USCB FINANCIAL HOLDINGS, INC. - Annual Report: 2021 (Form 10-K)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-K
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
December 31, 2021
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____to_____
Commission File Number:
001-41196
USCB Financial Holdings, Inc.
(Exact name of registrant as specified in its charter)
Florida
87-4070846
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
2301 NW 87th Avenue
,
Doral
,
FL
33172
(Address of principal executive offices) (zip code)
Registrant’s telephone number, including area code:
305
)
715-5200
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A Common Stock, $1.00 par value per
share
USCB
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
☐
No
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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
☐
No
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes
☒
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files).
Yes
☒
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or
an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
☐
Non-accelerated filer
☐
☒
☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that
prepared or issued its audit report.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes
☐
No
☒
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant on March 1, 2022, based on the closing
price of $13.41 for shares of the Registrant’s Class A common stock as reported by the Nasdaq Stock Market was approximately $
268.1
registrant has elected to use March 1, 2022 as the calculation date because on June 30, 2021 (the last business day of the Registrant’s second fiscal
quarter), the Registrant was a privately held company. As of March 1, 2022, the registrant had
20,000,753
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant’s Proxy Statement for the 2022 Annual Meeting of Shareholders (the “2022 Proxy Statement”) are incorporated by
reference into Part III of this report.
FORM 10-K
DECEMBER 31, 2021
TABLE OF CONTENTS
CAUTIONARY NOTE REGARDING FORWARD -LOOKING STATEMENTS
This Annual Report on Form 10-K contains statements that are not historical in nature are intended to be, and are
hereby identified as, forward-looking statements for purposes of the safe harbor provided by Section 21E of the Securities
Exchange Act of 1934, as amended. The words “may,” “will,” “anticipate,” “should,” “would,” “believe,” “contemplate,”
“expect,” “aim,” “plan,” “estimate,” “continue,” and “intend,” as well as other similar words and expressions of the future, are
intended to identify forward-looking statements. These forward-looking statements include statements related to our
projected growth, anticipated future financial performance, and management’s long-term performance goals, as well as
statements relating to the anticipated effects on results of operations and financial condition from expected developments
or events, or business and growth strategies, including anticipated internal growth.
These forward-looking statements involve significant risks and uncertainties that could cause our actual results to differ
materially from those anticipated in such statements. Potential risks and uncertainties include, but are not limited to:
• 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 impacts 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 forthcoming implementation of the Current Expected Credit Losses (“CECL”) standard ;
• 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;
• the concentration of ownership of our Class A 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 monetary fluctuations;
• increased competition and its effect on pricing of our products and services as well as our margins;
• 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 this Form 10-K and other filings we make with the Securities and Exchange Commission
(“SEC”).
All forward-looking statements are necessarily only estimates of future results, and there can be no assurance that
actual results will not differ materially from expectations. Therefore, you are cautioned not to place undue reliance on any
forward-looking statements. Further, forward-looking statements included in this presentation are made only as of the date
hereof, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances
after the date on which the statement is made or to reflect the occurrence of unanticipated events, unless required to do so
under the federal securities laws. You should also review the risk factors described in 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 Federal Deposit Insurance Corporation (“FDIC”).
4 USCB Financial Holdings, Inc. 2021 10-K
PART I
Item 1. Business
Overview
USCB Financial Holdings, Inc., a Florida corporation (the “Company”), was formed on December 17, 2021, to serve as
the holding company for U.S. Century Bank, a Florida state-chartered bank (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”). 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, 2021, the Company had total consolidated assets of $1.9 billion.
The Bank commenced operations on October 28, 2002 and is a Florida state-chartered, non-Federal Reserve System
member bank. Over the course of 2021, the Bank simplified its capitalization structure by exchanging and/or repurchasing
all of its issued and outstanding preferred shares, including Class C, Class D, and Class E preferred stock. Most recently,
in December 2021, the Bank reached agreements with holders of its Class B common stock, to exchange all outstanding
Class B common stock for Class A common stock in a 1-for-5 reverse stock split.
On July 27, 2021, the Bank completed an initial public offering of 4,600,000 shares of its Class A common stock. Shares
of the Bank’s Class A common stock were sold at a price to the public of $10.00 per share and began trading on the Nasdaq
Stock Market under ticker symbol “USCB”.
On December 30, 2021 (the “Effective Date”), the Company acquired all of the issued and outstanding stock of the
Bank in a share exchange (the “Reorganization”) effected under the Florida Business Corporation Act and in accordance
with the terms of an Agreement and Plan of Share Exchange dated December 27, 2021 between the Bank and the Company
(the “Share Exchange Agreement”). The Reorganization and the Share Exchange Agreement were approved by the Bank’s
stockholders at a special meeting of the Bank’s stockholders held on December 20, 2021. Pursuant to the Share Exchange
Agreement, on the Effective Date each issued and outstanding share of the Bank’s Class A common stock was converted
into and exchanged for one share of the Company’s Class A common stock. As a result, the Bank became the sole
subsidiary of the Company, the Company became the holding company for the Bank and the stockholders of the Bank
became stockholders of the Company.
Prior 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.
As a result of the Reorganization, pursuant to Rule 12g-3(a) under the Exchange Act, the Company became the successor
registrant to the Bank, the Company’s Class A common stock was deemed to be registered under Section 12(b) of the
Exchange Act, and the Company became subject to the information requirements of the Exchange Act and is now required
to file reports, proxy statements and other information with the SEC. The trading symbol for the Company’s Class A Common
Stock is “USCB”, which is the same as the Bank’s former trading symbol.
Prior to the Reorganization, the Company had no material assets and had not conducted any business or operations
except for activities related to its incorporation and the Reorganization.
Our strategy in becoming a publicly traded company and forming a BHC is to continue pursuing organic growth as well
as strategic acquisitions if the opportunity arises which efforts will be further facilitated by access to public capital and the
added flexibility provided by a BHC structure.
In this Annual Report, unless the context indicated otherwise, references to “we,” “us,”, and “our” refer to the Company
and the Bank. However, if the discussion relates to a period before the Effective Date, the terms refer only to the Bank.
Products and Services
Lending Services
Our mission is to provide high value, relationship -based banking products, services and solutions to a diverse set of
clients in the markets we serve. We focus on serving small-to-medium sized businesses (“SMBs”) and catering to the needs
of local business owners, entrepreneurs and professionals in South Florida. We have further leveraged our success in
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.
5 USCB Financial Holdings, Inc. 2021 10-K
In addition to our traditional commercial banking services, we are among a select number of banks of our size within
our market area that can offer certain specialty banking products, services and solutions designed for small businesses,
homeowner associations, law firms, medical practices and other professional services firms, and global banking services.
Our major specialty banking offerings include the following:
•
Small Business Administration (SBA) lending:
504 of the SBA program. The 7(a) loan program, SBA's most common loan program, includes financial help for
small businesses with special requirements while the 504 loan program provides long-term, fixed rate financing
of up to $5.0 million for major fixed assets that promote business growth and job creation. Since its formation
in 2018, the platform serves as an opportunity to generate commercial and industrial loans, or C&I loans, and
to diversify our revenue stream through originating and selling SBA 7(a) loans. As of December 31, 2021, 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:
a new business vertical and diversify our portfolio.
•
Homeowner Association (HOA) services:
including deposit collection, lockbox services, payment services, and lending products. Launched in 2016, we
offer our HOA customers a unique combination of market knowledge of a local bank, and a highly personalized
“white glove” approach to customer service.
•
Jurist Advantage and Private Client Group services:
provides customized banking solutions for law firms as well as their partners, associates, staff, and high net
worth clients. We also leverage our relationships with our law firm clients to generate personal deposit accounts.
•
Global Banking services:
headquartered in certain Latin America and the Caribbean countries. We also cross-sell our correspondent
banking relationships to generate international personal banking clients for our Bank. Our compliance team is
experienced in issues related to foreign banking, and we have consistent open communication with our foreign
bank clients to ensure proper compliance controls are maintained at such institutions.
Credit Practices
Our underwriting process is informed by a conservative credit culture that encourages prudent lending. We believe our
strong asset quality is due to our understanding of and experience with businesses within Florida, our long-standing
relationships with clients and our disciplined underwriting processes. Our thorough underwriting processes collaboratively
engage our seasoned business bankers, credit underwriters and portfolio managers in the analysis of each loan request.
We manage our credit risk by analyzing metrics related to our different lines of business, which allows us to maintain a
conservative and well-diversified loan portfolio reflective of our assessment of various industry sectors. Based upon our
aggregate exposure to any given borrower relationship, we undertake a scaled review of loan originations that may involve
senior credit officers, our Chief Credit Officer, our Credit Committee or, ultimately, our Board of Directors (“Board”).
Deposit Products
We offer traditional deposit products including commercial and consumer checking accounts, money market deposit
accounts, savings accounts and certificates of deposit with a variety of terms and rates as well as a robust suite of treasury,
commercial payments and cash management services. We offer commercial and consumer deposit products across our
primary geographic footprint.
Seasonality
We do not believe our business to be seasonal in nature.
6 USCB Financial Holdings, Inc. 2021 10-K
Markets
Our primary banking market is South Florida. Due to the recent acceptance and expected ongoing emphasis on remote
work, coupled with a low tax environment, warm weather and a strong real estate market has encouraged companies to
relocate some or all of their operations to South Florida. We believe this trend is further demonstrated by recent relocation
initiatives undertaken by large financial institutions such as Blackstone Group Inc., Goldman Sachs Group Inc., and Citadel
Advisors LLC, all of which have established operations in South Florida. We believe Florida offers long-term attractive
banking opportunities. Our largest concentration is in the Miami metropolitan statistical area; however, we are also focused
on growth in other urban Florida markets in which we have a presence, such as Broward and Palm Beach counties .
According to the 2020 United States Census Bureau, Florida was the third most populous state in the country and the
three largest populations were in Miami-Dade, Broward, and Palm Beach counties, all located in South Florida. 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.
Competition
Our markets are highly competitive, and we compete with a wide range of lenders and other financial institutions within
our markets, including local, regional, national, and international commercial banks and credit unions. We also compete
with mortgage companies, brokerage firms, trust service providers, consumer finance companies, mutual funds, securities
firms, insurance companies, third-party payment processors, financial technology companies, or Fintechs, and other
financial intermediaries on various of our products and services. Some of our competitors are not subject to the regulatory
restrictions and the level of regulatory supervision applicable to us. Many of our competitors are much larger financial
institutions that have greater financial resources than we do and compete aggressively for market share. These competitors
attempt to gain market share through their financial product mix, pricing strategies and larger banking center networks.
Interest rates on both loans and deposits and prices of fee-based services are significant competitive factors among
financial institutions generally. Other important competitive factors include convenience, quality of customer service,
availability and quality of digital offerings, community reputation, and continuity of personnel and services.
Emerging Growth Company
We are an “emerging growth company,” or “EGC”, as defined in the Jumpstart Our Business Startups Act of 2012 (the
“JOBS Act”). As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are
applicable to other public companies that are not “emerging growth companies,” including, but not limited to, not being
required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure
obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the
requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden
parachute payments not previously approved.
In addition, Section 107 of the JOBS Act also provides that an EGC can take advantage of the extended transition
period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”), for complying with
new or revised accounting standards. In other words, an EGC can delay the adoption of certain accounting standards until
those standards would otherwise apply to private companies. We intend to take advantage of the benefits of this extended
transition period, for as long as it is available.
Human Capital Resources
We respect the values and diversity throughout our organization and the community. Diversity and inclusion are integral
parts of our organization’s culture. We seek the active engagement and participation of people with diverse backgrounds
and ethnicities. We are taking steps to create programs to ensure that we are organized in a way where the unique
contributions of each individual in our Company is recognized and supported. Each team member is to be treated fairly with
equal access to opportunities and resources for success. Additionally, we run homebuyer educational and financial literacy
workshops in an effort to reach the financing needs of the sectors of our communities in which these workshops are most
needed.
At December 31, 2021, we had 187 full-time equivalent employees. None of our employees are parties to a collective
bargaining agreement. We believe that our employees are our greatest asset and vital to our success. As such, we seek to
hire and retain the best candidate for each position, without regard to age, gender, ethnicity, or other protected class status,
7 USCB Financial Holdings, Inc. 2021 10-K
but with an appreciation for a diversity of perspectives and experiences. We have designed a compensation structure
including an array of benefit plans and programs that we believe is attractive to our current and prospective employees.
Regulation and Supervision
Bank holding companies, banks, and their affiliates are extensively regulated under federal and state law. These
regulations have a material effect on the operations of the Company and its direct and indirect subsidiaries, including the
Bank, which is currently the Company’s only subsidiary .
Statutes, regulations and policies limit the activities in which we may engage and the conduct of our permitted activities
and establish capital requirements with which we must comply. The regulatory framework is intended primarily for the
protection of depositors, borrowers, customers and clients, the FDIC insurance funds and the banking system as a whole,
and not for the protection of our stockholders or creditors. In many cases, the applicable regulatory authorities have broad
enforcement power over bank holding companies, banks and their subsidiaries, including the power to impose substantial
fines, remove officers and directors from their positions, force the termination of certain activities and the divestures of
certain investments and other penalties for violations of laws and regulations.
Further, the regulatory system imposes reporting and information collection obligations. Banking statutes and
regulations are subject to change, and additional statutes, regulations, and corresponding guidance may be adopted. We
are unable to predict these future changes or the effects, if any, that these changes could have on the business, prospects,
revenues, and results of operations of our Bank and Company.
The material statutory and regulatory requirements that are applicable to us are summarized below. The description
below is not intended to summarize all laws and regulations applicable to us. These summary descriptions are not complete,
and you should refer to the full text of the statutes, regulations, and corresponding guidance for more information.
Bank and Bank Holding Company Regulation
As a Florida state-chartered bank, the Bank is subject to ongoing and comprehensive supervision, regulation,
examination, and enforcement by the FDIC and Florida Office of Financial Regulation (“FOFR”). The FOFR supervises and
regulates all areas of our operations including, without limitation, the making of loans, the issuance of securities, the conduct
of our corporate affairs, the satisfaction of capital adequacy requirements, the payment of dividends, and the establishment
or closing of banking centers. In addition, our deposit accounts are insured by the Deposit Insurance Fund administered by
the FDIC to the maximum extent permitted by law, and the FDIC has certain supervisory and enforcement powers over us.
Any entity that directly or indirectly controls a bank must be approved by the Federal Reserve Board under the Bank
Holding Company Act of 1956 (the “BHC Act”) to become a BHC, BHCs and their bank affiliates. BHCs are subject to
regulation, inspection, examination, supervision and enforcement by the Federal Reserve Board under the BHC Act. The
Federal Reserve Board's jurisdiction also extends to any company (except, in most instances, a bank) that is directly or
indirectly controlled by a BHC.
The Company, which controls the Bank, is a BHC and, as such, is subject to ongoing and comprehensive supervision,
regulation, examination and enforcement by the Federal Reserve Board.
Prior Notice and Approval Requirements Related to Control
Banking laws impose prior notice, approval, and ongoing regulatory requirements on any stockholder or other party that
seeks to acquire, and subsequently acquires, direct or indirect "control" of an FDIC-insured depository institution. These
laws include the BHC Act and the Change in Bank Control Act. Among other things, these laws require regulatory filings by
individuals or 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. 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 of the depository institution, control the election of a
majority of the board of directors of the depositary institution and/or exercises a controlling influence over the management
and policies of such institution. Subject to rebuttal, a party generally may be presumed to control a depository institution or
other company if the investor owns or controls 10% or more of any class of voting stock. Except under very limited
circumstances, bank holding companies 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.
8 USCB Financial Holdings, Inc. 2021 10-K
Source of Strength
All companies, including BHCs, that directly or indirectly control an insured depository institution, are required to serve
as a source of strength for the institution. Under this requirement, the Company in the future could be required to provide
financial assistance to the Bank should it experience financial distress. Such support may be required at times when, absent
this statutory and Federal Reserve Policy requirement, a BHC may not be inclined to provide it.
Safety and Soundness Regulation
As an insured depository institution, the Bank is subject to prudential regulation and supervision and must undergo
regular on-site examinations by our state and federal bank regulatory agencies. The cost of examinations of insured
depository institutions and any affiliates are assessed by the appropriate agency against each institution or affiliate that is
subject to examination as it deems necessary or appropriate. We file quarterly consolidated reports of condition and income,
or call reports, with the FDIC and FOFR.
The federal banking agencies have also adopted guidelines establishing safety and soundness standards for all insured
depository institutions including our Bank. The safety and soundness guidelines relate to, among other things, our internal
controls, information systems, internal audit systems, liquidity, capital adequacy, loan underwriting and documentation, anti-
money laundering policies and procedures, transactions with insiders, risk management, compensation, asset growth, and
interest rate exposure. These standards assist the federal banking agencies with early identification and resolution of
problems at insured depository institutions. If we were to fail to meet or otherwise comply with any of these standards, the
FDIC could require us to submit a plan for achieving and maintaining compliance. If a financial institution fails to submit an
acceptable compliance plan, or fails in any material respect to implement a compliance plan that has been accepted by the
FDIC, the FDIC is required to issue an order directing the institution to cure the deficiency. Until the deficiency cited in the
order is cured, the FDIC may restrict the financial institution’s rate of growth, require the financial institution to increase its
capital, restrict the rates the institution pays on deposits or require the institution to take any action the regulator deems
appropriate under the circumstances. Noncompliance with the standards established by the safety and soundness
guidelines may also constitute grounds for other enforcement action, including cease and desist orders and civil money
penalty assessments. In addition, the FDIC could terminate our deposit insurance if it determines that our financial condition
was unsafe or unsound or that we engaged in unsafe or unsound practices that violated applicable rules, regulations, orders
or conditions enacted or imposed on us by our regulators.
During the past decade, the bank regulatory agencies have increasingly emphasized the importance of sound risk
management processes and strong internal controls when evaluating the activities of the financial institutions they supervise.
Properly managing risks has been identified as critical to the conduct of safe and sound banking activities and has become
even more important as new technologies, product innovation and the size and speed of financial transactions have changed
the nature of banking markets. The agencies have identified a spectrum of risks facing a banking institution including, but
not limited to, credit, market, liquidity, interest rate, cybersecurity, operational, legal and reputational risk. Recent regulatory
pronouncements have focused on operational risk, which arises from the potential that inadequate information systems,
operational problems, breaches in internal controls, fraud or unforeseen deficiencies will result in unexpected losses. New
products and services, use of outside vendors and cybersecurity are critical sources of operational risk that financial
institutions are expected to address in the current environment. We expect to have active Board and senior management
oversight; adequate policies, procedures and risk limits; adequate risk measurement and monitoring and adequate
management information systems; and comprehensive internal controls to address these various risks.
Permissible Activities and Investments
Bank regulatory laws generally restrict the ability of the Company, as a BHC, 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. The Gramm-
Leach-Bliley Act (the “GLB Act”) expanded the scope of permissible activities for a BHC that qualifies as a financial holding
company. Under the regulations implementing the GLB Act, a financial holding company may engage in additional activities
that are financial in nature or incidental or complementary to a financial activity. The Company is not a financial holding
company.
In addition, as a general matter, the establishment or acquisition by the Company, of a non-bank entity, or the initiation
of a non-banking activity, requires prior regulatory approval from the Federal Reserve Board. 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 .
9 USCB Financial Holdings, Inc. 2021 10-K
Regulatory Capital Requirements
The federal banking regulators have adopted risk-based capital adequacy guidelines for bank holding companies and
their subsidiary banks and banks without bank holding companies based on the Basel III standards. Under these guidelines,
assets and off-balance sheet items are assigned to specific risk categories, each with designated risk weightings. The risk-
based capital guidelines are designed to make regulatory capital requirements more sensitive to differences in risk profiles
among banks and bank holding companies, to account for off-balance sheet exposure, to minimize disincentives for holding
liquid assets, and to achieve greater consistency in evaluating the capital adequacy of major banks throughout the world.
The resulting capital ratio requirements represent capital as a percentage of total risk-weighted assets and off-balance sheet
items. Final rules implementing the capital adequacy guidelines became effective, with various phase-in periods, on January
1, 2015 for community banks such as us. All of the rules were fully phased in as of January 1, 2019. These final rules
represent a significant change to the prior general risk-based capital rules and are designed to substantially conform to the
Basel III international standards.
In computing total risk-weighted assets, bank and bank holding company assets are given risk-weights of 0%, 20%,
50%, 100% and 150%. In addition, certain off-balance sheet items are given similar credit conversion factors to convert
them to asset equivalent amounts to which an appropriate risk-weight will apply. Most loans will be assigned to the 100%
risk category, except for performing first mortgage loans fully secured by 1-to-4 family and certain multi-family residential
property, which carry a 50% risk rating. Most investment securities (including, primarily, general obligation claims on states
or other political subdivisions of the United States) will be assigned to the 20% category, except for municipal or state
revenue bonds, which have a 50% risk-weight, and direct obligations of the U.S. Treasury or obligations backed by the full
faith and credit of the U.S. government, which have a 0% risk-weight. In covering off-balance sheet items, direct credit
substitutes, including general guarantees and standby letters of credit backing financial obligations, are given a 100%
conversion factor. Transaction-related contingencies such as bid bonds, standby letters of credit backing nonfinancial
obligations, and undrawn commitments (including commercial credit lines with an initial maturity of more than one year)
have a 50% conversion factor. Short-term commercial letters of credit are converted at 20% and certain short-term
unconditionally cancelable commitments have a 0% factor.
Under the final rules, minimum requirements increased for both the quality and quantity of capital held by banking
organizations. In this respect, the final rules implement strict eligibility criteria for regulatory capital instruments and improve
the methodology for calculating risk-weighted assets to enhance risk sensitivity. Consistent with the international Basel III
framework, the rules include a new minimum ratio of Common Equity Tier 1 Capital to Risk-Weighted Assets of 4.5%. The
rules also create a Common Equity Tier 1 Capital conservation buffer of 2.5% of risk -weighted assets. This buffer is added
to each of the three risk-based capital ratios to determine whether an institution has established the buffer. The rules raise
the minimum ratio of Tier 1 Capital to Risk-Weighted Assets from 4% to 6% and include a minimum leverage ratio of 4% for
all banking organizations. If a financial institution’s capital conservation buffer falls below 2.5% — e.g., if the institution’s
Common Equity Tier 1 Capital to Risk -Weighted Assets is less than 7.0% — then capital distributions and discretionary
payments will be limited or prohibited based on the size of the institution’s buffer. The types of payments subject to this
limitation include dividends, share buybacks, discretionary payments on Tier 1 instruments, and discretionary bonus
payments.
The new capital regulations may also impact the treatment of accumulated other comprehensive income, or AOCI, for
regulatory capital purposes. Under the new rules, AOCI generally flows through to regulatory capital, however, community
banks and their holding companies (if any) may make a one-time irrevocable opt-out election to continue to treat AOCI the
same as under the old regulations for regulatory capital purposes. This election was required to be made on the first call
report filed after January 1, 2015. We made the opt-out election. Additionally, the new rules also permit community banks
with less than $15.0 billion in total assets to continue to count certain non-qualifying capital instruments issued prior to May
19, 2010 as Tier 1 capital, including trust preferred securities and cumulative perpetual preferred stock (subject to a limit of
25% of Tier 1 capital). However, non-qualifying capital instruments issued on or after May 19, 2010 do not qualify for Tier 1
capital treatment.
On September 17, 2019, the federal banking agencies jointly finalized a rule to be effective January 1, 2020 and
intended to simplify the regulatory capital requirements described above for qualifying community banking organizations
that opt into the Community Bank Leverage Ratio, or CBLR, framework, as required by Section 201 of the Regulatory Relief
Act. The final rule became effective on January 1, 2020, and the CBLR framework became available for banks to use
beginning with their March 31, 2020 call reports. Under the final rule, if a qualifying community banking organization opts
into the CBLR framework and meets all requirements under the framework, it will be considered to have met the well-
capitalized ratio requirements under the prompt corrective action regulations described elsewhere in this offering circular
and will not be required to report or calculate risk-based capital. In order to qualify for the CBLR framework, a community
banking organization must have a tier 1 leverage ratio of greater than 9%, less than $10.0 billion in total consolidated assets,
off-balance sheet exposures of 25% or less of total consolidated assets, and trading assets and liabilities of 5% or less of
10 USCB Financial Holdings, Inc. 2021 10-K
total consolidated assets. However, Section 4012 of the CARES Act required that the CBLR be temporarily lowered to 8%.
The federal regulators issued a rule implementing the lower CBLR effective April 23, 2020. The rule also established a two-
quarter grace period for a qualifying institution whose leverage ratio falls below the 8% CBLR requirement so long as the
bank maintains a leverage ratio of 7% or greater. Another rule was issued to transition back to the 9% CBLR by increasing
the ratio to 8.5% for calendar year 2021 and 9% thereafter. 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, 2021 and 2020, the Bank qualified as a “well capitalized” institution. See Note 15 “Regulatory
Matters” of the Consolidated Financial Statements filed herewith for further details.
Prompt Corrective Action
Under the Federal Deposit Insurance Act (“FDIA”), the federal bank regulatory agencies must take "prompt corrective
action" against undercapitalized U.S. depository institutions. The capital-based regulatory framework contains five
categories of compliance with regulatory capital requirements, including "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically undercapitalized," and depository institutions are
subjected to differential regulation corresponding to the capital category within which the institution falls.
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. 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. 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. 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, depending upon the severity of the capital deficiency .
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 unacceptably high levels of commercial real estate concentration risk. An institution that has (i)
experienced rapid growth in commercial real estate lending, (ii) notable exposure to a specific type of commercial real
estate, (iii) total reported loans for construction, land development, and other land representing 100% or more of total capital,
or (iv) total commercial real estate (including construction) loans representing 300% or more of total capital and the
outstanding balance of the institutions commercial real estate portfolio has increased by 50% or more in the prior 36 months,
may be identified for further supervisory analysis of a potential concentration risk.
As of December 31, 2021, our ratio of construction loans to total capital was 30%, and therefore, we were under the
100% threshold set forth in clause (iii) in the paragraph above. With respect to clause (iv) in the paragraph above, as of
December 31, 2021, our ratio of total commercial real estate loans to total capital was 298%, but the outstanding balance
of our commercial real estate portfolio has not increased by 50% or more in the prior 36 months. As a result, we are not
deemed to have a concentration in commercial real estate lending under applicable regulatory guidelines.
11 USCB Financial Holdings, Inc. 2021 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 stock 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. Insured depository institutions are also prohibited from paying management fees to any controlling persons or
other affiliates or, with certain limited exceptions, making capital distributions, including dividends, if after such transaction
the institution would be less than adequately capitalized. Under Florida law, we may generally declare a dividend from
retained net profits which accrued prior to the preceding two years, but we must, before the declaration of a dividend on our
common stock, carry 20% of our net profits for such preceding period as is covered by the dividend to our surplus fund, until
the same shall at least equal the amount of our common stock and preferred stock then issued and outstanding. Under
Florida law, we are prohibited from declaring a dividend at any time at which our net income from the current year combined
with the retained net income from the preceding two years is a loss or which would cause our capital accounts to fall below
the minimum amount required by law, regulation, order, or any written agreement with a state or federal regulatory agency.
In addition, because we are a BHC, we are dependent upon the payment of dividends by the Bank as our principal
source of funds to pay dividends in the future, if any, and to make other payments. It is the policy of the Federal Reserve
Board that BHCs should pay cash dividends on common stock only out of income available over the past year and only if
prospective earnings retention is consistent with the organization’s expected future needs and financial condition. The policy
provides that a BHC should not pay cash dividends at a level that undermines the BHC’s ability to serve as a source of
strength to its banking subsidiaries.
Incentive Compensation
Guidelines adopted by the federal banking agencies pursuant to the FDIA prohibit excessive compensation as an unsafe
and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or
disproportionate to the services performed by an executive officer, employee, director or principal shareholder.
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. This guidance, which covers all employees that have the ability to
expose the organization to material amounts of risk, either individually or as part of a group, is based upon a set of key
principles relating to a banking organization’s incentive compensation arrangements. Specifically, incentive compensation
arrangements should (i) provide employee incentives that appropriately balance risk in a manner that does not encourage
employees to expose their organizations to imprudent risk, (ii) be compatible with effective controls and risk management,
and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board
of directors. Any deficiencies in our compensation practices could lead to supervisory or enforcement actions by the FDIC.
The Dodd-Frank Act requires the federal banking agencies and the SEC to establish joint regulations or guidelines
prohibiting incentive-based payment arrangements at specified regulated entities, such as us, having at least $1.0 billion in
total assets that encourage inappropriate risk-taking by providing an executive officer, employee, director or principal
shareholder with excessive compensation, fees, or benefits or that could lead to material financial loss to the entity. In
addition, these regulators must establish regulations or guidelines requiring enhanced disclosure to regulators of incentive-
based compensation arrangements. The federal banking agencies proposed such regulations in April 2011 and issued a
second proposed rule in April 2016. The second proposed rule would apply to all banks with at least $1.0 billion in average
total consolidated assets. Final regulations have not been adopted as of the date hereof. If adopted, these or other similar
regulations would impose limitations on the manner in which we may structure compensation for our executives and other
employees that could go beyond the requirements of GSICP. The scope and content of the federal banking agencies’
policies on incentive compensation are continuing to develop and are likely to continue evolving, but the timeframe for
finalization of such policies is not known at this time.
12 USCB Financial Holdings, Inc. 2021 10-K
Limits on Transactions with Affiliates and Insiders
Insured depository institutions are subject to restrictions on their ability to conduct transactions with affiliates and other
related parties. Section 23A of the Federal Reserve Act imposes quantitative limits, qualitative requirements, and collateral
requirements on certain loan transactions by an insured depository institution with, or for the benefit of, its affiliates.
Transactions covered by Section 23A include loans, extensions of credit, investment in securities issued by an affiliate, and
acquisitions of assets from an affiliate. Section 23B of the Federal Reserve Act requires that most types of transactions by
an insured depository institution with, or for the benefit of, an affiliate be on terms at least as favorable to the insured
depository institution as if the transaction were conducted between the insured depository institution and an unaffiliated third
party.
An affiliate of a bank is any entity that controls, is controlled by or is under common control with the bank. In a holding
company context, the parent bank holding company, such as USCB Financial Holdings, Inc., and any companies that are
controlled by such parent holding company (excluding subsidiaries of the bank) are affiliates of the bank.
Loans to executive officers and directors of an insured depository institution or any of its affiliates or to any person who
directly or indirectly, or acting through or in concert with one or more persons, owns, controls or has the power to vote more
than 10% of any class of voting securities of a bank, which we refer to as 10% shareholders, or to any political or campaign
committee the funds or services of which will benefit those executive officers, directors, or 10% shareholders or which is
controlled by those executive officers, directors or 10% shareholders, are subject to Sections 22(g) and 22(h) of the Federal
Reserve Act and the corresponding regulations (Regulation O) and Section 13(k) of the Exchange Act (as applied to us
through FDIC regulations) relating to the prohibition on personal loans to executives (which exempts financial institutions in
compliance with the insider lending restrictions of Section 22(h) of the Federal Reserve Act).
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. As a general matter, the maximum deposit
insurance amount which an insured bank may offer is $250 thousand per depositor.
Additionally, FDIC-insured depository institutions are required to pay deposit insurance assessments to the FDIC. The
amount of a particular institution's deposit insurance assessment is based on that institution's risk classification under an
FDIC risk-based assessment system. An institution's risk classification is assigned based on its capital levels and the level
of supervisory concern the institution poses to the regulators.
Under the current system, deposit insurance assessments are based on a bank’s assessment base, which is defined
as average total assets minus average tangible equity. For established small institutions, such as the Bank, the FDIC sets
deposit assessment rates based on the Financial Ratios Method, which takes into account several ratios that reflect
leverage, asset quality, and earnings at each individual institution and then applies a pricing multiplier that is the same for
all institutions. An institution’s rate must be within a certain minimum and a certain maximum range, and the range varies
based on the institution’s composite CAMELS rating. The deposit insurance assessment is calculated by multiplying the
bank’s assessment base by the total base assessment rate.
Under the FDIA, the FDIC may terminate deposit insurance upon a finding that the institution has engaged in unsafe
and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law,
regulation, rule, order, or condition imposed by the FDIC.
Depositor Preference
The FDIA provides that, in the event of the "liquidation or other resolution" of an insured depository institution, the claims
of depositors of the institution (including the claims of the FDIC as subrogee of insured depositors) and certain claims for
administrative expenses of the FDIC as a receiver will have priority over other general unsecured claims against the
institution. Insured and uninsured depositors will have priority in payment ahead of unsecured, non-deposit creditors,
including the Company, with respect to any extensions of credit they may have made to such insured depository institution.
Overdraft Fee Regulation
The Electronic Fund Transfer Act prohibits financial institutions from charging consumers fees for paying overdrafts on
automated teller machines, or ATMs, and one-time debit card transactions, unless a consumer consents, or opts in, to the
overdraft service for those types of transactions. If a consumer does not opt in, any ATM transaction or debit that overdraws
13 USCB Financial Holdings, Inc. 2021 10-K
the consumer’s account will be denied. Overdrafts on the payment of checks and regular electronic bill payments are not
covered by this new rule. Before opting in, the consumer must be provided with a notice that explains the financial
institution’s overdraft services, including the fees associated with the service, and the consumer’s choices with respect to
participating in the overdraft service offering. Financial institutions must provide consumers who do not opt in with the same
account terms, conditions and features (including pricing) that they provide to consumers who do opt in.
Federal 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. It is funded primarily from funds deposited by member institutions and
proceeds from the sale of consolidated obligations of the FHLB system. A FHLB makes loans to members (i.e., advances)
in accordance with policies and procedures established by the Board of Trustees of the FHLB.
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
0.09% (or 9 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 $15.0 million), plus 4.25% of its outstanding advances (borrowings) from the FHLB of Atlanta
under the activity-based stock ownership requirement.
Anti-Money Laundering Regulation
As a financial institution, the Bank 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, 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. Financial institutions are prohibited from entering
into certain specified financial transactions and account relationships and must meet enhanced standards for due diligence
and “knowing your customer” in their dealings with foreign financial institutions, foreign customers and other high risk or
sanctioned customers. Financial institutions must also take reasonable steps to conduct enhanced scrutiny of account
relationships to guard against money laundering and to report transactions that meet certain dollar amount thresholds as
well as any suspicious transactions. Certain 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. Bank
regulators routinely examine institutions for compliance with these obligations, and this area has become a particular focus
of the regulators in recent years. In addition, the regulators are required to consider compliance with the USA PATRIOT Act
in connection with the regulatory review of certain applications. In recent years, regulators have expressed concern over
banking institutions’ compliance with anti-money laundering requirements and, in some cases, have delayed approval of
their expansionary proposals because of deficiencies in such institutions’ anti-money laundering programs. The regulators
and other governmental authorities have been active in imposing “cease and desist” orders and significant civil money
penalty sanctions against institutions found to be in violation of the anti-money laundering regulations.
