USCB FINANCIAL HOLDINGS, INC. (USCB) Risk Factors
This page reproduces the company's own Item 1A Risk Factors text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
Informational only - not investment advice. See Disclaimer.
Item 1A. Risk Factors
This
section
contains
a
description
of
the
material
risk
and
uncertainties
identified
by
management
that
could,
individually or in combination, harm our business, results of
operations, liquidity and financial condition. The risks described
below are
not all
inclusive. We
may face
other risks
that are
not presently
known, or
that we
presently deem
immaterial,
which may also adversely
affect our business, results
of operations, liquidity and
financial condition. If any
of these known
or unknown risks
or uncertainties actually
occur,
our business, results
of operations, liquidity
and financial condition
could
be materially and adversely affected.
Summary of Risk Factors
Our business is subject to
a number of risks that could
cause actual results to differ
materially from those indicated
by
forward-looking statements
made in this
Form 10-K
or presented
elsewhere from
time to time.
These risks
are discussed
more fully in this Item 1A and include, without limitation,
the following:
Risks Related to our Business and Operations
•
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.
•
Our concentration of real estate loans in a limited market
area exposes us to lending risks.
•
The small- to medium-sized businesses
to which we lend may have
fewer resources to weather adverse
business
developments, which may impair a borrower's ability to
repay a loan.
•
Inflationary pressures and rising prices may affect
our results of operations and financial condition.
•
The soundness of other financial institutions could adversely
affect us.
•
Insufficient
liquidity
could
impair
our
ability
to
fund
operations
and
jeopardize
our
financial
condition,
results
of
operations, growth and prospects.
•
Significant
changes
to
the
size,
structure,
powers
and
operations
of
the
federal
government,
changes
to
U.S.
economic policies,
and
uncertainties
regarding
the potential
for these
changes
may cause
economic
disruptions
that could, in turn, adversely impact our business, results
of operations and financial condition.
•
Our lending business is subject to credit risk, which could
lead to unexpected losses.
•
Natural
disasters
and
severe
weather
events
in
Florida
could
have
a
material
adverse
impact
on
our
business,
financial condition and operations.
•
Our business is subject to
interest rate risk and variations
in interest rates may
materially and adversely affect
our
financial performance.
•
Our allowance for credit losses may not be sufficient
to absorb potential losses in our loan portfolio.
•
Our commercial loan portfolio may expose us to increased
credit risk.
•
The imposition of further limits
by the bank regulators
on commercial real estate
lending activities could curtail our
growth and adversely affect our earnings.
•
Our SBA lending program depends on our status as a participant in the SBA's Preferred Lenders Program, and we
face specific risks associated with originating SBA loans
and selling the guaranteed portion thereof.
•
The SBA may not honor its guarantees if we do not originate
loans in compliance with SBA guidelines.
•
Correspondent 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.
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22
USCB Financial Holdings, Inc.
2025 10-K
•
Non-performing assets
take significant time
to resolve and
adversely affect
our results of
operations and financial
condition, and could result in further losses in the future.
•
We engage in
lending secured by
real estate and
may foreclose on
the collateral and
own the underlying
real estate,
subjecting us
to the
costs and potential
risks associated with
the ownership
of real
property and
other risks, including
exposure
to
environmental
liability,
or
consumer
protection
initiatives
or
changes
in
state
or
federal
law
may
substantially raise the cost of foreclosure or prevent us
from foreclosing at all.
•
We are exposed to risk of environmental liability when
we take title to property.
•
We are subject to
certain operational risks, including, but
not limited to, customer, employee or
third-party fraud and
data processing system failures and errors.
•
We face significant
operational risks because
the nature of the
financial services business
involves a high volume
of transactions.
•
We have several large depositor
relationships, the loss of
which could force us to
fund our business through more
expensive and less stable sources.
•
Any change in the Bank's ability to gather brokered deposits
may adversely impact the Bank.
•
Our
securities
portfolio
performance
in
difficult
market
conditions
could
have
adverse
effects
on
our
results
of
operations.
•
We may
not effectively
execute on
our expansion
strategy,
which may
adversely affect
our ability
to maintain
our
historical growth and earnings trends.
•
New lines of business, products, product enhancements
or services may subject us to additional risk.
•
Our business
needs and
future growth
may require us
to raise
additional capital
and that
capital may
not be
available
on terms acceptable to us or may be dilutive to existing shareholders.
•
We may grow through mergers or
acquisitions, a strategy that may
not be successful or, if successful, may produce
risks
in
successfully
integrating
and
managing
the
merged
companies
or
acquisitions
and
may
dilute
our
shareholders.
•
The loss of one or more
of our key personnel, or
our failure to attract and
retain other highly qualified
personnel in
the future, could harm our business.
•
Damage to our reputation could significantly harm our
businesses.
•
We face
strong competition
from financial
services
companies
and other
companies
that offer
banking services,
which could materially and adversely affect our
business.
•
We must respond to rapid technological changes
to remain competitive.
•
We continually
encounter technological change,
and we may
have fewer resources
than many of
our competitors
to invest in technological improvements.
•
Our current and future uses of artificial intelligence and
other emerging technologies may create additional risks.
•
A
failure, interruption, or breach in the
security of our systems, or those
of our contracted vendors, could disrupt
our
business, result in the disclosure of confidential information, damage our reputation, and
create significant financial
and legal exposure.
•
We rely on other companies to provide key components of our business infrastructure and our operations could be
interrupted if
our third-party
service providers
experience difficulty,
terminate their
services
or fail
to comply
with
banking regulations.
•
Litigation
and
regulatory
actions,
including
possible
enforcement
actions,
could
subject
us
to
significant
fines,
penalties, judgments
or other requirements
resulting in
increased expenses or
restrictions on
our business
activities.
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23
USCB Financial Holdings, Inc.
2025 10-K
•
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.
Risks Related to Our Tax, Accounting
and Regulatory Compliance
•
Our ability to
recognize the benefits
of our deferred
tax assets is
dependent on future
cash flows and
taxable income
and may be materially impaired upon significant changes
in ownership of our common stock.
•
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.
•
As a public company,
we may not efficiently or effectively
create an effective internal control environment,
and any
future failure to maintain effective
internal control over financial reporting
could impair the reliability of
our financial
statements, which
in turn could
harm our
business, impair
investor confidence
in the accuracy
and completeness
of our
financial
reports
and
our access
to the
capital
markets,
cause
the
price
of
our Class
A common
stock
to
decline and subject us to regulatory penalties.
•
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
face
a
risk
of
noncompliance
with
the
Bank
Secrecy
Act
and
other
anti-money
laundering
statutes
and
regulations and corresponding enforcement proceedings.
•
Significantly heightened regulatory and
supervisory expectations and scrutiny
in the United States have
increased
our
compliance,
regulatory,
and
other
risks
and
costs
and
subject
us
to
legal
and
regulatory
examinations,
investigations, and enforcement actions.
•
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.
•
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.
•
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.
•
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
•
Our ability to pay dividends is subject to restrictions.
•
If
we
fail
to
pay
interest
on
or
otherwise
default
on
our
subordinated
notes,
we
will
be
prohibited
from
paying
dividends or distributions on our Class A common stock.
•
We may
issue additional
debt securities,
which would
be senior
to our
common stock
and may cause
the market
price of our Class A common stock to decline.
•
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.
•
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.
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24
USCB Financial Holdings, Inc.
2025 10-K
•
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.
•
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 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. Additionally, the COVID-19 pandemic accelerated the adoption of remote
work
options,
potentially
influencing
the
long-term
performance
of
office
properties
within
our
commercial
real
estate
portfolio. If we
are required to
liquidate our real
estate collateral securing
a loan during
a period of
reduced real estate
values
to satisfy the debt,
our earnings and capital could
be adversely affected. Moreover, since a large portion
of our loan portfolio
is secured by properties located in South Florida, the occurrence of a natural disaster, such as a hurricane, or a man-made
disaster could result in
a decline in loan originations,
a decline in the
value or the destruction
of mortgaged properties and
an increase in the risk of delinquencies, foreclosures or loss on loans originated by us. We may suffer further losses due to
the decline in the
value of the properties
underlying our mortgage loans, which
would have an adverse
impact on our results
of operations and financial condition.
A downturn in the local economy generally may lead to loan losses that are not offset by operations in other markets; it
may also reduce the ability
of our customers to grow
or maintain their deposits with
us. For these reasons, any
regional or
local economic
downturn
that
affects
South Florida,
or existing
or prospective
borrowers
or
depositors
in
South Florida,
could have a material adverse effect on our business,
financial condition and results of operations.
In addition, there are continuing concerns related
to, among other things, the increasing
level of U.S. government debt
and fiscal actions that may be taken to address that debt, price fluctuations
of key natural resources, inflation, the potential
resurgence of economic and political tensions with China, the continuing war in Ukraine and the level of oil and natural gas
prices due to, among
other things, Russian supply
disruptions resulting from
the ongoing Ukrainian conflict,
each of which
may have a
destabilizing effect
on financial markets
and economic activity.
Economic pressure on
consumers and overall
economic
uncertainty
may
result
in
changes
in
consumer
and
business
spending,
borrowing
and
saving
habits.
These
economic conditions and/or other negative developments in the domestic or international credit markets or economies may
significantly affect the
markets in which
we do
business, the value
of our
loans and investments,
and our
ongoing operations,
costs and profitability.
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25
USCB Financial Holdings, Inc.
2025 10-K
Our concentration of real estate loans in a limited
market area exposes us to lending risks.
At December 31, 2025, approximately
$1.55 billion, or 71.1%, of our
total loan portfolio, was secured
by real estate, in
particular commercial
real estate,
most of
which is
located in
our primary
lending market
area of
the Miami
metropolitan
statistical
area.
Future
declines
in
the
real
estate
values
in
our
primary
lending
market
and
surrounding
markets
could
significantly impair
the value
of the
particular real
estate collateral
securing our
loans and
our ability
to sell
the collateral
upon
foreclosure
for
an
amount
necessary
to
satisfy
the
borrower’s
obligations
to
us.
This
could
require
increasing
our
allowance for credit
losses to address
the decrease in
the value of
the real estate
securing our loans,
which could have
a
material adverse effect on our business, financial
condition, results of operations, and growth prospects.
The
small-
to
medium-sized
businesses
to
which
we
lend
may
have
fewer
resources
to
weather
adverse
business developments, which may impair a borrower's
ability to repay a loan.
We
target
our
business
development
and
marketing
strategies
primarily
to
serve
the
banking
and
financial
services
needs of SMBs and
the owners and operators of
those businesses. SMBs generally have
fewer financial resources in terms
of capital or
borrowing capacity
than larger entities,
frequently have
smaller market shares
than their competition,
may be
more
vulnerable
to
economic
downturns,
often
need
substantial
additional
capital
to
expand
or
compete,
and
may
experience substantial
volatility in
operating results,
any of
which, individually
or in
the aggregate,
may impair
their ability
as a borrower
to repay a loan.
In addition, the success
of SMBs often
depends on the management
skills, talents and efforts
of a
small group
of key
people, and
the death,
disability or
resignation of
one or
more of
these individuals
could have
an
adverse impact on
the business and
its ability to
repay its loan.
If general economic
conditions negatively impact
the markets
in which we operate
or any of our
borrowers otherwise are affected by adverse
business developments, our SMB borrowers
may be disproportionately affected and their ability to
repay outstanding loans may be adversely affected, which could
have
a material adverse effect on our business, financial
condition and results of operations.
Inflationary pressures and rising prices may affect
our results of operations and financial condition.
The inflationary
outlook in
the United
States remains
uncertain. As
of December
31, 2025,
the consumer
price index
was 2.7% year-over-year. While this is
a significant reduction to the rate of inflation experienced in 2023 and 2024,
it is still
above the FRB’s targeted rate. The risks to
our business from inflation depend on the
durability of the inflationary pressures
in our markets. Although
the FRB has reduced
the federal funds rate
three times in 2024,
and further three times
in 2025,
no assurance can be given that it will continue to do so. At the end of January 2026,
the FRB determined not to reduce the
federal funds rate. The
resurgence of elevated
levels of inflation could
lead the FRB to cease
reducing its benchmark
rate
or potentially
starting to
increase it
again which
could, in
turn, increase
the borrowings
costs of
our customers,
making it
more difficult for
them to repay their
loans or other obligations.
Elevated interest rates
may be needed to
tame inflationary
price pressures, which could also push down asset prices,
including collateral values, and weaken economic activity.
As inflation increases and market interest
rates rise the value of
our investment securities, particularly those with longer
maturities,
decreases,
although
this
effect
can
be
less
pronounced
for
floating-rate
instruments.
