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UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-K/A

(Amendment No. 1)

☒

ANNUAL REPORT PURSUANT TO SECTION 13 OR

 

15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended

December 31, 2022

OR

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

 

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____to_____

Commission File Number:

001-41196

USCB Financial Holdings, Inc.

(Exact name of registrant as specified in its

 

charter)

 

Florida

87-4070846

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

2301 NW 87th Avenue

,

Doral

,

FL

33172

(Address of principal executive offices) (zip

 

code)

Registrant’s telephone number, including area code:

 

(

305

)

715-5200

Securities registered pursuant to Section 12(b)

 

of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A Common Stock, $1.00 par value per

share

USCB

The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g)

 

of the Act:

 

None

Indicate by check mark if the registrant is a well-known

 

seasoned issuer, as defined in Rule 405 of the Securities Act.

☐

 

Yes

 

No

☒

Indicate by check mark if the registrant is not required

 

to file reports pursuant to Section 13 or Section

 

15(d) of the Act.

 

Yes

☐

 

No

☒

Indicate by check mark

 

whether the registrant (1) has

 

filed all reports

 

required to be filed

 

by Section 13 or

 

15(d) of the Securities

 

Exchange Act of

1934 during the

 

preceding 12 months (or

 

for such shorter

 

period that the

 

registrant was required to

 

file such reports),

 

and (2) has

 

been subject to

such filing requirements for the past 90 days.

 

Yes

☒

 

No

☐

Indicate by check mark whether the registrant has

 

submitted electronically every Interactive Data File required

 

to be submitted pursuant to Rule 405

of Regulation S-T

 

(§232.405 of this chapter)

 

during the preceding

 

12 months (or for

 

such shorter period

 

that the registrant

 

was required to submit

such files).

 

Yes

☒

 

No

☐

Indicate by check mark whether

 

the registrant is a large

 

accelerated filer, an accelerated filer, a non-accelerated

 

filer, a smaller reporting company or

an emerging growth company. See the definitions of “large

 

accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company,”

and “emerging growth company” in Rule 12b-2 of

 

the Exchange Act.

Large accelerated filer

☐

 

Accelerated filer

☐

 

Non-accelerated filer

☒

 

Smaller reporting company

☒

 

Emerging growth company

☒

If an emerging growth company, indicate by check mark if the registrant

 

has elected not to use the extended

 

transition period for complying with any

new or revised financial accounting standards provided

 

pursuant to Section 13(a) of the Exchange

 

Act.

☐

Indicate by check mark

 

whether the registrant has

 

filed a report on

 

and attestation to its

 

management’s assessment of the

 

effectiveness of its internal

control over

 

financial reporting

 

under Section

 

404(b) of

 

the Sarbanes-Oxley

 

Act (15

 

U.S.C.7262(b)) by

 

the registered

 

public accounting

 

firm that

prepared or issued its audit report.

 

☐

 

If securities are registered pursuant to Section 12(b) of the Act, indicate

 

by check mark whether the financial statements of the registrant included in

the filing reflect the correction of an error to previously

 

issued financial statements.

 

☐

 

Indicate by check mark whether any of those

 

error corrections are restatements that required a recovery analysis of incentive-based compensation

received by any of the registrant’s executive officers during

 

the relevant recovery period pursuant to §240.10D-1(b).

☐

Indicate by check mark whether the registrant is a

 

shell company (as defined in Rule 12b-2 of the

 

Securities Exchange Act of 1934). Yes

☐

 

No

☒

The aggregate market value of the voting stock

 

held by non-affiliates of the registrant based on the

 

closing price of $11.54 per share on June 30,

2022, the last business day of the registrant’s second quarter, was approximately

 

$

125.4

 

million (20,000,753 shares issued and outstanding

 

at

such date less shares held by affiliates). Although directors

 

and executive officers and their affiliates of the Registrant were

 

assumed to be

“affiliates” of the Registrant for purposes of the calculation,

 

the classification is not to be interpreted as an admission

 

of such status.

As of March 15, 2023, the registrant had had

19,622,380

 

shares of Class A Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the registrant’s Proxy Statement for the 2023 Annual Meeting of Shareholders (the “2023

 

Proxy Statement”) are incorporated by

reference into Part III of this report.

 

EXPLANATORY NOTE

This Amendment No. 1 (“Amendment No. 1”) to the Annual Report on Form 10-K of USCB Financial Holdings, Inc. (the “Company”, “we,” “our” or “us”) for

the fiscal year ended December 31, 2022, as filed with the Securities and Exchange Commission (“SEC”) on March 24, 2023 (the “2022 Annual Report”

or “Original Report”), is being filed (i) to correct an HTML conversion error in the stock performance graph included in Item 5 of Part II and (ii) to delete the

logo of the independent registered public accounting firm that was inadvertently included on more pages than the audit report in the consolidated financial

statements included in Item 8 of Part II (none of the financial data contained in the consolidated financial statements and the notes thereto set forth in Item

8 was revised or modified in any way).

In accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended, Item 5 and Item 8 of Part II of the 2022 Annual Report are

hereby amended and restated in their entirety. In addition, pursuant to Rule 12b-15, the Company is including Item 15 of Part IV with this Amendment No.

1, solely to file the certifications required under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002.

This Amendment No. 1 does not affect any other portion of the 2022 Annual Report. Additionally, except as specifically referenced herein, this Amendment

No. 1 does not reflect any event after March 24, 2023, the filing date of the 2022 Annual Report or modify disclosures affected by subsequent events.

Terms used herein but not otherwise defined in Amendment No. 1 have such meaning ascribed to them in the Original Report.

 

FORM 10-K/A

DECEMBER 31, 2022

TABLE OF CONTENTS

PART II

4

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

4

Item 8.

Financial Statements and Supplementary Data

6

Consolidated Balance Sheets

8

Consolidated Statements of Operations

9

Consolidated Statements of Comprehensive Income (Loss)

10

Consolidated Statements of Changes in Stockholders’ Equity

11

Consolidated Statements of Cash Flows

12

Notes to the Consolidated Financial Statements

14

PART IV

50

Item 15.

Exhibit and Financial Statement Schedules

50

Exhibit Index

51

Signatures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

 

PART II

 

Item 5.

 

Market

 

for

 

Registrant’s

 

Common

 

Equity,

 

Related

 

Stockholder

 

Matters

 

and

 

Issuer

 

Purchases

 

of

 

Equity

Securities

Market Information

In July

 

2021, the Bank’s

 

Class A common

 

stock began trading

 

on the

 

Nasdaq Stock Market

 

under ticker

 

symbol “USCB”.

The listing of our Class

 

A common stock on

 

the Nasdaq Stock Market

 

has resulted in a

 

more active trading market

 

for our

Class

 

A

 

common

 

stock.

 

However,

 

we

 

cannot

 

assure

 

that

 

a

 

liquid

 

trading

 

market

 

for

 

our

 

Class

 

A

 

common

 

stock

 

will

 

be

sustained.

 

Effective December 30, 2021, the bank holding company,

 

or the Company, acquired all issued and

 

outstanding shares

of Class

 

A common

 

stock of

 

the Bank.

 

Each of

 

the outstanding

 

shares of

 

the Bank’s

 

common stock

 

formerly held

 

by its

shareholders was converted

 

into and exchanged

 

for one newly

 

issued share

 

of the Company’s

 

common stock.

 

The ticker

symbol “USCB” remained the same.

Prior

 

to

 

our

 

listing

 

on

 

the

 

Nasdaq

 

Stock

 

Market

 

there

 

was

 

not

 

an

 

established

 

public

 

trading

 

market

 

for

 

the

 

Class

 

A

common shares. The

 

following table shows

 

the quarterly high and

 

low closing prices

 

of our Class A

 

common stock traded

on the Nasdaq Stock Market since going public on July

 

23, 2021:

Stock Price

High

Low

Quarter Ended:

September 30, 2021

$

13.91

$

10.57

December 31, 2021

$

15.89

$

12.30

March 31, 2022

$

15.49

$

13.30

June 30, 2022

$

14.84

$

11.21

September 30, 2022

$

14.74

$

11.08

December 31, 2022

$

14.30

$

12.16

As of

 

December 31, 2022,

 

our Class

 

B common

 

stock is

 

not listed

 

or traded

 

on any

 

stock exchange

 

and no

 

shares were

issued and outstanding at such date.

Holders

As

 

of

 

January

 

31,

 

2023,

 

the

 

Company’s

 

Class

 

A

 

common

 

shares

 

were

 

held

 

by

 

approximately

 

300

 

shareholders

 

of

record, not

 

including the

 

number of

 

persons or

 

entities whose

 

stock is

 

held in

 

nominee or

 

“street” name

 

through

 

various

brokerage firms and banks.

Dividends

As a bank holding company, the Company’s ability to declare and pay dividends depends on various federal regulatory

considerations, including the guidelines of the Federal Reserve

 

regarding capital adequacy and dividends.

Because we are

 

a bank holding

 

company and currently do

 

not engage directly in

 

business activities of a

 

material nature,

our ability to pay dividends

 

to our shareholders depends,

 

in large part, upon

 

our receipt of dividends

 

from the Bank, which

is also subject to

 

numerous limitations on

 

the payment of dividends

 

under federal and state

 

banking laws, regulations

 

and

policies.

The principal

 

source of

 

revenue with

 

which to

 

pay dividends

 

on common

 

shares are

 

dividends the

 

Bank may

 

declare

and

 

pay

 

out

 

of

 

funds

 

legally

 

available

 

for

 

payment

 

of

 

dividends.

 

As

 

a

 

Florida

 

corporation,

 

we

 

are

 

only

 

permitted

 

to

 

pay

dividends to shareholders if, after giving effect to the dividend, (i) the Company is able to pay its debts as they become due

in the ordinary course

 

of business and

 

(ii) the Company’s

 

assets exceeds the

 

sum of Company’s

 

(a) liabilities plus

 

(b) the

amount that

 

would be

 

needed for

 

the Company

 

to satisfy

 

the preferential

 

rights

 

upon dissolution

 

of shareholders

 

whose

preferential rights are superior to those receiving the dividend,

 

if any.

Securities Authorized for Issuance Under Equity Compensation

 

Plans

See Note

 

9 ”Equity

 

Based and

 

Other Compensation

 

Plans” to

 

the Consolidated

 

Financial Statements

 

included in this

Annual Report Form on 10-K for additional information

 

required.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

 

Stock Price Performance

The graph below compares the

 

cumulative total return

 

to stockholders of our Class

 

A common stock between July

 

23,

2021 (the

 

date the

 

Bank’s

 

Class A

 

common stock

 

commenced

 

trading on

 

the Nasdaq

 

Stock Market)

 

and December

 

31,

2022, with the cumulative total return

 

of (a) the Nasdaq Bank Index

 

(b) the NASDAQ ABA Community Bank

 

Index, and (c)

the Nasdaq

 

Composite Index

 

over the same

 

period. This

 

graph assumes

 

the investment

 

of $100

 

in our Class

 

A common

stock at the closing sale price of $10.82 per share on

 

July

 

23, 2021, and assumes the reinvestment of dividends,

 

if any.

 

The comparisons shown

 

in the graph

 

below are based

 

upon historical data.

 

We caution that

 

the stock price

 

performance

shown in the graph below is not indicative of, nor is it intended to forecast, the potential future performance

 

of our common

stock.

07/23/2021

12/31/2021

12/31/2022

USCB Financial Holdings, Inc. (USCB)

$

100

$

140

$

122

NASDAQ Bank (BANK)

$

100

$

115

$

94

NASDAQ ABA Community Bank (QABA)

$

100

$

114

$

101

NASDAQ Composite (IXIC)

$

100

$

107

$

71

Recent Sales of Unregistered Securities

None.

Purchases of Equity Securities by Issuer and Other

 

Affiliates

 

On January

 

24, 2022,

 

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 through open

 

market repurchases, privately negotiated

 

transactions, or otherwise in

 

compliance with

Rule

 

10b-18

 

under

 

the

 

Exchange

 

Act.

 

As

 

of

 

December 31,

 

2022,

 

neither

 

the

 

Company

 

nor

 

any

 

of

 

its

 

affiliates

 

had

repurchased any Class A common shares of the Company.

 

6

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

 

Item 8.

 

Financial Statements and Supplementary Data

 

INDEX TO CONSOLIDATED

 

FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

 

(

Crowe LLP

, PCAOB ID:

173

)

7

Consolidated Balance Sheets

8

Consolidated Statements of Operations

9

Consolidated Statements of Comprehensive Income (Loss)

10

Consolidated Statements of Changes in Stockholders’ Equity

11

Consolidated Statements of Cash Flows

12

Notes to the Consolidated Financial Statements

14

 

 

7

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

 

REPORT OF INDEPENDENT REGISTERED

 

PUBLIC ACCOUNTING FIRM

 

Stockholders and the Board of Directors of

USCB Financial Holdings, Inc.

Doral, Florida

Opinion on the Financial Statements

We

 

have

 

audited

 

the

 

accompanying

 

consolidated

 

balance sheets

 

of USCB

 

Financial

 

Holdings,

 

Inc.

 

(the

"Company")

 

as

 

of

 

December

 

31,

 

2022

 

and

 

2021,

 

the

 

related

 

consolidated

 

statements

 

of

 

operations,

comprehensive income

 

(loss),

 

changes in

 

stockholders’ equity,

 

and cash

 

flows for

 

the years

 

then ended,

and the

 

related

 

notes

 

(collectively

 

referred

 

to as

 

the

 

"financial statements").

 

In

 

our opinion,

 

the

 

financial

statements present fairly, in all material respects, the

 

financial position of the Company as

 

of December 31,

2022 and 2021,

 

and the results of its operations

 

and its cash flows for the years

 

then ended, in conformity

with accounting principles generally accepted in the United

 

States of America.

Basis for Opinion

These financial

 

statements are

 

the responsibility

 

of the

 

Company's management.

 

Our responsibility

 

is to

express an opinion

 

on the Company's financial

 

statements based on our

 

audits. We are a

 

public accounting

firm registered

 

with the

 

Public Company

 

Accounting Oversight

 

Board (United

 

States) ("PCAOB")

 

and are

required to be

 

independent with respect to

 

the Company in accordance

 

with the U.S.

 

federal securities laws

and the applicable rules and regulations of the Securities

 

and Exchange Commission and the PCAOB.

 

We conducted

 

our audits

 

in accordance

 

with the

 

standards of

 

the PCAOB.

 

Those standards

 

require that

we plan and perform the

 

audit to obtain reasonable

 

assurance about whether the

 

financial statements are

free of material misstatement, whether due to error or fra

 

ud.

 

Our

 

audits

 

included

 

performing

 

procedures

 

to

 

assess

 

the

 

risks

 

of

 

material

 

misstatement

 

of

 

the

 

financial

statements, whether

 

due to

 

error or

 

fraud, and

 

performing procedures

 

that respond

 

to those

 

risks.

 

Such

procedures

 

included examining,

 

on a

 

test basis,

 

evidence

 

regarding the

 

amounts

 

and disclosures

 

in the

financial

 

statements.

 

Our

 

audits

 

also

 

included

 

evaluating

 

the

 

accounting

 

principles

 

used

 

and

 

significant

estimates made by management, as well as evaluating the

 

overall presentation of the financial statements.

We believe that our audits provide a reasonable

 

basis for our opinion.

 

/s/ Crowe LLP

 

Crowe LLP

We have served as the Company's auditor since

 

2017.

Fort Lauderdale, Florida

March 24, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table of Contents

 

 

8

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

USCB FINANCIAL HOLDINGS, INC.

Consolidated Balance Sheets

(Dollars in thousands,

 

except share and per share data)

 

December 31,

 

2022

2021

ASSETS:

Cash and due from banks

$

6,605

$

6,477

Interest-bearing deposits in banks

47,563

39,751

Total cash and cash equivalents

54,168

46,228

Investment securities held to maturity (fair value $

169,088

 

and $

120,157

, respectively)

188,699

122,658

Investment securities available for sale, at fair value

230,140

401,542

Federal Home Loan Bank stock, at cost

2,882

2,100

Loans held for investment, net of allowance of

 

$

17,487

 

and $

15,057

, respectively

1,489,851

1,175,024

Accrued interest receivable

7,546

5,975

Premises and equipment, net

5,263

5,278

Bank owned life insurance

42,781

41,720

Deferred tax asset, net

42,360

34,929

Lease right-of-use asset

14,395

14,185

Other assets

7,749

4,300

Total assets

$

2,085,834

$

1,853,939

LIABILITIES:

Deposits:

Demand

$

629,776

$

$605,425

Money market and savings accounts

915,853

703,856

Interest-bearing checking accounts

66,675

55,878

Time deposits

216,977

225,220

Total deposits

1,829,281

1,590,379

Federal Home Loan Bank advances

46,000

36,000

Lease liability

14,395

14,185

Accrued interest and other liabilities

13,730

9,478

Total liabilities

1,903,406

1,650,042

Commitments and contingencies (See Note 10

 

and 18)

(nil)

 

(nil)

 

STOCKHOLDERS' EQUITY:

Preferred stock - Class C; $

1.00

 

par value; $

1,000

 

per share liquidation preference;

52,748

 

shares

authorized;

0

 

issued and outstanding as of December 31,

 

2022 and 2021

-

-

Preferred stock - Class D; $

1.00

 

par value; $

5.00

 

per share liquidation preference;

12,309,480

 

shares

authorized;

0

 

issued and outstanding as of December 31,

 

2022 and 2021

-

-

Preferred stock - Class E; $

1.00

 

par value; $

1,000

 

per share liquidation preference;

3,185,024

 

shares

authorized;

0

 

issued and outstanding as of December 31,

 

2022 and 2021

-

-

Common stock - Class A Voting; $

1.00

 

par value;

45,000,000

 

shares authorized;

 

20,000,753

 

and

19,991,753

 

issued and outstanding as of December 31,

 

2022 and 2021

20,001

19,992

Common stock - Class B Non-voting; $

1.00

 

par value;

8,000,000

 

shares authorized;

 

0

 

issued and

outstanding as of December 31, 2022 and 2021

-

-

Additional paid-in capital on common stock

311,282

310,666

Accumulated deficit

(104,104)

(124,245)

Accumulated other comprehensive income (loss)

(44,751)

(2,516)

Total stockholders' equity

182,428

203,897

Total liabilities and stockholders' equity

$

2,085,834

$

1,853,939

The accompanying notes are an integral part of

 

these consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table of Contents

 

 

9

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

USCB FINANCIAL HOLDINGS, INC.