The Office of Foreign Assets Control
The Office of Foreign Assets Control (the “OFAC ”) is responsible for helping to ensure that U.S. entities do not engage
in transactions with “enemies” of the United States, as defined by various Executive Orders and Acts of Congress. OFAC
publishes lists of names of persons and organizations suspected of aiding, harboring or engaging in terrorist acts; owned
or controlled by, or acting on behalf of target countries; and narcotics traffickers. Such persons are referred to as
“sanctioned” persons.
If a bank finds a name on any transaction, account or wire transfer that is on an OFAC list, it must freeze the account
and/or block the transaction or wire transfer. We utilize an outside vendor to oversee the daily monitoring and surveillance
of our accounts and the filing of any notifications. We also monitor high-risk OFAC areas such as new accounts, wire
transfers and customer files. These checks are performed using software that is updated each time a modification is made
to the lists provided by OFAC and other agencies of Specially Designated Nationals and Blocked Persons.
14 USCB Financial Holdings, Inc. 2021 10-K
Consumer Laws and Regulations
Our activities are subject to a variety of federal and state statutes and regulations designed to protect consumers in
transactions with banks. Interest and other charges collected or contracted for by us are subject to state usury laws and
federal laws concerning interest rates. Our loan operations are also subject to federal laws applicable to credit transactions,
such as:
• the Truth-In-Lending Act, or TILA, and Regulation Z, governing disclosures of credit and servicing terms to
consumer borrowers and including substantial 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 deposit operations are also subject to federal laws, such as:
• the FDIA, which, among other things, limits the amount of deposit insurance available per depositor to $250
thousand 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
• 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.
These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial
institutions must deal with clients when taking deposits or making loans to such clients. We must comply with the applicable
provisions of these consumer protection laws and regulations as part of both our ongoing client relations and our regulatory
compliance obligations.
Financial Privacy and Cybersecurity
Banking organizations are subject to many federal and state laws and regulations governing the collection, use and
protection of customer information. Under the privacy protection provisions of the Gramm-Leach-Bliley Act of 1999 and
related regulations, we are limited in our ability to disclose non-public information about consumers to nonaffiliated third
parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers
to prevent disclosure of certain personal customer information to nonaffiliated third parties. Federal banking agencies,
including the FDIC, have adopted guidelines for establishing information security standards and cybersecurity programs for
implementing safeguards. These guidelines, along with related regulatory guidance, increasingly focus on risk management
and processes related to information technology and the use of third parties in the provision of financial services.
In addition to federal laws and regulations, we are subject to state laws governing customer privacy and cybersecurity.
The Florida Information Protection Act of 2014 requires notification to the Florida Department of Legal Affairs of any breach
involving personal information that affects more than 500 people as well as requiring notification of affected individuals of
any such breach. The Act also requires us to take reasonable measures to protect and secure data in electronic form
containing personal information and take all reasonable measures to dispose, or arrange for the disposal, of customer
records containing personal information within our custody or control when the records are no longer to be retained. We
incur significant costs and expenses in order to address compliance with the federal and state customer privacy and
cybersecurity laws and regulations, and we expect such costs and expenses will continue into the future.
15 USCB Financial Holdings, Inc. 2021 10-K
Consumer Financial Protection Bureau
The Consumer Financial Protection Bureau (“CFPB”) is an independent regulatory authority housed within the Federal
Reserve. The CFPB has broad authority to regulate the offering and provision of consumer financial products and to prevent
institutions subject to its authority from engaging in “unfair and deceptive or abusive acts or practices” with respect to their
offering of consumer financial products or services. The CFPB has the authority to supervise and examine depository
institutions with more than $10.0 billion in assets for compliance with federal consumer laws. The authority to supervise and
examine depository institutions with $10.0 billion or less in assets, such as our Bank, for compliance with federal consumer
laws remains largely with those institutions’ primary regulators. However, the CFPB may participate in examinations of these
smaller institutions on a “sampling basis” and may refer potential enforcement actions against such institutions to their
primary regulators. As such, the CFPB may participate in examinations of our Bank. In addition, states are permitted to
adopt consumer protection laws and regulations that are stricter than the regulations promulgated by the CFPB, and state
attorneys general are permitted to enforce consumer protection rules adopted by the CFPB against certain institutions.
The Volcker Rule
The Dodd-Frank Act prohibits (subject to certain exceptions) us and our affiliates from engaging in short term proprietary
trading in securities and derivatives and from investing in and/or sponsoring certain investment companies defined in the
rule as “covered funds” (including not only hedge funds, commodity pools and private equity funds, but also a range of asset
securitization structures that do not meet exemptive criteria in the final rules). This statutory provision is commonly called
the “Volcker Rule.” At December 31, 2021, we are not subject to the Volcker Rule because of our asset size, which is below
the $10.0 billion in assets Volcker Rule threshold.
Community Reinvestment Act and Fair Lending Requirements
We are subject to certain fair lending requirements and reporting obligations involving home mortgage lending
operations. We are also subject to certain requirements and reporting obligations under the federal Community
Reinvestment Act (“CRA”). The CRA and its corresponding regulations are intended to encourage banks to help meet the
credit needs of the communities they serve, including low- and moderate-income neighborhoods, consistent with safe and
sound banking practices.
Accordingly, the CRA generally requires federal banking agencies to evaluate the record of a financial institution in
meeting applicable CRA requirements. The CRA further requires the agencies to take into account our record of meeting
community credit needs when evaluating applications for, among other things, new banking centers or mergers. We are
also subject to analogous state CRA requirements in Florida and certain other states in which we may establish banking
centers. In connection with their assessments of CRA performance, the FDIC and FOFR assign a rating of “outstanding,”
“satisfactory,” “needs to improve,” or “substantial noncompliance.” The Bank received a “satisfactory” CRA Assessment
Rating from both regulatory agencies in our most recent CRA examinations. In addition to substantive penalties and
corrective measures that may be required for a violation of certain fair lending laws, the federal banking agencies may take
compliance with such laws and CRA into account when regulating and supervising other activities of the bank, including in
acting on expansionary proposals such as when a bank submits an application to establish bank centers, merge with another
bank, or acquire the assets and assume the liabilities of another bank. An unsatisfactory CRA and/or fair lending record
could substantially delay or block any such transaction. The regulatory agency's assessment of the institution's record is
made available to the public at www.ffiec.gov/craratings .
Call Reports and Examination Cycle
All banking institutions, regardless of size, submit a quarterly call report to their primary federal bank regulator that
includes data used by federal banking agencies to monitor the condition, performance, and risk profile of individual
institutions and the industry as a whole. In June 2019, the federal banking agencies issued a final rule to permit insured
depository institutions with total assets of less than $5.0 billion that do not engage in certain complex or international
activities to file the most streamlined version of the quarterly call report, and to reduce data reportable on certain streamlined
call report submissions.
Effect of Governmental Monetary Policies
The commercial banking business is affected not only by general economic conditions, but also by the monetary policies
of the Federal Reserve. Changes in the discount rate on member bank borrowing, availability of borrowing at the “discount
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
16 USCB Financial Holdings, Inc. 2021 10-K
available to the Federal Reserve. These monetary policies are used in varying combinations to influence overall growth and
distributions of bank loans, investments and deposits, which may affect interest rates charged on loans or paid on deposits.
The monetary policies of the Federal Reserve have had a significant effect on the operating results of commercial banks
and are expected to continue to do so in the future. The Federal Reserve’s policies are primarily influenced by the dual
mandate of price stability and full employment in the U.S., and to a lesser degree by short-term and long-term changes in
the international trade balance and in the fiscal policies of the U.S. government. Future changes in monetary policy and the
effect of such changes on our business and earnings in the future cannot be predicted.
Future Legislation and Regulation
Congress may enact legislation from time to time that affects the regulation of the financial services industry, and state
legislatures may enact legislation from time to time affecting the regulation of financial institutions chartered by or operating
in those states. Federal and state regulatory agencies also periodically propose and adopt changes to their regulations or
change the manner in which existing regulations are applied or interpreted. The substance or impact of pending or future
legislation or regulation, or the application thereof, cannot be predicted, although enactment of proposed legislation has in
the past and may in the future affect the regulatory structure under which we operate and may significantly increase our
costs, impede the efficiency of our internal business processes, require us to increase our regulatory capital or modify our
business strategy, or limit our ability to pursue business opportunities in an efficient manner. Our business, financial
condition, results of operations or prospects may be adversely affected, perhaps materially, as a result of any such new
legislation or regulations.
The CARES Act and Initiatives Related to COVID-19
On March 27, 2020, the CARES Act was signed into law and provided for approximately $2.2 trillion in direct economic
relief in response to the public health and economic impacts of COVID-19. Many of the CARES Act’s programs are, and
remain, dependent upon the direct involvement of financial institutions like us. These programs have been implemented
through rules and guidance adopted by federal departments and agencies, including the U.S. Department of Treasury, the
Federal Reserve and other federal bank regulatory authorities, including those with direct supervisory jurisdiction over us.
Furthermore, as the COVID-19 pandemic evolves, federal regulatory authorities continue to issue additional guidance with
respect to the implementation, life cycle, and eligibility requirements for the various CARES Act programs, as well as
industry-specific recovery procedures for COVID-19. In addition, it is possible that Congress will enact supplementary
COVID-19 response legislation, including amendments to the CARES Act or new bills comparable in scope to the CARES
Act. We continue to assess the impact of the CARES Act, the Consolidated Appropriations Act, 2021 and the potential
impact of new COVID-19 legislation and other statutes, regulations and supervisory guidance related to the COVID-19
pandemic.
A principal provision of the CARES Act amended the SBA’s loan program to create a guaranteed, unsecured loan
program, the Paycheck Protection Program, or PPP, to fund operational costs of eligible businesses, organizations and self-
employed persons impacted by COVID -19. These loans are fully guaranteed by the SBA and are eligible to be forgiven if
certain conditions are satisfied. Additionally, loan payments will also be deferred for the first six months of the loan term.
The PPP commenced on April 3, 2020 and was available to qualified borrowers through August 8, 2020. No collateral or
personal guarantees were required. On December 27, 2020, President Trump signed the Consolidated Appropriations Act,
2021 into law which included the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, or the HHSB
Act. Among other things, the HHSB Act renewed the PPP, allocating $284.5 billion for both new first time PPP loans under
the existing PPP and the expansion of existing PPP loans for certain qualified, existing PPP borrowers. In addition to
extending and amending the PPP, the HHSB Act also creates a new grant program for “shuttered venue operators.” As of
December 31, 2021, we had 414 active PPP loans remaining totaling $42.4 million in outstanding principal balances.
The CARES Act, as extended by certain provisions of the Consolidated Appropriations Act, 2021, permits banks to
suspend requirements under generally accepted accounting principles (“GAAP”) for loan modifications to borrowers affected
by COVID-19 that may otherwise be characterized as troubled debt restructurings and suspend any determination related
thereto if (i) the borrower was not more than 30 days past due as of December 31, 2019, (ii) the modifications are related
to COVID-19, and (iii) the modification occurs between March 1, 2020 and the earlier of 60 days after the date of termination
of the national emergency or January 1, 2022. Federal bank regulatory authorities also issued guidance to encourage banks
to make loan modifications for borrowers affected by COVID-19. As of December 31, 2021, there were no loans in our
portfolio in deferral status associated with the COVID-19 pandemic.
See Note 3 “Loans” of the Consolidated Financial Statements filed herewith for further details.
17 USCB Financial Holdings, Inc. 2021 10-K
Available Information
Our website address is www.uscentury.com. Our electronic filings with the FDIC and the SEC (including all Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and if applicable, amendments to
those reports) are available free of charge on the website as soon as reasonably practicable after they are electronically
filed with, or furnished to, the FDIC or SEC. The information posted on our website is not incorporated into this Annual
Report. In addition, the FDIC and the SEC maintains a website that contains reports and other information that is filed.
18 USCB Financial Holdings, Inc. 2021 10-K
Item 1A. Risk Factors
This section contains a description of the material risk and uncertainties identified by management that could,
individually or in combination, harm our business, results of operations, liquidity and financial condition. The risks described
below are not all inclusive. We may face other risks that are not presently known, or that we presently deem immaterial.
Summary of Risk Factors
Our business is subject to a number of risks that could cause actual results to differ materially from those indicated by
forward-looking statements made in this Form 10-K or presented elsewhere from time to time. These risks are discussed
more fully in this Item 1A and include, without limitation, the following:
Risks Related to our Business and Operations
• 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 ongoing COVID-19 pandemic has adversely impacted and could continue to adversely impact us.
• 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.
• Our allowance for credit losses may not be sufficie nt to absorb potential losses in our loan portfolio.
• Our commercial loan portfolio may expose us to increased credit risk.
• 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.
• 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.
19 USCB Financial Holdings, Inc. 2021 10-K
• 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.
Risks Related to Our Tax, Accounting and Regulatory Compliance
• We may be unable to recognize the benefits of deferred tax assets.
• The accuracy of our financial statements could be affected by our judgments, assumptions or estimates.
• As a new public company, we may not create an effective internal control environment.
• We operate in a highly regulated environment.
• Our participation in the SBA PPP loan program exposes us to noncompliance risk and litigation risk.
• We face a risk of noncompliance with the Bank Secrecy Act and other anti-money laundering laws.
• We are subject to capital adequacy requirements that may become more stringent.
• We are periodically subject to examination and scrutiny by a number of banking agencies.
• We are subject to numerous laws and regulations of certain regulatory agencies designed to protect consumers.
Risks Related to Our Class A Common Stock
• We do not anticipate paying dividends on our common stock.
• The market price and trading volume of our Class A common stock may be volatile.
• There are significant restrictions in our Articles of Incorporation that restrict the ability to sell our capital stock.
• We are an emerging growth company and have decided to take advantage of certain exemptions from various
reporting and other requirements applicable to emerging growth companies.
• We have existing investors that own a significant amount of our common stock whose individual interests may differ
from yours.
• Provisions in our governing documents and Florida law may have an anti-takeover effect and there are substantial
regulatory limitations on changes of control of the Company.
20 USCB Financial Holdings, Inc. 2021 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.
Unlike many of our larger competitors that maintain significant operations located outside of our market area, most of
our customers are concentrated in South Florida. In addition, we have a high concentration of loans secured by real estate
located in South Florida. Therefore, our success depends upon the general economic conditions in South Florida, which
may differ from the economic conditions in other areas of the U.S. or the U.S. generally.
Our real estate collateral provides an alternate source of repayment in the event of default by the borrower; however,
the value of the collateral may decline during the time the credit is outstanding. The concentration of our loans in the South
Florida area subjects us to risk that a downturn in the local economy or recession in this area could result in a decrease in
loan originations and increases in delinquencies and foreclosures, which would have a greater negative effect on us than if
our lending were more geographically diversified. If we are required to liquidate our real estate collateral securing a loan
during a period of reduced real estate values to satisfy the debt, our earnings and capital could be adversely affected.
Moreover, since a large portion of our 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. We may suffer further losses due to the decline in the value of the properties underlying our mortgage loans, which
would have an adverse impact on our results of operations and financial condition.
A downturn in the local economy generally may lead to loan losses that are not offset by operations in other markets; it
may also reduce the ability of our customers to grow or maintain their deposits with us. For these reasons, any regional or
local economic downturn that affects South Florida, or existing or prospective borrowers or depositors in South Florida,
could have a material adverse effect on our business, financial condition and results of operations.
In addition, there are continuing concerns related to, among other things, the 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 increasing oil prices due to Russian
supply disruptions, each of which may have a destabilizing effect on financial markets and economic activity. Economic
pressure on consumers and overall economic uncertainty may result in changes in consumer and business spending,
borrowing and saving habits. These economic conditions and/or other negative developments in the domestic or
international credit markets or economies may significantly affect the markets in which we do business, the value of our
loans and investments, and our ongoing operations, costs and profitability.
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. SMBs generally
have fewer financial resources in terms of capital or borrowing capacity than larger entities, frequently have smaller market
shares than their competition, may be more vulnerable to economic downturns, often need substantial additional capital to
expand or compete, and may experience substantial volatility in operating results, any of which, individually or in the
aggregate, may impair their ability as a borrower to repay a loan. These factors may impact SMBs significantly more as a
result of the effects of the COVID-19 pandemic. In addition, the success of SMBs often depends on the management skills,
talents and efforts of a small group of key people, and the death, disability or resignation of one or more of these individuals
could have an adverse impact on the business and its ability to repay its loan. If general economic conditions negatively
impact the markets in which we operate or any of our borrowers otherwise are affected by adverse business developments,
our SMB borrowers may be disproportionately affected and their ability to repay outstanding loans may be negatively
affected, which could have a material adverse effect on our business, financial condition and results of operations.
21 USCB Financial Holdings, Inc. 2021 10-K
The ongoing COVID-19 pandemic and resulting substantial disruption to global and domestic economies has
adversely impacted, and could continue to adversely impact, our business operations, asset valuations, and
financial results.
The ongoing COVID-19 pandemic has created global and domestic economic and financial disruptions that have
adversely affected, and could continue to adversely affect, our business operations, asset valuations and financial results.
The pandemic has negatively impacted the global and domestic economies, disrupted supply chains, lowered certain equity
market valuations in certain sectors, and created significant volatility and disruption in financial markets. Certain large,
medium and small businesses within certain industries have been particularly hard hit both in the U.S. and internationally,
including the aviation industry, the travel, hotel and hospitality industry, the restaurant industry, property management
industry and the retail industry. In addition, the pandemic has resulted in remote working environments, travel restrictions,
business entry requirements, and proposed return-to-office vaccination and testing requirements. Should the negative
economic impacts of COVID-19 persist or worsen, this could have a continued adverse impact on our business, financial
condition and results of operations, as these circumstances continue to impact our core SMB customers. Additionally, an
expected recovery from the impacts of COVID-19 may not occur as fast as anticipated, and any such recovery may not
yield the same benefits to us as other financial institutions or other companies in other industries.
Because there have been no comparable recent global pandemics or similar disruptions that resulted in a similar global
impact, the full extent to which the COVID-19 pandemic will impact our business operations, asset valuations and financial
results will depend on future developments which remain uncertain and cannot be predicted at this time. These include the
scope and duration of the pandemic, including the introduction of new strains of the virus, the efficacy and distribution of,
and participation in, vaccination programs, the continued effectiveness of our business continuity plan, the direct and indirect
impact of the pandemic on our employees, customers and third-party service providers, as well as other market participants,
and the effectiveness of actions taken by governmental authorities and other third parties in response to the pandemic. If
the pandemic continues to spread, morph or otherwise results in a continuation or worsening of the current economic and
commercial environments, our business, financial condition, results of operations, cash flows, and ability to pay dividends,
as well as our regulatory capital and liquidity ratios could be materially adversely affected.
Changes in U.S. trade policies and other global political factors beyond our control, including the imposition
of tariffs, retaliatory tariffs, or other sanctions, may adversely impact our business, financial condition and results
of operations.
There have been, and may be in the future, changes with respect to U.S. and international trade policies, legislation,
treaties and tariffs, embargoes, sanctions and other trade restrictions. Tariffs, retaliatory tariffs or other trade restrictions on
products and materials that customers import or export, or a trade war or other related governmental actions related to
tariffs, international trade agreements or policies or other trade restrictions have the potential to negatively impact our
customers' costs, demand for our products, or the U.S. economy or certain sectors thereof and, thus, could adversely impact
our business, financial condition and results of operations. As a result of Russia's invasion of Ukraine, the U.S. has imposed,
and is likely to impose material additional, financial and economic sanctions and export controls against certain Russian
organizations and/or individuals, with similar actions either implemented or planned by the European Union ("EU") and the
U.K. and other jurisdictions. The U.S., the U.K., and the EU each imposed packages of financial and economic sanctions
that, in various ways, constrain transactions with numerous Russian entities and individuals; transactions in Russian
sovereign debt; and investment, trade, and financing to, from, or in certain regions of Ukraine. Moreover, actions by Russia,
and any further measures taken by the U.S. or its allies, could have negative impacts on regional and global financial
markets and economic conditions. To the extent changes in the global political environment, including 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.
Our lending business is subject to credit risk, which could lead to unexpected losses.
Our primary business involves making loans to customers. The business of lending is inherently risky because the
principal or interest on the loan may not be repaid timely or at all or the value of any collateral securing the loan may be
insufficient to cover our outstanding exposure. These risks may be affected by the strength or weakness of the particular
borrower's business sector and local, regional and national market and economic conditions. Many of our loans are made
to SMBs that may be less able to withstand competitive, economic and financial pressures than larger borrowers. Our risk
management practices, such as monitoring the concentration of our loans within specific industries in which we lend and
concentrations with individual borrowers or related borrowers, and our credit approval practices, may not adequately reduce
credit risk. In addition, there are risks inherent in making any loan, including risks relating to proper loan underwriting, risks
resulting from changes in economic and industry conditions, risks inherent in dealing with individual borrowers, including
the risk that a borrower may not provide information to us about their business in a timely manner, may present inaccurate
22 USCB Financial Holdings, Inc. 2021 10-K
or incomplete information to us, may lack a U.S. credit history, or may leave the U.S. without fulfilling their loan obligations,
leaving us with little recourse to them personally, and/or risks relating to the value of collateral. In order to manage credit
risk successfully, we must, among other things, maintain disciplined and prudent underwriting standards and ensure that
our lenders follow those standards. The weakening of these standards for any reason, such as an attempt to attract higher
yielding loans, a lack of discipline or diligence by our employees in underwriting and monitoring loans, the inability of our
employees to adequately adapt policies and procedures to changes in economic or any other conditions affecting borrowers
and the quality of our loan portfolio, may result in loan defaults, foreclosures and additional charge-offs and may necessitate
that we significantly increase our allowance for credit losses, each of which could adversely affect our net income. A failure
to effectively manage credit risk associated with our loan portfolio could lead to unexpected losses and have a material
adverse effect on our business, financial condition and results of operations.
The potential for the replacement or discontinuation of London Inter-bank Offered Rate, or LIBOR, as a
benchmark interest rate and a transition to an alternative reference interest rate could present operational
problems and result in market disruption.
In 2017, the Financial Conduct Authority announced that after 2021 it will no longer compel banks to submit the rates
required to calculate LIBOR. In November 2020, the administrator of LIBOR announced it will consult on its intention to
extend the retirement date of certain offered rates whereby the publication of the one week and two month LIBOR offered
rates will cease after December 31, 2021; but, the publication of the remaining LIBOR offered rates will continue until June
30, 2023. Given consumer protection, litigation, and reputation risks, the bank regulatory agencies have indicated that
entering into new contracts that use LIBOR as a reference rate after December 31, 2021 would create safety and soundness
risks and that they will examine bank practices accordingly. Therefore, the agencies encouraged banks to cease entering
into new contracts that use LIBOR as a reference rate as soon as practicable and in any event by December 31, 2021.
There is uncertainty as to what rate or rates may become accepted alternatives to LIBOR, or what the effect of any
such changes in views or alternatives may be on the markets for LIBOR-indexed financial instruments. In response, the
Board of Governors of the Federal Reserve System, or the Federal Reserve, based on the recommendations of the New
York Federal Reserve's Alternative Reference Rate Committee, has begun publishing SOFR, which is intended to replace
LIBOR, and has encouraged banks to transition away from LIBOR as soon as practicable. Although SOFR appears to be
the preferred replacement rate for LIBOR, there are conceptual and technical differences between LIBOR and SOFR that
remain unresolved at this time. Accordingly, it is unclear if other benchmarks may emerge or if other rates will be adopted
outside of the United States. The replacement of LIBOR also may result in economic mismatches between different
categories of instruments that now consistently rely on the LIBOR benchmark. Markets are slowly developing in response
to these new rates, and questions around liquidity in these rates and how to appropriately adjust these rates to eliminate
any economic value transfer at the time of transition remain a significant concern.
Certain of our financial products are tied to LIBOR. Inconsistent approaches to a transition from LIBOR to an alternative
rate among different market participants and for different financial products may cause market disruption and operational
problems, which could adversely affect us, including by exposing us to increased interest rate risk and associated costs,
including, but not limited to, creating the possibility of disagreements with counterparties.
Natural disasters and severe weather events in Florida could have a material adverse impact on our business,
financial condition and operations.
Our operations and our customer base are primarily located in South Florida. This region is vulnerable to natural
disasters and severe weather events or acts of God, such as hurricanes or tropical storms, which can have a material
adverse impact on our loan portfolio, our overall business, financial condition and operations, cause widespread property
damage and have the potential to significantly depress the local economies in which we operate. Future adverse weather
events in Florida could potentially result in extensive and costly property damage to businesses and residences, depress
the value of property serving as collateral for our loans, force the relocation of residents, and significantly disrupt economic
activity in the region.
We cannot predict the extent of damage that may result from such adverse weather events, which will depend on a
variety of factors that are beyond our control, including, but not limited to, the severity and duration of the event, the timing
and level of government responsiveness, the pace of economic recovery and availability of insurance to cover losses. In
addition, the nature, frequency and severity of these adverse weather events and other natural disasters may be
exacerbated by climate change. If a significant adverse weather event or other natural disaster were to occur, it could have
a materially adverse impact on our financial condition, results of operations and our business, as well as potentially increase
our exposure to credit and liquidity risks.
23 USCB Financial Holdings, Inc. 2021 10-K
Our business is subject to interest rate risk, and variations in interest rates may materially and adversely affect
our financial performance.
Changes in the interest rate environment may reduce our profits. It is expected that we will continue to realize income
from the differential or "spread" between the interest earned on loans, securities and other interest-earning assets, and the
interest paid on deposits, borrowings and other interest-bearing liabilities. Net interest spreads are affected, in part, by the
difference between the maturities and repricing characteristics of interest-earning assets and interest-bearing liabilities.
Changes in market interest rates generally affect loan volume, loan yields, funding sources and funding costs. Our net
interest spread depends on many factors that are partly or completely out of our control, including competition, general
economic conditions, and federal economic monetary and fiscal policies, and in particular, the Federal Reserve's policy
determinations with respect to interest rates. After steadily increasing the target federal funds rate in 2017 and 2018, the
Federal Reserve in 2019 decreased the target federal funds rate by 75 basis points, and in response to the COVID-19
pandemic in March 2020, effected an additional 150 basis point decrease to a range of 0.00% to 0.25% as of March 31,
2020 where it had remained until the Federal Reserve increased the target federal funds rate by 25 basis points to a range
of 0.25% to 0.50% in March 2022. A prolonged low interest rate environment could negatively impact our net interest margin
as assets reprice that are not subject to interest rate floors. The Federal Reserve Board has signaled that further increases
in rates are coming but the exact timing and extent remain unknown and are largely subject to economic conditions.
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. Following an increase in interest rates, our
ability to maintain a positive net interest spread is dependent on our ability to increase our loan offering rates, replace loans
that mature and repay or that prepay before maturity with new originations at higher rates, minimize increases on our deposit
rates, and maintain an acceptable level and composition of funding. We cannot provide assurances that we will be able to
increase our loan offering rates and continue to originate loans due to the competitive landscape in which we operate.
Additionally, we cannot provide assurances that we can minimize the increases in our deposit rates while maintaining an
acceptable level of deposits. Finally, we cannot provide any assurances that we can maintain our current levels of
noninterest-bearing deposits as customers may seek higher -yielding products when interest rates increase.
Accordingly, changes in levels of interest rates could materially and adversely affect our net interest margin, asset
quality, loan origination volume, average loan portfolio balance, liquidity, and overall profitability.
Our allowance for credit losses may not be sufficient to absorb potential losses in our loan portfolio.
We maintain an allowance for credit losses that represents management's judgment of probable losses and risks
inherent in our loan portfolio. The level of the allowance reflects management's continuing evaluation of general economic
conditions, present political and regulatory conditions, diversification and seasoning of the loan portfolio, historic loss
experience, identified credit problems, delinquency levels and adequacy of collateral. Determining the appropriate level of
our allowance for credit losses involves a degree of subjective judgment and requires management to make significant
estimates of and assumptions regarding current credit risks and future trends, all of which may undergo material changes.
Inaccurate management assumptions, deterioration of economic conditions affecting borrowers, new negative
information regarding existing loans, identification of additional problem loans or deterioration of existing problem loans,
and other factors (including third-party review and analysis), both within and outside of our control, may require us to
increase our allowance for credit losses. In addition, our regulators, as an integral part of their periodic examinations, review
our methodology for calculating, and the adequacy of, our allowance for credit losses and may direct us to make additions
to the allowance based on their judgments about information available to them at the time of their examination. Further, if
actual charge-offs in future periods exceed the amounts allocated to our allowance for credit losses, we may need additional
provisions for credit losses to restore the adequacy of our allowance for credit losses. Finally, the measure of our allowance
for credit losses depends on the adoption and interpretation of accounting standards. The Financial Accounting Standards
Board, or FASB, issued a new credit impairment model, the Current Expected Credit Loss, or CECL model, which is
expected to become applicable to us on January 1, 2023 after the FASB elected to delay implementation for smaller
reporting companies. CECL will require financial institutions to estimate and develop a provision for credit losses over the
lifetime of the loan at origination, as opposed to reserving for incurred or probable losses up to the balance sheet date.
Under the CECL model, expected credit deterioration 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. Accordingly, implementation of the CECL model could require financial
institutions, like us, to increase our allowances for credit losses from levels in place prior to the implementation of CECL.
Moreover, the CECL model may create more volatility in our level of allowance for credit losses. If we are required to
materially increase our level of allowance for credit losses for any reason, such increase could adversely affect our business,
prospects, cash flow, liquidity, financial condition and results of operations.
24 USCB Financial Holdings, Inc. 2021 10-K
Our commercial loan portfolio may expose us to increased credit risk.
Commercial business and real estate loans generally have a higher risk of loss because loan balances are typically
larger than residential real estate and consumer loans and repayment is usually dependent on cash flows from the
borrower’s business or the property securing the loan. Our commercial business loans are primarily made to small business
and middle market customers. These loans typically involve repayment that depends upon income generated, or expected
to be generated, by the property securing the loan and/or by the cash flow generated by the business borrower and may be
adversely affected by changes in the economy or local market conditions. These loans expose a lender to the risk of having
to liquidate the collateral securing these loans at times when there may be significant fluctuation of commercial real estate
values or to the risk of inadequate cash flows to service the commercial loans. Unexpected deterioration in the credit quality
of our commercial business and/or real estate loan portfolio could require us to increase our allowance for credit losses,
which would reduce our profitability and could have an adverse effect on our business, financial condition, and results of
operations.
Commercial construction loans generally have a higher risk of loss due to the assumptions used to estimate the value
of property at completion and the cost of the project, including interest. It can be difficult to accurately evaluate the total
funds required to complete a project, and construction lending often involves the disbursement of substantial funds with
repayment dependent, in large part, on the success of the ultimate project rather than the ability of a borrower or guarantor
to repay the loan from sources other than the subject project. If the assumptions and estimates are inaccurate, the value of
completed property may fall below the related loan amount. If we are forced to foreclose on a project prior to completion,
we may be unable to recover the entire unpaid portion of the loan, which would lead to losses. In addition, we may be
required to fund additional amounts to complete a project, incur taxes, maintenance and compliance costs for a foreclosed
property and may have to hold the property for an indeterminate period of time, any of which could adversely affect our
business, prospects, cash flow, liquidity, financial condition and results of operations.
Our SBA lending program is dependent upon the federal government and our status as a participant in the
SBA's Preferred Lenders Program, and we face specific risks associated with originating SBA loans and selling
the guaranteed portion thereof.
We have been approved by the SBA to participate in the SBA's Preferred Lenders Program. As an SBA Preferred
Lender, we enable our clients to obtain SBA loans without being subject to the potentially lengthy SBA approval process
necessary for lenders that are not SBA Preferred Lenders. The SBA periodically reviews the lending operations of
participating lenders to assess, among other things, whether the lender exhibits prudent risk management. When
weaknesses are identified, the SBA may request corrective actions or impose enforcement actions, including revocation of
the lender's Preferred Lender status. If we lose our status as an SBA Preferred Lender, we may lose some or all of our
customers to lenders who are SBA Preferred Lenders, which could adversely affect our business, financial condition and
results of operations.
We generally sell the guaranteed portion of our SBA 7(a) loans in the secondary market. These sales have resulted in
both premium income for us at the time of sale and created a stream of future servicing income. There can be no assurance
that we will be able to continue originating these loans, that a secondary market for these loans will continue to exist or that
we will continue to realize premiums upon the sale of the guaranteed portion of these loans. When we sell the guaranteed
portion of our SBA 7(a) loans, we incur credit risk on the non-guaranteed portion of the loans, and if a customer defaults on
the non-guaranteed portion of a loan, we share any loss and recovery related to the loan pro-rata with the SBA.
The laws, regulations and standard operating procedures that are applicable to SBA loan products may change in the
future. We cannot predict the effects of these changes on our business and profitability. Because government regulation
greatly affects the business and financial results of all commercial banks and bank holding companies, especially our
organization, changes in the laws, regulations and procedures applicable to SBA loans could adversely affect our ability to
operate profitably. In addition, the aggregate amount of SBA 7(a) and 504 loan guarantees by the SBA must be approved
each fiscal year by the federal government. We cannot predict the amount of SBA 7(a) loan guarantees in any given fiscal
year. If the federal government were to reduce the amount of SBA loan guarantees, such reduction could adversely impact
our SBA lending program, including making and selling the guaranteed portion of fewer SBA 7(a) and 504 loans. In addition,
any default by the U.S. government on its obligations or any prolonged government shutdown could, among other things,
impede our ability to originate SBA loans or sell such loans in the secondary market, which could materially and adversely
affect our business, financial condition and results of operations.
The SBA may not honor its guarantees if we do not originate loans in compliance with SBA guidelines
.
SBA lending programs typically guarantee 75.0% of the principal on an underlying loan. If the SBA establishes that a
loss on an SBA guaranteed loan is attributable to significant technical deficiencies in the manner in which the loan was
25 USCB Financial Holdings, Inc. 2021 10-K
originated, funded or serviced by us, the SBA may seek recovery of the principal loss related to the deficiency from us
notwithstanding that a portion of the loan was guaranteed by the SBA, which could adversely affect our business, financial
condition and results of operations. While we follow the SBA's underwriting guidelines, our ability to do so depends on the
knowledge and diligence of our employees and the effectiveness of controls we have established. If our employees do not
follow the SBA guidelines in originating loans and if our loan review and audit programs fail to identify and rectify such
failures, the SBA may reduce or, in some cases, refuse to honor its guarantee obligations and we may incur losses as a
result.