In
addition,
inflation
generally increases the cost of goods and services we use in
our business operations, such as electricity and other utilities,
which increases our
noninterest expenses. Also,
a prolonged period
of inflation could
cause wages and
other of our costs
to increase, which could adversely
affect our results of
operations and financial condition.
Furthermore, our customers are
also affected by inflation
and the rising costs of
goods and services used
in their households and businesses,
which could
have a negative impact on their ability to repay their loans with us.
In addition, SMBs may be impacted more during periods
of
high
inflation,
as
they
are
not
able
to
leverage
economics
of
scale
to
mitigate
cost
pressures
compared
to
larger
businesses. Consequently,
the ability of
our business
customers to repay
their loans
may deteriorate,
and in some
cases
this deterioration may occur quickly,
which would adversely impact our results of operations
and financial condition.
The soundness of other financial institutions could
adversely affect us.
Our
ability
to
engage
in
routine
funding
and
other
transactions
could
be
adversely
affected
by
the
actions
and
commercial soundness
of other
financial institutions.
Financial services
companies are
interrelated as
a result
of trading,
clearing,
counterparty
or
other
relationships.
We
have
exposure
to
different
industries
and
counterparties,
and
through
transactions
with
counterparties
in
the
financial
services
industry,
including
brokers
and
dealers,
commercial
banks,
investment
banks,
and
other
institutional
clients.
Defaults
by,
or
even
rumors
or
questions
about,
one
or
more
financial
institutions or market utilities, or
the financial services industry generally, may lead to market-wide liquidity
problems, losses
of depositor,
creditor
and
counterparty
confidence
and
losses
or defaults
by us
or by
other institutions.
These
losses
or
defaults
could
have
a
material
adverse
effect
on
our
business,
financial
condition,
results
of
operations
and
growth
prospects. Additionally,
if our
competitors were
extending credit
on terms
we found
to pose
excessive risks,
or at interest
rates which we believed
did not warrant the
credit exposure, we may not
be able to maintain
our business volume and
could
experience deteriorating financial performance.
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26
USCB Financial Holdings, Inc.
2025 10-K
Insufficient liquidity could
impair our ability to
fund operations and jeopardize
our financial condition,
results
of operations, growth and prospects.
Effective liquidity management is essential for the operation of our business. Although we
have implemented strategies
to maintain
sufficient
and
diverse
sources of
funding
to accommodate
planned,
as well
as unanticipated,
liquidity
needs
(including changes
in assets, liabilities, and
off-balance sheet commitments under various
economic conditions), an inability
to
raise
funds
through
deposits,
borrowings,
the
sale
of
investment
securities
and
other
sources
could
have
a
material
adverse effect
on our
liquidity. Our access
to funding
sources in
amounts adequate to
finance our
activities could
be impaired
by factors that affect us specifically or the financial services
industry in general. Factors that could detrimentally impact
our
access to liquidity sources include a decrease in the level of our business activity due to a market disruption, a decrease in
the borrowing capacity assigned to
our pledged assets by our
secured creditors, competition from other
financial institutions
which could drive up the
costs of deposits or adverse
regulatory action against us. Deterioration in
economic conditions and
the loss of
confidence in financial
institutions may increase
our cost of
funding and limit
our access to
some of our
customary
sources of liquidity,
including, but not
limited to, inter-bank
borrowings and borrowings
from the Federal
Home Loan Bank
of Atlanta, or
the FHLB, and
the Federal Reserve
Bank of Atlanta.
Our ability to
acquire deposits
or borrow
could also be
impaired by
factors that
are not
specific to
us, such
as a
severe disruption
of the
financial markets
or negative
views and
expectations
about the
prospects
for the
financial
services
industry generally
as
a result
of conditions
faced
by banking
organizations
in
the
domestic
and
international
credit
markets.
Any decline
in
available
funding
or cost
of liquidity
could
adversely impact our ability to originate loans, invest in securities, meet our expenses
or fulfill obligations such as repaying
our borrowings or
meeting deposit withdrawal demands,
any of which
could, in turn,
have an adverse
effect on our
business,
financial condition, and results of operations.
Significant changes
to the size,
structure, powers
and operations of
the federal government,
changes to U.S.
economic policies, and
uncertainties regarding
the potential for
these changes may
cause economic
disruptions
that could, in turn, adversely impact our business,
results of operations and financial condition.
The current U.S. administration
has implemented significant changes in
federal priorities and has
taken steps to change
the operations,
structure, and
policy focus
of various
federal agencies,
as well
as regulatory
priorities, policy
approaches
and
interpretations
of
existing
laws
by
those
federal
agencies.
For
example,
recent
executive
actions
and
proposed
legislation has changed agency mandates, modified or reduced federal program funding, altered regulatory frameworks, or
adjusted the size and
composition of the
federal workforce. Moreover,
leadership transitions at
key federal agencies
have
impacted or
may impact
rulemaking, supervision,
enforcement, and
examination
priorities across
the financial
regulatory
landscape. These developments in the federal government may
have varying effects on the banking and financial services
industry that are difficult to predict, which makes it difficult for us to anticipate and mitigate attendant risks. Compliance with
changing federal and regulatory
priorities could, among
other things, increase
the costs of
operating our business,
reduce
the
demand
for
our
products
and
services,
impact
our
ability
to
achieve
our
business
goals,
and
increase
our
legal,
operational and reputational risks, any or all of which could
materially adversely affect our results of operations.
The current U.S. administration also has implemented rapid shifts in macroeconomic policies, such as those relating to
trade restrictions and tariffs, which
have created significant uncertainties regarding
U.S. economic growth, the potential for
recession, and concerns
over an increase in
inflation. Slow economic
growth, economic contraction
or recession, or shifts
in broader consumer and business trends would significantly impact our ability to originate loans, the ability of borrowers to
repay loans, and the value of the collateral securing loans.
Changes in U.S.
immigration policies, particularly those
that could lead
to mass deportations, may
disrupt key industries
in our region such as construction and
hospitality. These disruptions could exacerbate labor shortages, reduce productivity,
and cause financial instability among affected
businesses, impairing the repayment abilities of borrowers
in these sectors.
Other political and economic events within the U.S., including a contentious domestic political environment, changes in
or
disagreements
over
U.S.
monetary
policy
and
actions
of
the
FRB,
disagreements
over
long-term
federal
budget
and
deficit
reduction
plans,
disagreements
over
or
threats
not
to
increase
the
U.S.
government's
borrowing
limit
(or
"debt
ceiling"),
and
risk
of
further
downgrade
of
the
ratings
of
U.S.
government
debt
obligations,
also
may
negatively
impact
financial markets and the U.S. economy.
Further,
the perception
of the
potential for
additional significant
changes in
federal regulatory
or economic
policy has
also increased uncertainty and may exacerbate declines in investor and
consumer confidence, which in turn may adversely
impact financial
markets and the broader economy of the United States.
Regional business
and economic
conditions are
a major
driver of
our results
of operations.
Difficult
conditions in
the
regional’s
business
and
economic
environment,
including
those
caused
by the
lack
of stability
and
predictability
of
U.S.
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27
USCB Financial Holdings, Inc.
2025 10-K
policymaking,
may
materially
adversely
affect
our
operating
expenses,
the
quality
of
our
assets,
credit
losses,
and
the
demand for our products and services.
Regional business
and economic
conditions are
a major
driver of
our results
of operations.
Difficult
conditions in
the
regional
business
and
economic
environment,
including
those
caused
by
the
lack
of
stability
and
predictability
of
U.S.
policymaking,
may
materially
adversely
affect
our
operating
expenses,
the
quality
of
our
assets,
credit
losses,
and
the
demand for our products and services.
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.
Natural disasters and severe weather events in Florida
could have a material adverse impact on our
business,
financial condition and operations.
Our
operations
and
our
customer
base
are
primarily
located
in
South
Florida.
This
region
is
vulnerable
to
natural
disasters
and
severe
weather
events
or
acts
of
God,
such
as
hurricanes
or
tropical
storms,
which
can
have
a
material
adverse impact
on our
loan portfolio,
our overall
business, financial
condition and
operations, cause
widespread property
damage and have
the potential to
significantly depress
the local economies
in which we
operate. Future adverse
weather
events in
Florida could
potentially result
in extensive
and costly
property damage
to businesses
and residences,
depress
the value of property serving as collateral for our loans, force the relocation of residents, and
significantly disrupt economic
activity in the region.
We cannot
predict the
extent of
damage that
may result
from such
adverse weather
events, which
will depend
on a
variety of factors that are beyond our control,
including, but not limited to, the
severity and duration of the event,
the timing
and level
of government
responsiveness, the
pace of
economic recovery
and availability
of insurance
to cover
losses. In
addition,
the
nature,
frequency
and
severity
of
these
adverse
weather
events
and
other
natural
disasters
may
be
exacerbated by climate change. If a significant adverse weather event or other natural disaster were to occur, it could have
a materially adverse impact
on our financial
condition, results of operations
and our business, as
well as potentially
increase
our exposure to credit and liquidity risks.
Our business is subject to
interest rate risk, and variations in
interest rates may materially and adversely
affect
our financial performance.
Changes in the
interest rate environment
may reduce our
profits. It is
expected that our
primary source of
income will
continue to be from
the differential or
"spread" between the
interest earned on
loans, securities and
other interest-earning
assets, and the interest paid on
deposits, borrowings and other interest-bearing liabilities. Net
interest spreads are affected,
in part, by the
difference between the maturities and repricing characteristics of
interest-earning assets and interest-bearing
liabilities. Changes
in market
interest rates
generally affect
loan volume,
loan yields,
funding sources
and funding
costs.
Our
net interest
spread
depends
on
many
factors
that
are partly
or completely
out
of our
control,
including
competition,
general economic
conditions, and
federal economic
monetary and
fiscal policies,
and in particular,
the Federal
Reserve's
policy determinations with respect to interest rates.
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28
USCB Financial Holdings, Inc.
2025 10-K
During 2022 and 2023, the Federal
Open Market Committee (the “FOMC”)
increased certain benchmark interest
rates
to
reduce
the
rate
of
inflation
to
the
extent
necessary
to
reduce
inflation
to
the
target
rate
that
the
FOMC
believes
is
appropriate.
All of these
increases were expressly made
in response to
inflationary pressures. However, In 2024, the
FOMC
decreased such benchmark
rates three times
followed in 2025
by three additional
decreases
totaling 0.75%. However, there
can be no
assurances as
to any future
FOMC action,
including whether
it continues to
decrease the federal
funds rate or
implements increases. In late January 2026, the
FOMC determined to not change the federal
funds rate at 3.50% to 3.75%.
While an increase in
interest rates may increase
our weighted average
loan yield, it may
adversely affect the
ability of
certain borrowers
with variable rate
loans to pay
the contractual
interest and principal
due to us.
Following an
increase in
interest rates, our
ability to maintain
a positive net
interest spread is
dependent on our ability
to increase our
loan offering
rates, replace
loans that
mature and
repay or
that prepay
before maturity
with new
originations at
higher rates,
minimize
increases on
our deposit
rates, and maintain
an acceptable level
and composition of
funding. We cannot
provide assurances
that we will be
able to increase
our loan offering
rates and continue
to originate loans
due to the competitive
landscape in
which we operate. Additionally, we cannot provide
assurances that we can minimize
the increases in our
deposit rates while
maintaining
an
acceptable
level
of
deposits.
Due
to
competitive
pressures
in
2023,
we
increased
the
rates
paid
on
our
interest-bearing deposits such that
our weighted average cost
of deposits increased from
0.62% for 2022
to 3.04% for
2023.
However,
in
2024
and
2025,
in
light
of
the
FOMC’s
actions
to
decrease
the
federal
funds
rate
a
total
of
six
times,
we
decreased the
rates paid
on our
interest-bearing deposits. As
a result,
while the
overall cost
of funds
increased, as
compared
to 2022 and 2023, it increased at a slower
pace when compared to the increase
in the cost of deposits from 2022 to
2023.
Finally,
we
cannot
provide
any
assurances
that
we
can
maintain
our
current
levels
of
noninterest-bearing
deposits
as
customers continue
seeking higher-yielding
products due
to the increased
interest rates
being paid on
deposits currently,
as compared to rates in early 2024 and 2023 and 2022.
Accordingly,
changes
in
levels
of
interest
rates
could
materially
and
adversely
affect
our
net
interest
margin,
asset
quality, loan origination
volume, average loan portfolio balance, liquidity,
and overall profitability.
Our allowance for credit losses may not be sufficient
to absorb potential losses in our loan portfolio.
We
maintain
an
allowance
for
credit
losses
that
represents
management's
judgment
of
probable
losses
and
risks
inherent in our loan portfolio.
