationships, $ 2.6 million, is being amortized on a straight line basis over 10 years. The carrying value of servicing rights retained from the sale of the guaranteed portion of Small Business Administration (“SBA”) loans totaled $ 1.7 million and $ 1.8 million at December 31, 2022 and December 31, 2021, respectively. Note 9 - Borrowings A significant portion of the Company's short-term borrowings were comprised of securities sold under agreements to repurchase with overnight maturities: For the Year Ended December 31, (In thousands) 2022 2021 2020 Maximum amount outstanding at any month end $ 172,029 $ 124,101 $ 119,609 Weighted average interest rate at end of year 1.89 % 0.12 % 0.16 % Average amount outstanding $ 121,318 $ 113,881 $ 84,514 Weighted average interest rate during the year 0.81 % 0.12 % 0.33 % Securities sold under agreements to repurchase are accounted for as secured borrowings. For securities sold under agreements to repurchase, the Company would be obligated to provide additional collateral in the event of a significant decline in fair value of collateral pledged. Company securities pledged were as follows by collateral type and maturity as of: December 31, (In thousands) 2022 2021 2020 Fair value of pledged securities - overnight and continuous: Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities $ 184,967 $ 134,577 $ 137,268 At December 31, 2022, the Company had available secured lines of credit of $ 2.4 billion, of which $ 150.0 million was outstanding from the Federal Home Loan Bank ("FHLB") at December 31, 2022. During 2022, the average interest rate on FHLB borrowings was 3.22 % and the weighted average interest rate on balances outstanding at December 31, 2022 was 3.42 %. 107 The following table summarizes the Company's junior subordinated debentures and related trust preferred and common equity securities as of December 31, 2022: (In thousands) Description Issuance Date Acquisition Date 1 Maturity Date Junior Subordinated Debt Trust Preferred Securities Common Equity Securities Contractual Interest Rate Interest Rate at December 31, 2022 SBCF Capital Trust I 3/31/2005 n/a 3/31/2035 $ 20,619 $ 20,000 $ 619 3 month LIBOR + 175 bps 6.50 % SBCF Statutory Trust II 12/16/2005 n/a 12/16/2035 20,619 20,000 619 3 month LIBOR + 133 bps 6.10 % SBCF Statutory Trust III 6/29/2007 n/a 6/15/2037 12,372 12,000 372 3 month LIBOR + 135 bps 6.12 % The BANKshares, Inc. Statutory Trust I 12/19/2002 10/1/2014 12/26/2032 5,155 5,000 155 3 month LIBOR + 325 bps 7.97 % The BANKshares, Inc. Statutory Trust II 3/17/2004 10/1/2014 3/17/2034 4,124 4,000 124 3 month LIBOR + 279 bps 7.53 % The BANKshares, Inc. Capital Trust I 12/15/2005 10/1/2014 12/15/2035 5,155 5,000 155 3 month LIBOR + 139 bps 6.08 % Grand Bank Capital Trust I 10/29/2004 7/17/2015 10/29/2034 7,217 7,000 217 3 month LIBOR + 198 bps 6.71 % $ 75,261 $ 73,000 $ 2,261 1 Acquired junior subordinated debentures were recorded at their acquisition date fair values, which collectively was $ 5.6 million lower than face value; this amount is being amortized into interest expense over the remaining term to maturity. Interest on the trust preferred securities is calculated on the basis of 3-month LIBOR plus spread and is re-set quarterly. The trust preferred securities may be redeemed without penalty, upon approval of the Federal Reserve or upon occurrence of certain events affecting their tax or regulatory capital treatment. The proceeds of the offering of trust preferred securities and common equity securities were used by SBCF Capital Trust I and SBCF Statutory Trust II to purchase the $ 41.2 million junior subordinated deferrable interest notes issued by the Company, and by SBCF Statutory Trust III to purchase the $ 12.4 million junior subordinated deferrable interest notes issued by the Company, all of which have terms substantially similar to the trust preferred securities. The Company has the right to defer payments of interest on the notes at any time or from time to time at the Company's election. Interest can be deferred for a period not longer than five years. If the Company elects to defer interest, it may not, with certain exceptions, declare or pay any dividends or distributions on its capital stock or purchase or acquire any of its capital stock. As of December 31, 2022, 2021 and 2020, all interest payments on trust preferred securities were current. Distributions on the trust preferred securities are payable quarterly. The Company has entered into agreements to guarantee the payments of distributions on the trust preferred securities and payments of redemption of the trust preferred securities. Under these agreements, the Company also agrees, on a subordinated basis, to pay expenses and liabilities of the Trusts other than those arising under the trust preferred securities. The obligations of the Company under the junior subordinated notes, the trust agreement establishing the Trusts, the guarantees and agreements as to expenses and liabilities, in aggregate, constitute a full and conditional guarantee by the Company of the Trusts' obligations under the trust preferred securities. On October 7, 2022, the Company obtained $ 12.3 million in subordinated debt through the acquisition of Apollo Bancshares, Inc. Contractual interest is paid on a semiannual basis on April 30 and October 30 of each year at a fixed 5.50 % until April 30, 2025, at which point the rate converts to a floating rate of 3-month SOFR plus 533 basis points. The subordinated debt matures on October 30, 2030. As part of the acquisition, the Company recorded a fair value adjustment of $ 0.4 million, which is being amortized into interest expense over the remaining term. Note 10 - Employee Benefits and Stock Compensation 108 The Company’s defined contribution plan covers substantially all employees after one year of service and includes a matching benefit for employees who can elect to defer a portion of their compensation. In addition, amounts of compensation contributed by employees are matched on a percentage basis under the plan. The Company's contributions to this plan charged to operations were $ 3.5 million in 2022, $ 3.1 million in 2021, and $ 2.8 million in 2020. The Company, through its Compensation and Governance Committee of the board of directors (the “Compensation Committee”), offers equity compensation to employees and non-employee directors of Seacoast and Seacoast Bank in the form of various share-based awards, including stock options, restricted stock awards (“RSAs”), or restricted stock units (“RSUs”). The awards may vest over time, have certain performance based criteria, or both. Stock options are granted with an exercise price at least equal to the market price of the Company’s stock at the date of grant. The fair value of options granted is estimated on the date of grant using the Black-Scholes option-pricing model. Compensation cost is amortized on a straight-line basis over the vesting period. Vesting is