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
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:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
,
,
(Address of principal executive offices) (zip code)
Registrant’s telephone number, including area code:
)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
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.
☒
☐
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).
☒
☐
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
☐
☐
☒
☒
☒
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.
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
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☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of November 1, 2022, the registrant had
A
common stock outstanding.
FORM 10-Q
September 30, 2022
TABLE OF CONTENTS
3 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
PART I
Item 1. Financial Statements
USCB FINANCIAL HOLDINGS, INC.
Consolidated Balance Sheets - Unaudited
(Dollars in thousands, except share data)
September 30, 2022
December 31, 2021
ASSETS:
Cash and due from banks
$
$
Interest-bearing deposits in banks
Total cash and cash equivalents
Investment securities held to maturity (fair value $
, respectively)
Investment securities available for sale, at fair value
Federal Home Loan Bank stock, at cost
Loans held for investment, net of allowance of $
, respectively
Accrued interest receivable
Premises and equipment, net
Bank owned life insurance
Deferred tax assets, net
Lease right-of-use asset
Other assets
Total assets
$
$
LIABILITIES:
Deposits:
Demand deposits
$
$
$605,425
Money market and savings accounts
Interest-bearing checking
Time deposits
Total deposits
Federal Home Loan Bank advances
Lease liability
Accrued interest and other liabilities
Total liabilities
Commitments and contingencies (See Notes 5 and 10)
STOCKHOLDERS' EQUITY:
Preferred stock - Class C; $
authorized;
-
-
Preferred stock - Class D; $
authorized;
-
-
Preferred stock - Class E; $
authorized;
-
-
Common stock - Class A Voting; $
Common stock - Class B Non-voting; $
outstanding as of September 30, 2022 and December 31, 2021
-
-
Additional paid-in capital on common stock
Accumulated deficit
(108,538 )
(124,245 )
Accumulated other comprehensive loss
(45,202 )
(2,516 )
Total stockholders' equity
Total liabilities and stockholders' equity
$
$
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Operations - Unaudited
(Dollars in thousands, except per share data)
Three Months Ended September 30,
Nine Months Ended September 30,
2022
2021
2022
2021
Interest income:
$
$
$
$
Interest expense:
Provision for credit losses
-
(160 )
Non-interest income:
(558 )
(70 )
(540 )
-
Non-interest expense:
Income tax expense
Less: Preferred stock dividend
-
-
Less: Exchange and redemption of preferred shares
-
-
Net income (loss) available to common stockholders
$
$
(83,534 )
$
$
(76,235 )
Per share information:
(1)
Class A common stock
Net income (loss) per share, basic
$
$
(5.11 )
$
$
(8.57 )
Net income (loss) per share, diluted
$
$
(5.11 )
$
$
(8.57 )
Class B common stock
Net loss per share, basic
$
-
$
(1.02 )
$
-
$
(1.71 )
Net loss per share, diluted
$
-
$
(1.02 )
$
-
$
(1.71 )
(1) For further details on the allocation of net income available to common stockholders and per share information, see Note 9 "Earnings per Share".
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Comprehensive Income (Loss) - Unaudited
(Dollars in thousands)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022
2021
2022
2021
Net income
$
$
$
$
Other comprehensive income (loss):
Unrealized gain (loss) on investment securities
(11,679 )
(57,577 )
(4,627 )
Amortization of net unrealized gains on securities transferred from
available-for-sale to held-to-maturity
(52 )
(177 )
Reclassification adjustment for loss (gain) included in net income
(179 )
Tax effect
(324 )
Total other comprehensive income (loss), net of tax
(8,341 )
(42,686 )
(3,596 )
Total comprehensive (loss) income
$
(2,783 )
$
$
(26,979 )
$
The accompanying notes are an integral part of these unaudited consolidated financial statements.
6 USCB Financial Holdings, Inc. Q3 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 July 1, 2022
-
$
-
$
$
$
(114,096 )
$
(36,861 )
$
Net income
-
-
-
-
-
-
Other comprehensive loss
-
-
-
-
-
-
(8,341 )
(8,341 )
Stock-based compensation
-
-
-
-
-
-
Balance at September 30, 2022
-
$
-
$
$
$
(108,538 )
$
(45,202 )
$
Balance at July 1, 2021
$
$
$
$
(46,362 )
$
$
Net income
-
-
-
-
-
-
Other comprehensive income
-
-
-
-
-
-
Dividends - preferred stock
-
-
-
-
-
(542 )
-
(542 )
Issuance of Class A common stock, net of offering
costs of $
-
-
-
-
Exchange of preferred sock
(11,109,025 )
(22,154 )
(80,628 )
-
-
Redemption of preferred stock
(1,234,354 )
(2,462 )
-
-
-
(8,958 )
-
(11,420 )
Stock-based compensation
-
-
-
-
-
-
Balance at September 30, 2021
$
-
$
$
$
(129,897 )
$
$
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
-
$
-
$
$
$
(124,245 )
$
(2,516 )
$
Net income
-
-
-
-
-
-
Other comprehensive loss
-
-
-
-
-
-
(42,686 )
(42,686 )
Exercise of stock options
-
-
-
-
Stock-based compensation
-
-
-
-
-
-
Balance at September 30, 2022
-
$
-
$
$
$
(108,538 )
$
(45,202 )
$
Balance at January 1, 2021
$
$
$
$
(53,622 )
$
$
Reverse stock split 1 for 5 Common A
-
-
(15,557,626 )
(15,558 )
-
-
$ -
Adjusted balance at January 1, 2021
(53,622 )
Net income
-
-
-
-
-
-
Other comprehensive income
-
-
-
-
-
-
(3,596 )
(3,596 )
Dividends - preferred stock
-
-
-
-
-
(2,077 )
-
(2,077 )
Issuance of Class A common stock, net of offering
costs of $
-
-
-
-
Exchange of preferred sock
(11,109,025 )
(22,154 )
(80,628 )
-
-
Redemption of preferred stock
(1,241,854 )
(9,923 )
-
-
-
(8,997 )
-
(18,920 )
Stock-based compensation
-
-
-
-
-
-
Balance at September 30, 2021
$
-
$
$
$
(129,897 )
$
$
The accompanying notes are an integral part of these unaudited consolidated financial statements.
7 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Cash Flows - Unaudited
(Dollars in thousands)
Nine Months Ended September 30,
2022
2021
Cash flows from operating activities:
Net income
$
$
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses
(160 )
Depreciation and amortization
Amortization of premiums on securities, net
Accretion of deferred loan fees, net
(1,364 )
(2,893 )
Stock-based compensation
Loss (gain) on sale of available for sale securities
(179 )
Gain on sale of loans held for sale
(686 )
(1,519 )
Increase in cash surrender value of bank owned life insurance
(794 )
(499 )
Decrease in deferred tax assets
Net change in operating assets and liabilities:
Accrued interest receivable
(593 )
(530 )
Other assets
(4,163 )
(2,724 )
Accrued interest and other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of investment securities held to maturity
(2,432 )
(31,919 )
Proceeds from maturities and pay-downs of investment securities held to maturity
Purchase of investment securities available for sale
(49,808 )
(158,333 )
Proceeds from maturities and pay-downs of investment securities available for sale
Proceeds from sales of investment securities available for sale
Net increase in loans held for investment
(177,916 )
(55,451 )
Purchase of loans held for investment
(70,175 )
(93,677 )
Additions to premises and equipment
(175 )
(314 )
Proceeds from the sale of loans held for sale
Proceeds from the redemption of Federal Home Loan Bank stock
Purchase of Federal Home Loan Bank stock
(2,052 )
-
Net cash used in investment activities
(200,829 )
(231,927 )
Cash flows from financing activities:
Proceeds from issuance of Class A common stock, net
Dividends paid
-
(2,077 )
Redemption of Preferred stock Class C
-
(5,275 )
Redemption of Preferred stock Class D
-
(6,145 )
Redemption of Preferred stock Class E
-
(7,500 )
Net increase in deposits
Proceeds from Federal Home Loan Bank advances
-
Repayments on Federal Home Loan Bank advances
(70,000 )
-
Net cash provided by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
$
$
Supplemental disclosure of cash flow information:
Interest paid
$
$
Supplemental schedule of non-cash investing and financing activities:
Transfer of loans held for investment to loans held for sale
$
$
Transfer of investment securities from available-for-sale to held-to-maturity
$
$
Transfer of premises and equipment to assets held for sale
$
-
$
Lease liability arising from obtaining right-of-use assets
$
$
666
Exchange of Preferred stock Class C for Class A common stock
$
-
$
Exchange of Preferred stock Class D for Class A common stock
$
-
$
The accompanying notes are an integral part of these unaudited consolidated financial statements.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
8 USCB Financial Holdings, Inc. Q3 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 the
outstanding shares of Class B non-voting common stock for shares of Class A voting common stock on a one to five
exchange. Shortly thereafter, the Company acquired all issued and outstanding shares of 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 8 “Stockholders’ Equity”.
The Company’s Consolidated Financial Statements consist of USCB Financial Holdings, Inc. and U.S. Century Bank
as of September 30, 2022 and December 31, 2021 and for the three and nine months ended September 30, 2022 compared
to only U.S. Century Bank as of September 30, 2021 and for the three and nine months ended September 30, 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 the information and footnotes required by U.S. generally accepted accounting principles
(“U.S. GAAP”) for complete 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.
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 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,
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
9 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
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. The Company has developed a detailed implementation plan through the date of adoption that includes the
implementation of a software solution to assist with the CECL implementation process and is developing measurements in
parallel with the current methodology. To date, the Company has initiated policy discussion with key stakeholders,
completed a data gap analysis and retained the services of a third-party consulting firm to perform an independent model
validation prior to adoption.
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 from 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 operations and consolidated financial statements.
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):
September 30, 2022
Available-for-sale:
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
U.S. Government Agency
$
$
-
$
(1,372 )
$
Collateralized mortgage obligations
-
(21,712 )
Mortgage-backed securities - residential
-
(15,942 )
Mortgage-backed securities - commercial
-
(3,883 )
Municipal securities
-
(6,475 )
Bank subordinated debt securities
(969 )
Corporate bonds
-
(377 )
$
$
$
(50,730 )
$
Held-to-maturity:
U.S. Government Agency
$
$
-
$
(5,804 )
$
Collateralized mortgage obligations
-
(6,773 )
Mortgage-backed securities - residential
-
(4,844 )
Mortgage-backed securities - commercial
-
(516 )
Corporate bonds
-
(1,189 )
$
$
-
$
(19,126 )
$
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
10 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
December 31, 2021
Available-for-sale:
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
U.S. Government Agency
$
$
$
(50 )
$
Collateralized mortgage obligations
(3,699 )
Mortgage-backed securities - residential
(2,029 )
Mortgage-backed securities - commercial
(608 )
Municipal securities
(894 )
Bank subordinated debt securities
(13 )
Corporate bonds
-
$
$
$
(7,293 )
$
Held-to-maturity:
U.S. Government Agency
$
$
$
(615 )
$
Collateralized mortgage obligations
-
(1,021 )
Mortgage-backed securities - residential
-
(568 )
Mortgage-backed securities - commercial
-
(90 )
Corporate bonds
-
(221 )
$
$
$
(2,515 )
$
During the quarter ended September 30, 2022 and year ended December 31, 2021, the Company transferred, at fair
value, $
The related net unrealized losses of $
accumulated other comprehensive income (“AOCI”) and are being amortized over the remaining life of the transferred
securities.
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 and nine months ended September 30, 2022 and 2021 (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
Available-for-sale:
2022
2021
2022
2021
Proceeds from sale and call of securities
$
$
$
$
Gross gains
$
$
$
$
Gross losses
(560 )
(142 )
(758 )
(331 )
Net realized gain (loss)
$
(558 )
$
(70 )
$
(540 )
$
The amortized cost and fair value of investment securities, by contractual maturity, are shown below as of 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
September 30, 2022:
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
Due within one year
$
-
$
-
$
$
Due after one year through five years
Due after five years through ten years
-
-
Due after ten years
-
-
U.S. Government Agency
Collateralized mortgage obligations
Mortgage-backed securities - residential
Mortgage-backed securities - commercial
$
$
$
$
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
11 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
At September 30, 2022, there were
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 September 30,
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):
September 30, 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
$
$
(3,810 )
$
$
(4,726 )
$
$
(8,536 )
Collateralized mortgage obligations
(9,750 )
(23,488 )
(33,238 )
Mortgage-backed securities - residential
(6,510 )
(17,019 )
(23,529 )
Mortgage-backed securities - commercial
(2,715 )
(3,194 )
(5,909 )
Municipal securities
(200 )
(6,275 )
(6,475 )
Bank subordinated debt securities
(970 )
-
-
(970 )
Corporate bonds
(1,045 )
-
-
(1,045 )
$
$
(25,000 )
$
$
(54,702 )
$
$
(79,702 )
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
$
$
(254 )
$
$
(516 )
$
$
(770 )
Collateralized mortgage obligations
(3,223 )
(1,497 )
(4,720 )
Mortgage-backed securities - residential
(1,178 )
(1,274 )
(2,452 )
Mortgage-backed securities - commercial
(318 )
(309 )
(627 )
Municipal securities
(395 )
(499 )
(894 )
Bank subordinated debt securities
(13 )
-
-
(13 )
$
$
(5,381 )
$
$
(4,095 )
$
$
(9,476 )
As of September 30, 2022, the unrealized losses associated with $
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 of the securities upon transfer between portfolios.
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) the severity and duration
of the impairment, (ii) the credit rating of the security including any downgrade, (iii) the 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) the 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 at maturity, and it is more likely than not that the Company will not be
required to sell the securities before maturity.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
12 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
Pledged Securities
The Company maintains a master repurchase agreement with a public banking institution for up to $
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 September 30, 2022, the Company did
t 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 legal
authority to 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
% 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 September 30, 2022, the Company had a total of $
pledged to the State of Florida for these public funds were
$
As of December 31, 2021, the Company had a total of $
pledged to the State of Florida for these public funds were
$
3. LOANS
The following table is a summary of the distribution of loans held for investment by type (in thousands):
September 30, 2022
December 31, 2021
Total
Percent of
Total
Total
Percent of
Total
Residential Real Estate
$
%
$
%
Commercial Real Estate
%
%
Commercial and Industrial
%
%
Foreign Banks
%
%
Consumer and Other
%
%
Total gross loans
%
%
Less: Deferred fees (cost)
Total loans net of deferred fees (cost)
Less: Allowance for credit losses
Total net loans
$
$
At September 30, 2022 and December 31, 2021, the Company had $
commercial real estate and residential mortgage loans pledged as collateral for lines of credit with the FHLB and the Federal
Reserve Bank of Atlanta.
