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UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
March 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____to_____
Commission File Number:
001-41196
USCB Financial Holdings, Inc.
(Exact name of registrant as specified in its charter)
 
Florida
87-4070846
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
2301 N.W. 87th Avenue
,
Miami
,
FL
33172
(Address of principal executive offices) (zip code)
Registrant’s telephone number, including area code:
 
(
305
)
715-5200
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A common stock, $1.00 par value per share
USCB
The Nasdaq Stock Market LLC
Indicate by check
 
mark whether the
 
registrant (1) has
 
filed all reports
 
required to be
 
filed by Section
 
13 or 15(d)
 
of the Securities
 
Exchange
Act of 1934 during the preceding 12 months
 
(or for such shorter period that the registrant was
 
required to file such reports), and (2)
 
has
been subject to such filing requirements for the past 90 days.
 
Yes
 
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data
 
File required to be submitted pursuant
to Rule 405
 
of Regulation S-T
 
(§232.405 of this
 
chapter) during the
 
preceding 12 months
 
(or for such
 
shorter period that
 
the registrant
was required to submit such files).
 
Yes
 
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company
 
or
 
an
 
emerging
 
growth
 
company.
 
See
 
the
 
definitions
 
of
 
“large
 
accelerated
 
filer,”
 
“accelerated
 
filer,”
 
“non-accelerated
 
filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
 
Non-accelerated filer
 
Smaller reporting company
 
Emerging growth company
If an
 
emerging growth
 
company, indicate by
 
check mark
 
if the
 
registrant has elected
 
not to
 
use the
 
extended transition
 
period for
 
complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
 
No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of May 1, 2022, the registrant had
20,000,753
 
shares of Class A common stock outstanding.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
PART I
Item 1.
 
Financial Statements
USCB FINANCIAL HOLDINGS, INC.
Consolidated Balance Sheets - Unaudited
(Dollars in thousands,
 
except share data)
March 31, 2022
December 31, 2021
ASSETS:
Cash and due from banks
$
13,764
$
6,477
Interest-bearing deposits in banks
80,349
39,751
Total cash and cash equivalents
94,113
46,228
Investment securities held to maturity (fair value $
112,690
 
and $
120,157
, respectively)
122,361
122,658
Investment securities available for sale, at fair value
392,214
401,542
Federal Home Loan Bank stock, at cost
2,277
2,100
Loans held for investment, net of allowance of
 
$
15,074
 
and $
15,057
, respectively
1,243,314
1,175,024
Accrued interest receivable
6,303
5,975
Premises and equipment, net
5,245
5,278
Bank owned life insurance
41,986
41,720
Deferred tax asset, net
38,860
34,929
Lease right-of-use asset
13,441
14,185
Other assets
7,138
4,300
Total assets
$
1,967,252
$
1,853,939
LIABILITIES:
 
 
Deposits:
Demand
$
656,622
$
$605,425
Money market and savings accounts
772,022
703,856
Interest-bearing checking accounts
61,619
55,878
Time deposits over $250,000
118,069
119,401
Time deposits $250,000 or less
104,962
105,819
Total deposits
1,713,294
1,590,379
Federal Home Loan Bank advances
36,000
36,000
Lease liability
13,441
14,185
Accrued interest and other liabilities
12,478
9,478
Total liabilities
1,775,213
1,650,042
 
 
Commitments and contingencies (See Notes 6
 
and 12)
 
 
STOCKHOLDERS' EQUITY:
Preferred stock - Class C; $
1.00
 
par value; $
1,000
 
per share liquidation preference;
52,748
 
shares
authorized;
0
 
and
0
 
issued and outstanding as of March 31, 2022
 
and December 31, 2021
-
-
Preferred stock - Class D; $
1.00
 
par value; $
5.00
 
per share liquidation preference;
12,309,480
 
shares
authorized;
0
 
and
0
 
issued and outstanding as of March 31, 2022
 
and December 31, 2021
-
-
Preferred stock - Class E; $
1.00
 
par value; $
1,000
 
per share liquidation preference;
3,185,024
 
shares
authorized;
0
 
and
0
 
issued and outstanding as of March 31, 2022
 
and December 31, 2021
-
-
Common stock - Class A Voting; $
1.00
 
par value;
45,000,000
 
shares authorized;
20,000,753
and
19,991,753
 
issued and outstanding as of March 31, 2022
 
and December 31, 2021
20,001
19,992
Common stock - Class B Non-voting; $
1.00
 
par value;
8,000,000
 
shares authorized;
0
 
and
0
 
issued and
outstanding as of March 31, 2022 and December
 
31, 2021
-
-
Additional paid-in capital on common stock
310,887
310,666
Accumulated deficit
(119,391)
(124,245)
Accumulated other comprehensive loss
(19,458)
(2,516)
Total stockholders' equity
192,039
203,897
Total liabilities and stockholders' equity
$
1,967,252
$
1,853,939
The accompanying notes are an integral part of
 
these consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Operations - Unaudited
(Dollars in thousands,
 
except per share data)
 
