USCB FINANCIAL HOLDINGS, INC.
For the period ended Dec 31, 2024. Filed Mar 14, 2025.
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A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Mar 14, 2025
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Item 1A. Risk Factors
This
section
a
description
of
the
risk
and
uncertainties
identified
by
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
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.
a number of risks that could
cause actual results to differ
materially from those indicated
by
forward-looking statements
made in this
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
and
lending
are concentrated
in
South
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
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
could
impair
our
ability
to
fund
and
jeopardize
our
results
of
operations, growth and prospects.
U.S. trade policies
global political factors
beyond our
control, including the
imposition of tariffs,
retaliatory
tariffs,
or
other
sanctions,
may
impact
our
and
results
of
Our lending business is subject to credit risk, which could
lead to unexpected losses.
The transition from the use of LIBOR may adversely impact the interest rates paid
on certain financial instruments.
Natural
and
severe
weather
events
in
Florida
could
have
a
adverse
impact
on
our
interest rate risk and variations
in interest rates may
materially and adversely affect
our
financial performance.
A
failure
or
the
perceived
risk
of
a
failure
to
raise
the
statutory
debt
limit
of
the
U.S.
in
the
future
could
have
a
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.
Non-performing assets
take significant time
to resolve and
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
subjecting us
to the
costs and potential
risks associated with
of real
property and
other risks, including
to
or
or
changes
in
state
or
federal
law
may
substantially raise the cost of foreclosure or prevent us
from foreclosing at all.
We are exposed to risk of environmental liability when
we take title to property.
We are subject to
certain operational risks, including, but
not limited to, customer, employee or
third-party fraud and
data processing system failures and errors.
We face significant
operational risks because
the nature of the
financial services business
involves a high volume
of transactions.
We have several large depositor
relationships, the loss of
which could force us to
fund our business through more
expensive and less stable sources.
Our
in
market
could
have
adverse
effects
on
our
results
of
We may
not effectively
execute on
our expansion
to maintain
our
historical growth and earnings trends.
New lines of business, products, product enhancements
or services may subject us to additional risk.
future growth
may require us
to raise
additional capital
and that
capital may
not be
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
integrating
and
the
merged
or
and
may
dilute
our
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
that offer
banking services,
which could materially and adversely affect our
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 (AI)
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
or fail
with
banking regulations.
Litigation
and
could
subject
us
to
fines,
penalties, judgments
or other requirements
resulting in
increased expenses or
restrictions on
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,
or estimates used in our critical accounting policies are inaccurate.
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
statements, which
in turn could
harm our
business, impair
investor confidence
in the accuracy
and completeness
of our
reports
and
our access
to the
capital
cause
the
price
of
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
and
regulations and corresponding enforcement proceedings.
Significantly heightened regulatory and
supervisory expectations and scrutiny
in the United States have
our
and
other
risks
and
costs
and
subject
us
to
legal
and
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
numerous laws
of certain
protect consumers,
including the
Community Reinvestment
Act, or
CRA, and
fair lending
laws, and
failure to
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
Increasing scrutiny
and evolving
expectations from
customers, regulators,
investors, and
other stakeholders
with
respect to our environmental, social
and governance practices may
impose additional costs on
us or expose us to
new or additional risks.
Our ability to pay dividends is subject to restrictions.
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
to sell
our capital
stock
to
shareholders that would own 4.95% or more of our stock,
excluding our Significant Investors.
Because
we
are
an
growth
company
and
because
we
have
decided
to
take
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
period
for
complying
with
new
or
revised
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
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
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;
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,
influencing
the
of
office
within
our
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
or existing
or
prospective
or
depositors
in
could have a material adverse effect on our business,
In addition, there are continuing concerns related
to, among other things, the increasing
level of U.S. government debt
and fiscal actions that may be taken to address that debt, price fluctuations
of key natural resources, inflation, the potential
resurgence of economic
and political tensions with
China, the continuing war
in Ukraine, the conflict
in Gaza and the
level
of oil and
natural gas
prices due
to, among
other things,
Russian supply
disruptions resulting
ongoing Ukrainian
conflict, each
of which
a destabilizing
financial markets
activity.
Economic pressure
on
consumers and
overall economic
uncertainty may
result in
consumer and
business spending,
borrowing and
saving
habits.
These
and/or
other
in
the
or
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.
Our concentration of real estate loans in a limited
market area exposes us to lending risks.
approximately $1,426 million,
or 72.6%, 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
area.
Future
declines
in
the
real
estate
values
in
our
primary
lending
market
and
surrounding
markets
could
significantly impair
of the
particular real
estate collateral
securing our
to sell
the collateral
upon
for
an
amount
to
satisfy
the
borrower’s
to
us.
This
could
require
our
allowance for credit
losses to address
the decrease in
the value of
the real estate
securing our loans,
which could have
a
condition, results of operations, and growth prospects.
The
small-
to
medium-sized
businesses
to
which
we
lend
may
have
fewer
to
weather
adverse
business developments, which may impair a borrower's
ability to repay a loan.
We
target
our
and
marketing
strategies
to
serve
the
banking
and
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
downturns,
often
need
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
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
Inflationary pressures and rising prices may affect
our results of operations and financial condition.
The inflationary
outlook in
the United
States remains
uncertain. As
the consumer
price index
was 2.9% year-over-year. While this
is a significant reduction to the rate of inflation experienced in 2022 and 2023, 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,
no assurance can
be given that
it will
do so.
At the
end of
January 2025,
the FRB
determined not
to reduce
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
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
In
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,
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
cost
pressures
to
larger
businesses. Consequently,
the ability of
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
could
be
by
the
actions
and
commercial soundness
of other
financial institutions.
Financial services
companies are
interrelated as
of trading,
clearing,
counterparty
or
other
relationships.
We
have
to
industries
and
counterparties,
and
through
with
counterparties
in
the
industry,
brokers
and
dealers,
banks,
banks,
and
other
institutional
clients.
Defaults
by,
or
even
rumors
or
questions
about,
one
or
more
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
could
have
a
adverse
effect
on
our
results
of
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.