The level of the allowance
reflects management's continuing
evaluation of general economic
conditions,
present
political
and
regulatory
conditions,
diversification
and
seasoning
of
the
loan
portfolio,
historic
loss
experience, identified credit
problems, delinquency levels
and adequacy of
collateral. Determining the
appropriate level of
our
allowance
for
credit
losses
involves
a
degree
of
subjective
judgment
and
requires
management
to
make
significant
estimates of and assumptions regarding current credit risks
and future trends, all of which may undergo material changes.
Inaccurate
management
assumptions,
deterioration
of
economic
conditions
affecting
borrowers,
new
negative
information
regarding
existing
loans,
identification
of
additional
problem
loans
or deterioration
of existing
problem
loans,
and
other
factors
(including
third-party
review
and
analysis),
both
within
and
outside
of
our
control,
may
require
us
to
increase our allowance for
credit losses. In addition,
our regulators, as an
integral part of their
periodic examinations, review
our methodology for calculating, and
the adequacy of, our allowance
for credit losses and may
direct us to make additions
to the allowance
based on their
judgments about
information available to
them at the
time of their
examination. Further,
if
actual charge-offs in future
periods exceed the
amounts allocated to
our allowance for
credit losses, we
may need additional
provisions for credit losses to restore
the adequacy of our allowance for
credit losses. Finally, the measure of our allowance
for credit losses depends on the
adoption and interpretation of accounting
standards. The Financial Accounting
Standards
Board, or FASB, issued a new credit
impairment model, the Current Expected Credit Loss,
or CECL model, which became
applicable
to
us
on
January
1,
2023.
CECL
requires
financial
institutions
to
estimate
and
develop
a
provision
for
credit
losses over the lifetime of the loan at origination, as opposed to reserving for incurred or probable
losses up to the balance
sheet date. Under the CECL
model, expected credit deterioration
will be reflected in the
income statement in the
period of
origination or acquisition of a loan,
with changes in expected credit losses
due to further credit deterioration or
improvement
reflected in the periods in which the expectation
changes. As a result of the initial
implementation of CECL, we incurred as
of January 1, 2023
a $1.1 million cumulative
effect of the
adoption of CECL. Moreover,
the CECL model may
create more
volatility in our level of allowance for credit
losses. If we are required to materially
increase our level of allowance for credit
losses for any reason, such increase could adversely affect our business, prospects, cash flow,
liquidity, financial condition
and results of operations.
Our commercial loan portfolio may expose us to increased
credit risk.
Commercial business
and real
estate loans
generally have
a higher
risk of
loss because
loan balances
are typically
larger
than
residential
real
estate
and
consumer
loans
and
repayment
is
usually
dependent
on
cash
flows
from
the
borrower’s business or the
property securing the loan. Our
commercial business loans are primarily made
to small business
Table of Contents
29
USCB Financial Holdings, Inc.
2025 10-K
and middle market customers. These loans typically
involve repayment that depends upon income
generated, or expected
to be generated, by the property securing the loan
and/or by the cash flow generated by the business borrower and
may be
adversely affected by changes in the economy or
local market conditions. These loans expose a
lender to the risk of having
to liquidate the collateral securing
these loans at times when there
may be significant fluctuation of commercial
real estate
values or to the
risk of inadequate cash flows to
service the commercial loans. Unexpected deterioration in
the credit quality
of our
commercial business
and/or real
estate loan
portfolio could
require us
to increase
our allowance
for credit
losses,
which would
reduce our
profitability and
could have
an adverse
effect on
our business,
financial condition,
and results
of
operations.
Commercial construction loans generally
have a higher risk of
loss due to the assumptions
used to estimate the value
of property
at completion
and the
cost of
the project,
including interest.
It can
be difficult
to accurately
evaluate the
total
funds required
to complete
a project,
and construction
lending often
involves the
disbursement
of substantial
funds with
repayment dependent, in large part, on the success of the ultimate project rather than the ability of a borrower or guarantor
to repay the loan from sources other than the subject project. If the assumptions and estimates are inaccurate, the value of
completed property
may fall
below the
related loan
amount. If we
are forced to
foreclose on
a project
prior to
completion,
we may
be
unable
to
recover
the
entire
unpaid
portion
of the
loan,
which
would
lead
to
losses.
In
addition,
we
may
be
required to fund additional amounts to complete a project,
incur taxes, maintenance and compliance costs for
a foreclosed
property and
may have
to hold
the property
for an
indeterminate
period of
time, any
of which
could adversely
affect
our
business, prospects, cash flow,
liquidity, financial
condition and results of operations.
The imposition of
further limits by the
bank regulators on commercial
real estate lending activities
could curtail
our growth and adversely affect our earnings.
The FDIC, the Federal Reserve
and the Office of
the Comptroller of the
Currency have promulgated joint
guidance on
sound risk management practices for financial institutions with concentrations in commercial real estate lending. Under this
guidance,
a financial
institution
that,
like
us,
is actively
involved
in
commercial
real
estate
lending should
perform
a risk
assessment to identify
concentrations. Regulatory
guidance on concentrations
in commercial real
estate lending provides
that a bank’s commercial real estate lending exposure could
receive increased supervisory scrutiny where total commercial
real estate
loans, including
loans secured
by multi-family
residential
properties, owner-occupied
and nonowner-occupied
investor real estate, and
construction and land loans, represent 300%
or more of an
institution’s total risk-based capital, and
the outstanding balance of the commercial real estate loan portfolio has increased by
50% or more during the preceding 36
months.
At
December
31,
2025,
our
total
commercial
investor
real
estate
loans,
including
loans
secured
by
apartment
buildings, commercial real estate, and construction and land loans represented 370% of the Bank’s total risk-based capital.
However,
the growth
in the
commercial real
estate portfolio
did not
exceed 50%
over the
preceding 36
months but
it has
exceeded the threshold in prior
periods. The particular focus of
the guidance is on exposure
to commercial real estate loans
that are
dependent on
the cash flow
from the
real estate held
as collateral and
that are likely
to be
at greater
risk to
conditions
in the commercial
real estate
market (as opposed
to real estate
collateral held as
a secondary source
of repayment or
as
an abundance
of caution).
The purpose
of the
guidance is
to guide
institutions in
developing risk
management practices
and capital
levels commensurate
with the
level and
nature of
real estate
concentrations. Management
has established
a
commercial
real
estate
lending
framework
to
monitor
specific
exposures
and
limits
by
types
within
the
commercial
real
estate
portfolio
and
takes
appropriate
actions,
as
necessary.
While
we
believe
we
have
implemented
policies
and
procedures with
respect
to our
commercial
real estate
loan portfolio
consistent
with this
guidance,
the FDIC,
the Bank’s
primary federal regulator,
could require us
to implement additional
policies and procedures
pursuant to their
interpretation
of the guidance that may result
in additional costs to us.
In addition, If the FDIC were
to impose restrictions on the
amount
of commercial real estate loans we can hold in our portfolio,
our earnings would be adversely affected.
Our
SBA
lending
program
is dependent
upon
the
federal
government
and
our status
as
a participant
in the
SBA's Preferred
Lenders Program,
and we
face specific
risks associated
with originating
SBA loans
and selling
the guaranteed portion thereof.
We
have
been
approved
by
the
SBA
to
participate
in
the
SBA's
Preferred
Lenders
Program.
As
an
SBA
Preferred
Lender,
we enable
our clients
to obtain
SBA loans
without being
subject to
the potentially
lengthy SBA
approval process
necessary
for
lenders
that
are
not
SBA
Preferred
Lenders.
The
SBA
periodically
reviews
the
lending
operations
of
participating
lenders
to
assess,
among
other
things,
whether
the
lender
exhibits
prudent
risk
management.
When
weaknesses are identified, the SBA may request corrective actions
or impose enforcement actions, including revocation of
the lender's
Preferred Lender
status. If
we lose
our status
as an
SBA Preferred
Lender,
we may
lose some
or all
of our
customers to
lenders who
are SBA
Preferred Lenders,
which could
adversely affect
our business,
financial condition
and
results of operations.
We generally sell the guaranteed
portion of our SBA 7(a) loans
in the secondary market. These sales
have resulted in
both premium income for us
at the time of
sale and created a stream
of future servicing income. There
can be no assurance
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30
USCB Financial Holdings, Inc.
2025 10-K
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% 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.
Correspondent banking is an important part of our business,
which creates increased BSA/AML risk.
As our
business
model
includes
correspondent
services
to banks
in Latin
America
and the
Caribbean,
these
cross-
border
correspondent
banking
relationships
pose
unique
risks
because
they
create
situations
in
which
a
U.S.
financial
institution will be
handling funds from
a financial institution
in Latin America
and the Caribbean
whose customers may
not
be transparent to us. Moreover, many foreign financial institutions, including
in Latin America and the Caribbean where our
correspondent banking
services
are located,
are not
subject to
the same
or similar
regulatory
guidelines
as U.S.
banks.
Accordingly,
these
foreign
institutions
may
pose
greater
money
laundering
risk
to
their
respective
U.S.
bank
correspondent(s). Because
of the
large amount
of funds,
multiple transactions,
and our
potential lack
of familiarity
with a
foreign correspondent financial institution's customers, these customers may
be able to more easily
conceal the source and
use
of
illicit
funds.
Consequently,
we
may
have
a
higher
risk
of
non-compliance
with
the
BSA
and
other
anti-money
laundering (“AML”) rules and regulations including the AML Act due
to our correspondent banking relationships with foreign
financial institutions.
Additionally,
international private
banking places additional
pressure on our
policies, procedures
and
systems for complying with the BSA, and
AML statutes and regulations as well as
the recently enacted CTA.
Our failure to
strictly
adhere
to
the
terms
and
requirements
of
our
OFAC
license
or
our
failure
to
adequately
manage
our
BSA/AML
compliance risk in light of our correspondent banking relationship
with foreign financial institutions and international private
banking could result in regulatory or other actions being
taken against us, including the imposition
of civil money penalties,
formal agreements and
cease and desist
orders. Furthermore, failure
to meet regulatory
requirements could require
us to
incur
additional
significant
costs
in
order
to
bring
our
BSA/AML
processes
and
procedures
into
compliance,
negatively
impact our reputation, and have a material adverse effect
on our business, financial condition and results of operations
.
In recent
years, sanctions
that the
regulators have
imposed on
banks that
have not
complied with
all BSA
and AML
requirements have been
especially severe. In
order to comply
with regulations, guidelines
and examination procedures
in
this area, we have
dedicated significant resources to our BSA/AML process
and procedures. If our policies, procedures and
systems
are deemed
deficient,
we could
be
subject
to
liability,
including
fines
and
regulatory
actions
such
as additional
restrictions on our ability to pay
dividends and the necessity to obtain
regulatory approvals to proceed with
certain aspects
of our business plan, such as acquisitions.
We may not recover all amounts that are contractually
owed to us by our borrowers.
We are
dependent on
the collection
of loan
principal, interest,
and fees
to partially
fund our
operations. A
shortfall in
collections and proceeds may impair our ability to fund
our operations or to repay our existing debt.
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31
USCB Financial Holdings, Inc.
2025 10-K
When
we
lend
funds,
commit
to
fund
a
loan
or
enter
into
a
letter
of
credit
or
other
credit-related
contract
with
a
counterparty, we incur credit risk. The
credit quality of our
portfolio can have a
significant impact on our
earnings. We expect
to experience
charge-offs
and delinquencies
on our
loans
in the
future.
Our
customers'
actual
operating
results
may be
worse
than
our
underwriting
contemplated
when
we
originated
the
loans,
and
in
these
circumstances,
we
could
incur
substantial impairment or loss
of the value on these
loans. We may
fail to identify problems
because our customer
did not
report them in a timely manner
or, even if
the customer did report the problem,
we may fail to address it
quickly enough or
at all, or some loans,
due to market circumstances,
may not be able
to be fully rehabilitated.
Even if customers provide
us
with full and accurate disclosure
of all material information concerning
their businesses, we may misinterpret
or incorrectly
analyze this information. Mistakes
may cause us
to make loans that
we otherwise would not
have made or
to fund advances
that we otherwise would not have funded, either
of which could result in losses on
loans, or necessitate that we significantly
increase our allowance for loan and
lease losses. As a result, we could
suffer loan losses and
have non-performing loans,
which could
have
a material
adverse
effect
on our
net
earnings
and
results
of
operations
and financial
condition,
to the
extent the losses exceed our allowance for loan and lease
losses.
Some
of
our
loans
are
secured
by
liens
on
specified
collateral
of
the
borrowers
and
we
may
not
obtain
or
properly
perfect our liens or the value
of the collateral securing any
particular loan may not be sufficient
to protect us from suffering
a partial or complete
loss if the loan
becomes non-performing and
we proceed to foreclose
on or repossess
the collateral.