determined by the Compensation Committee at the time of grant, generally over five years . The options have a maximum term of ten years . The fair value of RSAs and RSUs are estimated based on the price of the Company’s common stock on the date of grant. Compensation cost is measured straight-line for RSAs and ratably for RSUs over the vesting period of the awards and reversed for awards that are forfeited due to unfulfilled service or performance criteria. To the extent the Company has treasury shares available, stock options exercised or stock grants awarded may be issued from treasury shares. If treasury shares are insufficient, the Company can issue new shares. Vesting of share-based awards is immediately accelerated on death or disability of the recipient. The Compensation Committee may, at its discretion, accelerate vesting upon retirement or upon the event of a change-in-control. Awards are currently granted under the Seacoast 2021 Incentive Plan (“2021 Plan”), which shareholders approved on May 26, 2021 with 1,750,000 authorized shares for issuance, plus shares of underlying awards outstanding under the 2013 Incentive Plan (the “Prior Plan”) that thereafter terminate or expire unexercised or are cancelled, forfeited or lapse for any reason under the Prior Plan. The 2021 Plan was modified in August 2021 to authorize 356,497 shares for issuance related to options granted in the acquisition of Legacy Bank of Florida (“Legacy Bank”). The 2021 Plan was further modified in January 2022 to authorize 52,432 shares and 188,253 shares, respectively, for issuance related to options granted in the acquisitions of Business Bank of Florida, Corp. ("BBFC") and Sabal Palm Bancorp, Inc. ("Sabal Palm"). In October 2022, the 2021 Plan was further modified to authorize 274,373 shares for issuance related to options and warrants granted in the acquisition of Apollo Bancshares, Inc. ("Apollo"). The 2021 Plan expires on May 26, 2031. Upon adoption of the 2021 Plan, no further awards were granted under the Prior Plan, which remains in effect only so long as awards granted thereunder remain outstanding. In 2021, as part of the Legacy Bank acquisition, 356,497 options were granted to replace outstanding Legacy Bank options. These options had a weighted average exercise price of $ 16.70 and were fully vested upon acquisition. In accordance with ASC Topic 805, Business Combinations , the value of the replacement awards associated with pre-combination service, $ 4.7 million, was considered purchase consideration, and the value of the replacement awards associated with post-combination service, $ 0.9 million, was recognized as compensation expense in 2021. In 2022, as part of the acquisitions of BBFC, Sabal Palm and Apollo, 52,432 , 188,253 and 274,373 options, respectively, were granted to replace outstanding options. These options had weighted average exercise prices of $ 26.63 , $ 17.84 and $ 9.94 , respectively, and were fully vested upon acquisition. Additionally, as part of the acquisition of Apollo, 37,240 warrants were granted to replace outstanding Apollo warrants. These warrants had a weighted average exercise price of $ 9.94 and were fully vested upon acquisition. The full value of the options and warrants issued through acquisitions in 2022, $ 10.4 million, was considered purchase consideration. The impact of share-based compensation on the Company’s financial results is presented below: For the Year Ended December 31, (In thousands) 2022 2021 2020 Share-based compensation expense 1 $ 11,155 $ 8,685 $ 7,304 Income tax benefit ( 2,827 ) ( 2,067 ) ( 1,737 ) 1 Excludes $ 10.4 million in 2022 and $ 4.7 million in 2021 associated with replacement awards granted in bank acquisitions. The total unrecognized compensation cost and the weighted-average period over which unrecognized compensation cost is expected to be recognized related to non-vested share-based compensation arrangements at December 31, 2022 is presented below: 109 (In thousands) Unrecognized Compensation Cost Weighted-Average Period Remaining (Years) Restricted stock awards $ 11,834 1.80 Restricted stock units 3,977 1.98 Stock options — — Total $ 15,811 1.85 Restricted Stock Awards RSAs are granted to various employees and vest over time, generally three years . Compensation cost of RSAs is based on the market value of the Company’s common stock at the date of grant and is recognized over the required service period on a straight-line basis. The Company’s accounting policy is to recognize forfeitures as they occur. A summary of the status of the Company’s non-vested RSAs as of December 31, 2022, and changes during the year then ended, is presented below: Restricted Award Shares Weighted-Average Grant-Date Fair Value Non-vested at January 1, 2022 398,704 $ 26.68 Granted 422,745 33.08 Forfeited/Canceled ( 34,387 ) 29.88 Vested ( 253,787 ) 27.28 Non-vested at December 31, 2022 533,275 $ 31.26 Information regarding restricted stock awards during each of the following years is presented below: For the Year Ended December 31, 2022 2021 2020 Shares granted 422,745 218,695 379,869 Weighted-average grant date fair value $ 33.08 $ 35.08 $ 18.36 Fair value of awards vested 1 $ 6,923 $ 4,731 $ 3,745 1 Based on grant date fair value, in thousands. Restricted Stock Units RSUs allow the grantee to earn 0 %- 225 % of the target award based on the Company's achievement of performance goals relating to average annual earnings per share growth and average annual return on average tangible equity relative to a group of peer companies, each measured over a three year period beginning with the year of grant. A summary of the status of the Company’s non-vested RSUs as of December 31, 2022, and changes during the year then ended, is presented below: Restricted Award Shares Weighted-Average Grant-Date Fair Value Non-vested at January 1, 2022 285,221 $ 26.71 Granted 121,025 34.11 Forfeited/Canceled ( 20,824 ) 26.29 Vested ( 75,388 ) 30.57 Non-vested at December 31, 2022 310,034 $ 28.69 110 Information regarding restricted stock units during each of the following years is presented below: For the Year Ended December 31, 2022 2021 2020 Shares granted 121,025 103,073 171,287 Weighted-average grant date fair value $ 34.11 $ 35.24 $ 17.29 Fair value of awards vested 1 $ 2,305 $ 1,936 $ 2,962 1 Based on grant date fair value, in thousands. Stock Options The fair value of options and warrants granted is estimated on the date of grant using the Black-Scholes options-pricing model. In 2022 and 2021, 552,298 and 356,497 , respectively, of options to purchase shares of Seacoast stock were granted to optionholders of acquired entities in accordance with the terms of the merger agreements. The Company issued no stock options in 2020. For the Year Ended December 31, 2022 2021 2020 Risk-free interest rates 2.21 % 0.12 % n/a Expected dividend yield 1.95 % 1.65 % n/a Expected volatility 32.09 % 36.87 % n/a Expected lives (years) 1.0 1.0 n/a A summary of the