Consolidated Statements of Operations

(Dollars in thousands,

 

except per share data)

 

Years Ended December 31,

 

2022

2021

Interest income:

 

Loans, including fees

$

60,825

$

48,730

 

Investment securities

9,346

7,886

 

Interest-bearing deposits in financial institutions

929

106

 

Total interest income

71,100

56,722

Interest expense:

 

Interest-bearing deposits

86

59

 

Savings and money markets accounts

5,173

2,082

 

Time deposits

1,509

1,531

 

Federal Home Loan Bank advances

671

554

 

Total interest expense

7,439

4,226

 

Net interest income before provision for

 

credit losses

63,661

52,496

Provision for credit losses

2,495

(160)

 

Net interest income after provision for

 

credit losses

61,166

52,656

Non-interest income:

 

Service fees

4,010

3,609

 

Bank owned life insurance income

1,061

759

 

Gain (loss) on sale of securities available for sale,

 

net

(2,529)

214

 

Gain on sale of loans held for sale, net

891

1,626

 

Gain on sale of premises and equipment,

 

net

-

983

 

Loan settlement

161

2,500

 

Other non-interest income

1,634

1,007

 

Total non-interest income

5,228

10,698

Non-interest expense:

 

Salaries and employee benefits

23,943

21,438

 

Occupancy

5,058

5,257

 

Regulatory assessment and fees

930

783

 

Consulting and legal fees

1,890

1,454

 

Network and information technology services

1,806

1,466

 

Audit and tax services fees

918

975

 

Other operating

4,764

4,304

 

Total non-interest expense

39,309

35,677

 

Net income before income tax expense

27,085

27,677

Income tax expense

6,944

6,600

 

Net income

20,141

21,077

Less: Preferred stock dividend

-

2,077

Less: Exchange and redemption of preferred shares

-

89,585

Net income (loss) available to common stockholders

$

20,141

$

(70,585)

Per share information:

Class A common stock

Net income (loss) per share, basic

$

1.01

$

(6.72)

Net income (loss) per share, diluted

$

1.00

$

(6.72)

(1)

 

See Note 14 "Earnings per Share" for information

 

on the allocation of income available to common

 

stockholders.

The accompanying notes are an integral part of

 

these consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table of Contents

 

 

10

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

USCB FINANCIAL HOLDINGS, INC.

Consolidated Statements of Comprehensive Income

 

(Loss)

(Dollars in thousands)

 

Years Ended December 31,

2022

2021

Net income

$

20,141

$

21,077

Other comprehensive income (loss):

Unrealized loss on investment securities

(59,260)

(9,561)

Amortization of net unrealized gains on securities

 

transferred from available-for-sale to held-to-maturity

120

108

Reclassification adjustment for (gain) loss included

 

in net income

2,529

(214)

Tax effect

14,376

2,370

Total other comprehensive loss, net of tax

(42,235)

(7,297)

Total comprehensive income (loss)

$

(22,094)

$

13,780

The accompanying notes are an integral part of

 

these consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table of Contents

 

 

11

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

USCB FINANCIAL HOLDINGS,

 

INC.

Consolidated Statements of Changes in Stockholders’

 

Equity

(Dollars in thousands,

 

except per share data)

 

Preferred Stock

Common Stock

Additional Paid-

in Capital on

Common Stock

Accumulated

Deficit

Accumulated

Other

Comprehensive

Income (Loss)

Shares

Par Value

Shares

Par Value

Total

Stockholders'

Equity

Balance at January 1, 2022

-

$

-

19,991,753

$

19,992

$

310,666

$

(124,245)

$

(2,516)

$

203,897

Net income

-

-

-

-

-

20,141

-

20,141

Other comprehensive loss

-

-

-

-

-

-

(42,235)

(42,235)

Issuance of common stock - exercised options

-

-

9,000

9

93

-

-

102

Stock based compensation

-

-

-

-

523

-

-

523

Balance at December 31, 2022

-

-

20,000,753

20,001

311,282

(104,104)

(44,751)

182,428

Balance at January 1, 2021

12,350,879

$

32,077

10,010,521

$

10,010

$

177,755

$

(53,622)

$

4,781

$

171,001

Net income

-

-

-

-

-

21,077

-

21,077

Other comprehensive loss

-

-

-

-

-

-

(7,297)

(7,297)

Dividends - preferred stock

-

-

-

-

-

(2,077)

-

(2,077)

Issuance of Class A common stock, net of

offering costs of $

6,048

-

-

4,600,000

4,600

35,226

-

-

39,826

Exchange of preferred stock

(11,109,025)

(22,154)

10,278,072

10,279

92,501

(80,626)

-

-

Redemption of preferred stock

(1,241,854)

(9,923)

-

-

-

(8,997)

-

(18,920)

Exchange of Class B to Class A common stock

-

-

(4,896,840)

(4,897)

4,897

-

-

-

Stock based compensation

-

-

-

-

287

-

-

287

Balance at December 31, 2021

-

$

-

19,991,753

$

19,992

$

310,666

$

(124,245)

$

(2,516)

$

203,897

The accompanying notes are an integral part of

 

these consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table of Contents

 

 

12

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

USCB FINANCIAL HOLDINGS, INC.

Consolidated Statements of Cash Flows

(Dollars in thousands)

Years Ended December 31,

2022

2021

Cash flows from operating activities:

Net income

 

$

20,141

$

21,077

Adjustments to reconcile net income to net

 

cash provided by operating activities:

 

Provision for credit losses

 

2,495

(160)

Depreciation and amortization

688

1,033

Amortization of premiums on securities, net

433

596

Accretion of deferred loan fees, net

(1,497)

(3,754)

Stock based compensation

523

287

Loss (Gain) on sale of available for sale securities,

 

net

2,529

(214)

Gain on sale of loans held for sale

(891)

(1,626)

Gain on sale of premises and equipment, net

-

(983)

Increase in cash surrender value of bank owned life insurance

(1,061)

(759)

Decrease in deferred tax asset

6,945

6,600

Net change in operating assets and liabilities:

 

Accrued interest receivable

(1,571)

(428)

Other assets

(3,449)

(2,270)

Accrued interest and other liabilities

4,252

2,652

Net cash provided by operating activities

29,537

22,051

Cash flows from investing activities:

Purchase of investment securities held to maturity

(14,739)

(57,917)

Proceeds from maturities and pay-downs of investment

 

securities held to maturity

12,237

3,736

Purchase of investment securities available for

 

sale

 

(53,113)

(258,767)

Proceeds from maturities and pay-downs of investment

 

securities available for sale

40,754

61,047

Proceeds from sales of investment securities available

 

for sale

60,649

48,940

Proceeds from call of investment securities available

 

for sale

-

3,034

Net increase in loans held for investment

(257,580)

(33,515)

Purchase of loans held for investment

(70,175)

(129,531)

Additions to premises and equipment

(673)

(633)

Proceeds from the sale of loans held for

 

sale

12,821

16,980

Proceeds from the sale of property

-

1,652

Proceeds from the redemption of Federal Home

 

Loan Bank stock

3,440

611

Purchase of Federal Home Loan Bank stock

(4,222)

-

Purchase of bank owned life insurance

-

(15,000)

Net cash used in investment activities

(270,601)

(359,363)

(Continued)

The accompanying notes are an integral part of

 

these consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table of Contents

 

 

13

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

USCB FINANCIAL HOLDINGS, INC.

Consolidated Statements of Cash Flows (Continued)

(Dollars in thousands)

Years Ended December 31,

2022

2021

Cash flows from financing activities:

Proceeds from issuance of Class A common stock, net

102

39,826

Cash 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

238,902

316,977

Proceeds from Federal Home Loan Bank advances

126,000

-

Repayments on Federal Home Loan Bank advances

(116,000)

-

Net cash provided by financing activities

249,004

335,806

Net increase (decrease) in cash and cash equivalents

7,940

(1,506)

Cash and cash equivalents at beginning of year

46,228

47,734

Cash and cash equivalents at end of year

$

54,168

$

46,228

Supplemental disclosure of cash flow information:

Interest paid

$

7,306

$

4,286

Supplemental schedule of non-cash investing and

 

financing activities:

Transfer of loans held for investment to loans held for

 

sale

$

11,930

$

15,354

Transfer of investment securities from available-for-sale to held-to-maturity

$

63,798

$

68,667

Transfer of premises and equipment to assets held for

 

sale

$

-

$

652

Lease liability arising from obtaining right-of-use assets

$

3,203

$

328

Exchange of Preferred C for Class A common

 

stock

$

-

$

47,473

Exchange of Preferred D for Class A common

 

stock

$

-

$

55,308

Exchange of Class B common stock for Class

 

A common stock

$

-

$

4,897

The accompanying notes are an integral part of

 

these consolidated financial statements.

 

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements

 

14

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

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.

In December 2021, USCB Financial

 

Holdings, Inc. acquired all issued

 

and outstanding shares of the Class

 

A common

stock of the Bank. Each of the outstanding shares of

 

the Bank’s common stock, par value $

1.00

 

per share, formerly held by

its shareholders were

 

converted into and exchanged

 

for one newly

 

issued share of

 

the Company’s common stock, par

 

value

$

1.00

 

per share.

The Bank

 

owns a

 

subsidiary,

 

Florida Peninsula

 

Title LLC,

 

that offers

 

our clients

 

title insurance

 

policies for

 

real estate

transactions closed at the Bank. Licensed in the State of Florida and approved by the Department of Insurance Regulation,

Florida Peninsula tittle LLC began operations in 2021.

 

Principles of Consolidation

Intercompany transactions

 

and balances

 

are eliminated

 

in consolidation.

 

The Consolidated

 

financial statements

 

have

been prepared in accordance with U.S. Generally Accepted

 

Accounting Principles ("GAAP").

Initial Public Offering and Exchange and Redemption

 

of Shares

On July 27, 2021,

 

the Company completed

 

an initial public

 

offering (the “IPO”)

 

and its Class

 

A voting common

 

shares

began trading

 

on the

 

Nasdaq Stock

 

Market under

 

ticker symbol

 

“USCB”. Following

 

the IPO,

 

the Company

 

completed an

exchange

 

of

 

then

 

outstanding

 

preferred

 

shares

 

for

 

Class

 

A

 

common

 

shares

 

and

 

thereafter

 

redeemed

 

the

 

remaining

outstanding preferred shares.

 

In December 2021,

 

the Company reached

 

agreements with the

 

Class B common

 

shareholders to receive

 

Class A voting

common

 

stock

 

in

 

exchange

 

for

 

all

 

outstanding

 

Class

 

B

 

non-voting

 

common

 

stock

 

in

 

a

1 for 5

 

stock

 

exchange.

 

As

 

of

December 31,

 

2022,

 

there

 

were

 

no

 

issued

 

and

 

outstanding

 

preferred

 

shares

 

or

 

Class

 

B

 

common

 

shares.

 

See

 

Note

 

13

“Stockholders’ Equity” for further information about the IPO

 

and the exchange and redemption of shares.

 

Risk and Uncertainties

Current Banking Environment

Industry

 

events

 

transpiring

 

prior

 

to

 

the

 

Company’s

 

filing

 

date,

 

including

 

bank

 

failures,

 

have

 

led

 

to

 

uncertainty

 

and

concerns regarding

 

the liquidity

 

positions of

 

the banking

 

sector.

 

These failures

 

underscore the

 

importance of

 

maintaining

access to diverse sources of

 

funding. The Company’s

 

deposit base includes a combination

 

of consumer, commercial,

 

and

public

 

funds

 

deposits.

 

The

 

Company’s

 

largest

 

depositors

 

include

 

a

 

mixture

 

of

 

government-related

 

organizations

 

and

commercial clients without a high level of industry concentration.

In response to

 

these events,

 

the Treasury

 

Department, Federal

 

Reserve, and FDIC

 

jointly announced the

 

Bank Term

Funding

 

Program

 

(BTFP)

 

on

 

March

 

12,

 

2023.

 

This

 

program

 

aims

 

to

 

enhance

 

liquidity

 

by

 

allowing

 

institutions

 

to

 

pledge

certain securities at the

 

par value of the securities,

 

and at a borrowing

 

rate of ten basis

 

points over the one-year

 

overnight

index swap

 

rate. The

 

BTFP is

 

available to

 

eligible

 

U.S. federally

 

insured

 

depository

 

institutions,

 

with

 

advances

 

having a

term of

 

up to

 

one year

 

and no

 

prepayment penalties.

 

As of

 

the date

 

of the

 

release of

 

the Audited

 

Consolidated Financial

Statements, the Company has not accessed the BTFP.

Market conditions and external factors may unpredictably impact the competitive landscape for deposits

 

in the banking

industry.

 

Additionally,

 

the rising interest rate environment

 

has increased competition for

 

liquidity and the premium at

 

which

liquidity is available

 

to meet

 

funding needs.

 

The Company

 

believes its

 

sources of

 

liquidity are sufficient

 

to meet

 

its needs

on the balance sheet date.

An unexpected influx

 

of withdrawals of

 

deposits could adversely

 

impact the Company's

 

ability to

 

rely on organic

 

deposits

to primarily

 

fund its

 

operations, potentially

 

requiring greater

 

reliance on

 

secondary sources

 

of liquidity

 

to meet

 

withdrawal

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements

 

15

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

demands or to fund continuing operations. These sources may include proceeds from FHLB advances, sales of

 

investment

securities and loans, federal funds lines of credit from correspondent

 

banks, and out-of-market time deposits.

 

Such reliance on secondary funding sources could increase the Company's

 

overall cost of funding and thereby reduce

net

 

income.

 

While

 

the

 

Company

 

believes

 

its

 

current

 

sources

 

of

 

liquidity

 

are

 

adequate

 

to

 

fund

 

operations,

 

there

 

is

 

no

guarantee they

 

will suffice

 

to meet

 

future

 

liquidity

 

demands.

 

This

 

may necessitate

 

slowing

 

or discontinuing

 

loan growth,

capital expenditures, or other investments, or liquidating assets.

For further discussion of the Company's liquidity practices,

 

see page 59 and 62 of this Annual Report on Form 10-K.

Use of Estimates

In preparing the consolidated financial statements, management is required

 

to make estimates and assumptions based

on available information that affect the amounts reported

 

in the financial statements and the disclosures provided.

The coronavirus (“COVID-19”)

 

pandemic has negatively

 

affected many of

 

the Company’s

 

clients and could

 

still impair

their ability to fulfill

 

their financial obligations.

 

The Company’s business

 

is dependent upon the

 

willingness and ability

 

of its

associates and customers to conduct banking and other financial transactions.

 

While we believe conditions have improved

as of December 31, 2022, if there is a resurgence in the virus, the Company could experience further adverse effects on its

business,

 

financial

 

condition,

 

results

 

of operations

 

and

 

cash

 

flows.

 

While

 

it

 

is not

 

possible

 

to know

 

the

 

full

 

extent

 

of

 

the

impact the

 

COVID-19

 

pandemic will

 

have on

 

the

 

Company's

 

future operations,

 

the Company

 

continues

 

to

 

communicate

with its associates and customers

 

to understand their challenges, which

 

allows us to respond to their

 

needs and issues as

they arise.

While there was

 

not a

 

material impact to

 

the Company’s Consolidated Financial

 

Statements as of

 

and for

 

the year ended

December 31, 2022,

 

future increases

 

in the

 

allowance for

 

credit losses

 

(“ACL”) may

 

be required

 

because of

 

the potential

economic

 

downturn

 

that

 

a

 

resurgence

 

in

 

the virus

 

may

 

cause

 

and those

 

ACL

 

increases

 

can be

 

material.

 

It

 

is difficult

 

to

quantify the

 

impact that

 

COVID-19 will

 

have on

 

the estimates

 

and assumptions

 

used to

 

prepare the

 

financial statements.

Actual results could differ from those estimates.

Cash and Cash Equivalents

The

 

Company

 

considers

 

investments

 

with

 

a

 

maturity

 

of

 

90

 

days

 

or

 

less

 

from

 

its

 

original

 

purchase

 

date

 

to

 

be

 

cash

equivalents. For

 

the Consolidated

 

Statements of

 

Cash Flows,

 

cash and cash

 

equivalents include

 

cash on hand,

 

amounts

due from banks, and interest-bearing deposits in banks.

Restricted Cash

The Company may

 

be required to

 

maintain funds at

 

other banks to

 

satisfy a loan

 

participation agreement. The Company

reports restricted cash within cash and cash equivalents.

 

Interest-Bearing Deposits in Other Financial Institutions

Interest-bearing deposits in other financial institutions consist

 

of Federal Reserve Bank, Federal Home Loan

 

Bank and

other accounts.