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
and
diverse
sources of
funding
to accommodate
planned,
as well
as unanticipated,
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
and
other
sources
could
have
a
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
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
about the
prospects
for the
industry generally
as
of conditions
faced
by banking
organizations
in
the
and
credit
markets.
Any decline
in
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
financial condition, and results of operations.
U.S. trade
policies and
other global
political factors
beyond our
control, including
the imposition
of tariffs, retaliatory tariffs, or other sanctions, may adversely impact our business, financial condition and results
There have
been, and
may be
in the
future, changes
to U.S.
and international
trade policies,
legislation,
treaties
and
tariffs,
embargoes,
and
other
trade
restrictions.
In
early
February,
the
new
U.S.
administration
imposed
through
orders
a
new
tariff
policy,
imposing
a
25%
duty
on
merchandise
imports
from
Mexico
and
Canada
alongside
a
10%
tariff
on
Chinese
imports.
The
orders
an
exemption
for
Canadian
energy
resources, subject to a reduced 10% tariff. The tariffs were set to take effect on February 4,
2025, but following discussions
between the United States and each
of Canada and Mexico, the U.S.
administration agreed to a pause of
at least 30 days
in the implementation of the duties. The tariffs on China went into
effect as scheduled on February 4, 2025. This led to 10%
to
15%
retaliatory
tariffs
on
U.S.
energy
and
farm
machinery
imports
being
imposed
by
China
on
9,
the U.S. administration
United States would
impose a
25% tariff
on all imports
of steel and
aluminum,
coming
into force
in
mid-March
In
an
10%
tariff
was
to
be
imposed
on
China in
early March
Tariffs,
retaliatory tariffs
trade restrictions
on products
and materials
that customers
import or
export, or
a trade
war or
other related
governmental actions
tariffs, international
trade agreements
or
policies or other trade restrictions have the potential to negatively impact our customers' costs, demand for our
products, or
the U.S. economy or certain sectors thereof and, thus, could adversely impact
our business, financial condition and results
of operations. As
a result of
Russia's invasion of
Ukraine, the U.S.
imposed, and may
continue to impose
material additional,
financial and economic sanctions and export
controls against certain Russian organizations
and/or individuals, with similar
actions either implemented or
planned by the
European Union ("EU")
and the United
Kingdom (“UK”) and other
jurisdictions.
The U.S.,
the
UK, and
the
EU have
each imposed
packages
and
that,
in various
ways,
constrain
with
Russian
and
individuals;
in
Russian
sovereign
debt;
and
investment,
trade, and
financing
to, from,
or in
certain
regions of
Ukraine.
Moreover,
actions by
Russia, and
any further
measures taken by
the U.S. or
its allies, could
have negative impacts
on regional and
global financial markets
conditions.
To
the
extent
changes
in
the
global
the
war
in
Ukraine
and
the
continued heightened
tensions between
Russia and
the U.S.,
NATO,
the EU
and the
UK, as
well as
the conflict
in Gaza,
have
a
impact
on
us
or
on
the
markets
in
which
we
operate,
our
results
of
and
condition could be materially and adversely impacted.
Our lending business is subject to credit risk, which
could lead to unexpected losses.
Our
primary
making
loans
to
customers.
The
of
lending
is
inherently
risky
because
the
may not
be repaid
timely or
at all
or the
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
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
collateral. In
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
with
portfolio could
lead to
unexpected
losses and
have a
adverse effect on our business, financial condition
The
from
the
use
of
LIBOR
may
impact
the
rates
paid
on
certain
LIBOR (the London
InterBank Offered
Rate) was
used as a
reference rate for
certain of the
Corporation’s adjustable-
rate loans and
bonds. In 2017,
the U.K. Financial
Conduct Authority, which regulates LIBOR,
announced that the
publication
of LIBOR would not be guaranteed beyond 2021. In December 2020, the administrator of LIBOR announced its intention to
(i) cease
the publication
of the
one-week
and two-month
U.S. dollar
LIBOR after
2021, and
(ii) cease
the
publication of all other
tenors of U.S.
dollar LIBOR (one, three,
six and 12
month LIBOR)
after June 30,
- The remaining
synthetic LIBOR was published for the last time
as of September 30, 2024.
Synthetic LIBOR was a temporary measure
to
allow entities to transition to alternative risk-free reference
rates.
There are ongoing efforts to establish an alternative
reference rate. The Federal Reserve Board, in conjunction with
the
Alternative
Rates
Committee,
a
steering
committee
comprised
of
large
U.S.
supports
replacing
LIBOR
with
SOFR
(Secured
Overnight
Financing
Rate),
a
new
index
calculated
by
agreements backed by
Treasury securities. The Bank adopted
SOFR as its
preferred benchmark as an
alternative to LIBOR
for use in new contracts in 2023.
While
the
Adjustable
Rate
(LIBOR)
Act
and
implementing
will
help
to
legacy
LIBOR
contracts to a new benchmark rate, the
substitution of SOFR for LIBOR may
have potentially significant economic impacts
on parties to affected
contracts. SOFR is
different from LIBOR
in that it is
a retrospective-looking secured
rate rather than
a forward-looking
unsecured rate.
while SOFR
appears to
be the
preferred replacement
rate for
LIBOR, it
is
not
to
predict
whether
SOFR
will
ultimately
prevail
in
the
market
as
the
definitive
replacement
for
LIBOR.
Uncertainty
as
to
the
nature
of
alternative
reference
rates,
and
as
to
changes
or
other
reforms
related
to
the
transition from LIBOR, may adversely affect the val
ue of LIBOR-based financial arrangements of the Company.
Natural disasters and severe weather events in Florida
could have a material adverse impact on our
Our
and
our
base
are
located
in
South
This
region
is
vulnerable
to
natural
and
severe
weather
events
or
acts
of
God,
such
as
hurricanes
or
tropical
storms,
which
can
have
a
adverse impact
on our
our overall
business, financial
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
of government
responsiveness, the
pace of
economic recovery
and availability
of insurance
to cover
losses. In
the
nature,
frequency
and
severity
of
these
adverse
weather
events
and
other
natural
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
our exposure to credit and liquidity risks.