Global banking is an important part of our business, which creates increased BSA/AML risk.
As our business model includes correspondent services to banks in Latin America and the Caribbean, these cross-
border correspondent banking relationships pose unique risks because they create situations in which a U.S. financial
institution will be handling funds from a financial institution in Latin America and the Caribbean whose customers may not
be transparent to us. Moreover, many foreign financial institutions, including in Latin America and the Caribbean where our
correspondent banking services are located, are not subject to the same or similar regulatory guidelines as U.S. banks.
Accordingly, these foreign institutions may pose higher money laundering risk to their respective U.S. bank
correspondent(s). Because of the large amount of funds, multiple transactions, and our potential lack of familiarity with a
foreign correspondent financial institution's customers, these customers may be able to more easily conceal the source and
use of illicit funds. Consequently, we may have a higher risk of non-compliance with the BSA and other AML rules and
regulations due to our correspondent banking relationships with foreign financial institutions. Additionally, international
private banking places additional pressure on our policies, procedures and systems for complying with the Bank Secrecy
Act of 1970, as amended, or BSA, and other anti-money laundering, or AML, statutes and regulations. Our failure to strictly
adhere to the terms and requirements of our OFAC license or our failure to adequately manage our BSA/AML compliance
risk in light of our correspondent banking relationship with foreign financial institutions and international private banking
could result in regulatory or other actions being taken against us, which could significantly increase our compliance costs
and materially and adversely affect our results of operations.
We may not recover all amounts that are contractually owed to us by our borrowers.
We are dependent on the collection of loan principal, interest, and fees to partially fund our operations. A shortfall in
collections and proceeds may impair our ability to fund our operations or to repay our existing debt.
When we lend funds, commit to fund a loan or enter into a letter of credit or other credit-related contract with a
counterparty, we incur credit risk. The credit quality of our portfolio can have a significant impact on our earnings. We expect
to experience charge-offs and delinquencies on our loans in the future. 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. Our customers' actual operating results may be worse than our underwriting contemplated when we originated
the loans, and in these circumstances, we could incur substantial impairment or loss of the value on these loans. We may
fail to identify problems because our customer did not report them in a timely manner or, even if the customer did report the
problem, we may fail to address it quickly enough or at all, or some loans, due to market circumstances, may not be able to
be fully rehabilitated. Even if customers provide us with full and accurate disclosure of all material information concerning
their businesses, we may misinterpret or incorrectly analyze this information. Mistakes may cause us to make loans that we
otherwise would not have made or to fund advances that we otherwise would not have funded, either of which could result
in losses on loans, or necessitate that we significantly increase our allowance for loan and lease losses. As a result, we
could suffer loan losses and have non-performing loans, which could have a material adverse effect on our net earnings
and results of operations and financial condition, to the extent the losses exceed our allowance for loan and lease losses.
Some of our loans are secured by a lien on specified collateral of the borrower and we may not obtain or properly perfect
our liens or the value of the collateral securing any particular loan may not be sufficient to protect us from suffering a partial
or complete loss if the loan becomes non-performing and we proceed to foreclose on or repossess the collateral. With
respect to loans that we originate for condominium or homeowners' associations, 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. These Associations rely upon payments received from their property owners in order to
perform on these loans and for the loan collateral. Accordingly, our ability to recover amounts on non-performing loans
made to Associations is dependent upon the Association having sufficient cash on hand for repayment of the loan and/or
having the ability to impose assessments on its property owners, some of whom may not have the ability to pay such
assessments. In such events, we could suffer loan losses, which could have a material adverse effect on our net earnings,
allowance for loan and lease losses, financial condition, and results of operations.
26 USCB Financial Holdings, Inc. 2021 10-K
Non-performing assets take significant time to resolve and adversely affect our results of operations and
financial condition, and could result in further losses in the future.
Our non-performing assets adversely affect our net income in various ways. We do not record interest income on
nonaccrual loans or OREO, thereby adversely affecting our net income and returns on assets and equity, increasing our
loan administration costs and adversely affecting our efficiency ratio. When we take collateral in foreclosure and similar
proceedings, we are required to mark the collateral to its then-fair market value, which may result in a loss. These non-
performing loans and OREO also increase our risk profile and the level of capital our regulators believe is appropriate for
us to maintain in light of such risks. The resolution of non-performing assets requires significant time commitments from
management and can be detrimental to the performance of their other responsibilities. If we experience increases in non-
performing loans and non-performing assets, our net interest income may be negatively impacted and our loan
administration costs could increase, each of which could have an adverse effect on our net income and related ratios, such
as return on assets and equity.
We engage in lending secured by real estate and may foreclose on the collateral and own the underlying real
estate, subjecting us to the costs and potential risks associated with the ownership of real property, or consumer
protection initiatives or changes in state or federal law may substantially raise the cost of foreclosure or prevent
us from foreclosing at all.
Since we originate loans secured by real estate, we may have to foreclose on the collateral property to recover our
investment and may thereafter own and operate such property, in which case we would be exposed to the risks inherent in
the ownership of real estate. The amount that we, as a mortgagee, may realize after a foreclosure depends on factors
outside of our control, including, but not limited to, general or local economic conditions, environmental cleanup liabilities,
various assessments relating to the ownership of the property, interest rates, real estate tax rates, operating expenses of
the mortgaged properties, our ability to obtain and maintain adequate occupancy of the properties, zoning laws,
governmental and regulatory rules, and natural disasters. Our inability to manage the amount of costs or size of the risks
associated with the ownership of real estate, or write-downs in the value of OREO, could have an adverse effect on our
business, financial condition, and results of operations.
Additionally, consumer protection initiatives or changes in state or federal law may substantially increase the time and
expenses associated with the residential foreclosure process or prevent us from foreclosing at all. A number of states in
recent years have either considered or adopted foreclosure reform laws that make it substantially more difficult and
expensive for lenders to foreclose on residential properties in default. Furthermore, federal regulators have prosecuted a
number of mortgage servicing companies for alleged consumer law violations. If new state or federal laws or regulations
are ultimately enacted that significantly raise the cost of residential foreclosures or raise outright barriers, they could have
an adverse effect on our business, financial condition, and results of operations.
We are exposed to risk of environmental liability when we take title to property.
In the course of our business, we may foreclose on and take title to real estate. As a result, we could be subject to
environmental liabilities with respect to these properties. We may be held liable to a governmental entity or to third parties
for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with
environmental contamination or may be required to investigate or clean up hazardous or toxic substances or chemical
releases at a property. The costs associated with investigation or remediation activities could be substantial. In addition, if
we are the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based
on damages and costs resulting from environmental contamination emanating from the property. If we become subject to
significant environmental liabilities, our business, financial condition and results of operations could be adversely affecte d.
We are subject to certain operational risks, including, but not limited to, customer, employee or third-party
fraud and data processing system failures and errors.
Employee errors and employee or customer misconduct could subject us to financial losses or regulatory sanctions and
seriously harm our reputation. Misconduct by our employees could include hiding unauthorized activities from us, improper
or unauthorized activities on behalf of our customers or improper use of confidential information. It is not always possible to
prevent employee errors and misconduct, and the precautions we take to prevent and detect this activity may not be effective
in all cases. Employee errors could also subject us to financial claims for negligence.
We have implemented a system of internal controls designed to mitigate operational risks, including data processing
system failures and errors and customer or employee fraud, as well as insurance coverage designed to protect us from
material losses associated with these risks, including losses resulting from any associated business interruption. If our
27 USCB Financial Holdings, Inc. 2021 10-K
internal controls fail to prevent or detect an occurrence, or if any resulting loss is not insured or exceeds applicable insurance
limits, it could adversely affect our business, prospects, cash flow, liquidity, financial condition and results of operations.
When we originate loans, we rely heavily upon information supplied by third parties, including the information contained
in credit applications, property appraisals, title information, equipment pricing and valuation and employment and income
documentation, in deciding which loans we will originate, as well as the terms of those loans. If any of the information upon
which we rely is misrepresented, either fraudulently or inadvertently, and the misrepresentation is not detected prior to
funding, the value of the loan may be significantly lower than expected, or we may fund a loan that we would not have
funded or on terms that do not comply with our general underwriting standards. Whether a misrepresentation is made by
the applicant, the borrower, one of our employees or another third party, we generally bear the risk of loss associated with
the misrepresentation. A loan subject to a material misrepresentation is typically unsellable or subject to repurchase if it is
sold prior to detection of the misrepresentation. The sources of the misrepresentations are often difficult to locate, and it is
often difficult to recover any of the resulting monetary losses we may suffer, which could adversely affect our business,
financial condition and results of operations.
We are subject to liquidity risk, which could adversely affect our financial condition and results of operations.
Effective liquidity management is essential for the operation of our business. Although we have implemented strategies
to maintain sufficient and diverse sources of funding to accommodate planned, as well as unanticipated, liquidity needs
(including changes in assets, liabilities, and off-balance sheet commitments under various economic conditions), an inability
to raise funds through deposits, borrowings, the sale of investment securities and other sources could have a material
adverse effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities could be impaired
by factors that affect us specifically or the financial services industry in general. Factors that could detrimentally impact our
access to liquidity sources include a decrease in the level of our business activity due to a market disruption, a decrease in
the borrowing capacity assigned to our pledged assets by our secured creditors, competition from other financial institutions
which could drive up the costs of deposits or adverse regulatory action against us. Deterioration in economic conditions and
the loss of confidence in financial institutions may increase our cost of funding and limit our access to some of our customary
sources of liquidity, including, but not limited to, inter-bank borrowings and borrowings from the Federal Home Loan Bank
of Atlanta, or the FHLB, and the Federal Reserve Bank of Atlanta. Our ability to acquire deposits or borrow could also be
impaired by factors that are not specific to us, such as a severe disruption of the financial markets or negative views and
expectations about the prospects for the financial services industry generally as a result of conditions faced by banking
organizations in the domestic and international credit markets. Any decline in available funding or cost of liquidity could
adversely impact our ability to originate loans, invest in securities, meet our expenses or fulfill obligations such as repaying
our borrowings or meeting deposit withdrawal demands, any of which could, in turn, have an adverse effect on our business,
financial condition, and results of operations.
We have several large depositor relationships, the loss of which could force us to fund our business through
more expensive and less stable sources.
Withdrawals of deposits by any one of our largest depositors could force us to rely more heavily on more expensive and
less stable funding sources. Consequently, the occurrence of any of these events could have a material adverse effect on
our business, financial condition and results of operations.
The value of our securities in our investment portfolio may decline in the future.
The fair market value of our investment securities may be adversely affected by general economic and market
conditions, including changes in interest rates, credit spreads, and the occurrence of any events adversely affecting the
issuer of particular securities in our investments portfolio or any given market segment or industry in which we are invested.
Any of these factors, among others, could cause OTTI and realized and/or unrealized losses in future periods and declines
in other comprehensive income, which could have an adverse effect on our business, financial condition and results of
operations. The process for determining whether impairment of a security is OTTI usually requires complex, subjective
judgments about the future financial performance and liquidity of the issuer, any collateral underlying the security and our
intent and ability to hold the security for a sufficient period of time to allow for any anticipated recovery in fair value, in order
to assess the probability of receiving all contractual principal and interest payments on the security. Our failure to correctly
and timely assess any impairments or losses with respect to our securities could have an adverse effect on our business,
financial condition and results of operations.
28 USCB Financial Holdings, Inc. 2021 10-K
We may not effectively execute on our expansion strategy, which may adversely affect our ability to maintain
our historical growth and earnings trends.
Our primary expansion strategy focuses on organic growth, supplemented by acquisitions of financial institutions and
banking teams; however, we may not be able to successfully execute on these aspects of our expansion strategy, which
may cause our future growth rate to decline below our recent historical levels, or may prevent us from growing at all. More
specifically, we may not be able to generate sufficient new loans and deposits within acceptable risk and expense tolerances
or obtain the personnel or funding necessary for additional growth. Various factors, such as economic conditions and
competition with other financial institutions, may impede or restrict the growth of our operations. Further, we may be unable
to attract and retain experienced bankers, which could adversely affect our growth. The success of our strategy also
depends on our ability to manage our growth effectively, which in turn depends on a number of factors, including our ability
to adapt our credit, operational, technology, risk management, internal controls and governance infrastructure to
accommodate expanded operations. Even if we are successful in continuing our growth, such growth may not offer the
same levels of potential profitability, and we may not be successful in controlling costs and maintaining asset quality in the
face of that growth. Accordingly, our inability to maintain growth or to effectively manage growth could have an adverse
effect on our business, financial condition and results of operations.
New lines of business, products, product enhancements or services may subject us to additional risk.
well as new services within our existing lines of business. There are substantial risks and uncertainties associated with
these efforts. In developing, implementing or marketing new lines of business, products, product enhancements or services,
we may invest significant time and resources. We may underestimate the appropriate level of resources or expertise
necessary to make new lines of business or products successful or to realize their expected benefits. We may not achieve
the milestones set in initial timetables for the development and introduction of new lines of business, products, product
enhancements or services, and price and profitability targets may not prove feasible. External factors, such as compliance
with regulations, competitive alternatives and shifting market preferences, may also impact the ultimate implementation of
a new line of business or offerings of new products, product enhancements or services. Any new line of business, product,
product enhancement or service could have a significant impact on the effectiveness of our system of internal controls. We
may also decide to discontinue businesses or products, due to lack of customer acceptance or unprofitability. Failure to
successfully develop and implement new lines of business or offerings of new products, product enhancements or services
could have an adverse effect on our business, financial condition and results of operations and could subject us to new and
unanticipated operational, credit, regulatory and reputational risks, among other risks.
Our business needs and future growth may require us to raise additional capital and that capital may not be
available on terms acceptable to us or may be diluti ve to existing shareholders.
We believe that we have sufficient capital to meet our capital needs for our current growth plans. However, we expect
that we will need to raise additional capital, in the form of debt or equity securities, in the future to have sufficient capital
resources to meet our longer-term growth plans, and/or if the quality of our assets or earnings were to deteriorate
significantly. In addition, we are required by federal regulatory authorities to maintain adequate levels of capital to support
our operations.
Our ability to raise capital will depend on, among other things, conditions in the capital markets, which are outside of
our control, and our financial performance. Accordingly, we cannot provide assurance that such capital will be available on
terms acceptable to us or at all. Any occurrence that limits our access to capital may adversely affect our capital costs and
our ability to raise capital. Further, if we need to raise capital in the future, we may have to do so when many other financial
institutions are also seeking to raise capital and would then have to compete with those institutions for investors. Any inability
to raise capital on acceptable terms when needed may cause us to either issue additional shares of common stock or other
securities on less than desirable terms or reduce our rate of growth until market conditions become more favorable. If any
of such events occur, they could have a material adverse effect on our business, financial condition and results of operations
and could be dilutive to both tangible book value and our share price.
imposition of restrictions on our growth and business. These restrictions could negatively affect our ability to operate or
further expand our operations through loan growth, acquisitions or the establishment of additional branches. These
restrictions may also result in increases in operating expenses and reductions in revenues that could have a material
adverse effect on our financial condition, results of operations and our share price.
29 USCB Financial Holdings, Inc. 2021 10-K
We may grow through mergers or acquisitions, a strategy that may not be successful or, if successful, may
produce risks in successfully integrating and managing the merged companies or acquisitions and may dilute our
shareholders.
As part of our growth strategy, we may pursue mergers and acquisitions of banks and non-bank financial services
companies within or outside our principal market areas that fit within the mission-driven values of our franchise and that we
believe support our business and make financial and strategic sense. We may have difficulty identifying suitable acquisition
candidates or executing on acquisitions that we pursue, and we may not realize the anticipated benefits of any transactions
we complete. Additionally, for any opportunistic acquisition we were to consider, we expect to face significant competition
from numerous other financial services institutions, many of which will have greater financial resources than we do.
Accordingly, attractive opportunistic acquisitions may not be available to us. There can be no assurance that we will be
successful in identifying or completing any future acquisitions.
Mergers and acquisitions involve numerous risks, any of which could harm our business, including:
• 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 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 offs et 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. Additionally, if the goodwill recorded in connection
with our potential future acquisitions were determined to be impaired, then we would be required to recognize a charge
against our earnings, which could materially and adversely affect our results of operations during the period in which the
impairment was recognized. Acquisitions may also involve the payment of a premium over book and market values and,
therefore, some dilution of our tangible book value and net income per common share may occur in connection with any
future transaction.
As a result, we may not achieve the anticipated benefits of any such merger or acquisition, and we may incur costs in
excess of what we anticipate. Our failure to successfully evaluate and execute mergers, acquisitions or investments or
otherwise adequately address and manage the risks associated with such transactions could have a material adverse effect
on our business, results of operations and financial condition, including short-term and long-term liquidity.
30 USCB Financial Holdings, Inc. 2021 10-K
The loss of one or more of our key personnel, or our failure to attract and retain other highly qualified personnel
in the future, could harm our business.
Our future success will, to some extent, depend on the continued service of our directors, executive officers and senior
management team. The loss of the services of any of these individuals could have a significant adverse effect on our
business. In particular, we believe that retaining Luis de la Aguilera, our President and Chief Executive Officer, Robert
Anderson, our Chief Financial Officer, and Benigno Pazos, our Chief Credit Officer, is important to our continuing success.
Although we have entered into employment and other agreements with certain members of our executive and senior
management team, including Mr. de la Aguilera and Mr. Anderson, no assurance can be given that these individuals will
continue to be employed by us. The loss of any of these individuals could negatively affect our ability to achieve our growth
strategy and could have a material adverse effect on our business and results of operations.
We also need to continue to attract and retain other senior management and to recruit qualified individuals to succeed
existing key personnel to ensure the continued growth and successful operation of our business. We may be unable to
attract or retain qualified management and other key personnel in the future due to the intense competition for qualified
personnel among companies in the financial services business and related businesses. The loss of the services of any
senior management personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse
effect on our business, results of operations, financial condition and prospects. Additionally, to attract and retain personnel
with appropriate skills and knowledge to support our business, we may offer a variety of benefits, which may reduce our
earnings or adversely affect our business, results of operations, financial condition or prospects.
Damage to our reputation could significantly harm our businesses.
Our ability to attract and retain customers and highly-skilled management and employees is impacted by our reputation.
A negative public opinion of us and our business can result from any number of activities, including our lending practices,
corporate governance and regulatory compliance, acquisitions, customer complaints and actions taken by community
organizations in response to these activities. Furthermore, negative publicity regarding us as an employer could have an
adverse impact on our reputation, especially with respect to matters of diversity, pay equity and workplace harassment.
Significant harm to our reputation could also arise as a result of regulatory or governmental actions, litigation and the
activities of our customers, other participants in the financial services industry or our contractual counterparties, such as our
service providers and vendors. The potential harm is heightened given increased attention to how corporations address
environmental, social and governance issues. In addition, a cybersecurity event affecting us or our customers' data could
have a negative impact on our reputation and customer confidence in us and our cybersecurity practices. Damage to our
reputation could also adversely affect our credit ratings and access to the capital markets. Additionally, whereas negative
public opinion once was primarily driven by adverse news coverage in traditional media, the widespread use of social media
platforms by virtually every segment of society facilitates the rapid dissemination of information or misinformation, which
magnifies the potential harm to our reputation.
We face strong competition from financial services companies and other companies that offer banking
services, which could materially and adversely affect our business.
The financial services industry has become even more competitive as a result of legislative, regulatory and technological
changes and continued banking consolidation, which may increase as a result of current economic, market and political
conditions. We face substantial competition in all phases of our operations from a variety of competitors, including local
banks, regional banks, community banks and, more recently, financial technology, or "fintech" companies. Many of our
competitors offer the same banking services that we offer and our success depends on our ability to adapt our products and
services to evolving industry standards and customer requirements. Increased competition in our market may result in
reduced new loan and lease production and/or decreased deposit balances or less favorable terms on loans and leases
and/or deposit accounts. We also face competition from many other types of financial institutions, including without limitation,
non-bank specialty lenders, insurance companies, private investment funds, investment banks, and other financial
intermediaries. Should competition in the financial services industry intensify, our ability to market our products and services
may be adversely affected. If we are unable to attract and retain banking customers, we may be unable to grow or maintain
the levels of our loans and deposits and our results of operations and financial condition may be adversely affected as a
result. Ultimately, we may not be able to compete successfully against current and future competitors.
We must respond to rapid technological changes to remain competitive.
We will have to respond to future technological changes, which are occurring at a rapid pace in the financial services
industry. We expect that new technologies and business processes applicable to the banking industry will continue to
emerge, and these new technologies and business processes may be better than those we currently use. Because the pace
of technological change is high and our industry is intensely competitive, our future success will depend, in part, upon our
31 USCB Financial Holdings, Inc. 2021 10-K
ability to address the needs of our customers by using technology to provide products and services that will satisfy customer
demands for convenience, as well as to create additional efficiencies in our operations. We may not be able to implement
new technology-driven products and services effectively or be successful in marketing these products and services to our
customers. Failure to keep pace successfully with technological change affecting the financial services industry could harm
our ability to compete effectively and could have an adverse effect on our business, financial condition and results of
operations. As these technologies improve in the future, we may be required to make significant capital expenditures in
order to remain competitive, which may increase our overall expenses and have an adverse effect on our business, financial
condition and results of operations.
A failure, interruption, or breach in the security of our systems, or those of our contracted vendors, could
disrupt our business, result in the disclosure of confidential information, damage our reputation, and create
significant financial and legal exposure.
Although we devote significant resources to maintain and regularly update our systems and processes that are designed
to protect the security of our computer systems, software, networks and other technology assets, as well as the
confidentiality, integrity and availability of information belonging to us and our customers, there is no assurance that all of
our security measures will provide absolute security. Many financial institutions, including us, have been subjected to
attempts to infiltrate the security of their websites or other systems, some involving sophisticated 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
means. We have been targeted by individuals and groups using phishing campaigns, pretext calling, malicious code and
viruses and expect to be subject to such attacks in the future. 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.
Despite efforts to ensure the integrity and security of our systems, it is possible that we may not be able to anticipate,
detect or recognize threats to our systems or to implement effective preventive measures against all efforts to breach our
security inside or outside our business, especially because the techniques used to attack our systems change frequently or
are not recognized until launched, and because cyber-attacks can originate from a wide variety of sources, including
individuals or groups who are associated with external service providers or who are or may be involved in organized crime
or linked to terrorist organizations or hostile foreign governments. Those parties may also attempt to fraudulently induce
employees, customers, third-party service providers or other users of our systems to disclose sensitive information in order
to gain access to our data or that of our customers or clients. Similar to other companies, our risks and exposures related
to cybersecurity attacks have increased as a result of the COVID -19 pandemic, the related increased reliance on remote
working and increase in digital operations. Such risks and exposures are expected to remain high for the foreseeable future
due to the rapidly evolving nature and sophistication of these threats and the expanding use of technology, as our web-
based product offerings grow and we expand internal usage of web-based applications.
A successful penetration or circumvention of the security of our systems, including those of our third-party vendors,
could cause serious negative consequences, including significant disruption of our operations, misappropriation of
confidential information, or damage to computers or systems, and may result in violations of applicable privacy and other
laws, financial loss, loss of confidence in our security measures, customer dissatisfaction, increased insurance premiums,
significant litigation exposure and harm to our reputation, all of which could have a material adverse effect on our business,
financial condition, results of operations, and future prospects.
We rely on other companies to provide key components of our business infrastructure and our operations
could be interrupted if our third-party service providers experience difficulty, terminate their services or fail to
comply with banking regulations.
Third parties provide key components of our business operations such as data processing, recording and monitoring
transactions, online banking interfaces and services, Internet connections and network access. While we have selected
these third-party vendors carefully, performing upfront due diligence and ongoing monitoring activities, we do not control
their actions. Any problems caused by these third parties, including those resulting from disruptions in services provided by
a vendor (including as a result of a cyber-attack, other information security event or a natural disaster), financial or
operational difficulties for the vendor, issues at third-party vendors to our vendors, failure of a vendor to handle current or
higher volumes, failure of a vendor to provide services for any reason, poor performance of services, failure to comply with
applicable laws and regulations, or fraud or misconduct on the part of employees of any of our vendors, could adversely
affect our ability to deliver products and services to our customers, our reputation and our ability to conduct our business,
which could adversely affect our business, prospects, cash flow, liquidity, financial condition and results of operations. In
certain situations, replacing these third-party vendors could also create significant delay, expense, and operational
difficulties, which could also adversely affect our business. Accordingly, use of such third parties creates an unavoidable
32 USCB Financial Holdings, Inc. 2021 10-K
and inherent risk to our business operations. 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.
Our operations could be interrupted or materially impacted if any of our third-party service providers fail to comply with
banking regulations and other applicable laws. The Federal Reserve, FDIC, the Florida Office of Financial Regulation, or
the FOFR, and other regulators expect financial institutions to be responsible for all aspects of their performance, including
aspects that they delegate to third parties. Accordingly, we will be responsible for deficiencies in our oversight and control
of our third party relationships and in the performance of the parties with which we have these relationships. As a result, if
our regulators conclude that we have not exercised adequate oversight and control over our third party vendors or other
ongoing third party business relationships or that such third parties have not performed appropriately, we could be subject
to remedial and/or enforcement actions, including civil money penalties or other administrative or judicial penalties or fines
as well as requirements for customer remediation, any of which could have a material adverse effect our business, financial
condition or results of operations.
Litigation and regulatory actions, including possible enforcement actions, could subject us to significant fines,
penalties, judgments or other requirements resulting in increased expenses or restrictions on our business
activities.
In the normal course of business, from time to time, we have in the past and may in the future be named as a defendant
in various legal actions arising in connection with our current and/or prior business activities. Legal actions could include
claims for substantial compensatory or punitive damages or claims for indeterminate amounts of damages. Further, in the
future our regulators may impose consent orders, civil money penalties, matters requiring attention, or similar types of
supervisory penalties or criticism. We may also, from time to time, be the subject of subpoenas, requests for information,
reviews, investigations and proceedings (both formal and informal) by governmental agencies regarding our current and/or
prior business activities. Any such legal or regulatory actions may subject us to substantial compensatory or punitive
damages, significant fines, penalties, obligations to change our business practices or other requirements resulting in
increased expenses, diminished income and damage to our reputation. Our involvement in any such matters, whether
tangential or otherwise and even if the matters are ultimately determined in our favor, could also cause significant harm to
our reputation and divert management attention away from the operation of our business. Further, any settlement, consent
order or adverse judgment in connection with any formal or informal proceeding or investigation by government agencies
may result in litigation, investigations or proceedings as other litigants and government agencies begin independent reviews
of the same activities. As a result, the outcome of legal and regulatory actions could have an adverse effect on our business,
results of operations and results of operations.
Certain of our directors may have conflicts of interest in determining whether to present business opportunities
to us or another entity with which they are, or may become, affiliated.
Certain of our directors are or may become subject to fiduciary obligations in connection with their service on the boards
of directors of other corporations, including financial institutions. A director's association with other financial institutions,
which give rise to fiduciary or contractual obligations to such institutions, may create conflicts of interest. To the extent that
any of our directors become aware of acquisition opportunities that may be suitable for entities other than us to which they
have fiduciary or contractual obligations, or they are presented with such opportunities in their capacities as fiduciaries to
such entities, they may honor such obligations to such other entities. You should assume that to the extent any of our
directors become aware of an opportunity that may be suitable both for us and another entity to which such person has a
fiduciary obligation or contractual obligation to present such opportunity as set forth above, he or she may first give the
opportunity to such other entity or entities and may give such opportunity to us only to the extent such other entity or entities
reject or are unable to pursue such opportunity. In addition, you should assume that to the extent any of our directors
become aware of an acquisition opportunity that does not fall within the above parameters, but that may otherwise be
suitable for us, he or she may not present such opportunity to us.
Investors have the right to nominate one director to serve on our Board, including Board committees, and to designate one
non-voting Board observer. The directors and Board observers designated by the Significant Investors have the right to,
and have no duty not to, engage in the same or similar business activities or lines of business as us. In the event that a
director or Board observer designated by a Significant Investor acquires knowledge of a potential transaction or matter that
may be a corporate opportunity for us, such person shall have no duty to communicate or present such corporate opportunity
to us and shall not be liable to us or our shareholders for breach of any duty by reason of the fact that such person or a
33 USCB Financial Holdings, Inc. 2021 10-K
related investment fund thereof, directly or indirectly, pursues or acquires such opportunity for itself, directs such opportunity
to another person, or does not present such opportunity to us.
Risks Related to Our Tax, Accounting and Regulatory Compliance
Our ability to recognize the benefits of deferred tax assets is dependent on future cash flows and taxable
income and may be materially impaired upon significant changes in ownership of our common stock.
We recognize the expected future tax benefit from deferred tax assets when it is more likely than not that the tax benefit
will be realized. Otherwise, a valuation allowance is applied against deferred tax assets, reducing the value of such assets.
Assessing the recoverability of deferred tax assets requires management to make significant estimates related to
expectations of future taxable income from all sources, including reversal of taxable temporary differences, forecasted
operating earnings and available tax planning strategies. Estimates of future taxable income are based on forecasted
income from operations and the application of existing tax laws in each jurisdiction. The improved risk profile of the Bank is
a key component used in the determination of our ability to realize the expected future benefit of our deferred tax assets.
To the extent that future taxable income differs significantly from estimates as a result of the interest rate environment and
loan growth capabilities or other factors, our ability to realize the net deferred tax assets could be negatively affected.
Subject to certain exceptions, our Class A common stock is subject to transfer restrictions as set forth in our Articles of
Incorporation that are designed to preserve our deferred tax assets. Notwithstanding these protective provisions, the Articles
of Incorporation include an exception that allows our Significant Investors the right to effect any transfer that would otherwise
be prohibited, which transfer could result in the loss of the deferred tax assets.
Additionally, significant future issuances of common stock or common stock equivalents, or changes in the direct or
indirect ownership of our common stock or common stock equivalents, could cause an ownership change and could limit
our ability to utilize our net operating loss carryforwards and other tax attributes pursuant to Section 382 and Section 383
of the Internal Revenue Code. Future changes in tax law or changes in ownership structure could limit our ability to utilize
our recorded net deferred tax assets.
The accuracy of our financial statements and related disclosures could be affected if the judgments,
assumptions or estimates used in our critical accounting policies are inaccurate.
The preparation of our financial statements and related disclosures in conformity with GAAP requires us to make
judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and
accompanying notes. In some cases, management must select the accounting policy or method to apply from two or more
alternatives, any of which may be reasonable under the circumstances, yet which may result in our reporting materially
different results than would have been reported under a different alternative. Certain accounting policies are critical or
significant to presenting our financial condition and results of operations. Our critical accounting policies, which are included
in the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this
Annual Report on Form 10-K, describe those significant accounting policies and methods used in the preparation of our
consolidated financial statements that we consider critical because they require judgments, assumptions and estimates that
materially affect our consolidated financial statements and related disclosures. As a result, if future events or regulatory
views concerning such analyses differ significantly from the judgments, assumptions and estimates in our critical accounting
policies, those events or assumptions could have a material impact on our consolidated financial statements and related
disclosures, in each case resulting in our need to revise or restate prior period financial statements, cause damage to our
reputation and the price of our Class A common stock and adversely affect our business, prospects, cash flow, liquidity,
financial condition and results of operations.
As a 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 penalties.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting and
for evaluating and reporting on that system of internal control. Our internal control over financial reporting consists of a
process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with GAAP. As a public company, we are required to comply with
SEC regulations, including the Sarbanes-Oxley Act and other rules that govern public companies that we previously were
not required to comply with as a private company. In particular, we will be required to certify our compliance with Section
404 of the Sarbanes-Oxley Act beginning with our second annual report on Form 10-K, which will require us to annually
34 USCB Financial Holdings, Inc. 2021 10-K
furnish a report by management on the effectiveness of our internal control over financial reporting. When evaluating our
internal controls over financial reporting, we may identify material weaknesses that we may not be able to remediate in time
to meet the applicable deadline imposed upon us for compliance with the requirements of Section 404 of the Sarbanes-
Oxley Act. 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.
If we fail to achieve and maintain the adequacy of our internal controls, as such standards are modified, supplemented,
or amended from time to time, we may not be able to ensure that we will be able to conclude on an ongoing basis that we
have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. We
cannot be certain as to the timing of completion of our evaluation, testing, and any remediation actions or the impact of the
same on our operations. If we fail to adequately comply with the requirements of Section 404 of the Sarbanes-Oxley Act,
we may be subject to adverse regulatory consequences and there could be a negative reaction in the financial markets due
to a loss of investor confidence in us and the reliability of our financial statements. In addition, we may be required to incur
costs in improving our internal control system and hiring additional personnel. Any such action could negatively affect our
business, financial condition, results of operations, and the price of our Class A common stock may decline.
While we remain an emerging growth company, we will not be required to include an attestation report on internal control
over financial reporting issued by our independent registered public accounting firm. To prepare for eventual compliance
with the auditor attestation requirement of Section 404 of 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. In this regard, we will need to dedicate internal resources, potentially engage outside
consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting,
continue steps to improve control processes as appropriate, validate through testing that controls are functioning as
documented and continue to refine our reporting and improvement process for internal control over financial reporting.
Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed time frame or at all, that our
internal control over financial reporting is effective as required by Section 404 of Sarbanes-Oxley. If we identify one or more
material weaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in the
reliability of our financial statements.
We operate in a highly regulated environment, and the laws and regulations that govern our operations,
corporate governance, executive compensation and accounting principles, or changes in them, or our failure to
comply with them, could adversely affect us.
We operate in a highly regulated industry and we are subject to examination, supervision and comprehensive regulation
by various federal and state agencies, including the Federal Reserve, the FDIC and the FOFR. As such, we are subject to
extensive regulation, supervision and legal requirements that govern almost all aspects of our operations. These laws and
regulations are not intended to protect our shareholders. Rather, these laws and regulations are intended to protect
customers, depositors, the Deposit Insurance Fund, or DIF, and the overall financial health and stability of the United States
banking system. These laws and regulations, among other matters, prescribe minimum capital requirements, impose
limitations on the business activities and investments in which we can engage, regulate and restrict our lending activities,
require us to provide certain banking services broadly within the communities in which we operate, determine the locations
of our branch offices and impose certain specific accounting requirements on us that may be more restrictive and may result
in greater or earlier charges to earnings or reductions in our capital than GAAP would require. We are also subject to
capitalization guidelines established by our regulators, which require us to maintain adequate capital to support our
business. Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations often
impose additional operating costs. Further, we must obtain approval from our regulators before engaging in many activities,
and our regulators have the ability to compel us to, or restrict us from, taking certain actions entirely. There can be no
assurance that any regulatory approvals we may require or otherwise seek will be obtained.
