UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____to_____
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
,
,
(Address of principal executive offices) (zip code)
Registrant’s telephone number, including area code:
)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
☐
☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
☐
☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
☒
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files).
☒
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or
an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
☒
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that
prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in
the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes
☐
☒
The aggregate market value of the voting stock held by non-affiliates of the registrant based on the closing price of $12.83 per share on June 28,
, the last business day of the registrant’s second quarter, was approximately $
such date less shares held by affiliates). Although directors and executive officers and their affiliates of the Registrant were assumed to be
“affiliates” of the Registrant for purposes of the calculation, the classification is not to be interpreted as an admission of such status.
As of February 28, 2025, the registrant had had
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant’s Proxy Statement for the 2025 Annual Meeting of Shareholders (the “2025 Proxy Statement”) are incorporated by
reference into Part III of this report.
FORM 10-K
DECEMBER 31, 2024
TABLE OF CONTENTS
3 USCB Financial Holdings, Inc. 2024 10-K
CAUTIONARY NOTE REGARDING FORWARD -LOOKING STATEMENTS
This Annual Report on Form 10-K contains statements that are not historical in nature are intended to be, and are
hereby identified as, forward-looking statements for purposes of the safe harbor provided by Section 21E of the Securities
Exchange Act of 1934, as amended (“Exchange Act”). The words “may,” “will,” “anticipate,” “could,” “should,” “would,”
“believe,” “contemplate,” “expect,” “aim,” “plan,” “estimate,” “continue,” and “intend,” as well as other similar words and
expressions of the future, are intended to identify forward-looking statements. These forward-looking statements include
statements related to our projected growth, anticipated future financial performance, and management’s long-term
performance goals, as well as statements relating to the anticipated effects on results of operations and financial condition
from expected developments or events, or business and growth strategies, including anticipated internal growth and balance
sheet restructuring.
These forward-looking statements involve significant risks and uncertainties that could cause our actual results to differ
materially from those anticipated in such statements. Potential risks and uncertainties include, but are not limited to:
•
operations;
•
•
reserve and deferred tax asset valuation allowance;
•
•
jurisdiction where we operate;
•
banking industry;
•
•
the on-going effects of the implementation of the Current Expected Credit Losses (“CECL”);
•
of geographic, depositor, and industry concentrations, including our concentration in loans secured by real estate,
in particular, commercial real estate;
•
•
•
•
growth as well as growth through other means, such as future acquisitions;
•
•
•
spread and net interest margin;
•
•
employee, or third-party fraud and cybersecurity breaches; and
•
Exchange Commission (“SEC”).
All forward-looking statements are necessarily only estimates of future results, and there can be no assurance that
actual results will not differ materially from expectations. Therefore, you are cautioned not to place undue reliance on any
forward-looking statements. Further, forward-looking statements included in this Annual Report on Form 10-K are made
only as of the date hereof, and we undertake no obligation to update or revise any forward -looking statement to reflect
events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events,
unless required to do so under the federal securities laws. You should also review the risk factors described in this Annual
Report on Form 10-K and in the reports USCB Financial Holdings, Inc. has filed or will file with the SEC and, for periods
prior to the completion of the bank holding company reorganization in 2021, U.S. Century Bank filed with the Federal Deposit
Insurance Corporation (“FDIC”).
4 USCB Financial Holdings, Inc. 2024 10-K
PART I
Item 1. Business
Overview
USCB Financial Holdings, Inc., a Florida corporation (the “Company”), was formed on December 17, 2021, to serve as
the holding company for U.S. Century Bank, a Florida state-chartered bank, and is a bank holding company (a “BHC”)
registered with the Board of Governors of the Federal Reserve System (the “Federal Reserve”) under the Bank Holding
Company Act of 1956, as amended (the “BHC Act”). The Company is headquartered in Miami, Florida, and, through the
Bank, its sole direct subsidiary, operates 10 banking centers in South Florida providing a wide range of personal and
business banking products and services . As of December 31, 2024, the Company had total consolidated assets of $2.6
billion.
U.S. Century Bank (the “Bank”) commenced operations in October 2002 and is a Florida state-chartered, non-Federal
Reserve System member bank. Over the course of 2021, the Bank simplified its capitalization structure by exchanging
and/or repurchasing all of its issued and outstanding preferred shares, including Class C, Class D, and Class E preferred
stock. In December 2021, the Bank reached agreements with holders of its Class B common stock, to exchange all
outstanding Class B common stock for Class A common stock in a 1-for-5 stock exchange.
On July 27, 2021, the Bank completed an initial public offering of 4,600,000 shares of its Class A common stock. Shares
of the Bank’s Class A common stock were sold at a price to the public of $10.00 per share and began trading on the Nasdaq
Stock Market under ticker symbol “USCB”.
On December 30, 2021 (the “Effective Date”), the Company acquired all of the issued and outstanding stock of the
Bank in a share exchange (the “Reorganization”) effected under the Florida Business Corporation Act and in accordance
with the terms of an Agreement and Plan of Share Exchange dated December 27, 2021 between the Bank and the Company
(the “Share Exchange Agreement”). The Reorganization and the Share Exchange Agreement were approved by the Bank’s
stockholders at a special meeting of the Bank’s stockholders held on December 20, 2021. Pursuant to the Share Exchange
Agreement, on the Effective Date each issued and outstanding share of the Bank’s Class A common stock was converted
into and exchanged for one share of the Company’s Class A common stock. As a result, the Bank became the wholly owned
subsidiary of the Company, the Company became the holding company for the Bank and the stockholders of the Bank
became stockholders of the Company.
Prior to the Effective Date, the Bank’s Class A common stock was registered under Section 12(b) of the Exchange Act,
and the Bank was subject to the information requirements of the Exchange Act and, in accordance with Section 12(i) thereof,
filed quarterly reports, proxy statements and other information with the FDIC. As a result of the Reorganization, pursuant to
Rule 12g-3(a) under the Exchange Act, the Company became the successor registrant to the Bank, the Company’s Class
A common stock was deemed to be registered under Section 12(b) of the Exchange Act, and the Company became subject
to the information requirements of the Exchange Act and is now required to file reports, proxy statements and other
information with the SEC. The trading symbol for the Company’s Class A Common Stock is “USCB”, which is the same as
the Bank’s former trading symbol.
Prior to the Reorganization, the Company had no material assets and had not conducted any business or operations
except for activities related to its incorporation and the Reorganization.
Our strategy in becoming a publicly traded company and forming a BHC was to continue pursuing organic growth as
well as strategic acquisitions if the opportunity arises, which efforts will be further facilitated by access to public capital and
the added flexibility provided by a holding company structure.
In this Annual Report on Form 10-K, unless the context indicated otherwise, references to “we,” “us,”, and “our” refer to
the Company and the Bank, as the context dictates. However, if the discussion relates to a period before the Effective Date,
the terms refer only to the Bank.
Products and Services
Lending Services
Our mission is to provide high value, relationship -based banking products, services and solutions to a diverse set of
clients in the markets we serve. We focus on serving small-to-medium sized businesses (“SMBs”) and catering to the needs
of local business owners, entrepreneurs and professionals in South Florida. We have further leveraged our success in
5 USCB Financial Holdings, Inc. 2024 10-K
providing comprehensive banking solutions to SMBs to also secure the personal retail deposit relationships of the owners,
operators, and employees of our commercial lending clients, which has been a cornerstone of our deposit growth strategy.
In addition to our traditional commercial banking services, we are among a select number of banks of our size within
our market area that can offer certain specialty banking products, services and solutions designed for small businesses,
homeowner associations, law firms, medical practices and other professional services firms, and global banking services.
Our major specialty banking offerings include the following:
•
Small Business Administration (“SBA”) lending:
and 504 of the SBA program. The 7(a) loan program, SBA's most common loan program, includes financial
help for small businesses with special requirements while the 504 loan program provides long-term, fixed rate
financing of up to $5.0 million for major fixed assets that promote business growth and job creation. Since its
formation in 2018, the platform serves as an opportunity to generate commercial and industrial loans, or C&I
loans, and to diversify our revenue stream through originating and selling SBA 7(a) loans. As of December 31,
2024, the Bank continued to be a Preferred Lending Partner with the SBA which allows us to offer the full range
of SBA loan products and to exercise lending authority at the local bank level, allowing us to make timely credit
decisions for prospective clients.
•
Yacht lending:
$750 thousand to $7.5 million. We target high net-worth clients, in one of the most active yacht markets in the
country.
•
Homeowner Association (“HOA”) services:
including deposit collection, lockbox services, payment services, and lending products. Launched in 2016, we
offer our HOA customers a unique combination of market knowledge of a local bank, and a highly personalized
“white glove” approach to customer service.
•
Jurist Advantage and Private Client Group services:
provides customized banking solutions for law firms as well as their partners, associates, staff, and high net
worth clients. We also leverage our relationships with our law firm clients to generate personal deposit accounts.
•
Correspondent Banking services:
banks headquartered in certain Latin America and the Caribbean countries. We also cross-sell our
correspondent banking relationships to generate international personal banking clients for our Bank. Our
compliance team is experienced in issues related to correspondent banking, and we have frequent and regular
open communication with our correspondent bank clients to ensure proper compliance controls are maintained
at such institutions.
•
Medical Advantage:
MD
Advantage was launched in 2024; this vertical provides concierge-level banking
services to physicians, dentists, and veterinarians.
MD
Advantage products and services were designed to cater
to the complex banking requirements of medical professionals.
Credit Practices
Our underwriting process is informed by a conservative credit culture that encourages prudent lending. We believe our
strong asset quality is due to our understanding of and experience with businesses within Florida, in particular South Florida,
our long-standing relationships with clients and our disciplined underwriting processes. Our thorough underwriting
processes collaboratively engage our seasoned business bankers, credit underwriters and portfolio managers in the
analysis of each loan request.
We manage our credit risk by analyzing metrics related to our different lines of business, which allows us to maintain a
conservative and well-diversified loan portfolio reflective of our assessment of various industry sectors. Based upon our
aggregate exposure to any given borrower relationship, we undertake a scaled review of loan originations that may involve
senior credit officers, our Chief Credit Officer, our Credit Committee or, ultimately, our Board of Directors (“Board”).
Deposit Products
We offer traditional deposit products, including commercial and consumer checking accounts, money market deposit
accounts, savings accounts, and certificates of deposit with a variety of terms and rates, as well as a robust suite of treasury,
commercial payments, and cash management services. Additionally, we offer insured cash sweep (“ICS”) and certificate of
deposit account registry service (“CDARS”) deposit products that are FDIC-insured for our clients. Furthermore, we offer
deposit products for municipalities and other public entities. Our deposit products are mainly offered across our primary
geographic footprint.
6 USCB Financial Holdings, Inc. 2024 10-K
Title Services
Florida Peninsula Title LLC is a subsidiary of the Bank that offers our clients title insurance policies for real estate
transactions closed at the Bank. Licensed in the State of Florida and approved by the Florida Department of Insurance
Regulation, Florida Peninsula Title LLC began operations in 2021. Our title service business not only provides diversification
for non-interest income but also provides our clients with access to tile insurance services.
Seasonality
We do not believe our business to be seasonal in nature.
Markets
Our primary banking market is South Florida. South Florida has rapidly emerged as a top destination for financial
institutions, driven by a combination of factors that foster economic growth and stability. The region offers a low-tax
environment, a robust business infrastructure, and access to a diverse talent pool. With a thriving real estate market, strong
international trade connections, and an increasing concentration of tech and finance sectors, South Florida provides a
dynamic ecosystem for financial services. Additionally, the region's strategic location as a gateway to Latin America further
enhances its appeal for corporations looking to strengthen global connectivity and investment opportunities. We believe
Florida offers long-term attractive banking opportunities. Our largest concentration is in the Miami metropolitan statistical
area; however, we are also focused on growth in other urban Florida markets in which we have a presence, such as Broward
and Palm Beach counties.
According to the United States Census Bureau’s estimate, Florida was the third most populous state in the country in
2024 and the three largest population centers were in Miami-Dade, Broward, and Palm Beach counties (all located in South
Florida). According to estimates from the United States Census Bureau, Florida’s population increased to 23.4 million
residents, an increase of 1.8 million new residents or 8.5% from April 2020 to July 2024.
Competition
Our markets are highly competitive, and we compete with a wide range of lenders and other financial institutions within
our markets, including local, regional, national, and international commercial banks and credit unions. We also compete
with mortgage companies, brokerage firms, trust service providers, consumer finance companies, mutual funds, securities
firms, insurance companies, third-party payment processors, financial technology companies, or Fintechs, and other
financial intermediaries on various of our products and services. Some of our competitors are not subject to the regulatory
restrictions and the level of regulatory supervision applicable to us. Many of our competitors are much larger financial
institutions that have greater financial resources than we do and compete aggressively for market share. These competitors
attempt to gain market share through their financial product mix, pricing strategies and larger banking center networks.
Interest rates on both loans and deposits and prices of fee-based services are significant competitive factors among
financial institutions generally. Other important competitive factors include convenience, quality of customer service,
availability and quality of digital offerings, community reputation, and continuity of personnel and services.
Emerging Growth Company
We are an “emerging growth company,” or “EGC”, as defined in the Jumpstart Our Business Startups Act of 2012 (the
“JOBS Act”). As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are
applicable to other public companies that are not EGCs, including, but not limited to, not being required to comply with the
auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding
executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a
non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not
previously approved.
In addition, Section 107 of the JOBS Act also provides that an EGC can take advantage of the extended transition
period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”), for complying with
new or revised accounting standards. In other words, an EGC can delay the adoption of certain accounting standards until
those standards would otherwise apply to private companies. We intend to take advantage of the benefits of this extended
transition period, for as long as it is available.
We will remain an EGC until the earliest to occur of (i) the end of the fiscal year following the fifth anniversary of the
completion of the Bank’s initial public offering in 2021, (ii) the last day of the first fiscal year in which the Company's annual
7 USCB Financial Holdings, Inc. 2024 10-K
gross revenues exceed $1.235 billion, (iii) the date that the Company becomes a “large accelerated filer” as defined in Rule
12b-2 under the Exchange Act which would occur if the market value of the Company's common stock that is held by non-
affiliates exceeds $700 million as of the last business day of the Company’s most recently completed second fiscal quarter
(June 30th for the Company), or (iv) the date on which the Company has issued more than $1 billion in non-convertible debt
during the preceding three-year period.
Human Capital Resources
We respect the values and diversity exhibited throughout our organization and the community. Diversity is an integral
part of our organization’s culture. We seek the active engagement and participation of people with diverse backgrounds.
We are taking steps to create programs to ensure that we are organized in a way where the unique contributions of each
individual in our Company is recognized and supported. Each team member is to be treated fairly with equal access to
opportunities and resources for success. Additionally, we run homebuyer educational and financial literacy workshops in an
effort to reach the financing needs of the sectors of our communities in which these workshops are most needed.
Our human capital objectives include attracting, developing and retaining the best available talent from a diverse pool
of candidates for the Company. To do so, we strive to maintain competitive pay and benefits, regularly updating our
compensation structure and periodically reviewing our compensation and benefits programs. Additionally, the Company
identifies opportunities and paths for the development of our staff, and we seek to, whenever possible, fill positions by
promotion within. The Company recognizes that the skills and knowledge of its employees are critical to the success of the
organization, and promotes training and continuing education as an ongoing function for employees.
We recognize the importance of our employee's financial health and well-being, and offer benefits such as a 401(k)
retirement savings plan and make both matching and profit-sharing contributions to that plan. Benefit programs available to
eligible employees include, in addition to the 401(k) retirement savings plan, health and life insurance, employee paid
holidays and other benefits.
We value and promote diversity in every aspect of our business and at every level within the Company. We recruit, hire,
and promote employees based on their individual ability and experience and in accordance with Affirmative Action and
Equal Employment Opportunity laws and regulations. Our policy is that we do not discriminate on the basis of race, color,
religion, sex, gender, sexual orientation, ancestry, pregnancy, medical condition, age, marital status, national origin,
citizenship status, disability veteran status, gender identity, genetic information, or any other status protected by law.
At December 31, 2024, we had 199 full-time equivalent employees. None of our employees are parties to a collective
bargaining agreement. We believe that our employees are our greatest asset and vital to our success. As such, we seek to
hire and retain the best candidate for each position, without regard to age, gender, ethnicity, or other protected class status,
but with an appreciation for a diversity of perspectives and experiences. We have designed a compensation structure
including an array of benefit plans and programs that we believe is attractive to our current and prospective employees.
Regulation and Supervision
Bank holding companies, banks, and their affiliates are extensively regulated under federal and state law and regulation.
These laws and regulations have a material effect on the operations of USCB Financial Holdings, Inc. and its direct and
indirect subsidiaries, including U.S. Century Bank.
Statutes, regulations and regulatory policies limit the activities in which we may engage and the conduct of our permitted
activities and establish capital requirements with which we must comply. The regulatory framework is intended primarily for
the protection of depositors, borrowers, customers and clients, the FDIC insurance funds and the banking system as a
whole, and not for the protection of our shareholders or creditors. In many cases, the applicable regulatory authorities have
broad enforcement power over bank holding companies, banks and their subsidiaries, including the power to impose
substantial fines and other penalties for violations of laws and regulations.
Further, the regulatory system imposes reporting and information collection obligations. Banking statutes and
regulations are subject to change, and additional statutes, regulations, and corresponding guidance may be adopted. We
are unable to predict these future changes or the effects, if any, that these changes could have on the business, prospects,
revenues, and results of operations of the Bank and Company.
The material statutory and regulatory requirements that are applicable to us are summarized below. The description
below is not intended to summarize all laws and regulations applicable to us. These summary descriptions are not intended
to be a complete explanation of such laws and regulations and their effects on USCB Financial Holdings, Inc. and U.S.
8 USCB Financial Holdings, Inc. 2024 10-K
Century Bank and are qualified in their entirety by reference to the actual laws and regulations. You should refer to the full
text of the statutes, regulations, and corresponding guidance for more information.
2018 Regulatory Reform
In May 2018 the Economic Growth, Regulatory Relief and Consumer Protection Act (the “2018 Act”), was enacted to
modify or remove certain financial reform rules and regulations, including some of those implemented under the Dodd-Frank
Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) enacted in 2010. While the 2018 Act maintains most
of the regulatory structure established by the Dodd-Frank Act, it amends certain aspects of the regulatory framework for
small depository institutions with assets of less than $10.0 billion and for large banks with assets of more than $50.0 billion.
Many of these changes resulted in meaningful regulatory relief for community banks such as U.S. Century Bank.
The 2018 Act, among other matters, expanded the definition of “qualified mortgages” which may be held by a financial
institution and simplified the regulatory capital rules for financial institutions and their holding companies with total
consolidated assets of less than $10.0 billion by instructing (as described below) the federal banking regulators to establish
a single “Community Bank Leverage Ratio” of between 8 and 10 percent to replace the leverage and risk-based regulatory
capital ratios. The 2018 Act also expanded the category of holding companies that may rely on the “Small Bank Holding
Company and Savings and Loan Holding Company Policy Statement” (the “SBHC Policy”) by raising the maximum amount
of assets a qualifying holding company may have from $1.0 billion to $3.0 billion. This expansion also excluded such holding
companies from the minimum capital requirements of the Dodd-Frank Act. In addition, the 2018 Act included regulatory
relief for community banks regarding regulatory examination cycles, call reports, the Volcker Rule (proprietary trading
prohibitions), mortgage disclosures and risk weights for certain high-risk commercial real estate loans.
Bank and Bank Holding Company Regulation
As a Florida-chartered state bank, U.S. Century Bank is subject to ongoing and comprehensive supervision, regulation,
examination, and enforcement by the FDIC and the Florida Office of Financial Regulation (“FOFR”). The FOFR supervises
and regulates all areas of our operations including, without limitation, the making of loans, the issuance of securities, the
conduct of our corporate affairs, the satisfaction of capital adequacy requirements, the payment of dividends, and the
establishment or closing of banking centers. In addition, our deposit accounts are insured by the Deposit Insurance Fund
(the “DIF”) administered by the FDIC to the maximum extent permitted by law, and the FDIC has certain supervisory and
enforcement powers over us.
Any entity that directly or indirectly controls a bank must be approved by the Federal Reserve under the Bank Holding
Company Act of 1956 (the “BHC Act”) to become a bank holding company. Bank holding companies are subject to
regulation, inspection, examination, supervision and enforcement by the Federal Reserve under the BHC Act. The Federal
Reserve's jurisdiction also extends to any company that is directly or indirectly controlled by a bank holding company.
USCB Financial Holdings, Inc., which controls U.S. Century Bank, is a bank holding company and, as such, is subject
to ongoing and comprehensive supervision, regulation, examination and enforcement by the Federal Reserve.
Notice and Approval Requirements Related to Control
Banking laws impose notice, approval, and ongoing regulatory requirements on any person or entity that seeks to
acquire direct or indirect “control” of an FDIC-insured depository institution. These laws include the BHC Act and the Change
in Bank Control Act. Among other things, these laws require regulatory filings by individuals or entities that seek to acquire
direct or indirect "control" of an FDIC-insured depository institution. The determination of whether an investor "controls" a
depository institution is based on all of the facts and circumstances surrounding the investment. As a general matter, a party
is deemed to conclusively control a depository institution or other company if the party owns or controls 25% or more of any
class of voting stock. Subject to rebuttal, a party may be presumed to control a depository institution or other company if
the investor owns or controls 10% or more of any class of voting stock (and the entity’s securities are registered under the
Exchange Act or, if not, the investor would be the largest shareholder). Except under limited circumstances, bank holding
companies are prohibited from acquiring, without prior approval, control of any other bank or bank holding company or
substantially all the assets thereof or more than 5% of the voting shares of a bank or bank holding company which is not
already a subsidiary.
Source of Strength
All companies, including bank holding companies, that directly or indirectly control an insured depository institution, are
required to serve as a source of strength for the institution. Furthermore, the Federal Reserve policy is that a bank holding
company should stand ready to use available resources to provide adequate capital to its subsidiary banks during periods
9 USCB Financial Holdings, Inc. 2024 10-K
of financial stress or adversity and should maintain the financial flexibility and capital-raising capacity to obtain additional
resources for assisting its subsidiary banks. Under this requirement, USCB Financial Holdings, Inc. in the future could be
required to provide financial assistance to U.S. Century Bank should it experience financial distress. Such support may be
required at times when, absent this statutory and Federal Reserve policy requirement, a bank holding company may not be
inclined or able to provide it. A bank holding company’s failure to meet its obligations to serve as a source of strength to its
subsidiary banks will generally be considered by the Federal Reserve to be an unsafe and unsound banking practice or a
violation of the Federal Reserve’s regulations, or both.
Safety and Soundness Regulation
As an insured depository institution, we are subject to prudential regulation and supervision and must undergo regular
on-site examinations by our state and federal banking agencies. The cost of examinations of insured depository institutions
and any affiliates are assessed by the appropriate agency against each institution or affiliate that is subject to examination
as it deems necessary or appropriate. We file quarterly consolidated reports of condition and income, or call reports, with
the FDIC and the FOFR.
The federal banking agencies have also adopted guidelines establishing safety and soundness standards for all insured
depository institutions including U.S. Century Bank. The safety and soundness guidelines relate to, among other things, our
internal controls, information systems, cybersecurity, internal audit systems, loan underwriting and documentation, anti-
money laundering policies and procedures, transactions with insiders, risk management, compensation, asset growth, and
interest rate exposure. These standards assist the federal banking agencies with early identification and resolution of
problems at insured depository institutions. If we were to fail to meet or otherwise comply with any of these standards, the
FDIC could require us to submit a plan for achieving and maintaining compliance. If a financial institution fails to submit an
acceptable compliance plan, or fails in any material respect to implement a compliance plan that has been accepted by the
FDIC, the FDIC is required to issue an order directing the institution to cure the deficiency. Until the deficiency cited in the
order is cured, the FDIC may restrict the financial institution’s rate of growth, require the financial institution to increase its
capital, restrict the rates the institution pays on deposits or require the institution to take any action the regulator deems
appropriate under the circumstances. Noncompliance with the standards established by the safety and soundness
guidelines may also constitute grounds for other enforcement action, including cease and desist orders and civil money
penalty assessments. In addition, the FDIC could terminate our deposit insurance if it determines that our financial condition
was unsafe or unsound or that we engaged in unsafe or unsound practices that violated applicable rules, regulations, orders
or conditions enacted or imposed on us by our regulators.
During the past decade, the bank regulatory agencies have increasingly emphasized the importance of sound risk
management processes and strong internal controls when evaluating the activities of the financial institutions they supervise.
Properly managing risks has been identified as critical to the conduct of safe and sound banking activities and has become
even more important as new technologies, product innovation and the size and speed of financial transactions have changed
the nature of banking markets. The agencies have identified a spectrum of risks facing a banking institution including, but
not limited to, credit, market, liquidity, interest rate, cybersecurity, operational, legal and reputational risk. In particular, recent
regulatory pronouncements have focused on operational risk, which arises from the potential that inadequate information
systems, operational problems, breaches in internal controls, fraud or unforeseen catastrophes will result in unexpected
losses. New products and services, use of outside vendors and cybersecurity are critical sources of operational risk that
financial institutions are expected to address in the current environment. We have active Board and senior management
oversight policies, procedures and risk limits; adequate risk measurement and monitoring and adequate management
information systems; and comprehensive internal controls to address these various risks.
Permissible Activities and Investments
Banking laws generally restrict the ability of USCB Financial Holdings, Inc. to engage in activities other than those
determined by the Federal Reserve to be so closely related to banking as to be a proper incident thereto. The Federal
Reserve has determined by regulation that certain activities are closely related to banking including operating a mortgage
company, finance company, credit card company, factoring company, trust company or savings association; performing
certain data processing operations; providing limited securities brokerage services; acting as an investment or financial
advisor; acting as an insurance agent for certain types of credit-related insurance; leasing personal property on a full-payout,
non-operating basis; providing tax planning and preparation services; operating a collection agency; and providing certain
courier services. In addition, the Gramm -Leach-Bliley Act (the “GLB Act”) expanded the scope of permissible activities for
a bank holding company that qualifies as a financial holding company. Under the regulations implementing the GLB Act, a
financial holding company may engage in additional activities that are financial in nature or incidental or complementary to
a financial activity such as securities underwriting, insurance underwriting and merchant banking. USCB Financial Holdings,
Inc. is not a financial holding company.
10 USCB Financial Holdings, Inc. 2024 10-K
In addition, as a general matter, the establishment or acquisition by USCB Financial Holdings, Inc. of a non-bank entity,
or the initiation of a non-banking activity, requires prior regulatory approval. In approving acquisitions or the addition of
activities, the Federal Reserve considers, among other things, whether the acquisition or the additional activities can
reasonably be expected to produce benefits to the public, such as greater convenience, increased competition or gains in
efficiency, that outweigh such possible adverse effects as undue concentration of resources, decreased or unfair
competition, conflicts of interest or unsound banking practices.
Regulatory Capital Requirements
The federal banking regulators have adopted risk-based capital adequacy guidelines for bank holding companies and
their subsidiary banks and banks without bank holding companies based on the Basel III standards. Under these guidelines,
assets and off-balance sheet items are assigned to specific risk categories, each with designated risk weightings. The risk-
based capital guidelines are designed to make regulatory capital requirements more sensitive to differences in risk profiles
among banks and bank holding companies, to account for off-balance sheet exposure, to minimize disincentives for holding
liquid assets, and to achieve greater consistency in evaluating the capital adequacy of major banks throughout the world.
The resulting capital ratio requirements represent capital as a percentage of total risk-weighted assets and off-balance sheet
items. Final rules implementing the capital adequacy guidelines became effective, with various phase-in periods, on January
1, 2015 for community banks such as us. All of the rules were fully phased in as of January 1, 2019. These final rules
represent a significant change to the prior general risk-based capital rules and are designed to substantially conform to the
Basel III international standards.
In computing total risk-weighted assets, bank and bank holding company assets are given risk-weights of 0%, 20%,
50%, 100% and 150%. In addition, certain off-balance sheet items are given similar credit conversion factors to convert
them to asset equivalent amounts to which an appropriate risk-weight will apply. Most loans will be assigned to the 100%
risk category, except for performing first mortgage loans fully secured by 1-to-4 family or certain multi-family residential
properties, which carry a 50% risk rating, and certain past due loans which are assigned a 150% risk rating. Most investment
securities (including, primarily, general obligation claims on states or other political subdivisions of the United States) will
be assigned to the 20% category, except for municipal or state revenue bonds, which have a 50% risk-weight, and direct
obligations of the U.S. Treasury or obligations backed by the full faith and credit of the U.S. government, which have a 0%
risk-weight. In covering off -balance sheet items, direct credit substitutes, including general guarantees and standby letters
of credit backing financial obligations, are given a 100% conversion factor. Transaction-related contingencies such as bid
bonds, standby letters of credit backing nonfinancial obligations, and undrawn commitments (including commercial credit
lines with an initial maturity of more than one year) have a 50% conversion factor. Short-term commercial letters of credit
are converted at 20% and certain short-term unconditionally cancelable commitments have a 0% factor.
Under the final rules, minimum requirements increased for both the quality and quantity of capital held by banking
organizations. In this respect, the final rules implement strict eligibility criteria for regulatory capital instruments and improve
the methodology for calculating risk-weighted assets to enhance risk sensitivity. Consistent with the international Basel III
framework, the rules include a new minimum ratio of Common Equity Tier 1 Capital to Risk-Weighted Assets of 4.5%. The
rules also create a Common Equity Tier 1 Capital conservation buffer of 2.5% of risk-weighted assets. This buffer is added
to each of the three risk-based capital ratios to determine whether an institution has established the buffer. The rules raise
the minimum ratio of Tier 1 Capital to Risk-Weighted Assets from 4% to 6% and include a minimum leverage ratio of 4% for
all banking organizations. If a financial institution’s capital conservation buffer falls below 2.5% — e.g., if the institution’s
Common Equity Tier 1 Capital to Risk -Weighted Assets is less than 7.0% — then capital distributions and discretionary
bonus payments will be limited or prohibited based on the size of the institution’s conservation buffer. The types of payments
subject to this limitation include dividends, share buybacks, discretionary payments on Tier 1 instruments, and discretionary
bonus payments.
The capital regulations may also impact the treatment of accumulated other comprehensive income (“AOCI”) for
regulatory capital purposes. Under the rules, AOCI generally flows through to regulatory capital; however, community banks
and their holding companies (if any) were allowed to make a one-time irrevocable opt-out election to continue to treat AOCI
the same as under the old regulations for regulatory capital purposes. This election was required to be made on the first
call report filed after January 1, 2015. We made the opt-out election. Additionally, the rules also permit community banks
with less than $15.0 billion in total assets to continue to count certain non-qualifying capital instruments issued prior to May
19, 2010 as Tier 1 capital, including trust preferred securities and cumulative perpetual preferred stock (subject to a limit of
25% of Tier 1 capital). However, non-qualifying capital instruments issued on or after May 19, 2010 do not qualify for Tier 1
capital treatment. At December 31, 2024, we had no such investments.
In May 2016, amendments to the Federal Reserve’s SBHC Policy became effective which increased the asset threshold
to qualify to utilize the provisions of the SBHC Policy from $500.0 million to $1.0 billion. Subsequently, as part of the 2018
Act, the threshold was increased to $3.0 billion. Bank holding companies which are subject to the SBHC Policy are not
11 USCB Financial Holdings, Inc. 2024 10-K
subject to compliance with the regulatory capital requirements described above until they exceed $3.0 billion in assets. As
a consequence, as of December 31, 2024, USCB Financial Holdings, Inc. was not required to comply with the requirements
set forth above and will not be subject to such requirements until such time that its consolidated total assets exceed $3.0
billion or the Federal Reserve determines that USCB Financial Holdings, Inc. is no longer deemed to be a small bank holding
company. However, if USCB Financial Holdings, Inc. had been subject to the requirements, it would have been in
compliance with such requirements.
In September 2019, the federal banking agencies jointly finalized a rule intended to simplify the regulatory capital
requirements described above for qualifying community banking organizations that opt into the Community Bank Leverage
Ratio, or CBLR, framework, as required by Section 201 of the Regulatory Relief Act. The final rule became effective on
January 1, 2020, and the CBLR framework became available for banks to use beginning with their March 31, 2020 call
reports. Under the final rule, if a qualifying community banking organization opts into the CBLR framework and meets all
requirements under the framework, it will be considered to have met the well-capitalized ratio requirements under the prompt
corrective action regulations described below in this Form 10-K and will not be required to report or calculate risk-based
capital. In order to qualify for the CBLR framework, a community banking organization must have a tier 1 leverage ratio of
greater than 9%, less than $10.0 billion in total consolidated assets, off -balance sheet exposures of 25% or less of total
consolidated assets, and trading assets and liabilities of 5% or less of total consolidated assets. Although U.S. Century
Bank is a qualifying community banking organization, U.S. Century Bank has elected not to opt in to the CBLR framework
at this time and will continue to follow the Basel III capital requirements as described above.
As of December 31, 2024 and 2023, the U.S. Century Bank qualified as a “well capitalized” institution. See Note 15
“Regulatory Matters” of the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for
further details.
Prompt Corrective Action
Under the Federal Deposit Insurance Act (“FDIA”), the federal bank regulatory agencies must take "prompt corrective
action" against undercapitalized U.S. depository institutions. The capital-based regulatory framework contains five
categories of compliance with regulatory capital requirements, including "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically undercapitalized," and are subjected to differential
regulation corresponding to the capital category within which the institution falls.
An insured depository institution is deemed to be "well capitalized" if it has a total risk-based capital ratio of 10.0% or
greater, a tier 1 risk-based capital ratio of 8.0% or greater, a Common Equity Tier 1 risk-based capital ratio of 6.5% and a
leverage ratio of 5.0% or greater, and the institution is not subject to an order, written agreement, capital directive, or prompt
corrective action directive to meet and maintain a specific level for any capital measure. Under certain circumstances, a
well-capitalized, adequately capitalized or undercapitalized institution may be treated as if the institution were in the next
lower capital category if it is determined that the institution is in an unsafe or unsound condition or is engaging in an unsafe
or unsound practice. The degree of regulatory scrutiny of a financial institution will increase, and the permissible activities
of the institution will decrease, as it moves downward through the capital categories. Under specified circumstances, a
federal banking agency may reclassify a “well-capitalized” institution as adequately capitalized and may require an
adequately capitalized institution or an undercapitalized institution to comply with supervisory actions as if it were in the next
lower category (except that the FDIC may not reclassify a significantly undercapitalized institution as critically
undercapitalized). A banking institution that is undercapitalized is required to submit a capital restoration plan. Failure to
meet capital guidelines could subject the institution to a variety of enforcement remedies by federal bank regulatory
agencies, including: termination of deposit insurance by the FDIC, restrictions on certain business activities, and
appointment of the FDIC as conservator or receiver.
At December 31, 2024, U.S. Century Bank was deemed to be a “well-capitalized” institution for purposes of the prompt
corrective action regulations and as such is not subject to the above mentioned restrictions.
Commercial Real Estate Concentration Guidelines
The federal banking regulators have implemented guidelines to address increased concentrations in commercial real
estate loans. These guidelines describe the criteria regulatory agencies will use as indicators to identify institutions
potentially exposed to commercial real estate concentration risk. An institution that has (i) experienced rapid growth in
commercial real estate lending, (ii) notable exposure to a specific type of commercial real estate, (iii) total reported loans
for construction, land development, and other land representing 100% or more of total capital, or (iv) total commercial real
estate (including construction) loans, as defined in the banking agencies guidance, representing 300% or more of total
capital and the outstanding balance of the institution’s commercial real estate portfolio has increased by 50% or more in the
prior 36 months, may be identified for further supervisory analysis of a potential concentration risk.
12 USCB Financial Holdings, Inc. 2024 10-K
As of December 31, 2024, our ratio of construction loans to total risk-based capital was 23%, and therefore, we were
under the 100% threshold set forth in clause (iii) in the paragraph above. However, with respect to clause (iv) in the
paragraph above, as of December 31, 2024, our ratio of total commercial real estate loans to total risk-based capital was
366% and the outstanding balance of the institution’s commercial real estate portfolio increased by 50% or more in the prior
36 months. As a result, we are deemed to have a concentration in commercial real estate lending under applicable regulatory
guidelines.
If a concentration is present, under the federal banking regulator’ guidance, management should employ heightened
risk management practices that address key elements, including board and management oversight and strategic planning,
portfolio management, development of underwriting standards, risk assessment and monitoring through market analysis
and stress testing, and maintenance of increased capital levels as needed to support the level of commercial real estate
lending. To address the commercial real estate lending concentration, the Bank has previously established a commercial
real estate lending framework to monitor specific exposures and limits by types within the commercial real estate portfolio,
including, among other things, annual stress testing of the commercial real estate portfolio, and takes appropriate actions,
as necessary.
Payment of Dividends and Share Repurchases
The ability of the board of directors of an insured depository institution to declare a cash dividend or other distribution
with respect to capital is subject to federal and state statutory and regulatory restrictions that limit the amount available for
such distribution depending upon earnings, financial condition, including whether the institution has negative retained
earnings, and cash needs of the institution, as well as general business conditions. Insured depository institutions are also
prohibited from paying management fees to any controlling persons or, with certain limited exceptions, making capital
distributions, including dividends, if after such transaction the institution would be less than adequately capitalized. We may
generally declare a dividend from retained net profits which accrued prior to the preceding two years, but we must, before
the declaration of a dividend on our common stock, under applicable Florida law, carry 20% of our net profits for such
preceding period as is covered by the dividend to our surplus fund, until the same shall at least equal the amount of our
common stock and preferred stock, if any, then issued and outstanding. Under Florida law, we are prohibited from declaring
a dividend at any time at which our net income from the current year combined with the retained net income from the
preceding two years is a loss or which would cause our capital accounts to fall below the minimum amount required by law,
regulation, order, or any written agreement with a state or federal regulatory agency.
Furthermore, under applicable FDIC
regulations and policy, because U.S. Century Bank has negative retained earnings, it must obtain the prior approval of the
FDIC before effecting a cash dividend or other capital distribution.
A Federal Reserve policy statement on the payment of cash dividends states that a bank holding company should pay
cash dividends only to the extent that the holding company’s net income for the past year is sufficient to cover both the cash
dividends and a rate of earnings retention that is consistent with the holding company’s capital needs, asset quality and
overall financial condition. The Federal Reserve’s policy statement also provides that it would be inappropriate for a
company experiencing serious financial problems to borrow funds to pay dividends. Furthermore, under the federal prompt
corrective action regulations, the Federal Reserve may prohibit a bank holding company from paying any dividends if the
holding company’s bank subsidiary is classified as “undercapitalized.” See “- Prompt Corrective Action” above.
Section 225.4(b)(1) of Regulation Y promulgated by the Federal Reserve requires that a bank holding company that is
not “well-capitalized” or “well-managed”, or that is subject to any unresolved supervisory issues, provide prior notice to the
Federal Reserve for any repurchase or redemption of its equity securities for cash or other value that would reduce by 10
percent or more the bank holding company’s consolidated net worth aggregated over the preceding 12-month period. The
Federal Reserve may disapprove such a purchase or redemption if it determines that the proposal would constitute an
unsafe or unsound practice or would violate any law, regulation, Federal Reserve order or any condition imposed by, or
written agreement
with, the Federal Reserve. As of December 31, 2024, the Company was not subject to any formal
supervisory restrictions on its ability to pay dividends but will notify the Federal Reserve in advance of any proposed dividend
to the Company's shareholders in light of the Bank's negative retained earnings. In addition, we will provide prior notification
to the Federal Reserve prior to effecting proposed share repurchases.
Incentive Compensation
Guidelines adopted by the federal banking agencies pursuant to the FDIA prohibit excessive compensation as an unsafe
and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or
disproportionate to the services performed by an executive officer, employee, director or principal shareholder.
13 USCB Financial Holdings, Inc. 2024 10-K
In June 2010, the federal banking agencies jointly adopted the Guidance on Sound Incentive Compensation Policies,
or GSICP. The GSICP was intended to ensure that banking organizations do not undermine the safety and soundness of
such organizations by encouraging excessive risk-taking. This guidance, which covers all employees that have the ability
to expose the organization to material amounts of risk, either individually or as part of a group, is based upon a set of key
principles relating to a banking organization’s incentive compensation arrangements. Specifically, incentive compensation
arrangements should (i) provide employee incentives that appropriately balance risk in a manner that does not encourage
employees to expose their organizations to imprudent risk, (ii) be compatible with effective controls and risk management,
and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board
of directors. Any deficiencies in our compensation practices could lead to supervisory or enforcement actions by the FDIC.
The GSICP Guidance provides that enforcement actions may be taken against a banking organization if its incentive
compensation arrangements or related risk-management control or governance processes pose a risk to the organization’s
safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.
The Dodd-Frank Act requires the federal banking agencies and the SEC to establish joint regulations or guidelines
prohibiting incentive-based payment arrangements at specified regulated entities, such as us, having at least $1 billion in
total assets that encourage inappropriate risk-taking by providing an executive officer, employee, director or principal
shareholder with excessive compensation, fees, or benefits or that could lead to material financial loss to the entity. In
addition, these regulators must establish regulations or guidelines requiring enhanced disclosure to regulators of incentive-
based compensation arrangements. The federal banking agencies proposed such regulations in April 2011 and issued a
second proposed rule in April 2016. The second proposed rule would apply to all banks, among other institutions, with at
least $1.0 billion in average total consolidated assets. Final regulations have not been adopted as of the date of this Form
10-K. If adopted, these or other similar regulations would impose limitations on the manner in which we may structure
compensation for our executives and other employees that go beyond the requirements of GSICP. The scope and content
of the federal banking agencies’ policies on incentive compensation are continuing to develop and are likely to continue
evolving, but the timeframe for finalization of such policies is not known at this time.
Limits on Transactions with Affiliates and Insiders
Transactions between insured financial institutions and any affiliate are governed by Sections 23A and 23B of the
Federal Reserve Act. An affiliate of an insured financial institution is any company or entity which controls, is controlled by
or is under common control with the insured financial institution. In a bank holding company context, the bank holding
company of an insured financial institution (such as the Company) and any companies which are controlled by such holding
company are affiliates of the insured financial institution. Generally, Section 23A limits the extent to which the insured
financial institution or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10%
of such institution’s capital stock and surplus, and contains an aggregate limit on all such transactions with all affiliates to
an amount equal to 20% of such capital stock and surplus. Section 23B applies to “covered transactions” as well as certain
other transactions and requires that all transactions be on terms substantially the same, or at least as favorable to the
insured financial institution, as those provided to a non-affiliate. The term “covered transaction” includes the making of loans
to, purchase of assets from and issuance of a guarantee to an affiliate and similar transactions. Section 23B transactions
also include the provision of services and the sale of assets by an insured financial institution to an affiliate. In addition,
loans or other extensions of credit by the financial institution to the affiliate are to be collateralized in accordance with the
requirements set for in Section 23 of the Federal Reserve Act.