Investment Securities

Debt securities

 

are recorded

 

at fair

 

value except

 

for those

 

securities which

 

the Company

 

has the

 

positive intent

 

and

ability to hold to

 

maturity. Management determines the appropriate classification of its securities at

 

the time of purchase

 

and

accounts for them on a trade date basis.

 

Debt securities that

 

management has the

 

positive intent and

 

ability to hold

 

to maturity are

 

classified as "held-to-maturity"

and recorded at amortized cost. Trading securities are

 

recorded at fair value with

 

changes in fair value included

 

in earnings.

Securities not classified

 

as held-to-maturity or

 

trading are classified

 

as "available-for-sale"

 

and recorded at

 

fair value, with

unrealized gains and

 

losses excluded from

 

earnings and reported

 

in other comprehensive

 

income (loss). Equity

 

investments

must be recorded at fair value with changes in fair value

 

included in earnings.

 

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements

 

16

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

Purchase premiums and discounts are amortized or accreted over

 

the estimated life of the related available-for-sale or

held-to-maturity

 

security

 

as

 

an

 

adjustment

 

to

 

yield

 

using

 

the

 

effective

 

interest

 

method.

 

Prepayments

 

of

 

principal

 

are

considered in determining the estimated life of

 

the security. Such amortization and accretion are included in interest income

in the Consolidated

 

Statements of Operations.

 

Dividend and interest

 

income are recognized

 

when earned. Gains

 

and losses

on the sale of securities are recorded on trade date and are determined

 

on a specific identification basis.

Declines

 

in

 

the

 

fair

 

value

 

of

 

available-for-sale

 

debt

 

securities

 

below

 

their

 

cost

 

that

 

are

 

deemed

 

to

 

be

 

other-than-

temporary

 

are

 

reflected

 

in

 

earnings

 

as

 

realized

 

losses.

 

In

 

determining

 

whether

 

other-than-temporary

 

impairment

 

exists,

management considers several factors in their analysis including

 

(i) severity and duration of the

 

impairment, (ii) credit rating

of security including any downgrade, (iii) intent to sell the security, or if it is more likely than not that it will be required to sell

the

 

security

 

before

 

recovery,

 

(iv)

 

whether

 

there

 

have

 

been

 

any

 

payment

 

defaults

 

and

 

(v)

 

underlying

 

guarantor

 

of

 

the

securities.

Federal Home Loan Bank (FHLB) Stock

The Bank is a member of the FHLB system. Members are required to

 

own a certain amount of stock based on the level

of borrowings and

 

other factors and

 

may invest in

 

additional amounts. FHLB

 

stock is carried

 

at cost, classified

 

as a restricted

asset, and

 

periodically evaluated

 

for impairment

 

based on

 

ultimate recovery

 

of par

 

value. As

 

of December

 

31, 2022

 

and

2021,

 

FHLB

 

stock

 

amounted

 

to

 

$

2.9

 

million

 

and

 

$

2.1

 

million,

 

respectively,

 

with

 

no

 

impairment

 

deemed

 

necessary.

 

Both

cash and stock dividends are reported as interest income.

Loans Held for Investment and Allowance for Credit

 

Losses

Loans held for investment (“loans”) are reported at their outstanding principal

 

balance net of charge-offs, deferred loan

fees, unearned

 

income

 

and

 

the

 

ACL.

 

Interest

 

income

 

is generally

 

recognized

 

when

 

income

 

is earned

 

using

 

the

 

interest

method.

 

Loan

 

origination

 

and

 

commitment

 

fees

 

and

 

the

 

costs

 

associated

 

with

 

the

 

origination

 

of

 

loans

 

are

 

deferred

 

and

amortized, using the interest method or the straight-line

 

method, over the life of the related loan.

 

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. All interest

accrued but not

 

collected for

 

loans that are

 

placed on

 

nonaccrual status

 

is reversed

 

against interest

 

income. The interest

on these

 

loans is

 

accounted for

 

on the

 

cash-basis

 

or cost-recovery

 

method, under

 

which cash

 

collections are

 

applied to

unpaid principal, which may change as conditions dictate.

 

The Company has determined that the entire balance of

 

a loan is contractually delinquent for all

 

classes if the minimum

payment is not received by

 

the specified due date on

 

the borrower's statement. Interest and fees

 

continue to accrue on past

due loans until the date the loan goes into nonaccrual

 

status.

The Company provides for loan losses through a provision for credit losses charged to operations. When management

believes that a

 

loan or a portion

 

of the loan balance

 

is uncollectible, that

 

amount is charged

 

against the ACL.

 

Subsequent

recoveries, if any,

 

are credited to the ACL.

The ACL

 

reflects management's

 

judgment of

 

probable loan

 

losses inherent

 

in the

 

portfolio at

 

the balance

 

sheet date.

Management uses a disciplined

 

process and methodology

 

to establish the ACL

 

each quarter.

 

To

 

determine the total

 

ACL,

the Company

 

estimates the

 

reserves needed

 

for each

 

segment of

 

the portfolio,

 

including loans

 

analyzed individually

 

and

loans analyzed on a pooled basis. The ACL consists

 

of the amount applicable to the following segments:

•

 

Residential real estate

•

 

Commercial real estate

•

 

Commercial and industrial

•

 

Foreign banks

•

 

Other loans (secured and unsecured consumer loans)

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements

 

17

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

Residential

 

real

 

estate

 

loans

 

are

 

underwritten

 

following

 

the

 

policies

 

of

 

the

 

Company

 

which

 

includes

 

a

 

review

 

of

 

the

borrower’s credit, capacity

 

and the collateral

 

securing the loan.

 

The borrower’s ability

 

to repay involves

 

an analysis of

 

factors

including: current

 

income, employment

 

status, monthly

 

payment of loan,

 

current debt obligations,

 

monthly debt

 

to income

ratio and credit history. The Company relies on appraisals in determining the value of the property.

 

Risk is mitigated by this

analysis and the diversity of the residential portfolio.

Commercial real estate

 

loans are

 

secured by liens

 

on commercial properties,

 

land, construction and

 

multifamily housing.

Underwriting

 

of

 

commercial

 

loans

 

will

 

analyze

 

the

 

key

 

market

 

and

 

business

 

factors

 

to

 

arrive

 

at

 

a

 

decision

 

on

 

the

 

credit

worthiness of the borrower.

 

The analysis may include

 

the capacity of the borrower,

 

income generated by property

 

for debt

service, other

 

sources of

 

repayment, sensitivity

 

analysis to

 

fluctuations in

 

market conditions

 

including vacancy

 

and rental

rates in geographic location and loan to value. Land and construction analysis will include the time to develop, sell or lease

the property.

 

Appraisals

 

are used

 

to determine

 

the value

 

of the

 

underlying

 

collateral.

 

Risk

 

is mitigated

 

as the

 

properties

securing the commercial real estate loans are diverse in

 

type, location, and loan structure.

 

Commercial

 

and

 

industrial

 

loans

 

are

 

secured

 

by

 

the

 

business

 

assets

 

of

 

the

 

company

 

and

 

may

 

include

 

equipment,

inventory, and receivables.

 

The loans are underwritten based on the

 

income capacity of the business, the ability

 

to service

the debt based

 

on operating cash

 

flows, the credit

 

worthiness of

 

the borrower,

 

other sources

 

of repayment and

 

collateral.

The Company mitigates the risk in the commercial portfolio

 

through industry diversification.

 

Foreign Banks

 

loans are

 

short term

 

loans with

 

international correspondent

 

banking institutions

 

primarily

 

domiciled in

Latin America. Most of these loans are for trade capital and have a

 

life of less than one year. The

 

Company’s credit review

includes a credit analysis, peer comparison and current

 

country risk overview.

 

Annual re-evaluation of the risk rating of the

borrower and country and a review of authorized

 

signer within the Company.

 

The risk is mitigated as these loans are short

term, have limited exposure, and are geographically dispersed.

 

Other

 

loans

 

are

 

secured

 

and

 

unsecured

 

consumer

 

loans

 

including

 

personal

 

loans,

 

overdrafts

 

and

 

deposit

 

account

collateralized

 

loans.

 

Repayment

 

of

 

these

 

loans

 

are

 

primarily

 

from

 

the

 

personal

 

income

 

of

 

the

 

borrowers.

 

Loans

 

are

underwritten based on the credit worthiness of the borrower.

 

The risk on these loans is mitigated by small loan balances.

 

In

 

determining

 

the

 

balance

 

of

 

the

 

ACL,

 

loans

 

are

 

pooled

 

by

 

product

 

segments

 

with

 

similar

 

risk

 

characteristics

 

and

management evaluates

 

the ACL

 

on each

 

segment and

 

as a whole

 

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.

The ACL

 

consists of

 

general and

 

specific components.

 

The following

 

is how

 

management determines

 

the balance

 

of

the general component for the ACL account for each segment

 

of the loans as described above.

 

The loan segments are

 

primarily grouped by

 

collateral type with similar

 

risk characteristics and

 

a historical loss

 

rate is

determined based on a ten year look back period. The Company applies time

 

weights to consider various stages of a credit

cycle.

 

The

 

ACL

 

calculation

 

is

 

based

 

on

 

the

 

Company’s

 

own

 

net

 

loss

 

experience

 

adjusted

 

for

 

certain

 

qualitative

 

and

environmental factors. To

 

estimate the impact of

 

non-recurrent losses, management

 

has developed a statistical

 

study that

tracks historical non-recurring

 

losses at a

 

loan level. This

 

analysis is

 

used to estimate

 

an adjusted

 

loss rate for

 

each loan

pool. Management believes the

 

effect of these losses

 

results in a loss

 

rate that is more consistent

 

with the behavior of

 

the

loan portfolio in the normal course of business.

 

Qualitative

 

factors

 

are

 

applied

 

to

 

historical

 

loss

 

rates

 

based

 

on

 

management's

 

experience

 

and

 

assessment.

 

The

following are the factors used to adjust the historical loss

 

rates:

 

•

 

Loan quality review

•

 

Lending and credit management /staff expertise

 

and practices

•

 

Economic and business conditions

•

 

Lending and credit underwriting policies and procedures

•

 

Problem loan levels and trends

•

 

Collateral concentrations

•

 

Large obligor concentration

•

 

New loan volumes

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements

 

18

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

•

 

Combined loan to value (“CLTV”)

 

qualitative adjustment for substandard accrual loan segment

Changes in these factors could

 

result in material adjustments to the

 

ACL. The losses the Company may

 

ultimately incur

could differ materially from the amounts estimated

 

in arriving at the ACL.

In addition

 

to the

 

ACL, the

 

Company also

 

estimates probable

 

losses related

 

to financial

 

instruments with

 

off-balance

sheet risk, such as letters

 

of credit and unfunded loan

 

commitments, and records these estimates

 

in other liabilities on the

Consolidated

 

Balance

 

Sheets

 

with

 

the

 

offset

 

recorded

 

in

 

non-interest

 

expense

 

on

 

the

 

Consolidated

 

Statements

 

of

Operations.

 

Financial

 

instruments

 

with

 

off-balance

 

sheet

 

risk

 

are

 

subject

 

to

 

review

 

on

 

an

 

aggregate

 

basis.

 

Past

 

loss

experience and

 

any other

 

pertinent information is

 

reviewed, resulting in

 

the estimation of

 

the reserve

 

for financial

 

instruments

with off-balance sheet risk.

A loan is considered

 

impaired when, based

 

on current information

 

and events, it

 

is probable that

 

the Company will

 

be

unable to

 

collect the

 

scheduled payments

 

of principal

 

or interest

 

when due

 

according to

 

the contractual

 

terms of

 

the loan

agreement or when the loan

 

is designated as a Troubled

 

Debt Restructuring (“TDR”). Factors

 

considered by management

in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and

interest payments when due.

 

Loans that experience insignificant

 

payment delays and payment

 

shortfalls generally are not

classified as impaired. Impairment is measured on a loan by loan basis by either the present

 

value of expected future cash

flows discounted at the loan's effective

 

interest rate, the loan's obtainable

 

fair value, or the fair value of

 

the collateral, if the

loan

 

is

 

collateral

 

dependent.

 

If

 

management

 

determines

 

that

 

the

 

value

 

of

 

the

 

impaired

 

loan

 

is

 

less

 

than

 

the

 

recorded

investment in the loan (outstanding principal balance plus accrued interest, net of previous charge-offs, and net of deferred

loan fees or cost), impairment is recognized through an allowance

 

estimate or a charge-off to the ACL.

In

 

situations

 

where,

 

due

 

to

 

a

 

borrower's

 

financial

 

difficulties,

 

management

 

grants

 

a

 

concession

 

for

 

other

 

than

 

an

insignificant period of time to the borrower that would not

 

otherwise be granted, the loan is classified as a TDR.

 

On March 27,

 

2020, the Coronavirus Aid,

 

Relief, and Economic

 

Security Act (“CARES Act”)

 

was signed by

 

the President

of the United

 

States. The

 

CARES Act

 

has certain

 

provisions which

 

encourage financial

 

institutions to

 

prudently work

 

with

borrowers impacted

 

by COVID

 

-19. Under

 

these provisions,

 

modifications

 

deemed to

 

be COVID

 

-19 related

 

would not

 

be

considered a TDR if the loan was not more than 30 days past

 

due as of December 31, 2019. The deferral would need to be

executed March

 

1, 2020

 

and the

 

earlier of

 

60 days

 

after the

 

date of

 

termination

 

of the

 

COVID-19 national

 

emergency

 

or

December 31,

 

2020. Additional

 

legislation was

 

passed in

 

December

 

of 2020

 

that

 

extended

 

the TDR

 

relief to

 

January

 

1,

2022. Banking regulators issued similar guidance clarifying that a COVID-19

 

related modification should not be considered

a TDR if the borrower was current on payments at the time the

 

underlying loan modification program was implemented and

considered short-term. See Note 3 “Loans” for additional disclosures

 

of loans that were modified and not considered TDR.

 

In addition to the

 

allowance for the

 

pooled portfolios, management

 

has developed a

 

separate allowance for

 

loans that

are identified as

 

impaired through a

 

TDR. These loans

 

are excluded from

 

the general component

 

of the ACL,

 

and a separate

reserve is provided under the accounting guidance for loan

 

impairment. Residential loans whose terms have been modified

in a TDR are also individually analyzed for estimated impairment.

The Company's charge-off policy is to review all impaired loans

 

on a quarterly basis in order to monitor the Company's

ability to

 

collect

 

them

 

in

 

full

 

at maturity

 

date

 

and/or

 

in

 

accordance

 

with

 

terms

 

of

 

any restructurings.

 

For

 

loans

 

which are

collateral dependent,

 

or deemed to

 

be uncollectible,

 

any shortfall

 

in the fair

 

value of

 

the collateral

 

relative to

 

the recorded

investment in the loan is charged off.

 

Concentration of Credit Risks

Credit

 

risk

 

represents

 

the

 

accounting

 

loss

 

that

 

would

 

be

 

recognized

 

at

 

the

 

reporting

 

date

 

if

 

counterparties

 

failed

 

to

perform as contracted and any collateral or security proved to be insufficient

 

to cover the loss. Concentrations of credit risk

(whether on or off-balance sheet) arising from financial instruments exist in relation to certain groups

 

of customers. A group

concentration arises when

 

a number of

 

counterparties have

 

similar economic characteristics

 

that would cause

 

their ability

to meet contractual obligations to be similarly affected by changes in economic or other conditions. The Company does not

have a significant exposure to any individual customer

 

or counterparty.

Most of the Company's business activity is

 

with customers located within its primary market area, which

 

is generally the

State of Florida. The Company's loan portfolio is concentrated largely in real estate and commercial loans in South Florida.

Many of the Company's

 

loan customers are engaged

 

in real estate development.

 

Circumstances, which negatively

 

impact

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements

 

19

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

the South Florida real estate industry

 

or the South Florida economy, in general, could adversely impact

 

the Company's loan

portfolio.

At December 31,

 

2022 and

 

2021, the

 

Company had

 

a concentration

 

of risk

 

with loans

 

outstanding to

 

the Company’s

top ten lending relationships

 

totaling $

197.9

 

million and $

156.4

 

million, respectively.

 

At December 31, 2022 and

 

2021, this

concentration represented

13.1

%, of

 

the net

 

loans outstanding.

 

For the

 

period ended

 

December 31,

 

2022 there

 

was

one

commercial real estate loan note with an outstanding balance of $

20

 

million collateralized by a 1

st

 

lien commercial property

located in New York

 

State.

 

At December 31,

 

2022, the

 

Company also

 

had a

 

concentration of

 

risk with

 

loans outstanding

 

totaling $

88.8

 

million to

foreign banks located

 

in Ecuador,

 

Dominican Republic, Honduras,

 

and El Salvador.

 

At December 31, 2021,

 

the Company

also had a concentration of risk

 

with loans outstanding totaling $

47.9

 

million to foreign banks located in

 

Ecuador, Honduras,

and

 

El

 

Salvador.

 

These

 

banks

 

maintained

 

deposits

 

with

 

right

 

of

 

offset

 

totaling

 

$

31.4

 

million

 

and

 

$

28.9

 

million

 

at

December 31, 2022 and 2021, respectively.

At various times during

 

the year,

 

the Company has maintained

 

deposits with other

 

financial institutions. The exposure

to the Company from

 

these transactions is solely

 

dependent upon daily balances

 

and the financial strength

 

of the respective

institution.

Premises and Equipment, net

Land is

 

carried at

 

cost. Premises

 

and equipment

 

are stated

 

at cost

 

less accumulated

 

depreciation

 

and amortization.

Depreciation is computed

 

on the straight-line

 

method over the

 

estimated useful life

 

of the asset. Leasehold

 

improvements

are amortized over the

 

remaining term of the

 

applicable leases or their

 

useful lives, whichever

 

is shorter.