Regulations affecting banks and other financial institutions are undergoing continuous review and frequently change,
and the ultimate effect of such changes cannot be predicted. Changes to the legal and regulatory framework governing our
operations, including the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, and the
Economic Growth, Regulatory Relief and Consumer Protection Act, or the Regulatory Relief Act, have significantly revised
the laws and regulations under which we operate. Such regulations and laws may be modified or repealed at any time, and
new legislation may be enacted that will affect us and our subsidiaries.
Our failure to comply with these laws and regulations, even if the failure follows good faith effort or reflects a difference
in interpretation, could subject us to restrictions on our business activities, enforcement actions and fines and other
penalties, any of which could adversely affect our results of operations, regulatory capital levels and the price of our
securities. Further, any new laws, rules and regulations, such as were imposed under the Dodd-Frank Act or the Regulatory
35 USCB Financial Holdings, Inc. 2021 10-K
Relief Act, could make compliance more difficult or expensive or otherwise adversely affect our business, prospects, cash
flow, liquidity, financial condition and results of operations.
Our participation in the SBA PPP loan program exposes us to risks related to noncompliance with the PPP, as
well as litigation risk related to our administration of the PPP loan program, which could have a material adverse
impact on our business, financial condition, and results of operations.
We are a participating lender in the PPP, a loan program administered through the SBA, that was created to help eligible
businesses, organizations and self-employed persons fund their operational costs during the COVID-19 pandemic. Under
this program, the SBA guarantees 100% of the amounts loaned under the PPP.
The PPP opened on April 3, 2020; however, because of the short window between the passing of the CARES Act and
the opening of the PPP, there was some ambiguity in the laws, rules and guidance regarding the operation of the PPP.
Subsequent rounds of legislation and associated agency guidance have not provided needed clarity and in certain instances
have potentially created additional inconsistencies and ambiguities. Accordingly, we are exposed to risks relating to
noncompliance with the PPP.
Additionally, since the launch of the PPP, several larger banks have been subject to litigation regarding the process and
procedures that such banks used in processing applications for the PPP, as well as litigation regarding the alleged
nonpayment of fees that may be due to certain agents who facilitated PPP loan applications. We may be exposed to the
risk of PPP-related litigation, from both customers and non-customers that approached us regarding PPP loans, regarding
our process and procedures used in processing applications for the PPP. If any such litigation is filed against us and is not
resolved in a manner favorable to us, it may result in significant financial liability or adversely affect our reputation.
Regardless of outcome, litigation can be costly and distracting. Any financial liability, litigation costs or reputational damage
caused by PPP-related litigation could have a material adverse impact on our business, financial condition and results of
operations.
PPP loans are fixed, low interest rate loans that are guaranteed by the SBA and subject to numerous other regulatory
requirements, and a borrower may apply to have all or a portion of the loan forgiven. If PPP borrowers fail to qualify for loan
forgiveness, we face a heightened risk of holding these loans at unfavorable interest rates for an extended period of time.
While the PPP loans are guaranteed by the SBA, various regulatory requirements will apply to our ability to seek recourse
under the guarantees, and related procedures are currently subject to uncertainty.
In addition, we may be exposed to credit risk on PPP loans if a determination is made by the SBA that there is a
deficiency in the manner in which the loan was originated, funded, or serviced, such as an issue with the eligibility of
borrower to receive a PPP loan, which may or may not be related to the ambiguity in the laws, rules and guidance regarding
the operations of the PPP. If a deficiency is identified, the SBA may deny its liability under the guaranty, reduce the amount
of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from us.
We face a risk of noncompliance with the Bank Secrecy Act and other anti-money laundering statutes and
regulations and corresponding enforcement proceedings.
The federal Bank Secrecy Act, the Uniting and Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act of 2001, or the USA PATRIOT Act, and other laws and regulations require financial
institutions, among other duties, to institute and maintain effective anti-money laundering programs and to file suspicious
activity and currency transaction reports, as appropriate. The federal Financial Crimes Enforcement Network, or FinCEN,
established by the U.S. Treasury Department to administer the Bank Secrecy Act, is authorized to impose significant civil
money penalties for violations of those requirements and has engaged in coordinated enforcement efforts with the individual
federal banking regulators, as well as the U.S. Department of Justice, Drug Enforcement Administration and Internal
Revenue Service. Additionally, South Florida has been designated as a “High Intensity Financial Crime Area,” or HIFCA,
by FinCEN and a “High Intensity Drug Trafficking Area,” or HIDTA, by the Office of National Drug Control Policy. The HIFCA
program is intended to concentrate law enforcement efforts to combat money laundering efforts in higher-risk areas. There
is also increased scrutiny of compliance with the rules enforced by the Office of Foreign Assets Control, or OFAC. Federal
and state bank regulators have for many years focused on compliance with Bank Secrecy Act and anti-money laundering
regulations. In order to comply with regulations, guidelines and examination procedures in this area, we have dedicated
significant resources to our anti-money laundering program, especially due to the regulatory focus on financial and other
institutions located in South Florida. Our business includes supporting our customers, including foreign financial institutions,
with respect to their international banking needs and our policies, procedures and systems have been designed to address
federal and state anti-money laundering compliance. If our policies, procedures and systems are deemed deficient or the
policies, procedures and systems of the financial institutions that we may acquire are deficient, we would be subject to
liability, including fines, and regulatory actions that are deemed necessary in order to remediate such deficiencies and
36 USCB Financial Holdings, Inc. 2021 10-K
prevent the recurrence thereof. In recent years, sanctions that the regulators have imposed on banks that have not complied
with all anti-money laundering requirements have been especially severe. Failure to maintain and implement adequate
programs to combat money laundering and terrorist financing could also have serious reputational consequences for us,
which could have a material adverse effect on our business, financial condition and results of operations.
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. The new rules raised the risk-
based capital requirements and revised the methods for calculating risk-weighted assets, usually resulting in higher risk
weights. The new rules now apply to us.
The Basel III rules increased capital requirements and included two new capital measurements, a risk-based common
equity Tier 1 ratio and a capital conservation buffer. Common Equity Tier 1 (CET1) capital is a subset of Tier 1 capital and
is limited to common equity (plus related surplus), retained earnings, accumulated other comprehensive income and certain
other items. Other instruments that have historically qualified for Tier 1 treatment, including noncumulative perpetual
preferred stock, are consigned to a category known as Additional Tier 1 capital and must be phased out of CETI over a
period of nine years beginning in 2014. In order to be a “well-capitalized” depository institution under the new regime, an
institution must maintain a CET1 capital ratio of 7.0% or more; a Tier 1 capital ratio of 8.5% or more; a total capital ratio of
10.5% or more; and a leverage ratio of 4% or more. Institutions must also maintain a capital conservation buffer consisting
of common equity Tier 1 capital. In addition to the higher required capital ratios and the new deductions and adjustments,
the final rules increased the risk weights for certain assets, meaning that we will have to hold more capital against these
assets. We 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. The failure to meet applicable regulatory capital requirements could result in one or more of our regulators placing
limitations or conditions on our activities, including our growth initiatives, or restricting the commencement of new activities,
and could affect customer and investor confidence, our costs of funds and level of required deposit insurance assessments
to the FDIC, our ability to pay dividends on our capital stock, our ability to make acquisitions, and our business, results of
operations and financial condition, generally.
In addition, in the current economic and regulatory environment, including the COVID-19 pandemic, bank regulators
may impose capital requirements that are more stringent than those required by applicable existing regulations. The
application of more stringent capital requirements for us could, among other things, result in lower returns on equity, require
the raising of additional capital, and result in regulatory actions if we were to be unable to comply with such requirements.
Implementation of changes to asset risk weightings for risk-based capital calculations, items included or deducted in
calculating regulatory capital or additional capital conservation buffers, could result in management modifying our business
strategy and could limit our ability to make distributions, including paying dividends.
We are periodically subject to examination and scrutiny by a number of banking agencies and, depending upon
the findings and determinations of these agencies, we may be required to make adjustments to our business that
could adversely affect us.
As part of the bank regulatory process, the Federal Reserve, the FDIC and the FOFR periodically conduct examinations
of our business, including compliance with applicable laws and regulations. If, as a result of an examination, one of these
banking agencies were to determine that the financial condition, capital resources, asset quality, asset concentration,
earnings prospects, management, liquidity sensitivity to market risk, risk management and internal controls or other aspects
of any of our operations has become unsatisfactory, or that we or our management are in violation of any law or regulation,
the banking agency could take a number of different remedial or punitive actions as it deems appropriate. These actions
include the power to prohibit the continuation of "unsafe or unsound" practices, to require affirmative actions to correct any
conditions resulting from any violation or practice, to issue an administrative order or enforcement that can be judicially
enforced, to direct an increase in our capital, to restrict our growth, to change the asset composition of our loan or securities
portfolios or balance sheet, to assess civil monetary penalties against our officers or directors, to remove officers and
directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors,
to terminate our deposit insurance and force us to terminate our business operations. If we become subject to such
regulatory actions, our business, financial condition, results of operations and reputation may be negatively impacted.
37 USCB Financial Holdings, Inc. 2021 10-K
We are subject to numerous laws and regulations of certain regulatory agencies designed to protect
consumers, including the Community Reinvestment Act, or CRA, and fair lending laws, and failure to comply with
these laws could lead to a wide variety of sanctions.
The CRA directs all insured depository institutions to help meet the credit needs of the local communities in which they
operate branches, including low- and moderate-income neighborhoods. Each institution is examined periodically by its
primary federal regulator, which assesses the institution’s CRA performance. The Equal Credit Opportunity Act, the Fair
Housing Act and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial
institutions. The U.S. Department of Justice, the Federal Reserve, and other federal agencies are responsible for enforcing
these laws and regulations. A successful regulatory challenge to our performance under the CRA, fair lending or consumer
lending laws and regulations could result in a wide variety of sanctions, including damages and civil money penalties,
injunctive relief, customer restitution, restrictions on mergers and acquisitions activity, restrictions on expansion, and
restrictions on entering new business lines. Private parties may also have the ability to challenge an institution’s
performance under fair lending laws in private class action litigation. Such actions could have an adverse effect on our
business, financial condition and results of operations.
Risks Related to Our Class A Common Stock
We do not anticipate paying dividends on our common stock, and our future ability to pay dividends is subject
to restrictions.
We currently do not intend to pay any cash dividends on our common stock in the foreseeable future. Holders of our
Class A common stock are only entitled to receive cash dividends when, as and if declared by our Board out of funds legally
available for dividends. The Company is a bank holding company that conducts substantially all of its operations through
the Bank, which is a legal entity separate and distinct from the Company. As a result, our ability to pay dividends on our
common stock will substantially depend upon the receipt of dividends and other distributions from the Bank, the profitability
of which is subject to the fluctuating cost and availability of money, changes in interest rates and economic conditions in
general. There are numerous laws and banking regulations and guidance that limit the Bank's ability to pay dividends to us
and our ability to pay dividends on our common stock.
The market price and trading volume of our Class A common stock may be volatile, which could result in rapid
and substantial losses for our shareholders.
The market price of our Class A common stock may be highly volatile and could be subject to wide fluctuations. In
addition, the trading volume on our Class A common stock may fluctuate and cause significant price variations to occur. We
cannot assure you that the market price of our Class A common stock will not fluctuate or decline significantly in the future.
Some, but certainly not all, of the factors that could negatively affect the price of our Class A common stock, or result in
fluctuations in the price or trading volume of our Class A common stock, include:
• 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.
In addition, if the market for stocks in our industry, or the stock market in general, experiences a loss of investor
confidence, the trading price of the Class A common stock could decline for reasons unrelated to our business, financial
condition or results of operations. If any of the foregoing occurs, it could cause our Class A common stock price to fall and
may expose us to lawsuits that, even if unsuccessful, could be costly to defend and a distraction to management.
38 USCB Financial Holdings, Inc. 2021 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.
Because the continued availability of our "deferred tax assets" depends, in part, on the value of our stock owned by
shareholders owning 5% or more of our stock, our Articles of Incorporation, except as otherwise may be approved by the
Board or except for transfers by our Significant Investors, prohibits any direct or indirect transfer of stock or options to
acquire stock to any person who, as a result of the transfer, would own 4.95% or more of our stock, as long as the Company
continues to have "deferred tax assets." Such restrictions may limit the ability to transfer our stock.
Because we are an emerging growth company and because we have decided to take advantage of certain
exemptions from various reporting and other requirements applicable to emerging growth companies, our Class
A common stock could be less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act. For as long as we remain an emerging growth
company, we will have the option to take advantage of certain exemptions from various reporting and other requirements
that are applicable to other public companies that are not emerging growth companies, including:
• we may present only two years of audited financial statements and only two years of related management’s
discussion and analysis of financial condition and results of operations
• we may provide less than five years of selected historical financial information;
• we are exempt from the requirements to obtain an attestation and report from our auditors on management’s
assessment of our internal control over financial reporting under the Sarbanes-Oxley Act;
• we are permitted to have less extensive disclosure about our executive compensation arrangements; and
• we are not required to give our shareholders non-binding advisory votes on executive compensation or golden
parachute arrangements.
We may continue to take advantage of some or all of the reduced regulatory and reporting requirements that will be
available to us as long as we continue to qualify as an emerging growth company. We will remain an emerging growth
company until the earliest 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.
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.
Because we have elected to use the extended transition period for complying with new or revised accounting
standards for an “emerging growth company,” our financial statements may not be comparable to companies that
comply with these accounting standards as of the public company effective dates.
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 a
result of this election, our financial statements may not be comparable to companies that comply with these accounting
standards as of the public company effective dates. Because our financial statements may not be comparable to companies
that comply with public company effective dates, investors may have difficulty evaluating or comparing our business,
performance or prospects in comparison to other public companies, which may have a negative impact on the value and
liquidity of our Class A common stock. We cannot predict if investors will find our Class A common stock less attractive
because we 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 have existing investors that own a significant amount of our common stock whose individual interests may
differ from yours.
A significant percentage of our Class A common stock is currently held by a few institutional investors, including Patriot
Financial Partners II, L.P. and Patriot Financial Partners Parallel II, L.P. (collectively, "Patriot"), and Priam Capital Fund II,
LP ("Priam," and together with Patriot, the "Significant Investors"). Patriot and Priam own approximately 22.44% and
22.44%, respectively, of our outstanding Class A common stock. In addition, Patriot and Priam are each entitled to nominate
a director to our Board and have certain subscription rights to purchase new equity securities that we issued in the future,
39 USCB Financial Holdings, Inc. 2021 10-K
in each case as long as certain equity ownership criteria are met. Patriot and Priam also have certain registration rights,
including demand registration rights, and information rights. Although Patriot and Priam are independent of each other,
these institutional investors will continue to have a significant level of influence over us because of their level of Class A
common stock ownership and their right to representation on our Board. For example, Patriot and Priam will have a greater
ability than our other shareholders to influence the election of directors and the potential outcome of other matters submitted
to a vote of our shareholders, including mergers and other acquisition transactions, amendments to our Articles of
Incorporation and Amended and Restated Bylaws, and other extraordinary corporate matters. The interests of these
investors could conflict with the interests of our other shareholders, and any future transfer by these investors of their shares
of Class A common stock to other investors who have different business objectives could adversely affect our business,
results of operations, financial condition, prospects or the market value of our Class A common stock.
Provisions in our governing documents and Florida law may have an anti-takeover effect and there are
substantial regulatory limitations on changes of control of the Company.
Our corporate organizational documents and provisions of federal and state law to which we are subject contain certain
provisions that could have an anti-takeover effect and may delay, make more difficult or prevent an attempted acquisition
that you may favor or an attempted replacement of our Board or management.
Our governing documents include provisions that:
• 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.
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. These laws could delay or prevent an acquisition. 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. 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.
40 USCB Financial Holdings, Inc. 2021 10-K
Item 1B. Unresolved Staff Comments
None.
Item 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. The banking center that is owned is located at 3999
Sheridan St, Hollywood, FL 33021. Management believes that each of these locations are in good condition and adequate
to meet our present and foreseeable needs, subject to possible future expansion.
See Note 4 “Leases” and Note 5 “Premises and Equipment” to the Consolidated Financial Statements included in this
Form 10-K for additional information.
Item 3. Legal Proceedings
We are not currently subject to any material legal proceedings. We are from time to time subject to claims and litigation
arising in the ordinary course of business. These claims and litigation may include, among other things, allegations of
violation of banking and other applicable regulations, competition law, labor laws and consumer protection laws, as well as
claims or litigation relating to intellectual property, securities, breach of contract and tort. We intend to defend ourselves
vigorously against any pending or future claims and litigation.
Item 4. Mine Safety Disclosures
Not applicable.
41 USCB Financial Holdings, Inc. 2021 10-K
PART II
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”.
The listing of our Class A common stock on the Nasdaq Stock Market has resulted in a more active trading market for our
Class A common stock. However, we cannot assure that a liquid trading market for our Class A common stock will be
sustained.
Effective December 30, 2021, the bank holding company, or the Company, acquired all issued and outstanding shares
of Class A common stock of the Bank. Each of the outstanding shares of the Bank’s common stock formerly held by its
shareholders was converted into and exchanged for one newly issued share of the Company’s common stock. The ticker
symbol “USCB” remained the same.
Prior to our listing on the Nasdaq Stock Market there was not an established public trading market for the Class A
common shares. The following table shows the quarterly high and low closing prices of our Class A common stock traded
on the Nasdaq Stock Market 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
As of December 31, 2021, our Class B common stock is not listed or traded on any stock exchange.
Holders
As of January 31, 2022, the Company’s Class A common shares were held by approximately 529 shareholders .
Dividends
As a bank holding company, the Company’s ability to declare and pay dividends depends on various federal regulatory
considerations, including the guidelines of the Federal Reserve regarding capital adequacy and dividends.
Because we are a bank holding company and currently do not engage directly in business activities of a material nature,
our ability to pay dividends to our shareholders depends, in large part, upon our receipt of dividends from the Bank, which
is also subject to numerous limitations on the payment of dividends under federal banking laws, regulations and policies.
The principal source of revenue with which to pay dividends on common shares are dividends the Bank may declare
and pay out of funds legally available for payment of dividends. As a Florida corporation, we are only permitted to pay
dividends to shareholders if, after giving effect to the dividend, (i) the Company is able to pay its debts as they become due
in the ordinary course of business and (ii) the Company’s assets exceeds the sum of Company’s (a) liabilities plus (b) the
amount that would be needed for the Company to satisfy the preferential rights upon dissolution of shareholders whose
preferential rights are superior to those receiving the dividend, if any.
Securities Authorized for Issuance Under Equity Compensation Plans
See Note 9 ”Equity Based and Other Compensation Plans” to the Consolidated Financial Statements herein for
additional information required.
42 USCB Financial Holdings, Inc. 2021 10-K
COMPARISON OF CUMULATIVE RETURN SINCE COMPANY IPO
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,
2021, with the cumulative total return of (a) the Nasdaq Bank Index (b) the NASDAQ ABA Community Bank Index, and (c)
the Nasdaq Composite Index over the same period. This graph assumes the investment of $100 in our Class A common
stock at the closing sale price of $10.82 per share on July 23, 2021, and assumes the reinvestment of dividends, if any.
The comparisons shown in the graph below are based upon historical data. We caution that the stock price performance
shown in the graph below is not indicative of, nor is it intended to forecast, the potential future performance of our common
stock.
07/23/2021
09/30/2021
12/31/2021
USCB Financial Holdings, Inc. (USCB)
$
100
$
122
$
140
NASDAQ Bank (BANK)
$
100
$
110
$
115
NASDAQ ABA Community Bank (QABA)
$
100
$
108
$
114
NASDAQ Composite (IXIC)
$
100
$
98
$
107
Recent Sales of Unregistered Securities
None.
Purchases of Equity Securities by Issuer and Other Affiliates
As of December 31, 2021, the Company nor any of its affiliates purchased any Class A common shares of the Company.
Item 6. Reserved
43 USCB Financial Holdings, Inc. 2021 10-K
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Management’s discussion and analysis of financial condition and results of operations analyzes the consolidated
financial condition and results of operations of the Company and the Bank, its wholly owned subsidiary, for the years ended
December 31, 2021 and 2020. 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. In addition to historical information, this discussion contains forward-looking statements that involve
risks, uncertainties and assumptions that could cause actual results to differ materially from management's expectations.
Factors that could cause such differences are discussed in the sections entitled "Forward-Looking Statements" and Item
1A “Risk Factors" of this Annual Report.
Throughout this document, references to “we,” “us,” “our,” and “the Company” refer to USCB Financial Holdings, Inc.
Forward-Looking Statements
This Annual Report on Form 10-K contains statements that are not historical in nature are intended to be, and are
hereby identified as, forward-looking statements for purposes of the safe harbor provided by Section 21E of the Securities
Exchange Act of 1934, as amended. The words “may,” “will,” “anticipate,” “should,” “would,” “believe,” “contemplate,”
“expect,” “aim,” “plan,” “estimate,” “continue,” and “intend,” as well as other similar words and expressions of the future, are
intended to identify forward-looking statements. These forward-looking statements include statements related to our
projected growth, anticipated future financial performance, and management’s long-term performance goals, as well as
statements relating to the anticipated effects on results of operations and financial condition from expected developments
or events, or business and growth strategies, including anticipated internal growth.
These forward-looking statements involve significant risks and uncertainties that could cause our actual results to differ
materially from those anticipated in such statements. Potential risks and uncertainties include, but are not limited to:
• 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 impacts 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 forthcoming implementation of the Current Expected Credit Losses (“CECL”) standard;
• 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;
• the concentration of ownership of our Class A 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 monetary fluctuations;
• increased competition and its effect on pricing of our products and services as well as our margins;
• 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 this Form 10-K and other filings we make with the Securities and Exchange Commission
(“SEC”).
All forward-looking statements are necessarily only estimates of future results, and there can be no assurance that
actual results will not differ materially from expectations. Therefore, you are cautioned not to place undue reliance on any
forward-looking statements. Further, forward-looking statements included in this presentation are made only as of the date
hereof, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances
after the date on which the statement is made or to reflect the occurrence of unanticipated events, unless required to do so
under the federal securities laws. You should also review the risk factors described in 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.
44 USCB Financial Holdings, Inc. 2021 10-K
Non-GAAP Financial Measures
This Annual Report on Form 10-K includes financial information determined by methods other than in accordance with
generally accepted accounting principles (“GAAP”). This financial information includes certain operating performance
measures. Management has included these non-GAAP measures because it believes these measures may provide useful
supplemental information for evaluating the Company’s underlying performance trends. Further, management uses these
measures in managing and evaluating the Company’s business and intends to refer to them in discussions about our
operations and performance. Operating performance measures should be viewed in addition to, and not as an alternative
to or substitute for, measures determined in accordance with GAAP, and are not necessarily comparable to non-GAAP
measures that may be presented by other companies. To the extent applicable, reconciliations of these non-GAAP
measures to the most directly comparable GAAP measures can be found in the ‘Non-GAAP Reconciliation Tables’ included
in this annual report.
Overview
For the year ended December 31, 2021, the Company reported net income of $21.1 million compared with net income
of $10.8 million for the year ended December 31, 2020, representing a 94.8% increase. The results from 2021 included
closing our initial public offering of the Class A common stock and the simplification of the Bank’s capital structure.
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.
The following significant highlights are of note for the year ended December 31, 2021:
• Net interest income after provision for credit losses totaled $52.7 million, an increase of $12.3 million or 30.5%,
compared to $40.3 million at December 31, 2020.
• Net interest margin (“NIM”) remained the same at 3.26% for the years ended December 31, 2021 and 2020. The
yield on earning assets decreased to 3.52% in 2021, compared to 3.93% in 2020. The yield on earning assets was
negatively impacted by certain floating rate investment securities, loans with variable rate pricing features, and new
loans originated in the lower interest rate environment, including PPP loans which carry a rate of 1.0%.
• NIM, excluding PPP loans, was 3.16% and 3.30% for the years ended December 31, 2021 and 2020, respectively.
• Total assets grew to $1.9 billion, an increase of $352.2 million or 23.5%, compared to December 31, 2020.
• Loans grew to $1.2 billion, an increase of $151.6 million or 14.6%, compared to December 31, 2020.
• The cost of interest-bearing liabilities decreased to 0.45% in 2021 from 1.07% in 2020 as a result of the continued
downward repricing of deposits and continued improvement in deposit mix.
• Return on average assets for the year ended December 31, 2021 was 1.24% compared to 0.76% in 2020.
• Return on average stockholders’ equity for the year ended December 31, 2021 was 11.45% compared to 6.54% in
2020.
• Nonperforming assets totaled $1.2 million, a decrease of $0.4 million or 24.6%, compared to $1.6 million at
December 31, 2020.
• The Company maintained its strong capital position. As of December 31, 2021, the Bank was well-capitalized, with
a total risk-based capital ratio of 14.92%, a tier 1 risk-based capital ratio of 13.70%, a common equity tier 1 capital
ratio of 13.70%, and a leverage ratio of 9.55%. As of December 31, 2021 and 2020, all of our regulatory capital
ratios exceeded the thresholds to be well-capitalized under the applicable bank regulatory requirements.
• In April 2021, the Bank repurchased all of its issued and outstanding Class E preferred shares at the liquidation
value of $7.5 million along with declared dividends approved by the Board of Directors (the “Board”) with the goal
to simplify its capital structure.
45 USCB Financial Holdings, Inc. 2021 10-K
• In July 2021, the Bank completed the initial public offering of 4,600,000 shares of Class A common stock, which
included an additional 600,000 shares in connection with the exercise in full of the underwriters’ option to purchase
additional shares. In a continuation effort to simplify the Company’s capital structure, an exchange and redemption
of then outstanding Class C and Class D preferred shares was also completed.
• In December 2021, the Bank entered into agreements with the Class B shareholders to exchange all outstanding
Class B non-voting common stock for Class A voting common stock.
• The Company became the parent bank holding company of the Bank effective December 28, 2021. Each share of
the Bank was exchanged for one share of the Company, making the Bank a wholly owned subsidiary of the
Company. Shares of the Company continue to trade under ticker symbol “USCB” on the Nasdaq Stock Market.
Critical Accounting Policies and Estimates
The consolidated financial statements are prepared based on the application of U.S. GAAP, the most significant of
which are described in Note 1 “Summary of Significant Accounting Policies” to our Consolidated Financial Statements. To
prepare financial statements in conformity with GAAP, management makes estimates, assumptions, and judgments based
on available information. These estimates, assumptions, and judgments affect the amounts reported in the financial
statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as
of the date of the financial statements and, as this information changes, actual results could differ from the estimates,
assumptions and judgments reflected in the financial statements. In particular, management has identified accounting
policies that, due to the estimates, assumptions and judgments inherent in those policies, are critical in understanding our
financial statements. Management has presented the application of these policies to the audit and risk committee of our
Board.
Allowance for Credit Losses
The allowance for credit losses (“ACL”) is a valuation allowance that is established through charges to earnings in the
form of a provision for credit losses. The amount of the ACL is affected by the following: (i) charge-offs of loans that decrease
the allowance; (ii) subsequent recoveries on loans previously charged off that increase the allowance; and (iii) provisions
for credit losses charged to income that increase the allowance. Management considers the policies related to the ACL as
the most critical to the financial statement presentation. The total ACL includes activity related to allowances calculated in
accordance with Accounting Standards Codification (“ASC”) 310, Receivables, and ASC 450, Contingencies.
Throughout the year, management estimates the probable incurred losses in the loan portfolio to determine if the ACL
is adequate to absorb such losses. The ACL consists of specific and general components. The specific component relates
to loans that are individually classified as impaired. We follow a loan review program to evaluate the credit risk in the loan
portfolio. Loans that have been identified as impaired are reviewed on a quarterly basis in order to determine whether a
specific reserve is required. The general component covers non-impaired loans and is based on industry and our specific
historical loan loss experience, volume, growth and composition of the loan portfolio, the evaluation of our loan portfolio
through our internal loan review process, general current economic conditions both internal and external to us that may
affect the borrower’s ability to pay, value of collateral and other qualitative relevant risk factors. Based on a review of these
estimates, we adjust the ACL to a level determined by management to be adequate. Estimates of credit losses are inherently
subjective as they involve an exercise of judgment.
The CARES Act, as amended by the Consolidated Appropriations Act, 2021, specified that COVID-19 related loan
modifications executed between March 1, 2020 and the earlier of (i) 60 days after the date of termination of the national
emergency declared by President Trump and (ii) January 1, 2022, on loans that were current as of December 31, 2019, are
not TDRs. Additionally, under guidance from the federal banking agencies, other short-term modifications made on a good
faith basis in response to COVID-19 to borrowers that were current prior to any relief are not TDRs under ASC Subtopic
310-40, “Troubled Debt Restructurings by Creditors.” These modifications include short-term (i.e., up to six months)
modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are
insignificant. The Company’s charge-off policy is to continuously review all impaired loans to monitor the Company’s ability
to collect them in full at the applicable maturity date and/or in accordance with terms of any restructurings. For loans which
are collateral dependent, or deemed to be uncollectible, any shortfall in the fair value of the collateral relative to the recorded
investment in the loan is charged off. The amount charged -off conforms to the amount necessary to comply with GAAP.
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
46 USCB Financial Holdings, Inc. 2021 10-K
and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment
date.
Management is required to assess whether a valuation allowance should be established on the net deferred tax assets
based on the consideration of all available evidence using a more likely than not standard. In its evaluation, management
considers taxable loss carry-back availability, expectation of sufficient taxable income, trends in earnings, the future reversal
of temporary differences, and available tax planning strategies.
The Company recognizes positions taken or expected to be taken in a tax return in accordance with existing accounting
guidance on income taxes which prescribes a recognition threshold and measurement process. Interest and penalties on
tax liabilities, if any, would be recorded in interest expense and other operating non-interest expense, respectively.
Segment Reporting
Management monitors the revenue streams for all its various products and services. The identifiable segments are not
material and operations are managed and financial performance is evaluated on an overall Company-wide basis.
Accordingly, all the financial service operations are considered by management to be aggregated in one reportable operating
segment.
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,
2021
2020
Consolidated Balance Sheets:
Total assets
$
1,853,939
$
1,501,742
Total loans
(1)
$
1,190,081
$
1,038,504
Total deposits
$
1,590,379
$
1,273,402
Total stockholders' equity
$
203,897
$
171,001
(1) Loan amounts include deferred fees/costs.
Years Ended December 31,
2021
2020
Consolidated Statements of Operations:
Net interest income before provision for credit losses
$
52,496
$
43,597
Total non-interest income
$
10,698
$
6,097
Total non-interest expense
$
35,677
$
33,036
Net income
$
21,077
$
10,820
Net income (loss) available to common stockholders
$
(70,585)
$
7,693
Profitability:
Efficiency ratio
56.31%
71.13%
Net interest margin
3.26%
3.26%
The Company’s results of operations depend substantially on net interest income and non-interest income. Other factors
contributing to the results of operations include our provision for credit losses, non-interest expenses, and provision for
income taxes.
Net income for the year ended December 31, 2021 was $21.1 million , compared with net income of $10.8 million for
the same period in 2020. The Company reported net loss per diluted share for the year ended December 31, 2021 of $6.72
compared to net income per diluted share for the same period in 2020 of $1.50 and $0.30 for Class A and Class B common
stock, respectively, after adjusted to reflect the 1 for 5 reverse stock split on Class A common stock. The net loss per diluted
share for the year ended December 31, 2021 was attributable to the one-time reduction in net income available to common
stockholders for the exchange and redemption of the Class C and Class D preferred shares. During third quarter of 2021,
47 USCB Financial Holdings, Inc. 2021 10-K
the Company completed an exchange of then outstanding preferred shares for Class A common shares and thereafter
redeemed the remaining outstanding preferred shares, at a liquidation value that exceeded book value, causing a one-time
reduction in net income available to common stockholders of $89.6 million. At December 31, 2021, there were no issued
and outstanding preferred shares.
Operating net income per diluted share (non-GAAP) for the year ended December 31, 2021 was $1.81 compared to
operating net income per diluted share (non-GAAP) for the same period in 2020 of $1.50 and $0.30 for Class A and Class
B, respectively. Operating net income per diluted share (non-GAAP) for the year ended December 31, 2021 excludes the
$89.6 million one-time accounting impact of the exchange and redemption of the preferred shares. The operating net income
per diluted share for the year ended December 31, 2020 was adjusted to reflect the 1 for 5 reverse stock split on Class A
common stock. To see a reconciliation of non-GAAP measures to GAAP measures refer to section below “Reconciliation
and Management Explanation of Non-GAAP Financial Measures”.
Net Interest Income
Net interest income is the difference between interest earned on interest earning assets and interest incurred on interest-
bearing liabilities and is the primary driver of core earnings. Interest income is generated from interest and dividends on
interest-earning assets, including loans, investment securities and other short-term investments. Interest expense is
incurred from interest paid on interest-bearing liabilities, including interest-bearing deposits, FHLB advances and other
borrowings.
To evaluate net interest income, we measure and monitor (i) yields on loans and other interest-earning assets, (ii) the
costs of deposits and other funding sources, (iii) net interest spread, and (iv) net interest margin. Net interest spread is equal
to the difference between rates 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. Because non-interest-
bearing sources of funds, such as non-interest-bearing deposits and stockholders’ equity, also fund interest-earning assets,
net interest margin includes the benefit of these non-interest-bearing sources.
Changes in the market interest rates and interest rates we earn on interest-earning assets or pay on interest-bearing
liabilities, as well as the volume and types of interest-earning assets and interest-bearing and non-interest-bearing liabilities,
are usually the largest drivers of periodic changes in net interest spread, net interest margin and net interest income. Our
asset liability committee (“ALCO”) has in place asset-liability management techniques to manage major factors that affect
net interest income and net interest margin.