Three Months Ended March 31,
2022
2021
Interest income:
 
Loans, including fees
$
12,982
$
11,868
 
Investment securities
2,329
1,844
 
Interest-bearing deposits in financial institutions
31
16
 
Total interest income
15,342
13,728
Interest expense:
 
 
Interest-bearing deposits
16
14
 
Money market and savings accounts
551
548
 
Time deposits
259
554
 
Federal Home Loan Bank advances
137
137
 
Total interest expense
963
1,253
 
Net interest income before provision for
 
credit losses
14,379
12,475
Provision for credit losses
-
(160)
 
Net interest income after provision for
 
credit losses
14,379
12,635
Non-interest income:
 
 
Service fees
900
889
 
Gain on sale of securities available for sale, net
21
62
 
Gain on sale of loans held for sale, net
334
964
 
Loan settlement
161
-
 
Other non-interest income
529
406
 
Total non-interest income
1,945
2,321
Non-interest expense:
 
 
Salaries and employee benefits
5,875
5,278
 
Occupancy
1,270
1,387
 
Regulatory assessment and fees
213
178
 
Consulting and legal fees
517
185
 
Network and information technology services
387
508
 
Other operating
1,350
1,141
 
Total non-interest expense
9,612
8,677
 
Net income before income tax expense
6,712
6,279
Income tax expense
1,858
1,498
 
Net income
4,854
4,781
Less: Preferred stock dividend
-
781
Net income available to common stockholders
$
4,854
$
4,000
Per share information:
(1) (2)
 
Class A common stock
 
Net income per share, basic
$
0.24
$
0.78
Net income per share, diluted
$
0.24
$
0.78
Class B common stock
 
 
Net income per share, basic
$
-
$
0.16
Net income per share, diluted
$
-
$
0.16
(1)
 
For further details on the allocation of net
 
income available to common stockholders and per
 
share information, see Note 10 "Earnings per
 
Share".
(2)
 
For the three months ended March 31, 2021,
 
the common stock outstanding, weighted average shares
 
and net income per share for the Class A
common stock were adjusted to reflect the 1
 
for 5 reverse stock split effected in June of 2021.
The accompanying notes are an integral part of
 
these consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Comprehensive Income
 
(Loss) - Unaudited
(Dollars in thousands)
 
Three Months Ended March 31,
 
2022
2021
Net income
$
4,854
$
4,781
Other comprehensive income (loss):
Unrealized loss on investment securities
(22,775)
(6,070)
Amortization of net unrealized gains on securities
 
transferred from available-for-sale to held-to-maturity
65
-
Reclassification adjustment for gain included in net
 
income
(21)
(62)
Tax effect
5,789
1,503
Total other comprehensive loss, net of tax
(16,942)
(4,629)
Total comprehensive (loss) income
 
$
(12,088)
$
152
The accompanying notes are an integral part of
 
these consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Changes in Stockholders’
 
Equity - Unaudited
(Dollars in thousands,
 
except per share data)
 
Preferred Stock
Common Stock
Additional Paid-
in Capital on
Common Stock
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Shares
Par Value
Shares
Par Value
Total
Stockholders'
Equity
Balance at January 1, 2022
-
$
-
19,991,753
$
19,992
$
310,666
$
(124,245)
$
(2,516)
$
203,897
Net income
-
-
-
-
-
4,854
-
4,854
Other comprehensive loss
-
-
-
-
-
-
(16,942)
(16,942)
Exercise of stock options
-
-
9,000
9
93
-
-
102
Stock based compensation
-
-
-
-
128
-
-
128
Balance at March 31, 2022
-
$
-
20,000,753
$
20,001
$
310,887
$
(119,391)
$
(19,458)
$
192,039
Balance at January 1, 2021
(1)
12,350,879
$
32,077
10,010,521
$
10,010
$
177,755
$
(53,622)
$
4,781
$
171,001
Net income
-
-
-
-
-
4,781
-
4,781
Other comprehensive loss
-
-
-
-
-
-
(4,629)
(4,629)
Dividends - preferred stock
-
-
-
-
-
(781)
-
(781)
Stock based compensation
-
-
-
-
53
-
-
53
Balance at March 31, 2021
12,350,879
$
32,077
10,010,521
$
10,010
$
177,808
$
(49,622)
$
152
$
170,425
(1)
 
For the three months ended March 31, 2021,
 
common stock shares, par value, and additional paid-in
 
capital for common stock for 2021 was adjusted
 
to reflect the 1 for 5 reverse stock split. See
Note 9 "Stockholders' Equity" for further details.
The accompanying notes are an integral part of
 
these consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Cash Flows - Unaudited
(Dollars in thousands)
 
Three Months Ended March 31,
2022
2021
Cash flows from operating activities:
Net income
 