 

Estimated useful

lives of these assets were as follows:

Building

 

40

 

years

Furniture, fixtures and equipment

 

3

 

to

25

 

years

Computer hardware and software

 

3

 

to

5

 

years

Leasehold improvements

 

Shorter of life or term of lease

Maintenance

 

and

 

repairs

 

are

 

charged

 

to

 

expense

 

as

 

incurred

 

while

 

improvements

 

and

 

betterments

 

are

 

capitalized.

When items are retired or are

 

otherwise disposed of, the related costs

 

and accumulated depreciation and amortization

 

are

removed from the accounts and any resulting gains or losses

 

are credited or charged to income.

Other Real Estate Owned

Other real estate

 

owned (“OREO”)

 

consists of real

 

estate property

 

acquired through,

 

or in lieu

 

of, foreclosure

 

that are

held for sale and are initially recorded at

 

the fair value of the property less estimated selling

 

costs at the date of foreclosure,

establishing a

 

new cost

 

basis. Subsequent

 

to foreclosure,

 

valuations are

 

periodically performed

 

by management

 

and the

assets are carried at the lower of carrying amount or fair value less cost to sell. Subsequent write-downs are recognized as

a valuation allowance with the offset recorded in the Consolidated Statements of

 

Operations. Carrying costs are charged to

other real estate owned expenses

 

in the accompanying Consolidated

 

Statements of Operation. Gains

 

or losses on sale of

OREO

 

are

 

recognized

 

when

 

consideration

 

has

 

been

 

exchanged,

 

all

 

closing

 

conditions

 

have

 

been

 

met

 

and

 

permanent

financing has been arranged.

 

Bank Owned Life Insurance

Bank owned

 

life insurance

 

(“BOLI”) is

 

carried at

 

the amount

 

that could

 

be realized

 

under the

 

contract at

 

the balance

sheet date, which is typically

 

cash surrender value. Changes

 

in cash surrender value are recorded

 

in non-interest income.

At December 31, 2022, the Company maintained BOLI policies with

 

five insurance carriers with a combined cash surrender

value

 

of

 

$

42.8

 

million.

 

These

 

policies

 

cover

 

certain

 

present

 

and

 

former

 

executives

 

and

 

officers,

 

the

 

Company

 

is

 

the

beneficiary of these policies.

Employee 401(k) Plan

The

 

Company

 

has

 

an

 

employee

 

401(k)

 

plan

 

covering

 

substantially

 

all

 

eligible

 

employees.

 

Employee

 

401(k)

 

plan

expense is the amount of matching contributions.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements

 

20

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

Income Taxes

Income taxes are accounted for under the

 

asset and liability method. 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

 

asset

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 noninterest

 

expense, respectively.

Impairment of Long-Lived Assets

The Company's long-lived

 

assets, such as premises

 

and equipment, are reviewed

 

for impairment whenever

 

events or

changes in circumstances

 

indicate that

 

the carrying

 

amount of

 

an asset may

 

not be recoverable.

 

Recoverability of

 

assets

to be held and

 

used is measured by a

 

comparison of the carrying amount of

 

an asset to estimated undiscounted future

 

cash

flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an

impairment charge

 

is recognized

 

by the

 

amount by

 

which the

 

carrying amount

 

of the

 

asset exceeds

 

the fair

 

value of

 

the

asset. Assets

 

to be

 

disposed of

 

would be

 

separately

 

presented in

 

the Consolidated

 

Balance Sheets

 

and reported

 

at the

lower of

 

the carrying

 

amount or

 

fair value

 

less costs

 

to sell

 

and are

 

no longer

 

depreciated. The

 

assets and

 

liabilities of

 

a

disposal group classified as held for

 

sale would be presented separately in

 

the appropriate asset and liability sections of

 

the

Consolidated Balance Sheets.

 

Transfer of Financial Assets

Transfers of

 

financial assets

 

are accounted for

 

as sales,

 

when control over

 

the assets

 

has been surrendered.

 

Control

over

 

transferred

 

assets

 

is

 

deemed

 

to

 

be

 

surrendered

 

when

 

(i)

 

the

 

assets

 

have

 

been

 

isolated

 

from

 

the

 

Company

 

-

 

put

presumptively

 

beyond

 

the

 

reach

 

of

 

the

 

transferor

 

and

 

its

 

creditors,

 

even

 

in

 

bankruptcy

 

or

 

other

 

receivership,

 

(ii)

 

the

transferee obtains

 

the right

 

(free of conditions

 

that constrain

 

it from taking

 

advantage of

 

that right)

 

to pledge

 

or exchange

the transferred

 

assets,

 

and

 

(iii) the

 

Company

 

does not

 

maintain effective

 

control

 

over

 

the transferred

 

assets

 

through

 

an

agreement to repurchase them before their maturity or

 

the ability to unilaterally cause the holder to return specific assets.

Comprehensive Income (Loss)

Under

 

GAAP,

 

certain

 

changes

 

in

 

assets

 

and

 

liabilities,

 

such

 

as

 

unrealized

 

holding

 

gains

 

and

 

losses

 

on

 

securities

available-for-sale, are

 

excluded from

 

current period

 

earnings and

 

reported as

 

a separate

 

component of

 

the stockholders’

equity

 

section

 

of

 

the

 

Consolidated

 

Balance

 

Sheets,

 

such

 

items,

 

along

 

with

 

net

 

income

 

(loss),

 

are

 

components

 

of

comprehensive

 

income

 

(loss).

 

Additionally,

 

any

 

unrealized

 

gains

 

or

 

losses

 

on

 

transfers

 

of

 

investment

 

securities

 

from

available-for-sale to held-to-maturity are recorded to accumulated other comprehensive

 

income on the date of transfer and

amortized over the remaining life of

 

each security.

 

The amortization of the unrealized

 

gain or loss on transferred securities

is reported as a component of comprehensive income

 

(loss). See Note 2 “Investment Securities” for further

 

discussion.

Advertising Costs

Advertising costs are expensed as incurred.

Earnings per Common Share

Basic earnings

 

per common

 

share is

 

net income

 

available to

 

common stockholders

 

divided by

 

the weighted

 

average

number

 

of

 

common

 

shares

 

outstanding

 

during

 

the

 

period.

 

Diluted

 

earnings

 

per

 

common

 

share

 

included

 

the

 

effect

 

of

additional potential common shares issuable under vested stock options. Basic and diluted earnings per share are updated

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements

 

21

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

to reflect the effect of stock splits as occurred. See Note 14 “Earnings Per Share” for additional information on earnings per

common share. See Note 13 “Stockholders’ Equity” for further

 

discussion on stock splits.

Interest Income

Interest income is recognized as earned, based upon the principal

 

amount outstanding, on an accrual basis.

Operating Segments

While the Company monitors

 

the revenue streams of

 

the various products

 

and services, operations

 

are managed and

financial performance

 

is evaluated on

 

a Company wide

 

basis. Operating results

 

of the individual

 

products are

 

not used to

make resource allocations or performance decisions by Company

 

management.

Stock-Based Compensation

Stock based compensation accounting guidance requires

 

that the compensation cost relating to share-based payment

transactions be recognized in the accompanying Consolidated

 

Financial Statements. That cost will be measured

 

based on

the grant

 

date fair

 

value of

 

the equity

 

or liability

 

instruments issued.

 

The stock-based

 

compensation accounting

 

guidance

covers

 

a

 

wide

 

range

 

of

 

share-based

 

compensation

 

arrangements

 

including

 

stock

 

options,

 

restricted

 

share

 

plans,

performance-based awards, share appreciation rights, and

 

employee share purchase plans.

The stock-based compensation accounting guidance

 

requires that compensation cost

 

for all stock

 

awards be calculated

and recognized

 

over the

 

employees' service period,

 

generally defined as

 

the vesting

 

period. For

 

awards with graded-vesting,

compensation cost

 

is recognized

 

on

 

a straight-line

 

basis over

 

the

 

requisite

 

service

 

period for

 

the

 

entire award.

 

A Black-

Scholes model is used to estimate the fair value of stock

 

options.

Loss Contingencies

Loss

 

contingencies,

 

including

 

claims

 

and

 

legal

 

actions

 

arising

 

in

 

the

 

normal

 

course

 

of

 

business,

 

are

 

recorded

 

as

liabilities when the

 

likelihood of loss is

 

probable, and an

 

amount or range of

 

loss can be

 

reasonably estimated. 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. See Note 18 “Loss Contingencies” for further

 

details.

Dividend Restrictions

Banking

 

regulations

 

require

 

maintaining

 

certain

 

capital

 

levels

 

and

 

may

 

limit

 

the

 

dividends

 

paid

 

by

 

the

 

Bank

 

to

 

the

Company or by the Company to the shareholders.

Fair Value Measurements

Fair values

 

of financial

 

instruments are

 

estimated using

 

relevant market

 

information and

 

other assumptions,

 

as more

fully disclosed in Note

 

12 “Fair Value

 

Measurements”. Fair value estimates

 

involve uncertainties and

 

matters of significant

judgment. Changes in assumptions or in market conditions

 

could significantly affect the estimates.

Derivative Instruments

Derivative financial instruments are

 

carried at fair

 

value and reflect

 

the estimated amount that

 

would have been

 

received

to

 

terminate

 

these

 

contracts

 

at

 

the

 

reporting

 

date

 

based

 

upon

 

pricing

 

or

 

valuation

 

models

 

applied

 

to

 

current

 

market

information.

The

 

Company

 

enters

 

into

 

interest

 

rate

 

swaps

 

to

 

provide

 

commercial

 

loan

 

clients

 

the

 

ability

 

to

 

swap

 

from

 

a

 

variable

interest rate

 

to a

 

fixed rate.

 

The Company

 

enter

 

into a

 

floating-rate

 

loan with

 

a

 

customer with

 

a separately

 

issued swap

agreement allowing

 

the customer

 

to convert

 

floating

 

payments of

 

the loan

 

into a

 

fixed interest

 

rate. To

 

mitigate risk,

 

the

Company will enter into a matching agreement with a

 

third party to offset the exposure on the

 

customer agreement. These

swaps are

 

not considered

 

to be

 

qualified hedging

 

transactions and

 

the unmatched

 

unrealized gain

 

or loss

 

is recorded

 

in

other non-interest income.

 

 

 

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements

 

22

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

Revenue from Contracts with Customers

Revenue from

 

contracts with customers

 

is recognized in

 

an amount that

 

reflects the consideration

 

the Company expects

to receive for the

 

services the Company

 

provides to its

 

customers. The main

 

revenue earned by

 

the Company from

 

loans

and investment

 

securities

 

are excluded

 

from the

 

accounting standard

 

update “Revenue

 

from Contracts

 

with Customers”.

 

Deposit and

 

service charge

 

fees, consisting

 

of primarily

 

monthly maintenance

 

fees, wire

 

fees, ATM

 

interchange fees

 

and

other transaction-based fees, are the

 

most significant types of revenue within

 

the accounting standard update.

 

Revenue is

recognized when the service provided by the

 

Company is complete. The aggregate amount

 

of revenue within the scope of

this standard that is received from sources other than deposit

 

service charges and fees is not material.

 

Cash Flow Statement

The Company reports the net activity rather than gross activity in the Consolidated

 

Statements of Cash Flows. The net

cash flows

 

are reported for

 

loans held

 

for investment, accrued

 

interest receivable, deferred

 

tax asset, other

 

assets, customer

deposits, accrued interest payable, other liabilities, and proceeds

 

from issuance of Class A common shares.

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 – Not Yet

 

Adopted

Measurement of Credit Losses on Financial Instruments

In June

 

2016, the FASB issued

 

ASU 2016-13,

 

Financial Instruments -

 

Credit Losses (Topic 326); Measurement

 

of Credit

Losses on Financial Instruments. This accounting standard update (“ASU” or “Update”)

 

on accounting for current expected

credit

 

losses

 

on

 

financial

 

instruments

 

(“CECL”)

 

will

 

replace

 

the

 

current

 

probable

 

incurred

 

loss

 

impairment

 

methodology

under U.S. GAAP

 

with a methodology

 

that reflects the

 

expected credit losses.

 

The Update is

 

intended to provide

 

financial

statement

 

users

 

with

 

more

 

decision-useful

 

information

 

about

 

expected

 

credit

 

losses.

 

This

 

Update

 

is

 

applicable

 

to

 

the

Company

 

on

 

a modified

 

retrospective

 

basis

 

for

 

interim

 

and

 

annual

 

periods

 

in

 

fiscal

 

years

 

beginning

 

after

 

December 15,

2022. The Company adopted this

 

ASU on January 1, 2023. To date, the Company executed a

 

detailed implementation plan

through the adoption date, implemented a

 

software solution to assist with the

 

CECL estimation process, and has completed

parallel run models, and finished a data gap analysis.

The company expects its allowance for credit losses to

 

increase in 2023 approximately $

1.0

 

million to $

2.0

 

million upon

adoption

 

of

 

ASU

 

2016-13

 

compared

 

to

 

its

 

allowance

 

for

 

loan

 

losses

 

at

 

December

 

31,

 

2022.

 

Reserve

 

on

 

unfunded

commitments will

 

also increase

 

approximately $

200

 

thousand to

 

$

600

 

thousand and

 

it will

 

be recognized

 

as a

 

liability on

the

 

Consolidated

 

Balance

 

Sheet.

 

The

 

Company

 

reviewed

 

it’s

 

held-to-maturity

 

debt

 

securities

 

and

 

the

 

allowance

 

was

deemed immaterial. The Company will

 

initially apply the impact

 

of the new guidance through

 

a cumulative-effect adjustment

to retained

 

earnings

 

as

 

of

 

January

 

1,

 

2023. Future

 

adjustments

 

to

 

credit

 

loss

 

expectations

 

will

 

be

 

recorded

 

through

 

the

income statement as charges or credits to earnings.

The disclosed estimates are subject to further refinement upon finalization of the Company’s review of the calculations,

assumptions, methodologies and judgments. Internal controls over financial reporting relating

 

to these new processes have

been designed

 

and

 

implemented

 

and are

 

being evaluated.

 

The

 

Company

 

is in

 

the final

 

stages

 

of completing

 

the formal

governance

 

and

 

approval

 

process.

 

The

 

ongoing

 

impact

 

to

 

the

 

Company’s

 

results

 

of

 

operations

 

in

 

future

 

periods

 

will

 

be

influenced

 

by

 

the

 

loan

 

portfolio

 

composition

 

and

 

by

 

macroeconomic

 

conditions

 

and

 

forecasts

 

at

 

each

 

reporting

 

date.

Adoption of

 

the standard

 

on the

 

first quarter

 

of 2023

 

is expected

 

to result

 

in higher

 

volatility in

 

the quarterly

 

provision for

credit losses when compared to the Company’s

 

historical results under the incurred loss model.

Troubled Debt Restructurings and

 

Vintage Disclosures

In

 

March

 

2022,

 

the

 

FASB

 

issued

 

ASU

 

2022-02,

 

Financial

 

Instruments

 

–

 

Credit

 

Losses

 

(Topic

 

326):

 

Troubled

 

Debt

Restructurings

 

and

 

Vintage

 

Disclosures.

 

This

 

accounting

 

standard

 

eliminates

 

the

 

accounting

 

guidance

 

for

 

troubled

 

debt

restructurings

 

by

 

creditors

 

in

 

ASC

 

310-40,

 

and

 

it

 

enhances

 

disclosure

 

requirements

 

for

 

some

 

loan

 

refinancings

 

and

restructurings

 

involving

 

borrowers

 

experiencing

 

financial

 

difficulty.

 

Specifically,

 

rather

 

than

 

applying

 

the

 

troubled

 

debt

restructuring recognition and measurement guidance,

 

creditors will evaluate all

 

loan modifications to determine if

 

they result

in

 

a

 

new

 

loan

 

or

 

a

 

continuation

 

of

 

the

 

existing

 

loan.

 

Losses

 

associated

 

with

 

troubled

 

debt

 

restructurings

 

should

 

be

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements

 

23

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

incorporated in a

 

creditor’s estimate of

 

its allowance for

 

credit losses. Additionally,

 

public business entities

 

are required to

disclose current-period gross write-offs by year

 

of origination for loan financing receivables and net investment

 

in leases.

Reference Rate Reform

In

 

March

 

2020,

 

the

 

FASB

 

issued

 

ASU

 

2020-04,

 

Reference

 

Rate

 

Reform

 

(Topic

 

848),

 

Facilitation

 

of

 

the

 

Effects

 

of

Reference Rate Reform

 

on Financial Reporting.

 

In January 2021,

 

the FASB

 

clarified the scope

 

of this guidance

 

with ASU

2021-01 which provides

 

optional guidance for

 

a limited period of

 

time to ease the

 

burden in accounting for

 

(or recognizing

the effects

 

of) reference

 

rate

 

reform on

 

financial

 

reporting.

 

This

 

ASU is

 

effective

 

March 12,

 

2020 through

 

December 31,

2024. The

 

Company is

 

evaluating the

 

impact of

 

this ASU

 

and has

 

not yet

 

determined whether

 

LIBOR transition

 

and this

ASU will have material effects on our business

 

operations and consolidated financial statements.