48 USCB Financial Holdings, Inc. 2021 10-K
The following table contains information related to average balance sheet, average yields on assets, and average costs
of liabilities for the periods indicated (in thousands):
Years Ended December 31,
2021
2020
Average
Balance
Interest
Yield/Rate
Average
Balance
Interest
Yield/Rate
Assets
Interest-earning assets:
Loans
(1)
$
1,116,142
$
48,730
4.37
%
$
1,026,905
$
47,078
4.58
%
Investment securities
(2)
403,677
7,886
1.95
%
201,073
5,248
2.61
%
Other interest earnings assets
92,430
106
0.11
%
110,898
307
0.28
%
Total interest-earning assets
1,612,249
56,722
3.52
%
1,338,876
52,633
3.93
%
Non-interest earning assets
89,409
90,059
Total assets
$
1,701,658
$
1,428,935
Liabilities and stockholders' equity
Interest-bearing liabilities:
Interest-bearing demand deposits
$
52,379
59
0.11
%
$
46,819
158
0.34
%
Saving and money market deposits
619,810
2,082
0.34
%
473,028
3,095
0.65
%
Time deposits
235,127
1,531
0.65
%
276,462
4,709
1.70
%
Total interest-bearing deposits
907,316
3,672
0.40
%
796,309
7,962
1.00
%
Borrowings and repurchase agreements
36,000
554
1.54
%
51,362
1,074
2.09
%
Total interest-bearing liabilities
943,316
4,226
0.45
%
847,671
9,036
1.07
%
Non-interest bearing demand deposits
547,116
390,467
Other non-interest-bearing liabilities
27,142
25,281
Total liabilities
1,517,574
1,263,419
Stockholders' equity
184,084
165,516
Total liabilities and stockholders' equity
$
1,701,658
$
1,428,935
Net interest income
$
52,496
$
43,597
Net interest spread
(3)
3.07
%
2.86
%
Net interest margin
(4)
3.26
%
3.26
%
(1) Average loan balances include non-accrual loans. Interest income on loans includes accretion of deferred loan fees, net of deferred loan costs.
(2) At fair value except for securities held to maturity.
(3) Net interest spread is the average yield on total interest-earning assets minus the average rate on total interest-bearing liabilities.
(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 $52.5 million for the year ended December 31, 2021, an
increase of $8.9 million or 20.4%, from $43.6 million for the year ended December 31, 2020. This increase was primarily
attributable to higher income from investment securities and loan fees as well as lower costs for interest-bearing liabilities
because of lower interest rate benchmarks.
Included with loan interest income are PPP fees totaling $3.6 million and $2.3 million for the year ended December 31,
2021 and 2020, respectively. PPP loan fees are recognized upon forgiveness.
The net interest margin remained the same at 3.26% for the years ended December 31, 2021 and 2020. The overall
and individual yields for interest-bearing assets and interest-bearing liabilities both decreased in 2021 compared to 2020.
Provision for Credit Losses
The allowance for credit losses (“ACL”) represents probable incurred losses in our portfolio. We maintain an adequate
ACL that can mitigate probable losses incurred in the loan portfolio. The ACL is increased by the provision for credit losses
and is decreased by charge-offs, net of recoveries on prior loan charge-offs. There are multiple credit quality metrics that
we use to base our determination of the amount of the ACL and corresponding provision for credit losses. These credit
metrics evaluate the credit quality and level of credit risk inherent in our loan portfolio, assess non-performing loans and
charge-offs levels, considers statistical trends and economic conditions and other applicable factors.
Provision for credit loss for the year ended December 31, 2021, was a net reduction of $160 thousand compared to
$3.3 million in provision expense for the same period in 2020. The primary driver of the decrease was the improvement of
49 USCB Financial Holdings, Inc. 2021 10-K
the credit risk associated with the COVID-19 pandemic. The ACL as a percentage of total loans was 1.27% at December 31,
2021 compared to 1.45% at December 31, 2020.
See “Allowance for Credit Losses” below for further discussion on how the ACL is calculated.
Non-Interest Income
Net interest income and other types of recurring non-interest income are generated from our operations. Our services
and products generate service charges and fees, mainly from our depository accounts. We also generate income from gain
on sale of loans though our swap and SBA programs. In addition, we own insurance on several employees and generate
income on the increase in the cash surrender value of these policies.
The following table presents the components of non-interest income for the dates indicated (in thousands):
Years Ended December 31,
2021
2020
Service fees
$
3,609
$
3,266
Gain on sale of securities available for sale, net
214
434
Gain on sale of loans held for sale, net
1,626
839
Gain on sale of premises and equipment, net
983
-
Loan settlement
2,500
-
Other non-interest income
1,766
1,558
Total non-interest income
$
10,698
$
6,097
Non-interest income for the year ended December 31, 2021 increased $4.6 million or 75.5%, compared to the same
period in 2020. This increase was primarily driven by the default interest recovery of a prior lending customer for $2.5 million
and a gain on the sale of a previously owned building for $983 thousand as well as higher deposit service fees and gain on
sales of loans due to increased activity in our SBA program. Further, the default interest recovery of $2.5 million was for a
loan that was originated in 2008 and subsequently went through many iterations of credit collection. This payment reflects
the final payment and settlement of lien judgments against the customer.
Non-Interest Expense
The following table presents the components of non-interest expense for the dates indicated (in thousands):
Years Ended December 31,
2021
2020
Salaries and employee benefits
$
21,438
$
19,204
Occupancy
5,257
5,656
Regulatory assessment and fees
783
691
Consulting and legal fees
1,454
1,045
Network and information technology services
1,466
1,536
Other operating
5,279
4,904
Total non-interest expense
$
35,677
$
33,036
Non-interest expense for the year ended December 31, 2021 increased $2.6 million or 8.0%, compared to the same
period in 2020. The increase is primarily due to an increase in salaries and employee benefit costs of $2.2 million for the
year ended December 31, 2021, compared to the same period in 2020. The headcount of full-time equivalent employees
increased from 179 at December 31, 2020 to 187 at December 31, 2021. Further, consulting and legal fees and other
operating expenses increased $0.4 million or 39.1% and $0.4 million or 7.6%, respectively, during the year ended
December 31, 2021 compared to the same period in 2020 due to our operations as a publicly traded company and the
formation of a bank holding company. 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.
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 expenses for income tax purposes. Therefore, future decisions on the investments we choose will affect our effective
50 USCB Financial Holdings, Inc. 2021 10-K
tax rate. 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, 2021 was $6.6 million, compared to $2. 6 million for the year
ended December 31, 2020. The effective tax rate for the year ended December 31, 2021 was 23.8% and for the year ended
December 31, 2020 was 19.3%.
For a further discussion on income taxes, see Note 6 “Income Taxes” to the Consolidated Financial Statements in this
Form 10-K.
Rate/Volume Analysis
The table below sets forth information regarding changes in interest income and interest expense for the periods
indicated (in thousands). For each category of interest-earning assets and interest-bearing liabilities, information is provided
on changes attributable to (i) changes in rate (changes in rate multiplied by old volume); (ii) changes in volume (changes in
volume multiplied by old rate); and (iii) changes in rate-volume (change in rate multiplied by change in volume). Changes in
rate-volume are proportionately allocated between rate and volume variance.
Years Ended 2021 vs. 2020
Years Ended 2020 vs. 2019
Increase (decrease) due to change in
Increase (decrease) due to change in
Volume
Rate
Net
Change
Volume
Rate
Net
Change
Interest-earning assets:
Loans
(1)
$
4,091
$
(2,439)
$
1,652
$
4,573
$
(2,229)
$
2,344
Investment securities
(2)
5,288
(2,650)
2,638
397
(596)
(199)
Other interest earnings assets
(51)
(150)
(201)
1,412
(1,866)
(454)
Total increase (decrease) in interest income
9,328
(5,239)
4,089
6,382
(4,691)
1,691
Interest-bearing liabilities:
Interest-bearing demand deposits
19
(118)
(99)
$3
(6.00)
(3)
Saving and money market deposits
960
(1,973)
(1,013)
692
(2,738)
(2,046)
Time deposits
(704)
(2,474)
(3,178)
1,106
(1,242)
(136)
Borrowings and repurchase agreements
(321)
(199)
(520)
(952)
(81)
(1,033)
Total increase (decrease) in interest expense
(46)
(4,764)
(4,810)
849
(4,067)
(3,218)
Increase (decrease) in net interest income
$
9,374
$
(475)
$
8,899
$
5,533
$
(624)
$
4,909
(1) Average loan balances include non-accrual loans. Interest income on loans includes accretion of deferred loan fees, net of deferred loan costs.
(2) At fair value except for securities held to maturity.
Both average yields on interest earning assets and average rates paid on interest bearing liabilities have been declining
over the periods presented, reflecting the macro interest rate environment and ongoing initiatives to reduce the cost and
improve the mix of deposits.
Analysis of Financial Condition
Total assets at December 31, 2021, were $1.9 billion, an increase of $352.2 million, or 23.5%, over total assets of $1.5
billion at December 31, 2020. Total loans increased $151.6 million, or 14.6%, to $1.2 billion at December 31, 2021 compared
to $1.0 billion at December 31, 2020. The increase in loans includes purchased loans totaling $129.5 million including
deferred fees. Total deposits increased by $317.0 million, or 24.9%, to $1.6 billion at December 31, 2021 compared to
December 31, 2020.
Investment Securities
The investment portfolio is used and managed to provide liquidity through cash flows, marketability and, if necessary,
collateral for borrowings. The investment portfolio is also used as a tool to manage interest rate risk and the Company’s
capital market risk exposure. The philosophy of the portfolio is to maximize the Company’s profitability taking into
consideration the Company’s risk appetite and tolerance, manage the assets composition and diversification, and maintain
adequate risk-based capital ratios.
The investment portfolio is managed in accordance with the Asset and Liability Management (“ALM”) policy, which
includes an investment guideline, approved by the Board. Such policy is reviewed at least annually or more frequently if
deemed necessary, depending on market conditions and/or unexpected events. The investment portfolio composition is
51 USCB Financial Holdings, Inc. 2021 10-K
subject to change depending on the funding and liquidity needs of the Company, and the interest risk management objective
directed by the ALCO. The portfolio of investments can be used to modify the duration of the balance sheet. The allocation
of cash into securities takes into consideration anticipated future cash flows (uses and sources) and all available sources
of credit.
Our investment portfolio consists primarily of securities issued by U.S. government-sponsored agencies, agency
mortgage-backed securities, collateralized mortgage obligation securities, municipal securities, and other debt securities,
all with varying contractual maturities and coupons. Due to the optionality embedded in these securities, the final maturities
do not necessarily represent the expected life of the portfolio. Some of these securities will be called or paid down depending
on capital market conditions and expectations. The investment portfolio is regularly reviewed by the Chief Financial Officer,
Treasurer, or 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, 2021, the investment portfolio consisted of available-for-sale (“AFS”) and held-to-maturity (“HTM”)
debt securities. During the third quarter of 2021, there were 28 investment securities that were transferred from AFS to HTM
with an amortized cost basis and fair value amount of $67.6 million and $68.7 million, respectively. On the date of transfer,
these securities had a total net unrealized gain of $1.1 million. The transfer of debt securities from the AFS to HTM category
were 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. 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.
Periodically, we may need to assess whether there have been any events or unexpected economic circumstances to
indicate that a security on which there is an unrealized loss is impaired on an other-than-temporary basis (“OTTI”). If the
impairment is deemed to be permanent, an analysis would be made considering many factors, including the severity and
duration of the impairment, the severity of the event, our intent and ability to hold the security for a period of time sufficient
for a recovery in value, recent events specific to the issuer or industry, any related credit events, and for debt securities,
external credit ratings and recent downgrades related to deterioration of credit quality. Securities on which there is an
unrealized loss that is deemed to be OTTI are written down to fair value, with the write-down recorded as a realized loss
under line item “Gain (loss) on sale of securities available-for-sale, net” of the Consolidated Statements of Operations. As
of December 31, 2021, there are no securities which management has classified as OTTI. For further discussion of our
analysis on impaired investment securities for OTTI, see Note 2 “Investment Securities” to the Consolidated Financial
Statements in this Form 10-K.
AFS and HTM investment securities increased $189.9 million or 56.8% to $524.2 million at December 31, 2021 from
$334.3 million at December 31, 2020. Investment securities increased over the past year due to higher than expected cash
balances. Management reinvested idle cash balances into high credit quality investments to increase the Company’s
profitability and modify the Company’s balance sheet duration according to the ALM policy. As of December 31, 2021,
corporate bond securities with a market value of $20.4 million were pledged to secure public deposits. As of December 31,
2021, the Company did not have any tax-exempt securities in the portfolio.
52 USCB Financial Holdings, Inc. 2021 10-K
The following table presents the amortized cost and fair value of investment securities for the dates indicated (in
thousands):
December 31, 2021
December 31, 2020
Available-for-sale:
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
U.S. Government Agency - SBA
$
-
$
-
$
1,488
$
1,552
U.S. Government Agency
10,564
10,520
20,196
20,032
Collateralized mortgage obligations
160,506
156,829
104,426
104,650
Mortgage-backed securities - Residential
120,643
118,842
80,110
81,301
Mortgage-backed securities - Commercial
49,905
50,117
45,802
48,331
Municipal securities
25,164
24,276
24,230
24,211
Bank subordinated debt securities
27,003
28,408
24,004
24,630
Corporate bonds
12,068
12,550
27,733
29,615
$
405,853
$
401,542
$
327,989
$
334,322
Held-to-maturity:
U.S. Government Agency - SBA
$
12,004
$
11,641
$
-
$
-
U.S. Government Agency
22,501
22,263
-
-
Collateralized mortgage obligations
44,820
43,799
-
-
Mortgage-backed securities - Residential
26,920
26,352
-
-
Mortgage-backed securities - Commercial
3,103
3,013
-
-
Corporate bonds
13,310
13,089
-
-
$
122,658
$
120,157
$
-
$
-
The following table shows the weighted average yields, categorized by contractual maturity, for investment securities
as of December 31, 2021 (in thousands, except ratios):
Within 1 year
After 1 year through
5 years
After 5 years through
10 years
After 10 years
Total
Amortized
Cost
Yield
Amortized
Cost
Yield
Amortized
Cost
Yield
Amortized
Cost
Yield
Amortized
Cost
Yield
Available-for-sale:
U.S. Government Agency
$
-
0.00 %
$
-
0.00 %
$
-
0.00 %
$
10,564
1.74%
$
10,564
0.00 %
Collateralized mortgage obligations
-
0.00 %
-
0.00 %
-
0.00 %
160,506
1.32%
160,506
1.32%
MBS - Residential
-
0.00 %
-
0.00 %
1,002
0.00 %
119,641
2.26%
120,643
1.38%
MBS - Commercial
-
0.00 %
-
0.00 %
-
0.00 %
49,905
2.82%
49,905
2.82%
Municipal securities
-
0.00 %
-
0.00 %
1,000
2.05%
24,164
1.38%
25,164
1.73%
Bank subordinated debt securities
-
0.00 %
-
0.00 %
26,003
4.98%
1,000
6.13%
27,003
5.02%
Corporate bonds
1,992
3.39%
5,983
4.24%
4,093
2.54%
-
0.00 %
12,068
3.52%
$
1,992
$
5,983
$
32,098
$
365,780
$
405,853
1.87%
Held-to-maturity:
U.S. Government Agency - SBA
$
-
0.00 %
$
-
0.00 %
$
3,953
1.58%
$
8,051
1.58%
$
12,004
1.58%
U.S. Government Agency
-
0.00 %
2,982
0.64%
19,519
1.26%
-
0.00 %
22,501
1.18%
Collateralized mortgage obligations
-
0.00 %
-
0.00 %
-
0.00 %
44,820
1.46%
44,820
1.46%
MBS - Residential
-
0.00 %
2,836
2.98%
9,264
1.61%
14,820
1.62%
26,920
1.76%
MBS - Commercial
-
0.00 %
-
0.00 %
3,103
1.61%
-
0.00 %
3,103
1.61%
Corporate bonds
2,017
3.07%
11,293
2.71%
-
0.00 %
-
0.00 %
13,310
2.76%
$
2,017
$
17,111
$
35,839
$
67,691
$
122,658
1.62%
Loans
Loans are the largest category of interest-earning assets on the Consolidated Balance Sheets, and usually provides
higher yields than the rest of the interest-earning assets. Higher yields typically carry inherent credit and liquidity risks in
comparison to lower yield assets. The Company manages and mitigates such risks in accordance with the credit and ALM
policies, risk tolerance and balance sheet composition.
53 USCB Financial Holdings, Inc. 2021 10-K
The following table shows the loan portfolio composition as of the dates indicated (in thousands):
December 31, 2021
December 31, 2020
Total
Percent of
Total
Total
Percent of
Total
Residential Real Estate
$
201,359
16.9
%
$
232,754
22.3
%
Commercial Real Estate
704,988
59.2
%
606,425
58.2
%
Commercial and Industrial
146,592
12.3
%
157,330
15.1
%
Foreign Banks
59,491
5.0
%
38,999
3.7
%
Consumer and Other
79,229
6.6
%
5,507
0.5
%
Total gross loans
1,191,659
100.0
%
1,041,015
99.8
%
Less: Unearned income
1,578
2,511
Total loans net of unearned income
1,190,081
1,038,504
Less: Allowance for credit losses
15,057
15,086
Total net loans
$
1,175,024
$
1,023,418
Total gross loans increased by $150.6 million or 14.5% at December 31, 2021 compared to the same period in 2020.
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 because of two
yacht loan portfolios that were purchased for $93.7 million, including deferred fees, for the year ended December 31, 2021.
Commercial and industrial loans decreased because of continuing PPP loan forgiveness as expected.
The loan portfolio has continued to experience growth in the past two years. Since our inception, the primary focus has
been on commercial real estate lending, representing approximately 59.2% of the total gross loan portfolio as of
December 31, 2021. In the past, we supplemented our core commercial growth with the origination of 1-4 family residential
loans and the acquisition of 1-4 family residential loan portfolios to further diversify our loan portfolio. However, we have
determined not to further pursue this line of business and are focused on growing our commercial portfolio.
Other than the previous mentioned shifts, we do not expect any significant changes over the foreseeable future in the
composition of our loan portfolio or in our emphasis on commercial real estate lending. Our loan growth strategy since
inception has been reflective of the market in which we operate and of our strategic plan as approved by the Board.
Most of the commercial real estate exposure represents loans to commercial businesses secured by owner-occupied
real estate. 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. Many of our larger loan clients have lengthy relationships with members of our senior management team
or our relationship managers that date back to former institutions.
From a liquidity perspective, our loan portfolio provides us with additional liquidity due to repayments or unexpected
prepayments. The following table shows maturities and sensitivity to interest rate changes for the loan portfolio at
December 31, 2021 (in thousands):
Due in 1 year or
less
Due in 1 to 5
years
Due after 5 to 15
years
Due after 15
years
Total
Residential Real Estate
$
7,745
$
18,350
$
83,595
$
91,669
$
201,359
Commercial Real Estate
24,279
163,931
513,333
3,445
704,988
Commercial and Industrial
15,263
67,833
31,336
32,160
146,592
Foreign Banks
59,491
-
-
-
59,491
Consumer and Other
2,005
3,465
2,505
71,254
79,229
Total gross loans
$
108,783
$
253,579
$
630,769
$
198,528
$
1,191,659
Interest rate sensitivity:
Fixed interest rates
$
82,940
$
170,406
$
136,429
$
78,859
$
468,634
Floating or adjustable rates
25,843
83,173
494,340
119,669
723,025
Total gross loans
$
108,783
$
253,579
$
630,769
$
198,528
$
1,191,659
The information presented in the table above is based upon the contractual maturities of the individual loans, which
may be subject to renewal at their contractual maturity. Renewals will depend on approval by our credit department and
balance sheet composition at the time of the analysis, as well as any modification of terms at the loan’s maturity. Additionally,
54 USCB Financial Holdings, Inc. 2021 10-K
maturity concentrations, loan duration, prepayment speeds and other interest rate sensitivity measures are discussed,
reviewed, and analyzed by the ALCO. Decisions on term rate modifications are discussed as well.
As of December 31, 2021, approximately 60.7% of the loans have adjustable/variable rates and 39.3% of the loans
have fixed rates. The adjustable/variable loans re-price to different benchmarks and tenors in different periods of time. By
contractual characteristics, there are no material concentrations on anniversary repricing. Additionally, it is important to note
that most of our loans have interest rate floors. This embedded option protects the Company from a decrease in interest
rates and positions us to gain in the scenario of higher interest rates.
Asset Quality
Our asset quality grading analysis estimates the capability of the borrower to repay the contractual obligation of the loan
agreement as scheduled or at all. The Company’s internal credit risk grading system is based on experiences with similarly
graded loans. Internal credit risk grades are evaluated at least annually, or more frequently if deemed necessary. Internal
credit risk ratings may change based on management’s assessment of the results from the annual review, portfolio
monitoring and other developments observed with borrowers.
The internal credit risk grades used by the Company to assess the credit worthiness of a loan are shown below:
Pass
– Loans indicate different levels of satisfactory financial condition and performance.
Special Mention
close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment
prospects for the loan or of the institution’s credit position at some future date.
Substandard
– Loans classified as substandard are inadequately protected by the current net worth and paying
capacity of the obligator or of the collateral pledged, if any. Loans so classified have a well-defined weakness or
weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the
institution will sustain some loss if the deficiencies are not corrected.
Doubtful
the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing
facts, conditions, and values, highly questionable and improbable.
Loss
– Loans classified as loss are considered uncollectible.
Loan credit exposures by internally assigned grades are as follows for the dates indicated (in thousands):
December 31, 2021
Pass
Special Mention
Substandard
Doubtful
Total
Residential Real Estate
$
196,778
$
-
$
4,581
$
-
$
201,359
Commercial Real Estate
703,349
1,222
417
-
704,988
Commercial and Industrial
146,039
-
553
-
146,592
Foreign Banks
59,491
-
-
-
59,491
Consumer and Other
79,005
-
224
-
79,229
$
1,184,662
$
1,222
$
5,775
$
-
$
1,191,659
December 31, 2020
Pass
Special Mention
Substandard
Doubtful
Total
Residential Real Estate
$
225,861
$
-
$
6,893
$
-
$
232,754
Commercial Real Estate
605,180
-
1,245
-
606,425
Commercial and Industrial
157,097
-
233
-
157,330
Foreign Banks
38,999
-
-
-
38,999
Consumer and Other
5,229
-
278
-
5,507
$
1,032,366
$
-
$
8,649
$
-
$
1,041,015
55 USCB Financial Holdings, Inc. 2021 10-K
Non-Performing Assets
The following table presents non-performing assets as of December 31, 2021 and 2020 (in thousands, except ratios):
2021
2020
Non-accrual loans, less non-accrual TDR loans
$
1,190
$
303
Non-accrual TDRs
-
1,275
Loans past due over 90 days and still accruing
-
-
Total non-performing loans
1,190
1,578
Other real estate owned
-
-
Total non-performing assets
$
1,190
$
1,578
Asset quality ratios:
Allowance for credit losses to total loans
1.27%
1.45%
Allowance for credit losses to non-performing loans
1265%
956%
Non-performing loans to total loans
0.10%
0.15%
Non-performing assets include all loans categorized as non-accrual or restructured, impaired securities, non-accrual
TDRs, other real estate owned (“OREO”) and other repossessed assets. Problem loans for which the collection or liquidation
in full is reasonably uncertain are placed on a non-accrual status. This determination is based on current existing facts
concerning collateral values and the paying capacity of the borrower. When the collection of the full contractual balance is
unlikely, the loan is placed on non-accrual to avoid overstating the Company’s income for a loan with increased credit risk.
If the principal or interest on a commercial loan becomes due and unpaid for 90 days or more, the loan is placed on
non-accrual status as of the date it becomes 90 days past due and remains in non-accrual status until it meets the criteria
for restoration to accrual status. Residential loans, on the other hand, are placed on non-accrual status when the principal
or interest becomes due and unpaid for 120 days or more and remains in non-accrual status until it meets the criteria for
restoration to accrual status. Restoring a loan to accrual status is possible when the borrower resumes payment of all
principal and interest payments for a period of six months and the Company has a documented expectation of repayment
of the remaining contractual principal and interest or the loan becomes secured and in the process of collection.
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. In general, a borrower that can obtain funds from sources
other than the Company at market interest rates at or near those for non-troubled debt is not involved in a troubled debt
restructuring. 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 following tables present performing and non-performing TDRs for the dates indicated (in thousands):
December 31, 2021
Accruing
Non-Accruing
Total
Residential Real Estate
$
7,815
$
-
$
7,815
Commercial Real Estate
696
-
696
Commercial and Industrial
141
-
141
Consumer and Other
224
-
224
$
8,876
$
-
$
8,876
December 31, 2020
Accruing
Non-Accruing
Total
Residential Real Estate
$
8,884
$
777
$
9,661
Commercial Real Estate
733
-
733
Commercial and Industrial
179
23
202
Consumer and Other
278
-
278
$
10,074
$
800
$
10,874
The Company had allocated $360 thousand and $453 thousand of specific allowance for TDR loans at December 31,
2021 and 2020, respectively. There was no commitment to lend additional funds to these TDR customers.
56 USCB Financial Holdings, Inc. 2021 10-K
Charge-offs on TDR loans for the years ended December 31, 2021 and 2020 was $18 thousand and $153 thousand,
respectively. There were no defaults on TDR loans at December 31, 2021 and 2020 within the prior 12 months. The
Company did not have any new TDR loans for the year ended December 31, 2021.
The Company provided financial relief to borrowers impacted by COVID-19 and provided modifications to include
interest only deferral or principal and interest deferral. These modifications are excluded from TDR, classification under
Section 4013 of the CARES Act or under applicable interagency guidance of the federal banking regulators.
For further discussion on non-performing loans, see Note 3 “Loans” to the Consolidated Financial Statements of this
Form 10-K.
Allowance for Credit Losses
In determining the balance of the allowance account, loans are pooled by product segments with similar risk
characteristics and management evaluates the ACL on each segment and on a regular basis to maintain the allowance at
an adequate level based on factors which, in management’s judgment, deserve current recognition in estimating credit
losses. Such factors include changes in prevailing economic conditions, historical loss experience, delinquency trends,
changes in the composition and size of the loan portfolio and the overall credit worthiness of the borrowers.
Additionally, qualitative adjustments are made to the ACL when, based on management’s judgment, there are factors
impacting the allowance estimate not considered by the quantitative calculations.
The following table presents ACL and net charge-offs to average loans by type for the periods indicated (in thousands):
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Foreign
Banks
Consumer
and Other
Total
December 31, 2021:
Beginning balance
$
3,408
$
9,453
$
1,689
$
348
$
188
$
15,086
Provision for credit losses
(919)
(695)
955
109
390
(160)
Recoveries
238
-
149
-
5
392
Charge-offs
(229)
-
(18)
-
(14)
(261)
Ending Balance
$
2,498
$
8,758
$
2,775
$
457
$
569
$
15,057
Average loans
$
212,867
$
654,723
$
153,763
$
52,187
$
42,602
$
1,116,142
Net charge-offs to average loans
- %
- %
(0.08)%
- %
0.02%
(0.01)%
December 31, 2020:
Beginning balance
$
3,749
$
6,591
$
1,214
$
332
$
112
$
11,998
Provision for credit losses
(36)
2,861
321
16
88
3,250
Recoveries
168
1
307
-
18
494
Charge-offs
(473)
-
(153)
-
(30)
(656)
Ending Balance
$
3,408
$
9,453
$
1,689
$
348
$
188
$
15,086
Average loans
$
258,728
$
596,022
$
122,177
$
43,433
$
6,545
$
1,026,905
Net charge-offs to average loans
0.12%
- %
(0.13)%
- %
0.18%
0.02%
Bank-Owned Life Insurance
At December 31, 2021, the combined cash surrender value of all bank-owned life insurance (“BOLI”) policies was
$41.7 million. Changes in cash surrender value are recorded in non-interest income on the Consolidated Statements of
Operations. In 2021, the Company maintained BOLI policies with five insurance carriers. The Company is the beneficiary
of these policies.
Deposits
Customer deposits are the primary funding source for the Bank’s growth. Through our network of banking centers, we
offer a competitive array of deposit accounts and treasury management services designed to meet our customers’ business
needs. Our primary deposit customers are SMBs, and the personal business of owners and operators of these SMBs, as
well as the retail/consumer relationships of the employees of these businesses. Our focus on quality and customer service
57 USCB Financial Holdings, Inc. 2021 10-K
has created a strong brand recognition within our depositors, which reflects in the composition of our deposits; most of our
funding sources are core deposits.
Additionally, our personal and private banking management line of business is focused on the needs of the owners and
operators of our business customers, offering a suite of checking, savings, money market and time deposit accounts, and
utilizing superior client service to build and expand client relationships. A unique aspect of our business model is our ability
to offer correspondent services to banks in Central America and the Caribbean.
The following table presents the daily average balance and average rate paid on deposits by category as of
December 31, 2021 and 2020 (in thousands, except ratios):
2021
2020
Average
Balance
Average
Rate Paid
Average
Balance
Average
Rate Paid
Non-interest-bearing deposits
$
547,116
0.00
%
$
390,467
0.00
%
Interest-bearing transaction accounts
52,379
0.11
%
46,819
0.34
%
Saving and money market deposits
619,810
0.34
%
473,028
0.65
%
Time deposits
235,127
0.65
%
276,462
1.70
%
$
1,454,432
0.25
%
$
1,186,777
0.67
%
To
tal average deposits at December 31, 2021 was $1.5 billion, an increase of $267.7 million, or 22.6% over total
average deposits of $1.2 billion for the same period in 2020. Our focus on demand deposits has resulted in an increase in
average balances of $156.6 million, or 40.1%, in non-interest bearing demand deposits and an increase of $146.8 million,
or 31.0%, in saving and money market deposits when comparing the average balances for the years ended December 31,
2021 and 2020.
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 $897.8 million and $606.1 million at
December 31, 2021 and 2020, respectively. Time deposits with balances of $250 thousand or more totaled $119.4 million
and $104.1 million at December 31, 2021 and 2020, respectively.
The following table shows scheduled maturities of uninsured time deposits as of December 31, 2021 (in thousands):
Three months or less
$
28,707
Over three through six months
7,948
Over six though twelve months
42,106
Over twelve months
24,094
$
102,855
Borrowings
As a member of the FHLB, we are eligible for advances with various terms and conditions. This accessibility of additional
funding allows us to efficiently and timely meet both expected and unexpected outgoing cash flows and collateral needs
without adversely affecting either daily operations or the financial condition of the Company.
As of December 31, 2021 and 2020, there was $36.0 million of fixed rate advances from the FHLB outstanding with a
weighted average rate of 1.52%. Most of the advances are due in the first two quarters of 2025.
The following table presents the FHLB fixed rate advances as of December 31, 2021 (in thousands):
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
58 USCB Financial Holdings, Inc. 2021 10-K
We have also established Fed Funds lines of credit with our upstream correspondent banks to manage temporary
fluctuations in our daily cash balances. As of December 31, 2021, there were no outstanding balances with 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. To a varying degree, such commitments involve elements of credit, market, and interest rate risk in excess of the
amount recognized in the balance sheet. We use more conservative credit and collateral policies in making these credit
commitments as we do for on-balance sheet items. We are not aware of any accounting loss to be incurred by funding these
commitments; however, we maintain an allowance for off-balance sheet credit risk which is recorded under other liabilities
on the Consolidated Balance Sheets.
Since commitments associated with letters of credit and commitments to extend credit may expire unused, the amounts
shown do not necessarily reflect the actual future cash funding requirements . The following table presents lending related
commitments outstanding as of December 31, 2021 and 2020 (in thousands):
2021
2020
Commitments to grant loans and unfunded lines of credit
$
134,877
$
107,553
Standby and commercial letters of credit
6,420
1,813
Total
$
141,297
$
109,366
Commitments to extend credit are agreements to lend funds to a client, as long as there is no violation of any condition
established in the contract, for a specific purpose. Commitments generally have variable interest rates, fixed expiration
dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to
expire without being fully drawn, the total commitment amounts disclosed above do not necessarily represent future cash
requirements.
Unfunded lines of credit represent unused portions of credit facilities to our current borrowers that represent no change
in credit risk in our portfolio. Lines of credit generally have variable interest rates. The maximum potential 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. In
the event of nonperformance by the client in accordance with the terms of the agreement with the third party, we would be
required to fund the commitment. If the commitment is funded, we would be entitled to seek recovery from the client from
the underlying collateral, which can include commercial real estate, physical plant and property, inventory, receivables, cash
or marketable securities.
Asset and Liability Management Committee
The asset and liability management committee of our Company, or ALCO, consists of members of senior management
and our Board. Senior management is responsible for ensuring in a timely manner that Board approved strategies, policies,
and procedures for managing and mitigating risks are appropriately executed within the designated lines of authority and
responsibility.
ALCO oversees the establishment, approval, implementation, and review of interest rate risk, management, and
mitigation strategies, ALM related policies, ALCO procedures and risk tolerances and appetite.
While some degree of IRR (“Internal Rate of Return”) 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. Asset price variations, deposits volatility and
reduced earnings or outright losses could adversely affect the Company’s liquidity, performance, and capital adequacy.
Income simulations are used to assess the impact of changing rates on earnings under different rates scenarios and
time horizons. These simulations utilize both instantaneous and parallel changes in the level of interest rates, as well as
non-parallel changes such as changing slopes (flat and steeping) and twists of the yield curve, Static simulation models are
based on current exposures and assume a constant balance sheet with no new growth. Dynamic simulation analysis is also
59 USCB Financial Holdings, Inc. 2021 10-K
utilized to have a more comprehensive assessment on IRR. This simulation relies on detailed assumptions outlined in our
budget and strategic plan, and in assumptions regarding changes in existing lines of business, new business, management
strategies and client expected behavior.
To have a more complete picture of IRR, the Company also evaluates the economic value of equity, or EVE. This
assessment will allow us to measure the degree to which the economic values will change under different interest rate
scenarios (parallel and non-parallel). The economic-value approach focuses on a longer-term time horizon and captures all
future cash flows expected from existing assets and liabilities. The economic value model utilizes a static approach in that
the analysis does not incorporate new business; rather, the analysis shows a snapshot in time of the risk inherent in the
balance sheet.
Market and Interest Rate Risk Management
assets generally reprice faster than our liabilities, which results in a favorable impact to net interest income when market
interest rates increase. Many assumptions are used to calculate the impact of interest rate variations on our net interest
income, such as asset prepayment speeds, non-maturity deposit price sensitivity, pricing correlations, deposit truncations
and decay rates, and key rate drivers.
Because of the inherent use of these estimates and assumptions in the model, our actual results may, and most likely
will, differ from static measures results. In addition, static measures like 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. 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.
According to our model, as of December 31, 2021, 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 3.09% base case
scenario to 3.08% under a +400-basis points scenario. 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. According to our balance sheet composition, and as expected, our model stipulates
that an increase of rates will have a negative impact on the EVE. Results and analysis are presented quarterly to the Board,
and strategies are defined.
