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uscb-20230331p1i0
UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
March 31, 2023
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____to_____
Commission File Number:
001-41196
USCB Financial Holdings, Inc.
(Exact name of registrant as specified in its charter)
 
Florida
87-4070846
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
2301 N.W. 87th Avenue
,
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
Indicate by check
 
mark whether the
 
registrant (1) has
 
filed all reports
 
required to be
 
filed by
 
Section 13 or
 
15(d) of the
 
Securities Exchange
Act of 1934 during the preceding 12 months
 
(or for such shorter period that the registrant
 
was required to file such reports), and (2)
 
has
been subject to such filing requirements for the past 90 days.
 
Yes
☒
 
No
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to
 
be submitted pursuant
to Rule 405
 
of Regulation S-T
 
(§232.405 of this
 
chapter) during the
 
preceding 12 months
 
(or for such
 
shorter period that
 
the registrant
was required to submit such files).
 
Yes
☒
 
No
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
 
a smaller reporting
company
 
or
 
an
 
emerging
 
growth
 
company.
 
See
 
the
 
definitions
 
of
 
“large
 
accelerated
 
filer,”
 
“accelerated
 
filer,”
 
“non-accelerated
 
filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
 
Accelerated filer
☐
 
Non-accelerated filer
☒
 
Smaller reporting company
☒
 
Emerging growth company
☒
If an
 
emerging growth
 
company, indicate by
 
check mark
 
if the
 
registrant has
 
elected not
 
to use
 
the extended
 
transition period
 
for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐
 
No
☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of May 1, 2023, the registrant had
19,622,380
 
shares of Class
A
common stock outstanding.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
PART I
Item 1.
 
Financial Statements
 
USCB FINANCIAL HOLDINGS, INC.
Consolidated Balance Sheets - Unaudited
(Dollars in thousands,
 
except share data)
March 31, 2023
December 31, 2022
ASSETS:
Cash and due from banks
$
5,586
$
6,605
Interest-bearing deposits in banks
57,665
47,563
Total cash and cash
 
equivalents
63,251
54,168
Investment securities held to maturity, net of allowance
 
for credit losses of $
0
 
(fair value $
169,167
 
and
$
169,088
, respectively)
186,428
188,699
Investment securities available for sale, at fair value
229,409
230,140
Federal Home Loan Bank stock, at cost
6,143
2,882
Loans held for investment, net of allowance of $
18,887
 
and $
17,487
, respectively
1,561,507
1,489,851
Accrued interest receivable
8,216
7,546
Premises and equipment, net
5,135
5,263
Bank owned life insurance
43,048
42,781
Deferred tax assets, net
39,567
42,360
Lease right-of-use asset
13,652
14,395
Other assets
7,465
7,749
Total assets
$
2,163,821
$
2,085,834
 
 
LIABILITIES:
 
 
Deposits:
 
 
Demand deposits
$
633,606
$
629,776
Money market and savings accounts
900,478
915,853
Interest-bearing checking
50,573
66,675
Time deposits
245,805
216,977
Total deposits
1,830,462
1,829,281
Federal Home Loan Bank advances
120,000
46,000
Lease liability
13,652
14,395
Accrued interest and other liabilities
15,849
13,730
Total liabilities
1,979,963
1,903,406
 
 
Commitments and contingencies (See Notes 5 and 10)
.
 
.
 
 
STOCKHOLDERS' EQUITY:
 
 
Preferred stock - Class C; $
1.00
 
par value; $
1,000
 
per share liquidation preference;
52,748
 
shares
authorized;
0
 
and
0
 
issued and outstanding as of March 31, 2023 and December 31, 2022
-
-
Preferred stock - Class D; $
1.00
 
par value; $
5.00
 
per share liquidation preference;
12,309,480
 
shares
authorized;
0
 
and
0
 
issued and outstanding as of March 31, 2023 and December 31, 2022
-
-
Preferred stock - Class E; $
1.00
 
par value; $
1,000
 
per share liquidation preference;
3,185,024
 
shares
authorized;
0
 
and
0
 
issued and outstanding as of March 31, 2023 and December 31, 2022
-
-
Common stock - Class A Voting; $
1.00
 
par value;
45,000,000
 
shares authorized;
19,622,380
 
issued and
outstanding
 
as of March 31, 2023,
20,000,753
 
issued and outstanding as of December 31, 2022
 
19,622
20,001
Common stock - Class B Non-voting; $
1.00
 
par value;
8,000,000
 
shares authorized;
0
 
and
0
 
issued and
outstanding as of March 31, 2023 and December 31, 2022
 
-
-
Additional paid-in capital on common stock
305,921
311,282
Accumulated deficit
(99,620)
(104,104)
Accumulated other comprehensive loss
(42,065)
(44,751)
Total stockholders'
 
equity
183,858
182,428
Total liabilities
 
and stockholders' equity
$
2,163,821
$
2,085,834
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Operations - Unaudited
(Dollars in thousands,
 
except per share data)
 
Three Months Ended March 31,
2023
2022
Interest income:
 
Loans, including fees
$
19,711
$
12,982
 
Investment securities
2,286
2,329
 
Interest-bearing deposits in financial institutions
382
31
 
Total interest
 
income
22,379
15,342
Interest expense:
 
 
 
Interest-bearing checking
43
16
 
Money market and savings accounts
4,785
551
 
Time deposits
1,057
259
 
Federal Home Loan Bank advances and other borrowings
497
137
 
Total interest
 
expense
6,382
963
 
Net interest income before provision for credit losses
15,997
14,379
Provision for credit losses
201
-
 
Net interest income after provision for credit losses
15,796
14,379
Non-interest income:
 
 
 
Service fees
1,205
900
 
(Loss) gain on sale of securities available for sale, net
(21)
21
 
Gain on sale of loans held for sale, net
347
334
 
Loan settlement
-
161
 
Other non-interest income
539
529
 
Total non-interest
 
income
2,070
1,945
Non-interest expense:
 
 
 
Salaries and employee benefits
6,377
5,875
 
Occupancy
1,299
1,270
 
Regulatory assessment and fees
224
213
 
Consulting and legal fees
358
517
 
Network and information technology services
478
387
 
Other operating expense
1,440
1,350
 
Total non-interest
 
expense
10,176
9,612
 
Income before income tax expense
7,690
6,712
Income tax expense
1,881
1,858
 
Net income
$
5,809
$
4,854
Per share information:
 
 
Net income per share, basic
$
0.29
$
0.24
Net income per share, diluted
$
0.29
$
0.24
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Comprehensive Income (Loss) - Unaudited
(Dollars in thousands)
 
Three Months Ended March 31,
2023
2022
Net income
$
5,809
$
4,854
Other comprehensive income (loss):
 
 
Unrealized gain (loss) on investment securities
3,637
(22,775)
Amortization of net unrealized (loss) gain on securities transferred from available-for-sale to held-to-maturity
(60)
65
Reclassification adjustment for loss (gain) included in net income
21
(21)
Tax effect
(912)
5,789
Total other comprehensive
 
income (loss), net of tax
2,686
(16,942)
Total comprehensive
 
income (loss)
 
$
8,495
$
(12,088)
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Changes in Stockholders’ Equity - Unaudited
(Dollars in thousands,
 
except per share data)
Common Stock
Additional Paid-in
Capital on Common
Stock
Accumulated Deficit
Accumulated Other
Comprehensive
Loss
Shares
Par Value
Total Stockholders'
Equity
Balance at December 31, 2022
20,000,753
$
20,001
$
311,282
$
(104,104)
$
(44,751)
$
182,428
Cumulative effect of adoption of accounting principle related to ASC 326
-
-
-
(1,325)
-
(1,325)
Adjusted beginning balance after cumulative effect adjustment
20,000,753
20,001
311,282
(105,429)
(44,751)
181,103
Net income
-
-
-
5,809
-
5,809
Other comprehensive income
-
-
-
-
2,686
2,686
Repurchase of Class A common stock
(500,000)
(500)
(5,367)
-
-
(5,867)
Restricted stock issued
121,627
121
(121)
-
-
-
Stock based compensation
-
-
127
-
-
127
Balance at March 31, 2023
19,622,380
$
19,622
$
305,921
$
(99,620)
$
(42,065)
$
183,858
Balance at January 1, 2022
19,991,753
$
19,992
$
310,666
$
(124,245)
$
(2,516)
$
203,897
Net income
-
-
-
4,854
-
4,854
Other comprehensive loss
-
-
-
-
(16,942)
(16,942)
Exercise of stock options
9,000
9
93
-
-
102
Stock-based compensation
-
-
128
-
-
128
Balance at March 31, 2022
20,000,753
$
20,001
$
310,887
$
(119,391)
$
(19,458)
$
192,039
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Cash Flows - Unaudited
(Dollars in thousands)
Three Months Ended March 31,
2023
2022
Cash flows from operating activities:
Net income
 
$
5,809
$
4,854
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Provision for credit losses
 
201
-
Depreciation and amortization
150
188
(Accretion) Amortization of premiums on securities, net
(38)
169
Accretion of deferred loan fees, net
(93)
(807)
Stock-based compensation
127
128
Loss (gain) on sale of available for sale securities
21
(21)
Gain on sale of loans held for sale
(347)
(334)
Increase in cash surrender value of bank owned life insurance
(267)
(266)
Decrease in deferred tax assets
1,881
1,858
Net change in operating assets and liabilities:
 
 
Accrued interest receivable
(670)
(328)
Other assets
284
(2,838)
Accrued interest and other liabilities
1,943
3,000
Net cash provided by operating activities
9,001
5,603
 
 
Cash flows from investing activities:
 
 
Purchase of investment securities held to maturity
-
(2,432)
Proceeds from maturities and pay-downs of investment securities held to maturity
2,406
2,626
Purchase of investment securities available for sale
 
(7,667)
(42,794)
Proceeds from maturities and pay-downs of investment securities available for sale
3,261
14,788
Proceeds from sales of investment securities available for sale
8,617
14,558
Net increase in loans held for investment
(77,413)
(617)
Purchase of loans held for investment
-
(70,175)
Additions to premises and equipment
(22)
(155)
Proceeds from the sale of loans held for sale
4,847
3,643
Proceeds from the redemption of Federal Home Loan Bank stock
3,570
-
Purchase of Federal Home Loan Bank stock
(6,831)
(177)
Net cash used in investment activities
(69,232)
(80,735)
Cash flows from financing activities:
Proceeds from issuance of Class A common stock, net
-
102
Repurchase of Class A common stock
(5,867)
-
Net increase in deposits
1,181
122,915
Proceeds from Federal Home Loan Bank advances
158,000
-
Repayments on Federal Home Loan Bank advances
(84,000)
-
Net cash provided by financing activities
69,314
123,017
 
 
Net increase in cash and cash equivalents
9,083
47,885
Cash and cash equivalents at beginning of period
54,168
46,228
Cash and cash equivalents at end of period
$
63,251
$
94,113
 
 
Supplemental disclosure of cash flow information:
 
 
Interest paid
$
6,044
$
961
 
 
Supplemental schedule of non-cash investing and financing activities:
 
 
Transfer of loans held for investment to loans held for sale
$
4,500
$
3,309
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
8
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
1.
 
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Overview
USCB Financial Holdings, Inc., a Florida corporation incorporated in 2021, is a bank
 
holding company with one wholly
owned subsidiary, U.S. Century
 
Bank (the “Bank”), together referred to as “the Company”. The Bank,
 
established in 2002,
is a Florida
 
state-chartered, non-member
 
financial institution
 
providing financial services
 
through its banking
 
centers located
in South Florida.
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 Title LLC began operations in 2021.
Basis of Presentation
The accompanying unaudited consolidated financial
 
statements have been prepared in accordance
 
with instructions to
Form 10-Q and do not
 
include all the information and footnotes
 
required by U.S. generally accepted accounting
 
principles
(“U.S.
 
GAAP”)
 
for
 
complete
 
financial
 
statements.
 
All
 
adjustments
 
consisting
 
of
 
normally
 
recurring
 
accruals
 
that,
 
in
 
the
opinion
 
of
 
management,
 
are
 
necessary
 
for
 
a
 
fair
 
presentation
 
of
 
the
 
financial
 
position
 
and
 
results
 
of
 
operations
 
for
 
the
periods presented have
 
been included. These
 
unaudited consolidated financial
 
statements should be
 
read in conjunction
with the
 
Company’s
 
consolidated financial
 
statements and
 
related notes
 
appearing in
 
the Company’s
 
Annual Report
 
on
Form 10-K/A for the year ended December 31, 2022.
Principles of Consolidation
The
 
Company
 
consolidates
 
entities
 
in
 
which
 
it
 
has
 
a
 
controlling
 
financial
 
interest.
 
Intercompany
 
transactions
 
and
balances are eliminated in consolidation.
 
Use of Estimates
To
 
prepare financial statements in conformity with U.S.
 
GAAP,
 
management makes estimates and assumptions based
on available
 
information. These
 
estimates and
 
assumptions affect
 
the amounts
 
reported in
 
the financial
 
statements. The
most significant estimates
 
impacting the Company’s
 
consolidated financial statements
 
are the allowance
 
for credit losses
and income taxes.
Reclassifications
Certain amounts in the
 
consolidated financial statements have
 
been reclassified to conform
 
to the current presentation.
Reclassifications had no impact on the net income or stockholders’ equity of the Company.
Recently Issued Accounting Standards
Adoption of New Accounting Standards
Measurement of Credit Losses on Financial Instruments
On
 
January
 
1st,
 
2023,
 
the
 
Company
 
adopted
 
ASU
 
2016-13
 
Financial
 
Instruments
 
-
 
Credit
 
Losses
 
(Topic
 
326):
Measurement of Credit Losses on Financial Instruments, as
 
amended, which replaces the incurred loss methodology with
an expected
 
loss methodology
 
that is
 
referred to
 
as the
 
current expected
 
credit loss
 
(CECL) methodology. The
 
measurement
of
 
expected
 
credit
 
losses
 
under
 
the
 
CECL
 
methodology
 
is
 
applicable
 
to
 
financial
 
assets
 
measured
 
at
 
amortized
 
cost,
including
 
loan
 
receivables and
 
held-to-maturity debt
 
securities.
 
It
 
also
 
applies to
 
off-balance
 
sheet
 
credit exposures
 
not
accounted
 
for
 
as
 
insurance
 
(e.g.,
 
loan
 
commitments,
 
standby
 
letters
 
of
 
credit,
 
financial
 
guarantees,
 
and
 
other
 
similar
instruments) and
 
net investments
 
in leases
 
recognized by
 
a lessor
 
in accordance
 
with Topic
 
842 on
 
leases. In
 
addition,
ASC 326 amended the accounting
 
for available-for-sale debt securities. One such
 
change is to require credit
 
losses to be
presented as
 
an allowance
 
rather than
 
as a
 
write-down on
 
available-for-sale debt
 
securities, that
 
management does
 
not
intend to sell or believes that it is more likely than not they will be required to sell.
 
Under CECL,
 
the Company
 
estimates the
 
allowance for
 
credit losses
 
using relevant
 
available information,
 
from both
internal
 
and
 
external
 
sources,
 
relating
 
to
 
past
 
events,
 
current
 
conditions,
 
and
 
reasonable
 
and
 
supportable
 
forecasts.
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
9
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
Historical credit losses provide
 
the basis for estimation of
 
expected credit losses. Qualitative adjustments
 
are applied to the
expected credit
 
losses estimated
 
for the
 
loan portfolio
 
in relation
 
to potential
 
limitations of
 
the quantitative
 
model. A
 
scorecard
is used to aid management in the assessment of qualitative factor adjustments applied to expected credit losses.
The
 
quantitative
 
component
 
of
 
the
 
estimate
 
relies
 
on
 
the
 
statistical
 
relationship
 
between
 
the
 
projected
 
value
 
of
 
an
economic
 
indicator
 
and
 
the
 
implied
 
historical
 
loss
 
experience
 
among
 
a
 
curated
 
group
 
of
 
peers.
 
The
 
Company
 
utilized
regression analyses
 
of peer
 
data, in
 
which the
 
Company was
 
included, and
 
where observed
 
credit losses
 
and selected
economic factors were used to determine suitable loss drivers
 
for modeling the lifetime rates of probability of default (PD).
A
 
loss
 
given
 
default
 
rate
 
(LGD)
 
is
 
assigned
 
to
 
each
 
pool
 
for
 
each
 
period
 
based
 
on
 
these
 
PD
 
outcomes.
 
The
 
model
fundamentally utilizes an expected discounted cash
 
flow (DCF) analysis for
 
loan portfolio segments. The DCF analysis
 
is
run
 
at
 
the
 
instrument-level and
 
incorporates an
 
array
 
of
 
loan-specific
 
data
 
points
 
and
 
segment-
 
implied
 
assumptions
 
to
determine the lifetime
 
expected loss attributable
 
to each instrument.
 
An implicit "hypothetical
 
loss" is derived
 
for each period
of the
 
DCF and
 
helps establish
 
the present
 
value of
 
future cash
 
flows for
 
each period.
 
The reserve
 
applied to
 
a specific
instrument is the difference between the sum of the present value of future cash
 
flows and the book balance of the loan at
the measurement date.
Management elected
 
the Remaining
 
Life (WARM) methodology
 
for five
 
portfolio segments.
 
For each
 
of these
 
segments,
a long-term average loss rate is calculated
 
and applied on a quarterly basis
 
for the remaining life of the pool.
 
Adjustments
for
 
economic
 
expectations
 
are
 
made
 
through
 
qualitative
 
assessments.
 
