Annual Statements Open main menu

USCB FINANCIAL HOLDINGS, INC. - Annual Report: 2022 (Form 10-K)

uscb-10K-20211231
 
 
 
uscb-10K-20211231p1i0
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, 2022
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:
 
None
Indicate by check mark if the registrant is a well-known
 
seasoned issuer, as defined in Rule 405 of the Securities Act.
 
Yes
 
No
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
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
 
No
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
 
No
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
 
Accelerated filer
 
Non-accelerated filer
 
Smaller reporting company
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant
 
has elected not to use the extended
 
transition period for complying with any
new or revised financial accounting standards provided
 
pursuant to Section 13(a) of the Exchange
 
Act.
Indicate by check mark
 
whether the registrant has
 
filed a report on
 
and attestation to its
 
management’s assessment of the
 
effectiveness of its internal
control over
 
financial reporting
 
under Section
 
404(b) of
 
the Sarbanes-Oxley
 
Act (15
 
U.S.C.7262(b)) by
 
the registered
 
public accounting
 
firm that
prepared or issued its audit report.
 
 
If securities are registered pursuant to Section 12(b) of the Act, indicate
 
by check mark whether the financial statements of the registrant included
 
in
the filing reflect the correction of an error to previously
 
issued financial statements.
 
 
Indicate by check mark whether any of those
 
error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant
 
recovery period pursuant to §240.10D-1(b).
Indicate by check mark whether the registrant is a
 
shell company (as defined in Rule 12b-2 of the
 
Securities Exchange Act of 1934). Yes
 
No
The aggregate market value of the voting stock held
 
by non-affiliates of the registrant based on the
 
closing price of $11.54 per share on June 30,
2022, the last business day of the registrant’s second quarter, was approximately
 
$
125.4
 
million (20,000,753 shares issued and outstanding
 
at
such date less shares held by affiliates). Although directors
 
and executive officers and their affiliates of the Registrant were
 
assumed to be
“affiliates” of the Registrant for purposes of the calculation,
 
the classification is not to be interpreted as an admission
 
of such status.
As of March 15, 2023, the registrant had had
19,622,380
 
shares of Class A Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant’s Proxy Statement for the 2023 Annual Meeting of Shareholders (the “2023
 
Proxy Statement”) are incorporated by
reference into Part III of this report.
uscb-10K-20211231p1i0
 
FORM 10-K
DECEMBER 31, 2022
TABLE OF CONTENTS
 
(Loss)
 
 
 
3
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
CAUTIONARY NOTE REGARDING FORWARD
 
-LOOKING STATEMENTS
This
 
Annual
 
Report
 
on
 
Form
 
10-K
 
contains
 
statements
 
that
 
are
 
not
 
historical
 
in
 
nature
 
are
 
intended
 
to
 
be,
 
and
 
are
hereby identified as, forward-looking
 
statements for purposes of
 
the safe harbor provided by
 
Section 21E of the Securities
Exchange
 
Act
 
of
 
1934,
 
as
 
amended.
 
The
 
words
 
“may,”
 
“will,”
 
“anticipate,”
 
“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 implementation of the Current
 
Expected Credit Losses (“CECL”) standard on January
 
1, 2023;
 
the effects
 
of our
 
lack
 
of a
 
diversified loan
 
portfolio
 
and concentration
 
in the
 
South Florida
 
market,
 
including the
risks
 
of geographic,
 
depositor,
 
and
 
industry concentrations,
 
including our
 
concentration
 
in
 
loans secured
 
by real
estate;
 
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 Annual Report on 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.
 
2022 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, 2022,
 
the Company had total consolidated assets of $2.1 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.
 
In December
2021, the
 
Bank reached agreements
 
with holders
 
of its
 
Class B
 
common stock, to
 
exchange all
 
outstanding Class B
 
common
stock for Class A common stock in a 1-for-5 stock
 
exchange.
On July 27,
 
2021, the Bank
 
completed an initial
 
public offering of 4,600,000
 
shares of its
 
Class A common stock.
 
Shares
of the Bank’s Class A
 
common stock were sold
 
at a price to
 
the public of $10.00
 
per share and began
 
trading on the Nasdaq
Stock Market under ticker symbol “USCB”.
 
On December
 
30, 2021
 
(the
 
“Effective
 
Date”),
 
the Company
 
acquired
 
all of
 
the
 
issued
 
and
 
outstanding
 
stock
 
of
 
the
Bank in a
 
share exchange
 
(the “Reorganization”)
 
effected under
 
the Florida
 
Business Corporation
 
Act and
 
in accordance
with the
 
terms of an
 
Agreement and Plan
 
of Share Exchange
 
dated December 27,
 
2021 between the
 
Bank and
 
the Company
(the “Share Exchange Agreement”). The Reorganization and
 
the Share Exchange Agreement were approved
 
by the Bank’s
stockholders at a special meeting of the Bank’s stockholders held on December 20,
 
2021. Pursuant to the Share Exchange
Agreement, on the Effective
 
Date each issued and
 
outstanding share of the
 
Bank’s Class A common
 
stock was converted
into and exchanged
 
for one share
 
of the Company’s Class
 
A common stock.
 
As a result,
 
the Bank became the
 
wholly owned
subsidiary
 
of
 
the
 
Company,
 
the
 
Company
 
became
 
the
 
holding
 
company
 
for
 
the
 
Bank
 
and
 
the
 
stockholders
 
of
 
the
 
Bank
became stockholders of the Company.
Prior
 
the
 
Effective
 
Date,
 
the
 
Bank’s
 
Class
 
A
 
common
 
stock
 
was
 
registered
 
under
 
Section
 
12(b)
 
of
 
the
 
Securities
Exchange Act of 1934 (the “Exchange
 
Act”), and the Bank was subject to
 
the information requirements of the Exchange
 
Act
and, in
 
accordance with Section
 
12(i) thereof, filed
 
quarterly reports, proxy
 
statements and other
 
information with the
 
Federal
Deposit Insurance Corporation
 
(“FDIC”).
 
As a result of the Reorg
 
anization, pursuant to Rule
 
12g-3(a) under the Exchange
Act, the Company became the successor registrant to the Bank, the Company’s Class A common stock was deemed to be
registered under Section 12(b)
 
of the Exchange Act,
 
and the Company became
 
subject to the information
 
requirements of
the Exchange Act and
 
is now required to
 
file reports, proxy statements
 
and other information with
 
the U. S. Securities
 
and
Exchange Commission
 
(“SEC”). The
 
trading symbol
 
for the
 
Company’s
 
Class A
 
Common Stock
 
is “USCB”,
 
which is
 
the
same as the Bank’s former trading symbol.
Prior to
 
the Reorganization,
 
the Company
 
had no material
 
assets and
 
had not conducted
 
any business
 
or operations
except for activities related to its incorporation and the
 
Reorganization.
Our strategy
 
in becoming
 
a publicly
 
traded company
 
and forming
 
a BHC
 
was to continue
 
pursuing organic
 
growth as
well as strategic acquisitions if the opportunity arises,
 
which efforts will be further facilitated by access
 
to public capital and
the added flexibility provided by a holding company structure.
In this Annual Report on Form 10-K, unless the context indicated otherwise, references to “we,” “us,”, and “our” refer to
the Company and the Bank,
 
as the contest dictates. However, if the discussion
 
relates to a period before
 
the Effective Date,
the terms refer only to the Bank.
Products and Services
Lending Services
Our mission
 
is to
 
provide high
 
value, relationship-based
 
banking products,
 
services and
 
solutions to
 
a diverse
 
set of
clients in the
 
markets we serve. We focus on
 
serving small-to-medium sized businesses (“SMBs”) and
 
catering to the needs
of
 
local
 
business
 
owners,
 
entrepreneurs
 
and
 
professionals
 
in
 
South
 
Florida.
 
We
 
have
 
further
 
leveraged
 
our
 
success
 
in
 
 
 
5
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
providing comprehensive banking solutions
 
to SMBs to also secure the personal
 
retail deposit relationships of the
 
owners,
operators, and employees of our commercial lending clients, which has
 
been a cornerstone of our deposit growth strategy.
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:
 
Our
 
SBA
 
platform
 
originates
 
loans
 
under
 
Sections
 
7(a)
and 504
 
of the
 
SBA program.
 
The 7(a)
 
loan program,
 
SBA's most
 
common
 
loan program,
 
includes financial
help for small businesses
 
with special requirements
 
while the 504 loan program
 
provides long-term, fixed
 
rate
financing of
 
up to $5.0
 
million for
 
major fixed
 
assets that
 
promote business
 
growth and
 
job creation.
 
Since its
formation in
 
2018, the
 
platform
 
serves as
 
an opportunity
 
to generate
 
commercial and
 
industrial loans,
 
or C&I
loans, and to diversify our revenue stream through originating and
 
selling SBA 7(a) loans. As of December 31,
2022, the Bank is a Preferred Lending Partner with the SBA
 
which allows us to offer the full range of SBA loan
products and
 
to exercise
 
lending authority
 
at the
 
local bank
 
level, allowing
 
us to
 
make timely
 
credit decisions
for prospective clients.
Yacht lending:
 
Our yacht lending vertical
 
provides yacht financing for
 
larger vessels, transactions range
 
from
$750 thousand to $7.5 million.
 
We target high
 
net-worth clients, in one
 
of the most active
 
yacht markets in the
country.
 
In 2021,
 
two portfolios
 
of yacht
 
loans were
 
purchased as
 
part of
 
our strategic
 
initiative to
 
launch this
new business vertical and diversify our portfolio.
 
Homeowner Association (“HOA”)
 
services:
 
We provide banking
 
services to HOAs and
 
property managers,
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:
 
Our Jurist Advantage and Private
 
Client Group vertical
provides customized
 
banking solutions
 
for law
 
firms
 
as well
 
as their
 
partners, assoc
 
iates, staff,
 
and high
 
net
worth clients.
 
We also leverage
 
our relationships with
 
our law
 
firm clients to
 
generate personal deposit
 
accounts.
Global
 
Banking
 
services:
 
Our
 
Global
 
Banking
 
vertical
 
provides
 
correspondent
 
banking
 
services
 
for
 
banks
headquartered
 
in
 
certain
 
Latin
 
America
 
and
 
the
 
Caribbean
 
countries.
 
We
 
also
 
cross-sell
 
our
 
correspondent
banking relationships to
 
generate international personal
 
banking clients for
 
our Bank. Our
 
compliance team is
experienced in issues
 
related to foreign
 
banking, and we
 
have frequent and regular
 
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,
 
in particular South
 
Florida,
our
 
long-standing
 
relationships
 
with
 
clients
 
and
 
our
 
disciplined
 
underwriting
 
processes.
 
Our
 
thorough
 
underwriting
processes
 
collaboratively
 
engage
 
our
 
seasoned
 
business
 
bankers,
 
credit
 
underwriters
 
and
 
portfolio
 
managers
 
in
 
the
analysis of each loan request.
 
We manage our credit risk by analyzing metrics related
 
to our different lines of business, which allows us to
 
maintain a
conservative
 
and
 
well-diversified
 
loan portfolio
 
reflective
 
of
 
our assessment
 
of
 
various industry
 
sectors.
 
Based
 
upon our
aggregate exposure to any given borrower relationship, we undertake
 
a scaled review of loan originations that may involve
senior credit officers, our Chief Credit Officer,
 
our Credit Committee or, ultimately,
 
our Board of Directors (“Board”).
Deposit Products
We
 
offer
 
traditional deposit
 
products including
 
commercial
 
and consumer
 
checking accounts,
 
money market
 
deposit
accounts, savings accounts and certificates of deposit with a
 
variety of terms and rates as well
 
as a robust suite of treasury,
commercial payments and cash
 
management services. Additionally,
 
we offer deposit products
 
for municipalities and other
public entities. Our deposit products are mainly offered
 
across our primary geographic footprint.
Title Services
Florida
 
Peninsula
 
Title
 
LLC
 
is
 
a
 
subsidiary
 
of
 
the
 
Bank
 
that
 
offers
 
our
 
clients
 
title
 
insurance
 
policies
 
for
 
real
 
estate
transactions closed at the Bank. Licensed in the State of Florida and approved by the Department of Insurance Regulation,
Florida Peninsula
 
Title LLC
 
began operations
 
in 2021.
 
Our title
 
service business
 
not only provides
 
diversification for
 
non-
interest income but also provides our clients with access
 
to tile insurance services.
 
 
 
 
6
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
Seasonality
We do not believe our business to be seasonal
 
in nature.
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
 
population
 
centers
 
were
 
in
 
Miami-Dade,
 
Broward,
 
and
 
Palm
 
Beach
 
counties,
 
all
 
located
 
in
 
South
 
Florida.
According to estimates
 
from the
 
United States Census
 
Bureau, 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.
 
 
 
7
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
At December 31, 2022,
 
we had 191 full
 
-time equivalent employees.
 
None of our
 
employees are parties
 
to a collective
bargaining agreement. We believe that our employees are our greatest asset and vital to our success. As such, we seek to
hire and retain the best
 
candidate for each position, without regard to
 
age, gender, ethnicity, or other protected class status,
but
 
with
 
an
 
appreciation
 
for
 
a
 
diversity
 
of
 
perspectives
 
and
 
experiences.
 
We
 
have
 
designed
 
a
 
compensation
 
structure
including an array of benefit plans and programs
 
that we believe is attractive to our current and prospective employees.
Regulation and Supervision
Bank
 
holding
 
companies,
 
banks,
 
and
 
their
 
affiliates
 
are
 
extensively
 
regulated
 
under
 
federal
 
and
 
state
 
law.
 
These
regulations have a material
 
effect on the operations
 
of USCB Financial Holdings,
 
Inc. and its
 
direct and indirect subsidiaries,
including U.S. Century Bank.
Statutes, regulations and
 
regulatory policies limit
 
the activities in
 
which we
 
may engage and
 
the conduct of
 
our permitted
activities and establish capital requirements with which we must comply. The regulatory framework
 
is intended primarily for
the
 
protection
 
of
 
depositors,
 
borrowers,
 
customers
 
and
 
clients,
 
the
 
Federal
 
Deposit
 
Insurance
 
Corporation
 
(“FDIC”)
insurance funds
 
and the
 
banking system
 
as a
 
whole, and
 
not for
 
the protection
 
of our
 
shareholders or
 
creditors. In
 
many
cases, the applicable regulatory
 
authorities have broad enforcement
 
power over bank holding
 
companies, banks and their
subsidiaries, including the power to impose substantial fines
 
and other penalties for violations of laws and regulations.
 
Further,
 
the
 
regulatory
 
system
 
imposes
 
reporting
 
and
 
information
 
collection
 
obligations.
 
Banking
 
statutes
 
and
regulations are subject
 
to change,
 
and additional statutes,
 
regulations, and corresponding
 
guidance may
 
be adopted. We
are unable to predict these future changes or the effects, if any, that these changes could have on the business, prospects,
revenues, and results of operations of 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
 
bank,
 
U.S.
 
Century
 
Bank
 
is
 
subject
 
to
 
ongoing
 
and
 
comprehensive
 
supervision,
 
regulation,
examination, and enforcement by the FDIC and the Florida Office
 
of Financial Regulation (“FOFR”). The FOFR supervises
and regulates
 
all areas
 
of our
 
operations including,
 
without limitation,
 
the making
 
of loans,
 
the issuance
 
of securities,
 
the
conduct
 
of
 
our
 
corporate
 
affairs,
 
the
 
satisfaction
 
of
 
capital
 
adequacy
 
requirements,
 
the
 
payment
 
of
 
dividends,
 
and
 
the
establishment or closing
 
of banking centers.
 
In addition, our
 
deposit accounts
 
are insured
 
by the Deposit
 
Insurance Fund
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
 
bank
 
holding
 
company.
 
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
 
that is directly or indirectly controlled by a BHC.
USCB Financial
 
Holdings,
 
Inc, which
 
controls
 
U.S. Century
 
Bank,
 
is a
 
BHC and,
 
as such,
 
is subject
 
to ongoing
 
and
comprehensive supervision, regulation, examination and
 
enforcement by the Federal Reserve Board.
Notice and Approval Requirements Related to Control
Banking
 
laws
 
impose
 
notice,
 
approval,
 
and
 
ongoing
 
regulatory
 
requirements
 
on
 
any shareholder
 
or
 
other
 
party
 
that
seeks to acquire direct
 
or indirect "control"
 
of an FDIC-insured
 
depository institution. These
 
laws include the
 
BHC Act and
the Change in Bank Control Act. 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. Subject to rebuttal, a party may be presumed
 
to control a depository institution or other company
if the investor owns or controls 10%
 
or more of any class of voting
 
stock (and the entity’s securities are registered under the
Exchange
 
Act
 
or,
 
if
 
not,
 
the
 
investor
 
would
 
be
 
the
 
largest
 
shareholder).
 
Except
 
under
 
limited
 
circumstances,
 
BHCs
 
are
prohibited from acquiring, without prior approval,
 
control of any other bank
 
or BHC or substantially all the assets
 
thereof or
more than 5% of the voting shares of a bank or BHC
 
which is not already a subsidiary.
 
 
 
8
 
USCB Financial Holdings, Inc.
 
2022 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,
 
USCB
 
Financial
 
Holdings,
 
Inc.
 
in
 
the
 
future
 
could
 
be
required to provide financial assistance
 
to U.S. Century Bank should
 
it experience financial distress.
 
Such support may be
required at times when,
 
absent this statutory and
 
Federal Reserve Policy
 
requirement, a BHC
 
may not be
 
inclined to provide
it.
Safety and Soundness Regulation
As an insured depository
 
institution, we are subject to
 
prudential regulation and supervision
 
and must undergo regular
on-site examinations by our state and federal banking agencies. The cost of examinations of insured depository institutions
and any affiliates are assessed
 
by the appropriate agency against
 
each institution or affiliate that
 
is subject to examination
as it deems
 
necessary or appropriate.
 
We file
 
quarterly consolidated
 
reports of
 
condition and income,
 
or call reports,
 
with
the FDIC and FOFR.
The federal banking
 
agencies have also
 
adopted guidelines establishing safety
 
and soundness standards for
 
all insured
depository institutions including
 
the Bank. The safety
 
and soundness guidelines
 
relate to, among other
 
things, our internal
controls, information systems, internal audit systems, loan underwriting and documentation, anti-money laundering policies
and
 
procedures,
 
transactions
 
with
 
insiders,
 
risk
 
management,
 
compensation,
 
asset
 
growth,
 
and
 
interest
 
rate
 
exposure.
These
 
standards
 
assist
 
the
 
federal
 
banking
 
agencies
 
with
 
early
 
identification
 
and
 
resolution
 
of
 
problems
 
at
 
insured
depository institutions.
 
If we
 
were to fail
 
to meet or
 
otherwise comply
 
with any of
 
these standards, the
 
FDIC could require
us
 
to
 
submit
 
a
 
plan
 
for
 
achieving
 
and
 
maintaining
 
compliance.
 
If
 
a
 
financial
 
institution
 
fails
 
to
 
submit
 
an
 
acceptable
compliance plan, or fails
 
in any material respect
 
to implement a compliance
 
plan that has been
 
accepted by the FDIC,
 
the
FDIC is
 
required to
 
issue an
 
order directing
 
the institution
 
to cure
 
the deficiency.
 
Until the
 
deficiency cited
 
in the
 
order is
cured, the FDIC
 
may restrict the
 
financial institution’s
 
rate of growth,
 
require the financial
 
institution to increase
 
its capital,
restrict the rates the institution pays on
 
deposits or require the institution to take any
 
action the regulator deems appropriate
under the circumstances. Noncompliance with the standards established by the safety and soundness guidelines may also
constitute grounds
 
for other
 
enforcement action,
 
including cease
 
and desist
 
orders and civil
 
money penalty
 
assessments.
In
 
addition,
 
the
 
FDIC
 
could
 
terminate
 
our
 
deposit
 
insurance
 
if
 
it
 
determines
 
that
 
our
 
financial
 
condition
 
was
 
unsafe
 
or
unsound or that we engaged in unsafe or unsound practices that violated applicable rules, regulations, orders or conditions
enacted or imposed on us by our regulators.
During
 
the
 
past
 
decade,
 
the
 
bank
 
regulatory
 
agencies
 
have
 
increasingly
 
emphasized
 
the
 
importance
 
of
 
sound
 
risk
management processes and
 
strong internal
 
controls when
 
evaluating the
 
activities of
 
the financial
 
institutions they
 
supervise.
Properly managing risks has been identified as critical to the conduct of safe and sound banking activities and has become
even more
 
important as
 
new technologies, product
 
innovation and
 
the size
 
and speed
 
of financial
 
transactions have
 
changed
the nature of
 
banking markets. The
 
agencies have identified
 
a spectrum
 
of risks facing
 
a banking institution
 
including, but
not limited
 
to, credit,
 
market, liquidity, interest rate,
 
cybersecurity, operational, legal and
 
reputational risk. In
 
particular, recent
regulatory pronouncements
 
have focused
 
on operational
 
risk, which
 
arises from
 
the potential that
 
inadequate information
systems,
 
operational problems,
 
breaches in
 
internal
 
controls, fraud
 
or unforeseen
 
catastrophes
 
will result
 
in unexpected
losses. New
 
products and
 
services, use
 
of outside
 
vendors and
 
cybersecurity are
 
critical sources
 
of operational
 
risk that
financial institutions
 
are expected
 
to address
 
in the
 
current environment.
 
We
 
have active
 
Board and
 
senior management
oversight
 
policies,
 
procedures
 
and
 
risk
 
limits;
 
adequate
 
risk
 
measurement
 
and
 
monitoring
 
and
 
adequate
 
management
information systems; and comprehensive internal controls
 
to address these various risks.
Permissible Activities and Investments
Banking
 
laws
 
generally
 
restrict
 
the
 
ability
 
of
 
USCB
 
Financial
 
Holdings,
 
Inc.
 
to
 
engage
 
in
 
activities
 
other
 
than
 
those
determined by the
 
Federal Reserve 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.
 
USCB Financial
 
Holdings,
 
Inc., is
 
not a
financial holding company.
In addition, as
 
a general matter, the establishment or
 
acquisition by USCB Financial
 
Holdings, Inc., of a
 
non-bank entity,
or
 
the
 
initiation
 
of
 
a
 
non-banking
 
activity,
 
requires
 
prior
 
regulatory
 
approval.
 
In
 
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.
 
2022 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 or
 
certain
 
multi-family
 
residential
properties, 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
 
conservation
 
buffer.
 
The
 
types
 
of
 
payments
subject to this limitation include
 
dividends, share buybacks, discretionary payments on
 
Tier 1 instruments, and discretionary
bonus payments.
The
 
capital
 
regulations
 
may
 
also
 
impact
 
the
 
treatment
 
of
 
accumulated
 
other
 
comprehensive
 
income,
 
or,
 
AOCI,
 
for
regulatory capital purposes. Under
 
the rules, AOCI generally
 
flows through to regulatory
 
capital, however, community banks
and their holding companies (if any) were allowed to make a
 
one-time irrevocable opt-out election to continue to treat AOCI
the same
 
as under
 
the old
 
regulations for
 
regulatory capital
 
purposes. This
 
election was
 
required to
 
be made
 
on the
 
first
call report
 
filed after
 
January 1,
 
2015. We
 
made the
 
opt-out election.
 
Additionally,
 
the rules
 
also permit
 
community banks
with less than
 
$15 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 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 Form 10-K
 
and will not be
 
required to report or
 
calculate risk-based
capital. In order to
 
qualify for the CBLR
 
framework, a community
 
banking organization must
 
have a tier 1 leverage
 
ratio of
greater
 
than
 
9%,
 
less
 
than
 
$10
 
billion
 
in
 
total
 
consolidated
 
assets,
 
off-balance
 
sheet
 
exposures
 
of
 
25%
 
or
 
less
 
of
 
total
 
 
 
10
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
consolidated assets, and trading assets and
 
liabilities of 5% or less of total consolidated
 
assets. However, Section
 
4012 of
the Coronavirus Aid,
 
Relief and Economic
 
Security Act (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,
 
2022
 
and
 
2021, the
 
Bank
 
qualified
 
as a
 
“well capitalized”
 
institution.
 
See Note
 
15
 
“Regulatory
Matters” of the Consolidated Financial Statements
 
included in this Annual Report Form 10-K for further details.
Prompt Corrective Action
Under the Federal
 
Deposit Insurance Act
 
(“FDIA”), the
 
federal bank regulatory
 
agencies must
 
take "prompt corrective
action"
 
against
 
undercapitalized
 
U.S.
 
depository
 
institutions.
 
The
 
capital-based
 
regulatory
 
framework
 
contains
 
five
categories
 
of
 
compliance
 
with
 
regulatory
 
capital
 
requirements,
 
including
 
"well
 
capitalized,"
 
"adequately
 
capitalized,"
"undercapitalized,"
 
"significantly
 
undercapitalized,"
 
and
 
"critically
 
undercapitalized,"
 
and
 
are
 
subjected
 
to
 
differential
regulation corresponding to the capital category within which the
 
institution falls.
 
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.
Commercial Real Estate Concentration Guidelines
The federal
 
banking regulators
 
have implemented
 
guidelines to
 
address increased
 
concentrations in
 
commercial real
estate
 
loans.
 
These
 
guidelines
 
describe
 
the
 
criteria
 
regulatory
 
agencies
 
will
 
use
 
as
 
indicators
 
to
 
identify
 
institutions
potentially
 
exposed
 
to
 
commercial
 
real
 
estate
 
concentration
 
risk.
 
An
 
institution
 
that
 
has
 
(i)
 
experienced
 
rapid
 
growth
 
in
commercial real
 
estate lending,
 
(ii) notable
 
exposure to
 
a specific
 
type of
 
commercial real
 
estate, (iii)
 
total reported
 
loans
for construction, land development,
 
and other land representing
 
100% or more of
 
total capital, or (iv) total
 
commercial real
estate
 
(including
 
construction)
 
loans
 
representing
 
300%
 
or
 
more
 
of
 
total
 
capital
 
and
 
the
 
outstanding
 
balance
 
of
 
the
institution’s
 
commercial
 
real estate
 
portfolio has
 
increased
 
by 50%
 
or more
 
in the
 
prior 36
 
months,
 
may be
 
identified for
further supervisory analysis of a potential concentration
 
risk.
As of December
 
31, 2022, our
 
ratio of construction
 
loans to total
 
risk-based capital
 
was 27%, and
 
therefore, we
 
were
under
 
the
 
100%
 
threshold
 
set
 
forth
 
in
 
clause
 
(iii)
 
in
 
the
 
paragraph
 
above.
 
However,
 
with
 
respect
 
to
 
clause
 
(iv)
 
in
 
the
paragraph above, as
 
of December
 
31, 2022, our
 
ratio of total
 
commercial real
 
estate loans
 
to total
 
risk-based capital
 
was
390% and the outstanding balance of
 
the institution’s commercial real estate portfolio increased by 50%
 
or more in the prior
36 months.
 
As a
 
result, we
 
are deemed
 
to have
 
a concentration
 
in commercial
 
real estate
 
lending under
 
applicable regulatory
guidelines.
 
If a
 
concentration is
 
present, under
 
the federal
 
banking regulator’
 
guidance, management
 
should employ
 
heightened
risk management practices that address key elements,
 
including board and management oversight and strategic
 
planning,
portfolio management,
 
development
 
of underwriting
 
standards,
 
risk
 
assessment and
 
monitoring
 
through
 
market analysis
and stress
 
testing, and
 
maintenance of
 
increased capital
 
levels as
 
needed to
 
support the
 
level of
 
commercial real
 
estate
lending.
 
To address the commercial real estate lending concentration,
 
USCB Financial Holdings has
 
previously established
a commercial
 
real estate
 
lending framework
 
to monitor
 
specific exposures
 
and limits
 
by types
 
within the
 
commercial real
estate
 
portfolio,
 
including,
 
among
 
other
 
things,
 
annual
 
stress
 
testing
 
of
 
the
 
commercial
 
real
 
estate
 
portfolio,
 
and
 
takes
appropriate actions, as necessary.
 
 
 
11
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
Payment of Dividends
The ability of
 
the board of
 
directors of an
 
insured depository
 
institution to declare
 
a cash dividend
 
or other distribution
with respect to capital
 
is subject to statutory
 
and regulatory restrictions
 
that limit the
 
amount available for
 
such distribution
depending
 
upon
 
earnings,
 
financial
 
condition
 
and
 
cash
 
needs
 
of
 
the
 
institution,
 
as
 
well
 
as
 
general
 
business
 
conditions.
Insured depository institutions are also prohibited from
 
paying management fees to any controlling persons
 
or, with certain
limited exceptions,
 
making
 
capital distributions,
 
including dividends,
 
if after
 
such transaction
 
the institution
 
would be
 
less
than
 
adequately
 
capitalized.
 
We
 
may
 
generally
 
declare
 
a
 
dividend
 
from
 
retained
 
net
 
profits
 
which
 
accrued
 
prior
 
to
 
the
preceding two years, but we must, before the declaration of a dividend on our common stock, under applicable Florida law,
carry 20% of our net profits for such preceding period as is
 
covered by the dividend to our surplus fund, until the same shall
at least equal the amount of our common stock and preferred stock, if
 
any, then issued and outstanding. Under Florida law,
we are prohibited
 
from declaring
 
a dividend
 
at any time
 
at which
 
our net
 
income from
 
the current
 
year combined
 
with the
retained net
 
income
 
from
 
the preceding
 
two
 
years is
 
a loss
 
or which
 
would cause
 
our capital
 
accounts
 
to fall
 
below the
minimum amount required by law,
 
regulation, order, or
 
any written agreement with a state or federal regulatory agency.
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 BHCs should not maintain a level of cash dividends 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 billion in
total
 
assets
 
that
 
encourage
 
inappropriate
 
risk-taking
 
by
 
providing
 
an
 
executive
 
officer,
 
employee,
 
director
 
or
 
principal
shareholder
 
with
 
excessive
 
compensation,
 
fees,
 
or
 
benefits
 
or
 
that
 
could
 
lead
 
to
 
material
 
financial
 
loss
 
to
 
the
 
entity.
 
In
addition, these regulators must establish regulations or guidelines requiring enhanced disclosure to regulators of incentive-
based compensation
 
arrangements. The
 
federal banking
 
agencies proposed
 
such regulations
 
in April
 
2011
 
and issued
 
a
second proposed
 
rule in
 
April 2016.
 
The second
 
proposed rule
 
would apply to
 
all banks,
 
among other
 
institutions, with
 
at
least $1 billion in average total
 
consolidated assets. Final regulations have not been adopted as
 
of the date of this Form 10-
K.
 
If
 
adopted,
 
these
 
or
 
other
 
similar
 
regulations
 
would
 
impose
 
limitations
 
on
 
the
 
manner
 
in
 
which
 
we
 
may
 
structure
compensation for our executives and other
 
employees that go beyond the requirements
 
of GSICP.
 
The scope and content
of the
 
federal banking
 
agencies’ policies
 
on incentive
 
compensation are
 
continuing
 
to develop
 
and are
 
likely to
 
continue
evolving, but the timeframe for finalization of such policies
 
is not known at this time.
Limits on Transactions with Affiliates and
 
Insiders
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 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 with an
 
unaffiliated third party.
 