The Company was a participant in 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 totaling $
September 30, 2022 and $
These PPP loans had deferred loan fees of $
The Company recognized $
ended September 30, 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.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
13 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
Changes in the allowance for credit losses for the three and nine months ended September 30, 2022 and 2021 were
as follows (in thousands):
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Foreign
Banks
Consumer
and Other
Total
Three Months Ended September 30, 2022
Beginning balance
$
$
$
$
$
$
Provision for credit losses
(1,009 )
Recoveries
-
-
-
-
Charge-offs
-
-
(88 )
-
(5 )
(93 )
Ending Balance
$
$
$
$
$
$
Nine Months Ended September 30, 2022
Beginning balance
$
$
$
$
$
$
Provision for credit losses
(1,157 )
Recoveries
-
-
Charge-offs
(16 )
-
(88 )
-
(11 )
(115 )
Ending Balance
$
$
$
$
$
$
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Foreign
Banks
Consumer
and Other
Total
Three Months Ended September 30, 2021
Beginning balance
$
$
$
$
$
$
Provision for credit losses
(787 )
(29 )
(180 )
-
Recoveries
-
-
Charge-offs
-
-
-
-
(2 )
(2 )
Ending Balance
$
$
$
$
$
$
Nine Months Ended September 30, 2021
Beginning balance
$
$
$
$
$
$
Provision for credit losses
(1,434 )
(160 )
Recoveries
-
-
Charge-offs
(229 )
-
-
-
(12 )
(241 )
Ending Balance
$
$
$
$
$
$
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
14 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
Allowance for credit losses and the outstanding balances in the specified loan categories as of September 30, 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
September 30, 2022:
Allowance for credit losses:
Individually evaluated for impairment
$
$
-
$
$
-
$
$
Collectively evaluated for impairment
Balances, end of period
$
$
$
$
$
$
Loans:
Individually evaluated for impairment
$
$
$
$
-
$
$
Collectively evaluated for impairment
Balances, end of period
$
$
$
$
$
$
December 31, 2021:
Allowance for credit losses:
Individually evaluated for impairment
$
$
-
$
$
-
$
$
Collectively evaluated for impairment
Balances, end of period
$
$
$
$
$
$
Loans:
Individually evaluated for impairment
$
$
$
$
-
$
$
Collectively evaluated for impairment
Balances, end of period
$
$
$
$
$
$
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
15 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
Credit Quality Indicators
The Company grades loans based on the estimated capability of the borrower to repay the contractual obligation of the
loan agreement based on relevant information which may include: current financial information on the borrower, historical
payment experience, credit documentation and other current economic trends. Internal credit risk grades are evaluated
periodically.
The Company's internally assigned credit risk grades are as follows:
Pass
– Loans indicate different levels of satisfactory financial condition and performance.
Special Mention
close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment
prospects for the loan or of the institution’s credit position at some future date.
Substandard
– Loans classified as substandard are inadequately protected by the current net worth and paying
capacity of the obligator or of the collateral pledged, if any. Loans so classified have a well-defined weakness or
weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the
institution will sustain some loss if the deficiencies are not corrected.
Doubtful
the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing
facts, conditions, and values, highly questionable and improbable.
Loss
– Loans classified as loss are considered uncollectible.
Loan credit exposures by internally assigned grades are presented below for the periods indicated (in thousands):
As of September 30, 2022
Pass
Special
Mention
Substandard
Doubtful
Total Loans
Residential real estate:
Home equity line of credit and other
$
$
-
$
-
$
-
$
1-4 family residential
-
-
-
Condo residential
-
-
-
-
-
-
Commercial real estate:
Land and construction
-
-
-
Multi-family residential
-
-
-
Condo commercial
-
-
Commercial property
-
-
-
-
-
Commercial and industrial:
(1)
Secured
-
-
Unsecured
-
-
-
-
-
Foreign banks
-
-
-
Consumer and other loans
-
-
Total
$
$
-
$
$
-
$
(1) All outstanding PPP loans were internally graded pass.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
16 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
As of December 31, 2021
Pass
Special
Mention
Substandard
Doubtful
Total Loans
Residential real estate:
Home equity line of credit and other
$
$
-
$
-
$
-
$
1-4 family residential
-
-
Condo residential
-
-
-
-
-
Commercial real estate:
Land and construction
-
-
-
Multi-family residential
-
-
-
Condo commercial
-
-
Commercial property
-
-
Leasehold improvements
-
-
-
-
Commercial and industrial:
(1)
Secured
-
-
Unsecured
-
-
-
-
Foreign banks
-
-
-
Consumer and other loans
-
-
Total
$
$
$
$
-
$
(1) All outstanding PPP loans were internally graded pass.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
17 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
Loan Aging
The Company also considers the performance of loans in grading and in evaluating the credit quality of the loan portfolio.
The Company analyzes credit quality and loan grades based on payment performance and the aging status of the loan.
The following tables include an aging analysis of accruing loans and total non-accruing loans as of September 30, 2022
and December 31, 2021 (in thousands):
Accruing
As of September 30, 2022:
Current
Past Due 30-
89 Days
Past Due 90
Days or >
and Still
Accruing
Total
Accruing
Non-Accrual
Total Loans
Residential real estate:
Home equity line of credit and other
$
$
-
$
-
$
$
-
$
1-4 family residential
-
-
Condo residential
-
-
-
-
Commercial real estate:
-
Land and construction
-
-
-
Multi-family residential
-
-
-
Condo commercial
-
-
-
Commercial property
-
-
-
-
Commercial and industrial:
-
Secured
-
-
-
Unsecured
-
-
-
-
Foreign banks
-
-
-
Consumer and other
-
-
-
Total
$
$
$
-
$
$
-
$
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
18 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
Accruing
As of December 31, 2021:
Current
Past Due
30-89 Days
Past Due 90
Days or >
and Still
Accruing
Total
Accruing
Non-Accrual
Total Loans
Residential real estate:
Home equity line of credit and other
$
$
-
$
-
$
$
-
$
1-4 family residential
-
Condo residential
-
-
-
Commercial real estate:
Land and construction
-
-
-
Multi-family residential
-
-
Condo commercial
-
-
-
Commercial property
-
-
-
Leasehold improvements
-
-
-
-
-
Commercial and industrial:
Secured
-
-
-
Unsecured
-
-
-
-
Foreign banks
-
-
-
Consumer and other
-
-
Total
$
$
$
-
$
$
$
There was
September 30, 2022 and 2021. Interest income on these loans for the three months ended September 30, 2022 and 2021,
would have been approximately $
original terms.
Impaired Loans
The following table includes the unpaid principal balances for impaired loans with the associated allowance amount, if
applicable, on the basis of impairment methodology at the dates indicated (in thousands):
September 30, 2022
December 31, 2021
Unpaid
Principal
Balance
Net
Investment
Balance
Valuation
Allowance
Unpaid
Principal
Balance
Net
Investment
Balance
Valuation
Allowance
Impaired Loans with No Specific Allowance:
Residential real estate
$
$
$
-
$
$
$
-
Commercial real estate
-
-
-
-
Impaired Loans with Specific Allowance:
Residential real estate
Commercial and industrial
Consumer and other
Total
$
$
$
$
$
$
Net investment balance is the unpaid principal balance of the loan adjusted for the remaining net deferred loan fees.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
19 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
The following table presents the average recorded investment balance on impaired loans for the dates indicated (in
thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2022
2021
2022
2021
Residential real estate
$
$
$
$
Commercial real estate
Commercial and industrial
Consumer and other
Total
$
$
$
$
Interest income recognized on impaired loans for the three months ended September 30, 2022 and 2021 was
$
Interest income recognized on impaired loans for the nine months ended September 30, 2022 and 2021 was
$
Troubled Debt Restructuring s
A troubled debt restructuring (“TDR”) occurs when the Company has agreed to a loan modification in the form of a
concession for a borrower who is experiencing financial difficulty. Modifications to loans can be made for rate, term,
payment, conversion of loan to interest only for a limited period of time or a combination to include more than one type of
modification.
The following table presents performing and non-performing TDR loans at the dates indicated (in thousands):
September 30, 2022
December 31, 2021
Accrual Status
Non-Accrual
Status
Total TDRs
Accrual Status
Non-Accrual
Status
Total TDRs
Residential real estate
$
$
-
$
$
$
-
$
Commercial real estate
-
-
Commercial and industrial
-
-
Consumer and other
-
-
Total
$
$
-
$
$
$
-
$
The Company had allocated $
2022 and December 31, 2021, respectively. There were
ended September 30, 2022 and 2021. There were
TDR loan customers as of September 30, 2022.
During the quarter ended September 30, 2022 and 2021, there were
TDR within the prior 12 months. The Company also did
t have any new TDR loans during the three and nine months
ended September 30, 2022 and 2021.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
20 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
4. INCOME TAXES
The Company’s provision for income taxes is presented in the following table for the dates indicated (in thousands):
Nine Months Ended September 30,
2022
2021
Current:
Federal
$
-
$
-
State
-
-
Total current
-
-
Deferred:
Federal
State
Total deferred
Total tax expense
$
$
The actual income tax expense for the nine months ended September 30, 2022 and 2021 differs from the statutory tax
expense for the period (computed by applying the U.S. federal corporate tax rate of
% for 2022 and 2021 to income
before provision for income taxes) as follows (in thousands):
Nine Months Ended September 30,
2022
2021
Federal taxes at statutory rate
$
$
State income taxes, net of federal tax benefit
Bank owned life insurance
(202 )
(122 )
Other, net
Total tax expense
$
$
The Company’s deferred tax assets and deferred tax liabilities as of the dates indicated were (in thousands):
September 30, 2022
December 31, 2021
Deferred tax assets:
Net operating loss
$
$
Allowance for credit losses
Lease liability
Unrealized losses on available for sale securities
Deferred loan fees
Depreciable property
Stock option compensation
Accruals
Other, net
Deferred tax assets:
Deferred tax liability:
Lease right of use asset
(3,418 )
(3,595 )
Deferred expenses
(174 )
(127 )
Deferred tax liability
(3,592 )
(3,722 )
Net deferred tax assets
$
$
The Company has approximately $
expiring in various amounts between 2031 and 2036 and which are limited to offset, to the extent permitted, future taxable
earnings of the Company.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
21 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
upon the generation of future taxable income during the periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment.
The major tax jurisdictions where the Company files income tax returns are the U.S. federal jurisdiction and the State
of Florida. With few exceptions, the Company is no longer subject to U.S. federal and state income tax examinations by tax
authorities for years before 2018.
For the three months ended September 30, 2022 and 2021, the Company did
t have any unrecognized tax benefits
as a result of tax positions taken during a prior period or during the current period. Additionally,
recorded as a result of tax uncertainties.
5. OFF-BALANCE SHEET ARRANGEMENTS
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business in order to
meet the financial needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial
instruments include unfunded commitments under lines of credit, commitments to extend credit, standby and commercial
letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the Company’s Consolidated Balance Sheets. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet instruments.
The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instruments
for unused lines of credit, and standby letters of credit is represented by the contractual amount of these commitments.
A summary of the amounts of the Company's financial instruments with off-balance sheet risk are shown below at
September 30, 2022 and December 31, 2021 (in thousands):
September 30, 2022
December 31, 2021
Commitments to grant loans and unfunded lines of credit
$
$
Standby and commercial letters of credit
Total
$
$
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration dates or other termination clauses.
Unfunded lines of credit and revolving credit lines are commitments for possible future extensions of credit to existing
customers. These lines of credit are uncollateralized and usually do not contain a specified maturity date and ultimately may
not be drawn upon to the total extent to which the Company committed.
Standby and commercial letters of credit are conditional commitments issued by the Company to guarantee the
performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing
arrangements. Essentially all letters of credit have fixed maturity dates and since many of them expire without being drawn
upon, they do not generally present a significant liquidity risk to the Company.
6. DERIVATIVES
The Company utilizes interest rate swap agreements as part of its asset liability management strategy to help manage
its interest rate risk exposure . The notional amount of the interest rate swaps do not represent actual amounts exchanged
by the parties. The amounts exchanged are determined by reference to the notional amount and the other terms of the
individual interest rate swap agreements.
The Company enters into interest rate swaps with its loan customers. The Company had
with loan customers with an aggregate notional amount of $
December 31, 2021, respectively. These interest rate swaps mature between 2025 and 2051. The Company entered into
corresponding and offsetting derivatives with third parties. The fair value of liability on these derivatives requires the
Company to provide the counterparty with funds to be held as collateral which the Company reports as other assets under
the Consolidated Balance Sheets. While these derivatives represent economic hedges, they do not qualify as hedges for
accounting purposes.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
22 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
The following table reflects the Company’s customer-related interest rate swaps at the dates indicated (in thousands):
Fair Value
Notional
Amount
Collateral
Amount
Balance Sheet Location
Asset
Liability
September 30, 2022:
Derivatives not designated as hedging instruments:
Interest rate swaps related to customer loans
$
$
Other assets/Other liabilities
$
$
December 31, 2021:
Derivatives not designated as hedging instruments:
Interest rate swaps related to customer loans
$
$
Other assets/Other liabilities
$
$
7. FAIR VALUE MEASUREMENTS
Determination of Fair Value
The Company uses fair value measurements to record fair-value adjustments to certain assets and liabilities and to
determine fair value disclosures. In accordance with the fair value measurements accounting guidance, the fair value of a
financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Fair value is best determined based upon quoted market prices.
However, in many instances, there are no quoted market prices for the Company's various financial instruments. In cases
where quoted market prices are not available, fair values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates
of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction
(that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current
market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a
change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining
the price at which willing market participants would transact at the measurement date under current market conditions
depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point
within the range that is most representative of fair value under current market conditions.
