Item 1A. Risk Factors
Item 1A. Risk Factors
For detailed information about certain risk factors that
could materially affect our business, financial condition, or future
results, see “Part
I, Item 1A
– Risk Factors”
of the 2022
Form 10-K/A and
additional risk factors
as of March
31, 2023 as
set forth below.
Financial
challenges
at
other
banking
institutions
could
lead
to
depositor
concerns
that
spread
within
the
banking industry causing disruptive and destabilizing deposit outflows.
In March
2023, Silicon
Valley
Bank and
Signature Bank
experienced large
deposit outflows
coupled with
insufficient
liquidity to
meet withdrawal
demands, resulting
in the
institutions being
placed into
FDIC receiverships.
In the
aftermath,
there has been
substantial market disruption and
concerns that diminished
depositor confidence could spread
across the
banking industry, leading to deposit outflows that could
destabilize other institutions. To strengthen public confidence in the
banking
system,
the
FDIC
took
action
to
protect
funds
held
in
uninsured
deposit
accounts
at
Silicon
Valley
Bank
and
Signature Bank. However, the
FDIC has not
committed to protecting
uninsured deposits in
other institutions that
experience
outsized withdrawal demands.
Subsequently, on May 1, 2023 First Republic Bank became another large bank to fail.
To
further bolster
the banking
system, the
FRB created
a new
Bank Term
Funding Program
to provide
an additional
source of
liquidity.
At March
31, 2023,
the Company
had $413.0
million in
available liquidity
on balance
sheet, including
$59.0 million in
excess cash. The
Company has an
additional $228.0
million in off
balance sheet liquidity, it
excludes access
to brokered deposits and other off balance sheet
sources of funding. Notwithstanding our significant
liquidity, large deposit
outflows could adversely affect our financial condition and results of operations and could ultimately result in the closure of
the Bank.
Furthermore, the
recent bank
failures may
result in
federal and
state banking
regulators taking
steps to
strengthen
capital and
liquidity rules
which, if
the revised
rules apply
to us,
could adversely affect
the Company’s
financial condition
and results of operations.
Our FDIC deposit insurance premiums and assessments may increase, which would reduce our profitability.
On March
12, 2023,
the Department
of the
Treasury,
the FRB
and the
FDIC issued
a joint
statement relating
to the
resolution of Silicon Valley
Bank and Signature Bank that
stated that losses to support
uninsured deposits of those banks
would be recovered via a special assessment on banks.
The terms of that special assessment have not been
announced.
The announced special assessment, as well
as any future increases in assessment
rates or required prepayments in FDIC
insurance
premiums,
to
the
extent
that
they
result
in
increased
deposit
insurance
costs,
would
reduce
the
Company’s
profitability.
Insufficient liquidity could impair our ability to fund operations and
jeopardize our financial condition, growth
and prospects.
The
Company
requires
sufficient
liquidity
to
fund
loan
commitments,
satisfy
depositor
withdrawal
requests,
make
payments on its debt obligations as they
become due, and meet other cash commitments.
Liquidity risk is the potential that
the Company will
not be able
to meet its
obligations as they
become due because
of an inability
to liquidate assets
or obtain
adequate
funding
at
a
reasonable
cost,
in
a
timely
manner
and
without
adverse
conditions
or
consequences.
The
Company’s sources of liquidity consist primarily of cash, assets readily convertible to cash (such as investment securities),
increases in
deposits, advances,
as needed,
from the
FHLB, borrowings,
as needed,
from the
Federal Reserve
Bank of
Atlanta and
other borrowings,
including pursuant
to the
Bank Term
Funding Program.
The Company’s
access to
funding
sources in
amounts adequate
to finance
its activities
or on
acceptable terms
could be
impaired by
factors that
affect the
Company
in
particular
or
the
financial
services
industry
or
economy
in
general.
Any
substantial,
unexpected,
and/or
prolonged
change
in
the
level
or
cost
of
liquidity
could
impair
the
Company’s
ability
to
fund
operations
and
meet
its
obligations as they become
due and could have
a material adverse effect
on the Company’s
business, financial condition
and results of operations.
Table of Contents
52
USCB Financial Holdings, Inc.
Q1 2023 Form 10-Q
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.