 
 
12
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
An affiliate of a bank
 
is any company or 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
 
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 is $250 thousand per depositor.
Additionally, FDIC
 
-insured depository institutions are required
 
to pay deposit insurance assessments
 
to the FDIC. The
amount of
 
a particular
 
institution's deposit
 
insurance assessment
 
is based
 
on that
 
institution's risk
 
classification under
 
an
FDIC risk-based assessment system. An institution's
 
risk classification is assigned based on
 
its capital levels and the level
of supervisory concern the institution poses to the regulators.
Under the current
 
system, deposit
 
insurance assessments
 
are based
 
on a bank’s
 
assessment base,
 
which is defined
as average total assets minus
 
average tangible equity.
 
For established small institutions,
 
such as the Bank, the
 
FDIC sets
deposit
 
assessment
 
rates
 
based
 
on
 
the
 
Financial
 
Ratios
 
Method,
 
which
 
takes
 
into
 
account
 
several
 
ratios
 
that
 
reflect
leverage, asset quality,
 
and earnings at
 
each individual institution
 
and then applies
 
a pricing multiplier that
 
is the same
 
for
all institutions. An
 
institution’s rate must
 
be within a
 
certain minimum and
 
a certain maximum,
 
and the range varies
 
based
on the
 
institution’s
 
composite CAMELS
 
rating. The
 
deposit insurance
 
assessment
 
is calculated
 
by multiplying
 
the bank’s
assessment base by the total base assessment
 
rate.
In October
 
2022, the
 
FDIC finalized
 
a rule
 
that will
 
increase the
 
initial base
 
deposit insurance
 
assessment rates
 
by 2
basis points, beginning
 
with the first quarterly
 
assessment period of
 
2023 (January 1,
 
2023 through March
 
31, 2023). The
FDIC, as required
 
under the Federal
 
Deposit Insurance
 
Act, established
 
a plan in
 
September 2020 to
 
restore the Deposit
Insurance Fund (“DIF”) reserve ratio to meet or exceed
 
the statutory minimum of 1.35 percent within eight
 
years. This plan
did not
 
include an
 
increase in
 
the deposit
 
insurance assessment
 
rate. Based
 
on the
 
FDIC’s recent
 
projections, however,
the FDIC determined that the DIF reserve
 
ratio is at risk of not reaching
 
the statutory minimum by the statutory
 
deadline of
September 30, 2028 without increasing
 
the deposit insurance assessment rates. The
 
increased assessment would improve
the likelihood
 
that the
 
DIF reserve
 
ratio would
 
reach the
 
required minimum
 
by the
 
statutory deadline,
 
consistent
 
with the
FDIC’s Amended Restoration
 
Plan. The FDIC also
 
concurrently maintained the
 
Designated Reserve Ratio
 
(“DDR”) for the
DIF at 2 percent for 2023. The new assessment rate
 
schedules will remain in effect unless and until the reserve ratio meets
or exceeds 2 percent
 
in order to support
 
growth in the DIF
 
in progressing toward
 
the FDIC’s long-term
 
goal of a 2 percent
DRR. Progressively lower assessment
 
rate schedules will take effect
 
when the reserve ratio reaches
 
2 percent, and again
when it reaches
 
2.5 percent. The
 
revised assessment
 
rate schedule will remain
 
in effect unless
 
and until the
 
reserve ratio
meets or exceeds 2 percent, absent further action by the FDIC.
Under the
 
FDIA, the
 
FDIC may
 
terminate deposit
 
insurance upon
 
a finding
 
that the
 
institution has
 
engaged in
 
unsafe
and unsound
 
practices,
 
is in
 
an unsafe
 
or unsound
 
condition
 
to continue
 
operations,
 
or has
 
violated any
 
applicable
 
law,
regulation, rule, order, or condition
 
imposed by the FDIC.
Depositor Preference
The FDIA provides
 
that, in the
 
event of the
 
"liquidation or other
 
resolution" of an
 
insured depository institution, the
 
claims
of depositors
 
of the institution
 
(including the
 
claims of
 
the FDIC as
 
subrogee of
 
insured depositors)
 
and certain
 
claims for
administrative
 
expenses
 
of
 
the
 
FDIC
 
as
 
a
 
receiver
 
will
 
have
 
priority
 
over
 
other
 
general
 
unsecured
 
claims
 
against
 
the
institution. Insured and
 
uninsured depositors,
 
along with the
 
FDIC, will have
 
priority in payment
 
ahead of unsecured,
 
non-
deposit creditors,
 
including U.S.
 
Century Bank,
 
with respect
 
to any
 
extensions of
 
credit they
 
have made
 
to such
 
insured
depository institution.
 
 
 
13
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
Overdraft Fee Regulation
The Electronic Fund Transfer Act prohibits
 
financial institutions from charging consumers
 
fees for paying overdrafts on
automated teller machines, or
 
ATMs,
 
and one-time debit card transactions,
 
unless a consumer consents,
 
or opts in, to the
overdraft service for those types
 
of transactions. If a consumer does
 
not opt in, any
 
ATM transaction or debit that overdraws
the consumer’s
 
account will
 
be denied. Overdrafts
 
on the payment
 
of checks
 
and regular electronic
 
bill payments
 
are not
covered
 
by
 
this
 
new
 
rule.
 
Before
 
opting
 
in,
 
the
 
consumer
 
must
 
be
 
provided
 
with
 
a
 
notice
 
that
 
explains
 
the
 
financial
institution’s
 
overdraft
 
services,
 
including
 
the
 
fees
 
associated
 
with
 
the
 
service,
 
and
 
the
 
consumer’s
 
choices.
 
Financial
institutions
 
must
 
provide consumers
 
who do
 
not
 
opt
 
in
 
with
 
the
 
same
 
account
 
terms,
 
conditions
 
and
 
features
 
(including
pricing) that they provide to consumers who do opt in.
Federal Reserve System and Federal Home Loan
 
Bank System
We are
 
a member
 
of the 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
0.05% (or
 
5 basis
 
points), which
 
is subject
 
to annual
 
adjustments, of
 
the Bank’s
 
total assets
 
at the
 
end of
 
each calendar
year (up
 
to
 
a maximum
 
of $15
 
million),
 
plus
 
4.25%
 
of
 
our outstanding
 
advances
 
(borrowings)
 
from
 
the FHLB
 
of
 
Atlanta
under the activity-based stock ownership requirement.
Anti-Money Laundering Regulation
As a financial
 
institution, we
 
must maintain
 
anti-money laundering
 
programs that
 
include established
 
internal policies,
procedures
 
and
 
controls,
 
a
 
designated
 
compliance
 
officer,
 
an
 
ongoing
 
employee
 
training
 
program,
 
and
 
testing
 
of
 
the
program by an independent audit function in accordance
 
with the Bank Secrecy Act of 1970, as amended (“BSA”), and the
regulations issued
 
by the
 
Department of
 
the Treasury
 
in 31
 
CFR Chapter
 
X, FDIC
 
Rule 326.8
 
and the
 
Florida Control
 
of
Money Laundering
 
and Terrorist
 
Financing in
 
Financial Institutions
 
Act. Financial
 
institutions are
 
prohibited from
 
entering
into specified
 
financial
 
transactions
 
and account
 
relationships
 
and must
 
meet enhanced
 
standards for
 
due
 
diligence and
“knowing your customer” in
 
their dealings with
 
foreign financial institutions, foreign
 
customers and other
 
high risk customers.
Financial
 
institutions
 
must
 
also
 
take
 
reasonable
 
steps
 
to
 
conduct
 
enhanced
 
scrutiny
 
of
 
account
 
relationships
 
to
 
guard
against money laundering
 
and to report transactions
 
that meet certain
 
dollar amount thresholds
 
as well as
 
any suspicious
transactions. Recent laws,
 
such as
 
the USA PATRIOT Act, enacted in
 
2001 and renewed
 
through 2019, as
 
described below,
provide law enforcement authorities with increased access
 
to financial information maintained by banks.
 
Anti-money laundering
 
obligations have
 
been substantially
 
strengthened
 
as a
 
result of
 
the USA
 
PATRIOT
 
Act. Bank
regulators routinely examine institutions for compliance with these obligations, and this area has become a particular focus
of
 
the
 
regulators
 
in
 
recent
 
years.
 
In
 
addition,
 
the
 
regulators
 
are
 
required
 
to
 
consider
 
compliance
 
in
 
connection
 
with
 
the
regulatory
 
review
 
of
 
certain
 
applications.
 
In
 
recent
 
years,
 
regulators
 
have
 
expressed
 
concern
 
over
 
banking
 
institutions’
compliance
 
with
 
anti-money
 
laundering
 
requirements
 
and,
 
in
 
some
 
cases,
 
have
 
delayed
 
approval
 
of
 
their
 
expansionary
proposals. The regulators and other
 
governmental authorities have
 
been active in imposing
 
“cease and desist” orders
 
and
significant money penalty sanctions against institutions
 
found to be in violation of the anti-money laundering regulations.
USA PATRIOT
 
Act
The USA PATRIOT Act became effective on October 26, 2001 and amended
 
the BSA. The USA PATRIOT Act requires
banks to establish anti-money laundering programs
 
that include, at a minimum:
 
a bank
 
compliance
 
program
 
that contains
 
internal
 
policies,
 
procedures
 
and
 
controls
 
designed
 
to
 
implement
 
and
maintain the
 
bank’s compliance
 
with all
 
of the
 
requirements
 
of the
 
USA PATRIOT
 
Act, the
 
BSA and
 
related laws
and regulations;
 
bank wide
 
systems
 
and procedures
 
for monitoring
 
and reporting
 
of suspicious
 
transactions
 
and
activities;
 
a designated compliance officer;
 
employee training for bank employees;
 
an independent audit function to test the efficacy
 
of the bank’s anti-money laundering program;
 
procedures to verify the identity of each bank customer upon
 
the opening of accounts;
 
heightened due diligence policies,
 
procedures and controls applicable to
 
certain foreign accounts and
 
relationships;
and
 
 
 
14
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
 
required reports to law enforcement and/or financial regulators to assist in the deterrence and prevention of money
laundering activities.
Additionally,
 
the USA PATRIOT
 
Act requires each financial
 
institution to develop a
 
customer identification program,
 
or
CIP, as part of its anti-money
 
laundering program. The key
 
components of the
 
CIP are identification
 
verification, government
list comparison,
 
notice and
 
record retention.
 
The purpose
 
of the
 
CIP is
 
to enable
 
the financial
 
institution to
 
determine the
true identity
 
and anticipated
 
account activity
 
of each
 
customer.
 
To
 
make this
 
determination, the
 
financial institution
 
must,
among other things, collect certain information from customers at the time they enter
 
into the customer relationship with the
financial institution.
 
This information must
 
be verified
 
within a
 
reasonable time. Furthermore,
 
all customers
 
must be
 
screened
against any CIP-related government lists of known or suspected terrorists or other “sanctioned” persons. On May 11, 2018,
the U.S. Treasury’s
 
Financial Crimes Enforcement
 
Network, or FinCEN, issued
 
a final rule under
 
the BSA requiring
 
banks
to identify and verify the
 
identity of the natural persons behind
 
their customers that are legal entities—the beneficial owners.
We
 
and
 
our
 
affiliates
 
have
 
adopted
 
policies,
 
procedures
 
and
 
controls
 
designed
 
to
 
comply
 
with
 
the
 
BSA
 
and
 
the
 
USA
PATRIOT
 
Act.
The Office of Foreign Assets Control
The Office of Foreign Assets Control (the “OFAC”)
 
is responsible for helping to ensure that U.S. entities do not engage
in transactions with
 
“enemies” of
 
the United States,
 
as defined by
 
various Executive Orders
 
and Acts of
 
Congress. OFAC
publishes lists of
 
names of
 
persons and organizations
 
suspected of aiding,
 
harboring or
 
engaging in terrorist
 
acts; owned
or
 
controlled
 
by,
 
or
 
acting
 
on
 
behalf
 
of
 
target
 
countries;
 
and
 
narcotics
 
traffickers.
 
Such
 
persons
 
are
 
referred
 
to
 
as
“sanctioned” persons.
 
If a bank
 
finds a name on
 
any transaction, account
 
or wire transfer
 
that is on an
 
OFAC list,
 
it must freeze
 
the account
and/or block the transaction or wire transfer. We utilize an outside vendor to oversee
 
the inspection of our accounts and the
filing of any notifications.
 
We also monitor
 
high-risk OFAC
 
areas such as new
 
accounts, wire transfers
 
and customer files.
These checks are performed using software that is updated each time
 
a modification is made to the lists provided by
 
OFAC
and other agencies of Specially Designated Nationals
 
and Blocked Persons.
Consumer Laws and Regulations
Our activities
 
are subject
 
to a
 
variety of
 
federal and
 
state statutes
 
and regulations
 
designed to
 
protect consumers
 
in
transactions with
 
banks. Interest
 
and other
 
charges collected
 
or contracted
 
for by
 
us are
 
subject to
 
state usury
 
laws and
federal laws concerning interest rates. Our loan
 
operations are also subject to federal laws
 
applicable to credit transactions,
such as:
 
the
 
Truth-In-Lending
 
Act,
 
or
 
TILA,
 
and
 
Regulation
 
Z,
 
governing
 
disclosures
 
of
 
credit
 
and
 
servicing
 
terms
 
to
consumer borrowers and including substantial new requirements for mortgage lending and servicing, as mandated
by the Dodd-Frank Act
 
the Home Mortgage Disclosure Act of 1975 and Regulation C, requiring
 
financial institutions to provide information
to enable the
 
public and public
 
officials to
 
determine whether
 
a financial institution
 
is fulfilling its
 
obligation to help
meet the housing needs of the communities they serve;
 
the Equal Credit
 
Opportunity Act and
 
Regulation B, prohibiting
 
discrimination on the
 
basis of race,
 
color, religion,
or other prohibited factors in extending credit;
 
the Fair
 
Credit Reporting Act
 
of 1978,
 
as amended by
 
the Fair
 
and Accurate Credit
 
Transactions Act, and Regulation
V, as well as the rules and
 
regulations of the FDIC governing the
 
use and provision of information
 
to credit reporting
agencies, certain identity theft protections and certain
 
credit and other disclosures;
 
the Fair
 
Debt Collection
 
Practices Act
 
and Regulation
 
F,
 
governing the
 
manner in
 
which consumer
 
debts may
 
be
collected by collection agencies; and
 
the Real Estate Settlement Procedures Act, or RESPA, and Regulation X, which governs aspects of the settlement
process for residential mortgage loans.
Our deposit operations are also subject to federal laws,
 
such as:
 
the FDIA, which, among other things, limits the amount of
 
deposit insurance available per account to $250,000 and
imposes other limits on deposit-taking;
 
the Right to
 
Financial Privacy Act,
 
which imposes a
 
duty to
 
maintain the confidentiality
 
of consumer financial
 
records
and prescribes procedures for complying with administrative subpoenas
 
of financial records;
 
the Electronic
 
Funds Transfer
 
Act and
 
Regulation E,
 
which governs
 
automatic
 
deposits to
 
and withdrawals
 
from
deposit accounts
 
and customers’
 
rights and
 
liabilities arising
 
from
 
the use
 
of ATMs
 
and other
 
electronic
 
banking
services; and
 
 
 
15
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
 
the Truth
 
in Savings
 
Act and
 
Regulation DD,
 
which requires
 
depository institutions
 
to provide
 
disclosures so
 
that
consumers can make meaningful comparisons about depository
 
institutions and accounts.
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
 
information to a
 
nonaffiliated third
 
party.
 
Federal banking agencies,
 
including the
FDIC, have adopted
 
guidelines for establishing information
 
security standards and cybersecurity
 
programs for implementing
safeguards.
 
These
 
guidelines,
 
along
 
with
 
related
 
regulatory
 
materials,
 
increasingly
 
focus
 
on
 
risk
 
management
 
and
processes related to information technology and the use
 
of third parties in the provision of financial services.
In addition to federal laws and regulations, we are subject
 
to state laws governing customer privacy and cybersecurity.
The Florida Information Protection Act of 2014 (“Florida Act”) requires notification of the
 
Florida Department of Legal Affairs
of any breach involving
 
personal information that
 
affects more than
 
500 people as
 
well as requiring notification
 
of affected
individuals of
 
a breach.
 
The Florida
 
Act also
 
requires us to
 
take reasonable measures
 
to protect
 
and secure
 
data in
 
electronic
form containing personal information and take all reasonable measures to dispose, or arrange for the disposal, of
 
customer
records containing
 
personal information
 
within our
 
custody or
 
control when
 
the records
 
are no
 
longer to
 
be retained.
 
We
incur
 
significant
 
costs
 
and
 
expenses
 
in
 
order
 
to
 
address
 
compliance
 
with
 
the
 
federal
 
and
 
state
 
customer
 
privacy
 
and
cybersecurity laws and regulations, and we expect such
 
costs and expenses will continue into the future.
Consumer Financial Protection Bureau
The Consumer Financial Protection Bureau (“CFPB”) is
 
an independent regulatory authority housed within the Federal
Reserve Board. The CFPB has broad authority to regulate the offering and provision of consumer
 
financial products and to
prevent institutions subject to its authority from engaging in “unfair
 
and deceptive or abusive acts or practices” with respect
to their
 
offering of consumer
 
financial products or
 
services. The CFPB
 
has the
 
authority to
 
supervise and examine
 
depository
institutions with more than
 
$10 billion in assets for
 
compliance with federal consumer
 
laws. The authority to supervise
 
and
examine depository
 
institutions with
 
$10 billion or
 
less in assets,
 
such as the
 
Bank, for
 
compliance with federal
 
consumer
laws remains largely with those institutions’ primary
 
federal regulators. However, the CFPB may participate in examinations
of these smaller institutions
 
on a “sampling basis”
 
and may refer potential
 
enforcement actions against
 
such institutions to
their primary regulators.
 
As such, the
 
CFPB may participate
 
in examinations of
 
the Bank. 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 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, 2022, we are not
 
subject to the Volcker Rule because of our asset
 
size, which is below
the $10.0 billion Volcker
 
Rule threshold.
Community Reinvestment Act and Fair Lending Requirements
As
 
previously
 
noted,
 
we
 
are
 
subject
 
to
 
certain
 
fair
 
lending
 
requirements
 
and
 
reporting
 
obligations
 
involving
 
home
mortgage
 
lending
 
operations.
 
We
 
are
 
also
 
subject
 
to
 
certain
 
requirements
 
and
 
reporting
 
obligations
 
under
 
the
 
federal
Community Reinvestment Act (“CRA”).
 
The CRA and
 
its corresponding regulations are
 
intended to encourage banks
 
to help
meet the credit needs of
 
the communities they serve,
 
including low-
 
and moderate-income neighborhoods,
 
consistent with
safe and sound banking practices.
 
Accordingly,
 
the
 
CRA
 
generally
 
requires
 
federal
 
banking
 
agencies
 
to
 
evaluate
 
the
 
record
 
of
 
a
 
financial
 
institution
 
in
meeting applicable
 
CRA requirements.
 
The CRA
 
further requires
 
the agencies
 
to take
 
into account our
 
record of
 
meeting
 
 
 
16
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
community
 
credit
 
needs
 
when
 
evaluating
 
applications
 
for,
 
among
 
other
 
things,
 
new
 
branches
 
or
 
mergers.
 
We
 
are
 
also
subject to analogous state CRA requirements
 
in Florida and certain other states
 
in which we may establish branch
 
offices.
In
 
connection
 
with
 
their
 
assessments
 
of
 
CRA
 
performance,
 
the
 
FDIC
 
and
 
FOFR
 
assign
 
a
 
rating
 
of
 
“outstanding,”
“satisfactory,”
 
“needs to
 
improve,” or
 
“substantial
 
noncompliance.” We
 
received a
 
“satisfactory” CRA
 
Assessment
 
Rating
from
 
both regulatory
 
agencies
 
in our
 
most
 
recent CRA
 
examinations.
 
In addition
 
to substantive
 
penalties
 
and corrective
measures that may
 
be required for
 
a violation of
 
certain fair lending
 
laws, the federal
 
banking agencies may
 
take compliance
with such
 
laws and
 
CRA into
 
account when
 
regulating and
 
supervising other
 
activities of
 
the bank,
 
including in
 
acting on
expansionary proposals such as when a bank submits
 
an application to establish bank branches, merge with
 
another bank,
or acquire
 
the assets
 
and assume
 
the liabilities
 
of another
 
bank. An
 
unsatisfactory
 
CRA and/or
 
fair lending
 
record could
substantially delay
 
or block
 
any such
 
transaction. The
 
regulatory agency's
 
assessment of
 
the institution's
 
record is
 
made
available to the
 
public at
 
www.ffiec.gov/craratings.
 
Following its most
 
recent CRA performance
 
evaluation in March
 
2020,
U.S. Century Bank received an overall rating of "Satisfactory."
Call Reports and Examination Cycle
All institutions, regardless of size, submit
 
a quarterly call report that includes
 
data used by federal banking agencies
 
to
monitor the condition, performance, and
 
risk profile of individual institutions
 
and the industry as a
 
whole. In June 2019, the
federal banking agencies issued a
 
final rule to permit insured depository
 
institutions with total assets of
 
less than $5 billion
that
 
do
 
not
 
engage
 
in
 
certain
 
complex
 
or international
 
activities
 
to
 
file
 
the
 
most
 
streamlined
 
version
 
of
 
the
 
quarterly
 
call
report, and to reduce data reportable on certain streamlined
 
call report submissions.
Effect of Governmental Monetary Policies
The commercial banking
 
business is affected
 
not only by
 
general economic conditions,
 
but also by
 
the monetary policies
of the
 
Federal Reserve
 
Board. Changes
 
in the
 
discount
 
rate on
 
member
 
bank borrowing,
 
availability of
 
borrowing at
 
the
“discount
 
window,”
 
open market
 
operations, changes
 
in the
 
Fed Funds
 
target
 
interest rate,
 
the
 
imposition of
 
changes in
reserve requirements
 
against
 
member
 
banks’
 
deposits
 
and
 
assets
 
of
 
foreign
 
banking
 
centers
 
and
 
the
 
imposition
 
of
 
and
changes in
 
reserve requirements
 
against certain
 
borrowings by
 
banks
 
and their
 
affiliates
 
are some
 
of the
 
instruments
 
of
monetary
 
policy
 
available
 
to
 
the
 
Federal
 
Reserve
 
Board.
 
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
 
Board
 
have
 
had
 
a
 
significant
 
effect
 
on the
operating results
 
of commercial
 
banks and
 
are expected
 
to continue
 
to do
 
so in
 
the future.
 
The Federal
 
Reserve Board’s
policies are primarily influenced by the dual mandate of price stability and
 
full employment, and to a lesser degree by short-
term
 
and
 
long-term
 
changes
 
in
 
the
 
international
 
trade
 
balance
 
and
 
in
 
the
 
fiscal
 
policies
 
of
 
the
 
U.S.
 
government.
 
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
 
 
 
17
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
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 eligible to be forgiven if
 
certain conditions are satisfied and are
fully guaranteed by the SBA. 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 $284.45 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,
2022, we had 6 active PPP loans remaining totaling $1.3
 
million.
The
 
CARES
 
Act,
 
as
 
extended
 
by certain
 
provisions
 
of
 
the
 
Consolidated
 
Appropriations
 
Act,
 
2021,
 
permits
 
banks
 
to
suspend
 
requirements
 
under
 
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, 2022, 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
 
included
 
in
 
this
 
Annual
 
Report
 
Form
 
10-K
 
for
 
further
details.
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
 
on
 
Form
 
10-K.
 
In
 
addition,
 
the
 
FDIC
 
and
 
the
 
SEC
 
each
 
maintains
 
a
 
website
 
that
 
contains
 
reports
 
and
 
other
information that is filed.
 
 
 
18
 
USCB Financial Holdings, Inc.
 
2022 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 continuing
 
COVID-19 pandemic
 
has, and may
 
continue to,
 
adversely affect
 
our business,
 
financial condition,
liquidity, capital and
 
results of operations.
 
Inflationary pressures and rising prices may affect
 
our results of operations and financial condition.
 
Financial challenges
 
at other
 
banking institutions
 
could lead
 
to depositor
 
concerns that
 
spread within
 
the banking
industry causing disruptive deposit outflows and other destabilizing
 
results.
 
Changes in U.S. trade policies and other global political
 
factors beyond our control may adversely impact us.
 
 
Our lending business is subject to credit risk, which could
 
lead to unexpected losses.
 
 
The potential for the replacement or discontinuation of London Inter-bank Offered Rate, or LIBOR, as a benchmark
interest rate could present operational problems
 
and result in market disruption.
 
 
Natural disasters and severe weather events in Florida
 
could have a material adverse impact on us.
 
 
Our business is subject to interest rate risk.
 
A failure or the perceived risk
 
of a failure to raise the statutory
 
debt limit of the U.S.
 
could have a material adverse
effect on our business, financial condition and results
 
of operations.
 
Our allowance for credit losses may not be sufficient
 
to absorb potential losses in our loan portfolio.
 
 
Our commercial loan portfolio may expose us to increased
 
credit risk.
 
 
The imposition of limits by the bank regulators
 
on commercial real estate lending
 
activities could curtail our growth
and adversely affect our earnings.
 
Our SBA lending program depends on our status as a participant in the SBA's Preferred Lenders Program, and we
face specific risks associated with originating SBA loans
 
and selling the guaranteed portion thereof.
 
 
The SBA may not honor its guarantees if we do not originate
 
loans in compliance with SBA guidelines.
 
 
Global banking is an important part of our business, which creates
 
increased BSA/AML risk.
 
 
We may not recover all amounts that are contractually
 
owed to us by our borrowers.
 
 
Non-performing assets take significant time to resolve and
 
adversely affect us.
 
 
 
 
19
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
 
We engage in
 
lending secured by
 
real estate and
 
may foreclose on
 
the collateral and
 
own the underlying
 
real estate,
subjecting us to the costs and potential risks associated
 
with the ownership of real property and other risks.
 
 
We are subject to certain operational risks,
 
such as fraud and data processing system failures and errors.
 
 
We are subject to liquidity risk, which could adversely
 
affect our financial condition and results of
 
operations.
 
 
We have several large depositor relationships, the
 
loss of which could adversely affect
 
us.
 
 
The value of our securities in our investment portfolio
 
may decline in the future.
 
 
We may not effectively execute on our expansion
 
strategy.
 
 
New lines of business, products, product enhancements
 
or services may subject us to additional risk.
 
 
Additional capital we need may not be available on terms
 
acceptable to us or may dilute our shareholders.
 
 
Our strategy to grow through mergers or acquisitions may not be
 
successful or, if successful,
 
may produce risks in
successfully integrating and managing the merged companies
 
or acquisitions and may dilute our shareholders.
 
 
We may lose one or more of our key personnel
 
or fail to attract and retain other highly qualified personnel.
 
 
Damage to our reputation could significantly harm our
 
businesses.
 
 
We face strong competition and must respond
 
to rapid technological changes to remain competitive.
 
A
failure, interruption, or breach in the security of our or our contracted vendors’ systems could adversely affect us.
 
 
We rely on other companies to provide key components
 
of our business infrastructure.
 
 
Litigation and regulatory actions could subject us to significant
 
liabilities or restrictions.
 
 
Certain of our directors may have conflicts of interest
 
in presenting business opportunities to us.
 
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 environme
 
nt.
 
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.
 
Climate change
 
and related
 
legislative and
 
regulatory initiatives
 
may materially
 
affect our
 
business and
 
results of
operations.
Risks Related to Our Class A Common Stock
 
Ability to pay dividends on our common stock
 
is subject to restrictions.
 
 
 
20
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
 
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.
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 loan
 
portfolio is secured
 
by properties located
 
in South Florida,
 
the occurrence of
 
a
natural disaster, such
 
as a hurricane, or a man-made disaster
 
could result in a decline in loan originations,
 
a decline in the
value or
 
destruction
 
of mortgaged
 
properties
 
and an
 
increase
 
in the
 
risk
 
of delinquencies,
 
foreclosures
 
or loss
 
on loans
originated by
 
us. 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
 
continuing high oil prices due to, among
other things, Russian supply disruptions, each of
 
which may have a destabilizing effect
 
on financial markets and economic
activity.
 
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
 
 
 
21
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
impact the markets in which we operate
 
or any of our borrowers otherwise are
 
affected by adverse business developments,
our
 
SMB
 
borrowers
 
may
 
be
 
disproportionately
 
affected
 
and
 
their
 
ability
 
to
 
repay
 
outstanding
 
loans
 
may
 
be
 
negatively
affected, which could have a material adverse effect
 
on our business, financial condition and results of operations.
The
 
continuing
 
COVID-19
 
pandemic
 
has,
 
and
 
may
 
continue
 
to,
 
adversely
 
affect
 
our
 
business,
 
financial
condition, liquidity, capital and results
 
of operations.
The extent and duration
 
to which the
 
continuing COVID-19 pandemic
 
will affect our
 
business in the
 
future is unknown
and will depend
 
on future developments,
 
which are highly
 
uncertain and outside
 
our control. These
 
developments include
the
 
duration
 
and
 
severity
 
of
 
the
 
pandemic
 
(including
 
the
 
possibility
 
of
 
further
 
surges
 
of
 
COVID-19
 
variants
 
of
 
concern),
supply chain disruptions, decreased demand for our products and services or those of our borrowers, which could increase
our credit
 
risk,
 
rising inflation,
 
our ability
 
to maintain
 
sufficient
 
qualified personnel
 
due to
 
labor shortages,
 
talent attrition,
employee illness, quarantine,
 
willingness to return
 
to work, face-coverings
 
and other safety
 
requirements, or travel
 
and other
restrictions, and the actions taken
 
by governments, businesses and individuals
 
to contain the impact of
 
COVID-19, as well
as
 
further
 
actions
 
taken
 
by
 
governmental
 
authorities
 
to
 
limit
 
the
 
resulting
 
economic
 
impact.
 
It
 
is
 
also
 
possible
 
that
 
the
pandemic
 
and
 
its
 
aftermath
 
will
 
lead
 
to
 
a
 
prolonged
 
economic
 
slowdown
 
in
 
sectors
 
disproportionately
 
affected
 
by
 
the
pandemic or recession in the U.S. economy or the world
 
economy in general.
Inflationary pressures and rising prices may affect
 
our results of operations and financial condition.
Inflation
 
has
 
risen
 
sharply
 
since
 
the
 
end
 
of
 
2021
 
to
 
levels
 
not
 
seen
 
in
 
more
 
than
 
40
 
years.
 
Small
 
to
 
medium-sized
businesses may be
 
impacted more during
 
periods of high
 
inflation, as they are
 
not able to leverage
 
economics of scale
 
to
mitigate cost pressures compared
 
to larger businesses. Consequently,
 
the ability of our business
 
customers to repay their
loans may deteriorate, and in some cases this deterioration may occur quickly, which would adversely impact our results of
operations and financial
 
condition. Furthermore,
 
a prolonged period
 
of inflation could
 
cause wages
 
and other of
 
our costs
to increase, which could adversely affect our results
 
of operations and financial condition.
Financial
 
challenges
 
at
 
other
 
banking
 
institutions
 
could
 
lead
 
to
 
depositor
 
concerns
 
that
 
spread
 
within
 
the
banking industry causing disruptive deposit outflows
 
and other destabilizing results.
In March 2023, certain specialized banking institutions with elevated concentrations of uninsured deposits experienced
large deposit outflows,
 
resulting in the
 
institutions being placed
 
into FDIC receiverships.
 
In the aftermath,
 
there has been
substantial
 
market
 
disruption
 
and
 
indications
 
that
 
deposit
 
concerns
 
could
 
spread
 
within
 
the
 
banking
 
industry,
 
leading
 
to
deposit outflows
 
and other
 
destabilizing results.
 