Additionally, in the last couple of quarters we have been reducing our asset sensitivity by extending asset duration. This
has reduced our NII volatility for the first and second year and has helped us to maintain the NII in accordance with ALCO
expectations.
Liquidity
an adequate level of liquidity depends on the Company’s ability to efficiently meet both expected and unexpected cash flow
and collateral needs without adversely affecting either daily operations or the financial condition of the Company.
Liquidity risk is the risk that we will be unable to meet our short-term and long-term obligations as they become due
because of an inability to liquidate assets or obtain relatively adequate funding. 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. 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.
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. Due to its critical importance to the viability of the Company, liquidity risk management is
integrated into our risk management processes and ALM policy.
60 USCB Financial Holdings, Inc. 2021 10-K
Critical elements of our liquidity risk management include: effective corporate governance consisting of oversight by the
Board 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.
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.
Accordingly, our liquidity resources were at sufficient levels to fund loans and meet other cash needs as necessary. We do
not expect liquidity resources to be compromised at this time.
Capital Adequacy
As of December 31, 2021, the Bank was well capitalized under the FDIC’s prompt corrective action framework.
Additionally, we follow the capital conservation buffer framework, and according to our actual ratios the Bank exceeds the
capital conversation buffer in all capital ratios as of December 31, 2021. The following table presents the capital ratios for
both the Bank and the Company at December 31, 2021 and 2020 (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, 2021:
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
%
December 31, 2020:
Total risk-based capital
$
139,326
14.24
%
$
78,260
8.00
%
$
97,825
10.00
%
Tier 1 risk-based capital
$
127,061
12.99
%
$
58,695
6.00
%
$
78,260
8.00
%
Common equity tier 1 capital
$
94,984
9.71
%
$
44,021
4.50
%
$
63,587
6.50
%
Leverage ratio
$
127,061
8.61
%
$
59,053
4.00
%
$
73,817
5.00
%
Impact of Inflation
Our Consolidated Financial Statements and related notes have been prepared in accordance with U.S. GAAP, which
require the measurement of financial position and operating results in terms of historical dollars, without considering the
changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the
increased cost of operations. Unlike most industrial companies, nearly all our assets and liabilities are monetary in nature.
As a result, interest rates have a greater impact on our performance than do the effects of general levels of inflation. Periods
of high inflation are often accompanied by relatively higher interest rates, and periods of low inflation are accompanied by
relatively lower interest rates. As market interest rates rise or fall in relation to the rates earned on loans and investments,
the value of these assets decreases or increases respectively. Inflation can also impact core non-interest expenses
associated with delivering the Company’s services.
Recently Issued Accounting Pronouncements
Recently issued accounting pronouncements are discussed in Note 1 “Summary of Significant Accounting Policies” to
the Consolidated Financial Statements of this Form 10-K.
61 USCB Financial Holdings, Inc. 2021 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. Further, management uses these
measures in managing and evaluating the Company’s business and intends to refer to them in discussions about our
operations and performance. Operating performance measures should be viewed in addition to, and not as an alternative
to or substitute for, measures determined in accordance with GAAP, and are not necessarily comparable to non-GAAP
measures that may be presented by other companies. The 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,
2021
2020
Pre-Tax Pre-Provision ("PTPP") Income:
Net income
$
21,077
$
10,820
Plus: Provision for income taxes
6,600
2,588
Plus: Provision for (recovery of) credit losses
(160)
3,250
PTPP income
$
27,517
$
16,658
PTPP Return on Average Assets:
PTPP income
$
27,517
$
16,658
Average assets
$
1,701,658
$
1,428,935
PTPP return on average assets
1.62%
1.17%
Operating Net Income:
Net income
$
21,077
$
10,820
Less: Net gains on sale of securities
214
434
Less: Tax effect on sale of securities
(52)
(106)
Operating net income
$
20,915
$
10,492
Operating PTPP Income:
PTPP income
$
27,517
$
16,658
Less: Net gains on sale of securities
214
434
Operating PTPP Income
$
27,303
$
16,224
Operating PTPP Return on Average Assets:
Operating PTPP income
$
27,303
$
16,224
Average assets
$
1,701,658
$
1,428,935
Operating PTPP Return on average assets
1.60%
1.14%
Operating Return on Average Asset:
Operating net income
$
20,915
$
10,492
Average assets
$
1,701,658
$
1,428,935
Operating return on average assets
1.23%
0.73%
62 USCB Financial Holdings, Inc. 2021 10-K
Years Ended December 31,
2021
2020
Operating Net Income Available to Common Stockholders:
Net income (GAAP)
$
21,077
$
10,820
Less: Preferred dividends
2,077
3,127
Less: Exchange and redemption of preferred shares
89,585
-
Net income (loss) available to common stockholders (GAAP)
(70,585)
7,693
Add back: Exchange and redemption of preferred shares
89,585
-
Operating net income avail. to common stock (non-GAAP)
(1)
$
19,000
$
7,693
Allocation of operating net income per common stock class:
Class A common stock
$
19,000
$
5,851
Class B common stock
$
-
$
1,842
Weighted average shares outstanding:
Class A common stock
10,507,530
3,887,480
10,507,530
3,911,290
Class B common stock
-
6,121,052
-
6,121,052
Diluted EPS:
(1)(2)
Class A common stock
Net income (loss) per diluted share (GAAP)
$
(6.72)
$
1.50
Add back: Exchange and redemption of preferred shares
8.53
-
$
1.81
$
1.50
Class B common stock
Net income per diluted share (GAAP)
$
-
$
0.30
Add back: Exchange and redemption of preferred shares
-
-
$
-
$
0.30
(1) The Company believes these non-GAAP measurements are a key indicator of the ongoing earnings power of the Company.
(2) During the year ended December 31, 2021, the Company entered into agreements with the Class B shareholders to exchange all outstanding
Class B non-voting stock for Class A voting common stock on a 1 for 5 reverse stock split As such, there are no issued and outstanding shares of Class
B common stock at December 31, 2021.
63 USCB Financial Holdings, Inc. 2021 10-K
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to provide the information required by this item.
64 USCB Financial Holdings, Inc. 2021 10-K
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Crowe LLP
, PCAOB ID:
173
)
65
Crowe LLP
Independent Member Crowe Global
65 USCB Financial Holdings, Inc. 2021 10-K
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and the Board of Directors of USCB Financial Holdings, Inc.
Doral, Florida
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of USCB Financial Holdings, Inc. (the
"Company") as of December 31, 2021 and 2020, the related consolidated statements of operations,
comprehensive income, changes in stockholders’ equity, and cash flows for the years then ended, and the
related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements
present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and
2020, and the results of its operations and its cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of America.
Explanatory Paragraph – Financial Statement Consistency
As discussed in Note 1 to the consolidated financial statements, the stockholders of U.S. Century Bank
exchanged their Class A common shares of U.S. Century Bank for shares of USCB Financial Holdings, Inc.
on a 1 share for 1 share basis during the year ended December 31, 2021. Stockholders of U.S. Century
Bank became stockholders of USCB Financial Holdings, Inc., and USCB Financial Holdings, Inc. became
the sole stockholder of U.S. Century Bank. The consolidated financial statements as of and for the year
ended December 31, 2020, do not include USCB Financial Holdings, Inc. The 2020 financial statements
of U.S. Century Bank are presented with the 2021 consolidated financial statements of USCB Financial
Holdings, Inc. since U.S. Century Bank’s assets, liabilities, and operations comprise substantially all of the
consolidated assets, liabilities, and operations. Our opinion is not modified with respect to this matter.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to
express an opinion on the Company's financial statements based on our audits. We are a public accounting
firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement, whether due to error or fraud. Our audits included performing procedures to
assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.
/s/ Crowe LLP
Crowe LLP
We have served as the Company's auditor since 2017.
Fort Lauderdale, Florida
March 24, 2022
66 USCB Financial Holdings, Inc. 2021 10-K
USCB FINANCIAL HOLDINGS, INC.
Consolidated Balance Sheets
(Dollars in thousands, except share and per share data)
December 31,
2021
2020
ASSETS:
Cash and due from banks
$
6,477
$
9,828
Interest-bearing deposits in banks
39,751
37,906
Total cash and cash equivalents
46,228
47,734
Investment securities held to maturity (fair value $
120,157
)
122,658
-
Investment securities available for sale, at fair value
401,542
334,322
Federal Home Loan Bank stock, at cost
2,100
2,711
Loans held for investment, net of allowance of $
15,057
15,086
, respectively
1,175,024
1,023,418
Accrued interest receivable
5,975
5,547
Premises and equipment, net
5,278
6,347
Bank owned life insurance
41,720
25,961
Deferred tax asset, net
34,929
39,159
Lease right-of-use asset
14,185
14,513
Other assets
4,300
2,030
Total assets
$
1,853,939
$
1,501,742
LIABILITIES:
Deposits:
Demand
$
605,425
$
$442,467
Money market and savings accounts
703,856
527,373
Interest-bearing checking accounts
55,878
45,132
Time deposits over $250,000
119,401
104,140
Time deposits $250,000 or less
105,819
154,290
Total deposits
1,590,379
1,273,402
Federal Home Loan Bank advances
36,000
36,000
Lease liability
14,185
14,513
Accrued interest and other liabilities
9,478
6,826
Total liabilities
1,650,042
1,330,741
Commitments and contingencies (See Note 10 and 18)
nil
nil
STOCKHOLDERS' EQUITY:
Preferred stock - Class C; $
1.00
1,000
52,748
authorized;
0
52,748
-
12,325
Preferred stock - Class D; $
1.00
5.00
12,309,480
authorized;
0
12,290,631
-
12,291
Preferred stock - Class E; $
1.00
1,000
3,185,024
authorized;
0
7,500
-
7,461
Common stock - Class A Voting; $
1.00
45,000,000
19,991,753
3,889,469
(1)
19,992
3,889
Common stock - Class B Non-voting; $
1.00
8,000,000
0
6,121,052
issued and outstanding as of December 31, 2021 and 2020
-
6,121
Additional paid-in capital on common stock
(1)
310,666
177,755
Accumulated deficit
(124,245)
(53,622)
Accumulated other comprehensive income (loss)
(2,516)
4,781
Total stockholders' equity
203,897
171,001
Total liabilities and stockholders' equity
$
1,853,939
$
1,501,742
(1) Class A common stock outstanding and additional paid-in-capital for December 31, 2020 were adjusted to reflect the 1 for 5 reverse stock split. See
Note 13 "Stockholders' Equity" for further discussion on the stock split.
The accompanying notes are an integral part of these consolidated financial statements.
67 USCB Financial Holdings, Inc. 2021 10-K
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Operations
(Dollars in thousands, except per share data)
Years Ended December 31,
2021
2020
Interest income:
$
48,730
$
47,078
7,886
5,248
106
307
56,722
52,633
Interest expense:
59
158
2,082
3,095
1,531
4,709
554
1,074
4,226
9,036
52,496
43,597
Provision for credit losses
(160)
3,250
52,656
40,347
Non-interest income:
3,609
3,266
214
434
1,626
839
983
-
2,500
-
1,766
1,558
10,698
6,097
Non-interest expense:
21,438
19,204
5,257
5,656
783
691
1,454
1,045
1,466
1,536
5,279
4,904
35,677
33,036
27,677
13,408
Income tax expense
6,600
2,588
21,077
10,820
Less: Preferred stock dividend
2,077
3,127
Less: Exchange and redemption of preferred shares
89,585
-
Net income (loss) available to common stockholders
$
(70,585)
$
7,693
Per share information:
(1)
Class A common stock
(2)
Net income (loss) per share, basic
$
(6.72)
$
1.51
Net income (loss) per share, diluted
$
(6.72)
$
1.50
Class B common stock
Net income per share, basic
$
-
$
0.30
Net income per share, diluted
$
-
$
0.30
(1) See Note 14 "Earnings per Share" for information on the allocation of income available to common stockholders.
(2) For the year ended December 31, 2020, the common stock outstanding, weighted average shares and net income per share for the Class A
common stock were adjusted to reflect the 1 for 5 reverse stock split that occurred in June of 2021.
The accompanying notes are an integral part of these consolidated financial statements.
68 USCB Financial Holdings, Inc. 2021 10-K
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Comprehensive Income
(Dollars in thousands)
Years Ended December 31,
2021
2020
Net income
$
21,077
$
10,820
Other comprehensive income (loss):
Unrealized gain (loss) on investment securities
(9,561)
4,175
Amortization of net unrealized gains on securities transferred from available-for-sale to held-to-maturity
108
-
Reclassification adjustment for gain included in net income
(214)
(434)
Tax effect
2,370
(917)
Total other comprehensive income (loss), net of tax
(7,297)
2,824
Total comprehensive income
$
13,780
$
13,644
The accompanying notes are an integral part of these consolidated financial statements.
69 USCB Financial Holdings, Inc. 2021 10-K
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Changes in Stockholders’ Equity
(Dollars in thousands, except per share data)
Preferred Stock
Common Stock
Additional Paid-
in Capital on
Common Stock
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Shares
Par Value
Shares
Par Value
Total
Stockholders'
Equity
Balance at January 1, 2021
12,350,879
$
32,077
25,568,147
$
25,568
$
162,197
$
(53,622)
$
4,781
$
171,001
Reverse stock split 1 for 5 Common A
-
-
(15,557,626)
(15,558)
15,558
-
-
-
Adjusted balance at January 1, 2021
12,350,879
32,077
10,010,521
10,010
177,755
(53,622)
4,781
171,001
Net income
-
-
-
-
-
21,077
-
21,077
Other comprehensive loss
-
-
-
-
-
-
(7,297)
(7,297)
Dividends - preferred stock
-
-
-
-
-
(2,077)
-
(2,077)
Issuance of Class A common stock, net of
offering costs of $
6,174
-
-
4,600,000
4,600
35,226
-
-
39,826
Exchange of preferred stock
(11,109,025)
(22,154)
10,278,072
10,279
92,501
(80,626)
-
-
Redemption of preferred stock
(1,241,854)
(9,923)
-
-
-
(8,997)
-
(18,920)
Exchange of Class B to Class A common stock
-
-
(4,896,840)
(4,897)
4,897
-
-
-
Stock based compensation
-
-
-
-
287
-
-
287
Balance at December 31, 2021
-
$
-
19,991,753
$
19,992
$
310,666
$
(124,245)
$
(2,516)
$
203,897
Balance at January 1, 2020
(1)
12,350,879
$
32,077
10,008,521
$
10,008
$
177,555
$
(61,315)
$
1,957
$
160,282
Net income
-
-
-
-
-
10,820
-
10,820
Other comprehensive income
-
-
-
-
-
-
2,824
2,824
Dividends - preferred stock
-
-
-
-
-
(3,127)
-
(3,127)
Stock based compensation
-
-
-
-
187
-
-
187
Exercise of stock options
-
-
2,000
2
13
-
-
15
Balance at December 31, 2020
12,350,879
$
32,077
10,010,521
$
10,010
$
177,755
$
(53,622)
$
4,781
$
171,001
(1) Common stock shares, par value, and additional paid-in capital for common stock for 2020 was adjusted to reflect the 1 for 5 reverse stock split. See Note 13 "Stockholders' Equity" for further details.
The accompanying notes are an integral part of these consolidated financial statements.
70 USCB Financial Holdings, Inc. 2021 10-K
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
Years Ended December 31,
2021
2020
Cash flows from operating activities:
Net income
$
21,077
$
10,820
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses
(160)
3,250
Depreciation and amortization
1,033
1,272
Amortization of premiums on securities, net
596
358
Accretion of deferred loan fees, net
(3,754)
(2,661)
Stock based compensation
287
187
Gain on sale of available for sale securities
(214)
(434)
Gain on sale of loans held for sale
(1,626)
(839)
Gain on sale of premises and equipment, net
(983)
-
Increase in cash surrender value of bank owned life insurance
(759)
(712)
Decrease in deferred tax asset
6,600
2,588
Net change in operating assets and liabilities:
Accrued interest receivable
(428)
(1,998)
Other assets
(2,270)
473
Accrued interest and other liabilities
2,652
798
Net cash provided by operating activities
22,051
13,102
Cash flows from investing activities:
Purchase of investment securities held to maturity
(57,917)
-
Proceeds from maturities and pay-downs of investment securities held to maturity
3,736
-
Purchase of investment securities available for sale
(258,767)
(253,993)
Proceeds from maturities and pay-downs of investment securities available for sale
61,047
48,441
Proceeds from sales of investment securities available for sale
48,940
55,169
Proceeds from call of investment securities available for sale
3,034
2,140
Net increase in loans held for investment
(33,515)
(42,527)
Purchase of loans held for investment
(129,531)
-
Additions to premises and equipment
(633)
(347)
Proceeds from the sale of loans held for sale
16,980
9,295
Proceeds from the sale of property
1,652
-
Proceeds from the redemption of Federal Home Loan Bank stock
611
4,972
Purchase of Federal Home Loan Bank stock
-
(1,926)
Purchase of bank owned life insurance
(15,000)
-
Net cash used in investment activities
(359,363)
(178,776)
(Continued)
The accompanying notes are an integral part of these consolidated financial statements.
71 USCB Financial Holdings, Inc. 2021 10-K
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Cash Flows (Continued)
(Dollars in thousands)
Years Ended December 31,
2021
2020
Cash flows from financing activities:
Proceeds from issuance of Class A common stock, net
39,826
15
Cash dividends paid
(2,077)
(3,127)
Redemption of Preferred stock Class C
(5,275)
-
Redemption of Preferred stock Class D
(6,145)
-
Redemption of Preferred stock Class E
(7,500)
-
Net increase in deposits
316,977
255,779
Proceeds from Federal Home Loan Bank advances
-
79,000
Repayments on Federal Home Loan Bank advances
-
(154,000)
Net cash provided by financing activities
335,806
177,667
Net increase (decrease) in cash and cash equivalents
(1,506)
11,993
Cash and cash equivalents at beginning of year
47,734
35,741
Cash and cash equivalents at end of year
$
46,228
$
47,734
Supplemental disclosure of cash flow information:
Interest paid
$
4,286
$
8,844
Supplemental schedule of non-cash investing and financing activities:
Transfer of loans held for investment to loans held for sale
$
15,354
$
8,456
Transfer of investment securities from available-for-sale to held-to-maturity
$
68,667
$
-
Transfer of premises and equipment to assets held for sale
$
652
$
-
Lease liability arising from obtaining right-of-use assets
$
328
$
-
Exchange of Preferred C for Class A common stock
$
47,473
$
-
Exchange of Preferred D for Class A common stock
$
55,308
$
-
Exchange of Class B common stock for Class A common stock
$
4,897
$
-
The accompanying notes are an integral part of these consolidated financial statements.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
72 USCB Financial Holdings, Inc. 2021 10-K
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Overview
USCB Financial Holdings, Inc., a Florida corporation incorporated in 2021, is a bank holding company with one wholly
owned subsidiary, U.S. Century Bank (the “Bank”), together referred to as “the Company”. The Bank, established in 2002,
is a Florida state-chartered, non-member financial institution providing financial services through its banking centers located
in South Florida.
In December 2021, USCB Financial Holdings, Inc. acquired all issued and outstanding shares of the Class A common
stock of the Bank. Each of the outstanding shares of the Bank’s common stock, par value $
1.00
its shareholders were converted into and exchanged for one newly issued share of the Company’s common stock, par value
$
1.00
The Company’s 2015 Option Plan has a
10
-year life that will terminate in 2025. In July 2020, the shareholders of the
Company approved to amend the 2015 Option plan authorizing the issuance of an additional
3,000,000
stock and extending the life of the plan
5
to reflect the
1 for 5
1,000,000
holding company formation, the shareholders of the Company approved to amend the 2015 Option plan authorizing the
issuance of an additional
1,400,000
The Company’s Consolidated Financial Statements consist of USCB Financial Holdings, Inc. and U.S. Century Bank
as of and for the year ended December 31, 2021 compared to only U.S. Century Bank as of and for the year ended
December 31, 2020.
Principles of Consolidation
Intercompany transactions and balances are eliminated in consolidation. The Consolidated financial statements have
been prepared in accordance with U.S. Generally Accepted Accounting Principles ("GAAP").
Initial Public Offering and Exchange and Redemption of Shares
On July 27, 2021, the Company completed an initial public offering (the “IPO”) and its Class A voting common shares
began trading on the Nasdaq Stock Market under ticker symbol “USCB”. Following the IPO, the Company completed an
exchange of then outstanding preferred shares for Class A common shares and thereafter redeemed the remaining
outstanding preferred shares.
In December 2021, the Company reached agreements with the Class B common shareholders to receive Class A voting
common stock in exchange for all outstanding Class B non-voting common stock in a 1 for 5 reverse stock split. As of
December 31, 2021, there were no issued and outstanding preferred shares or Class B common shares. See Note 13
“Stockholders’ Equity” for further information about the IPO and the exchange and redemption of shares.
Use of Estimates
In preparing the consolidated financial statements, management is required to make estimates and assumptions based
on available information that affect the amounts reported in the financial statements and the disclosures provided.
The coronavirus (“COVID-19”) pandemic has negatively affected many of the Company’s clients and could still impair
their ability to fulfill their financial obligations. The Company’s business is dependent upon the willingness and ability of its
associates and customers to conduct banking and other financial transactions. While we believe conditions have improved
as of December 31, 2021, if there is a resurgence in the virus, the Company could experience further adverse effects on its
business, financial condition, results of operations and cash flows. While it is not possible to know the full extent of the
impact the COVID-19 pandemic will have on the Company's future operations, the Company continues to communicate
with its associates and customers to understand their challenges, which allows us to respond to their needs and issues as
they arise.
While there was not a material impact to the Company’s Consolidated Financial Statements as of and for the year ended
December 31, 2021, future increases in the allowance for credit losses (“ACL”) may be required because of the potential
economic downturn that a resurgence in the virus may cause and those ACL increases can be material. It is difficult to
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
73 USCB Financial Holdings, Inc. 2021 10-K
quantify the impact that COVID-19 will have on the estimates and assumptions used to prepare the financial statements.
Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers investments with a maturity of 90 days or less from its original purchase date to be cash
equivalents. For the Consolidated Statements of Cash Flows, cash and cash equivalents include cash on hand, amounts
due from banks, and interest-bearing deposits in banks.
Restricted Cash
The Company may be required to maintain funds at other banks to satisfy a loan participation agreement. The Company
reports restricted cash within cash and cash equivalents.
Interest-Bearing Deposits in Other Financial Institutions
Interest-bearing deposits in other financial institutions consist of Federal Reserve Bank, Federal Home Loan Bank and
other accounts.
Investment Securities
Debt securities are recorded at fair value except for those securities which the Company has the positive intent and
ability to hold to maturity. Management determines the appropriate classification of its securities at the time of purchase and
accounts for them on a trade date basis.
Debt securities that management has the positive intent and ability to hold to maturity are classified as "held-to-maturity"
and recorded at amortized cost. Trading securities are recorded at fair value with changes in fair value included in earnings.
Securities not classified as held-to-maturity or trading are classified as "available-for-sale" and recorded at fair value, with
unrealized gains and losses excluded from earnings and reported in other comprehensive income (loss). Equity investments
must be classified as trading and recorded at fair value with changes in fair value included in earnings.
Purchase premiums and discounts are amortized or accreted over the estimated life of the related available-for-sale or
held-to-maturity security as an adjustment to yield using the effective interest method. Prepayments of principal are
considered in determining the estimated life of the security. Such amortization and accretion are included in interest income
in the Consolidated Statements of Operations. Dividend and interest income are recognized when earned. Gains and losses
on the sale of securities are recorded on trade date and are determined on a specific identification basis.
Declines in the fair value of available-for-sale debt securities below their cost that are deemed to be other-than-
temporary are reflected in earnings as realized losses. In determining whether other-than-temporary impairment exists,
management considers several factors in their analysis including (i) severity and duration of the impairment, (ii) credit rating
of security including any downgrade, (iii) intent to sell the security, or if it is more likely than not that it will be required to sell
the security before recovery, (iv) whether there have been any payment defaults and (v) underlying guarantor of the
securities.
Federal Home Loan Bank (FHLB) Stock
The Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level
of borrowings and other factors and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted
asset, and periodically evaluated for impairment based on ultimate recovery of par value. As of December 31, 2021 and
2020, FHLB stock amounted to $
2.1
2.7
cash and stock dividends are reported as interest income.
Loans Held for Investment and Allowance for Credit Losses
Loans held for investment (“loans”) are reported at their outstanding principal balance net of charge-offs, deferred loan
fees, unearned income and the ACL. Interest income is generally recognized when income is earned using the interest
method. Loan origination and commitment fees and the costs associated with the origination of loans are deferred and
amortized, using the interest method or the straight-line method, over the life of the related loan.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
74 USCB Financial Holdings, Inc. 2021 10-K
If the principal or interest on a commercial loan becomes due and unpaid for 90 days or more, the loan is placed on
non-accrual status as of the date it becomes 90 days past due and remains in non-accrual status until it meets the criteria
for restoration to accrual status. Residential loans, on the other hand, are placed on non-accrual status when the principal
or interest becomes due and unpaid for 120 days or more and remains in non-accrual status until it meets the criteria for
restoration to accrual status. Restoring a loan to accrual status is possible when the borrower resumes payment of all
principal and interest payments for a period of six months and the Company has a documented expectation of repayment
of the remaining contractual principal and interest or the loan becomes secured and in the process of collection. All interest
accrued but not collected for loans that are placed on nonaccrual status is reversed against interest income. The interest
on these loans is accounted for on the cash-basis or cost-recovery method, under which cash collections are applied to
unpaid principal, which may change as conditions dictate.
The Company has determined that the entire balance of a loan is contractually delinquent for all classes if the minimum
payment is not received by the specified due date on the borrower's statement. Interest and fees continue to accrue on past
due loans until the date the loan goes into nonaccrual status.
The Company provides for loan losses through a provision for credit losses charged to operations. When management
believes that a loan or a portion of the loan balance is uncollectible, that amount is charged against the ACL. Subsequent
recoveries, if any, are credited to the ACL.
The ACL reflects management's judgment of probable loan losses inherent in the portfolio at the balance sheet date.
Management uses a disciplined process and methodology to establish the ACL each quarter. To determine the total ACL,
the Company estimates the reserves needed for each segment of the portfolio, including loans analyzed individually and
loans analyzed on a pooled basis. The ACL consists of the amount applicable to the following segments:
• Residential real estate
• Commercial real estate
• Commercial and industrial
• Foreign banks
• Other loans (secured and unsecured consumer loans)
Residential real estate loans are underwritten following the policies of the Company which includes a review of the
borrower’s credit, capacity and the collateral securing the loan. The borrower’s ability to repay involves an analysis of factors
including: current income, employment status, monthly payment of loan, current debt obligations, monthly debt to income
ratio and credit history. The Company relies on appraisals in determining the value of the property. Risk is mitigated by this
analysis and the diversity of the residential portfolio.
Commercial real estate loans are secured by liens on commercial properties, land, construction and multifamily housing.
Underwriting of commercial loans will analyze the key market and business factors to arrive at a decision on the credit
worthiness of the borrower. The analysis may include the capacity of the borrower, income generated by property for debt
service, other sources of repayment, sensitivity analysis to fluctuations in market conditions including vacancy and rental
rates in geographic location and loan to value. Land and construction analysis will include the time to develop, sell or lease
the property. Appraisals are used to determine the value of the underlying collateral. Risk is mitigated as the properties
securing the commercial real estate loans are diverse in type, location, and loan structure.
Commercial and industrial loans are secured by the business assets of the company and may include equipment,
inventory, and receivables. The loans are underwritten based on the income capacity of the business, the ability to service
the debt based on operating cash flows, the credit worthiness of the borrower, other sources of repayment and collateral.
The Company mitigates the risk in the commercial portfo lio through industry diversification.
Foreign Banks loans are short term loans with international correspondent banking institutions primarily domiciled in
Latin America. Most of these loans are for trade capital and have a life of less than one year. The Company’s credit review
includes a credit analysis, peer comparison and current country risk overview. Annual re-evaluation of the risk rating of the
borrower and country and a review of authorized signer within the Company. The risk is mitigated as these loans are short
term, have limited exposure, and are geographically dispersed.
Other loans are secured and unsecured consumer loans including personal loans, overdrafts and deposit account
collateralized loans. Repayment of these loans are primarily from the personal income of the borrowers. Loans are
underwritten based on the credit worthiness of the borrower. The risk on these loans is mitigated by small loan balances.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
75 USCB Financial Holdings, Inc. 2021 10-K
In determining the balance of the ACL, loans are pooled by product segments with similar risk characteristics and
management evaluates the ACL on each segment and as a whole to maintain the allowance at an adequate level based
on factors which, in management's judgment, deserve current recognition in estimating credit losses. Such factors include
changes in prevailing economic conditions, historical loss experience, delinquency trends, changes in the composition and
size of the loan portfolio and the overall credit worthiness of the borrowers.
The ACL consists of general and specific components. The following is how management determines the balance of
the general component for the ACL account for each segment of the loans as described above.
The loan segments are primarily grouped by collateral type with similar risk characteristics and a historical loss rate is
determined based on a ten year look back period. The Company applies time weights to consider various stages of a credit
cycle.
The ACL calculation is based on the Company’s own net loss experience adjusted for certain qualitative and
environmental factors. To estimate the impact of non-recurrent losses, management has developed a statistical study that
tracks historical non-recurring losses at a loan level. This analysis is used to estimate an adjusted loss rate for each loan
pool. Management believes the effect of these losses results in a loss rate that is more consistent with the behavior of the
loan portfolio in the normal course of business.
Qualitative factors are applied to historical loss rates based on management's experience and assessment. The
following are the factors used to adjust the historical loss rates:
• Loan quality review
• Lending and credit management /staff expertise and practices
• Economic and business conditions
• Lending and credit underwriting policies and procedures
• Problem loan levels and trends
• Collateral concentrations
• Large obligor concentration
• New loan volumes
• Combined loan to value (“CLTV”) qualitative adjustment for substandard accrual loan segment
Changes in these factors could result in material adjustments to the ACL. The losses the Company may ultimately incur
could differ materially from the amounts estimated in arriving at the ACL.
In addition to the ACL, the Company also estimates probable losses related to financial instruments with off-balance
sheet risk, such as letters of credit and unfunded loan commitments, and records these estimates in other liabilities on the
Consolidated Balance Sheets with the offset recorded in non-interest expense on the Consolidated Statements of
Operations. Financial instruments with off-balance sheet risk are subject to review on an aggregate basis. Past loss
experience and any other pertinent information is reviewed, resulting in the estimation of the reserve for financial instruments
with off-balance sheet risk.
A loan is considered impaired when, based on current information and events, it is probable that the Company will be
unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan
agreement or when the loan is designated as a Troubled Debt Restructuring (“TDR”). Factors considered by management
in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and
interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not
classified as impaired. Impairment is measured on a loan by loan basis by either the present value of expected future cash
flows discounted at the loan's effective interest rate, the loan's obtainable fair value, or the fair value of the collateral, if the
loan is collateral dependent. If management determines that the value of the impaired loan is less than the recorded
investment in the loan (outstanding principal balance plus accrued interest, net of previous charge-offs, and net of deferred
loan fees or cost), impairment is recognized through an allowance estimate or a charge-off to the ACL.
In situations where, due to a borrower's financial difficulties, management grants a concession for other than an
insignificant period of time to the borrower that would not otherwise be granted, the loan is classified as a TDR.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed by the President
of the United States. The CARES Act has certain provisions which encourage financial institutions to prudently work with
borrowers impacted by COVID -19. Under these provisions, modifications deemed to be COVID-19 related would not be
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
76 USCB Financial Holdings, Inc. 2021 10-K
considered a TDR if the loan was not more than 30 days past due as of December 31, 2019. The deferral would need to be
executed March 1, 2020 and the earlier of 60 days after the date of termination of the COVID-19 national emergency or
December 31, 2020. Additional legislation was passed in December of 2020 that extended the TDR relief to January 1,
2022. Banking regulators issued similar guidance clarifying that a COVID-19 related modification should not be considered
a TDR if the borrower was current on payments at the time the underlying loan modification program was implemented and
considered short-term. See Note 3 “Loans” for additional disclosures of loans that were modified and not considered TDR.
In addition to the allowance for the pooled portfolios, management has developed a separate allowance for loans that
are identified as impaired through a TDR. These loans are excluded from the general component of the ACL, and a separate
reserve is provided under the accounting guidance for loan impairment. Residential loans whose terms have been modified
in a TDR are also individually analyzed for estimated impairment.
The Company's charge-off policy is to review all impaired loans on a quarterly basis in order to monitor the Company's
ability to collect them in full at maturity date and/or in accordance with terms of any restructurings. For loans which are
collateral dependent, or deemed to be uncollectible, any shortfall in the fair value of the collateral relative to the recorded
investment in the loan is charged off.
Concentration of Credit Risks
Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties failed to
perform as contracted and any collateral or security proved to be insufficient to cover the loss. Concentrations of credit risk
(whether on or off-balance sheet) arising from financial instruments exist in relation to certain groups of customers. A group
concentration arises when a number of counterparties have similar economic characteristics that would cause their ability
to meet contractual obligations to be similarly affected by changes in economic or other conditions. The Company does not
have a significant exposure to any individual customer or counterparty.
Most of the Company's business activity is with customers located within its primary market area, which is generally the
State of Florida. The Company's loan portfolio is concentrated largely in real estate and commercial loans in South Florida.
Many of the Company's loan customers are engaged in real estate development. Circumstances, which negatively impact
the South Florida real estate industry or the South Florida economy, in general, could adversely impact the Company's loan
portfolio.
At December 31, 2021 and 2020, the Company had a concentration of risk with loans outstanding to the Company’s
top ten lending relationships totaling $
156.4
141.5
concentration represented
13.1
% and
13.6
%, respectively, of the net loans outstanding.
At December 31, 2021, the Company also had a concentration of risk with loans outstanding totaling $
47.9
foreign banks located in Ecuador, Honduras, and El Salvador. At December 31, 2020, the Company also had a
concentration of risk with loans outstanding totaling $
38.8
Salvador. These banks maintained deposits with right of offset totaling $
28.9
18.2
2021 and 2020, respectively.
At various times during the year, the Company has maintained deposits with other financial institutions. The exposure
to the Company from these transactions is solely dependent upon daily balances and the financial strength of the respective
institution.
Premises and Equipment, net
Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation and amortization.
Depreciation is computed on the straight-line method over the estimated useful life of the asset. Leasehold improvements
are amortized over the remaining term of the applicable leases or their useful lives, whichever is shorter. Estimated useful
lives of these assets were as follows:
Building
40
Furniture, fixtures and equipment
3
25
Computer hardware and software
3
5
Leasehold improvements Shorter of life or term of lease
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
77 USCB Financial Holdings, Inc. 2021 10-K
Maintenance and repairs are charged to expense as incurred while improvements and betterments are capitalized.