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
spread
depends
on
many
factors
that
are partly
or completely
out
of our
control,
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.
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 rate that the
FOMC believes is appropriate.
All
of
these
increases
were
expressly
made
in
response
to
inflationary
pressures.
In
2024,
the
FOMC
decreased
such
benchmark
rates three
times.
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 2025, the
FOMC determined to
not
change the federal funds rate at 4.25% to 4.5%.
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
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
an
acceptable
level
of
Due
to
pressures
in
2023,
we
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
in light
of the
FOMC’s actions
to decrease
funds rate
three times,
we decreased
the rates
paid on our interest-bearing deposits. As a result,
while the overall funds increased, the cost of it
increased at a lesser pace
when compared to the
increase in cost of
deposits from 2022 to
- Finally,
we cannot provide
any assurances that
we
can maintain our current levels of noninterest-bearing deposits as
customers may seek higher-yielding products due to the
increased interest rates being paid on deposits currently,
as compared to 2023 and 2022.
changes
in
levels
of
rates
could
and
affect
our
net
margin,
asset
quality, loan origination
volume, average loan portfolio balance, liquidity,
and overall profitability.
A failure or the perceived
risk of a failure to raise
the statutory debt limit
of the U.S. in the future
could have a
condition and results of operations
.
Ongoing
U.S.
debt
ceiling
and
budget
deficit
concerns
have
the
possibility
of
credit-rating
downgrades
and
slowdowns,
or
a
recession
in
the
United
States.
U.S.
lawmakers
have
passed
legislation
in the
past to
raise the
federal debt
ceiling
on multiple
occasions,
the most
recent
in June
2023, ratings agencies have lowered
or threatened to lower the long-term
sovereign credit rating on the
United States. On
extension of
the debt
ceiling limit
effected in
June 2023
expired. The
debt ceiling
was reinstated
on
January 2, 2025,
at $36.1 trillion,
a figure reflecting
the total federal
debt accumulated
by that date.
In late January
2025,
the U.S.
began employing
various
measures,
such as
suspending
in federal
retirement funds
and
halting the issuance of certain securities, to continue financing government operations. There are proposals to
increase the
debt ceiling limit by $4.0 trillion, subject to agreements on other matters including extending $4.5 trillion in tax cuts from the
2017 Tax
Cuts and Jobs
Act (set to
expire in 2025)
and implementing
$2 trillion in
mandatory spending
reductions over a
decade.
The
impact
of
this
or
any
further
downgrades
to
the
U.S.
government’s
sovereign
credit
rating
or
its
perceived
creditworthiness could adversely
affect the U.S.
and global
financial markets and
economic conditions. These
could cause interest
rates and borrowing
costs to rise
(unless the Federal
Reserve re-initiates
quantitative easing),
which
may negatively impact our ability to access the debt markets on favorable terms. In addition, disagreement over the federal
budget has caused the U.S. federal
government to shut down for periods
of time. Continued adverse political and
conditions could have a material adverse effect
Our allowance for credit losses may not be sufficient
to absorb potential losses in our loan portfolio.
We
an
for
credit
losses
that
of
probable
losses
and
risks
inherent in our loan portfolio.
The level of the allowance
reflects management's continuing
evaluation of general economic
present
and
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
for
credit
losses
a
degree
of
subjective
and
to
make
estimates of and assumptions regarding current credit risks
and future trends, all of which may undergo material changes.
Inaccurate
assumptions,
deterioration
of
affecting
borrowers,
new
loans,
identification
of
problem
loans
or deterioration
of existing
problem
loans,
and
other
factors
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
Board, or FASB, issued a new credit
impairment model, the Current Expected Credit Loss,
or CECL model, which became
to
us
on
January
1,
CECL
to
and
develop
a
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
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
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
real
estate
and
loans
and
repayment
is
usually
dependent
on
cash
flows
from
the
borrower’s business or the
property securing the loan. Our
commercial business loans are primarily made
to small business
and middle market customers. These loans typically
involve repayment that depends upon income
generated, or expected
to be generated, by the property securing the loan and/or
by the cash flow generated by the business borrower and
may be
adversely affected by changes in the economy or
local market conditions. These loans expose a
lender to the risk of having
to liquidate the collateral securing
these loans at times when
there may be significant fluctuation
of commercial real estate
values or to the
risk of inadequate cash flows to
service the commercial loans. Unexpected deterioration in
the credit quality
of our
commercial business
and/or real
estate loan
portfolio could
require us
to increase
our allowance
losses,
which would
reduce our
profitability and
financial condition,
and results
of
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
completion,
we may
be
unable
to
recover
the
entire
unpaid
portion
of the
loan,
which
would
lead
to
losses.
In
we
may
be
required to fund additional amounts to complete a project,
incur taxes, maintenance and compliance costs for
a foreclosed
property and
to hold
the property
for an
indeterminate
time, any
of which
could adversely
affect
our
business, prospects, cash flow,
liquidity, financial
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
that,
like
us,
is actively
involved
in
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
loans, including
loans secured
by multi-family
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
31,
2024,
our
total
real
estate
loans,
loans
secured
by
apartment
buildings, commercial real estate, and construction and
land loans represented 366% of the Bank’s
total risk-based capital
and the growth in the commercial real estate portfolio exceeded 50% over
the preceding 36 months. The particular focus of
the guidance is on exposure to commercial
real estate loans that are dependent
on the cash flow from the real estate
held
as collateral and that
are likely to be
at greater risk
to conditions in the
commercial real estate
market (as opposed
to real
estate collateral held as a secondary source of repayment
or as an abundance of caution). The purpose
of the guidance is
to guide institutions in developing risk management practices and capital
levels commensurate with the level and nature of
concentrations.
Management has
established a
estate lending
to monitor
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
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
upon
the
federal
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
by
the
SBA
to
participate
in
the
SBA's
Lenders
Program.