Fair Value Hierarchy
In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured
at fair value in three levels, based on the markets in which the assets and liabilities are traded, and the reliability of the
assumptions used to determine fair value.
Level 1
entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and
equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing
sources for market transactions involving identical assets or liabilities.
Level 2
asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the asset or liability.
Level 3
significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments
whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as
well as instruments for which determination of fair value requires significant management judgment or estimation.
A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is
significant to the fair value measurement.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
23 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
Items Measured at Fair Value on a Recurring Basis
AFS investment securities:
for such securities, management generally relies on prices obtained from independent vendors or third-party broker-dealers.
Management reviews pricing methodologies provided by the vendors and third-party broker-dealers in order to determine if
observable market information is being utilized. Securities measured with pricing provided by independent vendors or third-
party broker-dealers are classified within Level 2 of the hierarchy and often involve using quoted market prices for similar
securities, pricing models or discounted cash flow analyses utilizing inputs observable in the market where available.
Derivatives:
classified within Level 2 of the hierarchy.
The following table represents the Company's assets and liabilities measured at fair value on a recurring basis at
September 30, 2022 and December 31, 2021 for each of the fair value hierarchy levels (in thousands):
September 30, 2022
December 31, 2021
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Investment securities available for sale:
U.S. Government Agency
$
-
$
$
-
$
$
-
$
$
-
$
Collateralized mortgage obligations
-
-
-
-
Mortgage-backed securities - residential
-
-
-
-
Mortgage-backed securities - commercial
-
-
-
-
Municipal securities
-
-
-
-
Bank subordinated debt securities
-
-
-
-
Corporate bonds
-
-
-
-
Total
-
-
-
-
Derivative assets
-
-
-
-
Total assets at fair value
$
-
$
$
-
$
$
-
$
$
-
$
Derivative liabilities
$
-
$
$
-
$
$
-
$
$
-
$
Total liabilities at fair value
$
-
$
$
-
$
$
-
$
$
-
$
Items Measured at Fair Value on a Non-recurring Basis
Impaired Loans:
At September 30, 2022 and December 31, 2021, in accordance with provisions of the loan impairment
guidance, individual loans with a carrying amount of approximately $
down to their fair value of approximately $
$
2022 and December 31, 2021, respectively. Loans subject to write-downs, or impaired loans, are estimated using the
present value of expected cash flows or the appraised value of the underlying collateral discounted as necessary due to
management's estimates of changes in economic conditions are considered a Level 3 valuation.
Other Real Estate:
estimate of the costs to sell or the carrying cost of the other real estate owned. Appraisals generally use the market approach
valuation technique and use market observable data to formulate an opinion of the fair value of the properties. However,
the appraiser uses professional judgment in determining the fair value of the property and the Company may also adjust
the value for changes in market conditions subsequent to the valuation date when current appraisals are not available. As
a consequence of the carrying cost or the third-party appraisal and adjustments therein, the fair values of the properties are
considered a Level 3 valuation.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
24 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
The following table represents the Company’s assets measured at fair value on a non-recurring basis at September 30,
2022 and December 31, 2021 for each of the fair value hierarchy levels (in thousands):
Level 1
Level 2
Level 3
Total
September 30, 2022:
Impaired loans
$
-
$
-
$
$
December 31, 2021:
Impaired loans
$
-
$
-
$
$
The following table presents quantified information about Level 3 fair value measurements for assets measured at fair
value on a non-recurring basis at September 30, 2022 and December 31, 2021 (in thousands):
Fair Value
Valuation Technique(s)
Unobservable Input(s)
September 30, 2022:
Residential real estate
$
Sales comparison approach
Adj. for differences between comparable sales
Commercial and industrial
Discounted cash flow
Adj. for differences in net operating income expectations
Consumer and other loans
Discounted cash flow
Adj. for differences in net operating income expectations
Total impaired loans
$
December 31, 2021:
Residential real estate
$
Sales comparison approach
Adj. for differences between comparable sales
Commercial and industrial
Discounted cash flow
Adj. for differences in net operating income expectations
Consumer and other loans
Discounted cash flow
Adj. for differences in net operating income expectations
Total impaired loans
$
There were
December 31, 2021.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
25 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
Items Not Measured at Fair Value
The following table presents the carrying amounts and estimated fair values of financial instruments not carried at fair
value as of September 30, 2022 and December 31, 2021 (in thousands):
Fair Value Hierarchy
Carrying
Amount
Level 1
Level 2
Level 3
Fair Value
Amount
September 30, 2022:
Financial Assets:
Cash and due from banks
$
$
$
-
$
-
$
Interest-bearing deposits in banks
$
$
$
-
$
-
$
Investment securities held to maturity
$
$
-
$
$
-
$
Loans held for investment, net
$
$
-
$
-
$
$
Accrued interest receivable
$
$
-
$
$
$
Financial Liabilities:
Demand deposits
$
$
$
-
$
-
$
Money market and savings accounts
$
$
$
-
$
-
$
Interest-bearing checking accounts
$
$
$
-
$
-
$
Time deposits
$
$
-
$
-
$
$
FHLB advances
$
$
-
$
$
-
$
Accrued interest payable
$
$
$
$
$
December 31, 2021:
Financial Assets:
Cash and due from banks
$
$
$
-
$
-
$
Interest-bearing deposits in banks
$
$
$
-
$
-
$
Investment securities held to maturity
$
$
-
$
$
-
$
Loans held for investment, net
$
$
-
$
-
$
$
Accrued interest receivable
$
$
-
$
$
$
Financial Liabilities:
Demand deposits
$
$
$
-
$
-
$
Money market and savings accounts
$
$
$
-
$
-
$
Interest-bearing checking accounts
$
$
$
-
$
-
$
Time deposits
$
$
-
$
-
$
$
FHLB advances
$
$
-
$
$
-
$
Accrued interest payable
$
$
-
$
$
$
8. STOCKHOLDERS’ EQUITY
Common Stock
The rights of the holders of Class A common stock and Class B common stock are the same, except for voting and
conversion rights. Holders of Class A common stock are entitled to voting rights, while holders of Class B common stock
have no voting rights. Shares of Class B common stock are convertible into shares of Class A common stock if sold or
transferred.
In June 2021, the Bank effected a 1 for 5 reverse stock split of all the Class A common stock $
shares of the Bank’s Class A common stock was combined into
shares resulting from this reverse stock split were rounded up to one whole share. The Bank has adjusted the Class A
common stock, earnings per share and stock options for this 1 for 5 reverse stock split for all periods in 2021. The Class B
common stock was not adjusted but if sold or exchanged would be converted at the 1 for 5 reverse stock split of
Class A common stock for 5 shares of Class B common stock. Any dividends declared by the Board of Directors (the
“Board”) to include Class B common stock would also be paid as if the Class B common stock had converted. The 1 for 5
reverse stock split resulted in adjustments to Consolidated Balance Sheets, Consolidated Statements of Operations, and
Consolidated Statements of Changes in Stockholders’ Equity.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
26 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
In July 2021, the Bank completed the IPO of its Class A common stock, in which it issued and sold
of Class A common stock at a price of $
deducting underwriting discounts and expenses.
In December 2021, the Bank entered into agreements with the Class B shareholders to exchange all outstanding shares
of Class B common stock for shares of Class A common stock at a ratio of one share of Class A common stock for ever
five shares of Class B common stock. As a result, a total of
for
In December 2021, the Company acquired all the issued and outstanding shares of the Class A voting common stock
of the Bank, which at the time were the only issued and outstanding shares of the Bank’s capital stock, in a share exchange
(the “Reorganization”) effected under the Florida Business Corporation Act. Each of the outstanding shares of the Bank’s
Class A common stock, par value $
one newly issued share of the Company’s Class A common stock, par value $
Company’s wholly owned subsidiary.
In the Reorganization, each shareholder of the Bank received securities of the same class, having substantially the
same designations, rights, powers, preferences, qualifications, limitations and restrictions, as those that the shareholder
held in the Bank, and the Company’s current shareholders own the same percentages of its common stock as they
previously owned of the Bank’s common stock.
Preferred Stock
In April 2021, the Board authorized and approved the offer to repurchase all outstanding shares of Class E preferred
stock at the liquidation value of $
shareholders approved the repurchase which the Bank completed in April 2021.
The Bank offered the Class C and Class D preferred stockholders the ability to exchange their shares for Class A
common stock. The offer to exchange was voluntary and the preferred stockholders were given the option to convert
%
of their preferred shares for Class A common stock with the remaining
% to be redeemed in the form of cash. The
exchange ratio for the shares of Class A common stock issued in the preferred stock exchange transaction was based upon
the IPO price for shares of Class A common stock.
During the year ended December 31, 2021,
D preferred stock converted into an aggregate of
C and Class D preferred shares had a total liquidation value of $
C preferred stock and Class D preferred stock totaling
value for $
The fair value of consideration on the preferred stock exchange and redemption of the Class C and Class D preferred
shares exceeded the book value causing a one-time reduction in net income available to common stockholders of
$
outstanding dividends to be paid.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
27 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
Dividends
The following dividend amounts were paid on the preferred shares for the three and nine months ended September 30,
2022 and 2021 (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022
2021
2022
2021
Preferred stock - Class C: Non-voting, Non-cumulative, Perpetual:
$
dividend rate of
% of liquidation preference paid quarterly. Quarterly
dividend of $
$
-
$
$
-
$
Preferred stock - Class D: Non-voting, Non-cumulative, Perpetual:
$
dividend rate of
% of par value paid quarterly. Quarterly dividend of
$
-
-
Preferred stock - Class E: Non-voting, Partially Cumulative,
Perpetual: $
annual dividend rate of
% of liquidation preference paid quarterly.
Quarterly dividend of $
-
-
-
Total dividends paid
$
-
$
$
-
$
Declaration of dividends by the Board is required before dividend payments are made.
the Board for the common stock classes for the three months ended September 30, 2022 and 2021. Additionally, there were
The Company and the Bank exceeded all regulatory capital requirements and remained significantly above “well-
capitalized” guidelines. At September 30, 2022, the total risk-based capital ratios for the Company and the Bank were
% and
%, respectively.
9. EARNINGS PER SHARE
Earnings per share (“EPS”) for common stock is calculated using the two-class method required for participating
securities. Basic EPS is calculated by dividing net income (loss) available to common stockholders by the weighted-average
number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted EPS is
computed by dividing net income (loss) available to common stockholders by the weighted-average number of common
shares outstanding for the period and the weighted-average number of dilutive common stock equivalents outstanding for
the period determined using the treasury-stock method. For purposes of this calculation, common stock equivalents include
common stock options and are only included in the calculation of diluted EPS when their effect is dilutive.
To calculate EPS for the three and nine months ended September 30, 2022, net income available to common
stockholders was not allocated between Class A and Class B common stock since there were
shares of Class B common stock as of September 30, 2022.
To calculate EPS for the three and nine months ended September 30, 2021, net income available to common
stockholders was allocated as if all the income for the period were distributed to common stockholders. The allocation was
based on the outstanding shares per common share class to the total common shares outstanding during each period giving
effect for the 1 for 5 reverse stock split. The Company’s Articles of Incorporation require that the distribution of net income
to Common B stockholders be adjusted to give effect for Class A stock splits. Therefore, the income allocated to Class B
common shares was calculated based on their
% per share equivalent to Class A common shares.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
28 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
The following table reflects the calculation of net income available to common stockholders for the three and nine
months ended September 30, 2022 and 2021 (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022
2021
2022
2021
Net Income
$
$
$
$
Less: Preferred stock dividends
-
-
Less: Exchange and redemption of preferred shares
-
-
Net income (loss) available to common stockholders
$
$
(83,534 )
$
$
(76,235 )
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
29 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
The following table reflects the calculation of basic and diluted earnings per common share class for the three and nine
months ended September 30, 2022 and 2021 (in thousands, except per share amounts):
Three Months Ended September 30,
2022
2021
Class A
Class B
Class A
Class B
(1)
Basic EPS
Numerator:
Net income (loss) available to common shares before allocation
$
$
-
$
(83,534 )
$
(83,534 )
Multiply: % allocated on weighted avg. shares outstanding
-
Net income (loss) available to common shares after allocation
$
$
-
$
(77,278 )
$
(6,256 )
Denominator:
Weighted average shares outstanding
-
Earnings (loss) per share, basic
$
$
-
$
(5.11 )
$
(1.02 )
Diluted EPS
Numerator:
Net income (loss) available to common shares before allocation
$
$
-
$
(83,534 )
$
(83,534 )
Multiply: % allocated on weighted avg. shares outstanding
-
Net income (loss) available to common shares after allocation
$
$
-
$
(77,278 )
$
(6,256 )
Denominator:
Weighted average shares outstanding for basic EPS
-
Add: Dilutive effects of assumed exercises of stock options
-
-
-
Weighted avg. shares including dilutive potential common shares
-
Earnings (loss) per share, diluted
$
$
-
$
(5.11 )
$
(1.02 )
Anti-dilutive stock options excluded from diluted EPS
-
-
(1) Net loss available to common shares between Class A and Class B common stock was allocated based on the weighted average number of shares
outstanding. The allocation also assumes that Class B shares had converted to Class A shares which is equivalent to
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
30 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
Nine Months Ended September 30,
2022
2021
Class A
Class B
Class A
Class B
(1)
Basic EPS
Numerator:
Net income (loss) available to common shares before allocation
$
$
-
$
(76,235 )
$
(76,235 )
Multiply: % allocated on weighted avg. shares outstanding
-
$
Net income (loss) available to common shares after allocation
$
$
-
$
(65,747 )
$
(10,488 )
Denominator:
Weighted average shares outstanding
-
Earnings (loss) per share, basic
$
$
-
$
(8.57 )
$
(1.71 )
Diluted EPS
Numerator:
Net income (loss) available to common shares before allocation
$
$
-
$
$
Multiply: % allocated on weighted avg. shares outstanding
-
Net income (loss) available to common shares after allocation
$
$
-
$
(65,747 )
$
(10,488 )
Denominator:
Weighted average shares outstanding for basic EPS
-
Add: Dilutive effects of assumed exercises of stock options
-
-
Weighted avg. shares including dilutive potential common shares
-
Earnings (loss) per share, diluted
$
$
-
$
(8.57 )
$
(1.71 )
Anti-dilutive stock options excluded from diluted EPS
-
-
(1) Net loss available to common shares between Class A and Class B common stock was allocated based on the weighted average number of shares
outstanding. The allocation also assumes that Class B shares had converted to Class A shares which is equivalent to
See Note 8 “Stockholders’ Equity” for further discussion of the reverse stock split effected in 2021.