With
respect
to
loans
that
we
originate
for
condominium
or
homeowners'
associations
(“Associations”),
these
loans
are
primarily secured by and rely
upon the cash flow received
by the Associations from
payments received from their
property
owners, as well
as cash on
hand. These Associations
rely upon payments
received from their
property owners in
order to
perform
on
these
loans
and
for
the
loan
collateral.
Accordingly,
our
ability
to
recover
amounts
on
non-performing
loans
made to Associations
is dependent
upon the Association
having sufficient
cash on hand
for repayment of
the loan and/or
having
the
ability
to
impose
assessments
on
its
property
owners,
some
of
whom
may
not
have
the
ability
to
pay
such
assessments. In such events, we could suffer loan losses,
which could have a material adverse effect on our
net earnings,
allowance for loan and lease losses, financial condition,
and results of operations.
Non-performing
assets
take
significant
time
to
resolve
and
adversely
affect
our
results
of
operations
and
financial condition, and could result in further losses in
the future.
Non-performing assets adversely
affect our net
income in
various ways. We
do not
record interest income
on nonaccrual
loans or other
real estate
owned (“OREO”),
thereby adversely
affecting our
net income
and returns on
assets and
equity,
increasing our loan administration costs and adversely
affecting our efficiency ratio. When
we take collateral in foreclosure
and similar proceedings, we are
required to mark the collateral to
its then-fair market value, which may
result in a loss. Non-
performing loans
and OREO
also increase our
risk profile
and the level
of capital
our regulators
believe is appropriate
for
us to
maintain in
light of
such risks.
The resolution
of non-performing
assets requires
significant time
commitments from
management
and
can
be
detrimental
to
the
performance
of
their
other
responsibilities.
In
addition,
there
are
legal
fees
associated
with
the
resolution
of
problem
assets
as
well
as
carrying
costs
such
as
taxes,
insurance,
and
maintenance
related to OREO.
If we experience
increases in non-performing
loans and non-performing
assets, our net
interest income
may be negatively impacted and
our loan administration costs
could increase, each of which could
have an adverse effect
on our net income and related ratios, such as return
on assets and equity.
We engage in
lending secured by
real estate and
may foreclose on
the collateral and
own the underlying
real
estate,
subjecting
us
to
the
costs
and
potential
risks
associated
with
the
ownership
of
real
property,
including
exposure
to
environmental
liability,
or
consumer
protection
initiatives
or
changes
in
state
or
federal
law
may
substantially raise the cost of foreclosure or prevent
us from foreclosing at all.
Since we
originate
loans secured
by real
estate, we
may have
to foreclose
on the
collateral
property
to recover
our
investment and may thereafter own and operate such property,
in which case we would be exposed to the risks inherent in
the
ownership
of
real
estate.
The
amount
that
we,
as
a
mortgagee,
may
realize
after
a
foreclosure
depends
on
factors
outside of our
control, including,
but not limited
to, general or
local economic conditions,
environmental cleanup
liabilities,
various assessments
relating to
the ownership
of the property,
interest rates, real
estate tax rates,
operating expenses
of
the
mortgaged
properties,
our
ability
to
obtain
and
maintain
adequate
occupancy
of
the
properties,
zoning
laws,
governmental and
regulatory rules,
and natural disasters.
Our inability
to manage
the amount
of costs
or size
of the risks
associated with
the ownership
of real
estate, or
write-downs in
the value
of OREO,
could have
an adverse
effect on
our
business, financial condition, and results of operations.
Additionally,
consumer protection initiatives
or changes in state
or federal law may
substantially increase the time
and
expenses associated
with the
residential foreclosure
process or
prevent us
from foreclosing
at all.
A number
of states
in
recent
years
have
either
considered
or
adopted
foreclosure
reform
laws
that
make
it
substantially
more
difficult
and
expensive for
lenders to
foreclose on
residential properties
in default.
Furthermore, federal
regulators have
prosecuted a
number of
mortgage servicing
companies for
alleged consumer
law violations.
If new
state or
federal laws
or regulations
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32
USCB Financial Holdings, Inc.
2025 10-K
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.
We
also
rely
on
the
integrity
and
security
of
a
variety
of
third
party
processors,
payment,
clearing
and
settlement
systems, as well
as the various
participants involved
in these systems,
many of which
have no direct
relationship with us.
Failure
by
these
participants
or
their
systems
to
protect
our
customers'
transaction
data
may
put
us
at
risk
for
possible
losses due
to fraud
or operational
disruption. At
the date
of this
Annual Report
Form 10-K,
there is
no knowledge or
indication
that customer
sensitive information
was compromised
as a
result of
third parties
system vulnerabilities,
but management
continues to monitor developments and vendor communications.
When we originate loans, we rely
heavily upon information supplied by third parties,
including the information contained
in credit
applications, property
appraisals, title
information, equipment
pricing and
valuation and
employment and
income
documentation, in deciding which loans we will originate, as well as the terms of those loans. If any of the information upon
which
we
rely
is
misrepresented,
either
fraudulently
or
inadvertently,
and
the
misrepresentation
is
not
detected
prior
to
funding,
the value
of
the
loan may
be significantly
lower
than expected,
or we
may
fund a
loan that
we
would not
have
funded or
on terms
that do
not comply
with our
general underwriting
standards. Whether
a misrepresentation
is made
by
the applicant, the borrower,
one of our employees or another
third party,
we generally bear the risk of
loss associated with
the misrepresentation. A loan
subject to a material
misrepresentation is typically
unsellable or subject to
repurchase if it
is
sold prior to detection of the
misrepresentation. The sources of
the misrepresentations are often
difficult to locate, and
it is
often difficult
to recover
any
of the
resulting monetary
losses we
may suffer,
which
could
adversely
affect
our business,
financial condition and results of operations.
We
face
significant
operational
risks
because
the
nature
of
the
financial
services
business
involves
a
high
volume of transactions
.
We
operate
in
diverse
markets
and
rely
on
the
ability
of
our
employees
and
systems
to
process
a
high
number
of
transactions. Operational
risk is
the risk of
loss resulting from
our operations,
including but not
limited to, the
risk of fraud
by employees or
persons outside
the Company,
the execution
of unauthorized
transactions by
employees, errors
relating
to transaction
processing and technology, breaches of
our internal
control systems and
compliance requirements. Insurance
coverage may
not be available
for such
losses, or
where available, such
losses may
exceed insurance
limits. This
risk of
loss
also
includes
potential
legal
actions
that
could
arise
as
a
result
of
operational
deficiencies
or
as
a
result
of
non-
compliance with applicable regulatory standards,
adverse business decisions or their
implementation, or customer attrition
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33
USCB Financial Holdings, Inc.
2025 10-K
due to
potential adverse publicity. In the
event of a
breakdown in our
internal control systems,
improper operation of
systems
or improper employee actions, we could suffer financial
loss, face regulatory action, and/or suffer damage to
our reputation.
We have several
large depositor relationships,
the loss of which
could force us to
fund our business
through
more expensive and less stable sources.
Withdrawals of deposits by any
one of our largest depositors
could force us to
rely more heavily on more expensive
and
less
stable
funding
sources.
Consequently,
the
occurrence
of
such
event
could
have
a
material
adverse
effect
on
our
business, financial condition and results of operations. At
December 31, 2025, our top 10 depositors held 15.5% of
our total
deposit portfolio. As of December 31, 2025, 49% of our deposits
are estimated to be FDIC-insured. At such date, our
public
funds are 7%
of total deposits
and are partially
collateralized. The
estimated average account
size of our
deposit portfolio
is
$113
thousand
as
of
December 31,
2025.
In
addition,
the
Bank
was
considered
a
“well
capitalized”
institution
as
of
December 31, 2025 and 2024.
Any change in the Bank's ability to gather brokered
deposits may adversely impact the Bank.
Failure to maintain
the Bank's status as
a "well capitalized" institution
could have an adverse
effect on us, and
our ability
to fund
our operations.
The Bank
uses brokered
deposits to
assist in
funding its
loan and
other financing
products. As
of
December
31,
2025,
11%
of
our
total
deposits
consisted
of
brokered
deposits.
Should
the
Bank
ever
fail
to
be
well
capitalized
in
the
future
as
a
result
of
not
meeting
the
well
capitalized
requirements
or
the
imposition
of
an
individual
minimum capital
requirement
or similar
formal
requirement,
then,
the
Bank would
be
prohibited,
absent
waiver
from the
FDIC, from utilizing brokered deposits
(i.e., no insured depository institution
that is deemed to be
less than "well capitalized"
may accept, renew or
rollover brokered deposits absent a
waiver from the
FDIC). In such event,
such a result
could produce
material adverse
consequences for
the Bank with
respect to
liquidity and could
also have
material adverse
effects on
our
financial condition
and results
of operations.
Further,
depending on
the Bank's
condition in
the future
and its
reliance on
these deposits
as a
source
of funding,
the
FDIC could
increase the
surcharge
on
our brokered
deposits.
If
we are
ever
required
to
pay
higher
surcharge
assessments
with
respect
to
these
deposits,
such
payments
could
be
material
and
therefore could have
a material adverse
effect on our
financial condition and
results of operations.
In addition, changes
to
FDIC regulations regarding brokered deposits
or interpretations of such
regulations by federal banking agencies could
have
an adverse impact on the Bank’s ability to accept
brokered deposits. Additionally,
brokered deposits are highly sensitive to
changes in interest rates and, accordingly,
can be a more volatile source of funding.
Use of brokered deposits involves the
risk that growth supported by such deposits would be halted,
or the Bank’s liquidity adversely impacted, if the
rates offered
by the
Bank were
less than
those offered
by other
institutions seeking
such deposits,
or if
depositors were
to perceive
a
decline in the Bank’s safety and soundness, or both.
Our securities portfolio performance in difficult market conditions could have adverse effects on
our results of
operations
.
Unrealized losses on
investment securities result from
changes in credit
spreads and liquidity
issues in the
marketplace,
along
with
changes
in
the
credit
profile
of
individual
securities
issuers.
Under
GAAP,
we
are
required
to
review
our
investment
portfolio
periodically
for
the
presence
of credit
losses
of
our securities,
taking
into consideration
current
and
future
market
conditions,
the
extent
and
nature
of
changes
in
fair
value,
issuer
rating
changes
and
trends,
volatility
of
earnings, current
analysts’ evaluations,
our ability
and intent
to hold
investments until
a recovery
of fair
value, as
well as
other factors. Adverse developments with respect to one or more of
the foregoing factors may require us to deem particular
securities to be impaired, with the credit-related portion of
the reduction in the value recognized as a
charge to our earnings
through an allowance. Subsequent valuations,
in light of factors prevailing at that
time, may result in significant changes
in
the values of these securities in future periods. Any
of these factors could require us to
recognize further impairments in the
value of our securities portfolio, which may have an adverse
effect on our results of operations in future periods.
We may not
effectively execute
on our expansion
strategy, which
may adversely affect
our ability to
maintain
our historical growth and earnings trends.
Our
primary
expansion
strategy
focuses
on
organic
growth,
supplemented
by
potential
acquisitions
of
financial
institutions and
banking teams;
however,
we may
not be
able to
successfully execute
on these
aspects of
our expansion
strategy,
which
may
cause
our
future
growth
rate
to
decline
below
our
recent
historical
levels,
or
may
prevent
us
from
growing at
all. More
specifically,
we may
not be able
to generate
sufficient new
loans and
deposits within
acceptable risk
and
expense
tolerances
or
obtain
the
personnel
or
funding
necessary
for
additional
growth.
Various
factors,
such
as
economic conditions
and competition with
other financial
institutions, may impede
or restrict the
growth of our
operations.
Further, we may be unable to attract
and retain experienced bankers, which could adversely
affect our growth. The success
of our strategy also depends on our ability to manage our growth effectively,
which in turn depends on a number of factors,
including
our
ability
to
adapt
our
credit,
operational,
technology,
risk
management,
internal
controls
and
governance
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34
USCB Financial Holdings, Inc.
2025 10-K
infrastructure to accommodate expanded operations.
Even if we are successful in continuing our growth,
such growth may
not offer the same
levels of potential profitability,
and we may not
be successful in
controlling costs and maintaining
asset
quality in the
face of that
growth. Accordingly,
our inability
to maintain growth
or to
effectively manage
growth could
have
an adverse effect on our business, financial condition
and results of operations.
New lines of business, products, product enhancements
or services may subject us to additional risk.
From time to time, we
may implement new lines
of business or offer
new products and product
enhancements as well
as new
services within
our existing
lines of
business. There
are substantial
risks and
uncertainties associated
with these
efforts. In
developing, implementing
or marketing new
lines of business,
products, product
enhancements or
services, we
may invest significant time and
resources. We may underestimate the appropriate level
of resources or expertise
necessary
to
make
new
lines
of
business
or
products
successful
or
to
realize
their
expected
benefits.