As
an
SBA
Lender,
we enable
our clients
SBA loans
without being
the potentially
lengthy SBA
approval process
for
lenders
that
are
not
SBA
Lenders.
The
SBA
reviews
the
lending
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,
financial condition
and
We generally sell the guaranteed
portion of our SBA 7(a) loans
in the secondary market. These sales
have resulted in
both premium income for us
at the time of
sale and created a stream
of future servicing income. There
can be no assurance
that we will be able to continue originating these loans, that a secondary market for these loans will continue to exist or that
we will continue to realize
premiums upon the sale of
the guaranteed portion of
these loans. When we sell
the guaranteed
portion of our SBA 7(a) loans, we incur credit risk on the non-guaranteed portion of the loans, and if a customer defaults on
the non-guaranteed portion of a loan, we share any loss
and recovery related to the loan pro-rata with the SBA.
The laws, regulations and
standard operating procedures
that are applicable to
SBA loan products may
change in the
future. We
cannot predict
the effects
changes on
and profitability.
Because government
regulation
greatly
affects
the
and
results
of
all
banks
and
bank
holding
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
The SBA may not honor its guarantees if we do not originate
loans in compliance with SBA guidelines
.
SBA lending programs
typically guarantee
75.0% of the
principal on
an underlying
loan. If the
SBA establishes
that a
loss on
an
SBA guaranteed
loan
is attributable
to significant
technical
in the
manner
was
originated,
funded
or serviced
by us,
the
SBA may
seek
recovery
of
the
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
in
originating
loans
and
if
our
loan
review
and
audit
fail
to
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
model
to banks
in Latin
America
and the
Caribbean,
these
cross-
border
banking
pose
unique
risks
because
they
create
situations
in
which
a
U.S.
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
are located,
are not
as U.S.
banks.
these
foreign
may
pose
greater
money
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.
we
may
have
a
higher
risk
of
non-compliance
with
the
Bank
Secrecy
Act of
1970,
as
amended
(“BSA”)
and
other
(“AML”)
rules
and
due
to
our
banking
relationships with foreign
financial institutions. Additionally,
international private banking
places additional pressure
on our
policies, procedures
and systems
BSA, and
AML statutes
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
manage our
BSA/AML compliance
risk in
light of
our correspondent
banking relationship
with foreign
and international private banking could result in regulatory
or other actions being taken against us, including the imposition
of
civil
money
formal
and
cease
and
desist
orders.
Furthermore,
failure
to
meet
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
our business, financial
In recent
years, sanctions
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
fines
and
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.
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
results
may be
worse
than
our
contemplated
when
we
originated
the
loans,
and
in
these
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,
have
adverse
effect
on our
net
and
results
of
and financial
to the
extent the losses exceed our allowance for loan and lease
losses.
Some
of
our
loans
are
secured
by
liens
on
of
the
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
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
owners, as well
as cash on
hand. These Associations
rely upon payments
received from their
property owners in
perform
on
these
loans
and
for
the
loan
collateral.
our
ability
to
recover
amounts
on
non-performing
loans
made to Associations
upon the Association
having sufficient
cash on hand
for repayment of
the loan and/or
having
the
ability
to
impose
on
its
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,
Non-performing
assets
take
time
to
resolve
and
affect
our
results
of
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
owned (“OREO”),
thereby adversely
affecting our
and returns on
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
and
can
be
detrimental
to
the
of
their
other
responsibilities.
In
there
are
legal
fees
with
the
resolution
of
problem
assets
as
well
as
costs
such
as
taxes,
insurance,
and
maintenance
related to OREO.
If we experience
increases in non-performing
loans and non-performing
assets, our net
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
risks
with
the
of
real
property,
to
or
or
changes
in
state
or
federal
law
may
substantially raise the cost of foreclosure or prevent
us from foreclosing at all.
Since we
loans secured
by real
estate, we
to foreclose
on the
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
of
real
estate.
The
amount
that
we,
as
a
mortgagee,
may
realize
after
a
depends
on
factors
outside of our
control, including,
but not limited
to, general or
local economic conditions,
environmental cleanup
various assessments
relating to
of the property,
interest rates, real
estate tax rates,
operating expenses
of
the
mortgaged
our
ability
to
obtain
and
occupancy
of
the
zoning
laws,
governmental and
regulatory rules,
and natural disasters.
Our inability
to manage
of costs
or size
of the risks
associated with
of real
estate, or
write-downs in
of OREO,
our
business, financial condition, and results of operations.
consumer protection initiatives
or changes in state
or federal law may
substantially increase the time
and
expenses associated
residential foreclosure
process or
prevent us
from foreclosing
at all.
A number
of states
in
recent
years
have
either
or
adopted
reform
laws
that
make
it
more
and
expensive for
lenders to
foreclose on
residential properties
in default.
Furthermore, federal
prosecuted a
mortgage servicing
companies for
alleged consumer
law violations.
If new
state or
federal laws
or regulations
are ultimately enacted
that significantly raise
the cost of residential
foreclosures or raise
outright barriers, they
an adverse effect on our business, financial condition,
We are exposed to risk of environmental liability
when we take title to property.
A
portion
of
our
loan
is
secured
by
real
estate,
and
we
could
become
subject
to
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
property.
If we become
significant environmental liabilities, our business, financial condition
and results of operations could be adversely affecte
d.
We
are
subject
to
certain
risks,
including,
but
not
limited
to,
customer,
or
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
in all cases. Employee errors could also subject us
to financial claims for negligence.
We have
implemented a
system of
mitigate operational
risks, including
data processing
system failures
and errors
and customer
or employee
fraud, as
well as
coverage
protect us
from
losses
with
these
risks,
losses
from
any
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,
We
also
rely
on
the
integrity
and
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
or
their
systems
to
protect
our
customers'
data
may
put
us
at
risk
for
losses due
to fraud
or operational
disruption. At
of this
Form 10-K,
there is
no knowledge or
indication
that customer
sensitive information
was compromised
as a
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,
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
affect
We
face
risks
because
the
nature
of
the
a
high
volume of transactions
.