$
4,854
$
4,781
Adjustments to reconcile net income to net
 
cash provided by operating activities:
 
 
Provision for credit losses
 
-
(160)
Depreciation and amortization
188
329
Amortization of premiums on securities, net
169
54
Accretion of deferred loan fees, net
(807)
(1,249)
Stock based compensation
128
53
Gain on sale of available for sale securities
(21)
(62)
Gain on sale of loans held for sale
(334)
(964)
Increase in cash surrender value of bank owned
 
life insurance
(266)
(170)
Decrease in deferred tax asset
1,858
1,498
Net change in operating assets and liabilities:
 
 
Accrued interest receivable
(328)
(462)
Other assets
(2,838)
(1,660)
Accrued interest and other liabilities
3,000
2,071
Net cash provided by operating activities
5,603
4,059
 
Cash flows from investing activities:
 
 
Purchase of investment securities held to maturity
(2,432)
-
Proceeds from maturities and pay-downs of investment
 
securities held to maturity
2,626
-
Purchase of investment securities available for
 
sale
 
(42,794)
(41,094)
Proceeds from maturities and pay-downs of investment
 
securities available for sale
14,788
13,699
Proceeds from sales of investment securities available
 
for sale
14,558
14,248
Net increase in loans held for investment
(617)
(72,969)
Purchase of loans held for investment
(70,175)
-
Additions to premises and equipment
(155)
(184)
Proceeds from the sale of loans held for
 
sale
3,643
9,788
Proceeds from the redemption of Federal Home Loan
 
Bank stock
-
611
Purchase of Federal Home Loan Bank stock
(177)
-
Net cash used in investment activities
(80,735)
(75,901)
Cash flows from financing activities:
Proceeds from issuance of Class A common stock,
 
net
102
-
Dividends paid
-
(781)
Net increase in deposits
122,915
130,829
Net cash provided by financing activities
123,017
130,048
 
 
Net increase in cash and cash equivalents
47,885
58,206
Cash and cash equivalents at beginning of period
46,228
47,734
Cash and cash equivalents at end of period
$
94,113
$
105,940
 
 
Supplemental disclosure of cash flow information:
 
 
Interest paid
$
961
$
1,042
 
 
Supplemental schedule of non-cash investing and financing
 
activities:
 
 
Transfer of loans held for investment to loans held for
 
sale
$
3,309
$
8,824
The accompanying notes are an integral part of
 
these consolidated financial statements.
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
8
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
1.
 
SUMMARY OF SIGNIFICANT ACCOUNTING
 
POLICIES
Overview
USCB Financial Holdings, Inc., a
 
Florida corporation incorporated
 
in 2021, is a bank holding
 
company with one wholly
owned subsidiary,
 
U.S. Century Bank (the
 
“Bank”), together referred to
 
as “the Company”. The Bank,
 
established in 2002,
is a Florida
 
state-chartered, non-member financial institution providing financial
 
services through its banking
 
centers located
in South Florida.
During the year ended December 31,
 
2021, the Bank completed an initial
 
public offering (“IPO”) and
 
its Class A voting
common
 
shares
 
began
 
trading
 
on
 
the
 
Nasdaq
 
Stock
 
Market
 
in
 
July
 
2021.
 
In
 
December
 
2021,
 
the
 
Bank
 
exchanged
 
all
outstanding shares
 
of Class
 
B non-voting
 
common stock
 
into shares
 
of Class
 
A voting
 
common stock.
 
Shortly thereafter,
USCB Financial Holdings, Inc. acquired all issued and outstanding shares of the Class A voting common stock of the Bank
in connection with the reorganization of the Bank into the holding
 
company form of structure.
 
For further information on the
IPO and the exchange and redemption of shares, see
 
Note 9 “Stockholders’ Equity”.
The Company’s
 
Consolidated Financial
 
Statements consist
 
of USCB
 
Financial Holdings,
 
Inc. and
 
U.S. Century
 
Bank
as of or for the period ended March 31, 2022 and December
 
31, 2021 compared to only U.S. Century Bank as of or for the
period ended March 31, 2021.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with instructions to
Form 10-Q and
 
do not include
 
all information and
 
footnotes required by U.S.
 
generally accepted accounting principles
 
(“U.S.
GAAP”) for comple
 
te financial
 
statements. All
 
adjustments consisting
 
of normally
 
recurring accruals that,
 
in the opinion
 
of
management,
 
are
 
necessary
 
for
 
a
 
fair
 
presentation
 
of
 
the
 
financial
 
position
 
and
 
results
 
of
 
operations
 
for
 
the
 
periods
presented have been
 
included. These
 
unaudited consolidated
 
financial statements
 
should be read
 
in conjunction
 
with the
Company’s consolidated financial
 
statements and related notes
 
appearing in the Company’s
 
Annual Report on Form 10-K
for the year ended December 31, 2021.
Principles of Consolidation
The
 
Company
 
consolidates
 
entities
 
in
 
which
 
it
 
has
 
a
 
controlling
 
financial
 
interest.
 