Company’s stock options as of December 31, 2022, and changes during the year then ended, is presented below: Options Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (000s) Outstanding at January 1, 2022 810,180 $ 22.02 Granted 553,803 14.28 Exercised ( 522,126 ) 13.05 Forfeited ( 4,235 ) 30.16 Outstanding at December 31, 2022 837,622 $ 21.72 3.25 $ 7,936 Exercisable at December 31, 2022 837,622 $ 21.72 3.25 $ 7,936 The following table presents information related to stock options during each of the following years: For the Year Ended December 31, 2022 2021 2020 Options granted 553,803 356,497 n/a Weighted-average grant date fair value $ 14.28 $ 16.70 n/a Intrinsic value of stock options exercised, in thousands 8,860 5,808 830 The following table presents information related to stock options as of December 31, 2022: Range of Exercise Prices Options Outstanding Remaining Contractual Life (Years) Options Exercisable Weighted Average Exercise Price $ 5.88 to $ 14.82 323,241 1.40 323,241 $ 11.83 $ 15.80 to $ 28.69 332,939 4.19 332,939 26.19 $ 29.38 to $ 35.78 181,442 4.83 181,442 31.15 Total 837,622 3.25 837,622 $ 21.72 111 Employee Stock Purchase Plan The Employee Stock Purchase Plan (“ESPP”), as amended, was approved by shareholders on April 25, 1989, and additional shares were authorized for issuance by shareholders in 2009, 2013, and 2021. Under the ESPP, the Company is authorized to issue up to 800,000 common shares of the Company’s common stock to eligible employees of the Company. These shares may be purchased by employees at a price equal to 95 % of the fair market value of the shares on the purchase date. Employee contributions to the ESPP are made through payroll deductions. 2022 2021 2020 ESPP shares purchased 20,972 14,834 19,713 Weighted-average employee purchase price $ 30.76 $ 32.43 $ 20.68 Note 11 - Lease Commitments The Company is the lessee in various noncancellable operating leases for land, buildings, and equipment. Certain leases contain provisions for variable lease payments that are linked to the consumer price index. Lease cost consists of: For the Year Ended December 31, (In thousands) 2022 2021 2020 Operating lease cost $ 8,111 $ 5,872 $ 5,738 Variable lease cost 1,599 996 1,325 Short-term lease cost 427 564 497 Sublease income ( 704 ) ( 601 ) ( 684 ) Total lease cost $ 9,433 $ 6,831 $ 6,876 The following table provides supplemental information related to leases: As of and For the Year Ended December 31, (In thousands, except for weighted average data) 2022 2021 Operating lease right-of-use assets $ 47,500 $ 35,256 Operating lease liabilities 50,770 38,330 Cash paid during the year for amounts included in the measurement of operating lease liabilities 16,508 11,117 Right-of-use assets recorded during the year in exchange for new or renewed operating lease obligations 5,305 12,459 Right-of-use assets obtained during the year through bank acquisition 14,597 2,606 Weighted average remaining lease term for operating leases 8.0 years 8.3 years Weighted average discount rate for operating leases 4.64 % 4.25 % The Company’s lease agreements often include one or more options to renew at the Company’s discretion. If, at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company includes the extended term in the calculation of the lease liability. Maturities of lease liabilities as of December 31, 2022 are as follows: 112 (In thousands) 2023 $ 8,880 2024 8,646 2025 8,035 2026 7,045 2027 6,355 Thereafter 21,205 Total undiscounted cash flows 60,166 Less: Net present value adjustment ( 9,396 ) Total $ 50,770 Note 12 - Income Taxes The provision for income taxes is as follows: For the Year Ended December 31, (In thousands) 2022 2021 2020 Current Federal $ 2,770 $ 23,661 $ 21,688 State ( 1,266 ) 3,882 4,471 Deferred Federal 23,710 6,800 ( 2,697 ) State 6,415 ( 8 ) ( 644 ) $ 31,629 $ 34,335 $ 22,818 The difference between the total expected tax expense (computed by applying the U.S. Federal tax rate of 21% to pretax income) and the reported income tax provision relating to income before income taxes is as follows: For the Year Ended December 31, (In thousands) 2022 2021 2020 Tax rate applied to income before income taxes $ 29,009 $ 33,335 $ 21,122 Increase (decrease) resulting from the effects of: Tax law change — — ( 375 ) Nondeductible acquisition costs 924 419 199 Tax exempt interest on loans, obligations of states and political subdivisions and bank owned life insurance ( 1,341 ) ( 1,276 ) ( 1,110 ) State income taxes ( 1,081 ) ( 813 ) ( 804 ) Tax credit investments ( 406 ) ( 213 ) ( 72 ) Stock compensation ( 992 ) ( 1,239 ) ( 111 ) Executive compensation disallowance 402 253 — Other ( 36 ) ( 5 ) 142 Federal tax provision 26,479 30,461 18,991 State tax provision 5,150 3,874 3,827 Total income tax provision $ 31,629 $ 34,335 $ 22,818 113 Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The following is a summary of the significant components of the Company's deferred tax assets and liabilities as of: December 31, (In thousands) 2022 2021 Allowance for credit losses $ 31,097 $ 22,686 Other real estate owned 591 52 Accrued stock compensation 2,931 2,323 Federal tax loss carryforward 3,150 2,138 State tax loss carryforward 1,117 1,226 Lease liabilities 12,868 9,399 Net unrealized securities losses 59,392 2,287 Deferred compensation 2,766 3,276 Accrued interest and fee income 16,035 — Other 1,755 477 Gross deferred tax assets 131,702 43,864 Less: Valuation allowance — — Deferred tax assets net of valuation allowance 131,702 43,864 Core deposit base intangible ( 18,767 ) ( 3,134 ) Accrued interest and fee income — ( 1,660 ) Premises and equipment ( 2,214 ) ( 776 ) Right of use assets ( 12,039 ) ( 8,645 ) Other ( 4,225 ) ( 2,328 ) Gross deferred tax liabilities ( 37,245 ) ( 16,543 ) Net deferred tax assets $ 94,457 $ 27,321 Included in the table above is the effect of temporary differences associated with the Company's investments in debt securities accounted for under ASC Topic 320, for which no deferred tax expense or benefit was recognized. These items are recorded as Accumulated Other Comprehensive Income in the shareholders' equity section of the consolidated balance sheet. In 2022, unrealized losses of $ 247.4 million resulted in a deferred tax asset of $ 59.4 million. In 2021, unrealized losses of $ 9.3 million resulted in a deferred tax asset of $ 2.3 million. At December 31, 2022, the Company's net deferred tax assets (“DTAs”) of $ 94.5 million consisted of $ 76.8 million of net U.S. federal DTAs and $ 17.7 million of net state DTAs. At December 31, 2021, the Company's net DTAs of $ 27.3 million consisted of $ 20.8 million of U.S. federal DTAs and $ 6.5 million of net state DTAs. Management assesses the necessity of a valuation allowance recorded against DTAs at each reporting period. The determination of whether a valuation allowance for net DTAs is appropriate is subject to considerable judgment and requires an evaluation of all positive and