We
operate
in
diverse
markets
and
rely
on
the
ability
of
our
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
to transaction
processing and technology, breaches of
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
legal
actions
that
could
arise
as
a
result
of
or
as
a
result
of
non-
compliance with applicable regulatory standards,
adverse business decisions or their
implementation, or customer attrition
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.
the
occurrence
of
such
event
could
have
a
adverse
effect
on
our
business, financial condition and results of operations. At
December 31, 2024, our top 10 depositors held
16.7% of our total
portfolio. As of December
31, 2024, 45% of
our deposits are estimated
to be FDIC-insured. At such
date, our public funds
are 5% of total deposits and are partially collateralized. The estimated average account size of our deposit portfolio is $105
thousand.
In
the
Bank
was
a
“well
capitalized”
as
of
and
the occurrence of
such event could have
a material adverse effect
on our business, financial
Our securities portfolio performance in difficult market conditions could have adverse effects on
our results of
.
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
issuers.
Under
GAAP,
we
are
to
review
our
for
the
presence
losses
of
our securities,
taking
into consideration
current
and
future
market
the
extent
and
nature
of
changes
in
fair
value,
issuer
rating
changes
and
trends,
volatility
of
earnings, current
analysts’ evaluations,
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 historical growth and earnings trends.
Our
primary
expansion
focuses
on
organic
growth,
supplemented
by
of
institutions and
banking teams;
we may
not be
able to
successfully execute
on these
aspects of
our expansion
which
may
cause
our
future
growth
rate
to
decline
below
our
recent
levels,
or
may
prevent
us
from
growing at
all. More
specifically,
we may
not be able
to generate
sufficient new
deposits within
acceptable risk
and
expense
tolerances
or
obtain
the
or
funding
for
growth.
Various
factors,
such
as
economic conditions
and competition with
other financial
institutions, may impede
or restrict the
growth of our
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,
our
ability
to
adapt
our
credit,
technology,
risk
and
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
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
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
to
make
new
lines
of
or
successful
or
to
realize
their
benefits.
We
may
not
achieve
the
milestones
set
in
initial
timetables
for
the
and
introduction
of
new
lines
of
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.
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
to
meet
our
longer-term
growth
plans,
and/or
if
the
quality
of
our
assets
or
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
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
to support
such subsidiary
bank. Under
the “source
of strength”
doctrine, the
may
require
a
holding
company
to
make
capital
injections
into
a
troubled
bank
and
may
charge
the
holding
company with
engaging
in unsafe
and unsound
for failure
to commit
to a
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
effect on our
business, financial
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
on our
growth
and business.
These restrictions
could
affect
our
ability
to
operate
or
further
expand
our
through
loan
growth,
or
the
establishment
of
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
not be
successful or,
if successful,
may
produce risks in successfully integrating and managing the merged companies or acquisitions and may dilute our
As
part
of
our
growth
we
may
pursue
mergers
and
of
banks
and
non-bank
companies within or outside our principal market areas that fit within the mission-driven values of our franchise and that we
believe support our business and make financial and strategic
sense. We may have difficulty identifying suitable acquisition
candidates or executing on acquisitions that we pursue, and we may
not realize the anticipated benefits of any transactions
we complete. Additionally,
for any opportunistic
acquisition we were
to consider,
we expect to
face significant
from
other
many
of
which
will
have
greater
than
we
do.
attractive opportunistic
may
not be
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
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
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
affect
the
market
price
of
our
Class
A
common
stock.
if
the
goodwill
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
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
evaluate
and
execute
mergers,
or
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
team.
The
loss
of
the
of
any
of
these
individuals
could
have
a
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,
and William
Turner,
our Chief
Credit Officer,
is important
to our
success.
Although we
have
entered
into employment
with
certain
members
of our
executive and
senior management team, including Mr. de la Aguilera and Mr. Anderson, no assurance can be given that these individuals
will continue
to be
employed by
us. The
loss of
any of
these individuals
could negatively
affect
to achieve
our
growth strategy and could have a material adverse effect
on our business and results of operations.
We also need to continue
to attract and retain other senior
management and to recruit qualified
individuals to succeed
key
to
ensure
the continued
growth
and successful
operation
of our
We
may
be unable
to
attract or
retain qualified
key
in the
future due
to the
intense competition
for qualified
among
in
the
and
related
businesses.
The
loss
of
the
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.
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,
and
acquisitions,
complaints
and
actions
taken
by
organizations in
response to
these activities.
Furthermore, negative
publicity regarding
us as
an employer
an
adverse
impact on
our reputation,
to
matters of
diversity,
pay equity
and workplace
harassment.
Significant
harm
to
our
reputation
could
also
arise
as
a
result
of
or
governmental
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
our credit ratings
and access to
the capital markets.
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
from
and
other
that
offer
banking
services, which could materially and adversely affect
our business.
The financial
services industry has
become even
more competitive as
of legislative,
regulatory and technological
changes and
continued
banking consolidation,
which
may increase
as a
current economic,
market and
conditions. We
face substantial
in all
phases
of our
from
a variety
of competitors,
including local
banks,
regional
banks,
banks
and,
more
recently,
technology,
or
"fintech"
Many
of
our
competitors offer the same banking services that
we offer and our success depends on
our ability to adapt our
products and
to
evolving
and
Increased
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
institutions, including
without limitation,
non-bank
specialty
lenders,
private
funds,
banks,
and
other
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
our results
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
and
that
will
satisfy
demands
for
convenience,
as
well
as
to
create
efficiencies
in
our
operations. We may
not be able to
implement new technology-driven
products and services effectively
or be successful in
marketing
these
and
to
our
customers.
Failure
to
keep
pace
with
change
affecting the
financial services
industry could
harm our
ability to compete
effectively and
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
We
continually
encounter
change,
and
we
may
have
fewer
than
many
of
our
competitors to invest in technological improvements.
The financial
continues to
undergo
rapid
changes
with
frequent
introductions
of new
technology-driven
and
services.