For
 
the
 
remaining
 
life
 
estimated
 
management
implemented
 
a
 
software
 
that
 
uses
 
an
 
attrition-based
 
calculation
 
that
 
performs
 
quarterly,
 
cohort-based
 
attrition
measurements based on the loan portfolio.
 
For loans collectively
 
evaluated, $
1.3
 
billion of loan
 
receivables or
84
% were evaluated
 
under Discounted Cash
 
Flow
method and
 
$
251.0
 
million of
 
loan receivables
 
or
16
% were
 
evaluated under
 
the Remaining
 
Life method.
 
The remaining
$
7.9
 
million loan receivable of the total loan portfolio were individually evaluated.
 
Portfolio segments are the level at which loss assumptions are applied to a pool of loans based on the similarity of risk
characteristics inherent
 
in the
 
included instruments,
 
relying on
 
collateral codes
 
and
 
FFIEC Call
 
Report codes.
 
The Company
currently segments the portfolio based on collateral codes for purpose of establishing reserves. Each of these segments is
paired
 
to
 
regression
 
models
 
(Loss
 
Driver
 
Analyses)
 
based
 
on
 
peer
 
data
 
for
 
loans
 
of
 
similar
 
risk
 
characteristics.
 
The
Company has established relationships between internal segmentation and
 
FFIEC Call Report codes for this purpose. The
loss driver for each loan portfolio segment is derived from a
 
readily available and reasonable economic forecast, including
the Federal Reserve Bank projections of U.S.
 
civilian unemployment rate and the year-over-year real
 
GDP growth; for the
residential
 
loan
 
segment
 
the
 
House
 
Price
 
index
 
(“HPI”)
 
projections
 
published by
 
Fannie
 
Mae’s
 
Economic and
 
Strategic
Research Group
 
are utilized
 
for the
 
forecast. Forecasts
 
are applied
 
the first
 
four quarters
 
of the
 
credit loss
 
estimate and
revert on a
 
straight-line basis to
 
the lookback period's
 
historical mean for
 
the economic indicator over
 
the expected life
 
of
loans.
 
The model incorporates qualitative factor adjustments in order to calibrate the model for risk
 
in each portfolio segment
that may not
 
be captured through
 
quantitative analysis. Determinations
 
regarding qualitative adjustments
 
are reflective of
management's expectation
 
of loss
 
conditions differing
 
from those
 
already captured
 
in the
 
quantitative component
 
of the
model.
 
The
 
Company
 
estimates
 
a
 
reserve
 
for
 
unfunded
 
commitments, which
 
is
 
reported separately
 
from
 
the
 
allowance
 
for
credit losses within other liabilities.
 
The reserve is based
 
upon the same quantitative and
 
qualitative factors applied to the
collectively evaluated loan portfolio.
The impact of adoption of the ASU 2016-13 was an increase to the allowance for credit losses on loans receivables of
$
1.1
 
million
 
and
 
an
 
increase
 
to
 
the
 
reserve
 
for
 
unfunded
 
commitments
 
of
 
$
259
 
thousand.
 
This
 
one-time
 
cumulative
adjustment resulted in a decrease of $
1.
3 million in retained earnings. See “Allowance for Credit Losses” section in Note 3
for more information on the allowance of credit losses (”ACL”).
 
Trouble Debt Restructuring
In March
 
2022, the
 
Financial Accounting
 
Standards Board
 
(“FASB”) issued Accounting
 
Standards Update
 
(“ASU”) 2022-
02, Financial Instruments-Credit Losses (Topic
 
326): Troubled Debt
 
Restructurings (“TDR”) and Vintage
 
Disclosures. The
standard
 
addresses
 
the
 
following:
 
1)
 
eliminates
 
the
 
accounting
 
guidance
 
for
 
TDRs,
 
will
 
require
 
an
 
entity
 
to
 
determine
whether
 
a
 
modification
 
results
 
in
 
a
 
new
 
loan
 
or
 
a
 
continuation
 
of
 
an
 
existing
 
loan,
 
2)
 
expands
 
disclosures
 
related
 
to
modifications, and
 
3) will
 
require disclosure
 
of current
 
period gross
 
write-offs
 
of financing
 
receivables within
 
the vintage
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
10
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
disclosures table (see
 
footnote 3 “Loans”). The
 
Company adopted ASU
 
2022-02 effective January 1,
 
2023 on a prospective
basis. The adoption of ASU 2022-02 did not have a material impact on the Company’s consolidated financial statements.
 
Issued and Not Yet Adopted
Reference Rate Reform
In
 
March
 
2020,
 
the
 
FASB
 
issued
 
ASU
 
2020-04,
 
Reference
 
Rate
 
Reform
 
(Topic
 
848),
 
Facilitation
 
of
 
the
 
Effects
 
of
Reference Rate Reform on
 
Financial Reporting. In January 2021,
 
the FASB
 
clarified the scope of
 
this guidance with ASU
2021-01 which provides optional guidance for a
 
limited period of time to ease
 
the burden in accounting for (or
 
recognizing
the effects of)
 
reference rate
 
reform on
 
financial reporting.
 
This ASU
 
is effective from
 
March 12, 2020
 
through December 31,
2024. The
 
Company is
 
evaluating the
 
impact of
 
this ASU
 
and has
 
not yet
 
determined whether
 
LIBOR transition
 
and this
ASU will have a material effect on our business operations and consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
11
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
2.
 
INVESTMENT SECURITIES
 
On
 
January
 
1st,
 
2023,
 
the
 
Company
 
adopted
 
ASU
 
2016-13
 
Financial
 
Instruments
 
-Credit
 
Losses
 
(Topic
 
326):
Measurement of Credit Losses on Financial Instruments, as
 
amended, which replaces the incurred loss methodology with
an expected
 
loss methodology
 
that is
 
referred to
 
as the
 
current expected
 
credit loss
 
(CECL) methodology. The
 
measurement
of
 
expected
 
credit
 
losses
 
under
 
the
 
CECL
 
methodology
 
is
 
applicable
 
to
 
financial
 
assets
 
measured
 
at
 
amortized
 
cost,
including loan receivables and
 
held-to-maturity debt securities. In
 
addition, ASC 326 amended
 
the accounting for available-
for-sale debt securities. One
 
such change is to
 
require credit losses to
 
be presented as an
 
allowance rather than as
 
a write-
down on available-for-sale debt
 
securities management does not
 
intend to sell or
 
believes that it is
 
more likely than not
 
they
will be required to sell.
CECL requires loss
 
reserve for securities
 
classified as
 
Held-to-Maturity (“HTM”). The
 
reserve should
 
reflect historical
credit performance
 
as well
 
as the
 
impact of
 
projected economic
 
forecast. For
 
U.S. Government
 
bonds and
 
U.S. Agency
issued bonds in HTM the explicit guarantee of the US Government is sufficient to conclude that a credit loss reserve is not
required. The
 
reserve requirement
 
is for
 
three primary
 
assets groups:
 
municipal bonds,
 
corporate bond,
 
and non-agency
securitizations.
 
The
 
Company
 
calculates
 
quarterly
 
the
 
loss
 
reserve
 
utilizing
 
Moody’s
 
ImpairmentStudio.
 
The
 
CECL
measurement
 
for
 
investment
 
securities
 
incorporates historical
 
data,
 
containing
 
defaults
 
and
 
recoveries
 
information,
 
and
Moody’s baseline economic
 
forecast. The solution uses
 
probability of default/loss given
 
default (“PD/LGD”) approach. PD
represents the likelihood a borrower will default. Within the Moody’s model, this is determined using historical default data,
adjusted for the current economic environment. LGD projects the expected loss if a borrower were to default.
 
At
 
quarter
 
end,
 
HTM
 
securities
 
included
 
$
175.4
 
million
 
of
 
U.S.
 
Government
 
and
 
U.S.
 
Agency
 
issued
 
bonds
 
and
mortgage-backed
 
securities,
 
because
 
of
 
the
 
explicit
 
and/or
 
implicit
 
guarantee
 
on
 
these
 
bonds
 
the
 
Company
 
holds
no
reserves on
 
these holdings.
 
The remaining
 
portion of
 
the HTM
 
portfolio is
 
made up
 
of $
11.0
 
million in
 
investment grade
corporate bonds. The required
 
reserve for these
 
holdings is determined
 
each quarter using
 
the model described
 
above. The
resulting amount of allowance was immaterial at March 31, 2023.
 
There was
no
 
allowance for Available for Sale (“AFS”) securities that needed to be recorded as of March 31, 2023.
 
The following tables
 
present a summary of
 
the amortized cost,
 
unrealized or unrecognized gains
 
and losses,
 
and fair
value of investment securities at the dates indicated (in thousands):
March 31, 2023
Available-for-sale:
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
U.S. Government Agency
$
10,184
$
-
$
(1,353)
$
8,831
Collateralized mortgage obligations
110,180
-
(21,343)
88,837
Mortgage-backed securities - residential
72,690
-
(12,124)
60,566
Mortgage-backed securities - commercial
37,043
6
(4,449)
32,600
Municipal securities
25,064
-
(5,754)
19,310
Bank subordinated debt securities
16,831
18
(1,352)
15,497
Corporate bonds
4,035
-
(267)
3,768
$
276,027
$
24
$
(46,642)
$
229,409
Held-to-maturity:
 
 
 
U.S. Government Agency
$
44,792
$
126
$
(5,182)
$
39,736
U.S. Treasury
9,951
-
(8)
9,943
Collateralized mortgage obligations
67,404
161
(7,019)
60,546
Mortgage-backed securities - residential
41,842
483
(4,237)
38,088
Mortgage-backed securities - commercial
11,399
-
(644)
10,755
Corporate bonds
11,040
-
(941)
10,099
$
186,428
$
770
$
(18,031)
$
169,167
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
12
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
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
During the
 
year ended
 
December 31,
 
2022, a
 
total of
26
 
investment securities
 
with an
 
amortized cost
 
basis and
 
fair
value
 
of
 
$
74.4
 
million
 
and
 
$
63.8
 
million,
 
respectively,
 
were
 
transferred
 
from
 
AFS
 
to
 
HTM.
 
These
 
securities
 
had
 
a
 
net
unrealized loss
 
of $
10.6
 
million on
 
the date
 
of transfer.
 
The
 
net unrealized
 
loss that
 
was retained
 
in accumulated
 
other
comprehensive income (“AOCI”)
 
is being
 
amortized over
 
the remaining
 
life of
 
the securities. For
 
the three months
 
ended
March 31,
 
2023, total
 
amortization out
 
of AOCI
 
for net
 
unrealized losses
 
on securities
 
transferred from
 
AFS to
 
HTM was
$
60
 
thousand. The unamortized net unrealized loss at March 31, 2023 was $
9.7
 
million.
Gains
 
and
 
losses
 
on
 
the
 
sale
 
of
 
securities
 
are
 
recorded
 
on
 
the
 
trade
 
date
 
and
 
are
 
determined
 
on
 
the
 
specific
identification basis. The following table presents
 
the proceeds, realized gross gains and
 
realized gross losses on sales and
calls of AFS debt securities for the three months ended March 31, 2023 and 2022 (in thousands):
Three Months Ended Mach 31,
Available-for-sale:
2023
2022
Proceeds from sale and call of securities
$
8,617
$
14,558
Gross gains
$
3
$
158
Gross losses
(24)
(137)
Net realized (loss) gain
$
(21)
$
21
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
13
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
The amortized
 
cost and
 
fair value
 
of investment
 
securities, by
 
contractual maturity,
 
are shown
 
below as
 
of the
 
date
indicated (in thousands). Actual maturities may differ
 
from contractual maturities because borrowers may have the
 
right to
call or prepay
 
obligations with
 
or without call
 
or prepayment
 
penalties. Securities
 
not due at
 
a single maturity
 
date are shown
separately.
 
Available-for-sale
Held-to-maturity
March 31, 2023:
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
Due within one year
$
-
$
-
$
11,460
$
11,426
Due after one year through five years
4,035
3,768
9,531
8,616
Due after five years through ten years
17,831
16,329
-
-
Due after ten years
24,064
18,478
-
-
U.S. Government Agency
10,184
8,831
44,792
39,736
Collateralized mortgage obligations
110,180
88,837
67,404
60,546
Mortgage-backed securities - residential
 
72,690
60,566
41,842
38,088
Mortgage-backed securities - commercial
 
37,043
32,600
11,399
10,755
$
276,027
$
229,409
$
186,428
$
169,167
At March 31, 2023, there were no securities held in the portfolio from any one issuer in an amount greater than 10%
 
of
total
 
stockholders’
 
equity
 
other
 
than
 
the
 
United
 
States
 
Government
 
and
 
Government
 
Agencies.
 
All
 
the
 
collateralized
mortgage obligations
 
and mortgage-backed
 
securities are
 
issued by
 
United States
 
sponsored entities
 
at March 31,
 
2023
and December 31, 2022.
Information pertaining
 
to investment
 
securities with
 
gross unrealized
 
losses, aggregated
 
by investment
 
category and
length of
 
time that
 
those individual
 
securities have
 
been in
 
a continuous
 
loss position,
 
are presented
 
as of
 
the following
dates (in thousands):
March 31, 2023
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
$
4,281
$
(245)
$
44,285
$
(7,474)
$
48,566
$
(7,719)
U.S. Treasury
9,943
(8)
-
-
9,943
(8)
Collateralized mortgage obligations
-
-
149,381
(32,872)
149,381
(32,872)
Mortgage-backed securities - residential
-
-
96,290
(18,600)
96,290
(18,600)
Mortgage-backed securities - commercial
4,185
(55)
36,610
(6,534)
40,795
(6,589)
Municipal securities
 
-
-
19,310
(5,754)
19,310
(5,754)
Bank subordinated debt securities
6,245
(220)
8,369
(1,131)
14,614
(1,351)
Corporate bonds
-
-
13,867
(770)
13,867
(770)
$
24,654
$
(528)
$
368,112
$
(73,135)
$
392,766
$
(73,663)
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)
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
14
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
As of
 
March 31, 2023,
 
the unrealized
 
losses associated
 
with $
133.4
 
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 of the securities upon transfer between portfolios.
ASC Topic
 
326 amended
 
the existing
 
other-than-temporary-impairment guidance
 
for AFS
 
securities, requiring
 
credit
losses to be recorded as an allowance rather than through a
 
permanent write-down. When evaluating AFS debt securities
under ASC Topic
 
326, the Company
 
has evaluated whether
 
the decline in
 
fair value is
 
attributed to credit
 
losses or other
factors like
 
interest rate
 
risk, using
 
both quantitative
 
and
 
qualitative analyses,
 
including company
 
performance analysis,
review of credit
 
ratings, remaining payment
 
terms, prepayment speeds
 
and analysis of
 
macro-economic conditions. Each
investment is expected to
 
recover its price depreciations
 
over its holding period
 
as it moves to
 
maturity and the Company
has
 
the
 
intent
 
and
 
ability
 
to
 
hold
 
these
 
securities
 
to
 
maturity
 
if
 
necessary.
 
As
 
a
 
result
 
of
 
this
 
evaluation,
 
the
 
Company
concluded that no allowance was required.
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
 
believed
 
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.
Pledged Securities
The Company maintains
 
a master
 
repurchase agreement with
 
a public
 
banking institution for
 
up to
 
$
20.0
 
million fully
guaranteed with investment securities upon withdrawal. Any
 
amounts borrowed would be at a
 
variable interest rate based
on prevailing
 
rates at the
 
time funding
 
is requested.
 
As of March 31,
 
2023, the Company
 
did
no
t have
 
any securities pledged
under this agreement.
The Company is a Qualified Public Depositor (“QPD”) with the State
 
of Florida. As a QPD, the Company has the legal
authority to maintain public deposits from cities, municipalities, and the State of Florida. These public deposits are secured
by securities pledged
 
to the State
 
of Florida at
 
a ratio of
25
% of the
 
outstanding uninsured deposits.
 
The Company must
also maintain a minimum amount of pledged securities to be in the public funds program.
As of
 
March 31, 2023,
 
the Company
 
had a
 
total of
 
$
206.3
 
million in
 
deposits under
 
the public
 
funds program
 
and pledged
to the State of Florida for these
 
public funds were
twenty one
 
corporate bonds with an aggregate fair
 
value of $
62.3
 
million.
As of December 31,
 
2022, the Company had
 
a total of
 
$
204.2
 
million in deposits
 
under the public
 
funds program and
pledged
 
to
 
the
 
State
 
of
 
Florida
 
for
 
these
 
public
 
funds
 
were
eighteen
 
corporate
 
bonds
 
with
 
an
 
aggregate
 
fair
 
value
 
of
$
49.0
 
million.
 
The Federal
 
Reserve Board,
 
on March
 
12, 2023,
 
announced the
 
creation of
 
a new
 
Bank Term Funding Program
 
(BTFP).
The BTFP
 
offers loans of
 
up to
 
one year in
 
length to
 
banks, savings
 
associations, credit
 
unions, and
 
other eligible depository
institutions pledging
 
U.S. Treasuries,
 
agency debt
 
and mortgage-backed
 
securities, and
 
other qualifying
 
assets as
 
collateral.
These assets will be valued at par.
The Company had
no
 
borrowing under the BTFP program and had pledged
 
$
24.3
 
million in securities measured at par
to the Federal Reserve Bank of Atlanta for the BTFP program.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
15
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
3.
 