When items are retired or are otherwise disposed of, the related costs and accumulated depreciation and amortization are
removed from the accounts and any resulting gains or losses are credited or charged to income.
Other Real Estate Owned
Other real estate owned (“OREO”) consists of real estate property acquired through, or in lieu of, foreclosure that are
held for sale and are initially recorded at the fair value of the property less estimated selling costs at the date of foreclosure,
establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the
assets are carried at the lower of carrying amount or fair value less cost to sell. Subsequent write-downs are recognized as
a valuation allowance with the offset recorded in the Consolidated Statements of Operations. Carrying costs are charged to
other real estate owned expenses in the accompanying Consolidated Statements of Operation. Gains or losses on sale of
OREO are recognized when consideration has been exchanged, all closing conditions have been met and permanent
financing has been arranged.
Bank Owned Life Insurance
Bank owned life insurance (“BOLI”) is carried at the amount that could be realized under the contract at the balance
sheet date, which is typically cash surrender value. Changes in cash surrender value are recorded in non-interest income.
At December 31, 2021, the Company maintained BOLI policies with five insurance carriers with a combined cash surrender
value of $
41.7
beneficiary of these policies.
Employee 401(k) Plan
The Company has an employee 401(k) plan covering substantially all eligible employees. Employee 401(k) plan
expense is the amount of matching contributions.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the enactment date.
Management is required to assess whether a valuation allowance should be established on the net deferred tax asset
based on the consideration of all available evidence using a more likely than not standard. In its evaluation, Management
considers taxable loss carry-back availability, expectation of sufficient taxable income, trends in earnings, the future reversal
of temporary differences, and available tax planning strategies.
The Company recognizes positions taken or expected to be taken in a tax return in accordance with existing accounting
guidance on income taxes which prescribes a recognition threshold and measurement process. Interest and penalties on
tax liabilities, if any, would be recorded in interest expense and other operating noninterest expense, respectively.
Impairment of Long-Lived Assets
The Company's long-lived assets, such as premises and equipment, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash
flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the
asset. Assets to be disposed of would be separately presented in the Consolidated Balance Sheets and reported at the
lower of the carrying amount or fair value less costs to sell and are no longer depreciated. The assets and liabilities of a
disposal group classified as held for sale would be presented separately in the appropriate asset and liability sections of the
Consolidated Balance Sheets.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
78 USCB Financial Holdings, Inc. 2021 10-K
Transfer of Financial Assets
Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control
over transferred assets is deemed to be surrendered when (i) the assets have been isolated from the Company - put
presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership, (ii) the
transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange
the transferred assets, and (iii) the Company does not maintain effective control over the transferred assets through an
agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.
Comprehensive Income (Loss)
Under GAAP, certain changes in assets and liabilities, such as unrealized holding gains and losses on securities
available-for-sale, are excluded from current period earnings and reported as a separate component of the stockholders’
equity section of the Consolidated Balance Sheets, such items, along with net income (loss), are components of
comprehensive income (loss). Additionally, any unrealized gains or losses on transfers of investment securities from
available-for-sale to held-to-maturity are recorded to accumulated other comprehensive income on the date of transfer and
amortized over the remaining life of each security. The amortization of the unrealized gain or loss on transferred securities
is reported as a component of comprehensive income (loss). See Note 2 “Investment Securities” for further discussion.
Advertising Costs
Advertising costs are expensed as incurred.
Earnings per Common Share
Basic earnings per common share is net income available to common stockholders divided by the weighted average
number of common shares outstanding during the period. Diluted earnings per common share included the effect of
additional potential common shares issuable under vested stock options. Basic and diluted earnings per share are updated
to reflect the effect of stock splits as occurred. See Note 14 “Earnings Per Share” for additional information on earnings per
common share. See Note 13 “Stockholders’ Equity” for further discussion on stock splits.
Interest Income
Interest income is recognized as earned, based upon the principal amount outstanding, on an accrual basis.
Operating Segments
While the Company monitors the revenue streams of the various products and services, operations are managed and
financial performance is evaluated on a Company wide basis. Operating results of the individual products are not used to
make resource allocations or performance decisions by Company management.
Stock-Based Compensation
Stock based compensation accounting guidance requires that the compensation cost relating to share-based payment
transactions be recognized in the accompanying Consolidated Financial Statements. That cost will be measured based on
the grant date fair value of the equity or liability instruments issued. The stock-based compensation accounting guidance
covers a wide range of share-based compensation arrangements including stock options, restricted share plans,
performance-based awards, share appreciation rights, and employee share purchase plans.
The stock-based compensation accounting guidance requires that compensation cost for all stock awards be calculated
and recognized over the employees' service period, generally defined as the vesting period. For awards with graded-vesting,
compensation cost is recog nized on a straight-line basis over the requisite service period for the entire award. A Black-
Scholes model is used to estimate the fair value of stock options.
Loss Contingencies
Loss contingencies, including claims and legal actions arising in the normal course of business, are recorded as
liabilities when the likelihood of loss is probable, and an amount or range of loss can be reasonably estimated. In the opinion
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
79 USCB Financial Holdings, Inc. 2021 10-K
of management, none of these actions, either individually or in the aggregate, is expected to have a material adverse effect
on the Company’s Consolidated Financial Statements. See Note 18 “Loss Contingencies” for further details.
Dividend Restrictions
Banking regulations require maintaining certain capital levels and may limit the dividends paid by the Bank to the
Company or by the Company to the shareholders.
Fair Value Measurements
Fair values of financial instruments are estimated using relevant market information and other assumptions, as more
fully disclosed in Note 12 “Fair Value Measurements”. Fair value estimates involve uncertainties and matters of significant
judgment. Changes in assumptions or in market conditions could significantly affect the estimates.
Derivative Instruments
Derivative financial instruments are carried at fair value and reflect the estimated amount that would have been received
to terminate these contracts at the reporting date based upon pricing or valuation models applied to current market
information.
The Company enters into interest rate swaps to provide commercial loan clients the ability to swap from a variable
interest rate to a fixed rate. The Company enter into a floating-rate loan with a customer with a separately issued swap
agreement allowing the customer to convert floating payments of the loan into a fixed interest rate. To mitigate risk, the
Company will enter into a matching agreement with a third party to offset the exposure on the customer agreement. These
swaps are not considered to be qualified hedging transactions and the unmatched unrealized gain or loss is recorded in
other noninterest income.
Revenue from Contracts with Customers
Revenue from contracts with customers is recognized in an amount that reflects the consideration the Company expects
to receive for the services the Company provides to its customers. The main revenue earned by the Company from loans
and investment securities are excluded from the accounting standard update “Revenue from Contracts with Customers”.
Deposit and service charge fees, consisting of primarily monthly maintenance fees, wire fees, ATM interchange fees and
other transaction-based fees, are the most significant types of revenue within the accounting standard update. Revenue is
recognized when the service provided by the Company is complete. The aggregate amount of revenue within the scope of
this standard that is received from sources other than deposit service charges and fees in not material.
Cash Flow Statement
The Company reports the net activity rather than gross activity in the Consolidated Statements of Cash Flows. The net
cash flows are reported for loans held for investment, accrued interest receivable, deferred tax asset, other assets, customer
deposits, accrued interest payable, other liabilities, and proceeds from issuance of Class A common shares.
Reclassifications
Certain amounts in the Consolidated Financial Statements have been reclassified to conform to the current
presentation. Reclassifications had no impact on the net income or stockholders’ equity of the Company.
Recently Issued Accounting Standards – Not Yet Adopted
Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326); Measurement of Credit
Losses on Financial Instruments. This accounting standard update (“ASU” or “Update”) on accounting for current expected
credit losses on financial instruments (“CECL”) will replace the current probable incurred loss impairment methodology
under U.S. GAAP with a methodology that reflects the expected credit losses. The Update is intended to provide financial
statement users with more decision-useful information about expected credit losses. This Update is applicable to the
Company on a modified retrospective basis for interim and annual periods in fiscal years beginning after December 15,
2022. Early adoption is permitted for fiscal years beginning after December 15, 2019, including interim periods within those
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
80 USCB Financial Holdings, Inc. 2021 10-K
fiscal years. The Company expects to adopt this ASU on January 1, 2023. The impact of adoption on the Company’s
financial statements will depend on the composition of the loan and investment securities portfolio as of January 1, 2023,
general economic conditions, and other factors that are not known at this time. Although management is in the process of
evaluating the impact of adoption of this ASU on its consolidated financial statements, management does believe that this
ASU will lead to significant changes in accounting policies and disclosures related to, and the methods used in estimating,
the ACL. To date, the Company has executed a detailed implementation plan through the adoption date, implemented a
software solution to assist with the CECL estimation process, and has completed a data gap analysis.
Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of
Reference Rate Reform on Financial Reporting. In January 2021, the FASB clarified the scope of this guidance with ASU
2021-01 which provides optional guidance for a limited period of time to ease the burden in accounting for (or recognizing
the effects of) reference rate reform on financial reporting. This ASU is effective March 12, 2020 through December 31,
2022. The Company is evaluating the impact of this ASU and has not yet determined whether LIBOR transition and this
ASU will have material effects on our business operations and consolidated financial statements.
2. INVESTMENT SECURITIES
The following tables present a summary of the amortized cost, unrealized or unrecognized gains and losses, and fair
value of investment securities at the dates indicated (in thousands):
December 31, 2021
Available-for-sale:
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
U.S. Government Agency - SBA
$
10,564
$
6
$
(50)
$
10,520
Collateralized mortgage obligations
160,506
22
(3,699)
156,829
Mortgage-backed securities - Residential
120,643
228
(2,029)
118,842
Mortgage-backed securities - Commercial
49,905
820
(608)
50,117
Municipal securities
25,164
6
(894)
24,276
Bank subordinated debt securities
27,003
1,418
(13)
28,408
Corporate bonds
12,068
482
-
12,550
$
405,853
$
2,982
$
(7,293)
$
401,542
Held-to-maturity:
U.S. Government Agency - SBA
$
12,004
$
-
$
(363)
$
11,641
U.S. Government Agency
22,501
14
(252)
22,263
Collateralized mortgage obligations
44,820
-
(1,021)
43,799
Mortgage-backed securities - Residential
26,920
-
(568)
26,352
Mortgage-backed securities - Commercial
3,103
-
(90)
3,013
Corporate bonds
13,310
-
(221)
13,089
$
122,658
$
14
$
(2,515)
$
120,157
December 31, 2020
Available-for-sale:
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
U.S. Government Agency -SBA
$
1,488
$
64
$
-
$
1,552
U.S. Government Agency
20,196
4
(168)
20,032
Collateralized mortgage obligations
104,426
386
(162)
104,650
Mortgage-backed securities - Residential
80,110
1,368
(177)
81,301
Mortgage-backed securities - Commercial
45,802
2,549
(20)
48,331
Municipal securities
24,230
39
(58)
24,211
Bank subordinated debt securities
24,004
631
(5)
24,630
Corporate bonds
27,733
1,882
-
29,615
$
327,989
$
6,923
$
(590)
$
334,322
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
81 USCB Financial Holdings, Inc. 2021 10-K
For the year ended December 31, 2021, there were
28
sale (“AFS”) to held-to-maturity (“HTM”) with an amortized cost basis and fair value amount of $
67.6
$
68.7
1.1
impact to net income.
Transfers of debt securities into the HTM category from the AFS category are 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 (“AOCI”) and in
the carrying value of the held-to-maturity securities. Such amounts are amortized over the remaining life of the security. As
of December 31, 2021, total amortization out of AOCI for the net unrealized gains on securities transferred from AFS to
HTM was $
108
The following table presents the proceeds, realized gross gains and realized gross losses on sales and calls of AFS
debt securities for the years ended December 31, 2021 and 2020 (in thousands):
Available-for-sale:
2021
2020
Proceeds from sales and call of securities
$
51,974
$
57,309
Gross Gains
$
545
$
862
Gross Losses
(331)
(428)
Net realized gains
$
214
$
434
The amortized cost and fair value of investment securities, by contractual maturity, are shown below for the date
indicated (in thousands). Actual maturities may differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown
separately.
Available-for-sale
Held-to-maturity
December 31, 2021:
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
Due within one year
$
1,992
$
2,036
$
2,017
$
2,013
Due after one year through five years
5,983
6,288
11,293
11,076
Due after five years through ten years
31,096
32,512
-
-
Due after ten years
25,164
24,398
-
-
U.S. Government Agency - SBA
10,564
10,520
12,004
11,641
U.S. Government Agency
22,501
22,263
Collateralized mortgage obligations
160,506
156,829
44,820
43,799
Mortgage-backed securities - Residential
120,643
118,842
26,920
26,352
Mortgage-backed securities - Commercial
49,905
50,117
3,103
3,013
$
405,853
$
401,542
$
122,658
$
120,157
At December 31, 2021 and 2020, there were no securities to any one issuer, in an amount greater than 10% of total
stockholders’ equity other than the United States Government and Government Agencies. All the collateralized mortgage
obligations and mortgage-backed securities are issued by United States sponsored entities at December 31, 2021 and
2020.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
82 USCB Financial Holdings, Inc. 2021 10-K
Information pertaining to investment securities with gross unrealized losses, aggregated by investment category and
length of time that those individual securities have been in a continuous loss position, are presented as of the following
dates (in thousands):
December 31, 2021
Less than 12 months
12 months or more
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
U.S. Government Agency - SBA
$
19,165
$
(146)
$
-
$
-
$
19,165
$
(146)
U.S. Government Agency
6,786
(108)
15,477
(516)
22,263
(624)
Collateralized mortgage obligations
155,668
(3,223)
38,459
(1,497)
194,127
(4,720)
Mortgage-backed securities -
Residential
88,772
(1,178)
37,373
(1,274)
126,145
(2,452)
Mortgage-backed securities -
Commercial
25,289
(318)
7,507
(309)
32,796
(627)
Municipal securities
11,292
(395)
11,978
(499)
23,270
(894)
Bank subordinated debt securities
4,487
(13)
-
-
4,487
(13)
$
311,459
$
(5,381)
$
110,794
$
(4,095)
$
422,253
$
(9,476)
December 31, 2020
Less than 12 months
12 months or more
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
U.S. Government Agency - SBA
$
-
$
-
$
-
$
-
$
-
$
-
U.S. Government Agency
14,030
(168)
-
-
14,030
(168)
Collateralized mortgage obligations
49,185
(162)
-
-
49,185
(162)
Mortgage-backed securities -
41,611
(177)
-
-
41,611
(177)
Mortgage-backed securities -
8,219
(20)
-
-
8,219
(20)
Municipal securities
3,878
(58)
-
-
3,878
(58)
Bank subordinated debt securities
995
(5)
-
-
995
(5)
$
117,918
$
(590)
$
-
$
-
$
117,918
$
(590)
The unrealized losses associated with $
66.4
HTM portfolio during the third quarter of 2021 represent unrealized losses since the date of purchase, independent of the
impact associated with changes in the cost basis upon transfer between portfolios.
The Company performs a review of the investments that have an unrealized loss to determine whether there have been
any changes in the economic circumstance of the security issuer to indicate that the unrealized loss is impaired on an other-
than-temporary (“OTTI”) basis. Management considers several factors in their analysis including (i) severity and duration of
the impairment, (ii) credit rating of the security including any downgrade, (iii) intent to sell the security, or if it is more likely
than not that it will be required to sell the security before recovery, (iv) whether there have been any payment defaults and
(v) underlying guarantor of the securities.
The Company does not consider these investments to be OTTI as the decline in market value is attributable to changes
in market interest rates and not credit quality, and because the Company does not intend to sell the investments before
recovery of their amortized cost basis, which may be maturity, and it is more likely than not that the Company will not be
required to sell the securities before maturity.
As of December 31, 2021, the Company maintains a master repurchase agreement with a public banking institution for
up to $
20.0
variable interest rate based on prevailing rates at the time funding is requested. At December 31, 2021, the Company did
not have any securities pledged under this agreement.
In 2018, the Company became a Qualified Public Depositor (“QPD”) with the State of Florida. As a QPD, the Company
has the authority to legally maintain public deposits from cities, municipalities, and the State of Florida. These public deposits
are secured by securities pledged to the State of Florida at a ratio of 25% of the outstanding uninsured deposits. The
Company must also maintain a minimum amount of pledged securities to be in the program.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
83 USCB Financial Holdings, Inc. 2021 10-K
At December 31, 2021, the Company had
eleven
20.4
of Florida under the public funds program. The Company held a total of $
37.3
At December 31, 2020, the Company had
four
7.8
Florida under the public funds program. The Company held a total of $
14.1
3. LOANS
The following table is a summary of the distribution of loans held for investment by type (in thousands):
December 31, 2021
December 31, 2020
Total
Percent of
Total
Total
Percent of
Total
Residential Real Estate
$
201,359
16.9
%
$
232,754
22.3
%
Commercial Real Estate
704,988
59.2
%
606,425
58.2
%
Commercial and Industrial
146,592
12.3
%
157,330
15.1
%
Foreign Banks
59,491
5.0
%
38,999
3.7
%
Consumer and Other
79,229
6.6
%
5,507
0.5
%
Total gross loans
1,191,659
100.0
%
1,041,015
99.8
%
Less: Unearned income
1,578
2,511
Total loans net of unearned income
1,190,081
1,038,504
Less: Allowance for credit losses
15,057
15,086
Total net loans
$
1,175,024
$
1,023,418
At December 31, 2021 and 2020, the Company had $
185.1
250.7
estate and residential mortgage loans pledged as collateral on lines of credit with the FHLB and the Federal Reserve Bank
of Atlanta. At December 31, 2021 and 2020, the Company had one loan for $
1.2
0
process of foreclosure.
The Company was a participant of the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”)
loans. These loans were designed to provide a direct incentive for small businesses to keep their workers on payroll and
had to be used towards payroll cost, mortgage interest, rent, utilities and other costs related to COVID-19. These loans are
forgivable under specific criteria as determined by the SBA. The Company had PPP loans of $
42.4
2021 and $
104.8
loans had deferred loan fees of $
1.5
1.8
The Company recognized $
4.5
3.1
December 31, 2021 and 2020, respectively, which is reported under loans, including fees within the Consolidated
Statements of Operations.
The Company segments the portfolio by pools grouping loans that share similar risk characteristics and employing
collateral type and lien position to group loans according to risk. The Company determines historical loss rates for each
loan pool based on its own loss experience. In estimating credit losses, the Company also considers qualitative and
environmental factors that may cause estimated credit losses for the loan portfolio to differ from historical losses.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
84 USCB Financial Holdings, Inc. 2021 10-K
Changes in the allowance for credit losses for the years ended December 31, 2021 and 2020 are as follows (in
thousands):
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Foreign
Banks
Consumer
and Other
Total
December 31, 2021:
Beginning balance
$
3,408
$
9,453
$
1,689
$
348
$
188
$
15,086
Provision for credit losses
(919)
(695)
955
109
390
(160)
Recoveries
238
149
5
392
Charge-offs
(229)
(18)
(14)
(261)
Ending Balance
$
2,498
$
8,758
$
2,775
$
457
$
569
$
15,057
December 31, 2020:
Beginning balance
$
3,749
$
6,591
$
1,214
$
332
$
112
$
11,998
Provision for credit losses
(36)
2,861
321
16
88
3,250
Recoveries
168
1
307
18
494
Charge-offs
(473)
-
(153)
(30)
(656)
Ending Balance
$
3,408
$
9,453
$
1,689
$
348
$
188
$
15,086
Allowance for credit losses and the outstanding balances in loans as of December 31, 2021 and 2020 are as follows (in
thousands):
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Foreign
Banks
Consumer
and Other
Total
December 31, 2021:
Allowance for credit losses:
Individually evaluated for impairment
$
178
$
-
$
71
$
-
$
111
$
360
Collectively evaluated for impairment
2,320
8,758
2,704
457
458
14,697
Balances, end of period
$
2,498
$
8,758
$
2,775
$
457
$
569
$
15,057
Loans:
Individually evaluated for impairment
$
9,006
$
696
$
141
$
-
$
224
$
10,067
Collectively evaluated for impairment
192,353
704,292
146,451
59,491
79,005
1,181,592
Balances, end of period
$
201,359
$
704,988
$
146,592
$
59,491
$
79,229
$
1,191,659
December 31, 2020:
Allowance for credit losses:
Individually evaluated for impairment
$
220
$
-
$
108
$
-
$
125
$
453
Collectively evaluated for impairment
3,188
9,453
1,581
348
63
14,633
Balances, end of period
$
3,408
$
9,453
$
1,689
$
348
$
188
$
15,086
Loans:
Individually evaluated for impairment
$
10,439
$
733
$
202
$
-
$
278
$
11,652
Collectively evaluated for impairment
222,315
605,692
157,128
38,999
5,229
1,029,363
Balances, end of period
$
232,754
$
606,425
$
157,330
$
38,999
$
5,507
$
1,041,015
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
85 USCB Financial Holdings, Inc. 2021 10-K
Credit Quality Indicators
The Company grades loans based on the estimated capability of the borrower to repay the contractual obligation of the
loan agreement based on relevant information which may include: current financial information on the borrower, historical
payment experience, credit documentation and other current economic trends. Internal credit risk grades are evaluated
periodically.
The Company's internally assigned credit risk grades are as follows:
Pass
– Loans indicate different levels of satisfactory financial condition and performance.
Special Mention
close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment
prospects for the loan or of the institution’s credit position at some future date.
Substandard
– Loans classified as substandard are inadequately protected by the current net worth and paying
capacity of the obligator or of the collateral pledged, if any. Loans so classi fied have a well-defined weakness or
weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the
institution will sustain some loss if the deficiencies are not corrected.
Doubtful
the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing
facts, conditions, and values, highly questionable and improbable.
Loss
– Loans classified as loss are considered uncollectible.
Loan credit exposures by internally assigned grades are presented below for the periods indicated (in thousands):
As of December 31, 2021
Pass
Special
Mention
Substandard
Doubtful
Total Loans
Residential real estate:
Home equity line of credit ("HELOC") and other
$
701
$
-
$
-
$
-
$
701
1-4 family residential
130,840
-
4,581
-
135,421
Condo residential
65,237
-
-
-
65,237
196,778
-
4,581
-
201,359
Commercial real estate:
Land and construction
24,581
-
-
-
24,581
Multi family residential
127,489
-
-
-
127,489
Condo commercial
41,983
-
417
-
42,400
Commercial property
509,189
1,222
-
-
510,411
Leasehold improvements
107
-
-
-
107
703,349
1,222
417
-
704,988
Commercial and industrial:
(1)
Secured
97,605
-
536
-
98,141
Unsecured
48,434
-
17
-
48,451
146,039
-
553
-
146,592
Foreign banks
59,491
-
-
-
59,491
Consumer and other loans
79,005
-
224
-
79,229
Total
$
1,184,662
$
1,222
$
5,775
$
-
$
1,191,659
(1) All outstanding PPP loans were internally graded pass.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
86 USCB Financial Holdings, Inc. 2021 10-K
As of December 31, 2020
Pass
Special
Mention
Substandard
Doubtful
Total Loans
Residential real estate:
Home equity line of credit ("HELOC") and other
$
905
$
-
$
-
$
-
$
905
1-4 family residential
151,940
-
6,748
-
158,688
Condo residential
73,016
-
145
-
73,161
225,861
-
6,893
-
232,754
Commercial real estate:
Land and construction
37,348
-
-
-
37,348
Multi family residential
111,047
-
-
-
111,047
Condo commercial
37,171
-
442
-
37,613
Commercial property
415,967
-
803
-
416,770
Leasehold improvements
3,647
-
-
-
3,647
605,180
-
1,245
-
606,425
Commercial and industrial:
(1)
Secured
44,255
-
202
-
44,457
Unsecured
112,842
-
31
-
112,873
157,097
-
233
-
157,330
Foreign banks
38,999
-
-
-
38,999
Consumer and other loans
5,229
-
278
-
5,507
Total
$
1,032,366
$
-
$
8,649
$
-
$
1,041,015
(1) All outstanding PPP loans were internally graded pass.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
87 USCB Financial Holdings, Inc. 2021 10-K
Loan Aging
The Company also considers the performance of loans in grading and in evaluating the credit quality of the loan portfolio.
The Company analyzes credit quality and loan grades based on payment performance and the aging status of the loan.
The following table include an aging analysis of accruing loans and total non-accruing loans as of December 31, 2021 and
2020 (in thousands):
Accruing
As of December 31, 2021:
Current
Past Due 30-
89 Days
Past Due >
90 Days and
Still
Accruing
Total
Accruing
Non-Accrual
Total Loans
Residential real estate:
Home equity line of credit and other
$
701
$
$
-
$
701
$
-
$
701
1-4 family residential
133,942
289
-
134,231
1,190
135,421
Condo residential
64,243
994
-
65,237
-
65,237
198,886
1,283
-
200,169
1,190
201,359
Commercial real estate:
Land and construction
24,581
-
24,581
-
24,581
Multi family residential
127,053
436
-
127,489
-
127,489
Condo commercial
42,400
-
42,400
-
42,400
Commercial property
510,411
-
510,411
-
510,411
Leasehold improvements
107
-
107
-
107
704,552
436
-
704,988
-
704,988
Commercial and industrial:
Secured
98,141
-
-
98,141
-
98,141
Unsecured
48,041
410
-
48,451
-
48,451
146,182
410
-
146,592
-
146,592
Foreign banks
59,491
-
-
59,491
-
59,491
Consumer and other
78,969
260
-
79,229
-
79,229
Total
$
1,188,080
$
2,389
$
-
$
1,190,469
$
1,190
$
1,191,659
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
88 USCB Financial Holdings, Inc. 2021 10-K
Accruing
As of December 31, 2020:
Current
Past Due
30-89 Days
Past Due >
90 Days and
Still
Accruing
Total
Accruing
Non-Accrual
Total Loans
Residential real estate:
Home equity line of credit and other
$
905
$
-
$
-
$
905
$
-
$
905
1-4 family residential
154,779
2,354
-
157,133
1,555
158,688
Condo residential
72,625
536
-
73,161
73,161
228,309
2,890
-
231,199
1,555
232,754
Commercial real estate:
Land and construction
37,348
-
-
37,348
-
37,348
Multi family residential
111,047
-
-
111,047
-
111,047
Condo commercial
37,475
138
-
37,613
-
37,613
Commercial property
416,770
-
-
416,770
-
416,770
Leasehold improvements
3,647
-
-
3,647
-
3,647
606,287
138
-
606,425
-
606,425
Commercial and industrial:
Secured
44,378
56
-
44,434
23
44,457
Unsecured
112,873
-
-
112,873
-
112,873
157,251
56
-
157,307
23
157,330
Foreign banks
38,999
-
-
38,999
-
38,999
Consumer and other
5,198
309
-
5,507
-
5,507
Total
$
1,036,044
$
3,393
$
-
$
1,039,437
$
1,578
$
1,041,015
There was
no
Interest income on these loans for the years ended December 31, 2021 and 2020, would have been approximately
$
5
47
There were no loans over 90 days past due and accruing as of December 31, 2021 and 2020.
Impaired Loans
The following table includes the unpaid principal balances for impaired loans with the associated allowance amount, if
applicable, on the basis of impairment methodology for the dates indicated (in thousands):
December 31, 2021
December 31, 2020
Unpaid
Principal
Balance
Net
Investment
Balance
Valuation
Allowance
Unpaid
Principal
Balance
Net
Investment
Balance
Valuation
Allowance
Impaired Loans with No Specific Allowance:
Residential real estate
$
5,021
$
5,035
$
-
$
5,100
$
5,093
$
-
Commercial real estate
696
695
-
733
732
-
5,717
5,730
-
5,833
5,825
-
Impaired Loans with Specific Allowance:
Residential real estate
3,985
3,950
178
5,339
5,302
220
Commercial and industrial
141
141
71
202
202
108
Consumer and other
224
224
111
278
278
125
4,350
4,315
360
5,819
5,782
453
Total
$
10,067
$
10,045
$
360
$
11,652
$
11,607
$
453
Net investment balance is the unpaid principal balance of the loan adjusted for the remaining net deferred loan fees.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
89 USCB Financial Holdings, Inc. 2021 10-K
The following table presents the average recorded investment balance on impaired loans as of December 31, 2021 and
2020 (in thousands):
2021
2020
Residential real estate
$
8,791
$
6,869
Commercial real estate
714
1,722
Commercial and industrial
178
230
Consumer and other
254
56
Total
$
9,937
$
8,877
Interest income recognized on impaired loans for the years ended December 31, 2021 and 2020 was $
415
and $
446
Troubled Debt Restructuring
A troubled debt restructuring (“TDR”) occurs when the Company has agreed to a loan modification in the form of a
concession for a borrower who is experiencing financial difficulty.
The following table presents performing and non-performing TDRs for the dates indicated (in thousands):
December 31, 2021
December 31, 2020
Accrual Status
Non-Accrual
Status
Total TDRs
Accrual Status
Non-Accrual
Status
Total TDRs
Residential real estate
$
7,815
$
-
$
7,815
$
8,884
$
777
$
9,661
Commercial real estate
696
-
696
733
-
733
Commercial and industrial
141
-
141
179
23
202
Consumer and other
224
-
224
278
-
278
Total
$
8,876
$
-
$
8,876
$
10,074
$
800
$
10,874
The Company had allocated $
360
453
2021 and 2020, respectively. Charge-offs on TDR loans for the years ended December 31, 2021 and 2020 was $
18
thousand and $
153
no
The Company did not have any new TDR loans for the year ended December 31, 2021. For the year ended December
31, 2020, the Company had the following new TDR loans (in thousands, except number of loans):
Recorded Investment Prior to Modification
Recorded Investment After Modification
Number of Loans
Total Modifications
Number of Loans
Total Modifications
Residential real estate
6
$
5,679
6
$
5,679
Commercial real estate
1
451
1
451
Commercial and industrial
2
255
2
255
Consumer and other
1
279
1
275
10
$
6,664
10
$
6,660
Modifications to loans can be made for rate, term, payment, conversion of loan to interest only for a limited time or a
combination to include more than one type of modification.
As of December 31, 2021 and 2020, there were no defaults on loans which were modified as a TDR within the prior 12
months.
CARES Act Modifications
The Company provided financial relief to borrowers impacted by COVID-19 and provided modifications to include
interest only deferral or principal and interest deferral. These modifications are excluded from TDR classification under
Section 4013 of the CARES Act or under applicable interagency guidance of the federal banking regulators.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
90 USCB Financial Holdings, Inc. 2021 10-K
During the year ended December 31, 2020, the Company had modified
132
185.9
million. At December 31, 2020,
two
777
two
loans totaling $
1.4
During the year ended December 31, 2021, the Company did not modify any new loans to borrowers impacted by
COVID-19. At December 31, 2021, there was
one
289
4. LEASES
The Company enters into leases in the normal course of business primarily for banking centers and back-office
operations. As of December 31, 2021, the Company leased nine of the ten banking centers and the headquarter building.
The Company is obligated under non-cancelable operating leases for these premises with expiration dates ranging from
2022 to 2036, many of these leases have extension clauses which the Company could exercise which would extend these
dates.
The Company has classified all leases as operating leases. Lease expense for operating leases are recognized on a
straight-line basis over the lease term. Right-of-use (“ROU”) assets represent the right to use the underlying asset for the
lease term and lease liabilities represent the obligation to make lease payments arising from the lease. The Company
elected the short-term lease recognition exemption for all leases that qualify, meaning those with terms under 12 months.
ROU assets or lease liabilities are not to be recognized for short-term leases.
ROU assets and lease liabilities are recognized at the lease commencement date based on the estimated present value
of lease payments over the lease term. In the Company’s Consolidated Balance Sheets, ROU assets are reported under
other assets while lease liabilities are classified under accrued interest and other liabilities.
As most of the Company’s leases do not provide an implicit rate, the incremental borrowing rate based on the
information available at commencement date is used. The Company’s incremental borrowing rate is based on the FHLB
advance rate matching or nearing the lease term.
The following table presents the ROU assets and lease liabilities as of December 31, 2021 and 2020 (in thousands):
2021
2020
ROU assets:
Operating leases
$
14,185
$
14,513
Lease liabilities:
Operating leases
$
14,185
$
14,513
The weighted average remaining lease term and weighted average discount rate as of December 31, 2021 and 2020:
2021
2020
Weighted average remaining lease term (in years):
Operating leases
8.28
9.13
Weighted average discount rate:
Operating leases
2.32
%
2.49
%
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
91 USCB Financial Holdings, Inc. 2021 10-K
Future lease payment obligations and a reconciliation to lease liability as of December 31, 2021 (in thousands):
2022
$
2,837
2023
2,471
2024
2,540
2025
2,606
2026
1,675
Thereafter
3,968
Total future minimum lease payments
16,097
Less: interest component
(1,912)
Total lease liability
$
14,185
5. PREMISES AND EQUIPMENT
A summary of premises and equipment are presented below as of December 31, 2021 and 2020 (in thousands):
2021
2020
Land
$
972
$
1,372
Building
1,947
2,625
Furniture, fixtures and equipment
8,726
9,080
Computer hardware and software
4,552
4,471
Leasehold improvements
9,921
9,650
Premises and equipment, gross
26,118
27,198
Accumulated depreciation and amortization
(20,840)
(20,851)
Premises and equipment, net
$
5,278
$
6,347
Depreciation and amortization expense was $
1.0
1.3
2020, respectively. During 2021, the Company eliminated $
0.6
relocation of another banking center. The depreciation on these assets was $
0.6
recognized as an immaterial loss. The Company eliminated $
0.5
6. INCOME TAXES
The Company’s provision for income taxes is presented in the following table for the years ended December 31, 2021
and 2020 (in thousands):
2021
2020
Current:
Federal
$
-
$
-
State
-
-
Total current
-
-
Deferred:
Federal
5,314
2,074
State
1,286
514
Total deferred
6,600
2,588
Total tax expense
$
6,600
$
2,588
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
92 USCB Financial Holdings, Inc. 2021 10-K
The actual income tax expense for the years ended December 31, 2021 and 2020 differs from the statutory tax expense
for the year (computed by applying the U.S. federal corporate tax rate of
21
% for 2021 and 2020 to income before provision
for income taxes) as follows (in thousands):
2021
2020
Federal taxes at statutory rate
$
5,812
$
2,815
State income taxes, net of federal tax benefit
969
469
Bank owned life insurance
(186)
(174)
Other, net
5
(522)
Total tax expense
$
6,600
$
2,588
The following table presents the deferred tax assets and deferred tax liabilities as of December 31, 2021 and 2020 (in
thousands):
2021
2020
Deferred tax assets:
Net operating loss
$
28,819
$
35,506
Allowance for credit losses
3,816
3,824
Lease liability
3,595
3,617
Unrealized loss on available for sale securities
817
-
Deferred loan fees
400
636
Depreciable property
361
285
Stock option compensation
241
169
Accruals
600
349
Other, net
2
7
Deferred tax asset
38,651
44,393
Deferred tax liability:
Unrealized gain on available for sale securities
-
(1,553)
Lease right of use asset
(3,595)
(3,617)
Deferred expenses
(127)
(64)
Deferred tax liability
(3,722)
(5,234)
Net deferred tax asset
$
34,929
$
39,159
The Company has approximately $
109.5
132.2
expiring in various amounts from 2031 to 2036. Their utilization is limited to future taxable earnings of the Company.