Sections 22(g) and (h) of the Federal Reserve Act place restrictions on loans to executive officers, directors and principal
stockholders. Under Section 22(h), loans to a director, an executive officer and to a greater than 10% stockholder of an
insured financial institution, and certain affiliated interests of either, may not exceed, together with all other outstanding
loans to such person and affiliated interests, the insured financial institution’s loans to one borrower limit (generally equal
to 15% of the institution’s unimpaired capital and surplus). Section 22(h) also requires that loans to directors, executive
officers and principal stockholders be made on terms substantially the same as offered in comparable transactions to other
persons unless the loans are made pursuant to a benefit or compensation program that (i) is widely available to employees
of the institution and (ii) does not give preference to any director, executive officer or principal stockholder, or certain affiliated
interests thereof, over other employees of the insured financial institution. Section 22(h) also requires prior board approval
for the issuance of certain loans. In addition, the aggregate amount of extensions of credit by an insured financial institution
to all insiders cannot exceed the institution’s unimpaired capital and surplus. Furthermore, Section 22(g) places additional
restrictions on loans to executive officers. At December 31, 2024, the Bank was in compliance with the above restrictions.
FDIC Deposit Insurance
The FDIC is an independent federal agency that insures the deposits of federally insured depository institutions up to
applicable limits. The FDIC also has certain regulatory, examination and enforcement powers with respect to FDIC-insured
14 USCB Financial Holdings, Inc. 2024 10-K
institutions. The deposits are insured by the FDIC up to applicable limits. As a general matter, the maximum deposit
insurance amount is $250 thousand per depositor.
Additionally, FDIC-insured depository institutions are required to pay deposit insurance assessments to the FDIC. The
amount of a particular institution's deposit insurance assessment is based on that institution's risk classification under an
FDIC risk-based assessment system. An institution's risk classification is assigned based on its capital levels and the level
of supervisory concern the institution poses to the regulators.
Under the current system, deposit insurance assessments are based on a bank’s assessment base, which is defined
as average total assets minus average tangible equity. For established small institutions, such as the Bank, the FDIC sets
deposit assessment rates based on the Financial Ratios Method, which takes into account several ratios that reflect
leverage, asset quality, and earnings at each individual institution and then applies a pricing multiplier that is the same for
all institutions. An institution’s rate must be within a certain minimum and a certain maximum, and the range varies based
on the institution’s composite CAMELS rating. The deposit insurance assessment is calculated by multiplying the bank’s
assessment base by the total base assessment rate. Assessment rates for most insured depository institutions with less
than $10.0 billion of assets range from 2.5 to 32 basis points of each institution’s total assets less tangible capital.
In October 2022, the FDIC finalized a rule that increased the initial base deposit insurance assessment rates by 2 basis
points, beginning with the first quarterly assessment period of 2023 (January 1, 2023 through March 31, 2023). The FDIC,
as required under the FDIA, established a plan in September 2020 (the “Restoration Plan”) to restore the DIF reserve ratio
to meet or exceed the statutory minimum of 1.35% within eight years. The Restoration Plan did not include an increase in
the deposit insurance assessment rate. Based on the FDIC’s recent projections, however, the FDIC determined that the
DIF reserve ratio is at risk of not reaching the statutory minimum by the statutory deadline of September 30, 2028 without
increasing the deposit insurance assessment rates. The increased assessment would improve the likelihood that the DIF
reserve ratio would reach the required minimum by the statutory deadline, consistent with the FDIC’s amended Restoration
Plan. The FDIC also concurrently maintained the Designated Reserve Ratio (“DDR”) for the DIF at 2% for 2023. The new
assessment rate schedules will remain in effect unless and until the reserve ratio meets or exceeds 2% in order to support
growth in the DIF in progressing toward the FDIC’s long-term goal of a 2% DRR. Progressively lower assessment rate
schedules will take effect when the reserve ratio reaches 2%, and again when it reaches 2.5%. The revised assessment
rate schedule will remain in effect unless and until the reserve ratio meets or exceeds 2%, absent further action by the FDIC.
Under the FDIA, the FDIC may terminate deposit insurance upon a finding that the institution has engaged in unsafe
and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law,
regulation, rule, order, or condition imposed by the FDIC.
Depositor Preference
The FDIA provides that, in the event of the "liquidation or other resolution" of an insured depository institution, the claims
of depositors of the institution (including the claims of the FDIC as subrogee of insured depositors) and certain claims for
administrative expenses of the FDIC as a receiver will have priority over other general unsecured claims against the
institution. Insured and uninsured depositors, along with the FDIC, will have priority in payment ahead of unsecured, non-
deposit creditors, including U.S. Century Bank, with respect to any extensions of credit they have made to such insured
depository institution.
Overdraft Fee Regulation
The Electronic Fund Transfer Act prohibits financial institutions from charging consumers fees for paying overdrafts on
automated teller machines, or ATMs, and one-time debit card transactions, unless a consumer consents, or opts in, to the
overdraft service for those types of transactions. If a consumer does not opt in, any ATM transaction or debit that overdraws
the consumer’s account will be denied. Overdrafts on the payment of checks and regular electronic bill payments are not
covered by this new rule. Before opting in, the consumer must be provided with a notice that explains the financial
institution’s overdraft services, including the fees associated with the service, and the consumer’s choices. Financial
institutions must provide consumers who do not opt in with the same account terms, conditions and features (including
pricing) that they provide to consumers who do opt in.
Federal Reserve System and Federal Home Loan Bank System
We are a member of the Federal Home Loan Bank (“FHLB”) of Atlanta, which is one of 11 regional FHLBs. Each FHLB
serves as a quasi-reserve bank for its members within its assigned region. It is funded primarily from funds deposited by
member institutions and proceeds from the sale of consolidated obligations of the FHLB system. A FHLB makes loans to
members (i.e., advances) in accordance with policies and procedures established by the Board of Trustees of the FHLB.
15 USCB Financial Holdings, Inc. 2024 10-K
As a member of the FHLB of Atlanta, we are required to own capital stock in the FHLB in an amount at least equal to
0.07% (or 7 basis points), which is subject to annual adjustments, of the Bank’s total assets at the end of each calendar
year (up to a maximum of $18.0 million), plus 4.75% of our outstanding advances (borrowings) from the FHLB of Atlanta
under the activity-based stock ownership requirement.
Anti-Money Laundering Regulation
As a financial institution, we must maintain anti-money laundering programs that include established internal policies,
procedures and controls, a designated compliance officer, an ongoing employee training program, and testing of the
program by an independent audit function in accordance with the Bank Secrecy Act of 1970, as amended (“BSA”), and the
regulations issued by the Department of the Treasury in 31 CFR Chapter X, FDIC Section 326.8 of the FDIC’s regulations
and the Florida Control of Money Laundering and Terrorist Financing in Financial Institutions Act. Financial institutions are
prohibited from entering into specified financial transactions and account relationships and must meet enhanced standards
for due diligence and “knowing your customer” in their dealings with foreign financial institutions, foreign customers and
other high risk customers. Financial institutions must also take reasonable steps to conduct enhanced scrutiny of account
relationships to guard against money laundering and to report transactions that meet certain dollar amount thresholds as
well as any suspicious transactions. Laws, such as the USA PATRIOT Act enacted in 2001, as described below, provide
law enforcement authorities with increased access to financial information maintained by banks.
Anti-money laundering obligations have been substantially strengthened as a result of the USA PATRIOT Act. Bank
regulators routinely examine institutions for compliance with these obligations, and this area has become a particular focus
of the regulators in recent years. In addition, the regulators are required to consider compliance in connection with the
regulatory review of certain applications. In recent years, regulators have expressed concern over banking institutions’
compliance with anti-money laundering requirements and, in some cases, have delayed approval of their expansionary
proposals. The regulators and other governmental authorities have been active in imposing “cease and desist” orders and
significant money penalty sanctions against institutions found to be in violation of the anti-money laundering regulations.
USA PATRIOT Act
The USA PATRIOT Act became effective in October 2001 and amended the BSA. The USA PATRIOT Act requires
banks to establish anti-money laundering programs that include, at a minimum:
•
maintain the bank’s compliance with all of the requirements of the USA PATRIOT Act, the BSA and related laws
and regulations; bank wide systems and procedures for monitoring and reporting of suspicious transactions and
activities;
•
•
•
•
•
and
•
laundering activities.
Additionally, the USA PATRIOT Act requires each financial institution to develop a customer identification program, or
CIP, as part of its anti-money laundering program. The key components of the CIP are identification verification, government
list comparison, notice and record retention. The purpose of the CIP is to enable the financial institution to determine the
true identity and anticipated account activity of each customer. To make this determination, the financial institution must,
among other things, collect certain information from customers at the time they enter into the customer relationship with the
financial institution. This information must be verified within a reasonable time. Furthermore, all customers must be screened
against any CIP-related government lists of known or suspected terrorists or other “sanctioned” persons. In May 2018, the
U.S. Treasury’s Financial Crimes Enforcement Network, or FinCEN, issued a final rule under the BSA requiring banks to
identify and verify the identity of the natural persons behind their customers that are legal entities—the beneficial owners.
The Anti-Money Laundering Act of 2020 (the “AML Act”) and within the AML Act, the Corporate Transparency Act (the
“CTA”), was enacted in January 2021. The AML Act is intended to be a comprehensive reform and modernization to U.S.
bank secrecy and anti-money laundering laws. Among other things, it codifies a risk-based approach to anti-money
laundering compliance for financial institutions; requires the development of standards for evaluating technology and internal
processes for BSA compliance; expands enforcement- and investigation -related authority, including increasing available
sanctions for certain BSA violations and instituting BSA whistleblower incentives and protections. The CTA establishes
16 USCB Financial Holdings, Inc. 2024 10-K
uniform beneficial ownership reporting requirements for corporations, limited liability companies, and other similar entities
formed or registered to do business in the United States. The CTA authorizes FinCEN to collect that information and share
it with authorized government authorities and financial institutions, subject to effective safeguards and controls. In December
2024, a nationwide injunction was granted, blocking the enforcement of the CTA pending the adjudication of the
constitutionality of the CTA. In late January 2025, the United States Supreme Court reversed the U.S. district court’s
preliminary injunction staying the CTA. However, a separate nationwide stay of the CTA issued earlier in January 2025 by
another U.S. district court was not affected by the Supreme Court’s action. In mid-February 2025, the U.S. district court
stayed the preliminary relief granted in its early January 2025, order, including the nationwide stay of the CTA. On February
19, 2025, FinCEN published an updated alert stating that, in view of the U.S. district court’s decision, beneficial ownership
information reporting requirements under the CTA will be in effect. FinCEN generally extended the deadline for most
reporting companies filing initial, updated and corrected beneficial ownership reports to March 21, 2025 (30 calendar days
from February 19, 2025). Subsequently, on March 2, 2025, the U.S. Treasury announced that it was suspending
enforcement of the CTA against domestic reporting companies and their beneficial owners. The U.S. Treasury also
announced that it would be proposing revised rules applicable to foreign reporting companies only. In December 2023,
FinCEN issued regulations regarding access to the beneficial ownership information collected under the CTA. We and our
affiliates have adopted policies, procedures and controls designed to comply with the BSA, the AML Act, the CTA and the
USA PATRIOT Act.
The Office of Foreign Assets Control
The Office of Foreign Assets Control (the “OFAC”) is responsible for helping to ensure that U.S. entities do not engage
in transactions with “enemies” of the United States, as defined by various Executive Orders and Acts of Congress. OFAC
publishes lists of names of persons and organizations suspected of aiding, harboring or engaging in terrorist acts; owned
or controlled by, or acting on behalf of target countries; and narcotics traffickers. Such persons are referred to as
“sanctioned” persons.
If a bank finds a name on any transaction, account or wire transfer that is on an OFAC list, it must freeze the account
and/or block the transaction or wire transfer. We utilize an outside vendor to oversee the inspection of our accounts and the
filing of any notifications. We also monitor high-risk OFAC areas such as new accounts, wire transfers and customer files.
These checks are performed using software that is updated each time a modification is made to the lists provided by OFAC
and other agencies of Specially Designated Nationals and Blocked Persons.
Consumer Laws and Regulations
Our activities are subject to a variety of federal and state statutes and regulations designed to protect consumers in
transactions with banks. Interest and other charges collected or contracted for by us are subject to state usury laws and
federal laws concerning interest rates. Our loan operations are also subject to federal laws applicable to credit transactions,
such as:
•
consumer borrowers and including substantial new requirements for mortgage lending and servicing, as mandated
by the Dodd-Frank Act
•
to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help
meet the housing needs of the communities they serve;
•
or other prohibited factors in extending credit;
•
V, as well as the rules and regulations of the FDIC governing the use and provision of information to credit reporting
agencies, certain identity theft protections and certain credit and other disclosures;
•
collected by collection agencies; and
•
process for residential mortgage loans.
Our deposit operations are also subject to federal laws, such as:
•
imposes other limits on deposit-taking;
•
and prescribes procedures for complying with administrative subpoenas of financial records;
17 USCB Financial Holdings, Inc. 2024 10-K
•
check images and copies made from that image, the same legal standing as the original paper check;
•
deposit accounts and customers’ rights and liabilities arising from the use of ATMs and other electronic banking
services; and
•
consumers can make meaningful comparisons about depository institutions and accounts.
These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial
institutions must deal with clients when taking deposits or making loans to such clients. We must comply with the applicable
provisions of these consumer protection laws and regulations as part of both our ongoing client relations and our regulatory
compliance obligations.
Financial Privacy and Cybersecurity
Banking organizations are subject to many federal and state laws and regulations governing the collection, use and
protection of customer information. Under the privacy protection provisions of the GLB Act and related laws and regulations,
including Florida laws, we are limited in our ability to disclose non-public information about consumers to nonaffiliated third
parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, require us to
allow consumers to prevent disclosure of certain personal information to a nonaffiliated third party and to not disclose
account numbers or access codes to non-affiliated third parties for marketing purposes. Federal banking agencies, including
the FDIC, have adopted guidelines for establishing information security standards and cybersecurity programs for
implementing safeguards. These guidelines, along with related regulatory materials, increasingly focus on risk management
and processes related to information technology and the use of third parties in the provision of financial services.
In addition, the federal banking agencies have adopted a rule to establish computer-security incident notification
requirements for bank holding companies, banks and their service providers. Under the rule, banking organizations are
required to notify their primary federal regulators within 36 hours of any incident that has materially disrupted or degraded,
or is reasonably likely to materially disrupt or degrade, the banking organization’s ability to deliver banking services to a
material portion of its client base, jeopardize the viability of key operations, or impact the financial stability of the financial
sector. The rule also imposes certain notification requirements on third-party bank service providers when they experience
a computer-security incident that has caused, or is likely to cause a material service disruption or degradation for four or
more hours. In such case, the service provider is required to notify its bank-designated point of contact as soon as possible
upon discovery of the incident.
In addition to federal laws and regulations, we are subject to state laws governing customer privacy and cybersecurity.
The Florida Information Protection Act of 2014 (“Florida Act”) requires notification of the Florida Department of Legal Affairs
of any breach involving personal information that affects more than 500 people as well as requiring notification of affected
individuals of a breach. The Florida Act also requires us to take reasonable measures to protect and secure data in electronic
form containing personal information and take all reasonable measures to dispose, or arrange for the disposal, of customer
records containing personal information within our custody or control when the records are no longer to be retained. We
incur significant costs and expenses in order to address compliance with the federal and state customer privacy and
cybersecurity laws and regulations, and we expect such costs and expenses will continue into the future.
Consumer Financial Protection Bureau
The Consumer Financial Protection Bureau (“CFPB”) is an independent regulatory authority housed within the Federal
Reserve Board. The CFPB has broad authority to regulate the offering and provision of consumer financial products and to
prevent institutions subject to its authority from engaging in “unfair and deceptive or abusive acts or practices” with respect
to their offering of consumer financial products or services. The CFPB has the authority to supervise and examine depository
institutions with more than $10.0 billion in assets for compliance with federal consumer laws. The authority to supervise and
examine depository institutions with $10.0 billion or less in assets, such as U.S. Century Bank, for compliance with federal
consumer laws remains largely with those institutions’ primary federal regulators. However, the CFPB may participate in
examinations of these smaller institutions on a “sampling basis” and may refer potential enforcement actions against such
institutions to their primary regulators. As such, the CFPB may participate in examinations of U.S. Century Bank. In addition,
states are permitted to adopt consumer protection laws and regulations that are stricter than the regulations promulgated
by the CFPB, and state attorneys general are permitted to enforce consumer protection rules adopted by the CFPB against
certain institutions.
18 USCB Financial Holdings, Inc. 2024 10-K
The Volcker Rule
The Dodd-Frank Act prohibits (subject to certain exceptions) us and our affiliates from engaging in short term proprietary
trading in securities and derivatives and from investing in and sponsoring certain investment companies defined in the rule
as “covered funds” (including not only hedge funds, commodity pools and private equity funds, but also a range of asset
securitization structures that do not meet exemptive criteria in the final rules). This statutory provision is commonly called
the “Volcker Rule.” At December 31, 2024, we are not subject to the Volcker Rule because of our asset size, which is below
the $10.0 billion Volcker Rule threshold.
Community Reinvestment Act and Fair Lending Requirements
As previously noted, we are subject to certain fair lending requirements and reporting obligations involving home
mortgage lending operations. We are also subject to certain requirements and reporting obligations under the federal
Community Reinvestment Act (“CRA”). The CRA and its corresponding regulations are intended to encourage banks to help
meet the credit needs of the communities they serve, including low- and moderate -income neighborhoods, consistent with
safe and sound banking practices.
Accordingly, the CRA generally requires federal banking agencies to evaluate the record of a financial institution in
meeting applicable CRA requirements. The CRA further requires the agencies to take into account our record of meeting
community credit needs when evaluating applications for, among other things, new branches or mergers. We are also
subject to analogous state CRA requirements in Florida and certain other states in which we may establish branch offices.
In connection with their assessments of CRA performance, the FDIC and FOFR assign a rating of “outstanding,”
“satisfactory,” “needs to improve,” or “substantial noncompliance.” We received a “satisfactory” CRA Assessment Rating
from both regulatory agencies in our most recent CRA examinations in 2023. In addition to substantive penalties and
corrective measures that may be required for a violation of certain fair lending laws, the federal banking agencies may take
compliance with such laws and CRA into account when regulating and supervising other activities of the bank, including in
acting on expansionary proposals such as when a bank submits an application to establish bank branches, merge with
another bank, or acquire the assets and assume the liabilities of another bank. An unsatisfactory CRA and/or fair lending
record could substantially delay or block any such transaction. The regulatory agency's assessment of the institution's record
is made available to the public at www.ffiec.gov/craratings. Following its most recent CRA performance evaluation in April
2023, the Bank received an overall rating of "Satisfactory."
In October 2023, the federal banking agencies jointly issued a final rule to revise the regulations implementing the CRA.
The final rule took effect on April 1, 2024, with staggered compliance dates; the applicability date for most of the provisions
is January 1, 2026. The changes are designed to encourage banks to expand access to credit, investment and banking
services in low and moderate income communities, adapt to changes in the banking industry including mobile and internet
banking, provide greater clarity and consistency in the application of the CRA regulations and tailor CRA evaluations and
data collection to bank size and type. The final rule implements a revised regulatory framework that, like the current
framework, is based on bank asset size and business model. Under the final rule, a new “Retail Lending Test” is established
except with banks with total assets of less than $600.0 million as of December 31 in either of the prior two calendar years
have the option to maintain the current CRA evaluation framework, referred to in the final rule as the “Small Bank Lending
Test,” or opt into the Retail Lending Test. The Retail Lending Test evaluates a bank’s record of helping to meet the credit
needs of its community through the origination and purchase of residential mortgage, multi -family, small business, small
farm and, in certain cases, automobile loans. Banks of all sizes will maintain the option to elect to be evaluated under a
strategic plan with the final rule updating the standards for obtaining approval for such plan. The final rule continues the
current approach of requiring banks to delineate specific “facility-based assessment areas,” which comprise the areas
around a bank’s main office, branches, and deposit-taking remote service facilities (e.g., ATMs). The final rule allows banks
to receive CRA credit for any qualified community development activity, regardless of location.
Call Reports and Examination Cycle
All institutions, regardless of size, submit a quarterly call report that includes data used by federal banking agencies to
monitor the condition, performance, and risk profile of individual institutions and the industry as a whole. In June 2019, the
federal banking agencies issued a final rule to permit insured depository institutions with total assets of less than $5 billion
that do not engage in certain complex or international activities to file the most streamlined version of the quarterly call
report, and to reduce data reportable on certain streamlined call report submissions.
Effect of Governmental Monetary Policies
The commercial banking business is affected not only by general economic conditions, but also by the monetary policies
of the Federal Reserve. Changes in the discount rate on member bank borrowing, availability of borrowing at the “discount
19 USCB Financial Holdings, Inc. 2024 10-K
window,” open market operations, changes in the Fed Funds target interest rate, the imposition of changes in reserve
requirements against member banks’ deposits and assets of foreign banking centers and the imposition of and changes in
reserve requirements against certain borrowings by banks and their affiliates are some of the instruments of monetary policy
available to the Federal Reserve. These monetary policies are used in varying combinations to influence overall growth and
distributions of bank loans, investments and deposits, which may affect interest rates charged on loans or paid on deposits.
The monetary policies of the Federal Reserve have had a significant effect on the operating results of commercial banks
and are expected to continue to do so in the future. The Federal Reserve’s policies are primarily influenced by the dual
mandate of price stability and full employment, and to a lesser degree by short-term and long-term changes in the
international trade balance and in the fiscal policies of the U.S. government. Future changes in monetary policy and the
effect of such changes on our business and earnings in the future cannot be predicted.
Future Legislation and Regulation
Congress may enact legislation from time to time that affects the regulation of the financial services industry, and state
legislatures may enact legislation from time to time affecting the regulation of financial institutions chartered by or operating
in those states. Federal and state regulatory agencies also periodically propose and adopt changes to their regulations or
change the manner in which existing regulations are applied or interpreted. The substance or impact of pending or future
legislation or regulation, or the application thereof, cannot be predicted, although enactment of proposed legislation has in
the past and may in the future affect the regulatory structure under which we operate and may significantly increase our
costs, impede the efficiency of our internal business processes, require us to increase our regulatory capital or modify our
business strategy, or limit our ability to pursue business opportunities in an efficient manner. Our business, financial
condition, results of operations or prospects may be adversely affected, perhaps materially, as a result of any such new
legislation or regulations.
Federal Securities Laws and the Sarbanes-Oxley Act
USCB Financial Holdings, Inc.’s Class A common stock is registered with the SEC under Section 12(b) of the Securities
Exchange Act of 1934. USCB Financial Holdings, Inc. is subject to the proxy and tender offer rules, insider trading reporting
requirements and restrictions, and certain other requirements under the Exchange Act.
As a public company, USCB Financial Holdings, Inc. is also subject to the Sarbanes-Oxley Act of 2002 (“SOA”), which
is applicable to all companies, both U.S. and non-U.S., that file periodic reports under the Exchange Act. The stated goals
of the SOA were to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing
improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate
disclosures pursuant to the securities laws. The SEC is responsible for establishing rules to implement various provisions
of the SOA. The SOA includes specific disclosure requirements and corporate governance rules, requires the SEC and
securities exchanges to adopt extensive additional disclosure, corporate governance and other related rules and mandates
further studies of certain issues by the SEC. The SOA represents significant regulation of the accounting profession and
corporate governance practices, such as the relationship between a board of directors and management and between a
board of directors and its committees.
As directed by the SOA, USCB Financial Holdings, Inc.’s principal executive officer and principal financial officer are
required to certify that the Company’s quarterly and annual reports do not contain any untrue statement of a material fact.
The rules adopted by the SEC under the SOA have several requirements, including having these officers certify that: they
are responsible for establishing, maintaining and regularly evaluating the effectiveness of our internal control over financial
reporting; they have made certain disclosures to USCB Financial Holdings, Inc.’s auditors and the audit committee of the
Board of Directors about USCB Financial Holdings, Inc.’s internal control over financial reporting; and they have included
information in USCB Financial Holdings, Inc.’s quarterly and annual reports about their evaluation and whether there have
been changes in USCB Financial Holdings, Inc.’s internal control over financial reporting or in other factors that could
materially affect USCB Financial Holdings, Inc.’s internal control over financial reporting.
In March 2020, the SEC issued a final rule, effective April 27, 2020, under the SOA – Amendments to the Accelerated
Filer and Large Accelerated Filer Definitions. As a result of the amendments, certain low revenue and/or low public float
filers, while they remained obligated to provide a report by management assessing the effectiveness of their internal control
over financial reporting (“ICFR”), were not required to provide an attestation report from their independent auditor assessing
the effectiveness of their ICFR. The Company meets the amended definition of an accelerated filer as of January 1, 2025
and would normally be required to provide an attestation report from its independent auditor assessing the effectiveness of
its ICFR. However, as long it is an eligible emerging growth company, such auditor attestation requirement will not apply to
the Company. However, the Bank remains subject to independent auditor attestation required under FDIC regulations set
forth at 12 C.F.R. §363.3(b).
20 USCB Financial Holdings, Inc. 2024 10-K
Available Information
Our website address is www.uscentury.com. Our electronic filings with the FDIC (prior to the bank holding company
reorganization) and the SEC (including all Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports
on Form 8-K, and if applicable, amendments to those reports) are available free of charge on the website as soon as
reasonably practicable after they are electronically filed with, or furnished to, the FDIC or SEC. The information posted on
our website is not incorporated into this Annual Report on Form 10-K. In addition, the FDIC and the SEC each maintains a
website that contains reports and other information that is filed.
21 USCB Financial Holdings, Inc. 2024 10-K
Item 1A. Risk Factors
This section contains a description of the material risk and uncertainties identified by management that could,
individually or in combination, harm our business, results of operations, liquidity and financial condition. The risks described
below are not all inclusive. We may face other risks that are not presently known, or that we presently deem immaterial,
which may also adversely affect our business, results of operations, liquidity and financial condition. If any of these known
or unknown risks or uncertainties actually occur, our business, results of operations, liquidity and financial condition could
be materially and adversely affected.
Summary of Risk Factors
Our business is subject to a number of risks that could cause actual results to differ materially from those indicated by
forward-looking statements made in this Form 10-K or presented elsewhere from time to time. These risks are discussed
more fully in this Item 1A and include, without limitation, the following:
Risks Related to our Business and Operations
•
adverse changes in the local economy than our more geographically diversified competitors.
•
•
developments, which may impair a borrower's ability to repay a loan.
•
•
•
operations, growth and prospects.
•
retaliatory tariffs, or other sanctions, may adversely impact our business, financial condition and results of
operations.
•
•
•
financial condition and operations.
•
financial performance.
•
material adverse effect on our business, financial condition and results of operations.
•
•
•
growth and adversely affect our earnings.
•
face specific risks associated with originating SBA loans and selling the guaranteed portion thereof.
•
22 USCB Financial Holdings, Inc. 2024 10-K
•
•
•
condition, and could result in further losses in the future.
•
subjecting us to the costs and potential risks associated with the ownership of real property and other risks, including
exposure to environmental liability, or consumer protection initiatives or changes in state or federal law may
substantially raise the cost of foreclosure or prevent us from foreclosing at all.
•
•
data processing system failures and errors.
•
of transactions.
•
expensive and less stable sources.
•
operations.
•
historical growth and earnings trends.
•
•
on terms acceptable to us or may be dilutive to existing shareholders.
•
risks in successfully integrating and managing the merged companies or acquisitions and may dilute our
shareholders.
•
the future, could harm our business.
•
•
which could materially and adversely affect our business.
•
•
to invest in technological improvements.
•
risks.
•
A
failure, interruption, or breach in the security of our systems, or those of our contracted vendors, could disrupt our
business, result in the disclosure of confidential information, damage our reputation, and create significant financial
and legal exposure.
•
interrupted if our third-party service providers experience difficulty, terminate their services or fail to comply with
banking regulations.
23 USCB Financial Holdings, Inc. 2024 10-K
•
penalties, judgments or other requirements resulting in increased expenses or restrictions on our business activities.
•
us or another entity with which they are, or may become, affiliated.
Risks Related to Our Tax, Accounting and Regulatory Compliance
•
and may be materially impaired upon significant changes in ownership of our common stock.
•
or estimates used in our critical accounting policies are inaccurate.
•
future failure to maintain effective internal control over financial reporting could impair the reliability of our financial
statements, which in turn could harm our business, impair investor confidence in the accuracy and completeness
of our financial reports and our access to the capital markets, cause the price of our Class A common stock to
decline and subject us to regulatory penalties.
•
governance, executive compensation and accounting principles, or changes in them, or our failure to comply with
them, could adversely affect us.
•
regulations and corresponding enforcement proceedings.
•
our compliance, regulatory, and other risks and costs and subject us to legal and regulatory examinations,
investigations, and enforcement actions.
•
which could adversely affect our financial condition and operations.
•
findings and determinations of these agencies, we may be required to make adjustments to our business that could
adversely affect us.
•
including the Community Reinvestment Act, or CRA, and fair lending laws, and failure to comply with these laws
could lead to a wide variety of sanctions.
•
operations.
•
respect to our environmental, social and governance practices may impose additional costs on us or expose us to
new or additional risks.
Risks Related to Our Class A Common Stock
•
•
substantial losses for our shareholders.
•
shareholders that would own 4.95% or more of our stock, excluding our Significant Investors.
24 USCB Financial Holdings, Inc. 2024 10-K
•
exemptions from various reporting and other requirements applicable to emerging growth companies, our Class A
common stock could be less attractive to investors.
•
standards for an “emerging growth company,” our financial statements may not be comparable to companies that
comply with these accounting standards as of the public company effective dates.
•
from yours.
•
regulatory limitations on changes of control of the Company.
Risks Related to our Business and Operations
Our business operations and lending activities are concentrated in South Florida, and we are more sensitive
to adverse changes in the local economy than our more geographically diversified competitors.
Unlike many of our larger competitors that maintain significant operations located outside of our market area, most of
our customers are concentrated in South Florida. In addition, we have a high concentration of loans secured by real estate
located in South Florida. Therefore, our success depends upon the general economic conditions in South Florida, which
may differ from the economic conditions in other areas of the U.S. or the U.S. generally.
Our real estate collateral provides an alternate source of repayment in the event of default by the borrower; however,
the value of the collateral may decline during the time the credit is outstanding. The concentration of our loans in the South
Florida area subjects us to risk that a downturn in the local economy or recession in this area could result in a decrease in
loan originations and increases in delinquencies and foreclosures, which would have a greater negative effect on us than if
our lending were more geographically diversified. Additionally, the COVID-19 pandemic accelerated the adoption of remote
work options, potentially influencing the long-term performance of office properties within our commercial real estate
portfolio. If we are required to liquidate our real estate collateral securing a loan during a period of reduced real estate values
to satisfy the debt, our earnings and capital could be adversely affected. Moreover, since a large portion of our loan portfolio
is secured by properties located in South Florida, the occurrence of a natural disaster, such as a hurricane, or a man-made
disaster could result in a decline in loan originations, a decline in the value or the destruction of mortgaged properties and
an increase in the risk of delinquencies, foreclosures or loss on loans originated by us. We may suffer further losses due to
the decline in the value of the properties underlying our mortgage loans, which would have an adverse impact on our results
of operations and financial condition.
A downturn in the local economy generally may lead to loan losses that are not offset by operations in other markets; it
may also reduce the ability of our customers to grow or maintain their deposits with us. For these reasons, any regional or
local economic downturn that affects South Florida, or existing or prospective borrowers or depositors in South Florida,
could have a material adverse effect on our business, financial condition and results of operations.
In addition, there are continuing concerns related to, among other things, the increasing level of U.S. government debt
and fiscal actions that may be taken to address that debt, price fluctuations of key natural resources, inflation, the potential
resurgence of economic and political tensions with China, the continuing war in Ukraine, the conflict in Gaza and the level
of oil and natural gas prices due to, among other things, Russian supply disruptions resulting from the ongoing Ukrainian
conflict, each of which may have a destabilizing effect on financial markets and economic activity. Economic pressure on
consumers and overall economic uncertainty may result in changes in consumer and business spending, borrowing and
saving habits. These economic conditions and/or other negative developments in the domestic or international credit
markets or economies may significantly affect the markets in which we do business, the value of our loans and investments,
and our ongoing operations, costs and profitability.
25 USCB Financial Holdings, Inc. 2024 10-K
Our concentration of real estate loans in a limited market area exposes us to lending risks.
At December 31, 2024, approximately $1,426 million, or 72.6%, of our total loan portfolio, was secured by real estate,
in particular commercial real estate, most of which is located in our primary lending market area of the Miami metropolitan
statistical area. Future declines in the real estate values in our primary lending market and surrounding markets could
significantly impair the value of the particular real estate collateral securing our loans and our ability to sell the collateral
upon foreclosure for an amount necessary to satisfy the borrower’s obligations to us. This could require increasing our
allowance for credit losses to address the decrease in the value of the real estate securing our loans, which could have a
material adverse effect on our business, financial condition, results of operations, and growth prospects.
The small- to medium-sized businesses to which we lend may have fewer resources to weather adverse
business developments, which may impair a borrower's ability to repay a loan.
We target our business development and marketing strategies primarily to serve the banking and financial services
needs of SMBs and the owners and operators of those businesses. SMBs generally have fewer financial resources in terms
of capital or borrowing capacity than larger entities, frequently have smaller market shares than their competition, may be
more vulnerable to economic downturns, often need substantial additional capital to expand or compete, and may
experience substantial volatility in operating results, any of which, individually or in the aggregate, may impair their ability
as a borrower to repay a loan. In addition, the success of SMBs often depends on the management skills, talents and efforts
of a small group of key people, and the death, disability or resignation of one or more of these individuals could have an
adverse impact on the business and its ability to repay its loan. If general economic conditions negatively impact the markets
in which we operate or any of our borrowers otherwise are affected by adverse business developments, our SMB borrowers
may be disproportionately affected and their ability to repay outstanding loans may be adversely affected, which could have
a material adverse effect on our business, financial condition and results of operations.
Inflationary pressures and rising prices may affect our results of operations and financial condition.
The inflationary outlook in the United States remains uncertain. As of December 31, 2024, the consumer price index
was 2.9% year-over-year. While this is a significant reduction to the rate of inflation experienced in 2022 and 2023, it is still
above the FRB’s targeted rate. The risks to our business from inflation depend on the durability of the inflationary pressures
in our markets. Although the FRB has reduced the federal funds rate three times in 2024, no assurance can be given that
it will continue to do so. At the end of January 2025, the FRB determined not to reduce the federal funds rate. The resurgence
of elevated levels of inflation could lead the FRB to cease reducing its benchmark rate or potentially starting to increase it
again which could, in turn, increase the borrowings costs of our customers, making it more difficult for them to repay their
loans or other obligations. Elevated interest rates may be needed to tame inflationary price pressures, which could also
push down asset prices, including collateral values, and weaken economic activity.
As inflation increases and market interest rates rise the value of our investment securities, particularly those with longer
maturities, decreases, although this effect can be less pronounced for floating-rate instruments. In addition, inflation
generally increases the cost of goods and services we use in our business operations, such as electricity and other utilities,
which increases our noninterest expenses. Also, a prolonged period of inflation could cause wages and other of our costs
to increase, which could adversely affect our results of operations and financial condition. Furthermore, our customers are
also affected by inflation and the rising costs of goods and services used in their households and businesses, which could
have a negative impact on their ability to repay their loans with us. In addition, SMBs may be impacted more during periods
of high inflation, as they are not able to leverage economics of scale to mitigate cost pressures compared to larger
businesses. Consequently, the ability of our business customers to repay their loans may deteriorate, and in some cases
this deterioration may occur quickly, which would adversely impact our results of operations and financial condition.
The soundness of other financial institutions could adversely affect us.
Our ability to engage in routine funding and other transactions could be adversely affected by the actions and
commercial soundness of other financial institutions. Financial services companies are interrelated as a result of trading,
clearing, counterparty or other relationships. We have exposure to different industries and counterparties, and through
transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks,
investment banks, and other institutional clients. Defaults by, or even rumors or questions about, one or more financial
institutions or market utilities, or the financial services industry generally, may lead to market-wide liquidity problems, losses
of depositor, creditor and counterparty confidence and losses or defaults by us or by other institutions. These losses or
defaults could have a material adverse effect on our business, financial condition, results of operations and growth
prospects. Additionally, if our competitors were extending credit on terms we found to pose excessive risks, or at interest
rates which we believed did not warrant the credit exposure, we may not be able to maintain our business volume and could
experience deteriorating financial performance.
26 USCB Financial Holdings, Inc. 2024 10-K
Insufficient liquidity could impair our ability to fund operations and jeopardize our financial condition, results
of operations, growth and prospects.
Effective liquidity management is essential for the operation of our business. Although we have implemented strategies
to maintain sufficient and diverse sources of funding to accommodate planned, as well as unanticipated, liquidity needs
(including changes in assets, liabilities, and off-balance sheet commitments under various economic conditions), an inability
to raise funds through deposits, borrowings, the sale of investment securities and other sources could have a material
adverse effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities could be impaired
by factors that affect us specifically or the financial services industry in general. Factors that could detrimentally impact our
access to liquidity sources include a decrease in the level of our business activity due to a market disruption, a decrease in
the borrowing capacity assigned to our pledged assets by our secured creditors, competition from other financial institutions
which could drive up the costs of deposits or adverse regulatory action against us. Deterioration in economic conditions and
the loss of confidence in financial institutions may increase our cost of funding and limit our access to some of our customary
sources of liquidity, including, but not limited to, inter-bank borrowings and borrowings from the Federal Home Loan Bank
of Atlanta, or the FHLB, and the Federal Reserve Bank of Atlanta. Our ability to acquire deposits or borrow could also be
impaired by factors that are not specific to us, such as a severe disruption of the financial markets or negative views and
expectations about the prospects for the financial services industry generally as a result of conditions faced by banking
organizations in the domestic and international credit markets. Any decline in available funding or cost of liquidity could
adversely impact our ability to originate loans, invest in securities, meet our expenses or fulfill obligations such as repaying
our borrowings or meeting deposit withdrawal demands, any of which could, in turn, have an adverse effect on our business,
financial condition, and results of operations.
Changes in U.S. trade policies and other global political factors beyond our control, including the imposition
of tariffs, retaliatory tariffs, or other sanctions, may adversely impact our business, financial condition and results
of operations.
There have been, and may be in the future, changes with respect to U.S. and international trade policies, legislation,
treaties and tariffs, embargoes, sanctions and other trade restrictions. In early February, the new U.S. administration
imposed through executive orders a new tariff policy, imposing a 25% duty on merchandise imports from Mexico and
Canada alongside a 10% tariff on Chinese imports. The executive orders included an exemption for Canadian energy
resources, subject to a reduced 10% tariff. The tariffs were set to take effect on February 4, 2025, but following discussions
between the United States and each of Canada and Mexico, the U.S. administration agreed to a pause of at least 30 days
in the implementation of the duties. The tariffs on China went into effect as scheduled on February 4, 2025. This led to 10%
to 15% retaliatory tariffs on U.S. energy and farm machinery imports being imposed by China on February 9, 2025.
Subsequently, the U.S. administration announced the United States would impose a 25% tariff on all imports of steel and
aluminum, coming into force in mid-March 2025. In addition, an additional 10% tariff was announced to be imposed on
China in early March 2025. Tariffs, retaliatory tariffs or other trade restrictions on products and materials that customers
import or export, or a trade war or other related governmental actions related to tariffs, international trade agreements or
policies or other trade restrictions have the potential to negatively impact our customers' costs, demand for our products, or
the U.S. economy or certain sectors thereof and, thus, could adversely impact our business, financial condition and results
of operations. As a result of Russia's invasion of Ukraine, the U.S. imposed, and may continue to impose material additional,
financial and economic sanctions and export controls against certain Russian organizations and/or individuals, with similar
actions either implemented or planned by the European Union ("EU") and the United Kingdom (“UK”) and other jurisdictions.
The U.S., the UK, and the EU have each imposed packages of financial and economic sanctions that, in various ways,
constrain transactions with numerous Russian entities and individuals; transactions in Russian sovereign debt; and
investment, trade, and financing to, from, or in certain regions of Ukraine. Moreover, actions by Russia, and any further
measures taken by the U.S. or its allies, could have negative impacts on regional and global financial markets and economic
conditions. To the extent changes in the global political environment, including the continuing war in Ukraine and the
continued heightened tensions between Russia and the U.S., NATO, the EU and the UK, as well as the conflict in Gaza,
have a negative impact on us or on the markets in which we operate, our business, results of operations and financial
condition could be materially and adversely impacted.
Our lending business is subject to credit risk, which could lead to unexpected losses.
Our primary business involves making loans to customers. The business of lending is inherently risky because the
principal or interest on the loan may not be repaid timely or at all or the value of any collateral securing the loan may be
insufficient to cover our outstanding exposure. These risks may be affected by the strength or weakness of the particular
borrower's business sector and local, regional and national market and economic conditions. Many of our loans are made
to SMBs that may be less able to withstand competitive, economic and financial pressures than larger borrowers. Our risk
management practices, such as monitoring the concentration of our loans within specific industries in which we lend and
27 USCB Financial Holdings, Inc. 2024 10-K
concentrations with individual borrowers or related borrowers, and our credit approval practices, may not adequately reduce
credit risk. In addition, there are risks inherent in making any loan, including risks relating to proper loan underwriting, risks
resulting from changes in economic and industry conditions, risks inherent in dealing with individual borrowers, including
the risk that a borrower may not provide information to us about their business in a timely manner, may present inaccurate
or incomplete information to us, may lack a U.S. credit history, or may leave the U.S. without fulfilling their loan obligations,
leaving us with little recourse to them personally, and/or risks relating to the value of collateral. In order to manage credit
risk successfully, we must, among other things, maintain disciplined and prudent underwriting standards and ensure that
our lenders follow those standards. The weakening of these standards for any reason, such as an attempt to attract higher
yielding loans, a lack of discipline or diligence by our employees in underwriting and monitoring loans, the inability of our
employees to adequately adapt policies and procedures to changes in economic or any other conditions affecting borrowers
and the quality of our loan portfolio, may result in loan defaults, foreclosures and additional charge-offs and may necessitate
that we significantly increase our allowance for credit losses, each of which could adversely affect our net income. A failure
to effectively manage credit risk associated with our loan portfolio could lead to unexpected losses and have a material
adverse effect on our business, financial condition and results of operations.
The transition from the use of LIBOR may adversely impact the interest rates paid on certain financial
instruments.
LIBOR (the London InterBank Offered Rate) was used as a reference rate for certain of the Corporation’s adjustable-
rate loans and bonds. In 2017, the U.K. Financial Conduct Authority, which regulates LIBOR, announced that the publication
of LIBOR would not be guaranteed beyond 2021. In December 2020, the administrator of LIBOR announced its intention to
(i) cease the publication of the one-week and two-month U.S. dollar LIBOR after December 31, 2021, and (ii) cease the
publication of all other tenors of U.S. dollar LIBOR (one, three, six and 12 month LIBOR) after June 30, 2023. The remaining
synthetic LIBOR was published for the last time as of September 30, 2024. Synthetic LIBOR was a temporary measure to
allow entities to transition to alternative risk-free reference rates.