LOANS
On
 
January 1,
 
2023,
 
the
 
Company adopted
 
FASB
 
ASC Topic
 
326 using
 
the modified
 
retrospective methodology
 
in
accordance
 
with
 
the
 
amendments
 
of
 
FASB
 
ASU
 
2016-13.
 
Through
 
the
 
adoption
 
of
 
CECL,
 
the
 
Company
 
developed
 
an
allowance for credit losses (“ACL”) methodology that replaces its
 
previous allowance for loan losses methodology. See the
ACL section in this note for further information
 
regarding the Company’s ACL. Prior periods balance for ACL
 
are presented
under legacy GAAP and may not be comparable to current period presentation.
 
The following table is a summary of the distribution of loans held for investment by type (in thousands):
 
March 31, 2023
December 31, 2022
Total
Percent of
Total
Total
Percent of
Total
Residential Real Estate
$
184,427
11.7
%
$
185,636
12.3
%
Commercial Real Estate
987,757
62.5
%
970,410
64.4
%
Commercial and Industrial
160,947
10.2
%
126,984
8.4
%
Foreign Banks
97,405
6.1
%
93,769
6.2
%
Consumer and Other
 
149,410
9.5
%
130,429
8.7
%
Total
 
gross loans
1,579,946
100.0
%
1,507,228
100.0
%
Less: Deferred fees (cost)
448
 
(110)
Total
 
loans net of deferred fees (cost)
1,580,394
1,507,338
Less: Allowance for credit losses
18,887
17,487
Total
 
net loans
$
1,561,507
$
1,489,851
At
 
March 31,
 
2023
 
and
 
December 31,
 
2022,
 
the
 
Company
 
had
 
$
358.8
 
million
 
and
 
$
338.1
 
million
 
respectively,
 
of
commercial real
 
estate and
 
residential mortgage
 
loans pledged
 
as collateral
 
for lines
 
of credit
 
with the
 
FHLB and
 
the Federal
Reserve Bank of Atlanta.
The Company was a participant in the Small Business
 
Administration’s (“SBA”) Paycheck Protection Program (“PPP”)
loans. These loans
 
were designed to
 
provide a direct
 
incentive for small
 
businesses to keep
 
their workers on
 
payroll and
the funds had to be used towards payroll cost,
 
mortgage interest, rent, utilities and other costs related to
 
COVID-19. These
loans are forgivable under
 
specific criteria as determined
 
by the SBA. The
 
Company had PPP
 
loans totaling $
308
 
thousand
at March 31, 2023 and $
1.3
 
million at December 31, 2022, which are categorized as commercial and industrial loans.
 
The Company recognized $
1
 
thousand and $
1.0
 
million in PPP loan fees and interest income during the three months
ended
 
March 31,
 
2023
 
and
 
2022,
 
respectively,
 
which
 
is
 
reported
 
under
 
loans,
 
including
 
fees,
 
within
 
the
 
Consolidated
Statements of Operations.
Allowance for Credit Losses
In general, the
 
Company utilizes the
 
Discounted Cash Flow
 
(DCF) method or
 
the Remaining Life
 
(WARM) methodology
to estimate the
 
quantitative portion of
 
the ACL for
 
loan pools. The
 
DCF uses a
 
loss driver analysis
 
(LDA) and discounted
cash flow analyses. Management engaged
 
advisors and consultants with expertise
 
in CECL model development to
 
assist
in development of a
 
loss driver analysis based
 
on regression models and
 
supportable forecast. Peer group
 
data obtained
from FFIEC Call Report filings is used
 
to inform regression analyses to quantify the impact
 
of reasonable and supportable
forecasts in projective models. Economic
 
forecasts applied to regression models
 
to estimate probability of default
 
for loan
receivables use at
 
least one of
 
the following economic
 
indicators: civilian unemployment
 
rate (national), real
 
gross domestic
product growth
 
(national GDP)
 
and/or the
 
HPI. For
 
each of
 
the segments
 
in which
 
the WARM
 
methodology is
 
used, the
long-term average loss rate is calculated and
 
applied on a quarterly basis for the remaining
 
life of the pool. Adjustments for
economic expectations are made through qualitative factors.
Qualitative factors used in the ACL methodology include:
•
 
Changes in lending policies, procedures, and strategies
•
 
Changes in international, national, regional, and local conditions
•
 
Changes in nature and volume of portfolio
•
 
Changes in the volume and severity of past due loans and other similar conditions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
16
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
•
 
Concentration risk
•
 
Changes in the value of underlying collateral
•
 
The effect of other external factors: e.g., competition, legal, and regulatory requirements
•
 
Changes in lending management, among others
ACL for
 
the three
 
months ended
 
March 31,
 
2023, was
 
estimated under
 
the CECL
 
methodology, and for
 
the three
 
months
ended December 31, 2022, and prior periods, it was estimated under the incurred loss model.
Changes in the allowance
 
for credit losses for
 
the three months ended
 
March 31, 2023 and
 
2022
 
were as follows (in
thousands):
 
Residential
Real Estate
Commercial
Real Estate
Commercial
and
Industrial
Foreign
Banks
Consumer
and Other
Total
Three Months Ended March 31, 2023
Beginning balance
$
1,352
$
10,143
$
4,163
$
720
$
1,109
$
17,487
Cumulative effect of adoption of accounting
principle
(1)
1,238
1,105
(2,158)
23
858
1,066
Provision for credit losses
(2)
221
(795)
318
29
512
285
Recoveries
8
-
44
-
2
54
Charge-offs
-
-
-
-
(5)
(5)
Ending Balance
 
$
2,819
$
10,453
$
2,367
$
772
$
2,476
$
18,887
 
 
 
 
 
Three Months Ended March 31, 2022
 
 
 
 
 
Beginning balance
$
2,498
$
8,758
$
2,775
$
457
$
569
$
15,057
Provision for credit losses
(157)
425
(426)
34
124
-
Recoveries
32
-
6
-
-
38
Charge-offs
(16)
-
-
-
(5)
(21)
Ending Balance
 
$
2,357
$
9,183
$
2,355
$
491
$
688
$
15,074
(1) Impact of CECL adoption on January 1, 2023
(2) Provision for credit losses excludes $
84
 
thousand reduction due to unfunded commitments included in other liabilities.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
17
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
The ACL and the outstanding balances in the specified loan categories as of March 31,
 
2023 and December 31, 2022
are as follows (in thousands):
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Foreign
Banks
Consumer
and Other
Total
March 31, 2023:
Allowance for credit losses:
Individually evaluated for impairment
$
149
$
-
$
96
$
-
$
94
$
339
Collectively evaluated for impairment
2,670
10,453
2,271
772
2,382
18,548
Balances, end of period
$
2,819
$
10,453
$
2,367
$
772
$
2,476
$
18,887
 
 
 
 
 
Loans:
 
 
 
 
 
Individually evaluated for impairment
$
7,155
$
-
$
558
$
-
$
171
$
7,884
Collectively evaluated for impairment
177,272
987,757
160,389
97,405
149,239
1,572,062
Balances, end of period
$
184,427
$
987,757
$
160,947
$
97,405
$
149,410
$
1,579,946
 
 
 
 
 
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
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
18
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
Loan credit exposures by internally assigned grades are presented below for the periods indicated (in thousands):
As of March 31, 2023
Term Loans by Origination Year
Revolving
Loans
Total
 
2023
2022
2021
2020
2019
Prior
Residential real estate
Pass
$
2,736
$
40,571
$
27,348
$
7,224
$
10,119
$
90,718
$
5,711
$
184,427
Total
2,736
40,571
27,348
7,224
10,119
90,718
5,711
184,427
Commercial real estate
Pass
25,800
342,353
226,774
107,237
81,305
197,272
4,474
985,215
Substandard
-
-
1,842
700
-
-
-
2,542
Total
25,800
342,353
228,616
107,937
81,305
197,272
4,474
987,757
Commercial and
industrial
Pass
35,181
39,173
35,534
9,402
17,571
2,994
19,928
159,783
Substandard
-
-
-
-
486
308
370
1,164
Total
35,181
39,173
35,534
9,402
18,057
3,302
20,298
160,947
Foreign banks
Pass
47,410
49,995
-
-
-
-
-
97,405
Total
47,410
49,995
-
-
-
-
-
97,405
Consumer and other
loans
 
Pass
18,948
76,401
49,777
714
501
1,504
1,394
149,239
Substandard
-
-
-
-
-
171
-
171
Total
18,948
76,401
49,777
714
501
1,675
1,394
149,410
Total
 
Loans
Pass
130,075
548,493
339,433
124,577
109,496
292,488
 
31,507
1,576,069
Special Mention
-
-
-
-
-
-
-
-
Substandard
-
-
1,842
700
486
479
370
3,877
Doubtful
-
-
-
-
-
-
-
-
Total
$
130,075
$
548,493
$
341,275
$
125,277
$
109,982
$
292,967
$
31,877
$
1,579,946
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
19
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
As of December 31, 2022
 
Pass
 
Special
Mention
 
Substandard
 
Doubtful
 
Total Loans
Residential real estate:
Home equity line of credit 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
967,465
-
2,945
-
970,410
Commercial and industrial:
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
 
The Company had charge offs totaling
 
$
5
 
thousand for the quarter ended as of
 
March 31, 2023 on loans that
 
were all
originated within 2023.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
20
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
Loan Aging
The Company
 
also considers
 
the performance
 
of loans
 
in grading
 
and in
 
evaluating the
 
credit quality
 
of the
 
loan portfolio.
The Company
 
analyzes credit
 
quality and
 
loan grades
 
based on
 
payment performance
 
and the
 
aging status
 
of the
 
loan.
 
The following
 
tables include
 
an aging
 
analysis of
 
accruing loans
 
and total
 
non-accruing loans
 
as of
 
March 31, 2023
 
and
December 31, 2022 (in thousands):
Accruing
As of March 31, 2023
Current
Past Due 30-
89 Days
Past Due 90
Days or >
and Still
Accruing
Total
Accruing
Non-Accrual
Total Loans
Residential real estate:
Home equity line of credit and other
$
606
$
-
$
-
$
606
$
-
$
606
1-4 family residential
128,622
1,156
-
129,778
-
129,778
Condo residential
52,859
1,184
-
54,043
-
54,043
182,087
2,340
-
184,427
-
184,427
Commercial real estate:
Land and construction
34,986
-
-
34,986
-
34,986
Multi-family residential
175,358
-
-
175,358
-
175,358
Condo commercial
53,583
-
-
53,583
-
53,583
Commercial property
723,770
-
-
723,770
-
723,770
Leasehold improvements
60
-
-
60
-
60
987,757
-
-
987,757
-
987,757
Commercial and industrial:
Secured
153,810
2,343
-
156,153
486
156,639
Unsecured
4,059
249
-
4,308
-
4,308
157,869
2,592
-
160,461
486
160,947
Foreign banks
97,405
-
-
97,405
-
97,405
Consumer and other
149,239
171
-
149,410
-
149,410
Total
$
1,574,357
$
5,103
$
-
$
1,579,460
$
486
$
1,579,946
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
21
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
Accruing
As of December 31, 2022:
Current
Past Due
30-89 Days
Past Due 90
Days or >
and Still
Accruing
Total
Accruing
Non-Accrual
Total Loans
Residential real estate:
Home equity line of credit and other
$
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
Nonaccrual Status
 
The following table
 
includes the amortized
 
cost basis of
 
loans on nonaccrual
 
status and loans
 
past due over
 
90 days
and still accruing as of March 31, 2023:
March 31, 2023
Nonaccrual
Loans With No
Related
Allowance
Nonaccrual
Loans With
Related
Allowance
Total
Nonaccruals
Loans Past
Due Over 90
Days and Still
Accruing
Residential real estate
$
-
$
-
$
-
$
-
Commercial real estate
-
-
-
-
Commercial and industrial
-
486
486
-
Consumer and other
-
-
-
-
$
-
$
486
$
486
$
-
The Company did
no
t have loans in nonaccrual status as of December 31, 2022.
Accrued interest
 
receivable is
 
excluded from
 
the estimate
 
of credit
 
losses. There
 
was
no
 
interest income
 
recognized
attributable to nonaccrual loans outstanding during the three months
 
ended March 31, 2023 and 2022. Interest income on
these loans for
 
the three months
 
ended March 31, 2023
 
and 2022, would
 
have been approximately
 
$
2
 
and $
0
 
thousand,
respectively, had these loans performed in accordance with their original terms.
Collateral-Dependent Loans
A
 
loan
 
is
 
collateral
 
dependent
 
when
 
the
 
borrower
 
is
 
experiencing
 
financial
 
difficulty
 
and
 
repayment
 
of
 
the
 
loan
 
is
expected to
 
be provided
 
substantially through
 
the sale
 
or operation
 
of the
 
collateral. There
 
were
no
 
collateral dependent
loans as of March 31, 2023 and as of December 31, 2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
22
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
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 as of December 31, 2022 (in thousands):
December 31, 2022
Unpaid
Principal
Balance
Net
Investment
Balance
Valuation
Allowance
Impaired Loans with No Specific Allowance:
Residential real estate
$
3,551
$
3,544
$
-
Commercial real estate
393
393
-
3,944
3,937
-
Impaired Loans with Specific Allowance:
 
 
 
Residential real estate
3,655
3,626
155
Commercial and industrial
82
82
41
Consumer and other
196
196
98
3,933
3,904
294
Total
$
7,877
$
7,841
$
294
Net investment balance is the unpaid principal balance of the loan adjusted for the remaining net deferred loan fees.
 
The
 
following
 
table
 
presents
 
the
 
average
 
recorded
 
investment
 
balance
 
on
 
impaired
 
loans
 
for
 
the
 
date
 
indicated
 
(in
thousands):
Three Months Ended March 31, 2022
Residential real estate
$
8,181
Commercial real estate
649
Commercial and industrial
137
Consumer and other
220
Total
$
9,187
Interest income recognized on impaired loans for the three months ended March 31, 2022 was $
91
 
thousand.
Loan Modifications to Borrowers Experiencing Financial Difficulties
 
The Company did
no
t have new modifications to borrowers experiencing financial difficulties and
no
 
loan modifications
that subsequently defaulted during for the three months ended March 31, 2023.
 
4.
 
INCOME TAXES
 
The Company’s provision for income taxes is presented in the following table for the dates indicated (in thousands):
Three Months Ended March 31,
2023
2022
Current:
Federal
$
-
$
-
State
-
-
Total
 
current
-
-
Deferred:
Federal
1,472
1,442
State
409
416
Total
 
deferred
1,881
1,858
Total
 
tax expense
$
1,881
$
1,858
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
23
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
The actual
 
income tax
 
expense for
 
the three
 
months ended
 
March 31, 2023
 
and 2022
 
differs
 
from the
 
statutory tax
expense for
 
the period
 
(computed by
 
applying the
 
U.S. federal
 
corporate tax
 
rate of
21
% for
 
2023 and
 
2022 to
 
income
before provision for income taxes) as follows (in thousands):
Three Months Ended March 31,
2023
2022
Federal taxes at statutory rate
$
1,615
$
1,409
State income taxes, net of federal tax benefit
334
289
Bank owned life insurance
(68)
(67)
Other, net
-
227
Total
 
tax expense
$
1,881
$
1,858
The Company’s deferred tax assets and deferred tax liabilities as of the dates indicated were (in thousands):
March 31, 2023
December 31, 2022
Deferred tax assets:
Net operating loss
$
19,998
$
21,720
Allowance for credit losses
4,787
4,432
Lease liability
3,460
3,648
Unrealized losses on available for sale securities
14,281
15,193
Deferred loan fees
-
-
Depreciable property
170
158
Stock option compensation
406
373
Accruals
234
723
Deferred tax assets:
43,336
46,247
Deferred tax liability:
Deferred loan cost
(113)
(28)
Lease right of use asset
(3,460)
(3,648)
Deferred expenses
(165)
(175)
Other, net
(31)
(36)
Deferred tax liability
(3,769)
(3,887)
Net deferred tax assets
$
39,567
$
42,360
The Company
 
has approximately
 
$
75.0
 
million of
 
federal and
 
$
97.7
 
million of
 
state net
 
operating loss
 
carryforwards
expiring in various amounts between 2031 and 2036 and which are limited to offset, to the extent permitted, future
 
taxable
earnings of the Company.
In assessing the realizability of
 
deferred tax assets, management considers
 
whether it is more likely
 
than not that some
portion or
 
all of
 
the deferred
 
tax assets
 
will not
 
be realized.
 
The ultimate
 
realization of
 
deferred tax
 
assets is
 
dependent
upon the generation of future taxable
 
income during the periods in which
 
those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment.
The major tax jurisdictions
 
where the Company files
 
income tax returns are
 
the U.S. federal jurisdiction
 
and the State
of Florida. With few exceptions,
 
the Company is no longer subject
 
to U.S. federal and state income
 
tax examinations by tax
authorities for years before 2019.
For the three months ended March 31, 2023 and 2022, 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
24
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
5.
 
OFF-BALANCE SHEET ARRANGEMENTS
The Company is a party to
 
financial instruments with off-balance-sheet risk in
 
the normal course of business
 
in order to
meet the financial
 
needs of its
 
customers and to
 
reduce its own
 
exposure to fluctuations
 
in interest rates.
 
These financial
instruments include unfunded
 
commitments under lines
 
of credit, commitments
 
to extend credit,
 
standby and commercial
letters of
 
credit. Those
 
instruments involve,
 
to varying
 
degrees, elements
 
of credit
 
and interest
 
rate risk
 
in excess
 
of the
amount recognized in the
 
Company’s Consolidated Balance Sheets.
 