negative evidence. Based on an assessment of all of the evidence, including favorable trending in asset quality and certainty regarding the amount of future taxable income that the Company forecasts, management concluded that it was more likely than not that its net DTAs will be realized based upon future taxable income. Management's confidence in the realization of projected future taxable income is based upon analysis of the Company's risk profile and its trending financial performance, including credit quality. The Company believes it can reasonably predict future results of operations that result in taxable income at sufficient levels over the future period of time that the Company has available to realize its net DTA. A valuation allowance could be required in future periods based on the assessment of positive and negative evidence. Management's conclusion at December 31, 2022 that it is more likely than not that the net DTAs of $ 94.5 million will be realized is based upon estimates of future taxable income that are supported by internal projections which consider historical performance, various internal estimates and assumptions, as well as certain external data, all of which management believes to be reasonable although inherently subject to judgment. If actual results differ significantly from the current estimates of future taxable income, even if caused by adverse macro-economic conditions, a valuation allowance may need to be recorded for some 114 or all of the Company's DTAs. The establishment of a DTA valuation allowance could have a material adverse effect on the Company's financial condition and results of operations. Management expects to realize the $ 94.5 million in net DTAs well in advance of the statutory carryforward period. At December 31, 2022, approximately $ 3.1 million of DTAs related to federal net operating losses which will expire in annual installments beginning in 2029 through 2032. Additionally, $ 1.1 million of the DTAs related to state net operating losses which will expire in annual installments beginning in 2029 through 2034. Remaining DTAs are not related to net operating losses or credits and therefore, have no expiration date. The Company recognizes interest and penalties, as appropriate, as part of the provisioning for income taxes. No interest or penalties were accrued at December 31, 2022. In accordance with ASC Topic 718, Compensation – Stock Compensation, the Company recognized $ 1.1 million, $ 0.9 million and $ 0.1 million in 2022, 2021, and 2020, respectively, of discrete tax benefits related to share-based compensation. In accordance with ASC Topic 323, Investments-Equity Method and Joint Ventures, amortization of the Company's low-income housing credit investments of $ 2.5 million, $ 1.6 million and $ 0.9 million was reflected as income tax expense for the years ended December 31, 2022, 2021, and 2020, respectively. The amounts of affordable housing tax credits, amortization and tax benefits recorded as income tax expense for the year ended December 31, 2022 were $ 2.0 million, $ 2.5 million, and $ 1.0 million, respectively. The amounts of affordable housing tax credits, amortization and tax benefits recorded as income tax expense for the year ended December 31, 2021 were $ 1.2 million, $ 1.6 million and $ 0.7 million, respectively, and for the year ended December 31, 2020 were $ 0.8 million, $ 0.9 million and $ 0.2 million, respectively. The carrying value of the affordable housing credit investments was $ 27.3 million and $ 30.1 million at December 31, 2022 and 2021, respectively, of which $ 17.6 million and $ 23.2 million, respectively, was unfunded. The Company has no unrecognized income tax benefits or provisions due to uncertain income tax positions. No federal or state income tax return examinations are currently in process. The Company does not expect to record or realize any material unrecognized tax benefits during 2022. The following are the major tax jurisdictions in which the Company operates and the earliest tax year, exclusive of the impact of the net operating loss carryforwards, subject to examination: Jurisdiction Tax Year United States of America 2019 Florida 2019 In September 2019, the State of Florida announced a reduction in the corporate income tax rate from 5.5% to 4.458% for the years 2019, 2020 and 2021. This change resulted in additional income tax expense of $ 1.1 million upon the write down in 2019 of deferred tax assets affected by the change. During 2021, the State of Florida announced a temporary further reduction in the corporate income tax rate from 4.458% to 3.535%, retroactive to the beginning of 2021. The tax rate increased to 5.5% effective January 1, 2022, resulting in a tax benefit of $ 0.8 million which was recognized in 2021 upon the adjustment of the value of deferred tax assets affected by the change. On March 27, 2020, the CARES Act was enacted, and Section 2303(b) of this act provided the Company with an opportunity to carry back net operating losses arising from 2018, 2019 and 2020 to the prior five tax years. Such NOLs were previously valued at the current federal corporate income tax rate of 21%. However, the provisions of the CARES Act provide for NOL carryback claims to be calculated based on a rate of 35%, which was the federal corporate tax rate in effect for many of the carryback years. Consequently, for the year ended December 31, 2020, the Company filed amended tax returns and recorded the resulting benefit reflecting taxes recoverable at the 35% tax rate. This resulted in the recognition in 2020 of an additional $ 0.4 million income tax benefit on the Company's Consolidated Statements of Income. 115 Note 13 - Shareholders’ Equity Required Regulatory Capital The Company is subject to various regulatory capital requirements administered by the Federal banking agencies. Failure to meet the minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by the regulators, which could have a direct material impact on the financial statements. These requirements involve quantitative measures of assets, liabilities and certain off-balance sheet items calculated pursuant to regulatory guidance. The Company's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of total, Tier 1 capital and common equity Tier 1 capital to risk-weighted assets and of Tier 1 capital to average assets, all as defined in the regulations. At December 31, 2022 and 2021, the Company and Seacoast Bank, its wholly-owned banking subsidiary, were both considered “well capitalized” based on the applicable U.S. regulatory capital ratio requirements as reflected in the table below: Minimum to meet “Well Capitalized” Requirements Minimum for Capital Adequacy Purpose 1 (Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio Seacoast Banking Corporation of Florida (Consolidated) At December 31, 2022: Total Risk-Based Capital Ratio (to risk-weighted assets) $ 1,454,168 15.79 % n/a n/a $ 736,709 ≥ 8.00 % Tier 1 