There are ongoing efforts to establish an alternative reference rate. The Federal Reserve Board, in conjunction with the
Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, supports
replacing LIBOR with SOFR (Secured Overnight Financing Rate), a new index calculated by short-term repurchase
agreements backed by Treasury securities. The Bank adopted SOFR as its preferred benchmark as an alternative to LIBOR
for use in new contracts in 2023.
While the Adjustable Interest Rate (LIBOR) Act and implementing regulations will help to transition legacy LIBOR
contracts to a new benchmark rate, the substitution of SOFR for LIBOR may have potentially significant economic impacts
on parties to affected contracts. SOFR is different from LIBOR in that it is a retrospective-looking secured rate rather than
a forward-looking unsecured rate. Additionally, while SOFR appears to be the preferred replacement rate for LIBOR, it is
not possible to predict whether SOFR will ultimately prevail in the market as the definitive replacement for LIBOR.
Uncertainty as to the nature of alternative reference rates, and as to potential changes or other reforms related to the
transition from LIBOR, may adversely affect the val ue of LIBOR-based financial arrangements of the Company.
Natural disasters and severe weather events in Florida could have a material adverse impact on our business,
financial condition and operations.
Our operations and our customer base are primarily located in South Florida. This region is vulnerable to natural
disasters and severe weather events or acts of God, such as hurricanes or tropical storms, which can have a material
adverse impact on our loan portfolio, our overall business, financial condition and operations, cause widespread property
damage and have the potential to significantly depress the local economies in which we operate. Future adverse weather
events in Florida could potentially result in extensive and costly property damage to businesses and residences, depress
the value of property serving as collateral for our loans, force the relocation of residents, and significantly disrupt economic
activity in the region.
We cannot predict the extent of damage that may result from such adverse weather events, which will depend on a
variety of factors that are beyond our control, including, but not limited to, the severity and duration of the event, the timing
and level of government responsiveness, the pace of economic recovery and availability of insurance to cover losses. In
addition, the nature, frequency and severity of these adverse weather events and other natural disasters may be
exacerbated by climate change. If a significant adverse weather event or other natural disaster were to occur, it could have
a materially adverse impact on our financial condition, results of operations and our business, as well as potentially increase
our exposure to credit and liquidity risks.
28 USCB Financial Holdings, Inc. 2024 10-K
Our business is subject to interest rate risk, and variations in interest rates may materially and adversely affect
our financial performance.
Changes in the interest rate environment may reduce our profits. It is expected that our primary source of income will
continue to be from the differential or "spread" between the interest earned on loans, securities and other interest-earning
assets, and the interest paid on deposits, borrowings and other interest-bearing liabilities. Net interest spreads are affected,
in part, by the difference between the maturities and repricing characteristics of interest-earning assets and interest-bearing
liabilities. Changes in market interest rates generally affect loan volume, loan yields, funding sources and funding costs.
Our net interest spread depends on many factors that are partly or completely out of our control, including competition,
general economic conditions, and federal economic monetary and fiscal policies, and in particular, the Federal Reserve's
policy determinations with respect to interest rates.
During 2022 and 2023, the Federal Open Market Committee (the “FOMC”) increased certain benchmark interest rates
to reduce the rate of inflation to the extent necessary to reduce inflation to the rate that the FOMC believes is appropriate.
All of these increases were expressly made in response to inflationary pressures. In 2024, the FOMC decreased such
benchmark rates three times. However, there can be no assurances as to any future FOMC action, including whether it
continues to decrease the federal funds rate or implements increases. In late January 2025, the FOMC determined to not
change the federal funds rate at 4.25% to 4.5%.
While an increase in interest rates may increase our weighted average loan yield, it may adversely affect the ability of
certain borrowers with variable rate loans to pay the contractual interest and principal due to us. Following an increase in
interest rates, our ability to maintain a positive net interest spread is dependent on our ability to increase our loan offering
rates, replace loans that mature and repay or that prepay before maturity with new originations at higher rates, minimize
increases on our deposit rates, and maintain an acceptable level and composition of funding. We cannot provide assurances
that we will be able to increase our loan offering rates and continue to originate loans due to the competitive landscape in
which we operate. Additionally, we cannot provide assurances that we can minimize the increases in our deposit rates while
maintaining an acceptable level of deposits. Due to competitive pressures in 2023, we increased the rates paid on our
interest-bearing deposits such that our weighted average cost of deposits increased from 0.62% for 2022 to 3.04% for 2023.
However, in 2024, in light of the FOMC’s actions to decrease the federal funds rate three times, we decreased the rates
paid on our interest-bearing deposits. As a result, while the overall funds increased, the cost of it increased at a lesser pace
when compared to the increase in cost of deposits from 2022 to 2023. Finally, we cannot provide any assurances that we
can maintain our current levels of noninterest-bearing deposits as customers may seek higher-yielding products due to the
increased interest rates being paid on deposits currently, as compared to 2023 and 2022.
Accordingly, changes in levels of interest rates could materially and adversely affect our net interest margin, asset
quality, loan origination volume, average loan portfolio balance, liquidity, and overall profitability.
A failure or the perceived risk of a failure to raise the statutory debt limit of the U.S. in the future could have a
material adverse effect on our business, financial condition and results of operations
.
Ongoing U.S. debt ceiling and budget deficit concerns have increased the possibility of additional credit-rating
downgrades and economic slowdowns, or a recession in the United States. Although U.S. lawmakers have passed
legislation in the past to raise the federal debt ceiling on multiple occasions, including the most recent increase in June
2023, ratings agencies have lowered or threatened to lower the long-term sovereign credit rating on the United States. On
January 1, 2025, the extension of the debt ceiling limit effected in June 2023 expired. The debt ceiling was reinstated on
January 2, 2025, at $36.1 trillion, a figure reflecting the total federal debt accumulated by that date. In late January 2025,
the U.S. Treasury began employing various measures, such as suspending investments in federal retirement funds and
halting the issuance of certain securities, to continue financing government operations. There are proposals to increase the
debt ceiling limit by $4.0 trillion, subject to agreements on other matters including extending $4.5 trillion in tax cuts from the
2017 Tax Cuts and Jobs Act (set to expire in 2025) and implementing $2 trillion in mandatory spending reductions over a
decade. The impact of this or any further downgrades to the U.S. government’s sovereign credit rating or its perceived
creditworthiness could adversely affect the U.S. and global financial markets and economic conditions. These developments
could cause interest rates and borrowing costs to rise (unless the Federal Reserve re-initiates quantitative easing), which
may negatively impact our ability to access the debt markets on favorable terms. In addition, disagreement over the federal
budget has caused the U.S. federal government to shut down for periods of time. Continued adverse political and economic
conditions could have a material adverse effect on our business, financial condition and results of operations.
Our allowance for credit losses may not be sufficient to absorb potential losses in our loan portfolio.
We maintain an allowance for credit losses that represents management's judgment of probable losses and risks
inherent in our loan portfolio. The level of the allowance reflects management's continuing evaluation of general economic
29 USCB Financial Holdings, Inc. 2024 10-K
conditions, present political and regulatory conditions, diversification and seasoning of the loan portfolio, historic loss
experience, identified credit problems, delinquency levels and adequacy of collateral. Determining the appropriate level of
our allowance for credit losses involves a degree of subjective judgment and requires management to make significant
estimates of and assumptions regarding current credit risks and future trends, all of which may undergo material changes.
Inaccurate management assumptions, deterioration of economic conditions affecting borrowers, new negative
information regarding existing loans, identification of additional problem loans or deterioration of existing problem loans,
and other factors (including third-party review and analysis), both within and outside of our control, may require us to
increase our allowance for credit losses. In addition, our regulators, as an integral part of their periodic examinations, review
our methodology for calculating, and the adequacy of, our allowance for credit losses and may direct us to make additions
to the allowance based on their judgments about information available to them at the time of their examination. Further, if
actual charge-offs in future periods exceed the amounts allocated to our allowance for credit losses, we may need additional
provisions for credit losses to restore the adequacy of our allowance for credit losses. Finally, the measure of our allowance
for credit losses depends on the adoption and interpretation of accounting standards. The Financial Accounting Standards
Board, or FASB, issued a new credit impairment model, the Current Expected Credit Loss, or CECL model, which became
applicable to us on January 1, 2023. CECL requires financial institutions to estimate and develop a provision for credit
losses over the lifetime of the loan at origination, as opposed to reserving for incurred or probable losses up to the balance
sheet date. Under the CECL model, expected credit deterioration will be reflected in the income statement in the period of
origination or acquisition of a loan, with changes in expected credit losses due to further credit deterioration or improvement
reflected in the periods in which the expectation changes. As a result of the initial implementation of CECL, we incurred as
of January 1, 2023 a $1.1 million cumulative effect of the adoption of CECL. Moreover, the CECL model may create more
volatility in our level of allowance for credit losses. If we are required to materially increase our level of allowance for credit
losses for any reason, such increase could adversely affect our business, prospects, cash flow, liquidity, financial condition
and results of operations.
Our commercial loan portfolio may expose us to increased credit risk.
Commercial business and real estate loans generally have a higher risk of loss because loan balances are typically
larger than residential real estate and consumer loans and repayment is usually dependent on cash flows from the
borrower’s business or the property securing the loan. Our commercial business loans are primarily made to small business
and middle market customers. These loans typically involve repayment that depends upon income generated, or expected
to be generated, by the property securing the loan and/or by the cash flow generated by the business borrower and may be
adversely affected by changes in the economy or local market conditions. These loans expose a lender to the risk of having
to liquidate the collateral securing these loans at times when there may be significant fluctuation of commercial real estate
values or to the risk of inadequate cash flows to service the commercial loans. Unexpected deterioration in the credit quality
of our commercial business and/or real estate loan portfolio could require us to increase our allowance for credit losses,
which would reduce our profitability and could have an adverse effect on our business, financial condition, and results of
operations.
Commercial construction loans generally have a higher risk of loss due to the assumptions used to estimate the value
of property at completion and the cost of the project, including interest. It can be difficult to accurately evaluate the total
funds required to complete a project, and construction lending often involves the disbursement of substantial funds with
repayment dependent, in large part, on the success of the ultimate project rather than the ability of a borrower or guarantor
to repay the loan from sources other than the subject project. If the assumptions and estimates are inaccurate, the value of
completed property may fall below the related loan amount. If we are forced to foreclose on a project prior to completion,
we may be unable to recover the entire unpaid portion of the loan, which would lead to losses. In addition, we may be
required to fund additional amounts to complete a project, incur taxes, maintenance and compliance costs for a foreclosed
property and may have to hold the property for an indeterminate period of time, any of which could adversely affect our
business, prospects, cash flow, liquidity, financial condition and results of operations.
The imposition of further limits by the bank regulators on commercial real estate lending activities could curtail
our growth and adversely affect our earnings.
The FDIC, the Federal Reserve and the Office of the Comptroller of the Currency have promulgated joint guidance on
sound risk management practices for financial institutions with concentrations in commercial real estate lending. Under this
guidance, a financial institution that, like us, is actively involved in commercial real estate lending should perform a risk
assessment to identify concentrations. Regulatory guidance on concentrations in commercial real estate lending provides
that a bank’s commercial real estate lending exposure could receive increased supervisory scrutiny where total commercial
real estate loans, including loans secured by multi-family residential properties, owner-occupied and nonowner-occupied
investor real estate, and construction and land loans, represent 300% or more of an institution’s total risk-based capital, and
the outstanding balance of the commercial real estate loan portfolio has increased by 50% or more during the preceding 36
30 USCB Financial Holdings, Inc. 2024 10-K
months. At December 31, 2024, our total commercial investor real estate loans, including loans secured by apartment
buildings, commercial real estate, and construction and land loans represented 366% of the Bank’s total risk-based capital
and the growth in the commercial real estate portfolio exceeded 50% over the preceding 36 months. The particular focus of
the guidance is on exposure to commercial real estate loans that are dependent on the cash flow from the real estate held
as collateral and that are likely to be at greater risk to conditions in the commercial real estate market (as opposed to real
estate collateral held as a secondary source of repayment or as an abundance of caution). The purpose of the guidance is
to guide institutions in developing risk management practices and capital levels commensurate with the level and nature of
real estate concentrations. Management has established a commercial real estate lending framework to monitor specific
exposures and limits by types within the commercial real estate portfolio and takes appropriate actions, as necessary. While
we believe we have implemented policies and procedures with respect to our commercial real estate loan portfolio consistent
with this guidance, the FDIC, the Bank’s primary federal regulator, could require us to implement additional policies and
procedures pursuant to their interpretation of the guidance that may result in additional costs to us. In addition, If the FDIC
were to impose restrictions on the amount of commercial real estate loans we can hold in our portfolio, our earnings would
be adversely affected.
Our SBA lending program is dependent upon the federal government and our status as a participant in the
SBA's Preferred Lenders Program, and we face specific risks associated with originating SBA loans and selling
the guaranteed portion thereof.
We have been approved by the SBA to participate in the SBA's Preferred Lenders Program. As an SBA Preferred
Lender, we enable our clients to obtain SBA loans without being subject to the potentially lengthy SBA approval process
necessary for lenders that are not SBA Preferred Lenders. The SBA periodically reviews the lending operations of
participating lenders to assess, among other things, whether the lender exhibits prudent risk management. When
weaknesses are identified, the SBA may request corrective actions or impose enforcement actions, including revocation of
the lender's Preferred Lender status. If we lose our status as an SBA Preferred Lender, we may lose some or all of our
customers to lenders who are SBA Preferred Lenders, which could adversely affect our business, financial condition and
results of operations.
We generally sell the guaranteed portion of our SBA 7(a) loans in the secondary market. These sales have resulted in
both premium income for us at the time of sale and created a stream of future servicing income. There can be no assurance
that we will be able to continue originating these loans, that a secondary market for these loans will continue to exist or that
we will continue to realize premiums upon the sale of the guaranteed portion of these loans. When we sell the guaranteed
portion of our SBA 7(a) loans, we incur credit risk on the non-guaranteed portion of the loans, and if a customer defaults on
the non-guaranteed portion of a loan, we share any loss and recovery related to the loan pro-rata with the SBA.
The laws, regulations and standard operating procedures that are applicable to SBA loan products may change in the
future. We cannot predict the effects of these changes on our business and profitability. Because government regulation
greatly affects the business and financial results of all commercial banks and bank holding companies, especially our
organization, changes in the laws, regulations and procedures applicable to SBA loans could adversely affect our ability to
operate profitably. In addition, the aggregate amount of SBA 7(a) and 504 loan guarantees by the SBA must be approved
each fiscal year by the federal government. We cannot predict the amount of SBA 7(a) loan guarantees in any given fiscal
year. If the federal government were to reduce the amount of SBA loan guarantees, such reduction could adversely impact
our SBA lending program, including making and selling the guaranteed portion of fewer SBA 7(a) and 504 loans. In addition,
any default by the U.S. government on its obligations or any prolonged government shutdown could, among other things,
impede our ability to originate SBA loans or sell such loans in the secondary market, which could materially and adversely
affect our business, financial condition and results of operations.
The SBA may not honor its guarantees if we do not originate loans in compliance with SBA guidelines
.
SBA lending programs typically guarantee 75.0% of the principal on an underlying loan. If the SBA establishes that a
loss on an SBA guaranteed loan is attributable to significant technical deficiencies in the manner in which the loan was
originated, funded or serviced by us, the SBA may seek recovery of the principal loss related to the deficiency from us
notwithstanding that a portion of the loan was guaranteed by the SBA, which could adversely affect our business, financial
condition and results of operations. While we follow the SBA's underwriting guidelines, our ability to do so depends on the
knowledge and diligence of our employees and the effectiveness of controls we have established. If our employees do not
follow the SBA guidelines in originating loans and if our loan review and audit programs fail to identify and rectify such
failures, the SBA may reduce or, in some cases, refuse to honor its guarantee obligations and we may incur losses as a
result.
31 USCB Financial Holdings, Inc. 2024 10-K
Correspondent banking is an important part of our business, which creates increased BSA/AML risk.
As our business model includes correspondent services to banks in Latin America and the Caribbean, these cross-
border correspondent banking relationships pose unique risks because they create situations in which a U.S. financial
institution will be handling funds from a financial institution in Latin America and the Caribbean whose customers may not
be transparent to us. Moreover, many foreign financial institutions, including in Latin America and the Caribbean where our
correspondent banking services are located, are not subject to the same or similar regulatory guidelines as U.S. banks.
Accordingly, these foreign institutions may pose greater money laundering risk to their respective U.S. bank
correspondent(s). Because of the large amount of funds, multiple transactions, and our potential lack of familiarity with a
foreign correspondent financial institution's customers, these customers may be able to more easily conceal the source and
use of illicit funds. Consequently, we may have a higher risk of non-compliance with the Bank Secrecy Act of 1970, as
amended (“BSA”) and other anti-money laundering (“AML”) rules and regulations due to our correspondent banking
relationships with foreign financial institutions. Additionally, international private banking places additional pressure on our
policies, procedures and systems for complying with the BSA, and AML statutes and regulations as well as the recently
enacted CTA. Our failure to strictly adhere to the terms and requirements of our OFAC license or our failure to adequately
manage our BSA/AML compliance risk in light of our correspondent banking relationship with foreign financial institutions
and international private banking could result in regulatory or other actions being taken against us, including the imposition
of civil money penalties, formal agreements and cease and desist orders. Furthermore, failure to meet regulatory
requirements could require us to incur additional significant costs in order to bring our BSA/AML processes and procedures
into compliance, negatively impact our reputation, and have a material adverse effect on our business, financial condition
and results of operations.
In recent years, sanctions that the regulators have imposed on banks that have not complied with all BSA and AML
requirements have been especially severe. In order to comply with regulations, guidelines and examination procedures in
this area, we have dedicated significant resources to our BSA/AML process and procedures. If our policies, procedures and
systems are deemed deficient, we could be subject to liability, including fines and regulatory actions such as additional
restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects
of our business plan, such as acquisitions.
We may not recover all amounts that are contractually owed to us by our borrowers.
We are dependent on the collection of loan principal, interest, and fees to partially fund our operations. A shortfall in
collections and proceeds may impair our ability to fund our operations or to repay our existing debt.
When we lend funds, commit to fund a loan or enter into a letter of credit or other credit-related contract with a
counterparty, we incur credit risk. The credit quality of our portfolio can have a significant impact on our earnings. We expect
to experience charge-offs and delinquencies on our loans in the future. Our customers' actual operating results may be
worse than our underwriting contemplated when we originated the loans, and in these circumstances, we could incur
substantial impairment or loss of the value on these loans. We may fail to identify problems because our customer did not
report them in a timely manner or, even if the customer did report the problem, we may fail to address it quickly enough or
at all, or some loans, due to market circumstances, may not be able to be fully rehabilitated. Even if customers provide us
with full and accurate disclosure of all material information concerning their businesses, we may misinterpret or incorrectly
analyze this information. Mistakes may cause us to make loans that we otherwise would not have made or to fund advances
that we otherwise would not have funded, either of which could result in losses on loans, or necessitate that we significantly
increase our allowance for loan and lease losses. As a result, we could suffer loan losses and have non-performing loans,
which could have a material adverse effect on our net earnings and results of operations and financial condition, to the
extent the losses exceed our allowance for loan and lease losses.
Some of our loans are secured by liens on specified collateral of the borrowers and we may not obtain or properly
perfect our liens or the value of the collateral securing any particular loan may not be sufficient to protect us from suffering
a partial or complete loss if the loan becomes non-performing and we proceed to foreclose on or repossess the collateral.
With respect to loans that we originate for condominium or homeowners' associations (“Associations”), these loans are
primarily secured by and rely upon the cash flow received by the Associations from payments received from their property
owners, as well as cash on hand. These Associations rely upon payments received from their property owners in order to
perform on these loans and for the loan collateral. Accordingly, our ability to recover amounts on non-performing loans
made to Associations is dependent upon the Association having sufficient cash on hand for repayment of the loan and/or
having the ability to impose assessments on its property owners, some of whom may not have the ability to pay such
assessments. In such events, we could suffer loan losses, which could have a material adverse effect on our net earnings,
allowance for loan and lease losses, financial condition, and results of operations.
32 USCB Financial Holdings, Inc. 2024 10-K
Non-performing assets take significant time to resolve and adversely affect our results of operations and
financial condition, and could result in further losses in the future.
Non-performing assets adversely affect our net income in various ways. We do not record interest income on nonaccrual
loans or other real estate owned (“OREO”), thereby adversely affecting our net income and returns on assets and equity,
increasing our loan administration costs and adversely affecting our efficiency ratio. When we take collateral in foreclosure
and similar proceedings, we are required to mark the collateral to its then-fair market value, which may result in a loss. Non-
performing loans and OREO also increase our risk profile and the level of capital our regulators believe is appropriate for
us to maintain in light of such risks. The resolution of non-performing assets requires significant time commitments from
management and can be detrimental to the performance of their other responsibilities. In addition, there are legal fees
associated with the resolution of problem assets as well as carrying costs such as taxes, insurance, and maintenance
related to OREO. If we experience increases in non-performing loans and non-performing assets, our net interest income
may be negatively impacted and our loan administration costs could increase, each of which could have an adverse effect
on our net income and related ratios, such as return on assets and equity.
We engage in lending secured by real estate and may foreclose on the collateral and own the underlying real
estate, subjecting us to the costs and potential risks associated with the ownership of real property, including
exposure to environmental liability, or consumer protection initiatives or changes in state or federal law may
substantially raise the cost of foreclosure or prevent us from foreclosing at all.
Since we originate loans secured by real estate, we may have to foreclose on the collateral property to recover our
investment and may thereafter own and operate such property, in which case we would be exposed to the risks inherent in
the ownership of real estate. The amount that we, as a mortgagee, may realize after a foreclosure depends on factors
outside of our control, including, but not limited to, general or local economic conditions, environmental cleanup liabilities,
various assessments relating to the ownership of the property, interest rates, real estate tax rates, operating expenses of
the mortgaged properties, our ability to obtain and maintain adequate occupancy of the properties, zoning laws,
governmental and regulatory rules, and natural disasters. Our inability to manage the amount of costs or size of the risks
associated with the ownership of real estate, or write-downs in the value of OREO, could have an adverse effect on our
business, financial condition, and results of operations.
Additionally, consumer protection initiatives or changes in state or federal law may substantially increase the time and
expenses associated with the residential foreclosure process or prevent us from foreclosing at all. A number of states in
recent years have either considered or adopted foreclosure reform laws that make it substantially more difficult and
expensive for lenders to foreclose on residential properties in default. Furthermore, federal regulators have prosecuted a
number of mortgage servicing companies for alleged consumer law violations. If new state or federal laws or regulations
are ultimately enacted that significantly raise the cost of residential foreclosures or raise outright barriers, they could have
an adverse effect on our business, financial condition, and results of operations.
We are exposed to risk of environmental liability when we take title to property.
A significant portion of our loan portfolio is secured by real estate, and we could become subject to environmental
liabilities with respect to one or more of these properties, or with respect to properties that we own in operating our business.
During the ordinary course of business, we may foreclose on and take title to properties securing defaulted loans. In doing
so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous conditions or toxic
substances are found on these properties, we may be liable for remediation costs, as well as for personal injury and property
damage, civil fines and criminal penalties regardless of when the hazardous conditions or toxic substances first affected
any particular property. The costs associated with investigation or remediation activities could be substantial. In addition, if
we are the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based
on damages and costs resulting from environmental contamination emanating from the property. If we become subject to
significant environmental liabilities, our business, financial condition and results of operations could be adversely affecte d.
We are subject to certain operational risks, including, but not limited to, customer, employee or third-party
fraud and data processing system failures and errors.
Employee errors and employee or customer misconduct could subject us to financial losses or regulatory sanctions and
seriously harm our reputation. Misconduct by our employees could include hiding unauthorized activities from us, improper
or unauthorized activities on behalf of our customers or improper use of confidential information. It is not always possible to
prevent employee errors and misconduct, and the precautions we take to prevent and detect this activity may not be effective
in all cases. Employee errors could also subject us to financial claims for negligence.
33 USCB Financial Holdings, Inc. 2024 10-K
We have implemented a system of internal controls designed to mitigate operational risks, including data processing
system failures and errors and customer or employee fraud, as well as insurance coverage designed to protect us from
material losses associated with these risks, including losses resulting from any associated business interruption. If our
internal controls fail to prevent or detect an occurrence, or if any resulting loss is not insured or exceeds applicable insurance
limits, it could adversely affect our business, prospects, cash flow, liquidity, financial condition and results of operations.
We also rely on the integrity and security of a variety of third party processors, payment, clearing and settlement
systems, as well as the various participants involved in these systems, many of which have no direct relationship with us.
Failure by these participants or their systems to protect our customers' transaction data may put us at risk for possible
losses due to fraud or operational disruption. At the date of this Annual Report Form 10-K, there is no knowledge or indication
that customer sensitive information was compromised as a result of third parties system vulnerabilities, but management
continues to monitor developments and vendor communications.
When we originate loans, we rely heavily upon information supplied by third parties, including the information contained
in credit applications, property appraisals, title information, equipment pricing and valuation and employment and income
documentation, in deciding which loans we will originate, as well as the terms of those loans. If any of the information upon
which we rely is misrepresented, either fraudulently or inadvertently, and the misrepresentation is not detected prior to
funding, the value of the loan may be significantly lower than expected, or we may fund a loan that we would not have
funded or on terms that do not comply with our general underwriting standards. Whether a misrepresentation is made by
the applicant, the borrower, one of our employees or another third party, we generally bear the risk of loss associated with
the misrepresentation. A loan subject to a material misrepresentation is typically unsellable or subject to repurchase if it is
sold prior to detection of the misrepresentation. The sources of the misrepresentations are often difficult to locate, and it is
often difficult to recover any of the resulting monetary losses we may suffer, which could adversely affect our business,
financial condition and results of operations.
We face significant operational risks because the nature of the financial services business involves a high
volume of transactions
.
We operate in diverse markets and rely on the ability of our employees and systems to process a high number of
transactions. Operational risk is the risk of loss resulting from our operations, including but not limited to, the risk of fraud
by employees or persons outside the Company, the execution of unauthorized transactions by employees, errors relating
to transaction processing and technology, breaches of our internal control systems and compliance requirements. Insurance
coverage may not be available for such losses, or where available, such losses may exceed insurance limits. This risk of
loss also includes potential legal actions that could arise as a result of operational deficiencies or as a result of non-
compliance with applicable regulatory standards, adverse business decisions or their implementation, or customer attrition
due to potential adverse publicity. In the event of a breakdown in our internal control systems, improper operation of systems
or improper employee actions, we could suffer financial loss, face regulatory action, and/or suffer damage to our reputation.
We have several large depositor relationships, the loss of which could force us to fund our business through
more expensive and less stable sources.
Withdrawals of deposits by any one of our largest depositors could force us to rely more heavily on more expensive and
less stable funding sources. Consequently, the occurrence of such event could have a material adverse effect on our
business, financial condition and results of operations. At December 31, 2024, our top 10 depositors held 16.7% of our total
portfolio. As of December 31, 2024, 45% of our deposits are estimated to be FDIC-insured. At such date, our public funds
are 5% of total deposits and are partially collateralized. The estimated average account size of our deposit portfolio is $105
thousand. In addition, the Bank was considered a “well capitalized” institution as of December 31, 2024 and 2023.
Consequently, the occurrence of such event could have a material adverse effect on our business, financial condition and
results of operations.
Our securities portfolio performance in difficult market conditions could have adverse effects on our results of
operations
.
Unrealized losses on investment securities result from changes in credit spreads and liquidity issues in the marketplace,
along with changes in the credit profile of individual securities issuers. Under GAAP, we are required to review our
investment portfolio periodically for the presence of credit losses of our securities, taking into consideration current and
future market conditions, the extent and nature of changes in fair value, issuer rating changes and trends, volatility of
earnings, current analysts’ evaluations, our ability and intent to hold investments until a recovery of fair value, as well as
other factors. Adverse developments with respect to one or more of the foregoing factors may require us to deem particular
securities to be impaired, with the credit-related portion of the reduction in the value recognized as a charge to our earnings
through an allowance. Subsequent valuations, in light of factors prevailing at that time, may result in significant changes in
34 USCB Financial Holdings, Inc. 2024 10-K
the values of these securities in future periods. Any of these factors could require us to recognize further impairments in the
value of our securities portfolio, which may have an adverse effect on our results of operations in future periods.
We may not effectively execute on our expansion strategy, which may adversely affect our ability to maintain
our historical growth and earnings trends.
Our primary expansion strategy focuses on organic growth, supplemented by potential acquisitions of financial
institutions and banking teams; however, we may not be able to successfully execute on these aspects of our expansion
strategy, which may cause our future growth rate to decline below our recent historical levels, or may prevent us from
growing at all. More specifically, we may not be able to generate sufficient new loans and deposits within acceptable risk
and expense tolerances or obtain the personnel or funding necessary for additional growth. Various factors, such as
economic conditions and competition with other financial institutions, may impede or restrict the growth of our operations.
Further, we may be unable to attract and retain experienced bankers, which could adversely affect our growth. The success
of our strategy also depends on our ability to manage our growth effectively, which in turn depends on a number of factors,
including our ability to adapt our credit, operational, technology, risk management, internal controls and governance
infrastructure to accommodate expanded operations. Even if we are successful in continuing our growth, such growth may
not offer the same levels of potential profitability, and we may not be successful in controlling costs and maintaining asset
quality in the face of that growth. Accordingly, our inability to maintain growth or to effectively manage growth could have
an adverse effect on our business, financial condition and results of operations.
New lines of business, products, product enhancements or services may subject us to additional risk.
From time to time, we may implement new lines of business or offer new products and product enhancements as well
as new services within our existing lines of business. There are substantial risks and uncertainties associated with these
efforts. In developing, implementing or marketing new lines of business, products, product enhancements or services, we
may invest significant time and resources. We may underestimate the appropriate level of resources or expertise necessary
to make new lines of business or products successful or to realize their expected benefits. We may not achieve the
milestones set in initial timetables for the development and introduction of new lines of business, products, product
enhancements or services, and price and profitability targets may not prove feasible. External factors, such as compliance
with regulations, competitive alternatives and shifting market preferences, may also impact the ultimate implementation of
a new line of business or offerings of new products, product enhancements or services. Any new line of business, product,
product enhancement or service could have a significant impact on the effectiveness of our system of internal controls. We
may also decide to discontinue businesses or products, due to lack of customer acceptance or unprofitability. Failure to
successfully develop and implement new lines of business or offerings of new products, product enhancements or services
could have an adverse effect on our business, financial condition and results of operations and could subject us to new and
unanticipated operational, credit, regulatory and reputational risks, among other risks.
Our business needs and future growth may require us to raise additional capital and that capital may not be
available on terms acceptable to us or may be dilutive to existing shareholders.
We believe that we have sufficient capital to meet our capital needs for our current growth plans. However, we expect
that we would need to raise additional capital, in the form of debt or equity securities, in the future to have sufficient capital
resources to meet our longer-term growth plans, and/or if the quality of our assets or earnings were to deteriorate
significantly. In addition, we are required by federal regulatory authorities to maintain adequate levels of capital to support
our operations.
Our ability to raise capital will depend on, among other things, conditions in the capital markets, which are outside of
our control, and our financial performance. Accordingly, we cannot provide assurance that such capital will be available on
terms acceptable to us or at all. Any occurrence that limits our access to capital may adversely affect our capital costs and
our ability to raise capital. Further, if we need to raise capital in the future, we may have to do so when many other financial
institutions are also seeking to raise capital and would then have to compete with those institutions for investors. Any inability
to raise capital on acceptable terms when needed may cause us to either issue additional shares of common stock or other
securities on less than desirable terms or reduce our rate of growth until market conditions become more favorable. If any
of such events occur, they could have a material adverse effect on our business, financial condition and results of operations
and could be dilutive to both tangible book value and our share price.
Federal law requires that a holding company act as a source of financial and managerial strength to its subsidiary bank
and to commit resources to support such subsidiary bank. Under the “source of strength” doctrine, the Federal Reserve
may require a holding company to make capital injections into a troubled subsidiary bank and may charge the holding
company with engaging in unsafe and unsound practices for failure to commit resources to a subsidiary bank. A capital
injection may be required at times when the holding company may not have the resources to provide it and therefore may
35 USCB Financial Holdings, Inc. 2024 10-K
be required to attempt to borrow the funds or raise capital. Thus, any borrowing that must be done by the Company to make
a required capital injection becomes more difficult and expensive and could have an adverse effect on our business, financial
condition and results of operations. Moreover, it is possible that we will be unable to borrow funds or otherwise raise capital
at a time when it is needed. In addition, an inability to raise capital when needed may subject us to increased regulatory
supervision and the imposition of restrictions on our growth and business. These restrictions could negatively affect our
ability to operate or further expand our operations through loan growth, acquisitions or the establishment of additional
branches. These restrictions may also result in increases in operating expenses and reductions in revenues that could have
a material adverse effect on our financial condition, results of operations and our share price.
We may grow through mergers or acquisitions, a strategy that may not be successful or, if successful, may
produce risks in successfully integrating and managing the merged companies or acquisitions and may dilute our
shareholders.
As part of our growth strategy, we may pursue mergers and acquisitions of banks and non-bank financial services
companies within or outside our principal market areas that fit within the mission-driven values of our franchise and that we
believe support our business and make financial and strategic sense. We may have difficulty identifying suitable acquisition
candidates or executing on acquisitions that we pursue, and we may not realize the anticipated benefits of any transactions
we complete. Additionally, for any opportunistic acquisition we were to consider, we expect to face significant competition
from numerous other financial services institutions, many of which will have greater financial resources than we do.
Accordingly, attractive opportunistic acquisitions may not be available to us. There can be no assurance that we will be
successful in identifying or completing any future acquisitions.
Mergers and acquisitions involve numerous risks, any of which could harm our business, including:
•
to achieve, or that the acquired business will not perform to our expectations;
•
existing contracts, accounting processes and personnel of the target and realizing the anticipated synergies of the
combined businesses;
•
and negotiating potential transactions, resulting in management’s attention being diverted from the operation of our
existing business;
•
•
realized if we had allocated the purchase consideration or other resources to another opportunity;
•
•
•
•
•
•
the requirement to divest various activities, or denied due to existing or new regulatory issues surrounding us, the
target institution or the proposed combined entity and the possibility that any such issues associated with the target
institution, of which we may or may not be aware at the time of the acquisition, could adversely impact the combined
entity after completion of the acquisition;
•
•
•
Any acquisition activities we engage in could require us to use a substantial amount of cash, other liquid assets, and/or
incur debt. Also, if we finance acquisitions by issuing equity securities, our existing shareholders’ ownership may be diluted,
which could negatively affect the market price of our Class A common stock. Additionally, if the goodwill recorded in
connection with our potential future acquisitions were determined to be impaired, then we would be required to recognize a
charge against our earnings, which could materially and adversely affect our results of operations during the period in which
the impairment was recognized. Acquisitions may also involve the payment of a premium over book and market values and,
therefore, some dilution of our tangible book value and net income per common share may occur in connection with any
future transaction.
As a result, we may not achieve the anticipated benefits of any such merger or acquisition, and we may incur costs in
excess of what we anticipate. Our failure to successfully evaluate and execute mergers, acquisitions or investments or
36 USCB Financial Holdings, Inc. 2024 10-K
otherwise adequately address and manage the risks associated with such transactions could have a material adverse effect
on our business, results of operations and financial condition, including short-term and long-term liquidity.
The loss of one or more of our key personnel, or our failure to attract and retain other highly qualified personnel
in the future, could harm our business.
Our future success will, to some extent, depend on the continued service of our directors, executive officers and senior
management team. The loss of the services of any of these individuals could have a significant adverse effect on our
business. In particular, we believe that retaining Luis de la Aguilera, our Chairman, President, and Chief Executive Officer,
Robert Anderson, our Chief Financial Officer, and William Turner, our Chief Credit Officer, is important to our continuing
success. Although we have entered into employment and other agreements with certain members of our executive and
senior management team, including Mr. de la Aguilera and Mr. Anderson, no assurance can be given that these individuals
will continue to be employed by us. The loss of any of these individuals could negatively affect our ability to achieve our
growth strategy and could have a material adverse effect on our business and results of operations.
We also need to continue to attract and retain other senior management and to recruit qualified individuals to succeed
existing key personnel to ensure the continued growth and successful operation of our business. We may be unable to
attract or retain qualified management and other key personnel in the future due to the intense competition for qualified
personnel among companies in the financial services business and related businesses. The loss of the services of any
senior management personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse
effect on our business, results of operations, financial condition and prospects. Additionally, to attract and retain personnel
with appropriate skills and knowledge to support our business, we may offer a variety of benefits, including equity awards,
which may reduce our earnings or adversely affect our business, results of operations, financial condition or prospects.
Damage to our reputation could significantly harm our businesses.
Our ability to attract and retain customers and highly-skilled management and employees is impacted by our reputation.
A negative public opinion of us and our business can result from any number of activities, including our lending practices,
corporate governance and regulatory compliance, acquisitions, customer complaints and actions taken by community
organizations in response to these activities. Furthermore, negative publicity regarding us as an employer could have an
adverse impact on our reputation, especially with respect to matters of diversity, pay equity and workplace harassment.
Significant harm to our reputation could also arise as a result of regulatory or governmental actions, litigation and the
activities of our customers, other participants in the financial services industry or our contractual counterparties, such as our
service providers and vendors. The potential harm is heightened given increased attention to how corporations address
environmental, social and governance issues. In addition, a cybersecurity event affecting us or our customers' data could
have a negative impact on our reputation and customer confidence in us and our cybersecurity practices. Damage to our
reputation could also adversely affect our credit ratings and access to the capital markets. Additionally, whereas negative
public opinion once was primarily driven by adverse news coverage in traditional media, the widespread use of social media
platforms by virtually every segment of society facilitates the rapid dissemination of information or misinformation, which
magnifies the potential harm to our reputation.
We face strong competition from financial services companies and other companies that offer banking
services, which could materially and adversely affect our business.
The financial services industry has become even more competitive as a result of legislative, regulatory and technological
changes and continued banking consolidation, which may increase as a result of current economic, market and political
conditions. We face substantial competition in all phases of our operations from a variety of competitors, including local
banks, regional banks, community banks and, more recently, financial technology, or "fintech" companies. Many of our
competitors offer the same banking services that we offer and our success depends on our ability to adapt our products and
services to evolving industry standards and customer requirements. Increased competition in our market may result in
reduced new loan and lease production and/or decreased deposit balances or less favorable terms on loans and leases
and/or deposit accounts. We also face competition from many other types of financial institutions, including without limitation,
non-bank specialty lenders, insurance companies, private investment funds, investment banks, and other financial
intermediaries. Should competition in the financial services industry intensify, our ability to market our products and services
may be adversely affected. If we are unable to attract and retain banking customers, we may be unable to grow or maintain
the levels of our loans and deposits and our results of operations and financial condition may be adversely affected as a
result. Ultimately, we may not be able to compete successfully against current and future competitors.
37 USCB Financial Holdings, Inc. 2024 10-K
We must respond to rapid technological changes to remain competitive.
We will have to continue to respond to future technological changes, which are occurring at a rapid pace in the financial
services industry in order to remain competitive. We expect that new technologies and business processes applicable to
the banking industry will continue to emerge, and these new technologies and business processes may be better than those
we currently use. Because the pace of technological change is high and our industry is intensely competitive, our future
success will depend, in part, upon our ability to address the needs of our customers by using technology to provide products
and services that will satisfy customer demands for convenience, as well as to create additional efficiencies in our
operations. We may not be able to implement new technology-driven products and services effectively or be successful in
marketing these products and services to our customers. Failure to keep pace successfully with technological change
affecting the financial services industry could harm our ability to compete effectively and could have an adverse effect on
our business, financial condition and results of operations. As these technologies improve in the future, we may be required
to make significant capital expenditures in order to remain competitive, which may increase our overall expenses and have
an adverse effect on our business, financial condition and results of operations.
We continually encounter technological change, and we may have fewer resources than many of our
competitors to invest in technological improvements.
The financial services industry continues to undergo rapid technological changes with frequent introductions of new
technology-driven products and services. The effective use of technology increases efficiency and enables financial
institutions to better serve customers and to reduce costs. Our future success will depend, in part, upon our ability to address
the needs of our clients by using technology to provide products and services that will satisfy client demands for
convenience, as well as to create additional efficiencies in our operations. Many national vendors provide turn-key services
to community banks, such as internet banking and remote deposit capture that allow smaller banks to compete with
institutions that have substantially greater resources to invest in technological improvements. We may not be able, however,
to effectively implement new technology-driven products and services or be successful in marketing these products and
services to our customers.
Our current and future uses of artificial intelligence (AI) and other emerging technologies may create additional
risks.
The increasing adoption of AI in financial services presents significant opportunities but also introduces a range of risks
that could impact our operations, regulatory compliance, and customer trust. AI introduces model risk, where flawed
algorithms or biased data could result in inaccurate credit decisions, compliance violations, or discriminatory outcomes in
lending or customer service. Cybersecurity threats, such as data breaches, adversarial attacks, and data poisoning, pose
significant challenges, particularly as these systems handle large volumes of sensitive customer information. Additionally,
the opaque nature of some AI models, often referred to as "black-box" systems, raises regulatory compliance concerns, as
regulators increasingly require transparency and explainability in AI-driven decision-making.
Operational risks also arise from potential system failures, over-reliance on AI, and integration challenges with existing
infrastructure. Disruptions in AI systems could impact critical functions such as fraud detection, transaction monitoring, and
customer support. Ethical and reputational risks, including unintended consequences or perceived unfairness in AI-driven
decisions, may erode customer trust and expose us to regulatory scrutiny. Mitigating these risks requires a robust
governance framework, regularly testing and auditing of AI models, and strong human oversight. Investments in
cybersecurity, data privacy protections, and employee training are critical to managing these risks.
A failure, interruption, or breach in the security of our systems, or those of our contracted vendors, could
disrupt our business, result in the disclosure of confidential information, damage our reputation, and create
significant financial and legal exposure.
Although we devote significant resources to maintain and regularly update our systems and processes that are designed
to protect the security of our computer systems, software, networks and other technology assets, as well as the
confidentiality, integrity and availability of information belonging to us and our customers, there is no assurance that all of
our security measures will provide absolute security. Many financial institutions, including us, have been subjected to
attempts to infiltrate the security of their websites or other systems, some involving sophisticated targeted attacks intended
to obtain unauthorized access to confidential information, destroy data, disrupt or degrade service, sabotage systems or
cause other damage, including through the introduction of computer viruses or malware, cyber-attacks and other means. At
this point, although there is no knowledge or indication that we have experienced a material cyber-incident or security breach
that has been successful in compromising our data or systems to date, we can never be certain that all of our systems are
entirely free from vulnerability to breaches of security or other technological difficulties or failures.