Intercompany
 
transactions
 
and
balances are eliminated in consolidation.
 
Use of Estimates
To prepare
 
financial statements in conformity with U.S. GAAP,
 
management makes estimates and assumptions based
on available
 
information. These
 
estimates and
 
assumptions affect
 
the amounts
 
reported in
 
the financial
 
statements. The
most significant
 
estimates impacting
 
the Company’s
 
consolidated financial
 
statements are
 
the allowance
 
for credit
 
losses
and income taxes.
Concentration of Credit Risks
Credit
 
risk
 
represents
 
the
 
accounting
 
loss
 
that
 
would
 
be
 
recognized
 
at
 
the
 
reporting
 
date
 
if
 
counterparties
 
failed
 
to
perform as contracted and any collateral or security proved to be insufficient
 
to cover the loss. Concentrations of credit risk
(whether on or off-balance sheet) arising from financial instruments exist in relation to certain
 
groups of customers. A group
concentration arises when
 
a number of
 
counterparties have
 
similar economic characteristics
 
that would cause
 
their ability
to meet contractual obligations to be similarly affected by changes in economic or other conditions. The Company does not
have a significant exposure to any individual customer
 
or counterparty.
At March
 
31, 2022
 
and
 
December 31,
 
2021, the
 
Company
 
had
 
a concentration
 
of risk
 
with loans
 
outstanding
 
to the
Company’s
 
top
 
ten
 
lending
 
relationships
 
totaling
 
$
187.1
 
million
 
and
 
$
156.4
 
million,
 
respectively,
 
at
 
such
 
dates.
 
This
concentration accounted for
14.9
% of net loans outstanding at March 31, 2022 and
13.1
% at December 31, 2021.
At March 31, 2022 and December 31, 2021, the
 
Company also had a concentration of credit
 
risk with loans outstanding
to foreign banks in Ecuador, Honduras, and El
 
Salvador totaling $
61.4
 
million and $
47.9
 
million, respectively, at such dates.
These foreign banks maintained deposits
 
with right of offset totaling
 
$
30.3
 
million and $
28.9
 
million at March 31, 2022 and
December 31, 2021, respectively.
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
9
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
At various times during
 
the year,
 
the Company has maintained
 
deposits with other
 
financial institutions. The exposure
to the Company from
 
these transactions is solely
 
dependent upon daily balances
 
and the financial strength
 
of the respective
institutions.
Bank Owned Life Insurance
Bank owned
 
life insurance
 
(“BOLI”) is
 
carried at
 
the amount
 
that could
 
be realized
 
under the
 
contract at
 
the balance
sheet date, which is typically
 
cash surrender value. Changes
 
in cash surrender value are recorded
 
in non-interest income.
At March 31,
 
2022, the
 
Company
 
maintained
 
BOLI policies
 
with
 
five
 
insurance
 
carriers with
 
a combined
 
cash
 
surrender
value of $
42.0
 
million. The Company is the beneficiary of
 
these policies which covers certain present
 
and former executives
and officers.
Reclassifications
Certain
 
amounts
 
in
 
the
 
Consolidated
 
Financial
 
Statements
 
have
 
been
 
reclassified
 
to
 
conform
 
to
 
the
 
current
presentation. Reclassifications had no impact on the net income
 
or stockholders’ equity of the Company.
Recently Issued Accounting Standards
Issued and Adopted
The Company adopted no
 
new accounting pronouncements as of
 
or for the three
 
months ended March 31, 2022. There
were
 
no
 
newly-issued
 
accounting
 
pronouncements
 
that
 
we
 
believe
 
may
 
have
 
a
 
significant
 
impact
 
to
 
the
 
Company’s
consolidated financial statements or internal controls.
 
Issued and Not Yet Adopted
Measurement of Credit Losses on Financial Instruments
In June
 
2016, the FASB issued
 
ASU 2016-13, Financial
 
Instruments - Credit
 
Losses (Topic 326); Measurement of
 
Credit
Losses on Financial Instruments. This accounting standard update (“ASU” or “Update”)
 
on accounting for current expected
credit
 
losses
 
on
 
financial
 
instruments
 
(“CECL”)
 
will
 
replace
 
the
 
current
 
probable
 
incurred
 
loss
 
impairment
 
methodology
under U.S. GAAP
 
with a methodology
 
that reflects the
 
expected credit losses.
 
The Update is
 
intended to provide
 
financial
statement
 
users
 
with
 
more
 
decision-useful
 
information
 
about
 
expected
 
credit
 
losses.
 
This
 
Update
 
is
 
applicable
 
to
 
the
Company
 
on
 
a modified
 
retrospective
 
basis
 
for
 
interim
 
and
 
annual
 
periods
 
in
 
fiscal
 
years
 
beginning
 
after
 
December 15,
2022. Early adoption is permitted for fiscal years beginning after December 15, 2019, including interim periods within those
fiscal
 
years.
 