10. LOSS CONTINGENCIES
Loss contingencies, including claims and legal actions may arise in the ordinary course of business. In the opinion of
management, none of these actions, either individually or in the aggregate, is expected to have a material adverse effect
on the Company’s Consolidated Financial Statements.
31 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis is designed to provide a better understanding of the consolidated financial
condition and results of operations of the Company and the Bank, its wholly owned subsidiary, for the quarter and nine
months ended September 30, 2022. This discussion and analysis is best read in conjunction with the unaudited consolidated
financial statements and related footnotes included in this quarterly report on Form 10-Q and the audited consolidated
financial statements and related footnotes included in the Annual Report filed on the Form 10-K (“2021 form 10-K”) filed
with the Securities and Exchange Commission (“SEC”) for the year ended December 31, 2021.
This discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause
actual results to differ materially from management's expectations. Factors that could cause such differences are discussed
in the sections entitled "Forward-Looking Statements" and Item 1A “Risk Factors" below and in the 2021 Form 10-K filed
with the SEC which is available at the SEC’s website www.sec.gov.
Throughout this document, references to “we,” “us,” “our,” and “the Company” generally refer to USCB Financial
Holdings, Inc.
Forward-Looking Statements
This Quarterly Report on Form 10-Q (“Form 10-Q”) contains statements that are not historical in nature and are intended
to be, and are hereby identified as, forward-looking statements for purposes of the safe harbor provided by Section 21E of
the Securities Exchange Act of 1934, as amended (Exchange Act”). The words “may,” “will,” “anticipate,” “should,” “would,”
“believe,” “contemplate,” “expect,” “aim,” “plan,” “estimate,” “continue,” and “intend,” as well as other similar words and
expressions of the future, are intended to identify forward-looking statements. These forward-looking statements include,
but are not limited to, statements related to our projected growth, anticipated future financial performance, and
management’s long-term performance goals, as well as statements relating to the anticipated effects on results of operations
and financial condition from expected developments or events, or business and growth strategies, including anticipated
internal growth.
These forward-looking statements involve significant risks and uncertainties that could cause our actual results to differ
materially from those anticipated in such statements. Potential risks and uncertainties include, but are not limited to:
• the strength of the United States economy in general and the strength of the local economies in which we conduct
operations;
• the continuation of COVID-19 pandemic and its impact on us, our employees, customers and third-party service
providers, and the ultimate extent of the impacts of the pandemic and related government stimulus programs;
• our ability to successfully manage interest rate risk, credit risk, liquidity risk, and other risks inherent to our industry;
• the accuracy of our financial statement estimates and assumptions, including the estimates used for our credit loss
reserve and deferred tax asset valuation allowance;
• the efficiency and effectiveness of our internal control environment;
• our ability to comply with the extensive laws and regulations to which we are subject, including the laws for each
jurisdiction where we operate;
• legislative or regulatory changes and changes in accounting principles, policies, practices or guidelines, including
the effects of the forthcoming implementation of the Current Expected Credit Losses (“CECL”) standard;
• the effects of our lack of a diversified loan portfolio and concentration in the South Florida market, including the
risks of geographic, depositor, and industry concentrations, including our concentration in loans secured by real
estate;
• the concentration of ownership of our Class A common stock;
• fluctuations in the price of our Class A common stock;
• our ability to fund or access the capital markets at attractive rates and terms and manage our growth, both organic
growth as well as growth through other means, such as future acquisitions;
• continuing high levels of inflation, changes in market interest rates, the unemployment rate, as well as monetary
fluctuations, in particular in reaction to inflation and changes in interest rates
• increased competition and its effect on the pricing of our products and services as well as our margin;
• the effectiveness of our risk management strategies, including operational risks, including, but not limited to, client,
employee, or third-party fraud and security breaches; and
• other risks described in this Form 10-Q, the 2021 Form 10-K and other filings we make with the SEC.
All forward-looking statements are necessarily only estimates of future results, and there can be no assurance that
actual results will not differ materially from expectations. Therefore, you are cautioned not to place undue reliance on any
forward-looking statements. Further, forward-looking statements included in this Form 10-Q are made only as of the date
32 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
hereof, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances
occurring after the date on which the statement is made or to reflect the occurrence of unanticipated events, unless required
to do so under the federal securities laws. You should also review the risk factors described in the reports the Company
filed or will file with the SEC and, for periods prior to the completion of the bank holding company reorganization in December
2021, U.S. Century Bank (“Bank”) filed with the Federal Deposit Insurance Corporation (“FDIC”).
Non-GAAP Financial Measures
This Form 10-Q includes financial information determined by methods other than in accordance with generally accepted
accounting principles (“GAAP”). This financial information includes certain operating performance measures. Management
has included these non-GAAP measures because it believes these measures may provide useful supplemental information
for evaluating the Company’s underlying performance trends. Further, management uses these measures in managing and
evaluating the Company’s business and intends to refer to them in discussions about our operations and performance.
Operating performance measures should be viewed in addition to, and not as an alternative to or substitute for, measures
determined in accordance with GAAP, and are not necessarily comparable to non-GAAP measures that may be presented
by other companies. To the extent applicable, reconciliations of these non-GAAP measures to the most directly comparable
GAAP measures can be found in the section “Reconciliation and Management Explanation of Non-GAAP Financial
Measures” included in this Form 10-Q.
Overview
The Company, the holding company of the Bank, reported net income of $5.6 million or $0.28 per diluted share for Class
A common stock for the three months ended September 30, 2022, compared with net income of $6.6 million or $5.11 loss
and $1.02 loss per diluted share for Class A and Class B common stock, respectively, for the same period in 2021. The
losses per share for the Class A and Class B common stock for the quarter ended September 30, 2021 reflected the effects
of the exchange and redemption of the Bank’s preferred shares. In December 2021, the Company agreed to exchange all
the outstanding shares of Class B common stock for Class A common stock at a ratio of one share of Class A common
stock for each five shares of Class B common stock. As of September 30, 2022 and December 31, 2021, the Company’s
only class of securities issued and outstanding was Class A common stock.
During the first quarter of 2022, the Board of Directors (the “Board”) approved a share repurchase program of up to
750,000 shares of Class A common stock. Under the repurchase program, the Company may purchase shares of Class A
common stock on a discretionary basis from time to time. As of September 30, 2022, the Company had not repurchased
any shares.
In evaluating our financial performance, we consider the level of and trends in net interest income, the net interest
margin, the cost of deposits, levels and composition of non-interest income and non-interest expense, performance ratios,
asset quality ratios, regulatory capital ratios, and any significant event or transaction.
Unless otherwise stated, all period comparisons in the bullet points below are calculated for the quarter ended
September 30, 2022 compared to the quarter ended September 30, 2021 and annualized where appropriate:
• Net interest income increased $3.3 million or 24.5% to $16.8 million from $13.5 million for the quarter ended
September 30, 2021.
• Net interest margin (“NIM”) increased to 3.47% from 3.19% for the third quarter of 2021.
• Total assets exceeded $2.0 billion, an increase of $183 .5 million or 9.9%, compared to December 31, 2021.
• Total loans grew to $1.4 billion, an increase of $241.4 million or 20.3%, compared to December 31, 2021.
• Total deposits increased $206.3 million or 13.0% to $1.8 billion from $1.6 billion at December 31, 2021.
• Annualized return on average assets was 1.09% compared to 1.50% at September 30, 2021.
• Annualized return on average stockholders’ equity was 11.90% compared to 13.41% at September 30, 2021.
• The allowance for credit losses to total loans ratio decreased to 1.16% at September 30, 2022 from 1.27% at
September 30, 2021.
• Non-performing loans to total loans was 0.00% at September 30, 2022 and September 30, 2021.
33 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
• At September 30, 2022, the total risk-based capital ratio for the Company and the Bank was 13.65% and 13.58%,
respectively.
• Tangible book value per common share (a Non-GAAP financial measure) was $8.87 as of September 30, 2022,
compared to $10.10 at September 30, 2021. The decline was primarily driven by unrealized security losses in
accumulated other comprehensive income at September 30, 2022. See “Reconciliation and Management
Explanation for Non-GAAP Financial Measures” for a reconciliation of this non-GAAP financial measure.
Critical Accounting Policies and Estimates
The consolidated financial statements are prepared based on the application of U.S. GAAP, the most significant of
which are described in Note 1 “Summary of Significant Accounting Policies” in the Company’s 2021 Form 10-K. To prepare
financial statements in conformity with GAAP, management makes estimates, assumptions, and judgments based on
available information. These estimates, assumptions, and judgments affect the amounts reported in the financial statements
and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date
of the financial statements and, as this information changes, actual results could differ from the estimates, assumptions and
judgments reflected in the financial statements. In particular, management has identified accounting policies that, due to
the estimates, assumptions and judgments inherent in those policies, are critical in understanding our financial statements.
Management has presented the application of these policies to the Audit and Risk Committee of our Board.
Allowance for Credit Losses
The allowance for credit losses (“ACL”) is a valuation allowance that is established through charges to earnings in the
form of a provision for credit losses. The amount of the ACL is affected by the following: (i) charge-offs of loans that decrease
the allowance; (ii) subsequent recoveries on loans previously charged off that increase the allowance; and (iii) provisions
for credit losses charged to income that increase the allowance. Management considers the policies related to the ACL as
the most critical to the financial statement presentation. The total ACL includes activity related to allowances calculated in
accordance with Accounting Standards Codification (“ASC”) 310, Receivables, and ASC 450, Contingencies.
Throughout the year, management estimates the probable incurred losses in the loan portfolio to determine if the ACL
is adequate to absorb such losses. The ACL consists of specific and general components. The specific component relates
to loans that are individually classified as impaired. We follow a loan review program to evaluate the credit risk existing in
the loan portfolio. Loans that have been identified as impaired are reviewed on a quarterly basis to determine whether a
specific reserve is required. The general component covers non-impaired loans and is based on our specific historical loan
loss experience, volume, growth and composition of the loan portfolio, the evaluation of our loan portfolio through our internal
loan review process, general current economic conditions both internal and external to us that may affect the borrower’s
ability to pay, value of collateral and other qualitative relevant risk factors. Based on a review of these estimates, we adjust
the ACL to a level determined by management to be adequate. Estimates of credit losses are inherently subjective as they
involve an exercise of judgment.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss
and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment
date.
Management is required to assess whether a valuation allowance should be established on the net deferred tax assets
based on the consideration of all available evidence using a more likely than not standard. In its evaluation, management
considers taxable loss carry-back availability, expectation of sufficient taxable income, trends in earnings, the future reversal
of temporary differences, and available tax planning strategies.
The Company recognizes positions taken or expected to be taken in a tax return in accordance with existing accounting
guidance on income taxes which prescribes a recognition threshold and measurement process. Interest and penalties on
tax liabilities, if any, would be recorded in interest expense and other operating non-interest expense, respectively.
34 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
Segment Reporting
Management monitors the revenue streams for all its various products and services. The identifiable segments are not
material and operations are managed and financial performance is evaluated on an overall Company-wide basis.
Accordingly, all the financial service operations are considered by management to be aggregated in one reportable operating
segment.
Results of Operations
General
The following tables present selected balance sheet, income statement, and profitability ratios for the dates indicated
(in thousands, except ratios):
September 30, 2022
December 31, 2021
Consolidated Balance Sheets:
Total assets
$
2,037,453
$
1,853,939
Total loans
(1)
$
1,431,513
$
1,190,081
Total deposits
$
1,796,642
$
1,590,379
Total stockholders' equity
$
177,417
$
203,897
(1) Loan amounts include deferred fees/costs.
Three Months Ended September 30,
Nine Months Ended September 30,
2022
2021
2022
2021
Consolidated Statements of Operations:
Net interest income before provision for credit losses
$
16,774
$
13,471
$
46,795
$
38,420
Total non-interest income
$
1,789
$
4,217
$
5,351
$
8,054
Total non-interest expense
$
10,132
$
9,007
$
29,295
$
26,358
Net income
$
5,558
$
6,593
$
15,707
$
15,427
Net income (loss) available to common stockholders
$
5,558
$
(83,534)
$
15,707
$
(76,235)
Profitability:
Efficiency ratio
54.58%
50.92%
56.18%
56.72%
Net interest margin
3.47%
3.19%
3.36%
3.22%
The Company’s results of operations depend substantially on net interest income and non-interest income. Other factors
contributing to the results of operations include our provision for credit losses, non-interest expenses, and provision for
income taxes.
Three months ended September 30, 2022 compared to the three months ended September 30, 2021
Net income decreased to $5.6 million for the three months ended September 30, 2022 from $6.6 million for the same
period in 2021. Net income available to common stockholders increased $89.0 million for the three months ended
September 30, 2022 compared to the same period in 2021 primarily because the 2021 period reflected the effect of preferred
dividends paid and the $89.6 million exchange and redemption of the Bank’s preferred shares.
Nine months ended September 30, 2022 compared to nine months ended September 30, 2021
period in 2021. Net income available to common stockholders increased $91.9 million for the September 30, 2022 compared
to the same period in 2021 primarily because of an increase in net interest income in 2022 and the 2021 period reflected
the effect of preferred dividends paid and the $89.6 million exchange and redemption of the Bank’s preferred shares.
Net Interest Income
Net interest income is the difference between interest earned on interest-earning assets and interest incurred on
interest-bearing liabilities and is the primary driver of core earnings. Interest income is generated from interest and dividends
on interest-earning assets, including loans, investment securities and other short-term investments. Interest expense is
35 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
incurred from interest paid on interest-bearing liabilities, including interest-bearing deposits, FHLB advances and other
borrowings.