38 USCB Financial Holdings, Inc. 2024 10-K
Despite efforts to ensure the integrity and security of our systems, it is possible that we may not be able to anticipate,
detect or recognize threats to our systems or to implement effective preventive measures against all efforts to breach our
security inside or outside our business, especially because the techniques used to attack our systems change frequently or
are not recognized until launched, and because cyber-attacks can originate from a wide variety of sources, including
individuals or groups who are associated with external service providers or who are or may be involved in organized crime
or linked to terrorist organizations or hostile foreign governments. Those parties may also attempt to fraudulently induce
employees, customers, third-party service providers or other users of our systems to disclose sensitive information in order
to gain access to our data or that of our customers or clients. Similar to other companies, our risks and exposures related
to cybersecurity attacks have increased as a result of the related increased reliance on remote working (largely as a result
of the COVID-19 pandemic) and the increase in digital operations. Such risks and exposures are expected to remain high
for the foreseeable future due to the rapidly evolving nature and sophistication of these threats and the expanding use of
technology, as our web -based product offerings grow and we expand internal usage of web-based applications.
A successful penetration or circumvention of the security of our systems, including those of our third-party vendors,
could cause serious negative consequences, including significant disruption of our operations, misappropriation of
confidential information, or damage to computers or systems, and may result in violations of applicable privacy and other
laws, financial loss, loss of confidence in our security measures, customer dissatisfaction, increased insurance premiums,
significant litigation exposure and harm to our reputation, all of which could have a material adverse effect on our business,
financial condition, results of operations, and future prospects.
We rely on other companies to provide key components of our business infrastructure and our operations
could be interrupted if our third-party service providers experience difficulty, terminate their services or fail to
comply with banking regulations.
Third parties provide key components of our business operations such as data processing, recording and monitoring
transactions, online banking interfaces and services, Internet connections and network access. While we have selected
these third-party vendors carefully, performing upfront due diligence and ongoing monitoring activities, we do not control
their actions. Any problems caused by these third parties, including those resulting from disruptions in services provided by
a vendor (including as a result of a cyber-attack, other information security event or a natural disaster), financial or
operational difficulties for the vendor, issues at third-party vendors to our vendors, failure of a vendor to handle current or
higher volumes, failure of a vendor to provide services for any reason, poor performance of services, failure to comply with
applicable laws and regulations, or fraud or misconduct on the part of employees of any of our vendors, could adversely
affect our ability to deliver products and services to our customers, our reputation and our ability to conduct our business,
which could adversely affect our business, prospects, cash flow, liquidity, financial condition and results of operations. In
certain situations, replacing these third-party vendors could also create significant delay, expense, and operational
difficulties, which could also adversely affect our business. Accordingly, use of such third parties creates an unavoidable
and inherent risk to our business operations. Such risk is generally expected to remain elevated as many of our vendors
have also been, and may further be, affected by increased reliance on remote work environments, market volatility and
other factors that increase their risks of business disruption or that may otherwise affect their ability to perform under the
terms of any agreements with us or provide essential services.
Our operations could be interrupted or materially impacted if any of our third-party service providers fail to comply with
banking regulations and other applicable laws. The Federal Reserve, FDIC, FOFR, and other regulators expect financial
institutions to be responsible for all aspects of their performance, including aspects that they delegate to third parties.
Accordingly, we will be responsible for deficiencies in our oversight and control of our third party relationships and in the
performance of the parties with which we have these relationships. As a result, if our regulators conclude that we have not
exercised adequate oversight and control over our third party vendors or other ongoing third party business relationships or
that such third parties have not performed appropriately, we could be subject to remedial and/or enforcement actions,
including civil money penalties or other administrative or judicial penalties or fines as well as requirements for customer
remediation, any of which could have a material adverse effect our business, financial condition or results of operations.
Litigation and regulatory actions, including possible enforcement actions, could subject us to significant fines,
penalties, judgments or other requirements resulting in increased expenses or restrictions on our business
activities.
In the normal course of business, from time to time, we have in the past and may in the future be named as a defendant
in various legal actions arising in connection with our current and/or prior business activities. Legal actions could include
claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. Further, in
the future our federal and/or state bank regulators may impose consent orders, civil money penalties, matters requiring
attention, or similar types of supervisory penalties or criticism. We may also, from time to time, be the subject of subpoenas,
requests for information, reviews, investigations and proceedings (both formal and informal) by governmental agencies
39 USCB Financial Holdings, Inc. 2024 10-K
regarding our current and/or prior business activities. Any such legal or regulatory actions may subject us to substantial
compensatory or punitive damages, significant fines, penalties, obligations to change our business practices or other
requirements resulting in increased expenses, diminished income and damage to our reputation. Our involvement in any
such matters, whether tangential or otherwise and even if the matters are ultimately determined in our favor, could also
cause significant harm to our reputation and divert management attention away from the operation of our business. Further,
any settlement, consent order or adverse judgment in connection with any formal or informal proceeding or investigation by
government agencies may result in litigation, investigations or proceedings as other litigants and government agencies
begin independent reviews of the same activities. As a result, the outcome of legal and regulatory actions could have an
adverse effect on our business, results of operations and results of operations.
Certain of our directors may have conflicts of interest in determining whether to present business opportunities
to us or another entity with which they are, or may become, affiliated.
Certain of our directors are or may become subject to fiduciary obligations in connection with their service on the boards
of directors of other corporations, including financial institutions. A director's association with other financial institutions,
which give rise to fiduciary or contractual obligations to such other institutions, may create conflicts of interest. To the extent
that any of our directors become aware of acquisition opportunities that may be suitable for entities other than us to which
they have fiduciary or contractual obligations, or they are presented with such opportunities in their capacities as fiduciaries
to such entities, they may honor such obligations to such other entities. You should assume that to the extent any of our
directors become aware of an opportunity that may be suitable both for us and another entity to which such person has a
fiduciary obligation or contractual obligation to present such opportunity as set forth above, he or she may first give the
opportunity to such other entity or entities and may give such opportunity to us only to the extent such other entity or entities
reject or are unable to pursue such opportunity. In addition, you should assume that to the extent any of our directors
become aware of an acquisition opportunity that does not fall within the above parameters, but that may otherwise be
suitable for us, he or she may not present such opportunity to us.
Pursuant to an agreement between us and each of our Significant Investors (as defined below), each of the Significant
Investors has the right to nominate one director to serve on our Board, including Board committees, and to designate one
non-voting Board observer. The directors and Board observers designated by the Significant Investors have the right to,
and have no duty not to, engage in the same or similar business activities or lines of business as us. In the event that a
director or Board observer designated by a Significant Investor acquires knowledge of a potential transaction or matter that
may be a corporate opportunity for us, such person shall have no duty to communicate or present such corporate opportunity
to us and shall not be liable to us or our shareholders for breach of any duty by reason of the fact that such person or a
related investment fund thereof, directly or indirectly, pursues or acquires such opportunity for itself, directs such opportunity
to another person, or does not present such opportunity to us.
Risks Related to Our Tax, Accounting and Regulatory Compliance
Our ability to recognize the benefits of our deferred tax assets is dependent on future cash flows and taxable
income and may be materially impaired upon significant changes in ownership of our common stock.
We recognize the expected future tax benefit from deferred tax assets when it is more likely than not that the tax benefit
will be realized. Otherwise, a valuation allowance is applied against our deferred tax assets, reducing the value of such
assets. Assessing the recoverability of deferred tax assets requires management to make significant estimates related to
expectations of future taxable income from all sources, including reversal of taxable temporary differences, forecasted
operating earnings and available tax planning strategies. Estimates of future taxable income are based on forecasted
income from operations and the application of existing tax laws in each jurisdiction. The improved risk profile of the Bank is
a key component used in the determination of our ability to realize the expected future benefit of our deferred tax assets.
To the extent that future taxable income differs significantly from estimates as a result of the interest rate environment and
loan growth capabilities or other factors, our ability to realize the net deferred tax assets could be negatively affected.
Subject to certain exceptions, our Class A common stock is subject to transfer restrictions as set forth in our Articles of
Incorporation that are designed to preserve our deferred tax assets. Notwithstanding these protective provisions, the Articles
of Incorporation include an exception that allows our Significant Investors the right to effect any transfer that would otherwise
be prohibited, which transfer could result in the loss of the deferred tax assets.
Additionally, significant future issuances of common stock or common stock equivalents, or changes in the direct or
indirect ownership of our common stock or common stock equivalents, could cause an ownership change and could limit
our ability to utilize our net operating loss carryforwards and other tax attributes pursuant to Section 382 and Section 383
of the Internal Revenue Code, as 1986, as amended. Future changes in tax law or changes in ownership structure could
limit our ability to utilize our recorded net deferred tax assets.
40 USCB Financial Holdings, Inc. 2024 10-K
The accuracy of our financial statements and related disclosures could be affected if the judgments,
assumptions or estimates used in our critical accounting policies are inaccurate.
The preparation of our financial statements and related disclosures in conformity with GAAP requires us to make
judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and
accompanying notes. In some cases, management must select the accounting policy or method to apply from two or more
alternatives, any of which may be reasonable under the circumstances, yet which may result in our reporting materially
different results than would have been reported under a different alternative. Certain accounting policies are critical or
significant to presenting our financial condition and results of operations. Our critical accounting policies, which are included
in the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item
7 of this Annual Report on Form 10-K, describe those significant accounting policies and methods used in the preparation
of our consolidated financial statements that we consider critical because they require judgments, assumptions and
estimates that materially affect our consolidated financial statements and related disclosures. As a result, if future events or
regulatory views concerning such analyses differ significantly from the judgments, assumptions and estimates in our critical
accounting policies, those events or assumptions could have a material impact on our consolidated financial statements
and related disclosures, in each case resulting in our need to revise or restate prior period financial statements, cause
damage to our reputation and the price of our Class A common stock and adversely affect our business, prospects, cash
flow, liquidity, financial condition and results of operations.
As a public company, we may not efficiently or effectively create an effective internal control environment, and
any future failure to maintain effective internal control over financial reporting could impair the reliability of our
financial statements, which in turn could harm our business, impair investor confidence in the accuracy and
completeness of our financial reports and our access to the capital markets, cause the price of our Class A common
stock to decline and subject us to regulatory penalties.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting and
for evaluating and reporting on that system of internal control. Our internal control over financial reporting consists of 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 GAAP. As a public company, we are required to comply with
SEC regulations, including the SOA and other rules that govern public companies that we previously were not required to
comply with as a private company. In particular, we are required to certify our compliance with Section 404 of the SOA,
which requires us to annually furnish a report by management on the effectiveness of our internal control over financial
reporting. When evaluating our internal controls over financial reporting, we may identify material weaknesses that we may
not be able to remediate in time to meet the applicable deadline imposed upon us for compliance with the requirements of
Section 404 of the SOA. We periodically review our formal policies, processes and practices related to financial reporting
and to the identification of key financial reporting risks, assess their potential impact and the linkage of those risks to specific
areas and controls within our organization.
If we fail to achieve and maintain the adequacy of our internal controls, as such standards are modified, supplemented,
or amended from time to time, we may not be able to ensure that we will be able to conclude on an ongoing basis that we
have effective internal controls over financial reporting in accordance with Section 404 of the SOA. We cannot be certain
as to the timing of completion of our evaluation, testing, and any remediation actions or the impact of the same on our
operations. If we fail to adequately comply with the requirements of Section 404 of the SOA, we may be subject to adverse
regulatory consequences and there could be a negative reaction in the financial markets due to a loss of investor confidence
in us and the reliability of our financial statements. In addition, we may be required to incur costs in improving our internal
control system and hiring additional personnel. Any such action could negatively affect our business, financial condition,
results of operations, and the price of our Class A common stock may decline.
While we remain an emerging growth company, we will not be required to include an attestation report on internal control
over financial reporting issued by our independent registered public accounting firm. To prepare for eventual compliance
with the auditor attestation requirement of Section 404 of the SOA once we no longer qualify as an emerging growth
company or as a non-accelerated smaller reporting company, we are engaged in a process to document and evaluate our
internal control over financial reporting, which is both costly and challenging. In this regard, we will need to dedicate internal
resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of
internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing
that controls are functioning as documented and continue to refine our reporting and improvement process for internal
control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed
time frame or at all, that our internal control over financial reporting is effective as required by Section 404 of Sarbanes-
Oxley. If we identify one or more material weaknesses, it could result in an adverse reaction in the financial markets due to
a loss of confidence in the reliability of our financial statements.
41 USCB Financial Holdings, Inc. 2024 10-K
We operate in a highly regulated environment, and the laws and regulations that govern our operations,
corporate governance, executive compensation and accounting principles, or changes in them, or our failure to
comply with them, could adversely affect us.
We operate in a highly regulated industry and we are subject to examination, supervision and comprehensive regulation
by various federal and state agencies, including the Federal Reserve, the FDIC and the FOFR. As such, we are subject to
extensive regulation, supervision and legal requirements that govern almost all aspects of our operations. These laws and
regulations are not intended to protect our shareholders. Rather, these laws and regulations are intended to protect
customers, depositors, the Deposit Insurance Fund, or DIF, and the overall financial health and stability of the United States
banking system. These laws and regulations, among other matters, prescribe minimum capital requirements, impose
limitations on the business activities and investments in which we can engage, regulate and restrict our lending activities,
require us to provide certain banking services broadly within the communities in which we operate, determine the locations
of our branch offices and impose certain specific accounting requirements on us that may be more restrictive and may result
in greater or earlier charges to earnings or reductions in our capital than GAAP would require. We are also subject to
capitalization guidelines established by our regulators, which require us to maintain adequate capital to support our
business. Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations often
impose additional operating costs. Further, we must obtain approval from our regulators before engaging in many activities,
and our regulators have the ability to compel us to, or restrict us from, taking certain actions entirely. There can be no
assurance that any regulatory approvals we may require or otherwise seek will be obtained.
Regulations affecting banks and other financial institutions are undergoing continuous review and frequently change,
and the ultimate effect of such changes cannot be predicted. Changes to the legal and regulatory framework governing our
operations, including the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, and the
Economic Growth, Regulatory Relief and Consumer Protection Act, or the Regulatory Relief Act, have significantly revised
the laws and regulations under which we operate. Such regulations and laws may be modified or repealed at any time, and
new legislation may be enacted that will affect us and our subsidiaries.
Our failure to comply with these laws and regulations, even if the failure follows good faith effort or reflects a difference
in interpretation, could subject us to restrictions on our business activities, enforcement actions and fines and other
penalties, any of which could adversely affect our results of operations, regulatory capital levels and the price of our
securities. Further, any new laws, rules and regulations, such as were imposed under the Dodd-Frank Act or the Regulatory
Relief Act, could make compliance more difficult or expensive or otherwise adversely affect our business, prospects, cash
flow, liquidity, financial condition and results of operations.
We face a risk of noncompliance with the Bank Secrecy Act and other anti-money laundering statutes and
regulations and corresponding enforcement proceedings.
The BSA, the USA PATRIOT Act, and other laws and regulations require financial institutions, among other duties, to
institute and maintain effective anti-money laundering programs and to file suspicious activity and currency transaction
reports, as appropriate. FinCEN, established by the U.S. Treasury Department to administer the Bank Secrecy Act, is
authorized to impose significant civil money penalties for violations of those requirements and has engaged in coordinated
enforcement efforts with the individual federal banking regulators, as well as the U.S. Department of Justice, Drug
Enforcement Administration and Internal Revenue Service. Additionally, South Florida has been designated as a “High
Intensity Financial Crime Area” (“HIFCA”) by FinCEN and a “High Intensity Drug Trafficking Area” (“HIDTA”) by the Office
of National Drug Control Policy. The HIFCA program is intended to concentrate law enforcement efforts to combat money
laundering efforts in higher-risk areas. There is also increased scrutiny of compliance with the rules enforced by OFAC.
Federal and state bank regulators have for many years focused on compliance with the BSA and anti-money laundering
regulations. In order to comply with regulations, guidelines and examination procedures in this area, we have dedicated
significant resources to our anti-money laundering program, especially due to the regulatory focus on financial and other
institutions located in South Florida. Our business includes supporting our customers, including foreign financial institutions,
with respect to their international banking needs and our policies, procedures and systems have been designed to address
federal and state anti-money laundering compliance. If our policies, procedures and systems are deemed deficient or the
policies, procedures and systems of the financial institutions that we may acquire are deficient, we would be subject to
liability, including fines, and regulatory actions that are deemed necessary in order to remediate such deficiencies and
prevent the recurrence thereof. In recent years, sanctions that the regulators have imposed on banks that have not complied
with all anti-money laundering requirements have been especially severe. Failure to maintain and implement adequate
programs to combat money laundering and terrorist financing could also have serious reputational consequences for us,
which could have a material adverse effect on our business, financial condition and results of operations.
42 USCB Financial Holdings, Inc. 2024 10-K
Significantly heightened regulatory and supervisory expectations and scrutiny in the United States have
increased our compliance, regulatory, and other risks and costs and subject us to legal and regulatory
examinations, investigations, and enforcement actions.
The regulatory and political environment has generally been challenging for U.S. financial institutions, which have been
subject to increased regulatory scrutiny, including in the wake of the failures of several regional banks and other banking
stresses in recent periods. The general heightened scrutiny and expectations from regulators could lead to a more stringent
regulatory posture by the regulators, investigations and other inquiries, as well as remediation requirements, regulatory and
operational restrictions, more regulatory or other enforcement proceedings, civil litigation and substantial compliance,
regulatory and other risks and costs. Our regulators have broad powers and discretion under their supervisory authority. A
failure to comply with regulators’ expectations and requirements, even if inadvertent, or to resolve any identified deficiencies
in a timely and sufficiently satisfactory manner to regulators, could result in increased regulatory oversight; material
restrictions, including, among others, imposition of limitations on capital distributions or other business activities or
operations; enforcement proceedings; penalties; and fines. Responding to regulatory inquiries and proceedings can be time
consuming and costly and divert management attention from our other business activities. As a result of these regulatory
efforts and pressures, like many other financial institutions, from time to time, we may be subject to public and non-public
written agreements, cease and desist orders, consent orders, memoranda of understanding or other enforcement or
supervisory actions by our regulators.
We are subject to capital adequacy requirements and may become subject to more stringent capital
requirements, which could adversely affect our financial condition and operations.
In 2013, the federal banking agencies published new regulatory capital rules based on the international standards,
known as Basel III, that were developed by the Basel Committee on Banking Supervision. The new rules raised the risk-
based capital requirements and revised the methods for calculating risk-weighted assets, usually resulting in higher risk
weights. The new rules now apply to us.
The Basel III rules increased capital requirements and included two new capital measurements, a risk-based common
equity Tier 1 ratio and a capital conservation buffer. Common Equity Tier 1 (CET1) capital is a subset of Tier 1 capital and
is limited to common equity (plus related surplus), retained earnings, accumulated other comprehensive income and certain
other items. Other instruments that have historically qualified for Tier 1 treatment, including noncumulative perpetual
preferred stock, are consigned to a category known as Additional Tier 1 capital and must be phased out of CETI over a
period of nine years beginning in 2014. In order to be a “well-capitalized” depository institution under the new regime, an
institution must maintain a CET1 capital ratio of 7.0% or more; a Tier 1 capital ratio of 8.5% or more; a total capital ratio of
10.5% or more; and a Tier 1 leverage ratio of 4% or more. Institutions must also maintain a capital conservation buffer
consisting of common equity Tier 1 capital (which amount (2.5%) is reflected above in the CET1, Tier 1 and total capital
ratios). In addition to the higher required capital ratios and the new deductions and adjustments, the final rules increased
the risk weights for certain assets, meaning that we will have to hold more capital against these assets. We are also be
required to hold capital against short-term commitments that are not unconditionally cancellable.
While we currently meet these new requirements of the Basel III-based capital requirements, we may fail to do so in the
future. The failure to meet applicable regulatory capital requirements could result in one or more of our regulators placing
limitations or conditions on our activities, including our growth initiatives, or restricting the commencement of new activities,
and could affect customer and investor confidence, our costs of funds and level of required deposit insurance assessments
to the FDIC, our ability to pay dividends on our capital stock, our ability to make acquisitions, and our business, results of
operations and financial condition, generally.
In addition, in the current economic and regulatory environment bank regulators may impose capital requirements that
are more stringent than those required by applicable existing regulations. The application of more stringent capital
requirements for us could, among other things, result in lower returns on equity, require the raising of additional capital, and
result in regulatory actions if we were to be unable to comply with such requirements. Implementation of changes to asset
risk weightings for risk-based capital calculations, items included or deducted in calculating regulatory capital or additional
capital conservation buffers, could result in management modifying our business strategy and could limit our ability to make
distributions, including paying dividends.
We are periodically subject to examination and scrutiny by a number of banking agencies and, depending upon
the findings and determinations of these agencies, we may be required to make adjustments to our business that
could adversely affect us.
As part of the bank regulatory process, the Federal Reserve, the FDIC and the FOFR periodically conduct examinations
of our business, including compliance with applicable laws and regulations. If, as a result of an examination, one of these
43 USCB Financial Holdings, Inc. 2024 10-K
banking agencies were to determine that the financial condition, capital resources, asset quality, asset concentration,
earnings prospects, management, liquidity sensitivity to market risk, risk management and internal controls or other aspects
of any of our operations has become unsatisfactory, or that we or our management are in violation of any law or regulation,
the banking agency could take a number of different remedial or punitive actions as it deems appropriate. These actions
include the power to prohibit the continuation of "unsafe or unsound" practices, to require affirmative actions to correct any
conditions resulting from any violation or practice, to issue an administrative order or enforcement that can be judicially
enforced, to direct an increase in our capital, to restrict our growth, to change the asset composition of our loan or securities
portfolios or balance sheet, to assess civil monetary penalties against our officers or directors, to remove officers and
directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors,
to terminate our deposit insurance and force us to terminate our business operations. If we become subject to such
regulatory actions, our business, financial condition, results of operations and reputation may be negatively impacted.
We are subject to numerous laws and regulations of certain regulatory agencies designed to protect
consumers, including the Community Reinvestment Act, or CRA, and fair lending laws, and failure to comply with
these laws could lead to a wide variety of sanctions.
The CRA directs all insured depository institutions to help meet the credit needs of the local communities in which they
operate branches, including low- and moderate-income neighborhoods. Each institution is examined periodically by its
primary federal regulator, which assesses the institution’s CRA performance. The Equal Credit Opportunity Act, the Fair
Housing Act and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial
institutions. The U.S. Department of Justice, the Federal Reserve, and other federal agencies are responsible for enforcing
these laws and regulations. A successful regulatory challenge to our performance under the CRA, fair lending or consumer
lending laws and regulations could result in a wide variety of sanctions, including damages and civil money penalties,
injunctive relief, customer restitution, restrictions on mergers and acquisitions activity, restrictions on expansion, and
restrictions on entering new business lines. Private parties may also have the ability to challenge an institution’s
performance under fair lending laws in private class action litigation. Such actions could have an adverse effect on our
business, financial condition and results of operations.
Climate change and related legislative and regulatory initiatives may materially affect our business and results
of operations.
The effects of climate change continue to create a significant level of concern for the state of the global environment.
As a result, the global business community has increased its political and social awareness surrounding the issue, and the
United States has entered into international agreements in an attempt to reduce global temperatures, such as reentering
the Paris Agreement. Further, the U.S. Congress, state legislatures and federal and state regulatory agencies continue to
propose numerous initiatives to supplement the global effort to combat climate change, including provisions contained in
the Inflation Reduction Act of 2022. Furthermore, additional initiative may be undertaken in the future, including potentially
increasing supervisory expectations with respect to banks’ risk management practices, accounting for the effects of climate
change in stress testing scenarios and systemic risk assessments, revising expectations for credit portfolio concentrations
based on climate-related factors and encouraging investment by banks in climate-related initiatives and lending to
communities disproportionately impacted by the effects of climate change. The lack of empirical data surrounding the credit
and other financial risks posed by climate change render it difficult, or even impossible, to predict how climate change may
impact our financial condition and results of operations; however, the physical effects of climate change may also directly
impact us. Specifically, unpredictable and more frequent weather disasters may adversely impact the real property, and/or
the value of the real property, securing the loans in our portfolios. Additionally, if insurance obtained by our borrowers is
insufficient to cover any losses sustained to the collateral, or if insurance coverage is otherwise unavailable to our borrowers,
the collateral securing our loans may be negatively impacted by climate change, natural disasters and related events, which
could impact our financial condition and results of operations. Further, the effects of climate change may negatively impact
regional and local economic activity, which could adversely affect our customers and the communities in which we operate.
Overall, climate change, its effects and the resulting unknown impact could have a material adverse effect on our financial
condition and results of operations.
Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders
with respect to our environmental, social and governance practices may impose additional costs on us or expose
us to new or additional risks.
Companies have faced and may continue to face increased scrutiny from customers, regulators, investors, and other
stakeholders related to their environmental, social, and governance (“ESG”) practices and disclosure. Investor advocacy
groups, investment funds, and influential investors are also increasingly focused on these practices, especially as they
relate to the environment, health and safety, diversity, labor conditions, and human rights. Increased ESG-related
compliance costs could result in increases to our overall operational costs. Failure to adapt to or comply with regulatory
44 USCB Financial Holdings, Inc. 2024 10-K
requirements, or investor or stakeholder expectations and standards, could negatively impact our reputation, ability to do
business with certain partners, and our stock price.
Recent changes in the regulatory landscape under the new U.S. administration have moved toward a reduction in
emphasis on certain ESG priorities, particularly around climate change and diversity, equity, and inclusion (“DEI”). This shift
is leading to the rollback of regulations that mandate specific disclosures and operational practices in these areas. However,
some stakeholder groups continue to demand greater transparency and action, resulting in a complex and potentially
conflicting environment for companies. If regulatory enforcement of ESG-related policies becomes less stringent, companies
may face reputational risks if their practices are seen as insufficient or inconsistent with broader societal expectations,
especially related to DEI and environmental stewardship. As a result, navigating this evolving regulatory and public opinion
landscape may require us to balance compliance with regulatory requirements against maintaining investor, customer, and
stakeholder trust.
Risks Related to Our Class A Common Stock
Our ability to pay dividends is subject to restrictions.
Holders of our Class A common stock are only entitled to receive cash dividends when, as and if declared by our Board
out of funds legally available for dividends. The Company is a bank holding company that conducts substantially all of its
operations through the Bank, which is a legal entity separate and distinct from the Company. As a result, our ability to pay
dividends on our common stock will substantially depend upon the receipt of dividends and other distributions from the
Bank, the profitability of which is subject to the fluctuating cost and availability of money, changes in interest rates and
economic conditions in general. There are numerous laws and banking regulations and guidance that limit the Bank's ability
to pay dividends to us and our ability to pay dividends on our common stock. The Bank may not pay dividends to the
Company without the prior approval of the FDIC. Similarly, we have agreed to notify the Federal Reserve before declaring
and paying any dividends on our Class A common stock.
The market price and trading volume of our Class A common stock may be volatile, which could result in rapid
and substantial losses for our shareholders.
The market price of our Class A common stock may be highly volatile and could be subject to wide fluctuations. In
addition, the trading volume on our Class A common stock may fluctuate and cause significant price variations to occur. We
cannot assure you that the market price of our Class A common stock will not fluctuate or decline significantly in the future.
Some, but certainly not all, of the factors that could negatively affect the price of our Class A common stock, or result in
fluctuations in the price or trading volume of our Class A common stock, include but not limited to:
• general market conditions;
• domestic and international economic factors unrelated to our performance;
• variations in our quarterly operating results or failure to meet the market’s earnings expectations;
• publication of research reports about us or the financial services industry in general;
• the determination of securities analysts to not cover our Class A common stock;
• the opinion of securities analysts about our stock as an investment;
• additions to or departures of our key personnel;
• future sales of our Class A common stock;
• adverse market reactions to any indebtedness we may incur or securities we may issue in the future;
• actions by our shareholders;
• the operating and securities price performance of companies that investors consider to be comparable to us;
• changes or proposed changes in laws or regulations affecting our business; and
• actual or potential litigation and governmental investigations.
In addition, if the market for stocks in our industry, or the stock market in general, experiences a loss of investor
confidence, the trading price of the Class A common stock could decline for reasons unrelated to our business, financial
condition or results of operations. If any of the foregoing occurs, it could cause our Class A common stock price to fall and
may expose us to lawsuits that, even if unsuccessful, could be costly to defend and a distraction to management.
There are significant restrictions in our Articles of Incorporation that restrict the ability to sell our capital stock
to shareholders that would own 4.95% or more of our stock, excluding our Significant Investors.
Because the continued availability of our "deferred tax assets" depends, in part, on the value of our stock owned by
shareholders owning 5% or more of our stock, our amended Articles of Incorporation, except as otherwise may be approved
by the Board or except for transfers by our Significant Investors, prohibits any direct or indirect transfer of stock or options
45 USCB Financial Holdings, Inc. 2024 10-K
to acquire stock to any person who, as a result of the transfer, would own 4.95% or more of our stock, as long as the
Company continues to have "deferred tax assets." Such restrictions may limit the ability to transfer our stock.
Because we are an emerging growth company and because we have decided to take advantage of certain
exemptions from various reporting and other requirements applicable to emerging growth companies, our Class
A common stock could be less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act. For as long as we remain an emerging growth
company, we will have the option to take advantage of certain exemptions from various reporting and other requirements
that are applicable to other public companies that are not emerging growth companies, including:
•
discussion and analysis of financial condition and results of operations
•
assessment of our internal control over financial reporting under the SOA;
•
•
parachute arrangements.
We may continue to take advantage of some or all of the reduced regulatory and reporting requirements that will be
available to us as long as we continue to qualify as an emerging growth company. We will remain an emerging growth
company until the earliest to occur of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1.235
billion, (ii) the date that the market value of our Class A common stock that is held by non-affiliates exceeds $700.0 million
as of the last business day in June of that year, (iii) the date on which we have, during the previous three-year period, issued
more than $1.0 billion in non-convertible debt, or (iv) the end of fiscal year following the fifth anniversary of the completion
of our initial public offering (which will be December 31, 2026).
It is possible that some investors may find our Class A common stock less attractive since we chose to rely on these
exemptions. If some investors find our Class A common stock less attractive, there may be a less active trading market for
our Class A common stock and our stock price may be more volatile.
Because we have elected to use the extended transition period for complying with new or revised accounting
standards for an “emerging growth company,” our financial statements may not be comparable to companies that
comply with these accounting standards as of the public company effective dates.
As an emerging growth company, we elected to use the extended transition period for complying with new or revised
accounting standards under Section 7(a)(2)(B) of the Securities Act. This election allows us to delay the adoption of new or
revised accounting standards that have different effective dates for public and private companies until those standards apply
to private companies. As a result of this election, our financial statements may not be comparable to companies that comply
with these accounting standards as of the public company effective dates. Because our financial statements may not be
comparable to companies that comply with public company effective dates, investors may have difficulty evaluating or
comparing our business, performance or prospects in comparison to other public companies, which may have a negative
impact on the value and liquidity of our Class A common stock. We cannot predict if investors will find our Class A common
stock less attractive because we have relied on this exemption. If some investors find our Class A common stock less
attractive as a result, there may be a less active trading market for our Class A common stock and our stock price may be
more volatile.
We have existing investors that own a significant amount of our common stock whose individual interests may
differ from yours.
A significant percentage of our Class A common stock is currently held by a few institutional investors, including Patriot
Financial Partners II, L.P. and Patriot Financial Partners Parallel II, L.P. (collectively, "Patriot"), and Priam Capital Fund II,
LP ("Priam," and together with Patriot, the "Significant Investors"). As of February 28, 2025 Patriot and Priam own
approximately 22.4% and 22.5%, respectively, of our outstanding shares of Class A common stock. In addition, Patriot and
Priam are each entitled to nominate a director to our Board and have certain subscription rights to purchase new equity
securities that we issue in the future, in each case as long as certain equity ownership criteria are met. Patriot and Priam
also have certain registration rights, including demand registration rights, and information rights. Although Patriot and Priam
are independent of each other, these institutional investors will continue to have a significant level of influence over us
because of their level of Class A common stock ownership and their right to representation on our Board. For example,
Patriot and Priam will have a greater ability than our other shareholders to influence the election of directors and the potential
outcome of other matters submitted to a vote of our shareholders, including mergers and other acquisition transactions,
46 USCB Financial Holdings, Inc. 2024 10-K
amendments to our amended Articles of Incorporation and Amended and Restated Bylaws, and other extraordinary
corporate matters. The interests of these investors could conflict with the interests of our other shareholders, and any future
transfer by these investors of their shares of Class A common stock to other investors who have different business objectives
could adversely affect our business, results of operations, financial condition, prospects or the market value of our Class A
common stock.
Provisions in our governing documents and Florida law may have an anti-takeover effect and there are
substantial regulatory limitations on changes of control of the Company.
Our corporate organizational documents and provisions of federal and state law to which we are subject contain certain
provisions that could have an anti-takeover effect and may delay, make more difficult or prevent an attempted acquisition
that you may favor or an attempted replacement of our Board or management.
Our governing documents include provisions that:
•
voting power, are set by our Board;
•
Company with voting power;
•
•
•
•
•
candidates for election as directors at our annual meeting of shareholders, to provide timely notice of their intent in
writing and satisfy disclosure requirements; and
•
vacancies created as a result of the increase until the next meeting of shareholders by a majority vote of the directors
present at a meeting of directors.
In addition, certain provisions of Florida law may delay, discourage, or prevent an attempted acquisition or change in
control. Furthermore, banking laws impose notice, approval, and ongoing regulatory requirements on any shareholder or
other party that seeks to acquire direct or indirect "control" of a bank holding company, which includes the Change in Bank
Control Act and the Bank Holding Company Act. These laws could delay or prevent an acquisition. Also, for preservation
and continued availability of our "deferred tax assets," our amended Articles of Incorporation prohibits any direct or indirect
transfer of stock or options to acquire stock to any person who, as a result of the transfer, would own 4.95% or more of our
stock, as long as we continue to have "deferred tax assets," subject to limited exceptions as provided in our amended
Articles of Incorporation. Because of the requirements to overcome this restriction, this provision of the amended Articles of
Incorporation could have an anti-takeover effect and may delay, make more difficult or prevent an attempted acquisition
that you may favor.
47 USCB Financial Holdings, Inc. 2024 10-K
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
Customers depend on the Company to properly protect nonpublic personal information gathered and stored in
connection with the services we provide. The Company realizes that cyber incidents can have financial, reputational, legal,
and operational impacts that can significantly adversely affect our customers, capital, and earnings. Therefore, we integrate
cybersecurity processes throughout the Company as part of our enterprise-wide governance process. Regulatory agencies
are charged with ensuring the Company’s cybersecurity controls and procedures are compliant with the intent of the
cybersecurity expectations set forth by the Federal Financial Institutions Examination Council (“FFIEC”). The FFIEC
framework offers a set of guidelines and best practices to help financial institutions manage and mitigate cybersecurity risks
effectively. It focuses on ensuring the confidentiality, integrity, and availability of sensitive information and systems.
The Information Security Officer (“ISO”) is an integral member of the Risk Management and Compliance Department
(“RMCD”) of the Bank and who provides expert counsel on matters of cybersecurity and presents periodic reports to the
Risk Committee of our Board of Directors.
As part of the program, periodic risk assessments are performed to determine the Company’s inherent and residual
cybersecurity risk, the maturity level of the program, the risk of cyber threats, and the effectiveness of controls currently in
practice. The Company utilizes the National Institute of Standards and Technology (“NIST”) Framework and the FFIEC’s
Cybersecurity Assessment Tool (“Cybersecurity Assessment”) to help management identify its risks and determine the
Company’s cybersecurity posture. Through the
training initiatives for both management and staff, the institution cultivates a safe cybersecurity environment. This approach
encompasses diverse methodologies including defense-in-depth and proactive security awareness training aimed at
fortifying the institutions cybersecurity controls and fostering a resilient operational framework.
It is the policy of the Company and its technology service providers (“TSPs”) to ensure that they can identify, mitigate,
and respond to cyber-attacks involving destructive malware and invasive attacks such as phishing, ransomware, malware,
DDoS attacks, etc. This commitment aligns with the Company’s risk appetite, Incident Response Policy, and Business
Continuity Plan, which incorporates business continuity planning and testing activities to enhance response and recovery
capabilities.
capital, operational, and reputation risks, due to events such as fraud, data loss, and disruption of customer service. As
such, it is the policy of the Company to ensure that its risk management processes, and business continuity planning address
these risks by:
●
oversee the information/cybersecurity programs to ensure adherence to regulatory guidance and industry best
practices.
●
logical network segmentation, hard backups, maintaining an inventory of authorized devices and software, and
physical segmentation of critical systems. Consistency in system configuration fosters a secure network
environment by removing or disabling unused applications, functions, or components.
●
and segregation of duties. Limits on sign-on attempts for critical systems are enforced, with accounts being locked
upon threshold exceedance. Alert systems notify of baseline control changes on critical systems, with the
effectiveness and adequacy of controls periodically tested and the results reported to senior management and, if
applicable, the Risk Committee, along with recommended risk mitigation strategies and progress to remediate
findings.
●
and detection systems. This includes maintaining up-to-date intrusion detection systems, antivirus protection, and
properly configured firewall rules. Systems are monitored to identify, prevent, and contain attack attempts from all
sources.
48 USCB Financial Holdings, Inc. 2024 10-K
●
cyber-attack incidents involving destructive malware. These processes encompass data and business operations
recovery, network capability rebuilding, and data protection for offline backups in the event of cyber-attacks
impacting the Company or its critical service providers.
●
and loan accounts. This involves identifying, prioritizing, and assessing risks to critical systems, including threats to
applications controlling various system parameters and implementing necessary security prevention measures.
●
Testing encompasses both in-house and third-party processor scenarios to validate employee understanding of
responsibilities and adherence to Company protocols.
Executive Oversight and Roles
The
collaborates with functional area management, departmental level managers, and other relevant staff.
Management
committees and the Board of Directors review reports submitted by the RMCD detailing the Company’s inherent and residual
cybersecurity risk, program sophistication level, and high-risk threats identified in the cybersecurity risk assessment.
The Board oversees the development and maintenance of the information security program, holding management
accountable. Management committees ensure program integration and effectiveness, with the RMCD responsible for
cybersecurity controls and procedures. The Board receives regular
updates, providing expectations and requirements to management and holding them accountable for oversight and
coordination, assignment of responsibility, and the effectiveness of the information and cybersecurity security program.
Annually, or as required, the RMCD provides a comprehensive report to the Board or a designated committee regarding
the status of the cybersecurity program
. This report encompasses internal assessments, utilization of the Cybersecurity
Assessment, discussion of significant program matters such as the annual risk assessment, risk management decisions,
monitoring of service provider compliance, results of key controls testing, security breaches or violations, management's
responses, and recommendations for program enhancements.
Engagement with Third Party Vendors
The engagement of third-party providers involves potential risks that may impact strategic, reputational, operational,
transaction, credit, financial, technology and compliance considerations. Third-party providers whose services involve
transmittal, storage and processing of non-public personal information represent a greater level of compliance risks,
specifically as it relates to compliance requirements of the Gramm Leach Bliley Act (GLBA) regulation and applicable Privacy
Laws and Regulations.
The Bank has developed general guidelines for the identification, risk assessment, monitoring and management of risks
associated to the engagement of third-party providers or vendors.
Certain aspects of the risk assessment process may require the involvement of the compliance officer, technology
officers, finance officers, internal auditors, and legal counsel to identify potential risks that may arise from the third-party
engagement as well as identify performance criteria, internal controls, reporting needs and any contractual requirements
that should be implemented for the ongoing assessment and control of risks that derive from the third-party engagement.
Compliance with Regulatory Standards
Annual testing or more frequently if deemed necessary of cybersecurity controls and procedures will be conducted to
ensure compliance. In instances of identified deficiencies or vulnerabilities, remedial action plans will be implemented to
rectify issues or establish mitigating controls. Any exceptions deemed significant will be promptly reported, with remediation
efforts prioritized.
Annually, or as required, the RMCD will provide a comprehensive report to the Board or a designated committee
regarding the status of the cybersecurity program. This report will encompass internal assessments, utilization of the
Cybersecurity Assessment, and discussion of other significant program matters.
As of the end of the reporting period set forth in this Annual Report on Form 10-K, there is no knowledge or indication
that customer sensitive information was compromised as a result of third-parties’ system vulnerabilities. Management
continues to monitor developments and vendor communications.
49 USCB Financial Holdings, Inc. 2024 10-K
Item 2. Properties
The Company’s corporate offices are headquartered at 2301 N.W. 87th Avenue, Doral, Florida 33172. The Company,
through the Bank, operates 10 banking centers in South Florida within Miami-Dade and Broward counties. Of the 10 banking
centers, nine of these locations are leased and one is owned. The banking center that is owned is located at 3999 Sheridan
St, Hollywood, FL 33021. Management believes that each of these locations are in good condition and adequate to meet
our present and foreseeable needs, subject to possible future expansion.
See Note 4 “Leases” and Note 5 “Premises and Equipment” to the Consolidated Financial Statements included in this
Annual Report on Form 10-K for additional information.
Item 3. Legal Proceedings
We are not currently subject to any material legal proceedings. We are from time to time subject to claims and litigation
arising in the ordinary course of business. These claims and litigation may include, among other things, allegations of
violation of banking and other applicable regulations, competition law, labor laws and consumer protection laws, as well as
claims or litigation relating to intellectual property, securities, breach of contract and tort. We intend to defend ourselves
vigorously against any pending or future claims and litigation.
The Company previously disclosed that litigation (the “Litigation”) had been commenced on July 13, 2023 by three
individuals who were shareholders of the Bank prior to the Bank’s reorganization into the holding company form of
organization in 2021 (the “Plaintiffs”) against six persons, all of whom were directors of the Bank at the relevant time (the
“Defendants”), in the Circuit Court, Eleventh Judicial Circuit for Miami-Dade County, Florida (the “Court”) (Benes et al. v. de
la Aguilera et al.) alleging the Defendants (i) caused the Bank, as directors thereof, to engage in ultra vires conduct by
devising and approving the exchange transaction effected in July 2021 pursuant to which the Bank’s then outstanding
shares of Class C and Class D preferred stock was exchanged for shares of Class A voting common stock in the Bank (the
“Exchange Transaction”), which action the Plaintiffs allege was not permitted by the Bank’s Articles of Incorporation, and
(ii) breached their fiduciary duty as directors of the Bank by approving and engaging in the Exchange Transaction. The
Plaintiffs sought the Court to certify the action as a class action and to award damages in an amount to be proven at trial.
The Plaintiffs sought damages exceeding $750,000 plus attorney’s fees and costs as well as such other relief as the Court
determined to award.
The Defendants filed a motion to dismiss the Litigation with prejudice (the “Motion”). On December 27, 2023, the Court,
after reviewing the Motion, the Plaintiff’s response thereto and the Defendant’s reply as well as the oral arguments presented
by the parties on December 14, 2023, granted the Motion, dismissing the Litigation with prejudice and rendering final
judgment in favor of the Defendants (the “Order”). The Court reserved jurisdiction to award costs or grant any post-judgment
relief.
On May 1, 2024, the Plaintiffs filed in the Third District Court of Appeal for the State of Florida (the “Appellate Court”)
an appeal (the “Appeal”), appealing the issuance of the Order and seeking a reversal of the Order. The Plaintiffs claimed
the Court erred by concluding (i) the Exchange Transaction was not ultra vires, and (ii) that the Legacy Shareholders (which
includes the Plaintiffs) lacked direct standing. The Plaintiffs filed their initial brief and the Defendants filed on July 1, 2024
their answer brief (“Answer Brief”) responding to the allegations contained in the Appeal.
