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Item 1A. Risk Factors

2023-03-01 compared with 2022-02-28 · 82 added, 123 removed, 300 unchanged (41% of the section changed)

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Please refer to the section in this Form 10-K entitled “Special Cautionary Notice Regarding Forward-Looking Statements” for additional information regarding forward-looking statements.

COVID-19 Pandemic-Related Risks

The COVID-19 pandemic has and may continue to adversely impact our business and financial results, and the ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.

The COVID-19 pandemic has and may continue creating extensive disruptions to the global economy and to the lives of individuals throughout the world.

The pandemic and related efforts to contain it have disrupted global economic activity, adversely affected the functioning of financial markets, impacted interest rates, increased economic and market uncertainty, and disrupted trade, supply chains, and the labor market.

During the past two years, governments, businesses, and the public are taking unprecedented actions to contain the spread of the COVID-19 pandemic and to mitigate its effects, including quarantines, travel bans, shelter-in-place orders, closures of businesses and schools, fiscal stimulus, and legislation designed to deliver monetary aid and other relief.

At present, most restrictions on movement have been lifted and widely available vaccines

have proved to be effective in preventing serious illness and death from the novel coronavirus;

however, the emergence of new variants of the virus have impeded the ability to fully resolve the public health risk and, as such, disruption of typical social and economic conditions persists.

The scope, duration, and full effects of the COVID-19 pandemic are not fully known.

If these effects continue for a prolonged period or result in sustained economic stress, recession or depression, they could have a material adverse impact on us in a number of ways related to credit, collateral, customer demand, funding, operations, interest rate risk, and human capital, as described in more detail below.

Our risks of timely loan repayment and the value of collateral supporting the loans are affected by the strength of our borrowers' businesses.

The continuation of the COVID-19 public health crisis has caused and may continue to cause constraint on commercial activity and financial transactions.

At present, labor shortages and supply chain interruptions continue to present obstacles to economic recovery and have contributed to inflationary conditions.

These conditions have and are expected to continue to result in overall economic and financial market instability and affect businesses' profitability and individual purchasing power, all of which may cause our customers to be unable to make scheduled loan payments.

The future effects of the COVID-19 pandemic on economic activity could negatively affect the collateral values associated with our existing loans, the ability to liquidate the real estate collateral securing our residential and commercial real estate loans, our ability to maintain loan origination volume and to obtain additional financing, the future demand for or profitability of our lending and services, and the financial condition and credit risk of our customers.

Further, in the event of delinquencies, regulatory changes and policies designed to protect borrowers may slow or prevent us from making our business decisions or may result in a delay in our taking certain remediation actions, such as foreclosure.

If the effects of the COVID-19 pandemic result in widespread and sustained repayment shortfalls on loans in our portfolio, we could incur significant delinquencies, foreclosures and credit losses, particularly if the available collateral is insufficient to cover our exposure.

In the event our allowance for credit losses is insufficient to cover such losses, our earnings, capital and liquidity could be adversely affected.

In an effort to support our communities during the COVID-19 pandemic, we participated in the Paycheck Protection Program (“PPP”) under the CARES Act whereby loans to small businesses are originated.

These loans require forbearance of loan payments for a specified time and also limit our ability to pursue all available remedies in the event of a loan default.

If the borrower under the PPP loan fails to qualify for loan forgiveness, if the terms of the program change, or if the SBA determines there is a deficiency in the manner in which any PPP loans were originated, funded or serviced by the Company, we may be subject to repayment risk as well as the heightened risk of holding these loans at unfavorable interest rates as compared to loans to customers that we would have otherwise extended credit.

Strategic Risk .

Our financial condition and results of operations may be affected by a variety of external factors that may affect the price or marketability of our products and services, changes in interest rates that may increase our funding costs, reduced demand for our financial products due to economic conditions and the various responses of governmental and nongovernmental authorities to economic instability.

The COVID-19 pandemic has significantly increased economic and demand uncertainty, contributed to labor shortages, and has led to severe disruptions and volatility in the global capital markets, which may impact our ability to effect our strategic priorities, including strategies relating to organic growth and bank acquisitions.

Furthermore, many of the governmental actions in response to the COVID-19 pandemic were directed toward curtailing household and business activity to contain the COVID-19 pandemic, including actions to temporarily close or restrict the operations of certain businesses, and these restrictions could recur if there are future increases in the spread of the virus.

Operational Risk .

We rely on business processes and branch activity that largely depend on people and technology, including access to information technology systems as well as information, applications, payment systems and other services provided by third parties.

In response to the COVID-19 pandemic, we have modified our business practices with a portion of our employees working remotely to ensure that our operations continue uninterrupted as much as possible.

Nonetheless, technology in employees’ homes may not be as robust as in our offices and could cause the networks, information systems, applications, and other tools available to employees to be more limited or less reliable than in our offices.

The continuation of these work-from-home measures also introduces additional operational risk, including increased cybersecurity risk.