To evaluate net interest income, we measure and monitor (i) yields on loans and other interest-earning assets, (ii) the
costs of deposits and other funding sources, (iii) net interest spread, and (iv) net interest margin. Net interest spread is equal
to the difference between yields earned on interest-earning assets and rates paid on interest-bearing liabilities. Net interest
margin is equal to the annualized net interest income divided by average interest -earning assets. Because non-interest-
bearing sources of funds, such as non-interest-bearing deposits and stockholders’ equity, also fund interest-earning assets,
net interest margin includes the indirect benefit of these non-interest-bearing sources.
Changes in the market interest rates and interest rates we earn on interest-earning assets or pay on interest-bearing
liabilities, as well as the volume and types of interest-earning assets and interest-bearing and non-interest-bearing liabilities,
are usually the largest drivers of periodic changes in net interest spread, net interest margin and net interest income. Our
asset liability committee (“ALCO”) has in place asset-liability management techniques to manage major factors that affect
net interest income and net interest margin.
36 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
The following table contains information related to average balance sheet, average yields on assets, and average costs
of liabilities for the periods indicated (in thousands):
Three Months Ended September 30,
2022
2021
Average
Balance
(1)
Interest
Yield/Rate
(2)
Average
Balance
Interest
Yield/Rate
(2)
Assets
Interest-earning assets:
Loans
(3)
$
1,398,761
$
15,954
4.53
%
$
1,144,275
$
12,538
4.29
%
Investment securities
(4)
450,514
2,201
1.94
%
399,745
1,858
1.86
%
Other interest earnings assets
70,540
322
1.81
%
109,639
38
0.14
%
Total interest-earning assets
1,919,815
18,477
3.82
%
1,653,659
14,434
3.43
%
Non-interest earning assets
106,976
87,764
Total assets
$
2,026,791
$
1,741,423
Liabilities and stockholders' equity
Interest-bearing liabilities:
Interest-bearing checking
$
66,585
19
0.11
%
$
55,621
16
0.11
%
Money market and savings accounts
823,521
1,141
0.55
%
627,654
501
0.32
%
Time deposits
217,023
363
0.66
%
229,055
306
0.53
%
Total interest-bearing deposits
1,107,129
1,523
0.55
%
912,330
823
0.36
%
Borrowings and repurchase agreements
43,935
180
1.63
%
36,000
140
1.52
%
Total interest-bearing liabilities
1,151,064
1,703
0.59
%
948,330
963
0.40
%
Non-interest bearing demand deposits
655,853
564,928
Other non-interest-bearing liabilities
34,586
33,156
Total liabilities
1,841,503
1,546,414
Stockholders' equity
185,288
195,009
Total liabilities and stockholders' equity
$
2,026,791
$
1,741,423
Net interest income
$
16,774
$
13,471
Net interest spread
(5)
3.23
%
3.03
%
Net interest margin
(6)
3.47
%
3.19
%
(1) Average balances - Daily average balances are used to calculate yields/rates.
(2) Annualized.
(3) Average loan balances include non-accrual loans. Interest income on loans includes accretion of deferred loan fees, net of deferred loan costs.
(4) At fair value except for securities held to maturity. Includes FHLB stock.
(5) Net interest spread is the average yield on total interest-earning assets minus the average rate on total interest-bearing liabilities.
(6) Net interest margin is the ratio of net interest income to average total interest-earning assets.
37 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
Nine Months Ended September 30,
2022
2021
Average
Balance
(1)
Interest
Yield/Rate
(2)
Average
Balance
(1)
Interest
Yield/Rate
(2)
Assets
Interest-earning assets:
Loans
(3)
$
1,302,909
$
42,989
4.41
%
$
1,101,782
$
35,944
4.30
%
Investment securities
(4)
484,489
7,040
1.94
%
374,318
5,670
2.02
%
Other interest-earnings assets
76,655
474
0.83
%
96,561
77
0.11
%
Total interest-earning assets
1,864,053
50,503
3.62
%
1,572,661
41,691
3.50
%
Non-interest earning assets
105,914
86,407
Total assets
$
1,969,967
$
1,659,068
Liabilities and stockholders' equity
Interest-bearing liabilities:
Interest-bearing checking
$
65,798
52
0.11
%
$
50,971
45
0.12
%
Money market and savings accounts
780,564
2,307
0.40
%
601,550
1,572
0.35
%
Time deposits
221,504
893
0.54
%
237,633
1,239
0.70
%
Total interest-bearing deposits
1,067,866
3,252
0.30
%
890,154
2,856
0.43
%
Borrowings and repurchase agreements
38,788
456
1.57
%
36,000
415
1.52
%
Total interest-bearing liabilities
1,106,654
3,708
0.45
%
926,154
3,271
0.47
%
Non-interest bearing demand deposits
642,396
528,035
Other non-interest-bearing liabilities
29,608
26,954
Total liabilities
1,778,658
1,481,143
Stockholders' equity
191,309
177,925
Total liabilities and stockholders' equity
$
1,969,967
$
1,659,068
Net interest income
$
46,795
$
38,420
Net interest spread
(5)
3.17
%
3.03
%
Net interest margin
(6)
3.36
%
3.22
%
(1) Average balances - Daily average balances are used to calculate yields/rates.
(2) Annualized.
(3) Average loan balances include non-accrual loans. Interest income on loans includes accretion of deferred loan fees, net of deferred loan costs.
(4) At fair value except for securities held to maturity. Includes FHLB stock.
(5) Net interest spread is the average yield on total interest-earning assets minus the average rate on total interest-bearing liabilities.
(6) Net interest margin is the ratio of net interest income to average total interest-earning assets.
Three months ended September 30, 2022 compared to the three months ended September 30, 2021
Net interest income before the provision for credit losses was $16.8 million for the three months ended September 30,
2022, an increase of $3.3 million or 24.5%, from $13.5 million for the same period in 2021. This increase was primarily
attributable to higher income from larger loan and investment portfolios combined with an increase in the weighted average
loan yield.
Included with loan interest income are PPP interest and loan fees totaling $145 thousand and $1.1 million for the three
months ended September 30, 2022 and 2021, respectively . PPP loan fees are recognized upon loan forgiveness by the
SBA.
Net interest margin increased to 3.47% for the quarter ended September 30, 2022 from 3.19% for the same period in
2021. This increase was primarily due to the yields for loans and other interest-earning assets increasing.
Nine Months Ended September 30, 2022 compared to nine months ended September 30, 2021
Net interest income before the provision for credit losses was $46.8 million for the nine months ended September 30, 2022,
an increase of $8.4 million or 21.8%, from $38.4 million for the same period in 2021. This increase was primarily attributable
to higher income from larger loan and investment portfolio s.
Included with loan interest income are PPP interest and loan fees totaling $1.6 million and $3.5 million for the nine months
ended September 30, 2022 and 2021, respectively. PPP loan fees are recognized upon loan forgiveness by the SBA.
38 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
Net interest margin increased to 3.36% at September 30, 2022 from 3.22% for the same period in 2021. The yield on interest
earnings assets increased 12 bps, with a decrease of 2 bps in interest-bearing liability rates.
Provision for Credit Losses
The ACL represents probable incurred losses in our portfolio. We maintain an adequate ACL that can mitigate probable
losses inherent in the loan portfolio. The ACL is increased by the provision for credit losses and is decreased by charge-
offs, net of recoveries on prior loan charge-offs. There are multiple credit quality metrics that we use to base our
determination of the amount of the ACL and corresponding provision for credit losses. These credit metrics evaluate the
credit quality and level of credit risk inherent in our loan portfolio, assess non-performing loans and charge-offs levels,
considers statistical and historical trends and economic conditions and other applicable factors.
Three months ended September 30, 2022 compared to the three months ended September 30, 2021
The provision for credit loss was $910 thousand for the three months ended September 30, 2022 compared to no
provision recorded for the same period in 2021. The primary driver of the provision expense in the 2022 period was
attributable to loan growth.
Nine Months Ended September 30, 2022 compared to nine months ended September 30, 2021
of $160 thousand for the same period in 2021. The primary driver of the provision expense was attribut able to loan growth.
The ACL as a percentage of total loans decreased to 1.16% at September 30, 2022 compared to 1.27% at September 30,
2021 due to the growth of the loan portfolio.
See “Allowance for Credit Losses” below for further discussion on how the ACL is calculated.
Non-Interest Income
Our services and products generate service charges and fees, mainly from our depository accounts. We also generate
income from gain on sale of loans though our swap and SBA programs. In addition, we own and are beneficiaries of the life
insurance policies on some of our employees and generate income on the increase in the cash surrender value of these
policies.
The following table presents the components of non-interest income for the dates indicated (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2022
2021
2022
2021
Service fees
$
934
$
856
$
2,917
$
2,648
Gain (loss) on sale of securities available for sale, net
(558)
(70)
(540)
179
Gain on sale of loans held for sale, net
330
532
686
1,519
Loan settlement
-
2,500
161
2,500
Other non-interest income
1,083
399
2,127
1,208
Total non-interest income
$
1,789
$
4,217
$
5,351
$
8,054
Three months ended September 30, 2022 compared to the three months ended September 30, 2021
Non-interest income for the three months ended September 30, 2022 decreased $2.4 million or 57.7%, compared to
the same period in 2021. This decrease was primarily driven by a non-recurring $2.5 million default interest recovery from
a prior lending customer of the Bank. The loan was originated in 2008 and subsequently went through many iterations of
credit collection. This payment reflects the final payment and settlement of lien judgements against the customer.
Nine Months Ended September 30, 2022 compared to nine months ended September 30, 2021
Non-interest income for the nine months ended September 30, 2022 decreased $2.7 million or 33.6%, compared to the
same period in 2021. This decrease was primarily driven by a non-recurring $2.5 million default interest recovery from a
prior lending customer of the Bank, as discussed above.
39 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
Non-Interest Expense
The following table presents the components of non-interest expense for the dates indicated (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2022
2021
2022
2021
Salaries and employee benefits
$
6,075
$
5,313
$
17,863
$
15,804
Occupancy
1,281
1,192
3,802
3,990
Regulatory assessment and fees
269
317
708
690
Consulting and legal fees
604
357
1,519
915
Network and information technology services
488
358
1,323
1,198
Other operating
1,415
1,470
4,080
3,761
Total non-interest expense
$
10,132
$
9,007
$
29,295
$
26,358
Three months ended September 30, 2022 compared to the three months ended September 30, 2021
Non-interest expense for the three months ended September 30, 2022 increased $1.1 million or 12.5%, compared to
the same period in 2021. The increase was primarily driven by higher salaries and employee benefits expense due to new
hires and increased salary compensation.
Nine Months Ended September 30, 2022 compared to nine months ended September 30, 2021
Non-interest expense for the nine months ended September 30, 2022 increased $2.9 million or 11.1%, compared to the
same period in 2021. The increase was primarily driven by higher salaries and employee benefits expense due to new hires
and increased salary compensation.
Provision for Income Tax
Fluctuations in the effective tax rate reflect the effect of the differences in the inclusion or deductibility of certain income
and expenses for income tax purposes. Therefore, future decisions on the investments we choose will affect our effective
tax rate. The cash surrender value of bank-owned life insurance policies covering key employees, purchasing municipal
bonds, and overall levels of taxable income will be important elements in determining our effective tax rate.
Three months ended September 30, 2022 compared to the three months ended September 30, 2021
Income tax expense for the three months ended September 30, 2022 decreased to $2.0 million from $2.1 million for
the same period in 2021. The effective tax rate for the three months ended September 30, 2022 was 26.1% compared to
24.1% for the same period in 2021.
Nine Months Ended September 30, 2022 compared to nine months ended September 30, 2021
Income tax expense for the nine months ended September 30, 2022 increased to $5.5 million from $4.8 million for the
same period in 2021. The Company’s effective tax rate was 26.0% for the 2022 period compared to 23.9% for the same
period in 2021.
For a further discussion of income taxes, see Note 4 “Income Taxes” to the unaudited Consolidated Financial
Statements in this Form 10-Q.
Analysis of Financial Condition
Total assets at September 30, 2022 were $2.0 billion, an increase of $183.5 million, or 9.9%, over total assets of $1.9
billion at December 31, 2021. Total loans increased $241.4 million, or 20.3%, to $1.4 billion at September 30, 2022
compared to $1.2 billion at December 31, 2021. Total deposits increased by $206.3 million, or 13.0%, to $1.8 billion at
September 30, 2022 compared to December 31, 2021.
Investment Securities
The investment portfolio is used and managed to provide liquidity through cash flows, marketability and, if necessary,
collateral for borrowings. The investment portfolio is also used as a tool to manage interest rate risk and the Company’s
40 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
capital market risk exposure. The philosophy of the portfolio is to maximize the Company’s profitability taking into
consideration the Company’s risk appetite and tolerance, manage the asset composition and diversification, and maintain
adequate risk-based capital ratios.
The investment portfolio is managed in accordance with the Asset and Liability Management (“ALM”) policy, which
includes investment guidelines, approved by the Board. Such policy is reviewed at least annually or more frequently if
deemed necessary, depending on market conditions and/or unexpected events. The investment portfolio composition is
subject to change depending on the funding and liquidity needs of the Company, and the interest risk management objective
directed by the ALCO. The portfolio of investments also can be used to modify the duration of the balance sheet. The
allocation of cash into securities takes into consideration anticipated future cash flows (uses and sources) and all available
sources of credit.
Our investment portfolio consists primarily of securities issued by U.S. government-sponsored agencies, U.S. agency
mortgage-backed securities, collateralized mortgage obligation securities, municipal securities, and other debt securities,
all with varying contractual maturities and coupons. Due to the optionality embedded in these securities, the final maturities
do not necessarily represent the expected life of the portfolio. Some of these securities will be called or paid down depending
on capital market conditions and expectations. The investment portfolio is regularly reviewed by the Chief Financial Officer,
Treasurer, and the ALCO of the Company to ensure an appropriate risk and return profile as well as for adherence to the
investment policy.
During the quarter ended September 30, 2022 and year ended December 31, 2021, the Company transferred, at fair
value, $63.8 million and $68.7 million, respectively, of securities from available-for-sale (“AFS”) to held-to-maturity (“HTM”).
The related net unrealized losses of $10.6 million and net unrealized gains of $1.1 million, respectively, remained in
accumulated other comprehensive income (“AOCI”) and are being amortized over the remaining life of the transferred
securities. No gains or losses were recognized to income at transfer date.