The Company uses the
 
same credit policies in
 
making
commitments and conditional obligations as it does for on-balance sheet instruments.
The Company's exposure to
 
credit loss in the
 
event of nonperformance by
 
the other party to
 
the financial instruments
for unused lines of credit, and standby letters of credit is represented by the contractual amount of these commitments.
A
 
summary
 
of
 
the
 
amounts
 
of
 
the
 
Company's
 
financial
 
instruments
 
with
 
off-balance
 
sheet
 
risk
 
are
 
shown
 
below
 
at
March 31, 2023 and December 31, 2022 (in thousands):
 
March 31, 2023
December 31, 2022
Commitments to grant loans and unfunded lines of credit
$
81,506
$
95,461
Standby and commercial letters of credit
3,542
4,320
Total
$
85,048
$
99,781
Commitments to extend
 
credit are agreements
 
to lend to
 
a customer as
 
long as there
 
is no violation
 
of any condition
established in the contract. Commitments generally have fixed expiration dates or other termination clauses.
Unfunded lines of credit
 
and revolving credit lines
 
are commitments for possible
 
future extensions of credit
 
to existing
customers. These lines
 
of credit are
 
uncollateralized and usually
 
do not contain
 
a specified maturity
 
date and ultimately
 
may
not be drawn upon to the total extent to which the Company committed.
Standby
 
and
 
commercial
 
letters
 
of
 
credit
 
are
 
conditional
 
commitments
 
issued
 
by
 
the
 
Company
 
to
 
guarantee
 
the
performance of
 
a customer
 
to a
 
third party. Those
 
letters of
 
credit are
 
primarily issued
 
to support
 
public and
 
private borrowing
arrangements. Essentially all letters of credit have fixed maturity
 
dates and since many of them expire without being drawn
upon, they do not generally present a significant liquidity risk to the Company.
6.
 
DERIVATIVES
 
The Company utilizes interest rate swap agreements as part of its asset liability management strategy to help manage
its interest rate risk exposure. The notional amount of
 
the interest rate swaps do not represent actual
 
amounts exchanged
by the
 
parties. The
 
amounts exchanged
 
are determined
 
by reference
 
to the
 
notional amount
 
and the
 
other terms
 
of the
individual interest rate swap agreements.
 
The Company enters into interest rate
 
swaps with its loan customers.
 
The Company had
17
 
and
15
 
interest rate swaps
with
 
loan
 
customers
 
with
 
an
 
aggregate
 
notional
 
amount
 
of
 
$
40.9
 
million
 
and
 
$
33.9
 
million
 
at
 
March 31,
 
2023
 
and
December 31, 2022, respectively.
 
These interest rate
 
swaps mature between 2025
 
and 2051. The Company
 
entered into
corresponding
 
and
 
offsetting
 
derivatives
 
with
 
third
 
parties.
 
The
 
fair
 
value
 
of
 
liability
 
on
 
these
 
derivatives
 
requires
 
the
Company to provide the counterparty with funds to be held as collateral which the Company reports as other assets under
the Consolidated Balance
 
Sheets. While these
 
derivatives represent economic
 
hedges, they do
 
not qualify as
 
hedges for
accounting purposes.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
25
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
The following table reflects the Company’s customer-related interest rate swaps at the dates indicated (in thousands):
 
Fair Value
Notional
Amount
Collateral
Amount
Balance Sheet Location
Asset
Liability
March 31, 2023:
Derivatives not designated as hedging instruments:
Interest rate swaps related to customer loans
$
40,896
$
1,287
Other assets/Other liabilities
$
4,673
$
4,673
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
7.
 
FAIR VALUE
 
MEASUREMENTS
 
Determination of Fair Value
The Company
 
uses fair
 
value measurements
 
to record
 
fair-value adjustments
 
to certain
 
assets and
 
liabilities and
 
to
determine fair value disclosures. In
 
accordance with the fair value
 
measurements accounting guidance, the fair value
 
of a
financial instrument is the price that would be received to
 
sell an asset or paid to transfer a liability
 
in an orderly transaction
between market
 
participants at
 
the measurement
 
date. Fair
 
value is
 
best determined
 
based upon
 
quoted market
 
prices.
However, in many
 
instances, there are no quoted market
 
prices for the Company's various financial
 
instruments. In cases
where quoted
 
market prices
 
are not
 
available, fair
 
values are
 
based on
 
estimates using
 
present value
 
or other
 
valuation
techniques. Those techniques are
 
significantly affected by the assumptions
 
used, including the discount
 
rate and estimates
of future cash flows.
 
Accordingly, the fair value estimates may not
 
be realized in an
 
immediate settlement of the
 
instrument.
The fair
 
value guidance
 
provides a
 
consistent definition
 
of fair
 
value, which
 
focuses on
 
exit price
 
in an
 
orderly transaction
(that is,
 
not a
 
forced liquidation
 
or distressed
 
sale) between
 
market participants
 
at the
 
measurement date
 
under current
market conditions.
 
If there
 
has been
 
a significant
 
decrease in
 
the volume
 
and level
 
of activity
 
for the
 
asset or
 
liability,
 
a
change in
 
valuation technique
 
or the
 
use of
 
multiple valuation
 
techniques may
 
be appropriate.
 
In such
 
instances, determining
the
 
price
 
at
 
which
 
willing
 
market
 
participants
 
would
 
transact
 
at
 
the
 
measurement
 
date
 
under
 
current
 
market
 
conditions
depends on the facts and circumstances and requires
 
the use of significant judgment. The fair value
 
is a reasonable point
within the range that is most representative of fair value under current market conditions.
Fair Value Hierarchy
In accordance with this
 
guidance, the Company groups its
 
financial assets and financial liabilities
 
generally measured
at fair
 
value in
 
three levels,
 
based on
 
the markets
 
in which
 
the assets
 
and liabilities
 
are traded,
 
and the
 
reliability of
 
the
assumptions used to determine fair value.
Level 1
 
- 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
26
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
Items Measured at Fair Value on a Recurring Basis
AFS 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.
The
 
following
 
table
 
represents
 
the
 
Company's
 
assets
 
and
 
liabilities
 
measured
 
at
 
fair
 
value
 
on
 
a
 
recurring
 
basis
 
at
March 31, 2023 and December 31, 2022 for each of the fair value hierarchy levels (in thousands):
March 31, 2023
December 31, 2022
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Investment securities available for sale:
U.S. Government Agency
$
-
$
8,831
$
-
$
8,831
$
-
$
8,655
$
-
$
8,655
Collateralized mortgage obligations
-
88,837
-
88,837
-
95,541
-
95,541
Mortgage-backed securities - residential
 
-
60,566
-
60,566
-
60,879
-
60,879
Mortgage-backed securities - commercial
-
32,600
-
32,600
-
27,954
-
27,954
Municipal securities
-
19,310
-
19,310
-
18,483
-
18,483
Bank subordinated debt securities
-
15,497
-
15,497
-
14,919
-
14,919
Corporate bonds
-
3,768
-
3,768
-
3,709
-
3,709
Total
-
229,409
-
229,409
-
230,140
-
230,140
Derivative assets
-
4,673
-
4,673
-
5,011
-
5,011
Total assets at fair value
$
-
$
234,082
$
-
$
234,082
$
-
$
235,151
$
-
$
235,151
Derivative liabilities
$
-
$
4,673
$
-
$
4,673
$
-
$
5,011
$
-
$
5,011
Total liabilities at fair value
$
-
$
4,673
$
-
$
4,673
$
-
$
5,011
$
-
$
5,011
Items Measured at Fair Value on a Non-recurring Basis
 
Individually Evaluated Loans
 
and Impaired Loans:
ASC 326 eliminates
 
the current accounting
 
model for impaired
loans
 
effective
 
as
 
of
 
January
 
1,
 
2023.
 
At
 
December 31,
 
2022,
 
in
 
accordance
 
with
 
provisions
 
of
 
the
 
loan
 
impairment
guidance, individual
 
loans
 
with
 
a
 
carrying amount
 
of
 
approximately $
3.9
 
million,
 
were
 
written
 
down
 
to
 
their
 
fair
 
value
 
of
approximately $
3.6
 
million, resulting
 
in an
 
impairment charge
 
of $
294
 
thousand, which
 
was included
 
in the
 
allowance for
credit losses at
 
December 31, 2022. Loans
 
subject to write-downs,
 
or impaired loans,
 
are estimated using
 
the present value
of expected cash flows
 
or the appraised value
 
of the underlying collateral
 
discounted as necessary due
 
to management's
estimates of changes in economic conditions are considered a Level 3 valuation.
Other Real
 
Estate:
 
Other real
 
estate owned
 
is 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
27
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
The following
 
table represents
 
the Company’s assets
 
measured at
 
fair value on
 
a non-recurring
 
basis at March
 
31, 2023
and December 31, 2022 for each of the fair value hierarchy levels (in thousands):
Level 1
Level 2
Level 3
Total
March 31, 2023:
Individually evaluated loans
$
-
$
-
$
-
$
-
December 31, 2022:
Impaired loans
$
-
$
-
$
3,639
$
3,639
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 (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
Consumer and other loans
98
Discounted cash flow
Adj. for differences in net operating income expectations
Total
 
impaired loans
$
3,639
There were
no
 
financial liabilities measured at
 
fair value on a non-recurring
 
basis at March 31, 2023 and
 
December 31,
2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
28
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
Items Not Measured at Fair Value
The following table presents the
 
carrying amounts and estimated fair
 
values of financial instruments not
 
carried at fair
value as of December 31, 2022 (in thousands):
Fair Value Hierarchy
Carrying
Amount
Level 1
Level 2
Level 3
Fair Value
Amount
March 31, 2023:
Financial Assets:
Cash and due from banks
$
5,586
$
5,586
$
-
$
-
$
5,586
Interest-bearing deposits in banks
$
57,665
$
57,665
$
-
$
-
$
57,665
Investment securities held to maturity, net
$
186,428
$
-
$
169,167
$
-
$
169,167
Loans held for investment, net
$
1,561,507
$
-
$
-
$
1,518,178
$
1,518,178
Accrued interest receivable
$
8,216
$
-
$
1,248
$
6,968
$
8,216
Financial Liabilities:
Demand deposits
$
633,606
$
633,606
$
-
$
-
$
633,606
Money market and savings accounts
$
900,478
$
900,478
$
-
$
-
$
900,478
Interest-bearing checking accounts
$
50,573
$
50,573
$
-
$
-
$
50,573
Time deposits
$
245,805
$
-
$
-
$
241,263
$
241,263
FHLB advances
$
120,000
$
-
$
118,852
$
-
$
118,852
Accrued interest payable
$
567
$
-
$
327
$
240
$
567
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
8.
 
STOCKHOLDERS’ EQUITY
Common Stock
In July
 
2021, the
 
Bank completed
 
the initial
 
public offering
 
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 Bank received total net proceeds of
 
$
40.0
million after deducting underwriting discounts and expenses.
In December 2021, the Company acquired all
 
the issued and outstanding shares of the
 
Class A voting common stock
of the Bank, which
 
at the time were
 
the only issued and
 
outstanding shares of
 
the Bank’s capital stock,
 
in a share exchange
(the “Reorganization”) effected under the Florida Business Corporation Act. Each outstanding share of the
 
Bank’s Class A
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
 
Class
 
A
 
common
 
stock,
 
par
 
value
 
$
1.00
 
per
 
share,
 
and
 
the
 
Bank
 
became
 
the
Company’s wholly owned subsidiary.
 
In the
 
Reorganization, each
 
shareholder of
 
the Bank
 
received securities
 
of the
 
same class,
 
having substantially
 
the
same designations,
 
rights, powers,
 
preferences, qualifications,
 
limitations and
 
restrictions, as
 
those that
 
the shareholder
held in the Bank, and
 
the Company’s then current shareholders
 
owned the same percentages of the
 
Company’s common
stock as they previously owned of the Bank’s common stock.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
29
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
The Company issued
121,627
 
shares of Class A common stock to employees and
 
directors as restricted stock awards
pursuant to the Company’s 2015 equity incentive plan in March 2023.
 
During
 
the
 
first
 
quarter
 
of
 
2023,
 
the
 
Company
 
repurchased
500,000
 
shares
 
of
 
USCB
 
Financial
 
Holdings
 
Inc
 
at
 
a
weighted average price per share of $
11.74
. The aggregate purchase price for these transactions was approximately
 
$
5.9
million,
 
including
 
transaction
 
costs.
 
These
 
repurchases
 
were
 
made
 
through
 
open
 
market
 
purchases
 
pursuant
 
to
 
the
Company’s
 
publicly
 
announced
 
repurchase
 
program. As
 
of
 
March
 
31,
 
2023,
250,000
 
shares
 
remained
 
authorized
 
for
repurchase under this program.
Shares of the
 
Company’s Class A
 
common stock issued
 
and outstanding as
of March 31,
 
2023 and December
 
31, 2022
were
19,622,380
 
and
20,000,753
, respectively.
 
Dividends
Declaration of dividends by the Board is
 
required before dividend payments are made.
No
 
dividends were approved by
the Board for the common stock classes for the three months ended
 
March 31, 2023 and 2022. Additionally, there were
no
dividends declared and unpaid as of March 31, 2023 and 2022.
The
 
Company
 
and
 
the
 
Bank
 
exceeded
 
all
 
regulatory
 
capital
 
requirements
 
and
 
remained
 
significantly
 
above
 
“well-
capitalized” guidelines as of December 31, 2022 and
 
March 31, 2023. At March 31, 2023, the total
 
risk-based capital ratios
for the Company and the Bank were
13.20
% and
13.12
%, respectively.
9.
 
EARNINGS PER SHARE
Earnings
 
per
 
share
 
(“EPS”)
 
for
 
common
 
stock
 
is
 
calculated
 
using
 
the
 
two-class
 
method
 
required
 
for
 
participating
securities. Basic
 
EPS is
 
calculated by
 
dividing net
 
income (loss)
 
available to
 
common stockholders
 
by the
 
weighted-average
number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted EPS is
computed by
 
dividing net
 
income (loss)
 
available to
 
common stockholders
 
by the
 
weighted-average number
 
of common
shares outstanding for the period
 
and the weighted-average number of
 
dilutive common stock equivalents outstanding for
the period determined
 
using the treasury-stock
 
method. For purposes
 
of this calculation,
 
common stock equivalents
 
include
common stock options and are only included in the calculation of diluted EPS when their effect is dilutive.
 
The following table reflects the calculation
 
of net income available to common stockholders
 
for the three months ended
March 31, 2023 and 2022 (in thousands):
Three Months Ended March 31,
2023
2022
Net Income
$
5,809
$
4,854
Less: Preferred stock dividends
 
-
-
Net income available to common stockholders
$
5,809
$
4,854
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
30
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
The following table reflects the calculation of basic and diluted
 
earnings per common share class for the three months
ended March 31, 2023 and 2022 (in thousands, except per share amounts):
Three Months Ended March 31,
2023
2022
Class A
Class A
Basic EPS
Numerator:
Net income available to common shares
 
$
5,809
$
4,854
Denominator:
Weighted average shares outstanding
19,855,409
19,994,953
Earnings per share, basic
$
0.29
$
0.24
Diluted EPS
Numerator:
Net income available to common shares
$
5,809
$
4,854
Denominator:
Weighted average shares outstanding for basic EPS
19,855,409
19,994,953
Add: Dilutive effects of assumed exercises of stock options
85,197
114,830
Weighted avg. shares including dilutive potential common shares
19,940,606
20,109,783
Earnings per share, diluted
$
0.29
$
0.24
Anti-dilutive stock options excluded from diluted EPS
572,500
-
10.
 
LOSS CONTINGENCIES
 
Loss contingencies, including
 
claims and legal
 
actions may arise
 
in the ordinary
 
course of business.
 
In the opinion
 
of
management, none of
 
these actions, either
 
individually or in
 
the aggregate, is
 
expected to have
 
a material adverse
 
effect
on the Company’s Consolidated Financial Statements.
 
 
 
31
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
Item 2.
 
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
The
 
following
 
discussion
 
and
 
analysis
 
is
 
designed
 
to
 
provide
 
a
 
better
 
understanding
 
of
 
the
 
consolidated
 
financial
condition and
 
results of
 
operations of
 
the Company
 
and the
 
Bank, its
 
wholly owned
 
subsidiary, for the
 
quarter and
 
three
months ended
 
March 31, 2023.
 
This discussion
 
and analysis
 
is best
 
read in
 
conjunction with
 
the unaudited
 
consolidated
financial
 
statements
 
and
 
related
 
footnotes
 
included
 
in
 
this
 
quarterly
 
report
 
on
 
Form
 
10-Q
 
and
 
the
 
audited
 
consolidated
financial statements and
 
related footnotes included
 
in the Annual Report
 
on Form 10-K/A
 
(“2022 Form 10-K/A”)
 
filed with
the Securities and Exchange Commission (“SEC”) for the year ended December 31, 2022.
This discussion contains forward-looking
 
statements that involve risks, uncertainties
 
and assumptions that could cause
actual results to
 
differ materially from
 
management's expectations. Factors
 
that could cause
 
such differences are
 
discussed
in the
 
sections entitled "Forward-Looking
 
Statements" and Item
 
1A “Risk Factors"
 
below and in
 
the 2022 Form
 
10-K filed
with the SEC which is available at the SEC’s website www.sec.gov.
Throughout
 
this
 
document,
 
references
 
to
 
“we,”
 
“us,”
 
“our,”
 
and
 
“the
 
Company”
 
generally
 
refer
 
to
 
USCB
 
Financial
Holdings, Inc.
Forward-Looking Statements
This Quarterly
 
Report on
 
Form 10-Q
 
(“Form 10-Q”)
 
contains statements
 
that are
 
not historical
 
in nature
 
and are
 
intended
to be, and are hereby identified as, forward-looking statements for purposes of the safe harbor provided by Section 21E of
the Securities Exchange Act of 1934, as amended (Exchange Act”).
 