Capital Ratio (to risk-weighted assets) 1,361,832 14.79 n/a n/a 552,532 ≥ 6.00 Common Equity Tier 1 Capital Ratio (to risk-weighted assets) 1,277,295 13.87 n/a n/a 414,399 ≥ 4.50 Leverage Ratio (to adjusted average assets) 1,361,832 11.46 n/a n/a 475,134 ≥ 4.00 At December 31, 2021: Total Risk-Based Capital Ratio (to risk-weighted assets) $ 1,200,885 18.21 % n/a n/a $ 527,630 ≥ 8.00 % Tier 1 Capital Ratio (to risk-weighted assets) 1,147,306 17.40 n/a n/a 395,723 ≥ 6.00 Common Equity Tier 1 Capital Ratio (to risk-weighted assets) 1,075,656 16.31 n/a n/a 296,792 ≥ 4.50 Leverage Ratio (to adjusted average assets) 1,147,306 11.68 n/a n/a 392,763 ≥ 4.00 Seacoast National Bank (A Wholly Owned Bank Subsidiary) At December 31, 2022: Total Risk-Based Capital Ratio (to risk-weighted assets) $ 1,330,836 14.47 % $ 919,904 ≥ 10.00 % $ 735,923 ≥ 8.00 % Tier 1 Capital Ratio (to risk-weighted assets) 1,238,500 13.46 735,923 ≥ 8.00 551,942 ≥ 6.00 Common Equity Tier 1 Capital Ratio (to risk-weighted assets) 1,238,496 13.46 597,938 ≥ 6.50 413,957 ≥ 4.50 Leverage Ratio (to adjusted average assets) 1,238,500 10.44 620,398 ≥ 5.00 496,318 ≥ 4.00 At December 31, 2021: Total Risk-Based Capital Ratio (to risk-weighted assets) $ 1,099,439 16.68 % $ 658,819 ≥ 10.00 % $ 527,055 ≥ 8.00 % Tier 1 Capital Ratio (to risk-weighted assets) 1,045,860 15.86 527,055 ≥ 8.00 395,291 ≥ 6.00 Common Equity Tier 1 Capital Ratio (to risk-weighted assets) 1,045,856 15.86 428,232 ≥ 6.50 296,468 ≥ 4.50 Leverage Ratio (to adjusted average assets) 1,045,860 10.65 490,798 ≥ 5.00 392,638 ≥ 4.00 1 Excludes the Basel III capital conservation buffer of 2.5 %, which if not exceeded may constrain dividends, equity repurchases and compensation. n/a - not applicable. Common Stock The Company has reserved 800,000 common shares for issuance in connection with an employee stock purchase plan and 1,750,000 common shares for issuance in connection with an employee stock-based incentive plan. Holders of common stock are entitled to one vote per share on all matters presented to shareholders as provided in the Company’s Articles of Incorporation. 116 The Company's Board of Directors has authorized the Company to repurchase up to $ 100 million of its shares of outstanding common stock. The amount and timing of repurchases, if any, will be based on a variety of factors, including share acquisition price, regulatory limitations, market conditions and other factors. The Company has made no repurchases under the program. Note 14 - Seacoast Banking Corporation of Florida (Parent Company Only) Financial Information Balance Sheets December 31, (In thousands) 2022 2021 Assets Cash $ 58 $ 57 Securities purchased under agreement to resell with subsidiary bank, maturing within 30 days 111,698 98,398 Investment in subsidiaries 1,578,786 1,286,478 Other assets 2,335 1,140 $ 1,692,877 $ 1,386,073 Liabilities and Shareholders' Equity Subordinated debt $ 84,533 $ 71,646 Other liabilities 673 3,795 Shareholders' equity 1,607,671 1,310,632 $ 1,692,877 $ 1,386,073 Statements of Income Year Ended December 31, (In thousands) 2022 2021 2020 Income Interest/other $ 897 $ 167 $ 270 Dividends from subsidiary Bank 48,424 47,684 20,230 Total income 49,321 47,851 20,500 Interest expense 3,090 1,683 2,236 Other expenses 1,023 765 838 Total expenses 4,113 2,448 3,074 Income before income taxes and equity in undistributed income of subsidiaries 45,208 45,403 17,426 Income tax benefit ( 675 ) ( 481 ) ( 589 ) Income before equity in undistributed income of subsidiaries 45,883 45,884 18,015 Equity in undistributed income of subsidiaries 60,624 78,519 59,749 Net income $ 106,507 $ 124,403 $ 77,764 117 Statements of Cash Flows Year Ended December 31, (In thousands) 2022 2021 2020 Cash flows from operating activities Adjustments to reconcile net income to net cash provided by operating activities: Net Income $ 106,507 $ 124,403 $ 77,764 Equity in undistributed income of subsidiaries ( 60,624 ) ( 78,519 ) ( 59,749 ) Net (increase) decrease in other assets ( 13,823 ) ( 489 ) 1,772 Net increase in other liabilities 499 400 256 Net cash provided by operating activities 32,559 45,795 20,043 Cash flows from investing activities Net cash from bank acquisitions 17,610 — ( 1,462 ) Net advances with subsidiary ( 13,300 ) ( 28,324 ) ( 17,095 ) Net cash provided by (used in) investment activities 4,310 ( 28,324 ) ( 18,557 ) Cash flows from financing activities Dividends paid ( 41,242 ) ( 22,506 ) — Stock based employment benefit plans 4,374 5,022 ( 1,486 ) Net cash used in financing activities ( 36,868 ) ( 17,484 ) ( 1,486 ) Net change in cash 1 ( 13 ) — Cash at beginning of year 57 70 70 Cash at end of year $ 58 $ 57 $ 70 Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 2,890 $ 1,441 $ 1,992 Note 15 - Contingent Liabilities and Commitments with Off-Balance Sheet Risk 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. The Company's subsidiary bank is party to financial instruments with off balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit, and limited partner equity commitments. The subsidiary bank’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contract or notional amount of those instruments. The subsidiary bank uses the same credit policies in making commitments and standby letters of credit as they do for on balance sheet instruments. 118 Unfunded commitments for the Company as of: December 31, (In thousands) 2022 2021 Contract or Notional Amount Financial instruments whose contract amounts represent credit risk: Commitments to extend credit $ 2,814,924 $ 1,980,338 Standby letters of credit and financial guarantees written: Secured 19,744 12,091 Unsecured 3,191 1,189 Unfunded limited partner equity commitment 26,761 36,393 Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Commitments include home equity lines, commercial and consumer lines of credit and construction loans. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The subsidiary bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the bank upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, equipment, and commercial and residential real estate. Standby letters of credit are conditional commitments issued by the subsidiary bank to guarantee the performance of a customer to a third party. These instruments have fixed termination dates and most end without being drawn; therefore, they do not represent a significant liquidity risk. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The subsidiary bank holds collateral supporting these commitments for which collateral is deemed necessary. Collateral held for secured standby letters of credit at December 31, 2022 totaled $ 29.9 million. Unfunded limited partner equity commitments at December 31, 2022 totaled $ 26.8 million that the Company has committed to small business investment companies under the SBIC Act to be used to provide capital to small businesses and entities that provide low income housing tax credits. 