U.S. Century
 
Bank maintains
 
a well-diversified
 
deposit base.
 
Our top 15
depositors only
 
hold 12%
 
of our
 
total portfolio.
 
As of
 
December 31,
 
2022, 39% of
 
our deposits
 
are estimated
 
to be FDIC-
insured. Our public funds
 
are 11%
 
of total deposits and
 
are partially collateralized.
 
The estimated average account
 
size of
our deposit
 
portfolio is
 
$95 thousand. In
 
addition, the Bank
 
was qualified
 
as a
 
“well capitalized” institution
 
as of
 
December 31,
2022 and 2021.
 
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.
 
imposed,
and is likely to continue to impose material additional, financial and economic sanctions and export controls against certain
Russian organizations and/or individuals, with similar actions either implemented or planned by the European Union ("EU")
and
 
the
 
United
 
Kingdom
 
(“UK”) and
 
other
 
jurisdictions.
 
The
 
U.S.,
 
the
 
UK,
 
and
 
the
 
EU
 
have
 
each
 
imposed
 
packages
 
of
financial
 
and
 
economic
 
sanctions
 
that,
 
in
 
various
 
ways,
 
constrain
 
transactions
 
with
 
numerous
 
Russian
 
entities
 
and
individuals; transactions
 
in Russian
 
sovereign debt;
 
and investment,
 
trade, and
 
financing to,
 
from, or
 
in certain regions
 
of
Ukraine. Moreover, actions by Russia, and any
 
further measures taken by the
 
U.S. or its allies,
 
could have negative impacts
on regional and global
 
financial markets and economic conditions.
 
To the extent changes in the global
 
political environment,
including 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.
 
 
 
22
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
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
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.
Regulators, industry groups
 
and certain communities
 
(e.g., the Alternative
 
Reference Rates Committee)
 
have, among
other
 
things,
 
published
 
recommended
 
fallback
 
language
 
LIBOR-linked
 
financial
 
instruments,
 
identified
 
recommended
alternatives for certain LIBOR rates (e.g.,
 
the Secured Overnight Financing Rate (“SOFR”) as the
 
recommended alternative
to U.S. Dollar LIBOR), and proposed implementations of the recommended alternatives in floating rate instruments.
 
At this
time, while it appears that
 
these recommendations and proposals
 
have been broadly accepted, it
 
is not possible to predict
whether they
 
will continue
 
to evolve,
 
and what
 
the effect
 
of their
 
implementation
 
may be
 
on the
 
markets
 
for floating
 
rate
financial instruments.
 
The uncertainty
 
surrounding potential
 
reforms,
 
including the
 
use of
 
alternative reference
 
rates and
changes
 
to
 
the
 
methods
 
and
 
processes
 
used
 
to
 
calculate
 
rates,
 
may
 
have
 
an
 
adverse
 
effect
 
on
 
the
 
trading
 
market
 
for
LIBOR-based
 
securities,
 
loan
 
yields,
 
and
 
the
 
amount
 
received
 
and
 
paid
 
on
 
derivative
 
contracts
 
and
 
other
 
financial
instruments.
 
In addition,
 
the implementation of
 
LIBOR reform proposals
 
may result in
 
increased compliance and
 
operational
costs.
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
 
 
 
23
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
the value of property serving as collateral for our loans, force the relocation of residents, and
 
significantly disrupt economic
activity in the region.
 
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.
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.
It is currently expected that during 2023,
 
the Federal Open Market Committee of the Federal
 
Reserve (the “FOMC”) will
increase interest rates
 
to reduce the
 
rate of
 
inflation to the
 
extent necessary
 
to reduce
 
inflation to the
 
rate that the
 
FOMC
believes is appropriate. Since March 2022, the FOMC has increased the federal funds rate by
 
450 basis points. All of these
increases were expressly
 
made in response
 
to inflationary pressures,
 
which are currently
 
expected to continue.
 
However,
there can be no assurances as to any future FOMC action.
 
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.
A
 
failure
 
or
 
the
 
perceived
 
risk of
 
a
 
failure
 
to
 
raise
 
the
 
statutory
 
debt
 
limit
 
of
 
the
 
U.S.
 
could
 
have
 
a
 
material
adverse effect on our business, financial condition
 
and results of operations
.
U.S. debt ceiling and budget deficit
 
concerns have increased the
 
possibility of additional credit-rating
 
downgrades and
economic slowdowns, or a recession in
 
the United States. Although U.S.
 
lawmakers passed legislation to
 
raise the federal
debt ceiling on multiple occasions, including the most recent increase in December 2021, ratings agencies have lowered or
threatened to lower the long-term sovereign
 
credit rating on the United
 
States. The impact of this
 
or any further downgrades
to the U.S. government’s sovereign credit rating or its
 
perceived creditworthiness could adversely affect the U.S. and global
financial markets and economic conditions. Absent further
 
quantitative easing by the Federal Reserve,
 
these developments
could cause interest rates
 
and borrowing costs to rise,
 
which may negatively impact
 
our ability to access
 
the debt markets
on favorable terms. In
 
addition, disagreement over
 
the federal budget has
 
caused the U.S.
 
federal government to shut
 
down
for
 
periods
 
of
 
time.
 
Continued
 
adverse
 
political
 
and
 
economic
 
conditions
 
could
 
have
 
a
 
material
 
adverse
 
effect
 
on
 
our
business, financial condition and results of operations.
Our allowance for credit losses may not be sufficient
 
to absorb potential losses in our loan portfolio.
 
We
 
maintain
 
an
 
allowance
 
for
 
credit
 
losses
 
that
 
represents
 
management's
 
judgment
 
of
 
probable
 
losses
 
and
 
risks
inherent in our loan portfolio.
 
The level of the allowance
 
reflects management's continuing
 
evaluation of general economic
conditions,
 
present
 
political
 
and
 
regulatory
 
conditions,
 
diversification
 
and
 
seasoning
 
of
 
the
 
loan
 
portfolio,
 
historic
 
loss
 
 
 
24
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
experience, identified credit
 
problems, delinquency levels
 
and adequacy of
 
collateral. Determining the
 
appropriate level of
our
 
allowance
 
for
 
credit
 
losses
 
involves
 
a
 
degree
 
of
 
subjective
 
judgment
 
and
 
requires
 
management
 
to
 
make
 
significant
estimates of and assumptions regarding current credit risks
 
and future trends, all of which may undergo material changes.
Inaccurate
 
management
 
assumptions,
 
deterioration
 
of
 
economic
 
conditions
 
affecting
 
borrowers,
 
new
 
negative
information
 
regarding
 
existing
 
loans,
 
identification
 
of
 
additional
 
problem
 
loans or
 
deterioration
 
of existing
 
problem
 
loans,
and
 
other
 
factors
 
(including
 
third-party
 
review
 
and
 
analysis),
 
both
 
within
 
and
 
outside
 
of
 
our
 
control,
 
may
 
require
 
us
 
to
increase our allowance for
 
credit losses. In addition,
 
our regulators, as an
 
integral part of their
 
periodic examinations, review
our methodology for calculating, and
 
the adequacy of, our allowance
 
for credit losses and may
 
direct us to make additions
to the allowance
 
based on their
 
judgments about
 
information available to
 
them at the
 
time of their
 
examination. Further,
 
if
actual charge-offs in future
 
periods exceed the
 
amounts allocated to
 
our allowance for
 
credit losses, we
 
may need additional
provisions for credit losses to restore
 
the adequacy of our allowance for credit
 
losses. Finally, the measure of our allowance
for credit losses depends on the
 
adoption and interpretation of accounting
 
standards. The Financial Accounting
 
Standards
Board, or FASB, issued a new credit
 
impairment model, the Current Expected Credit Loss, or
 
CECL model, which became
applicable
 
to
 
us
 
on
 
January
 
1,
 
2023.
 
CECL
 
requires
 
financial
 
institutions
 
to
 
estimate
 
and
 
develop
 
a
 
provision
 
for
 
credit
losses over the lifetime of the loan at origination, as opposed to reserving for incurred or probable
 
losses up to the balance
sheet date. Under the CECL
 
model, expected credit deterioration
 
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.
 
Our commercial loan portfolio may expose us to increased
 
credit risk.
Commercial business
 
and real
 
estate loans
 
generally have
 
a higher
 
risk
 
of loss
 
because loan
 
balances
 
are typically
larger
 
than
 
residential
 
real
 
estate
 
and
 
consumer
 
loans
 
and
 
repayment
 
is
 
usually
 
dependent
 
on
 
cash
 
flows
 
from
 
the
borrower’s business or the
 
property securing the loan. Our
 
commercial business loans are primarily
 
made to small business
and middle market customers. These loans typically
 
involve repayment that depends upon income
 
generated, or expected
to be generated, by the property securing the loan
 
and/or by the cash flow generated by the business borrower and
 
may be
adversely affected by changes in the economy or
 
local market conditions. These loans expose a
 
lender to the risk of having
to liquidate the collateral securing
 
these loans at times when there
 
may be significant fluctuation of
 
commercial real estate
values or to the
 
risk of inadequate cash flows to
 
service the commercial loans. Unexpected deterioration in
 
the credit quality
of our
 
commercial business
 
and/or real
 
estate loan
 
portfolio could
 
require us
 
to increase
 
our allowance
 
for credit
 
losses,
which would
 
reduce our
 
profitability and
 
could have
 
an adverse
 
effect
 
on our
 
business, financial
 
condition, and
 
results of
operations.
Commercial construction loans generally
 
have a higher risk
 
of loss due to the assumptions
 
used to estimate the
 
value
of property
 
at completion
 
and the
 
cost of
 
the project,
 
including interest.
 
It can
 
be difficult
 
to accurately
 
evaluate the
 
total
funds required
 
to complete
 
a project,
 
and construction
 
lending often
 
involves the
 
disbursement
 
of substantial
 
funds
 
with
repayment dependent, in large part, on the success of the ultimate project rather than the ability of a borrower or guarantor
to repay the loan from sources other than the subject project. If the assumptions and estimates are inaccurate, the value of
completed property
 
may fall
 
below the
 
related loan
 
amount. If
 
we are forced
 
to foreclose
 
on a
 
project prior
 
to completion,
we may
 
be
 
unable
 
to
 
recover
 
the
 
entire
 
unpaid
 
portion
 
of
 
the
 
loan,
 
which
 
would
 
lead
 
to
 
losses.
 
In
 
addition,
 
we may
 
be
required to fund additional amounts to complete a project,
 
incur taxes, maintenance and compliance costs for
 
a foreclosed
property and
 
may have
 
to hold
 
the property
 
for an
 
indeterminate
 
period of
 
time, any
 
of which
 
could adversely
 
affect
 
our
business, prospects, cash flow,
 
liquidity, financial
 
condition and results of operations.
The imposition
 
of limits
 
by the
 
bank regulators
 
on commercial
 
real estate
 
lending activities
 
could curtail
 
our
growth and adversely affect our earnings.
 
The
 
FDIC,
 
the
 
Federal
 
Reserve
 
Board
 
and
 
the
 
Office
 
of
 
the
 
Comptroller
 
of
 
the
 
Currency
 
have
 
promulgated
 
joint
guidance
 
on
 
sound
 
risk
 
management
 
practices
 
for
 
financial
 
institutions
 
with
 
concentrations
 
in
 
commercial
 
real
 
estate
lending. Under this guidance, a financial
 
institution that, like us, is actively
 
involved in commercial real estate lending should
perform
 
a
 
risk
 
assessment
 
to
 
identify
 
concentrations.
 
Regulatory
 
guidance
 
on
 
concentrations
 
in
 
commercial
 
real
 
estate
lending provides that a bank’s commercial real estate lending exposure
 
could receive increased supervisory scrutiny where
total
 
commercial
 
real
 
estate
 
loans,
 
including
 
loans
 
secured
 
by
 
multi-family
 
residential
 
properties,
 
owner-occupied
 
and
nonowner-occupied investor
 
real estate, and
 
construction and
 
land loans,
 
represent 300%
 
or more of
 
an institution’s
 
total
risk-based capital, and the outstanding
 
balance of the commercial real estate
 
loan portfolio has increased by 50%
 
or more
during the
 
preceding
 
36 months.
 
At December
 
31, 2022,
 
our total
 
commercial investor
 
real estate
 
loans, including
 
loans
 
 
 
25
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
secured by apartment buildings,
 
commercial real estate,
 
and construction and land
 
loans represented 390% of
 
the Bank’s
total risk-based capital and the growth in the
 
commercial real estate portfolio exceeded 50% over the preceding 36
 
months.
The particular
 
focus of
 
the guidance
 
is on
 
exposure to
 
commercial real
 
estate loans
 
that are
 
dependent on
 
the cash
 
flow
from the
 
real estate
 
held as
 
collateral and
 
that are
 
likely to
 
be at
 
greater risk
 
to conditions
 
in the
 
commercial
 
real estate
market (as opposed to real estate collateral held as a secondary source of repayment or as an abundance of caution). The
purpose of the guidance is
 
to guide institutions in developing
 
risk management practices and
 
capital levels commensurate
with the
 
level and
 
nature of
 
real estate
 
concentrations.
 
Management has
 
established an
 
commercial real
 
estate lending
framework to
 
monitor specific exposures
 
and limits by
 
types within the
 
commercial real estate
 
portfolio and
 
takes appropriate
actions, as necessary. While we believe we have implemented policies and procedures with respect to our commercial real
estate loan portfolio
 
consistent with
 
this guidance,
 
the FDIC, U.S.
 
Century Bank’s
 
primary federal
 
regulator,
 
could require
us
 
to
 
implement
 
additional
 
policies
 
and
 
procedures
 
pursuant
 
to
 
their
 
interpretation
 
of
 
the
 
guidance
 
that
 
may
 
result
 
in
additional costs to us. In addition, If the FDIC were
 
to impose restrictions on the amount of commercial real estate loans we
can hold in our portfolio, our earnings would be adversely
 
affected.
Our
 
SBA
 
lending
 
program
 
is dependent
 
upon
 
the
 
federal
 
government
 
and
 
our status
 
as
 
a participant
 
in the
SBA's Preferred
 
Lenders Program,
 
and we
 
face specific
 
risks associated
 
with originating
 
SBA loans
 
and selling
the guaranteed portion thereof.
We
 
have been
 
approved
 
by
 
the
 
SBA
 
to
 
participate
 
in
 
the
 
SBA's
 
Preferred
 
Lenders
 
Program.
 
As
 
an
 
SBA
 
Preferred
Lender,
 
we enable
 
our clients
 
to obtain
 
SBA loans
 
without being
 
subject to
 
the potentially
 
lengthy SBA
 
approval process
necessary
 
for
 
lenders
 
that
 
are
 
not
 
SBA
 
Preferred
 
Lenders.
 
The
 
SBA
 
periodically
 
reviews
 
the
 
lending
 
operations
 
of
participating
 
lenders
 
to
 
assess,
 
among
 
other
 
things,
 
whether
 
the
 
lender
 
exhibits
 
prudent
 
risk
 
management.
 
When
weaknesses are identified, the SBA may request corrective actions
 
or impose enforcement actions, including revocation of
the lender's
 
Preferred Lender
 
status. If
 
we lose
 
our status
 
as an
 
SBA Preferred
 
Lender,
 
we may
 
lose some
 
or all
 
of our
customers to
 
lenders who
 
are SBA
 
Preferred Lenders,
 
which could
 
adversely affect
 
our business,
 
financial condition
 
and
results of operations.
We generally sell the guaranteed
 
portion of our SBA 7(a) loans
 
in the secondary market. These
 
sales have resulted in
both premium income for us
 
at the time of sale
 
and created a stream of
 
future servicing income. There can be
 
no assurance
that we will be able to continue originating these loans, that a secondary market for these loans will continue to exist or that
we will continue to realize
 
premiums upon the sale
 
of the guaranteed portion of
 
these loans. When we sell
 
the guaranteed
portion of our SBA 7(a) loans, we incur credit risk on the non-guaranteed portion of the loans, and if a customer defaults on
the non-guaranteed portion of a loan, we share any loss
 
and recovery related to the loan pro-rata with the SBA.
The laws, regulations and
 
standard operating procedures
 
that are applicable to
 
SBA loan products may
 
change in the
future. We
 
cannot predict
 
the effects
 
of these
 
changes on
 
our business
 
and profitability.
 
Because government
 
regulation
greatly
 
affects
 
the
 
business
 
and
 
financial
 
results
 
of
 
all
 
commercial
 
banks
 
and
 
bank
 
holding
 
companies,
 
especially
 
our
organization, changes in the laws, regulations
 
and procedures applicable to SBA loans
 
could adversely affect our
 
ability to
operate profitably.
 
In addition, the
 
aggregate amount of
 
SBA 7(a) and 504
 
loan guarantees by the
 
SBA must be approved
each fiscal year by the federal
 
government. We cannot predict
 
the amount of SBA 7(a)
 
loan guarantees in any given
 
fiscal
year. If the federal government were to reduce the amount of SBA loan guarantees, such reduction could
 
adversely impact
our SBA lending
 
program, including making and
 
selling the guaranteed portion
 
of fewer SBA
 
7(a) and 504
 
loans. In addition,
any default by
 
the U.S. government
 
on its obligations
 
or any prolonged
 
government shutdown
 
could, among
 
other things,
impede our ability to originate
 
SBA loans or sell such loans
 
in the secondary market, which
 
could materially and adversely
affect our business, financial condition and results
 
of operations.
The SBA may not honor its guarantees if we do not originate
 
loans in compliance with SBA guidelines
.
 
SBA lending programs
 
typically guarantee
 
75.0% of the
 
principal on
 
an underlying
 
loan. If the
 
SBA establishes
 
that a
loss on
 
an
 
SBA guaranteed
 
loan
 
is attributable
 
to significant
 
technical
 
deficiencies
 
in the
 
manner
 
in
 
which
 
the loan
 
was
originated,
 
funded
 
or serviced
 
by us,
 
the
 
SBA may
 
seek
 
recovery
 
of
 
the
 
principal
 
loss
 
related
 
to
 
the
 
deficiency
 
from
 
us
notwithstanding that a portion of the loan
 
was guaranteed by the SBA, which could adversely
 
affect our business, financial
condition and results of
 
operations. While we follow
 
the SBA's underwriting
 
guidelines, our ability to
 
do so depends on the
knowledge and diligence of our employees
 
and the effectiveness of
 
controls we have established. If our
 
employees do not
follow
 
the
 
SBA
 
guidelines
 
in
 
originating
 
loans
 
and
 
if
 
our
 
loan
 
review
 
and
 
audit
 
programs
 
fail
 
to
 
identify
 
and
 
rectify
 
such
failures, the
 
SBA may
 
reduce or,
 
in some
 
cases, refuse
 
to honor
 
its guarantee
 
obligations and
 
we may
 
incur losses
 
as a
result.
 
 
 
26
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
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.
Non-performing
 
assets
 
take
 
significant
 
time
 
to
 
resolve
 
and
 
adversely
 
affect
 
our
 
results
 
of
 
operations
 
and
financial condition, and could result in further losses in
 
the future.
Non-performing assets adversely
 
affect our net
 
income in various
 
ways. We do
 
not record
 
interest income on
 
nonaccrual
loans or other
 
real estate
 
owned (“OREO”),
 
thereby adversely
 
affecting our
 
net income
 
and returns on
 
assets and
 
equity,
increasing our loan administration costs and adversely
 
affecting our efficiency ratio. When
 
we take collateral in foreclosure
and similar proceedings, we are
 
required to mark the collateral to
 
its then-fair market value, which may
 
result in a loss. Non-
performing loans
 
and OREO
 
also increase our
 
risk profile
 
and the level
 
of capital
 
our regulators
 
believe is
 
appropriate for
us to
 
maintain in
 
light of
 
such risks.
 
The resolution
 
of non-performing
 
assets requires
 
significant time
 
commitments from
management and can
 
be detrimental to
 
the performance
 
of their other
 
responsibilities. If
 
we experience increases
 
in non-
 
 
 
27
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
performing
 
loans
 
and
 
non-performing
 
assets,
 
our
 
net
 
interest
 
income
 
may
 
be
 
negatively
 
impacted
 
and
 
our
 
loan
administration costs could increase, each of which could have an adverse effect on our net income and related ratios, such
as return on assets and equity.
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.
 
A
 
significant
 
portion
 
of
 
our
 
loan
 
portfolio
 
is
 
secured
 
by
 
real
 
estate,
 
and
 
we
 
could
 
become
 
subject
 
to
 
environmental
liabilities with respect
 
to one or
 
more of these
 
properties, or with
 
respect to properties that
 
we own in
 
operating our business.
During the ordinary course of
 
business, we may foreclose on and take
 
title to properties securing defaulted loans.
 
In doing
so, there is
 
a risk that
 
hazardous or toxic
 
substances could
 
be found on
 
these properties. If
 
hazardous conditions
 
or toxic
substances are found
 
on these properties,
 
we may be
 
liable for remediation
 
costs, as well
 
as for personal
 
injury and property
damage, civil
 
fines and
 
criminal penalties
 
regardless
 
of when
 
the hazardous
 
conditions or
 
toxic substances
 
first affected
any particular property.
 
The costs associated with investigation or
 
remediation activities could be substantial.
 
In addition, if
we are the owner or former owner
 
of a contaminated site, we may be
 
subject to common law claims
 
by third parties based
on damages and
 
costs resulting
 
from environmental
 
contamination emanating
 
from the
 
property.
 
If we become
 
subject to
significant environmental liabilities, our business, financial condition
 
and results of operations could be adversely affecte
 
d.
We
 
are
 
subject
 
to
 
certain
 
operational
 
risks,
 
including,
 
but
 
not
 
limited
 
to,
 
customer,
 
employee
 
or
 
third-party
fraud and data processing system failures and errors.
 
Employee errors and employee or
 
customer misconduct could subject us
 
to financial losses or
 
regulatory sanctions and
seriously harm our reputation. Misconduct by our employees could include hiding unauthorized
 
activities from us, improper
or unauthorized activities on behalf of our customers or improper use of confidential information. It is not always possible to
prevent employee
 
errors and
 
misconduct, and
 
the precautions we
 
take to
 
prevent and
 
detect this
 
activity may
 
not be
 
effective
in all cases. Employee errors could also subject us to financial
 
claims for negligence.
We have
 
implemented a
 
system of
 
internal controls
 
designed to
 
mitigate operational
 
risks, including
 
data processing
system failures
 
and errors
 
and customer
 
or employee
 
fraud, as
 
well as
 
insurance
 
coverage
 
designed to
 
protect us
 
from
material
 
losses
 
associated
 
with
 
these
 
risks,
 
including
 
losses
 
resulting
 
from
 
any
 
associated
 
business
 
interruption.
 
If
 
our
internal controls fail
 
to prevent or
 
detect an
 
occurrence, or if
 
any resulting loss
 
is not
 
insured or exceeds
 
applicable insurance
limits, it could adversely affect our business,
 
prospects, cash flow, liquidity,
 
financial condition and results of operations.
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
 
 
 
28
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
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.
We may not
 
effectively execute
 
on our expansion
 
strategy, which
 
may adversely affect
 
our ability to
 
maintain
our historical growth and earnings trends.
 
Our
 
primary
 
expansion
 
strategy
 
focuses
 
on
 
organic
 
growth,
 
supplemented
 
by
 
potential
 
acquisitions
 
of
 
financial
institutions and
 
banking teams;
 
however,
 
we may
 
not be
 
able to
 
successfully execute
 
on these
 
aspects of
 
our expansion
strategy,
 
which
 
may
 
cause
 
our
 
future
 
growth
 
rate
 
to
 
decline
 
below
 
our
 
recent
 
historical
 
levels,
 
or
 
may
 
prevent
 
us
 
from
growing at
 
all. More
 
specifically,
 
we may not
 
be able
 
to generate
 
sufficient new
 
loans and
 
deposits within
 
acceptable risk
and
 
expense
 
tolerances
 
or
 
obtain
 
the
 
personnel
 
or
 
funding
 
necessary
 
for
 
additional
 
growth.
 
Various
 
factors,
 
such
 
as
economic conditions
 
and competition
 
with other financial
 
institutions, may impede
 
or restrict the
 
growth of
 
our operations.
Further, we may be unable to attract
 
and retain experienced bankers, which could
 
adversely affect our growth. The success
of our strategy also depends on our ability to manage our growth effectively,
 
which in turn depends on a number of factors,
including
 
our
 
ability
 
to
 
adapt
 
our
 
credit,
 
operational,
 
technology,
 
risk
 
management,
 
internal
 
controls
 
and
 
governance
infrastructure to accommodate expanded operations.
 
Even if we are successful in continuing our growth,
 
such growth may
 
 
 
29
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
not offer the
 
same levels of
 
potential profitability,
 
and we may not
 
be successful in
 
controlling costs and maintaining
 
asset
quality in the
 
face of
 
that growth. Accordingly,
 
our inability to
 
maintain growth
 
or to
 
effectively manage
 
growth could
 
have
an adverse effect on our business, financial condition
 
and results of operations.
New lines of business, products, product enhancements
 
or services may subject us to additional risk.
 
From time to time,
 
we may implement new
 
lines of business or
 
offer new products
 
and product enhancements
 
as well
as new
 
services within
 
our existing
 
lines of
 
business. There
 
are substantial
 
risks and
 
uncertainties associated
 
with these
efforts. In
 
developing, implementing
 
or marketing new
 
lines of business,
 
products, product
 
enhancements or
 
services, we
may invest significant time and
 
resources. We may underestimate the appropriate level
 
of resources or expertise necessary
to
 
make
 
new
 
lines
 
of
 
business
 
or
 
products
 
successful
 
or
 
to
 
realize
 
their
 
expected
 
benefits.
 
We
 
may
 
not
 
achieve
 
the
milestones
 
set
 
in
 
initial
 
timetables
 
for
 
the
 
development
 
and
 
introduction
 
of
 
new
 
lines
 
of
 
business,
 
products,
 
product
enhancements or services, and price
 
and profitability targets may not
 
prove feasible. External factors, such
 
as compliance
with regulations, competitive
 
alternatives and shifting
 
market preferences, may
 
also impact the
 
ultimate implementation of
a new line of business or offerings of new products, product
 
enhancements or services. Any new line of business,
 
product,
product enhancement or service could have a significant impact on the effectiveness of our system of internal controls. We
may also
 
decide to
 
discontinue
 
businesses
 
or products,
 
due to
 
lack
 
of customer
 
acceptance
 
or unprofitability.
 
Failure to
successfully develop and implement new lines of business or offerings of new products, product enhancements or services
could have an adverse effect on our business, financial condition and results
 
of operations and could subject us to new and
unanticipated operational, credit, regulatory and reputational risks,
 
among other risks.
Our business
 
needs and
 
future growth
 
may require
 
us to
 
raise additional
 
capital and
 
that capital
 
may not
 
be
available on terms acceptable to us or may be dilutive to
 
existing shareholders.
 
We believe that
 
we have sufficient capital
 
to meet our capital
 
needs for our current
 
growth plans. However,
 
we expect
that we
 
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.
In
 
addition,
 
an
 
inability
 
to
 
raise
 
capital
 
when
 
needed
 
may
 
subject
 
us
 
to
 
increased
 
regulatory
 
supervision
 
and
 
the
imposition of
 
restrictions
 
on
 
our growth
 
and
 
business.
 
These
 
restrictions
 
could
 
negatively
 
affect
 
our ability
 
to operate
 
or
further
 
expand
 
our
 
operations
 
through
 
loan
 
growth,
 
acquisitions
 
or
 
the
 
establishment
 
of
 
additional
 
branches.
 
These
restrictions
 
may
 
also
 
result
 
in
 
increases
 
in
 
operating
 
expenses
 
and
 
reductions
 
in
 
revenues
 
that
 
could
 
have
 
a
 
material
adverse effect on our financial condition, results
 
of operations and our share price.
We may
 
grow through
 
mergers or
 
acquisitions,
 
a strategy
 
that may
 
not be
 
successful or,
 
if successful,
 
may
produce risks in successfully integrating and managing the merged companies or acquisitions and may dilute our
shareholders.
 
As
 
part
 
of
 
our
 
growth
 
strategy,
 
we
 
may
 
pursue
 
mergers
 
and
 
acquisitions
 
of
 
banks
 
and
 
non-bank
 
financial
 
services
companies within or outside our principal market areas that fit within the mission-driven values of our franchise and that we
believe support our business and make financial and strategic
 
sense. We may have difficulty identifying suitable acquisition
candidates or executing on acquisitions that we pursue, and we may
 
not realize the anticipated benefits of any transactions
we complete. Additionally,
 
for any opportunistic
 
acquisition we
 
were to consider,
 
we expect to
 
face significant
 
competition
from
 
numerous
 
other
 
financial
 
services
 
institutions,
 
many
 
of
 
which
 
will
 
have
 
greater
 
financial
 
resources
 
than
 
we
 
do.
Accordingly,
 
attractive opportunistic
 
acquisitions
 
may
 
not be
 
available to
 
us. There
 
can be
 
no assurance
 
that
 
we will
 
be
successful in identifying or completing any future acquisitions.
 
 
 
30
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
Mergers and acquisitions involve numerous risks,
 
any of which could harm our business, including:
 
the possibility that expected benefits
 
may not materialize in the
 
time frame expected or at
 
all, or may be more
 
costly
to achieve, or that the acquired business will not perform
 
to our expectations;
 
time,
 
expense
 
and
 
difficulties
 
in
 
integrating
 
the
 
operations,
 
management,
 
products
 
and
 
services,
 
technologies,
existing contracts, accounting processes
 
and personnel of the target
 
and realizing the anticipated synergies
 
of the
combined businesses;
 
incurring the
 
time and
 
expense associated with
 
identifying and
 
evaluating potential acquisitions
 
and merger partners
and negotiating potential transactions, resulting in management’s attention being diverted from the operation of our
existing business;
 
difficulties in supporting and transitioning customers
 
of the target and disruption of our ongoing banking business;
 
the price we
 
pay or other
 
resources that
 
we devote may
 
exceed the value
 
we realize, or
 
the value we
 
could have
realized if we had allocated the purchase consideration
 
or other resources to another opportunity;
 
entering new markets or areas in which we have limited
 
or no experience;
 
the possibility that our culture is disrupted as a result of
 
an acquisition;
 
potential loss of key personnel and customers from
 
either our business or the target’s business;
 
assumption of unanticipated problems, claims or other liabilities
 
of the acquired business;
 
an inability to realize expected synergies or returns on
 
investment;
 
the possibility of regulatory approval for the acquisition being delayed,
 
impeded, restrictively conditioned, including
the requirement to divest
 
various activities, or denied
 
due to existing or
 
new regulatory issues surrounding
 
us, the
target institution or the proposed combined entity and
 
the possibility that any such issues associated with
 
the target
institution, of which we
 
may or may
 
not be aware
 
at the time
 
of the acquisition,
 
could adversely impact the
 
combined
entity after completion of the acquisition;
 
the possibility that the acquisition may not be timely completed,
 
if at all;
 
the need to raise capital; and
 
inability to generate sufficient revenue to offset
 
acquisition costs.
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.
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, including
 
equity awards,
which may reduce our earnings or adversely affect
 
our business, results of operations, financial condition or
 
prospects.
 
 
 
31
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
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
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
 
 
 
32
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
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
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.
 