The book value of the AFS securities is adjusted monthly for unrealized gain or loss as a valuation allowance, and any
gain or loss is reported on an after-tax basis as a component of other comprehensive income in stockholders’ equity.
Periodically, we may need to assess whether there have been any events or unexpected economic circumstances to
indicate that a security on which there is an unrealized loss is impaired on an other-than-temporary basis (“OTTI”). If the
impairment is deemed to be permanent, an analysis is then made considering many factors, including the severity and
duration of the impairment, the severity of the event, our intent and ability to hold the security for a period of time sufficient
for a recovery in value, recent events specific to the issuer or industry, any related credit events, and for debt securities,
external credit ratings and recent downgrades related to deterioration of credit quality. Securities on which there is an
unrealized loss that is deemed to be OTTI are written down to fair value, with the write-down recorded as a realized loss
under line item “Gain (loss) on sale of securities available-for-sale, net” of the Consolidated Statements of Operations. As
of September 30, 2022, there are no securities which management has classified as OTTI. For further discussion of our
analysis on impaired investment securities for OTTI, see Note 2 “Investment Securities” to the unaudited Consolidated
Financial Statements in this Form 10-Q.
AFS and HTM investment securities decreased $96.8 million or 18.5% to $427.4 million at September 30, 2022 from
$524.2 million at December 31, 2021. Investment securities decreased due to payments received and higher unrealized
losses. Management reinvested excess cash balances into high credit quality investments to increase the Company’s
profitability and modify the Company’s balance sheet duration according to the ALM policy. As of September 30, 2022,
corporate bond securities with a market value of $39.1 million were pledged to secure public deposits. The investment
portfolio does not have any tax-exempt securities.
41 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
The following table presents the amortized cost and fair value of investment securities for the dates indicated (in
thousands):
September 30, 2022
December 31, 2021
Available-for-sale:
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
U.S. Government Agency
$
10,400
$
9,028
$
10,564
$
10,520
Collateralized mortgage obligations
121,760
100,048
160,506
156,829
Mortgage-backed securities - residential
92,649
76,707
120,643
118,842
Mortgage-backed securities - commercial
30,818
26,935
49,905
50,117
Municipal securities
25,104
18,629
25,164
24,276
Bank subordinated debt securities
14,503
13,562
27,003
28,408
Corporate bonds
4,039
3,662
12,068
12,550
$
299,273
$
248,571
$
405,853
$
401,542
Held-to-maturity:
U.S. Government Agency
$
45,243
$
39,439
$
34,505
$
33,904
Collateralized mortgage obligations
70,424
63,651
44,820
43,799
Mortgage-backed securities - residential
40,574
35,730
26,920
26,352
Mortgage-backed securities - commercial
11,483
10,967
3,103
3,013
Corporate bonds
11,141
9,952
13,310
13,089
$
178,865
$
159,739
$
122,658
$
120,157
The following table shows the weighted average yields, categorized by contractual maturity, for investment securities
as of September 30, 2022 (in thousands, except ratios):
Within 1 year
After 1 year through
5 years
After 5 years through
10 years
After 10 years
Total
Amortized
Cost
Yield
Amortized
Cost
Yield
Amortized
Cost
Yield
Amortized
Cost
Yield
Amortized
Cost
Yield
Available-for-sale:
U.S. Government Agency
$
-
0.00%
$
-
0.00%
$
-
0.00%
$
10,400
2.03%
$
10,400
2.03%
U.S. Treasury
-
0.00%
-
0.00%
-
0.00%
-
0.00%
-
0.00%
Collateralized mortgage obligations
-
0.00%
-
0.00%
-
0.00%
121,760
1.50%
121,760
1.50%
MBS - residential
-
0.00%
-
0.00%
-
0.00%
92,649
1.62%
92,649
1.62%
MBS - commercial
-
0.00%
-
0.00%
-
0.00%
30,818
1.90%
30,818
1.90%
Municipal securities
-
0.00%
-
0.00%
1,000
2.05%
24,104
1.72%
25,104
1.73%
Bank subordinated debt securities
-
0.00%
-
0.00%
14,503
4.57%
-
0.00%
14,503
4.57%
Corporate bonds
-
0.00%
4,039
2.50%
-
0.00%
-
0.00%
4,039
2.50%
$
-
$
4,039
$
15,503
$
279,731
$
299,273
1.78%
Held-to-maturity:
U.S. Government Agency
$
-
0.00%
$
7,896
1.03%
$
20,342
1.45%
$
17,005
2.03%
$
45,243
1.59%
Collateralized mortgage obligations
-
0.00%
-
0.00%
-
0.00%
70,424
1.66%
70,424
1.66%
MBS - residential
-
0.00%
1,337
2.98%
9,204
1.61%
30,033
1.72%
40,574
1.74%
MBS - commercial
-
0.00%
-
0.00%
3,092
1.62%
8,391
1.69%
11,483
1.67%
Corporate bonds
1,522
2.25%
9,619
2.79%
-
0.00%
-
0.00%
11,141
2.71%
$
1,522
$
18,852
$
32,638
$
125,853
$
178,865
1.73%
Loans
Loans are the largest category of interest-earning assets on the unaudited Consolidated Balance Sheets, and usually
provide higher yields than the remainder of the interest-earning assets. Higher yields typically carry inherent credit and
liquidity risks in comparison to lower yield assets. The Company manages and mitigates such risks in accordance with the
credit and ALM policies, risk tolerance and balance sheet composition.
42 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
The following table shows the loan portfolio composition as of the dates indicated (in thousands):
September 30, 2022
December 31, 2021
Total
Percent of
Total
Total
Percent of
Total
Residential Real Estate
$
186,551
13.0
%
$
201,359
16.9
%
Commercial Real Estate
928,531
64.9
%
704,988
59.2
%
Commercial and Industrial
121,145
8.5
%
146,592
12.3
%
Foreign Banks
94,450
6.6
%
59,491
5.0
%
Consumer and Other
100,845
7.0
%
79,229
6.6
%
Total gross loans
1,431,522
100.0
%
1,191,659
100.0
%
Less: Deferred fees (cost)
9
1,578
Total loans net of deferred fees (cost)
1,431,513
1,190,081
Less: Allowance for credit losses
16,604
15,057
Total net loans
$
1,414,909
$
1,175,024
Total loans increased by $241.4 million or 20.3% at September 30, 2022 compared to December 31, 2021. The
commercial real estate and to a lesser extent, foreign banks and consumer and other loan segments had the most significant
growth partially offset by declines in the commercial and industrial and residential real estate loan segments. Commercial
and industrial loans declined primarily because of continuing PPP loan forgiveness.
Our loan portfolio continues to grow, with commercial real estate lending as the primary focus which represented
approximately 64.9% of the total gross loan portfolio as of September 30, 2022. We do not expect any significant changes
over the foreseeable future in the composition of our loan portfolio or in our emphasis on commercial real estate lending.
Our loan growth strategy since inception has been reflective of the market in which we operate and of our strategic plan as
approved by the Board.
Most of the commercial real estate exposure represents loans to commercial businesses secured by owner-occupied
real estate. The growth experienced in recent years is primarily due to implementation of our relationship-based banking
model and the success of our relationship managers in competing for new business in a highly competitive metropolitan
area. Many of our larger loan clients have long-term relationships with members of our senior management team or our
relationship managers that date back to former institutions.
From a liquidity perspective, our loan portfolio provides us with additional liquidity due to repayments or unexpected
prepayments. The following table shows maturities and sensitivity to interest rate changes for the loan portfolio at
September 30, 2022 (in thousands):
Due in 1 year or
less
Due in 1 to 5
years
Due after 5 to 15
years
Due after 15
years
Total
Residential Real Estate
$
10,603
$
12,527
$
82,484
$
80,937
$
186,551
Commercial Real Estate
39,073
204,811
672,940
11,707
928,531
Commercial and Industrial
12,219
26,366
41,570
40,990
121,145
Foreign Banks
94,450
-
-
-
94,450
Consumer and Other
2,522
2,552
6,480
89,291
100,845
Total gross loans
$
158,867
$
246,256
$
803,474
$
222,925
$
1,431,522
Interest rate sensitivity:
Fixed interest rates
$
130,707
$
162,789
$
151,089
$
115,904
$
560,489
Floating or adjustable rates
28,160
83,467
652,385
107,021
871,033
Total gross loans
$
158,867
$
246,256
$
803,474
$
222,925
$
1,431,522
The information presented in the table above is based upon the contractual maturities of the individual loans, which
may be subject to renewal at their contractual maturity. Renewals will depend on approval by our credit department and
balance sheet composition at the time of the analysis, as well as any modification of terms at the loan’s maturity. Additionally,
maturity concentrations, loan duration, prepayment speeds and other interest rate sensitivity measures are discussed,
reviewed, and analyzed by the ALCO. Decisions on term rate modifications are discussed as well.
As of September 30, 2022, approximately 60.8% of the loans have adjustable/variable rates and 39.2% of the loans
have fixed rates. The adjustable/variable rate loans re-price to different benchmarks and tenors in different periods of time.
43 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
By contractual characteristics, there are no material concentrations on anniversary repricing. Additionally, it is important to
note that most of our loans have interest rate floors. This embedded option protects the Company from a decrease in interest
rates and positions us to gain in the scenario of higher interest rates.
Asset Quality
Our asset quality grading analysis estimates the capability of the borrower to repay the contractual obligation of the loan
agreement as scheduled or at all. The Company’s internal credit risk grading system is based on experiences with similarly
graded loans. Internal credit risk grades are reviewed at least once a year, and more frequently as needed. Internal credit
risk ratings may change based on management’s assessment of the results from the annual review, portfolio monitoring,
and other developments observed with borrowers.
The internal credit risk grades used by the Company to assess the credit worthiness of a loan are shown below:
Pass
– Loans indicate different levels of satisfactory financial condition and performance.
Special Mention
close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment
prospects for the loan or of the institution’s credit position at some future date.
Substandard
– Loans classified as substandard are inadequately protected by the current net worth and paying
capacity of the obligator or of the collateral pledged, if any. Loans so classified have a well-defined weakness or
weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the
institution will sustain some loss if the deficiencies are not corrected.
Doubtful
the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing
facts, conditions, and values, highly questionable and improbable.
Loss
– Loans classified as loss are considered uncollectible.
Loan credit exposures by internally assigned grades are as follows for the dates indicated (in thousands):
September 30, 2022
Pass
Special Mention
Substandard
Doubtful
Total
Residential Real Estate
$
186,551
$
-
$
-
$
-
$
186,551
Commercial Real Estate
928,131
-
400
-
928,531
Commercial and Industrial
120,806
-
339
-
121,145
Foreign Banks
94,450
-
-
-
94,450
Consumer and Other
100,642
-
203
-
100,845
$
1,430,580
$
-
$
942
$
-
$
1,431,522
December 31, 2021
Pass
Special Mention
Substandard
Doubtful
Total
Residential Real Estate
$
196,778
$
-
$
4,581
$
-
$
201,359
Commercial Real Estate
703,349
1,222
417
-
704,988
Commercial and Industrial
146,039
-
553
-
146,592
Foreign Banks
59,491
-
-
-
59,491
Consumer and Other
79,005
-
224
-
79,229
$
1,184,662
$
1,222
$
5,775
$
-
$
1,191,659
44 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
Non-Performing Assets
The following table presents non-performing assets as of the dates shown (in thousands, except ratios):
September 30, 2022
December 31, 2021
Non-accrual loans, less non-accrual TDR loans
$
-
$
1,190
Non-accrual TDRs
-
-
Loans past due over 90 days and still accruing
-
-
Total non-performing loans
-
1,190
Other real estate owned
-
-
Total non-performing assets
$
-
$
1,190
Asset quality ratios:
Allowance for credit losses to total loans
1.16%
1.27%
Allowance for credit losses to non-performing loans
0%
1,265%
Non-performing loans to total loans
0%
0.10%
Non-performing assets include all loans categorized as non-accrual or restructured, impaired securities, non-accrual
troubled debt restructuring (“TDRs”), other real estate owned (“OREO”) and other repossessed assets. Problem loans for
which the collection or liquidation in full is reasonably uncertain are placed on a non-accrual status. This determination is
based on current existing facts concerning collateral values and the paying capacity of the borrower. When the collection of
the full contractual balance is unlikely, the loan is placed on non-accrual to avoid overstating the Company’s income for a
loan with increased credit risk.
If the principal or interest on a commercial loan becomes due and unpaid for 90 days or more, the loan is placed on
non-accrual status as of the date it becomes 90 days past due and remains in non-accrual status until it meets the criteria
for restoration to accrual status. Residential loans, on the other hand, are placed on non-accrual status when the principal
or interest becomes due and unpaid for 120 days or more and remains in non-accrual status until it meets the criteria for
restoration to accrual status. Restoring a loan to accrual status is possible when the borrower resumes payment of all
principal and interest payments for a period of six months and the Company has a documented expectation of repayment
of the remaining contractual principal and interest or the loan becomes secured and in the process of collection.
A TDR is a debtor that is experiencing financial difficulties and to whom the Company grants a loan concession. This
determination is performed during the annual review process or whenever problems surface regarding the client’s ability to
repay in accordance with the original terms of the loan or line of credit. In general, a borrower that can obtain funds from
sources other than the Company at market interest rates at or near those for non-troubled debt is not involved in a troubled
debt restructuring. The concessions are given to the debtor in various forms, including interest rate reductions, principal
forgiveness, extension of maturity date, waiver, or deferral of payments and other concessions intended to minimize
potential losses.
The following tables present performing and non-performing TDRs at the dates indicated (in thousands):
September 30, 2022
December 31, 2021
Accrual Status
Non-Accrual
Status
Total TDRs
Accrual Status
Non-Accrual
Status
Total TDRs
Residential real estate
$
7,257
$
-
$
7,257
$
7,815
$
-
$
7,815
Commercial real estate
586
-
586
696
-
696
Commercial and industrial
92
-
92
141
-
141
Consumer and other
203
-
203
224
-
224
Total
$
8,138
$
-
$
8,138
$
8,876
$
-
$
8,876
The Company allocated $309 thousand and $360 thousand of specific allowance for TDR loans at September 30, 2022
and December 31, 2021, respectively. There was no commitment to lend additional funds to these TDR customers at either
date.