These cyber risks include the risks of greater phishing, malware, and other cybersecurity attacks, vulnerability to disruptions of our information technology infrastructure and telecommunications systems for remote operations, increased risk of unauthorized dissemination of confidential information, limited ability to restore the systems in the event of a systems failure or interruption, greater risk of a security breach resulting in destruction or misuse of valuable information, and potential impairment of our ability to perform critical functions, including wiring funds, all of which could expose us to risks of data or financial loss, litigation and liability and could seriously disrupt our operations and the operations of any impacted customers.

Interest Rate Risk .

Our net interest income, lending activities, deposits and profitability have been and may continue to be negatively affected by volatility in interest rates caused by uncertainties stemming from the COVID-19 pandemic.

In March 2020, the Federal Reserve lowered the target range for the federal funds rate to a range from 0 to 0.25 percent, citing concerns about the impact of the COVID-19 pandemic on markets and stress in the energy sector.

A prolonged period of extremely

volatile and unstable market conditions would likely increase our funding costs and negatively affect market risk mitigation strategies.

Further, increasing interest rates can have a negative impact on our business by reducing the amount of money our customers borrow or by adversely affecting their ability to repay outstanding loan balances that may increase due to adjustments in their variable rates.

In addition, in a rising interest rate environment we may have to offer more attractive interest rates to depositors to compete for deposits, or pursue other sources of liquidity, such as wholesale funds.

Higher income volatility from changes in interest rates and spreads to benchmark indices could cause a loss of future net interest income and a decrease in current fair market values of our assets.

Fluctuations in interest rates, or a prolonged period of low interest rates will impact both the level of income and expense recorded on most of our assets and liabilities and the market value of all interest-earning assets and interest-bearing liabilities, which in turn could have a material adverse effect on our net income, operating results, or financial condition.

Because there have been no comparable recent global pandemics that resulted in similar global impact, we do not yet know the full extent and long-term impact of the COVID-19 pandemic’s effects on our business, operations, or the global economy as a whole.

Any future developments will be highly uncertain and cannot be predicted, including the scope and duration of the COVID-19 pandemic, the effectiveness of our work from home arrangements, third party providers’ ability to support our operation, and any actions taken by governmental authorities and other third parties in response to the COVID-19 pandemic.

The uncertain future development of this crisis has and could continue to materially and adversely affect our business, operations, operating results, financial condition, liquidity or capital levels.

Regulatory and Litigation Risk .

Legal and regulatory responses to concerns about the COVID-19 pandemic could result in additional regulation or restrictions affecting the conduct of our business in the future.

Furthermore, since the inception of the PPP, several banks have been subject to litigation regarding the process and procedures that such banks used in processing applications for the PPP and claims related to agent fees.

In addition, some banks have received negative media attention associated with PPP loans.

The Company and the Bank are exposed to similar litigation risk and negative media attention risk, from both customers and non-customers that approached the Bank regarding PPP loans, regarding its process and procedures used in processing applications for the PPP, or litigation from agents with respect to agent fees.

If any such litigation is filed against the Company or the Bank and is not resolved in a manner favorable to the Company or the Bank, it may result in significant financial liability or adversely affect the Company’s reputation.

In addition, litigation can be costly, regardless of outcome.

Any financial liability, litigation costs or reputational damage caused by PPP-related litigation or negative media attention could have a material adverse impact on our business, financial condition and results of operations.

The PPP has also attracted interest from federal and state enforcement authorities, oversight agencies, regulators and Congressional committees.

State Attorneys General and other federal and state agencies may assert that they are not subject to the provisions of the CARES Act and the PPP regulations entitling the Bank to rely on borrower certifications, and they may take more aggressive actions against the Bank for alleged violations of the provisions governing the Bank’s participation in the PPP.

Federal and state regulators can impose or request that we consent to substantial sanctions, restrictions and requirements if they determine there are violations of laws, rules or regulations or weaknesses or failures with respect to general standards of safety and soundness, which could adversely affect our business, reputation, results of operation and financial condition.

Lending goals may not be attainable.

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Deterioration in the real estate markets, including the secondary market for residential mortgage loans, can adversely affect us.

A correction in residential real estate market prices or reduced levels of home sales, could result in lower single family home values, adversely affecting the liquidity and value of collateral securing commercial loans for residential land acquisition, construction and development, as well as residential mortgage loans and residential property collateral securing loans that we hold, mortgage loan originations and gains on the sale of mortgage loans.

A decline in residential real estate market prices or reduced levels of home sales, could result in lower single family home values, adversely affecting the liquidity and value of collateral securing commercial loans for residential land acquisition, construction and development, as well as residential mortgage loans and residential property collateral securing loans that we hold, mortgage loan originations and gains on the sale of mortgage loans.

Declining real estate prices cause higher delinquencies and losses on certain mortgage loans, generally, and particularly on second lien mortgages and home equity lines of credit.