In assessing the realizability of deferred tax assets, management considered whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment.
The U.S. Federal jurisdiction and Florida are the major tax jurisdictions where the Company files income tax returns.
The Company is generally no longer subject to U.S. Federal or State examinations by tax authorities for years before 2018.
For the years ended December 31, 2021 and 2020, the Company did
no
t have any unrecognized tax benefits as a
result of tax positions taken during a prior period or during the current period. Additionally,
no
recorded as a result of tax uncertainties.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
93 USCB Financial Holdings, Inc. 2021 10-K
7. DEPOSITS
The following table presents deposits by type at December 31, 2021 and 2020 (in thousands):
2021
2020
Non-interest bearing deposits
$
605,425
$
442,467
Interest-bearing transaction accounts
55,878
45,132
Saving and money market deposits
703,856
527,373
Time deposits
225,220
258,430
Total deposits
$
1,590,379
$
1,273,402
Time deposits exceeding the FDIC insurance limit of $250 thousand at December 31, 2021 and 2020 were
approximately $
119.4
104.1
At December 31, 2021, the scheduled maturities of time deposits were (in thousands):
2022
$
184,495
2023
15,111
2024
4,164
2025
1,172
2026
20,271
Thereafter
7
$
225,220
At December 31, 2021 and 2020, the aggregate amount of demand deposits reclassified to loans as overdrafts was
$
247
224
8. BORROWINGS
Borrowed funds consist of fixed rate advances from the FHLB. At December 31, 2021 and 2020, FHLB advances were
$
36.0
The following table presents the fixed interest rates and expected maturities of the FHLB advances at both December
31, 2021 and 2020 (in thousands):
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
The FHLB holds a blanket lien on the Company's loan portfolio that may be pledged as collateral for outstanding
advances, subject to eligibility under the borrowing agreement. The Company may also choose to assign cash balances
held at the FHLB as additional collateral. See Note 3 “Loans” for further discussion on pledged loans.
9. EQUITY BASED AND OTHER COMPENSATION PLANS
Employee 401(k) Plan
The Company has an employee 401(k) plan (the “Plan”) covering substantially all eligible employees. The Plan includes
a provision that the employer may contribute to the accounts of eligible employees for whom a salary deferral is made.
There was $
296
282
2021 and 2020, respectively , and are included under salaries and employee benefits in the Consolidated Statements of
Operations.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
94 USCB Financial Holdings, Inc. 2021 10-K
Stock-Based Compensation
Stock option balances, weighted average exercise price, and weighted average fair value of options granted for the
years ended December 31, 2021 and 2020 were adjusted to reflect the
1 for 5
Stock options are only exercisable to Class A common stock. See Note 13 “Stockholders’ Equity” for further discussion on
stock split.
In 2015, the Company's shareholders approved the 2015 Equity Incentive Plan (the “2015 Option Plan”), which
authorized grants of options to purchase up to
2,000,000
2015
Option Plan provided that
vesting schedules will be determined upon issuance of options by the Board of Directors or compensation committee.
Options granted under the 2015 Option Plan have a
10
-year life, in no event shall an option be exercisable after the
expiration of
10
10
-year life and will terminate in 2025. In July 2020,
the shareholders of the Company approved to amend the 2015 Option plan authorizing the issuance of an additional
3,000,000
5
shares after being adjusted to reflect the
1 for 5
1,000,000
shareholders of the Company approved to amend the 2015 Option plan authorizing the issuance of an additional
1,400,000
shares of common stock.
At December 31, 2021, there were
1,401,667
2020, there were
621,667
shares available for grant under the 2015 Option Plan after the
1 for 5
The Company recognizes compensation expense based on the estimated grant date fair value method using the Black-
Scholes option pricing model and accounts for this expense using a prorated straight-line amortization method over the
vesting period of the option. Stock based compensation expense is based on awards that the Company expects will
ultimately vest, reduced by estimated forfeitures. Estimated forfeitures consider the voluntary termination trends as well as
actual option forfeitures.
The compensation expense is reported under salaries and employee benefits in the accompanying Consolidated
Statements of Operations. Compensation expense totaling $
287
December 31, 2021 and $
187
no
years ended December 31, 2021 and 2020.
Unrecognized compensation cost remaining on stock-based compensation totaled $
1.3
0.1
years ended December 31, 2021 and 2020.
Cash flows resulting from excess tax benefits are required to be classified as a part of cash flows from operating
activities. Excess tax benefits are realized tax benefits from tax deductions for exercised options in excess of the deferred
tax asset attributable to the compensation cost for such options.
The fair value of options granted was determined using the following weighted-average assumptions at December 31,
2021:
Assumption
2021
Risk-free interest rate
Expected term
10
Expected stock price volatility
10
%
Dividend yield
0
%
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
95 USCB Financial Holdings, Inc. 2021 10-K
The following table presents a summary of stock options for the years ended December 31, 2021 and 2020:
Stock Options
Weighted Average
Exercise Price
Weighted Average
Remaining
Contractual Years
Aggregate Intrinsic
Value
Balance at January 1, 2021
339,667
$
9.37
7.1
Granted
620,000
$
11.69
Balance at December 31, 2021
959,667
$
10.87
8.4
Exercisable at December 31, 2021
319,667
$
9.07
6.0
$
663
Balance at January 1, 2020
(1)
365,667
$
9.30
8.5
Exercised
(2,000)
$
7.50
Forfeited
(24,000)
$
8.17
Balance at December 31, 2020
339,667
$
9.37
7.1
Exercisable at December 31, 2020
242,333
$
8.71
6.6
$
208
(1) Class A common stock outstanding and additional paid-in-capital for December 31, 2020 were adjusted to reflect the 1 for 5 reverse stock split. See
Note 13 "Stockholders' Equity" for further discussion on the stock split.
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the
valuation of the Company’s stock and the exercise price, multiplied by the number of options considered in-the-money) that
would have been received by the option holders had all option holders exercised their options.
The weighted average fair value of options granted for the years ended December 31, 2021 and 2020 was $
2.32
$
0.00
, respectively.
10. OFF-BALANCE SHEET ARRANGEMENTS
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business in order to
meet the financial needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial
instruments include unfunded commitments under lines of credit, commitments to extend credit, standby and commercial
letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the Company’s Consolidated Balance Sheets. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet instruments.
The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instruments
for unused lines of credit, and standby letters of credit is represented by the contractual amount of these commitments.
A summary of the amounts of the Company's financial instruments with off-balance sheet risk are shown below at
December 31, 2021 and 2020 (in thousands):
2021
2020
Commitments to grant loans and unfunded lines of credit
$
134,877
$
107,553
Standby and commercial letters of credit
6,420
1,813
Total
$
141,297
$
109,366
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration dates or other termination clauses.
Unfunded lines of credit and revolving credit lines are commitments for possible future extensions of credit to existing
customers. These lines of credit are uncollateralized and usually do not contain a specified maturity date and ultimately may
not be drawn upon to the total extent to which the Company is committed.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
96 USCB Financial Holdings, Inc. 2021 10-K
Standby and commercial letters of credit are conditional commitments issued by the Company to guarantee the
performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing
arrangements. Essentially all letters of credit have fixed maturity dates and many of them expire without being drawn upon,
they do not generally present a significant liquidity risk to the Company.
11. DERIVATIVES
The Company utilizes interest rate swap agreements as part of its asset liability management strategy to help manage
its interest rate risk position. The notional amount of the interest rate swaps do not represent amounts exchanged by the
parties. The amounts exchanged are determined by reference to the notional amount and the other terms of the individual
interest rate swap agreements.
The Company enters into interest rate swaps with its loan customers. The Company had
18
15
with loan customers with a notional amount of $
39.2
30.6
These interest rate swaps have a maturity date between 2025 and 2051. The Company entered into corresponding and
offsetting derivatives with third parties. The fair value of liability on these derivatives requires the Company to provide the
counterparty with funds to be held as collateral which the Company reports as other assets under the Consolidated Balance
Sheets. While these derivatives represent economic hedges, it does not qualify as hedges for accounting purposes.
The following table reflects the Company’s customer related interest rate swaps for the dates indicated (in thousands):
Fair Value
Notional
Amount
Collateral
Amount
Balance Sheet Location
Asset
Liability
December 31, 2021:
Derivatives not designated as hedging instruments:
Interest rate swaps related to customer loans
$
39,156
$
1,260
Other assets/Other liabilities
$
1,434
$
1,434
December 31, 2020:
Derivatives not designated as hedging instruments:
Interest rate swaps related to customer loans
$
30,611
$
260
Other assets/Other liabilities
$
500
$
500
12. FAIR VALUE MEASUREMENTS
Determination of Fair Value
The Company uses fair value measurements to record fair-value adjustments to certain assets and liabilities and to
determine fair value disclosures. In accordance with the fair value measurements accounting guidance, the fair value of a
financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Fair value is best determined based upon quoted market prices.
However, in many instances, there are no quoted market prices for the Company's various financial instruments. In cases
where quoted market prices are not available, fair values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates
of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction
(that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current
market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a
change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining
the price at which willing market participants would transact at the measurement date under current market conditions
depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point
within the range that is most representative of fair value under current market conditions.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
97 USCB Financial Holdings, Inc. 2021 10-K
Fair Value Hierarchy
In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured
at fair value in three levels, based on the markets in which the assets and liabilities are traded, and the reliability of the
assumptions used to determine fair value.
Level 1
entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and
equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing
sources for market transactions involving identical assets or liabilities.
Level 2
asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the asset or liability.
Level 3
significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments
whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as
well as instruments for which determination of fair value requires significant management judgment or estimation.
A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is
significant to the fair value measurement.
Items Measured at Fair Value on a Recurring Basis
Investment securities:
such securities, management generally relies on prices obtained from independent vendors or third-party broker-dealers.
Management reviews pricing methodologies provided by the vendors and third-party broker-dealers in order to determine if
observable market information is being utilized. Securities measured with pricing provided by independent vendors or third-
party broker-dealers are classified within Level 2 of the hierarchy and often involve using quoted market prices for similar
securities, pricing models or discounted cash flow analyses utilizing inputs observable in the market where available.
Derivatives:
classified within Level 2 of the hierarchy.
The following table represents the Company's assets measured at fair value on a recurring basis at December 31, 2021
and 2020 for each of the fair value hierarchy levels (in thousands):
2021
2020
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Investment securities available for sale:
U.S. Government Agency - SBA
$
-
$
10,520
$
-
$
10,520
$
-
$
1,552
$
-
$
1,552
U.S. Government Agency
-
-
-
-
-
20,032
-
20,032
Collateralized mortgage obligations
-
156,829
-
156,829
-
104,650
-
104,650
Mortgage-backed securities - Residential
-
118,842
-
118,842
-
81,301
-
81,301
Mortgage-backed securities - Commercial
-
50,117
-
50,117
-
48,331
-
48,331
Municipal Securities
-
24,276
-
24,276
-
24,211
-
24,211
Bank subordinated debt securities
-
28,408
-
28,408
-
24,630
-
24,630
Corporate Bond
-
12,550
-
12,550
-
29,615
-
29,615
Total
-
401,542
-
401,542
-
334,322
-
334,322
Derivative assets
-
1,434
-
1,434
-
500
-
500
Total assets at fair value
$
-
$
402,976
$
-
$
402,976
$
-
$
334,822
$
-
$
334,822
Derivative liabilities
$
-
$
1,434
$
-
$
1,434
$
-
$
500
$
-
$
500
Total liabilities at fair value
$
-
$
1,434
$
-
$
1,434
$
-
$
500
$
-
$
500
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
98 USCB Financial Holdings, Inc. 2021 10-K
Items Measured at Fair Value on a Non-recurring Basis
Impaired Loans:
At December 31, 2021 and 2020, in accordance with provisions of the loan impairment guidance,
individual loans with a carrying amount of approximately $
4.4
5.8
their fair value of approximately $
4.0
5.4
$
360
453
2021 and 2020, respectively. Loans applicable to write-downs, or impaired loans, are estimated using the present value of
expected cash flows or the appraised value of the underlying collateral discounted as necessary due to management's
estimates of changes in economic conditions are considered a Level 3 valuation.
Other Real Estate:
estimate of the costs to sell or the carrying cost of the other real estate owned. Appraisals generally use the market approach
valuation technique and use market observable data to formulate an opinion of the fair value of the properties. However,
the appraiser uses professional judgment in determining the fair value of the property and the Company may also adjust
the value for changes in market conditions subsequent to the valuation date when current appraisals are not available. As
a consequence of the carrying cost or the third-party appraisal and adjustments therein, the fair values of the properties are
considered a Level 3 valuation.
The following table represents the Company’s assets measured at fair value on a non-recurring basis at December 31,
2021 and 2020 for each of the fair value hierarchy levels (in thousands):
Level 1
Level 2
Level 3
Total
December 31, 2021:
Impaired loans
$
-
$
-
$
3,990
$
3,990
December 31, 2020:
Impaired loans
$
-
$
-
$
5,366
$
5,366
The following table presents quantified information about Level 3 fair value measurements for assets measured at fair
value on a non-recurring basis at December 31, 2021 and 2020 (in thousands):
Fair Value
Valuation Techniqu e(s)
Unobservable Input(s)
December 31, 2021:
Residential real estate
$
3,807
Sales comparison approach
Adj. for differences between comparable sales
Commercial and industrial
70
Discounted cash flow
Adj. for differences in net operating income expectations
Other
113
Discounted cash flow
Adj. for differences in net operating income expectations
Total impaired loans
$
3,990
December 31, 2020:
Residential real estate
$
5,119
Sales comparison approach
Adj. for differences between comparable sales
Commercial and industrial
94
Discounted cash flow
Adj. for differences in net operating income expectations
Other
153
Discounted cash flow
Adj. for differences in net operating income expectations
Total impaired loans
$
5,366
There were
no
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
99 USCB Financial Holdings, Inc. 2021 10-K
Items Not Measured at Fair Value
The carrying amounts and estimated fair values of financial instruments not carried at fair value, at December 31, 2021
and 2020 are as follows (in thousands):
Fair Value Hierarchy
Carrying
Amount
Level 1
Level 2
Level 3
Fair Value
Amount
December 31, 2021:
Financial Assets:
Cash and due from banks
$
6,477
$
6,477
$
-
$
-
$
6,477
Interest-bearing deposits in banks
$
39,751
$
39,751
$
-
$
-
$
39,751
Investment securities held to maturity
$
122,658
$
-
$
120,157
$
-
$
120,157
Loans held for investment, net
$
1,175,024
$
-
$
-
$
1,189,191
$
1,189,191
Accrued interest receivable
$
5,975
$
-
$
1,222
$
4,753
$
5,975
Financial Liabilities:
Demand Deposits
$
605,425
$
605,425
$
-
$
-
$
605,425
Money market and savings accounts
$
703,856
$
703,856
$
-
$
-
$
703,856
Interest-bearing checking accounts
$
55,878
$
55,878
$
-
$
-
$
55,878
Time deposits
$
225,220
$
-
$
-
$
224,688
$
224,688
FHLB advances
$
36,000
$
-
$
36,479
$
-
$
36,479
Accrued interest payable
$
96
$
-
$
50
$
46
$
96
December 31, 2020:
Financial Assets:
Cash and due from banks
$
9,828
$
9,828
$
-
$
-
$
9,828
Interest-bearing deposits in banks
$
37,906
$
37,906
$
-
$
-
$
37,906
Loans held for investment, net
$
1,023,418
$
-
$
-
$
1,046,782
$
1,046,782
Accrued interest receivable
$
5,547
$
-
$
874
$
4,673
$
5,547
Financial Liabilities:
Demand Deposits
$
442,467
$
442,467
$
-
$
-
$
442,467
Money market and savings accounts
$
527,373
$
527,373
$
-
$
-
$
527,373
Interest-bearing checking accounts
$
45,132
$
45,132
$
-
$
-
$
45,132
Time deposits
$
258,430
$
-
$
-
$
259,857
$
259,857
FHLB advances
$
36,000
$
-
$
37,543
$
-
$
37,543
Accrued interest payable
$
156
$
-
$
49
$
107
$
156
13. STOCKHOLDERS’ EQUITY
Common Stock
The rights of the holders of Class A common stock and Class B common stock are the same, except for voting and
conversion rights. Holders of Class A common stock are entitled to voting rights, while holders of Class B common stock
have no voting rights. Shares of Class B common stock are convertible into shares of Class A common stock if sold or
transferred.
On June 16, 2021, the Company effected a
1 for 5
1.00
As of the effective date of June 16, 2021, each five shares of the Company’s Class A common stock was combined into
one
to one whole share. The Company has adjusted the Class A common stock, earnings per share and stock options adjusted
for this
1 for 5
would be converted at the
1 for 5
1
dividends declared by the Board of Directors (the “Board”) to include Class B common stock will also be paid as if converted.
The
1 for 5
Operations, and Consolidated Statements of Changes in Stockholders’ Equity.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
100 USCB Financial Holdings, Inc. 2021 10-K
On July 27, 2021, the Company completed the Initial Public Offering (“IPO”) of its Class A common stock, in which it
issued and sold
4,600,000
10.00
net proceeds of $
40.0
On December 21, 2021, the Company entered into agreements with the Class B shareholders to exchange all
outstanding Class B non-voting common stock for Class A voting common stock at a ratio of
5
total of
6,121,052
1,224,212
In December 2021, USCB Financial Holdings, Inc. (the “Company”) acquired all the issued and outstanding shares of
the Class A voting common stock of U.S. Century Bank (the “Bank”), which are the only issued and outstanding shares of
the Bank’s capital stock, in a share exchange (the “Reorganization”) effected under the Florida Business Corporation Act.
Each of the outstanding shares of the Bank’s common stock, par value $
1.00
was converted into and exchanged for one newly issued share of the Company’s common stock, par value $
1.00
and the Bank became the Company’s wholly-owned subsidiary. Prior to filing the bank holding company formation, the
Company had no material assets and had not conducted any business or operations except for activities related to our
organization and the Reorganization.
In the Reorganization, each shareholder of the Bank received securities of the same class, having substantially the
same designations, rights, powers, preferences, qualifications, limitations and restrictions, as those that the shareholder
held in the Bank, and the Company’s current shareholders own the same percentages of its common stock as they
previously owned of the Bank’s common stock.
Preferred Stock
On April 5, 2021, the Board authorized and approved the offer to repurchase all outstanding shares of Class E preferred
stock at the liquidation value of $
7.5
103
shareholders approved the repurchase which the Company completed on April 26, 2021.
The Company offered the Class C and Class D preferred stockholders the ability to exchange their shares for Class A
common stock. The offer to exchange was voluntary and the preferred stockholders were given the option to convert
90
%
of their preferred shares for Class A common stock with the remaining
10
% to be redeemed in the form of cash. The
exchange ratio for the shares of Class A common stock issued in the exchange transaction was based upon the IPO price
for shares of Class A common stock.
During the year ended December 31, 2021,
47,473
11,061,552
D preferred stock converted into
10,278,072
preferred shares had a total liquidation value of $
102.8
stock and Class D preferred stock totaling
1,234,354
$
11.4
The fair value of consideration on the exchange and redemption of the Class C and Class D preferred shares exceeded
the book value causing a one-time reduction in net income available to common stockholders of $
89.6
December 31, 2021, there were
no
no
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
101 USCB Financial Holdings, Inc. 2021 10-K
Dividends
The Board approved the following dividend amounts on the preferred shares for the years ended December 31, 2021
and 2020 (in thousands):
2021
2020
Preferred stock - Class C: Non-voting, Non-cumulative, Perpetual: $
1.00
1,000
per share liquidation preference; annual dividend rate of
4
% of liquidation preference paid
quarterly. Quarterly dividend of $
10.00
$
1,494
$
2,110
Preferred stock - Class D: Non-voting, Non-cumulative, Perpetual: $
1.00
5.00
per share liquidation preference; annual dividend rate of
4
% of par value paid quarterly.
Quarterly dividend of $
0.01
348
492
Preferred stock - Class E: Non-voting, partially cumulative, Perpetual: $
1.00
$
1,000
7
% of liquidation
preferences paid quarterly. Quarterly dividend of $
17.50
235
525
Total dividends paid
$
2,077
$
3,127
Declaration of dividends by the Board is required before dividend payments are made. The dividend payment dates for
Class C and Class D preferred shares were set by the Board while the Class E preferred shares had a set dividend payment
date on the fifteenth of February, May, August, and November.
No
2020. Additionally, there were
no
14. EARNINGS PER SHARE
Earnings per share (“EPS”) for common stock is calculated using the two-class method required for participating
securities. Basic EPS is calculated by dividing net income (loss) available to common stockholders by the weighted-average
number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted EPS is
computed by dividing net income (loss) available to common stockholders by the weighted-average number of common
shares outstanding for the period and the weighted-average number of dilutive common stock equivalents outstanding for
the period determined using the treasury-stock method. For purposes of this calculation, common stock equivalents include
common stock options and are only included in the calculation of diluted EPS when their effect is dilutive.
In calculating EPS for the year ended December 31, 2021, net income available to common stockholders was not
allocated between Class A and Class B common stock since there was no issued and outstanding Class B common stock
at year-end.
In calculating EPS for the year ended December 31, 2020, net income available to common stockholders was allocated
as if all the income for the period were distributed to common stockholders. The allocation was based on the outstanding
shares per common share class to the total common shares outstanding during each period giving effect for the
1 for 5
reverse stock split. The Company’s Articles of Incorporation require that the distribution of net income to Common B
stockholders be adjusted to give effect for Class A stock splits. Therefore, the income allocated to Class B common shares
was calculated based on their
20
% per share equivalent to Class A common shares.
The following table reflects the calculation of net income (loss) available to common stockholders for the years ended
December 31, 2021 and 2020 (in thousands):
2021
2020
Net Income
$
21,077
$
10,820
Less: Preferred stock dividends
2,077
3,127
Less: Exchange and redemption of preferred shares
89,585
-
Net income (loss) available to common stockholders
$
(70,585)
$
7,693
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
102 USCB Financial Holdings, Inc. 2021 10-K
The following table reflects the calculation of basic and diluted earnings (loss) per common share class for the years
ended December 31, 2021 and 2020 (in thousands, except per share amounts):
2021
2020
Class A
Class B
Class A
Class B
(1)
Basic EPS
Numerator:
Net income (loss) available to common shares before allocation
$
(70,585)
$
-
$
7,693
$
7,693
Multiply: % allocated on weighted avg. shares outstanding
100.0%
- %
76.1%
23.9%
Net income (loss) available to common shares after allocation
$
(70,585)
$
-
$
5,854
$
1,839
Denominator:
Weighted average shares outstanding
10,507,530
-
3,887,480
6,121,052
Earnings (loss) per share, basic
$
(6.72)
$
-
$
1.51
$
0.30
Diluted EPS
Numerator:
Net income (loss) available to common shares before allocation
$
(70,585)
$
-
$
7,693
$
7,693
Multiply: % allocated on weighted avg. shares outstanding
100.0%
- %
76.1%
23.9%
Net income (loss) available to common shares after allocation
$
(70,585)
$
-
$
5,854
$
1,839
Denominator:
Weighted average shares outstanding for basic EPS
10,507,530
-
3,887,480
6,121,052
Add: Dilutive effects of assumed exercises of stock options
-
-
23,810
-
Weighted avg. shares including dilutive potential common shares
10,507,530
-
3,911,290
6,121,052
Earnings (loss) per share, diluted
$
(6.72)
$
-
$
1.50
$
0.30
Anti-dilutive stock options excluded from diluted EPS
183,303
-
75,666
-
(1) Net income (loss) available to common shares between Class A and Class B common stock was allocated based on the weighted average number
of shares outstanding. The allocation also assumes that Class B shares are converted to Class A which is equivalent to
0.20
1,224,212
For the year ended December 31, 2021, the Company was in a net loss position after adjusting for the exchange and
redemption of the Class C and Class D preferred shares, making basic net loss per share the same as diluted net loss per
share as the inclusion of all potential common shares outstanding would have been antidilutive.
See Note 13 “Stockholders’ Equity” for further discussion on the stock splits.
15. REGULATORY MATTERS
Banks and bank holding companies are subject to regulatory capital requirements administered by federal and state
banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's consolidated
financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the
Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities,
and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company and the Bank’s
capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Based on changes to the Federal Reserve’s definition of a “Small Bank Holding Company” that increased the threshold
to $3.0 billion in assets in August 2018, the Company is not currently subject to separate minimum capital measurements.
At such time when the Company reaches the $3.0 billion asset level, it will be subject to capital measurements independent
of the Bank.
The Bank has elected to permanently opt-out of the inclusion of accumulated other comprehensive income in the capital
calculations, as permitted by the regulations. This opt-out will reduce the impact of market volatility on the Bank’s regulatory
capital levels.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
103 USCB Financial Holdings, Inc. 2021 10-K
The Bank is subject to the rules of the Basel III regulatory capital framework and related Dodd-Frank Wall Street Reform
and Consumer Protection Act. The rules include the implementation of a
2.5
% capital conservation buffer that is added to
the minimum requirements for capital adequacy purposes. Failure to maintain the required capital conservation buffer will
limit the ability of the Bank to pay dividends, repurchase shares or pay discretionary bonuses. At December 31, 2021 and
2020, the capital ratios for the Bank were sufficient to meet the conservation buffer.
Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to
represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits.
If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are
required.
At December 31, 2021 and 2020, the most recent notification from the regulatory authorities categorized the Bank as
well capitalized under the regulatory framework for prompt corrective action. Failure to meet statutorily mandated capital
guidelines could subject the Bank to a variety of enforcement remedies, including issuance of a capital directive, the
termination of deposit insurance by the FDIC, a prohibition on accepting or renewing brokered deposits, limitations on the
rates of interest that the Bank may pay on its deposits and other restrictions on its business. To be categorized as well
capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth
in the table below. There are no conditions or events since the notification that management believes have changed the
Bank’s category.
Actual and required capital amounts and ratios are presented below for both the Bank and the Company at
December 31, 2021 and 2020 (in thousands, except ratios). The required amounts for capital adequacy shown do not
include the capital conservation buffer previously discussed.
Actual
Minimum Capital
Requirements
To be Well Capitalized
Under Prompt Corrective
Action Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
December 31, 2021:
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
%
December 31, 2020:
Total risk-based capital
$
139,326
14.24
%
$
78,260
8.00
%
$
97,825
10.00
%
Tier 1 risk-based capital
$
127,061
12.99
%
$
58,695
6.00
%
$
78,260
8.00
%
Common equity tier 1 capital
$
94,984
9.71
%
$
44,021
4.50
%
$
63,587
6.50
%
Leverage ratio
$
127,061
8.61
%
$
59,053
4.00
%
$
73,817
5.00
%
As of December 31, 2021, there was no activity between the parent bank holding company and its subsidiaries to
disclose on the statements of operations or statements of cash flows.
Effective December 28, 2021, the Company acquired the Bank in a merger and reorganization through the formation of
a bank holding company. Pursuant to this transaction, all of the outstanding shares of the Bank’s $
1.00
stock formerly held by its shareholders was converted into and exchanged for one newly issued share of the Company’s
par value common stock, and the Bank became a subsidiary of the Company. See Note 13 “Stockholders’ Equity” for further
details.
The Company is limited in the amount of cash dividends that it may pay. Payment of dividends is generally limited to
the Company’s net income of the current year combined with the Bank’s retained income of the preceding two years, as
defined by state banking regulations. However, for any dividend declaration, the Company must consider additional factors
such as the amount of current period net income, liquidity, asset quality, capital adequacy and economic conditions at the
Bank. It is likely that these factors would further limit the amount of dividends which the Company could declare. In addition,
bank regulators have the authority to prohibit banks from paying dividends if they deem such payment to be an unsafe or
unsound practice.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
104 USCB Financial Holdings, Inc. 2021 10-K
16. RELATED PARTY TRANSACTIONS
In the ordinary course of business, principal officers, directors, and affiliates may engage in transactions with the
Company. The following table presents loans to and deposits from related parties included within the accompanying
Consolidated Financial Statements at December 31, 2021 and 2020 (in thousands):
2021
2020
Consolidated Balance Sheets:
Loans held for investment, net
$
-
$
-
Deposits
$
1,905
$
1,793
Consolidated Statements of Operations:
Interest income
$
-
$
-
Interest expense
$
16
$
23
17. PARENT COMPANY CONDENSED FINANCIAL INFORMATION
In December 2021, USCB Financial Holdings, Inc. was formed as the parent bank holding company of U.S. Century
Bank. The condensed balance sheets are presented below for USCB Financial Holdings, Inc. at the dates indicated (in
thousands):
December 31, 2021
December 31, 2020
ASSETS:
Investment in bank subsidiary
$
203,897
$
-
Other assets
-
-
Total assets
$
203,897
$
-
LIABILITIES AND STOCKHOLDERS' EQUITY:
Other liabilities
$
-
$
-
Stockholders' equity
203,897
-
Total liabilities and stockholders' equity
$
203,897
$
-
At December 31, 2021, there was no activity between the parent bank holding company and its subsidiaries to disclose
on the statements of operations or statements of cash flows.
18. LOSS CONTINGENCIES
Loss contingencies, including claims and legal actions may arise in the ordinary course of business. In the opinion of
management, none of these actions, either individually or in the aggregate, is expected to have a material adverse effect
on the Company’s Consolidated Financial Statements.
19. SUBSEQUENT EVENTS
Management has evaluated subsequent events from January 1, 2022 through March 24, 2022, which is the date this
Form 10-K was available to be issued.
Share Repurchase Program
On January 24, 2022, the Board approved a share repurchase program of up to
750,000
stock. Under the repurchase program, the Company may purchase shares of Class A common stock on a discretionary
basis from time to time through open market repurchases, privately negotiated transactions, or other means. The repurchase
program has no expiration date and may be modified, suspended, or terminated at any time. Repurchases under this
program will be funded from the Company’s existing cash and cash equivalents or future cash flow.
105 USCB Financial Holdings, Inc. 2021 10-K
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and its Chief
Financial Officer, we evaluated the effectiveness of the design and operation of the Company’s disclosure controls and
procedures as of December 31, 2021. Based on that evaluation, management believes that the Company’s disclosure
controls and procedures were effective to collect, process, and disclose the information required to be disclosed in the
reports filed or submitted under the Exchange Act within the required time periods as of the end of the period covered by
this Report.
Management’s Report on Internal Control over Financial Reporting
This Annual Report does not include a report of management’s assessment regarding internal control over financial
reporting or an attestation report of the Company’s registered public accounting firm due to a transition period established
by rules of the SEC for newly public companies.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
Item 9B. Other Information
Not applicable.
Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections
Not applicable.
106 USCB Financial Holdings, Inc. 2021 10-K
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by Item 10 is incorporated by reference to the information that appears under the headings
Board Meetings and Committees in our Proxy Statement for the 2022 Annual Meeting of Shareholders.
Item 11. Executive Compensation
The information required by Item 11 is incorporated by reference to the information that appears under the headings
Executive Compensation in our Proxy Statement for the 2022 Annual Meeting of Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by Item 12 is incorporated by reference to the information that appears under the headings
Beneficial Owners in our Proxy Statement for the 2022 Annual Meeting of Shareholders.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by Item 13 is incorporated by reference to the information that appears under the headings
Certain Relationships and Related Transactions, and Director Independence in our Proxy Statement for the 2022 Annual
Meeting of Shareholders.
Item 14. Principal Accountant Fees and Services
The information required by Item 14 is incorporated by reference to the information that appears under the headings
Ratification of Auditors in our Proxy Statement for the 2022 Annual Meeting of Shareholders.
107 USCB Financial Holdings, Inc. 2021 10-K
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) List of documents filed as part of this Annual Report:
1)
Financial Statements:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2021 and 2020
Consolidated Statements of Operations for the years ended December 31, 2021 and 2020
Consolidated Statements of Comprehensive Income for the years ended December 31, 2021 and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020
Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2021 and 2020
Notes to Consolidated Financial Statements
2)
Financial Statement Schedules:
Financial statement schedules are omitted as not required or not applicable or because the information is
included in the Consolidated Financial Statements or notes thereto.
(b) List of Exhibits:
The exhibit list in the Exhibit Index is incorporated herein by reference as the list of exhibits required as part of
this Annual Report.
108 USCB Financial Holdings, Inc. 2021 10-K
EXHIBIT INDEX
Exhibit
Number
Description of Exhibit
**
**
**
**
***
***
101
The following financial statements from the Company’s Annual Report on Form 10-K for the year ended December 31, 2021,
formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated
Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated
Statements of Cash Flows, (vi) Notes to Consolidated Financial Statements.
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*
Management contract or compensatory plan or arrangement.
**
Filed herwith.
***
Furnished hereby.
109 USCB Financial Holdings, Inc. 2021 10-K
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
USCB FINANCIAL HOLDINGS, INC.
Date: March 24, 2022
By:
/s/ Luis de la Aguilera
Luis de la Aguilera
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following
persons in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Luis de la Aguilera
President, Chief Executive Officer, and Director
(Principal Executive Officer)
March 24, 2022
Luis de la Aguilera
/s/ Robert Anderson
Chief Financial Officer (Principal Financial
Officer and Principal Accounting Officer)
March 24, 2022
Robert Anderson
/s/ Aida Levitan
Director
March 24, 2022
Aida Levitan
/s/ Howard Feinglass
Director
March 24, 2022
Howard Feinglass
/s/ Kirk Wycoff
Director
March 24, 2022
Kirk Wycoff
/s/ Ramon A. Abadin
Director
March 24, 2022
Ramon A. Abadin
/s/ Bernardo B. Fernandez
Director
March 24, 2022
Bernardo B. Fernandez
/s/ Ramon A. Rodriguez
Director
March 24, 2022
Ramon A. Rodriguez