The words “may,” “will,” “anticipate,” “should,” “would,”
“believe,”
 
“contemplate,”
 
“expect,”
 
“aim,”
 
“plan,”
 
“estimate,”
 
“continue,”
 
and
 
“intend,”
 
as
 
well
 
as
 
other
 
similar
 
words
 
and
expressions of
 
the future,
 
are intended
 
to identify
 
forward-looking statements. These
 
forward-looking statements include,
but
 
are
 
not
 
limited
 
to,
 
statements
 
related
 
to
 
our
 
projected
 
growth,
 
anticipated
 
future
 
financial
 
performance,
 
and
management’s long-term
 
performance goals,
 
as well
 
as statements
 
relating to
 
the anticipated
 
effects on
 
results of
 
operations
and
 
financial condition
 
from expected
 
developments or
 
events, or
 
business and
 
growth strategies,
 
including anticipated
internal growth and balance sheet restructuring.
 
These forward-looking statements involve
 
significant risks and uncertainties that
 
could cause our actual results
 
to differ
materially from those anticipated in such statements. Potential risks and uncertainties include, but are not limited to:
•
 
the strength of the United States economy in general and the strength of the local economies in which we conduct
operations;
•
 
our ability to successfully
 
manage interest rate risk,
 
credit risk, liquidity risk,
 
and other risks inherent
 
to our industry;
•
 
the accuracy of our financial
 
statement estimates and assumptions, including
 
the estimates used for our
 
credit loss
reserve and deferred tax asset valuation allowance;
•
 
the efficiency and effectiveness of our internal control environment;
•
 
our ability to
 
comply with the
 
extensive laws and
 
regulations to which
 
we are subject,
 
including the laws
 
for each
jurisdiction where we operate;
•
 
adverse changes or conditions in
 
capital and financial markets, including
 
actual or potential stresses
 
in the banking
industry;
•
 
deposit attrition and the level of our uninsured deposits;
•
 
legislative or regulatory changes
 
and changes in accounting
 
principles, policies, practices or
 
guidelines, including
the on-going effects of the implementation of the Current Expected Credit Losses (“CECL”) standard;
•
 
the effects
 
of our
 
lack of
 
a diversified
 
loan portfolio
 
and concentration
 
in the
 
South Florida
 
market, including
 
the
risks of
 
geographic, depositor,
 
and industry
 
concentrations, including
 
our concentration
 
in loans
 
secured by
 
real
estate;
•
 
effects of climate change;
•
 
the concentration of ownership of our common stock;
•
 
fluctuations in the price of our common stock;
•
 
our ability to fund or access the capital markets at attractive rates and terms and manage our growth, both organic
growth as well as growth through other means, such as future acquisitions;
•
 
inflation, interest rate, unemployment rate, market and monetary fluctuations;
•
 
impacts of international hostilities and geopolitical events;
•
 
increased competition and its effect on the pricing of our products and services as well as our margin;
•
 
the effectiveness of our risk management strategies, including
 
operational risks, including, but not limited to,
 
client,
employee, or third-party fraud and security breaches; and
•
 
other risks described
 
in this Form
 
10-Q, the 2022
 
Form 10-K/A and
 
other filings we
 
make with the
 
Securities and
Exchange Commission (“SEC”).
 
 
 
32
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
All forward-looking
 
statements are
 
necessarily only
 
estimates of
 
future results,
 
and
 
there
 
can
 
be
 
no
 
assurance
 
that
actual results will not
 
differ materially from
 
expectations. Therefore, you are cautioned
 
not to place undue
 
reliance on any
forward-looking statements. Further,
 
forward-looking statements included in
 
this Form 10-Q
 
are made only
 
as of the
 
date
hereof, and we
 
undertake no obligation
 
to update or
 
revise any forward-looking
 
statement to reflect
 
events or circumstances
after the date on which the statements are made or to reflect
 
the occurrence of unanticipated events, unless required to do
so under the federal securities laws.
 
You
 
should also review the risk
 
factors described in the reports the
 
Company filed or
will file with
 
the SEC and,
 
for periods prior
 
to the completion
 
of the bank
 
holding company reorganization
 
in December 2021,
the Bank filed with the FDIC.
Overview
The Company
 
reported net
 
income of
 
$5.8 million
 
or $0.29
 
per diluted
 
share for
 
Class A common stock for
 
the three
months ended March 31,
 
2023, compared with
 
net income of
 
$4.9 million or
 
$0.24 per diluted
 
share for Class A common
stock, respectively, for the same period in 2022.
During
 
the
 
first
 
quarter
 
of
 
2023,
 
the
 
Company
 
repurchased
 
500,000
 
shares
 
of
 
USCB
 
Financial
 
Holdings
 
Inc
 
at
 
a
weighted average price per share of $11.74. The aggregate purchase
 
price for these transactions was approximately $5.9
million,
 
including
 
transaction
 
costs.
 
These
 
repurchases
 
were
 
made
 
through
 
open
 
market
 
purchase
 
pursuant
 
to
 
the
Company’s
 
publicly
 
announced
 
repurchase
 
program.
 
As
 
of
 
March
 
31,
 
2023,
 
250,000
 
shares
 
remain
 
authorized
 
for
repurchase under this program.
In evaluating our financial performance, the Company
 
considers the level of and trends
 
in net interest income, the net
interest margin, the cost
 
of deposits, levels and
 
composition of non-interest income
 
and non-interest expense, performance
ratios, asset quality ratios, regulatory capital ratios, and any significant event or transaction.
Unless otherwise
 
stated, all
 
period comparisons
 
in the
 
bullet points
 
below are
 
calculated for
 
the quarter
 
ended March 31,
2023 compared to the quarter ended March 31, 2022 and annualized where appropriate:
•
 
Net
 
interest
 
income
 
increased
 
$1.6
 
million
 
or
 
11.3%
 
to
 
$16.0 million
 
from
 
$14.4
 
million
 
for
 
the
 
quarter
 
ended
March 31, 2022.
•
 
Net interest margin (“NIM”) was 3.22% for both quarters ended at March 31, 2023 and 2022.
 
•
 
Total assets were $2.2
 
billion at March 31, 2023,
 
representing an increase of $196.6
 
million or 10.0% from March
31, 2022 and an increase of $78.0 million or 15.2% annualized from December 31, 2022.
 
•
 
Total loans
 
were $1.6
 
billion at
 
March 31,
 
2023, representing
 
an increase
 
of $322.0
 
million or
 
25.6% from
 
March
31, 2022 and an increase of $73.1 million or 19.7% annualized from December 2022.
•
 
Total deposits were $1.8 billion at March 31,
 
2023, representing an increase of $117.2 million or
 
6.8% from March
31, 2022 and $1.2 million from December 31, 2022.
 
•
 
Annualized return on average assets was 1.11% compared to 1.03% at March 31, 2022.
•
 
Annualized return
 
on average
 
stockholders’
 
equity was
 
12.85% compared
 
to 9.75%
 
for quarter
 
ended March 31,
2022.
•
 
The allowance for credit losses to
 
total loans was 1.20% for
 
March 31, 2023 and
 
1.16% for December 31, 2022.
ACL was calculated under the CECL methodology for the first quarter 2023 and the incurred loss
 
methodology for
the first quarter 2022.
•
 
Non-performing loans to total loans was 0.03% at March 31, 2023 compared to 0.0% at December 31, 2022.
 
•
 
At March 31,
 
2023, the
 
total risk-based
 
capital ratios
 
for the
 
Company and
 
the Bank
 
were 13.20%
 
and 13.12%,
respectively.
•
 
Tangible book value
 
per common share
 
of $9.37 as
 
of March 31,
 
2023 was negatively
 
affected by $2.14
 
due to after
tax unrealized security losses of $42.1 million at March 31, 2023. At March 31, 2022, tangible book value of $9.60
was negatively affected by $0.97 due to $19.5 million after tax unrealized
 
security losses. See “Reconciliation and
 
 
33
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
Management
 
Explanation
 
for
 
Non-GAAP
 
Financial
 
Measures”
 
for
 
a
 
reconciliation
 
of
 
this
 
non-GAAP
 
financial
measure.
Critical Accounting Policies and Estimates
The
 
consolidated financial
 
statements
 
are
 
prepared based
 
on
 
the application
 
of
 
U.S.
 
GAAP,
 
the
 
most
 
significant
 
of
which are
 
described in
 
Note 1
 
“Summary of
 
Significant Accounting
 
Policies” in
 
the Company’s
 
2022 Form
 
10-K/A. To prepare
financial
 
statements
 
in
 
conformity
 
with
 
GAAP,
 
management
 
makes
 
estimates,
 
assumptions,
 
and
 
judgments
 
based
 
on
available information.
 
These estimates,
 
assumptions,
 
and judgments
 
affect the amounts
 
reported in
 
the financial
 
statements
and accompanying notes. These estimates, assumptions,
 
and judgments are based on information
 
available as of the date
of the financial
 
statements and, as
 
this information changes,
 
actual results could
 
differ from the estimates,
 
assumptions and
judgments reflected
 
in the
 
financial statements.
 
In particular,
 
management has
 
identified accounting
 
policies that,
 
due to
the estimates, assumptions and judgments inherent
 
in those policies, are critical in understanding
 
our financial statements.
Management has presented the application of these policies to the Audit and Risk Committee of our Board.
 
Allowance for Credit Losses
On
 
January
 
1,
 
2023,
 
the
 
Company
 
adopted
 
ASU
 
2016-13
 
Financial
 
Instruments
 
-
 
Credit
 
Losses
 
(Topic
 
326):
Measurement of Credit Losses on Financial Instruments, as
 
amended, which replaces the incurred loss methodology with
an
 
expected
 
loss
 
methodology
 
that
 
is
 
referred
 
to
 
as
 
the
 
current
 
expected
 
credit loss
 
(CECL)
 
methodology.
 
See
 
Note
 
1
“Summary of
 
Significant Accounting
 
Policies” for
 
more information
 
on the
 
adoption ASC
 
326 and
 
the allowance
 
of credit
losses.
 
As of March
 
31, 2023, our
 
ACL included
 
a concentration of
 
commercial real
 
estate loans.
 
To assess the potential impact
of
 
changes
 
in
 
qualitative
 
factors
 
related
 
to
 
these
 
loans,
 
management
 
performed
 
a
 
sensitivity
 
analysis.
 
Specially
 
we
evaluated the impact of two scenarios: (1) an increase in qualitative factors to simulate a maximum loss scenario and (2) a
reduction to all qualitative
 
factors to zero. Under
 
the first scenario, the
 
ACL increased by $4.6
 
million or 24.2% and
 
under
the second scenario the
 
ACL was reduced by
 
$1.1 million or 6.3%.
 
This sensitivity analysis provides
 
a hypothetical result
to assess the sensitivity of the ACL and does not represent a change in management’s judgement.
Income Taxes
Deferred tax assets
 
and liabilities are
 
recognized for the
 
future tax consequences
 
attributable to differences
 
between
the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss
and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income
 
in the
 
years in
 
which those
 
temporary differences
 
are expected
 
to be
 
recovered or
 
settled. The
 
effect on
deferred tax assets and liabilities of a
 
change in tax rates is recognized in income
 
in the period that includes the enactment
date.
 
Management is required to assess whether
 
a valuation allowance should be
 
established on the net deferred tax
 
assets
based on the consideration of
 
all available evidence using
 
a more likely than
 
not standard. In its
 
evaluation, management
considers taxable
 
loss carry-back
 
availability, expectation of
 
sufficient taxable
 
income, trends
 
in earnings,
 
the future
 
reversal
of temporary differences, and available tax planning strategies.
The Company recognizes
 
positions taken or
 
expected to be
 
taken in a
 
tax return in
 
accordance with existing
 
accounting
guidance on income
 
taxes which prescribes
 
a recognition threshold
 
and measurement process.
 
Interest and penalties
 
on
tax liabilities, if any, would be recorded in interest expense and other operating non-interest expense, respectively.
Non-GAAP Financial Measures
This Form 10-Q
 
includes financial
 
information determined
 
by methods
 
other than
 
in accordance with
 
generally accepted
accounting principles (“GAAP”). This financial information includes certain operating performance measures. Management
has included these non-GAAP
 
measures because it believes
 
these measures may
 
provide useful supplemental information
for evaluating the
 
Company’s underlying performance
 
trends. Further, management uses these
 
measures in managing
 
and
evaluating
 
the Company’s
 
business and
 
intends
 
to refer
 
to
 
them in
 
discussions about
 
our operations
 
and
 
performance.
Operating performance measures should be viewed in addition
 
to, and not as an alternative to
 
or substitute for, measures
determined in accordance with GAAP, and are not necessarily comparable to non-GAAP measures that may be presented
by other companies.
 
To the extent applicable, reconciliations of
 
these non-GAAP measures
 
to the most
 
directly comparable
GAAP
 
measures
 
can
 
be
 
found
 
in
 
the
 
section
 
“Reconciliation
 
and
 
Management
 
Explanation
 
of
 
Non-GAAP
 
Financial
Measures” included in this Form 10-Q.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
34
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
Segment Reporting
Management monitors the revenue streams for all its various products and services. The identifiable segments are not
material
 
and
 
operations
 
are
 
managed
 
and
 
financial
 
performance
 
is
 
evaluated
 
on
 
an
 
overall
 
Company-wide
 
basis.
Accordingly, all
 
the financial
 
service operations
 
are considered
 
by management
 
to be
 
aggregated in
 
one reportable
 
operating
segment.
Results of Operations
General
The following tables
 
present selected balance
 
sheet, income statement,
 
and profitability ratios
 
for the dates
 
indicated
(in thousands, except ratios):
March 31, 2023
December 31, 2022
Consolidated Balance Sheets:
Total
 
assets
$
2,163,821
$
2,085,834
Total
 
loans
(1)
$
1,580,394
$
1,507,338
Total
 
deposits
$
1,830,462
$
1,829,281
Total
 
stockholders' equity
$
183,858
$
182,428
(1)
 
Loan amounts include deferred fees/costs.
Three Months Ended March 31,
2023
2022
Consolidated Statements of Operations:
Net interest income before provision for credit losses
$
15,997
$
14,379
Total
 
non-interest income
$
2,070
$
1,945
Total
 
non-interest expense
$
10,176
$
9,612
Net income
 
$
5,809
$
4,854
Profitability:
Efficiency ratio
56.32%
58.88%
Net interest margin
 
3.22%
3.22%
The Company’s
 
results of
 
operations depend
 
substantially on
 
net interest
 
income and
 
non-interest income.
 
Other factors
contributing
 
to the
 
results of
 
operations include
 
our provision
 
for credit
 
losses, non-interest
 
expenses, and
 
provision
 
for
income taxes.
Three months ended March 31, 2023 compared to the three months ended March 31, 2022
 
Net income increased to $5.8 million for the three months ended March 31, 2023 from $4.9 million for the same period
in 2022 due to higher interest income generated by a larger loan portfolio and higher yields.
 
Net Interest Income
Net
 
interest
 
income
 
is
 
the
 
difference
 
between
 
interest
 
earned
 
on
 
interest-earning
 
assets
 
and
 
interest
 
incurred
 
on
interest-bearing liabilities
 
and is
 
the primary
 
driver of
 
core earnings.
 
Interest income
 
is generated
 
from interest
 
and dividends
on
 
interest-earning
 
assets,
 
including
 
loans,
 
investment
 
securities
 
and
 
other
 
short-term
 
investments.
 
Interest
 
expense
 
is
incurred
 
from
 
interest
 
paid
 
on
 
interest-bearing
 
liabilities,
 
including
 
interest-bearing
 
deposits,
 
FHLB
 
advances
 
and
 
other
borrowings.
To evaluate net interest income,
 
we measure and monitor (i)
 
yields on loans and other
 
interest-earning assets, (ii) the
costs of
 
deposits and other
 
funding sources,
 
(iii) net interest
 
spread, and
 
(iv) net
 
interest margin.
 
Net interest
 
spread is equal
to the difference between yields earned
 
on interest-earning assets and rates paid
 
on interest-bearing liabilities. Net interest
margin is
 
equal to
 
the annualized
 
net interest
 
income divided
 
by average
 
interest-earning assets.
 