Significant ongoing disruptions in the secondary market for residential mortgage loans can limit the market for and liquidity of most residential mortgage loans other than conforming Fannie Mae and Freddie Mac loans.

Deteriorating trends could occur, including declines in real estate values, home sales volumes, financial stress on borrowers as a result of job losses or other factors.

Deteriorating trends could occur, including declines in real estate values, financial stress on borrowers as a result of job losses or other factors.

These could have adverse effects on borrowers that result in higher delinquencies and greater charge-offs in future periods, which would adversely affect our financial condition, including capital and liquidity, or results of operations.

the event our allowance for credit losses on loans is insufficient to cover such losses, our earnings, capital and liquidity could be adversely affected.

In the event our allowance for credit losses on loans is insufficient to cover such losses, our earnings, capital and liquidity could be adversely affected.

Our real estate portfolios are exposed if weakness in the Florida housing market or general economy arises.

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Declines in home prices and the volume of home sales in Florida, along with the reduced availability of certain types of mortgage credit, can result in increases in delinquencies and losses in our portfolios of home equity lines and loans, and commercial loans related to residential real estate acquisition, construction and development.

Declines in home prices coupled with high or increased unemployment levels or increased interest rates can cause losses which adversely affect our earnings and financial condition, including our capital and liquidity.

Declines in home prices coupled with high or increased unemployment levels

or increased interest rates can cause losses which adversely affect our earnings and financial condition, including our capital and liquidity.

We are subject to lending concentration risk.

Our loan portfolio contains several industry and collateral concentrations including, but not limited to, commercial and residential real estate.

Due to the exposure in these concentrations, disruptions in markets, economic conditions, including those resulting from the global response to the COVID-19 pandemic, changes in laws or regulations or other events could cause a significant impact on the ability of borrowers to repay and may have a material adverse effect on our business, financial condition and results of operations.

Due to the exposure in these concentrations, disruptions in markets, economic conditions, changes in laws or regulations or other events could cause a significant impact on the ability of borrowers to repay and may have a material adverse effect on our business, financial condition and results of operations.

A substantial portion of our loan portfolio is secured by real estate.

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As of December 31, 2022, 50% of our loan portfolio was comprised of loans secured by commercial real estate.

The banking regulators continue to give CRE lending greater scrutiny, and banks with higher levels of CRE loans are expected to implement improved underwriting, internal controls, risk management policies and portfolio stress testing, as well as higher levels of allowances for possible losses and capital levels as a result of CRE lending growth and exposures.

The banking regulators continue to give CRE lending greater scrutiny, and banks with higher levels of CRE loans are expected to implement improved underwriting, internal controls, risk management policies and portfolio stress testing, as well as higher levels of allowances for expected losses and capital levels as a result of CRE lending growth and exposures.

Seacoast Bank has a CRE concentration risk management program and monitors its exposure to CRE;

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Our nonperforming assets adversely affect our net income in various ways.

We generally do not record interest income on nonaccrual loans or OREO, thereby adversely affecting our income, and increasing our loan administration costs.

We generally do not record interest income on nonaccrual loans, thereby adversely affecting our income, and increasing our loan administration costs.

When the only source of repayment expected is the underlying collateral, we are required to mark the related loan to the then fair market value of the collateral, if less than the recorded amount of our investment, which may result in a loss.

These loans and OREO also increase our risk profile and the capital our regulators believe is appropriate in light of such risks.

These loans also increase our risk profile and the capital our regulators believe is appropriate in light of such risks.

We may incur additional losses relating to an increase in nonperforming loans.

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In addition, the resolution of nonperforming assets requires significant commitments of time from management and our personnel, which can be detrimental to the performance of their other responsibilities.

no assurance that we will not experience increases in nonperforming loans in the future, or that nonperforming assets will not result in losses in the future.

There can be no assurance that we will not experience increases in nonperforming loans in the future, or that nonperforming assets will not result in losses in the future.

Our allowance for credit losses on loans may prove inadequate or we may be adversely affected by credit risk exposures.

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The determination of the appropriate level of the allowance for credit losses involves a high degree of subjectivity and judgment and requires us to make significant estimates of current credit risks and future trends, all of which may undergo material changes.

We cannot be certain that our allowance will be adequate over time to cover credit losses in our portfolio because of unanticipated adverse changes in the economy, market conditions or events adversely affecting specific customers, industries or markets, or borrowers repaying their loans.

markets, or borrowers repaying their loans.

Generally speaking, the credit quality of our borrowers can deteriorate as a result of economic downturns in our markets.

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Increases in interest rates can have a material impact on the volume of mortgage originations and re-financings, adversely affecting the profitability of our mortgage finance business.

Higher market interest rates and increased competition for deposits may result in higher interest expense, as we may offer higher rates to attract or retain customer deposits.

Increases in interest rates also may increase the amount of interest expense we pay to creditors on short and long-term debt.