We
may
not
achieve
the
milestones
set
in
initial
timetables
for
the
development
and
introduction
of
new
lines
of
business,
products,
product
enhancements or services, and price
and profitability targets may not
prove feasible. External factors, such
as compliance
with regulations, competitive
alternatives and shifting
market preferences, may
also impact the
ultimate implementation of
a new line of business or offerings of new products, product
enhancements or services. Any new line of business,
product,
product enhancement or service could have a significant impact on the effectiveness of our system of internal controls. We
may also
decide to
discontinue
businesses
or products,
due to
lack
of customer
acceptance
or unprofitability.
Failure to
successfully develop and implement new lines of business or offerings of new products, product enhancements or services
could have an adverse effect on our business, financial condition and results
of operations and could subject us to new and
unanticipated operational, credit, regulatory and reputational risks,
among other risks.
Our business
needs and
future growth
may require
us to
raise additional
capital and
that capital
may not
be
available on terms acceptable to us or may be dilutive to
existing shareholders.
We believe that we
have sufficient capital
to meet our capital
needs for our current
growth plans. However,
we expect
that we would need to raise additional capital,
in the form of debt or equity securities,
in the future to have sufficient capital
resources
to
meet
our
longer-term
growth
plans,
and/or
if
the
quality
of
our
assets
or
earnings
were
to
deteriorate
significantly.
In addition, we
are required by federal
regulatory authorities to
maintain adequate levels
of capital to support
our operations.
Our ability
to raise
capital will
depend on,
among other
things, conditions
in the
capital markets,
which are
outside of
our control, and our financial performance. Accordingly,
we cannot provide assurance that such capital will
be available on
terms acceptable to us or at all. Any occurrence
that limits our access to capital may adversely
affect our capital costs and
our ability to raise capital. Further, if we need to raise capital in the future, we may have to do so when many other financial
institutions are also
seeking to
raise capital and
would then have
to compete with
those institutions for
investors. Any inability
to raise capital on acceptable terms when needed may cause us to
either issue additional shares of common stock or other
securities on less than
desirable terms or
reduce our rate of
growth until market conditions
become more favorable. If
any
of such
events occur, they could
have a material
adverse effect on
our business, financial
condition and results
of operations
and could be dilutive to both tangible book value and our
share price.
Federal law requires that a holding company act as a source of financial and managerial strength to its subsidiary bank
and to
commit
resources
to support
such subsidiary
bank. Under
the “source
of strength”
doctrine, the
Federal Reserve
may
require
a
holding
company
to
make
capital
injections
into
a
troubled
subsidiary
bank
and
may
charge
the
holding
company with
engaging
in unsafe
and unsound
practices
for failure
to commit
resources
to a
subsidiary
bank. A
capital
injection may be required
at times when the
holding company may
not have the resources
to provide it and
therefore may
be required to attempt to
borrow the funds or raise
capital. Thus, any borrowing that must
be done by the Company
to make
a required
capital injection becomes
more difficult and
expensive and
could have
an adverse
effect on our
business, financial
condition and results of operations.
Moreover, it is possible that we will be
unable to borrow funds or
otherwise raise capital
at a
time when
it is
needed. In
addition, an
inability to
raise capital
when needed
may subject
us to
increased regulatory
supervision and
the
imposition of
restrictions
on our
growth
and business.
These restrictions
could
negatively
affect
our
ability
to
operate
or
further
expand
our
operations
through
loan
growth,
acquisitions
or
the
establishment
of
additional
branches. These restrictions may also
result in increases in operating
expenses and reductions in revenues
that could have
a material adverse effect on our financial condition,
results of operations and our share price.
We may
grow through
mergers or
acquisitions,
a strategy
that may
not be
successful or,
if successful,
may
produce risks in successfully integrating and managing the merged companies or acquisitions and may dilute our
shareholders.
As
part
of
our
growth
strategy,
we
may
pursue
mergers
and
acquisitions
of
banks
and
non-bank
financial
services
companies within or outside our principal market areas that fit within the mission-driven values of our franchise and that we
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35
USCB Financial Holdings, Inc.
2025 10-K
believe support our business and make financial and strategic
sense. We may have difficulty identifying suitable acquisition
candidates or executing on acquisitions that we pursue, and we may
not realize the anticipated benefits of any transactions
we complete. Additionally,
for any opportunistic
acquisition we were
to consider,
we expect to
face significant
competition
from
numerous
other
financial
services
institutions,
many
of
which
will
have
greater
financial
resources
than
we
do.
Accordingly,
attractive
opportunistic
acquisitions
may
not be
available to
us. There
can be
no assurance
that we
will
be
successful in identifying or completing any future acquisitions.
Mergers and acquisitions involve numerous risks, any
of which could harm our business, including:
•
the possibility that expected benefits
may not materialize in the
time frame expected or at
all, or may be more
costly
to achieve, or that the acquired business will not perform
to our expectations;
•
time,
expense
and
difficulties
in
integrating
the
operations,
management,
products
and
services,
technologies,
existing contracts, accounting processes
and personnel of the target
and realizing the anticipated synergies
of the
combined businesses;
•
incurring the
time and
expense associated with
identifying and
evaluating potential acquisitions
and merger
partners
and negotiating potential transactions, resulting in management’s attention being diverted from the operation of our
existing business;
•
difficulties in supporting and transitioning customers
of the target and disruption of our ongoing banking
business;
•
the price we
pay or other
resources that we
devote may exceed
the value we
realize, or the
value we could
have
realized if we had allocated the purchase consideration
or other resources to another opportunity;
•
entering new markets or areas in which we have limited or
no experience;
•
the possibility that our culture is disrupted as a result of
an acquisition;
•
potential loss of key personnel and customers from either
our business or the target’s business;
•
assumption of unanticipated problems, claims or other liabilities
of the acquired business;
•
an inability to realize expected synergies or returns on
investment;
•
the possibility of regulatory approval for the acquisition being delayed,
impeded, restrictively conditioned, 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.
Any acquisition activities we engage in could require us to use a substantial amount of cash, other liquid assets, and/or
incur debt. Also, if
we finance acquisitions by issuing equity securities,
our existing shareholders’ ownership may be
diluted,
which
could
negatively
affect
the
market
price
of
our
Class
A
common
stock.
Additionally,
if
the
goodwill
recorded
in
connection with our potential future acquisitions were determined to be impaired, then we would be required to recognize a
charge against our earnings, which
could materially and adversely affect our
results of operations during the
period in which
the impairment was recognized. Acquisitions
may also involve the payment
of a premium over book
and market values and,
therefore, some
dilution of
our tangible
book value
and net
income per
common share
may occur
in connection
with any
future transaction.
As a result, we
may not achieve the
anticipated benefits of
any such merger or
acquisition, and we
may incur costs
in
excess
of
what
we
anticipate.
Our
failure
to
successfully
evaluate
and
execute
mergers,
acquisitions
or
investments
or
otherwise adequately address and manage
the risks associated with
such transactions could have
a material adverse effect
on our business, results of operations and financial condition,
including short-term and long-term liquidity.
The loss of
one or more
of our key
personnel, or our
failure to attract
and retain other
highly qualified personnel
in the future, could harm our business.
Our future success will, to some extent, depend on the continued service of our directors, executive officers and senior
management
team.
The
loss
of
the
services
of
any
of
these
individuals
could
have
a
significant
adverse
effect
on
our
business. In particular,
we believe that retaining
Luis de la Aguilera,
our Chairman, President
and Chief Executive
Officer,
Robert
Anderson,
our
Chief
Financial
Officer,
Nicholas
Bustle,
our
Chief
Lending
Officer,
and
William
Turner,
our
Chief
Credit
Officer,
is
important
to
our
continuing
success.
Although
we
have
entered
into
employment
or
change-in-control
agreements
with
certain
members
of
our
executive
and
senior
management
team,
including
Messrs.
de
la
Aguilera,
Anderson, Bustle
and Turner,
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.
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USCB Financial Holdings, Inc.
2025 10-K
We also need to continue
to attract and retain other senior
management and to recruit qualified
individuals to succeed
existing
key
personnel
to
ensure
the continued
growth
and successful
operation
of our
business.
We
may
be unable
to
attract or
retain qualified
management
and other
key
personnel
in the
future due
to the
intense competition
for qualified
personnel
among
companies
in
the
financial
services
business
and
related
businesses.
The
loss
of
the
services
of any
senior management personnel, or the inability to recruit
and retain qualified personnel in the future, could
have an adverse
effect on our business, results of
operations, financial condition and prospects.
Additionally,
to attract and retain personnel
with appropriate skills and
knowledge to support our
business, we may offer
a variety of benefits, including
equity awards,
which may reduce our earnings or adversely affect our
business, results of operations, financial condition or prospects.
Damage to our reputation could significantly harm
our businesses.
Our ability to attract
and retain customers and
highly-skilled management and employees is impacted
by our reputation.
A negative public
opinion of us
and our business
can result from
any number of
activities, including our
lending practices,
corporate
governance
and
regulatory
compliance,
acquisitions,
customer
complaints
and
actions
taken
by
community
organizations in
response to
these activities.
Furthermore, negative
publicity regarding
us as
an employer
could have
an
adverse
impact on
our reputation,
especially
with respect
to
matters of
diversity,
pay equity
and workplace
harassment.
Significant
harm
to
our
reputation
could
also
arise
as
a
result
of
regulatory
or
governmental
actions,
litigation
and
the
activities of our customers, other
participants in the financial services
industry or our contractual counterparties, such
as our
service providers
and vendors.
The potential
harm
is heightened
given
increased attention
to how
corporations
address
environmental, social
and governance
issues. In
addition, a
cybersecurity event
affecting us
or our customers'
data could
have a negative
impact on our
reputation and
customer confidence
in us and
our cybersecurity
practices. Damage
to our
reputation could also
adversely affect
our credit ratings
and access to
the capital markets.
Additionally,
whereas negative
public opinion once was
primarily driven by adverse
news coverage in traditional
media, the widespread use
of social media
platforms by
virtually every
segment of
society facilitates
the rapid
dissemination
of information
or misinformation,
which
magnifies the potential harm to our reputation.
We
face
strong
competition
from
financial
services
companies
and
other
companies
that
offer
banking
services, which could materially and adversely affect
our business.
The financial
services industry has
become even
more competitive as
a result
of legislative,
regulatory and technological
changes and
continued
banking consolidation,
which
may increase
as a
result of
current economic,
market and
political
conditions. We
face substantial
competition
in all
phases
of our
operations
from
a variety
of competitors,
including local
banks,
regional
banks,
community
banks
and,
more
recently,
financial
technology,
or
"fintech"
companies.
Many
of
our
competitors offer the same banking services that
we offer and our success depends on
our ability to adapt our
products and
services
to
evolving
industry
standards
and
customer
requirements.
Increased
competition
in
our
market
may
result
in
reduced new
loan and
lease production
and/or decreased
deposit balances
or less
favorable terms
on loans
and leases
and/or deposit
accounts. We also
face competition
from many
other types
of financial
institutions, including
without limitation,
non-bank
specialty
lenders,
insurance
companies,
private
investment
funds,
investment
banks,
and
other
financial
intermediaries. Should competition in
the financial services industry
intensify, our ability to market our
products and services
may be adversely affected. If we are unable to attract and retain banking customers, we may be
unable to grow or maintain
the levels
of our
loans and
deposits and
our results
of operations
and financial
condition may
be adversely
affected as
a
result. Ultimately, we
may not be able to compete successfully against current
and future competitors.
We must respond to rapid technological changes
to remain competitive.
We will have to continue to respond
to future technological changes, which are occurring at a
rapid pace in the financial
services industry
in order
to remain
competitive. We
expect that
new technologies
and business
processes applicable
to
the banking industry will
continue to emerge, and
these new technologies and
business processes may be
better than those
we currently
use. Because
the pace
of technological
change is
high and
our industry
is intensely
competitive,
our future
success will depend, in
part, upon our ability
to address the needs
of our customers by
using technology to provide
products
and
services
that
will
satisfy
customer
demands
for
convenience,
as
well
as
to
create
additional
efficiencies
in
our
operations. We may
not be able to
implement new technology-driven
products and services effectively
or be successful in
marketing
these
products
and
services
to
our
customers.
Failure
to
keep
pace
successfully
with
technological
change
affecting the
financial services
industry could
harm our
ability to compete
effectively and
could have
an adverse
effect on
our business, financial condition and results of
operations. As these technologies improve in the future,
we may be required
to make significant capital expenditures in order to remain competitive, which may increase our overall expenses and have
an adverse effect on our business, financial condition
and results of operations.