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):

December 31, 2022

Available-for-sale:

Amortized

Cost

Unrealized

Gains

Unrealized

Losses

Fair Value

U.S. Government Agency

$

10,177

$

-

$

(1,522)

$

8,655

Collateralized mortgage obligations

118,951

-

(23,410)

95,541

Mortgage-backed securities - Residential

73,838

-

(12,959)

60,879

Mortgage-backed securities - Commercial

32,244

15

(4,305)

27,954

Municipal securities

25,084

-

(6,601)

18,483

Bank subordinated debt securities

15,964

5

(1,050)

14,919

Corporate bonds

4,037

-

(328)

3,709

$

280,295

$

20

$

(50,175)

$

230,140

Held-to-maturity:

U.S. Government Agency

$

44,914

$

25

$

(5,877)

$

39,062

U.S. Treasury

9,841

-

(13)

9,828

Collateralized mortgage obligations

68,727

28

(7,830)

60,925

Mortgage-backed securities - Residential

42,685

372

(4,574)

38,483

Mortgage-backed securities - Commercial

11,442

-

(665)

10,777

Corporate bonds

11,090

-

(1,077)

10,013

$

188,699

$

425

$

(20,036)

$

169,088

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements

 

24

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

December 31, 2021

Available-for-sale:

Amortized

Cost

Unrealized

Gains

Unrealized

Losses

Fair Value

U.S. Government Agency

$

10,564

$

6

$

(50)

$

10,520

Collateralized mortgage obligations

160,506

22

(3,699)

156,829

Mortgage-backed securities - Residential

120,643

228

(2,029)

118,842

Mortgage-backed securities - Commercial

49,905

820

(608)

50,117

Municipal securities

25,164

6

(894)

24,276

Bank subordinated debt securities

27,003

1,418

(13)

28,408

Corporate bonds

12,068

482

-

12,550

$

405,853

$

2,982

$

(7,293)

$

401,542

Held-to-maturity:

U.S. Government Agency

$

34,505

$

14

$

(615)

$

33,904

Collateralized mortgage obligations

44,820

-

(1,021)

43,799

Mortgage-backed securities - Residential

26,920

-

(568)

26,352

Mortgage-backed securities - Commercial

3,103

-

(90)

3,013

Corporate bonds

13,310

-

(221)

13,089

$

122,658

$

14

$

(2,515)

$

120,157

For the year

 

ended December 31,

 

2022, there were

26

 

investment securities

 

that were transferred

 

from available-for-

sale

 

(“AFS”)

 

to

 

held-to-maturity

 

(“HTM”)

 

with

 

an

 

amortized

 

cost

 

basis

 

and

 

fair

 

value

 

amount

 

of

 

$

74.4

 

million

 

and

$

63.8

 

million, respectively.

 

On the

 

date of

 

transfer,

 

these securities

 

had a

 

total net

 

unrealized loss

 

of $

10.6

 

million which

was included in accumulated other comprehensive income (loss).

 

Transfers of debt securities into the HTM category from the AFS category are made at fair value at the date of transfer.

The unrealized gain or loss at the

 

date of transfer is retained in

 

accumulated other comprehensive income

 

(“AOCI”) and in

the carrying value of the held-to-maturity securities. Such amounts

 

are amortized over the remaining life of the security. For

the year

 

ended December 31,

 

2022, total

 

amortization out

 

of AOCI

 

for the

 

net unrealized

 

losses on

 

securities transferred

from AFS to HTM was $

120

 

thousand and $

108

 

thousand for year ended December 31, 2021.

 

The following

 

table presents

 

the proceeds,

 

realized gross

 

gains and

 

realized gross

 

losses on

 

sales and

 

calls of

 

AFS

debt securities for the years ended December 31, 2022 and

 

2021 (in thousands):

Available-for-sale:

2022

2021

Proceeds from sales and call of securities

$

60,649

$

51,974

Gross Gains

$

217

$

545

Gross Losses

(2,746)

(331)

Net realized gains (losses)

$

(2,529)

$

214

The

 

amortized

 

cost

 

and

 

fair

 

value

 

of

 

investment

 

securities,

 

by

 

contractual

 

maturity,

 

are

 

shown

 

below

 

for

 

the

 

date

indicated (in thousands).

 

Actual maturities may

 

differ from contractual

 

maturities because borrowers

 

may have the right

 

to

call or prepay

 

obligations with or

 

without call or

 

prepayment penalties. Securities not

 

due at a

 

single maturity date are

 

shown

separately.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements

 

25

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

Available-for-sale

Held-to-maturity

December 31, 2022:

Amortized

Cost

Fair Value

Amortized

Cost

Fair Value

Due within one year

$

-

$

-

$

1,515

$

1,475

Due after one year through five years

4,037

3,709

9,575

8,539

Due after five years through ten years

16,964

15,722

-

-

Due after ten years

24,084

17,680

-

-

U.S. Government Agency

10,177

8,655

44,914

39,061

U.S. Treasury

-

-

9,841

9,828

Collateralized mortgage obligations

118,951

95,541

68,727

60,925

Mortgage-backed securities - Residential

 

73,838

60,879

42,685

38,483

Mortgage-backed securities - Commercial

 

32,244

27,954

11,442

10,777

$

280,295

$

230,140

$

188,699

$

169,088

At December 31,

 

2022 and

 

2021, there

 

were no

 

securities to

 

any one

 

issuer,

 

in an

 

amount greater

 

than 10%

 

of total

stockholders’ equity

 

other than

 

the United

 

States Government

 

and Government

 

Agencies. All

 

the collateralized

 

mortgage

obligations

 

and

 

mortgage-backed

 

securities

 

are

 

issued

 

by

 

United

 

States

 

sponsored

 

entities

 

at

 

December 31,

 

2022

 

and

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):

December 31, 2022

Less than 12 months

12 months or more

Total

Fair Value

Unrealized

Losses

Fair Value

Unrealized

Losses

Fair Value

Unrealized

Losses

U.S. Government Agency

$

11,407

(1,093)

36,310

(7,616)

$

47,717

$

(8,709)

U.S. Treasury

9,828

(13)

-

-

9,828

$

(13)

Collateralized mortgage obligations

16,500

(963)

139,965

(34,962)

156,465

$

(35,925)

Mortgage-backed securities -

Residential

5,059

(564)

91,742

(19,348)

96,801

$

(19,912)

Mortgage-backed securities -

Commercial

10,052

(1,173)

26,823

(5,300)

36,875

$

(6,473)

Municipal securities

 

-

-

18,483

(6,601)

18,483

$

(6,601)

Bank subordinated debt securities

11,295

(670)

2,619

(381)

13,914

$

(1,051)

Corporate bonds

13,723

(926)

-

-

13,723

$

(926)

$

77,864

$

(5,402)

$

315,942

$

(74,208)

$

393,806

$

(79,610)

December 31, 2021

Less than 12 months

12 months or more

Total

Fair Value

Unrealized

Losses

Fair Value

Unrealized

Losses

Fair Value

Unrealized

Losses

U.S. Government Agency

$

25,951

$

(254)

$

15,477

$

(516)

$

41,428

$

(770)

Collateralized mortgage obligations

155,668

(3,223)

38,459

(1,497)

194,127

$

(4,720)

Mortgage-backed securities -

Residential

88,772

(1,178)

37,373

(1,274)

126,145

$

(2,452)

Mortgage-backed securities -

Commercial

25,289

(318)

7,507

(309)

32,796

$

(627)

Municipal securities

 

11,292

(395)

11,978

(499)

23,270

$

(894)

Bank subordinated debt securities

4,487

(13)

-

-

4,487

$

(13)

$

311,459

$

(5,381)

$

110,794

$

(4,095)

$

422,253

$

(9,476)

The unrealized losses

 

associated with $

134.7

 

million of investment securities

 

transferred from the AFS

 

portfolio to the

HTM portfolio represent unrealized

 

losses since the date of

 

purchase, independent of the

 

impact associated with changes

in the cost basis upon transfer between portfolios.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements

 

26

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

The Company performs a review

 

of the investments that have

 

an unrealized loss to determine

 

whether there have been

any changes in the

 

economic circumstance of the security

 

issuer to indicate that

 

the unrealized loss is

 

impaired on an other-

than-temporary (“OTTI”) basis. Management considers several factors in their analysis including (i) severity and duration of

the impairment, (ii) credit

 

rating of the security

 

including any downgrade,

 

(iii) intent to sell

 

the security,

 

or if it is

 

more likely

than not that it will be required to

 

sell the security before recovery,

 

(iv) whether there have been any payment

 

defaults and

(v) underlying guarantor of the securities.

At

 

December

 

31,

 

2022,

 

the

 

Company

 

had

 

$

53.7

 

million

 

of

 

unrealized

 

losses

 

on

 

mortgage

 

backed

 

securities

 

and

collateralized

 

mortgage

 

obligations

 

of

 

government

 

sponsored

 

entities

 

having

 

a

 

fair

 

value

 

of

 

$

294.6

 

million

 

that

 

were

attributable

 

to

 

a

 

combination

 

of

 

factors,

 

including

 

relative

 

changes

 

in

 

interest

 

rates

 

since

 

the

 

time

 

of

 

purchase.

 

The

contractual cash flows

 

for these securities

 

are guaranteed by

 

U.S. government agencies

 

and U.S. government

 

sponsored

entities. The municipal bonds are of high credit

 

quality and the declines in fair value are not

 

due to credit quality.

 

Based on

the assessment of

 

these mitigating factors, management

 

believes that the

 

unrealized losses on these

 

debt security holdings

are a

 

function of

 

changes in

 

investment spreads

 

and interest

 

rate movements and

 

not changes

 

in credit

 

quality. Management

expects to recover the entire amortized cost basis of these securities.

At December 31, 2022, the

 

Company does not intend to

 

sell debt securities that are

 

in an unrealized loss position and

it is not more than likely than not that the Company will be required to sell

 

these securities before recovery of the amortized

cost basis. Therefore,

 

management does

 

not consider any

 

investment to be

 

other than temporarily

 

impaired at December

31, 2022.

As of December 31, 2022, the Company maintains a master repurchase agreement with a public banking institution for

up

 

to

 

$

20.0

 

million

 

fully

 

guaranteed

 

with

 

investment

 

securities

 

upon

 

withdrawal.

 

Any

 

amounts

 

borrowed

 

would

 

be

 

at

 

a

variable interest rate

 

based on prevailing

 

rates at the

 

time funding is

 

requested. At

 

December 31, 2022, the

 

Company did

no

t have any securities pledged under this agreement.

In 2018, the Company became a Qualified Public Depositor (“QPD”) with the State of Florida. As a QPD, the Company

has the

 

authority to

 

legally maintain public

 

deposits from cities,

 

municipalities, and the

 

State of

 

Florida. These public

 

deposits

are secured by

 

securities pledged to

 

the State of

 

Florida at a

 

ratio of

25

% of the

 

average outstanding uninsured

 

deposits.

The Company must also maintain a minimum amount

 

of pledged securities to be in the program.

At December 31, 2022,

 

the Company

 

had

eighteen

 

securities with a

 

fair value of

 

$

49.0

 

million pledged to

 

the State of

Florida under the public funds program. The Company held

 

a total of $

204.2

 

million in public funds at December 31, 2022.

At December

 

31, 2021,

 

the Company

 

had

eleven

 

securities

 

with a

 

fair value

 

of $

20.4

 

million pledged

 

to the

 

State of

Florida under the public funds program. The Company held

 

a total of $

37.3

 

million in public funds at December 31, 2021.

3.

 

LOANS

The following table is a summary of the distribution of

 

loans held for investment by type (in thousands):

 

December 31, 2022

December 31, 2021

Total

Percent of

Total

Total

Percent of

Total

Residential Real Estate

$

185,636

12.3

%

$

201,359

16.9

%

Commercial Real Estate

970,410

64.4

%

704,988

59.2

%

Commercial and Industrial

126,984

8.4

%

146,592

12.3

%

Foreign Banks

93,769

6.2

%

59,491

5.0

%

Consumer and Other

 

130,429

8.7

%

79,229

6.6

%

Total

 

gross loans

1,507,228

100.0

%

1,191,659

100.0

%

Less: Unearned income

(110)

1,578

Total

 

loans net of unearned income

1,507,338

1,190,081

Less: Allowance for credit losses

17,487

15,057

Total

 

net loans

$

1,489,851

 

$

1,175,024

At December 31, 2022 and 2021, the Company had $

338.1

 

million and $

185.1

 

million, respectively,

 

of commercial real

estate and residential mortgage loans pledged as collateral on lines of credit with the FHLB and the

 

Federal Reserve Bank

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements

 

27

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

of Atlanta.

 

At December 31,

 

2022 and 2021

 

the Company

 

had

no

 

loans and one

 

loan for $

1.2

 

million, respectively,

 

in the

process of foreclosure.

The Company was a participant

 

of the Small Business Administration’s

 

(“SBA”) Paycheck Protection Program

 

(“PPP”)

loans. These

 

loans were

 

designed to

 

provide a

 

direct incentive

 

for small

 

businesses to

 

keep their

 

workers on

 

payroll and

had to be used towards payroll cost, mortgage interest, rent, utilities and other costs

 

related to COVID-19. These loans are

forgivable under specific criteria

 

as determined by the SBA. The

 

Company had PPP loans of

 

$

1.3

 

million at December 31,

2022 and $

42.4

 

million at December 31, 2021, which are categorized as

 

commercial and industrial loans. These PPP loans

had deferred loan fees of $

13

 

thousand at December 31, 2022 and $

1.5

 

million at December 31, 2021.

The

 

Company

 

recognized

 

$

1.6

 

million

 

and

 

$

4.5

 

million

 

in

 

PPP

 

loan

 

fees

 

and

 

interest

 

income

 

for

 

the

 

years

 

ended

December 31,

 

2022

 

and

 

2021,

 

respectively,

 

which

 

is

 

reported

 

under

 

loans,

 

including

 

fees

 

within

 

the

 

Consolidated

Statements of Operations.

 

The

 

Company

 

segments

 

the

 

portfolio

 

by

 

pools

 

grouping

 

loans

 

that

 

share

 

similar

 

risk

 

characteristics

 

and

 

employing

collateral type

 

and lien

 

position to

 

group loans

 

according to

 

risk. The

 

Company determines

 

historical

 

loss rates

 

for each

loan

 

pool

 

based

 

on

 

its

 

own

 

loss

 

experience.

 

In

 

estimating

 

credit

 

losses,

 

the

 

Company

 

also

 

considers

 

qualitative

 

and

environmental factors that may cause estimated credit losses

 

for the loan portfolio to differ from historical

 

losses.

Changes

 

in

 

the

 

allowance

 

for

 

credit

 

losses

 

for

 

the

 

years

 

ended

 

December 31,

 

2022

 

and

 

2021

 

are

 

as

 

follows

 

(in

thousands):

 

Residential

Real Estate

Commercial

Real Estate

Commercial

and Industrial

Foreign

Banks

Consumer

and Other

Total

December 31, 2022:

Beginning balance

$

2,498

$

8,758

$

2,775

$

457

$

569

$

15,057

Provision for credit losses

(1,179)

1,385

1,474

263

552

2,495

Recoveries

33

-

18

-

4

55

Charge-offs

-

-

(104)

-

(16)

(120)

Ending Balance

 

$

1,352

$

10,143

$

4,163

$

720

$

1,109

$

17,487

December 31, 2021:

Beginning balance

$

3,408

$

9,453

$

1,689

$

348

$

188

$

15,086

Provision for credit losses

(919)

(695)

955

109

390

(160)

Recoveries

238

-

149

-

5

392

Charge-offs

(229)

-

(18)

-

(14)

(261)

Ending Balance

 

$

2,498

$

8,758

$

2,775

$

457

$

569

$

15,057

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements

 

28

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

Allowance for credit losses and the outstanding balances in

 

loans as of December 31, 2022 and 2021 are as

 

follows (in

thousands):

Residential

Real Estate

Commercial

Real Estate

Commercial

and Industrial

Foreign

Banks

Consumer

and Other

Total

December 31, 2022:

Allowance for credit losses:

Individually evaluated for impairment

$

155

$

-

$

41

$

-

$

98

$

294

Collectively evaluated for impairment

1,197

10,143

4,122

720

1,011

17,193

Balances, end of period

$

1,352

$

10,143

$

4,163

$

720

$

1,109

$

17,487

Loans:

Individually evaluated for impairment

$

7,206

$

393

$

82

$

-

$

196

$

7,877

Collectively evaluated for impairment

178,430

970,017

126,902

93,769

130,233

1,499,351

Balances, end of period

$

185,636

$

970,410

$

126,984

$

93,769

$

130,429

$

1,507,228

December 31, 2021:

Allowance for credit losses:

Individually evaluated for impairment

$

178

$

-

$

71

$

-

$

111

$

360

Collectively evaluated for impairment

2,320

8,758

2,704

457

458

14,697

Balances, end of period

$

2,498

$

8,758

$

2,775

$

457

$

569

$

15,057

Loans:

Individually evaluated for impairment

$

9,006

$

696

$

141

$

-

$

224

$

10,067

Collectively evaluated for impairment

192,353

704,292

146,451

59,491

79,005

1,181,592

Balances, end of period

$

201,359

$

704,988

$

146,592

$

59,491

$

79,229

$

1,191,659

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements

 

29

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

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

 

– Loans classified as special mention have a potential weakness

 

that deserves management’s

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

 

– Loans classified as doubtful have all the weaknesses inherent

 

in those classified at substandard, with

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 December 31, 2022

Pass

Special

Mention

Substandard

Doubtful

Total Loans

Residential real estate:

Home equity line of credit ("HELOC") and other

$

623

$

-

$

-

$

-

$

623

1-4 family residential

132,178

-

-

-

132,178

Condo residential

52,835

-

-

-

52,835

185,636

-

-

-

185,636

Commercial real estate:

Land and construction

38,687

-

-

-

38,687

Multi family residential

176,820

-

-

-

176,820

Condo commercial

49,601

-

393

-

49,994

Commercial property

702,357

-

2,552

-

704,909

Leasehold improvements

-

-

-

-

-

967,465

-

2,945

-

970,410

Commercial and industrial:

(1)

Secured

120,873

-

807

-

121,680

Unsecured

5,304

-

-

-

5,304

126,177

-

807

-

126,984

Foreign banks

93,769

-

-

-

93,769

Consumer and other loans

130,233

-

196

-

130,429

Total

$

1,503,280

$

-

$

3,948

$

-

$

1,507,228

(1)

 

All outstanding PPP loans were internally graded

 

pass.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements

 

30

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

As of December 31, 2021

Pass

Special

Mention

Substandard

Doubtful

Total Loans

Residential real estate:

Home equity line of credit ("HELOC") and other

$

701

$

-

$

-

$

-

$

701

1-4 family residential

130,840

-

4,581

-

135,421

Condo residential

65,237

-

-

-

65,237

196,778

-

4,581

-

201,359

Commercial real estate:

Land and construction

24,581

-

-

-

24,581

Multi family residential

127,489

-

-

-

127,489

Condo commercial

41,983

-

417

-

42,400

Commercial property

509,189

1,222

-

-

510,411

Leasehold improvements

107

-

-

-

107

703,349

1,222

417

-

704,988

Commercial and industrial:

(1)

Secured

97,605

-

536

-

98,141

Unsecured

48,434

-

17

-

48,451

146,039

-

553

-

146,592

Foreign banks

59,491

-

-

-

59,491

Consumer and other loans

79,005

-

224

-

79,229

Total

$

1,184,662

$

1,222

$

5,775

$

-

$

1,191,659

(1)

 

All outstanding PPP loans were internally graded

 

pass.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements

 

31

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

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 table include an aging analysis

 

of accruing loans and total non-accruing

 

loans as of December 31, 2022 and

2021 (in thousands):

Accruing

As of December 31, 2022:

Current

Past Due 30-

89 Days

Past Due >

90 Days and

Still

Accruing

Total

Accruing

Non-Accrual

Total Loans

Residential real estate:

Home equity line of credit and other

$

623

$

-

$

-

$

623

$

-

$

623

1-4 family residential

131,120

1,058

-

132,178

-

132,178

Condo residential

50,310

2,525

-

52,835

-

52,835

182,053

3,583

-

185,636

-

185,636

Commercial real estate:

Land and construction

38,687

-

-

38,687

-

38,687

Multi family residential

176,820

-

-

176,820

-

176,820

Condo commercial

49,994

-

-

49,994

-

49,994

Commercial property

704,884

25

-

704,909

-

704,909

Leasehold improvements

-

-

-

-

-

-

970,385

25

-

970,410

-

970,410

Commercial and industrial:

Secured

121,649

31

-

121,680

-

121,680

Unsecured

4,332

972

-

5,304

-

5,304

125,981

1,003

-

126,984

-

126,984

Foreign banks

93,769

-

-

93,769

-

93,769

Consumer and other

130,169

260

-

130,429

-

130,429

Total

$

1,502,357

$

4,871

$

-

$

1,507,228

$

-

$

1,507,228

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements

 

32

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

Accruing

As of December 31, 2021:

Current

Past Due

30-89 Days

Past Due >

90 Days and

Still

Accruing

Total

Accruing

Non-Accrual

Total Loans

Residential real estate:

Home equity line of credit and other

$

701

$

-

$

-

$

701

$

-

$

701

1-4 family residential

133,942

289

-

134,231

1,190

135,421

Condo residential

64,243

994

-

65,237

-

65,237

198,886

1,283

-

200,169

1,190

201,359

Commercial real estate:

Land and construction

24,581

-

-

24,581

-

24,581

Multi family residential

127,053

436

-

127,489

-

127,489

Condo commercial

42,400

-

-

42,400

-

42,400

Commercial property

510,411

-

-

510,411

-

510,411

Leasehold improvements

107

-

-

107

-

107

704,552

436

-

704,988

-

704,988

Commercial and industrial:

Secured

98,141

-

-

98,141

-

98,141

Unsecured

48,041

410

-

48,451

-

48,451

146,182

410

-

146,592

-

146,592

Foreign banks

59,491

-

-

59,491

-

59,491

Consumer and other

78,969

260

-

79,229

-

79,229

Total

$

1,188,080

$

2,389

$

-

$

1,190,469

$

1,190

$

1,191,659

There was

no

 

interest income recognized attributable to

 

nonaccrual loans outstanding at

 

December 31, 2022 and 2021.

Interest

 

income

 

on

 

these

 

loans

 

for

 

the

 

years

 

ended

 

December 31,

 

2022

 

and

 

2021,

 

would

 

have

 

been

 

approximately

$

0

 

thousand and $

5

 

thousand, respectively,

 

had these loans performed in accordance with their

 

original terms.

 

There were no loans over 90 days past due and accruing

 

as of December 31, 2022 and 2021.

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 for the dates

 

indicated (in thousands):

December 31, 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

$

3,551

$

3,544

$

-

$

5,021

$

5,035

$

-

Commercial real estate

393

393

-

696

695

-

3,944

3,937

-

5,717

5,730

-

Impaired Loans with Specific Allowance:

Residential real estate

3,655

3,626

155

3,985

3,950

178

Commercial and industrial

82

82

41

141

141

71

Consumer and other

196

196

98

224

224

111

3,933

3,904

294

4,350

4,315

360

Total

$

7,877

$

7,841

$

294

$

10,067

$

10,045

$

360

Net investment balance is the unpaid principal balance

 

of the loan adjusted for the remaining net deferred loan

 

fees.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements

 

33

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

The following table presents the

 

average recorded investment balance on impaired

 

loans as of December 31, 2022

 

and

2021 (in thousands):

2022

2021

Residential real estate

$

7,626

$

8,791

Commercial real estate

575

714

Commercial and industrial

109

178

Consumer and other

210

254

Total

$

8,520

$

9,937

Interest income

 

recognized on

 

impaired loans

 

for the

 

years ended

 

December 31, 2022

 

and 2021

 

was $

351

 

thousand

and $

415

 

thousand, respectively.

Troubled Debt Restructuring

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.

 

The following table presents performing and non-performing

 

TDRs for the dates indicated (in thousands):

December 31, 2022

December 31, 2021

Accrual Status

Non-Accrual

Status

Total TDRs

Accrual Status

Non-Accrual

Status

Total TDRs

Residential real estate

$

7,206

$

-

$

7,206

$

7,815

$

-

$

7,815

Commercial real estate

393

-

393

696

-

696

Commercial and industrial

82

-

82

141

-

141

Consumer and other

 

196

-

196

224

-

224

Total

$

7,877

$

-

$

7,877

$

8,876

$

-

$

8,876

The Company had

 

allocated $

294

 

thousand and $

360

 

thousand of specific

 

allowance for TDR

 

loans at December 31,

2022 and 2021,

 

respectively. Charge-offs on TDR loans for

 

the years ended

 

December 31, 2022 and

 

2021 was $

0

 

thousand

and $

18

 

thousand, respectively.

 

There was

no

 

commitment to lend additional funds to these TDR customers.

The Company

 

did

no

t have

 

any new

 

TDR loans,

 

loan modifications,

no

r defaults

 

for the

 

years ended

 

December 31,

2022 and December 31, 2021.

During the

 

year ended December 31,

 

2022 and 2021,

 

the Company did

no

t modify

 

any new loans

 

to borrowers impacted

by COVID-19. At December 31, 2022, there was

no

 

loan past due that was modified in 2021.

 

4.

 

LEASES

The

 

Company

 

enters

 

into

 

leases

 

in

 

the

 

normal

 

course

 

of

 

business

 

primarily

 

for

 

banking

 

centers

 

and

 

back-office

operations. As of

 

December 31, 2022, the

 

Company leased nine

 

of the ten

 

banking centers and

 

the headquarter building.

The Company

 

is obligated

 

under non-cancelable

 

operating leases

 

for these

 

premises with

 

expiration dates

 

ranging from

2026 to 2036, many of these leases have extension

 

clauses which the Company could exercise which

 

would extend these

dates.

 

The Company

 

has classified

 

all leases as

 

operating leases.

 

Lease expense

 

for operating

 

leases are

 

recognized on

 

a

straight-line basis over

 

the lease term.

 

Right-of-use (“ROU”)

 

assets represent the

 

right to use

 

the underlying

 

asset for the

lease

 

term

 

and

 

lease

 

liabilities

 

represent

 

the

 

obligation

 

to

 

make

 

lease

 

payments

 

arising

 

from

 

the

 

lease.

 

The

 

Company

elected the short-term

 

lease recognition exemption

 

for all leases

 

that qualify,

 

meaning those with

 

terms under 12

 

months.

ROU assets or lease liabilities are not to be recognized

 

for short-term leases.

ROU assets and

 

lease liabilities are

 

recognized at the lease

 

commencement date based on

 

the estimated present value

of lease payments

 

over the

 

lease term.

 

In the Company’s

 

Consolidated Balance

 

Sheets, ROU

 

assets are

 

reported under

other assets while lease liabilities are classified under

 

accrued interest and other liabilities.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements

 

34

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

As

 

most

 

of

 

the

 

Company’s

 

leases

 

do

 

not

 

provide

 

an

 

implicit

 

rate,

 

the

 

incremental

 

borrowing

 

rate

 

based

 

on

 

the

information available

 

at commencement

 

date is

 

used. The

 

Company’s

 

incremental borrowing

 

rate is

 

based on

 

the FHLB

advance rate matching or nearing the lease term.

 

The following table presents the ROU assets and lease liabilities

 

as of December 31, 2022 and 2021 (in thousands):

2022

2021

ROU assets:

Operating leases

 

$

14,395

$

14,185

Lease liabilities:

Operating leases

 

$

14,395

$

14,185

The weighted average remaining lease term and weighted average

 

discount rate as of December 31, 2022 and 2021:

2022

2021

Weighted average remaining lease term (in years):

Operating leases

6.98

8.28

Weighted average discount rate:

Operating leases

 

2.94

%

2.32

%

Future lease payment obligations and a reconciliation to lease

 

liability as of December 31, 2022 (in thousands):

2023

$

3,158

2024

3,236

2025

3,312

2026

2,383

2027

951

Thereafter

3,478

Total

 

future minimum lease payments

16,518

Less: interest component

(2,123)

Total

 

lease liability

$

14,395

5.

 

PREMISES AND EQUIPMENT

 

A summary of premises and equipment are presented

 

below as of December 31, 2022 and 2021 (in thousands):

2022

2021

Land

$

972

$

972

Building

1,952

1,947

Furniture, fixtures and equipment

8,841

8,726

Computer hardware and software

4,575

4,552

Leasehold improvements

10,451

9,921

Premises and equipment, gross

26,791

26,118

Accumulated depreciation and amortization

(21,528)

(20,840)

Premises and equipment, net

$

5,263

$

5,278

Depreciation and

 

amortization expense

 

was $

688

 

thousand and

 

$

1.0

 

million for

 

the years

 

ended December 31,

 

2022

and 2021, respectively.

 

During 2021, the Company

 

eliminated $

0.6

 

million in assets due

 

to the sale of

 

one banking center

and relocation

 

of another

 

banking center.

 

The depreciation

 

on these

 

assets was

 

$

0.6

 

million with

 

the remaining

 

amount

recognized as an immaterial loss.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements

 

35

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

6.

 

INCOME TAXES

 

The Company’s provision

 

for income taxes is

 

presented in the following

 

table for the years

 

ended December 31, 2022

and 2021 (in thousands):

2022

2021

Current:

Federal

$

-

$

-

State

-

$

-

Total

 

current

-

$

-

Deferred:

Federal

5,462

$

5,314

State

1,482

$

1,286

Total

 

deferred

6,944

$

6,600

Total

 

tax expense

$

6,944

$

6,600

The actual income

 

tax expense for the

 

years ended December 31, 2022

 

and 2021 differs from

 

the statutory tax expense

for the year (computed by applying the

 

U.S. federal corporate tax rate of

21

% for 2022 and 2021 to income

 

before provision

for income taxes) as follows (in thousands):

2022

2021

Federal taxes at statutory rate

$

5,688

$

5,812

State income taxes, net of federal tax benefit

1,177

$

969

Bank owned life insurance

(269)

$

(186)

Other, net

348

$

5

Total

 

tax expense

$

6,944

$

6,600

The following table presents

 

the deferred tax assets

 

and deferred tax liabilities

 

as of December 31, 2022

 

and 2021 (in

thousands):

2022

2021

Deferred tax assets:

Net operating loss

$

21,720

$

28,819

Allowance for credit losses

4,432

3,816

Lease liability

3,648

3,595

Unrealized loss on available for sale securities

15,193

817

Deferred loan fees

-

400

Depreciable property

158

361

Stock option compensation

373

241

Accruals

723

600

Other, net

-

2

Deferred tax asset

$

46,247

$

38,651

Deferred tax liability:

Deferred loan cost

(28)

-

Lease right of use asset

(3,648)

(3,595)

Deferred expenses

(175)

(127)

Other, net

(36)

-

Deferred tax liability

$

(3,887)

$

(3,722)

Net deferred tax asset

$

42,360

$

34,929

At

 

December

 

31,

 

2022

 

the

 

Company

 

had

 

approximately

 

$

81.8

 

million

 

of

 

Federal

 

and

 

$

104.5

 

million

 

of

 

State

 

net

operating

 

loss

 

carryforwards

 

expiring

 

in

 

various

 

amounts

 

from

 

2031

 

to

 

2036.

 

Their

 

utilization

 

is limited

 

to

 

future

 

taxable

earnings of the Company.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements

 

36

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

In assessing the

 

realizability of deferred

 

tax assets, management considered

 

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

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 U.S.

 

Federal jurisdiction

 

and Florida

 

are the

 

major tax

 

jurisdictions where

 

the Company

 

files income

 

tax returns.

The Company is generally no longer subject to U.S. Federal or

 

State examinations by tax authorities for years before 2019.

For

 

the

 

years

 

ended

 

December 31,

 

2022 and

 

2021,

 

the

 

Company

 

did

no

t have

 

any unrecognized

 

tax benefits

 

as a

result of

 

tax positions

 

taken during

 

a prior

 

period or

 

during the

 

current period.

 

Additionally,

no

 

interest or

 

penalties

 

were

recorded as a result of tax uncertainties.

7.

 

DEPOSITS

The following table presents deposits by type at December 31,

 

2022 and 2021 (in thousands):

2022

2021

Non-interest bearing deposits

$

629,776

$

605,425

Interest-bearing transaction accounts

66,675

55,878

Saving and money market deposits

915,853

703,856

Time deposits

216,977

225,220

Total

 

deposits

$

1,829,281

$

1,590,379

Time

 

deposits

 

exceeding

 

the

 

FDIC

 

deposit

 

insurance

 

limit

 

of

 

$250

 

thousand

 

at

 

December 31,

 

2022

 

and

 

2021

 

were

$

82.0

 

million and $

119.4

 

million, respectively.

 

At December 31, 2022, the scheduled maturities of time deposits

 

were (in thousands):

2023

$

182,647

2024

11,135

2025

1,998

2026

20,402

2027

549

Thereafter

246

$

216,977

At December 31,

 

2022 and

 

2021, the

 

aggregate amount

 

of demand

 

deposits reclassified

 

to loans

 

as overdrafts

 

was

$

230

 

thousand and $

247

 

thousand, respectively.

8.

 

BORROWINGS

 

Borrowed

 

funds

 

consist

 

of

 

fixed

 

rate

 

advances

 

from

 

the

 

FHLB.

 

At

 

December 31,

 

2022

 

FHLB

 

advances

 

were

 

$

46.0

million and at December 31, 2021 were $

36

 

million.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements

 

37

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

The following

 

table presents

 

the fixed

 

interest rates

 

and expected

 

maturities of

 

the FHLB

 

advances at

 

December 31,

2022 and 2021 (in thousands):

At December 31, 2022

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

4.17

%

Fixed

January 13, 2023

20,000

$

46,000

At December 31, 2021

Interest Rate

Type of Rate

Maturity Date

Amount

0.81

%

Fixed

August 17, 2023

$

5,000

1.04

%

Fixed

July 30, 2024

5,000

2.05

%

Fixed

March 27, 2025

10,000

1.91

%

Fixed

March 28, 2025

5,000

1.81

%

Fixed

April 17, 2025

5,000

1.07

%

Fixed

July 18, 2025

6,000

$

36,000

The

 

FHLB

 

holds

 

a

 

blanket

 

lien

 

on

 

the

 

Company's

 

loan

 

portfolio

 

that

 

may

 

be

 

pledged

 

as

 

collateral

 

for

 

outstanding

advances, subject

 

to eligibility

 

under the

 

borrowing agreement.

 

The Company

 

may also

 

choose to

 

assign cash

 

balances

held at the FHLB as additional collateral. See Note 3 “Loans”

 

for further discussion on pledged loans.

9.

 

EQUITY BASED AND OTHER COMPENSATION

 

PLANS

 

Employee 401(k) Plan

The Company has an

 

employee 401(k) plan (the

 

“Plan”) covering substantially all

 

eligible employees. The Plan includes

a provision

 

that

 

the employer

 

may contribute

 

to the

 

accounts

 

of eligible

 

employees

 

for whom

 

a salary

 

deferral

 

is made.

There was $

313

 

thousand and $

296

 

thousand of Company contributions to the Plan during the years ended December 31,

2022 and

 

2021,

 

respectively,

 

and are

 

included

 

under

 

salaries and

 

employee

 

benefits in

 

the Consolidated

 

Statements

 

of

Operations.