Interest rate risk can also result from mismatches between the dollar amounts of re-pricing or maturing assets and liabilities and from mismatches in the timing and rates at which our assets and liabilities re-price.

Changes in market values of investment securities classified as available for sale are impacted by higher rates and can negatively impact our other comprehensive income and equity levels through accumulated other comprehensive income, which includes net unrealized gains and losses on those securities.

Further, such losses could be realized into earnings should liquidity and/or business strategy necessitate the sales of securities in a loss position.

We actively monitor and manage the balances of our maturing and re-pricing assets and liabilities to reduce the adverse impact of changes in interest rates, but there can be no assurance that we will be able to avoid material adverse effects on our net interest margin in all market conditions.

There can be no assurance that we will not be materially adversely affected in the future if economic activity increases and interest rates rise, which may result in our interest expense increasing, and our net interest margin decreasing, if we must offer interest on demand deposits to attract or retain customer deposits .

The Federal Reserve has implemented significant economic strategies that have impacted interest rates, inflation, asset values, and the shape of the yield curve, over which the Company has no control and which the Company may not be able to adequately anticipate.

In recent years, in response to the recession in 2008 and the following uneven recovery, the Federal Reserve implemented a series of domestic monetary initiatives.

Several of these have emphasized so-called quantitative easing strategies, the most recent of which ended during 2014.

Since then the Federal Reserve raised rates nine times during 2015-2018, and reduced rates five times during 2019-2020.

Further rate changes reportedly are dependent on the Federal Reserve’s assessment of economic data as it becomes available;

however, in December 2021, the Federal Reserve released projections related to the target range for the federal funds rate that imply, while there can be no such assurance that any increases in the federal funds rate will occur, three 25 basis point increases in the federal funds rate in 2022, followed by three in 2023 and two in 2024.

cannot predict the nature or timing of future changes in monetary, economic, or other policies or the effect that they may have on the Company's business activities, financial condition and results of operations.

Interest rates increased significantly in 2022 as the Federal Reserve attempted to slow economic growth and counteract rising inflation.

Further changes in interest rates and monetary policy reportedly are dependent upon the Federal Reserve’s assessment of economic data as it becomes available, though the rising interest rate environment is expected to continue in 2023.

Inflationary pressures are currently expected to remain elevated in 2023.

Inflation could lead to increased costs to our customers, making it more difficult for them to repay their loans or other obligations, increasing our credit risk.

The Federal Reserve may maintain higher interest rates to counteract persistent inflationary price pressures, which could push down asset prices and weaken economic activity.

A deterioration in economic conditions in the United States and our markets could result in an increase in loan delinquencies and non-performing assets, decreases in loan collateral values and a decrease in demand for our products and services, all of which, in turn, would adversely affect our business, financial condition and results of operations.

The Company cannot predict the nature of timing of future changes in monetary, economic, or other policies, or the effect that changes will have on the Company’s business activities, financial condition and results of operations.

Our cost of funds may increase as a result of general economic conditions, FDIC insurance assessments, interest rates and competitive pressures.

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Generally, we believe local deposits are a cheaper and more stable source of funds than other borrowings because interest rates paid for local deposits are typically lower than interest rates charged for borrowings from other institutional lenders and reflect a mix of transaction and time deposits, whereas brokered deposits typically are higher cost time deposits.

Our costs of funds and our profitability and liquidity are likely to be adversely affected if, and to the extent, we have to rely upon higher cost borrowings from other institutional lenders or brokers to fund loan demand or liquidity needs, and changes in our deposit mix and growth could adversely affect our profitability and the ability to expand our loan portfolio.

Our costs of funds and our profitability and liquidity are likely to be adversely affected if, and to the extent, we have to rely upon higher cost

borrowings from other institutional lenders or brokers to fund loan demand or liquidity needs, and changes in our deposit mix, pricing, and growth could adversely affect our profitability and the ability to expand our loan portfolio.

The discontinuation of the London Interbank Offered Rate ( “ LIBOR ” ), and the identification and use of alternative replacement reference rates, could adversely affect our revenue, expenses, and the value of the Company's financial instruments, and may subject the Company to litigation risk.

In 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, publicly announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021.

On November 30, 2020, the Intercontinental Exchange Benchmark Administration, which is the administrator of LIBOR, announced its intention to cease the publication of most U.S.

dollar (“USD”) LIBOR settings immediately following the LIBOR publication on June 30, 2023, extending the previously indicated timeline for the discontinuation of the widely used one-month, three-month, and other USD LIBOR benchmarks.

In 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, publicly announced its intention to stop persuading or compelling banks to submit LIBOR rates after 2021.The publication of most U.S.

dollar LIBOR settings will cease immediately following the LIBOR publication on June 30, 2023.

In the United States, the Alternative Reference Rate Committee (“ARRC”), a group of market participants including large U.S.

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Treasury securities, and is based on directly observable U.S.-Treasury-backed repurchased transactions.

On July 29, 2021, ARCC formally recommended SOFR as its preferred alternative replacement rate for LIBOR.