119 Note 16 - Fair Value 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 securities 1 $ 1,871,742 $ 186 $ 1,871,556 $ — Derivative financial instruments 2 23,142 — 23,142 — Loans held for sale 2 3,151 — 3,151 — Loans 3 8,513 — 1,183 7,330 Other real estate owned 4 2,301 — 2,301 — Equity securities 5 8,220 8,220 — — Financial Liabilities Derivative financial instruments 2 $ 23,142 $ — $ 23,142 $ — At December 31, 2021 Financial Assets Available-for-sale debt securities 1 $ 1,644,319 $ 197 $ 1,644,122 $ — Derivative financial instruments 2 8,312 — 8,312 — Loans held for sale 2 31,791 — 31,791 — Loans 3 8,443 — 1,558 6,885 Other real estate owned 4 13,618 — — 13,618 Equity securities 5 9,316 9,316 — — Financial Liabilities Derivative financial instruments 2 8,022 — 8,022 — 1 See “Note 3 - Securities” for further detail of fair value of individual investment categories. 2 Recurring fair value basis determined using observable market data. 3 See “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. 4 Fair value is measured on a nonrecurring basis in accordance with ASC Topic 360. 5 An 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 120 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. 121 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 securities 1 $ 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 securities 1 $ 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 — 1 See “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. Note 17 - Business Combinations Acquisition of Apollo Bancshares, Inc. On October 7, 2022, the Company completed its acquisition of Apollo Bancshares, Inc. (“Apollo”). Simultaneously, upon completion of the merger of Apollo and the Company, Apollo Bank was merged with and into Seacoast Bank. Prior to the acquisition, Apollo Bank operated five branches in Miami-Dade County. 122 As a result of this acquisition, the Company expects to expand its customer base and leverage operating cost through economies of scale, and positively affect the Company’s operating results. Apollo shareholders received 1.006529 shares of Seacoast common stock for each share of Apollo common stock, and the minority interest holders in Apollo Bank received 1.195651 shares of Seacoast common stock for each share of Apollo Bank common stock. (In thousands, except per share data) October 7, 2022 Number of Apollo common shares outstanding 3,766 Per share exchange ratio 1.0065 Number of shares of SBCF common stock issued 3,791 Number of Apollo Bank minority interest shares outstanding 609 Per share exchange ratio 1.1957 Number of shares of SBCF common stock issued 728 Total number of shares of SBCF common stock issued 4,519 Multiplied by common stock price per share at October 7, 2022 $ 30.83 Value of SBCF common stock issued $ 139,307 Cash paid for fractional shares 5 Fair value of Apollo options and warrants converted 6,530 Total purchase price $ 145,842 The acquisition of Apollo was accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations . The Company recognized goodwill of $ 90.2 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. As part of the acquisition of Apollo, options and warrants were granted to replace outstanding Apollo awards. These awards were fully vested upon acquisition. The full value of the replacement awards, $ 6.5 million, was associated with pre-combination service and was therefore included in the calculation of the total purchase consideration. 123 (In thousands) Measured October 7, 2022 Assets: Cash and cash equivalents $ 41,001 Investment securities 203,596 Loans 666,522 Bank premises and equipment 7,809 Core deposit intangibles 28,699 Goodwill 90,237 Other Assets 52,724 Total Assets $ 1,090,588 Liabilities: Deposits $ 854,774 Other Liabilities 89,972 Total Liabilities $ 944,746 The table below presents information with respect to the fair value and unpaid principal balance of acquired loans at the acquisition date. October 7, 2022 (In thousands) Book Balance Fair Value Loans: Construction and land development $ 74,126 $ 70,654 Commercial real estate - owner-occupied 131,093 121,600 Commercial real estate - non owner-occupied 374,673 340,561 Residential real estate 76,254 75,957 Commercial and financial 49,756 46,326 Consumer 11,307 11,055 PPP loans 369 369 Total acquired loans $ 717,578 $ 666,522 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) October 7, 2022 Book balance of loans at acquisition $ 107,744 Allowance for credit losses at acquisition ( 2,658 ) Non-credit related discount ( 14,191 ) Total PCD loans acquired $ 90,895 The acquisition of Apollo resulted in the addition of $ 7.8 million in allowance for credit losses, including the $ 2.7 million identified in the table above for PCD loans, and $ 5.1 million for non-PCD loans recorded through the provision for credit losses at the date of acquisition. The Company believes the deposits assumed in the acquisition have an intangible value. In determining the valuation amount, deposits were analyzed based on factors such as type of deposit, deposit retention, interest rates and age of deposit relationships. 124 Acquisition of Drummond Banking Company. On October 7, 2022, the Company completed its acquisition of Drummond Banking Company (“Drummond”). Simultaneously, upon completion of the merger of Drummond and the Company, Drummond’s wholly owned subsidiary bank, Drummond Community Bank, was merged with and into Seacoast Bank. Prior to the acquisition, Drummond Community Bank operated 18 branches across North Florida. As a result of this acquisition, the Company expects to expand its customer base and leverage operating cost through economies of scale, and positively affect the Company’s operating results.The Company acquired 100 % of the outstanding common stock of Drummond. Under the terms of the definitive agreement, common stock was converted into the right to receive 51.9561 shares of Seacoast common stock. (In thousands, except per share data) October 7, 2022 Number of Drummond common shares outstanding 99 Per share exchange ratio 51.9561 Number of shares of SBCF common stock issued 5,136 Multiplied by common stock price per share at October 7, 2022 $ 30.83 Total purchase price $ 158,332 125 The acquisition of Drummond was accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations . The Company recognized goodwill of $ 103.5 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. (In thousands) Measured October 7, 2022 Assets: Cash and cash equivalents $ 31,805 Investment securities 327,852 Loans 544,694 Bank premises and equipment 29,370 Core deposit and other intangibles 32,983 Goodwill 103,476 Other Assets 49,812 Total Assets $ 1,119,992 Liabilities: Deposits $ 881,281 Other Liabilities 80,379 Total Liabilities $ 961,660 The table below presents information with respect to the fair value and unpaid principal balance of acquired loans at the acquisition date. October 7, 2022 (In thousands) Book Balance Fair Value Loans: Construction and land development $ 155,041 $ 140,401 Commercial real estate - owner-occupied 112,768 106,152 Commercial real estate - non owner-occupied 26,520 24,744 Residential real estate 85,767 78,663 Commercial and financial 88,026 82,067 Consumer 118,880 112,667 Total acquired loans $ 587,002 $ 544,694 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) October 7, 2022 Book balance of loans at acquisition $ 58,878 Allowance for credit losses at acquisition ( 2,566 ) Non-credit related discount ( 4,607 ) Total PCD loans acquired $ 51,705 126 The acquisition of Drummond resulted in the addition of $ 12.5 million in allowance for credit losses, including the $ 2.6 million identified in the table above for PCD loans, and $ 9.9 million for non-PCD loans recorded through the provision for credit losses at the date of acquisition. The Company believes the deposits assumed in the acquisition have an intangible value. In determining the valuation amount, deposits were analyzed based on factors such as type of deposit, deposit retention, interest rates and age of deposit relationships. Acquisition of Business Bank of Florida, Corp. On January 3, 2022, the Company completed its acquisition of Business Bank of Florida, Corp., (“BBFC”). Simultaneously, upon completion of the merger of BBFC and the Company, BBFC’s wholly owned subsidiary bank, Florida Business Bank, was merged with and into Seacoast Bank. Prior to the acquisition, Florida Business Bank operated one branch in Melbourne, Florida. As a result of this acquisition, the Company expects to expand its customer base and leverage operating cost through economies of scale, and positively affect the Company’s operating results. The Company acquired 100 % of the outstanding common stock of BBFC. Under the terms of the definitive agreement, each share of BBFC common stock was converted into the right to receive 0.7997 of a share of Seacoast common stock. (In thousands, except per share data) January 3, 2022 Number of BBFC common shares outstanding 1,112 Per share exchange ratio 0.7997 Number of shares of SBCF common stock issued 889 Multiplied by common stock price per share on January 3, 2022 $ 35.39 Value of SBCF common stock issued $ 31,480 Fair value of BBFC options converted 497 Total purchase price $ 31,977 The acquisition of BBFC was accounted for under the acquisition method in accordance with ASC Topic 805, Business Combinations . The Company recognized goodwill of $ 8.0 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. As part of the BBFC acquisition, options were granted to replace outstanding BBFC options. These options were fully vested upon acquisition.The full value of the replacement options, $ 0.5 million, was associated with pre-combination service and was therefore included in the calculation of the total purchase consideration. (In thousands) Measured January 3, 2022 Assets: Cash $ 38,332 Investment securities 26,011 Loans 121,774 Bank premises and equipment 2,102 Core deposit intangibles 2,621 Goodwill 7,962 Total assets $ 198,802 Liabilities: Deposits 166,326 Other liabilities 499 Total liabilities $ 166,825 127 The table below presents information with respect to the fair value and unpaid principal balance of acquired loans at the acquisition date. January 3, 2022 (In thousands) Book Balance Fair Value Loans: Construction and land development $ 8,677 $ 8,414 Commercial real estate - owner-occupied 45,403 44,564 Commercial real estate - non owner-occupied 53,065 52,034 Residential real estate 5,377 5,421 Commercial and financial 9,376 9,321 Consumer 59 61 PPP loans 1,959 1,959 Total acquired loans $ 123,916 $ 121,774 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) January 3, 2022 Book balance of loans at acquisition $ 714 Allowance for credit losses at acquisition ( 15 ) Non-credit related discount ( 48 ) Total PCD loans acquired $ 651 The acquisition of BBFC resulted in the addition of $ 1.8 million in allowance for credit losses, including the $ 15 thousand identified in the table above for PCD loans, and $ 1.8 million for non-PCD loans recorded through the provision for credit losses at the date of acquisition. 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 Sabal Palm Bancorp, Inc. On January 3, 2022, the Company completed its acquisition of Sabal Palm Bancorp, Inc. (“Sabal Palm”). Simultaneously, upon completion of the merger of Sabal Palm and the Company, Sabal Palm’s wholly owned subsidiary bank, Sabal Palm Bank, was merged with and into Seacoast Bank. Prior to the acquisition, Sabal Palm Bank operated three branches in the Sarasota area. As a result of this acquisition, the Company expects to expand its customer base and leverage operating cost through economies of scale, and positively affect the Company’s operating results. The Company acquired 100 % of the outstanding common stock of Sabal Palm. Under the terms of the definitive agreement, each share of Sabal Palm common stock was converted into the right to receive 0.2203 of a share of Seacoast common stock. (In thousands, except per share data) January 3, 2022 Number of Sabal Palm common shares outstanding 7,536 Per share exchange ratio 0.2203 Number of shares of SBCF common stock issued 1,660 Multiplied by common stock price per share on January 3, 2022 $ 35.39 Value of SBCF common stock issued $ 58,762 Fair value of Sabal Palm options converted 3,336 Total purchase price $ 62,098 The acquisition of Sabal Palm was accounted for under the acquisition method in accordance with ASC Topic 805, Business Combinations . The Company recognized goodwill of $ 26.5 million for this acquisition that is nondeductible for tax purposes. 128 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. As part of the Sabal Palm acquisition, options were granted to replace outstanding Sabal Palm options. These options were fully vested upon acquisition. The full value of the replacement options, $ 3.3 million, was associated with pre-combination service and was therefore included in the calculation of the total purchase consideration. (In thousands) Measured January 3, 2022 Assets: Cash $ 170,609 Time deposits with other banks 6,473 Loans 246,152 Bank premises and equipment 1,745 Core deposit intangibles 5,587 Goodwill 26,489 Other assets 5,189 Total assets $ 462,244 Liabilities: Deposits 395,952 Other liabilities 4,194 Total liabilities $ 400,146 The table below presents information with respect to the fair value and unpaid principal balance of acquired loans at the acquisition date. January 3, 2022 (In thousands) Book Balance Fair Value Loans: Construction and land development $ 9,256 $ 9,009 Commercial real estate - owner-occupied 57,690 56,591 Commercial real estate - non owner-occupied 89,153 87,280 Residential real estate 71,469 72,227 Commercial and financial 17,797 17,501 Consumer 233 232 PPP loans 3,312 3,312 Total acquired loans $ 248,910 $ 246,152 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) January 3, 2022 Book balance of loans at acquisition $ 3,703 Allowance