The
 
Company
 
expects
 
to
 
adopt
 
this
 
ASU
 
on
 
January 1,
 
2023.
 
The
 
impact
 
of
 
adoption
 
on
 
the
 
Company’s
financial statements
 
will depend on
 
the composition
 
of the loan
 
and investment
 
securities portfolio
 
as of January
 
1, 2023,
general economic conditions,
 
and other factors that
 
are not known at
 
this time. Although
 
management is in the
 
process of
evaluating the impact of
 
adoption of this ASU on
 
its consolidated financial statements,
 
management does believe that
 
this
ASU will lead to significant changes
 
in accounting policies and disclosures
 
related to, and the methods used
 
in estimating,
the ACL.
 
To
 
date, the
 
Company has
 
executed a
 
detailed implementation
 
plan through
 
the adoption
 
date, implemented
 
a
software solution to assist with the CECL estimation process,
 
and has completed a data gap analysis.
Reference Rate Reform
In
 
March
 
2020,
 
the
 
FASB
 
issued
 
ASU
 
2020-04,
 
Reference
 
Rate
 
Reform
 
(Topic
 
848),
 
Facilitation
 
of
 
the
 
Effects
 
of
Reference Rate Reform
 
on Financial Reporting.
 
In January 2021,
 
the FASB
 
clarified the scope
 
of this guidance
 
with ASU
2021-01 which provides optional
 
guidance for a limited
 
period of time to
 
ease the burden in
 
accounting for (or
 
recognizing
the effects
 
of) reference
 
rate
 
reform on
 
financial
 
reporting.
 
This
 
ASU is
 
effective
 
March 12,
 
2020 through
 
December 31,
2022. The
 
Company is
 
evaluating the
 
impact of
 
this ASU
 
and has
 
not yet
 
determined whether
 
LIBOR transition
 
and this
ASU will have a material effect on our business operatio
 
ns and consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
10
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
Trouble Debt Restructuring
In
 
March
 
2022,
 
the
 
FASB
 
issued
 
ASU
 
2022-02,
 
Financial
 
Instruments—Credit
 
Losses
 
(Topic
 
326):
 
Troubled
 
Debt
Restructurings and Vintage Disclosures.
 
This ASU eliminates the recognition and measurement guidance on troubled debt
restructurings for
 
creditors and
 
aligns it
 
with existing
 
guidance to
 
determine whether
 
a loan
 
modification results
 
in a
 
new
loan
 
or
 
a
 
continuation
 
of
 
an
 
existing
 
loan.
 
The
 
new
 
guidance
 
also
 
requires
 
enhanced
 
disclosures
 
about
 
certain
 
loan
modifications by
 
creditors
 
when a
 
borrower is
 
experiencing financial
 
difficulty.
 
This ASU
 
is effective
 
in periods
 
beginning
after
 
December
 
15,
 
2022,
 
using
 
either
 
a
 
prospective
 
or
 
modified
 
retrospective
 
transition
 
approach.
 
Early
 
adoption
 
is
permitted for entities that have already adopted CECL.
 
The Company is in the process of reviewing this
 
ASU, as part of its
CECL implementation efforts,
 
to determine
 
whether it would
 
have a material
 
impact on
 
the Company’s consolidated financial
statements when adopted.
2.
 
INVESTMENT SECURITIES
 
The following
 
tables present
 
a summary
 
of the amortized
 
cost, unrealized
 
or unrecognized
 
gains and
 
losses,
 
and fair
value of investment securities at the dates indicated (in
 
thousands):
March 31, 2022
Available-for-sale:
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
U.S. Government Agency
$
28,197
$
-
$
(764)
$
27,433
U.S. Treasury
2,463
-
-
2,463
Collateralized mortgage obligations
163,382
9
(12,653)
150,738
Mortgage-backed securities - residential
114,655
-
(8,617)
106,038
Mortgage-backed securities - commercial
46,280
26
(2,069)
44,237
Municipal securities
25,144
-
(3,163)
21,981
Bank subordinated debt securities
27,003
476
(184)
27,295
Corporate bonds
12,066
91
(128)
12,029
$
419,190
$
602
$
(27,578)
$
392,214
Held-to-maturity:
U.S. Government Agency
$
34,465
$
-
$
(2,802)
$
31,663
Collateralized mortgage obligations
42,567
-
(3,535)
39,032
Mortgage-backed securities - residential
28,981
-
(2,327)
26,654
Mortgage-backed securities - commercial
3,099
-
(282)
2,817
Corporate bonds
13,249
-
(725)
12,524
$
122,361
$
-
$
(9,671)
$
112,690
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
11
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
December 31, 2021
Available-for-sale:
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
U.S. Government Agency
$
10,564
$
6
$
(50)
$
10,520
Collateralized mortgage obligations
160,506
22
(3,699)
156,829
Mortgage-backed securities - residential
120,643
228
(2,029)
118,842
Mortgage-backed securities - commercial
49,905
820
(608)
50,117
Municipal securities
25,164
6
(894)
24,276
Bank subordinated debt securities
27,003
1,418
(13)
28,408
Corporate bonds
12,068
482
-
12,550
$
405,853
$
2,982
$
(7,293)
$
401,542
Held-to-maturity:
U.S. Government Agency
$
34,505
$
14
$
(615)
$
33,904
Collateralized mortgage obligations
44,820
-
(1,021)
43,799
Mortgage-backed securities - residential
26,920
-
(568)
26,352
Mortgage-backed securities - commercial
3,103
-
(90)
3,013
Corporate bonds
13,310
-
(221)
13,089
$
122,658
$
14
$
(2,515)
$
120,157
During the
 