Because non-interest-
bearing sources of funds,
 
such as non-interest-bearing deposits
 
and stockholders’
 
equity, also fund interest-earning
 
assets,
net interest margin includes the indirect benefit of these non-interest-bearing sources.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
35
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
Changes in the
 
market interest rates
 
and interest rates
 
we earn on
 
interest-earning assets or
 
pay on interest-bearing
liabilities, as
 
well as the
 
volume and
 
types of
 
interest-earning assets
 
and interest-bearing
 
and non-interest-bearing
 
liabilities,
are usually the largest
 
drivers of periodic changes
 
in net interest spread,
 
net interest margin and
 
net interest income. Our
asset liability committee (“ALCO”)
 
has in place asset-liability
 
management techniques to manage
 
major factors that affect
net interest income and net interest margin.
The following table
 
contains information related
 
to average balance
 
sheet, average yields
 
on assets, and
 
average costs
of liabilities for the periods indicated (dollars in thousands):
Three Months Ended March 31,
2023
2022
Average
 
Balance
Interest
Yield/Rate
(1)
Average
 
Balance
Interest
Yield/Rate
(1)
Assets
Interest-earning assets:
Loans
(2)
$
1,547,393
$
19,711
5.17%
$
1,211,432
$
12,982
4.35%
Investment securities
(3)
421,717
2,286
2.20%
510,257
2,329
1.85%
Other interest-earnings assets
43,084
382
3.60%
90,137
31
0.14%
Total interest-earning
 
assets
2,012,194
22,379
4.51%
1,811,826
15,342
3.43%
Non-interest-earning assets
108,024
 
 
101,658
 
 
Total assets
$
2,120,218
$
1,913,484
Liabilities and stockholders' equity
 
 
 
 
 
 
Interest-bearing liabilities:
Interest-bearing checking
$
58,087
43
0.30%
$
64,436
16
0.10%
Saving and money market deposits
897,061
4,785
2.16%
736,134
551
0.30%
Time deposits
224,730
1,057
1.91%
223,274
259
0.47%
Total interest-bearing
 
deposits
1,179,878
5,885
2.02%
1,023,844
826
0.33%
FHLB advances and other borrowings
61,600
497
3.27%
36,011
137
1.54%
Total interest-bearing
 
liabilities
1,241,478
6,382
2.08%
1,059,855
963
0.37%
Non-interest-bearing demand deposits
664,369
 
 
626,400
 
 
Other non-interest-bearing liabilities
31,000
25,369
Total liabilities
1,936,847
 
 
1,711,624
 
 
Stockholders' equity
183,371
201,860
Total liabilities
 
and stockholders' equity
$
2,120,218
 
 
$
1,913,484
 
 
Net interest income
$
15,997
$
14,379
Net interest spread
(4)
2.43%
3.07%
Net interest margin
(5)
3.22%
3.22%
(1)
 
Annualized.
(2)
 
Average loan balances include non-accrual loans. Interest income on loans includes accretion of deferred
 
loan fees, net of deferred loan costs.
(3)
 
At fair value except for securities held to maturity. This
 
amount includes FHLB stock.
(4)
 
Net interest spread is the average yield on total interest-earning assets minus the average rate on total interest-bearing liabilities.
(5)
 
Net interest margin is the ratio of net interest income to total interest-earning assets.
Three months ended March 31, 2023 compared to the three months ended March 31, 2022
 
Net interest income before
 
the provision for
 
credit losses was
 
$16.0 million for the
 
three months ended
 
March 31, 2023,
an increase of
 
$1.6 million or 11.3%, from
 
$14.4 million for the
 
same period in 2022.
 
This increase was
 
primarily attributable
to higher income from a larger loan portfolio combined with an increase in the weighted average loan yield.
 
Included with loan
 
interest income
 
are PPP interest
 
and loan
 
fees totaling $1
 
thousand and $1.0
 
million for
 
the three
months ended March 31, 2023 and 2022, respectively. PPP loan fees are recognized upon loan forgiveness by the SBA.
 
Net interest
 
margin was
 
at 3.22% for
 
both the
 
quarters ended
 
March 31, 2023 and
 
2022. The increase
 
in loan
 
yields
was partially
 
offset by
 
higher interest-bearing
 
liabilities cost.
 
Increase in
 
deposit cost
 
was mainly
 
attributed to
 
current interest
market conditions.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
36
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
Provision for Credit Losses
The provision for
 
credit losses
 
represents a charge
 
to earnings
 
necessary to establish
 
an allowance
 
for credit losses
that, in
 
management's evaluation, is
 
adequate to
 
provide coverage for
 
all expected
 
credit losses. The
 
provision for
 
credit
losses is impacted
 
by growth in
 
our loan portfolio,
 
recent historical and
 
projected future economic
 
conditions, our internal
assessment of the credit quality of the loan portfolio and net charge-offs.
Three months ended March 31, 2023 compared to the three months ended March 31, 2022
 
The provision for credit loss was $201 thousand for the three months ended March 31, 2023 compared to no provision
recorded for the same period in 2022. The primary driver of the provision expense in 2023 was attributable to loan growth.
 
See “Allowance for Credit Losses” below for further discussion on how the ACL
 
is calculated.
 
Non-Interest Income
Our services and products generate service charges and fees,
 
mainly from our depository accounts. We also generate
income from gain on sale of
 
loans though our swap and SBA
 
programs. In addition, we own
 
and are beneficiaries of the life
insurance policies on
 
some of our
 
employees and generate
 
income on the
 
increase in the
 
cash surrender value
 
of these
policies.
The following table presents the components of non-interest income for the dates indicated (in thousands):
Three Months Ended March 31,
2023
2022
Service fees
$
1,205
$
900
Gain (loss) on sale of securities available for sale, net
(21)
21
Gain on sale of loans held for sale, net
347
334
Loan settlement
-
161
Other non-interest income
539
529
Total
 
non-interest income
$
2,070
$
1,945
Three months ended March 31, 2023 compared to the three months ended March 31, 2022
 
Non-interest income for
 
the three months
 
ended March 31, 2023
 
increased $125 thousand
 
or 6.4%, compared
 
to the
same period in 2022. This
 
increase was primarily driven
 
by a $305 thousand
 
increase in fees related
 
to SWAP loans. For
the period ended March 31, 2022 the Company recognized $161 thousand interest recovery from a prior lending customer
of the Bank. This payment reflected the final payment and settlement of lien judgements against the customer.
 
Non-Interest Expense
The following table presents the components of non-interest expense for the dates indicated (in thousands):
Three Months Ended March 31,
2023
2022
Salaries and employee benefits
$
6,377
$
5,875
Occupancy
1,299
1,270
Regulatory assessment and fees
224
213
Consulting and legal fees
358
517
Network and information technology services
478
387
Other operating
1,440
1,350
Total
 
non-interest expense
$
10,176
$
9,612
Three months ended March 31, 2023 compared to the three months ended March 31, 2022
 
Non-interest expense for the three months ended March 31, 2023 increased $564 thousand or 5.9%, compared to the
same period in
 
2022. The increase
 
was primarily driven
 
by higher salaries
 
and employee benefits
 
expense due to
 
new hires
and increased salary compensation.
 
 
37
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
Provision for Income Tax
Fluctuations in the effective tax
 
rate reflect the effect of the
 
differences in the inclusion or deductibility
 
of certain income
and expenses for income
 
tax purposes. Therefore, future decisions
 
on the investments we
 
choose will affect our
 
effective
tax rate.
 
The cash
 
surrender value
 
of bank-owned
 
life insurance policies
 
covering key
 
employees, purchasing municipal
bonds, and overall levels of taxable income will be important elements in determining our effective tax rate.
Three months ended March 31, 2023 compared to the three months ended March 31, 2022
 
Income tax expense for both the quarters ended March 31, 2023 and 2022
 
was $1.9 million. The effective tax rate for
the
 
three
 
months
 
ended
 
March 31,
 
2023
 
was
 
24.5%
 
compared
 
to
 
27.7%
 
for
 
the
 
same
 
period
 
in
 
2022.
 
The
 
Company’s
effective tax
 
rate in
 
the quarter
 
ended March
 
31, 2022
 
was higher
 
primarily because
 
the Company
 
recorded a
 
one-time
adjustment of $300 thousand to deferred tax assets which increased the income tax provision.
For
 
a
 
further
 
discussion
 
of
 
income
 
taxes,
 
see
 
Note
 
4
 
“Income
 
Taxes”
 
to
 
the
 
unaudited
 
Consolidated
 
Financial
Statements in this Form 10-Q.
Analysis of Financial Condition
Total
 
assets at March 31, 2023 were $2.2 billion, an increase of $78.0 million, or 3.7%, over total assets of
 
$2.1 billion
at December
 
31, 2022.
 
Total
 
loans increased
 
$73.1 million,
 
or 4.8%,
 
to $1.6
 
billion at
 
March 31, 2023
 
compared to
 
$1.5
billion
 
at
 
December
 
31,
 
2022.
 
Total
 
deposits
 
increased
 
by
 
$1.2
 
million
 
to
 
$1.8
 
billion
 
at
 
March 31,
 
2023
 
compared
 
to
December 31, 2022.
Investment Securities
The investment portfolio is
 
used and managed to
 
provide liquidity through cash
 
flows, marketability and, if
 
necessary,
collateral for
 
borrowings. The
 
investment portfolio
 
is also
 
used as
 
a tool
 
to manage
 
interest rate
 
risk and
 
the Company’s
capital
 
market
 
risk
 
exposure.
 
The
 
philosophy
 
of
 
the
 
portfolio
 
is
 
to
 
maximize
 
the
 
Company’s
 
profitability
 
taking
 
into
consideration the Company’s risk
 
appetite and tolerance, manage the
 
asset composition and diversification, and
 
maintain
adequate risk-based capital ratios.
The
 
investment
 
portfolio
 
is
 
managed
 
in
 
accordance
 
with
 
the
 
Asset
 
and
 
Liability
 
Management
 
(“ALM”)
 
policy,
 
which
includes
 
investment
 
guidelines,
 
approved
 
by
 
the
 
Board.
 
Such
 
policy
 
is
 
reviewed
 
at
 
least
 
annually
 
or
 
more
 
frequently
 
if
deemed necessary,
 
depending on
 
market conditions
 
and/or unexpected
 
events. The
 
investment portfolio
 
composition is
subject to
 
change depending
 
on the
 
funding and
 
liquidity needs
 
of the
 
Company, and the
 
interest risk
 
management objective
directed
 
by
 
the
 
ALCO.
 
The
 
portfolio
 
of
 
investments
 
also
 
can
 
be
 
used
 
to
 
modify
 
the
 
duration
 
of
 
the
 
balance
 
sheet.
 
The
allocation of cash into securities takes into consideration anticipated future cash flows (uses and sources) and all available
sources of credit.
Our investment portfolio consists primarily of securities issued by U.S. government-sponsored agencies, U.S.
 
agency
mortgage-backed securities,
 
collateralized mortgage
 
obligation securities,
 
municipal securities,
 
and other
 
debt securities,
all with varying contractual maturities
 
and coupons. Due to the optionality
 
embedded in these securities, the
 
final maturities
do not
 
necessarily represent
 
the expected
 
life of
 
the portfolio.
 
Some of
 
these securities
 
will be
 
called or
 
paid down
 
depending
on capital market conditions and
 
expectations. The investment portfolio
 
is regularly reviewed by the
 
Chief Financial Officer,
Treasurer,
 
and the ALCO of
 
the Company to ensure
 
an appropriate risk and
 
return profile as well
 
as for adherence to
 
the
investment policy.
ASC Topic
 
326 amended
 
the existing
 
other-than-temporary-impairment guidance
 
for AFS
 
securities, requiring
 
credit
losses to be recorded as an allowance rather than through a
 
permanent write-down. When evaluating AFS debt securities
under ASC Topic
 
326, the Company
 
has evaluated whether
 
the decline in
 
fair value is
 
attributed to credit
 
losses or other
factors like
 
interest rate
 
risk, using
 
both quantitative
 
and
 
qualitative analyses,
 
including company
 
performance analysis,
review of credit
 
ratings, remaining payment
 
terms, prepayment speeds
 
and analysis of
 
macro-economic conditions. Each
investment is expected to
 
recover its price depreciations
 
over its holding period
 
as it moves to
 
maturity and the Company
has
 
the
 
intent
 
and
 
ability
 
to
 
hold
 
these
 
securities
 
to
 
maturity
 
if
 
necessary.
 
As
 
a
 
result
 
of
 
this
 
evaluation,
 
the
 
Company
concluded that no allowance was appropriate.
AFS
 
and
 
HTM
 
investment
 
securities
 
decreased
 
$3.0 million
 
or
 
1.0%
 
to
 
$415.8 million
 
at
 
March 31,
 
2023
 
from
$418.8 million at
 
December 31, 2022.
 
Investment securities
 
decreased due
 
to payments
 
received and
 
sales of
 
securities
during
 
the
 
quarter.
 
Management
 
reinvested
 
excess
 
cash
 
balances
 
into
 
high
 
credit
 
quality
 
investments
 
to
 
increase
 
the
Company’s profitability
 
and modify
 
the Company’s
 
balance sheet
 
duration according
 
to the
 
ALM policy.
 
As of
 
March 31,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
38
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
2023, investment securities with a
 
market value of $83.5 million were
 
pledged to secure public deposits
 
and Fed Borrowing
Program. The investment portfolio does not have any tax-exempt securities.
The
 
following
 
table
 
presents
 
the
 
amortized
 
cost
 
and
 
fair
 
value
 
of
 
investment
 
securities
 
for
 
the
 
dates
 
indicated
 
(in
thousands):
March 31, 2023
December 31, 2022
Available-for-sale:
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
U.S. Government Agency
$
10,184
$
8,831
$
10,177
$
8,655
Collateralized mortgage obligations
110,180
88,837
118,951
95,541
Mortgage-backed securities - residential
72,690
60,566
73,838
60,879
Mortgage-backed securities - commercial
37,043
32,600
32,244
27,954
Municipal securities
25,064
19,310
25,084
18,483
Bank subordinated debt securities
16,831
15,497
15,964
14,919
Corporate bonds
4,035
3,768
4,037
3,709
$
276,027
$
229,409
$
280,295
$
230,140
Held-to-maturity:
U.S. Government Agency
$
44,792
$
39,736
$
44,914
$
39,062
U.S. Treasury
9,951
9,943
9,841
9,828
Collateralized mortgage obligations
67,404
60,546
68,727
60,925
Mortgage-backed securities - residential
41,842
38,088
42,685
38,483
Mortgage-backed securities - commercial
11,399
10,755
11,442
10,777
Corporate bonds
11,040
10,099
11,090
10,013
$
186,428
$
169,167
$
188,699
$
169,088
The following table
 
shows the weighted
 
average yields, categorized
 
by contractual maturity,
 
for investment securities
as of March 31, 2023 (in thousands,
 
except ratios):
 
Within 1 year
After 1 year through
5 years
After 5 years through
10 years
After 10 years
Total
Amortized
Cost
Yield
Amortized
Cost
Yield
Amortized
Cost
Yield
Amortized
Cost
Yield
Amortized
Cost
Yield
Available-for-sale:
U.S. Government Agency
$
-
0.00%
$
-
0.00%
$
2,352
3.18%
$
7,832
2.04%
$
10,184
2.30%
U.S. Treasury
-
0.00%
-
0.00%
-
0.00%
-
0.00%
-
0.00%
Collateralized mortgage obligations
-
0.00%
-
0.00%
-
0.00%
110,180
1.40%
110,180
1.40%
MBS - residential
-
0.00%
-
0.00%
-
0.00%
72,690
1.67%
72,690
1.67%
MBS - commercial
-
0.00%
-
0.00%
-
0.00%
37,043
2.17%
37,043
2.17%
Municipal securities
 
-
0.00%
-
0.00%
1,000
2.05%
24,064
1.72%
25,064
1.74%
Bank subordinated debt securities
-
0.00%
-
0.00%
16,831
4.99%
-
0.00%
16,831
4.99%
Corporate bonds
-
0.00%
4,035
2.50%
-
0.00%
-
0.00%
4,035
2.50%
$
-
$
4,035
$
20,183
$
251,809
$
276,027
1.87%
Held-to-maturity:
U.S. Government Agency
$
-
0.00%
$
7,909
1.03%
$
20,346
1.45%
$
16,537
1.98%
$
44,792
1.57%
U.S. Treasury
9,951
4.44%
-
0.00%
-
0.00%
-
0.00%
9,951
4.44%
Collateralized mortgage obligations
-
0.00%
-
0.00%
-
0.00%
67,404
1.69%
67,404
1.69%
MBS - residential
-
0.00%
4,526
1.84%
5,941
1.74%
31,375
2.24%
41,842
2.12%
MBS - commercial
-
0.00%
-
0.00%
3,084
1.62%
8,315
1.69%
11,399
1.67%
Corporate bonds
1,509
2.25%
9,531
2.79%
-
0.00%
-
0.00%
11,040
2.72%
$
11,460
$
21,966
$
29,371
$
123,631
$
186,428
1.96%
Loans
Loans are the largest
 
category of interest-earning assets on
 
the unaudited Consolidated Balance Sheets,
 
and usually
provide
 
higher yields
 
than
 
the
 
remainder
 
of
 
the
 
interest-earning
 
assets. Higher
 
yields
 
typically carry
 
inherent
 
credit
 
and
liquidity risks in comparison to lower yield assets. The Company manages and mitigates such risks in accordance with the
credit and ALM policies, risk tolerance and balance sheet composition.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
39
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
The following table shows the loan portfolio composition as of the dates indicated (in thousands):
 
March 31, 2023
December 31, 2022
Total
Percent of
Total
Total
Percent of
Total
Residential Real Estate
$
184,427
11.7
%
$
185,636
12.3
%
Commercial Real Estate
987,757
62.5
%
970,410
64.4
%
Commercial and Industrial
160,947
10.2
%
126,984
8.4
%
Foreign Banks
97,405
6.1
%
93,769
6.2
%
Consumer and Other
 
149,410
9.5
%
130,429
8.7
%
Total
 
gross loans
1,579,946
100.0
%
1,507,228
100.0
%
Less: Deferred fees (cost)
448
 
(110)
Total
 
loans net of deferred fees (cost)
1,580,394
1,507,338
Less: Allowance for credit losses
18,887
17,487
Total
 
net loans
$
1,561,507
$
1,489,851
Total
 
loans increased
 
by $73.1 million or
 
4.8% at March
 
31, 2023
 
compared to December 31,
 
2022. The
 
commercial
and
 
industrial,
 
and
 
to
 
a
 
lesser
 
extent,
 
consumer
 
and
 
other
 
loan
 
and
 
commercial
 
real
 
estate
 
segments
 
had
 
the
 
most
significant growth partially offset by declines in the residential real estate loan segment.
 