 
 
33
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
Litigation and regulatory actions,
 
including possible enforcement actions, could subject
 
us to significant fines,
penalties,
 
judgments
 
or
 
other
 
requirements
 
resulting
 
in
 
increased
 
expenses
 
or
 
restrictions
 
on
 
our
 
business
activities.
 
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 other
 
institutions, may create conflicts of interest. To the extent
that any of our directors
 
become aware of acquisition
 
opportunities that may be
 
suitable for entities other
 
than us to which
they have fiduciary or contractual obligations, or they are
 
presented with such opportunities in their capacities as fiduciaries
to such
 
entities, they
 
may honor
 
such obligations
 
to such
 
other entities.
 
You
 
should assume
 
that to
 
the extent
 
any of
 
our
directors become
 
aware of an
 
opportunity that may
 
be suitable both
 
for us and
 
another entity to
 
which such person
 
has a
fiduciary obligation
 
or contractual
 
obligation
 
to present
 
such
 
opportunity as
 
set forth
 
above,
 
he or
 
she may
 
first give
 
the
opportunity to such other entity
 
or entities and may give
 
such opportunity to us only
 
to the extent such other
 
entity or entities
reject
 
or
 
are
 
unable
 
to
 
pursue
 
such
 
opportunity.
 
In
 
addition,
 
you
 
should
 
assume
 
that
 
to
 
the
 
extent
 
any
 
of
 
our
 
directors
become
 
aware
 
of
 
an
 
acquisition
 
opportunity
 
that
 
does
 
not
 
fall
 
within
 
the
 
above
 
parameters,
 
but
 
that
 
may
 
otherwise
 
be
suitable for us, he or she may not present such opportunity to
 
us.
Pursuant to an agreement between us and each of our Significant Investors
 
(as defined below), each of the Significant
Investors has the right
 
to nominate one
 
director to serve
 
on our Board, including
 
Board committees, and
 
to designate one
non-voting Board
 
observer.
 
The directors
 
and Board
 
observers designated
 
by the
 
Significant Investors
 
have the
 
right to,
and have
 
no duty
 
not to,
 
engage in
 
the same
 
or similar
 
business activities
 
or lines
 
of business
 
as us.
 
In the
 
event that
 
a
director or Board observer designated by a Significant Investor acquires knowledge of a potential transaction or matter that
may be
 
a corporate opportunity
 
for us,
 
such person
 
shall have
 
no duty
 
to communicate or
 
present such corporate
 
opportunity
to us
 
and shall
 
not be
 
liable to
 
us or
 
our shareholders
 
for breach
 
of any
 
duty by
 
reason of
 
the fact
 
that such
 
person or
 
a
related investment fund
 
thereof, directly or
 
indirectly, pursues or acquires such opportunity
 
for itself, directs such
 
opportunity
to another person, or does not present such opportunity to
 
us.
 
Risks Related to Our Tax,
 
Accounting and Regulatory Compliance
Our
 
ability
 
to
 
recognize
 
the
 
benefits
 
of
 
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.
 
 
 
34
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
Subject to certain exceptions, our Class A common stock is subject
 
to transfer restrictions as set forth in our Articles of
Incorporation that are
 
designed to preserve
 
our deferred tax
 
assets. 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 penalt
 
ies.
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 are required to certify
 
our compliance with Section
 
404
of the Sarbanes-Oxley Act
 
beginning with this Annual
 
Report on Form 10-K,
 
which requires us to annually
 
furnish a report
by management on
 
the effectiveness
 
of our internal
 
control over financial
 
reporting. 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.
 
 
 
35
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
While we remain an
 
emerging growth company or a
 
non-accelerated smaller reporting company, we will not be
 
required
to
 
include
 
an
 
attestation
 
report
 
on
 
internal
 
control
 
over
 
financial
 
reporting
 
issued
 
by
 
our
 
independent
 
registered
 
public
accounting firm.
 
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
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.
 
 
 
36
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
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
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
 
 
 
37
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
preferred stock,
 
are consigned
 
to a
 
category known
 
as Additional
 
Tier
 
1 capital
 
and must
 
be phased
 
out of
 
CETI over
 
a
period of
 
nine years
 
beginning in
 
2014. 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.
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.
 
 
 
38
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
Climate change and related legislative and regulatory initiatives may materially affect the Company’s business
and results of operations.
The effects
 
of climate change
 
continue to
 
create an
 
alarming level
 
of concern for
 
the state of
 
the global
 
environment.
As a result, the global business community has
 
increased its political and social awareness surrounding
 
the issue, and the
United States
 
has entered
 
into international
 
agreements in
 
an attempt
 
to reduce
 
global temperatures,
 
such as
 
reentering
the Paris Agreement.
 
Further,
 
the U.S. Congress,
 
state legislatures
 
and federal and
 
state regulatory agencies
 
continue to
propose numerous
 
initiatives to supplement
 
the global effort
 
to combat climate
 
change. Similar and
 
even more expansive
initiatives
 
are
 
expected
 
under
 
the
 
current
 
administration,
 
including
 
potentially
 
increasing
 
supervisory
 
expectations
 
with
respect to banks’
 
risk management
 
practices, accounting
 
for the effects
 
of climate change
 
in stress testing
 
scenarios and
systemic
 
risk assessments,
 
revising expectations
 
for credit
 
portfolio concentrations
 
based on
 
climate-related
 
factors
 
and
encouraging investment
 
by banks
 
in climate-related initiatives
 
and lending
 
to communities
 
disproportionately impacted
 
by
the effects
 
of climate change.
 
The lack
 
of empirical data
 
surrounding the
 
credit and
 
other financial
 
risks posed
 
by climate
change render it difficult, or
 
even impossible, to predict how climate
 
change may impact our financial
 
condition and results
of operations; however,
 
the physical effects
 
of climate change may
 
also directly impact
 
us. Specifically,
 
unpredictable and
more frequent weather disasters may adversely impact the real property, and/or the value of the real property,
 
securing the
loans in our
 
portfolios. Additionally,
 
if insurance
 
obtained by
 
our borrowers
 
is insufficient
 
to cover any
 
losses sustained
 
to
the collateral, or if
 
insurance coverage is
 
otherwise unavailable to
 
our borrowers, the
 
collateral securing our
 
loans may be
negatively impacted by climate change, natural disasters and
 
related events, which could impact our
 
financial condition and
results
 
of
 
operations. Further,
 
the effects
 
of climate
 
change may
 
negatively
 
impact
 
regional
 
and
 
local economic
 
activity,
which could adversely
 
affect our customers
 
and the communities
 
in which we
 
operate. Overall, climate
 
change, its effects
and the resulting, unknown impact could have a material adverse effect on our
 
financial condition and results of operations.
Risks Related to Our Class A Common Stock
Our ability to pay dividends is subject to restrictions.
Holders of our Class A common stock are only
 
entitled to receive cash dividends when, as and
 
if declared by our Board
out of funds
 
legally available
 
for dividends.
 
The Company
 
is a bank
 
holding company
 
that conducts
 
substantially all
 
of its
operations through the Bank,
 
which is a legal entity separate
 
and distinct from the
 
Company.
 
As a result, our ability
 
to pay
dividends
 
on
 
our
 
common
 
stock
 
will substantially
 
depend
 
upon
 
the
 
receipt
 
of
 
dividends
 
and
 
other
 
distributions
 
from
 
the
Bank,
 
the
 
profitability
 
of
 
which
 
is
 
subject
 
to
 
the
 
fluctuating
 
cost
 
and
 
availability
 
of
 
money,
 
changes
 
in
 
interest
 
rates
 
and
economic conditions in general. There
 
are numerous laws and banking
 
regulations and guidance that limit the
 
Bank's ability
to pay dividends to us and our ability to pay dividends on our
 
common stock.
The 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
 
 
 
39
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
condition or results of operations. If
 
any of the foregoing occurs, it could
 
cause our Class A common
 
stock price to fall and
may expose us to lawsuits that, even if unsuccessful,
 
could be costly to defend and a distraction to management.
There are significant restrictions in our Articles of Incorporation that restrict the
 
ability to sell our capital stock
to shareholders that would own 4.95% or more of
 
our stock, excluding our Significant Investors.
Because the
 
continued availability
 
of our
 
"deferred tax
 
assets" depends,
 
in part,
 
on the
 
value of
 
our stock
 
owned by
shareholders owning
 
5% or more
 
of our stock,
 
our 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
 
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").
 
As
 
of
 
February
 
28,
 
2023
 
Patriot
 
and
 
Priam
 
own
 
 
 
 
 
40
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
approximately 22.71
%
 
and 22.71
%
1
, 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,
 
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.
1
 
Adjust as necessary due to Class A common stock
 
repurchases.
 
 
 
41
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
Item 1B. Unresolved Staff Comments
None.
Item 2.
 
Properties
The Company’s corporate office
 
s
 
are headquartered at 2301 N.W.
 
87th Avenue, Miami, Florida 33172. The Company,
through the
 
Bank,
 
operates
 
10 banking
 
centers
 
in South
 
Florida
 
within Miami
 
-Dade and
 
Broward counties.
 
From
 
the 10
banking centers, nine of these locations are leased and one is owned. The
 
banking center that is owned is located at 3999
Sheridan St, Hollywood, FL 33021. Management
 
believes that each of these locations
 
are in good condition and adequate
to meet our present and foreseeable needs, subject to
 
possible future expansion.
 
See Note 4 “Leases”
 
and Note 5 “Premises
 
and Equipment”
 
to the Consolidated Financial
 
Statements included in this
Annual Report on Form 10-K for additional information.
Item 3.
 
Legal Proceedings
We are not currently subject to any material legal proceedings. We are from time to time subject to claims and litigation
arising
 
in
 
the
 
ordinary
 
course
 
of
 
business.
 
These
 
claims
 
and
 
litigation
 
may
 
include,
 
among
 
other
 
things,
 
allegations
 
of
violation of banking and other applicable regulations, competition
 
law, labor laws and consumer
 
protection laws, as well as
claims
 
or litigation
 
relating
 
to intellectual
 
property,
 
securities, breach
 
of contract
 
and tort.
 
We
 
intend to
 
defend ourselves
vigorously against any pending or future claims and litigation.
There can be no
 
assurance that any
 
future legal proceedings
 
to which we are
 
a party will not
 
be decided adversely
 
to
our interests and have a material adverse effect
 
on our financial condition and operations.
Item 4.
 
Mine Safety Disclosures
Not applicable.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
42
 
USCB Financial Holdings, Inc.
 
2022 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
March 31, 2022
$
15.49
$
13.30
June 30, 2022
$
14.84
$
11.21
September 30, 2022
$
14.74
$
11.08
December 31, 2022
$
14.30
$
12.16
As of
 
December 31, 2022,
 
our Class
 
B common
 
stock is not
 
listed or
 
traded on
 
any stock
 
exchange and
 
no shares
 
were
issued and outstanding at such date.
Holders
As
 
of
 
January
 
31,
 
2023,
 
the
 
Company’s
 
Class
 
A
 
common
 
shares
 
were
 
held
 
by
 
approximately
 
300
 
shareholders
 
of
record, not
 
including the
 
number
 
of persons
 
or entities
 
whose stock
 
is held
 
in nominee
 
or “street”
 
name through
 
various
brokerage firms and banks.
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 and
 
state 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
 
included in this
Annual Report Form on 10-K for additional information
 
required.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
uscb-10K-20211231p43i0 uscb-10K-20211231p43i1 uscb-10K-20211231p43i2 uscb-10K-20211231p43i3
 
 
 
 
 
 
 
 
 
 
 
43
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
 
$-
 
$20
 
$40
 
$60
 
$80
 
$100
 
$120
 
$140
 
$160
7/22/2021
8/8/2021
8/25/20219/11/20219/28/2021
10/15/2021
11/1/2021
11/18/2021
12/5/2021
12/22/2021
1/8/2022
1/25/20222/11/20222/28/20223/17/2022
4/3/2022
4/20/2022
5/7/2022
5/24/20226/10/20226/27/20227/14/20227/31/20228/17/2022
9/3/2022
9/20/202210/7/2022
10/24/202211/10/2022
11/27/2022
12/14/202212/31/2022
COMPARISON OF CUMULATIVE
 
TOTAL RETURN
Among USCB Financial Holdings, Inc., the NASDAQ Bank Index, the NASDAQ ABA
Community Bank Index, and the NASDAQ Composite
 
USCB
 
NASDAQ Bank NASDAQ
 
ABA Community Bank
 
NASDAQ Composite
Stock Price Performance
The graph below compares the
 
cumulative total return
 
to stockholders of our Class
 
A common stock between July
 
23,
2021 (the
 
date the
 
Bank’s
 
Class A
 
common
 
stock commenced
 
trading on
 
the Nasdaq
 
Stock
 
Market) and
 
December 31,
2022, with the cumulative total return
 
of (a) the Nasdaq Bank Index
 
(b) the NASDAQ ABA Community Bank
 
Index, and (c)
the Nasdaq
 
Composite Index
 
over the same
 
period. 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
12/31/2021
12/31/2022
USCB Financial Holdings, Inc. (USCB)
$
100
$
140
$
122
NASDAQ Bank (BANK)
$
100
$
115
$
94
NASDAQ ABA Community Bank (QABA)
$
100
$
114
$
101
NASDAQ Composite (IXIC)
$
100
$
107
$
71
Recent Sales of Unregistered Securities
None.
Purchases of Equity Securities by Issuer and Other
 
Affiliates
 
On January
 
24, 2022,
 
the Board
 
approved a
 
share repurchase
 
program of
 
up to 750,000
 
shares of
 
Class A
 
common
stock.
 
Under the
 
repurchase
 
program,
 
the Company
 
may purchase
 
shares of
 
Class
 
A common
 
stock on
 
a discretionary
basis from time
 
to time through
 
open market repurchases, privately
 
negotiated transactions, or otherwise
 
in compliance with
Rule
 
10b-18
 
under
 
the
 
Exchange
 
Act.
 
As
 
of
 
December 31,
 
2022,
 
neither
 
the
 
Company
 
nor
 
any
 
of
 
its
 
affiliates
 
had
repurchased any Class A common shares of the Company.
Item 6.
 
Reserved
 
 
 
44
 
USCB Financial Holdings, Inc.
 
2022 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, 2022
 
and 2021.
 
This discussion
 
and analysis
 
are best
 
read in
 
conjunction with
 
the Consolidated
 
Financial
Statements and related footnotes
 
of our Company presented
 
in Item 8 “Financial
 
Statements and Supplementary
 
Data” of
this Annual Report on Form
 
10-K. In addition to
 
historical information, this
 
discussion contains forward-looking
 
statements
that
 
involve
 
risks,
 
uncertainties
 
and
 
assumptions
 
that
 
could
 
cause
 
actual
 
results
 
to
 
differ
 
materially
 
from
 
management's
expectations.
 
Factors
 
that
 
could
 
cause
 
such
 
differences
 
are
 
discussed
 
in
 
the
 
sections
 
entitled
 
"Forward-Looking
Statements" and Item 1A “Risk Factors" of this Annual Report.
In this Annual Report on Form 10-K, unless the context indicated otherwise, references to “we,”
 
“us,”, and “our” refer to
the Company and the Bank, as
 
the contest dictates. However, if
 
the discussion relates to a period
 
before the Effective Date,
the terms refer only to the Bank.
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 impact of the pandemic and related
 
government stimulus programs;
 
our ability to successfully manage interest rate risk, credit
 
risk, liquidity risk, and other risks inherent to our
 
industry;
 
the
 
accuracy
 
of
 
our financial
 
statement
 
estimates
 
and
 
assumptions,
 
including
 
the
 
estimates
 
used
 
for
 
our credit
 
loss
reserve and deferred tax asset valuation allowance;
 
the efficiency and effectiveness of
 
our internal control environment;
 
our
 
ability
 
to
 
comply
 
with
 
the
 
extensive
 
laws
 
and
 
regulations
 
to
 
which
 
we
 
are
 
subject,
 
including
 
the
 
laws
 
for
 
each
jurisdiction where we operate;
 
legislative or
 
regulatory changes
 
and changes
 
in accounting
 
principles, policies,
 
practices or
 
guidelines, including
 
the
effects of the implementation of the Current Expected
 
Credit Losses (“CECL”) standard on January 1, 2023;
 
the effects of our lack of a diversified loan portfolio and concentration in the South Florida market, including the risks of
geographic, depositor, and
 
industry concentrations, including our concentration in loans
 
secured by real estate;
 
effects of climate change;
 
the concentration of ownership of our common stock;
 
fluctuations in the price of our Class A common
 
stock;
 
our ability
 
to fund
 
or access
 
the capital
 
markets
 
at attractive
 
rates
 
and
 
terms
 
and manage
 
our growth,
 
both
 
organic
growth as well as growth through other means, such as
 
future acquisitions;
 
inflation, interest rate, unemployment rate, market,
 
and potential monetary fluctuations;
 
impacts of international hostilities and geopolitical events;
 
increased competition and its effect
 
on the pricing of our products and services as well as our margin;
 
the
 
effectiveness
 
of
 
our
 
risk
 
management
 
strategies,
 
including
 
operational
 
risks,
 
including,
 
but
 
not
 
limited
 
to,
 
client,
employee, or third-party fraud and security breaches; and
 
other risks described in this Annual Report and other
 
filings we make with the SEC.
All
 
forward-looking
 
statements
 
are
 
necessarily
 
only
 
estimates
 
of
 
future
 
results,
 
and
 
there
 
can
 
be
 
no
 
assurance
 
that
actual results will
 
not differ
 
materially from
 
expectations. Therefore,
 
you are cautioned
 
not to place
 
undue reliance on
 
any
forward-looking
 
statements.
 
Further,
 
forward-looking
 
statements
 
included in
 
this
 
Annual Report
 
on Form
 
10-K are
 
made
only
 
as of
 
the
 
date
 
hereof,
 
and
 
we
 
undertake
 
no
 
obligation
 
to
 
update
 
or
 
revise
 
any forward
 
-looking
 
statement
 
to reflect
events or circumstances after the date on which the statement is made or to reflect the
 
occurrence of unanticipated events,
unless required to do
 
so under the federal
 
securities laws. You
 
should also review
 
the risk factors
 
described herein and in
 
 
45
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
the reports the Company filed or will file with the SEC and, for periods
 
prior to the completion of the bank holding company
reorganization in December 2021, the Bank filed with the FDIC
Non-GAAP Financial Measures
This Annual Report on Form 10-K includes
 
financial information determined by methods
 
other than in accordance with
generally
 
accepted
 
accounting
 
principles
 
(“GAAP”).
 
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, 2022, the Company reported net income of
 
$20.1 million compared with net income
of
 
$21.1 million for the year ended December 31, 2021.
 
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, 2022:
 
Net interest
 
income before
 
provision for
 
credit losses
 
totaled $63.7 million,
 
an increase
 
of $11.2
 
million or
 
21.3%,
compared to $52.5 million for the year ended December
 
31, 2021.
 
 
Net interest margin (“NIM”) was 3.38% for the year ended
 
December 31, 2022 and 3.26% for the year ended 2021.
The yield on earning assets increased to 3.78% for 2022, compared
 
to 3.52% for 2021.
 
 
Total
 
assets
 
grew
 
to
 
$2.1
 
billion
 
at
 
December
 
31,
 
2022,
 
an
 
increase
 
of
 
$231.9
 
million
 
or
 
12.5%,
 
compared
 
to
December 31, 2021.
 
Total
 
loans
 
grew
 
to
 
$1.5
 
billion
 
at
 
December
 
31,
 
2022,
 
an
 
increase
 
of
 
$317.3
 
million
 
or
 
26.7%,
 
compared
 
to
December 31, 2021.
 
The cost
 
of interest-bearing
 
liabilities
 
increased to
 
0.66% for
 
the
 
year ended
 
December
 
31, 2022
 
from
 
0.45%
 
in
December 31, 2021 as a result of the increase in market
 
interest rates.
 
 
Return on average assets for the year ended December
 
31, 2022 was 1.01% compared to 1.24% in 2021.
 
Return on average
 
stockholders’
 
equity for the
 
year ended December 31,
 
2022 was
 
10.73% compared to
 
11.45%
in 2021.
 
Nonperforming assets was $0.0 for the year ended December
 
31, 2022 compared to $1.2 million at December
 
31,
2021.
 
 
The Company maintained its strong capital position. As of December 31, 2022, the Bank was well-capitalized, with
a total risk-based capital ratio of 13.65%,
 
a tier 1 risk-based capital ratio of
 
12.53%, a common equity tier 1 capital
ratio of
 
12.53%, and
 
a leverage
 
ratio of
 
9.61%. As
 
of December
 
31, 2022
 
and 2021,
 
all of
 
our regulatory
 
capital
ratios exceeded the thresholds to be well-capitalized under the
 
applicable bank regulatory requirements.
 
The Company became the parent bank
 
holding company of the Bank effective
 
December 30, 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 trade under ticker symbol “USCB” on the Nasdaq
 
Stock Market.
 
 
46
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
Critical Accounting Policies and Estimates
The
 
consolidated
 
financial
 
statements
 
are
 
prepared
 
based
 
on
 
the
 
application
 
of
 
U.S.
 
GAAP,
 
the
 
most
 
significant
 
of
which are described
 
in Note 1 “Summary
 
of Significant Accounting
 
Policies” to our
 
Consolidated Financial Statements
 
.
 
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 or decrease 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
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
47
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
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.
Other than temporary impairment
The
 
Company
 
reviews
 
investments
 
quarterly
 
for
 
other
 
than
 
temporary
 
impairment
 
(“OTTI”).
 
The
 
following
 
primary
factors
 
are
 
considered
 
for
 
securities
 
identified
 
for
 
OTTI
 
testing:
 
percent
 
decline
 
in
 
fair
 
value,
 
rating
 
downgrades,
subordination, duration, the Company's ability to hold the debt security, and the ability of the issuers to pay all amounts
 
due
in
 
accordance
 
with
 
the
 
contractual
 
terms.
 
Prices
 
obtained
 
from
 
pricing
 
services
 
are
 
usually
 
not
 
adjusted.
 
Based
 
on
 
our
internal review procedures
 
and the fair values
 
provided by the pricing
 
services, we believe that
 
the fair values provided
 
by
the pricing
 
services are
 
consistent with
 
the principles
 
of ASC
 
Topic
 
820, Fair
 
Value
 
Measurement. The
 
Company may
 
at
times validate the
 
observed prices using
 
the observed prices
 
for similar securities
 
to determine the
 
fair value of
 
its securities.
Changes in the fair values, as
 
a result of deteriorating economic conditions
 
and credit spread changes, should only
 
be
temporary.
 
Further,
 
management
 
believes
 
that
 
the
 
Company’s
 
other
 
sources
 
of
 
liquidity,
 
as
 
well
 
as
 
the
 
cash
 
flow
 
from
principal and interest
 
payments from
 
its securities portfolio,
 
reduces the
 
risk that losses
 
would be realized
 
as a result
 
of a
need to sell securities to obtain liquidity.
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,
2022
2021
Consolidated Balance Sheets:
Total
 
assets
$
2,085,834
$
1,853,939
Total
 
loans
(1)
$
1,507,338
$
1,190,081
Total
 
deposits
$
1,829,281
$
1,590,379
Total
 
stockholders' equity
$
182,428
$
203,897
(1)
 
Loan amounts include deferred fees/costs.
Years Ended December 31,
2022
2021
Consolidated Statements of Operations:
Net interest income before provision for credit losses
$
63,661
$
52,496
Total
 
non-interest income
$
5,228
$
10,698
Total
 
non-interest expense
$
39,309
$
35,677
Net income
 
$
20,141
$
21,077
Net income (loss) available to common stockholders
$
20,141
$
(70,585)
Profitability:
Efficiency ratio
57.06%
56.31%
Net interest margin
 
3.38%
3.26%
The Company’s results
 
of operations depend
 
substantially on net
 
interest income and
 
non-interest income. Other
 
factors
contributing to the
 
results of operations
 
include our provision
 
for credit losses,
 
non-interest expense, and
 
the provision for
income taxes.
 
 
48
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
Net income
 
for the
 
year ended
 
December 31, 2022
 
was $20.1 million,
 
compared with
 
net income
 
of $21.1 million
 
for
the same
 
period in
 
2021. The Company
 
reported net
 
income per
 
diluted share
 
for the
 
year ended
 
December 31, 2022
 
of
$1.00 compared
 
to net
 
loss per diluted
 
share for
 
the same
 
period in 2021
 
of $6.72. The
 
net loss per
 
diluted share
 
for the
year ended 2021 was
 
attributable to the one-time
 
reduction in net income
 
available to common stockholders
 
reflecting the
exchange and
 
redemption
 
of the
 
Class
 
C and
 
Class
 
D preferred
 
shares. During
 
the third
 
quarter of
 
2021,
 
the Company
completed
 
an
 
exchange
 
of
 
the
 
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, 2022,
 
there were no
 
issued and outstanding
preferred shares.
 
Adjusted
 
diluted
 
net
 
income
 
per
 
common
 
share
 
(non-GAAP)
 
for
 
the
 
year
 
ended
 
December 31,
 
2022
 
was
 
$1.00
compared to adjusted net income per diluted share (non-GAAP) for the same period in 2021 of $1.81. Adjusted net income
per
 
diluted
 
share
 
(non-GAAP)
 
for
 
the
 
year
 
ended
 
2021
 
excludes
 
the
 
$89.6 million
 
one-time
 
accounting
 
impact
 
of
 
the
exchange and redemption of the
 
preferred shares. To see
 
a reconciliation of non-GAAP
 
measures,
 
to GAAP measures refer
to section below “Reconciliation and Management Explanatio
 
n
 
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 yields earned on interest-earning assets and rates paid on interest-bearing liabilities. Net interest
margin is
 
equal to
 
the annualized
 
net interest
 
income
 
divided by
 
average interest
 
-earning assets.
 
Because
 
non-interest-
bearing sources of funds, such as non-interest-bearing deposits
 
and stockholders’
 
equity, also fund interest-earning assets,
net interest margin includes the benefit of these non-interest-bearing
 
sources.
Changes in
 
the market
 
interest rates and
 
interest rates
 
we earn on
 
interest-earning assets
 
or pay on
 
interest-bearing
liabilities, as well
 
as the volume and
 
types of interest-earning
 
assets and interest-bearing and
 
non-interest-bearing liabilities,
are usually the
 
largest drivers of
 
periodic changes in
 
net interest spread,
 
net interest margin
 
and net interest
 
income. The
ALCO has in place
 
asset-liability management techniques
 
to manage major
 
factors that affect
 
net interest income
 
and net
interest margin.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
49
 
USCB Financial Holdings, Inc.
 
2022 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,
2022
2021
Average
Balance
Interest
Yield/Rate
 
Average
Balance
Interest
Yield/Rate
 
Assets
Interest-earning assets:
Loans
(1)
$
1,341,693
$
60,825
4.53
%
$
1,116,142
$
48,730
4.37
%
Investment securities
(2)
470,508
9,346
1.99
%
403,677
7,886
1.95
%
Other interest earnings assets
70,873
929
1.31
%
92,430
106
0.11
%
Total
 
interest-earning assets
1,883,074
71,100
3.78
%
1,612,249
56,722
3.52
%
Non-interest earning assets
107,536
 
 
89,409
 
 
Total
 
assets
$
1,990,610
 
 
$
1,701,658
 
 
Liabilities and stockholders' equity
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
Interest-bearing demand deposits
$
64,835
86
0.13
%
$
52,379
59
0.11
%
Saving and money market deposits
803,426
5,173
0.64
%
619,810
2,082
0.34
%
Time deposits
220,319
1,509
0.68
%
235,127
1,531
0.65
%
Total
 
interest-bearing deposits
1,088,580
6,768
0.62
%
907,316
3,672
0.40
%
Borrowings and repurchase agreements
38,463
671
1.74
%
36,000
554
1.54
%
Total
 
interest-bearing liabilities
1,127,043
7,439
0.66
%
943,316
4,226
0.45
%
Non-interest bearing demand deposits
645,366
 
 
547,116
 
 
Other non-interest-bearing liabilities
30,449
 
 
27,142
 
 
Total
 
liabilities
1,802,858
 
 
1,517,574
 
 
Stockholders' equity
187,752
 
 
184,084
 
 
Total
 
liabilities and stockholders' equity
$
1,990,610
 
 
$
1,701,658
 
 
Net interest income
$
63,661
 
$
52,496
 
Net interest spread
(3)
 
3.12
%
3.07
%
Net interest margin
(4)
 
 
3.38
%
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. This amount includes
 
FHLB stock.
(3)
 
Net interest spread is the average yield on
 
total interest-earning assets minus the average
 
rate on total interest-bearing liabilities.
(4)
 
Net interest margin is the ratio of net interest
 
income to total interest-earning assets.
Net interest income before the provision
 
for credit losses was $63.7
 
million for the year ended December
 
31, 2022, an
increase of $11.2 million
 
or 21.3%, from
 
$52.5 million for the
 
year ended December 31,
 
2021. This increase
 
was primarily
attributable to higher income from a larger loan portfolio and
 
higher yield on earning assets.
 
Included with loan interest income are PPP fees totaling $1.6 million and $4.5 million for the
 
year ended December 31,
2022 and 2021, respectively.
 
PPP loan fees are fully recognized upon forgiveness. As of December 31, 2022, we had
 
$1.3
million of PPP loans remaining in our portfolio.
The net
 
interest margin
 
was 3.38%
 
for the
 
year ended
 
December 31, 2022
 
and 3.26%
 
for the
 
year ended
 
2021. The
overall and individual
 
yields for interest-bearing
 
assets and interest
 
-bearing liabilities
 
both increased in
 
2022 compared to
2021 due primarily to increases
 
in market rates of interest.
Provision 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
50
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
Provision for credit loss
 
for the year ended
 
December 31, 2022, was
 
$2.5 million compared to
 
a net reduction of
 
$160
thousand in provision
 
expense for
 
the same period
 
in 2021. The
 
primary driver of
 
the increase was
 
loan growth. The ACL
as a percentage of total loans was 1.16%
 
at December 31, 2022 compared to 1.27% at December
 
31, 2021.
See “Allowance
 
for Credit
 
Losses”
 
below for
 
further discussion on
 
how the
 
ACL was
 
calculated for
 
the periods
 
presented.
 
Non-Interest Income
Net interest income
 
and other types of
 
recurring non-interest
 
income are generated
 
from our operations.
 
Our services
and products generate service charges and fees, mainly from our depository accounts.
 
We also generate income from gain
on sale of
 
loans though
 
our swap and
 
SBA programs. In addition,
 
we own insurance
 
on several employees
 
and generate
income reflecting the increase in the cash surrender value
 
of these policies.
The following table presents the components of non-interest
 
income for the dates indicated (in thousands):
Years Ended December 31,
2022
2021
Service fees
$
4,010
$
3,609
Gain (loss) on sale of securities available for sale, net
(2,529)
214
Gain on sale of loans held for sale, net
891
1,626
Gain on sale of premises and equipment, net
-
983
Loan settlement
161
2,500
Other non-interest income
2,695
1,766
Total
 
non-interest income
$
5,228
$
10,698
Non-interest income
 
for the
 
year ended
 
December 31, 2022
 
was $5.2
 
million compared
 
to $10.7
 
million for
 
the same
period in 2021. This decrease was primarily driven by $2.5
 
million loss on sale of securities in 2022 and one-time items that
generated income in 2021 but not in 2022. One-time items in 2021 include a $2.5 million interest recovery related to a prior
lending customer
 
and a gain
 
on the
 
sale of
 
a previously
 
owned building
 
for $983
 
thousand. In
 
the fourth
 
quarter of
 
2022,
the
 
Company
 
executed
 
a
 
portfolio
 
restructuring
 
strategy
 
which
 
resulted
 
in
 
a
 
sale
 
of
 
$17.0
 
million
 
of
 
its
 
lower-yielding
available-for-sale
 
securities
 
for
 
a
 
loss
 
of
 
$2.0
 
million.
 