At this time, it is not possible to predict how markets will respond to SOFR or other alternative reference rates as the transition away from LIBOR is anticipated to be gradual over the coming years.

In December 2022, the Board of Governors of the Federal Reserve System adopted a final rule that implements the Adjustable Interest Rate (LIBOR) Act, enacted by Congress to provide a uniform, nationwide solution for contracts that do not have clear and practicable provisions for replacing LIBOR by identifying replacement benchmark rates based on SOFR.

The consequences of these developments with respect to LIBOR cannot be entirely predicted, and these reforms may cause benchmark rates to perform differently than in the past or have other consequences, which could adversely affect the value of our floating rate obligations, loans, derivatives, and other financial instruments tied to LIBOR rates.

The Company's LIBOR transition steering committee is responsible for overseeing the execution of the Company's enterprise-wide LIBOR transition program, and for evaluating and mitigating the risks associated with the transition from LIBOR.

The LIBOR transition program includes a comprehensive review of the financial products, agreements, contracts and business processes that may use LIBOR as a reference rate, and the development and execution of a strategy to transition away from LIBOR, with appropriate consideration of the potential financial, customer, counterparty, regulatory and legal impacts.

As of December 31, 2021, the Company has ceased issuance of new LIBOR loans, and has approximately $250 million in existing loans for which the repricing index is tied to LIBOR.

The Company's LIBOR transition program includes the development and execution of a strategy to transition away from LIBOR, with appropriate consideration of the potential financial, customer, counterparty, regulatory and legal impacts.

The Company ceased issuance of new LIBOR loans in 2021, and as of December 31, 2022, had approximately $244 million in existing loans for which the repricing index is tied to LIBOR.

The Company's swap agreements and other derivatives are governed by the International Swap Dealers Association (“ISDA”).

ISDA has developed fallback language for swap agreements and has established a protocol to allow counterparties to modify legacy trades to include the new fallback language.

The Company also invests in securities and has issued subordinated debt tied to LIBOR.

The Company continues to monitor regulatory and legislative activity with regard to these products to identify and execute necessary actions to facilitate the transition to alternative reference rates.

The Company also invests in securities and has issued subordinated debt tied to LIBOR, which are expected to transition to SOFR-based rates after June 30, 2023 under the LIBOR Act.

The market transition away from LIBOR to an alternative reference rate is complex.

We may incur significant expense in effecting the transition and we may be subject to disputes or litigation with our borrowers or counterparties over the appropriateness or comparability to LIBOR of the replacement reference rates.

The replacement reference rates could also result

in a reduction in our interest income.

The replacement reference rates could also result in a reduction in our interest income.

We may also receive inquiries and other actions from regulators about the Company's preparation and readiness for the replacement of LIBOR with alternative reference rates.

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Although we have historically been able to replace maturing deposits and FHLB advances as necessary, we might not be able to replace such funds in the future and can lose a relatively inexpensive source of funds and increase our funding costs if, among other things, customers move funds out of bank deposits and into alternative investments, such as the stock market, that may be perceived as providing superior expected returns.

Access to liquidity may also be negatively impacted by the value of our securities portfolio, if liquidity and/or business strategy necessitate the sales of securities in a loss position.

Access to liquidity

may also be negatively impacted by the value of our securities portfolio, if liquidity and/or business strategy necessitate the sales of securities in a loss position.

We may be required to seek additional regulatory capital through capital raises at terms that may be very dilutive to existing shareholders.

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Larger competitors may be able to price loans and deposits more aggressively than we can, and have broader customer and geographic bases to draw upon.

In addition, some of our competitors are subject to less regulation and/or more favorable tax treatment.

Consumers may decide not to use banks to complete their financial transactions, which could adversely affect our net income.

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Transactions utilizing digital assets, including cryptocurrencies, stablecoins and other similar assets, have increased substantially.

Certain characteristics of digital asset transactions, such as the speed with which such transactions can be

conducted, the ability to transact without the involvement of regulated intermediaries, the ability to engage in transactions across multiple jurisdictions, and the anonymous nature of the transactions, are appealing to certain consumers notwithstanding the various risks posed by such transactions.

Accordingly, digital asset service providers which, at present are not subject to the extensive regulation as banking organizations and other financial institutions, have become active competitors for our customers' banking business.

Certain characteristics of digital asset transactions, such as the speed with which such transactions can be conducted, the ability to transact without the involvement of regulated intermediaries, the ability to engage in transactions across multiple jurisdictions, and the anonymous nature of the transactions, are appealing to certain consumers notwithstanding the various risks posed by such transactions.

Accordingly, digital asset service providers which, at present are not subject to the extensive regulation to which banking organizations and other financial institutions are subject, have become active competitors for our customers' banking business.

The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits.

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In addition, the widespread adoption of new technologies, including internet banking services, mobile banking services, cryptocurrencies and payment systems, could require substantial expenditures to modify or adapt our existing products and services as we grow and develop our internet banking and mobile banking channel strategies in addition to remote connectivity solutions.