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37
USCB Financial Holdings, Inc.
2025 10-K
We
continually
encounter
technological
change,
and
we
may
have
fewer
resources
than
many
of
our
competitors to invest in technological improvements.
The financial
services
industry
continues to
undergo
rapid
technological
changes
with
frequent
introductions
of new
technology-driven products
and services,
including recent
and rapid
developments in
artificial intelligence
(“AI”) including
agentic AI. The effective use of technology increases efficiency
and enables financial institutions to better serve customers
and to reduce
costs. Our future
success will depend,
in part, upon
our ability to
address the needs
of our clients
by using
technology to provide products and services that will satisfy client demands for convenience, as well as to create additional
efficiencies
in
our
operations,
including
through
AI
capabilities.
Many
national
vendors
provide
turn-key
services
to
community banks, such
as internet banking
and remote deposit
capture that allow
smaller banks to
compete with institutions
that
have
substantially
greater
resources
to
invest
in
technological
improvements.
We
may
not
be
able,
however,
to
effectively
implement
new
technology-driven
products
and
services
or
be
successful
in
marketing
these
products
and
services to our customers.
Our
current
and
future
uses of
artificial
intelligence
and
other
emerging
technologies
may
create
additional
risks.
The increasing adoption of AI in financial services
presents significant opportunities but also introduces a range of
risks
that
could
impact
our
operations,
regulatory
compliance,
and
customer
trust.
AI
introduces
model
risk,
where
flawed
algorithms or
biased data could
result in inaccurate
credit decisions,
compliance violations,
or discriminatory
outcomes in
lending or customer
service. Cybersecurity
threats, such
as data breaches,
adversarial attacks,
and data poisoning,
pose
significant challenges,
particularly as these
systems handle
large volumes of
sensitive customer
information. Additionally,
the opaque nature of some AI models, often referred to as "black-box" systems, raises regulatory compliance concerns, as
regulators
increasingly
require
transparency
and
explainability
in
AI-driven
decision-making.
The
legal
and
regulatory
environment for AI is uncertain and rapidly evolving, potentially
increasing compliance cost and risk of non-compliance.
Operational risks also arise from potential system failures, over-reliance
on AI, and integration challenges with existing
infrastructure. Disruptions in AI systems could impact critical functions such as fraud detection, transaction monitoring, and
customer support.
Ethical and reputational
risks, including
unintended consequences
or perceived unfairness
in AI-driven
decisions,
may
erode
customer
trust
and
expose
us
to
regulatory
scrutiny.
Mitigating
these
risks
requires
a
robust
governance
framework,
regularly
testing
and
auditing
of
AI
models,
and
strong
human
oversight.
Investments
in
cybersecurity, data
privacy protections, and employee training are critical
to managing these risks.
A
failure,
interruption,
or
breach
in
the
security
of
our
systems,
or
those
of
our
contracted
vendors,
could
disrupt
our
business,
result
in
the
disclosure
of
confidential
information,
damage
our
reputation,
and
create
significant financial and legal exposure.
Although we
devote significant
resources to maintain
and regularly update
our systems and
processes that are
designed
to
protect
the
security
of
our
computer
systems,
software,
networks
and
other
technology
assets,
as
well
as
the
confidentiality,
integrity and availability
of information belonging
to us and
our customers,
there is no
assurance that
all of
our
security
measures
will
provide
absolute
security.
Many
financial
institutions,
including
us,
have
been
subjected
to
attempts to infiltrate the security of their websites or other systems, some involving sophisticated
targeted attacks intended
to obtain
unauthorized access
to confidential
information, destroy
data, disrupt
or degrade
service, sabotage
systems or
cause other damage, including through the introduction of
computer viruses or malware, cyber-attacks and other means. At
this point,
although there
is no
knowledge or
indication that we
have experienced a
material cyber-incident or
security breach
that has been successful in compromising our
data or systems to date, we can
never be certain that all of our
systems are
entirely free from vulnerability to breaches of security or
other technological difficulties or failures.
Despite efforts to
ensure the integrity
and security of
our systems, it
is possible that
we may not
be able to
anticipate,
detect or recognize
threats to our
systems or to
implement effective
preventive measures
against all efforts
to breach our
security inside or outside our business, especially because the techniques used to attack our systems
change frequently or
are
not
recognized
until
launched,
and
because
cyber-attacks
can
originate
from
a
wide
variety
of
sources,
including
individuals or groups who are associated with
external service providers or who are or
may be involved in organized crime
or linked
to terrorist
organizations or
hostile foreign
governments. Those
parties may
also attempt
to fraudulently
induce
employees, customers, third-party service providers or other users of our systems to disclose sensitive information in order
to gain access
to our data or
that of our customers
or clients. Similar
to other companies,
our risks and exposures
related
to cybersecurity attacks have increased as a result of the related increased reliance on remote working and the increase in
digital
operations.
Such
risks
and
exposures
are
expected
to
remain
high
for
the
foreseeable
future
due
to
the
rapidly
evolving nature
and sophistication of
these threats
and the
expanding use
of technology, as our
web-based product offerings
grow and
we expand
internal usage
of web-based
applications.
Cybersecurity
risk and
other security
matters are
also a
major focus of regulatory authorities.
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USCB Financial Holdings, Inc.
2025 10-K
A successful
penetration
or
circumvention
of the
security
of our
systems,
including those
of our
third-party
vendors,
could
cause
serious
negative
consequences,
including
significant
disruption
of
our
operations,
misappropriation
of
confidential information,
or damage
to computers
or systems,
and may
result in violations
of applicable
privacy and
other
laws, financial loss,
loss of confidence
in our security measures,
customer dissatisfaction, increased
insurance premiums,
significant litigation exposure and harm to our reputation, all of which could have a material adverse effect on our business,
financial condition, results of operations, and future prospects.
We
rely
on
other
companies
to
provide
key
components
of
our
business
infrastructure
and
our
operations
could
be
interrupted
if
our
third-party
service
providers
experience
difficulty,
terminate
their
services
or
fail
to
comply with banking regulations.
Third parties
provide key
components of
our business
operations such
as data
processing, recording
and monitoring
transactions,
online
banking
interfaces
and services,
Internet
connections
and
network
access.
While
we
have
selected
these third-party
vendors carefully,
performing upfront
due diligence
and ongoing
monitoring activities,
we do
not control
their actions. Any problems caused by these third parties, including those resulting from disruptions in services provided by
a
vendor
(including
as
a
result
of
a
cyber-attack,
other
information
security
event
or
a
natural
disaster),
financial
or
operational difficulties
for the vendor,
issues at third-party
vendors to our
vendors, failure of
a vendor to
handle current or
higher volumes, failure of a vendor to provide services for
any reason, poor performance of services, failure to comply
with
applicable laws
and regulations,
or fraud
or misconduct
on the
part of
employees of
any of
our vendors,
could adversely
affect our ability
to deliver products
and services to
our customers, our
reputation and our
ability to conduct
our business,
which could
adversely affect
our business,
prospects, cash
flow,
liquidity,
financial condition
and results
of operations.
In
certain
situations,
replacing
these
third-party
vendors
could
also
create
significant
delay,
expense,
and
operational
difficulties, which
could also
adversely affect
our business.
Accordingly,
use of
such third
parties creates
an unavoidable
and inherent
risk to
our business
operations. Such
risk is
generally expected
to remain
elevated as
many of
our vendors
have also
been, and
may
further be,
affected
by increased
reliance
on remote
work
environments,
market
volatility
and
other factors
that increase
their risks
of business
disruption or
that may
otherwise affect
their ability
to perform
under the
terms of any agreements with us or provide essential services.
Our operations could be interrupted or
materially impacted if any of our
third-party service providers fail to comply
with
banking regulations
and other
applicable laws.
The Federal
Reserve, FDIC,
FOFR, and
other regulators
expect financial
institutions
to
be
responsible
for
all
aspects
of
their
performance,
including
aspects
that
they
delegate
to
third
parties.
Accordingly,
we will
be responsible
for deficiencies
in our
oversight and
control of
our third
party relationships
and in
the
performance of the parties with which
we have these relationships. As
a result, if our regulators conclude that
we have not
exercised adequate oversight and control over our third party vendors or
other ongoing third party business relationships or
that
such
third
parties
have
not
performed
appropriately,
we
could
be
subject
to
remedial
and/or
enforcement
actions,
including civil
money penalties
or other
administrative
or judicial
penalties or
fines
as well
as requirements
for customer
remediation, any of which could have a material adverse
effect our business, financial condition or results
of operations.
Litigation and regulatory actions,
including possible enforcement actions, could subject
us to significant fines,
penalties,
judgments
or
other
requirements
resulting
in
increased
expenses
or
restrictions
on
our
business
activities.
In the normal course of
business, from time to time, we
have in the past and
may in the future be
named as a defendant
in various
legal actions
arising in
connection with
our current
and/or prior
business
activities. Legal
actions could
include
claims for substantial compensatory and/or
punitive damages or claims for indeterminate
amounts of damages. Further,
in
the future
our
federal
and/or
state
bank
regulators
may
impose
consent
orders,
civil
money
penalties,
matters
requiring
attention, or similar types of
supervisory penalties or criticism. We may also,
from time to time, be
the subject of subpoenas,
requests
for
information,
reviews,
investigations
and
proceedings
(both
formal
and
informal)
by
governmental
agencies
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.
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39
USCB Financial Holdings, Inc.
2025 10-K
Certain of
our directors may
have conflicts
of interest in
determining whether to
present business
opportunities
to us or another entity with which they are, or may
become, affiliated.
Certain of our
directors are or may
become subject to fiduciary
obligations in connection with
their service on the
boards
of
directors
of
other
corporations,
including
financial
institutions.
A
director's
association
with
other
financial
institutions,
which give rise to
fiduciary or contractual obligations to such other
institutions, may create conflicts of interest. To the extent
that any of our directors
become aware of acquisition
opportunities that may be
suitable for entities other
than us to which
they have fiduciary or contractual obligations, or they are
presented with such opportunities in their capacities as fiduciaries
to such
entities, they
may honor
such obligations
to such
other entities.
You
should assume
that to
the extent
any of
our
directors become aware
of an opportunity
that may be
suitable both for
us and another
entity to which
such person has
a
fiduciary obligation
or contractual
obligation
to present
such
opportunity as
set forth
above,
he or
she may
first give
the
opportunity to such other entity
or entities and may give
such opportunity to us only
to the extent such other
entity or entities
reject
or
are
unable
to
pursue
such
opportunity.
In
addition,
you
should
assume
that
to
the
extent
any
of
our
directors
become
aware
of
an
acquisition
opportunity
that
does
not
fall
within
the
above
parameters,
but
that
may
otherwise
be
suitable for us, he or she may not present such opportunity to
us.
Pursuant to an agreement between us and each of our Significant Investors
(as defined below), each of the Significant
Investors has the right
to nominate one
director to serve
on our Board, including
Board committees, and
to designate one
non-voting Board
observer.
The directors
and Board
observers
designated by
the Significant
Investors have
the right
to,
and have
no duty
not to,
engage in
the same
or similar
business activities
or lines
of business
as us.
In the
event that
a
director or Board observer designated by a Significant Investor acquires knowledge of a potential transaction or matter that
may be
a corporate opportunity
for us,
such person shall
have no
duty to
communicate or
present such corporate
opportunity
to us
and shall
not be
liable to
us or
our shareholders
for breach
of any
duty by
reason of
the fact
that such
person or
a
related investment fund
thereof, directly or
indirectly, pursues or acquires such opportunity
for itself, directs
such opportunity
to another person, or does not present such opportunity
to us.
Risks Related to Our Tax,
Accounting and Regulatory Compliance
Our ability to recognize
the benefits of
our deferred tax
assets is dependent
on future cash flows
and taxable
income and may be materially impaired upon significant
changes in ownership of our common stock.
We recognize the expected future tax
benefit from deferred tax assets when
it is more likely than
not that the tax benefit
will be
realized. Otherwise,
a valuation
allowance
is applied
against our
deferred
tax assets,
reducing
the value
of such
assets. Assessing
the recoverability
of deferred
tax assets
requires management
to make significant
estimates related
to
expectations
of
future
taxable
income
from
all
sources,
including
reversal
of
taxable
temporary
differences,
forecasted
operating
earnings
and
available
tax
planning
strategies.
Estimates
of
future
taxable
income
are
based
on
forecasted
income from operations and the application of existing tax laws in each jurisdiction. The improved risk profile of the Bank is
a key
component used
in the determination
of our
ability to
realize the
expected future
benefit of
our deferred
tax assets.