Proceeds
 
from
 
the
 
sale
 
will
 
be
 
reinvested
 
in
 
securities
 
and
 
loans
currently yielding higher than the securities that were sold.
Non-Interest Expense
The following table presents the components of non-interest
 
expense for the dates indicated (in thousands):
Years Ended December 31,
2022
2021
Salaries and employee benefits
$
23,943
$
21,438
Occupancy
5,058
5,257
Regulatory assessment and fees
930
783
Consulting and legal fees
1,890
1,454
Network and information technology services
1,806
1,466
Other operating
5,682
5,279
Total
 
non-interest expense
$
39,309
$
35,677
Non-interest expense for
 
the year ended
 
December 31, 2022
 
increased $3.6 million
 
or 10.2%, compared
 
to the same
period in
 
2021. The
 
increase is
 
primarily due
 
to an
 
increase in
 
salaries and
 
employee benefit
 
costs of
 
$2.5 million for
 
the
year ended
 
December 31, 2022,
 
compared to
 
the same
 
period in 2021.
 
The headcount
 
of full-time
 
equivalent employees
increased
 
from
 
187
 
at
 
December 31,
 
2021
 
to
 
191
 
at
 
December 31,
 
2022.
 
Further,
 
consulting
 
and
 
legal
 
fees
 
and
 
other
operating expenses
 
increased $436
 
thousand or
 
30.0% and
 
$403 thousand
 
or 7.6%,
 
respectively, during
 
the year
 
ended
December 31,
 
2022 compared
 
to the
 
same
 
period in
 
2021
 
due to
 
our first
 
full
 
year of
 
operations
 
as a
 
publicly
 
reporting
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
51
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
Provision for Income Tax
Fluctuations in the effective tax rate reflect the effect of the differences in the inclusion or deductibility of certain income
and expense for income tax purposes.
 
Therefore, future decisions on the investments we
 
choose will affect our effective tax
rate. Changes in the
 
cash surrender
 
value of bank-owned
 
life insurance policies
 
for key employees,
 
purchasing municipal
bonds, and overall taxable income will be important elements
 
in determining our effective tax rate.
Income
 
tax expense
 
for the
 
year ended
 
December 31,
 
2022 was
 
$6.9 million,
 
compared
 
to $6.6 million
 
for
 
the
 
year
ended December 31, 2021. The effective
 
tax rate for the year
 
ended December 31, 2022 was 25.6%
 
and for the year
 
ended
December 31, 2021 was 23.8%.
For a further discussion
 
on income taxes, see
 
Note 6 “Income Taxes”
 
to the Consolidated Financial
 
Statements in this
Annual Report on Form 10-K.
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 2022 vs. 2021
Years Ended 2021 vs. 2020
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)
$
9,847
$
2,248
$
12,095
$
4,091
$
(2,439)
$
1,652
Investment securities
(2)
1,306
154
1,460
5,288
(2,650)
2,638
Other interest earnings assets
(25)
848
823
(51)
(150)
(201)
Total increase (decrease) in interest income
$
11,128
$
3,250
$
14,378
$
9,328
$
(5,239)
$
4,089
Interest-bearing liabilities:
Interest-bearing demand deposits
$
14
$
13
$
27
$
$19
$
(118)
$
(99)
Saving and money market deposits
617
2,474
3,091
960
(1,973)
(1,013)
Time deposits
(96)
74
(22)
(704)
(2,474)
(3,178)
Borrowings and repurchase agreements
38
79
117
(321)
(199)
(520)
Total increase (decrease) in interest expense
572
2,641
3,213
(46)
(4,764)
(4,810)
Increase (decrease) in net interest income
$
10,556
$
609
$
11,165
$
9,374
$
(475)
$
8,899
(1)
 
Average loan balances include non-accrual loans. Interest income
 
on loans includes accretion of deferred
 
loan fees, net of deferred loan costs.
(2)
 
At fair value except for securities held to maturity. This amount includes FHLB
 
stock.
Both average yields on
 
interest earning assets
 
and average rates
 
paid on interest
 
bearing liabilities increased
 
in 2022
as a compared to 2021, reflecting the changes in the
 
macro interest rate environment.
Analysis of Financial Condition
Total
 
assets at December 31, 2022, were $2.1 billion, an increase of $231.9 million, or 12.5%, over total assets of $1.9
billion at
 
December 31, 2021. Total loans increased
 
$317.3 million,
 
or 26.7%,
 
to $1.5
 
billion at
 
December 31, 2022 compared
to
 
$1.2
 
billion
 
at
 
December 31,
 
2021.
 
The
 
increase
 
in
 
loans
 
includes
 
purchased
 
loans
 
totaling
 
$70.2
 
million
 
including
deferred fees. Total deposits
 
increased by $238.9 million, or 15.0%, to $1.8 billion at December 31, 2022 compared to $1.6
billion at December 31, 2021.
Investment Securities
The investment portfolio
 
is used and
 
managed to provide
 
liquidity through cash
 
flows, marketability
 
and, if necessary,
collateral for
 
borrowings. The
 
investment portfolio
 
is also
 
used as
 
a tool
 
to manage
 
interest rate
 
risk and
 
the Company’s
capital market risk exposure. The
 
operating philosophy of the portfolio is
 
to maximize the Company’s profitability,
 
taking into
consideration the Company’s risk appetite and tolerance, manage the assets composition
 
and diversification, and maintain
adequate risk-based capital ratios.
 
 
52
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
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
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 the
 
ALCO of
 
the Company
 
to ensure
 
an appropriate
 
risk and
 
return profile
 
as well
 
as for
 
adherence to
 
the
investment policy.
As of December
 
31, 2022, the investment portfolio consisted of available-for-sale (“AFS”) and held-to-maturity
 
(“HTM”)
debt securities.
 
During the third quarter of 2022, there were 26 investment securities that was
 
transferred from AFS to HTM
with an amortized cost basis and fair value amount
 
of $74.4 million and $63.8 million, respectively.
 
On the date of transfer,
these securities
 
had a
 
total net
 
unrealized loss
 
of $10.6
 
million. The
 
transfer of
 
the debt
 
securities from
 
the AFS
 
to HTM
category was
 
made at
 
fair value
 
at the
 
date of
 
transfer.
 
The unrealized
 
gain or
 
loss
 
at the
 
date of
 
transfer is
 
retained in
accumulated other
 
comprehensive income
 
and in
 
the carrying
 
value of
 
the HTM
 
securities. Such
 
amounts are
 
amortized
over the remaining life of the security.
 
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,
 
2022, 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 Annual Report on Form 10-K.
AFS and HTM investment securities
 
in aggregate decreased $105.4 million or 20.1%
 
to $418.8 million at December 31,
2022 from $524.2
 
million at
 
December 31, 2021.
 
Investment securities
 
decreased over the
 
past year as
 
repayments from
securities were
 
allocated to
 
fund loan
 
growth.
 
Management reinvested
 
the repayments
 
of securities
 
and income
 
from the
sale of securities into higher
 
yielding loans. As of December
 
31, 2022, securities with a
 
market value of $49.0 million
 
were
pledged to secure
 
public deposits.
 
As of December
 
31, 2022, the
 
Company did
 
not have any
 
tax-exempt securities
 
in the
portfolio.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
53
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
The
 
following
 
table
 
presents
 
the
 
amortized
 
cost
 
and
 
fair
 
value
 
of
 
investment
 
securities
 
for
 
the
 
dates
 
indicated
 
(in
thousands):
December 31, 2022
December 31, 2021
Available-for-sale:
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
U.S. Government Agency
$
10,177
$
8,655
$
10,564
$
10,520
Collateralized mortgage obligations
118,951
95,541
160,506
156,829
Mortgage-backed securities - Residential
73,838
60,879
120,643
118,842
Mortgage-backed securities - Commercial
32,244
27,954
49,905
50,117
Municipal securities
25,084
18,483
25,164
24,276
Bank subordinated debt securities
15,964
14,919
27,003
28,408
Corporate bonds
4,037
3,709
12,068
12,550
$
280,295
$
230,140
$
405,853
$
401,542
Held-to-maturity:
U.S. Government Agency
$
44,914
$
39,062
$
34,505
$
33,904
U.S. Treasury
9,841
9,828
-
-
Collateralized mortgage obligations
68,727
60,925
44,820
43,799
Mortgage-backed securities - Residential
42,685
38,483
26,920
26,352
Mortgage-backed securities - Commercial
11,442
10,777
3,103
3,013
Corporate bonds
11,090
10,013
13,310
13,089
$
188,699
$
169,088
$
122,658
$
120,157
The following
 
table shows
 
the weighted
 
average yields,
 
categorized by
 
contractual maturity,
 
for investment
 
securities
as of December 31, 2022 (in thousands, except ratios):
 
Within 1 year
After 1 year through
5 years
After 5 years through
10 years
After 10 years
Total
Amortized
Cost
Yield
Amortized
Cost
Yield
Amortized
Cost
Yield
Amortized
Cost
Yield
Amortized
Cost
Yield
Available-for-sale:
U.S. Government Agency
$
-
-
$
-
-
$
-
-
$
10,177
2.31%
$
10,177
2.31%
Collateralized mortgage obligations
-
-
-
-
-
-
118,951
1.57%
118,951
1.57%
MBS - Residential
-
-
-
-
-
-
73,838
1.65%
73,838
1.65%
MBS - Commercial
-
-
-
-
-
-
32,244
2.01%
32,244
2.01%
Municipal securities
 
-
-
-
-
1,000
2.05%
24,084
1.72%
25,084
1.74%
Bank subordinated debt securities
-
-
-
-
15,964
4.76%
-
-
15,964
4.76%
Corporate bonds
-
-
4,037
2.50%
-
-
-
-
4,037
2.50%
$
-
-
$
4,037
2.50%
$
16,964
4.60%
$
259,294
1.69%
$
280,295
1.88%
Held-to-maturity:
U.S. Government Agency
 
$
-
-
7,902
1.03%
20,354
1.46%
16,658
1.85%
44,914
1.53%
U.S. Treasury
9,841
4.49%
-
-
-
-
-
-
9,841
4.49%
Collateralized mortgage obligations
-
-
-
-
-
-
68,727
1.66%
68,727
1.66%
MBS - Residential
-
-
4,554
1.84%
5,950
1.74%
32,181
2.12%
42,685
2.04%
MBS - Commercial
-
-
-
-
3,088
1.62%
8,354
1.69%
11,442
1.67%
Corporate bonds
1,515
2.25%
9,575
2.79%
-
-
-
-
11,090
2.71%
$
11,356
4.19%
$
22,031
1.96%
$
29,392
1.53%
$
125,920
1.81%
$
188,699
1.92%
Loans
Loans are
 
the largest
 
category of
 
interest-earning assets
 
on the
 
Consolidated
 
Balance Sheets,
 
and usually
 
provides
higher yields than the remainder of the Company’s
 
interest-earning assets. Higher yields typically carry
 
inherent credit and
liquidity risks in
 
comparison to lower
 
yielding assets. The
 
Company manages and
 
mitigates such risks
 
in accordance with
the credit and ALM policies, risk tolerance and balance
 
sheet composition.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
54
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
The following table shows the loan portfolio composition
 
as of the dates indicated (in thousands):
 
December 31, 2022
December 31, 2021
Total
Percent of
Total
Total
Percent of
Total
Residential Real Estate
$
185,636
12.3
%
$
201,359
16.9
%
Commercial Real Estate
970,410
64.4
%
704,988
59.2
%
Commercial and Industrial
126,984
8.4
%
146,592
12.3
%
Foreign Banks
93,769
6.2
%
59,491
5.0
%
Consumer and Other
 
130,429
8.7
%
79,229
6.6
%
Total
 
gross loans
1,507,228
100.0
%
1,191,659
100.0
%
Less: Unearned income
(110)
1,578
Total
 
loans net of unearned income
1,507,338
1,190,081
Less: Allowance for credit losses
17,487
15,057
Total
 
net loans
$
1,489,851
 
$
1,175,024
Tot
 
al gross loans increased by $315.6 million or 26.5% at December
 
31, 2022 compared to December 31, 20211.
 
The
most significant
 
growth was
 
in the
 
commercial real
 
estate and
 
consumer
 
and other
 
loan pools,
 
offset
 
by a
 
decline in
 
the
residential real estate and commercial and industrial loan pools. Consumer
 
and other loans increased primarily as result of
organic
 
growth
 
from
 
our
 
yacht
 
lending
 
business
 
vertical
 
created
 
in
 
January
 
2022.
 
Commercial
 
and
 
industrial
 
loans
decreased primarily because of continuing PPP loan forgiveness
 
as expected.
Other
 
than
 
the
 
shifts
 
note
 
above,
 
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.
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, 2022 (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
$
16,199
$
9,411
$
81,858
$
78,168
$
185,636
Commercial Real Estate
69,565
166,885
724,288
9,672
970,410
Commercial and Industrial
9,000
29,688
47,480
40,816
126,984
Foreign Banks
93,769
-
-
-
93,769
Consumer and Other
2,553
2,527
9,060
116,289
130,429
Total
 
gross loans
$
191,086
$
208,511
$
862,686
$
244,945
$
1,507,228
Interest rate sensitivity:
Fixed interest rates
$
160,781
$
127,603
$
144,441
$
142,813
$
575,638
Floating or adjustable rates
30,305
80,908
718,245
102,132
931,590
Total
 
gross loans
$
191,086
$
208,511
$
862,686
$
244,945
$
1,507,228
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,
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,
 
2022, approximately
 
61.8%
 
of
 
the loans
 
have adjustable/variable
 
rates
 
and
 
38.2%
 
of
 
the loans
have fixed rates.
 
The adjustable/variable
 
loans re-price to
 
different benchmarks
 
and tenors in different
 
periods of time.
 
By
contractual characteristics, there are no
 
material concentrations on anniversary repricing. Additionally, it is
 
important to note
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
55
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
that most
 
of our
 
loans have
 
interest rate
 
floors. This
 
embedded option
 
protects the
 
Company from
 
a decrease
 
in interest
rates and positions us to gain in the scenario of higher interest
 
rates.
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
 
– Loans classified as special mention have a potential weakness
 
that deserves management’s
close attention. If left uncorrected, these potential weaknesses
 
may result in deterioration of the repayment
prospects for the loan or of the institution’s
 
credit position at some future date.
 
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
 
– Loans classified as doubtful have all the weaknesses
 
inherent in those classified at substandard, with
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, 2022
Pass
Special Mention
Substandard
Doubtful
Total
Residential Real Estate
$
185,636
$
-
$
-
$
-
$
185,636
Commercial Real Estate
967,465
-
2,945
-
970,410
Commercial and Industrial
126,177
-
807
-
126,984
Foreign Banks
93,769
-
-
-
93,769
Consumer and Other
 
130,233
-
196
-
130,429
$
1,503,280
$
-
$
3,948
$
-
$
1,507,228
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
56
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
Non-Performing Assets
The following table presents non-performing assets as
 
of December 31, 2022 and 2021 (in thousands, except
 
ratios):
2022
2021
Non-accrual loans, less non-accrual TDR loans
$
-
$
1,190
Non-accrual TDRs
-
-
Loans past due over 90 days and still accruing
-
-
Total
 
non-performing loans
-
1,190
Other real estate owned
-
-
Total
 
non-performing assets
$
-
$
1,190
Asset quality ratios:
-
-
Allowance for credit losses to total loans
1.16%
1.27%
Allowance for credit losses to non-performing loans
0.00%
1,265.00%
Non-performing loans to total loans
0.00%
0.10%
Non-performing
 
assets include
 
all loans
 
categorized as
 
non-accrual or
 
restructured,
 
impaired securities,
 
non-accrual
troubled
 
debt
 
restructurings
 
(‘TDRs”),
 
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, 2022
Accruing
Non-Accruing
Total
Residential Real Estate
$
7,206
$
-
$
7,206
Commercial Real Estate
393
-
393
Commercial and Industrial
82
-
82
Consumer and Other
 
196
-
196
$
7,877
$
-
$
7,877
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
The Company had allocated $294 thousand and $360 thousand of specific allowances
 
for TDR loans at December 31,
2022 and 2021, respectively.
 
There was no commitment to lend additional funds to
 
these TDR customers.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
57
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
Charge-offs on TDR loans for the years ended December 31,
 
2022 and 2021 were $0 and $18 thousand, respectively.
There were
 
no defaults
 
on TDR
 
loans at December
 
31, 2022
 
and 2021
 
within the
 
prior 12 months
 
.
 
The Company
 
did not
have any new TDR loans for the year ended December
 
31, 2022.
There were no TDRs or modifications due to COVID-19
 
as of December 31, 2022.
 
For further
 
discussion on
 
non-performing loans,
 
see Note
 
3 “Loans”
 
to the
 
Consolidated Financial
 
Statements in
 
this
Annual Report on 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, 2022:
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
2,498
$
8,758
$
2,775
$
457
$
569
$
15,057
Provision for credit losses
(1,179)
1,385
1,474
263
552
2,495
Recoveries
33
-
18
-
4
55
Charge-offs
-
-
(104)
-
(16)
(120)
Ending Balance
 
$
1,352
$
10,143
$
4,163
$
720
$
1,109
$
17,487
Average loans
$
193,368
$
842,914
$
127,473
$
81,421
$
96,517
$
1,341,693
Net charge-offs to average loans
 
(0.02)%
 
-
 
0.07%
 
-
 
0.01%
 
0.00%
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)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
58
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
The
 
following
 
table
 
presents
 
ACL
 
by
 
type
 
and
 
its
 
individual
 
percentage
 
to
 
total
 
loans
 
for
 
the
 
periods
 
indicated
 
(in
thousands):
December 31,
 
2022
2021
Loan Category
Allowance
% of Loans in
Each Category to
Total Loans
Allowance
% of Loans in
Each Category to
Total Loans
Residential Real Estate
$
1,352
12.3
%
$
2,498
16.9
%
Commercial Real Estate
 
10,143
64.4
%
8,758
59.2
%
Commercial and Industrial
4,163
8.4
%
2,775
12.3
%
Foreign Banks
720
6.2
%
457
5.0
%
Consumer and Other
1,109
8.7
%
569
6.6
%
Total
$
17,487
100.0
%
$
15,057
100.0
%
Bank-Owned Life Insurance
At
 
December 31,
 
2022,
 
the
 
combined
 
cash
 
surrender
 
value
 
of
 
all
 
bank-owned
 
life
 
insurance
 
(“BOLI”)
 
policies
 
was
$42.8 million.
 
Changes
 
in
 
cash
 
surrender
 
value
 
are
 
recorded
 
in
 
non-interest
 
income
 
on the
 
Consolidated
 
Statements
 
of
Operations. In
 
2022, the Company
 
maintained BOLI
 
policies with
 
five insurance
 
carriers. The Company
 
is the beneficiary
of these policies.
Deposits
Customer deposits are the
 
primary funding source for
 
the Bank’s growth.
 
Through our network of
 
banking centers, we
offer a competitive array of deposit
 
accounts and treasury management services designed
 
to meet our customers’ business
needs. Our primary
 
deposit customers
 
are SMBs, and
 
the personal business
 
of owners and
 
operators of
 
these SMBs,
 
as
well as the retail/consumer relationships of the employees
 
of these businesses. Our focus on quality and customer
 
service
has created a strong brand recognition within
 
our depositors, which reflects in the composition
 
of our deposits; most of our
funding sources are core deposits. In addition to our banking centers network,
 
we developed business verticals to diversify
our portfolio in different specialty industries and
 
we offer public fund deposit products
 
to municipalities and public agencies
in our geographical footprint.
 
Furthermore, our
 
personal and
 
private banking
 
management
 
line of
 
business is
 
focused on
 
the needs
 
of the
 
owners
and operators of
 
our business customers,
 
offering a suite
 
of checking, savings,
 
money market and
 
time deposit accounts,
and utilizing superior
 
client service
 
to build and
 
expand client relationships.
 
A unique aspect
 
of our business
 
model is our
ability to offer correspondent services to banks
 
in Central America and the Caribbean.
The
 
following
 
table
 
presents
 
the
 
daily
 
average
 
balance
 
and
 
average
 
rate
 
paid
 
on
 
deposits
 
by
 
category
 
as
 
of
December 31, 2022 and 2021 (in thousands, except ratios):
Twelve Months Ended December 31,
2022
2021
Average Balance
Average Rate
Paid
Average Balance
Average Rate
Paid
Non-interest bearing demand deposits
$
645,366
0.00%
$
547,116
0.00%
Interest-bearing demand deposits
64,835
0.13%
52,379
0.11%
Saving and money market deposits
803,426
0.64%
619,810
0.34%
Time deposits
220,319
0.68%
235,127
0.65%
$
1,733,946
0.39%
$
1,454,431
0.25%
To
tal average deposits for the year ended December 31, 2022 was $1.7 billion,
 
an increase of $279.5 million,
 
or 19.2%
over total average
 
deposits of $1.5 billion
 
for the
 
same period in
 
2021. Our focus
 
on demand deposits
 
resulted in an
 
increase
in average balances of $98.3 million,
 
or 18.0%, in non-interest bearing demand deposits and an increase of $183.6 million,
or 29.6%, in saving and money market deposits
 
when comparing the average balances for the
 
years ended December 31,
2022 and 2021.
The
 
uninsured
 
deposits
 
are
 
estimated
 
based
 
on
 
the
 
FDIC
 
deposit
 
insurance
 
limit
 
of
 
$250 thousand
 
for
 
all
 
deposit
accounts
 
at
 
the
 
Bank
 
per
 
account
 
holder.
 
Total
 
estimated
 
uninsured
 
deposits
 
were
 
$1.1
 
billion
 
and
 
$897.8 million
 
at
 
 
 
 
 
 
 
 
 
 
 
 
 
59
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
December 31,
 
2022
 
and
 
2021,
 
respectively.
 
U.S.
 
Century
 
Bank
 
maintains
 
a
 
well-diversified
 
deposit
 
base.
 
Our
 
top
 
15
depositors only
 
hold 12%
 
of our
 
total portfolio.
 
As of
 
December 31,
 
2022, 39%
 
of our
 
deposits are
 
estimated to
 
be FDIC-
insured. Our public funds
 
are 11%
 
of total deposits and
 
are partially collateralized.
 
The estimated average account
 
size of
our deposit
 
portfolio is
 
$95 thousand.
 
Time
 
deposits with
 
balances of
 
$250 thousand
 
or more
 
totaled $122.9
 
million and
$119.4 million at December
 
31, 2022 and 2021, respectively.
 
Critical elements of our liquidity
 
risk management include: effective corporate governance consisting of
 
oversight by the
Board and
 
ALCO and
 
active involvement
 
by senior
 
management;
 
appropriate strategies,
 
policies, procedures,
 
and limits
used
 
to
 
identify
 
and
 
mitigate
 
liquidity
 
risk;
 
comprehensive
 
liquidity
 
risk
 
measurement
 
and
 
monitoring
 
systems
 
(including
assessments
 
of
 
the
 
current
 
and
 
prospective
 
cash
 
flows
 
or
 
sources
 
and
 
uses
 
of
 
funds)
 
that
 
are
 
commensurate
 
with
 
the
complexity and business activities of the Company; active management of intraday liquidity and collateral; an appropriately
diverse mix
 
of existing
 
and potential
 
future funding
 
sources; adequate
 
levels of
 
highly liquid
 
marketable securities
 
free of
legal, regulatory, or operational impediments, that
 
can be used
 
to meet liquidity
 
needs in stressful
 
situations; comprehensive
contingency
 
funding
 
plans
 
that
 
sufficiently
 
address
 
potential
 
adverse
 
liquidity
 
events
 
and
 
emergency
 
cash
 
flow
requirements;
 
and
 
internal
 
controls and
 
internal
 
audit
 
processes
 
sufficient
 
to
 
determine
 
the
 
adequacy
 
of
 
the
 
institution’s
liquidity risk management process.
We
 
expect
 
funds
 
to
 
be
 
available
 
from
 
several
 
basic
 
banking
 
activity
 
sources,
 
including
 
the
 
core
 
deposit
 
base,
 
the
repayment and maturity of loans and investment security
 
cash flows. Other potential funding sources include
 
federal funds
purchased, brokered
 
certificates of
 
deposit, listing
 
certificates of
 
deposit, Fed
 
funds lines
 
and borrowings
 
from
 
the FHLB
Atlanta. Accordingly, our liquidity resources were at sufficient levels to
 
fund loans and meet other
 
cash needs as necessary.
The following table shows scheduled maturities of uninsured
 
time deposits as of December 31, 2022 (in thousands):
Three months or less
$
10,669
Over three through six months
17,573
Over six though twelve months
29,891
Over twelve months
23,840
$
81,973
Borrowings
As
 
a
 
member
 
of
 
the
 
FHLB
 
Atlanta,
 
we
 
are
 
eligible
 
to
 
obtain
 
advances
 
with
 
various
 
terms
 
and
 
conditions.
 
This
accessibility of additional
 
funding allows us
 
to efficiently and
 
timely meet both
 
expected and unexpected
 
outgoing cash flows
and collateral needs without adversely affecting
 
either daily operations or the financial condition
 
of the Company.
Outstanding fixed-rate advances from the FHLB were at $46.0 million and $36.0 million, as of December 31, 2022, and
December 31, 2021,
 
respectively.
 
The weighted average
 
rate for outstanding
 
FHLB advances at
 
December 31, 2022
 
was
2.60%. Most of the advances are due in 2023.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
60
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
The following table presents the FHLB fixed rate advances
 
as of December 31, 2022 (in thousands):
At December 31, 2022
Interest Rate
Type of Rate
Maturity Date
Amount
2.05%
Fixed
March 27, 2025
$
10,000
1.07%
Fixed
July 18, 2025
6,000
1.04%
Fixed
July 30, 2024
5,000
0.81%
Fixed
August 17, 2023
5,000
4.17%
Fixed
January 13, 2023
20,000
$
46,000
At December 31, 2021
Interest Rate
Type of Rate
Maturity Date
Amount
0.81%
Fixed
August 17, 2023
$
5,000
1.04%
Fixed
July 30, 2024
5,000
2.05%
Fixed
March 27, 2025
10,000
1.91%
Fixed
March 28, 2025
5,000
1.81%
Fixed
April 17, 2025
5,000
1.07%
Fixed
July 18, 2025
6,000
$
36,000
We
 
have
 
also
 
established
 
Fed
 
Funds
 
lines
 
of
 
credit
 
with
 
our
 
upstream
 
correspondent
 
banks
 
to
 
manage
 
temporary
fluctuations in our daily
 
cash balances. As of December 31,
 
2022, there were no
 
outstanding balances under the Fed
 
Funds
line of credit.
Off-Balance Sheet Arrangements
We engage
 
in various financial
 
transactions in
 
our operations
 
that, under GAAP,
 
may not be
 
included on
 
the balance
sheet. To
 
meet the financing needs
 
of our customers we may
 
include commitments to extend
 
credit and standby letters
 
of
credit. 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, 2022 and
 
2021 (in thousands):
2022
2021
Commitments to grant loans and unfunded lines of credit
$
95,461
$
134,877
Standby and commercial letters of credit
4,320
6,420
Total
$
99,781
$
141,297
Commitments to extend credit are agreements to lend funds to a client, as long as there is no violation of any condition
established
 
in
 
the
 
contract,
 
for
 
a
 
specific
 
purpose.
 
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.
 
 
61
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
Asset and Liability Management Committee
The asset and liability management committee of our Company,
 
or ALCO, consists of members of senior management
and our Board. Senior management is responsible for
 
ensuring in a timely manner that Board
 
approved strategies, policies,
and procedures
 
for managing
 
and mitigating
 
risks are
 
appropriately executed
 
within the
 
designated lines
 
of authority
 
and
responsibility.
ALCO
 
oversees
 
the
 
establishment,
 
approval,
 
implementation,
 
and
 
review
 
of
 
interest
 
rate
 
risk,
 
management,
 
and
mitigation strategies, ALM related policies, ALCO procedures
 
and risk tolerances and appetite.
While some degree of interest
 
rate risk (“IRR”) exposure is inherent
 
to the banking business, our ALCO
 
has established
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
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
 
allows
 
us
 
to
 
measure
 
the
 
degree
 
to
 
which
 
the
 
economic
 
values
 
will
 
change
 
under
 
different
 
interest
 
rate
scenarios. The economic value of equity approach focuses on
 
a longer-term time horizon and captures all
 
future cash flows
expected from existing assets and liabilities.
 
The economic value model utilizes a
 
static approach in that the analysis does
not incorporate new business; rather,
 
the analysis shows a snapshot in time of the risk
 
inherent in the balance sheet.
Market and Interest Rate Risk Management
 
According to our ALCO model, as of December 31, 2022, we were a
 
liability sensitive bank for year one modeling and
asset sensitive for year two modeling.
 
Asset sensitivity indicates that our
 
assets generally reprice faster than
 
our liabilities,
which results in a favorable impact to net interest income when market interest rates increase.
 
Liability sensitivity indicates
that our liabilities
 
generally reprice faster
 
than our assets,
 
which results in
 
a favorable impact
 
to net interest
 
income when
market interest
 
rates decrease.
 
Many assumptions
 
are used
 
to calculate
 
the impact
 
of interest
 
rate variations
 
on our
 
net
interest
 
income,
 
such
 
as
 
asset
 
prepayment
 
speeds,
 
non-maturity
 
deposit
 
price
 
sensitivity,
 
pricing
 
correlations,
 
deposit
truncations and decay rates, and key interest rate drivers.
Because of the inherent use
 
of these estimates and
 
assumptions in the model,
 
our actual results may,
 
and most likely
will, differ from static measures results. In addition, static measures like
 
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, 2022, the NIM will remain fairly stable for static rate scenarios (-400
 
basis
points:
 
+400
 
basis
 
points).
 
For
 
the
 
static
 
forecast
 
for
 
year
 
one,
 
the
 
estimated
 
NIM
 
will decrease
 
from
 
3.38%
 
base
 
case
scenario to 3.20%
 
under a +400-basis
 
points scenario. 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 interest
 
rates will have
 
a negative impact
 
on the EVE.
 
Results and analysis
 
are presented quarterly
 
to
the ALCO, and strategies are reviewed and refined.
Additionally, in the last couple of quarters we
 
have been reducing our asset
 
sensitivity by extending asset duration.
 
This
has reduced our
 
NII volatility
 
for the first
 
and second year
 
in the analysis
 
and has
 
helped us to
 
maintain the NII
 
in accordance
with ALCO expectations.
 
 
 
62
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
Liquidity
 
Liquidity is
 
defined as
 
a Company’s capacity
 
to meet
 
its cash
 
and collateral
 
obligations at
 
a reasonable
 
cost. Maintaining
an adequate level of liquidity depends on the Company’s ability to efficiently meet both expected and
 
unexpected cash flow
and collateral needs without adversely affecting
 
either daily operations or the financial condition of
 
the Company.
Liquidity risk
 
is the
 
risk that
 
we will
 
be unable
 
to meet
 
our short-term
 
and long-term
 
obligations as
 
they become
 
due
because of an inability to
 
liquidate assets or obtain adequate funding on
 
acceptable terms. 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. Management
 
presents to the
ALCO, on a quarterly basis, liquidity stress tests foll
 
owing the scenarios described in the Bank’s
 
contingency funding plan.
 