The
use
of
increases
efficiency
and
enables
institutions to
better serve customers
and to
reduce costs. Our
future success will
depend, in part,
upon our ability
the
needs
of
our
clients
by
using
to
provide
and
that
will
satisfy
client
demands
for
convenience, as well as to create additional efficiencies in our operations. Many national vendors provide turn-key services
to
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
or be
successful
in marketing
these products
and
services to our customers.
Our current and
future uses of artificial
intelligence (AI) 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
and
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.
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
trust
and
expose
us
to
scrutiny.
Mitigating
these
risks
a
robust
framework,
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
of
our
or
those
of
our
contracted
vendors,
could
disrupt
our
result
in
the
of
confidential
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
to
protect
the
of
our
computer
software,
networks
and
other
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
will
provide
absolute
security.
Many
us,
have
been
subjected
to
attempts to infiltrate the security of their websites or other systems, some involving sophisticated targeted
attacks intended
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
until
launched,
and
because
cyber-attacks
can
from
a
wide
variety
of
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 (largely
as a result
of the COVID-19 pandemic)
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
threats and
the expanding
use of
technology, as our web
-based product offerings grow and we expand
internal usage of web-based applications.
A successful
penetration
or
circumvention
of the
of our
including those
of our
vendors,
could
cause
serious
consequences,
disruption
of
our
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
to
provide
key
components
of
our
infrastructure
and
our
could
be
interrupted
if
our
service
difficulty,
their
or
fail
to
comply with banking regulations.
Third parties
provide key
components of
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
as
a
result
of
a
cyber-attack,
other
event
or
a
natural
disaster),
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
prospects, cash
flow,
liquidity,
financial condition
and results
In
certain
situations,
replacing
these
vendors
could
also
create
delay,
expense,
and
difficulties, which
our business.
use of
such third
parties creates
an unavoidable
and inherent
risk to
operations. Such
risk is
generally expected
to remain
elevated as
many of
our vendors
have also
been, and
may
further be,
by increased
reliance
on remote
work
environments,
market
volatility
and
other factors
that increase
their risks
of business
disruption or
otherwise affect
their ability
to perform
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
applicable laws.
The Federal
Reserve, FDIC,
FOFR, and
other regulators
expect financial
to
be
responsible
for
all
aspects
of
their
aspects
that
they
delegate
to
third
parties.
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
including civil
money penalties
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
Litigation and regulatory actions,
including possible enforcement actions, could subject
us to significant fines,
or
other
in
or
on
our
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
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
may
impose
consent
orders,
civil
money
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
reviews,
investigations
and
proceedings
(both
formal
and
informal)
by
governmental
regarding our
current
and/or prior
Any such
legal or
actions may
subject
us to
compensatory
or
punitive
damages,
fines,
to
change
our
or
other
requirements resulting
in increased
expenses, diminished
income and
damage to
our reputation.
Our involvement
in any
such matters,
whether tangential
and
even if
the matters
are ultimately
in our
favor,
cause significant harm to our
reputation and divert management attention away from
the operation of our business.
any settlement, consent order or adverse judgment in connection with any formal or informal proceeding or investigation by
may
result
in
litigation,
investigations
or
proceedings
as
other
litigants
and
begin independent
reviews of
activities. As
a result,
the outcome
of legal
and regulatory
actions could
have an
adverse effect on our business, results of operations
Certain of
our directors may
have conflicts
of interest in
determining whether to
present business
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
of
other
corporations,
A
director's
association
with
other
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
to present
such
opportunity as
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
you
should
assume
that
to
the
extent
any
of
our
become
aware
of
an
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
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
is applied
against our
tax assets,
reducing
of such
assets. Assessing
the recoverability
of deferred
requires management
to make significant
estimates related
to
of
future
taxable
income
from
all
reversal
of
taxable
temporary
differences,
forecasted
and
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
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.
significant future
issuances of
or common
stock equivalents,
or changes
in the
direct or
indirect ownership
of our
or common
stock equivalents,
could cause
an ownership
change and
could limit
utilize our net
operating loss
carryforwards and other
tax attributes
pursuant to Section
382 and Section
of the Internal
Revenue Code,
as 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
and
related
could
be
if
the
assumptions or estimates used in our critical accounting
policies are inaccurate.
The
of
our
and
related
in
conformity
with
GAAP
us
to
make
and
that
affect
the
amounts
in
our
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
under
the circumstances,
yet
which
may result
in
our
results
than
would
have
been
under
a
alternative.
Certain
are
or
significant to presenting our financial
condition and results of
operations. Our critical accounting policies, which
are included
in the section captioned "Management's Discussion and Analysis of Financial Condition and Results
of Operations" in Item
7 of this Annual Report
on Form 10-K, describe
those significant accounting
policies and methods used
in the preparation
of
our
that
we
because
they
require
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
impact on
our consolidated
financial statements
and
related
disclosures,
in
each
case
in
our
need
to
revise
or
restate
prior
period
statements,
cause
damage to our
reputation and
the price
of our Class
and adversely affect
our business, prospects,
cash
flow, liquidity,
As a public company, we may not efficiently or effectively create an effective internal control environment, and
any future
failure to
internal control
could impair
the reliability
of our
statements,
which
in
turn
could
harm
our
impair
confidence
in
the
accuracy
and
completeness of
reports and
our access
to the
capital markets,
cause the
price of
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
on
that
system
of
control.
Our
control
over
consists
of
a
process
to
provide
the
reliability
of
and
the
of
financial statements for external purposes in accordance with GAAP.
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
as a
private company.
In particular,
we are
certify our
compliance with
of the
SOA,
which requires
us to
annually
furnish
a report
by management
on the
of our
control
over
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
of the SOA.
We periodically
review our
formal policies,
processes and practices
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
reporting in
of the
SOA. We
cannot be
certain
as to
the
timing
of completion
of
our
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
control system
and hiring
additional personnel.