To
the extent that future taxable income differs
significantly from estimates as a result
of the interest rate environment and
loan growth capabilities or other factors, our ability to realize
the net deferred tax assets could be negatively
affected.
Subject to certain exceptions, our Class A common stock is subject
to transfer restrictions as set forth in our Articles of
Incorporation that are
designed to preserve
our deferred tax
assets. Notwithstanding these
protective provisions, the
Articles
of Incorporation include
an exception that
allows our Significant
Investors the right
to effect any
transfer that would
otherwise
be prohibited, which transfer could result in the loss of the deferred
tax assets.
Additionally,
significant future
issuances of
common stock
or common
stock equivalents,
or changes
in the
direct or
indirect ownership
of our
common stock
or common
stock equivalents,
could cause
an ownership
change and
could limit
our ability to
utilize our net
operating loss carryforwards
and other tax
attributes pursuant
to Section 382
and Section 383
of the
Internal Revenue
Code of
1986, as
amended.
Future changes
in tax
law or
changes in
ownership structure
could
limit our ability to utilize our recorded net deferred tax assets.
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
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40
USCB Financial Holdings, Inc.
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in the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations"
in Item
7 of this Annual Report
on Form 10-K, describe
those significant accounting
policies and methods used
in the preparation
of
our
consolidated
financial
statements
that
we
consider
critical
because
they
require
judgments,
assumptions
and
estimates that materially affect our consolidated financial statements and related disclosures. As a result, if
future events or
regulatory views concerning such analyses differ significantly from the judgments, assumptions and estimates in
our critical
accounting policies,
those events
or assumptions
could have
a material
impact on
our consolidated
financial statements
and
related
disclosures,
in
each
case
resulting
in
our
need
to
revise
or
restate
prior
period
financial
statements,
cause
damage to our
reputation and
the price
of our Class
A common stock
and adversely affect
our business, prospects,
cash
flow, liquidity,
financial condition and results of operations.
As a public company, we may not efficiently or effectively create an effective internal control environment, and
any future
failure to
maintain
effective
internal control
over financial
reporting
could impair
the reliability
of our
financial
statements,
which
in
turn
could
harm
our
business,
impair
investor
confidence
in
the
accuracy
and
completeness of
our financial
reports and
our access
to the
capital markets,
cause the
price of
our Class
A common
stock to decline and subject us to regulatory penalties.
Our management is responsible for establishing
and maintaining adequate internal control over financial
reporting and
for evaluating
and
reporting
on
that
system
of
internal
control.
Our
internal
control
over
financial
reporting
consists
of
a
process
designed
to
provide
reasonable
assurance
regarding
the
reliability
of
financial
reporting
and
the
preparation
of
financial statements for external purposes in accordance with GAAP.
As a public company,
we are required to comply with
SEC regulations, including
the SOA and
other rules that
govern public companies
that we previously
were not required
to
comply with
as a
private company.
In particular,
we are
required to
certify our
compliance with
Section 404
of the
SOA,
which requires
us to
annually
furnish
a report
by management
on the
effectiveness
of our
internal
control
over
financial
reporting. When evaluating our internal controls over financial reporting, we may identify material weaknesses that we may
not be able to remediate
in time to meet the applicable
deadline imposed upon us for
compliance with the requirements
of
Section 404
of the SOA.
We periodically
review our
formal policies,
processes and practices
related to
financial reporting
and to the
identification of key financial
reporting risks, assess their
potential impact and the
linkage of those
risks to specific
areas and controls within our organization.
If we fail to achieve and maintain the adequacy of
our internal controls, as such standards are modified, supplemented,
or amended from time to
time, we may not
be able to ensure
that we will be able
to conclude on an ongoing
basis that we
have effective
internal controls
over financial
reporting in
accordance with
Section 404
of the
SOA. We
cannot be
certain
as to
the
timing
of completion
of
our
evaluation,
testing,
and
any
remediation
actions
or
the
impact
of
the
same
on
our
operations. If we fail to adequately comply with the requirements of Section 404 of the SOA,
we may be subject to adverse
regulatory consequences and there
could be a
negative reaction in
the financial markets due
to a loss
of investor confidence
in us and the
reliability of our
financial statements. In
addition, we may be
required to incur
costs in improving
our internal
control system
and hiring
additional personnel.
Any such
action could
negatively
affect
our business,
financial condition,
results of operations, and the price of our Class A common
stock may decline.
While we
remain an emerging
growth company, we will
not be
required to include
an attestation report
on internal
control
over financial
reporting issued by
our independent registered
public accounting firm.
We will
cease to be
an emerging
growth
company no later
than December 31,
2026. To
prepare for compliance
with the auditor
attestation requirement
of Section
404
of
the
SOA
once
we
no
longer
qualify
as
an
emerging
growth
company
or
as
a
non-accelerated
smaller
reporting
company, we are engaged in a process to document and evaluate
our internal control over financial reporting, which
is both
costly and
challenging. In
this regard,
we will
need to
dedicate internal
resources, potentially
engage outside
consultants
and adopt a detailed work
plan to assess and document
the adequacy of internal
control over financial reporting,
continue
steps to improve control
processes as appropriate, validate through
testing that controls are
functioning as documented and
continue to
refine our
reporting and
improvement process
for internal
control over
financial reporting.
Despite our
efforts,
there is a
risk that
we will not
be able
to conclude,
within the prescribed
time frame
or at all,
that our
internal control
over
financial
reporting
is
effective
as
required
by
Section
404
of
Sarbanes-Oxley.
If
we
identify
one
or
more
material
weaknesses, it could result in an adverse reaction in
the financial markets due to a loss of confidence in
the reliability of our
financial statements.
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
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41
USCB Financial Holdings, Inc.
2025 10-K
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 Act and the 2018 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 2018 Act,
could make
compliance more difficult
or expensive
or otherwise
adversely affect our
business, prospects,
cash flow, liquidity,
financial condition and results of operations.
We
face
a
risk
of
noncompliance
with
the
Bank
Secrecy
Act
and
other
anti-money
laundering
statutes
and
regulations and corresponding enforcement proceedings.
The BSA, the
USA PATRIOT
Act, and other
laws and regulations
require financial
institutions, among other
duties, to
institute
and
maintain
effective
anti-money
laundering
programs
and
to
file
suspicious
activity
and
currency
transaction
reports,
as
appropriate.
FinCEN,
established
by
the
U.S.
Treasury
Department
to
administer
the
Bank
Secrecy
Act,
is
authorized to impose significant civil money
penalties for violations of those requirements
and has engaged in coordinated
enforcement
efforts
with
the
individual
federal
banking
regulators,
as
well
as
the
U.S.
Department
of
Justice,
Drug
Enforcement
Administration
and
Internal
Revenue
Service.
Additionally,
South
Florida
has
been
designated
as
a
“High
Intensity Financial Crime
Area” (“HIFCA”)
by FinCEN and
a “High Intensity
Drug Trafficking
Area” (“HIDTA”)
by the Office
of National Drug Control
Policy.
The HIFCA program
is intended to concentrate
law enforcement efforts
to combat money
laundering efforts
in higher-risk
areas. There
is also
increased scrutiny
of compliance
with the
rules enforced
by OFAC.
Federal and
state bank
regulators have
for many
years focused
on compliance
with the
BSA and
anti-money laundering
regulations. In
order to
comply with
regulations,
guidelines and
examination
procedures
in this
area, we
have dedicated
significant resources
to our
anti-money laundering
program, especially
due to
the regulatory
focus on
financial and
other
institutions located in South
Florida. Our business includes
supporting our customers, including foreign
financial institutions,
with respect to their international banking needs and our policies, procedures and systems have been designed to address
federal and
state anti-money
laundering compliance.
If our policies,
procedures and
systems are
deemed deficient
or the
policies,
procedures
and
systems
of
the
financial
institutions
that
we
may
acquire
are
deficient,
we
would
be
subject
to
liability,
including
fines,
and
regulatory
actions
that
are
deemed
necessary
in
order
to
remediate
such
deficiencies
and
prevent the recurrence
thereof. In recent
years, sanctions that
the regulators have
imposed on banks
that have not
complied
with
all
anti-money
laundering
requirements
have
been
especially
severe.
Failure
to
maintain
and
implement
adequate
programs to
combat money
laundering and
terrorist financing
could also
have serious
reputational consequences
for us,
which could have a material adverse effect on
our business, financial condition and results of operations.
Significantly
heightened
regulatory
and
supervisory
expectations
and
scrutiny
in
the
United
States
have
increased
our
compliance,
regulatory,
and
other
risks
and
costs
and
subject
us
to
legal
and
regulatory
examinations, investigations, and enforcement actions.
The regulatory and political environment has generally been challenging for
U.S. financial institutions, which have been
subject to
increased regulatory
scrutiny,
including in
the wake
of the failures
of several
regional banks
and other
banking
stresses in recent periods. The
general heightened scrutiny and expectations from
regulators could lead to a more
stringent
regulatory posture by the regulators, investigations and other
inquiries, as well as remediation requirements, regulatory and
operational
restrictions,
more
regulatory
or
other
enforcement
proceedings,
civil
litigation
and
substantial
compliance,
regulatory and other risks and costs.
Our regulators have broad powers
and discretion under their supervisory
authority. A
failure to comply
with regulators’ expectations and
requirements, even if inadvertent,
or to resolve
any identified deficiencies
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42
USCB Financial Holdings, Inc.
2025 10-K
in
a
timely
and
sufficiently
satisfactory
manner
to
regulators,
could
result
in
increased
regulatory
oversight;
material
restrictions,
including,
among
others,
imposition
of
limitations
on
capital
distributions
or
other
business
activities
or
operations; enforcement proceedings; penalties; and fines.
Responding to regulatory inquiries and
proceedings can be time
consuming and
costly and
divert management
attention from
our other
business activities.
As a result
of these
regulatory
efforts and pressures,
like many other
financial institutions, from
time to time,
we may be
subject to public
and non-public
written
agreements,
cease
and
desist
orders,
consent
orders,
memoranda
of
understanding
or
other
enforcement
or
supervisory actions by our regulators.
We
are
subject
to
capital
adequacy
requirements
and
may
become
subject
to
more
stringent
capital
requirements, which could adversely affect our
financial condition and operations.
In
2013,
the
federal
banking
agencies
published
new
regulatory
capital
rules
based
on
the
international
standards,
known as
Basel III,
that were
developed by
the Basel
Committee on
Banking Supervision.
The new
rules raised
the risk-
based capital
requirements
and revised
the
methods for
calculating
risk-weighted
assets, usually
resulting
in higher
risk
weights. The rules apply to us.
The Basel III rules increased
capital requirements and included
two new capital measurements,
a risk-based common
equity Tier 1 ratio
and a capital conservation buffer.
Common Equity Tier
1 (CET1) capital is a subset
of Tier 1 capital
and
is limited to common
equity (plus related surplus), retained earnings,
accumulated other comprehensive income and certain
other
items.
Other
instruments
that
have
historically
qualified
for
Tier
1
treatment,
including
noncumulative
perpetual
preferred stock,
are consigned
to a
category known
as Additional
Tier
1 capital
and must
be phased
out of
CETI over
a
period of
nine years
beginning in
2014. In
order to
be a
“well-capitalized” depository
institution under
the new
regime, an
institution must maintain a
CET1 capital ratio of 7.0%
or more; a Tier
1 capital ratio of 8.5%
or more; a total capital
ratio of
10.5%
or more;
and
a
Tier
1 leverage
ratio
of
4% or
more. Institutions
must
also
maintain
a capital
conservation
buffer
consisting of
common equity
Tier
1 capital
(which amount
(2.5%) is
reflected above
in the
CET1, Tier
1 and
total capital
ratios). In addition
to the higher
required capital
ratios and
the new
deductions and
adjustments, the
final rules
increased
the risk weights
for certain assets,
meaning that we
will have to
hold more capital
against these assets. We
are also required
to hold capital against short-term commitments that are not
unconditionally cancellable.
While we currently meet the requirements of
the Basel III-based capital requirements, we may fail to
do so in the future.
The failure to
meet applicable regulatory
capital requirements could
result in one
or more of
our regulators placing
limitations
or conditions on our activities, including our growth initiatives, or restricting the commencement of new activities, and could
affect
customer
and
investor confidence,
our costs
of funds
and
level of
required
deposit
insurance
assessments
to
the
FDIC,
our
ability
to
pay
dividends
on
our
capital
stock,
our
ability
to
make
acquisitions,
and
our
business,
results
of
operations and financial condition, generally.
In addition, in the current economic
and regulatory environment bank regulators
may impose capital requirements that
are
more
stringent
than
those
required
by
applicable
existing
regulations.