We might not be successful in developing or introducing new products and services, integrating new products or services into our existing offerings, responding or adapting to changes in consumer behavior, preferences, spending, investing and/or saving habits, achieving market acceptance of our products and services, reducing costs in response to pressures to deliver products and services at lower prices or sufficiently developing and maintaining loyal customers.

and/or saving habits, achieving market acceptance of our products and services, reducing costs in response to pressures to deliver products and services at lower prices or sufficiently developing and maintaining loyal customers.

Further, we may experience a decrease in customer deposits if customers perceive alternative investments, such as the stock market, as providing superior expected returns.

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Further, concerns over the long-term impacts of climate change have led and will continue to lead to governmental efforts around the world to mitigate those impacts.

Federal and state banking regulators and supervisory authorities, investors and other stakeholders have increasingly viewed financial institutions as important in helping to address the risks related to climate change both directly and with respect to their customers, which may result in financial institutions coming under increased press ure regarding the disclosure and management of their climate risks and related lending and investment activities.

Given that climate change could impose systemic risks upon the financial sector, either via disruptions in economic activity resulting from the physical impacts of climate change or changes in policies as the economy transitions to a less carbon-intensive environment, we face regulatory risk of increasing focus on our resilience to climate-related risks, including in the context of stress testing for various climate stress scenarios.

Ongoing legislative or regulatory uncertainties and changes regarding climate risk management and practices may result in higher regulatory, compliance, credit and reputational risks and costs.

Investors, consumers and businesses also may change their behavior on their own as a result of these concerns.

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From time to time, the Financial Accounting Standards Board (the “FASB”) and the SEC change the financial accounting and reporting standards that govern the preparation of our financial statements.

These changes can be hard to predict and can

materially impact how we record and report our financial condition and results of operations.

These changes can be hard to predict and can materially impact how we record and report our financial condition and results of operations.

In some cases, we could be required to apply a new or revised standard retroactively, resulting in a restatement of our prior period financial statements.

On January 1, 2020, we implemented FASB’s Accounting Standards Codification (“ASC”) Topic 326, Financial Instruments - Credit Losses .

This guidance replaced the existing “incurred loss” methodology for financial assets measured at amortized cost, and introduced requirements to estimate current expected credit losses (“CECL”).

Under the incurred loss methodology, credit losses were recognized only when the losses were probable or had been incurred;

under CECL, companies are required to recognize the full amount of expected credit losses for the lifetime of the financial assets, based on historical experience, current conditions and reasonable and supportable forecasts.

This change requires earlier recognition of credit losses that are deemed expected but not yet probable, and we expect will result in higher reserves for credit losses and higher volatility in the quarterly provision for credit losses.

The CECL model also impacts the accounting for bank acquisition activity by requiring the recognition of expected credit losses on acquired loans at the date of acquisition, in addition to the purchase discount, if any.

With the exception of purchased loans with credit deterioration (“PCD”), this day-one recognition of the allowance for credit losses is recorded with an offset to net income.

For PCD loans, the initial estimate of expected credit losses is recognized as an adjustment to the amortized cost basis of the loan at acquisition (i.e., a balance sheet gross-up).

The anti-takeover provisions in our Articles of Incorporation and under Florida law may make it more difficult for takeover attempts that have not been approved by our board of directors.

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These provisions may discourage possible business combinations that a majority of our shareholders may believe to be desirable and beneficial.

As a result, our board of directors may decide not to pursue transactions that would otherwise be in the best interests of holders of our common stock.

result, our board of directors may decide not to pursue transactions that would otherwise be in the best interests of holders of our common stock.

Operational Risk

The implementation of other new lines of business or new products and services may subject us to additional risk.

The implementation of new lines of business or new products and services may subject us to additional risk.

We continuously evaluate our service offerings and may implement new lines of business or offer new products and services within existing lines of business in the future.

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The precautions we take to detect and prevent such misconduct may not always be effective, such misconduct may result in regulatory sanctions and/or penalties, serious harm to our reputation, financial condition, customer relationships or the ability to attract new customers.

In addition, improper use or disclosure of confidential information by our employees, even if inadvertent, could result in serious

harm to our reputation, financial condition and current and future business relationships.

In addition, improper use or disclosure of confidential information by our employees, even if inadvertent, could result in serious harm to our reputation, financial condition and current and future business relationships.

The precautions we take to detect and prevent such misconduct may not always be effective.

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A fraud can be perpetrated by a customer of Seacoast, an employee, a vendor, or members of the general public.

We are subject to fraud risk in connection with the origination of loans, ACH transactions, wire transactions, ATM transactions, checking and other transactions.

We are subject to fraud risk in connection with the origination of loans, ACH transactions, wire transactions, digital payments, ATM transactions, checking and other transactions.