Any such
action could
affect
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
reporting issued
by our
independent registered
firm. To
prepare for
eventual compliance
with
the
auditor
of
Section
of
the
SOA
once
we
no
longer
qualify
as
an
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
are
functioning
as
documented
and
to
refine
our
and
improvement
process
for
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
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
and
the
laws
and
that
govern
our
corporate governance,
and accounting
principles, or
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
are
not
to
protect
our
Rather,
these
laws
and
are
to
protect
customers, depositors, the Deposit Insurance Fund,
or DIF, and the overall financial health and
stability of the United
States
banking
system.
These
laws
and
regulations,
among
other
matters,
prescribe
minimum
capital
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
or
reductions
in
our
capital
than
GAAP
would
require.
We
are
also
subject
to
capitalization
by
our
which
require
us
to
capital
to
support
our
Compliance
with
laws
and
can
be
and
costly,
and
changes
to
laws
and
often
impose additional operating costs. Further, we must obtain approval from our
regulators before engaging in many activities,
and
our
have
the
ability
to
compel
us
to,
or
restrict
us
from,
taking
certain
actions
entirely.
There
can
be
no
assurance that any regulatory approvals we may require
or otherwise seek will be obtained.
Regulations affecting
banks and
other financial
institutions are
undergoing continuous
review and
frequently change,
and the ultimate effect of such changes cannot be predicted. Changes to the legal and regulatory framework governing our
operations, including
the Dodd-Frank
Wall
Street Reform
and Consumer
Protection Act,
or the
Act, and
the
Economic Growth, Regulatory Relief and Consumer
Protection Act, or the Regulatory Relief
Act, have significantly revised
the laws and regulations under which we operate. Such regulations and laws may be modified or repealed at any time, and
new legislation may be enacted that will affect us and
our subsidiaries.
Our failure to comply with these laws and regulations, even if the failure follows good faith effort
or reflects a difference
in
interpretation,
could
subject
us
to
on
our
actions
and
fines
and
other
any
of
which
could
affect
our
results
of
capital
levels
and
the
price
of
our
securities. Further, any new laws, rules and
regulations, such as were imposed
under the Dodd-Frank Act or
the Regulatory
Relief Act, could make
compliance more difficult
or expensive or otherwise
adversely affect our
business, prospects, cash
flow, liquidity,
We
face
a
risk
of
noncompliance
with
the
Bank
Secrecy
Act
and
other
and
regulations and corresponding enforcement proceedings.
The BSA, the
Act, and other
laws and regulations
require financial
institutions, among other
duties, to
institute
and
and
to
file
suspicious
and
currency
as
appropriate.
FinCEN,
by
the
U.S.
to
administer
the
Bank
Secrecy
Act,
is
authorized to impose significant civil money
penalties for violations of those requirements
and has engaged in coordinated
efforts
with
the
federal
banking
as
well
as
the
U.S.
of
Justice,
Drug
Enforcement
Administration
and
Revenue
Service.
South
Florida
has
been
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
rules enforced
by OFAC.
Federal and
state bank
for many
years focused
on compliance
BSA and
regulations. In
regulations,
guidelines and
examination
in this
area, we
have dedicated
significant resources
to our
program, especially
due to
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
state anti-money
laundering compliance.
If our policies,
procedures and
systems are
deemed deficient
or the
and
systems
of
the
that
we
may
acquire
are
deficient,
we
would
be
subject
to
fines,
and
actions
that
are
deemed
in
order
to
remediate
such
and
prevent the recurrence
thereof. In recent
years, sanctions that
the regulators have
imposed on banks
that have not
complied
with
all
have
been
severe.
Failure
to
and
implement
programs to
combat money
laundering and
terrorist financing
have serious
reputational consequences
for us,
which could have a material adverse effect on
Significantly
heightened
and
supervisory
and
scrutiny
in
the
United
States
have
our
and
other
risks
and
costs
and
subject
us
to
legal
and
examinations, investigations, and enforcement actions.
The regulatory and political environment has generally been challenging for
U.S. financial institutions, which have been
increased regulatory
scrutiny,
including in
the wake
of the failures
of several
regional banks
banking
stresses in recent periods. The
general heightened scrutiny and expectations from
regulators could lead to a more
regulatory posture by the regulators, investigations and other
inquiries, as well as remediation requirements, regulatory and
restrictions,
more
or
other
proceedings,
civil
and
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
in
a
timely
and
sufficiently
satisfactory
manner
to
could
result
in
oversight;
restrictions,
including,
among
others,
imposition
of
on
capital
or
other
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
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
or
supervisory actions by our regulators.
We
are
subject
to
capital
and
may
become
subject
to
more
capital
requirements, which could adversely affect our
In
2013,
the
federal
banking
new
capital
rules
based
on
the
standards,
known as
Basel III,
that were
developed by
the Basel
Committee on
Banking Supervision.
The new
rules raised
the risk-
based capital
and revised
the
methods for
calculating
risk-weighted
assets, usually
in higher
risk
weights. The new rules now apply to us.
The Basel III rules increased
capital requirements and included
two new capital measurements,
a risk-based common
equity Tier 1 ratio
and a capital conservation buffer.
Common Equity Tier
1 (CET1) capital is a subset
of Tier 1 capital
and
is limited to common
equity (plus related surplus), retained earnings,
accumulated other comprehensive income and certain
other
items.
Other
that
have
historically
qualified
for
Tier
treatment,
noncumulative
perpetual
preferred stock,
are consigned
to a
category known
as Additional
Tier
1 capital
and must
be phased
out of
CETI over
a
nine years
beginning in
- In
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
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
the risk
weights for
certain
assets, meaning
that we
will have
to hold
more capital
against these
assets. We
are also
be
required to hold capital against short-term commitments
that are not unconditionally cancellable.
While we currently meet these new
requirements of the Basel III-based capital requirements, we
may fail to do so
in the
future. 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
to the FDIC,
pay dividends on
our capital stock,
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
than
those
by
regulations.
The
of
more
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
banking
were
to
that
the
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
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
from
any
violation
or practice,
to
issue an
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
against
our
or
directors,
to
remove
and
directors and, if
it is concluded
that such conditions
cannot be corrected
or there is
an imminent risk
of loss to
depositors,
to
our
deposit
and
force
us
to
our
If
we
become
subject
to
such
regulatory actions, our business, financial condition, results
of operations and reputation may be negatively impacted.