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.
Critical elements of our liquidity
 
risk management include: effective corporate governance consisting of
 
oversight by the
Board and
 
ALCO and
 
active involvement
 
by senior
 
management;
 
appropriate strategies,
 
policies, procedures,
 
and limits
used
 
to
 
identify
 
and
 
mitigate
 
liquidity
 
risk;
 
comprehensive
 
liquidity
 
risk
 
measurement
 
and
 
monitoring
 
systems
 
(including
assessments
 
of
 
the
 
current
 
and
 
prospective
 
cash
 
flows
 
or
 
sources
 
and
 
uses
 
of
 
funds)
 
that
 
are
 
commensurate
 
with
 
the
complexity and business activities of the Company; active management of intraday liquidity and collateral; an appropriately
diverse mix
 
of existing
 
and potential
 
future funding
 
sources; adequate
 
levels of
 
highly liquid
 
marketable securities
 
free of
legal, regulatory, or operational impediments, that
 
can be used
 
to meet liquidity
 
needs in stressful
 
situations; comprehensive
contingency
 
funding
 
plans
 
that
 
sufficiently
 
address
 
potential
 
adverse
 
liquidity
 
events
 
and
 
emergency
 
cash
 
flow
requirements;
 
and
 
internal
 
controls and
 
internal
 
audit
 
processes
 
sufficient
 
to
 
determine
 
the
 
adequacy
 
of
 
the
 
institution’s
liquidity risk management process.
We
 
expect
 
funds
 
to
 
be
 
available
 
from
 
several
 
basic
 
banking
 
activity
 
sources,
 
including
 
the
 
core
 
deposit
 
base,
 
the
repayment and maturity of loans and investment security
 
cash flows. Other potential funding sources include
 
federal funds
purchased, brokered
 
certificates of
 
deposit, listing
 
certificates of
 
deposit, Fed
 
funds lines
 
and borrowings
 
from
 
the FHLB
Atlanta. Accordingly, our liquidity resources were at sufficient levels to
 
fund loans and meet other
 
cash needs as necessary.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
63
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
Capital Adequacy
As
 
of
 
December 31,
 
2022,
 
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, 2022. The
 
following table presents
 
the capital ratios
 
for
both the Bank and the Company at December 31, 2022
 
and 2021 (in thousands,
 
except ratios):
Actual
Minimum Capital
Requirements
 
To be Well Capitalized
Under Prompt Corrective
Action Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
December 31, 2022:
Total
 
risk-based capital:
$
216,693
13.58
%
$
127,616
8.00
%
$
159,520
10.00
%
Tier 1 risk-based capital:
$
198,909
12.47
%
$
95,712
6.00
%
$
127,616
8.00
%
Common equity tier 1 capital:
$
198,909
12.47
%
$
71,784
4.50
%
$
103,688
6.50
%
Leverage ratio:
198,909
9.56
%
$
83,210
4.00
%
$
104,012
5.00
%
December 31, 2021:
(1)
Total
 
risk-based capital
$
186,735
14.92
%
$
100,125
8.00
%
$
125,157
10.00
%
Tier 1 risk-based capital
$
171,484
13.70
%
$
75,094
6.00
%
$
100,125
8.00
%
Common equity tier 1 capital
$
171,484
13.70
%
$
56,321
4.50
%
$
81,352
6.50
%
Leverage ratio
$
171,484
9.55
%
$
71,825
4.00
%
$
89,781
5.00
%
Impact of Inflation
Our Consolidated
 
Financial Statements
 
and related
 
notes have been
 
prepared in
 
accordance with
 
U.S. GAAP,
 
which
requires the
 
measurement of
 
financial position
 
and operating
 
results in
 
terms of
 
historical dollars,
 
without considering
 
the
changes
 
in
 
the
 
relative
 
purchasing
 
power
 
of
 
money
 
over
 
time
 
due
 
to
 
inflation.
 
The
 
impact
 
of
 
inflation
 
is
 
reflected
 
in
 
the
increased cost of operations.
 
Unlike most industrial companies,
 
nearly all our assets and
 
liabilities are monetary in
 
nature.
As a result,
 
interest rates have a
 
greater impact on our
 
performance than do the
 
effects of general levels
 
of inflation. Periods
of high inflation
 
are often accompanied
 
by relatively higher
 
interest rates, and
 
periods of low
 
inflation are accompanied
 
by
relatively lower interest rates.
 
As market interest rates
 
rise or fall in relation
 
to the rates earned
 
on loans and investments,
the
 
value
 
of
 
these
 
assets
 
decreases
 
or
 
increases
 
respectively.
 
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” in
the Consolidated Financial Statements of this Annual Report
 
on Form 10-K.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
64
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
Reconciliation and Management Explanation of Non
 
-GAAP Financial Measures
Management
 
has
 
included
 
these
 
non-GAAP
 
measures
 
because
 
it
 
believes
 
these
 
measures
 
may
 
provide
 
useful
supplemental information
 
for evaluating
 
the Company’s
 
underlying performance
 
trends. 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 GA
 
AP,
 
and
 
are
 
not
 
necessarily
 
comparable
 
to non-GAAP
measures
 
that may
 
be presented
 
by other
 
companies.
 
The
 
Company believes
 
these
 
non-GAAP
 
measurements
 
are key
indicators of
 
the earnings power
 
of the Company.
 
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,
2022
2021
Pre-Tax Pre-Provision ("PTPP") Income:
Net income
$
20,141
$
21,077
Plus: Provision for income taxes
6,944
6,600
Plus: Provision for (recovery of) credit losses
2,495
(160)
PTPP income
$
29,580
$
27,517
PTPP Return on Average Assets:
PTPP income
$
29,580
$
27,517
Average assets
$
1,990,610
$
1,701,658
PTPP return on average assets
 
1.49%
1.62%
Operating Net Income:
Net income
$
20,141
$
21,077
Less: Net gain (loss) on sale of securities
(2,529)
214
Less: Tax effect
 
on sale of securities
641
(52)
Operating net income
$
22,029
$
20,915
Operating PTPP Income:
PTPP income
$
29,580
$
27,517
Less: Net gain (loss) on sale of securities
(2,529)
214
Operating PTPP Income
$
32,109
$
27,303
Operating PTPP Return on Average Assets:
Operating PTPP income
$
32,109
$
27,303
Average assets
$
1,990,610
$
1,701,658
Operating PTPP Return on average assets
 
1.61%
1.60%
Operating Return on Average Assets:
Operating net income
$
22,029
$
20,915
Average assets
$
1,990,610
$
1,701,658
Operating return on average assets
 
1.11%
1.23%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
65
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
Years Ended December 31,
2022
2021
Adjusted Net Income Available to Common Stockholders:
Net income (GAAP)
$
20,141
$
21,077
Less: Preferred dividends
-
2,077
Less: Exchange and redemption of preferred shares
-
89,585
Net income (loss) available to common stockholders (GAAP)
20,141
(70,585)
Add back: Exchange and redemption of preferred shares
-
89,585
Adjusted net income available to common stock (non-GAAP)
$
20,141
$
19,000
Weighted average shares outstanding:
Class A common stock
 
Basic
19,999,323
10,507,530
 
Diluted
20,176,838
10,507,530
 
Diluted EPS:
Class A common stock
Net income (loss) per diluted share (GAAP)
$
1.00
$
(6.72)
Add back: Exchange and redemption of preferred shares
-
8.53
 
Adjusted net income available to common stockholders per diluted share (non-GAAP)
 
$
1.00
$
1.81
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.
uscb-10K-20211231p67i0 uscb-10K-20211231p67i1
 
 
Crowe LLP
Independent Member Crowe Global
 
67
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
REPORT OF INDEPENDENT REGISTERED
 
PUBLIC ACCOUNTING FIRM
Stockholders and the Board of Directors of
USCB Financial Holdings, Inc.
Doral, Florida
Opinion on the Financial Statements
We
 
have audited
 
the
 
accompanying
 
consolidated
 
balance sheets
 
of
 
USCB Financial
 
Holdings,
 
Inc.
 
(the
"Company")
 
as
 
of
 
December
 
31,
 
2022
 
and
 
2021,
 
the
 
related
 
consolidated
 
statements
 
of
 
operations,
comprehensive income
 
(loss), changes
 
in stockholders’
 
equity,
 
and cash
 
flows for
 
the years
 
then ended,
and the
 
related
 
notes
 
(collectively
 
referred
 
to as
 
the
 
"financial statements").
 
In
 
our opinion,
 
the
 
financial
statements present fairly, in all material respects, the
 
financial position of the Company as
 
of December 31,
2022 and 2021,
 
and the results of its operations
 
and its cash flows for the
 
years then ended, in conformity
with accounting principles generally accepted in the United
 
States of America.
Basis for Opinion
These financial
 
statements are
 
the responsibility
 
of the
 
Company's management.
 
Our responsibility
 
is to
express an opinion
 
on the Company's financial
 
statements based on our
 
audits. We are a
 
public accounting
firm registered
 
with the
 
Public Company
 
Accounting Oversight
 
Board (United
 
States) ("PCAOB")
 
and are
required to be
 
independent with respect to
 
the Company in accordance with
 
the U.S. federal
 
securities laws
and the applicable rules and regulations of the Securities
 
and Exchange Commission and the PCAOB.
 
We conducted
 
our audits
 
in accordance
 
with the
 
standards of
 
the PCAOB.
 
Those standards
 
require that
we plan and perform the
 
audit to obtain reasonable
 
assurance about whether the
 
financial statements are
free
 
of material misstatement, whether due to error or fraud.
 
Our
 
audits
 
included
 
performing
 
procedures
 
to
 
assess
 
the
 
risks
 
of
 
material
 
misstatement
 
of
 
the
 
financial
statements,
 
whether due
 
to error
 
or fraud,
 
and performing
 
procedures that
 
respond
 
to those
 
risks.
 
Such
procedures
 
included examining,
 
on a
 
test basis,
 
evidence
 
regarding the
 
amounts
 
and disclosures
 
in the
financial
 
statements.
 
Our
 
audits
 
also
 
included
 
evaluating
 
the
 
accounting
 
principles
 
used
 
and
 
significant
estimates made by management, as well as evaluating the
 
overall presentation of the financial statements.
We believe that our audits provide a reasonable
 
basis for our opinion.
 
/s/ Crowe LLP
 
Crowe LLP
We have served as the Company's auditor since
 
2017.
Fort Lauderdale, Florida
March 24, 2023
uscb-10K-20211231p67i0 uscb-10K-20211231p67i1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Crowe LLP
Independent Member Crowe Global
 
68
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
USCB FINANCIAL HOLDINGS, INC.
Consolidated Balance Sheets
(Dollars in thousands,
 
except share and per share data)
 
December 31,
 
2022
2021
ASSETS:
Cash and due from banks
$
6,605
$
6,477
Interest-bearing deposits in banks
47,563
39,751
Total cash and cash equivalents
54,168
46,228
Investment securities held to maturity (fair value $
169,088
 
and $
120,157
, respectively)
188,699
122,658
Investment securities available for sale, at fair value
230,140
401,542
Federal Home Loan Bank stock, at cost
2,882
2,100
Loans held for investment, net of allowance
 
of $
17,487
 
and $
15,057
, respectively
1,489,851
1,175,024
Accrued interest receivable
7,546
5,975
Premises and equipment, net
5,263
5,278
Bank owned life insurance
42,781
41,720
Deferred tax asset, net
42,360
34,929
Lease right-of-use asset
14,395
14,185
Other assets
7,749
4,300
Total assets
$
2,085,834
$
1,853,939
LIABILITIES:
Deposits:
Demand
$
629,776
$
$605,425
Money market and savings accounts
915,853
703,856
Interest-bearing checking accounts
66,675
55,878
Time deposits
216,977
225,220
Total deposits
1,829,281
1,590,379
Federal Home Loan Bank advances
46,000
36,000
Lease liability
14,395
14,185
Accrued interest and other liabilities
13,730
9,478
Total liabilities
1,903,406
1,650,042
Commitments and contingencies (See Note 10
 
and 18)
(nil)
 
(nil)
 
STOCKHOLDERS' EQUITY:
Preferred stock - Class C; $
1.00
 
par value; $
1,000
 
per share liquidation preference;
52,748
 
shares
authorized;
0
 
issued and outstanding as of December 31,
 
2022 and 2021
-
-
Preferred stock - Class D; $
1.00
 
par value; $
5.00
 
per share liquidation preference;
12,309,480
 
shares
authorized;
0
 
issued and outstanding as of December 31,
 
2022 and 2021
-
-
Preferred stock - Class E; $
1.00
 
par value; $
1,000
 
per share liquidation preference;
3,185,024
 
shares
authorized;
0
 
issued and outstanding as of December 31,
 
2022 and 2021
-
-
Common stock - Class A Voting; $
1.00
 
par value;
45,000,000
 
shares authorized;
 
20,000,753
 
and
19,991,753
 
issued and outstanding as of December 31,
 
2022 and 2021
20,001
19,992
Common stock - Class B Non-voting; $
1.00
 
par value;
8,000,000
 
shares authorized;
 
0
 
issued and
outstanding as of December 31, 2022 and 2021
-
-
Additional paid-in capital on common stock
311,282
310,666
Accumulated deficit
(104,104)
(124,245)
Accumulated other comprehensive income (loss)
(44,751)
(2,516)
Total stockholders' equity
182,428
203,897
Total liabilities and stockholders' equity
$
2,085,834
$
1,853,939
The accompanying notes are an integral part of
 
these consolidated financial statements.
uscb-10K-20211231p67i0 uscb-10K-20211231p67i1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Crowe LLP
Independent Member Crowe Global
 
69
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Operations
(Dollars in thousands,
 
except per share data)
 
Years Ended December 31,
 
2022
2021
Interest income:
 
Loans, including fees
$
60,825
$
48,730
 
Investment securities
9,346
7,886
 
Interest-bearing deposits in financial institutions
929
106
 
Total interest income
71,100
56,722
Interest expense:
 
Interest-bearing deposits
86
59
 
Savings and money markets accounts
5,173
2,082
 
Time deposits
1,509
1,531
 
Federal Home Loan Bank advances
671
554
 
Total interest expense
7,439
4,226
 
Net interest income before provision for
 
credit losses
63,661
52,496
Provision for credit losses
2,495
(160)
 
Net interest income after provision for
 
credit losses
61,166
52,656
Non-interest income:
 
Service fees
4,010
3,609
 
Bank owned life insurance income
1,061
759
 
Gain (loss) on sale of securities available for
 
sale, net
(2,529)
214
 
Gain on sale of loans held for sale, net
891
1,626
 
Gain on sale of premises and equipment,
 
net
-
983
 
Loan settlement
161
2,500
 
Other non-interest income
1,634
1,007
 
Total non-interest income
5,228
10,698
Non-interest expense:
 
Salaries and employee benefits
23,943
21,438
 
Occupancy
5,058
5,257
 
Regulatory assessment and fees
930
783
 
Consulting and legal fees
1,890
1,454
 
Network and information technology services
1,806
1,466
 
Audit and tax services fees
918
975
 
Other operating
4,764
4,304
 
Total non-interest expense
39,309
35,677
 
Net income before income tax
 
expense
27,085
27,677
Income tax expense
6,944
6,600
 
Net income
20,141
21,077
Less: Preferred stock dividend
-
2,077
Less: Exchange and redemption of preferred shares
-
89,585
Net income (loss) available to common stockholders
$
20,141
$
(70,585)
Per share information:
Class A common stock
Net income (loss) per share, basic
$
1.01
$
(6.72)
Net income (loss) per share, diluted
$
1.00
$
(6.72)
(1)
 
See Note 14 "Earnings per Share" for information
 
on the allocation of income available to common
 
stockholders.
The accompanying notes are an integral part of
 
these consolidated financial statements.
uscb-10K-20211231p67i0 uscb-10K-20211231p67i1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Crowe LLP
Independent Member Crowe Global
 
70
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Comprehensive Income
 
(Loss)
(Dollars in thousands)
 
Years Ended December 31,
2022
2021
Net income
$
20,141
$
21,077
Other comprehensive income (loss):
Unrealized loss on investment securities
(59,260)
(9,561)
Amortization of net unrealized gains on securities
 
transferred from available-for-sale to held-to-maturity
120
108
Reclassification adjustment for (gain) loss included
 
in net income
2,529
(214)
Tax effect
14,376
2,370
Total other comprehensive loss, net of tax
(42,235)
(7,297)
Total comprehensive income (loss)
$
(22,094)
$
13,780
The accompanying notes are an integral part of
 
these consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
71
 
USCB Financial Holdings, Inc.
 
2022 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, 2022
-
$
-
19,991,753
$
19,992
$
310,666
$
(124,245)
$
(2,516)
$
203,897
Net income
-
-
-
-
-
20,141
-
20,141
Other comprehensive loss
-
-
-
-
-
-
(42,235)
(42,235)
Issuance of common stock - exercised options
-
-
9,000
9
93
-
-
102
Stock based compensation
-
-
-
-
523
-
-
523
Balance at December 31, 2022
-
-
20,000,753
20,001
311,282
(104,104)
(44,751)
182,428
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 $
6,048
-
-
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
The accompanying notes are an integral part of
 
these consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
72
 
USCB Financial Holdings, Inc.
 
2022 10-K
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
Years Ended December 31,
2022
2021
Cash flows from operating activities:
Net income
 
$
20,141
$
21,077
Adjustments to reconcile net income to net
 
cash provided by operating activities:
 
Provision for credit losses
 
2,495
(160)
Depreciation and amortization
688
1,033
Amortization of premiums on securities, net
433
596
Accretion of deferred loan fees, net
(1,497)
(3,754)
Stock based compensation
523
287
Loss (Gain) on sale of available for sale securities,
 
net
2,529
(214)
Gain on sale of loans held for sale
(891)
(1,626)
Gain on sale of premises and equipment, net
-
(983)
Increase in cash surrender value of bank owned
 
life insurance
(1,061)
(759)
Decrease in deferred tax asset
6,945
6,600
Net change in operating assets and liabilities:
 
Accrued interest receivable
(1,571)
(428)
Other assets
(3,449)
(2,270)
Accrued interest and other liabilities
4,252
2,652
Net cash provided by operating activities
29,537
22,051
Cash flows from investing activities:
Purchase of investment securities held to maturity
(14,739)
(57,917)
Proceeds from maturities and pay-downs of investment
 
securities held to maturity
12,237
3,736
Purchase of investment securities available for
 
sale
 
(53,113)
(258,767)
Proceeds from maturities and pay-downs of investment
 
securities available for sale
40,754
61,047
Proceeds from sales of investment securities available
 
for sale
60,649
48,940
Proceeds from call of investment securities available
 
for sale
-
3,034
Net increase in loans held for investment
(257,580)
(33,515)
Purchase of loans held for investment
(70,175)
(129,531)
Additions to premises and equipment
(673)
(633)
Proceeds from the sale of loans held for
 
sale
12,821
16,980
Proceeds from the sale of property
-
1,652
Proceeds from the redemption of Federal Home
 
Loan Bank stock
3,440
611
Purchase of Federal Home Loan Bank stock
(4,222)
-
Purchase of bank owned life insurance
-
(15,000)
Net cash used in investment activities
(270,601)
(359,363)
(Continued)
The accompanying notes are an integral part of
 
these consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
73
 
USCB Financial Holdings, Inc.
 
2022 10-K
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Cash Flows (Continued)
(Dollars in thousands)
Years Ended December 31,
2022
2021
Cash flows from financing activities:
Proceeds from issuance of Class A common stock,
 
net
102
39,826
Cash dividends paid
-
(2,077)
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
238,902
316,977
Proceeds from Federal Home Loan Bank advances
126,000
-
Repayments on Federal Home Loan Bank advances
(116,000)
-
Net cash provided by financing activities
249,004
335,806
Net increase (decrease) in cash and cash equivalents
7,940
(1,506)
Cash and cash equivalents at beginning of year
46,228
47,734
Cash and cash equivalents at end of year
$
54,168
$
46,228
Supplemental disclosure of cash flow information:
Interest paid
$
7,306
$
4,286
Supplemental schedule of non-cash investing and
 
financing activities:
Transfer of loans held for investment to loans held for
 
sale
$
11,930
$
15,354
Transfer of investment securities from available-for-sale to held-to-maturity
$
63,798
$
68,667
Transfer of premises and equipment to assets held for sale
$
-
$
652
Lease liability arising from obtaining right-of-use assets
$
3,203
$
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
 
74
 
USCB Financial Holdings, Inc.
 
2022 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
 
per share, formerly held by
its shareholders were
 
converted into and exchanged
 
for one newly
 
issued share of
 
the Company’s common stock, par
 
value
$
1.00
 
per share.
The Bank
 
owns a subsidiary,
 
Florida Peninsula
 
Title LLC,
 
that offers
 
our clients title
 
insurance policies
 
for real
 
estate
transactions closed at the Bank. Licensed in the State of Florida and approved by the Department of Insurance Regulation,
Florida Peninsula tittle LLC began operations in 2021.
 
Principles of Consolidation
Intercompany transactions
 
and balances
 
are eliminated
 
in consolidation.
 
The Consolidated
 
financial statements
 
have
been prepared in accordance with 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
 
stock
 
exchange.
 
As
 
of
December 31,
 
2022,
 
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.
 
Risk and Uncertainties
Current Banking Environment
Industry
 
events
 
transpiring
 
prior
 
to
 
the
 
Company’s
 
filing
 
date,
 
including
 
bank
 
failures,
 
have
 
led
 
to
 
uncertainty
 
and
concerns regarding
 
the liquidity
 
positions of
 
the banking
 
sector.
 
These failures
 
underscore the
 
importance of
 
maintaining
access to diverse sources of
 
funding. The Company’s deposit
 
base includes a combination
 
of consumer,
 
commercial, and
public
 
funds
 
deposits.
 
The
 
Company’s
 
largest
 
depositors
 
include
 
a
 
mixture
 
of
 
government-related
 
organizations
 
and
commercial clients without a high level of industry concentration.
In response to
 
these events,
 
the Treasury
 
Department, Federal
 
Reserve, and FDIC
 
jointly announced the
 
Bank Term
Funding
 
Program
 
(BTFP)
 
on
 
March
 
12,
 
2023.
 
This
 
program
 
aims
 
to
 
enhance
 
liquidity
 
by
 
allowing
 
institutions
 
to
 
pledge
certain securities at the
 
par value of the securities,
 
and at a borrowing
 
rate of ten basis
 
points over the one-year
 
overnight
index swap
 
rate. The
 
BTFP is
 
available to
 
eligible
 
U.S. federally
 
insured
 
depository
 
institutions,
 
with advances
 
having a
term of
 
up to
 
one year
 
and no
 
prepayment penalties.
 
As of
 
the date
 
of the
 
release of
 
the Audited
 
Consolidated Financial
Statements, the Company has not accessed the BTFP.
Market conditions and external factors may unpredictably impact the competitive landscape for deposits
 
in the banking
industry.
 
Additionally,
 
the rising interest rate environment
 
has increased competition for
 
liquidity and the premium
 
at which
liquidity is available
 
to meet
 
funding needs.
 
The Company
 
believes its
 
sources of
 
liquidity are sufficient
 
to meet
 
its needs
on the balance sheet date.
An unexpected influx
 
of withdrawals of
 
deposits could adversely
 
impact the Company's
 
ability to
 
rely on organic
 
deposits
to primarily
 
fund its
 
operations, potentially
 
requiring greater
 
reliance on
 
secondary sources
 
of liquidity
 
to meet
 
withdrawal
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
 
75
 
USCB Financial Holdings, Inc.
 
2022 10-K
demands or to fund continuing operations. These sources may include proceeds from FHLB advances, sales of
 
investment
securities and loans, federal funds lines of credit from
 
correspondent banks, and out-of-market time deposits.
 
Such reliance on secondary funding sources could increase the Company's
 
overall cost of funding and thereby reduce
net
 
income.
 
While
 
the
 
Company
 
believes
 
its
 
current
 
sources
 
of
 
liquidity
 
are
 
adequate
 
to
 
fund
 
operations,
 
there
 
is
 
no
guarantee they
 
will suffice
 
to meet
 
future
 
liquidity demands.
 
This may
 
necessitate
 
slowing
 
or discontinuing
 
loan growth,
capital expenditures, or other investments, or liquidating assets.
For further discussion of the Company's liquidity practices,
 
see page 59 and 62 of this Annual Report on Form
 
10-K.
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, 2022, 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, 2022,
 
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
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 recorded at fair value with changes in fair value
 
included in earnings.
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
 
76
 
USCB Financial Holdings, Inc.
 
2022 10-K
Purchase premiums and discounts are amortized or accreted over
 
the estimated life of the related available-for-sale or
held-to-maturity
 
security
 
as
 
an
 
adjustment
 
to
 
yield
 
using
 
the
 
effective
 
interest
 
method.
 
Prepayments
 
of
 
principal
 
are
considered in determining the estimated life of the
 
security. Such amortization and accretion are included in interest income
in the Consolidated
 
Statements of Operations.
 
Dividend and interest
 
income are recognized when
 
earned. Gains and
 
losses
on the sale of securities are recorded on trade date and are determined
 
on a specific identification basis.
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, 2022
 
and
2021,
 
FHLB
 
stock
 
amounted
 
to
 
$
2.9
 
million
 
and
 
$
2.1
 
million,
 
respectively,
 
with
 
no
 
impairment
 
deemed
 
necessary.
 
Both
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.
 
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)
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
 
77
 
USCB Financial Holdings, Inc.
 
2022 10-K
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 portfolio
 
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.
 
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
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
 
78
 
USCB Financial Holdings, Inc.
 
2022 10-K
 
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
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
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
 
79
 
USCB Financial Holdings, Inc.
 
2022 10-K
the South Florida real estate industry
 
or the South Florida economy, in general, could adversely impact the
 
Company's loan
portfolio.
At December 31,
 
2022 and
 
2021, the
 
Company had
 
a concentration
 
of risk
 
with loans
 
outstanding to
 
the Company’s
top ten lending relationships
 
totaling $
197.9
 
million and $
156.4
 
million, respectively.
 
At December 31, 2022 and
 
2021, this
concentration represented
13.1
%, of
 
the net
 
loans outstanding.
 
For the
 
period ended
 
December 31,
 
2022 there
 
was
one
commercial real estate loan note with an outstanding balance of $
20
 
million collateralized by a 1
st
 
lien commercial property
located in New York
 
State.
 
At December 31,
 
2022, the
 
Company also
 
had a
 
concentration of
 
risk with
 
loans outstanding
 
totaling $
88.8
 
million to
foreign banks located
 
in Ecuador,
 
Dominican Republic, Honduras,
 
and El Salvador.
 
At December 31, 2021,
 
the Company
also had a concentration of risk
 
with loans outstanding totaling $
47.9
 
million to foreign banks located in
 
Ecuador, Honduras,
and
 
El
 
Salvador.
 
These
 
banks
 
maintained
 
deposits
 
with
 
right
 
of
 
offset
 
totaling
 
$
31.4
 
million
 
and
 
$
28.9
 
million
 
at
December 31, 2022 and 2021, 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
 
years
Furniture, fixtures and equipment
 
3
 
to
25
 
years
Computer hardware and software
 
3
 
to
5
 
years
Leasehold improvements
 
Shorter of life or term of lease
Maintenance
 
and
 
repairs
 
are
 
charged
 
to
 
expense
 
as
 
incurred
 
while
 
improvements
 
and
 
betterments
 
are
 
capitalized.
When items are retired or are
 
otherwise disposed of, the related costs
 
and accumulated depreciation and
 
amortization are
removed from the accounts and any resulting gains or losses
 
are credited or charged to income.
Other Real Estate Owned
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, 2022, the Company maintained BOLI policies with
 
five insurance carriers with a combined cash surrender
value
 
of
 
$
42.8
 
million.
 
These
 
policies
 
cover
 
certain
 
present
 
and
 
former
 
executives
 
and
 
officers,
 
the
 
Company
 
is
 
the
beneficiary of these policies.
Employee 401(k) Plan
The
 
Company
 
has
 
an
 
employee
 
401(k)
 
plan
 
covering
 
substantially
 
all
 
eligible
 
employees.
 
Employee
 
401(k)
 
plan
expense is the amount of matching contributions.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
 
80
 
USCB Financial Holdings, Inc.
 
2022 10-K
Income Taxes
Income taxes are accounted for under the
 
asset and liability method. Deferred tax
 
assets and liabilities are recognized
for
 
the future
 
tax consequences
 
attributable
 
to differences
 
between the
 
financial
 
statement
 
carrying
 
amounts
 
of
 
existing
assets and
 
liabilities and
 
their respective
 
tax bases
 
and operating
 
loss and
 
tax credit
 
carryforwards. Deferred
 
tax assets
and
 
liabilities
 
are
 
measured
 
using
 
enacted
 
tax
 
rates
 
expected
 
to
 
apply
 
to
 
taxable
 
income
 
in
 
the
 
years
 
in
 
which
 
those
temporary differences are expected to be recovered
 
or settled. The effect on deferred tax assets and
 
liabilities of a change
in tax rates is recognized in income in the period that includes
 
the enactment date.
 
Management is required to
 
assess whether a valuation
 
allowance should be established
 
on the net deferred tax
 
asset
based on the
 
consideration of
 
all available evidence
 
using a more
 
likely than not
 
standard. In its
 
evaluation, Management
considers taxable loss
 
carry-back availability, expectation of sufficient taxable
 
income, trends in
 
earnings, the future
 
reversal
of temporary differences, and available tax planning
 
strategies.
 
The Company recognizes positions taken
 
or expected to be
 
taken in a tax
 
return in accordance with existing accounting
guidance on
 
income taxes
 
which prescribes
 
a recognition threshold
 
and measurement
 
process. Interest
 
and penalties on
tax liabilities, if any,
 
would be recorded in interest expense and other operating
 
noninterest expense, respectively.
Impairment of Long-Lived Assets
The Company's long-lived
 
assets, such as premises
 
and equipment, are reviewed
 
for impairment whenever
 
events or
changes in circumstances
 
indicate that
 
the carrying
 
amount of
 
an asset may
 
not be recoverable.
 
Recoverability of
 
assets
to be held and
 
used is measured by a
 
comparison of the carrying amount of
 
an asset to estimated undiscounted future
 
cash
flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge
 
is recognized
 
by the
 
amount by
 
which the
 
carrying amount
 
of the
 
asset exceeds
 
the fair
 
value of
 
the
asset. Assets
 
to be
 
disposed of
 
would be
 
separately
 
presented in
 
the Consolidated
 
Balance Sheets
 
and reported
 
at the
lower of
 
the carrying
 
amount or
 
fair value
 
less costs
 
to sell
 
and are
 
no longer
 
depreciated. The
 
assets and
 
liabilities of
 
a
disposal group classified as held for
 
sale would be presented separately in
 
the appropriate asset and liability sections of
 
the
Consolidated Balance Sheets.
 
Transfer of Financial
 
Assets
Transfers
 
of financial assets
 
are accounted for
 
as sales,
 
when control over
 
the assets
 
has been surrendered.
 