Oral argument was heard before the Court on January 14, 2025. On February 18, 2025, the Appellate Court affirmed
the lower court's ruling and dismissed the lawsuit, in favor of the Defendants (the “Dismissal”). The Plaintiffs have the right
to appeal the Dismissal, but they have not done so as of the date of the filing of this Annual Report on Form 10-K.
The Company believes that the positions in the Appeal are legally and factually without merit, and it intends to vigorously
defend against any appeal of the Dismissal of the Appeal , pursue any potential counterclaims against the Plaintiffs as it
deems appropriate, and seek coverage from its insurance carriers. Furthermore, there is also no assurance that we will be
able to secure coverage from our insurance carriers for any expenses incurred by us in connection with defending against
the Appeal.
At this time, in the opinion of management, the likelihood is remote that the impact of such proceedings, either
individually or in the aggregate, would have a material adverse effect on our consolidated results of operations, financial
condition or cash flows. However, one or more unfavorable outcomes in any claim or litigation against us, including the
aforementioned Appeal regarding the Exchange Transaction, could have a material adverse effect on the period in which
such claims or litigation are resolved. In addition, regardless of their merits or their ultimate outcomes, such matters are
costly, divert management’s attention and may materially adversely affect our reputation, even if resolved in our favor.
50 USCB Financial Holdings, Inc. 2024 10-K
There can be no assurance that any future legal proceedings to which we are a party will not be decided adversely to
our interests and have a material adverse effect on our financial condition and operations.
Item 4. Mine Safety Disclosures
Not applicable.
51 USCB Financial Holdings, Inc. 2024 10-K
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
(a)
In July 2021, the Bank’s Class A common stock began trading on the Nasdaq Stock Market under ticker symbol “USCB”.
Effective December 30, 2021, the Company acquired all issued and outstanding shares of Class A common stock of
the Bank in connection with the bank holding company reorganization. Each of the outstanding shares of the Bank’s
common stock formerly held by its shareholders was converted into and exchanged for one newly issued share of the
Company’s common stock. The Company’s Class A common stock is also listed on the Nasdaq Stock Market and uses the
same ticker symbol.
The listing of our Class A common stock on the Nasdaq Stock Market has resulted in a more active trading market for
our Class A common stock. However, we cannot assure investors that a liquid trading market for our Class A common stock
will be sustained.
Prior to our listing on the Nasdaq Stock Market there was not an established public trading market for the Class A
common shares. The following table shows the quarterly high and low closing prices of our Class A common stock traded
on the Nasdaq Stock Market for the last two fiscal years :
Stock Price
High
Low
Quarter Ended:
March 31, 2023
$
12.71
$
9.89
June 30, 2023
$
10.94
$
8.86
September 30, 2023
$
12.09
$
10.31
December 31, 2023
$
12.65
$
10.11
March 31, 2024
$
12.44
$
10.85
June 30, 2024
$
12.83
$
10.25
September 30, 2024
$
16.66
$
11.99
December 31, 2024
$
20.78
$
14.16
As of December 31, 2024, our Class B common stock is not listed or traded on any stock exchange and no shares were
issued and outstanding at such date.
Holders
As of January 31, 2025, the Company’s Class A common shares were held by approximately 526 shareholders of
record, not including the number of persons or entities whose stock is held in nominee or “street” name through various
brokerage firms and banks.
Dividends
As a bank holding company, the Company’s ability to declare and pay dividends depends on various federal regulatory
considerations, including the guidelines of the Federal Reserve regarding capital adequacy and dividends. The Company
has agreed to provide notice to the Federal Reserve prior to paying any cash dividends on its Class A common stock.
Because we are a bank holding company and currently do not engage directly in business activities of a material nature,
our ability to pay dividends to our shareholders depends, in large part, upon our receipt of dividends from the Bank, which
is also subject to numerous limitations on the payment of dividends under federal and state banking laws, regulations and
policies. The Bank cannot declare and pay and cash dividends to the Company without receiving the prior approval of the
FDIC.
The principal source of revenue with which to pay dividends on common shares are dividends the Bank may declare
and pay out of funds legally available for payment of dividends. As a Florida corporation, we are only permitted to pay
dividends to shareholders if, after giving effect to the dividend, (i) the Company is able to pay its debts as they become due
in the ordinary course of business and (ii) the Company’s assets exceeds the sum of Company’s (a) liabilities plus (b) the
52 USCB Financial Holdings, Inc. 2024 10-K
amount that would be needed for the Company to satisfy the preferential rights upon dissolution of shareholders whose
preferential rights are superior to those receiving the dividend, if any.
Securities Authorized for Issuance Under Equity Compensation Plans
See Note 9 ”Equity Based and Other Compensation Plans” to the Consolidated Financial Statements included in this
Annual Report Form on 10-K for additional information required.
Stock Price Performance
The graph below compares the cumulative total return to stockholders of our Class A common stock between July 23,
2021 (the date the Bank’s Class A common stock commenced trading on the Nasdaq Stock Market) and December 31,
2024, with the cumulative total return of (a) the Nasdaq Bank Index (b) the NASDAQ ABA Community Bank Index, and (c)
the Nasdaq Composite Index over the same period. This graph assumes the investment of $100 in our Class A common
stock at the closing sale price of $10.82 per share on July 23, 2021, and assumes the reinvestment of dividends.
The comparisons shown in the graph below are based upon historical data. We caution that the stock price performance
shown in the graph below is not indicative of, nor is it intended to forecast, the potential future performance of our common
stock.
07/23/2021
12/31/2021
12/31/2022
12/31/2023
12/31/2024
USCB Financial Holdings, Inc. (USCB)
$
100
$
140
$
122
$
123
$
166
NASDAQ Bank (BANK)
$
100
$
115
$
94
$
88
$
102
NASDAQ ABA Community Bank (QABA)
$
100
$
114
$
101
$
96
$
106
NASDAQ Composite (IXIC)
$
100
$
107
$
71
$
102
$
130
Recent Sales of Unregistered Securities
The Company did not sell any of its equity securities during 2024 that were not registered under the Securities Act.
Purchases of Equity Securities by Issuer and Other Affiliates
53 USCB Financial Holdings, Inc. 2024 10-K
On January 24, 2022, the Board of Directors approved the first share repurchase program of up to 750,000 shares of
Class A common stock. On April 22, 2024 the Board of Directors approved the second share repurchase program of up to
500,000 shares of Class A common stock. Under the repurchase programs, the Company may purchase shares of Class
A common stock on a discretionary basis from time to time through open market repurchases, privately negotiated
transactions, or otherwise in compliance with Rule 10b-18 under the Exchange Act. As of December 31, 2024, the Company
had repurchased 712,020 shares of Class A common stock under the first program and no shares under the second
repurchase program. The Company did not repurchase any of its equity securities for the quarter ended December 31,
2024. As of December 31, 2024, 537,980 shares remained authorized for repurchase under the Company’s two stock
repurchase programs.
Item 6. Reserved
54 USCB Financial Holdings, Inc. 2024 10-K
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Management’s discussion and analysis of financial condition and results of operations analyzes the consolidated
financial condition and results of operations of the Company and the Bank, its wholly owned subsidiary, for the years ended
December 31, 2024 and 2023. This discussion and analysis is best read in conjunction with the Consolidated Financial
Statements and related footnotes of the Company presented in Item 8 “Financial Statements and Supplementary Data” of
this Annual Report on Form 10-K. In addition to historical information, this discussion contains forward-looking statements
that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management's
expectations. Factors that could cause such differences are discussed in the sections entitled "Forward-Looking
Statements" and Item 1A “Risk Factors" of this Annual Report.
In this Annual Report on Form 10-K, unless the context indicated otherwise, references to “we,” “us,”, and “our” refer to
the Company and the Bank, as the contest dictates. However, if the discussion relates to a period before the Effective Date,
the terms refer only to the Bank.
55 USCB Financial Holdings, Inc. 2024 10-K
CAUTIONARY NOTE REGARDING FORWARD -LOOKING STATEMENTS
This Annual Report on Form 10-K contains statements that are not historical in nature are intended to be, and are
hereby identified as, forward-looking statements for purposes of the safe harbor provided by Section 21E of the Securities
Exchange Act of 1934, as amended. The words “may,” “will,” “anticipate,” “could,” “should,” “would,” “believe,” “contemplate,”
“expect,” “aim,” “plan,” “estimate,” “seek,” “continue,” and “intend,” as well as other similar words and expressions of the
future, are intended to identify forward-looking statements. These forward-looking statements include statements related to
our projected growth, anticipated future financial performance, and management’s long-term performance goals, as well as
statements relating to the anticipated effects on results of operations and financial condition from expected developments
or events, or business and growth strategies, including anticipated internal growth and balance sheet restructuring.
These forward-looking statements involve significant risks and uncertainties that could cause our actual results to differ
materially from those anticipated in such statements. Potential risks and uncertainties include, but are not limited to:
•
operations;
•
•
reserve and deferred tax asset valuation allowance;
•
•
jurisdiction where we operate;
•
banking industry;
•
•
the on-going effects of the implementation of CECL;
•
of geographic, depositor, and industry concentrations, including our concentration in loans secured by real estate,
in particular, commercial real estate;
•
•
•
•
growth as well as growth through other means, such as future acquisitions;
•
•
•
spread and net interest margin;
•
•
employee, or third-party fraud and cybersecurity breaches; and
•
All forward-looking statements are necessarily only estimates of future results, and there can be no assurance that
actual results will not differ materially from expectations. Therefore, you are cautioned not to place undue reliance on any
forward-looking statements. Further, forward-looking statements included in this Annual Report on Form 10-K are made
only as of the date hereof, and we undertake no obligation to update or revise any forward -looking statement to reflect
events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events,
unless required to do so under the federal securities laws. You should also review the risk factors described in this Annual
Report on Form 10-K and in the reports the Company filed or will file with the SEC and, for periods prior to the Effective
Date, the Bank filed with the FDIC.
Non-GAAP Financial Measures
This Annual Report on Form 10-K includes financial information determined by methods other than in accordance with
generally accepted accounting principles (“GAAP”). This financial information includes certain operating performance
measures. Management has included these non-GAAP measures because it believes these measures may provide useful
supplemental information for evaluating the Company’s underlying performance trends. Further, management uses these
measures in managing and evaluating the Company’s business and intends to refer to them in discussions about our
operations and performance. Operating performance measures should be viewed in addition to, and not as an alternative
56 USCB Financial Holdings, Inc. 2024 10-K
to or substitute for, measures determined in accordance with GAAP, and are not necessarily comparable to non-GAAP
measures that may be presented by other companies. To the extent applicable, reconciliations of these non-GAAP
measures to the most directly comparable GAAP measures can be found in the ‘Non-GAAP Reconciliation Tables’ included
in this Annual Report on form 10-K.
Overview
For the year ended December 31, 2024, the Company reported net income of $24.7 million compared with net income
of $16.5 million for the year ended December 31, 2023.
In evaluating our financial performance, we consider the level of and trends in net interest income, the net interest
margin, the cost of deposits, growth and composition of our loan portfolio, levels and composition of non-interest income
and non-interest expense, performance ratios, asset quality ratios, regulatory capital ratios, and any significant event or
transaction.
The following significant highlights are of note for the year ended December 31, 2024:
•
program. The quarterly dividend for all quarters in 2024 was $0.05 per share of Class A common stock.
•
compared to $58.6 million for the year ended December 31, 2023.
•
the year ended December 31, 2023.
•
billion at December 31, 2023.
•
compared to $1.8 billion at December 31, 2023.
•
•
2023.
•
2023.
•
regulatory capital purposes, with a total risk-based capital ratio of 13.34%, a tier 1 risk-based capital ratio of 12.10%,
a common equity tier 1 capital ratio of 12.10%, and a leverage ratio of 9.38%. As of December 31, 2024 and 2023,
all of the Bank’s regulatory capital ratios exceeded the thresholds to be well-capitalized under the applicable bank
regulatory requirements.
•
A common stock or approximately 2.5% of the Company’s then issued and outstanding shares of common stock.
•
a weighted average price per share of $11.85. The aggregate purchase price for these transactions was
approximately $501 thousand, including transaction costs. These repurchases were made through open market
purchases pursuant to the Company’s publicly announced repurchase programs. As of December 31, 2024,
537,980 shares remained authorized for repurchase under the current two programs.
•
amount of $200 million.
57 USCB Financial Holdings, Inc. 2024 10-K
Critical Accounting Policies and Estimates
The consolidated financial statements are prepared based on the application of U.S. GAAP, the most significant of
which are described in Note 1 “Summary of Significant Accounting Policies” to our Consolidated Financial Statements. To
prepare financial statements in conformity with GAAP, management makes estimates, assumptions, and judgments based
on available information. These estimates, assumptions, and judgments affect the amounts reported in the financial
statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as
of the date of the financial statements and, as this information changes, actual results could differ from the estimates,
assumptions and judgments reflected in the financial statements. In particular, management has identified accounting
policies that, due to the estimates, assumptions and judgments inherent in those policies, are critical in understanding our
financial statements. Management has presented the application of these policies to the audit and risk committee of our
Board.
Allowance for Credit Losses - Loans
The allowance for credit losses (“ACL”) is a valuation allowance that is established through charges to earnings in the
form of a provision for credit losses. The amount of the ACL is affected by the following: (i) charge-offs of loans that decrease
the allowance; (ii) subsequent recoveries on loans previously charged off that increase the allowance; and (iii) provisions
for credit losses charged to income that increase or decrease the allowance. Management considers the policies related to
the ACL as the most critical to the financial statement presentation.
On January 1, 2023, the Company implemented ASU 2016-13 Financial Instruments - Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments, as amended. This update replaces the incurred loss methodology
with the CECL methodology. The CECL methodology measures expected credit losses and applies to financial assets
measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance
sheet credit exposures not accounted for as insurance (e.g., loan commitments, standby letters of credit, financial
guarantees, and similar instruments), as well as net investments in leases recognized by lessors in accordance with Topic
842 on leases.
Under CECL, the Company estimates the allowance for credit losses by utilizing pertinent available data, sourced both
internally and externally, relating to past events, current conditions, and reasonable and supportable forecasts. Historical
credit losses provide the foundation for the estimation of expected credit losses. Qualitative adjustments are applied to the
estimated expected credit losses for the loan portfolio to account for potential constraints of the quantitative model.
Management employs a scorecard to facilitate the evaluation of qualitative factor adjustments made to expected credit
losses.
The estimation's quantitative aspect relies on the statistical correlation between the anticipated value of an economic
indicator and the historical loss experience implied within a selected group of peers. The Company conducted regression
analyses using peer data, inclusive of the Company itself, where observed credit losses and chosen economic indicators
were utilized to identify appropriate drivers for modeling the lifetime probability of default (“PD”) rates. A loss given default
rate (“LGD”) is assigned to each pool of loans for each period based on these PD outcomes. The model primarily employs
an expected discounted cash flow (“DCF”) analysis for segments within the loan portfolio. This DCF analysis operates at
the individual instrument level and incorporates various loan-specific data points and segment-specific assumptions to
ascertain the lifetime expected loss associated with each instrument. An implicit "hypothetical loss" is determined for each
period of the DCF, aiding in establishing the present value of future cash flows for each period. The reserve allocated to a
particular loan represents the disparity between the sum of the present value of future cash flows and the book balance of
the loan at the measurement date.
Management uses the Remaining Life (“WARM”) methodology for five segments within the loan portfolio. For each
segment, a long-term average loss rate is computed and applied quarterly throughout the remaining life of the pool.
Qualitative assessments are conducted to adjust for economic expectations. To estimate the remaining life, management
employed a software solution utilizing an attrition-based calculation. This software conducts quarterly cohort-based attrition
measurements based on the loan portfolio.
Portfolio segments represent the level at which loss assumptions are applied to a pool of loans, determined by the
similarity of risk characteristics inherent in the included instruments, based on collateral codes and FFIEC Call Report codes.
Currently, the Company segments the portfolio based on collateral codes to establish reserves. Each segment is linked to
regression models (Loss Driver Analyses) using peer data for loans with similar risk characteristics. The Company has
established connections between internal portfolio segmentation and FFIEC Call Report codes for this purpose. The loss
driver for each loan portfolio segment is derived from a readily available and reasonable economic forecast, including
Federal Reserve Bank projections of the U.S. civilian unemployment rate and year-over-year real GDP growth. For the
58 USCB Financial Holdings, Inc. 2024 10-K
residential loan segment, House Price Index (“HPI”) projections published by Fannie Mae’s Economic and Strategic
Research Group are utilized for the forecast. Forecasts are applied for the first four quarters of the credit loss estimate and
then linearly revert to the historical mean of the economic indicator over the expected life of the loans.
The model integrates qualitative factor adjustments to fine-tune risk calibration for each portfolio segment, addressing
aspects that quantitative analysis may not fully capture. Decisions concerning qualitative adjustments reflect management's
anticipation of loss conditions deviating from those already accounted for in the quantitative aspect of the model.
Our ACL included residential loans. To assess the potential impact of changes in qualitative factors related to these
loans, management performed a sensitivity analysis. The Company evaluated the impact of the HPI used in calculating
expected losses on the residential loan segment. As of December 31, 2024, for every 100 basis points increase in the HPI
index, the forecast reduces reserves by approximately $582 thousand and about 3 basis points to the reserve coverage
ratio, everything else being constant. This sensitivity analysis provides a hypothetical result to assess the sensitivity of the
ACL and does not represent a change in management’s judgement.
As of December 31, 2024, we stress tested two qualitative factors in our commercial real estate loan pool, as it’s the
largest segment in our portfolio. We evaluated the impact of a change in the qualitative factors from no risk to maximum
loss to measure the sensitivity of the qualitative factors. The change resulted in a $9.6 million or 39.8% increase in the
allowance for credit losses. This sensitivity analysis provides a hypothetical result to assess the sensitivity of the ACL and
does not represent a change in management’s judgement .
The Company calculates a reserve for unfunded commitments, distinct from the allowance for credit losses reported in
other liabilities. This reserve is determined using both quantitative and qualitative factors identical to those applied to the
collectively evaluated loan portfolio.
Results of Operations
General
The following tables present selected balance sheet, income statement, and profitability ratios for the dates and for the
periods indicated (in thousands, except ratios):
As of December 31,
2024
2023
Consolidated Balance Sheets:
Total assets
$
2,581,216
$
2,339,093
Total loans
(1)
$
1,972,848
$
1,780,827
Total deposits
$
2,174,004
$
1,937,139
Total stockholders' equity
$
215,388
$
191,968
(1) Loan amounts include deferred fees/costs.
Years Ended December 31,
2024
2023
Consolidated Statements of Operations:
Net interest income before provision for credit losses
$
69,936
$
58,568
Provision fro credit losses
$
3,157
$
2,367
Total non-interest income
$
12,740
$
7,403
Total non-interest expense
$
47,042
$
41,808
Net income
$
24,674
$
16,545
Net income available to common stockholders
$
24,674
$
16,545
Profitability:
Efficiency ratio
56.90%
63.37%
Net interest margin
2.94%
2.79%
The Company’s results of operations depend substantially on net interest income and non-interest income. Other factors
contributing to the results of operations include our provision for credit losses, non-interest expense, and the provision for
income taxes.
59 USCB Financial Holdings, Inc. 2024 10-K
Net income for the year ended December 31, 2024 was $24.7 million , compared with net income of $16.5 million for
the same period in 2023. The Company reported net income per diluted share for the year ended December 31, 2024 of
$1.24 compared to net income per diluted share for the same period in 2023 of $0.84.
Net Interest Income
Net interest income is the difference between interest earned on interest-earning assets and interest incurred on
interest-bearing liabilities and is the primary driver of core earnings. Interest income is generated from interest and dividends
on interest-earning assets, including loans, investment securities and other short-term investments. Interest expense is
incurred from interest paid on interest-bearing liabilities, including interest-bearing deposits, FHLB advances and other
borrowings.
To evaluate net interest income, we measure and monitor (i) yields on loans and other interest-earning assets, (ii) the
costs of deposits and other funding sources, (iii) net interest spread, and (iv) net interest margin. Net interest spread is equal
to the difference between the weighted average yields earned on interest -earning assets and the weighted average rates
paid on interest-bearing liabilities. Net interest margin is equal to the net interest income divided by average interest-earning
assets. Because non-interest-bearing sources of funds, such as non-interest-bearing deposits and stockholders’ equity, also
fund interest-earning assets, net interest margin includes the benefit of these non-interest-bearing sources.
Changes in the market interest rates and interest rates we earn on interest-earning assets or pay on interest-bearing
liabilities, as well as the volume and types of interest-earning assets and interest-bearing and non-interest-bearing liabilities,
are usually the largest drivers of periodic changes in net interest spread, net interest margin and net interest income. The
Asset-Liability Committee (“ALCO”) has in place asset-liability management techniques to manage major factors that affect
net interest income and net interest margin.
60 USCB Financial Holdings, Inc. 2024 10-K
The following table contains information related to average balances, average yields on assets, and average costs of
liabilities for the periods indicated (in thousands).
Years Ended December 31,
2024
2023
Average
Balance
Interest
Yield/Rate
Average
Balance
Interest
Yield/Rate
Assets
Interest-earning assets:
Loans
(2)
$
1,862,013
$
115,236
6.19
%
$
1,606,960
$
87,884
5.47
%
Investment securities
(3)
427,567
11,480
2.68
%
423,749
10,012
2.36
%
Other interest-earnings assets
88,758
4,517
5.09
%
65,986
3,121
4.73
%
Total interest-earning assets
2,378,338
131,233
5.52
%
2,096,695
101,017
4.82
%
Non-interest earning assets
108,215
109,541
Total assets
$
$2,486,553
$
2,206,236
Liabilities and stockholders' equity
Interest-bearing liabilities:
Interest-bearing demand deposits
$
54,667
1,509
2.76
%
$
53,324
901
1.69
%
Savings and money market deposits
1,109,853
40,098
3.61
%
963,708
29,658
3.08
%
Time deposits
326,373
13,354
4.09
%
268,715
8,500
3.16
%
Total interest-bearing deposits
1,490,893
54,961
3.69
%
1,285,747
39,059
3.04
%
Borrowings and repurchase agreements
158,484
6,336
4.00
%
94,936
3,390
3.57
%
Total interest-bearing liabilities
1,649,377
61,297
3.72
%
1,380,683
42,449
3.07
%
Non-interest bearing demand deposits
596,073
607,506
Other non-interest-bearing liabilities
37,399
34,010
Total liabilities
2,282,849
2,022,199
Stockholders' equity
203,704
184,038
Total liabilities and stockholders' equity
$
$2,486,553
$
2,206,236
Net interest income
$
69,936
$
58,568
Net interest spread
(4)
1.80
%
1.74
%
Net interest margin
(5)
2.94
%
2.79
%
(1) Average balances - Daily average balances are used to calculate yields/rates.
(2) Average loan balances include non-accrual loans. Interest income on loans includes accretion of deferred loan fees, net of deferred loan costs.
(3) At fair value except for securities held to maturity. This amount includes FHLB stock.
(4) Net interest spread is the weighted average yield on total interest-earning assets minus the weighted average rate on total interest-bearing liabilities.
(5) Net interest margin is the ratio of net interest income to average total interest-earning assets.
Net interest income before the provision for credit losses was $69.9 million for the year ended December 31, 2024, a
increase of $11.4 million or 19.4%, from $58.6 million for the year ended December 31, 2023. This increase was primarily
attributable to increase in weighted average yields on interest-earning assets growing at a higher pace than the increase in
weighted average rates paid on interest-earning liabilities. Additionally, the increase in the volume of interest-earning assets
was higher than interest-earning liabilities.
The net interest margin was 2.94% for the year ended December 31, 2024 and 2.79% for the year ended 2023. Although
the overall and individual yields for interest-earning assets and interest-bearing liabilities both increased in 2024, the yield
on interest-earning assets, especially on loans, had a greater increase when compared to 2023. The increase in our yields
and cost of funds was primarily due to the interest rate market.
The Company did not have any tax-exempt securities at both December 31, 2024 and 2023.
61 USCB Financial Holdings, Inc. 2024 10-K
Provision for Credit Losses
ACL represents expected credit losses in our portfolio as the measurement date. We maintain an adequate ACL that
can mitigate expected credit losses in the loan portfolio. The ACL is increased by the provision for credit losses and is
decreased by charge-offs, net of recoveries on prior loan charge-offs. There are multiple credit quality metrics that we use
to base our determination of the amount of the ACL and corresponding provision for credit losses. These credit metrics
evaluate the credit quality and level of credit risk inherent in our loan portfolio, assess non-performing loans and charge-
offs levels, consider statistical trends and economic conditions and other applicable factors.
The provision for credit loss for the year ended December 31, 2024, was $3.2 million compared to $2.4 million in
provision expense for the same period in 2023. The ACL as a percentage of total loans was 1.22% at December 31, 2024
compared to 1.18% at December 31, 2023.
See “Allowance for Credit Losses” below for further discussion on how the ACL was calculated for the periods presented.
Non-Interest Income
Net interest income and other types of recurring non-interest income are generated from our operations. Our services
and products generate service charges and fees, mainly from our depository accounts. We also generate income from gain
on sale of loans though our interest rate swap and SBA programs. In addition, we own life insurance policies on several
employees and generate income reflecting the increase in the cash surrender value of these policies.
The following table presents the components of non-interest income for the periods indicated (in thousands):
Years Ended December 31,
2024
2023
Service fees
$
8,839
$
5,055
Gain (loss) on sale of securities available for sale, net
14
(1,859)
Gain on sale of loans held for sale, net
747
801
Other non-interest income
3,140
3,406
Total non-interest income
$
12,740
$
7,403
Non-interest income for the year ended December 31, 2024 was $12.7 million compared to $7.4 million for the same
period in 2023. This increase was primarily driven by a $2.9 million increase in interest rate swap income, $415 thousand
increase in wire transfer fees, and $530 thousand increase in prepayment penalties reported under service fees.
Additionally, in 2023, the Company executed a portfolio restructuring strategy which resulted in the sale of lower-yielding
available-for-sale securities at a loss in order to better position our securities portfolio. The loss on the sale of securities was
$1.9 million for 2023. Proceeds from the sale transactions were primarily reinvested in securities and loans bearing yields
higher than those on the securities that were sold.
Non-Interest Expense
The following table presents the components of non-interest expense for the periods indicated (in thousands):
Years Ended December 31,
2024
2023
Salaries and employee benefits
$
28,793
$
24,429
Occupancy
5,258
5,230
Regulatory assessment and fees
1,766
1,453
Consulting and legal fees
1,568
1,899
Network and information technology services
1,993
2,016
Other operating
7,664
6,781
Total non-interest expense
$
47,042
$
41,808
Non-interest expense for the year ended December 31, 2024 increased $5.2 million or 12.5%, compared to the same
period in 2023. The increase is primarily due to $4.4 million or 17.9% increase in salaries and employee benefits consisting
of a $1.2 million or 6.5% increase due to merit promotions and new hires, a $1.8 million increase in bonus and sales
incentives, and a $1.1 million increase in stock-based compensation due to the Company’s financial performance in 2024.
Other operating expense had an increase of $883 thousand or 13.0% consisting of a $157 thousand increase in internet
62 USCB Financial Holdings, Inc. 2024 10-K
banking fees, a $123 thousand increase in insurance expense, a $229 thousand increase in director’s fees, and a $374
thousand in other expenses.
Provision for Income Tax
Fluctuations in the effective tax rate reflect the effect of the differences in the inclusion or deductibility of certain income
and expense for income tax purposes. Therefore, future decisions on the investments we choose will affect our effective tax
rate. Changes in the cash surrender value of bank-owned life insurance policies for key employees, purchasing municipal
bonds, and overall taxable income will be important elements in determining our effective tax rate.
Income tax expense for the year ended December 31, 2024 was $7.8 million, compared to $5.3 million for the year
ended December 31, 2023. The effective tax rate for the year ended December 31, 2024 was 24.0% and for the year ended
December 31, 2023 was 24.1%.
For a further discussion on income taxes, see Note 6 “Income Taxes” to the Consolidated Financial Statements set forth
in Item 8 of this Annual Report on Form 10-K.
Rate/Volume Analysis
The table below sets forth information regarding changes in interest income and interest expense for the periods
indicated (in thousands). For each category of interest-earning assets and interest-bearing liabilities, information is provided
on changes attributable to (i) changes in rate (changes in rate multiplied by old volume); (ii) changes in volume (changes in
volume multiplied by old rate); and (iii) changes in rate-volume (change in rate multiplied by change in volume). Changes in
rate-volume are proportionately allocated between rate and volume variance (in thousands).
Years Ended 2024 vs. 2023
Years Ended 2023 vs. 2022
Increase (decrease) due to change in
Increase (decrease) due to change in
Volume
Rate
Net
Change
Volume
Rate
Net
Change
Interest-earning assets:
Loans
(1)
$
13,949
$
13,403
$
27,352
$
12,026
$
15,033
$
27,059
Investment securities
(2)
90
1,378
1,468
(929)
1,595
666
Other interest-earning assets
1,077
319
1,396
(64)
2,256
2,192
Total increase in interest income
$
15,116
$
15,100
$
30,216
$
11,033
$
18,884
$
29,917
Interest-bearing liabilities:
Interest-bearing demand deposits
$
23
$
585
$
608
$
(15)
$
830
$
815
Savings and money market deposits
4,498
5,942
10,440
1,032
23,453
24,485
Time deposits
1,824
3,030
4,854
331
6,660
6,991
Borrowings and repurchase agreements
2,269
677
2,946
985
1,734
2,719
Total increase in interest expense
8,614
10,235
18,848
2,333
32,677
35,010
Increase (decrease) in net interest income
$
6,502
$
4,865
$
11,368
$
8,700
$
(13,793)
$
(5,093)
(1) Average loan balances include non-accrual loans. Interest income on loans includes accretion of deferred loan fees, net of deferred loan costs.
(2) At fair value except for securities held to maturity. This amount includes FHLB stock.
Both average yields earned on interest-earning assets and average rates paid on interest-bearing liabilities increased
in 2024 as a compared to 2023, reflecting the changes in the macro interest rate environment. However, the average yields
earned on interest-earning assets increased to a greater degree than rates paid on interest -bearing liabilities. Additionally,
interest-earning assets volume growth was greater than the volume growth of interest-bearing liabilities.
The Company did not have any tax-exempt securities at both December 31, 2024 and December 31, 2023.
Analysis of Financial Condition
Total assets at December 31, 2024, were $2.6 billion, an increase of $242.1 million, or 10.4%, over total assets of $2.3
billion at December 31, 2023. Total loans increased $192.0 million, or 10.8%, to $2.0 billion at December 31, 2024 compared
to $1.8 billion at December 31, 2023. Total deposits increased by $236.9 million, or 12.2%, to $2.2 billion at December 31,
2024 compared to $1.9 billion at December 31, 2023.
63 USCB Financial Holdings, Inc. 2024 10-K
Investment Securities
The investment portfolio is used and managed to provide liquidity through cash flows, marketability and, if necessary,
collateral for borrowings. The investment portfolio is also used as a tool to manage interest rate risk and the Company’s
capital market risk exposure. The operating philosophy of the portfolio is to maximize the Company’s profitability, taking into
consideration the Company’s risk appetite and tolerance, manage it’s asset composition and diversification, and maintain
adequate risk-based capital ratios.
The investment portfolio is managed in accordance with the Asset and Liability Management (“ALM”) policy, which
includes investment guidelines, approved by the Board. Such policy is reviewed at least annually or more frequently if
deemed necessary, depending on market conditions and/or unexpected events. The investment portfolio composition is
subject to change depending on the funding and liquidity needs of the Company, and the interest risk management
objectives directed by the ALCO. The portfolio of investments can be used to modify the duration of the balance sheet. The
allocation of cash into securities takes into consideration anticipated future cash flows (uses and sources) and all available
sources of credit.
Our investment portfolio consists primarily of securities issued by U.S. government-sponsored agencies, agency
mortgage-backed securities, collateralized mortgage obligation securities, municipal securities, and other debt securities,
all with varying contractual maturities and coupons. Due to the optionality embedded in these securities, the final maturities
do not necessarily represent the expected life of the portfolio. Some of these securities will be called or paid down depending
on capital market conditions and expectations. The investment portfolio is regularly reviewed by the Chief Financial Officer,
Treasurer, and/or the ALCO of the Company to ensure an appropriate risk and return profile as well as for adherence to the
Company’s investment policy.
As of December 31, 2024, the investment portfolio consisted of available-for-sale (“AFS”) and held-to-maturity (“HTM”)
debt securities. In 2022, the Company transferred investment securities from AFS to HTM with an amortized cost basis and
fair value amount of $74.4 million and $63.8 million, respectively. On the date of transfer, these securities had a total net
unrealized loss of $10.6 million. The transfer of the debt securities from the AFS to HTM category was made at fair value at
the date of transfer. The unrealized gain or loss at the date of transfer is retained in accumulated other comprehensive
income (loss) and in the carrying value of the HTM securities. Such amounts are amortized over the remaining life of the
security. There was no impact to net income on the date of transfer. There were no securities transferred from AFS to HTM
in 2024 or 2023.
The book value of the AFS securities is adjusted quarterly for unrealized gain or loss as a valuation allowance, and any
gain or loss is reported on an after-tax basis as a component of other comprehensive income (loss) in stockholders’ equity.
CECL requires a loss reserve for securities classified as HTM. The reserve should reflect historical credit performance
as well as the impact of projected economic forecast. For U.S. Government bonds and U.S. Agency issued bonds in HTM
the explicit guarantee of the U.S. Government is sufficient to conclude that a credit loss reserve is not required. The reserve
requirement is for three primary assets groups: municipal bonds, corporate bonds, and non-agency securitizations. The
Company calculates quarterly the loss reserve utilizing Moody’s ImpairmentStudio. The CECL measurement for investment
securities incorporates historical data, containing defaults and recoveries information, and Moody’s baseline economic
forecast. The solution uses probability of default/loss given default (“PD/LGD”) approach. PD represents the likelihood a
borrower will default. Within the Moody’s model, this is determined using historical default data, adjusted for the current
economic environment. LGD projects the expected loss if a borrower were to default.
The Company monitors the credit quality of HTM securities through the use of credit ratings. Credit ratings are monitored
by the Company on at least a quarterly basis. As of December 31, 2024 and December 31, 2023, all HTM securities held
by the Company were rated investment grade.
At December 31, 2024, HTM securities included $155.5 million of U.S. Government and U.S. Agency issued bonds and
mortgage-backed securities. Because of the explicit and/or implicit guarantee on these bonds, the Company holds no
reserves on these holdings. The remaining portion of the HTM portfolio is made up of $9.2 million in investment grade
corporate bonds. The required reserve for these holdings is determined each quarter using the model described above. For
the portion of the HTM exposed to non-government credit risk, the Company utilized the PD/LGD methodology to estimate
a $6 thousand ACL as of December 31, 2024. The book value for debt securities classified as HTM represents amortized
cost less ACL.
As of December 31, 2024, securities with a market value of $66.1 million were pledged to secure public deposits. As of
December 31, 2024, the Company did not have any tax-exempt securities in the portfolio.
64 USCB Financial Holdings, Inc. 2024 10-K
The following table presents the amortized cost and fair value of investment securities for the dates indicated (in
thousands):
December 31, 2024
Available-for-sale:
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
U.S. Government Agency
$
14,279
$
14
$
(1,668)
$
12,625
Collateralized mortgage obligations
101,808
15
(22,918)
78,905
Mortgage-backed securities - residential
58,995
1
(12,063)
46,933
Mortgage-backed securities - commercial
86,604
40
(7,905)
78,739
Municipal securities
24,925
-
(5,614)
19,311
Bank subordinated debt securities
24,314
438
(1,044)
23,708
$
310,925
$
508
$
(51,212)
$
260,221
Held-to-maturity:
U.S. Government Agency
$
42,538
$
-
$
(5,094)
$
37,444
Collateralized mortgage obligations
56,987
57
(7,785)
49,259
Mortgage-backed securities - residential
40,681
53
(4,613)
36,121
Mortgage-backed securities - commercial
15,272
-
(1,385)
13,887
Corporate bonds
9,222
-
(393)
8,829
$
164,700
$
110
$
(19,270)
$
145,540
Allowance for credit losses - securities held-to-maturity
(6)
Securities held-to maturity, net of allowance for credit losses
$
164,694
December 31, 2023
Available-for-sale:
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
U.S. Government Agency
$
9,664
$
-
$
(1,491)
$
8,173
Collateralized mortgage obligations
103,645
-
(23,039)
80,606
Mortgage-backed securities - residential
63,795
-
(11,608)
52,187
Mortgage-backed securities - commercial
49,212
56
(6,504)
42,764
Municipal securities
25,005
-
(5,667)
19,338
Bank subordinated debt securities
28,106
188
(2,033)
26,261
$
279,427
$
244
$
(50,342)
$
229,329
Held-to-maturity:
U.S. Government Agency
$
43,626
$
2
$
(5,322)
$
38,306
Collateralized mortgage obligations
62,735
-
(7,983)
54,752
Mortgage-backed securities - residential
43,784
348
(4,533)
39,599
Mortgage-backed securities - commercial
15,439
-
(1,257)
14,182
Corporate bonds
9,398
-
(727)
8,671
174,982
$
350
$
(19,822)
$
155,510
Allowance for credit losses - securities held-to-maturity
(8)
Securities held-to maturity, net of allowance for credit losses
$
174,974
65 USCB Financial Holdings, Inc. 2024 10-K
AFS and HTM investment securities in aggregate increased $20.6 million or 5.1% to $424.9 million at December 31,
2024 from $404.3 million at December 31, 2023.
The following table shows the weighted average yields, categorized by contractual maturity, for investment securities
as of December 31, 2024 (in thousands, except ratios):
Within 1 year
After 1 year
through 5 years
After 5 years
through 10 years
After 10 years
Total
Amortized
Cost
Yield
Amortized
Cost
Yield
Amortized
Cost
Yield
Amortized
Cost
Yield
Amortized
Cost
Yield
Available-for-sale:
U.S. Government Agency
$
-
-
$
-
-
$
2,379
3.14%
$
11,900
4.61%
$
14,279
4.37%
Collateralized mortgage obligations
-
-
-
-
-
-
101,808
1.62%
101,808
1.62%
Mortgage-backed securities - residential
-
-
-
-
-
-
58,995
1.70%
58,995
1.70%
Mortgage-backed securities - commercial
-
-
1,596
4.41%
4,097
4.71%
80,911
3.25%
86,604
3.34%
Municipal securities
-
-
-
-
20,680
1.72%
4,245
1.86%
24,925
1.75%
Bank subordinated debt securities
-
-
2,926
9.27%
21,388
5.11%
-
-
24,314
5.61%
$
-
-
$
4,522
7.56%
$
48,544
3.54%
$
257,859
2.30%
$
310,925
2.57%
Held-to-maturity:
U.S. Government Agency
$
-
-
$
7,951
1.02%
$
20,078
1.45%
$
14,509
1.85%
$
42,538
1.51%
Collateralized mortgage obligations
-
-
-
-
-
-
56,987
1.66%
56,987
1.66%
Mortgage-backed securities - residential
-
-
4,322
1.86%
5,882
1.75%
30,477
2.38%
40,681
2.23%
Mortgage-backed securities - commercial
-
-
3,057
1.62%
-
-
12,215
2.59%
15,272
2.40%
Corporate bonds
-
-
9,222
2.81%
-
-
-
-
9,222
2.81%
$
-
-
$
24,552
1.92%
$
25,960
1.52%
$
114,188
1.98%
$
164,700
1.90%
The Company did not have any tax-exempt securities at both December 31, 2024 and 2023.
Loans
Loans are the largest category of interest-earning assets on the Consolidated Balance Sheets, and usually provides
higher yields than the remainder of the Company’s interest-earning assets. Higher yields typically carry inherent credit and
liquidity risks in comparison to lower yielding assets. The Company manages and mitigates such risks in accordance with
the credit and ALM policies, risk tolerance and balance sheet composition.
The following table shows the loan portfolio composition as of the dates indicated (in thousands):
December 31, 2024
December 31, 2023
Total
Percent of
Total
Total
Percent of
Total
Residential Real Estate
$
289,961
14.8
%
$
204,419
11.5
%
Commercial Real Estate
1,136,417
57.8
%
1,047,593
58.8
%
Commercial and Industrial
258,311
13.1
%
219,757
12.4
%
Correspondent Banks
82,438
4.2
%
114,945
6.5
%
Consumer and Other
198,091
10.1
%
191,930
10.8
%
Total gross loans
1,965,218
100.0
%
1,778,644
100.0
%
Plus: Deferred costs
7,630
2,183
Total loans net of deferred costs
1,972,848
1,780,827
Less: Allowance for credit losses
24,070
21,084
Total net loans
$
1,948,778
$
1,759,743
Total loans held for investment net of deferred costs increased by $192.0 million or 10.8% at December 31, 2024
compared to December 31, 2023. The most significant growth was in the residential real estate and commercial real estate
loan pools. Our loan portfolio continues to diversify as commercial and industrial loans continue to increase as a percentage
to total loans. However, we do not expect any significant changes over the foreseeable future in the composition of our loan
portfolio. Commercial real estate continues to be the main category of our portfolio, reflective of the market in which we
operate.
The growth experienced over the last couple of years is primarily due to implementation of our relationship-based
banking model, our diversified business verticals, and the success of our relationship managers in competing for new
66 USCB Financial Holdings, Inc. 2024 10-K
business in a highly competitive metropolitan area. Many of our larger loan clients have lengthy relationships with members
of our senior management team or our relationship managers that date back to former institutions.
From a liquidity perspective, our loan portfolio provides us with additional liquidity due to repayments or unexpected
prepayments. The following table shows maturities and sensitivity to interest rate changes for the loan portfolio at
December 31, 2024 (in thousands):
Due in 1 year or
less
Due in 1 to 5
years
Due after 5 to 15
years
Due after 15
years
Total
Residential Real Estate
$
10,713
64,513
68,677
146,059
$
289,961
Commercial Real Estate
85,967
378,704
666,276
5,471
1,136,417
Commercial and Industrial
7,726
82,601
123,166
44,818
258,311
Correspondent Banks
82,438
-
-
-
82,438
Consumer and Other
2,179
1,883
19,118
174,911
198,091
Total gross loans
$
189,023
$
527,700
$
877,237
$
371,258
$
1,965,218
Interest rate sensitivity:
Fixed interest rates
$
164,523
$
203,861
$
163,800
$
282,633
$
814,817
Floating or adjustable rates
24,500
323,839
713,436
88,626
1,150,401
Total gross loans
$
189,023
$
527,700
$
877,236
$
371,259
$
1,965,218
The information presented in the table above is based upon contractual maturities of the individual loans, which may
be subject to renewal at their contractual maturity. Renewals will depend on approval by our credit department and balance
sheet composition at the time of the analysis, as well as any modification of terms at the loan’s maturity. Additionally, maturity
concentrations, loan duration, prepayment speeds and other interest rate sensitivity measures are discussed, reviewed,
and analyzed by the ALCO. Decisions on term and rate modifications are discussed as well.