year ended
 
December 31,
 
2021, a
 
total of
28
 
investment securities
 
with an
 
amortized cost
 
basis and
 
fair
value of
 
$
67.6
 
million and
 
$
68.7
 
million, respectively,
 
were transferred
 
from
 
available-for-sale
 
(“AFS”) to
 
held-to-maturity
(“HTM”). These securities had a net unrealized gain
 
of $
1.1
 
million on the date of transfer,
 
with no immediate impact to net
income
 
on
 
the
 
transfer
 
date.
 
The
 
unrealized
 
gain
 
or
 
loss
 
at
 
the
 
date
 
of
 
transfer
 
was
 
retained
 
in
 
accumulated
 
other
comprehensive income (“AOCI”)
 
and in
 
the carrying value
 
of the
 
HTM securities. The
 
net unrealized gains
 
that were
 
retained
in AOCI
 
are being
 
amortized over
 
the remaining
 
life of
 
the securities.
 
For the
 
three months
 
ended March
 
31, 2022,
 
total
amortization out of AOCI for net unrealized gains on securities
 
transferred from AFS to HTM was $
65
 
thousand.
Gains and losses on
 
the sale of securities are
 
recorded on the trade date
 
and are determined on a
 
specific identification
basis. The following table presents the proceeds, realized
 
gross gains and realized gross losses on sales and
 
calls of AFS
debt securities for the three months ended March 31,
 
2022 and 2021 (in thousands):
Three Months Ended March 31,
Available-for-sale:
2022
2021
Proceeds from sale and call of securities
$
14,558
$
14,248
Gross gains
$
158
$
75
Gross losses
(137)
(13)
Net realized gains
$
21
$
62
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
12
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
The
 
amortized
 
cost
 
and
 
fair
 
value
 
of
 
investment
 
securities,
 
by
 
contractual
 
maturity,
 
are
 
shown
 
below
 
for
 
the
 
date
indicated (in thousands).
 
Actual maturities may
 
differ from contractual
 
maturities because borrowers
 
may have the right
 
to
call or prepay
 
obligations with or without
 
call or prepayment penalties.
 
Securities not due
 
at a single
 
maturity date are
 
shown
separately.
 
Available-for-sale
Held-to-maturity
March 31, 2022:
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
Due within one year
$
1,995
$
2,014
$
2,007
$
2,003
Due after one year through five years
10,518
10,509
11,242
10,521
Due after five years through ten years
29,019
29,131
-
-
Due after ten years
25,144
22,114
-
-
U.S. Government Agency
28,197
27,433
34,465
31,663
Collateralized mortgage obligations
163,382
150,738
42,567
39,032
Mortgage-backed securities - residential
 
114,655
106,038
28,981
26,654
Mortgage-backed securities - commercial
 
46,280
44,237
3,099
2,817
$
419,190
$
392,214
$
122,361
$
112,690
At March 31,
 
2022, there
 
were no
 
securities to
 
any one
 
issuer,
 
in an
 
amount greater
 
than 10%
 
of total
 
stockholders’
equity other than the United States Government and Government Agencies. All the collateralized mortgage obligations and
mortgage-backed securities are issued by United States
 
sponsored entities at March 31, 2022 and December
 
31, 2021.
Information pertaining
 
to investment
 
securities with
 
gross unrealized
 
losses, aggregated
 
by investment
 
category
 
and
length of
 
time that
 
those
 
individual securities
 
have been
 
in a
 
continuous
 
loss position,
 
are presented
 
as of
 
the following
dates (in thousands):
March 31, 2022
Less than 12 months
12 months or more
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
U.S. Government Agency
$
35,156
$
(1,909)
$
16,223
$
(1,769)
$
51,379
$
(3,678)
U.S. Treasury
2,463
-
-
-
2,463
-
Collateralized mortgage obligations
131,069
(10,567)
52,672
(5,621)
183,741
(16,188)
Mortgage-backed securities - residential
80,981
(5,493)
46,780
(5,109)
127,761
(10,602)
Mortgage-backed securities - commercial
27,614
(1,619)
6,835
(665)
34,449
(2,284)
Municipal securities
 
6,812
(802)
15,169
(2,361)
21,981
(3,163)
Bank subordinated debt securities
6,316
(184)
-
-
6,316
(184)
Corporate bonds
12,953
(247)
-
-
12,953
(247)
$
303,364
$
(20,821)
$
137,679
$
(15,525)
$
441,043
$
(36,346)
December 31, 2021
Less than 12 months
12 months or more
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
U.S. Government Agency
$
25,951
$
(254)
$
15,477
$
(516)
$
41,428
$
(770)
Collateralized mortgage obligations
155,668
(3,223)
38,459
(1,497)
194,127
(4,720)
Mortgage-backed securities - residential
88,772
(1,178)
37,373
(1,274)
126,145
(2,452)
Mortgage-backed securities - commercial
25,289
(318)
7,507
(309)
32,796
(627)
Municipal securities
 
11,292
(395)
11,978
(499)
23,270
(894)
Bank subordinated debt securities
4,487
(13)
-
-
4,487
(13)
$
311,459
$
(5,381)
$
110,794
$
(4,095)
$
422,253
$
(9,476)
As of March 31, 2022, the unrealized losses associated with $
66.0
 
million of investment securities transferred from the
AFS
 
portfolio
 
to
 
the
 
HTM
 
portfolio
 
represent
 
unrealized
 
losses
 
since
 
the
 
date
 
of
 
purchase,
 
independent
 
of
 
the
 
impact
associated with changes in the cost basis upon transfer
 
between portfolios.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
13
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
The Company performs a review
 
of the investments that have
 
an unrealized loss to determine
 
whether there have been
any changes in the
 
economic circumstance of the security
 
issuer to indicate that
 
the unrealized loss is
 
impaired on an other-
than-temporary (“OTTI”) basis. Management considers several factors in their analysis including (i) severity and duration of
the impairment, (ii) credit
 
rating of the security
 
including any downgrade,
 
(iii) intent to sell
 
the security,
 
or if it is
 
more likely
than not that it will be required to
 
sell the security before recovery,
 
(iv) whether there have been any payment
 
defaults and
(v) underlying guarantor of the securities.
The Company does not consider these
 
investments to be OTTI as the
 
decline in market value is attributable
 
to changes
in market
 
interest rates
 
and not
 
credit quality,
 
and because
 
the Company
 
does not
 
intend to
 
sell the
 
investments before
recovery
 
of its
 
amortized
 
cost
 
basis, which
 
may be
 
maturity,
 
and
 
it
 
is more
 
likely
 
than not
 
that
 
the Company
 
will not
 
be
required to sell the securities before maturity.
Pledged Securities
The Company
 
maintains a
 
master repurchase
 
agreement with
 
a public
 
banking institution
 
for up
 
to $
20.0
 
million fully
guaranteed with investment
 
securities upon withdrawal.
 
Any amounts borrowed
 
would be at a
 
variable interest rate
 
based
on prevailing rates
 
at the time
 
funding is requested. As
 
of March 31, 2022,
 
the Company did
 
not have any
 
securities pledged
under this agreement.
The Company is
 
a Qualified
 
Public Depositor
 
(“QPD”) with
 
the state of
 
Florida. As
 
a QPD,
 
the Company
 
has the authority
to legally maintain public deposits from cities, municipalities, and the state of Florida. These public deposits are secured by
securities pledged to the
 
state of Florida at
 
a ratio of
25
% of the outstanding
 
uninsured deposits. The
 
Company must also
maintain a minimum amount of pledged securities to be in the
 
public funds program.
As of March 31, 2022,
 
the Company had a
 
total of $
63.7
 
million in deposits under
 
the public funds program
 
and pledged
to these public funds were
eleven
 
Corporate Bonds with a fair value of $
19.6
 
million to the state of Florida.
As of
 
December 31,
 
2021, the
 
Company had
 
a total
 
of $
37.3
 
million in
 
deposits under
 
the public
 
funds program
 
and
pledged to these public funds were
eleven
 
Corporate Bonds with a fair value of $
20.4
 
million to the state of Florida.
 
3.
 