Control
over
 
transferred
 
assets
 
is
 
deemed
 
to
 
be
 
surrendered
 
when
 
(i)
 
the
 
assets
 
have
 
been
 
isolated
 
from
 
the
 
Company
 
-
 
put
presumptively
 
beyond
 
the
 
reach
 
of
 
the
 
transferor
 
and
 
its
 
creditors,
 
even
 
in
 
bankruptcy
 
or
 
other
 
receivership,
 
(ii)
 
the
transferee obtains
 
the right
 
(free of
 
conditions that
 
constrain it
 
from taking
 
advantage of
 
that right)
 
to pledge
 
or exchange
the transferred
 
assets,
 
and
 
(iii) the
 
Company
 
does not
 
maintain
 
effective
 
control
 
over the
 
transferred
 
assets
 
through
 
an
agreement to repurchase them before their maturity or
 
the ability to unilaterally cause the holder to return specific
 
assets.
Comprehensive Income (Loss)
Under
 
GAAP,
 
certain
 
changes
 
in
 
assets
 
and
 
liabilities,
 
such
 
as
 
unrealized
 
holding
 
gains
 
and
 
losses
 
on
 
securities
available-for-sale, are
 
excluded from
 
current period
 
earnings and
 
reported as
 
a separate
 
component of
 
the stockholders’
equity
 
section
 
of
 
the
 
Consolidated
 
Balance
 
Sheets,
 
such
 
items,
 
along
 
with
 
net
 
income
 
(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
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
 
81
 
USCB Financial Holdings, Inc.
 
2022 10-K
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 recognized
 
on
 
a straight-line
 
basis over
 
the
 
requisite service
 
period for
 
the
 
entire award.
 
A Black-
Scholes model is used to estimate the fair value of stock
 
options.
Loss Contingencies
Loss
 
contingencies,
 
including
 
claims
 
and
 
legal
 
actions
 
arising
 
in
 
the
 
normal
 
course
 
of
 
business,
 
are
 
recorded
 
as
liabilities when the
 
likelihood of loss is
 
probable, and an
 
amount or range of
 
loss can be
 
reasonably estimated. In the
 
opinion
of management, none of these actions, either individually or in the aggregate, is expected to have a material adverse effect
on the Company’s Consolidated Financial Statements.
 
See Note 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 non-interest income.
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
 
82
 
USCB Financial Holdings, Inc.
 
2022 10-K
Revenue from Contracts with Customers
Revenue from contracts
 
with customers is
 
recognized in an
 
amount that
 
reflects the consideration
 
the Company expects
to receive for the
 
services the Company
 
provides to its
 
customers. The main
 
revenue earned by
 
the Company from
 
loans
and investment
 
securities are
 
excluded from
 
the accounting
 
standard update
 
“Revenue from
 
Contracts with
 
Customers”.
 
Deposit and
 
service charge
 
fees, consisting
 
of primarily monthly
 
maintenance fees,
 
wire fees,
 
ATM
 
interchange fees
 
and
other transaction-based fees, are the
 
most significant types of revenue
 
within the accounting standard update.
 
Revenue is
recognized when the service provided by the
 
Company is complete. The aggregate amount
 
of revenue within the scope of
this standard that is received from sources other than deposit
 
service charges and fees is not material.
 
Cash Flow Statement
The Company reports the net activity rather than gross activity in
 
the Consolidated Statements
 
of Cash Flows. The net
cash flows
 
are reported for
 
loans held
 
for investment, accrued
 
interest receivable, deferred
 
tax 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. The Company adopted this
 
ASU on January 1, 2023. To date, the Company executed a
 
detailed implementation plan
through the adoption date, implemented a
 
software solution to assist with the
 
CECL estimation process, and has completed
parallel run models, and finished a data gap analysis.
The company expects its allowance for credit losses to
 
increase in 2023 approximately $
1.0
 
million to $
2.0
 
million upon
adoption
 
of
 
ASU
 
2016-13
 
compared
 
to
 
its
 
allowance
 
for
 
loan
 
losses
 
at
 
December
 
31,
 
2022.
 
Reserve
 
on
 
unfunded
commitments will
 
also increase
 
approximately $
200
 
thousand to
 
$
600
 
thousand and
 
it will
 
be recognized
 
as a
 
liability on
the
 
Consolidated
 
Balance
 
Sheet.
 
The
 
Company
 
reviewed
 
it’s
 
held-to-maturity
 
debt
 
securities
 
and
 
the
 
allowance
 
was
deemed immaterial. The Company will
 
initially apply the impact of
 
the new guidance through
 
a cumulative-effect adjustment
to retained
 
earnings
 
as
 
of
 
January
 
1,
 
2023. Future
 
adjustments
 
to credit
 
loss
 
expectations
 
will be
 
recorded
 
through
 
the
income statement as charges or credits to earnings.
The disclosed estimates are subject to further refinement upon finalization of the Company’s review of the calculations,
assumptions, methodologies and judgments. Internal controls over financial reporting relating
 
to these new processes have
been designed
 
and
 
implemented
 
and are
 
being evaluated.
 
The
 
Company
 
is
 
in
 
the final
 
stages
 
of
 
completing
 
the formal
governance
 
and
 
approval
 
process.
 
The
 
ongoing
 
impact
 
to
 
the
 
Company’s
 
results
 
of
 
operations
 
in
 
future
 
periods
 
will
 
be
influenced
 
by
 
the
 
loan
 
portfolio
 
composition
 
and
 
by
 
macroeconomic
 
conditions
 
and
 
forecasts
 
at
 
each
 
reporting
 
date.
Adoption of
 
the standard
 
on the
 
first quarter
 
of 2023
 
is expected
 
to result
 
in higher
 
volatility in
 
the quarterly
 
provision for
credit losses when compared to the Company’s
 
historical results under the incurred loss model.
Troubled Debt Restructurings and
 
Vintage Disclosures
In
 
March
 
2022,
 
the
 
FASB
 
issued
 
ASU
 
2022-02,
 
Financial
 
Instruments
 
 
Credit
 
Losses
 
(Topic
 
326):
 
Troubled
 
Debt
Restructurings
 
and
 
Vintage
 
Disclosures.
 
This
 
accounting
 
standard
 
eliminates
 
the
 
accounting
 
guidance
 
for
 
troubled
 
debt
restructurings
 
by
 
creditors
 
in
 
ASC
 
310-40,
 
and
 
it
 
enhances
 
disclosure
 
requirements
 
for
 
some
 
loan
 
refinancings
 
and
restructurings
 
involving
 
borrowers
 
experiencing
 
financial
 
difficulty.
 
Specifically,
 
rather
 
than
 
applying
 
the
 
troubled
 
debt
restructuring recognition and measurement guidance,
 
creditors will evaluate all
 
loan modifications to determine if
 
they result
in
 
a
 
new
 
loan
 
or
 
a
 
continuation
 
of
 
the
 
existing
 
loan.
 
Losses
 
associated
 
with
 
troubled
 
debt
 
restructurings
 
should
 
be
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
 
83
 
USCB Financial Holdings, Inc.
 
2022 10-K
incorporated in a
 
creditor’s estimate of
 
its allowance for
 
credit losses. Additionally,
 
public business entities
 
are required to
disclose current-period gross write-offs
 
by year of origination for loan financing receivables and net investment
 
in leases.
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,
2024. 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, 2022
Available-for-sale:
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
U.S. Government Agency
$
10,177
$
-
$
(1,522)
$
8,655
Collateralized mortgage obligations
118,951
-
(23,410)
95,541
Mortgage-backed securities - Residential
73,838
-
(12,959)
60,879
Mortgage-backed securities - Commercial
32,244
15
(4,305)
27,954
Municipal securities
25,084
-
(6,601)
18,483
Bank subordinated debt securities
15,964
5
(1,050)
14,919
Corporate bonds
4,037
-
(328)
3,709
$
280,295
$
20
$
(50,175)
$
230,140
Held-to-maturity:
U.S. Government Agency
$
44,914
$
25
$
(5,877)
$
39,062
U.S. Treasury
9,841
-
(13)
9,828
Collateralized mortgage obligations
68,727
28
(7,830)
60,925
Mortgage-backed securities - Residential
42,685
372
(4,574)
38,483
Mortgage-backed securities - Commercial
11,442
-
(665)
10,777
Corporate bonds
11,090
-
(1,077)
10,013
$
188,699
$
425
$
(20,036)
$
169,088
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
 
84
 
USCB Financial Holdings, Inc.
 
2022 10-K
December 31, 2021
Available-for-sale:
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
U.S. Government Agency
$
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
$
34,505
$
14
$
(615)
$
33,904
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
For the year
 
ended December 31,
 
2022, there
 
were
26
 
investment securities
 
that were transferred
 
from available-for-
sale
 
(“AFS”)
 
to
 
held-to-maturity
 
(“HTM”)
 
with
 
an
 
amortized
 
cost
 
basis
 
and
 
fair
 
value
 
amount
 
of
 
$
74.4
 
million
 
and
$
63.8
 
million, respectively.
 
On the
 
date of
 
transfer,
 
these securities
 
had a
 
total net
 
unrealized loss
 
of $
10.6
 
million which
was included in accumulated other comprehensive income
 
(loss).
 
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. For
the year
 
ended December 31,
 
2022, total
 
amortization out
 
of AOCI
 
for the
 
net unrealized
 
losses on
 
securities transferred
from AFS to HTM was $
120
 
thousand and $
108
 
thousand for year ended December 31, 2021.
 
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, 2022 and
 
2021 (in thousands):
Available-for-sale:
2022
2021
Proceeds from sales and call of securities
$
60,649
$
51,974
Gross Gains
$
217
$
545
Gross Losses
(2,746)
(331)
Net realized gains (losses)
$
(2,529)
$
214
The
 
amortized
 
cost
 
and
 
fair
 
value
 
of
 
investment
 
securities,
 
by
 
contractual
 
maturity,
 
are
 
shown
 
below
 
for
 
the
 
date
indicated (in thousands).
 
Actual maturities may differ
 
from contractual maturities
 
because borrowers may have
 
the right to
call or prepay
 
obligations with or without
 
call or prepayment penalties.
 
Securities not due
 
at a single
 
maturity date are
 
shown
separately.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
 
85
 
USCB Financial Holdings, Inc.
 
2022 10-K
Available-for-sale
Held-to-maturity
December 31, 2022:
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
Due within one year
$
-
$
-
$
1,515
$
1,475
Due after one year through five years
4,037
3,709
9,575
8,539
Due after five years through ten years
16,964
15,722
-
-
Due after ten years
24,084
17,680
-
-
U.S. Government Agency
10,177
8,655
44,914
39,061
U.S. Treasury
-
-
9,841
9,828
Collateralized mortgage obligations
118,951
95,541
68,727
60,925
Mortgage-backed securities - Residential
 
73,838
60,879
42,685
38,483
Mortgage-backed securities - Commercial
 
32,244
27,954
11,442
10,777
$
280,295
$
230,140
$
188,699
$
169,088
At December 31,
 
2022 and
 
2021, 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,
 
2022
 
and
2021.
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, 2022
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
$
11,407
(1,093)
36,310
(7,616)
$
47,717
$
(8,709)
U.S. Treasury
9,828
(13)
-
-
9,828
$
(13)
Collateralized mortgage obligations
16,500
(963)
139,965
(34,962)
156,465
$
(35,925)
Mortgage-backed securities -
Residential
5,059
(564)
91,742
(19,348)
96,801
$
(19,912)
Mortgage-backed securities -
Commercial
10,052
(1,173)
26,823
(5,300)
36,875
$
(6,473)
Municipal securities
 
-
-
18,483
(6,601)
18,483
$
(6,601)
Bank subordinated debt securities
11,295
(670)
2,619
(381)
13,914
$
(1,051)
Corporate bonds
13,723
(926)
-
-
13,723
$
(926)
$
77,864
$
(5,402)
$
315,942
$
(74,208)
$
393,806
$
(79,610)
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
$
25,951
$
(254)
$
15,477
$
(516)
$
41,428
$
(770)
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)
The unrealized losses
 
associated with $
134.7
 
million of investment
 
securities transferred from
 
the AFS portfolio to the
HTM portfolio represent unrealized
 
losses since the date of
 
purchase, independent of the
 
impact associated with changes
in the cost basis upon transfer between portfolios.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
 
86
 
USCB Financial Holdings, Inc.
 
2022 10-K
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.
At
 
December
 
31,
 
2022,
 
the
 
Company
 
had
 
$
53.7
 
million
 
of
 
unrealized
 
losses
 
on
 
mortgage
 
backed
 
securities
 
and
collateralized
 
mortgage
 
obligations
 
of
 
government
 
sponsored
 
entities
 
having
 
a
 
fair
 
value
 
of
 
$
294.6
 
million
 
that
 
were
attributable
 
to
 
a
 
combination
 
of
 
factors,
 
including
 
relative
 
changes
 
in
 
interest
 
rates
 
since
 
the
 
time
 
of
 
purchase.
 
The
contractual cash flows
 
for these securities
 
are guaranteed by
 
U.S. government agencies
 
and U.S. government
 
sponsored
entities. The municipal bonds are of high credit
 
quality and the declines in fair value are not
 
due to credit quality.
 
Based on
the assessment of
 
these mitigating factors, management
 
believes that the
 
unrealized losses on these
 
debt security holdings
are a
 
function of
 
changes in
 
investment spreads
 
and interest
 
rate movements and
 
not changes
 
in credit
 
quality. Management
expects to recover the entire amortized cost basis of these securities.
At December 31, 2022, the
 
Company does not intend to
 
sell debt securities that are
 
in an unrealized loss position
 
and
it is not more than likely than not that the Company will be required to sell
 
these securities before recovery of the amortized
cost basis. Therefore,
 
management does
 
not consider any
 
investment to be
 
other than temporarily
 
impaired at December
31, 2022.
As of December 31, 2022, the Company maintains a master repurchase agreement with a public banking institution for
up
 
to
 
$
20.0
 
million
 
fully
 
guaranteed
 
with
 
investment
 
securities
 
upon
 
withdrawal.
 
Any
 
amounts
 
borrowed
 
would
 
be
 
at
 
a
variable interest rate
 
based on prevailing
 
rates at the
 
time funding is
 
requested. At
 
December 31, 2022, the
 
Company did
no
t 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
 
average outstanding uninsured
 
deposits.
The Company must also maintain a minimum
 
amount of pledged securities to be in the program.
At December 31, 2022,
 
the Company had
eighteen
 
securities with a
 
fair value of
 
$
49.0
 
million pledged to
 
the State of
Florida under the public funds program. The Company
 
held a total of $
204.2
 
million in public funds at December 31, 2022.
At December
 
31, 2021,
 
the Company
 
had
eleven
 
securities
 
with a
 
fair value
 
of $
20.4
 
million pledged
 
to the
 
State of
Florida under the public funds program. The Company
 
held a total of $
37.3
 
million in public funds at December 31, 2021.
3.
 
LOANS
The following table is a summary of the distribution of
 
loans held for investment by type (in thousands):
 
December 31, 2022
December 31, 2021
Total
Percent of
Total
Total
Percent of
Total
Residential Real Estate
$
185,636
12.3
%
$
201,359
16.9
%
Commercial Real Estate
970,410
64.4
%
704,988
59.2
%
Commercial and Industrial
126,984
8.4
%
146,592
12.3
%
Foreign Banks
93,769
6.2
%
59,491
5.0
%
Consumer and Other
 
130,429
8.7
%
79,229
6.6
%
Total
 
gross loans
1,507,228
100.0
%
1,191,659
100.0
%
Less: Unearned income
(110)
1,578
Total
 
loans net of unearned income
1,507,338
1,190,081
Less: Allowance for credit losses
17,487
15,057
Total
 
net loans
$
1,489,851
 
$
1,175,024
At December 31, 2022 and 2021, the Company had $
338.1
 
million and $
185.1
 
million, respectively,
 
of commercial real
estate and residential mortgage loans pledged as collateral on lines of credit with the FHLB and the
 
Federal Reserve Bank
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
 
87
 
USCB Financial Holdings, Inc.
 
2022 10-K
of Atlanta.
 
At December 31,
 
2022 and 2021
 
the Company
 
had
no
 
loans and one
 
loan for
 
$
1.2
 
million, respectively,
 
in the
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
 
$
1.3
 
million at December 31,
2022 and $
42.4
 
million at December 31, 2021, which are categorized as commercial
 
and industrial loans. These PPP loans
had deferred loan fees of $
13
 
thousand at December 31, 2022 and $
1.5
 
million at December 31, 2021.
The
 
Company
 
recognized
 
$
1.6
 
million
 
and
 
$
4.5
 
million
 
in
 
PPP
 
loan
 
fees
 
and
 
interest
 
income
 
for
 
the
 
years
 
ended
December 31,
 
2022
 
and
 
2021,
 
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.
Changes
 
in
 
the
 
allowance
 
for
 
credit
 
losses
 
for
 
the
 
years
 
ended
 
December 31,
 
2022
 
and
 
2021
 
are
 
as
 
follows
 
(in
thousands):
 
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Foreign
Banks
Consumer
and Other
Total
December 31, 2022:
Beginning balance
$
2,498
$
8,758
$
2,775
$
457
$
569
$
15,057
Provision for credit losses
(1,179)
1,385
1,474
263
552
2,495
Recoveries
33
-
18
-
4
55
Charge-offs
-
-
(104)
-
(16)
(120)
Ending Balance
 
$
1,352
$
10,143
$
4,163
$
720
$
1,109
$
17,487
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
 
88
 
USCB Financial Holdings, Inc.
 
2022 10-K
Allowance for credit losses and the outstanding balances in
 
loans as of December 31, 2022 and 2021 are as
 
follows (in
thousands):
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Foreign
Banks
Consumer
and Other
Total
December 31, 2022:
Allowance for credit losses:
Individually evaluated for impairment
$
155
$
-
$
41
$
-
$
98
$
294
Collectively evaluated for impairment
1,197
10,143
4,122
720
1,011
17,193
Balances, end of period
$
1,352
$
10,143
$
4,163
$
720
$
1,109
$
17,487
Loans:
Individually evaluated for impairment
$
7,206
$
393
$
82
$
-
$
196
$
7,877
Collectively evaluated for impairment
178,430
970,017
126,902
93,769
130,233
1,499,351
Balances, end of period
$
185,636
$
970,410
$
126,984
$
93,769
$
130,429
$
1,507,228
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
 
89
 
USCB Financial Holdings, Inc.
 
2022 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
 
– Loans classified as special mention have a potential weakness
 
that deserves management’s
close attention. If left uncorrected, these potential weaknesses
 
may result in deterioration of the repayment
prospects for the loan or of the institution’s
 
credit position at some future date.
 
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
 
– Loans classified as doubtful have all the weaknesses
 
inherent in those classified at substandard, with
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, 2022
Pass
Special
Mention
Substandard
Doubtful
Total Loans
Residential real estate:
Home equity line of credit ("HELOC") and other
$
623
$
-
$
-
$
-
$
623
1-4 family residential
132,178
-
-
-
132,178
Condo residential
52,835
-
-
-
52,835
185,636
-
-
-
185,636
Commercial real estate:
Land and construction
38,687
-
-
-
38,687
Multi family residential
176,820
-
-
-
176,820
Condo commercial
49,601
-
393
-
49,994
Commercial property
702,357
-
2,552
-
704,909
Leasehold improvements
-
-
-
-
-
967,465
-
2,945
-
970,410
Commercial and industrial:
(1)
Secured
120,873
-
807
-
121,680
Unsecured
5,304
-
-
-
5,304
126,177
-
807
-
126,984
Foreign banks
93,769
-
-
-
93,769
Consumer and other loans
130,233
-
196
-
130,429
Total
$
1,503,280
$
-
$
3,948
$
-
$
1,507,228
(1)
 
All outstanding PPP loans were internally graded
 
pass.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
 
90
 
USCB Financial Holdings, Inc.
 
2022 10-K
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
 
91
 
USCB Financial Holdings, Inc.
 
2022 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, 2022 and
2021 (in thousands):
Accruing
As of December 31, 2022:
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
$
623
$
-
$
-
$
623
$
-
$
623
1-4 family residential
131,120
1,058
-
132,178
-
132,178
Condo residential
50,310
2,525
-
52,835
-
52,835
182,053
3,583
-
185,636
-
185,636
Commercial real estate:
Land and construction
38,687
-
-
38,687
-
38,687
Multi family residential
176,820
-
-
176,820
-
176,820
Condo commercial
49,994
-
-
49,994
-
49,994
Commercial property
704,884
25
-
704,909
-
704,909
Leasehold improvements
-
-
-
-
-
-
970,385
25
-
970,410
-
970,410
Commercial and industrial:
Secured
121,649
31
-
121,680
-
121,680
Unsecured
4,332
972
-
5,304
-
5,304
125,981
1,003
-
126,984
-
126,984
Foreign banks
93,769
-
-
93,769
-
93,769
Consumer and other
130,169
260
-
130,429
-
130,429
Total
$
1,502,357
$
4,871
$
-
$
1,507,228
$
-
$
1,507,228
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
 
92
 
USCB Financial Holdings, Inc.
 
2022 10-K
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
There was
no
 
interest income recognized attributable to
 
nonaccrual loans outstanding at
 
December 31, 2022 and 2021.
Interest
 
income
 
on
 
these
 
loans
 
for
 
the
 
years
 
ended
 
December 31,
 
2022
 
and
 
2021,
 
would
 
have
 
been
 
approximately
$
0
 
thousand and $
5
 
thousand, respectively,
 
had these loans performed in accordance with their
 
original terms.
 
There were no loans over 90 days past due and accruing
 
as of December 31, 2022 and 2021.
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, 2022
December 31, 2021
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
$
3,551
$
3,544
$
-
$
5,021
$
5,035
$
-
Commercial real estate
393
393
-
696
695
-
3,944
3,937
-
5,717
5,730
-
Impaired Loans with Specific Allowance:
Residential real estate
3,655
3,626
155
3,985
3,950
178
Commercial and industrial
82
82
41
141
141
71
Consumer and other
196
196
98
224
224
111
3,933
3,904
294
4,350
4,315
360
Total
$
7,877
$
7,841
$
294
$
10,067
$
10,045
$
360
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
 
93
 
USCB Financial Holdings, Inc.
 
2022 10-K
The following table presents the
 
average recorded investment balance on impaired
 
loans as of December 31, 2022
 
and
2021 (in thousands):
2022
2021
Residential real estate
$
7,626
$
8,791
Commercial real estate
575
714
Commercial and industrial
109
178
Consumer and other
210
254
Total
$
8,520
$
9,937
Interest income
 
recognized on
 
impaired loans
 
for the
 
years ended
 
December 31, 2022
 
and 2021
 
was $
351
 
thousand
and $
415
 
thousand, respectively.
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, 2022
December 31, 2021
Accrual Status
Non-Accrual
Status
Total TDRs
Accrual Status
Non-Accrual
Status
Total TDRs
Residential real estate
$
7,206
$
-
$
7,206
$
7,815
$
-
$
7,815
Commercial real estate
393
-
393
696
-
696
Commercial and industrial
82
-
82
141
-
141
Consumer and other
 
196
-
196
224
-
224
Total
$
7,877
$
-
$
7,877
$
8,876
$
-
$
8,876
The Company had
 
allocated $
294
 
thousand and $
360
 
thousand of specific
 
allowance for TDR
 
loans at December
 
31,
2022 and 2021,
 
respectively. Charge-offs on TDR loans for
 
the years
 
ended December 31, 2022
 
and 2021 was
 
$
0
 
thousand
and $
18
 
thousand, respectively.
 
There was
no
 
commitment to lend additional funds to these TDR
 
customers.
The Company
 
did
no
t have
 
any new
 
TDR
 
loans, loan
 
modifications,
no
r defaults
 
for the
 
years ended
 
December 31,
2022 and December 31, 2021.
During the year
 
ended December 31, 2022
 
and 2021, the
 
Company did
no
t modify
 
any new loans
 
to borrowers impacted
by COVID-19. At December 31, 2022, there was
no
 
loan past due that was modified in 2021.
 
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, 2022, the
 
Company leased nine
 
of the ten
 
banking centers and
 
the headquarter building.
The Company
 
is obligated
 
under non-cancelable
 
operating leases
 
for these
 
premises
 
with expiration
 
dates ranging
 
from
2026 to 2036, many of these leases have extension
 
clauses which the Company could exercise which
 
would extend these
dates.
 
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 Comp
 
any’s Consolidated
 
Balance Sheets,
 
ROU assets
 
are reported
 
under
other assets while lease liabilities are classified under
 
accrued interest and other liabilities.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
 
94
 
USCB Financial Holdings, Inc.
 
2022 10-K
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, 2022 and 2021 (in thousands):
2022
2021
ROU assets:
Operating leases
 
$
14,395
$
14,185
Lease liabilities:
Operating leases
 
$
14,395
$
14,185
The weighted average remaining lease term and weighted average
 
discount rate as of December 31, 2022 and 2021:
2022
2021
Weighted average remaining lease term (in years):
Operating leases
6.98
8.28
Weighted average discount rate:
Operating leases
 
2.94
%
2.32
%
Future lease payment obligations and a reconciliation to lease
 
liability as of December 31, 2022 (in thousands):
2023
$
3,158
2024
3,236
2025
3,312
2026
2,383
2027
951
Thereafter
3,478
Total
 
future minimum lease payments
16,518
Less: interest component
(2,123)
Total
 
lease liability
$
14,395
5.
 
PREMISES AND EQUIPMENT
 
A summary of premises and equipment are presented
 
below as of December 31, 2022 and 2021 (in thousands):
2022
2021
Land
$
972
$
972
Building
1,952
1,947
Furniture, fixtures and equipment
8,841
8,726
Computer hardware and software
4,575
4,552
Leasehold improvements
10,451
9,921
Premises and equipment, gross
26,791
26,118
Accumulated depreciation and amortization
(21,528)
(20,840)
Premises and equipment, net
$
5,263
$
5,278
Depreciation and
 
amortization expense
 
was $
688
 
thousand and
 
$
1.0
 
million for
 
the years
 
ended December 31,
 
2022
and 2021, respectively.
 
During 2021, the Company
 
eliminated $
0.6
 
million in assets
 
due to the sale of
 
one banking center
and relocation
 
of another
 
banking center.
 
The depreciation
 
on these
 
assets
 
was $
0.6
 
million
 
with the
 
remaining
 
amount
recognized as an immaterial loss.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
 
95
 
USCB Financial Holdings, Inc.
 
2022 10-K
6.
 
INCOME TAXES
 
The Company’s provision
 
for income taxes is
 
presented in the following
 
table for the years
 
ended December 31, 2022
and 2021 (in thousands):
2022
2021
Current:
Federal
$
-
$
-
State
-
$
-
Total
 
current
-
$
-
Deferred:
Federal
5,462
$
5,314
State
1,482
$
1,286
Total
 
deferred
6,944
$
6,600
Total
 
tax expense
$
6,944
$
6,600
The actual income tax
 
expense for the years
 
ended December 31, 2022 and
 
2021 differs from the
 
statutory tax expense
for the year (computed by applying the
 
U.S. federal corporate tax rate of
21
% for 2022 and 2021 to
 
income before provision
for income taxes) as follows (in thousands):
2022
2021
Federal taxes at statutory rate
$
5,688
$
5,812
State income taxes, net of federal tax benefit
1,177
$
969
Bank owned life insurance
(269)
$
(186)
Other, net
348
$
5
Total
 
tax expense
$
6,944
$
6,600
The
 
following table presents
 
the deferred tax assets
 
and deferred tax liabilities
 
as of December 31, 2022
 
and 2021 (in
thousands):
2022
2021
Deferred tax assets:
Net operating loss
$
21,720
$
28,819
Allowance for credit losses
4,432
3,816
Lease liability
3,648
3,595
Unrealized loss on available for sale securities
15,193
817
Deferred loan fees
-
400
Depreciable property
158
361
Stock option compensation
373
241
Accruals
723
600
Other, net
-
2
Deferred tax asset
$
46,247
$
38,651
Deferred tax liability:
Deferred loan cost
(28)
-
Lease right of use asset
(3,648)
(3,595)
Deferred expenses
(175)
(127)
Other, net
(36)
-
Deferred tax liability
$
(3,887)
$
(3,722)
Net deferred tax asset
$
42,360
$
34,929
At
 
December
 
31,
 
2022
 
the
 
Company
 
had
 
approximately
 
$
81.8
 
million
 
of
 
Federal
 
and
 
$
104.5
 
million
 
of
 
State
 
net
operating
 
loss
 
carryforwards
 
expiring
 
in
 
various
 
amounts
 
from
 
2031 to
 
2036.
 
Their
 
utilization
 
is limited
 
to
 
future
 
taxable
earnings of the Company.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
 
96
 
USCB Financial Holdings, Inc.
 
2022 10-K
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 2019.
For
 
the
 
years ended
 
December 31,
 
2022 and
 
2021,
 
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
 
interest or
 
penalties
 
were
recorded as a result of tax uncertainties.
7.
 
DEPOSITS
The following table presents deposits by type at December
 
31, 2022 and 2021 (in thousands):
2022
2021
Non-interest bearing deposits
$
629,776
$
605,425
Interest-bearing transaction accounts
66,675
55,878
Saving and money market deposits
915,853
703,856
Time deposits
216,977
225,220
Total
 
deposits
$
1,829,281
$
1,590,379
Time
 
deposits
 
exceeding
 
the
 
FDIC
 
deposit
 
insurance
 
limit
 
of
 
$250
 
thousand
 
at
 
December 31,
 
2022
 
and
 
2021
 
were
$
82.0
 
million and $
119.4
 
million, respectively.
 
At December 31, 2022, the scheduled maturities of time deposits
 
were (in thousands):
2023
$
182,647
2024
11,135
2025
1,998
2026
20,402
2027
549
Thereafter
246
$
216,977
At December
 
31, 2022
 
and 2021,
 
the aggregate
 
amount of
 
demand deposits
 
reclassified to
 
loans as
 
overdrafts
 
was
$
230
 
thousand and $
247
 
thousand, respectively.
8.
 
BORROWINGS
 
Borrowed
 
funds
 
consist
 
of
 
fixed
 
rate
 
advances
 
from
 
the
 
FHLB.
 
At
 
December 31,
 
2022
 
FHLB
 
advances
 
were
 
$
46.0
million and at December 31, 2021 were $
36
 
million.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
 
97
 
USCB Financial Holdings, Inc.
 
2022 10-K
The following
 
table presents
 
the fixed
 
interest rates
 
and expected
 
maturities of
 
the FHLB
 
advances at
 
December 31,
2022 and 2021 (in thousands):
At December 31, 2022
Interest Rate
Type of Rate
Maturity Date
Amount
2.05
%
Fixed
March 27, 2025
$
10,000
1.07
%
Fixed
July 18, 2025
6,000
1.04
%
Fixed
July 30, 2024
5,000
0.81
%
Fixed
August 17, 2023
5,000
4.17
%
Fixed
January 13, 2023
20,000
$
46,000
At December 31, 2021
Interest Rate
Type of Rate
Maturity Date
Amount
0.81
%
Fixed
August 17, 2023
$
5,000
1.04
%
Fixed
July 30, 2024
5,000
2.05
%
Fixed
March 27, 2025
10,000
1.91
%
Fixed
March 28, 2025
5,000
1.81
%
Fixed
April 17, 2025
5,000
1.07
%
Fixed
July 18, 2025
6,000
$
36,000
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 $
313
 
thousand and $
296
 
thousand of Company contributions to the Plan during the years ended December 31,
2022 and
 
2021,
 
respectively,
 
and
 
are included
 
under
 
salaries and
 
employee
 
benefits in
 
the Consolidated
 
Statements
 
of
Operations.
Stock-Based Compensation
Stock
 
option balances,
 
weighted average
 
exercise
 
price,
 
and
 
weighted average
 
fair value
 
of options
 
granted
 
for the
year ended
 
December 31,
 
2021 were
 
adjusted to
 
reflect the
1 for 5
 
reverse stock
 
split on
 
Class A
 
common stock.
 