Our
 
loan
 
portfolio
 
continues
 
to
 
grow,
 
with
 
commercial
 
real
 
estate
 
lending
 
as
 
the
 
primary
 
focus
 
which
 
represented
approximately 62.5% of the total gross loan portfolio as of March 31, 2023. We do not expect any significant changes over
the foreseeable
 
future in
 
the composition
 
of our
 
loan portfolio
 
or in
 
our emphasis
 
on commercial
 
real estate
 
lending. Our
loan growth
 
strategy since
 
inception has
 
been reflective
 
of the
 
market in
 
which we
 
operate and
 
of our
 
strategic plan
 
as
approved by the Board.
Most of the
 
commercial real estate
 
exposure represents loans to
 
commercial businesses secured by
 
owner-occupied
real estate.
 
The growth
 
experienced in
 
recent years
 
is primarily
 
due to
 
implementation of
 
our relationship-based
 
banking
model and
 
the success
 
of our
 
relationship managers
 
in competing
 
for new
 
business in
 
a highly
 
competitive metropolitan
area. Many
 
of our
 
larger loan
 
clients have
 
long-term relationships
 
with members
 
of our
 
senior management
 
team or
 
our
relationship managers that date back to former institutions.
 
From a
 
liquidity perspective,
 
our loan
 
portfolio provides
 
us with
 
additional liquidity
 
due to
 
repayments or
 
unexpected
prepayments. The following
 
table shows maturities
 
and sensitivity to
 
interest rate changes
 
for the loan
 
portfolio at March 31,
2023 (in thousands):
Due in 1 year or
less
Due in 1 to 5
years
Due after 5 to 15
years
Due after 15
years
Total
Residential Real Estate
$
15,740
$
7,809
$
84,011
$
76,867
$
184,427
Commercial Real Estate
92,411
155,604
729,841
9,901
987,757
Commercial and Industrial
8,392
30,996
80,925
40,634
160,947
Foreign Banks
97,405
-
-
-
97,405
Consumer and Other
3,424
1,992
10,980
133,014
149,410
Total
 
gross loans
$
217,372
$
196,401
$
905,757
$
260,416
$
1,579,946
Interest rate sensitivity:
Fixed interest rates
$
186,433
$
105,797
$
176,867
$
155,007
$
624,104
Floating or adjustable rates
30,939
90,604
728,890
105,409
955,842
Total
 
gross loans
$
217,372
$
196,401
$
905,757
$
260,416
$
1,579,946
The information
 
presented in
 
the table
 
above is
 
based upon
 
the contractual
 
maturities of
 
the individual
 
loans, which
may be
 
subject to
 
renewal at
 
their contractual
 
maturity.
 
Renewals will
 
depend on
 
approval by
 
our credit
 
department and
balance sheet
 
composition at
 
the time
 
of the
 
analysis, as
 
well as
 
any modification
 
of terms
 
at the
 
loan’s maturity. Additionally,
maturity
 
concentrations,
 
loan
 
duration,
 
prepayment
 
speeds
 
and
 
other
 
interest
 
rate
 
sensitivity
 
measures
 
are
 
discussed,
reviewed, and analyzed by the ALCO. Decisions on term rate modifications are discussed as well.
 
As of March 31,
 
2023, approximately 60.5%
 
of the loans
 
have adjustable/variable rates
 
and 39.5% of
 
the loans
 
have
fixed rates.
 
The adjustable/variable rate
 
loans re-price to
 
different benchmarks
 
and tenors
 
in different
 
periods of
 
time. By
contractual characteristics,
 
there are no
 
material concentrations on
 
anniversary repricing. Additionally, it
 
is important to
 
note
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
40
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
that most
 
of our
 
loans have interest
 
rate floors.
 
This embedded option
 
protects the Company
 
from a
 
decrease in
 
interest
rates and positions us to gain in the scenario of higher interest rates.
Asset Quality
 
Our asset quality
 
grading analysis estimates
 
the capability of
 
the borrower to
 
repay the contractual
 
obligation of the
 
loan
agreement as scheduled or at all.
 
The Company’s internal credit risk grading system
 
is based on experiences with
 
similarly
graded loans. Internal credit risk grades are
 
reviewed at least once a year,
 
and more frequently as needed. Internal credit
risk ratings
 
may change based
 
on management’s
 
assessment of the
 
results from the
 
annual review,
 
portfolio monitoring,
and other developments observed with borrowers.
 
The internal credit risk grades used by the Company to assess the credit worthiness of a loan are shown below:
Pass
– Loans indicate different levels of satisfactory financial condition and performance.
 
Special Mention
 
– 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 as follows for the dates indicated (in thousands):
 
March 31, 2023
Pass
Special Mention
Substandard
Doubtful
Total
Residential Real Estate
$
184,427
$
-
$
-
$
-
$
184,427
Commercial Real Estate
985,214
-
2,542
-
987,756
Commercial and Industrial
159,783
-
1,164
-
160,947
Foreign Banks
97,405
-
-
-
97,405
Consumer and Other
 
149,239
-
171
-
149,410
$
1,576,068
$
-
$
3,877
$
-
$
1,579,945
December 31, 2022
Pass
Special Mention
Substandard
Doubtful
Total
Residential Real Estate
$
185,636
$
-
$
-
$
-
$
185,636
Commercial Real Estate
967,465
-
2,945
-
970,410
Commercial and Industrial
126,177
-
807
-
126,984
Foreign Banks
93,769
-
-
-
93,769
Consumer and Other
 
130,233
-
196
-
130,429
$
1,503,280
$
-
$
3,948
$
-
$
1,507,228
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
41
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
Non-Performing Assets
The following table presents non-performing assets as of the dates shown (in thousands, except ratios):
March 31, 2023
December 31, 2022
Total
 
non-performing loans
$
486
$
-
Other real estate owned
-
-
Total
 
non-performing assets
$
486
$
-
Asset quality ratios:
(1)
Allowance for credit losses to total loans
1.20%
1.16%
Allowance for credit losses to non-performing loans
3886%
- %
Non-performing loans to total loans
0.03%
- %
(1)
ACL was calculated under CECL methodology for first quarter 2023, and incurred loss methodology for fourth quarter 2022
Non-performing
 
assets
 
include
 
all
 
loans
 
categorized
 
as
 
non-accrual
 
or
 
restructured,
 
impaired
 
securities,
 
other
 
real
estate
 
owned
 
(“OREO”)
 
and
 
other
 
repossessed
 
assets.
 
Problem
 
loans
 
for
 
which
 
the
 
collection
 
or
 
liquidation
 
in
 
full
 
is
reasonably uncertain are placed on a non-accrual status. This
 
determination is based on current existing facts concerning
collateral values and the paying capacity of the borrower. When the collection of the full contractual
 
balance is unlikely, the
loan is placed on non-accrual to avoid overstating the Company’s income for a loan with increased credit risk.
 
If the
 
principal or
 
interest on
 
a commercial
 
loan becomes
 
due and
 
unpaid for
 
90 days
 
or more,
 
the loan
 
is placed
 
on
non-accrual status as of the date it becomes
 
90 days past due and remains in non-accrual status
 
until it meets the criteria
for restoration to accrual status. Residential loans, on the other
 
hand, are placed on non-accrual status when the principal
or interest becomes
 
due and unpaid
 
for 120 days
 
or more and
 
remains in non-accrual
 
status until it
 
meets the criteria
 
for
restoration
 
to
 
accrual
 
status.
 
Restoring
 
a
 
loan
 
to
 
accrual
 
status
 
is
 
possible
 
when
 
the
 
borrower
 
resumes
 
payment
 
of
 
all
principal and interest payments for
 
a period of six months
 
and the Company has a
 
documented expectation of repayment
of the remaining contractual principal and interest or the loan becomes secured and in the process of collection.
The
 
Company
 
may
 
grant
 
a
 
loan
 
concession
 
to
 
a
 
borrower
 
experiencing
 
financial
 
difficulties.
 
This
 
determination
 
is
performed
 
during
 
the
 
annual
 
review
 
process
 
or
 
whenever
 
problems
 
surface
 
regarding
 
the
 
client’s
 
ability
 
to
 
repay
 
in
accordance with the
 
original terms of
 
the loan or
 
line of credit.
 
The concessions are
 
given to the
 
debtor in various
 
forms,
including interest
 
rate reductions,
 
principal forgiveness,
 
extension of
 
maturity date,
 
waiver, or deferral
 
of payments
 
and other
concessions intended to minimize potential losses.
For further discussion on non-performing loans and borrowers experiencing financial difficulties, see Note 3 “Loans” to
the unaudited Consolidated Financial Statements on this Form 10-Q.
Allowance for Credit Losses
On January 1, 2023,
 
the Company adopted FASB
 
ASU 2016-13, which introduced
 
the current expected credit
 
losses
(CECL) methodology
 
and required
 
us to
 
estimate all
 
expected credit
 
losses over
 
the remaining
 
life of
 
our loan
 
portfolio.
Accordingly,
 
the
 
ACL
 
represents
 
an
 
amount
 
that,
 
in
 
management's
 
evaluation,
 
is
 
adequate
 
to
 
provide
 
coverage
 
for
 
all
expected future credit losses on outstanding loans. Additionally, qualitative adjustments are made to the ACL when,
 
based
on
 
management’s
 
judgment,
 
there
 
are
 
factors
 
impacting
 
the
 
allowance
 
estimate
 
not
 
considered
 
by
 
the
 
quantitative
calculations. See Note 3 “Loans” for more information on the allowance for credit losses on this Form 10-Q.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
42
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
The following table presents
 
ACL and net charge-offs to
 
average loans by type
 
for the periods indicated
 
(in thousands):
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Foreign
 
Banks
Consumer
and Other
Total
Three Months Ended March 31, 2023
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
1,352
$
10,143
$
4,163
$
720
$
1,109
$
17,487
Cumulative effect of adoption of accounting
principle
(1)
1,238
1,105
(2,158)
23
858
1,066
Provision for credit losses
(2)
221
(795)
318
29
512
285
Recoveries
8
-
44
-
2
54
Charge-offs
-
-
-
-
(5)
(5)
Ending Balance
 
$
2,819
$
10,453
$
2,367
$
772
$
2,476
$
18,887
Average loans
$
194,355
964,682
158,509
89,020
140,826
1,547,392
Net charge-offs to average loans
 
-0.02%
0.00%
-0.11%
0.00%
0.01%
-0.01%
(1)
 
Impact of CECL adoption as of January 1, 2023
(2)
 
Provision for credit losses excludes $84 thousand reduction due to unfunded commitments included in other liabilities.
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Foreign
 
Banks
Consumer
and Other
Total
Three Months Ended March 31, 2022
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
2,498
$
8,758
$
2,775
$
457
$
569
$
15,057
Provision for credit losses
(157)
425
(426)
34
124
-
Recoveries
32
-
6
-
-
38
Charge-offs
(16)
-
-
-
(5)
(21)
Ending Balance
 
$
2,357
$
9,183
$
2,355
$
491
$
688
$
15,074
Average loans
$
198,162
$
739,732
$
139,781
$
59,667
$
74,090
$
1,211,432
Net charge-offs to average loans
 
-0.03%
-
-0.02%
-
0.03%
-0.01%
Bank-Owned Life Insurance
As of March 31, 2023, the combined cash surrender value
 
of all bank-owned life insurance (“BOLI”) policies was $43.0
million. Changes in cash surrender value are
 
recorded to non-interest income in the unaudited
 
Consolidated Statements of
Operations. The Company had BOLI
 
policies with five insurance carriers.
 
The Company is the beneficiary
 
of these policies.
Deposits
Customer deposits are the primary funding source for the Bank’s
 
growth. Through our network of banking centers, we
offer a competitive
 
array of deposit
 
accounts and treasury
 
management services designed
 
to meet our
 
customers’ business
needs.
 
Our
 
primary
 
deposit
 
customers
 
are
 
small-to-medium
 
sized
 
businesses
 
(“SMBs”),
 
and
 
the
 
personal
 
business
 
of
owners and operators of these SMBs, as well as the retail/consumer relationships of the employees of these businesses.
 
The following table presents the
 
daily average balance and
 
average rate paid on deposits
 
by category for the
 
periods
presented (in thousands, except ratios):
Three Months Ended March 31,
2023
2022
Average Balance
Average Rate
Paid
Average Balance
Average Rate
Paid
Non-interest-bearing checking
$
664,369
0.00%
$
626,400
0.00%
Interest-bearing checking
58,087
0.30%
64,436
0.10%
Money market and savings deposits
897,061
2.16%
736,134
0.30%
Time deposits
224,730
1.91%
223,274
0.47%
Total
$
1,844,247
1.29%
$
1,650,244
0.20%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
43
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
The Company
 
has a
 
granular deposit
 
portfolio with
 
outstanding balances
 
comprised of
 
54% in
 
commercial deposits,
35%
 
personal
 
deposits
 
and
 
11%
 
public
 
funds,
 
which
 
are
 
partially
 
collateralized.
 
The
 
Company
 
has
 
approximately
 
19
thousand deposits accounts with the
 
majority in personal accounts, approximately
 
12 thousand or 64.4%. The total
 
amount
of uninsured
 
deposits adjusted
 
by the
 
collateralized portion
 
of public
 
funds is
 
56% at
 
March 31,
 
2023, a
 
decrease of
 
3%
compared to December 31, 2022
 
and below the 2022 average.
 
The estimated average account
 
size of our deposit portfolio
is
 
$96
 
thousand
 
as
 
of
 
March
 
31,
 
2023.
 
The
 
Company
 
also
 
offers
 
Insured
 
Cash
 
Sweep
 
(“ICS”)
 
and
 
Certificate
of
Deposit Account Registry Service (“CDARS”) deposit products to fully insure our clients.
 
The
 
uninsured
 
deposits
 
are
 
estimated
 
based
 
on
 
the
 
FDIC
 
deposit
 
insurance
 
limit
 
of
 
$250
 
thousand
 
for
 
all
 
deposit
accounts at the
 
Company per account
 
holder. Total estimated uninsured deposits adjusted for
 
collateralized public deposits
were $1.0 billion and $1.1 billion at March 31, 2023 and December 31, 2022, respectively.
 
The following table shows scheduled maturities of uninsured time deposits as of March 31, 2023 (in thousands):
March 31, 2023
Three months or less
$
21,116
Over three through six months
26,996
Over six though twelve months
29,135
Over twelve months
23,038
$
100,285
Other Liabilities
The Company collects from commercial loan customers funds which are held in escrow for future payment of real
estate taxes and insurance. These escrow funds are disbursed by the Company directly to the insurance companies and
taxing authority of the borrower.
 
Escrow funds are recorded as other liabilities.
 
As of March 31, 2023 escrow balances totaled $8.3 million compared to $3.5 million at December 31, 2022.
Borrowings
As a member
 
of the FHLB,
 
we are eligible
 
to obtain advances
 
with various terms
 
and conditions. This
 
accessibility of
additional funding allows us
 
to efficiently and timely
 
meet both expected and unexpected
 
outgoing cash flows and
 
collateral
needs without adversely affecting either daily operations or the financial condition of the Company.
As of
 
March 31, 2023,
 
we had
 
$120.0 million
 
of fixed-rate
 
advances outstanding
 
from the
 
FHLB with
 
a weighted
 
average
rate of 4.15%.
 
Maturity dates for
 
the advances are
 
between third quarter
 
2023 and third
 
quarter 2025 as
 
detailed in the
 
table
below.
 
The following table presents the FHLB fixed rate advances as of March 31, 2023 (in thousands):
Interest Rate
Type of Rate
Maturity Date
Amount
2.05%
Fixed
March 27, 2025
$
10,000
1.07%
Fixed
July 18, 2025
6,000
1.04%
Fixed
July 30, 2024
5,000
0.81%
Fixed
August 17, 2023
5,000
5.07%
Daily
December 22, 2023
83,000
3.76%
Fixed
January 24, 2028
11,000
$
120,000
We
 
have
 
also
 
established
 
Fed
 
Funds
 
lines
 
of
 
credit
 
with
 
our
 
upstream
 
correspondent
 
banks
 
to
 
manage
 
temporary
fluctuations in our daily
 
cash balances. As of
 
March 31, 2023, there were
 
no outstanding balances with
 
the Fed Funds lines
of credit.
Off-Balance Sheet Arrangements
We engage in
 
various financial transactions
 
in our operations
 
that, under GAAP,
 
may not be
 
included on the
 
balance
sheet. To
 
meet the financing needs of our customers we may
 
include commitments to extend credit and standby letters of
credit. To
 
a varying
 
degree, such
 
commitments involve
 
elements of
 
credit, market,
 
and interest
 
rate risk
 
in excess
 
of the
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
44
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
amount recognized
 
in the
 
balance sheet.
 