When we originate loans, we rely heavily upon information supplied by loan applicants and third parties, including the information contained in the loan application, property appraisal, title information and employment and income documentation provided by third parties.

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Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations and financial condition.

Failure to achieve and maintain an effective internal control environment could prevent us from accurately reporting our financial results, preventing or detecting fraud or providing timely and reliable financial information pursuant to our reporting obligations, which could result in a material weakness in our internal controls over financial reporting and the restatement of previously filed financial statements and could have a material adverse effect on our business, financial condition and results of operations.

Further, ineffective internal controls could cause our investors to lose confidence in our financial information, which could affect the trading price of our common stock.

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Many of the Company’s competitors invest substantially greater resources in technological improvements than we do.

We may not be able to effectively select, develop or implement new technology-driven

products and services or be successful in marketing these products and services to our customers, which may negatively affect our business, results of operations or financial condition.

We may not be able to effectively select, develop or implement new technology-driven products and services or be successful in marketing these products and services to our customers, which may negatively affect our business, results of operations or financial condition.

The continuation of our modified business practices in response to the COVID-19 pandemic, including having certain employees working remotely, introduces additional operational risk, including increased cybersecurity risk.

Disruptions to our information systems or security breaches could adversely affect our business and reputation.

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To the extent that our activities or the activities of our clients or third-party service providers involve the storage and transmission of confidential information, security breaches and malicious software could expose us to claims, regulatory scrutiny, litigation and other possible liabilities.

While to date we have not experienced a significant compromise, significant data loss or material financial losses related to cyber security attacks, our systems and those of our clients and third-party service providers are under constant threat and it is possible that we could experience a significant event in the future.

While to date we have not

experienced a significant compromise, significant data loss or material financial losses related to cyber security attacks, our systems and those of our clients and third-party service providers are under constant threat and it is possible that we could experience a significant event in the future.

We may suffer material financial losses related to these risks in the future or we may be subject to liability for compromises to our client or third-party service provider systems.

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In our ordinary course of business, we rely on electronic communications and information systems to conduct our businesses and to store sensitive data, including financial information regarding our customers.

The integrity of information systems of financial institutions are under significant threat from cyber-attacks by third parties, including through coordinated attacks sponsored by foreign nations and criminal organizations to disrupt business operations and other compromises to data and

systems for political or criminal purposes.

We employ an in-depth, layered, lines of defense approach that leverages people, processes and technology to manage and maintain cyber security and other information security controls.

Compliance Risk

Regulatory and Litigation Risk

We operate in a heavily regulated environment.

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Banks with greater than $10 billion in total consolidated assets are subject to certain additional regulatory requirements, including limits on the debit card interchange fees that such banks may collect, changes in the manner in which assessments for FDIC deposit insurance are calculated, and providing the authority to the CFPB to supervise and examine such banks.

If Seacoast Bank grows to exceed and sustain assets over $10 billion, which we expect to do in 2022, we will be subject to additional federal regulations, which could materially and adversely affect our business.

We estimate that limits to debit card interchange fees that would take effect July 1, 2023 would reduce the Company's revenue, on an annualized basis after taxes, by approximately $7.7 million.

Seacoast Bank's assets grew to exceed $10 billion, making us subject to additional federal regulations, which could materially and adversely affect our business.

Limits to debit card interchange fees will take effect July 1, 2023 and will reduce the Company's revenue, on an annualized basis after taxes, by approximately $10 million.

Additionally, compliance with the Dodd-Frank Act's requirements may necessitate that we hire or contract with additional compliance or other personnel, design and implement additional internal controls, or incur other significant expenses, any of which could have a material adverse effect on our business, financial condition or results of operations.

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Our failure to remain “well capitalized” for bank regulatory purposes could affect customer confidence, our ability to grow, our costs of funds and FDIC insurance costs, our ability to pay dividends on common stock, make distributions on our trust preferred securities, our ability to make acquisitions, and our business, results of operations and financial condition, generally.

Under FDIC rules, if

Seacoast Bank ceases to be a “well capitalized” institution for bank regulatory purposes, its ability to accept brokered deposits and the interest rates that it pays may both be restricted.

Under FDIC rules, if Seacoast Bank ceases to be a “well capitalized” institution for bank regulatory purposes, its ability to accept brokered deposits and the interest rates that it pays may both be restricted.

Federal banking agencies periodically conduct examinations of our business, including for compliance with laws and regulations, and our failure to comply with any supervisory actions to which we are or become subject as a result of such examinations may adversely affect us.

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Market developments may significantly deplete the insurance fund of the FDIC and reduce the ratio of reserves to insured deposits, thereby making it requisite upon the FDIC to charge higher premiums prospectively.

Additionally, if we grow to and sustain more than $10 billion in total assets, which we expect to do in 2022, the method that the FDIC uses to determine the amount of our deposit insurance premium will change.

Additionally, by having more than $10 billion in total assets at December 31, 2022, the method that the FDIC uses to determine the amount of our deposit insurance premium will change.