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
 
shares of
 
common
 
stock. The
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
 
years from the grant date. The 2015 Option Plan has a
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
 
shares of common stock and extending the life of the plan
5
 
additional years, terminating in 2030. The approved
shares
 
after
 
being
 
adjusted
 
to
 
reflect
 
the
1 for 5
 
reverse
 
stock
 
split
 
totaled
1,000,000
 
shares.
 
In
 
December
 
2021,
 
the
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, 2022, there were
1,386,667
 
shares available for grant under the
 
2015 Option Plan. At December
 
31,
2021, there were
1,401,667
shares available for grant under the 2015 Option Plan.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
 
98
 
USCB Financial Holdings, Inc.
 
2022 10-K
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
 
$
523
 
thousand
 
was
 
recognized
 
for
 
the
 
year
 
ended
December 31, 2022
 
and $
287
 
thousand for
 
the year
 
ended December
 
31, 2021.
 
There was
no
 
related tax
 
benefit for
 
the
years ended December 31, 2022 and 2021.
Unrecognized compensation cost
 
remaining on stock-based
 
compensation totaled $
787
 
thousand and $
1.3
 
million for
the years ended December 31, 2022 and 2021, respectively
 
.
Cash
 
flows
 
resulting
 
from
 
excess
 
tax
 
benefits
 
are
 
required
 
to
 
be
 
classified
 
as
 
a
 
part
 
of
 
cash
 
flows
 
from
 
operating
activities. Excess tax benefits
 
are realized tax benefits
 
from tax deductions for
 
exercised options in excess
 
of the deferred
tax asset attributable to the compensation cost for such
 
options.
The fair value of options
 
granted was determined using
 
the following weighted-average
 
assumptions at December
 
31,
2022:
Assumption
2022
Risk-free interest rate
2.34
%
Expected term
10
 
years
Expected stock price volatility
10
%
Dividend yield
0
%
The following table presents a summary of stock
 
options for the years ended December 31, 2022 and 2021:
Stock Options
Weighted Average
Exercise Price
Weighted Average
Remaining
Contractual Years
Aggregate Intrinsic
Value (in
thousands)
Balance at January 1, 2022
959,667
$
10.87
8.4
Granted
15,000
$
14.03
Exercised
(9,000)
$
11.35
Balance at December 31, 2022
965,667
$
10.91
7.4
Exercisable at December 31, 2022
560,000
$
10.18
6.4
$
1,131
 
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
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, 2022 and
 
2021 was $
3.45
 
and
$
2.32
, respectively.
There were
no
 
restricted stock awards outstanding as of December
 
31, 2021 or 2022.
There are
no
 
equity compensation plans of the Company that have
 
not been approved by the shareholders.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
 
99
 
USCB Financial Holdings, Inc.
 
2022 10-K
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, 2022 and 2021 (in thousands):
 
2022
2021
Commitments to grant loans and unfunded lines of credit
$
95,461
$
134,877
Standby and commercial letters of credit
4,320
6,420
Total
$
99,781
$
141,297
Commitments to
 
extend credit
 
are agreements
 
to lend
 
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.
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
15
 
and
18
 
interest rate swaps
with loan customers with
 
a notional amount of
 
$
33.9
 
million and $
39.2
 
million at December 31, 2022
 
and 2021, respectively.
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, 2022:
Derivatives not designated as hedging instruments:
Interest rate swaps related to customer loans
$
33,893
$
1,278
Other assets/Other liabilities
$
5,011
$
5,011
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
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
 
100
 
USCB Financial Holdings, Inc.
 
2022 10-K
12.
 
FAIR VALUE
 
MEASUREMENTS
 
Determination of Fair Value
The Company
 
uses
 
fair value
 
measurements
 
to record
 
fair-value
 
adjustments
 
to certain
 
assets
 
and liabilities
 
and to
determine fair value
 
disclosures. In accordance
 
with the fair
 
value measurements accounting
 
guidance, the fair
 
value of a
financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market
 
participants
 
at the
 
measurement
 
date. Fair
 
value is
 
best determined
 
based upon
 
quoted market
 
prices.
However, in
 
many instances, there
 
are no quoted market
 
prices for the Company's
 
various financial instruments.
 
In cases
where quoted
 
market prices
 
are not
 
available, fair
 
values are
 
based on
 
estimates using
 
present value
 
or other
 
valuation
techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates
of future cash flows. Accordingly, the fair value estimates may not be realized in
 
an immediate settlement of the instrument.
The fair
 
value guidance provides
 
a consistent definition
 
of fair value,
 
which focuses on
 
exit price in
 
an orderly transaction
(that is,
 
not a
 
forced
 
liquidation
 
or distressed
 
sale) between
 
market
 
participants
 
at the
 
measurement
 
date
 
under current
market
 
conditions. If
 
there
 
has been
 
a significant
 
decrease
 
in the
 
volume
 
and level
 
of activity
 
for the
 
asset
 
or liability,
 
a
change in
 
valuation technique or
 
the use
 
of multiple
 
valuation techniques
 
may be
 
appropriate. In
 
such instances, determining
the
 
price
 
at
 
which
 
willing
 
market
 
participants
 
would
 
transact
 
at
 
the
 
measurement
 
date
 
under
 
current
 
market
 
conditions
depends on the facts
 
and circumstances and requires
 
the use of significant judgment.
 
The fair value is
 
a reasonable point
within the range that is most representative of fair value under
 
current market conditions.
Fair Value Hierarchy
In accordance with
 
this guidance, the
 
Company groups its
 
financial assets
 
and financial liabilities
 
generally measured
at fair
 
value in
 
three
 
levels, based
 
on the
 
markets
 
in which
 
the assets
 
and liabilities
 
are traded,
 
and the
 
reliability
 
of the
assumptions used to determine fair value.
Level 1
 
- Valuation
 
is based
 
on quoted
 
prices in
 
active markets
 
for identical
 
assets or
 
liabilities that
 
the reporting
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
 
- Valuation
 
is based on inputs other
 
than quoted prices included
 
within Level 1 that are
 
observable for the
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
 
- Valuation
 
is based on
 
unobservable inputs that
 
are supported
 
by little or
 
no market activity
 
and that are
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:
 
When instruments are
 
traded in secondary markets
 
and quoted market prices
 
do not exist for
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:
 
The
 
fair
 
value
 
of
 
derivatives
 
are
 
measured
 
with
 
pricing
 
provided
 
by
 
third-party
 
participants
 
and
 
are
classified within Level 2 of the hierarchy.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
 
101
 
USCB Financial Holdings, Inc.
 
2022 10-K
The following table represents
 
the Company's assets measured at
 
fair value on a
 
recurring basis at December 31, 2022
and 2021 for each of the fair value hierarchy levels (in thousands):
2022
2021
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Investment securities available for sale:
U.S. Government Agency
$
-
$
8,655
$
-
$
8,655
$
-
$
10,520
$
-
$
10,520
Collateralized mortgage obligations
-
95,541
-
95,541
-
156,829
-
156,829
Mortgage-backed securities - Residential
-
60,879
-
60,879
-
118,842
-
118,842
Mortgage-backed securities - Commercial
-
27,954
-
27,954
-
50,117
-
50,117
Municipal securities
-
18,483
-
18,483
-
24,276
-
24,276
Bank subordinated debt securities
-
14,919
-
14,919
-
28,408
-
28,408
Corporate bonds
-
3,709
-
3,709
-
12,550
-
12,550
Total
-
230,140
-
230,140
-
401,542
-
401,542
Derivative assets
-
5,011
-
5,011
-
1,434
-
1,434
Total assets at fair value
$
-
$
235,151
$
-
$
235,151
$
-
$
402,976
$
-
$
402,976
Derivative liabilities
$
-
$
5,011
$
-
$
5,011
$
-
$
1,434
$
-
$
1,434
Total liabilities at fair value
$
-
$
5,011
$
-
$
5,011
$
-
$
1,434
$
-
$
1,434
Items Measured at Fair Value
 
on a Non-recurring Basis
 
Impaired Loans:
At December
 
31, 2022
 
and 2021,
 
in accordance
 
with
 
provisions of
 
the
 
loan impairment
 
guidance,
individual loans
 
with a
 
carrying amount
 
of approximately
 
$
3.9
 
million and
 
$
4.4
 
million, respectively,
 
were written
 
down to
their
 
fair
 
value
 
of
 
approximately
 
$
3.6
 
million
 
and
 
$
4.0
 
million,
 
respectively,
 
resulting
 
in
 
an
 
impairment
 
charge
 
of
$
294
 
thousand
 
and $
360
 
thousand,
 
respectively,
 
which was
 
included in
 
the allowance
 
for credit
 
losses
 
at December
 
31,
2022 and 2021, 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:
 
Other real
 
estate owned are
 
valued at the
 
lesser of the
 
third-party appraisals
 
less management's
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,
2022 and 2021 for each of the fair value hierarchy levels
 
(in thousands):
Level 1
Level 2
Level 3
Total
December 31, 2022:
Impaired loans
$
-
$
-
$
3,639
$
3,639
December 31, 2021:
Impaired loans
$
-
$
-
$
3,990
$
3,990
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
 
102
 
USCB Financial Holdings, Inc.
 
2022 10-K
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, 2022 and
 
2021 (in thousands):
Fair Value
Valuation Technique(s)
Unobservable Input(s)
December 31, 2022:
Residential real estate
$
3,500
Sales comparison approach
Adj. for differences between comparable sales
Commercial and industrial
41
Discounted cash flow
Adj. for differences in net operating income expectations
Other
98
Discounted cash flow
Adj. for differences in net operating income expectations
Total
 
impaired loans
$
3,639
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
There were
no
 
financial liabilities measured at fair value on a non-recurring
 
basis at December 31, 2022 and 2021.
Items Not Measured at Fair Value
The carrying amounts and estimated fair values of financial instruments not carried at fair value, at December 31, 2022
and 2021 are as follows (in thousands):
Fair Value Hierarchy
Carrying
Amount
Level 1
Level 2
Level 3
Fair Value
Amount
December 31, 2022:
Financial Assets:
Cash and due from banks
$
$6,605
$
$6,605
$
-
$
-
$
6,605
Interest-bearing deposits in banks
$
47,563
$
47,563
$
-
$
-
$
47,563
Investment securities held to maturity
$
188,699
$
-
$
169,088
$
-
$
169,088
Loans held for investment, net
$
1,489,851
$
-
$
-
$
1,436,877
$
1,436,877
Accrued interest receivable
$
7,546
$
-
$
1,183
$
6,363
$
7,546
Financial Liabilities:
Demand Deposits
$
$629,776
$
$629,776
$
-
$
-
$
629,776
Money market and savings accounts
$
915,853
$
915,853
$
-
$
-
$
915,853
Interest-bearing checking accounts
$
66,675
$
66,675
$
-
$
-
$
66,675
Time deposits
$
216,977
$
-
$
-
$
211,406
$
211,406
FHLB advances
$
46,000
$
-
$
44,547
$
-
$
44,547
Accrued interest payable
$
229
$
-
$
92
$
137
$
229
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
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
 
103
 
USCB Financial Holdings, Inc.
 
2022 10-K
13.
 
STOCKHOLDERS’ EQUITY
Common Stock
On June 16, 2021, the Bank
 
effected a
1 for 5
 
reverse stock split of all
 
the Class A common stock
 
$
1.00
 
par value per
share. As of the effective date of June 16, 2021,
 
each five shares of the Company’s
 
Class A common stock was combined
into
one
 
fully paid share of
 
Class A common
 
stock. Any fractional
 
shares resulting from this
 
reverse stock split were
 
rounded
up to one whole share. The
 
Bank has adjusted the Class
 
A common stock, earnings per
 
share and stock options adjusted
for this
1 for 5
 
reverse stock
 
split for all
 
periods presented
 
here. The
 
Class B non-voting
 
common stock
 
was not adjusted
but if
 
sold or
 
exchanged
 
would be
 
converted at
 
the
1 for 5
 
reverse stock
 
split of
 
5 Class
 
B common
 
stock for
1
 
share of
Class A common stock.
 
On July 27, 2021, the Bank completed the Initial Public Offering (“IPO”) of its Class A common stock, in which it issued
and
 
sold
4,600,000
 
shares
 
of
 
Class
 
A
 
common
 
stock
 
at
 
a
 
price
 
of
 
$
10.00
 
per
 
share.
 
The
 
Company
 
received
 
total
 
net
proceeds of $
40.0
 
million after deducting underwriting discounts and
 
expenses.
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 to
 
1. On
 
the same
 
day,
 
a
total of
6,121,052
 
shares of Class B common stock was exchanged for
1,224,212
 
shares of Class A common stock.
 
In December 2021, the
 
Company acquired all
 
the issued and outstanding
 
shares of the Class
 
A voting common
 
stock
of
 
the
 
Bank,
 
which
 
were
 
the
 
only
 
issued
 
and
 
outstanding
 
shares
 
of
 
the
 
Bank’s
 
capital
 
stock,
 
in
 
a
 
share
 
exchange
 
(the
“Reorganization”)
 
effected
 
under
 
the
 
Florida
 
Business
 
Corporation
 
Act.
 
Each
 
of
 
the
 
outstanding
 
shares
 
of
 
the
 
Bank’s
common
 
stock, par
 
value $
1.00
 
per share,
 
formerly held
 
by its
 
shareholders
 
was
 
converted into
 
and exchanged
 
for one
newly issued
 
share of
 
the
 
Company’s
 
common
 
stock, par
 
value $
1.00
 
per share,
 
and the
 
Bank
 
became
 
the Company’s
wholly-owned
 
subsidiary.
 
Prior to
 
completing 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
 
million along
 
with declared
 
dividends of
 
$
103
 
thousand.
 
All Class
 
E preferred
 
stock
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
 
2021,
47,473
 
shares of
 
Class C
 
preferred stock
 
and
11,061,552
 
shares of
 
Class D
 
preferred
stock converted
 
into
10,278,072
 
shares of
 
Class
 
A common
 
stock. The
 
exchange of
 
the Class
 
C and
 
Class D
 
preferred
shares had
 
a total
 
liquidation value
 
of $
102.8
 
million.
 
The remaining
 
unconverted shares
 
of Class
 
C preferred
 
stock and
Class D preferred stock totaling
1,234,354
 
shares were subsequently redeemed at liquidation
 
value for $
11.4
 
million.
 
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
 
million.
 
As
 
of
December 31, 2022, there were
no
 
preferred shares and
no
 
outstanding dividends to be paid.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
 
104
 
USCB Financial Holdings, Inc.
 
2022 10-K
Dividends
The Board approved
 
the following dividend
 
amounts on the
 
preferred shares for
 
the years ended
 
December 31, 2022
and 2021 (in thousands):
 
2022
2021
Preferred stock - Class C: Non-voting, Non-cumulative, Perpetual: $
1.00
 
par value; $
1,000
per share liquidation preference; annual dividend rate of
4
% of liquidation preference paid
quarterly. Quarterly dividend of $
10.00
 
per share.
$
-
$
1,494
Preferred stock - Class D: Non-voting, Non-cumulative, Perpetual: $
1.00
 
par value; $
5.00
per share liquidation preference; annual dividend rate of
4
% of par value paid quarterly.
Quarterly dividend of $
0.01
 
per share.
-
348
Preferred stock - Class E: Non-voting, partially cumulative, Perpetual: $
1.00
 
par value;
$
1,000
 
per share liquidation preference; annual dividend rate of
7
% of liquidation
preferences paid quarterly. Quarterly dividend of $
17.50
 
per share.
-
235
Total
 
dividends paid
$
-
$
2,077
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
 
dividends were approved by
 
the Board for the common
 
stock classes for the years ended
 
December 31, 2022 and
2021. Additionally, there
 
were
no
 
dividends declared and unpaid at December 31, 2022
 
and 2021.
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, 2022 and 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.
The following table
 
reflects the calculation
 
of net income
 
(loss) available to
 
common stockholders
 
for the years
 
ended
December 31, 2022 and 2021 (in thousands):
2022
2021
Net Income
$
20,141
$
21,077
Less: Preferred stock dividends
 
-
2,077
Less: Exchange and redemption of preferred shares
-
89,585
Net income (loss) available to common stockholders
$
20,141
$
(70,585)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
 
105
 
USCB Financial Holdings, Inc.
 
2022 10-K
The following
 
table reflects
 
the calculation
 
of basic
 
and diluted
 
earnings (loss)
 
per common
 
share class
 
for the
 
years
ended December 31, 2022 and 2021 (in thousands, except per
 
share amounts):
2022
2021
Class A
Class A
Basic EPS
Numerator:
Net income (loss) available to common shares before allocation
$
20,141
$
(70,585)
Multiply: % allocated on weighted avg. shares outstanding
100.0%
100.0%
Net income (loss) available to common shares after allocation
$
20,141
$
(70,585)
Denominator:
Weighted average shares outstanding
19,999,323
10,507,530
Earnings (loss) per share, basic
$
1.01
$
(6.72)
Diluted EPS
Numerator:
Net income (loss) available to common shares before allocation
$
20,141
$
(70,585)
Multiply: % allocated on weighted avg. shares outstanding
100.0%
100.0%
Net income (loss) available to common shares after allocation
$
20,141
$
(70,585)
Denominator:
Weighted average shares outstanding for basic EPS
19,999,323
10,507,530
Add: Dilutive effects of assumed exercises of stock options
177,515
-
Weighted avg. shares including dilutive potential common shares
20,176,838
10,507,530
Earnings (loss) per share, diluted
$
1.00
$
(6.72)
Anti-dilutive stock options excluded from diluted EPS
15,000
183,303
For the year
 
ended 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.
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
 
106
 
USCB Financial Holdings, Inc.
 
2022 10-K
limit the ability of
 
the Bank to pay
 
dividends, repurchase shares
 
or pay discretionary
 
bonuses. At December
 
31, 2022 and
2021, 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,
 
2022 and
 
2021, 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
 
the Bank at
 
December 31, 2022 and
 
2021 (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, 2022:
Total
 
risk-based capital:
$
216,693
13.58
%
$
127,616
8.00
%
$
159,520
10.00
%
Tier 1 risk-based capital:
$
198,909
12.47
%
$
95,712
6.00
%
$
127,616
8.00
%
Common equity tier 1 capital:
$
198,909
12.47
%
$
71,784
4.50
%
$
103,688
6.50
%
Leverage ratio:
198,909
9.56
%
$
83,210
4.00
%
$
104,012
5.00
%
December 31, 2021:
(1)
Total
 
risk-based capital
$
186,735
14.92
%
$
100,125
8.00
%
$
125,157
10.00
%
Tier 1 risk-based capital
$
171,484
13.70
%
$
75,094
6.00
%
$
100,125
8.00
%
Common equity tier 1 capital
$
171,484
13.70
%
$
56,321
4.50
%
$
81,352
6.50
%
Leverage ratio
$
171,484
9.55
%
$
71,825
4.00
%
$
89,781
5.00
%
Effective December 30, 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
 
par value common
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
 
107
 
USCB Financial Holdings, Inc.
 
2022 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, 2022 and 2021 (in thousands):
2022
2021
Consolidated Balance Sheets:
Loans held for investment, net
 
$
-
$
-
Deposits
$
6,825
$
1,905
Consolidated Statements of Operations:
Interest income
$
-
$
-
Interest expense
$
54
$
16
Loan Purchases
 
During 2022, the Bank purchased $
42.8
 
million of loans from entities that are deemed to
 
be related parties.
 
The Bank
paid those entities fees of $
881
 
thousand.
 
17.
 
PARENT COMPANY
 
CONDENSED FINANCIAL INFORMATION
 
In December
 
2021, USCB
 
Financial Holdings,
 
Inc. was
 
formed as
 
the parent
 
bank holding
 
company of
 
U.S. Century
Bank.
 
The
 
condensed
 
balance
 
sheet
 
is
 
presented
 
below
 
for
 
USCB
 
Financial
 
Holdings,
 
Inc.
 
at
 
the
 
dates
 
indicated
 
(in
thousands):
December 31, 2022
December 31, 2021
ASSETS:
Cash and Cash Equivalents
$
1,102
$
-
Investment in bank subsidiary
 
181,326
 
203,897
Other assets
-
-
Total
 
assets
$
182,428
$
203,897
LIABILITIES AND STOCKHOLDERS' EQUITY:
Other liabilities
$
-
$
-
Stockholders' equity
182,428
203,897
Total
 
liabilities and stockholders' equity
$
182,428
$
203,897
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
 
108
 
USCB Financial Holdings, Inc.
 
2022 10-K
The
 
condensed
 
income
 
statement
 
is
 
presented
 
below
 
for
 
USCB
 
Financial
 
Holdings,
 
Inc.
 
at
 
the
 
dates
 
indicated
 
(in
thousands):
December 31, 2022
December 31, 2021
INCOME:
Dividends from subsidiaries
$
1,000
$
-
Service fees from subsidiaries
-
-
Total
$
1,000
$
-
EXPENSE:
Employee compensation and benefits
 
-
 
-
Total
-
-
Income before income taxes and undistributed subsidiary income
1,000
Provision (benefit) for income taxes
-
-
Equity in undisbursed subsidiary income
19,141
Net Income
 
$
20,141
$
-
The condensed cash flow is presented below for USCB
 
Financial Holdings, Inc. at the dates indicated (in thousands):
December 31, 2022
December 31, 2021
Cash flows from operating activities:
Net income
$
20,141
$
-
Adjustments to reconcile net income to net cash provided
 
by operating
activities:
-
Equity in undistributed earnings of subsidiaries
(19,141)
-
Other
-
Net cash provided by operating activities
$
1,000
$
-
Cash flows from investing activities:
Capital contributions to subsidiary
-
-
Other
-
-
Net cash used in investing activities
 
-
-
Cash flows from financing activities:
Dividends paid
-
-
Proceeds from exercise of stock options
102
-
Repurchase of common stock
-
-
Net cash (used in) provided by financing activities
102
-
Net increase (decrease) in cash and cash equivalents
 
1,102
-
Cash and cash equivalents, beginning of period
 
-
-
Cash and cash equivalents, end of period
 
$
1,102
$
-
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,
 
2023 through
 
March 24,
 
2023, which
 
is the
 
date this
Annual Report Form 10-K was available to be issued.
Share Repurchase Program
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
 
109
 
USCB Financial Holdings, Inc.
 
2022 10-K
In February 2023 the
 
Company repurchased
250,000
 
shares of USCB Financial
 
Holdings Inc. Class
 
A common stock
at
 
a
 
price
 
of
 
$
12.04
.
 
Additionally,
 
the
 
Company
 
repurchased
250,000
 
shares
 
of
 
USCB
 
Financial
 
Holdings
 
Inc
 
Class
 
A
Common stock
 
at a
 
price of
 
$
11.39
 
in March
 
2023. These
 
repurchases were
 
made thru
 
the open
 
market pursuant
 
to the
Company’s publicly announced repurchase program.
 
 
 
 
110
 
USCB Financial Holdings, Inc.
 
2022 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,
 
2022.
 
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
Management is responsible for designing, implementing, documenting, and
 
maintaining an adequate system of internal
control over financial
 
reporting, as
 
such term
 
is defined in
 
the Exchange
 
Act. An
 
adequate system
 
of internal control
 
over
financial reporting encompasses the processes and procedures
 
that have been established by management to:
 
maintain records that accurately reflect the Company’s
 
transactions;
 
prepare
 
financial
 
statement
 
and
 
footnote
 
disclosures
 
in
 
accordance
 
with
 
U.S.
 
GAAP
 
that
 
can
 
be
 
relied
 
upon
 
by
external users; and
 
prevent and detect unauthorized acquisition, use or disposition of the Company's assets that could have a material
effect on the financial statements.
Management conducted
 
an evaluation
 
of the
 
effectiveness
 
of the
 
Company's
 
internal control
 
over financial
 
reporting
based on the criteria in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of
 
the
Treadway
 
Commission
 
(COSO).
 
Based
 
on
 
this
 
evaluation
 
under
 
the
 
criteria
 
in
 
Internal
 
Control-Integrated
 
Framework,
management concluded that
 
internal control over financial
 
reporting was effective
 
as of December 31,
 
2022. Furthermore,
during the conduct of its assessment, management identified no material weakness in
 
its financial reporting control system.
The Board of USCB
 
Financial Holdings, Inc., through its
 
Audit Committee, provides oversight to
 
management’s conduct
of
 
the
 
financial
 
reporting
 
process.
 
The
 
Audit
 
Committee,
 
which
 
is
 
composed
 
entirely
 
of
 
independent
 
directors,
 
is
 
also
responsible for the appointment of the independent registered public accounting firm. The
 
Audit Committee also meets with
management, the internal audit staff,
 
and the independent registered public accounting
 
firm throughout the year to provide
assurance as to the adequacy of the financial
 
reporting process and to monitor the overall
 
scope of the work performed by
the internal audit staff and the independent public accountants.
Because of its inherent limitations, the disclosure controls and
 
procedures may not prevent or detect misstatements.
 
A
control system, no matter how well conceived and operated, can only provide reasonable, not absolute, assurance that the
objectives of the control system are met. Because
 
of the inherent limitations in all control systems, no evaluation
 
of controls
can provide absolute assurance that all control issues and instances of
 
fraud, if any, have
 
been detected. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions or that the degree of compliance
 
with the policies or procedures may deteriorate.
Changes in Internal Control Over Financial Reporting
There has been
 
no change in
 
our internal control
 
over financial reporting
 
(as defined in
 
Rules 13a-15(f) and
 
15d-15(f)
under the
 
Exchange Act)
 
during our
 
most recent
 
fiscal quarter
 
that has
 
materially affected, or
 
is reasonably
 
likely to
 
materially
affect, our internal control over financial reporting.
 
Item 9B. Other Information
Not applicable.
Item 9C. Disclosure Regarding Foreign Jurisdictions
 
That Prevent Inspections
Not applicable.
 
 
 
111
 
USCB Financial Holdings, Inc.
 
2022 10-K
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required
 
herein is incorporated
 
by reference from
 
the sections captioned “Information
 
with Respect to
Nominees for
 
Director and Information
 
About Executive Officers”
 
and “Beneficial Ownership
 
of Common Stock
 
by Certain
Beneficial Owners and Management –
 
Delinquent Section 16(a) Reports”
 
in the Company’s Definitive
 
Proxy Statement for
the Annual Meeting
 
of Shareholders
 
currently expected
 
to be held
 
on May 22,
 
2023, is expected
 
to be
 
filed with the
 
SEC
within 120 days of December 31, 2021 (“2023 Definitive
 
Proxy Statement”).
The Company has
 
adopted a code
 
of ethics and
 
business conduct policy,
 
which applies to
 
all of its
 
directors, officers,
including its principal executive officer, principal financial officer, principal accounting officer,
 
and employees generally. The
Company
 
will provide
 
a copy
 
of its
 
code
 
of ethics
 
to any
 
person, free
 
of charge,
 
upon request.
 
Any requests
 
for a
 
copy
should
 
be
 
made
 
to
 
the
 
Corporate
 
Secretary,
 
USCB
 
Financial
 
Holdings,
 
Inc.,
 
2301
 
N.W.
 
87th
 
Avenue,
 
Doral,
 
Florida.
 
In
addition, a
 
copy
 
of the
 
Code of
 
Ethics is
 
available at
 
the Company’s
 
website at
 
www.uscentury.com
 
under the
 
“Investor
Relations” tab.
There
 
have
 
been
 
no
 
material
 
changes
 
to
 
the
 
procedures
 
by
 
which
 
shareholders
 
may
 
recommend
 
nominees
 
to
 
the
Company’s Board.
Item 11. Executive Compensation
The information
 
required herein
 
is incorporated
 
by reference
 
from
 
the sections
 
captioned "Executive
 
Compensation"
and “Information with Respect to
 
Nominees for Director and Information About
 
Executive Officers – Director Compensation”
in the Company’s 2023 Definitive Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners
 
and Management and Related Stockholder Matters
Security Ownership of Certain Beneficial Owners and Management
. Information regarding security ownership
of certain beneficial owners and management is incorporated
 
by reference to “Beneficial Ownership of Common Stock
 
by
Certain Beneficial Owners and Management” in the 2023 Definitive
 
Proxy Statement.
Equity Compensation Plan Information
. Information regarding the Company’s equity
 
plans is incorporated from
Note 9 “Equity Based and Other Compensation Plans”
 
to the Consolidated Financial Statements included in
 
this Annual
Report on Form 10-K.
Item 13. Certain Relationships and Related Transactions,
 
and Director Independence
The information
 
required herein
 
is incorporated
 
by reference
 
from
 
the sections
 
captioned “Certain
 
Relationships and
Related
 
Party
 
Transactions”
 
and
 
“Information
 
with
 
Respect
 
to
 
Nominees
 
for
 
Director
 
and
 
Information
 
About
 
Executive
Officers” in the 2023 Definitive Proxy Statement.
Item 14. Principal Accountant Fees and Services
The information required herein is incorporated by reference
 
from the section captioned “Ratification of
Appointment of Independent Registered Public Accounting
 
Firm (Proposal Two)
 
– Audit Fees” in the 2023 Definitive Proxy
Statement.
 
 
 
112
 
USCB Financial Holdings, Inc.
 
2022 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, 2022 and 2021
Consolidated Statements of Operations for the years ended
 
December 31, 2022 and 2021
Consolidated Statements of Comprehensive Income
 
for the years ended December 31, 2022 and 2021
Consolidated Statements of Changes in Stockholders'
 
Equity for the years ended December 31, 2022 and
 
2021
Consolidated Statements of Cash Flows for the
 
years ended December 31, 2022 and 2021
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 on Form 10-K.
 
 
 
 
 
113
 
USCB Financial Holdings, Inc.
 
2022 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
114
 
USCB Financial Holdings, Inc.
 
2022 10-K
SIGNATURES
Pursuant to the requirements of the Exchange
 
Act, the registrant has duly caused this report
 
to be signed on its behalf
by the undersigned thereunto duly authorized.
USCB FINANCIAL HOLDINGS, INC.
Date: March 24, 2023
By:
/s/ Luis de la Aguilera
Luis de la Aguilera
President and Chief Executive Officer
Pursuant to the requirements
 
of the Exchange Ac,
 
this report has been
 
signed by the following
 
persons in the capacities
and on the dates indicated.
Signature
Title
Date
/s/ Luis de la Aguilera
President, Chief Executive Officer,
 
and Director
(Principal Executive Officer)
March 24, 2023
Luis de la Aguilera
/s/ Robert Anderson
Chief Financial Officer (Principal Financial
Officer and Principal Accounting Officer)
March 24, 2023
Robert Anderson
/s/ Aida Levitan
Director
March 24, 2023
Aida Levitan
/s/ Howard Feinglass
Director
March 24, 2023
Howard Feinglass
/s/ Kirk Wycoff
Director
March 24, 2023
Kirk Wycoff
/s/ Ramon A. Abadin
Director
March 24, 2023
Ramon A. Abadin
/s/ Bernardo B. Fernandez
Director
March 24, 2023
Bernardo B. Fernandez
/s/ Ramon A. Rodriguez
Director
March 24, 2023
Ramon A. Rodriguez
/s/ Maria C. Alonso
Director
March 24, 2023
Maria C. Alonso
/s/ Robert E. Kafafian
Director
March 24, 2023
Robert E. Kafafian