Regulatory Environment - The company operates in a highly regulated environment, subject to extensive regulation and supervision by federal and state agencies, which could adversely affect its operations and financial condition [230]. - The company is required to maintain a Common Equity Tier 1 (CET1) capital ratio of 7.0% or more, a Tier 1 capital ratio of 8.5% or more, and a total capital ratio of 10.5% or more under Basel III rules [238]. - The company currently meets the Basel III capital requirements but may face challenges in maintaining compliance in the future, which could impact growth initiatives and investor confidence [239]. - The company has dedicated significant resources to its anti-money laundering program due to increased regulatory scrutiny, especially in high-risk areas like South Florida [233]. - Regulatory changes, such as those from the Dodd-Frank Act, could impose additional compliance costs and operational restrictions on the company [232]. - The company may incur costs related to improving its internal control systems to comply with Section 404 of the Sarbanes-Oxley Act [228]. - The company faces risks of noncompliance with the Bank Secrecy Act, which could lead to significant penalties and reputational damage [233]. - The company is subject to periodic examinations by banking agencies, which could result in remedial actions that negatively impact its operations [241]. - The company must obtain regulatory approvals for many activities, and failure to do so could restrict its business operations [230]. - Heightened regulatory scrutiny following recent banking stresses could lead to increased compliance costs and operational risks for the company [236]. - The company is subject to numerous laws and regulations, including the Community Reinvestment Act, which could lead to sanctions if not complied with [243]. Financial Performance - Total assets increased to $2,581,216 thousand in 2024 from $2,339,093 thousand in 2023, representing a growth of 10.4% [456]. - Net income rose to $24,674 thousand in 2024, up 49% from $16,545 thousand in 2023 [459]. - Total interest income increased to $131,233 thousand in 2024, a 30% increase from $101,017 thousand in 2023 [459]. - Loans held for investment grew to $1,948,778 thousand in 2024, compared to $1,759,743 thousand in 2023, marking an increase of 10.7% [456]. - Total deposits reached $2,174,004 thousand in 2024, up 12.2% from $1,937,139 thousand in 2023 [456]. - Net interest income after provision for credit losses was $66,779 thousand in 2024, a 19% increase from $56,201 thousand in 2023 [459]. - Non-interest income increased to $12,740 thousand in 2024, up 72% from $7,403 thousand in 2023 [459]. - The provision for credit losses was $3,157 thousand in 2024, compared to $2,367 thousand in 2023, reflecting a 33.4% increase [459]. - Total stockholders' equity increased to $215,388 thousand in 2024 from $191,968 thousand in 2023, a rise of 12.1% [456]. - Net income per share, basic, increased to $1.25 in 2024 from $0.84 in 2023, representing a growth of 49% [459]. - Net cash provided by operating activities rose to $34,090 thousand in 2024, up from $22,546 thousand in 2023, an increase of 51.2% [471]. - The net increase in deposits for 2024 was $236,865 thousand, compared to $107,858 thousand in 2023, reflecting a growth of 119.5% [471]. - Cash and cash equivalents at the end of 2024 were $77,035 thousand, up from $41,062 thousand at the end of 2023, marking an increase of 87.6% [471]. - The net cash used in investing activities decreased to $211,861 thousand in 2024 from $273,002 thousand in 2023, a reduction of 22.4% [471]. - The company reported interest paid of $60,544 thousand in 2024, up from $41,306 thousand in 2023, an increase of 46.5% [471]. - The net cash provided by financing activities was $213,744 thousand in 2024, compared to $237,350 thousand in 2023, a decrease of 10.0% [471]. Loan Portfolio and Credit Quality - The Company had a concentration of risk with loans outstanding to the top ten lending relationships totaling $236.2 million, representing 12.0% of net loans outstanding as of December 31, 2024 [509]. - The Company segments its loan portfolio based on collateral codes to establish reserves, utilizing regression models based on peer data for loans of similar risk characteristics [502]. - The Company’s loan portfolio is concentrated largely in real estate and commercial loans in South Florida, which could be adversely impacted by negative conditions in the local economy [507]. - The Company applies qualitative adjustments to expected credit losses to account for risk factors not captured in quantitative analysis [503]. - The allowance for credit losses (ACL) was $24.1 million as of December 31, 2024, compared to $21.1 million in 2023, indicating a rise of 14.2% [573]. - The provision for credit losses for 2024 was $2,960 thousand, compared to $2,503 thousand in 2023, indicating a 18.2% increase year-over-year [578]. - Total loans outstanding increased from $1,778,644 thousand as of December 31, 2023, to $1,965,218 thousand as of December 31, 2024, reflecting a growth of 10.5% [590]. - The total balance of collectively evaluated loans rose from $20,811 thousand in 2023 to $23,352 thousand in 2024, marking a 12.9% increase [579]. - The company reported a total of $2,280 thousand in substandard loans as of December 31, 2024, compared to $9,481 thousand in 2023, indicating a decrease of 76.0% [590]. - The total charge-offs for 2024 were $19 thousand, compared to $57 thousand in 2023, showing a decrease of 66.7% [578]. - The company’s recoveries increased from $85 thousand in 2023 to $45 thousand in 2024, reflecting a decrease of 47.1% [578]. - As of December 31, 2024, total accruing loans amounted to $1,962,511 thousand, with non-accruing loans totaling $2,707 thousand [592]. - Non-accrual loans with related allowance as of December 31, 2024, were $2,393 thousand, compared to $468 thousand in 2023, reflecting a significant increase [596]. - The company had two collateral-dependent loans as of December 31, 2024, with a recorded investment of $1,990 thousand [599]. Securities and Investments - The total amortized cost of available-for-sale investment securities as of December 31, 2024, was $310.9 million, with unrealized losses amounting to $51.2 million, resulting in a fair value of $260.2 million [551]. - For the year ended December 31, 2024, the proceeds from sales and calls of available-for-sale securities were $34.8 million, with net realized gains of $14 thousand [556]. - The allowance for credit losses on securities held-to-maturity was reported as $(6) thousand, indicating a minimal impact on the overall financial position [551]. - The total unrealized losses retained in accumulated other comprehensive income (AOCI) for securities transferred from available-for-sale to held-to-maturity was $9.3 million as of December 31, 2024 [555]. - The company reported a total of $164.7 million in held-to-maturity securities, net of allowance for credit losses, as of December 31, 2024 [551]. - The company monitors credit quality of held-to-maturity securities quarterly, with all such securities rated investment grade as of December 31, 2024 [564]. - The unrealized losses on investment securities were attributed to changes in interest rates rather than credit quality, reflecting management's assessment [567]. - The company had $66.1 million in securities pledged to the State of Florida under the public funds program as of December 31, 2024, down from $86.9 million in 2023 [569]. Accounting and Reporting - The company has elected to use an extended transition period for complying with new accounting standards, which may affect the comparability of its financial statements with other public companies [256]. - The adoption of ASU 2016-13 on January 1, 2023, resulted in an increase to the allowance for credit losses (ACL) on loan receivables of $1.1 million and a reserve for unfunded commitments of $259 thousand, leading to a cumulative adjustment of $1.0 million in accumulated deficit [545]. - As of January 1, 2023, 84% or $1.3 billion of loan receivables were evaluated under the Discounted Cash Flow (DCF) method, while 16% or $251 million were evaluated under the Remaining Life method [543]. - The company implemented ASU 2022-02 concurrently with ASU 2016-13, enhancing disclosures related to troubled debt restructurings [546]. - The impact of adopting CECL included an increase in the allowance for credit losses and adjustments to the deferred tax asset, reflecting changes in credit loss measurement methodologies [545]. Corporate Governance and Ownership - Significant investors, including Patriot Financial Partners and Priam Capital Fund, own approximately 22.4% and 22.5% of the company's Class A common stock, respectively, influencing corporate governance and decision-making [257]. - The company's ability to pay dividends is subject to restrictions and depends on the profitability of its bank subsidiary, which is regulated by the FDIC [248]. - The market price and trading volume of the company's Class A common stock may be volatile, influenced by various external factors unrelated to its performance [249]. - The company's governing documents include provisions that may have an anti-takeover effect, potentially delaying or preventing acquisitions [260].
USCB Financial (USCB) - 2024 Q4 - Annual Report