Stock-Based Compensation

Stock option

 

balances,

 

weighted average

 

exercise

 

price,

 

and weighted

 

average

 

fair value

 

of options

 

granted

 

for the

year ended

 

December 31,

 

2021 were

 

adjusted to

 

reflect the

1 for 5

 

reverse stock

 

split on

 

Class A

 

common stock.

 

Stock

options are only exercisable

 

to Class A common

 

stock. See Note 13

 

“Stockholders’ Equity” for

 

further discussion on stock

split.

In

 

2015,

 

the

 

Company's

 

shareholders

 

approved

 

the

 

2015

 

Equity

 

Incentive

 

Plan

 

(the

 

“2015

 

Option

 

Plan”),

 

which

authorized grants

 

of options

 

to purchase

 

up to

2,000,000

 

shares of

 

common stock.

 

The

2015

Option

 

Plan

 

provided that

vesting

 

schedules

 

will

 

be

 

determined

 

upon

 

issuance

 

of

 

options

 

by

 

the

 

Board

 

of

 

Directors

 

or

 

compensation

 

committee.

Options

 

granted

 

under

 

the

 

2015

 

Option

 

Plan

 

have

 

a

10

-year

 

life,

 

in

 

no

 

event

 

shall

 

an

 

option

 

be

 

exercisable

 

after

 

the

expiration of

10

 

years from the grant date. The 2015 Option Plan has a

10

-year life and will terminate in 2025. In July 2020,

the

 

shareholders

 

of

 

the

 

Company

 

approved

 

to

 

amend

 

the

 

2015

 

Option

 

plan

 

authorizing

 

the

 

issuance

 

of

 

an

 

additional

3,000,000

 

shares of common stock and extending the life of the plan

5

 

additional years, terminating in 2030. The approved

shares

 

after

 

being

 

adjusted

 

to

 

reflect

 

the

1 for 5

 

reverse

 

stock

 

split

 

totaled

1,000,000

 

shares.

 

In

 

December

 

2021,

 

the

shareholders of the Company approved to amend the

 

2015 Option plan authorizing the issuance of

 

an additional

1,400,000

shares of common stock.

At December 31, 2022, there were

1,386,667

 

shares available for grant under the

 

2015 Option Plan. At December 31,

2021, there were

1,401,667

shares available for grant under the 2015 Option Plan.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements

 

38

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

The Company recognizes compensation expense based

 

on the estimated grant date

 

fair value method using the

 

Black-

Scholes

 

option

 

pricing

 

model and

 

accounts

 

for this

 

expense

 

using

 

a prorated

 

straight-line

 

amortization

 

method over

 

the

vesting

 

period

 

of

 

the

 

option.

 

Stock

 

based

 

compensation

 

expense

 

is

 

based

 

on

 

awards

 

that

 

the

 

Company

 

expects

 

will

ultimately vest,

 

reduced by estimated forfeitures.

 

Estimated forfeitures consider the voluntary

 

termination trends as well as

actual option forfeitures.

The

 

compensation

 

expense

 

is

 

reported

 

under

 

salaries

 

and

 

employee

 

benefits

 

in

 

the

 

accompanying

 

Consolidated

Statements

 

of

 

Operations.

 

Compensation

 

expense

 

totaling

 

$

523

 

thousand

 

was

 

recognized

 

for

 

the

 

year

 

ended

December 31, 2022

 

and $

287

 

thousand for

 

the year

 

ended December

 

31, 2021.

 

There was

no

 

related tax

 

benefit for

 

the

years ended December 31, 2022 and 2021.

Unrecognized compensation cost

 

remaining on stock-based

 

compensation totaled $

787

 

thousand and $

1.3

 

million for

the years ended December 31, 2022 and 2021, respectively

 

.

Cash

 

flows

 

resulting

 

from

 

excess

 

tax

 

benefits

 

are

 

required

 

to

 

be

 

classified

 

as

 

a

 

part

 

of

 

cash

 

flows

 

from

 

operating

activities. Excess tax benefits

 

are realized tax benefits

 

from tax deductions for

 

exercised options in

 

excess of the deferred

tax asset attributable to the compensation cost for such

 

options.

The fair value of options

 

granted was determined using

 

the following weighted-average

 

assumptions at December 31,

2022:

Assumption

2022

Risk-free interest rate

2.34

%

Expected term

10

 

years

Expected stock price volatility

10

%

Dividend yield

0

%

The following table presents a summary of stock options

 

for the years ended December 31, 2022 and 2021:

Stock Options

Weighted Average

Exercise Price

Weighted Average

Remaining

Contractual Years

Aggregate Intrinsic

Value (in

thousands)

Balance at January 1, 2022

959,667

$

10.87

8.4

Granted

15,000

$

14.03

Exercised

(9,000)

$

11.35

Balance at December 31, 2022

965,667

$

10.91

7.4

Exercisable at December 31, 2022

560,000

$

10.18

6.4

$

1,131

 

Balance at January 1, 2021

339,667

$

9.37

7.1

Granted

620,000

$

11.69

Balance at December 31, 2021

959,667

$

10.87

8.4

Exercisable at December 31, 2021

319,667

$

9.07

6.0

$

663

The aggregate intrinsic value in

 

the table above represents

 

the total pre-tax intrinsic

 

value (the difference between

 

the

valuation of the Company’s stock and the exercise price, multiplied by

 

the number of options considered in-the-money) that

would have been received by the option holders had all option

 

holders exercised their options.

The weighted average

 

fair value of

 

options granted for

 

the years ended

 

December 31, 2022 and

 

2021 was $

3.45

 

and

$

2.32

, respectively.

There were

no

 

restricted stock awards outstanding as of December

 

31, 2021 or 2022.

There are

no

 

equity compensation plans of the Company that have

 

not been approved by the shareholders.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements

 

39

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

10.

 

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

December 31, 2022 and 2021 (in thousands):

 

2022

2021

Commitments to grant loans and unfunded lines of credit

$

95,461

$

134,877

Standby and commercial letters of credit

4,320

6,420

Total

$

99,781

$

141,297

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

 

is 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 many of them expire without being drawn upon,

they do not generally present a significant liquidity risk

 

to the Company.

11.

 

DERIVATIVES

 

The Company utilizes interest rate swap agreements

 

as part of its asset liability management strategy

 

to help manage

its interest

 

rate risk

 

position. The

 

notional amount

 

of the

 

interest rate

 

swaps do

 

not represent

 

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

15

 

and

18

 

interest rate swaps

with loan customers with

 

a notional amount of

 

$

33.9

 

million and $

39.2

 

million at December 31, 2022

 

and 2021, respectively.

These interest

 

rate swaps

 

have a

 

maturity date

 

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,

 

it does not qualify as hedges for accounting purposes.

 

The following table reflects the Company’s customer

 

related interest rate swaps for the dates indicated

 

(in thousands):

 

Fair Value

Notional

Amount

Collateral

Amount

Balance Sheet Location

Asset

Liability

December 31, 2022:

Derivatives not designated as hedging instruments:

Interest rate swaps related to customer loans

$

33,893

$

1,278

Other assets/Other liabilities

$

5,011

$

5,011

December 31, 2021:

Derivatives not designated as hedging instruments:

Interest rate swaps related to customer loans

$

39,156

$

1,260

Other assets/Other liabilities

$

1,434

$

1,434

 

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements

 

40

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

12.

 

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

 

- Valuation

 

is based

 

on quoted

 

prices in

 

active markets

 

for identical

 

assets or

 

liabilities that

 

the reporting

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

 

- Valuation

 

is based on inputs other

 

than quoted prices included

 

within Level 1 that are

 

observable for the

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

 

- Valuation

 

is based on

 

unobservable inputs that

 

are supported

 

by little or

 

no market activity

 

and that are

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.

Items Measured at Fair Value

 

on a Recurring Basis

Investment securities:

 

When instruments are traded

 

in secondary markets and

 

quoted market prices do

 

not exist 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:

 

The

 

fair

 

value

 

of

 

derivatives

 

are

 

measured

 

with

 

pricing

 

provided

 

by

 

third-party

 

participants

 

and

 

are

classified within Level 2 of the hierarchy.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements

 

41

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

The following table represents

 

the Company's assets measured at

 

fair value on a

 

recurring basis at December 31, 2022

and 2021 for each of the fair value hierarchy levels (in thousands):

2022

2021

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

Investment securities available for sale:

U.S. Government Agency

$

-

$

8,655

$

-

$

8,655

$

-

$

10,520

$

-

$

10,520

Collateralized mortgage obligations

-

95,541

-

95,541

-

156,829

-

156,829

Mortgage-backed securities - Residential

-

60,879

-

60,879

-

118,842

-

118,842

Mortgage-backed securities - Commercial

-

27,954

-

27,954

-

50,117

-

50,117

Municipal securities

-

18,483

-

18,483

-

24,276

-

24,276

Bank subordinated debt securities

-

14,919

-

14,919

-

28,408

-

28,408

Corporate bonds

-

3,709

-

3,709

-

12,550

-

12,550

Total

-

230,140

-

230,140

-

401,542

-

401,542

Derivative assets

-

5,011

-

5,011

-

1,434

-

1,434

Total assets at fair value

$

-

$

235,151

$

-

$

235,151

$

-

$

402,976

$

-

$

402,976

Derivative liabilities

$

-

$

5,011

$

-

$

5,011

$

-

$

1,434

$

-

$

1,434

Total liabilities at fair value

$

-

$

5,011

$

-

$

5,011

$

-

$

1,434

$

-

$

1,434

Items Measured at Fair Value

 

on a Non-recurring Basis

 

Impaired Loans:

At December

 

31,

 

2022 and

 

2021,

 

in accordance

 

with

 

provisions of

 

the

 

loan impairment

 

guidance,

individual loans

 

with a

 

carrying amount

 

of approximately

 

$

3.9

 

million and

 

$

4.4

 

million, respectively,

 

were written

 

down to

their

 

fair

 

value

 

of

 

approximately

 

$

3.6

 

million

 

and

 

$

4.0

 

million,

 

respectively,

 

resulting

 

in

 

an

 

impairment

 

charge

 

of

$

294

 

thousand

 

and $

360

 

thousand,

 

respectively,

 

which

 

was included

 

in the

 

allowance

 

for credit

 

losses

 

at December 31,

2022 and 2021, respectively.

 

Loans applicable 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:

 

Other real

 

estate owned are

 

valued at the

 

lesser of the

 

third-party appraisals

 

less management's

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.

 

The following table represents the Company’s assets measured at fair value on a non-recurring basis at December 31,

2022 and 2021 for each of the fair value hierarchy levels

 

(in thousands):

Level 1

Level 2

Level 3

Total

December 31, 2022:

Impaired loans

$

-

$

-

$

3,639

$

3,639

December 31, 2021:

Impaired loans

$

-

$

-

$

3,990

$

3,990

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements

 

42

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

The following table presents

 

quantified information about

 

Level 3 fair value

 

measurements for assets measured

 

at fair

value on a non-recurring basis at December 31, 2022 and 2021

 

(in thousands):

Fair Value

Valuation Technique(s)

Unobservable Input(s)

December 31, 2022:

Residential real estate

$

3,500

Sales comparison approach

Adj. for differences between comparable sales

Commercial and industrial

41

Discounted cash flow

Adj. for differences in net operating income expectations

Other

98

Discounted cash flow

Adj. for differences in net operating income expectations

Total

 

impaired loans

$

3,639

December 31, 2021:

Residential real estate

$

3,807

Sales comparison approach

Adj. for differences between comparable sales

Commercial and industrial

70

Discounted cash flow

Adj. for differences in net operating income expectations

Other

113

Discounted cash flow

Adj. for differences in net operating income expectations

Total

 

impaired loans

$

3,990

There were

no

 

financial liabilities measured at fair value on a non-recurring

 

basis at December 31, 2022 and 2021.

Items Not Measured at Fair Value

The carrying amounts and estimated fair values of financial instruments not carried at fair value, at December 31, 2022

and 2021 are as follows (in thousands):

Fair Value Hierarchy

Carrying

Amount

Level 1

Level 2

Level 3

Fair Value

Amount

December 31, 2022:

Financial Assets:

Cash and due from banks

$

$6,605

$

$6,605

$

-

$

-

$

6,605

Interest-bearing deposits in banks

$

47,563

$

47,563

$

-

$

-

$

47,563

Investment securities held to maturity

$

188,699

$

-

$

169,088

$

-

$

169,088

Loans held for investment, net

$

1,489,851

$

-

$

-

$

1,436,877

$

1,436,877

Accrued interest receivable

$

7,546

$

-

$

1,183

$

6,363

$

7,546

Financial Liabilities:

Demand Deposits

$

$629,776

$

$629,776

$

-

$

-

$

629,776

Money market and savings accounts

$

915,853

$

915,853

$

-

$

-

$

915,853

Interest-bearing checking accounts

$

66,675

$

66,675

$

-

$

-

$

66,675

Time deposits

$

216,977

$

-

$

-

$

211,406

$

211,406

FHLB advances

$

46,000

$

-

$

44,547

$

-

$

44,547

Accrued interest payable

$

229

$

-

$

92

$

137

$

229

December 31, 2021:

Financial Assets:

Cash and due from banks

$

6,477

$

6,477

$

-

$

-

$

6,477

Interest-bearing deposits in banks

$

39,751

$

39,751

$

-

$

-

$

39,751

Investment securities held to maturity

122,658

$

-

$

120,157

$

-

$

120,157

Loans held for investment, net

$

1,175,024

$

-

$

-

$

1,189,191

$

1,189,191

Accrued interest receivable

$

5,975

$

-

$

1,222

$

4,753

$

5,975

Financial Liabilities:

Demand Deposits

$

605,425

$

605,425

$

-

$

-

$

605,425

Money market and savings accounts

$

703,856

$

703,856

$

-

$

-

$

703,856

Interest-bearing checking accounts

$

55,878

$

55,878

$

-

$

-

$

55,878

Time deposits

$

225,220

$

-

$

-

$

224,688

$

224,688

FHLB advances

$

36,000

$

-

$

36,479

$

-

$

36,479

Accrued interest payable

$

96

$

-

$

50

$

46

$

96

 

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements

 

43

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

13.

 

STOCKHOLDERS’ EQUITY

Common Stock

On June 16, 2021, the Bank

 

effected a

1 for 5

 

reverse stock split of all

 

the Class A common stock

 

$

1.00

 

par value per

share. As of the effective date of June 16, 2021,

 

each five shares of the Company’s

 

Class A common stock was combined

into

one

 

fully paid share of

 

Class A common

 

stock. Any fractional 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 adjusted

for this

1 for 5

 

reverse stock

 

split for all

 

periods presented

 

here. The

 

Class B non-voting

 

common stock

 

was not adjusted

but if

 

sold or

 

exchanged would

 

be converted

 

at the

1 for 5

 

reverse stock

 

split of

 

5 Class

 

B common

 

stock for

1

 

share of

Class A common stock.

 

On July 27, 2021, the Bank completed the Initial Public Offering (“IPO”) of its Class A common stock, in which it issued

and

 

sold

4,600,000

 

shares

 

of

 

Class

 

A

 

common

 

stock

 

at

 

a

 

price

 

of

 

$

10.00

 

per

 

share.

 

The

 

Company

 

received

 

total

 

net

proceeds of $

40.0

 

million after deducting underwriting discounts and expenses.

On

 

December

 

21,

 

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

 

5 to

 

1. On

 

the same

 

day,

 

a

total of

6,121,052

 

shares of Class B common stock was exchanged for

1,224,212

 

shares of Class A common stock.

 

In December 2021, the

 

Company acquired all

 

the issued and outstanding

 

shares of the Class

 

A voting common

 

stock

of

 

the

 

Bank,

 

which

 

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

common stock,

 

par value

 

$

1.00

 

per share,

 

formerly held

 

by its

 

shareholders

 

was

 

converted into

 

and exchanged

 

for one

newly issued

 

share of

 

the

 

Company’s

 

common

 

stock,

 

par value

 

$

1.00

 

per share,

 

and the

 

Bank became

 

the Company’s

wholly-owned subsidiary.

 

Prior to

 

completing the

 

bank holding

 

company formation,

 

the Company

 

had no

 

material assets

and had not conducted any business or operations except

 

for activities related to our organization and the

 

Reorganization.

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

On April 5, 2021,

 

the Board authorized and

 

approved the offer to

 

repurchase all outstanding shares of

 

Class E preferred

stock at

 

the liquidation

 

value of

 

$

7.5

 

million along

 

with declared

 

dividends of

 

$

103

 

thousand.

 

All Class

 

E preferred

 

stock

shareholders approved the repurchase which the Company

 

completed on April 26, 2021.

 

The Company 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

90

%

of

 

their

 

preferred

 

shares

 

for

 

Class

 

A

 

common

 

stock

 

with

 

the

 

remaining

10

%

 

to

 

be

 

redeemed

 

in

 

the

 

form

 

of

 

cash.

 

The

exchange ratio for the shares of

 

Class A common stock issued in the

 

exchange transaction was based upon

 

the IPO price

for shares of Class A common stock.

 

During the

 

year ended

 

2021,

47,473

 

shares of

 

Class C

 

preferred stock

 

and

11,061,552

 

shares of

 

Class D

 

preferred

stock converted

 

into

10,278,072

 

shares of

 

Class

 

A common

 

stock. The

 

exchange

 

of the

 

Class C

 

and Class

 

D preferred

shares had

 

a total

 

liquidation value

 

of $

102.8

 

million. The

 

remaining unconverted

 

shares of

 

Class C

 

preferred stock

 

and

Class D preferred stock totaling

1,234,354

 

shares were subsequently redeemed at liquidation

 

value for $

11.4

 

million.