for credit losses at acquisition ( 37 ) Non-credit related discount ( 663 ) Total PCD loans acquired $ 3,003 129 The acquisition of Sabal Palm resulted in the addition of $ 3.4 million in allowance for credit losses, including the $ 37 thousand identified in the table above for PCD loans, and $ 3.4 million for non-PCD loans recorded through the provision for credit losses at the date of acquisition. The Company believes the deposits assumed in the acquisition have an intangible value. In determining the valuation amount, deposits were analyzed based on factors such as type of deposit, deposit retention, interest rates and age of deposit relationships. Acquisition of Legacy Bank of Florida On August 6, 2021, the Company completed its acquisition of Legacy Bank of Florida (“Legacy Bank”). Prior to the acquisition, Legacy Bank operated five branches in Broward and Palm Beach counties. As a result of this acquisition, the Company expects to expand its customer base and leverage operating cost through economies of scale, and positively affect the Company’s operating results. The Company acquired 100 % of the outstanding common stock of Legacy Bank. Under the terms of the definitive agreement, each share of Legacy Bank common stock was converted into the right to receive 0.1703 share of Seacoast common stock. (In thousands, except per share data) August 6, 2021 Number of Legacy Bank common shares outstanding 15,778 Per share exchange ratio 0.1703 Number of shares of SBCF common stock issued 2,687 Multiplied by common stock price per share on August 6, 2021 $ 32.19 Value of SBCF common stock issued $ 86,487 Cash paid for fractional shares 7 Fair value of Legacy Bank options converted 4,736 Total purchase price $ 91,230 The acquisition of Legacy Bank was accounted for under the acquisition method in accordance with ASC Topic 805, Business Combinations . The Company recognized goodwill of $ 31.0 million for this acquisition that is nondeductible for tax purposes. Determining fair values of assets and liabilities, especially the loan portfolio, core deposit intangibles, and deferred taxes, is a complicated process involving significant judgment regarding methods and assumptions used to calculate estimated fair values. As part of the Legacy Bank acquisition, options were granted to replace outstanding Legacy Bank options. These options were fully vested upon acquisition. In accordance with ASC Topic 805, Business Combinations , the value of the replacement awards associated with pre-combination service, $ 4.7 million, was considered purchase consideration, and the value of the replacement awards associated with post-combination service, $ 0.9 million, was recognized as compensation expense in 2021. (In thousands) Measured August 6, 2021 Assets: Cash $ 98,107 Investment securities 992 Loans 477,215 Bank premises and equipment 2,577 Core deposit intangibles 3,454 Goodwill 30,978 Other assets 15,532 Total assets $ 628,855 Liabilities: Deposits 494,921 Other liabilities 42,705 Total liabilities $ 537,626 130 The table below presents information with respect to the fair value and unpaid principal balance of acquired loans at the acquisition date. August 6, 2021 (In thousands) Book Balance Fair Value Loans: Construction and land development $ 37,558 $ 36,651 Commercial real estate - owner-occupied 35,765 35,363 Commercial real estate - non owner-occupied 241,322 237,091 Residential real estate 71,118 70,541 Commercial and financial 61,274 58,324 Consumer 647 647 PPP loans 38,598 38,598 Total acquired loans $ 486,282 $ 477,215 The table below presents the carrying amount of loans for which, at the date of acquisition, there was evidence of more than insignificant deterioration of credit quality since origination: (In thousands) August 6, 2021 Book balance of loans at acquisition $ 66,371 Allowance for credit losses at acquisition ( 3,046 ) Non-credit related discount ( 736 ) Total PCD loans acquired $ 62,589 131 The acquisition of Legacy Bank resulted in the addition of $ 11.2 million in allowance for credit losses, including the $ 3.0 million identified in the table above for PCD loans, and $ 8.2 million for non-PCD loans recorded through the provision for credit losses at the date of acquisition. The Company believes the deposits assumed in the acquisition have an intangible value. In determining the valuation amount, deposits were analyzed based on factors such as type of deposit, deposit retention, interest rates and age of deposit relationships. Acquisition Costs Acquisition costs included in the Company's income statement for the years ended December 31, 2022, 2021 and 2020 were $ 27.9 million, $ 7.9 million and $ 9.1 million, respectively. Pro-Forma Information (unaudited) Pro-forma data as of 2022 and 2021 present information as if the acquisitions of Legacy Bank, BBFC, Sabal Palm, Apollo and Drummond occurred at the beginning of 2021. The pro-forma information is presented for illustrative purposes only and is not necessarily indicative of the results of operations that would have occurred if the transactions had been effected on the assumed dates. Twelve Months Ended December 31, (In thousands, except per share data) 2022 2021 Net interest income $ 448,139 $ 406,482 Net income available to common shareholders 161,274 191,862 EPS - basic 2.53 2.68 EPS - diluted 2.51 2.67 2023 Acquisition Acquisition of Professional Holding Corp. On January 31, 2023, the Company completed its acquisition of Professional Holding Corp. (“Professional”). The transaction further expands the Company’s presence in the tri-county South Florida market, which includes Miami-Dade, Broward, and Palm Beach counties, Florida’s largest MSA and the 8 th largest in the nation. Professional operated nine branches across South Florida with deposits of approximately $ 2.2 billion and loans of approximately $ 2.1 billion as of December 31, 2022. The Company acquired 100 % of the outstanding common stock of Professional. Under the terms of the merger agreement, Professional shareholders received 0.8909 shares of Seacoast common stock for each share of Professional common stock held immediately prior to the merger, and Professional option holders received options to purchase Seacoast common stock, with the number of shares underlying each such option and the applicable exercise price adjusted using the same 0.8909 exchange ratio. The acquisition of Professional will be accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations . The Company’s calculation of the purchase price, including the value of Professional options converted, and the Company’s assessment of the fair value of assets acquired and liabilities assumed as of the acquisition date is incomplete at the time of this filing; therefore, certain disclosures have been omitted. The Company expects to recognize goodwill in this transaction, which is expected to be nondeductible for tax purposes. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.