The
application
of
more
stringent
capital
requirements for us could, among other things, result
in lower returns on equity, require the raising of additional capital, and
result in regulatory actions
if we were to be
unable to comply with
such requirements. Implementation
of changes to asset
risk weightings for risk-based capital
calculations, items included
or deducted in calculating
regulatory capital or additional
capital conservation buffers, could result in management modifying our business strategy
and could limit our ability to make
distributions, including paying
dividends.
We are periodically subject
to examination and
scrutiny by a
number of banking agencies
and, depending upon
the findings and determinations
of these agencies, we may
be required to make adjustments
to our business that
could adversely affect us.
As part of
the bank regulatory process,
the Federal Reserve, the
FDIC and the FOFR
periodically conduct examinations
of our business,
including compliance
with applicable
laws and regulations.
If, as a
result of an
examination, one
of these
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, result
s
of operations and reputation may be negatively impacted.
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43
USCB Financial Holdings, Inc.
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We
are
subject
to
numerous
laws
and
regulations
of
certain
regulatory
agencies
designed
to
protect
consumers, including the Community Reinvestment
Act, or CRA, and fair lending laws, and failure
to comply with
these laws could lead to a wide variety of sanctions.
The CRA directs all insured depository institutions to help meet the credit needs of the local communities
in which they
operate
branches,
including
low-
and
moderate-income
neighborhoods.
Each
institution
is
examined
periodically
by
its
primary federal
regulator,
which assesses
the institution’s
CRA performance.
The Equal
Credit Opportunity
Act, the
Fair
Housing
Act
and
other
fair
lending
laws
and
regulations
impose
nondiscriminatory
lending
requirements
on
financial
institutions. The U.S. Department of Justice, the Federal Reserve, and other federal agencies are responsible for enforcing
these laws and regulations. A successful regulatory challenge to our performance under the CRA, fair lending or consumer
lending
laws
and
regulations
could
result
in
a
wide
variety
of
sanctions,
including
damages
and
civil
money
penalties,
injunctive
relief,
customer
restitution,
restrictions
on
mergers
and
acquisitions
activity,
restrictions
on
expansion,
and
restrictions
on
entering
new
business
lines.
Private
parties
may
also
have
the
ability
to
challenge
an
institution’s
performance
under
fair
lending
laws
in
private
class
action
litigation.
Such
actions
could
have
an
adverse
effect
on
our
business, financial condition and results of operations.
Climate change and related legislative and regulatory initiatives may materially affect our business and results
of operations.
The effects
of climate change
continue to create
a significant level
of concern
for the state
of the global
environment.
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. Due
to the
fact that
the Bank
has negative
retained earnings,
the Bank
may not
pay dividends
to the
Company without
the prior
approval of
the FDIC.
Similarly,
we
have agreed to notify the Federal Reserve before declaring
and paying any dividends on our Class A common stock.
If we fail to
pay interest on
or otherwise default
on our subordinated
notes, we will
be prohibited from
paying
dividends or distributions on our Class A common
stock.
As
of
December
31,
2025,
we
had
$40.0
million
of
subordinated
notes
outstanding.
The
indenture
under
which
the
subordinated
notes
were
issued
prohibits
us
from
paying
any
dividends
on
our
common
stock
or
making
any
other
distributions
to
our
shareholders
upon
our
failure
to
make
any
required
payment
of
principal
or
interest
or
during
the
continuance
of
an event
of
default
under
the
applicable
agreement.
Events
of
default
generally
consist
of,
among other
things, certain events
of bankruptcy,
insolvency or liquidation
relating to us.
If we were
to fail to
make a required
payment
of principal or interest
on our subordinated
notes, it could have
a material adverse effect on
the market value of
our common
stock.
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44
USCB Financial Holdings, Inc.
2025 10-K
We
may
issue
additional
debt
securities,
which
would
be
senior
to
our
common
stock
and
may
cause
the
market price of our Class A common stock to decline.
We have issued $40.0 million in aggregate principal amount of 7.625% Fixed-to-Floating Rate Subordinated Notes due
2035. In the future, we may increase our capital resources by making additional offerings of debt or equity securities, which
may include
senior or
additional subordinated
notes, classes
of preferred
shares
and/or common
shares. Holders
of our
common stock are
not entitled to
preemptive rights or
other protections against
dilution. Preferred shares
and debt, if
issued,
have a preference on liquidating distributions or a preference
on dividend or interest payments that could limit our
ability to
make
a
distribution
to
the
holders
of
our
common
stock.
Future
issuances
and
sales
of
parity
preferred
stock,
or
the
perception that
such
issuances
and sales
could occur,
may also
cause
prevailing
market price
for our
Class
A common
stock to decline
and may adversely
affect our
ability to raise
additional capital
in the financial
markets at times
and prices
favorable to us. Further issuances of our Class A common stock could
be dilutive to holders of our Class A common stock.
The market price and trading volume of our Class A
common stock may be volatile, which could result in rapid
and substantial losses for our shareholders.
The market
price
of
our
Class
A common
stock
may
be highly
volatile
and
could
be
subject
to
wide
fluctuations.
In
addition, the trading volume on
our Class A common stock may
fluctuate and cause significant price variations to
occur. We
cannot assure you that the market price of our Class A common stock will not fluctuate or decline significantly in the future.
Some, but
certainly not
all, of
the factors
that could
negatively affect
the price
of our
Class A
common stock,
or result
in
fluctuations in the price or trading volume of our Class
A common stock, include but not limited to:
•
general market conditions;
•
domestic and international economic factors unrelated
to our performance;
•
variations in our quarterly operating results or failure to
meet the market’s earnings expectations;
•
publication of research reports about us or the financial services
industry in general;
•
the determination of securities analysts to not cover our
Class A common stock;
•
the opinion of securities analysts about our stock as an investment;
•
additions to or departures of our key personnel;
•
future sales of our Class A common stock;
•
adverse market reactions to any indebtedness we may
incur or securities we may issue in the future;
•
actions by our shareholders;
•
the operating and securities price performance of companies
that investors consider to be comparable to us;
•
changes or proposed changes in laws or regulations affecting
our business; and
•
actual or potential litigation and governmental investigations.
In
addition,
if
the
market
for
stocks
in
our
industry,
or
the
stock
market
in
general,
experiences
a
loss
of
investor
confidence, the
trading price
of the
Class A
common stock
could decline
for reasons
unrelated to
our business,
financial
condition or results of operations.
If any of the foregoing occurs,
it could cause our Class A common
stock price to fall and
may expose us to lawsuits that, even if unsuccessful, could
be costly to defend and a distraction to management.
There are significant restrictions in our Articles of Incorporation that restrict the
ability to sell our capital stock
to shareholders that would own 4.95% or more of our stock,
excluding our Significant Investors.
Because the
continued availability
of our
"deferred tax
assets" depends,
in part,
on the
value of
our stock
owned by
shareholders owning 5% or
more of our
stock, our amended Articles
of Incorporation, except as
otherwise may be approved
by the Board or
except for transfers by
our Significant Investors, prohibits
any direct or indirect
transfer of stock
or options
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
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45
USCB Financial Holdings, Inc.
2025 10-K
•
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 SOA;
•
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 to occur
of (i) the
last day of
the first fiscal
year in which
our annual gross
revenues exceed $1.235
billion, (ii) the date that the market
value of our Class A common stock
that is held by non-affiliates
exceeds $700.0 million
as of the
last business day in
June of that
year, (iii) the date on
which we have, during
the previous three-year period, issued
more than $1.0 billion
in non-convertible debt, or
(iv) the end of fiscal
year following the fifth
anniversary of the completion
of our initial public offering (which will be December
31, 2026).
It is possible
that some
investors may
find our Class
A common stock
less attractive
since we chose
to rely
on these
exemptions. If some investors find our Class A common
stock less attractive, there may be a less
active trading market for
our Class A common stock and our stock price may be
more volatile.
Because we have elected
to use the extended
transition period for complying
with new or revised
accounting
standards for an “emerging growth company,” our financial statements may not be comparable to companies that
comply with these accounting standards as of the
public company effective dates.
As an emerging
growth company,
we elected to
use the extended
transition period
for complying
with new
or revised
accounting standards under Section 7(a)(2)(B) of the Securities Act. This election allows us to delay the adoption of new or
revised accounting standards
that have different
effective dates for
public and private
companies until those
standards apply
to private companies. As a
result of this election, our
financial statements may not be
comparable to companies that comply
with these
accounting standards
as of
the public
company effective
dates. Because
our financial
statements
may not
be
comparable
to
companies
that
comply
with
public
company
effective
dates,
investors
may
have
difficulty
evaluating
or
comparing our
business, performance
or prospects
in comparison to
other public
companies, which
may have a
negative
impact on the value and liquidity of our Class A common stock. We cannot predict if investors will find our Class A common
stock
less
attractive
because
we
have
relied
on
this
exemption.
If
some
investors
find
our
Class
A
common
stock
less
attractive as a result, there
may be a less active trading
market for our Class A common
stock and our stock price
may be
more volatile.
We have existing investors that own
a significant amount of our
common stock whose individual interests may
differ from yours.
A significant percentage of our Class A common stock is currently held by a few institutional investors, including Patriot
Financial Partners II,
L.P.
and Patriot Financial
Partners Parallel II, L.P.
(collectively,
"Patriot"), and Priam
Capital Fund II,
LP
("Priam,"
and
together
with
Patriot,
the
"Significant
Investors").
As
of
February
28,
2026
Patriot
and
Priam
own
approximately 10.4% and 21.8%, respectively, of our outstanding shares of Class A common stock. In addition, Patriot and
Priam are
each entitled
to nominate
a director
to our
Board and
have certain
subscription rights
to purchase
new equity
securities that we
issue in the
future, in each
case as long
as certain equity
ownership criteria
are met. Patriot
and Priam
also have
certain registration rights
(which they
have exercised), 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 amended
Articles of
Incorporation and
Amended and
Restated Bylaws,
and
other
extraordinary
corporate
matters.
The
interests
of
these
investors
could
conflict
with
the
interests
of
our
other
shareholders, and
any future
transfer by
these investors
of their
shares of
Class A
common stock
to other
investors who
have different business objectives
could adversely affect our
business, results of operations,
financial condition, prospects
or the market value of our Class A common stock.
Provisions
in
our
governing
documents
and
Florida
law
may
have
an
anti-takeover
effect
and
there
are
substantial regulatory limitations on changes of control
of the Company.
Our corporate organizational documents and provisions of federal
and state law to which we
are subject contain certain
provisions that could
have an anti-takeover
effect and
may delay,
make more difficult
or prevent an
attempted acquisition
that you may favor or an attempted replacement of our
Board or management.
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46
USCB Financial Holdings, Inc.
2025 10-K
Our governing documents include provisions that:
•
empower our Board, without shareholder approval, to issue shares of preferred stock, the terms of
which, including
voting power, are set by our
Board;
•
provide that directors may be removed from office only for cause and only upon a majority vote
of the shares of our
Company with voting power;
•
prohibit holders of our Class A common stock to take action
by written consent in lieu of a shareholder meeting;
•
require holders of at least 10% of our Class A common
stock to call a special meeting;
•
do not provide for cumulative voting in elections of our
directors;
•
provide that
our Board
has the
authority to amend
our Amended
and Restated Bylaws
without shareholder approval;
•
require shareholders that wish to bring business before annual or special meetings of shareholders, or to nominate
candidates for election as directors at our annual meeting of shareholders, to provide
timely notice of their intent in
writing and satisfy disclosure requirements; and
•
enable our Board to increase, between
annual meetings, the number of
persons serving as directors and
to fill the
vacancies created
as a
result of
the increase until
the next
meeting of
shareholders by a
majority vote
of the
directors
present at a meeting of directors.
In addition,
certain provisions
of Florida
law may
delay,
discourage, or
prevent an
attempted acquisition
or change
in
control. Furthermore,
banking laws
impose notice,
approval, and
ongoing regulatory
requirements on
any shareholder
or
other party that seeks to acquire direct or indirect "control" of a
bank holding company,
which includes the Change in Bank
Control Act
and the
Bank Holding
Company Act.
These laws
could delay
or prevent
an acquisition.
Also, for
preservation
and continued availability
of our "deferred
tax assets," our
amended Articles of
Incorporation prohibit any
direct or indirect
transfer of stock or options to acquire stock to any person who, as a result of the transfer,
would own 4.95% or more of our
stock,
as
long
as
we
continue
to
have
"deferred
tax
assets,"
subject
to
limited
exceptions
as
provided
in
our
amended
Articles of Incorporation. Because of the requirements to overcome this restriction, this
provision of the amended Articles of
Incorporation could
have an
anti-takeover
effect
and
may delay,
make more
difficult
or prevent
an attempted
acquisition
that you may favor.
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47
USCB Financial Holdings, Inc.