As of December 31, 2024, approximately 58.5% of the loans have adjustable/variable rates and 41.5% of the loans
have fixed rates. The adjustable/variable loans re-price to different benchmarks and tenors in different periods of time. By
contractual characteristics, there are no material concentrations on anniversary repricing. Additionally, it is important to note
that most of our loans have interest rate floors. This embedded option protects the Company from a decrease in interest
rates and positions us to gain in the scenario of higher interest rates.
As of December 31, 2024, the commercial real estate portfolio was $1.1 billion or 57.8% of the total gross loans portfolio.
At such date, $200.8 million of outstanding balances are characterized as owner occupied and $935.6 million are
characterized as non-owner occupied. The retail sector was the largest segment comprising $305.0 million of the non-owner
occupied commercial real estate portfolio.
The following table is a summary of the distribution of non-owner occupied commercial real estate loans held for
investment by loan type (dollars in thousands):
December 31, 2024
Balance
# of Notes
% of Total
Gross Loans
Average Loan Size
Non-Accruals
Weighted Avg
LTV
(1)
Retail
$
305,027
97
16%
$
3,145
$
-
57%
Multifamily
210,576
7,122
11%
30
-
56%
Warehouse
132,269
56
7%
2,362
-
54%
Office
114,043
54
6%
2,112
-
52%
Hotels/Motels
102,480
20
5%
5,124
-
56%
Construction/Land
37,974
19
2%
1,999
-
47%
Other
33,212
21
2%
1,582
-
55%
$
935,581
7,389
48%
$
127
$
-
$
55%
(1) Loan-to-value is calculated based on the real estate value at the time of origination, renewal, or update, whichever is more recent.
67 USCB Financial Holdings, Inc. 2024 10-K
The following table is a summary of non-owner occupied commercial real estate loans held for investment by collateral
geographical location (dollars in thousands):
December 31, 2024
South Florida
(1)
Rest of Florida
(2)
Outside Florida
(3)
Balance
% of Non-
Owner
Occupied
CRE Loans
Balance
% of Non-
Owner
Occupied
CRE Loans
Balance
% of Non-
Owner
Occupied
CRE Loans
Retail
$
185,838
20%
$
47,007
5%
$
72,182
8%
Multifamily
159,172
17%
51,404
5%
0%
Warehouse
71,438
8%
53,923
6%
6,908
1%
Office
75,813
8%
29,401
3%
8,829
1%
Hotels/Motels
74,439
8%
28,041
3%
0%
Construction/Land
33,277
4%
4,697
1%
0%
Other
26,294
3%
6,919
1%
0%
$
626,271
67%
$
221,392
24%
$
87,919
9%
(1) Miami-Dade, Broward, and West Palm Beach counties
(2) All other Florida counties
(3) Within the U.S.
As of December 31, 2024, 67% of the non-owner occupied CRE portfolio were located within South Florida, and only
12 loan notes with an outstanding principal balance of $87.9 million are located outside Florida. Balances of non-owner
occupied CRE loans outside Florida were: $67.2 million in New York, $6.9 million in Georgia, $4.4 million in Arkansas, $4.2
million in North Carolina, $2.8 million in Indiana, and $2.5 million in New Jersey.
Asset Quality
Our asset quality grading analysis estimates the capability of the borrower to repay the contractual obligation of the loan
agreement as scheduled or at all. The Company’s internal credit risk grading system is based on experiences with similarly
graded loans. Internal credit risk grades are evaluated at least annually, or more frequently if deemed necessary. Internal
credit risk ratings may change based on management’s assessment of the results from the annual review, portfolio
monitoring and other developments observed with borrowers.
The internal credit risk grades used by the Company to assess the credit worthiness of a loan are shown below:
Pass
– Loans indicate different levels of satisfactory financial condition and performance.
Special Mention
close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment
prospects for the loan or of the institution’s credit position at some future date.
Substandard
– Loans classified as substandard are inadequately protected by the current net worth and paying
capacity of the obligator or of the collateral pledged, if any. Loans so classified have a well-defined weakness or
weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the
institution will sustain some loss if the deficiencies are not corrected.
Doubtful
the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing
facts, conditions, and values, highly questionable and improbable.
Loss
– Loans classified as loss are considered uncollectible.
68 USCB Financial Holdings, Inc. 2024 10-K
Loan credit exposures by internally assigned grades are as follows for the dates indicated (in thousands):
December 31, 2024
Pass
Special Mention
Substandard
Doubtful
Total
Residential Real Estate
$
289,401
$
-
$
560
$
-
$
289,961
Commercial Real Estate
1,133,965
-
2,452
-
1,136,417
Commercial and Industrial
256,031
-
2,280
-
258,311
Correspondent Banks
82,438
-
-
-
82,438
Consumer and Other
196,101
-
1,990
-
198,091
$
1,957,936
$
-
$
7,282
$
-
$
1,965,218
December 31, 2023
Pass
Special Mention
Substandard
Doubtful
Total
Residential Real Estate
$
204,127
$
$
292
$
$
204,419
Commercial Real Estate
1,040,032
7,561
1,047,593
Commercial and Industrial
218,129
1,628
219,757
Correspondent Banks
114,945
114,945
Consumer and Other
191,930
191,930
$
1,769,163
$
$
9,481
$
$
1,778,644
Non-Performing Assets
The following table presents non-performing assets as of December 31, 2024 and 2023 (in thousands, except ratios):
2024
2023
Total non-performing loans
$
2,707
$
468
Other real estate owned
-
-
Total non-performing assets
2,707
468
Asset quality ratios:
-
-
Allowance for credit losses to total loans
1.22%
1.18%
Allowance for credit losses to non-performing loans
889%
4505%
Non-performing loans to total loans
0.14%
0.03%
Non-performing assets include all loans categorized as non-accrual or restructured, impaired securities, OREO and
other repossessed assets. Problem loans for which the collection or liquidation in full is reasonably uncertain are placed on
a non-accrual status. This determination is based on current existing facts concerning collateral values and the paying
capacity of the borrower. When the collection of the full contractual balance is unlikely, the loan is placed on non-accrual to
avoid overstating the Company’s income for a loan with increased credit risk.
If the principal or interest on a commercial loan becomes due and unpaid for 90 days or more, the loan is placed on
non-accrual status as of the date it becomes 90 days past due and remains in non-accrual status until it meets the criteria
for restoration to accrual status. Residential loans, on the other hand, are placed on non-accrual status when the principal
or interest becomes due and unpaid for 120 days or more and remains in non-accrual status until it meets the criteria for
restoration to accrual status. Restoring a loan to accrual status is possible when the borrower resumes payment of all
principal and interest payments for a period of six months and the Company has a documented expectation of repayment
of the remaining contractual principal and interest or the loan becomes secured and in the process of collection.
The Company may grant a loan concession to a borrower experiencing financial difficulties. This determination is
performed during the annual review process or whenever problems are surfacing regarding the client’s ability to repay in
accordance with the original terms of the loan or line of credit. The concessions are given to the debtor in various forms,
including interest rate reductions, principal forgiveness, extension of maturity date, waiver, or deferral of payments and other
concessions intended to minimize potential losses.
For further discussion on non-performing loans, see Note 3 “Loans” to the Consolidated Financial Statements set forth
in Item 8 of this Annual Report on Form 10-K.
69 USCB Financial Holdings, Inc. 2024 10-K
Allowance for Credit Losses
On January 1, 2023, the Company adopted FASB ASU 2016-13, which introduced the CECL methodology and required
us to estimate all expected credit losses over the remaining life of our loan portfolio. Accordingly, the ACL represents an
amount that, in management's evaluation, is adequate to provide coverage for all expected future credit losses on
outstanding loans as of the measurement date. Additionally, qualitative adjustments are made to the ACL when, based on
management’s judgment, there are factors impacting the allowance estimate not considered by the quantitative calculations.
See Note 3 “Loans” to the Consolidated Financial Statements set forth in Item 8 of Part 1 of this Annual Report as Form 10-
K for more information on the allowance for credit losses.
The following table presents ACL and net charge-offs to average loans by type for the periods indicated (in thousands):
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Correspondent
Banks
Consumer
and Other
Total
December, 31, 2024
Beginning balance
$
2,695
$
10,366
$
3,974
$
911
$
3,138
$
21,084
Provision for credit losses
(1)
2,403
(1,578)
640
(257)
1,752
2,960
Recoveries
23
-
19
-
3
45
Charge-offs
-
-
-
-
(19)
(19)
Ending Balance
$
5,121
$
8,788
$
4,633
$
654
$
4,874
$
24,070
Average loans
$
256,112
$
1,068,574
$
238,266
$
103,345
$
195,716
$
1,862,013
Net charge-offs (recoveries) to
average loans
(0.01)%
-
(0.01)%
-
0.01%
(0.00)%
December, 31, 2023
Beginning balance
$
1,352
$
10,143
$
4,163
$
720
$
1,109
$
17,487
Cumulative effect of adoption of
accounting principle
(2)
1,238
1,105
(2,158)
23
858
1,066
Provision for credit losses
(3)
95
(882)
1,897
168
1,225
2,503
Recoveries
10
-
72
-
3
85
Charge-offs
-
-
-
-
(57)
(57)
Ending Balance
$
2,695
$
10,366
$
3,974
$
911
$
3,138
$
21,084
Average loans
$
186,854
$
986,234
$
179,574
$
93,364
$
160,934
$
1,606,960
Net charge-offs (recoveries) to
average loans
(0.01)%
-
(0.04)%
-
0.03%
(0.00)%
(1) Provision for credit losses excludes $199 thousand release for unfunded commitments included in other liabilities and $2 thousand
release for investment securities held to maturity.
(2) Impact of CECL adoption on January 1, 2023.
(3) Provision for credit losses excludes $144 thousand release for unfunded commitments included in other liabilities and $8 thousand
provision for investment securities held to maturity.
70 USCB Financial Holdings, Inc. 2024 10-K
The following table presents ACL by type and its individual percentage to total loans for the periods indicated (in
thousands):
December 31,
2024
2023
Loan Category
Allowance
% of Loans in
Each Category to
Total Loans
Allowance
% of Loans in
Each Category to
Total Loans
Residential Real Estate
$
5,121
21.3
%
$
2,695
11.5
%
Commercial Real Estate
8,788
36.5
%
10,366
58.8
%
Commercial and Industrial
4,633
19.2
%
3,974
12.4
%
Correspondent Banks
654
2.7
%
911
6.5
%
Consumer and Other
4,874
20.3
%
3,138
10.8
%
Total
$
24,070
100.0
%
$
21,084
100.0
%
Bank-Owned Life Insurance
At December 31, 2024, the combined cash surrender value of all bank-owned life insurance (“BOLI”) policies was
$53.5 million. Changes in cash surrender value are recorded in non-interest income on the Consolidated Statements of
Operations. In 2024, the Company maintained BOLI policies with five insurance carriers. The Company is the beneficiary
of these policies.
Deposits
Customer deposits are the primary funding source for the Bank’s growth. Through our network of banking centers, we
offer a competitive array of deposit accounts and treasury management services designed to meet our customers’ business
needs. Our primary deposit customers are SMBs, and the personal business of owners and operators of these SMBs, as
well as the retail/consumer relationships of the employees of these businesses. Our focus on quality and customer service
has created a strong brand recognition within our depositors, which reflects in the composition of our deposits; most of our
funding sources are core deposits. In addition to our banking centers network, we have developed business verticals to
diversify our portfolio in different specialty industries and we offer public fund deposit products to municipalities and public
agencies in our geographical footprint.
Furthermore, our personal and private banking management line of business is focused on the needs of the owners
and operators of our business customers, offering a suite of checking, savings, money market and time deposit accounts,
and utilizing superior client service to build and expand client relationships. A unique aspect of our business model is our
ability to offer correspondent services to banks in Central America and the Caribbean.
The following table presents the daily average balance and average rate paid on deposits by category for the years
ended December 31, 2024 and 2023 (in thousands, except ratios):
Years Ended December 31,
2024
2023
Average Balance
Average Rate
Paid
Average Balance
Average Rate
Paid
Non-interest bearing demand deposits
$
596,073
0.00%
$
607,506
0.00%
Interest-bearing demand deposits
54,667
2.76%
53,324
1.69%
Savings and money market deposits
1,109,853
3.61%
963,708
3.08%
Time deposits
326,373
4.09%
268,715
3.16%
$
2,086,966
2.63%
$
1,893,253
2.06%
Total average deposits for the year ended December 31, 2024 was $2.1 billion, an increase of $193.7 million, or 10.2%
over total average deposits of $1.9 billion for the same period in 2023. The greatest increase was in money market and
savings deposits which increased by $146.1 million, or 15.2%. Non-interest-bearing demand deposits decreased by $11.4
million or 1.9% due to customers moving deposits to interest-bearing accounts due to increases in rate paid on deposits
due to increases in the interest rate market.
71 USCB Financial Holdings, Inc. 2024 10-K
The uninsured deposits are estimated based on the FDIC deposit insurance limit of $250 thousand for all deposit
accounts at the Bank per account holder. Total estimated uninsured deposits was $1.2 billion at December 31, 2024 and
$1.1 billion at December 31, 2023. As of December 31, 2024, 45% of our deposits are estimated to be FDIC-insured. Our
public funds are 5% of total deposits and are partially collateralized. Brokered deposits are 6% of total deposits and are
FDIC-insured. The estimated average account size of our deposit portfolio is $105 thousand. Time deposits with balances
of $250 thousand or more totaled $94.0 million and $58.1 million at December 31, 2024 and 2023, respectively. The Bank
maintains a well-diversified deposit base. At December 31, 2024, our top 10 depositors only held 16.7% of our total portfolio.
Critical elements of our liquidity risk management include: effective corporate governance consisting of oversight by the
Board and ALCO and involvement by senior management; appropriate strategies, policies, procedures, and limits used to
identify and mitigate liquidity risk; comprehensive liquidity risk measurement and monitoring systems (including
assessments of the current and prospective cash flows or sources and uses of funds) that are commensurate with the
complexity and business activities of the Company; management of intraday liquidity and collateral; an appropriately diverse
mix of existing and potential future funding sources; adequate levels of highly liquid marketable securities free of legal,
regulatory, or operational impediments, that can be used to meet liquidity needs in stressful situations; comprehensive
contingency funding plans that sufficiently address potential adverse liquidity events and emergency cash flow
requirements; and internal controls and internal audit processes sufficient to determine the adequacy of the institution’s
liquidity risk management process.
We expect funds to be available from several basic banking activity sources, including the core deposit base, the
repayment and maturity of loans and investment security cash flows. Other potential funding sources include federal funds
purchased, brokered certificates of deposit, listing certificates of deposit, Fed Funds lines and borrowings from the FHLB
Atlanta. Accordingly, our liquidity resources were at sufficient levels to fund loans and meet other cash needs as necessary.
The following table shows scheduled maturities of uninsured time deposits as of December 31, 2024 (in thousands):
Three months or less
$
38,848
Over three through six months
31,977
Over six through twelve months
22,239
Over twelve months
942
$
94,006
Borrowings
As a member of the FHLB Atlanta, we are eligible to obtain advances with various terms and conditions. This
accessibility of additional funding allows us to efficiently and timely meet both expected and unexpected outgoing cash flows
and collateral needs without adversely affecting either daily operations or the financial condition of the Company.
Outstanding fixed-rate advances from the FHLB were at $163.0 million and $183.0 million, as of December 31, 2024,
and December 31, 2023, respectively. The weighted average rate for outstanding FHLB advances was 3.8% and 4.4% at
December 31, 2024, and December 31, 2023, respectively.
72 USCB Financial Holdings, Inc. 2024 10-K
The following table presents the FHLB fixed rate advances as of December 31, 2024 (in thousands):
December, 31, 2024
Interest Rate
Type of Rate
Maturity Date
Amount
2.05%
Fixed
March 27, 2025
$
10,000
1.07%
Fixed
July 18, 2025
6,000
3.76%
Fixed
January 24, 2028
11,000
3.77%
Fixed
April 25, 2028
50,000
3.68%
Fixed
September 13, 2027
21,000
3.79%
Fixed
March 23, 2026
20,000
4.65%
Fixed
February 13, 2025
45,000
$
163,000
December, 31, 2023
Interest Rate
Type of Rate
Maturity Date
Amount
1.04%
Fixed
July 30, 2024
5,000
1.07%
Fixed
July 18, 2025
6,000
2.05%
Fixed
March 27, 2025
$
10,000
3.76%
Fixed
January 24, 2028
11,000
3.77%
Fixed
April 25, 2028
50,000
5.57%
Fixed
December 26, 2024
101,000
$
183,000
We have also established Fed Funds lines of credit with our upstream correspondent banks to manage temporary
fluctuations in our daily cash balances. As of December 31, 2024, there were no outstanding balances under the Fed Funds
line of credit.
The Board of Governors of the Federal Reserve System, on March 12, 2023, announced the creation of a new Bank
Term Funding Program (“BTFP”). The BTFP offered loans of up to one year in length to banks, savings associations, credit
unions, and other eligible depository institutions pledging U.S. Treasuries, U.S. agency debt and mortgage-backed
securities, and other qualifying assets as collateral. The BTFP program ceased making new loans as of March 2024.
The Company paid off $80 million in borrowings under the BTFP program during the third quarter of 2024. The original
maturity of this borrowing by the Bank under the BTFP program was January 2025, and there are no remaining borrowings
under this program.
Off-Balance Sheet Arrangements
We engage in various financial transactions in our operations that, under GAAP, may not be included on the balance
sheet. To meet the financing needs of our customers we may include commitments to extend credit and standby letters of
credit. To a varying degree, such commitments involve elements of credit, market, and interest rate risk in excess of the
amount recognized in the balance sheet. We use more conservative credit and collateral policies in making these credit
commitments as we do for on-balance sheet items. We are not aware of any accounting loss to be incurred by funding these
commitments; however, we maintain an allowance for off-balance sheet credit risk which is recorded under other liabilities
on the Consolidated Balance Sheets.
Since commitments associated with letters of credit and commitments to extend credit may expire unused, the amounts
shown do not necessarily reflect the actual future cash funding requirements . The following table presents lending related
commitments outstanding as of December 31, 2024 and 2023 (in thousands):
December 31, 2024
December 31, 2023
Commitments to grant loans and unfunded lines of credit
$
122,578
$
85,117
Standby and commercial letters of credit
5,389
3,987
Total
$
127,967
$
89,104
Commitments to extend credit are agreements to lend funds to a client, as long as there is no violation of any condition
established in the contract, for a specific purpose. Commitments generally have variable interest rates, fixed expiration
dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to
73 USCB Financial Holdings, Inc. 2024 10-K
expire without being fully drawn, the total commitment amounts disclosed above do not necessarily represent future cash
requirements.
Unfunded lines of credit represent unused portions of credit facilities to our current borrowers that represent no change
in credit risk in our portfolio. Lines of credit generally have variable interest rates. The maximum potential number of future
payments we could be required to make is represented by the contractual amount of the commitment, less the amount of
any advances made.
Letters of credit are conditional commitments issued by us to guarantee the performance of a client to a third party. In
the event of nonperformance by the client in accordance with the terms of the agreement with the third party, we would be
required to fund the commitment. If the commitment is funded, we would be entitled to seek recovery from the client from
the underlying collateral, which can include commercial real estate, physical plant and property, inventory, receivables, cash
or marketable securities.
Asset and Liability Management Committee
The asset and liability management committee of our Company, or ALCO, consists of members of senior management
and our Board. Senior management is responsible for ensuring in a timely manner that Board approved strategies, policies,
and procedures for managing and mitigating risks are appropriately executed within the designated lines of authority and
responsibility.
ALCO oversees the establishment, approval, implementation, and review of interest rate risk, management, and
mitigation strategies, ALM related policies, ALCO procedures and risk tolerances and appetite.
While some degree of interest rate risk (“IRR”) exposure is inherent to the banking business, our ALCO has established
what it believes are sound risk management practices in place to identify, measure, monitor and mitigate IRR exposures.
When assessing the scope of IRR exposure and impact on the consolidated balance sheet, cash flows and statement
of operations, management considers both earnings and economic impacts. Asset price variations, deposits volatility and
reduced earnings or outright losses could adversely affect the Company’s liquidity, performance, and capital adequacy.
Income simulations are used to assess the impact of changing rates on earnings under different rates scenarios and
time horizons. These simulations utilize both instantaneous and parallel changes in the level of interest rates, as well as
non-parallel changes such as changing slopes (flat and steeping) and twists of the yield curve, Static simulation models are
based on current exposures and assume a constant balance sheet with no new growth. Dynamic simulation analysis is also
utilized to have a more comprehensive assessment on IRR. This simulation relies on detailed assumptions outlined in our
budget and strategic plan, and in assumptions regarding changes in existing lines of business, new business, management
strategies and client expected behavior.
To have a more complete picture of IRR, the Company also evaluates the economic value of equity. This assessment
allows us to measure the degree to which the economic values will change under different interest rate scenarios. The
economic value of equity approach focuses on a longer-term time horizon and captures all future cash flows expected from
existing assets and liabilities. The economic value model utilizes a static approach in that the analysis does not incorporate
new business; rather, the analysis shows a snapshot in time of the risk inherent in the balance sheet.
Market and Interest Rate Risk Management
sensitive for year two. Asset sensitivity indicates that our assets generally reprice faster than our liabilities, which results in
a favorable impact to net interest income when market interest rates increase. Liability sensitivity indicates that our liabilities
generally reprice faster than our assets, which results in a favorable impact to net interest income when market interest
rates decrease. Neutral indicates minimal changes to the net interest income due to changes on the market interest rate.
Many assumptions are used to calculate the impact of interest rate variations on our net interest income, such as asset
prepayment speeds, non-maturity deposit price sensitivity, pricing correlations, deposit truncations and decay rates, and
key interest rate drivers.
Because of the inherent use of these estimates and assumptions in the model, our actual results may, and most likely
will, differ from static measures results. In addition, static measures like the economic value of equity do not include actions
that management may undertake to manage the risks in response to anticipated changes in interest rates or client deposit
behavior. As part of our ALM strategy and policy, management has the ability to modify the balance sheet to either increase
74 USCB Financial Holdings, Inc. 2024 10-K
or decrease asset duration and increase or decrease liability duration to modify the balance sheet sensitivity to interest
rates.
According to our model, as of end of 2024, the NIM will remain fairly stable for static rate scenarios (-400 basis points:
+400 basis points). Additionally, utilizing an EVE approach, we analyze the risk to capital from the effects of various interest
rate scenarios through a long-term discounted cash flow model. This measures the difference between the economic value
of our assets and the economic value of our liabilities, which is a proxy for our liquidation value. According to our balance
sheet composition, and as expected, our model stipulates that an increase of interest rates will have a negative impact on
the EVE. Results and analysis are presented quarterly to the ALCO, and strategies are reviewed and refined.
Additionally, in the last year we have been reducing our asset sensitivity by extending asset duration. This has reduced
our NII volatility for the first and second year in the analysis and has helped us to maintain the NII in accordance with ALCO
expectations.
Liquidity
an adequate level of liquidity depends on the Company’s ability to efficiently meet both expected and unexpected cash flow
and collateral needs without adversely affecting either daily operations or the financial condition of the Company.
Liquidity risk is the risk that we will be unable to meet our short-term and long-term obligations as they become due
because of an inability to liquidate assets or obtain adequate funding on acceptable terms in a timely matter. The Company’s
obligations, and the funding sources used to meet them, depend significantly on our business mix, balance sheet structure
and composition, credit quality of our assets, interest rate environment and the cash flow profiles of our on- and off-balance
sheet obligations.
In managing cash inflows and outflows, management regularly monitors situations that can give rise to increased
liquidity risk. These include funding mismatches, market constraints on the ability to convert assets (particularly investments)
into cash or in accessing sources of funds (i.e., market liquidity), and contingent liquidity events. Management presents to
the ALCO, on a quarterly basis, liquidity stress tests following the scenarios described in the Company’s contingency funding
plan.
Changes in macroeconomic conditions, exposure to credit deterioration, market, operational, legal and reputational
risks, including cybersecurity risk and social media events could also affect the Company’s liquidity risk profile unexpectedly
and are considered in the assessment of liquidity and ALM framework.
Management has established a comprehensive and holistic management process for identifying, measuring, monitoring
and mitigating liquidity risk. Due to its critical importance to the viability of the Company, liquidity risk management is
integrated into our risk management processes, Contingency Funding Plan and ALM policy.
Critical elements of our liquidity risk management include: effective corporate governance consisting of oversight by the
Board and ALCO and involvement by senior management; strategies, policies, procedures, and limits used to identify and
mitigate liquidity risk; comprehensive liquidity risk measurement and monitoring systems (including assessments of the
current and prospective cash flows or sources and uses of funds) that are commensurate with the complexity and business
activities of the Company; management of intraday liquidity and collateral; a diverse mix of existing and potential future
funding sources; adequate levels of highly liquid marketable securities free of legal, regulatory, or operational impediments,
that can be used to meet liquidity needs in stressful situations; comprehensive contingency funding plans that sufficiently
address potential adverse liquidity events and emergency cash flow requirements; and internal controls and internal audit
processes sufficient to determine the adequacy of the institution’s liquidity risk management process.
We expect funds to be available from several basic banking activity sources, including the core deposit base, the
repayment and maturity of loans and investment security cash flows. Other potential funding sources include federal funds
purchased, brokered certificates of deposit, listing certificates of deposit, Fed Funds lines and borrowings from the FHLB
Atlanta. Accordingly, our liquidity resources were at sufficient levels to fund loans and meet other cash needs as necessary.
At December 31, 2024, the Company had $412.8 million in available liquidity on balance sheet, including $339.7 million in
unpledged securities available to use as collateral and $73.1 million in excess cash. The Company had an additional $267.0
million in off-balance sheet liquidity, excluding access to brokered deposits and other off-balance sheet sources of funding.
75 USCB Financial Holdings, Inc. 2024 10-K
Capital Adequacy
As of December 31, 2024, the Bank was well capitalized under the FDIC’s prompt corrective action framework.
Additionally, we follow the capital conservation buffer framework, and according to our actual ratios, the Bank exceeds the
capital conversation buffer in all capital ratios as of December 31, 2024. The Company is not subject to regulatory capital
requirements because it is deemed by the Federal Reserve to be a small bank holding company.
The following table presents the capital ratios for the Bank at December 31, 2024 and 2023 (in thousands, except
ratios):
Actual
Minimum Capital
Requirements
To be Well Capitalized Under
Prompt Corrective Action
Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
December 31, 2024
Total risk-based capital:
$
266,387
13.34%
$
159,795
8.00%
199,744
10.00%
Tier 1 risk-based capital:
$
241,740
12.10%
$
119,846
6.00%
159,795
8.00%
Common equity tier 1 capital:
$
241,740
12.10%
$
89,885
4.50%
129,834
6.50%
Leverage ratio:
$
241,740
9.38%
$
103,074
4.00%
128,843
5.00%
December 31, 2023
Total risk-based capital:
$
233,109
12.65%
$
147,432
8.00%
184,290
10.00%
Tier 1 risk-based capital:
$
211,645
11.48%
$
110,574
6.00%
147,432
8.00%
Common equity tier 1 capital:
$
211,645
11.48%
$
83,931
4.50%
119,789
6.50%
Leverage ratio:
$
211,645
9.17%
$
92,328
4.00%
115,410
5.00%
Impact of Inflation
Our Consolidated Financial Statements and related notes have been prepared in accordance with U.S. GAAP, which
requires the measurement of financial position and operating results in terms of historical dollars, without considering the
changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the
increased cost of operations. Unlike most industrial companies, nearly all our assets and liabilities are monetary in nature.
As a result, interest rates have a greater impact on our performance than do the effects of general levels of inflation. Periods
of high inflation are often accompanied by relatively higher interest rates, and periods of low inflation are accompanied by
relatively lower interest rates. As market interest rates rise or fall in relation to the rates earned on loans and investments,
the value of these assets decreases or increases respectively.
Recently Issued Accounting Pronouncements
Recently issued accounting pronouncements are discussed in Note 1 “Summary of Significant Accounting Policies” in
the Consolidated Financial Statements of this Annual Report on Form 10-K.
76 USCB Financial Holdings, Inc. 2024 10-K
Reconciliation and Management Explanation of Non -GAAP Financial Measures
Management has included the non-GAAP measures set forth below because it believes these measures may provide
useful supplemental information for evaluating the Company’s underlying performance trends. Further, management uses
these measures in managing and evaluating the Company’s business and intends to refer to them in discussions about our
operations and performance. Operating performance measures should be viewed in addition to, and not as an alternative
to or substitute for, measures determined in accordance with GAAP, and are not necessarily comparable to non-GAAP
measures that may be presented by other companies. The Company believes these non-GAAP measurements are key
indicators of the earnings power of the Company. The following table reconciles the non-GAAP financial measurement of
operating net income available to common stockholders for the periods presented (in thousands, except per share data):
As of and for the years ended December 31,
2024
2023
Pre-Tax Pre-Provision ("PTPP") income: (1)
Net income (GAAP)
$
24,674
$
16,545
Plus: Provision for income taxes
7,803
5,251
Plus: Provision for credit losses
3,157
2,367
PTPP income
$
35,634
$
24,163
Operating net income: (1)
Net income (GAAP)
$
24,674
$
16,545
Less: Net gain (loss) on sale of securities
14
(1,859)
Less: Tax effect on sale of securities
(4)
471
Operating net income
$
24,664
$
17,933
Operating PTPP income: (1)
PTPP income
$
35,634
$
24,163
Less: Net gain (loss) on sale of securities
14
(1,859)
Operating PTPP Income
$
35,620
$
26,022
(1) The Company believes these non-GAAP measurements are key indicators of the ongoing earnings power of the Company.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to provide the information required by this item.
77 USCB Financial Holdings, Inc. 2024 10-K
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
, PCAOB ID:
)
Crowe LLP
Independent Member Crowe Global
78 USCB Financial Holdings, Inc. 2024 10-K
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Stockholders and the Board of Directors of
USCB Financial Holdings, Inc.
Doral, Florida
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of USCB Financial Holdings, Inc. (the
“Company”) as of December 31, 2024 and 2023, the related consolidated statements of operations,
comprehensive income (loss), changes in stockholders’ equity, and cash flows for the years then ended,
and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial
statements present fairly, in all material respects, the financial position of the Company as of December 31,
2024 and 2023, and the results of its operations and its cash flows for the years then ended, in conformity
with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on the Company’s financial statements 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 audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement, whether due to error or fraud.
Our audits 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.
We believe that our audits provide a reasonable basis for our opinion.
/s/ Crowe LLP
Crowe LLP
We have served as the Company's auditor since 2017.
March 14, 2025
79 USCB Financial Holdings, Inc. 2024 10-K
USCB FINANCIAL HOLDINGS, INC.
Consolidated Balance Sheets
(Dollars in thousands, except share and per share data)
December 31,
2024
2023
ASSETS:
Cash and due from banks
$
$
Interest-bearing deposits in banks
Total cash and cash equivalents
Investment securities held to maturity net allowance of $
, respectively (fair value $
$
, respectively)
Investment securities available for sale, at fair value
Federal Home Loan Bank stock, at cost
Loans held for investment, net of allowance of $
, respectively
Accrued interest receivable
Premises and equipment, net
Bank owned life insurance
Deferred tax asset, net
Lease right-of-use asset
Other assets
Total assets
$
$
LIABILITIES:
Deposits:
Non-interest bearing demand deposits
$
$
Savings and money market deposits
Interest-bearing demand deposits
Time deposits
Total deposits
Federal Home Loan Bank advances
Lease liability
Accrued interest and other liabilities
Total liabilities
Commitments and contingencies (See Notes 10 and 19)
(nil)
(nil)
STOCKHOLDERS' EQUITY:
Preferred stock - Class C; $
authorized; 0 issued and 0 outstanding as of December 31, 2024 and 2023
-
-
Preferred stock - Class D; $
authorized; 0 issued and 0 outstanding as of December 31, 2024 and 2023
-
-
Preferred stock - Class E; $
authorized; 0 issued and 0 outstanding as of December 31, 2024 and 2023
-
-
Common stock - Class A Voting; $
Common stock - Class B Non-voting; $
outstanding as of December 31, 2024 and 2023
-
-
Additional paid-in capital on common stock
Accumulated deficit
(67,813 )
(88,548 )
Accumulated other comprehensive loss
(44,534 )
(44,271 )
Total stockholders' equity
Total liabilities and stockholders' equity
$
$
The accompanying notes are an integral part of these consolidated financial statements.
80 USCB Financial Holdings, Inc. 2024 10-K
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Operations
(Dollars in thousands, except per share data)
Years Ended December 31,
2024
2023
Interest income:
$
$
Interest expense:
Provision for credit losses
Non-interest income:
(1,859 )
Non-interest expense:
Income tax expense
Net income available to common stockholders
$
$
Per share information:
Class A common stock
Net income per share, basic
$
$
Net income per share, diluted
$
$
Weighted average shares outstanding:
Class A common stock
Basic
Diluted
The accompanying notes are an integral part of these consolidated financial statements.
81 USCB Financial Holdings, Inc. 2024 10-K
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Comprehensive Income (Loss)
(Dollars in thousands)
Years Ended December 31,
2024
2023
Net income
$
$
Other comprehensive income (loss):
Unrealized loss on investment securities
(592 )
(1,801 )
Amortization of net unrealized losses on securities transferred from available-for-sale to held-to-maturity
Reclassification adjustment on sale of available for sale securities for (income) loss included in net income
(14 )
Unrealized (loss) gain on cash flow hedge
(13 )
Tax effect
(163 )
Total other comprehensive income (loss), net of tax
(263 )
Total comprehensive income
$
$
The accompanying notes are an integral part of these consolidated financial statements.
82 USCB Financial Holdings, Inc. 2024 10-K
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Changes in Stockholders’ Equity
(Dollars in thousands, except per share data)
Common Stock
Additional Paid-in
Capital on
Common Stock
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Shares
Par Value
Total
Stockholders'
Equity
Balance at January 1, 2024
$
$
$
(88,548 )
$
(44,271 )
$
Net income
-
-
-
-
Other comprehensive loss
-
-
-
-
(263 )
(263 )
Repurchase of Class A common stock
(42,100 )
(42 )
(459 )
-
-
(501 )
Restricted stock issued
(278 )
-
-
-
Restricted stock forfeiture
(8,625 )
(8 )
-
-
-
Exercise of stock options
-
-
Dividend payment
-
-
-
(3,939 )
-
(3,939 )
Stock-based compensation
-
-
-
-
Balance at December 31, 2024
$
$
$
(67,813 )
$
(44,534 )
$
Balance at January 1, 2023
$
$
$
(104,104 )
$
(44,751 )
$
After tax cumulative effect of adoption of accounting principle related to
ASC 326
-
-
-
(989 )
-
(989 )
Adjusted beginning balance after cumulative effect adjustment
(105,093 )
(44,751 )
Net income
-
-
-
-
Other comprehensive income
-
-
-
-
Repurchase of Class A common stock
(669,920 )
(670 )
(6,913 )
-
-
(7,583 )
Restricted stock issued
(242 )
-
-
-
Restricted stock forfeiture
(8,111 )
(8 )
-
-
-
Exercise of stock options
-
-
Stock-based compensation
-
-
-
-
Balance at December 31, 2023
$
$
$
(88,548 )
$
(44,271 )
$
The accompanying notes are an integral part of these consolidated financial statements.
83 USCB Financial Holdings, Inc. 2024 10-K
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
Years Ended December 31,
2024
2023
Cash flows from operating activities:
Net income
$
$
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses
Depreciation and amortization
Accretion of premiums on securities, net
(521 )
(770 )
Amortization (accretion) of deferred loan fees, net
(184 )
Stock-based compensation
(Gain) loss on sale of available for sale securities
(14 )
Gain on sale of loans held for sale
(747 )
(801 )
Increase in cash surrender value of bank owned life insurance
(1,691 )
(2,160 )
Decrease in deferred tax asset
Net change in operating assets and liabilities:
Accrued interest receivable
(257 )
(3,142 )
Other assets
(6,223 )
Accrued interest and other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of investment securities held to maturity
-
(86,788 )
Proceeds from maturities and pay-downs of investment securities held to maturity
Purchase of investment securities available for sale
(85,673 )
(40,379 )
Proceeds from maturities and pay-downs of investment securities available for sale
Proceeds from sales of investment securities available for sale
Net increase in loans held for investment
(134,439 )
(239,361 )
Purchase of loans held for investment
(66,605 )
(45,645 )
Additions to premises and equipment
(314 )
(163 )
Proceeds from the sale of loans held for sale
Purchase of Bank owned life insurance, net
-
(6,840 )
Proceeds from the redemption of Federal Home Loan Bank stock
Purchase of Federal Home Loan Bank stock
(10,959 )
(22,766 )
Net cash used in investment activities
(211,861 )
(273,002 )
(Continued)
The accompanying notes are an integral part of these consolidated financial statements.
84 USCB Financial Holdings, Inc. 2024 10-K
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Cash Flows (Continued)
(Dollars in thousands)
Years Ended December 31,
2024
2023
Cash flows from financing activities:
Proceeds from exercise of Class A common stock options, net
Cash dividends paid
(3,939 )
-
Repurchase of Class A common stock
(501 )
(7,583 )
Net increase in deposits
Proceeds from Federal Home Loan Bank advances and other borrowings
Repayments on Federal Home Loan Bank advances and other borrowings
(247,000 )
(392,350 )
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
(13,106 )
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
$
$
Supplemental disclosure of cash flow information:
Interest paid
$
$
Supplemental schedule of non-cash investing and financing activities:
Transfer of loans held for investment to loans held for sale
$
$
Transfer of investment securities from available-for-sale to held-to-maturity
$
-
$
-
Lease liability arising from obtaining right-of-use asset
$
-
$
-
The accompanying notes are an integral part of these consolidated financial statements.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
85 USCB Financial Holdings, Inc. 2024 10-K
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Overview
USCB Financial Holdings, Inc., a Florida corporation incorporated in 2021, is a bank holding company with one direct
wholly owned subsidiary, U.S. Century Bank (the “Bank”), together referred to as “the Company”. The Bank, established in
2002, is a Florida state-chartered, non-member financial institution providing financial services through its banking centers
located in South Florida.
In December 2021, USCB Financial Holdings, Inc. acquired all issued and outstanding shares of the Class A common
stock of the Bank in connection with the reorganization of the Bank into a holding company structure. Each of the outstanding
shares of the Bank’s common stock, par value $
exchanged for one newly issued share of the Company’s Class A common stock, par value $
The Bank owns a subsidiary, Florida Peninsula Title LLC, that offers our clients title insurance policies for real estate
transactions closed at the Bank. Licensed in the State of Florida and approved by the Department of Insurance Regulation,
Florida Peninsula tittle LLC began operations in 2021.
Principles of Consolidation
Intercompany transactions and balances are eliminated in consolidation. The consolidated financial statements have
been prepared in accordance with GAAP.
Use of Estimates
The Company has established policies and control procedures that are intended to ensure valuation methods are
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.
Cash and Cash Equivalents
The Company considers investments with a maturity of 90 days or less from its original purchase date to be cash
equivalents. For the Consolidated Statements of Cash Flows, cash and cash equivalents include cash on hand, amounts
due from banks, and interest-bearing deposits in banks.
Restricted Cash
The Company may be required to maintain funds at other banks to satisfy the terms of a loan participation agreement.
The Company reports restricted cash within cash and cash equivalents. At both December 31, 2024 and 2023, the Company
had $
0
Interest-Bearing Deposits in Other Financial Institutions
Interest-bearing deposits in other financial institutions consist of Federal Reserve Bank of Atlanta, Federal Home Loan
Bank of Atlanta and other accounts.
Investment Securities
Debt securities are recorded at fair value except for those securities which the Company has the positive intent and
ability to hold to maturity. Management generally determines the appropriate classification of its securities at the time of
purchase and accounts for them on a trade date basis.
Debt securities that management has the positive intent and ability to hold to maturity are classified as "held-to-maturity"
and recorded at amortized cost. Trading securities are recorded at fair value with changes in fair value included in earnings.
Securities not classified as held-to-maturity or trading are classified as "available-for-sale" and recorded at fair value, with
unrealized gains and losses excluded from earnings and reported in other comprehensive income (loss). Equity investments
must be recorded at fair value with changes in fair value included in earnings.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
86 USCB Financial Holdings, Inc. 2024 10-K
Purchase premiums and discounts are amortized or accreted over the estimated life of the related available-for-sale or
held-to-maturity security as an adjustment to yield using the effective interest method. Prepayments of principal are
considered in determining the estimated life of the security. Such amortization and accretion are included in interest income
in the Consolidated Statements of Operations. Dividend and interest income are recognized when earned. Gains and losses
on the sale of securities are recorded on trade date and are determined on a specific identification basis.
On January 1, 2023, the Company adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments, as amended, which replaces the incurred loss methodology with
an expected loss methodology that is referred to as the CECL methodology. The measurement of expected credit losses
under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and
held-to-maturity debt securities. In addition, ASC 326 amended the accounting for available-for-sale debt securities. One
such change is to require credit losses to be presented as an allowance rather than as a write-down on available-for-sale
debt securities management does not intend to sell or believes that it is more likely than not they will be required to sell.
CECL requires a loss reserve for securities classified as HTM. The reserve should reflect historical credit performance
as well as the impact of projected economic forecast. For U.S. Government bonds and U.S. Agency issued bonds in HTM
the explicit and/or implicit guarantee of the U.S. Government is sufficient to conclude that a credit loss reserve is not
required. The reserve requirement is for three primary assets groups: municipal bonds, corporate bonds, and non-agency
securitizations. The Company calculates quarterly the loss reserve utilizing Moody’s ImpairmentStudio. The CECL
measurement for investment securities incorporates historical data, containing defaults and recoveries information, and
Moody’s baseline economic forecast. The solution uses probability of default/loss given default (“PD/LGD”) approach. PD
represents the likelihood a borrower will default. Within the Moody’s model, this is determined using historical default data,
adjusted for the current economic environment. LGD projects the expected loss if a borrower were to default.
Federal Home Loan Bank (FHLB) Stock
The Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level
of borrowings and other factors and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted
asset, and periodically evaluated for impairment based on ultimate recovery of par value. As of December 31, 2024 and
2023, FHLB stock amounted to $
cash and stock dividends are reported as interest income.
Loans Held for Investment and Allowance for Credit Losses (“ACL”)
Loans held for investment (“loans”) are reported at their outstanding principal balance net of charge-offs, deferred loan
cost, unearned income, and the ACL. Interest income is generally recognized when income is earned using the interest
method. Loan origination and commitment fees and the costs associated with the origination of loans are deferred and
amortized, using the interest method or the straight-line method, over the life of the related loan.
If the principal or interest on a commercial loan becomes due and unpaid for 90 days or more, the loan is placed on
non-accrual status as of the date it becomes 90 days past due and remains in non-accrual status until it meets the criteria
for restoration to accrual status. Residential loans, on the other hand, are placed on non-accrual status when the principal
or interest becomes due and unpaid for 120 days or more and remains in non-accrual status until it meets the criteria for
restoration to accrual status. Restoring a loan to accrual status is possible when the borrower resumes payment of all
principal and interest payments for a period of six consecutive months and the Company has a documented expectation of
repayment of the remaining contractual principal and interest or the loan becomes secured and in the process of collection.
All interest accrued but not collected for loans that are placed on nonaccrual status is reversed against interest income. The
interest on these loans is accounted for on the cash-basis or cost-recovery method, under which cash collections are applied
to unpaid principal, which may change as conditions dictate.
The Company has determined that the entire balance of a loan is contractually delinquent for all loan categories if the
minimum payment is not received by the specified due date on the borrower's statement. Interest and fees continue to
accrue on past due loans until the date the loan goes into nonaccrual status.
The Company provides for loan losses through a provision for credit losses charged to operations. When management
believes that a loan or a portion of the loan balance is uncollectible, that amount is charged against the ACL. Subsequent
recoveries, if any, are credited to the ACL.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
87 USCB Financial Holdings, Inc. 2024 10-K
The ACL reflects management's judgment of expected loan losses in the portfolio at the balance sheet date.
Management uses a disciplined process and methodology to establish the ACL each quarter. To determine the total ACL,
the Company estimates the reserves needed for each segment of the portfolio, including loans analyzed individually and
loans analyzed on a pooled basis. The ACL consists of the amount applicable to the following segments:
• Residential real estate
• Commercial real estate
• Commercial and industrial
• Correspondent banks
• Other loans (secured and unsecured consumer loans)
Residential real estate loans are underwritten following the policies of the Company which include a review of the
borrower’s credit, capacity and the collateral securing the loan. The borrower’s ability to repay involves an analysis of factors
including: current income, employment status, monthly payment of the loan, current debt obligations, monthly debt to income
ratio and credit history. The Company relies on appraisals in determining the value of the property. Risk is mitigated by this
analysis and the diversity of the residential portfolio.
Commercial real estate loans are secured by liens on commercial properties, land, construction and multifamily housing.
Underwriting of commercial real estate loans will analyze the key market and business factors to arrive at a decision on the
credit worthiness of the borrower. The analysis may include the capacity of the borrower, income generated by property for
debt service, other sources of repayment, sensitivity analysis to fluctuations in market conditions including vacancy and
rental rates in geographic location and loan to value. Land and construction loan analysis will include the time to develop,
sell or lease the property. Appraisals are used to determine the value of the underlying collateral. Risk is mitigated as the
properties securing the commercial real estate loans are diverse in type, location, and loan structure.
Commercial and industrial loans are secured by the business assets of the borrower and may include equipment,
inventory, and receivables. The loans are underwritten based on the income capacity of the business, the ability to service
the debt based on operating cash flows, the credit worthiness of the borrower, other sources of repayment and collateral.
The Company mitigates the risk in the commercial portfolio through industry diversification.
Correspondent bank loans are short-term loans with international correspondent banking institutions primarily domiciled
in Latin America. Most of these loans are for trade capital and have a life of less than one year. The Company’s credit review
includes a credit analysis, peer comparison and current country risk overview. Annual re-evaluation of the risk rating of the
borrower and country where the borrower is located and a review by the authorized signer within the Company. The risk is
mitigated as these loans are short term, have limited exposure, and are geographically dispersed.
Other loans are secured and unsecured consumer loans including yacht loans, personal loans, home equity lines of
credit, overdrafts, and deposit account collateralized loans. Repayment of these loans are primarily from the personal
income of the borrowers. Loans are underwritten based on the credit worthiness of the borrower. The risk on these loans is
mitigated by small loan balances.
Under CECL, the Company estimates the ACL using relevant available information, from both internal and external
sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit losses
provide the basis for estimation of expected credit losses. Qualitative adjustments are applied to the expected credit losses
estimated for the loan portfolio in relation to potential limitations of the quantitative model. A scorecard is used to aid
management in the assessment of qualitative factor adjustments applied to expected credit losses.
The quantitative component of the estimate relies on the statistical relationship between the projected value of an
economic indicator and the implied historical loss experience among a curated group of peers. The Company utilized
regression analyses of peer data, in which the Company was included, and where observed credit losses and selected
economic factors were used to determine suitable loss drivers for modeling the lifetime rates of probability of default (PD).
A loss given default rate (LGD) is assigned to each pool for each period based on these PD outcomes. The model
fundamentally utilizes an expected discounted cash flow (DCF) analysis for loan portfolio segments. The DCF analysis is
run at the instrument-level and incorporates an array of loan-specific data points and segment-implied assumptions to
determine the lifetime expected loss attributable to each instrument. An implicit "hypothetical loss" is derived for each period
of the DCF and helps establish the present value of future cash flows for each period. The reserve applied to a specific
instrument is the difference between the sum of the present value of future cash flows and the book balance of the loan at
the measurement date.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
88 USCB Financial Holdings, Inc. 2024 10-K
Management elected the Remaining Life (WARM) methodology for five loan portfolio segments. For each of these
segments, a long-term average loss rate is calculated and applied on a quarterly basis for the remaining life of the pool.
Adjustments for economic expectations are made through qualitative assessments. For the remaining life estimated,
management implemented a software solution that uses an attrition-based calculation that performs quarterly, cohort-based
attrition measurements based on the loan portfolio.
Portfolio segments are the level at which loss assumptions are applied to a pool of loans based on the similarity of risk
characteristics inherent in the included instruments, relying on collateral codes and FFIEC Call Report codes. The Company
currently segments the portfolio based on collateral codes for the purpose of establishing reserves. Each of these segments
is paired to regression models (Loss Driver Analyses) based on peer data for loans of similar risk characteristics. The
Company has established relationships between internal segmentation and FFIEC Call Report codes for this purpose. The
loss driver for each loan portfolio segment is derived from a readily available and reasonable economic forecast, including
the Federal Reserve Bank projections of U.S. civilian unemployment rate and the year-over-year real GDP growth; for the
residential loan segment the HPI projections published by Fannie Mae’s Economic and Strategic Research Group are
utilized for the forecast. Forecasts are applied to the first four quarters of the credit loss estimate and revert on a straight-
line basis to the lookback period's historical mean for the economic indicator over the expected life of loans.
The model incorporates qualitative factor adjustments in order to calibrate the model for risk in each portfolio segment
that may not be captured through quantitative analysis. Determinations regarding qualitative adjustments are reflective of
management's expectation of loss conditions differing from those already captured in the quantitative component of the
model.
Qualitative factors (“Q-Factors”) used in the ACL methodology include:
• Changes in lending policies, procedures, and strategies
• Changes in international, national, regional, and local conditions
• Changes in nature and volume of portfolio
• Changes in the volume and severity of past due loans and other similar conditions
• Concentration risk
• Changes in the value of underlying collateral
• The effect of other external factors: e.g., competition, legal, and regulatory requirements
• Changes in lending management, among others
Management evaluates on an individual basis collateral dependent loans using the fair value of the collateral method
to determine if a credit loss reserve is necessary. The ACL is measured based on the difference of the fair value of the
collateral and the recorded investment (amortized cost basis of the loan), if the final collateral valuation is less than the
recorded investment of the loan a reserve amount is calculated. If the collateral valuation is equal to or greater than the
recorded investment of the loan, no reserve is determined.
The Company estimates a reserve for unfunded commitments, which is reported separately from the ACL within other
liabilities. The reserve is based upon the same quantitative and qualitative factors applied to the collectively evaluated loan
portfolio.
Concentration of Credit Risks
Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties failed to
perform as contracted and any collateral or security proved to be insufficient to cover the loss. Concentrations of credit risk
(whether on or off-balance sheet) arising from financial instruments exist in relation to certain groups of customers. A group
concentration arises when a number of counterparties have similar economic characteristics that would cause their ability
to meet contractual obligations to be similarly affected by changes in economic or other conditions. The Company does not
have a significant exposure to any individual customer or counterparty.
Most of the Company's business activity is with customers located within its primary market area, which is generally the
State of Florida. The Company's loan portfolio is concentrated largely in real estate and commercial loans in South Florida.
Many of the Company's loan customers are engaged in real estate development. Circumstances which negatively impact
the South Florida real estate industry or the South Florida economy, in general, could adversely impact the Company's loan
portfolio.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
89 USCB Financial Holdings, Inc. 2024 10-K
At December 31, 2024 and 2023, the Company had a concentration of risk with loans outstanding to the Company’s
top ten lending relationships totaling $
concentration represented
% and
% of net loans outstanding, respectively. At December 31, 2024 and December
31, 2023, the largest commercial real estate loan note outside Florida was
outstanding balance of $
st
in New York State.
At December 31, 2024, the Company had a concentration of risk with loans outstanding totaling $
correspondent banks located in Ecuador, Dominican Republic, Honduras, and Panama. At December 31, 2023, the
Company also had a concentration of risk with loans outstanding totaling $
Ecuador, Dominican Republic, Honduras, and El Salvador. These banks maintained deposits with right of offset totaling
$
At various times during the year, the Company has maintained deposits with other financial institutions. The exposure
to the Company from these transactions is solely dependent upon daily balances and the financial strength of the respective
institutions.
Premises and Equipment, net
Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation and amortization.
Depreciation is computed on the straight-line method over the estimated useful life of the asset. Leasehold improvements
are amortized over the remaining term of the applicable leases or their useful lives, whichever is shorter. Estimated useful
lives of these assets were as follows:
Building s
Furniture, fixtures and equipment
Computer hardware and software
Leasehold improvements Shorter of life or term of lease
Maintenance and repairs are charged to expense as incurred while improvements and betterments are capitalized.
When items are retired or are otherwise disposed of, the related costs and accumulated depreciation and amortization are
removed from the accounts and any resulting gains or losses are credited or charged to income.
Other Real Estate Owned
OREO consists of real estate properties acquired through, or in lieu of, foreclosure that are held for sale and are initially
recorded at the fair value of the property less estimated selling costs at the date of foreclosure, establishing a new cost
basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the
lower of carrying amount or fair value less cost to sell. Subsequent write-downs are recognized as a valuation allowance
with the offset recorded in the Consolidated Statements of Operations. Carrying costs are charged to other real estate
owned expenses in the accompanying Consolidated Statements of Operation. Gains or losses on sale of OREO are
recognized when consideration has been exchanged, all closing conditions have been met and permanent financing has
been arranged.
Bank Owned Life Insurance
BOLI is carried at the amount that could be realized under the contract at the balance sheet date, which is typically cash
surrender value. Changes in cash surrender value are recorded in non-interest income. At December 31, 2024, the
Company maintained BOLI policies with five insurance carriers with a combined cash surrender value of $
These policies cover certain present and former executives and officers; the Company is the beneficiary of these policies.
Employee 401(k) Plan
The Company has an 401(k) plan covering substantially all eligible employees. Employee 401(k) plan expense is the
amount of matching contributions.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
90 USCB Financial Holdings, Inc. 2024 10-K
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the enactment date.
Management is required to assess whether a valuation allowance should be established on the net deferred tax asset
based on the consideration of all available evidence using a more likely than not standard. In its evaluation, Management
considers taxable loss carry-back availability, expectation of sufficient taxable income, trends in earnings, the future reversal
of temporary differences, and available tax planning strategies.
The Company recognizes positions taken or expected to be taken in a tax return in accordance with existing accounting
guidance on income taxes which prescribes a recognition threshold and measurement process. Interest and penalties on
tax liabilities, if any, would be recorded in interest expense and other operating noninterest expense, respectively.
Impairment of Long-Lived Assets
The Company's long-lived assets, such as premises and equipment, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash
flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the
asset. Assets to be disposed of would be separately presented in the Consolidated Balance Sheets and reported at the
lower of the carrying amount or fair value less costs to sell and are no longer depreciated. The assets and liabilities of a
disposal group classified as held for sale would be presented separately in the appropriate asset and liability sections of the
Consolidated Balance Sheets.
Transfer of Financial Assets
Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control
over transferred assets is deemed to be surrendered when (i) the assets have been isolated from the Company - put
presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership, (ii) the
transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange
the transferred assets, and (iii) the Company does not maintain effective control over the transferred assets through an
agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.
Comprehensive Income (Loss)
Under GAAP, certain changes in assets and liabilities, such as unrealized holding gains and losses on securities
available-for-sale, are excluded from current period earnings and reported as a separate component of the stockholders’
equity section of the Consolidated Balance Sheets. Such items, along with net income, are components of comprehensive
income (loss). Additionally, any unrealized gains or losses on transfers of investment securities from available-for-sale to
held-to-maturity are recorded to accumulated other comprehensive income (loss) on the date of transfer and amortized over
the remaining life of each security. The amortization of the unrealized gain or loss on transferred securities is reported as a
component of comprehensive income (loss). See Note 2 “Investment Securities” for further discussion.
Advertising Costs
Advertising costs are expensed as incurred.
Earnings per Common Share
Basic earnings per common share is net income available to common stockholders divided by the weighted average
number of common shares outstanding during the period. Diluted earnings per common share included the effect of
additional potential common shares issuable under vested stock options and unvested shares of restricted stock. Basic and
diluted earnings per share are updated to reflect the effect of stock splits as occurred. See Note 14 “Earnings Per Share”
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
91 USCB Financial Holdings, Inc. 2024 10-K
for additional information on earnings per common share. See Note 13 “Stockholders’ Equity” for further discussion on stock
splits.
Interest Income
Interest income is recognized as earned, based upon the principal amount outstanding, on an accrual basis.
Operating Segments
While the Company monitors the revenue streams of the various products and services, operations are managed and
financial performance is evaluated on a Company wide basis. Operating results of the individual products are not used to
make resource allocations or performance decisions by Company management.
Stock-Based Compensation
Stock-based compensation accounting guidance requires that the compensation cost relating to share-based payment
transactions be recognized in the accompanying Consolidated Financial Statements. That cost will be measured based on
the grant date fair value of the equity or liability instruments issued. The stock-based compensation accounting guidance
covers a wide range of share-based compensation arrangements including stock options, restricted share awards,
performance-based awards, share appreciation rights, and employee share purchase plans.
The stock-based compensation accounting guidance requires that compensation cost for all stock awards be calculated
and recognized over the employees' service period, generally defined as the vesting period. For awards with graded vesting,
compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. A Black-
Scholes model is used to estimate the fair value of stock options.
Loss Contingencies
Loss contingencies, including claims and legal actions arising in the normal course of business, are recorded as
liabilities when the likelihood of loss is probable, and an amount or range of loss can be reasonably estimated. In the opinion
of management, none of these actions, either individually or in the aggregate, is expected to have a material adverse effect
on the Company’s Consolidated Financial Statements. See Note 19 “Loss Contingencies” for further details.
Dividend Restrictions
Banking regulations require maintaining certain capital levels and may limit the dividends paid by the Bank to the
Company or by the Company to the stockholders.
Fair Value Measurements
Fair values of financial instruments are estimated using relevant market information and other assumptions, as more
fully disclosed in Note 12 “Fair Value Measurements”. Fair value estimates involve uncertainties and matters of significant
judgment. Changes in assumptions or in market conditions could significantly affect the estimates.
Derivative Instruments
Derivative financial instruments are carried at fair value and reflect the estimated amount that would have been received
to terminate these contracts at the reporting date based upon pricing or valuation models applied to current market
information.
Rate Swaps Designated as Cash Flow Hedges
The changes in fair value on these interest rate swaps are recorded in other assets or other liabilities with a
corresponding recognition in other comprehensive income (loss) and subsequently reclassified to earnings when gains or
losses are realized. As of December 31, 2024, the cash flow hedge was effective.
Interest Rate Swaps Designated as Fair Value Hedges
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
92 USCB Financial Holdings, Inc. 2024 10-K
The changes in fair value on these interest rate swaps are recorded in other assets or other liabilities with a
corresponding recognition in the assets being hedged.
Interest Rate Swaps
The Company enters into interest rate swaps agreements to provide commercial loan clients the ability to swap from a
variable interest rate to a fixed rate. The Company enters into a floating-rate loan with a customer with a separately issued
swap agreement allowing the customer to convert floating payments on the loan into a fixed interest rate. To mitigate risk,
the Company enters into a matching agreement with a third party to offset the exposure on the customer agreement. These
swaps are not considered to be qualified hedging transactions and the unmatched unrealized gain or loss is recorded in
other non-interest income.
Interest rate swap agreements are used by the Company as part of its asset-liability management strategy to help
manage its interest rate risk exposure. The notional amount of the interest rate swaps does not represent actual amounts
exchanged by the parties. The amounts exchanged are determined by reference to the notional amount and the other terms
of the individual interest rate swap agreements.
Revenue from Contracts with Customers
Revenue from contracts with customers is recognized in an amount that reflects the consideration the Company expects
to receive for the services the Company provides to its customers. The main revenue earned by the Company from loans
and investment securities are excluded from the accounting standard update “Revenue from Contracts with Customers”.
Deposit and service charge fees, consisting of primarily monthly maintenance fees, wire fees, ATM interchange fees and
other transaction-based fees, are the most significant types of revenue within the accounting standard update. Revenue is
recognized when the service provided by the Company is complete. The aggregate amount of revenue within the scope of
this standard that is received from sources other than deposit service charges and fees is not material.
Cash Flow Statement
The Company reports the net activity rather than gross activity in the Consolidated Statements of Cash Flows. The net
cash flows are reported for loans held for investment, accrued interest receivable, deferred tax assets, other assets,
customer deposits, accrued interest payable, other liabilities, and proceeds from the issuance of Class A common shares.
Reclassifications
Certain amounts in the Consolidated Financial Statements have been reclassified to conform to the current
presentation. Reclassifications had no impact on the net income or stockholders’ equity of the Company.
Recently Issued Accounting Standards
Issued and Adopted
Guidance on Accounting for Credit Losses on Financial Instruments
On January 1, 2023, the Company implemented Accounting Standard Update (“ASU”) 2016-13 Financial Instruments -
Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended. This update replaces the
incurred loss methodology with the CECL methodology. The CECL methodology measures expected credit losses and
applies to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It
also applies to off-balance sheet credit exposures not accounted for as insurance (e.g., loan commitments, standby letters
of credit, financial guarantees, and similar instruments), as well as net investments in leases recognized by lessors in
accordance with Topic 842 on leases. Furthermore, ASC 326 amended the accounting treatment for available-for-sale debt
securities. One notable change is the requirement for credit losses to be reported as an allowance rather than as a write-
down on available-for-sale debt securities that management does not intend to sell or believes it is more likely than not they
will not need to sell. CECL requires a loss reserve for securities classified as held-to-maturity (HTM). The reserve should
reflect historical credit performance as well as the impact of projected economic forecast.
At adoption of CECL,
% or $
Flow (“DCF)” method and
% or $
method. The remaining $
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
93 USCB Financial Holdings, Inc. 2024 10-K
The impact of adoption of the ASU 2016-13 in January 1, 2023, was an increase to ACL on loans receivables of $
million and an increase to the reserve for unfunded commitments of $
adjustment resulted in a increase of $
CECL on the Company’s Consolidated Balance Sheet (in thousands):
January 1, 2023
As Reported Under ASC
326
Pre - ASC 326 Adoption
Impact of ASC 326
Adoption
Assets
Allowance for credit losses
$
$
$
Deferred tax asset, net
Liabilities
Reserve for unfunded credit commitments
Stockholder's Equity
Retained earnings
$
(105,093 )
$
(104,104 )
$
(989 )
See “Allowance for Credit Losses” section in Note 3 for more information on the ACL.
Guidance on Accounting for Trouble Debt Restructuring and Vintage Disclosures
In March 2022, the FASB issued ASU 2022-02, which eliminates creditor accounting guidance for troubled debt
restructurings (“TDR”) for entities that have adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) and
enhances Vintage Disclosures of Gross Write-offs. This ASU eliminates Subtopic 310-40 guidance for TDRs and requires
creditors to apply the loan refinancing and restructuring guidance in Subtopic 310-20 when evaluating modifications granted
to borrowers experiencing financial difficulty to determine whether the modification is considered a continuation of an
existing loan or a new loan. The vintage disclosure component of the ASU requires entities to disclose current-period gross
write-offs by origination year for financing receivables and investment leases within the scope of Subtopic 326-20. The
Company adopted ASU 2022-02 concurrently with the adoption of ASU 2016-13.
Reference
Rate Reform
In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04, Reference Rate Reform
(Topic 848), aiming to facilitate the impacts of reference rate reform on financial reporting. This initiative was subsequently
clarified in January 2021 through ASU 2021-01, providing optional directives for a designated timeframe to alleviate
challenges associated with accounting for, or acknowledging the effects of, reference rate reform on financial reporting.
These amendments offer discretionary guidance for a defined period to alleviate potential accounting complexities
associated with reference rate reform in financial reporting. The expedients and exceptions provided by these amendments
are not applicable to contract modifications executed and hedging relationships initiated or reviewed after December 31,
2022, except for pre-existing hedging relationships as of December 31, 2022, for which an entity has opted for specific
optional expedients, and which are retained until the conclusion of the hedging relationship. Additionally, the amendments
permit entities to make a one-time choice to divest, transfer, or both divest and transfer debt securities categorized as held
to maturity, referencing a rate impacted by reference rate reform, and classified as held to maturity prior to January 1, 2020.
In December 2022, the FASB issued new guidance extending the expiration date of this guidance from December 31, 2022,
to December 31, 2024, after which entities will no longer be authorized to apply the relief provided under this guidance.
Before this recent guidance, these amendments were effective for all entities from March 12, 2020 to December 31, 2022.
The Company executed its transition strategy in preparation for the cessation of the London Intrabank Offered Rate
(“LIBOR”) and the adjustment of its existing financial instruments affecte d by LIBOR, whether directly or indirectly. LIBOR-
based originations were ceased as of June 30, 2023, and for existing LIBOR-based transactions, the Company substituted
Secured Overnight Financing Rate (“SOFR”) for LIBOR. The Company has completed its transition away from LIBOR for
its loan and other financial instruments.
Improvements to Reportable Segment Disclosures
In November 2023, FASB issued ASU No. 2023-07, Segment Reporting (Topic 280), aiming to augments reportable
segment disclosure requirements, it enhances significant segment expenses disclosures. Additionally, this amendment
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
94 USCB Financial Holdings, Inc. 2024 10-K
enhances interim disclosure requirements, clarifies multiple segment measures of profit or loss, provides new segment
disclosure requirements for entities with a single reportable segment and requires other disclosure requirements. The
Company adopted this ASU in December 2024. The adoption of this guidance did not have a material impact on the
consolidated financial statements.
Issued and Not Yet Adopted
Improvements to Income Tax Disclosures
In December 2023, the FASB issued Accounting Standards Update (ASU) 2023-09, Income Taxes (Topic 740):
Improvements to Income Tax Disclosures. This ASU pertains to disclosures regarding effective tax rates and cash income
taxes paid with the goal of providing stakeholders with more transparent and relevant information. This ASU is effective for
public business entities for annual periods beginning after December 15, 2024. The Company is currently assessing the
potential impact of this ASU on its financial reporting and has not yet concluded whether the changes will materially affect
its business operations or consolidated financial statements.
2. INVESTMENT SECURITIES
The following tables present a summary of the amortized cost, unrealized or unrecognized gains and losses, and fair
value of investment securities at the dates indicated (in thousands):
December 31, 2024
Available-for-sale:
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
U.S. Government Agency
$
$
$
(1,668 )
$
Collateralized mortgage obligations
(22,918 )
Mortgage-backed securities - residential
(12,063 )
Mortgage-backed securities - commercial
(7,905 )
Municipal securities
-
(5,614 )
Bank subordinated debt securities
(1,044 )
$
$
$
(51,212 )
$
Held-to-maturity:
U.S. Government Agency
$
$
-
$
(5,094 )
$
Collateralized mortgage obligations
(7,785 )
Mortgage-backed securities - residential
(4,613 )
Mortgage-backed securities - commercial
-
(1,385 )
Corporate bonds
-
(393 )
$
$
$
(19,270 )
$
Allowance for credit losses - securities held-to-maturity
(6 )
Securities held-to maturity, net of allowance for credit losses
$
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
95 USCB Financial Holdings, Inc. 2024 10-K
December 31, 2023
Available-for-sale:
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
U.S. Government Agency
$
$
-
$
(1,491 )
$
Collateralized mortgage obligations
-
(23,039 )
Mortgage-backed securities - residential
-
(11,608 )
Mortgage-backed securities - commercial
(6,504 )
Municipal securities
-
(5,667 )
Bank subordinated debt securities
(2,033 )
$
$
$
(50,342 )
$
Held-to-maturity:
U.S. Government Agency
$
$
$
(5,322 )
$
Collateralized mortgage obligations
-
(7,983 )
Mortgage-backed securities - residential
(4,533 )
Mortgage-backed securities - commercial
-
(1,257 )
Corporate bonds
-
(727 )
$
$
(19,822 )
$
Allowance for credit losses - securities held-to-maturity
(8 )
Securities held-to maturity, net of allowance for credit losses
$
There were
and 2023.
Transfers of debt securities into the HTM category from the AFS category are made at fair value as of the date of
transfer. The unrealized gain or loss at the date of transfer is retained in AOCI and in the carrying value of the held-to-
maturity securities. There was no impact to net income. Such amounts are amortized over the remaining life of the security.
For the years ended December 31, 2024 and 2023, total amortization out of AOCI for the net unrealized losses on securities
transferred from AFS to HTM in 2022 was $
the balance of the net unrealized losses retained in AOCI was $
December 31, 2023.
The following table presents the proceeds, realized gross gains and realized gross losses on sales and calls of AFS
debt securities for the years ended December 31, 2024 and 2023 (in thousands):
Available-for-sale:
2024
2023
Proceeds from sales and call of securities
$
$
Gross Gains
$
$
Gross Losses
(181 )
(1,862 )
Net realized gains (losses)
$
$
(1,859 )
The amortized cost and fair value of investment securities, by contractual maturity, are shown below for the date
indicated (in thousands). Actual maturities may differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown
separately.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
96 USCB Financial Holdings, Inc. 2024 10-K
Available-for-sale
Held-to-maturity
December 31, 2024:
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
Due within one year
$
-
$
-
$
-
$
-
Due after one year through five years
Due after five years through ten years
-
-
Due after ten years
-
-
U.S. Government Agency
Collateralized mortgage obligations
Mortgage-backed securities - residential
Mortgage-backed securities - commercial
$
$
$
$
At December 31, 2024 and 2023, there were no securities to any one issuer, in an amount greater than 10% of total
stockholders’ equity other than the U.S. Government and U.S. Government Agencies. All the collateralized mortgage
obligations and mortgage-backed securities are issued by U.S. sponsored entities at December 31, 2024 and 2023.
Information pertaining to investment securities both AFS and HTM with gross unrealized losses, aggregated by
investment category and length of time that those individual securities have been in a continuous loss position, are
presented as of the following dates (in thousands):
December 31, 2024
Less than 12 months
12 months or more
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealize
d Losses
Fair Value
Unrealize
d Losses
U.S. Government Agency
$
$
(76 )
$
$
(7,817 )
$
$
(7,893 )
Collateralized mortgage obligations
(23 )
(34,998 )
(35,021 )
Mortgage-backed securities - residential
(92 )
(19,031 )
(19,123 )
Mortgage-backed securities - commercial
(1,422 )
(9,312 )
(10,734 )
Municipal securities
-
-
(5,613 )
(5,613 )
Bank subordinated debt securities
-
-
(1,044 )
(1,044 )
Corporate bonds
-
-
(214 )
(214 )
$
$
(1,613 )
$
$
(78,029 )
$
$
(79,642 )
December 31, 2023
Less than 12 months
12 months or more
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
U.S. Government Agency
$
-
$
-
$
$
(8,043 )
$
$
(8,043 )
Collateralized mortgage obligations
-
-
(35,566 )
(35,566 )
Mortgage-backed securities - residential
(47 )
(18,365 )
(18,412 )
Mortgage-backed securities - commercial
(611 )
(8,623 )
(9,234 )
Municipal securities
-
-
(5,667 )
(5,667 )
Bank subordinated debt securities
(331 )
(1,703 )
(2,034 )
Corporate bonds
-
-
(406 )
(406 )
$
$
(989 )
$
$
(78,373 )
$
$
(79,362 )
The unrealized losses associated with $
portfolio to the HTM portfolio represent unrealized losses since the date of purchase, independent of the impact associated
with changes in the cost basis upon transfer between portfolios.
On January 1, 2023, the Company adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments, as amended, which replaces the incurred loss methodology with
an expected loss methodology that is referred to as CECL. The measurement of expected credit losses under the CECL
methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
97 USCB Financial Holdings, Inc. 2024 10-K
debt securities. In addition, ASC 326 amended the accounting for available-for-sale debt securities. One such change is to
require credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities.
CECL requires a loss reserve for securities classified as HTM. The reserve should reflect historical credit performance
as well as the impact of projected economic forecast. For U.S. Government bonds and U.S. Agency issued bonds in HTM,
the explicit guarantee of the U.S. Government is sufficient to conclude that a credit loss reserve is not required. The reserve
requirement is for three primary assets groups: municipal bonds, corporate bonds, and non-agency securitizations. The
Company calculates quarterly the loss reserve utilizing Moody’s ImpairmentStudio. The CECL measurement for investment
securities incorporates historical data, containing defaults and recoveries information, and Moody’s baseline economic
forecast. The solution uses probability of default/loss given default (“PD/LGD”) approach. PD represents the likelihood a
borrower will default. Within Moody’s model, this is determined using historical default data, adjusted for the current
economic environment. LGD projects the expected loss if a borrower were to default.
The Company monitors the credit quality of held to maturity securities through the use of credit ratings. Credit ratings
are monitored by the Company on at least a quarterly basis. As of December 31, 2024 and December 31, 2023, all held-to-
maturity securities held by the Company were rated investment grade.
At December 31, 2024, HTM securities included $
mortgage-backed securities. Because of the explicit and/or implicit guarantee on these bonds, the Company holds
reserves on these holdings. The remaining portion of the HTM portfolio is made up of $
corporate bonds. The required reserve for these holdings is determined each quarter using the model described above. For
the portion of the HTM exposed to non-government credit risk, the Company utilized the PD/LGD methodology to estimate
a $
cost less ACL.
The Company determined that an ACL on its debt securities available for sale as of December 31, 2024 was not
required.
At December 31, 2024, the Company had $
collateralized mortgage obligations of U.S. Government sponsored entities having a fair value of $
attributable to a combination of factors, including relative changes in interest rates since the time of purchase. The
contractual cash flows for these securities are guaranteed by U.S. Government agencies and U.S. Government sponsored
entities. The municipal bonds are of high credit quality and the declines in fair value are not due to credit quality. Based on
the assessment of these mitigating factors, management believes that the unrealized losses on these debt security holdings
are a function of changes in investment spreads and interest rate movements and not changes in credit quality.
In 2018, the Company became a Qualified Public Depository (“QPD”) with the State of Florida. As a QPD, the Company
has the authority to legally maintain public deposits from cities, municipalities, and the State of Florida. These public deposits
are secured by securities pledged to the State of Florida at a ratio of
% of the average outstanding amount of uninsured
deposits. The Company must also maintain a minimum amount of pledged securities to be in the program related to these
deposits.
At December 31, 2024, the Company had
to the State of Florida under the public funds program. The Company held a total of $
December 31, 2024.
At December 31, 2023, the Company had
to the State of Florida under the public funds program. The Company held a total of $
December 31, 2023.
The Board of Governors of the Federal Reserve System, on March 12, 2023, announced the creation of a new Bank
Term Funding Program (“BTFP”). The BTFP offered loans of up to one year in length to banks, savings associations, credit
unions, and other eligible depository institutions pledging U.S. Treasuries, U.S. agency debt and mortgage-backed
securities, and other qualifying assets as collateral. The BTFP program ceased making new loans as of March 2024.
The Company paid off $
maturity of this borrowing under the BTFP program was January 2025, and there are no remaining borrowings under this
program.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
98 USCB Financial Holdings, Inc. 2024 10-K
3. LOANS
The following table is a summary of the distribution of loans held for investment by type (in thousands):
December 31, 2024
December 31, 2023
Total
Percent of
Total
Total
Percent of
Total
Residential Real Estate
$
%
$
%
Commercial Real Estate
%
%
Commercial and Industrial
%
%
Correspondent Banks
%
%
Consumer and Other
%
%
Total gross loans
%
%
Plus: Deferred costs
Total loans net of deferred costs
Less: Allowance for credit losses
Total net loans
$
$
At December 31, 2024 and 2023, the Company had $
estate and residential mortgage loans pledged as collateral on lines of credit with the FHLB and the Federal Reserve Bank
of Atlanta. At December 31, 2024 and 2023, the Company had
Allowance for Credit Losses
In general, the Company utilizes the Discounted Cash Flow (DCF) method or the Remaining Life (WARM) methodology
to estimate the quantitative portion of the ACL for loan pools. The DCF uses a loss driver analysis (LDA) and discounted
cash flow analyses. The Company engaged advisors and consultants with experience in CECL model development to assist
in development of a loss driver analysis based on regression models and supportable forecast. Peer group data obtained
from FFIEC Call Report filings is used to inform regression analyses to quantify the impact of reasonable and supportable
forecasts in projective models. Economic forecasts applied to regression models to estimate probability of default for loan
receivables use at least one of the following economic indicators: civilian unemployment rate (national), real gross domestic
product growth (national GDP) and/or the HPI. For each of the segments in which the WARM methodology is used, the
long-term average loss rate is calculated and applied on a quarterly basis for the remaining life of the pool. Adjustments for
economic expectations are made through qualitative factors.
Qualitative factors (“Q-Factors”) used in the ACL methodology include:
• Changes in lending policies, procedures, and strategies
• Changes in international, national, regional, and local conditions
• Changes in nature and volume of portfolio
• Changes in the volume and severity of past due loans and other similar conditions
• Concentration risk
• Changes in the value of underlying collateral
• The effect of other external factors: e.g., competition, legal, and regulatory requirements
• Changes in lending management, among others
The Company segments the portfolio by pools grouping loans that share similar risk characteristics and employing
collateral type and lien position to group loans according to risk. The Company evaluates five segments using the loss rate
methodology 'Remaining Life Method' or WARM. The remaining is calculated based on the annual attrition rate observed
for the Company’s own portfolio experience. The peer group includes historical losses for U.S. The Company also applies
a scorecard methodology to determine qualitative factors for WARM segments. The scorecard is built using a peer group
loss. The maximum losses for these peers are derived selecting periods were higher than normal loss rates are observed.
In estimating credit losses, the Company also considers qualitative and environmental factors that may cause estimated
credit losses for the loan portfolio to differ from historical losses.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
99 USCB Financial Holdings, Inc. 2024 10-K
Changes in the ACL for the years ended December 31, 2024 and 2023 are as follows (in thousands):
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Correspondent
Banks
Consumer
and Other
Total
December 31, 2024:
Beginning balance
$
$
$
$
$
$
Provision for credit losses
(1)
(1,578 )
(257 )
Recoveries
Charge-offs
(19 )
(19 )
Ending Balance
$
$
$
$
$
$
December 31, 2023:
Beginning balance
$
$
$
$
$
$
Cumulative effect of adoption of
accounting principle
(2,158 )
Provision for credit losses
(3)
(882 )
Recoveries
Charge-offs
(57 )
(57 )
Ending Balance
$
$
$
$
$
$
(1) Provision for credit losses excludes $
investment securities held to maturity.
(2) Impact of CECL adoption on January 1, 2023
(3) Provision for credit losses excludes $
investment securities held to maturity.
Allowance for credit losses and the outstanding balances in loans as of December 31, 2024 and 2023 are as follows (in
thousands):
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Correspondent
Banks
Consumer
and Other
Total
December 31, 2024:
Allowance for credit losses:
Individually evaluated
$
$
-
$
$
-
$
$
Collectively evaluated
Balances, end of period
$
$
$
$
$
$
Loans:
Individually evaluated
$
$
-
$
$
-
$
$
Collectively evaluated
Balances, end of period
$
$
$
$
$
$
December 31, 2023:
Allowance for credit losses:
Individually evaluated
$
$
-
$
$
-
$
-
$
Collectively evaluated
Balances, end of period
$
$
$
$
$
$
Loans:
Individually evaluated
$
$
-
$
$
-
$
-
$
Collectively evaluated
Balances, end of period
$
$
$
$
$
$
Credit Quality Indicators
The Company grades loans based on the estimated capability of the borrower to repay the contractual obligation of the
loan agreement based on relevant information which may include: current financial information on the borrower, historical
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
100 USCB Financial Holdings, Inc. 2024 10-K
payment experience, credit documentation and other current economic trends. Internal credit risk grades are evaluated
periodically.
The Company's internally assigned credit risk grades are as follows:
Pass
– Loans indicate different levels of satisfactory financial condition and performance.
Special Mention
close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment
prospects for the loan or of the institution’s credit position at some future date.
Substandard
– Loans classified as substandard are inadequately protected by the current net worth and paying
capacity of the obligator or of the collateral pledged, if any. Loans so classified have a well-defined weakness or
weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the
institution will sustain some loss if the deficiencies are not corrected.
Doubtful
the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing
facts, conditions, and values, highly questionable and improbable.
Loss
– Loans classified as loss are considered uncollectible.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
101 USCB Financial Holdings, Inc. 2024 10-K
Loan credit exposures by internally assigned grades are presented below for the periods indicated (in thousands):
As of December 31, 2024
Term Loans by Origination Year
Revolving
Loans
Total
2024
2023
2022
2021
2020
Prior
Residential real estate
Pass
$
$
$
$
$
$
$
$
Substandard
-
-
-
-
-
-
Total
Commercial real estate
Pass
Substandard
-
-
-
-
-
Total
Commercial and
industrial
Pass
Substandard
-
-
-
-
Total
Correspondent banks
Pass
-
-
-
-
-
-
Total
-
-
-
-
-
-
Consumer and other
loans
Pass
Substandard
-
-
-
-
-
-
Total
Total Loans
Pass
Special Mention
-
-
-
-
-
-
-
-
Substandard
-
-
Doubtful
-
-
-
-
-
-
-
-
Total
$
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
102 USCB Financial Holdings, Inc. 2024 10-K
As of December 31, 2023
Term Loans by Origination Year
Revolving
Loans
Total
2023
2022
2021
2020
2019
Prior
Residential real estate
Pass
$
$
$
$
$
$
$
$
Substandard
-
-
-
-
-
-
Total
Commercial real estate
Pass
Substandard
-
-
-
-
-
Total
Commercial and
industrial
Pass
Substandard
-
-
-
-
-
Total
Correspondent banks
Pass
-
-
-
-
-
-
Total
-
-
-
-
-
-
Consumer and other
loans
Pass
Total
Total Loans
Pass
Special Mention
-
-
-
-
-
-
-
-
Substandard
-
-
-
-
Doubtful
-
-
-
-
-
-
-
-
Total
$
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
103 USCB Financial Holdings, Inc. 2024 10-K
Loan Aging
The Company also considers the performance of loans in grading and in evaluating the credit quality of the loan portfolio.
The Company analyzes credit quality and loan grades based on payment performance and the aging status of the loan.
The following table include an aging analysis of accruing loans and total non-accruing loans as of December 31, 2024 and
2023 (in thousands):
Accruing
As of December 31, 2024:
Current
Past Due
30-89 Days
Past Due >
90 Days
and Still
Accruing
Total
Accruing
Non-
Accrual
Total Loans
Residential real estate:
Home equity line of credit and other
$
$
-
$
-
$
$
-
$
1-4 family residential
-
-
Condo residential
-
-
Commercial real estate:
Land and construction
-
-
-
Multi-family residential
-
-
-
Condo commercial
-
-
-
Commercial property
-
-
Leasehold improvements
-
-
-
-
-
-
-
-
Commercial and industrial:
Secured
-
Unsecured
-
-
-
-
Correspondent banks
-
-
-
Consumer and other
-
-
Total
$
$
$
-
$
$
$
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
104 USCB Financial Holdings, Inc. 2024 10-K
Accruing
As of December 31, 2023:
Current
Past Due
30-89 Days
Past Due
> 90 Days
and Still
Accruing
Total
Accruing
Non-
Accrual
Total Loans
Residential real estate:
Home equity line of credit and other
$
$
-
$
-
$
$
-
$
1-4 family residential
-
-
Condo residential
-
-
-
-
Commercial real estate:
Land and construction
-
-
-
Multi-family residential
-
-
-
Condo commercial
-
-
-
Commercial property
-
-
Leasehold improvements
-
-
-
-
-
Commercial and industrial:
Secured
-
Unsecured
-
-
-
-
Correspondent banks
-
-
-
Consumer and other
-
-
-
Total
$
$
$
-
$
$
$
There were
Non-accrual Status
The following table includes the amortized cost basis of loans on non-accrual status and loans past due over 90 days
and still accruing as of December 31, 2024 and December 31, 2023 (in thousands):
December 31, 2024
Nonaccrual Loans
With No Related
Allowance
Nonaccrual Loans
With Related
Allowance
Total
Non-accruals
Loans Past Due
Over 90 Days and
Still Accruing
Residential real estate
$
$
-
$
$
Commercial and industrial
-
-
Consumer and other
-
-
Total
$
$
$
$
December 31, 2023
Nonaccrual Loans
With No Related
Allowance
Nonaccrual Loans
With Related
Allowance
Total
Non-accruals
Loans Past Due
Over 90 Days and
Still Accruing
Commercial and industrial
$
-
$
$
$
-
Total
$
-
$
$
$
-
Accrued interest receivable is excluded from the estimate of credit losses. There was
attributable to non-accrual loans outstanding during the years ended December 31, 2024 and 2023. Interest income on
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
105 USCB Financial Holdings, Inc. 2024 10-K
these loans for the year ended December 31, 2024 and 2023, would have been approximately $
thousand, respectively, had these loans performed in accordance with their original terms.
Collateral-Dependent Loans
A loan is collateral dependent when the borrower is experiencing financial difficulty and repayment of the loan is
expected to be provided substantially through the sale or operation of the collateral. There were
loans as of December 31, 2024 and
The following table includes the amortized cost basis of collateral dependent loans related to borrowers experiencing
financial difficulty by type of collateral as of December 31, 2024 (in thousands):
As of December 31, 2024
Collateral type
Boat
Specific Reserves
Consumer and other loans
$
$
Total
$
$
Management evaluates on an individual basis collateral dependent loans using the fair value of the collateral method
to determine if a credit loss reserve is necessary. The ACL is measured based on the difference of the fair value of the
collateral and the recorded investment (amortized cost basis of the loan), if the final collateral valuation is less than the
recorded investment of the loan a reserve amount is calculated. If the collateral valuation is equal to or greater than the
recorded investment of the loan, no reserve is determined.