Any increases in our assessment rate, future special assessments, or required prepayments in FDIC insurance premiums could reduce our profitability or limit our ability to pursue certain business opportunities, which could have a material adverse effect on our assets, business, cash flow, condition (financial or otherwise), liquidity, prospects or results of operations.

Legal and regulatory responses to concerns about the COVID-19 pandemic could result in litigation, additional regulation or restrictions affecting the conduct of our business in the future.

Since the inception of the Paycheck Protection Program (“PPP), several banks have been subject to litigation regarding the process and procedures that such banks used in processing applications for the PPP and claims related to agent fees.

In addition, some banks have received negative media attention associated with PPP loans.

The Company and the Bank are exposed to similar litigation risk and negative media attention risk, from both customers and non-customers that approached the Bank or

institutions that the Company has acquired regarding PPP loans, regarding its process and procedures used in processing applications for the PPP, or litigation from agents with respect to agent fees.

In addition, litigation can be costly, regardless of outcome.

The PPP has also attracted interest from federal and state enforcement authorities, oversight agencies, regulators and Congressional committees.

Tax law changes and interpretations may have a negative impact on our earnings.

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Acquiring other banks, branches or businesses, as well as other geographic and product expansion activities, involve various risks including:

• risks of unknown or contingent liabilities;

• risk of unknown, undisclosed or contingent liabilities that could arise after the closing of an acquisition and for which there is no indemnification obligation or other price protection mechanism associated with the acquisition;

• unanticipated costs and delays;

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• inaccurate estimates of value assigned to acquired assets;

• litigation risk;

• diversion of our management’s time and attention from our existing operations and businesses.

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There can be no assurance that we will successfully identify appropriate opportunities, that we will be able to negotiate or finance such activities or that such activities, if undertaken, will be successful.

While we have substantial experience in successfully integrating institutions we have acquired, we may encounter difficulties during integration, such as the loss of key employees, the disruption of operations and businesses, loan and deposit attrition, customer loss and revenue loss, possible inconsistencies in standards, control procedures and policies, and unexpected issues with expected branch closures costs, operations, personnel, technology and credit, all of which could divert resources from regular banking operations.

Achieving the anticipated benefits

of these mergers is subject to a number of uncertainties, including whether we integrate these institutions in an efficient and effective manner, governmental actions affecting the financial industry generally, and general competitive factors in the marketplace.

While we have substantial experience in successfully integrating institutions we have acquired, we may encounter difficulties during integration, such as the loss of key employees, the

disruption of operations and businesses, loan and deposit attrition, customer loss and revenue loss, possible inconsistencies in standards, control procedures and policies, and unexpected issues with expected branch closures costs, operations, personnel, technology and credit, all of which could divert resources from regular banking operations.

Achieving the anticipated benefits of these mergers is subject to a number of uncertainties, including whether we integrate these institutions in an efficient and effective manner, governmental actions affecting the financial industry generally, and general competitive factors in the marketplace.

Failure to achieve these anticipated benefits could result in a reduction in the price of our shares as well as in increased costs, decreases in the amount of expected revenues and diversion of management's time and energy and could materially and adversely affect our business, financial condition and results of operations.

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An increase in our non-performing assets and related increases in our provision for credit losses, coupled with a potential decrease in the demand for loans and our other products and services, could negatively affect our business and could have a material adverse effect on our capital, financial condition, results of operations and future growth.

Our customers may also be adversely impacted by changes in regulatory, trade (including tariffs) and tax policies and laws, all of which could reduce demand for loans and adversely impact our borrowers' ability to repay our loans.

In addition, international economic uncertainty could also impact the U.S.

financial markets by potentially suppressing stock prices, including ours, and adding it to overall market volatility, which could adversely affect our business.

Our customers may also be adversely impacted by changes in regulatory, trade (including tariffs), monetary, and tax policies and laws, all of which could reduce demand for loans and adversely impact our borrowers' ability to repay our loans.

government’s decisions regarding its debt ceiling and the possibility that the U.S.

could default on its debt obligations may cause further interest rate increases, disrupt access to capital markets and deepen recessionary conditions.

The COVID-19 pandemic and related response efforts have disrupted global economic activity, adversely affected the functioning of financial markets, impacted interest rates, increased economic and market uncertainty, resulted in inflationary conditions and disrupted trade, supply chains, and the labor market, which may continue to impact our ability to effect our strategic priorities.

In addition, international economic

uncertainty could also impact the U.S.

financial markets by potentially suppressing stock prices, including ours, and adding to overall market volatility, which could adversely affect our business.

The effects of any economic downturn could continue for many years after the downturn is considered to have ended.

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If we are not able to hire, adequately compensate, or retain these key individuals, we may be unable to execute our business strategies and may suffer adverse consequences to our business, financial condition and results of operations.

Recent labor shortages as a result of the COVID-19 pandemic may also restrict our ability to attract and retain personnel.

Unresolved Staff Comments

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors