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What changed in USCB FINANCIAL HOLDINGS, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of USCB FINANCIAL HOLDINGS, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+493 added−430 removedSource: 10-K (2024-03-22) vs 10-K (2023-03-24)

Top changes in USCB FINANCIAL HOLDINGS, INC.'s 2023 10-K

493 paragraphs added · 430 removed · 328 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

98 edited+66 added−22 removed109 unchanged
Biggest changeOur deposit operations are also subject to federal laws, such as: • the FDIA, which, among other things, limits the amount of deposit insurance available per account to $250,000 and imposes other limits on deposit-taking; • the Right to Financial Privacy Act, which imposes a duty to maintain the confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; • the Electronic Funds Transfer Act and Regulation E, which governs automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of ATMs and other electronic banking services; and Table of Contents 15 USCB Financial Holdings, Inc. 2022 10-K • the Truth in Savings Act and Regulation DD, which requires depository institutions to provide disclosures so that consumers can make meaningful comparisons about depository institutions and accounts.
Biggest changeOur deposit operations are also subject to federal laws, such as: • the FDIA, which, among other things, limits the amount of deposit insurance available per account to $250,000 and imposes other limits on deposit-taking; • the Right to Financial Privacy Act, which imposes a duty to maintain the confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; • Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check; • the Electronic Funds Transfer Act and Regulation E, which governs automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of ATMs and other electronic banking services; and • the Truth in Savings Act and Regulation DD, which requires depository institutions to provide disclosures so that consumers can make meaningful comparisons about depository institutions and accounts.
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.
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.
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 billion in average total consolidated assets.
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.
Changes in the discount rate on member bank borrowing, availability of borrowing at the “discount 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 Board.
Changes in the discount rate on member bank borrowing, availability of borrowing at the “discount 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 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.
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.
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 payments will be limited or prohibited based on the size of the institution’s conservation buffer.
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.
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 our Bank and Company.
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.
Notice and Approval Requirements Related to Control Banking laws impose notice, approval, and ongoing regulatory requirements on any shareholder or other party 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.
Notice and Approval Requirements Related to Control Banking laws impose notice, approval, and ongoing regulatory requirements on any shareholder or other party 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.
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 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 June 2010, the federal banking agencies jointly adopted the Guidance on Sound Incentive Compensation Policies, or GSICP. The GSICP intended to ensure that banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking.
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.
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 Board to be so closely related to banking as to be a proper incident thereto.
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 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 percent for 2023.
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.
Federal Reserve System and Federal Home Loan Bank System We are a member of the 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.
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.
Our loan operations are also subject to federal laws applicable to credit transactions, such as: • the Truth-In-Lending Act, or TILA, and Regulation Z, governing disclosures of credit and servicing terms to consumer borrowers and including substantial new requirements for mortgage lending and servicing, as mandated by the Dodd-Frank Act • the Home Mortgage Disclosure Act of 1975 and Regulation C, requiring financial institutions to provide information 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; • the Equal Credit Opportunity Act and Regulation B, prohibiting discrimination on the basis of race, color, religion, or other prohibited factors in extending credit; • the Fair Credit Reporting Act of 1978, as amended by the Fair and Accurate Credit Transactions Act, and Regulation 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; • the Fair Debt Collection Practices Act and Regulation F, governing the manner in which consumer debts may be collected by collection agencies; and • the Real Estate Settlement Procedures Act, or RESPA, and Regulation X, which governs aspects of the settlement process for residential mortgage loans.
Our loan operations are also subject to federal laws applicable to credit transactions, such as: • the Truth-In-Lending Act (“TILA”), and Regulation Z, governing disclosures of credit and servicing terms to consumer borrowers and including substantial new requirements for mortgage lending and servicing, as mandated by the Dodd-Frank Act • the Home Mortgage Disclosure Act of 1975 and Regulation C, requiring financial institutions to provide information 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; • the Equal Credit Opportunity Act and Regulation B, prohibiting discrimination on the basis of race, color, religion, or other prohibited factors in extending credit; • the Fair Credit Reporting Act of 1978, as amended by the Fair and Accurate Credit Transactions Act, and Regulation 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; • the Fair Debt Collection Practices Act and Regulation F, governing the manner in which consumer debts may be collected by collection agencies; and • the Real Estate Settlement Procedures Act, (“RESPA”), and Regulation X, which governs aspects of the settlement process for residential mortgage loans.
Century Bank, a Florida state-chartered bank (the “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”).
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”).
Bank and Bank Holding Company Regulation As a Florida 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”).
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”).
In addition, our deposit accounts are insured by the Deposit Insurance Fund administered by the FDIC to the maximum extent permitted by law, and the FDIC has certain supervisory and enforcement powers over us.
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.
As of December 31, 2022, the Bank is 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: Our yacht lending vertical provides yacht financing for larger vessels, transactions range from $750 thousand to $7.5 million.
As of December 31, 2023, the Bank is 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: Our yacht lending vertical provides yacht financing for larger vessels; transactions range from $750 thousand to $7.5 million.
As a general matter, a party is deemed to control a depository institution or other company if the party owns or controls 25% or more of any class of voting stock.
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.
The monetary policies of the Federal Reserve Board have had a significant effect on the operating results of commercial banks and are expected to continue to do so in the future.
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.
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 elsewhere in this Form 10-K and will not be required to report or calculate risk-based capital.
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.
We have further leveraged our success in Table of Contents 5 USCB Financial Holdings, Inc. 2022 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.
We have further leveraged our success in Table of Contents 5 USCB Financial Holdings, Inc. 2023 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.
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 Board.
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.
Among other things, these laws require regulatory filings by individuals or companies 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.
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.
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: Our Jurist Advantage and Private Client Group vertical provides customized banking solutions for law firms as well as their partners, assoc iates, staff, and high net worth clients.
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: Our Jurist Advantage and Private Client Group vertical provides customized banking solutions for law firms as well as their partners, associates, staff, and high net worth clients.
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’s determined that the institution is in an unsafe or unsound condition or is engaging in an unsafe or unsound practice.
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.
This statutory provision is commonly called the “Volcker Rule.” At December 31, 2022, we are not subject to the Volcker Rule because of our asset size, which is below the $10.0 billion Volcker Rule threshold.
This statutory provision is commonly called the “Volcker Rule.” At December 31, 2023, we are not subject to the Volcker Rule because of our asset size, which is below the $10.0 billion Volcker Rule threshold.
On September 17, 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.
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 CRA further requires the agencies to take into account our record of meeting Table of Contents 16 USCB Financial Holdings, Inc. 2022 10-K 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.
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 Table of Contents 18 USCB Financial Holdings, Inc. 2023 10-K subject to analogous state CRA requirements in Florida and certain other states in which we may establish branch offices.
Any entity that directly or indirectly controls a bank must be approved by the Federal Reserve Board under the Bank Holding Company Act of 1956 (the “BHC Act”) to become a bank holding company. BHCs are subject to regulation, inspection, examination, supervision and enforcement by the Federal Reserve Board under the BHC Act.
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 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, or, AOCI, for regulatory capital purposes.
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.
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. On May 11, 2018, the U.S.
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.
In October 2022, the FDIC finalized a rule that will increase 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).
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 Federal Reserve Board’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.
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.
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 March 2020, U.S.
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 October 2022, U.S.
See Note 15 “Regulatory Matters” of the Consolidated Financial Statements included in this Annual Report 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.
See Note 15 “Regulatory Matters” of the Consolidated Financial Statements included in Item 8 of this 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.
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 the Bank.
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.
Recent laws, such as the USA PATRIOT Act, enacted in 2001 and renewed through 2019, 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.
Recent 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.
The USA PATRIOT Act requires banks to establish anti-money laundering programs that include, at a minimum: • a bank compliance program that contains internal policies, procedures and controls designed to implement and 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; • a designated compliance officer; • employee training for bank employees; • an independent audit function to test the efficacy of the bank’s anti-money laundering program; • procedures to verify the identity of each bank customer upon the opening of accounts; • heightened due diligence policies, procedures and controls applicable to certain foreign accounts and relationships; and Table of Contents 14 USCB Financial Holdings, Inc. 2022 10-K • required reports to law enforcement and/or financial regulators to assist in the deterrence and prevention of money laundering activities.
The USA PATRIOT Act requires banks to establish anti-money laundering programs that include, at a minimum: • a bank compliance program that contains internal policies, procedures and controls designed to implement and 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; • a designated compliance officer; • employee training for bank employees; • an independent audit function to test the efficacy of the bank’s anti-money laundering program; • procedures to verify the identity of each bank customer upon the opening of accounts; • heightened due diligence policies, procedures and controls applicable to certain foreign accounts and relationships; and • required reports to law enforcement and/or financial regulators to assist in the deterrence and prevention of money laundering activities.
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. Table of Contents 18 USCB Financial Holdings, Inc. 2022 10-K
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. Table of Contents 20 USCB Financial Holdings, Inc. 2023 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 0.05% (or 5 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 $15 million), plus 4.25% of our outstanding advances (borrowings) from the FHLB of Atlanta under the activity-based stock ownership requirement.
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 $15 million), plus 4.75% of our outstanding advances (borrowings) from the FHLB of Atlanta under the activity-based stock ownership requirement.
As a result of the Reorg anization, 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 U.
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 CFPB has the authority to supervise and examine depository institutions with more than $10 billion in assets for compliance with federal consumer laws. The authority to supervise and examine depository institutions with $10 billion or less in assets, such as the Bank, for compliance with federal consumer laws remains largely with those institutions’ primary federal regulators.
The CFPB has the authority to supervise and examine depository institutions with more than $10 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.
The Federal Reserve Board's jurisdiction also extends to any company that is directly or indirectly controlled by a BHC. USCB Financial Holdings, Inc, which controls U.S. Century Bank, is a BHC and, as such, is subject to ongoing and comprehensive supervision, regulation, examination and enforcement by the Federal Reserve Board.
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.
As of December 31, 2022, our ratio of construction loans to total risk-based capital was 27%, and therefore, we were under the 100% threshold set forth in clause (iii) in the paragraph above.
As of December 31, 2023, our ratio of construction loans to total risk-based capital was 21%, and therefore, we were under the 100% threshold set forth in clause (iii) in the paragraph above.
The Company is headquartered in Miami, Florida, and, through the Bank, its sole subsidiary, operates 10 banking centers in South Florida providing a wide range of personal and business banking products and services. As of December 31, 2022, the Company had total consolidated assets of $2.1 billion.
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, 2023, the Company had total consolidated assets of $2.3 billion.
S. Securities and Exchange Commission (“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.
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.
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 Rule 326.8 and the Florida Control of Money Laundering and Terrorist Financing in Financial Institutions Act.
Table of Contents 15 USCB Financial Holdings, Inc. 2023 10-K 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 Rule 326.8 and the Florida Control of Money Laundering and Terrorist Financing in Financial Institutions Act.
Except under limited circumstances, BHCs are prohibited from acquiring, without prior approval, control of any other bank or BHC or substantially all the assets thereof or more than 5% of the voting shares of a bank or BHC which is not already a subsidiary.
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.
Prior the Effective Date, the Bank’s Class A common stock was registered under Section 12(b) of the Securities Exchange Act of 1934 (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 Federal Deposit Insurance Corporation (“FDIC”).
Prior to the Effective Date, the Bank’s Class A common stock was registered under Section 12(b) of the Securities Exchange Act of 1934 (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.
USCB Financial Holdings, Inc., is not a financial holding company. 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 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.
Although the Bank is a qualifying community banking organization, the 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, 2022 and 2021, the Bank qualified as a “well capitalized” institution.
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, 2023 and 2022, the U.S. Century Bank qualified as a “well capitalized” institution.
The regulatory framework is intended primarily for the protection of depositors, borrowers, customers and clients, the Federal Deposit Insurance Corporation (“FDIC”) insurance funds and the banking system as a whole, and not for the protection of our shareholders or creditors.
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.
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.
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 Table of Contents 19 USCB Financial Holdings, Inc. 2023 10-K business strategy, or limit our ability to pursue business opportunities in an efficient manner.
To address the commercial real estate lending concentration, USCB Financial Holdings 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.
To address the commercial real estate lending concentration, U.S. Century 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.
According to the 2020 United States Census Bureau, Florida was the third most populous state in the country and the three largest population centers were in Miami-Dade, Broward, and Palm Beach counties, all located in South Florida.
According to the United States Census Bureau’s estimate, Florida was the third most populous state in the country in 2023 and the three largest population centers were in Miami-Dade, Broward, and Palm Beach counties (all located in South Florida) in 2022.
In approving acquisitions or the addition of activities, the Federal Reserve Board 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.
In approving acquisitions or the addition of activities, the Federal Reserve considers, among other things, whether the acquisition or the additional activities can Table of Contents 10 USCB Financial Holdings, Inc. 2023 10-K 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.
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 institutions. The deposits are insured by the FDIC up to applicable limits.
Century 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 institutions. The deposits are insured by the FDIC up to applicable limits.
Century Bank received an overall rating of "Satisfactory." 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.
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.
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.
Specifically, incentive compensation Table of Contents 13 USCB Financial Holdings, Inc. 2023 10-K 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.
Table of Contents 13 USCB Financial Holdings, Inc. 2022 10-K 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.
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.
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.
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.
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.
An institution's risk classification is assigned based on its capital levels and the level of supervisory concern the institution poses to the regulators. Table of Contents 14 USCB Financial Holdings, Inc. 2023 10-K 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.
USA PATRIOT Act The USA PATRIOT Act became effective on October 26, 2001 and amended the BSA.
USA PATRIOT Act The USA PATRIOT Act became effective in October 2001 and amended the BSA.
The new assessment rate schedules will remain in effect unless and until the reserve ratio meets or exceeds 2 percent in order to support growth in the DIF in progressing toward the FDIC’s long-term goal of a 2 percent DRR.
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 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.
Table of Contents 16 USCB Financial Holdings, Inc. 2023 10-K 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.
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 billion in total consolidated assets, off-balance sheet exposures of 25% or less of total Table of Contents 10 USCB Financial Holdings, Inc. 2022 10-K consolidated assets, and trading assets and liabilities of 5% or less of total consolidated assets.
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 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.
According to estimates from the United States Census Bureau, from 2010 to 2021, Florida’s population increased to 21.8 million residents , an increase of 3.0 million new residents. The percentage change in Florida’s population between April 2020 and July 2021 alone was 1.1% according to the United States Census Bureau.
According to estimates from the United States Census Bureau, from 2020 to 2023, Florida’s population increased to 22.6 million residents, an increase of 1.0 million new residents. The percentage change in Florida’s population between April 2020 and July 2023 alone was 5.0% according to the United States Census Bureau.
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. Human Capital Resources We respect the values and diversity throughout our organization and the community.
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.
The FDIC, as required under the Federal Deposit Insurance Act, established a plan in September 2020 to restore the Deposit Insurance Fund (“DIF”) reserve ratio to meet or exceed the statutory minimum of 1.35 percent within eight years. This plan did not include an increase in the deposit insurance assessment rate.
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.
As of December 31, 2021, a depository institution was deemed to be "well capitalized" if the banking institution had a total risk-based capital ratio of 10.0% or greater, a tier 1 risk-based capital ratio of 8.0% or greater, a CET1 risk-based capital ratio of 6.5% and a leverage ratio of 5.0% or greater, and the institution was 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.
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.
However, with respect to clause (iv) in the paragraph above, as of December 31, 2022, our ratio of total commercial real estate loans to total risk-based capital was 390% and the outstanding balance of the institution’s commercial real estate portfolio increased by 50% or more in the prior 36 months.
However, with respect to clause (iv) in the paragraph above, as of December 31, 2023, our ratio of total commercial real estate loans to total risk-based capital was Table of Contents 12 USCB Financial Holdings, Inc. 2023 10-K 384% and the outstanding balance of the institution’s commercial real estate portfolio increased by 50% or more in the prior 36 months.
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 deposit products for municipalities and other public entities.
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 ICS and CDARS deposit products that are FDIC-insured for our clients.
Table of Contents 11 USCB Financial Holdings, Inc. 2022 10-K Payment of Dividends 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 statutory and regulatory restrictions that limit the amount available for such distribution depending upon earnings, financial condition and cash needs of the institution, as well as general business conditions.
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.
The federal banking agencies have also adopted guidelines establishing safety and soundness standards for all insured depository institutions including the Bank. The safety and soundness guidelines relate to, among other things, our internal controls, information systems, 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.
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.
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. A banking institution that is undercapitalized is required to submit a capital restoration plan.
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.
Progressively lower assessment rate schedules will take effect when the reserve ratio reaches 2 percent, and again when it reaches 2.5 percent. The revised assessment rate schedule will remain in effect unless and until the reserve ratio meets or exceeds 2 percent, absent further action by the FDIC.
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.
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 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.
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.
These guidelines describe the criteria regulatory agencies will use as indicators to identify institutions potentially exposed to commercial real estate concentration risk.
Our deposit products are mainly offered across our primary geographic footprint. 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 Department of Insurance Regulation, Florida Peninsula Title LLC began operations in 2021.
Furthermore, we offer deposit products for municipalities and other public entities. Our deposit products are mainly offered across our primary geographic footprint. 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.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeTable of Contents 19 USCB Financial Holdings, Inc. 2022 10-K • 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 and other risks. • We are subject to certain operational risks, such as fraud and data processing system failures and errors. • We are subject to liquidity risk, which could adversely affect our financial condition and results of operations. • We have several large depositor relationships, the loss of which could adversely affect us. • The value of our securities in our investment portfolio may decline in the future. • We may not effectively execute on our expansion strategy. • New lines of business, products, product enhancements or services may subject us to additional risk. • Additional capital we need may not be available on terms acceptable to us or may dilute our shareholders. • Our strategy to grow through mergers or acquisitions 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. • We may lose one or more of our key personnel or fail to attract and retain other highly qualified personnel. • Damage to our reputation could significantly harm our businesses. • We face strong competition and must respond to rapid technological changes to remain competitive. • A failure, interruption, or breach in the security of our or our contracted vendors’ systems could adversely affect us. • We rely on other companies to provide key components of our business infrastructure. • Litigation and regulatory actions could subject us to significant liabilities or restrictions. • Certain of our directors may have conflicts of interest in presenting business opportunities to us.
Biggest changeTable of Contents 21 USCB Financial Holdings, Inc. 2023 10-K • We may not recover all amounts that are contractually owed to us by our borrowers. • 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. • 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 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. • We are exposed to risk of environmental liability when we take title to property. • 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. • We face significant operational risks because the nature of the financial services business involves a high volume of transactions. • We have several large depositor relationships, the loss of which could force us to fund our business through more expensive and less stable sources. • Our securities portfolio performance in difficult market conditions could have adverse effects on our results of operations. • We may not effectively execute on our expansion strategy, which may adversely affect our ability to maintain our historical growth and earnings trends. • New lines of business, products, product enhancements or services may subject us to additional risk. • 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 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. • 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. • Damage to our reputation could significantly harm our businesses. • We face strong competition from financial services companies and other companies that offer banking services, which could materially and adversely affect our business. • We must respond to rapid technological changes to remain competitive. • We continually encounter technological change, and we may have fewer resources than many of our competitors to invest in technological improvements. • 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. • 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. • 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.
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 destruction of mortgaged properties and an increase in the risk of delinquencies, foreclosures or loss on loans originated by us.
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.
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 or punitive damages or claims for indeterminate amounts of damages.
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.
Risks Related to Our Tax, Accounting and Regulatory Compliance Our ability to recognize the benefits of 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.
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.
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, amendments to our Articles of Incorporation and Amended and Restated Bylaws, and other extraordinary corporate matters.
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, amendments to our amended Articles of Incorporation and Amended and Restated Bylaws, and other extraordinary corporate matters.
Our governing documents include provisions that: • empower our Board, without shareholder approval, to issue our preferred stock, the terms of which, including voting power, are to be set by our Board; • provide that directors may be removed from office only for cause and only upon a majority vote of the shares of our Bank with voting power; • prohibit holders of our Class A common stock to take action by written consent in lieu of a shareholder meeting; • require holders of at least 10% of our Class A common stock to call a special meeting; • do not provide for cumulative voting in elections of our directors; • provide that our Board has the authority to amend our Amended and Restated Bylaws; • require shareholders that wish to bring business before annual or special meetings of shareholders, or to nominate 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 • enable our Board to increase, between annual meetings, the number of persons serving as directors and to fill the 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.
Our governing documents include provisions that: • empower our Board, without shareholder approval, to issue shares of preferred stock, the terms of which, including voting power, are set by our Board; • provide that directors may be removed from office only for cause and only upon a majority vote of the shares of our Company with voting power; • prohibit holders of our Class A common stock to take action by written consent in lieu of a shareholder meeting; • require holders of at least 10% of our Class A common stock to call a special meeting; • do not provide for cumulative voting in elections of our directors; • provide that our Board has the authority to amend our Amended and Restated Bylaws without shareholder approval; • require shareholders that wish to bring business before annual or special meetings of shareholders, or to nominate 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 • enable our Board to increase, between annual meetings, the number of persons serving as directors and to fill the 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.
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 July 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.
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.
Also, for preservation and continued availability of our "deferred tax assets," our 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 Articles of Incorporation.
Also, for preservation and continued availability of our "deferred tax assets," our 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.
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 small- to medium-sized businesses, or SMBs, and the owners and operators of those businesses.
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.
We will 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.
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.
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 deferred tax assets, reducing the value of such assets.
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.
Similar to other companies, our risks and exposures related to cybersecurity attacks have increased as a result of the COVID -19 pandemic, the related increased reliance on remote working and increase in digital operations.
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.
Many borrowers have been negatively impacted by the COVID-19 pandemic and related economic consequences, and may continue to be similarly or more severely affected in the future.
Many borrowers have been negatively impacted by the ongoing COVID-19 pandemic and related economic consequences, and may continue to be similarly or more severely affected in the future.
Our critical accounting policies, which are included in the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" in 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.
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.
The imposition of 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 Board 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.
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.
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 an 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.
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.
Table of Contents 30 USCB Financial Holdings, Inc. 2022 10-K Mergers and acquisitions involve numerous risks, any of which could harm our business, including: • the possibility that expected benefits may not materialize in the time frame expected or at all, or may be more costly to achieve, or that the acquired business will not perform to our expectations; • time, expense and difficulties in integrating the operations, management, products and services, technologies, existing contracts, accounting processes and personnel of the target and realizing the anticipated synergies of the combined businesses; • incurring the time and expense associated with identifying and evaluating potential acquisitions and merger partners and negotiating potential transactions, resulting in management’s attention being diverted from the operation of our existing business; • difficulties in supporting and transitioning customers of the target and disruption of our ongoing banking business; • the price we pay or other resources that we devote may exceed the value we realize, or the value we could have realized if we had allocated the purchase consideration or other resources to another opportunity; • entering new markets or areas in which we have limited or no experience; • the possibility that our culture is disrupted as a result of an acquisition; • potential loss of key personnel and customers from either our business or the target’s business; • assumption of unanticipated problems, claims or other liabilities of the acquired business; • an inability to realize expected synergies or returns on investment; • the possibility of regulatory approval for the acquisition being delayed, impeded, restrictively conditioned, including 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; • the possibility that the acquisition may not be timely completed, if at all; • the need to raise capital; and • inability to generate sufficient revenue to offset acquisition costs.
Mergers and acquisitions involve numerous risks, any of which could harm our business, including: • the possibility that expected benefits may not materialize in the time frame expected or at all, or may be more costly to achieve, or that the acquired business will not perform to our expectations; • time, expense and difficulties in integrating the operations, management, products and services, technologies, existing contracts, accounting processes and personnel of the target and realizing the anticipated synergies of the combined businesses; • incurring the time and expense associated with identifying and evaluating potential acquisitions and merger partners and negotiating potential transactions, resulting in management’s attention being diverted from the operation of our existing business; • difficulties in supporting and transitioning customers of the target and disruption of our ongoing banking business; • the price we pay or other resources that we devote may exceed the value we realize, or the value we could have realized if we had allocated the purchase consideration or other resources to another opportunity; • entering new markets or areas in which we have limited or no experience; • the possibility that our culture is disrupted as a result of an acquisition; • potential loss of key personnel and customers from either our business or the target’s business; • assumption of unanticipated problems, claims or other liabilities of the acquired business; • an inability to realize expected synergies or returns on investment; • the possibility of regulatory approval for the acquisition being delayed, impeded, restrictively conditioned, including 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; • the possibility that the acquisition may not be timely completed, if at all; • the need to raise capital; and • inability to generate sufficient revenue to offset acquisition costs.
Our acquisition activities 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.
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.
While an increase in interest rates may increase our 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.
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.
Under the CECL model, expected credit deterioration would 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.
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 new 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 penalt ies.
As a new 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 penalti es.
While we believe we have implemented policies and procedures with respect to our commercial real estate loan portfolio consistent with this guidance, the FDIC, U.S. Century 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.
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.
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, 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.
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.
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 President and Chief Executive Officer, Robert Anderson, our Chief Financial Officer, and Benigno Pazos, our Chief Credit Officer, is important to our continuing success.
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 President and Chief Executive Officer, Robert Anderson, our Chief Financial Officer, and William Turner, our Chief Credit Officer, is important to our continuing success.
Such risk is generally expected to remain elevated until the COVID-19 pandemic subsides and may remain elevated thereafter, 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.
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.
To prepare for eventual compliance with the auditor attestation requirement of Section 404 of Sarbanes- Oxley once we no longer qualify as an emerging growth company, we are currently engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging.
To prepare for eventual compliance with the auditor attestation requirement of Section 404 of Sarbanes- Oxley 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.
We have 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 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.
It is possible that some investors could find our Class A common stock less attractive if we choose 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.
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.
We will remain an emerging growth company until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (ii) the date that the market value of our Class A common stock that is held by non-affiliates exceeds $700 million as of the last business day of June 30 of that year, (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt, or (iv) the end of fiscal year following the fifth anniversary of the completion of our IPO.
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 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 billion in non-convertible debt, or (iv) the end of fiscal year following the fifth anniversary of the completion of our IPO (which will be December 31, 2026).
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.
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 Table of Contents 36 USCB Financial Holdings, Inc. 2023 10-K 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.
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 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 Table of Contents 38 USCB Financial Holdings, Inc. 2023 10-K 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.
Although U.S. lawmakers passed legislation to raise the federal debt ceiling on multiple occasions, including the most recent increase in December 2021, ratings agencies have lowered or threatened to lower the long-term sovereign credit rating on 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.
If we become subject to such regulatory actions, our business, financial condition, results of operations and reputation may be negatively impacted.
If we become subject to such regulatory actions, our business, financial condition, result s of operations and reputation may be negatively impacted.
Additionally, international private banking places additional pressure on our policies, procedures and systems for complying with the Bank Secrecy Act of 1970, as amended, or BSA, and other anti-money laundering, or AML, statutes and regulations.
Additionally, international private banking places additional pressure on our policies, procedures and systems for complying with the Bank Secrecy Act of 1970, as amended, or BSA, and other anti-money laundering, or AML, statutes and regulations as well as the recently enacted Corporate Transparency Act.
We cannot predict if investors will find our Class A common stock less attractive because we plan to rely 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 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.
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: • 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 failure of securities analysts to cover our Class A common stock after this offering; • additions 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 expiration of contractual lock-up agreements; • 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.
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.
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.
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.
In particular, we are required to certify our compliance with Section 404 of the Sarbanes-Oxley Act beginning with this Annual Report on Form 10-K, which requires us to annually furnish a report by management on the effectiveness of our internal control over financial reporting.
In particular, we are required to certify our compliance with Section 404 of the Sarbanes-Oxley Act, which requires us to annually furnish a report by management on the effectiveness of our internal control over financial reporting.
Many financial institutions, including us, have been subjected to attempts to infiltrate the security of their websites or other systems, some involving sophisticated and 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 Table of Contents 32 USCB Financial Holdings, Inc. 2022 10-K means.
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.
In addition, there are continuing concerns related to, among other things, the 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 Russian invasion of Ukraine and continuing high oil prices due to, among other things, Russian supply disruptions, each of which may have a destabilizing effect on financial markets and economic activity.
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 continuing higher oil 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.
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.
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 Table of Contents 25 USCB Financial Holdings, Inc. 2023 10-K 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.
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.
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.
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.
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.
If general economic conditions negatively Table of Contents 21 USCB Financial Holdings, Inc. 2022 10-K 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 negatively affected, which could have a material adverse effect on our business, financial condition and results of operations.
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.
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.
It can be difficult to accurately evaluate the total Table of Contents 28 USCB Financial Holdings, Inc. 2023 10-K 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.
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.
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.
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.
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.
To the extent changes in the global political environment, including Russia's invasion of Ukraine and the escalating tensions between Russia and the U.S., NATO, the EU and the UK, 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.
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.
Other instruments that have historically qualified for Tier 1 treatment, including noncumulative perpetual Table of Contents 37 USCB Financial Holdings, Inc. 2022 10-K 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.
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 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.
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.
If we experience increases in non- Table of Contents 27 USCB Financial Holdings, Inc. 2022 10-K 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.
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.
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.
To the extent Table of Contents 37 USCB Financial Holdings, Inc. 2023 10-K 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.
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 leverage ratio of 4% or more.
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 Table of Contents 40 USCB Financial Holdings, Inc. 2023 10-K 10.5% or more; and a leverage ratio of 4% or more.
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.
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.
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 Table of Contents 39 USCB Financial Holdings, Inc. 2022 10-K condition or results of operations.
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.
Future adverse weather events in Florida could potentially result in extensive and costly property damage to businesses and residences, depress Table of Contents 23 USCB Financial Holdings, Inc. 2022 10-K the value of property serving as collateral for our loans, force the relocation of residents, and significantly disrupt economic activity in the region.
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 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.
Table of Contents 31 USCB Financial Holdings, Inc. 2023 10-K 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.
Table of Contents 35 USCB Financial Holdings, Inc. 2022 10-K While we remain an emerging growth company or a non-accelerated smaller reporting 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.
While we remain an emerging growth company or a non-accelerated smaller reporting 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.
While we have not 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.
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.
These risks are discussed more fully in this Item 1A and include, without limitation, the following: 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. • 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. • The continuing COVID-19 pandemic has, and may continue to, adversely affect our business, financial condition, liquidity, capital and results of operations. • Inflationary pressures and rising prices may affect our results of operations and financial condition. • Financial challenges at other banking institutions could lead to depositor concerns that spread within the banking industry causing disruptive deposit outflows and other destabilizing results. • Changes in U.S. trade policies and other global political factors beyond our control may adversely impact us. • Our lending business is subject to credit risk, which could lead to unexpected losses. • The potential for the replacement or discontinuation of London Inter-bank Offered Rate, or LIBOR, as a benchmark interest rate could present operational problems and result in market disruption. • Natural disasters and severe weather events in Florida could have a material adverse impact on us. • Our business is subject to interest rate risk. • A failure or the perceived risk of a failure to raise the statutory debt limit of the U.S. 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. • Our commercial loan portfolio may expose us to increased credit risk. • The imposition of limits by the bank regulators on commercial real estate lending activities could curtail our growth and adversely affect our earnings. • Our SBA lending program depends on 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. • The SBA may not honor its guarantees if we do not originate loans in compliance with SBA guidelines. • Global banking is an important part of our business, which creates increased BSA/AML risk. • We may not recover all amounts that are contractually owed to us by our borrowers. • Non-performing assets take significant time to resolve and adversely affect us.
These risks are discussed more fully in this Item 1A and include, without limitation, the following: 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. • 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. • Inflationary pressures and rising prices may affect our results of operations and financial condition. • Financial challenges at other banking institutions could lead to depositor concerns that spread within the banking industry causing disruptive deposit outflows and other destabilizing results. • Insufficient liquidity could impair our ability to fund operations and jeopardize our financial condition, results of operations, growth and prospects. • 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. • Our lending business is subject to credit risk, which could lead to unexpected losses. • The transition from the use of LIBOR may adversely impact the interest rates paid on certain financial instruments. • Natural disasters and severe weather events in Florida could have a material adverse impact on our business, financial condition and operations. • Our business is subject to interest rate risk and variations in interest rates may materially and adversely affect our financial performance. • 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. • Our allowance for credit losses may not be sufficient to absorb potential losses in our loan portfolio. • Our commercial loan portfolio may expose us to increased credit risk. • The imposition of further limits by the bank regulators on commercial real estate lending activities could curtail our growth and adversely affect our earnings. • Our SBA lending program depends on 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. • The SBA may not honor its guarantees if we do not originate loans in compliance with SBA guidelines. • Global banking is an important part of our business, which creates increased BSA/AML risk.
We are in the process of reviewing our formal policies, processes and practices related to financial reporting and to the identification of key financial reporting risks, assessment of their potential impact and linkage of those risks to specific areas and controls within our organization.
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.
It is currently expected that during 2023, the Federal Open Market Committee of the Federal Reserve (the “FOMC”) will increase interest rates to reduce the rate of inflation to the extent necessary to reduce inflation to the rate that the FOMC believes is appropriate. Since March 2022, the FOMC has increased the federal funds rate by 450 basis points.
During 2022 and 2023, the Federal Open Market Committee of the Federal Reserve (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. Since March 2022, the FOMC has increased the federal funds rate by 500 basis points.
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.
Acquisitions may also involve the payment of a premium over book and market values and, Table of Contents 34 USCB Financial Holdings, Inc. 2023 10-K therefore, some dilution of our tangible book value and net income per common share may occur in connection with any future transaction.
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.
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.
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.
We are also subject to capitalization guidelines established by our regulators, which require us to maintain adequate capital to support our Table of Contents 39 USCB Financial Holdings, Inc. 2023 10-K business. Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations often impose additional operating costs.
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.
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.
With respect to loans that we originate for condominium or homeowners' associations, or the 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.
With Table of Contents 30 USCB Financial Holdings, Inc. 2023 10-K respect to loans that we originate for condominium or homeowners' 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.
The level of the allowance reflects management's continuing evaluation of general economic conditions, present political and regulatory conditions, diversification and seasoning of the loan portfolio, historic loss Table of Contents 24 USCB Financial Holdings, Inc. 2022 10-K experience, identified credit problems, delinquency levels and adequacy of collateral.
The level of the allowance reflects management's continuing evaluation of general economic 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.
Even if we are successful in continuing our growth, such growth may Table of Contents 29 USCB Financial Holdings, Inc. 2022 10-K 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.
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.
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.
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 Table of Contents 29 USCB Financial Holdings, Inc. 2023 10-K year.
At December 31, 2022, our total commercial investor real estate loans, including loans Table of Contents 25 USCB Financial Holdings, Inc. 2022 10-K secured by apartment buildings, commercial real estate, and construction and land loans represented 390% of the Bank’s total risk-based capital and the growth in the commercial real estate portfolio exceeded 50% over the preceding 36 months.
At December 31, 2023, our total commercial investor real estate loans, including loans secured by apartment buildings, commercial real estate, and construction and land loans represented 384% of the Bank’s total risk-based capital and the growth in the commercial real estate portfolio exceeded 50% over the preceding 36 months.
Table of Contents 34 USCB Financial Holdings, Inc. 2022 10-K 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.
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.
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.
Table of Contents 42 USCB Financial Holdings, Inc. 2023 10-K 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.
Table of Contents 33 USCB Financial Holdings, Inc. 2022 10-K 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.
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.
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.
Table of Contents 23 USCB Financial Holdings, Inc. 2023 10-K 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.
Financial challenges at other banking institutions could lead to depositor concerns that spread within the banking industry causing disruptive deposit outflows and other destabilizing results. In March 2023, certain specialized banking institutions with elevated concentrations of uninsured deposits experienced large deposit outflows, resulting in the institutions being placed into FDIC receiverships.
In March 2023, certain specialized banking institutions with elevated concentrations of uninsured deposits experienced large deposit outflows, resulting in the institutions being placed into FDIC receiverships. In the aftermath, there was substantial market disruption and indications that deposit concerns could spread within the banking industry, leading to deposit outflows and other destabilizing results.
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.
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.
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.
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.
Because of the requirements to overcome this restriction, this provision of the Articles of Incorporation could have an anti-takeover effect and may delay, make more difficult or prevent an attempted acquisition that you may favor. 1 Adjust as necessary due to Class A common stock repurchases. Table of Contents 41 USCB Financial Holdings, Inc. 2022 10-K Item 1B.
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. Table of Contents 44 USCB Financial Holdings, Inc. 2023 10-K Item 1B. Unresolved Staff Comments None.
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.
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.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties The Company’s corporate office s are headquartered at 2301 N.W. 87th Avenue, Miami, Florida 33172. The Company, through the Bank, operates 10 banking centers in South Florida within Miami -Dade and Broward counties. From the 10 banking centers, nine of these locations are leased and one is owned.
Biggest changeItem 2. Properties The Company’s corporate offices are headquartered at 2301 N.W. 87th Avenue, Miami, Florida 33172. The Company, through the Bank, operates 10 banking centers in South Florida within Miami-Dade and Broward counties. From the 10 banking centers, nine of these locations are leased and one is owned.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeThere 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.
Biggest changeThe Court reserved jurisdiction to award costs or grant any post-judgment relief. 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.
Added
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.
Added
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. 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”).
Added
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.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeTable of Contents 43 USCB Financial Holdings, Inc. 2022 10-K $- $20 $40 $60 $80 $100 $120 $140 $160 7/22/2021 8/8/2021 8/25/20219/11/20219/28/2021 10/15/2021 11/1/2021 11/18/2021 12/5/2021 12/22/2021 1/8/2022 1/25/20222/11/20222/28/20223/17/2022 4/3/2022 4/20/2022 5/7/2022 5/24/20226/10/20226/27/20227/14/20227/31/20228/17/2022 9/3/2022 9/20/202210/7/2022 10/24/202211/10/2022 11/27/2022 12/14/202212/31/2022 COMPARISON OF CUMULATIVE TOTAL RETURN Among USCB Financial Holdings, Inc., the NASDAQ Bank Index, the NASDAQ ABA Community Bank Index, and the NASDAQ Composite USCB NASDAQ Bank NASDAQ ABA Community Bank NASDAQ Composite 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, 2022, 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.
Biggest changeStock 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, 2023, 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.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information In July 2021, the Bank’s Class A common stock began trading on the Nasdaq Stock Market under ticker symbol “USCB”.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities (a) Market Information In July 2021, the Bank’s Class A common stock began trading on the Nasdaq Stock Market under ticker symbol “USCB”.
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 USCB Financial Holdings, Inc.
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 USCB Financial Holdings, Inc.
Holders As of January 31, 2023, the Company’s Class A common shares were held by approximately 300 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.
Holders As of January 31, 2024, the Company’s Class A common shares were held by approximately 402 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.
The following table shows the quarterly high and low closing prices of our Class A common stock traded on the Nasdaq Stock Market since going public on July 23, 2021: Stock Price High Low Quarter Ended: September 30, 2021 $ 13.91 $ 10.57 December 31, 2021 $ 15.89 $ 12.30 March 31, 2022 $ 15.49 $ 13.30 June 30, 2022 $ 14.84 $ 11.21 September 30, 2022 $ 14.74 $ 11.08 December 31, 2022 $ 14.30 $ 12.16 As of December 31, 2022, our Class B common stock is not listed or traded on any stock exchange and no shares were issued and outstanding at such date.
The following table shows the quarterly high and low closing prices of our Class A common stock traded on the Nasdaq Stock Market since going public on July 23, 2021: Stock Price High Low Quarter Ended: September 30, 2021 $ 13.91 $ 10.57 December 31, 2021 $ 15.89 $ 12.30 March 31, 2022 $ 15.49 $ 13.30 June 30, 2022 $ 14.84 $ 11.21 September 30, 2022 $ 14.74 $ 11.08 December 31, 2022 $ 14.30 $ 12.16 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 As of December 31, 2023, our Class B common stock is not listed or traded on any stock exchange and no shares were issued and outstanding at such date.
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 otherwise in compliance with Rule 10b-18 under the Exchange Act.
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 otherwise in compliance with Rule 10b-18 under the Exchange Act. As of December 31, 2023, the Company had repurchased 669,920 shares of Class A common stock.
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.
Table of Contents 48 USCB Financial Holdings, Inc. 2023 10-K 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.
(USCB) $ 100 $ 140 $ 122 NASDAQ Bank (BANK) $ 100 $ 115 $ 94 NASDAQ ABA Community Bank (QABA) $ 100 $ 114 $ 101 NASDAQ Composite (IXIC) $ 100 $ 107 $ 71 Recent Sales of Unregistered Securities None.
(USCB) $ 100 $ 140 $ 122 $ 123 NASDAQ Bank (BANK) $ 100 $ 115 $ 94 $ 88 NASDAQ ABA Community Bank (QABA) $ 100 $ 114 $ 101 $ 96 NASDAQ Composite (IXIC) $ 100 $ 107 $ 71 $ 102 Table of Contents 49 USCB Financial Holdings, Inc. 2023 10-K Recent Sales of Unregistered Securities (a) The Company did not sell any of its equity securities during 2023 that were not registered under the Securities Act.
Removed
As of December 31, 2022, neither the Company nor any of its affiliates had repurchased any Class A common shares of the Company.
Added
(c) The Company’s repurchases of equity securities for the quarter ended December 31, 2023 were as follows: Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Maximum Number of Shares that May Yet Be Purchased Under Plans or Programs (1) Period October 1 - 31, 2023 - $ - - 172,397 November 1 - 30, 2023 92,317 10.45 92,317 80,080 December 1 - 31, 2023 - - - 80,080 92,317 $ 10.45 92,317 (1) On January 24, 2022 the Company announced its initial stock repurchase program to repurchase up to 750,000 shares of Class A common stock, approximately 3.75% of the Company’s then outstanding shares of common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe 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, 2022 2021 Pre-Tax Pre-Provision ("PTPP") Income: Net income $ 20,141 $ 21,077 Plus: Provision for income taxes 6,944 6,600 Plus: Provision for (recovery of) credit losses 2,495 (160) PTPP income $ 29,580 $ 27,517 PTPP Return on Average Assets: PTPP income $ 29,580 $ 27,517 Average assets $ 1,990,610 $ 1,701,658 PTPP return on average assets 1.49% 1.62% Operating Net Income: Net income $ 20,141 $ 21,077 Less: Net gain (loss) on sale of securities (2,529) 214 Less: Tax effect on sale of securities 641 (52) Operating net income $ 22,029 $ 20,915 Operating PTPP Income: PTPP income $ 29,580 $ 27,517 Less: Net gain (loss) on sale of securities (2,529) 214 Operating PTPP Income $ 32,109 $ 27,303 Operating PTPP Return on Average Assets: Operating PTPP income $ 32,109 $ 27,303 Average assets $ 1,990,610 $ 1,701,658 Operating PTPP Return on average assets 1.61% 1.60% Operating Return on Average Assets: Operating net income $ 22,029 $ 20,915 Average assets $ 1,990,610 $ 1,701,658 Operating return on average assets 1.11% 1.23% Table of Contents 65 USCB Financial Holdings, Inc. 2022 10-K Years Ended December 31, 2022 2021 Adjusted Net Income Available to Common Stockholders: Net income (GAAP) $ 20,141 $ 21,077 Less: Preferred dividends - 2,077 Less: Exchange and redemption of preferred shares - 89,585 Net income (loss) available to common stockholders (GAAP) 20,141 (70,585) Add back: Exchange and redemption of preferred shares - 89,585 Adjusted net income available to common stock (non-GAAP) $ 20,141 $ 19,000 Weighted average shares outstanding: Class A common stock Basic 19,999,323 10,507,530 Diluted 20,176,838 10,507,530 Diluted EPS: Class A common stock Net income (loss) per diluted share (GAAP) $ 1.00 $ (6.72) Add back: Exchange and redemption of preferred shares - 8.53 Adjusted net income available to common stockholders per diluted share (non-GAAP) $ 1.00 $ 1.81
Biggest changeThe 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, 2023 2022 Pre-Tax Pre-Provision ("PTPP") income: (1) Net income (GAAP) $ 16,545 $ 20,141 Plus: Provision for income taxes 5,251 6,944 Plus: Provision for (recovery of) credit losses 2,367 2,495 PTPP income $ 24,163 $ 29,580 Operating net income: (1) Net income (GAAP) $ 16,545 $ 20,141 Less: Net gain (loss) on sale of securities (1,859) (2,529) Less: Tax effect on sale of securities 471 641 Operating net income $ 17,933 $ 22,029 Operating PTPP income: (1) PTPP income $ 24,163 $ 29,580 Less: Net gain (loss) on sale of securities (1,859) (2,529) Operating PTPP Income $ 26,022 $ 32,109 (1) The Company believes these non-GAAP measurements are key indicators of the ongoing earnings power of the Company.
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 and in the carrying value of the HTM securities. Such amounts are amortized over the remaining life of the security.
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.
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.
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.
Critical elements of our liquidity risk management include: effective corporate governance consisting of oversight by the Board and ALCO and active 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; active 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.
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.
The maximum potential amount 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.
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.
The words “may,” “will,” “anticipate,” “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.
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.
In addition to our banking centers network, we 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.
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.
Net interest spread is equal to the difference between yields earned on interest-earning assets and rates paid on interest-bearing liabilities. Net interest margin is equal to the annualized net interest income divided by average interest -earning assets.
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 annualized net interest income divided by average interest-earning assets.
While some degree of interest rate risk (“IRR”) exposure is inherent to the banking business, our ALCO has established 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 income statement, management considers both earnings and economic impacts.
While some degree of interest rate risk (“IRR”) exposure is inherent to the banking business, our ALCO has established 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.
Additionally, utilizing an economic value of equity, or 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.
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.
Operating performance measures should be viewed in addition to, and not as an alternative to or substitute for, measures determined in accordance with GA AP, 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.
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.
Allowance for Credit Losses 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.
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.
Critical elements of our liquidity risk management include: effective corporate governance consisting of oversight by the Board and ALCO and active 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; active 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.
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.
Changes in cash surrender value are recorded in non-interest income on the Consolidated Statements of Operations. In 2022, 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.
Changes in cash surrender value are recorded in non-interest income on the Consolidated Statements of Operations. In 2023, 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.
The growth experienced over the last couple of years is primarily due to implementation of our relationship-based banking model and the success of our relationship managers in competing for new business in a highly competitive metropolitan area.
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 business in a highly competitive metropolitan area.
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 couple of quarters we have been reducing our asset sensitivity by extending asset duration.
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.
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 and the cash flow profiles of our on- and off-balance sheet obligations. In managing inflows and outflows, management regularly monitors situations that can give rise to increased liquidity risk.
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.
During the third quarter of 2022, there were 26 investment securities that was transferred 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.
During the third quarter of 2022, 26 investment securities were transferred 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.
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, 2022 and 2021.
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, 2023 and 2022.
The investment portfolio is regularly reviewed by the Chief Financial Officer, Treasurer, or the ALCO of the Company to ensure an appropriate risk and return profile as well as for adherence to the investment policy. As of December 31, 2022, the investment portfolio consisted of available-for-sale (“AFS”) and held-to-maturity (“HTM”) debt securities.
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, 2023, the investment portfolio consisted of available-for-sale (“AFS”) and held-to-maturity (“HTM”) debt securities.
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.
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.
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 $46.0 million and $36.0 million, as of December 31, 2022, and December 31, 2021, respectively.
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 $183.0 million and $46.0 million, as of December 31, 2023, and December 31, 2022, respectively.
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. Table of Contents 62 USCB Financial Holdings, Inc. 2022 10-K Liquidity Liquidity is defined as a Company’s capacity to meet its cash and collateral obligations at a reasonable cost.
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. Table of Contents 69 USCB Financial Holdings, Inc. 2023 10-K Liquidity Liquidity is defined as a Company’s capacity to meet its cash and collateral obligations at a reasonable cost.
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, 2022 was $6.9 million, compared to $6.6 million for the year ended December 31, 2021.
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, 2023 was $5.3 million, compared to $6.9 million for the year ended December 31, 2022.
In evaluating our financial performance, we consider the level of and trends in net interest income, the net interest margin, the cost of deposits, 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 .
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.
Changes in rate-volume are proportionately allocated between rate and volume variance.
Changes in rate-volume are proportionately allocated between rate and volume variance (in thousands).
This discussion and analysis are best read in conjunction with the Consolidated Financial Statements and related footnotes of our Company presented in Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.
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.
Table of Contents 46 USCB Financial Holdings, Inc. 2022 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 .
Table of Contents 53 USCB Financial Holdings, Inc. 2023 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.
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.
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.
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. Overview For the year ended December 31, 2022, the Company reported net income of $20.1 million compared with net income of $21.1 million for the year ended December 31, 2021.
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. Overview For the year ended December 31, 2023, the Company reported net income of $16.5 million compared with net income of $20.1 million for the year ended December 31, 2022.
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 foll owing the scenarios described in the Bank’s contingency funding plan.
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.
Table of Contents 53 USCB Financial Holdings, Inc. 2022 10-K The following table presents the amortized cost and fair value of investment securities for the dates indicated (in thousands): December 31, 2022 December 31, 2021 Available-for-sale: Amortized Cost Fair Value Amortized Cost Fair Value U.S.
Table of Contents 60 USCB Financial Holdings, Inc. 2023 10-K The following table presents the amortized cost and fair value of investment securities for the dates indicated (in thousands): December 31, 2023 December 31, 2022 Available-for-sale: Amortized Cost Fair Value Amortized Cost Fair Value U.S.
Due to its critical importance to the viability of the Company, liquidity risk management is integrated into our risk management processes and ALM policy.
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.
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. (3) Net interest spread is the average yield on total interest-earning assets minus the average rate on total interest-bearing liabilities.
(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.
The ALCO has in place asset-liability management techniques to manage major factors that affect net interest income and net interest margin.
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.
The most significant growth was in the commercial real estate and consumer and other loan pools, offset by a decline in the residential real estate and commercial and industrial loan pools. Consumer and other loans increased primarily as result of organic growth from our yacht lending business vertical created in January 2022.
The most significant growth was in the commercial and industrial and commercial real estate loan pools. Consumer and other loans increased primarily as result of organic growth from our yacht lending business vertical created in January 2022.
Table of Contents 61 USCB Financial Holdings, Inc. 2022 10-K 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.
Table of Contents 68 USCB Financial Holdings, Inc. 2023 10-K 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.
Changes in macroeconomic conditions or exposure to credit, market, operational, legal and reputational risks, including cybersecurity risk 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.
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.
Table of Contents 64 USCB Financial Holdings, Inc. 2022 10-K Reconciliation and Management Explanation of Non -GAAP Financial 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.
Table of Contents 71 USCB Financial Holdings, Inc. 2023 10-K Reconciliation and Management Explanation of Non -GAAP Financial Measures Management has included non-GAAP measures set forth below because it believes these measures may provide useful supplemental information for evaluating the Company’s underlying performance trends.
As part of our ALM strategy and policy, management has the ability to modify the balance sheet to either increase asset duration and decrease liability duration to reduce asset sensitivity, or to decrease asset duration and increase liability duration in order to increase asset sensitivity.
As part of our ALM strategy and policy, management has the ability to modify the balance sheet to either increase or decrease asset duration and increase or decrease liability duration to modify the balance sheet sensitivity to interest rates.
A TDR is a debtor that is experiencing financial difficulties and the Company grants a concession. 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 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.
Table of Contents 60 USCB Financial Holdings, Inc. 2022 10-K The following table presents the FHLB fixed rate advances as of December 31, 2022 (in thousands): At December 31, 2022 Interest Rate Type of Rate Maturity Date Amount 2.05% Fixed March 27, 2025 $ 10,000 1.07% Fixed July 18, 2025 6,000 1.04% Fixed July 30, 2024 5,000 0.81% Fixed August 17, 2023 5,000 4.17% Fixed January 13, 2023 20,000 $ 46,000 At December 31, 2021 Interest Rate Type of Rate Maturity Date Amount 0.81% Fixed August 17, 2023 $ 5,000 1.04% Fixed July 30, 2024 5,000 2.05% Fixed March 27, 2025 10,000 1.91% Fixed March 28, 2025 5,000 1.81% Fixed April 17, 2025 5,000 1.07% Fixed July 18, 2025 6,000 $ 36,000 We have also established Fed Funds lines of credit with our upstream correspondent banks to manage temporary fluctuations in our daily cash balances.
Table of Contents 67 USCB Financial Holdings, Inc. 2023 10-K The following table presents the FHLB fixed rate advances as of December 31, 2023 (in thousands): At December 31, 2023 Interest Rate Type of Rate Maturity Date Amount 2.05% Fixed March 27, 2025 $ 10,000 1.07% Fixed July 18, 2025 6,000 1.04% Fixed July 30, 2024 5,000 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 At December 31, 2022 Interest Rate Type of Rate Maturity Date Amount 2.05% Fixed March 27, 2025 $ 10,000 1.07% Fixed July 18, 2025 6,000 1.04% Fixed July 30, 2024 5,000 0.81% Fixed August 17, 2023 5,000 4.17% Fixed January 13, 2023 20,000 $ 46,000 We have also established Fed Funds lines of credit with our upstream correspondent banks to manage temporary fluctuations in our daily cash balances.
Special Mention – Loans classified as special mention have a potential weakness that deserves management’s 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.
Table of Contents 63 USCB Financial Holdings, Inc. 2023 10-K Special Mention – Loans classified as special mention have a potential weakness that deserves management’s 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.
The following table presents lending related commitments outstanding as of December 31, 2022 and 2021 (in thousands): 2022 2021 Commitments to grant loans and unfunded lines of credit $ 95,461 $ 134,877 Standby and commercial letters of credit 4,320 6,420 Total $ 99,781 $ 141,297 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.
The following table presents lending related commitments outstanding as of December 31, 2023 and 2022 (in thousands): 2023 2022 Commitments to grant loans and unfunded lines of credit $ 85,117 $ 95,461 Standby and commercial letters of credit 3,987 4,320 Total $ 89,104 $ 99,781 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.
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.
Restoring a loan to accrual status is possible when the borrower resumes payment of all Table of Contents 64 USCB Financial Holdings, Inc. 2023 10-K 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.
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.
Table of Contents 51 USCB Financial Holdings, Inc. 2023 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.
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 swap and SBA programs. In addition, we own insurance on several employees and generate income reflecting the increase in the cash surrender value of these policies.
We also generate income from gain on sale of loans though our 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.
Potential risks and uncertainties include, but are not limited to: • the strength of the United States economy in general and the strength of the local economies in which we conduct operations; • the COVID-19 pandemic and its impact on us, our employees, customers and third-party service providers, and the ultimate extent of the impact of the pandemic and related government stimulus programs; • our ability to successfully manage interest rate risk, credit risk, liquidity risk, and other risks inherent to our industry; • the accuracy of our financial statement estimates and assumptions, including the estimates used for our credit loss reserve and deferred tax asset valuation allowance; • the efficiency and effectiveness of our internal control environment; • our ability to comply with the extensive laws and regulations to which we are subject, including the laws for each jurisdiction where we operate; • legislative or regulatory changes and changes in accounting principles, policies, practices or guidelines, including the effects of the implementation of the Current Expected Credit Losses (“CECL”) standard on January 1, 2023; • the effects of our lack of a diversified loan portfolio and concentration in the South Florida market, including the risks of geographic, depositor, and industry concentrations, including our concentration in loans secured by real estate; • effects of climate change; • the concentration of ownership of our common stock; • fluctuations in the price of our Class A common stock; • our ability to fund or access the capital markets at attractive rates and terms and manage our growth, both organic growth as well as growth through other means, such as future acquisitions; • inflation, interest rate, unemployment rate, market, and potential monetary fluctuations; • impacts of international hostilities and geopolitical events; • increased competition and its effect on the pricing of our products and services as well as our margin; • the effectiveness of our risk management strategies, including operational risks, including, but not limited to, client, employee, or third-party fraud and security breaches; and • other risks described in this Annual Report and other filings we make with the SEC.
Potential risks and uncertainties include, but are not limited to: • the strength of the United States economy in general and the strength of the local economies in which we conduct operations; • our ability to successfully manage interest rate risk, credit risk, liquidity risk, and other risks inherent to our industry; • the accuracy of our financial statement estimates and assumptions, including the estimates used for our credit loss reserve and deferred tax asset valuation allowance; • the efficiency and effectiveness of our internal control environment; • our ability to comply with the extensive laws and regulations to which we are subject, including the laws for each jurisdiction where we operate; • adverse changes or conditions in the capital and financial markets, including actual or potential stresses in the banking industry; • deposit attrition and the level of our uninsured deposits; • legislative or regulatory changes and changes in accounting principles, policies, practices or guidelines, including the on-going effects of the implementation of CECL; • the lack of a significantly diversified loan portfolio and concentration in the South Florida market, including the risks of geographic, depositor, and industry concentrations, including our concentration in loans secured by real estate, in particular, commercial real estate; • the effects of climate change; • the concentration of ownership of our common stock; • fluctuations in the price of our common stock; • our ability to fund or access the capital markets at attractive rates and terms and manage our growth, both organic growth as well as growth through other means, such as future acquisitions; • inflation, interest rate, unemployment rate, market, and monetary fluctuations; • impacts of international hostilities and geopolitical events; • increased competition and its effect on the pricing of our products and services as well as our net interest rate spread and net interest margin; • the loss of key employees; • the effectiveness of our risk management strategies, including operational risks, including, but not limited to, client, employee, or third-party fraud and cybersecurity breaches; and • other risks described in this Annual Report on Form 10-K and other filings we make with the SEC.
As of December 31, 2022, approximately 61.8% of the loans have adjustable/variable rates and 38.2% 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.
As of December 31, 2023, approximately 57.9% of the loans have adjustable/variable rates and 42.1% 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 Table of Contents 55 USCB Financial Holdings, Inc. 2022 10-K 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.
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.
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.
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.
The Company reported net income per diluted share for the year ended December 31, 2022 of $1.00 compared to net loss per diluted share for the same period in 2021 of $6.72.
The Company reported net income per diluted share for the year ended December 31, 2023 of $0.84 compared to net income per diluted share for the same period in 2022 of $1.00.
As of December 31, 2022, the Bank was well-capitalized, with a total risk-based capital ratio of 13.65%, a tier 1 risk-based capital ratio of 12.53%, a common equity tier 1 capital ratio of 12.53%, and a leverage ratio of 9.61%.
As of December 31, 2023, the Bank was well-capitalized, with a total risk-based capital ratio of 12.65%, a tier 1 risk-based capital ratio of 11.48%, a common equity tier 1 capital ratio of 11.48%, and a leverage ratio of 9.17%.
Table of Contents 51 USCB Financial Holdings, Inc. 2022 10-K 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.
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.
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.
Operating performance measures should be viewed in addition to, and not as an alternative Table of Contents 52 USCB Financial Holdings, Inc. 2023 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.
The effective tax rate for the year ended December 31, 2022 was 25.6% and for the year ended December 31, 2021 was 23.8%. For a further discussion on income taxes, see Note 6 “Income Taxes” to the Consolidated Financial Statements in this Annual Report on Form 10-K.
The effective tax rate for the year ended December 31, 2023 was 24.1% and for the year ended December 31, 2022 was 25.6%. Table of Contents 58 USCB Financial Holdings, Inc. 2023 10-K For a further discussion on income taxes, see Note 6 “Income Taxes” to the Consolidated Financial Statements in this Annual Report on Form 10-K.
As of December 31, 2022, there were no outstanding balances under the Fed Funds line of credit. 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.
As of December 31, 2023, there were no outstanding balances under the Fed Funds line of credit and the BTFP. Off-Balance Sheet Arrangements We engage in various financial transactions in our operations that, under GAAP, may not be included on the balance sheet.
The following table presents the components of non-interest income for the dates indicated (in thousands): Years Ended December 31, 2022 2021 Service fees $ 4,010 $ 3,609 Gain (loss) on sale of securities available for sale, net (2,529) 214 Gain on sale of loans held for sale, net 891 1,626 Gain on sale of premises and equipment, net - 983 Loan settlement 161 2,500 Other non-interest income 2,695 1,766 Total non-interest income $ 5,228 $ 10,698 Non-interest income for the year ended December 31, 2022 was $5.2 million compared to $10.7 million for the same period in 2021.
The following table presents the components of non-interest income for the periods indicated (in thousands): Years Ended December 31, 2023 2022 Service fees $ 5,055 $ 4,010 Gain (loss) on sale of securities available for sale, net (1,859) (2,529) Gain on sale of loans held for sale, net 801 891 Loan settlement - 161 Other non-interest income 3,406 2,695 Total non-interest income $ 7,403 $ 5,228 Non-interest income for the year ended December 31, 2023 was $7.4 million compared to $5.2 million for the same period in 2022.
Other factors contributing to the results of operations include our provision for credit losses, non-interest expense, and the provision for income taxes. Table of Contents 48 USCB Financial Holdings, Inc. 2022 10-K Net income for the year ended December 31, 2022 was $20.1 million, compared with net income of $21.1 million for the same period in 2021.
Other factors contributing to the results of operations include our provision for credit losses, non-interest expense, and the provision for income taxes. Net income for the year ended December 31, 2023 was $16.5 million , compared with net income of $20.1 million for the same period in 2022.
Non-Interest Expense The following table presents the components of non-interest expense for the dates indicated (in thousands): Years Ended December 31, 2022 2021 Salaries and employee benefits $ 23,943 $ 21,438 Occupancy 5,058 5,257 Regulatory assessment and fees 930 783 Consulting and legal fees 1,890 1,454 Network and information technology services 1,806 1,466 Other operating 5,682 5,279 Total non-interest expense $ 39,309 $ 35,677 Non-interest expense for the year ended December 31, 2022 increased $3.6 million or 10.2%, compared to the same period in 2021.
Non-Interest Expense The following table presents the components of non-interest expense for the periods indicated (in thousands): Years Ended December 31, 2023 2022 Salaries and employee benefits $ 24,429 $ 23,943 Occupancy 5,230 5,058 Regulatory assessment and fees 1,453 930 Consulting and legal fees 1,899 1,890 Network and information technology services 2,016 1,806 Other operating 6,781 5,682 Total non-interest expense $ 41,808 $ 39,309 Non-interest expense for the year ended December 31, 2023 increased $2.5 million or 6.4%, compared to the same period in 2022.
According to our model, as of December 31, 2022, the NIM will remain fairly stable for static rate scenarios (-400 basis points: +400 basis points). For the static forecast for year one, the estimated NIM will decrease from 3.38% base case scenario to 3.20% under a +400-basis points scenario.
According to our model, as of end of 2023, the NIM will remain fairly stable for static rate scenarios (-400 basis points: +400 basis points). For the static forecast for year one, the estimated NIM will increase from 2.81% base case scenario to 2.86% under a +400-basis points scenario.
There was no impact to net income on the date of transfer. The book value of the AFS securities is adjusted monthly 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 in stockholders’ equity.
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 Held-to-Maturity (HTM).
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 were $1.1 billion and $897.8 million at Table of Contents 59 USCB Financial Holdings, Inc. 2022 10-K December 31, 2022 and 2021, respectively. U.S. Century Bank maintains a well-diversified deposit base.
Table of Contents 66 USCB Financial Holdings, Inc. 2023 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 $1.1 billion at December 31, 2023 and 2022.
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, considers statistical trends and economic conditions and other applicable factors.
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, considers statistical trends and economic conditions and other applicable factors.
The following table presents the capital ratios for both the Bank and the Company at December 31, 2022 and 2021 (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, 2022: Total risk-based capital: $ 216,693 13.58 % $ 127,616 8.00 % $ 159,520 10.00 % Tier 1 risk-based capital: $ 198,909 12.47 % $ 95,712 6.00 % $ 127,616 8.00 % Common equity tier 1 capital: $ 198,909 12.47 % $ 71,784 4.50 % $ 103,688 6.50 % Leverage ratio: 198,909 9.56 % $ 83,210 4.00 % $ 104,012 5.00 % December 31, 2021: (1) Total risk-based capital $ 186,735 14.92 % $ 100,125 8.00 % $ 125,157 10.00 % Tier 1 risk-based capital $ 171,484 13.70 % $ 75,094 6.00 % $ 100,125 8.00 % Common equity tier 1 capital $ 171,484 13.70 % $ 56,321 4.50 % $ 81,352 6.50 % Leverage ratio $ 171,484 9.55 % $ 71,825 4.00 % $ 89,781 5.00 % Impact of Inflation Our Consolidated Financial Statements and related notes have been prepared in accordance with U.S.
The following table presents the capital ratios for the Bank at December 31, 2023 and 2022 (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, 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% $ 82,931 4.50% 119,789 6.50% Leverage ratio: $ 211,645 9.17% $ 92,328 4.00% 115,410 5.00% December 31, 2022 Total risk-based capital: $ 216,693 13.58% $ 127,616 8.00% 159,520 10.00% Tier 1 risk-based capital: $ 198,909 12.47% $ 95,712 6.00% 127,616 8.00% Common equity tier 1 capital: $ 198,909 12.47% $ 71,784 4.50% 103,688 6.50% Leverage ratio: $ 198,909 9.56% $ 83,210 4.00% 104,012 5.00% Impact of Inflation Our Consolidated Financial Statements and related notes have been prepared in accordance with U.S.
The following table shows scheduled maturities of uninsured time deposits as of December 31, 2022 (in thousands): Three months or less $ 10,669 Over three through six months 17,573 Over six though twelve months 29,891 Over twelve months 23,840 $ 81,973 Borrowings As a member of the FHLB Atlanta, we are eligible to obtain advances with various terms and conditions.
The following table shows scheduled maturities of uninsured time deposits as of December 31, 2023 (in thousands): Three months or less $ 16,641 Over three through six months 16,451 Over six though twelve months 24,002 Over twelve months 1,016 $ 58,110 Borrowings As a member of the FHLB Atlanta, we are eligible to obtain advances with various terms and conditions.
Income Taxes 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.
This reserve is determined using both quantitative and qualitative factors identical to those applied to the collectively evaluated loan portfolio. Income Taxes 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.
Years Ended December 31, 2022 2021 Consolidated Statements of Operations: Net interest income before provision for credit losses $ 63,661 $ 52,496 Total non-interest income $ 5,228 $ 10,698 Total non-interest expense $ 39,309 $ 35,677 Net income $ 20,141 $ 21,077 Net income (loss) available to common stockholders $ 20,141 $ (70,585) Profitability: Efficiency ratio 57.06% 56.31% Net interest margin 3.38% 3.26% The Company’s results of operations depend substantially on net interest income and non-interest income.
Years Ended December 31, 2023 2022 Consolidated Statements of Operations: Net interest income before provision for credit losses $ 58,568 $ 63,661 Total non-interest income $ 7,403 $ 5,228 Total non-interest expense $ 41,808 $ 39,309 Net income $ 16,545 $ 20,141 Net income available to common stockholders $ 16,545 $ 20,141 Profitability: Efficiency ratio 63.37% 57.06% Net interest margin 2.79% 3.38% The Company’s results of operations depend substantially on net interest income and non-interest income.
Results of Operations General The following tables present selected balance sheet, income statement, and profitability ratios for the dates indicated (in thousands, except ratios): As of December 31, 2022 2021 Consolidated Balance Sheets: Total assets $ 2,085,834 $ 1,853,939 Total loans (1) $ 1,507,338 $ 1,190,081 Total deposits $ 1,829,281 $ 1,590,379 Total stockholders' equity $ 182,428 $ 203,897 (1) Loan amounts include deferred fees/costs.
Table of Contents 55 USCB Financial Holdings, Inc. 2023 10-K 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, 2023 2022 Consolidated Balance Sheets: Total assets $ 2,339,093 $ 2,085,834 Total loans (1) $ 1,780,827 $ 1,507,338 Total deposits $ 1,937,139 $ 1,829,281 Total stockholders' equity $ 191,968 $ 182,428 (1) Loan amounts include deferred fees/costs.
The following table presents the daily average balance and average rate paid on deposits by category as of December 31, 2022 and 2021 (in thousands, except ratios): Twelve Months Ended December 31, 2022 2021 Average Balance Average Rate Paid Average Balance Average Rate Paid Non-interest bearing demand deposits $ 645,366 0.00% $ 547,116 0.00% Interest-bearing demand deposits 64,835 0.13% 52,379 0.11% Saving and money market deposits 803,426 0.64% 619,810 0.34% Time deposits 220,319 0.68% 235,127 0.65% $ 1,733,946 0.39% $ 1,454,431 0.25% To tal average deposits for the year ended December 31, 2022 was $1.7 billion, an increase of $279.5 million, or 19.2% over total average deposits of $1.5 billion for the same period in 2021.
The following table presents the daily average balance and average rate paid on deposits by category as of December 31, 2023 and 2022 (in thousands, except ratios): Twelve Months Ended December 31, 2023 2022 Average Balance Average Rate Paid Average Balance Average Rate Paid Non-interest bearing demand deposits $ 607,506 0.00% $ 645,366 0.00% Interest-bearing demand deposits 53,324 1.69% 64,835 0.13% Saving and money market deposits 963,708 3.08% 803,426 0.64% Time deposits 268,715 3.16% 220,319 0.68% $ 1,893,253 2.06% $ 1,733,946 0.39% Total average deposits for the year ended December 31, 2023 was $1.9 billion, an increase of $159.3 million , or 9.2% over total average deposits of $1.7 billion for the same period in 2022.
(4) Net interest margin is the ratio of net interest income to total interest-earning assets. Net interest income before the provision for credit losses was $63.7 million for the year ended December 31, 2022, an increase of $11.2 million or 21.3%, from $52.5 million for the year ended December 31, 2021.
(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 $58.6 million for the year ended December 31, 2023, a decrease of $5.1 million or 8.0%, from $63.7 million for the year ended December 31, 2022.
Treasury 9,841 9,828 - - Collateralized mortgage obligations 68,727 60,925 44,820 43,799 Mortgage-backed securities - Residential 42,685 38,483 26,920 26,352 Mortgage-backed securities - Commercial 11,442 10,777 3,103 3,013 Corporate bonds 11,090 10,013 13,310 13,089 $ 188,699 $ 169,088 $ 122,658 $ 120,157 The following table shows the weighted average yields, categorized by contractual maturity, for investment securities as of December 31, 2022 (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.
Treasury - - 9,841 9,828 Collateralized mortgage obligations 62,735 54,752 68,727 60,925 Mortgage-backed securities - Residential 43,784 39,599 42,685 38,483 Mortgage-backed securities - Commercial 15,439 14,182 11,442 10,777 Corporate bonds 9,398 8,671 11,090 10,013 $ 174,982 $ 155,510 $ 188,699 $ 169,088 Allowance for credit losses - securities held-to-maturity (8) Securities held-to maturity, net of allowance for credit losses $ 174,974 The following table shows the weighted average yields, categorized by contractual maturity, for investment securities as of December 31, 2023 (in thousands, except ratios): 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 Available-for-sale: U.S.
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.
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 in this Annual Report on Form 10-K.
Table of Contents 54 USCB Financial Holdings, Inc. 2022 10-K The following table shows the loan portfolio composition as of the dates indicated (in thousands): December 31, 2022 December 31, 2021 Total Percent of Total Total Percent of Total Residential Real Estate $ 185,636 12.3 % $ 201,359 16.9 % Commercial Real Estate 970,410 64.4 % 704,988 59.2 % Commercial and Industrial 126,984 8.4 % 146,592 12.3 % Foreign Banks 93,769 6.2 % 59,491 5.0 % Consumer and Other 130,429 8.7 % 79,229 6.6 % Total gross loans 1,507,228 100.0 % 1,191,659 100.0 % Less: Unearned income (110) 1,578 Total loans net of unearned income 1,507,338 1,190,081 Less: Allowance for credit losses 17,487 15,057 Total net loans $ 1,489,851 $ 1,175,024 Tot al gross loans increased by $315.6 million or 26.5% at December 31, 2022 compared to December 31, 20211.
Table of Contents 61 USCB Financial Holdings, Inc. 2023 10-K The following table shows the loan portfolio composition as of the dates indicated (in thousands): December 31, 2023 December 31, 2022 Total Percent of Total Total Percent of Total Residential Real Estate $ 204,419 11.5 % $ 185,636 12.3 % Commercial Real Estate 1,047,593 58.8 % 970,410 64.4 % Commercial and Industrial 219,757 12.4 % 126,984 8.4 % Foreign Banks 114,945 6.5 % 93,769 6.2 % Consumer and Other 191,930 10.8 % 130,429 8.7 % Total gross loans 1,778,644 100.0 % 1,507,228 100.0 % Plus: Deferred cost 2,183 110 Total loans net of deferred cost 1,780,827 1,507,338 Less: Allowance for credit losses 21,084 17,487 Total net loans $ 1,759,743 $ 1,489,851 Total gross loans increased by $271.4 million or 18.0% at December 31, 2023 compared to December 31, 2022.
The increase in salaries and employee benefits, consulting and legal fees, and other operating costs has enabled us to support recent growth and has provided us with the necessary technology and required professionals to execute our growth strategy.
Salaries and benefits increased by $486 thousand or 2.0% due to increase in full time employees to 196 from 191 in 2022. The increase in salaries and employee benefits and other operating costs has enabled us to support recent growth and has provided us with the necessary technology and required professionals to execute our growth strategy.
Our top 15 depositors only hold 12% of our total portfolio. As of December 31, 2022, 39% of our deposits are estimated to be FDIC- insured. Our public funds are 11% of total deposits and are partially collateralized. The estimated average account size of our deposit portfolio is $95 thousand.
As of December 31, 2023, 45% of our deposits are estimated to be FDIC-insured. Our public funds are 13.9% of total deposits and are partially collateralized. Brokered deposits are 2.6% of total deposits and are FDIC-insured. The estimated average account size of our deposit portfolio is $97 thousand.
The weighted average rate for outstanding FHLB advances at December 31, 2022 was 2.60%. Most of the advances are due in 2023.
The weighted average rate for outstanding FHLB advances at December 31, 2023 was 4.4%.
Investment securities decreased over the past year as repayments from securities were allocated to fund loan growth. Management reinvested the repayments of securities and income from the sale of securities into higher yielding loans. As of December 31, 2022, securities with a market value of $49.0 million were pledged to secure public deposits.
AFS and HTM investment securities in aggregate decreased $14.5 million or 3.5% to $404.3 million at December 31, 2023 from $418.8 million at December 31, 2022. Investment securities decreased over the past year as repayments from securities were allocated to fund loan growth. Management reinvested the repayments of securities and income from the sale of securities into higher yielding loans.
You should also review the risk factors described herein and in Table of Contents 45 USCB Financial Holdings, Inc. 2022 10-K the reports the Company filed or will file with the SEC and, for periods prior to the completion of the bank holding company reorganization in December 2021, 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”).
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 completion of the bank holding company reorganization, the Bank filed with the FDIC.
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 EVEs do not include actions that management may undertake to manage the risks in response to anticipated changes in interest rates or client deposit behavior.
In addition, static measures like the economic value of equity (“EVE“) do not include actions that management may undertake to manage the risks in response to anticipated changes in interest rates or client deposit behavior.

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