During the quarter ended September 30, 2022 and 2021, there were no defaults on TDR loans within the prior 12
months. Additionally, the Company did not have any new TDR loans during the three months ended September 30, 2022
and 2021.
For further discussion on non-performing loans, see Note 3 “Loans” to the unaudited Consolidated Financial Statements
on this Form 10-Q.
45 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
Allowance for Credit Losses
In determining the balance of the allowance account, loans are pooled by product segments with similar risk
characteristics and management evaluates the ACL on each segment and on a regular basis to maintain the allowance at
an adequate level based on factors which, in management’s judgment, deserve current recognition in estimating credit
losses. Such factors include changes in prevailing economic conditions, historical loss experience, delinquency trends,
changes in the composition and size of the loan portfolio and the overall credit worthiness of the borrowers.
Additionally, qualitative adjustments are made to the ACL when, based on management’s judgment, there are factors
impacting the allowance estimate not considered by the quantitative calculations.
The following table presents ACL and net charge-offs to average loans by type for the periods indicated (in thousands):
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Foreign
Banks
Consumer
and Other
Total
Three Months Ended September 30, 2022
Beginning balance
$
2,366
$
9,290
$
2,671
$
651
$
808
$
15,786
Provision for credit losses
(1,009)
695
1,126
74
24
910
Recoveries
1
-
-
-
-
1
Charge-offs
-
-
(88)
-
(5)
(93)
Ending Balance
$
1,358
$
9,985
$
3,709
$
725
$
827
$
16,604
Average loans
$
190,757
887,000
119,993
94,628
106,382
1,398,761
Net charge-offs to average loans
0.00%
0.00%
0.29%
0.00%
0.02%
0.03%
Nine Months Ended September 30, 2022
Beginning balance
$
2,498
$
8,758
$
2,775
$
457
$
569
$
15,057
Provision for credit losses
(1,157)
1,227
1,011
268
266
1,615
Recoveries
33
-
11
-
3
47
Charge-offs
(16)
-
(88)
-
(11)
(115)
Ending Balance
$
1,358
$
9,985
$
3,709
$
725
$
827
$
16,604
Average loans
$
195,863
809,411
128,625
77,237
91,773
1,302,909
Charge-offs
-0.02%
0.00%
0.12%
0.00%
0.02%
0.01%
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Foreign
Banks
Consumer
and Other
Total
Three Months Ended September 30, 2021
Beginning balance
$
2,540
$
8,752
$
2,467
$
554
$
535
$
14,848
Provision for credit losses
(787)
719
277
(29)
(180)
-
Recoveries
48
-
3.00
-
3
54
Charge-offs
-
-
-
-
(2)
(2)
Ending Balance
$
1,801
$
9,471
$
2,747
$
525
$
356
$
14,900
Average loans
$
218,295
$
690,923
$
170,874
$
51,538
$
12,645
$
1,144,275
Net charge-offs to average loans
-0.09%
0.00%
-0.01%
0.00%
-0.03%
-0.02%
Nine Months Ended September 30, 2021
Beginning balance
$
3,408
$
9,453
$
1,689
$
348
$
188
$
15,086
Provision for credit losses
(1,434)
18
904
177
175
(160)
Recoveries
56
-
154
-
5
215
Charge-offs
(229)
-
-
-
(12)
(241)
Ending Balance
$
1,801
$
9,471
$
2,747
$
525
$
356
$
14,900
Average loans
$
217,511
$
648,692
$
156,985
$
49,974
$
28,620
$
1,101,782
Net charge-offs to average loans
0.16%
0.00%
-0.20%
0.00%
0.05%
0.00%
46 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
Bank-Owned Life Insurance
As of September 30, 2022, the combined cash surrender value of all bank-owned life insurance (“BOLI”) policies was
$42.5 million. Changes in cash surrender value are recorded to non-interest income in the unaudited Consolidated
Statements of Operations. The Company had BOLI policies with five insurance carriers. The Company is the beneficiary of
these policies.
Deposits
Customer deposits are the primary funding source for the Bank’s growth. Through our network of banking centers, we
offer a competitive array of deposit accounts and treasury management services designed to meet our customers’ business
needs. Our primary deposit customers are small-to-medium sized businesses (“SMBs”), and the personal business of
owners and operators of these SMBs, as well as the retail/consumer relationships of the employees of these businesses.
The following table presents the daily average balance and average rate paid on deposits by category for the periods
presented (in thousands, except ratios):
Three Months Ended September 30,
2022
2021
Average Balance
Average Rate
Paid
Average Balance
Average Rate
Paid
Non-interest-bearing checking
$
655,853
0.00%
$
564,928
0.00%
Interest-bearing checking
66,585
0.11%
55,621
0.11%
Money market and savings deposits
823,521
0.55%
627,654
0.32%
Time deposits
217,023
0.66%
229,055
0.53%
Total
$
1,762,982
0.34%
$
1,477,258
0.22%
The uninsured deposits are estimated based on the FDIC deposit insurance limit of $250 thousand for all deposit
accounts at the Bank per account holder. Total estimated uninsured deposits were $1.1 billion and $897.8 million at
September 30, 2022 and December 31, 2021, respectively.
The following table shows scheduled maturities of uninsured time deposits as of September 30, 2022 (in thousands):
September 30, 2022
Three months or less
$
23,451
Over three through six months
27,044
Over six though twelve months
27,134
Over twelve months
24,555
$
102,184
Other Liabilities
The Company collects from commercial loan customers funds which are held in escrow for future payment of real
estate taxes and insurance. These escrow funds are disbursed by the Company directly to the insurance companies and
taxing authority of the borrower. Escrow funds are recorded as other liabilities.
As of September 30, 2022 escrow balances totaled $15.3 million compared to $4.0 million at December 31, 2021.
Borrowings
As a member of the FHLB, we are eligible to obtain advances with various terms and conditions. This accessibility of
additional funding allows us to efficiently and timely meet both expected and unexpected outgoing cash flows and collateral
needs without adversely affecting either daily operations or the financial condition of the Company.
As of September 30, 2022, we had $26.0 million of fixed-rate advances outstanding from the FHLB with a weighted
average rate of 1.39%. Maturity dates for the advances are between third quarter 2023 and third quarter 2025 as detailed
in the table below.
47 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
The following table presents the FHLB fixed rate advances as of September 30, 2022 (in thousands):
Interest Rate
Type of Rate
Maturity Date
Amount
2.05%
Fixed
March 27, 2025
$
10,000
1.07%
Fixed
July 18, 2025
6,000
1.04%
Fixed
July 30, 2024
5,000
0.81%
Fixed
August 17, 2023
5,000
$
26,000
We have also established Fed Funds lines of credit with our upstream correspondent banks to manage temporary
fluctuations in our daily cash balances. As of September 30, 2022, there were no outstanding balances with the Fed Funds
lines of credit.
Off-Balance Sheet Arrangements
We engage in various financial transactions in our operations that, under GAAP, may not be included on the balance
sheet. To meet the financing needs of our customers we may include commitments to extend credit and standby letters of
credit. To a varying degree, such commitments involve elements of credit, market, and interest rate risk in excess of the
amount recognized in the balance sheet. We use more conservative credit and collateral policies in making these credit
commitments than we do for on-balance sheet items. We are not aware of any accounting loss to be incurred by funding
these commitments; however, we maintain an allowance for off-balance sheet credit risk which is recorded under other
liabilities on the unaudited Consolidated Balance Sheets.
Since commitments associated with letters of credit and commitments to extend credit may expire unused, the amounts
shown do not necessarily reflect actual future cash funding requirements. The following table presents lending related
commitments outstanding as of the dates indicated (in thousands ):
September 30, 2022
December 31, 2021
Commitments to grant loans and unfunded lines of credit
$
119,830
$
134,877
Standby and commercial letters of credit
5,413
6,420
Total
$
125,243
$
141,297
Commitments to extend credit are agreements to lend funds to a client, as long as there is no violation of any condition
established in the contract, for a specific purpose. Commitments generally have variable interest rates, fixed expiration
dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to
expire without being fully drawn, the total commitment amounts disclosed above do not necessarily represent future cash
requirements.
Unfunded lines of credit represent unused portions of credit facilities to our current borrowers that represent no change
in credit risk in our portfolio. Lines of credit generally have variable interest rates. The maximum potential amount of future
payments we could be required to make is represented by the contractual amount of the commitment, less the amount of
any advances made.
Letters of credit are conditional commitments issued by us to guarantee the performance of a client to a third party. In
the event of nonperformance by the client in accordance with the terms of the agreement with the third party, we would be
required to fund the commitment. If the commitment is funded, we would be entitled to seek recovery from the client from
the underlying collateral, which can include commercial real estate, physical plant and property, inventory, receivables, cash
or marketable securities.
Asset and Liability Management Committee
Members of senior management and our Board make up the asset and liability management committee, or ALCO.
Senior management is responsible for ensuring that Board approved strategies, policies, and procedures for managing and
mitigating risks are appropriately executed within the designated lines of authority and responsibility in a timely manner.
ALCO oversees the establishment, approval, implementation, and review of interest rate risk, management, and
mitigation strategies, ALM related policies, ALCO procedures and risk tolerances and appetite.
While some degree of IRR (“Interest Rate Risk”) is inherent to the banking business, we believe our ALCO has put in
place sound risk management practices to identify, quantify, monitor, and limit IRR exposures.
48 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
When assessing the scope of IRR exposure and impact on the consolidated balance sheet, cash flows and income
statement, management considers both earnings and economic impacts. Asset price variations, deposit volatility and
reduced earnings or outright losses could adversely affect the Company’s liquidity, performance, and capital adequacy.
Income simulations are used to assess the impact of changing rates on earnings under different rates scenarios and
time horizons. These simulations utilize both instantaneous and parallel changes in the level of interest rates, as well as
non-parallel changes such as changing slopes (flat and steeping) and twists of the yield curve. Static simulation models are
based on current exposures and assume a constant balance sheet with no new growth. Dynamic simulation analysis is also
utilized to have a more comprehensive assessment on IRR. This simulation relies on detailed assumptions outlined in our
budget and strategic plan, and in assumptions regarding changes in existing lines of business, new business, management
strategies and client expected behavior.
To have a more complete picture of IRR, the Company also evaluates the economic value of equity (“EVE”). This
assessment allows us to measure the degree to which the economic values will change under different interest rate
scenarios (parallel and non-parallel). The economic value approach focuses on a longer-term time horizon and captures all
future cash flows expected from existing assets and liabilities. The economic value model utilizes a static approach in that
the analysis does not incorporate new business; rather, the analysis shows a snapshot in time of the risk inherent in the
balance sheet.
Market and Interest Rate Risk Management
According to our last ALCO model run as of September 30, 2022, we are net interest income neutral for year one and
asset-sensitive for year two. This indicates that for year one, our net interest income fluctuations will be minimal due to
changes in interest rates and for year two, that our assets generally reprice faster than our liabilities, which results in a
favorable impact to net interest income when market interest rates increase. Many assumptions are used to calculate the
impact of interest rate variations on our net interest income, such as asset prepayment speeds, non-maturity deposit price
sensitivity, pricing correlations, deposit truncations and decay rates, and key rate drivers.
Because of the inherent use of these estimates and assumptions in the model, our actual results may, and most likely
will, differ from static measures results. In addition, static measures like EVE do not include actions that management may
undertake to manage the risks in response to anticipated changes in interest rates or client deposit behavior. As part of our
ALM strategy and policy, management has the ability to modify the balance sheet to either increase asset duration and
decrease liability duration to reduce asset sensitivity, or to decrease asset duration and increase liability duration in order
to increase asset sensitivity.
According to our model, as of September 30, 2022, NIM will remain mostly flat for year one and should increase for
year two under static rate scenarios (-400 basis points or +400 basis points). For the static forecast in year one, the
estimated NIM will remain stable from the base case scenario to a +400 basis points scenario. Additionally, utilizing an
EVE approach, we analyze the risk to capital from the effects of various interest rate scenarios through a long-term
discounted cash flow model. This measures the difference between the economic value of our assets and the economic
value of our liabilities, which is a proxy for our liquidation value. According to our balance sheet composition, and as
expected, our model stipulates that an increase of rates will have a negative impact on the EVE. Results and analysis are
presented quarterly to the Board, and strategies are defined.
Liquidity
Liquidity is defined as a Company’s capacity to meet its cash and collateral obligations at a reasonable cost. Maintaining
an adequate level of liquidity depends on the Company’s ability to efficiently meet both expected and unexpected cash flow
and collateral needs without adversely affecting either daily operations or the financial condition of the Company.
Liquidity risk is the risk that we will be unable to meet our short-term and long-term obligations as they become due
because of an inability to liquidate assets or obtain relatively adequate funding. The Company’s obligations, and the funding
sources used to meet them, depend significantly on our business mix, balance sheet structure and composition, credit
quality of our assets and the cash flow profiles of our on- and off-balance sheet obligations.
In managing inflows and outflows, management regularly monitors situations that can give rise to increased liquidity
risk. These include funding mismatches, market constraints on the ability to convert assets (particularly investments) into
cash or in accessing sources of funds (i.e., market liquidity), and contingent liquidity events.
49 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
Changes in macroeconomic conditions, as well as exposure to credit, market, operational, legal and reputational risks,
such as cybersecurity risk, could have an unexpected impact on the Company’s liquidity risk profile and are factored into
the assessment of liquidity and the ALM framework.
Management has established a comprehensive and holistic management process for identifying, measuring, monitoring
and mitigating liquidity risk. Due to its critical importance to the viability of the Company, liquidity risk management is
integrated into our risk management processes, Contingency Funding Plan and ALM policy.
Critical elements of our liquidity risk management include: effective corporate governance consisting of oversight by the
Board and active involvement of senior management; appropriate strategies, policies, procedures, and limits used to identify
and mitigate liquidity risk; comprehensive liquidity risk measurement and monitoring systems (including assessments of the
current and prospective cash flows or sources and uses of funds) that are commensurate with the complexity and business
activities of the Company; active management of intraday liquidity and collateral; an appropriately diverse mix of existing
and potential future funding sources; adequate levels of highly liquid marketable securities free of legal, regulatory, or
operational impediments, that can be used to meet liquidity needs in stressful situations; comprehensive contingency
funding plans that sufficiently address potential adverse liquidity events and emergency cash flow requirements; and internal
controls and internal audit processes sufficient to determine the adequacy of the institution’s liquidity risk management
process.