We
are
subject
to
laws
and
of
certain
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,
low-
and
moderate-income
neighborhoods.
Each
is
examined
by
its
primary federal
regulator,
which assesses
the institution’s
CRA performance.
The Equal
Credit Opportunity
Fair
Housing
Act
and
other
fair
lending
laws
and
impose
nondiscriminatory
lending
on
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
could
result
in
a
wide
variety
of
sanctions,
damages
and
civil
money
injunctive
relief,
restitution,
on
mergers
and
activity,
on
expansion,
and
on
entering
new
lines.
Private
parties
may
also
have
the
ability
to
challenge
an
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
The effects
of climate change
continue to create
a significant level
of concern
for the state
of the global
environment.
As a result, the global business community has increased
its political and social awareness surrounding the issue,
and the
United States
has entered
into international
agreements in
an attempt
to reduce
global temperatures,
such as
reentering
the Paris Agreement.
the U.S. Congress,
state legislatures and
federal and state
propose numerous
initiatives to
supplement the
global effort
to combat
climate change,
including provisions
contained in
the Inflation Reduction Act
of 2022. Furthermore, additional
initiative may be undertaken
in the future, including potentially
increasing supervisory expectations with respect to banks’ risk management practices, accounting for the effects of climate
change in stress testing scenarios
and systemic risk assessments,
revising expectations for credit
portfolio concentrations
based
on
climate-related
factors
and
encouraging
by
banks
in
climate-related
and
lending
to
communities disproportionately impacted by the effects of climate change. The lack of
empirical data surrounding the credit
and other financial risks posed by climate change render it difficult,
or even impossible, to predict how climate change may
impact our financial
condition and results
of operations;
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
of the
real property,
securing the
loans in
our portfolios.
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
Increasing scrutiny
and evolving expectations
from customers,
regulators, investors,
and other stakeholders
with respect to our environmental, social and
governance practices may impose additional
costs on us or expose
us to new or additional risks.
Companies have
faced and
may continue
to face
increased scrutiny
from customers,
regulators, investors,
stakeholders related
to their
environmental, social,
and governance
(“ESG”) practices
and disclosure.
Investor advocacy
groups,
funds,
and
influential
are
also
increasingly
focused
on
these
practices,
as
they
relate
to
the
health
and
safety,
diversity,
labor
and
human
rights.
Increased
ESG-related
compliance costs
could result
in increases
to our
overall operational
costs. Failure
to adapt
to or
requirements, or
investor or
stakeholder expectations
and standards,
could negatively
impact our
reputation, ability
to do
business with certain partners, and our stock price.
Recent
changes
in
the
landscape
under
the
new
U.S.
administration
have
moved
toward
a
reduction
in
emphasis on certain ESG priorities, particularly
around climate change and diversity, equity, and inclusion (“DEI”). This shift
is leading to
the rollback of
regulations that mandate specific
disclosures and operational practices
in these areas.
some
stakeholder
groups
to
demand
greater
transparency
and
action,
in
a
complex
and
conflicting environment for
companies. If
regulatory enforcement of
ESG-related policies becomes
less stringent,
may
face
reputational
risks
if
their
are
seen
as
insufficient
or
inconsistent
with
broader
societal
expectations,
especially related to DEI and environmental stewardship. As a result, navigating this evolving regulatory and public opinion
landscape may require us to balance compliance with regulatory requirements against maintaining investor,
customer, and
stakeholder trust.
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.
is a bank
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
on
our
common
stock
will substantially
depend
upon
the
receipt
of
and
other
from
the
Bank,
the
profitability
of
which
is
subject
to
the
fluctuating
cost
and
availability
of
money,
changes
in
rates
and
economic conditions in general. There
are numerous laws and banking
regulations and guidance that limit
the Bank's ability
to
pay
to
us
and
our
ability
to
pay
on
our
common
stock.
The
Bank
may
not
pay
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.
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
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;
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
if
the
market
for
stocks
in
our
industry,
or
the
stock
market
in
general,
experiences
a
loss
of
confidence, the
trading price
of the
Class A
could decline
for reasons
unrelated to
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
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
growth
company
and
because
we
have
decided
to
take
of
certain
exemptions from
various reporting
requirements applicable
to emerging
growth companies,
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
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
and
only
two
years
of
related
discussion and analysis of financial condition and results
we
are
exempt
from
the
to
obtain
an
and
report
from
our
auditors
on
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
to
give
our
non-binding
advisory
votes
on
or
golden
parachute arrangements.
We may
take advantage
of some
or all
of the
reduced regulatory
and reporting
requirements that
will be
us as
long as
we continue
to
qualify
as an
growth
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
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
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
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
accounting standards
as of
the public
company effective
dates. Because
may not
be
to
that
comply
with
public
company
dates,
may
have
or
comparing our
business, performance
or prospects
in comparison to
other public
companies, which
may have a
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
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
28,
Patriot
and
Priam
own
approximately 22.4% and 22.5%, 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,
including demand registration rights, and information
rights. Although Patriot and Priam
are
independent
of
each
other,
these
institutional
will
to
have
a
level
of
influence
over
us
because of
their
Class
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
transactions,
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
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
Our corporate organizational documents and provisions of federal
and state law to which we
are subject contain certain
provisions that could
have an anti-takeover
effect and
may delay,
make more difficult
or prevent an
attempted acquisition
that you may favor or an attempted replacement of our
Board or management.
Our governing documents include provisions that:
empower our Board, without shareholder approval, to issue 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
the increase until
the next
meeting of
shareholders by a
majority vote
of the
present at a meeting of directors.
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
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
prohibits any direct or indirect
transfer of stock or options to acquire stock to any person who, as a result of the transfer,
would own 4.95% or more of our
stock,
as
long
as
we
to
have
"deferred
tax
assets,"
subject
to
limited
exceptions
as
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
or prevent
an attempted
that you may favor.
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.