Loan Modifications to Borrowers Experiencing Financial Difficulties
The following table present newly restructured loans, by type of modification, which occurred during the years ended
December 31, 2024 and December 31, 2023 (dollars in thousands):
December 31, 2024
Recorded Investment Prior to Modification
Recorded Investment After Modification
Number of
Loans
Combination
Modifications
Total
Modifications
Number of
Loans
Combination
Modifications
Total
Modifications
Commercial and industrial
$
$
$
$
$
$
$
$
December 31, 2023
Recorded Investment Prior to Modification
Recorded Investment After Modification
Number of
Loans
Combination
Modifications
Total
Modifications
Number of
Loans
Combination
Modifications
Total
Modifications
Commercial and industrial
$
650
$
$
$
$
$
$
$
The Company had
31, 2024. The Company had
December 31, 2023.
4. LEASES
The Company enters into leases in the normal course of business primarily for banking centers and back-office
operations. As of December 31, 2024, the Company leased nine of the ten banking centers and the headquarter building.
The Company is obligated under non-cancelable operating leases for these premises with expiration dates ranging from
2026 to 2036. Many of these leases have extension clauses which the Company could exercise which would extend these
dates.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
106 USCB Financial Holdings, Inc. 2024 10-K
The Company has classified all leases as operating leases. Lease expense for operating leases are recognized on a
straight-line basis over the lease term. Right-of-use (“ROU”) assets represent the right to use the underlying asset for the
lease term and lease liabilities represent the obligation to make lease payments arising from the lease. The Company
elected the short-term lease recognition exemption for all leases that qualify, meaning those with terms under 12 months.
ROU assets or lease liabilities are not to be recognized for short-term leases.
ROU assets and lease liabilities are recognized at the lease commencement date based on the estimated present value
of lease payments over the lease term. In the Company’s Consolidated Balance Sheets, ROU assets are reported under
other assets while lease liabilities are classified under accrued interest and other liabilities.
As most of the Company’s leases do not provide an implicit rate, the incremental borrowing rate based on the
information available at commencement date is used. The Company’s incremental borrowing rate is based on the FHLB
advances rate matching or nearing the lease term.
The following table presents the ROU assets and lease liabilities as of December 31, 2024 and 2023 (in thousands):
2024
2023
ROU assets:
Operating leases
$
$
Lease liabilities:
Operating leases
$
$
The weighted average remaining lease term and weighted average discount rate as of December 31, 2024 and 2023:
2024
2023
Weighted average remaining lease term (in years):
Operating leases
Weighted average discount rate:
Operating leases
%
%
Future lease payment obligations and a reconciliation to lease liability as of December 31, 2024 (in thousands):
2025
$
2026
2027
2028
2029
Thereafter
Total future minimum lease payments
Less: interest component
(1,674 )
Total lease liability
$
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
107 USCB Financial Holdings, Inc. 2024 10-K
5. PREMISES AND EQUIPMENT
A summary of premises and equipment are presented below as of December 31, 2024 and 2023 (in thousands):
2024
2023
Land
$
$
Building
Furniture, fixtures and equipment
Computer hardware and software
Leasehold improvements
Premises and equipment, gross
Accumulated depreciation and amortization
(22,705 )
(22,118 )
Premises and equipment, net
$
$
Depreciation and amortization expense was $
2024 and 2023, respectively.
6. INCOME TAXES
The Company’s provision for income taxes is presented in the following table for the years ended December 31, 2024
and 2023 (in thousands):
2024
2023
Current:
Federal
$
-
$
-
State
-
-
Total current
-
-
Deferred:
Federal
State
Total deferred
Total tax expense
$
$
The actual income tax expense for the years ended December 31, 2024 and 2023 differs from the statutory tax expense
for the year (computed by applying the U.S. federal corporate tax rate of
% for 2024 and
% for 2023 to income before
provision for income taxes) as follows (in thousands):
2024
2023
Federal taxes at statutory rate
$
$
State income taxes, net of federal tax benefit
Bank owned life insurance
(428 )
(273 )
Other, net
-
-
Total tax expense
$
$
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
108 USCB Financial Holdings, Inc. 2024 10-K
The following table presents the deferred tax assets and deferred tax liabilities as of December 31, 2024 and 2023 (in
thousands):
2024
2023
Deferred tax assets:
Net operating loss
$
$
Allowance for credit losses
Lease liability
Unrealized loss on available for sale securities
Depreciable property
Equity compensation
Accruals
Other, net
Deferred tax asset
$
$
Deferred tax liability:
Deferred loan cost
(1,934 )
(553 )
Lease right of use asset
(2,142 )
(2,895 )
Deferred expenses
(224 )
(180 )
Cash flow hedge
(81 )
(85 )
Other, net
-
(79 )
Deferred tax liability
$
(4,381 )
$
(3,792 )
Net deferred tax asset
$
$
At December 31, 2024, the Company had approximately $
loss carryforwards expiring in various amounts from 2032 to 2036. If unused after 2036, their utilization is limited to future
taxable earnings of the Company.
In assessing the realizability of deferred tax assets, management considered whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment.
The U.S. Federal jurisdiction and Florida are the major tax jurisdictions where the Company files income tax returns.
The Company is generally no longer subject to U.S. Federal or State examinations by tax authorities for years before 2021.
For the years ended December 31, 2024 and 2023, the Company did
t have any unrecognized tax benefits as a
result of tax positions taken during a prior period or during the current period. Additionally,
recorded as a result of tax uncertainties.
7. DEPOSITS
The following table presents deposits by type at December 31, 2024 and 2023 (in thousands):
2024
2023
Non-interest bearing demand deposits
$
$
Interest-bearing demand deposits
Savings and money market deposits
Time deposits
Total deposits
$
$
Time deposits exceeding the FDIC deposit insurance limit of $250 thousand per account at December 31, 2024 and
2023 were $
As of December 31, 2024, the Company had $
%.
Brokered CDs were
% of total deposits at such date.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
109 USCB Financial Holdings, Inc. 2024 10-K
As of December 31, 2023, the Company had $
%.
Brokered CDs were
% of total deposits at such date.
At December 31, 2024, the scheduled maturities of time deposits were (in thousands):
2025
$
2026
2027
2028
2029
$
At December 31, 2024 and 2023, the aggregate amount of demand deposits reclassified to loans as overdrafts was
$
8. BORROWINGS
Borrowed funds consist of fixed-rate advances from the FHLB. At December 31, 2024, FHLB advances were $
million and at December 31, 2023 were $
The following table presents outstanding FHLB advances at December 31, 2024 and 2023 (in thousands):
At December 31, 2024
Interest Rate
Type of Rate
Maturity Date
Amount
%
Fixed
$
%
Fixed
%
Fixed
%
Fixed
%
Fixed
%
Fixed
%
Fixed
$
At December 31, 2023
Interest Rate
Type of Rate
Maturity Date
Amount
%
Fixed
$
%
Fixed
%
Fixed
%
Fixed
%
Fixed
%
Fixed
$
The FHLB holds a blanket lien on the Company's loan portfolio that may be pledged as collateral for outstanding
advances, subject to eligibility under the borrowing agreement. The Company may also choose to assign cash balances
held at the FHLB as additional collateral. See Note 3 “Loans” for further discussion on pledged loans.
The Board of Governors of the Federal Reserve System, on March 12, 2023, announced the creation of a new Bank
Term Funding Program (“BTFP”). The BTFP offered loans of up to one year in length to banks, savings associations, credit
unions, and other eligible depository institutions pledging U.S. Treasuries, U.S. Agency debt and mortgage-backed
securities, and other qualifying assets as collateral. The BTFP program ceased making new loans as of March 2024.
On January 12, 2024, the Company borrowed $
%, maturing on
, under
the BTFP program. Subsequently, the Company paid off $
third quarter 2024. The original maturity of this borrowing under the BTFP program was January 2025, and there are no
remaining borrowings by the Company under this program.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
110 USCB Financial Holdings, Inc. 2024 10-K
9. EQUITY BASED AND OTHER COMPENSATION PLANS
Employee 401(k) Plan
The Company has an 401(k) plan (the “Plan”) covering substantially all eligible employees. The Plan includes a provision
that the employer may contribute to the accounts of eligible employees for whom a salary deferral is made. The Company
contributed $
respectively; the contributions are included under salaries and employee benefits in the Consolidated Statements of
Operations.
Stock-Based Compensation
In 2015, the Company's stockholders approved the 2015 Equity Incentive Plan (the “2015 Option Plan”), which
authorized grants of options to purchase up to
2015
Option Plan provided that
vesting schedules will be determined upon issuance of options by the Board of Directors or compensation committee.
Options granted under the 2015 Option Plan have a
-year life and, in no event shall an option be exercisable after the
expiration of
-year life and initially would have terminated in
2025. In July 2020, the stockholders of the Company approved the amendment of the 2015 Option plan to authorize the
issuance of an additional
in 2030. The authorized shares, after being adjusted to reflect the 1 for 5 reverse stock split, totaled
December 2021, the shareholders of the Company approved the amendment of the 2015 Option Plan to authorize the
issuance of an additional
At December 31, 2024, there were
2023, there were
shares available for grant under the 2015 Option Plan.
Stock Options
The Company recognizes compensation expense based on the estimated grant date fair value method using the Black-
Scholes option pricing model and accounts for this expense using a prorated straight-line amortization method over the
vesting period of the option. Stock-based compensation expense is based on awards that the Company expects will
ultimately vest, reduced by estimated forfeitures. Estimated forfeitures consider the voluntary termination trends as well as
actual option forfeitures.
The compensation expense is reported under salaries and employee benefits in the accompanying Consolidated
Statements of Operations. Compensation expense totaling $
December 31, 2024 and $
years ended December 31, 2024 and 2023.
Unrecognized compensation cost remaining on stock-based compensation totaled $
for the years ended December 31, 2024 and 2023, respectively.
Cash flows resulting from excess tax benefits are required to be classified as a part of cash flows from operating
activities. Excess tax benefits are realized tax benefits from tax deductions for exercised options in excess of the deferred
tax asset attributable to the compensation cost for such options.
There were
For the fair value of options granted in 2023, the following were the assumptions:
Assumption
2023
Risk-free interest rate
%
Expected term
years
Expected stock price volatility
%
Dividend yield
%
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
111
USCB Financial Holdings, Inc. 2024 10-K
The following table presents a summary of stock options for the years ended December 31, 2024 and 2023:
Stock Options
Weighted Average
Exercise Price
Weighted Average
Remaining
Contractual Years
Aggregate Intrinsic
Value (in
thousands)
Balance at January 1, 2024
$
Granted
$
Exercised
(122,000 )
$
Forfeitures
(100,000 )
$
Balance at December 31, 2024
$
Exercisable at December 31, 2024
$
$
Balance at January 1, 2023
$
Granted
$
Exercised
(10,000 )
$
Forfeitures
(16,000 )
$
10.34
Balance at December 31, 2023
$
Exercisable at December 31, 2023
$
$
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value of exercisable options at the
dates presented (the difference between the valuation of the Company’s stock and the exercise price, multiplied by the
number of options considered in-the-money) that would have been received by the option holders had all option holders
exercised their options.
The weighted average per share fair value of options granted for the year ended December 31, 2023, was $
; there
were no grants in 2024.
Restricted Stock
In 2024 , the Company issued
awards pursuant to the Company's 2015 Option Plan. Awards under the 2015 Option Plan may not be sold or otherwise
transferred until certain restrictions have lapsed. The Company primarily issues restricted stock awards with a
-year vesting
period. However, out of the
% of the award in a
period of two months in 2024, and
% remaining will vest in the next 2 years.
In 2023 , the Company issued
awards pursuant to the Company's 2015 Option Plan. Awards under the 2015 Option Plan may not be sold or otherwise
transferred until certain restrictions have lapsed.
The total share-based compensation expense for these awards is determined based on the market price of the
Company's common stock as of the date of grant applied to the total number of shares granted and is amortized straight
line over the vesting period which is generally three years unless the Board of Directors approves a different vesting
schedule for the grants. As of December 31, 2024, unearned share-based compensation expense associated with these
awards totaled $
Compensation expense totaling $
salaries and benefits in the accompanying Consolidated Statement of Operations. Compensation expense totaling $
thousand was recognized for the year ended December 31, 2023.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
112 USCB Financial Holdings, Inc. 2024 10-K
The following table presents a summary of restricted stock awards for the years ended December 31, 2024 and 2023:
Restricted Stock
Weighted Average Grant Date
Fair Value
Balance at January 1, 2024
$
Granted
$
Forfeited
(8,625 )
$
Vested
(85,643 )
$
Balance at December 31, 2024
$
Restricted Stock
Weighted Average Grant Date
Fair Value
Balance at January 1, 2023
$
Granted
$
Forfeited
(8,111 )
$
Vested
(16,180 )
$
Balance at December 31, 2023
$
10. OFF-BALANCE SHEET ARRANGEMENTS
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business in order to
meet the financial needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial
instruments include unfunded commitments under lines of credit, commitments to extend credit, standby and commercial
letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the Company’s Consolidated Balance Sheets. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet instruments.
The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instruments
for unused lines of credit, and standby letters of credit is represented by the contractual amount of these commitments.
On January 1, 2023, the Company adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments, as amended, which replaces the incurred loss methodology with
an expected loss methodology that is referred to as the CECL methodology. The measurement of expected credit losses
under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and
held-to-maturity debt securities.
The Company records a liability for expected credit losses on off-balance-sheet credit exposure in accordance with
ASC 326. The Company uses the loss rate and exposure of default framework to estimate a reserve for unfunded
commitments. Loss rates for the expected funded balances are determined based on the associated pooled loan analysis
loss rate and the exposure at default is based on an estimated utilization given default. The off-balance sheet commitment
allowance were $
A summary of the amounts of the Company's financial instruments with off-balance sheet risk are shown below at
December 31, 2024 and 2023 (in thousands):
2024
2023
Commitments to grant loans and unfunded lines of credit
$
$
Standby and commercial letters of credit
Total
$
$
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.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
113 USCB Financial Holdings, Inc. 2024 10-K
Unfunded lines of credit and revolving credit lines are commitments for possible future extensions of credit to existing
customers. These lines of credit are uncollateralized and usually do not contain a specified maturity date and ultimately may
not be drawn upon to the total extent to which the Company is committed.
Standby and commercial letters of credit are conditional commitments issued by the Company to guarantee the
performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing
arrangements. Essentially all letters of credit have fixed maturity dates and many of them expire without being drawn upon,
they do not generally present a significant liquidity risk to the Company.
11. DERIVATIVES
The Company utilizes interest rate swap agreements as part of its asset-liability management strategy to help manage
its interest rate risk position. The notional amount of the interest rate swaps do not represent amounts exchanged by the
parties. The amounts exchanged are determined by reference to the notional amount and the other terms of the individual
interest rate swap agreements.
Rate Swaps Designated as Cash Flow Hedges
As of December 31, 2024, the Company had
$
average maturity of
%, with the weighted average 3-month
compound SOFR (Secured Overnight Financing Rate) being received.
As of December 31, 2023, the Company had
$
average maturity of
%, with the weighted average 3-month
compound SOFR (Secured Overnight Financing Rate) being received.
The changes in fair value on these interest rate swaps are recorded in other assets or other liabilities with a
corresponding recognition in other comprehensive income (loss) and subsequently reclassified to earnings when gains or
losses are realized.
Interest Rate Swaps Designated as Fair Value Hedges
During the third quarter in 2024, the Company unwound
amount of $
liability management strategies. The early termination fee to unwind the fair value swaps totaled $
fees allocated to each loan category will be amortized over the remining life of the hedge loans on a monthly straight-line
basis with full recognition of the unamortized cost upon the early payoff of the hedge loan. The amortization of the
termination fee is reflected in the loan interest income line in the Company’s Consolidated Statement of Operations. The
original maturities of these fair value interest swaps were between 2025 and 2026. The fair value interest rate swap
agreements had an average maturity of
As of December 31, 2023, the Company had
amount of $
average maturity of
%, with the weighted average 3-month
compound SOFR being received
The changes in fair value on these interest rate swaps are recorded in other assets or other liabilities with a
corresponding recognition in the assets being hedged.
Interest Rate Swaps
The Company also enters into interest rate swaps with its loan customers. The Company had
swaps with loan customers with a notional aggregate amount of $
2023, respectively. These interest rate swaps have maturity dates of between 2025 and 2051. The Company entered into
corresponding and offsetting derivatives with third parties. The fair value of liability on these derivatives requires the
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
114 USCB Financial Holdings, Inc. 2024 10-K
Company to provide the counterparty with funds to be held as collateral which the Company reports as other assets under
the Consolidated Balance Sheets. While these derivatives represent economic hedges, they do not qualify as hedges for
accounting purposes.
The following table reflects the Company’s customer related interest rate swaps at the dates indicated (in thousands):
Fair Value
Notional
Amount
Collateral
Amount
Balance Sheet Location
Asset
Liability
December 31, 2024:
Derivatives Designated as Cash Flow Hedges
Interest rate swaps
$
$
-
Other assets
$
$
-
Derivatives not designated as hedging instruments:
Interest rate swaps related to customer loans
$
$
Other assets/Other liabilities
$
$
December 31, 2023:
Derivatives Designated as Cash Flow Hedges
Interest rate swaps
$
$
-
Other assets
$
$
-
Derivatives Designated as Fair Value Hedges
Interest rate swaps
$
$
-
Other liabilities
$
-
$
Derivatives not designated as hedging instruments:
Interest rate swaps related to customer loans
$
$
Other assets/Other liabilities
$
$
12. FAIR VALUE MEASUREMENTS
Determination of Fair Value
The Company uses fair value measurements to record fair-value adjustments to certain assets and liabilities and to
determine fair value disclosures. In accordance with the fair value measurements accounting guidance, the fair value of a
financial instrument is 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. Fair value is best determined based upon quoted market prices.
However, in many instances, there are no quoted market prices for the Company's various financial instruments. In cases
where quoted market prices are not available, fair values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates
of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction
(that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current
market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a
change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining
the price at which willing market participants would transact at the measurement date under current market conditions
depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point
within the range that is most representative of fair value under current market conditions.
Fair Value Hierarchy
In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured
at fair value in three levels, based on the markets in which the assets and liabilities are traded, and the reliability of the
assumptions used to determine fair value.
Level 1
entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and
equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing
sources for market transactions involving identical assets or liabilities.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
115 USCB Financial Holdings, Inc. 2024 10-K
Level 2
asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the asset or liability.
Level 3
significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments
whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as
well as instruments for which determination of fair value requires significant management judgment or estimation.
A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is
significant to the fair value measurement.
Items Measured at Fair Value on a Recurring Basis
Investment securities:
such securities, management generally relies on prices obtained from independent vendors or third-party broker -dealers.
Management reviews pricing methodologies provided by the vendors and third-party broker-dealers in order to determine if
observable market information is being utilized. Securities measured with pricing provided by independent vendors or third-
party broker-dealers are classified within Level 2 of the hierarchy and often involve using quoted market prices for similar
securities, pricing models or discounted cash flow analyses utilizing inputs observable in the market where available.
Derivatives:
classified within Level 2 of the hierarchy.
The following table represents the Company's assets and liabilities measured at fair value on a recurring basis at
December 31, 2024 and 2023 for each of the fair value hierarchy levels (in thousands):
2024
2023
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Investment securities available for sale:
U.S. Government Agency
$
-
$
$
-
$
$
-
$
$
-
$
Collateralized mortgage obligations
-
-
-
-
Mortgage-backed securities - residential
-
-
-
-
Mortgage-backed securities - commercial
-
-
-
-
Municipal securities
-
-
-
-
Bank subordinated debt securities
-
-
-
-
Total
-
-
-
-
Derivative assets
-
-
-
-
Total assets at fair value
$
-
$
$
-
$
$
-
$
$
-
$
Derivative liabilities
$
-
$
$
-
$
$
-
$
$
-
$
Total liabilities at fair value
$
-
$
$
-
$
$
-
$
$
-
$
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
116 USCB Financial Holdings, Inc. 2024 10-K
Items Not Measured at Fair Value
The following table presents the carrying amounts and estimated fair values of financial instruments not carried at fair
value, at December 31, 2024 and 2023 are as follows (in thousands):
Fair Value Hierarchy
Carrying
Amount
Level 1
Level 2
Level 3
Fair Value
Amount
December 31, 2024:
Financial Assets:
Cash and due from banks
$
$
$
-
$
-
$
Interest-bearing deposits in banks
$
$
$
-
$
-
$
Investment securities held to maturity, net
$
$
-
$
$
-
$
Loans held for investment, net
$
$
-
$
-
$
$
Accrued interest receivable
$
$
-
$
$
$
Financial Liabilities:
Demand Deposits
$
$
$
-
$
-
$
Money market and savings accounts
$
$
$
-
$
-
$
Interest-bearing checking accounts
$
$
$
-
$
-
$
Time deposits
$
$
-
$
-
$
$
FHLB advances
$
$
-
$
$
-
$
Accrued interest payable
$
$
-
$
$
$
December 31, 2023:
Financial Assets:
Cash and due from banks
$
$
$
-
$
-
$
Interest-bearing deposits in banks
$
$
$
-
$
-
$
Investment securities held to maturity, net
$
$
-
$
$
-
$
Loans held for investment, net
$
$
-
$
-
$
$
Accrued interest receivable
$
$
-
$
$
$
Financial Liabilities:
Demand Deposits
$
$
$
-
$
-
$
Money market and savings accounts
$
$
$
-
$
-
$
Interest-bearing checking accounts
$
$
$
-
$
-
$
Time deposits
$
$
-
$
-
$
$
FHLB advances
$
$
-
$
$
-
$
Accrued interest payable
$
$
-
$
$
$
Collateral Dependent Loans Measured for Expected Credit Losses:
Fair values of collateral-dependent yacht loans
and real estate loans are based on recent boat and real estate appraisals less estimated costs of sale, repossession, and/or
holding costs. Appraisals are made by a third party, and its evaluation may use either a comparative sales, cost and/or
income approach or a combination of methodologies.
The fair value of collateral dependent loans considered Level 3 in the fair value hierarchy was $
reserve of $
13. STOCKHOLDERS’ EQUITY
Common Stock
In July 2021, the Bank completed the initial public offering of its Class A common stock, in which it issued and sold
million after deducting underwriting discounts and expenses.
In December 2021, the Company acquired all the issued and outstanding shares of the Class A common stock of the
Bank, which at the time were the only issued and outstanding shares of the Bank’s capital stock, in a share exchange (the
“Reorganization”) effected under the Florida Business Corporation Act. Each outstanding share of the Bank’s Class A
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
117 USCB Financial Holdings, Inc. 2024 10-K
common stock, par value $
newly issued share of the Company’s Class A common stock, par value $
Company’s wholly owned subsidiary.
In the Reorganization, each shareholder of the Bank received securities of the same class, having substantially the
same designations, rights, powers, preferences, qualifications, limitations and restrictions, as those that the shareholder
held in the Bank, and the Company’s then current shareholders owned the same percentages of the Company’s common
stock as they previously owned of the Bank’s common stock.
In 2024, the Company issued
awards pursuant to the Company's 2015 Option Plan.
In 2023, the Company issued
awards pursuant to the Company's 2015 Option Plan.
As previously announced, on April 22, 2024, the Board of Directors approved a new share repurchase program of up
to
% of the Company’s issued and outstanding shares of
common stock. Under the repurchase program, the Company may purchase shares of Class A common stock on a
discretionary basis from time to time through open market repurchases, privately negotiated transactions, or other means.
The repurchase program has no expiration date and may be modified, suspended, or terminated at any time. The new
repurchase program will commence upon completion of the Company’s current repurchase program. Repurchases under
this new program will be funded from the Company’s existing cash and cash equivalents or future cash flow.
During the year ended December 31, 2024, the Company repurchased
weighted average price per share of $
. The aggregate purchase price for these transactions was approximately $
thousand, including transaction costs. As of December 31, 2024,
the Company’s two stock repurchase programs.
During the year ended December 31, 2023, the Company repurchased
weighted average price per share of $
. The aggregate purchase price for these transactions was approximately $
million, including transaction costs. As of December 31, 2023,
Company’s first stock repurchase program.
Shares of the Company’s Class A common stock issued and outstanding as of December 31, 2024 and December 31,
2023 were
, respectively.
Dividends
Declaration of dividends by the Board is required before dividend payments are made. The Company is limited in the
amount of cash dividends that it may pay. Payment of dividends is generally limited to the Company’s net income of the
current year combined with the Company’s retained income for the preceding two years, as defined by state banking
regulations. However, for any dividend declaration, the Company must consider additional factors such as the amount of
current period net income, liquidity, asset quality, capital adequacy and economic conditions at the Bank since the Bank is
the primary source of funds to fund dividends by the Company. It is likely that these factors would further limit the amount
of dividends which the Company could declare. In addition, bank regulators have the authority to prohibit banks and bank
holding companies from paying dividends if they deem such payment to be an unsafe or unsound practice.
As of December 31, 2024, the Company was not subject to any formal supervisory restrictions on its ability to pay
dividends but has agreed to notify the Federal Reserve Bank of Atlanta in advance of any proposed dividend to the
Company's shareholders in light of the Bank's negative retained earnings. In addition, under applicable FDIC regulations
and policy, because the Bank has negative retained earnings, it must obtain the prior approval of the FDIC before effecting
a cash dividend or other capital distribution.
On January 29, 2024, the Company announced that its Board of Directors approved a quarterly cash dividend program.
The quarterly dividend for all quarters in 2024 was $
connection with dividend payments paid during the year ended December 31, 2024 was $
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
118 USCB Financial Holdings, Inc. 2024 10-K
Declaration Date
Record Date
Payment Date
Dividend Per Share
Dividend Amount
$
$
$
$
$
$
$
$
See Note 20, “Subsequent Events”, for information regarding dividends declared in January 2025.
The Company and the Bank exceeded all regulatory capital requirements and remained above “well-capitalized”
guidelines as of December 31, 2024 and December 31, 2023. At December 31, 2024, the total risk-based capital ratios for
the Company and the Bank were
% and
%, respectively.
14. EARNINGS PER SHARE
Earnings per share (“EPS”) for common stock is calculated using the two-class method required for participating
securities. Basic EPS is calculated by dividing net income (loss) available to common stockholders by the weighted-average
number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted EPS is
computed by dividing net income (loss) available to common stockholders by the weighted-average number of common
shares outstanding for the period and the weighted-average number of dilutive common stock equivalents outstanding for
the period determined using the treasury-stock method. For purposes of this calculation, common stock equivalents include
common stock options and are only included in the calculation of diluted EPS when their effect is dilutive.
The following table reflects the calculation of net income available to common stockholders for the years ended
December 31, 2024 and 2023 (in thousands):
2024
2023
Net Income
$
$
Net income available to common stockholders
$
$
The following table reflects the calculation of basic and diluted earnings per common share class for the years ended
December 31, 2024 and 2023 (in thousands, except per share amounts):
2024
2023
Class A
Class A
Basic EPS
Numerator:
Net income available to common shares
$
$
Denominator:
Weighted average shares outstanding
Earnings per share, basic
$
$
Diluted EPS
Numerator:
Net income available to common shares
$
$
Denominator:
Weighted average shares outstanding for basic EPS
Add: Dilutive effects of assumed exercises of stock options
Weighted avg. shares including dilutive potential common shares
Earnings per share, diluted
$
$
Anti-dilutive stock options excluded from diluted EPS
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.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
119 USCB Financial Holdings, Inc. 2024 10-K
15. REGULATORY MATTERS
Banks and bank holding companies are subject to regulatory capital requirements administered by federal and state
banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's Consolidated
Financial Statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the
Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities,
and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s and the Bank’s
capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Based on changes to the Federal Reserve’s definition of a “Small Bank Holding Company” that increased the threshold
to $3.0 billion in assets in August 2018, the Company is not currently subject to separate minimum capital measurements.
At such time when the Company reaches the $3.0 billion asset level, it will be subject to capital measurements independent
of the Bank.
The Bank elected to permanently opt-out of the inclusion of accumulated other comprehensive income in the capital
calculations, as permitted by the regulations. This opt-out reduces the impact of market volatility on the Bank’s regulatory
capital levels.
The Bank is subject to the rules of the Basel III regulatory capital framework and related Dodd-Frank Wall Street Reform
and Consumer Protection Act. The rules include the implementation of a
% capital conservation buffer that is added to
the minimum requirements for capital adequacy purposes. Failure to maintain the required capital conservation buffer will
limit the ability of the Bank to pay dividends, repurchase shares or pay discretionary bonuses. At December 31, 2024 and
2023, the capital ratios for the Bank were sufficient to meet the conservation buffer.
Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to
represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits.
If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are
required.
At December 31, 2024 and 2023, the most recent notification from the regulatory authorities categorized the Bank as
well capitalized under the regulatory framework for prompt corrective action. Failure to meet statutorily mandated capital
guidelines could subject the Bank to a variety of enforcement remedies, including issuance of a capital directive, the
termination of deposit insurance by the FDIC, a prohibition on accepting or renewing brokered deposits, limitations on the
rates of interest that the Bank may pay on its deposits and other restrictions on its business. To be categorized as well
capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth
in the table below. There are no conditions or events since the notification that management believes have changed the
Bank’s category.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
120 USCB Financial Holdings, Inc. 2024 10-K
Actual and required capital amounts and ratios are presented below for the Bank at December 31, 2024 and 2023 (in
thousands, except ratios). The required amounts for capital adequacy shown do not include the capital conservation buffer
previously discussed.
Actual
Minimum Capital
Requirements
To be Well Capitalized
Under Prompt Corrective
Action Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
December 31, 2024:
Total risk-based capital:
$
%
$
%
$
%
Tier 1 risk-based capital:
$
%
$
%
$
%
Common equity tier 1 capital:
$
%
$
%
$
%
Leverage ratio:
$
%
$
%
$
%
December 31, 2023:
Total risk-based capital:
$
%
$
%
$
%
Tier 1 risk-based capital:
$
%
$
%
$
%
Common equity tier 1 capital:
$
%
$
%
$
%
Leverage ratio:
$
%
$
%
$
%
The Company is limited in the amount of cash dividends that it may pay. Payment of dividends is generally limited to
the Company’s net income for the current year combined with the Company’s retained income for the preceding two years,
as defined by state banking regulations. However, for any dividend declaration, the Company must consider additional
factors such as the amount of current period net income, liquidity, asset quality, capital adequacy and economic conditions
at the Bank. It is likely that these factors would further limit the amount of dividends which the Company could declare. In
addition, bank regulators have the authority to prohibit banks from paying dividends including dividends to their parent
holding company, if they deem such payment to be an unsafe or unsound practice.
16. RELATED PARTY TRANSACTIONS
In the ordinary course of business, principal officers, directors, and affiliates may engage in transactions with the
Company. The following table presents loans to and deposits from related parties included within the accompanying
Consolidated Financial Statements at December 31, 2024 and 2023 (in thousands):
Years Ended December 31,
2024
2023
Consolidated Balance Sheets:
Loans held for investment, net
$
-
$
-
Deposits
$
$
Consolidated Statements of Operations:
Interest income
$
$
Interest expense
$
$
Loan Purchases
During 2024, the Bank purchased $
paid those entities fees of $
During 2023, the Bank purchased $
paid those entities fees of $
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
121 USCB Financial Holdings, Inc. 2024 10-K
17. PARENT COMPANY CONDENSED FINANCIAL INFORMATION
In December 2021, USCB Financial Holdings, Inc. was formed as the parent bank holding company of U.S. Century
Bank. The condensed balance sheet is presented below for USCB Financial Holdings, Inc. at the dates indicated (in
thousands):
December 31, 2024
December 31, 2023
ASSETS:
Cash and Cash Equivalents
$
$
Investment in bank subsidiary
Other assets
Total assets
$
$
LIABILITIES AND STOCKHOLDERS' EQUITY:
Other liabilities
$
-
$
-
Stockholders' equity
Total liabilities and stockholders' equity
$
$
The condensed income statement is presented below for USCB Financial Holdings, Inc. for the periods indicated (in
thousands):
Years Ended
December 31, 2024
December 31, 2023
INCOME:
Dividends from subsidiaries
$
$
Total
EXPENSE:
Employee compensation and benefits
Other operating
Total
Income before income taxes and undistributed subsidiary income
Benefit from income taxes
(684 )
(715 )
Equity in undisbursed subsidiary income
Net Income
$
$
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
122 USCB Financial Holdings, Inc. 2024 10-K
The condensed cash flow is presented below for USCB Financial Holdings, Inc. for the periods indicated (in thousands):
Years Ended
December 31, 2024
December 31, 2023
Cash flows from operating activities:
Net income
$
$
Adjustments to reconcile net income to net cash provided by operating
activities:
Equity in undistributed earnings of subsidiaries
(21,689 )
(7,551 )
Stock-based compensation
Increase in deferred tax asset
(684 )
(715 )
Net cash provided by operating activities
Cash flows from investing activities:
Capital contributions to subsidiary
-
-
Other
-
-
Net cash used in investing activities
-
-
Cash flows from financing activities:
Dividends paid
(3,939 )
-
Proceeds from exercise of stock options
Repurchase of common stock
(501 )
(7,583 )
Net cash (used in) provided by financing activities
(3,121 )
(7,508 )
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
$
$
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
123 USCB Financial Holdings, Inc. 2024 10-K
18. SEGMENT REPORTING
Operating segments are components of an enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker (“CODM”) in assessing performance and in deciding how to
allocate resources. The Company’s CODM is the President, Chief Executive Officer, and Chairman.
The Company through the Bank, its sole direct subsidiary, operates
wide range of personal and business banking products and services, and through a subsidiary of the Bank, offers clients
title insurance policies for real estate transactions closed at the Bank. The Company’s business activities are similar in their
nature, operations and economic characteristics, largely serving commercial and specialty banking clients with products
and services that are offered through similar processes and platforms. Accounting policies for the products and services
referenced here are the same as those described in Note 1, “Summary of Significant Accounting Policies”. The Company’s
segment revenue is driven primarily by interest income on loans as well as fee income from the origination of loans and
from fees charged on loans and deposit accounts. Lending activities include loans to individuals, which primarily consist of
home equity lines of credit, residential real estate loans, yacht loans, and consumer loans, and loans to commercial clients,
which include commercial and industrial loans, commercial real estate loans, residential real estate loans, correspondent
banking loans, and letters of credit.
The CODM regularly reviews consolidated income and expenses, as presented on the Consolidated Statements of
Operations, in addition to consolidated assets presented on the Consolidated Balance Sheets. The significant segment
expenses that the CODM receives regularly are interest expense, provision for credit losses, salaries and wages, employee
benefits, and occupancy. The CODM evaluates the performance of the segment and allocates resources based on net
income that is also reported on the Consolidated Statements of Operations as consolidated net income to maximize
shareholder value . Additionally, consolidated internal financial information is used by the CODM to monitor credit quality
and credit loss expense. Furthermore, net income, as the measure of profit or loss, is used to monitor budget versus actual
results and to perform competitive analyses that benchmark the Company to competitors. As a result, the Company has
determined that it has only one reportable segment.
19. LOSS CONTINGENCIES
Loss contingencies, including claims and legal actions may arise in the ordinary course of business. In the opinion of
management, none of these actions, either individually or in the aggregate, is expected to have a material adverse effect
on the Company’s Consolidated Financial Statements.
20. SUBSEQUENT EVENTS
Dividends
On January 21, 2025, the Company’s Board of Directors declared a quarterly cash dividend of $
A common stock, to be paid on March 5, 2025, to stockholders of record as of the close of business on February 14, 2025.
BOLI
In January 2025, the Company acquired a bank owned life insurance policy with a cash surrender value of $
dollars.
Liquidity
In January 2025, the Company entered into an agreement in connection with a $
uncommitted facility with another insured depository institution.
In February 2025, the Company entered into an agreement in connection with a $
uncommitted facility with another insured depository institution.
As of February 28, 2025 there are
124 USCB Financial Holdings, Inc. 2024 10-K
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief
Financial Officer, we evaluated the effectiveness of the design and operation of the Company’s disclosure controls and
procedures as of December 31, 2024. Based on that evaluation, management believes that the Company’s disclosure
controls and procedures were effective to collect, process, and disclose the information required to be disclosed in the
reports filed or submitted under the Exchange Act within the required time periods as of the end of the period covered by
this Annual Report on Form 10-K.
This annual report does not include an integrated audit report of the Company's registered public accounting firm
regarding internal control over financial reporting. Management's report was not subject to audit by the Company's
registered public accounting firm pursuant to the rules of the SEC that permit the Company, as an emerging growth company
to provide only management's report in this annual report.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for designing, implementing, documenting, and maintaining an adequate system of internal
control over financial reporting, as such term is defined in the Exchange Act. An adequate system of internal control over
financial reporting encompasses the processes and procedures that have been established by management to:
• maintain records that accurately reflect the Company’s transactions;
• prepare financial statement and footnote disclosures in accordance with U.S. GAAP that can be relied upon by
external users; and
• prevent and detect unauthorized acquisition, use or disposition of the Company's assets that could have a material
effect on the financial statements.
Management conducted an evaluation of the effectiveness of the Company's internal control over financial reporting
based on the criteria in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Based on this evaluation under the criteria in Internal Control-Integrated Framework,
management concluded that internal control over financial reporting was effective as of December 31, 2024. Furthermore,
during the conduct of its assessment, management identified no material weakness in its financial reporting control system.
The Board of the Company, through its Audit Committee, provides oversight to management’s conduct of the financial
reporting process. The Audit Committee, which is composed entirely of independent directors, is also responsible for the
appointment of the independent registered public accounting firm. The Audit Committee also meets with management, the
internal audit staff, and the company’s independent registered public accounting firm throughout the year to provide
assurance as to the adequacy of the financial reporting process and to monitor the overall scope of the work performed by
the internal audit staff and the independent registered public accounting firm.
Because of its inherent limitations, the disclosure controls and procedures may not prevent or detect misstatements. A
control system, no matter how well conceived and operated, can only provide reasonable, not absolute, assurance that the
objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. 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.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
Item 9B. Other Information
(a)
125 USCB Financial Holdings, Inc. 2024 10-K
(b)
officers
such terms are defined in Item 408 of the SEC’s Regulation S-K).
Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections
Not applicable.
126 USCB Financial Holdings, Inc. 2024 10-K
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required herein is incorporated by reference from the sections captioned “Information with Respect to
Nominees for Director and Information About Executive Officers” and “Beneficial Ownership of Common Stock by Certain
Beneficial Owners and Management – Delinquent Section 16(a) Reports” in the Company’s Definitive Proxy Statement for
the Annual Meeting of Shareholders currently expected to be held on May 27, 2025, is expected to be filed with the SEC
within 120 days of December 31, 2024 (“2025 Definitive Proxy Statement”).
The Company has adopted a code of ethics and business conduct policy, which applies to all of its directors, officers,
including its principal executive officer, principal financial officer, principal accounting officer, and employees generally. The
Company will provide a copy of its code of ethics to any person, free of charge, upon request. Any requests for a copy
should be made to the Corporate Secretary, USCB Financial Holdings, Inc., 2301 N.W. 87th Avenue, Doral, Florida. In
addition, a copy of the Code of Ethics is available at the Company’s website at www.uscentury.com under the “Investor
Relations” tab.
There have been no material changes to the procedures by which shareholders may recommend nominees to the
Company’s Board.
Item 11. Executive Compensation
The information required herein is incorporated by reference from the sections captioned "Executive Compensation"
and “Information with Respect to Nominees for Director and Information About Executive Officers – Corporate Governance
Principles and Board Matters” and “- Director Compensation” in the Company’s 2025 Definitive Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Equity compensation Plan information
. The following table provide information as of December 31, 2024 with
respect to shares of common stock that may be issued under our existing equity compensation plans, which consists of
2015 Equity Incentive Plan (the “2015 Option Plan”) which was approved by our shareholders.
Per Category
Number of
securities issued
or to be upon
exercise of
outstanding
options, warrants
and rights
(a) (1)
Weighted-average
exercise price of
outstanding
options, warrants
and rights
(b) (1)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
(c)
Equity compensation plans approved by security holders
1,127,243
$
10.86
966,436
Equity compensation plans not approved by security holders
-
-
-
Total
1,127,243
$
10.86
966,436
(1)
weighted average exercise price excludes such restricted stock awards.
Security Ownership of Certain Beneficial Owners and Management
. Information regarding security ownership
of certain beneficial owners and management is incorporated by reference to “Beneficial Ownership of Common Stock by
Certain Beneficial Owners and Management” in the 2025 Definitive Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required herein is incorporated by reference from the sections captioned “Certain Relationships and
Related Party Transactions” and “Information with Respect to Nominees for Director and Information About Executive
Officers” in the 2025 Definitive Proxy Statement.
Item 14. Principal Accountant Fees and Services
The information required herein is incorporated by reference from the section captioned “Ratification of
Appointment of Independent Registered Public Accounting Firm (Proposal Two) – Audit Fees” in the 2025 Definitive Proxy
Statement.
127 USCB Financial Holdings, Inc. 2024 10-K
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)
1)
Financial Statements:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2024 and 2023
Consolidated Statements of Operations for the years ended December 31, 2024 and 2023
Consolidated Statements of Comprehensive Income for the years ended December 31, 2024 and 2023
Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2024 and 2023
Consolidated Statements of Cash Flows for the years ended December 31, 2024 and 2023
Notes to Consolidated Financial Statements
2)
Financial Statement Schedules:
Financial statement schedules are omitted as not required or not applicable or because the information is
included in the Consolidated Financial Statements or notes thereto.
(b)
The exhibit list in the Exhibit Index is incorporated herein by reference as the list of exhibits required as part of
this Annual Report on Form 10-K.
128 USCB Financial Holdings, Inc. 2024 10-K
EXHIBIT INDEX
Exhibit
Number
Description of Exhibit
**
**
**
**
***
***
101
The following financial statements from the Company’s Annual Report on Form 10-K for the year ended December 31, 2021,
formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated
Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated
Statements of Cash Flows, (vi) Notes to Consolidated Financial Statements.
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*
Management contract or compensatory plan or arrangement.
**
Filed herewith.
***
Furnished hereby.
130 USCB Financial Holdings, Inc. 2024 10-K
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
USCB FINANCIAL HOLDINGS, INC.
Date: March 14, 2025
By:
/s/ Luis de la Aguilera
Luis de la Aguilera
President, Chief Executive Officer, and Chairman
Pursuant to the requirements of the Exchange Ac, this report has been signed by the following persons in the capacities
and on the dates indicated.
Signature
Title
Date
/s/ Luis de la Aguilera
Chairman, President, and Chief Executive
Officer (Principal Executive Officer)
March 14, 2025
Luis de la Aguilera
/s/ Robert Anderson
Chief Financial Officer (Principal Financial
Officer and Principal Accounting Officer)
March 14, 2025
Robert Anderson
/s/ Aida Levitan
Director
March 14, 2025
Aida Levitan
/s/ Howard Feinglass
Director
March 14, 2025
Howard Feinglass
/s/ Kirk Wycoff
Director
March 14, 2025
Kirk Wycoff
/s/ Ramon A. Abadin
Director
March 14, 2025
Ramon A. Abadin
/s/ Bernardo B. Fernandez
Director
March 14, 2025
Bernardo B. Fernandez
/s/ Ramon A. Rodriguez
Director
March 14, 2025
Ramon A. Rodriguez
/s/ Maria C. Alonso
Director
March 14, 2025
Maria C. Alonso
/s/ Robert E. Kafafian
Director
March 14, 2025
Robert E. Kafafian