LOANS
The following table is a summary of the distribution of
 
loans held for investment by type (in thousands):
 
March 31, 2022
December 31, 2021
Total
Percent of
Total
Total
Percent of
Total
Residential Real Estate
$
204,317
16.2
%
$
201,359
16.9
%
Commercial Real Estate
782,072
62.1
%
704,988
59.2
%
Commercial and Industrial
134,832
10.7
%
146,592
12.3
%
Foreign Banks
63,985
5.1
%
59,491
5.0
%
Consumer and Other
 
73,765
5.9
%
79,229
6.6
%
Total
 
gross loans
1,258,971
100.0
%
1,191,659
100.0
%
Less: Unearned income
583
1,578
Total
 
loans net of unearned income
1,258,388
1,190,081
Less: Allowance for credit losses
15,074
15,057
Total
 
net loans
$
1,243,314
$
1,175,024
At
 
March 31,
 
2022
 
and
 
December 31,
 
2021,
 
the
 
Company
 
had
 
$
171.4
 
million
 
and
 
$
185.1
 
million,
 
respectively,
 
of
commercial real estate
 
and residential mortgage loans
 
pledged as collateral
 
on lines of
 
credit with the
 
FHLB and the
 
Federal
Reserve Bank of Atlanta.
The Company was a participant
 
of the Small Business Administration’s
 
(“SBA”) Paycheck Protection Program
 
(“PPP”)
loans. These
 
loans were
 
designed to
 
provide a
 
direct incentive
 
for small
 
businesses to
 
keep their
 
workers on
 
payroll and
the funds had to be used towards payroll cost, mortgage interest, rent, utilities and other costs
 
related to COVID-19. These
loans
 
are
 
forgivable
 
under
 
specific criteria
 
as
 
determined
 
by the
 
SBA.
 
The
 
Company
 
had
 
PPP
 
loans
 
of
 
$
24.6
 
million
 
at
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
14
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
March 31, 2022 and $
42.4
 
million at December 31, 2021, which are categorized as commercial and industrial loans. These
PPP loans had deferred loan fees of $
590
 
thousand at March 31, 2022 and $
1.5
 
million at December 31, 2021.
The Company recognized
 
$
1.0
 
million and $
1.5
 
million in PPP
 
loan fees and
 
interest income during
 
the three months
ended
 
March 31,
 
2022
 
and
 
2021,
 
respectively,
 
which
 
is
 
reported
 
under
 
loans,
 
including
 
fees
 
within
 
the
 
Consolidated
Statements of Operations.
The
 
Company
 
segments
 
the
 
portfolio
 
by
 
pools
 
grouping
 
loans
 
that
 
share
 
similar
 
risk
 
characteristics
 
and
 
employing
collateral type
 
and lien
 
position to
 
group loans
 
according to
 
risk. The
 
Company determines
 
historical
 
loss rates
 
for each
loan
 
pool
 
based
 
on
 
its
 
own
 
loss
 
experience.
 
In
 
estimating
 
credit
 
losses,
 
the
 
Company
 
also
 
considers
 
qualitative
 
and
environmental factors that may cause estimated credit losses
 
for the loan portfolio to differ from historical
 
losses.
Changes in
 
the allowance
 
for credit
 
losses for
 
the three
 
months ended
 
March 31, 2022
 
and 2021
 
were as
 
follows (in
thousands):
 
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Foreign
Banks
Consumer
and Other
Total
March 31, 2022:
Beginning balance
$
2,498
$
8,758
$
2,775
$
457
$
569
$
15,057
Provision for credit losses
(157)
425
(426)
34
124
-
Recoveries
32
-
6
-
-
38
Charge-offs
(16)
-
-
-
(5)
(21)
Ending Balance
 
$
2,357
$
9,183
$
2,355
$
491
$
688
$
15,074
March 31, 2021:
Beginning balance
$
3,408
$
9,453
$
1,689
$
348
$
188
$
15,086
Provision for credit losses
(325)
(133)
229
59
10
(160)
Recoveries
4
-
87
-
1
92
Charge-offs
-
-
-
-
(9)
(9)
Ending Balance
 
$
3,087
$
9,320
$
2,005
$
407
$
190
$
15,009
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
15
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
Allowance for credit losses and the outstanding balances in
 
loans as of March 31, 2022 and December 31,
 
2021 are as
follows (in thousands):
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Foreign
Banks
Consumer
and Other
Total
March 31, 2022:
Allowance for credit losses:
Individually evaluated for impairment
$
160
$
1
$
66
$
-
$
108
$
335
Collectively evaluated for impairment
2,197
9,182
2,289
491
580
14,739
Balances, end of period
$
2,357
$
9,183
$
2,355
$
491
$
688
$
15,074
Loans:
Individually evaluated for impairment
$
7,357
$
603
$
132
$
-
$
217
$
8,309
Collectively evaluated for impairment
196,960
781,469
134,700
63,985
73,548
1,250,662
Balances, end of period
$
204,317
$
782,072
$
134,832
$
63,985
$
73,765
$
1,258,971
December 31, 2021:
Allowance for credit losses:
Individually evaluated for impairment
$
178
$
-
$
71
$
-
$
111
$
360
Collectively evaluated for impairment
2,320
8,758
2,704
457
458
14,697
Balances, end of period
$
2,498
$
8,758
$
2,775
$
457
$
569
$
15,057
Loans:
Individually evaluated for impairment
$
9,006
$
696
$
141
$
-
$
224
$
10,067
Collectively evaluated for impairment
192,353
704,292
146,451
59,491
79,005
1,181,592
Balances, end of period
$
201,359