We expect funds to be available from several basic banking activity sources, including the core deposit base, the
repayment and maturity of loans and investment security cash flows. Other potential funding sources include federal funds
purchased, brokered certificates of deposit, listing certificates of deposit, and borrowings from the FHLB. Accordingly, our
liquidity resources were adequate to fund loans and meet other cash needs as necessary. We do not expect liquidity
resources to be compromised at this time.
Capital Adequacy
As of September 30, 2022, the Bank was well capitalized under the FDIC’s prompt corrective action framework. We
also follow the capital conservation buffer framework, and as of September 30, 2022, we exceeded the capital conversation
buffer in all capital ratios, according to our actual ratios. The following table presents the capital ratios for both the Company
and the Bank at the dates indicated (in thousands, except ratios):
Actual
Minimum Capital
Requirements
To be Well Capitalized
Under Prompt Corrective
Action Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
September 30, 2022:
(1)
Total risk-based capital:
USCB Financial Holdings, Inc.
$
210,887
13.65
%
$
123,613
8.00
%
$
154,517
10.00
%
U.S. Century Bank
$
209,784
13.58
%
$
123,613
8.00
%
$
154,517
10.00
%
Tier 1 risk-based capital:
USCB Financial Holdings, Inc.
$
194,036
12.56
%
$
92,710
6.00
%
$
123,613
8.00
%
U.S. Century Bank
$
192,933
12.49
%
$
92,710
6.00
%
$
123,613
8.00
%
Common equity tier 1 capital:
USCB Financial Holdings, Inc.
$
194,036
12.56
%
$
69,532
4.50
%
$
100,436
6.50
%
U.S. Century Bank
$
192,933
12.49
%
$
69,532
4.50
%
$
100,436
6.50
%
Leverage ratio:
USCB Financial Holdings, Inc.
$
194,036
9.48
%
$
81,829
4.00
%
$
102,286
5.00
%
U.S. Century Bank
$
192,933
9.43
%
$
81,829
4.00
%
$
102,286
5.00
%
December 31, 2021:
(1)
Total risk-based capital
$
186,735
14.92
%
$
100,125
8.00
%
$
125,157
10.00
%
Tier 1 risk-based capital
$
171,484
13.70
%
$
75,094
6.00
%
$
100,125
8.00
%
Common equity tier 1 capital
$
171,484
13.70
%
$
56,321
4.50
%
$
81,352
6.50
%
Leverage ratio
$
171,484
9.55
%
$
71,825
4.00
%
$
89,781
5.00
%
(1) As of December 31, 2021, the regulatory capital ratios for both USCB Financial Holdings, Inc. and U.S. Century Bank were the same since there
was no activity between both of these entities. The Company is not subject to regulatory capital requirements as a small bank holding company.
Accordingly, the Company's capital ratios are provided for informational purposes only.
50 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
Impact of Inflation
Our Consolidated Financial Statements and related notes have been prepared in accordance with U.S. GAAP,
which require the measurement of financial position and operating results in terms of historical dollars, without considering
the changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the
increased cost of operations. Unlike most industrial companies, nearly all our assets and liabilities are monetary in nature.
As a result, interest rates have a greater impact on our performance than do the effects of general levels of inflation. Periods
of high inflation are often accompanied by relatively higher interest rates, and periods of low inflation are accompanied by
relatively lower interest rates. As market interest rates rise or fall in relation to the rates earned on loans and investments,
the value of these assets decreases or increases respectively. Inflation can also impact core non-interest expenses
associated with delivering the Company’s services.
Recently Issued Accounting Pronouncements
Recently issued accounting pronouncements are discussed in Note 1 “Summary of Significant Accounting Policies” to
the unaudited Consolidated Financial Statements in this Form 10-Q.
51 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
Reconciliation and Management Explanation of Non -GAAP Financial Measures
Management has included these non-GAAP measures because it believes these measures may provide useful
supplemental information for evaluating the Company’s underlying performance trends. Further, management uses these
measures in managing and evaluating the Company’s business and intends to refer to them in discussions about our
operations and performance. Operating performance measures should be viewed in addition to, and not as an alternative
to or substitute for, measures determined in accordance with GAAP, and are not necessarily comparable to non-GAAP
measures that may be presented by other companies. The following table reconciles the non-GAAP financial measurement
of operating net income available to common stockholders for the periods presented (in thousands, except per share data):
As of or For the Three Months Ended
9/30/2022
6/30/2022
3/31/2022
12/31/2021
9/30/2021
Pre-Tax Pre-Provision ("PTPP") Income:
$
5,558
$
5,295
$
4,854
$
5,650
$
6,593
1,963
1,708
$
1,858
$
1,751
$
2,088
910
705
$
-
$
-
$
-
$
8,431
$
7,708
$
6,712
$
7,401
$
8,681
PTPP Return on Average Assets:
$
8,431
$
7,708
$
6,712
$
7,401
$
8,681
$
2,026,791
$
1,968,381
$
1,913,484
$
1,828,037
$
1,741,423
(1)
1.65%
$
1.57%
$
1.42%
$
1.61%
$
1.98%
Operating Net Income:
$
5,558
$
5,295
$
4,854
$
5,650
$
6,593
(558)
$
(3)
$
21
$
35
$
(70)
141
$
1
$
(5)
$
(9)
$
17
$
5,975
$
5,297
$
4,838
$
5,624
$
6,646
Operating PTPP Income:
$
8,431
$
7,708
$
6,712
$
7,401
$
8,681
(558)
$
(3)
$
21
$
35
$
(70)
$
8,989
$
7,711
$
6,691
$
7,366
$
8,751
Operating PTPP Return on Average Assets:
$
8,989
$
7,711
$
6,691
$
7,366
$
8,751
$
2,026,791
$
1,968,381
$
1,913,484
$
1,828,037
$
1,741,423
(1)
1.76%
$
1.57%
$
1.42%
$
1.60%
$
1.99%
Operating Return on Average Assets:
$
5,975
$
5,297
$
4,838
$
5,624
$
6,646
$
2,026,791
$
1,968,381
$
1,913,484
$
1,828,037
$
1,741,423
(1)
1.17%
$
1.08%
$
1.03%
$
1.22%
$
1.51%
(1) Annualized.
52 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
As of or For the Three Months Ended
9/30/2022
6/30/2022
3/31/2022
12/31/2021
9/30/2021
Tangible book value per common share (at period-end):
(1)
Total stockholders' equity
$
177,417
$
180,068
$
192,039
$
203,897
$
201,918
Less: Intangible assets
-
-
-
-
-
Less: Preferred stock
-
-
-
-
-
Tangible stockholders' equity
$
177,417
$
180,068
$
192,039
$
203,897
$
201,918
Total shares issued and outstanding (at period-end):
(2)
Class A common shares
20,000,753
20,000,753
20,000,753
19,991,753
18,767,541
Class B common shares
-
-
-
-
1,224,212
Total common shares issued and outstanding
20,000,753
20,000,753
20,000,753
19,991,753
19,991,753
Tangible book value per common share
(3)
$
8.87
$
9.00
$
9.60
$
10.20
$
10.10
Operating net income available to common stockholders:
(1)
Net income
$
5,558
$
5,295
$
4,854
$
5,650
$
6,593
Less: Preferred dividends
-
-
-
-
542
Less: Exchange and redemption of preferred shares
(2)
-
-
-
-
89,585
Net income (loss) available to common stockholders
5,558
5,295
4,854
5,650
(83,534)
Add back: Exchange and redemption of preferred shares
-
-
-
-
89,585
Operating net income avail. to common stock
$
5,558
$
5,295
$
4,854
$
5,650
$
6,051
Allocation of operating net income per common stock class:
Class A common stock
$
5,558
$
5,295
$
4,854
$
5,650
$
5,598
Class B common stock
$
-
$
-
$
-
$
-
$
453
Weighted average shares outstanding:
Class A common stock
Basic
20,000,753
20,000,753
19,994,953
18,913,914
15,121,460
Diluted
20,148,208
20,171,261
20,109,783
19,023,686
15,121,460
Class B common stock
Basic
-
-
-
-
6,121,052
Diluted
-
-
-
-
6,121,052
Diluted EPS:
(4) (5)
Class A common stock
Net income (loss) per diluted share
$
0.28
$
0.26
$
0.24
$
0.30
$
(5.11)
Add back: Exchange and redemption of preferred shares
-
-
-
-
5.48
Operating net income per diluted share
$
0.28
$
0.26
$
0.24
$
0.30
$
0.37
Class B common stock
Net loss per diluted share
$
-
$
-
$
-
$
-
$
(1.02)
Add back: Exchange and redemption of preferred shares
-
-
-
-
1.09
Operating net income per diluted share
$
-
$
-
$
-
$
-
$
0.07
(1) The Company believes these non-GAAP measurements are a key indicator of the ongoing earnings power of the Company.
(2) During the quarter ended September 30, 2021, 47,473 shares of Class C preferred stock and 11,061,552 shares of Class D preferred stock were
converted into 10,278,072 shares of Class A common stock. Additionally, the Bank completed its initial public offering of its Class A common stock on
July 27, 2021, in which it issued 4,600,000 shares of Class A common stock. As such, the total shares issued and outstanding of Class A common stock
was 18,767,541 shares at September 30, 2021.
(3) Excludes the dilutive effect, if any, of shares of common stock issuable upon exercise of outstanding stock options.
(4) During the quarter ended September 30, 2021, basic net loss per share is the same as diluted net loss per share as the inclusion of all potential
common shares outstanding would have been antidilutive.
(5) During the quarter ended December 31, 2021, the Company entered into agreements with the Class B shareholders to exchange all outstanding
Class B non-voting common stock for Class A voting common stock at a ratio of 1 share of Class A common stock for each 5 shares of Class B non-
voting common stock. In calculating net income (loss) per diluted share for the prior quarters presented, the allocation of operating net income available
to common stockholders was based on the weighted average shares outstanding per common share class to the total weighted average shares
outstanding during each period. The operating net income allocation was calculated using the weighted average shares outstanding of Class B common
stock on an as-converted basis.
53 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to provide the information required by this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our President and Chief Executive Officer
and our Chief Financial Officer, we evaluated the effectiveness of the design and operation of the Company’s disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2022.
Based on that evaluation, management believes that the Company’s disclosure controls and procedures were effective to
collect, process, and disclose the information required to be disclosed in the reports filed or submitted under the Exchange
Act within the required time periods as of the end of the period covered by this Form 10-Q.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) during the period covered by this Form 10-Q that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving
the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there
are resource constrains and that management is required to apply judgment in evaluating the benefits of possible controls
and procedures relative to their costs.
54 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
PART II
Item 1. Legal Proceedings
We are not currently subject to any material legal proceedings. We are from time to time subject to claims and litigation
arising in the ordinary course of business. These claims and litigation may include, among other things, allegations of
violation of banking and other applicable regulations, competition law, labor laws and consumer protection laws, as well as
claims or litigation relating to intellectual property, securities, breach of contract and tort. We intend to defend ourselves
vigorously against any pending or future claims and litigation.
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 2021 Form 10-K. There have been no material changes from the risk
factors previously disclosed in the 2021 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) None.
(b) Not applicable.
(c) As previously described The Board adopted a stock repurchase program covering 750,000 shares of Class A
common stock. No shares were purchased pursuant to such program by the Company during the three and nine months
ended September 30, 2022.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
55 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
Item 6. Exhibits
Exhibit No.
Description of Exhibit
*
*
*
*
101
The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30,
2022 formatted in Inline XBRL: (i) Consolidated Balance Sheets (unaudited), (ii) Consolidated Statements of Operations
(unaudited), (iii) Consolidated Statements of Comprehensive Income (unaudited), (iv) Consolidated Statements of Changes
in Stockholders’ Equity (unaudited), (v) Consolidated Statements of Cash Flows (unaudited), (vi) Notes to Consolidated
Financial Statements (unaudited).
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*
Filed herewith.
56 USCB Financial Holdings, Inc. Q3 2022 Form 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
USCB FINANCIAL HOLDINGS, INC.
(Registrant)
Signature
Title
Date
/s/ Luis de la Aguilera
President, Chief Executive Officer, and Director
November 10, 2022
Luis de la Aguilera
(Principal Executive Officer)
/s/ Robert Anderson
Chief Financial Officer
November 10, 2022
Robert Anderson
(Principal Financial Officer and Principal
Accounting Officer)
Exhibit 31.1
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Luis de la Aguilera, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of USCB Financial Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which
this report is being prepared;
b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an Annual Report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
/s/ Luis de la Aguilera
Luis de la Aguilera
President and Chief Executive Officer
Date: November 10, 2022
Exhibit 31.2
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Robert Anderson, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of USCB Financial Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which
this report is being prepared;
b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an Annual Report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
/s/ Robert Anderson
Robert Anderson
Chief Financial Officer
Date: November 10, 2022
Exhibit 32.1
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
as Adopted Pursuant to Section 906 of the Sarbanes -Oxley Act of 2002
In connection with the Quarterly Report of USCB Financial Holdings, Inc. (the “Company”) on Form 10-Q for the quarter
ended September 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Luis
de la Aguilera, as President and Chief Executive Officer of the Company, certify, to the best of my knowledge, pursuant to
18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities
Exchange Act of 1934; and
2) The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
/s/ Luis de la Aguilera
Luis de la Aguilera
President and Chief Executive Officer
Date: November 10, 2022
Exhibit 32.2
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
as Adopted Pursuant to Section 906 of the Sarbanes -Oxley Act of 2002
In connection with the Quarterly Report of USCB Financial Holdings, Inc. (the “Company”) on Form 10-Q for the quarter
ended September 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I,
Robert Anderson, as Chief Financial Officer of the Company, certify, to the best of my knowledge, pursuant to 18 U.S.C.
§1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities
Exchange Act of 1934; and
2) The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
/s/ Robert Anderson
Robert Anderson
Chief Financial Officer
Date: November 10, 2022