 

The fair value of

 

consideration on the 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

 

$

89.6

 

million.

 

As

 

of

December 31, 2022, there were

no

 

preferred shares and

no

 

outstanding dividends to be paid.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements

 

44

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

Dividends

The Board approved

 

the following dividend

 

amounts on the

 

preferred shares for

 

the years ended

 

December 31, 2022

and 2021 (in thousands):

 

2022

2021

Preferred stock - Class C: Non-voting, Non-cumulative, Perpetual: $

1.00

 

par value; $

1,000

per share liquidation preference; annual dividend rate of

4

% of liquidation preference paid

quarterly. Quarterly dividend of $

10.00

 

per share.

$

-

$

1,494

Preferred stock - Class D: Non-voting, Non-cumulative, Perpetual: $

1.00

 

par value; $

5.00

per share liquidation preference; annual dividend rate of

4

% of par value paid quarterly.

Quarterly dividend of $

0.01

 

per share.

-

348

Preferred stock - Class E: Non-voting, partially cumulative, Perpetual: $

1.00

 

par value;

$

1,000

 

per share liquidation preference; annual dividend rate of

7

% of liquidation

preferences paid quarterly. Quarterly dividend of $

17.50

 

per share.

-

235

Total

 

dividends paid

$

-

$

2,077

Declaration of dividends by the Board is required before dividend payments are made. The dividend payment dates for

Class C and

 

Class D preferred shares

 

were set by

 

the Board while

 

the Class E preferred

 

shares had a

 

set dividend payment

date on the fifteenth of February,

 

May, August, and November.

No

 

dividends were approved by

 

the Board for the common

 

stock classes for the years

 

ended December 31, 2022 and

2021. Additionally, there

 

were

no

 

dividends declared and unpaid at December 31, 2022

 

and 2021.

14.

 

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.

 

In calculating EPS for

 

the year ended December 31, 2022

 

and 2021, net income

 

available to common stockholders was

not allocated

 

between Class

 

A and

 

Class B

 

common stock

 

since there

 

was

no

 

issued and

 

outstanding Class

 

B common

stock at year-end.

The following table

 

reflects the calculation

 

of net income

 

(loss) available to

 

common stockholders

 

for the years

 

ended

December 31, 2022 and 2021 (in thousands):

2022

2021

Net Income

$

20,141

$

21,077

Less: Preferred stock dividends

 

-

2,077

Less: Exchange and redemption of preferred shares

-

89,585

Net income (loss) available to common stockholders

$

20,141

$

(70,585)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements

 

45

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

The following

 

table reflects

 

the calculation

 

of basic

 

and diluted

 

earnings (loss)

 

per common

 

share class

 

for the

 

years

ended December 31, 2022 and 2021 (in thousands, except

 

per share amounts):

2022

2021

Class A

Class A

Basic EPS

Numerator:

Net income (loss) available to common shares before allocation

$

20,141

$

(70,585)

Multiply: % allocated on weighted avg. shares outstanding

100.0%

100.0%

Net income (loss) available to common shares after allocation

$

20,141

$

(70,585)

Denominator:

Weighted average shares outstanding

19,999,323

10,507,530

Earnings (loss) per share, basic

$

1.01

$

(6.72)

Diluted EPS

Numerator:

Net income (loss) available to common shares before allocation

$

20,141

$

(70,585)

Multiply: % allocated on weighted avg. shares outstanding

100.0%

100.0%

Net income (loss) available to common shares after allocation

$

20,141

$

(70,585)

Denominator:

Weighted average shares outstanding for basic EPS

19,999,323

10,507,530

Add: Dilutive effects of assumed exercises of stock options

177,515

-

Weighted avg. shares including dilutive potential common shares

20,176,838

10,507,530

Earnings (loss) per share, diluted

$

1.00

$

(6.72)

Anti-dilutive stock options excluded from diluted EPS

15,000

183,303

For the year

 

ended 2021, the

 

Company was

 

in a net

 

loss position after

 

adjusting for the

 

exchange and redemption

 

of

the Class C

 

and Class D

 

preferred shares, making

 

basic net loss

 

per share the

 

same as diluted

 

net loss per

 

share as the

inclusion of all potential common shares outstanding would

 

have been antidilutive.

See Note 13 “Stockholders’ Equity” for further discussion

 

on the stock splits.

15.

 

REGULATORY

 

MATTERS

Banks and

 

bank holding

 

companies

 

are subject

 

to regulatory

 

capital requirements

 

administered by

 

federal and

 

state

banking

 

agencies.

 

Failure

 

to

 

meet

 

minimum

 

capital

 

requirements

 

can

 

initiate

 

certain

 

mandatory

 

and

 

possibly

 

additional

discretionary actions

 

by regulators

 

that, if

 

undertaken, could

 

have a

 

direct material

 

effect on

 

the Company's

 

consolidated

financial

 

statements.

 

Under

 

capital

 

adequacy

 

guidelines

 

and

 

the

 

regulatory

 

framework

 

for

 

prompt

 

corrective

 

action,

 

the

Company and the

 

Bank must meet

 

specific capital guidelines

 

that involve quantitative

 

measures of their

 

assets, liabilities,

and

 

certain

 

off-balance-sheet

 

items

 

as

 

calculated

 

under

 

regulatory

 

accounting

 

practices.

 

The

 

Company

 

and

 

the

 

Bank’s

capital

 

amounts

 

and

 

classification

 

are

 

also

 

subject

 

to

 

qualitative

 

judgments

 

by

 

the

 

regulators

 

about

 

components,

 

risk

weightings, and other factors.

Based on changes to the Federal Reserve’s definition of a “Small Bank Holding

 

Company” that increased the threshold

to $3.0 billion in assets

 

in August 2018, the Company

 

is not currently subject to

 

separate minimum capital measurements.

At such time when the Company reaches the

 

$3.0 billion asset level, it will

 

be subject to capital measurements independent

of the Bank.

The Bank has

 

elected to permanently opt-out

 

of the inclusion

 

of accumulated other comprehensive

 

income in the

 

capital

calculations, as permitted by the regulations. This

 

opt-out will reduce the impact of

 

market volatility on the Bank’s regulatory

capital levels.

The Bank is

 

subject to the

 

rules of the

 

Basel III regulatory capital

 

framework and related Dodd-Frank

 

Wall Street Reform

and Consumer Protection

 

Act. The rules include

 

the implementation of

 

a

2.5

% capital conservation

 

buffer that is

 

added to

the minimum requirements

 

for capital adequacy

 

purposes. Failure

 

to maintain the

 

required capital conservation

 

buffer will

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements

 

46

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

limit the ability of

 

the Bank to pay

 

dividends, repurchase shares

 

or pay discretionary

 

bonuses. At December

 

31, 2022 and

2021, the capital ratios for the Bank were sufficient

 

to meet the conservation buffer.

Prompt

 

corrective

 

action

 

regulations

 

provide

 

five

 

classifications:

 

well

 

capitalized,

 

adequately

 

capitalized,

undercapitalized,

 

significantly

 

undercapitalized,

 

and

 

critically

 

undercapitalized,

 

although

 

these

 

terms

 

are

 

not

 

used

 

to

represent overall financial condition. If

 

adequately capitalized, regulatory approval

 

is required to accept brokered

 

deposits.

If

 

undercapitalized,

 

capital

 

distributions

 

are

 

limited,

 

as

 

is

 

asset

 

growth

 

and

 

expansion,

 

and

 

capital

 

restoration

 

plans

 

are

required.

 

At December 31,

 

2022 and

 

2021, the

 

most recent

 

notification from

 

the regulatory

 

authorities categorized

 

the Bank

 

as

well capitalized

 

under the

 

regulatory framework

 

for prompt

 

corrective action.

 

Failure to

 

meet statutorily

 

mandated capital

guidelines

 

could

 

subject

 

the

 

Bank

 

to

 

a

 

variety

 

of

 

enforcement

 

remedies,

 

including

 

issuance

 

of

 

a

 

capital

 

directive,

 

the

termination of deposit

 

insurance by the

 

FDIC, a prohibition

 

on accepting or

 

renewing brokered deposits,

 

limitations on the

rates of

 

interest that

 

the Bank

 

may pay

 

on

 

its deposits

 

and other

 

restrictions

 

on

 

its business.

 

To

 

be categorized

 

as well

capitalized, an institution

 

must maintain minimum

 

total risk-based, Tier

 

1 risk-based and Tier

 

1 leverage ratios as

 

set forth

in the

 

table below.

 

There are

 

no conditions

 

or events

 

since the

 

notification that

 

management believes

 

have changed

 

the

Bank’s category.

 

Actual and required

 

capital amounts and

 

ratios are presented

 

below for the

 

Bank at December

 

31, 2022 and

 

2021 (in

thousands, except ratios). The required amounts for capital adequacy

 

shown do not include the capital conservation buffer

previously discussed.

Actual

Minimum Capital

Requirements

 

To be Well Capitalized

Under Prompt Corrective

Action Provisions

Amount

Ratio

Amount

Ratio

Amount

Ratio

December 31, 2022:

Total

 

risk-based capital:

$

216,693

13.58

%

$

127,616

8.00

%

$

159,520

10.00

%

Tier 1 risk-based capital:

$

198,909

12.47

%

$

95,712

6.00

%

$

127,616

8.00

%

Common equity tier 1 capital:

$

198,909

12.47

%

$

71,784

4.50

%

$

103,688

6.50

%

Leverage ratio:

198,909

9.56

%

$

83,210

4.00

%

$

104,012

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

%

Effective December 30, 2021, the Company acquired the Bank in a merger and

 

reorganization through the formation of

a bank holding company.

 

Pursuant to this transaction, all of the

 

outstanding shares of the Bank’s

 

$

1.00

 

par value common

stock formerly

 

held by

 

its shareholders

 

was converted

 

into and

 

exchanged for

 

one newly

 

issued share

 

of the

 

Company’s

par value common

 

stock, and the Bank

 

became a subsidiary of

 

the Company. See Note 13 “Stockholders’ Equity”

 

for further

details.

The Company

 

is limited in

 

the amount

 

of cash

 

dividends that

 

it may

 

pay.

 

Payment of dividends

 

is generally

 

limited to

the Company’s

 

net income

 

of the

 

current year

 

combined with

 

the Bank’s

 

retained income

 

of the

 

preceding two

 

years, as

defined by state banking regulations. However, for any dividend declaration, the Company must consider

 

additional factors

such as the amount

 

of current period net

 

income, liquidity,

 

asset quality,

 

capital adequacy and

 

economic conditions at

 

the

Bank. It is likely that

 

these factors would further limit the

 

amount of dividends which the Company could

 

declare. In addition,

bank regulators have

 

the authority to

 

prohibit banks from

 

paying dividends

 

if they deem

 

such payment to

 

be an unsafe

 

or

unsound practice.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements

 

47

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

16.

 

RELATED PARTY

 

TRANSACTIONS

 

In

 

the

 

ordinary

 

course

 

of

 

business,

 

principal

 

officers,

 

directors,

 

and

 

affiliates

 

may

 

engage

 

in

 

transactions

 

with

 

the

Company.

 

The

 

following

 

table

 

presents

 

loans

 

to

 

and

 

deposits

 

from

 

related

 

parties

 

included

 

within

 

the

 

accompanying

Consolidated Financial Statements at December 31, 2022

 

and 2021 (in thousands):

2022

2021

Consolidated Balance Sheets:

Loans held for investment, net

 

$

-

$

-

Deposits

$

6,825

$

1,905

Consolidated Statements of Operations:

Interest income

$

-

$

-

Interest expense

$

54

$

16

Loan Purchases

 

During 2022, the Bank purchased $

42.8

 

million of loans from entities that are deemed

 

to be related parties.

 

The Bank

paid those entities fees of $

881

 

thousand.

 

17.

 

PARENT COMPANY

 

CONDENSED FINANCIAL INFORMATION

 

In December

 

2021, USCB

 

Financial Holdings,

 

Inc. was

 

formed as

 

the parent

 

bank holding

 

company of

 

U.S. Century

Bank.

 

The

 

condensed

 

balance

 

sheet

 

is

 

presented

 

below

 

for

 

USCB

 

Financial

 

Holdings,

 

Inc.

 

at

 

the

 

dates

 

indicated

 

(in

thousands):

December 31, 2022

December 31, 2021

ASSETS:

Cash and Cash Equivalents

$

1,102

$

-

Investment in bank subsidiary

 

181,326

 

203,897

Other assets

-

-

Total

 

assets

$

182,428

$

203,897

LIABILITIES AND STOCKHOLDERS' EQUITY:

Other liabilities

$

-

$

-

Stockholders' equity

182,428

203,897

Total

 

liabilities and stockholders' equity

$

182,428

$

203,897

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements

 

48

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

The

 

condensed

 

income

 

statement

 

is

 

presented

 

below

 

for

 

USCB

 

Financial

 

Holdings,

 

Inc.

 

at

 

the

 

dates

 

indicated

 

(in

thousands):

December 31, 2022

December 31, 2021

INCOME:

Dividends from subsidiaries

$

1,000

$

-

Service fees from subsidiaries

-

-

Total

$

1,000

$

-

EXPENSE:

Employee compensation and benefits

 

-

 

-

Total

-

-

Income before income taxes and undistributed subsidiary income

1,000

Provision (benefit) for income taxes

-

-

Equity in undisbursed subsidiary income

19,141

Net Income

 

$

20,141

$

-

The condensed cash flow is presented below for USCB

 

Financial Holdings, Inc. at the dates indicated (in thousands):

December 31, 2022

December 31, 2021

Cash flows from operating activities:

Net income

$

20,141

$

-

Adjustments to reconcile net income to net cash provided

 

by operating

activities:

-

Equity in undistributed earnings of subsidiaries

(19,141)

-

Other

-

Net cash provided by operating activities

$

1,000

$

-

Cash flows from investing activities:

Capital contributions to subsidiary

-

-

Other

-

-

Net cash used in investing activities

 

-

-

Cash flows from financing activities:

Dividends paid

-

-

Proceeds from exercise of stock options

102

-

Repurchase of common stock

-

-

Net cash (used in) provided by financing activities

102

-

Net increase (decrease) in cash and cash equivalents

 

1,102

-

Cash and cash equivalents, beginning of period

 

-

-

Cash and cash equivalents, end of period

 

$

1,102

$

-

18.

 

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.

19.

 

SUBSEQUENT EVENTS

 

Management has

 

evaluated subsequent

 

events from

 

January 1,

 

2023 through

 

March 24,

 

2023, which

 

is the

 

date this

Annual Report Form 10-K was available to be issued.

Share Repurchase Program

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements

 

49

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

In February 2023 the

 

Company repurchased

250,000

 

shares of USCB Financial

 

Holdings Inc. Class

 

A common stock

at

 

a

 

price

 

of

 

$

12.04

.

 

Additionally,

 

the

 

Company

 

repurchased

250,000

 

shares

 

of

 

USCB

 

Financial

 

Holdings

 

Inc

 

Class

 

A

Common stock

 

at a

 

price of

 

$

11.39

 

in March

 

2023. These

 

repurchases were

 

made thru

 

the open

 

market pursuant

 

to the

Company’s publicly announced repurchase program.

 

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements

 

50

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

PART IV

 

Item 15. Exhibits and Financial Statement Schedules

(a)

 

List of documents filed as part of this Amendment No.

 

1 to the Annual Report on Form 10-K and are set forth

 

in Item 8

hereto:

1)

Financial Statements:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2022 and 2021

Consolidated Statements of Operations for the years ended

 

December 31, 2022 and 2021

Consolidated Statements of Comprehensive Income (Loss)

 

for the years ended December 31, 2022 and 2021

Consolidated Statements of Changes in Stockholders'

 

Equity for the years ended December 31, 2022 and 2021

Consolidated Statements of Cash Flows for the years

 

ended December 31, 2022 and 2021

Notes to Consolidated Financial Statements

2)

Financial Statement Schedules:

Financial statement schedules are omitted as not required

 

or not applicable or because the information is

included in the Consolidated Financial Statements or notes

 

thereto.

(b)

 

List of Exhibits:

Item 15(b) of the Original Report is hereby amended solely

 

to provide the exhibits required to be filed in

connection with the Form 10-K/A.

 

 

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements

 

51

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

EXHIBIT INDEX

Exhibit

Number

Description of Exhibit

31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.

*

31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.

*

32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.

**

32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.

**

101

The following financial statements from

 

the Company’s Annual Report on

 

Form 10-K for the year ended

 

December 31, 2021,

formatted

 

in

 

Inline

 

XBRL:

 

(i)

 

Consolidated

 

Balance

 

Sheets,

 

(ii)

 

Consolidated

 

Statements

 

of

 

Operations,

 

(iii)

 

Consolidated

 

Statements

 

of

 

Comprehensive Income,

 

(iv) Consolidated

 

Statements of

 

Changes in

 

Stockholders’ Equity,

 

(v)

 

Consolidated

 

Statements of Cash Flows, (vi) Notes to Consolidated Financial Statements.

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*

Filed herewith.

**

Furnished hereby.

 

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements

 

52

 

USCB Financial Holdings, Inc.

 

2022 10-K/A

SIGNATURES

 

Pursuant to the requirements of the

 

Exchange Act, the registrant has

 

duly caused this Amendment No.

 

1 to this report

to be signed on its behalf by the undersigned thereunto

 

duly authorized.

USCB FINANCIAL HOLDINGS, INC.

Date: March 27, 2023

By:

/s/ Luis de la Aguilera

Luis de la Aguilera

President and Chief Executive Officer