We use
 
more conservative
 
credit and
 
collateral policies
 
in making
 
these credit
commitments than we
 
do for on-balance
 
sheet items. We
 
are not aware
 
of any accounting
 
loss to be
 
incurred by funding
these commitments;
 
however,
 
we maintain
 
an allowance
 
for off
 
-balance sheet
 
credit risk
 
which is
 
recorded under
 
other
liabilities on the unaudited Consolidated Balance Sheets.
Since commitments associated
 
with letters of
 
credit and commitments
 
to extend credit
 
may expire unused,
 
the amounts
shown
 
do
 
not
 
necessarily
 
reflect
 
actual
 
future
 
cash
 
funding
 
requirements.
 
The
 
following
 
table
 
presents
 
lending
 
related
commitments outstanding as of the dates indicated (in thousands):
March 31, 2023
December 31, 2022
Commitments to grant loans and unfunded lines of credit
$
81,506
$
95,461
Standby and commercial letters of credit
3,542
4,320
Total
$
85,048
$
99,781
Commitments to extend credit are agreements to
 
lend funds to a client, as long as
 
there is no violation of any condition
established
 
in
 
the
 
contract, for
 
a
 
specific
 
purpose.
 
Commitments generally
 
have
 
variable
 
interest
 
rates,
 
fixed
 
expiration
dates or
 
other termination
 
clauses and
 
may require
 
payment of
 
a fee.
 
Since many
 
of the
 
commitments are
 
expected to
expire without being fully
 
drawn, the total commitment
 
amounts disclosed above do
 
not necessarily represent future
 
cash
requirements.
Unfunded lines of credit represent unused
 
portions of credit facilities to our
 
current borrowers that represent no change
in credit risk in our portfolio. Lines of credit generally have variable interest rates. The maximum potential amount of future
payments we could be
 
required to make is
 
represented by the contractual
 
amount of the commitment,
 
less the amount of
any advances made.
Letters of credit are conditional commitments issued by
 
us to guarantee the performance of a
 
client to a third party.
 
In
the event of nonperformance by the client in accordance with the terms of the agreement with the third party,
 
we would be
required to fund the
 
commitment. If the commitment
 
is funded, we would
 
be entitled to seek
 
recovery from the client
 
from
the underlying
 
collateral, which
 
can include
 
commercial real
 
estate, physical
 
plant and
 
property, inventory, receivables, cash
or marketable securities.
Asset and Liability Management Committee
Members
 
of
 
senior
 
management and
 
our
 
Board
 
make
 
up
 
the
 
asset
 
and
 
liability management
 
committee,
 
or
 
ALCO.
Senior management is responsible
 
for ensuring that Board
 
approved strategies, policies, and
 
procedures for managing and
mitigating risks are appropriately executed within the designated lines of authority and responsibility in a timely manner.
ALCO
 
oversees
 
the
 
establishment,
 
approval,
 
implementation,
 
and
 
review
 
of
 
interest
 
rate
 
risk,
 
management,
 
and
mitigation strategies, ALM related policies, ALCO procedures and risk tolerances and appetite.
While some degree of
 
IRR (“Interest Rate Risk”)
 
is inherent to the
 
banking business, we believe
 
our ALCO has put
 
in
place sound risk management practices to identify, quantify,
 
monitor, and limit IRR exposures.
When assessing
 
the scope
 
of IRR
 
exposure and
 
impact on
 
the consolidated
 
balance sheet,
 
cash flows
 
and income
statement,
 
management
 
considers
 
both
 
earnings
 
and
 
economic
 
impacts.
 
Asset
 
price
 
variations,
 
deposit
 
volatility
 
and
reduced earnings or outright losses could adversely affect the Company’s liquidity, performance, and capital adequacy.
Income simulations are
 
used to
 
assess the impact
 
of changing rates
 
on earnings under
 
different rates
 
scenarios and
time horizons.
 
These simulations
 
utilize both
 
instantaneous and
 
parallel changes
 
in the
 
level of
 
interest rates,
 
as well
 
as
non-parallel changes such as
 
changing slopes (flat and
 
steeping) and twists of
 
the yield curve. Static
 
simulation models are
based on current
 
exposures and assume
 
a constant balance
 
sheet with no
 
new growth. Dynamic
 
simulation analysis is
 
also
utilized to have a more comprehensive assessment
 
on IRR. This simulation relies on
 
detailed assumptions outlined in our
budget and strategic plan,
 
and in assumptions regarding
 
changes in existing lines
 
of business, new business,
 
management
strategies and client expected behavior.
To
 
have
 
a
 
more
 
complete
 
picture
 
of
 
IRR,
 
the
 
Company
 
also
 
evaluates
 
the
 
economic
 
value
 
of
 
equity
 
(“EVE”).
 
This
assessment
 
allows
 
us
 
to
 
measure
 
the
 
degree
 
to
 
which
 
the
 
economic
 
values
 
will
 
change
 
under
 
different
 
interest
 
rate
scenarios (parallel and non-parallel). The
 
economic value approach focuses on
 
a longer-term time horizon and
 
captures all
future cash flows expected from existing assets and liabilities.
 
The economic value model utilizes a static approach in
 
that
the analysis
 
does not
 
incorporate new
 
business; rather,
 
the analysis
 
shows a
 
snapshot in
 
time of
 
the risk
 
inherent in
 
the
balance sheet.
 
 
45
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
Market and Interest Rate Risk Management
According to our
 
ALCO model, as
 
of March 31,
 
2023, we were
 
a liability sensitive
 
Bank for year
 
one modeling and
 
asset
sensitive for year two modeling. Asset sensitivity indicates that our assets generally reprice faster than our liabilities, which
results in
 
a favorable impact
 
to net
 
interest income when
 
market interest rates
 
increase. Liability sensitivity
 
indicates that
our liabilities generally
 
reprice faster than
 
our assets, which
 
results in a
 
favorable impact to
 
net interest income
 
when market
interest rates decrease.
 
Many assumptions are
 
used to calculate
 
the impact of
 
interest rate
 
variations on
 
our net
 
interest
income, such as asset
 
prepayment speeds, non-maturity deposit
 
price sensitivity,
 
pricing correlations, deposit truncations
and decay rates, and key interest rate drivers.
Because of the inherent use of these estimates and assumptions in the
 
model, our actual results may,
 
and most likely
will, differ from static measures results. In addition, static measures like EVE do not include actions that management may
undertake to manage the risks in response
 
to anticipated changes in interest rates
 
or client deposit behavior. As part of our
ALM strategy
 
and policy,
 
management has
 
the ability
 
to modify
 
the balance
 
sheet to
 
either increase
 
asset duration
 
and
decrease liability duration to
 
reduce asset sensitivity,
 
or to decrease asset
 
duration and increase liability
 
duration in order
to increase asset sensitivity.
According to our model, as of March 31, 2023, NIM most likely will decrease for year one and should increase for year
two under static rate
 
scenarios (-400 basis points
 
or +400 basis points).
 
For the static forecast
 
in year one, the
 
estimated
NIM will decrease
 
from the base case
 
scenario to
 
a +400 basis points
 
scenario. Additionally,
 
utilizing an EVE approach,
we analyze the
 
risk to capital
 
from the effects
 
of various interest
 
rate scenarios through
 
a long-term discounted cash
 
flow
model. This measures
 
the difference
 
between the economic
 
value of our
 
assets and the
 
economic value of
 
our liabilities,
which is
 
a proxy
 
for our
 
liquidation value.
 
According to
 
our balance
 
sheet composition,
 
and as
 
expected, our
 
model stipulates
that an increase of rates will have a negative impact on the EVE and lower rates and positive impact. Results and analysis
are presented quarterly to the ALCO, and strategies are defined.
Liquidity
Liquidity is
 
defined as
 
a Company’s
 
capacity to
 
meet its
 
cash and
 
collateral obligations
 
at a
 
reasonable cost.
 
Maintaining
an adequate level of liquidity
 
depends on the Company’s ability
 
to efficiently meet both expected
 
and unexpected cash flow
and collateral needs without adversely affecting either daily operations or the financial condition of the Company.
Liquidity risk
 
is the
 
risk that
 
we will
 
be unable
 
to meet
 
our short-term
 
and long-term
 
obligations as
 
they become
 
due
because of an
 
inability to liquidate
 
assets or obtain
 
relatively adequate funding.
 
The Company’s obligations,
 
and the funding
sources
 
used
 
to
 
meet
 
them,
 
depend
 
significantly
 
on
 
our
 
business
 
mix,
 
balance
 
sheet
 
structure
 
and
 
composition,
 
credit
quality of our assets and the cash flow profiles of our on- and off-balance sheet obligations.
In managing
 
inflows and
 
outflows, management
 
regularly monitors
 
situations that
 
can give
 
rise to
 
increased liquidity
risk. These include
 
funding mismatches, market
 
constraints on the
 
ability to convert
 
assets (particularly investments)
 
into
cash or in accessing sources of funds (i.e., market liquidity), and contingent liquidity events.
Changes in macroeconomic conditions, as well as exposure to credit, market, operational, legal and reputational risks,
such as cybersecurity
 
risk, could have
 
an unexpected impact
 
on the Company’s
 
liquidity risk profile
 
and are factored
 
into
the assessment of liquidity and the ALM framework.
Management has
 
established a
 
comprehensive and
 
holistic management
 
process for
 
identifying, measuring,
 
monitoring
and
 
mitigating
 
liquidity
 
risk.
 
Due
 
to
 
its
 
critical
 
importance
 
to
 
the
 
viability
 
of
 
the
 
Company,
 
liquidity
 
risk
 
management
 
is
integrated into our risk management processes, Contingency Funding Plan and ALM policy.
Critical elements of
 
our liquidity risk
 
management include: effective
 
corporate governance consisting
 
of oversight by
 
the
Board and
 
active involvement
 
of senior
 
management; appropriate
 
strategies, policies,
 
procedures, and
 
limits used
 
to identify
and mitigate liquidity risk;
 
comprehensive liquidity risk
 
measurement and monitoring systems
 
(including assessments of
 
the
current and prospective cash flows
 
or sources and uses of
 
funds) that are commensurate with
 
the complexity and business
activities of
 
the Company; active
 
management of intraday
 
liquidity and collateral;
 
an appropriately
 
diverse mix
 
of existing
and
 
potential
 
future
 
funding
 
sources;
 
adequate
 
levels
 
of
 
highly
 
liquid
 
marketable
 
securities
 
free
 
of
 
legal,
 
regulatory,
 
or
operational
 
impediments,
 
that
 
can
 
be
 
used
 
to
 
meet
 
liquidity
 
needs
 
in
 
stressful
 
situations;
 
comprehensive
 
contingency
funding plans
 
that sufficiently
 
address potential
 
adverse liquidity
 
events and
 
emergency cash
 
flow requirements;
 
and internal
controls
 
and
 
internal
 
audit
 
processes
 
sufficient
 
to
 
determine
 
the
 
adequacy
 
of
 
the
 
institution’s
 
liquidity
 
risk
 
management
process.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
46
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
We
 
expect
 
funds
 
to
 
be
 
available
 
from
 
several
 
basic
 
banking
 
activity
 
sources,
 
including
 
the
 
core
 
deposit
 
base,
 
the
repayment and maturity of loans and investment security cash flows. Other potential funding sources include federal funds
purchased, brokered certificates
 
of deposit, listing
 
certificates of deposit,
 
The Bank Term Funding Program, and
 
borrowings
from the FHLB. Accordingly, our liquidity resources were adequate
 
to fund loans and meet other
 
cash needs as necessary.
Capital Adequacy
As of
 
March 31, 2023,
 
the Bank
 
was well
 
capitalized under
 
the FDIC’s
 
prompt corrective
 
action framework.
 
We also
follow the capital conservation buffer framework, and as of March
 
31, 2023, we exceeded the capital conversation buffer
 
in
all capital
 
ratios, according
 
to our
 
actual ratios.
 
The following
 
table presents
 
the capital
 
ratios for
 
the Bank
 
at the
 
dates
indicated (in thousands,
 
except ratios).
Actual
Minimum Capital
Requirements
 
To be Well Capitalized
Under Prompt Corrective
Action Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
March 31, 2023
Total
 
risk-based capital
$
218,621
13.12
%
$
133,293
8.00
%
$
166,616
10.00
%
Tier 1 risk-based capital
$
199,301
11.96
%
$
99,970
6.00
%
$
133,293
8.00
%
Common equity tier 1 capital
$
199,301
11.96
%
$
74,977
4.50
%
$
108,301
6.50
%
Leverage ratio
$
199,301
9.30
%
$
85,760
4.00
%
$
107,201
5.00
%
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
%
The Company is not subject to capital
 
ratios imposed by Basel III on bank
 
holding companies because the Company is
deemed to be a small bank holding company.
Impact of Inflation
Our
 
Consolidated
 
Financial
 
Statements
 
and
 
related
 
notes
 
have
 
been
 
prepared
 
in
 
accordance
 
with
 
U.S.
 
GAAP,
which require the measurement of financial position and operating results in terms of historical dollars, without considering
the changes in the relative purchasing power
 
of money over time due to inflation. The
 
impact of inflation is reflected in the
increased cost of operations. Unlike most industrial companies, nearly all our assets and liabilities
 
are monetary in nature.
As a result,
 
interest rates have
 
a greater impact
 
on our performance
 
than do the
 
effects of general
 
levels of inflation.
 
Periods
of high inflation are often
 
accompanied by relatively higher interest rates,
 
and periods of low inflation
 
are accompanied by
relatively lower interest rates. As market interest rates
 
rise or fall in relation to the
 
rates earned on loans and investments,
the
 
value
 
of
 
these
 
assets
 
decreases
 
or
 
increases
 
respectively.
 
Inflation
 
can
 
also
 
impact
 
core
 
non-interest
 
expenses
associated with delivering the Company’s services.
Recently Issued Accounting Pronouncements
 
Recently issued accounting pronouncements are discussed in Note 1
 
“Summary of Significant Accounting Policies” to
the unaudited Consolidated Financial Statements in this Form 10-Q.
 
 
47
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
Reconciliation and Management Explanation of Non-GAAP Financial Measures
Management
 
has
 
included
 
these
 
non-GAAP
 
measures
 
because
 
it
 
believes
 
these
 
measures
 
may
 
provide
 
useful
supplemental information for evaluating
 
the Company’s underlying
 
performance trends. Further,
 
management uses these
measures
 
in
 
managing
 
and
 
evaluating
 
the
 
Company’s
 
business
 
and
 
intends
 
to
 
refer
 
to
 
them
 
in
 
discussions
 
about
 
our
operations and performance. Operating performance
 
measures should be viewed
 
in addition to, and
 
not as an alternative
to or
 
substitute for,
 
measures determined
 
in accordance
 
with GAAP,
 
and
 
are not
 
necessarily comparable
 
to non-GAAP
measures that may be
 
presented by other companies.
 
The following table reconciles
 
the non-GAAP financial
 
measurement
of operating net income available
 
to common stockholders for the
 
periods presented (in thousands, except
 
per share data):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
48
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
NON-GAAP FINANCIAL MEASURES (UNAUDITED)
(Dollars in thousands)
As of or For the Three Months Ended
3/31/2023
12/31/2022
9/30/2022
6/30/2022
3/31/2022
Pre-tax pre-provision ("PTPP") income:
Net income
$
5,809
$
4,434
$
5,558
$
5,295
$
4,854
Plus: Provision for income taxes
1,881
1,415
1,963
1,708
1,858
Plus: Provision for credit losses
201
880
910
705
-
PTPP income
$
7,891
$
6,729
$
8,431
$
7,708
$
6,712
PTPP return on average assets:
 
 
 
 
 
PTPP income
$
7,891
$
6,729
$
8,431
$
7,708
$
6,712
Average assets
$
2,120,218
$
2,051,867
$
2,026,791
$
1,968,381
$
1,913,484
PTPP return on average assets
(1)
1.51%
1.30%
1.65%
1.57%
1.42%
 
 
 
 
 
Operating net income:
Net income
$
5,809
$
4,434
$
5,558
$
5,295
$
4,854
Less: Net gains (losses) on sale of securities
(21)
(1,989)
(558)
(3)
21
Less: Tax effect
 
on sale of securities
5
504
141
1
(5)
Operating net income
$
5,825
$
5,919
$
5,975
$
5,297
$
4,838
 
 
 
 
 
Operating PTPP income:
PTPP income
$
7,891
$
6,729
$
8,431
$
7,708
$
6,712
Less: Net gains (losses) on sale of securities
(21)
(1,989)
(558)
(3)
21
Operating PTPP income
$
7,912
$
8,718
$
8,989
$
7,711
$
6,691
Operating PTPP return on average assets:
 
 
 
 
 
Operating PTPP income
$
7,912
$
8,718
$
8,989
$
7,711
$
6,691
Average assets
$
2,120,218
$
2,051,867
$
2,026,791
$
1,968,381
$
1,913,484
Operating PTPP return on average assets
(1)
1.51%
1.69%
1.76%
1.57%
1.42%
 
 
 
 
 
Operating return on average assets:
Operating net income
$
5,825
$
5,919
$
5,975
$
5,297
$
4,838
Average assets
$
2,120,218
$
2,051,867
$
2,026,791
$
1,968,381
$
1,913,484
Operating return on average assets
(1)
1.11%
1.14%
1.17%
1.08%
1.03%
Operating return on average equity:
Operating net income
$
5,825
$
5,919
$
5,975
$
5,297
$
4,838
Average equity
$
183,371
$
177,556
$
185,288
$
186,597
$
201,860
Operating return on average equity
 
12.88%
13.23%
12.79%
11.39%
9.72%
Operating Revenue:
 
Net interest income
$
15,997
 
$
16,866
 
$
16,774
 
$
15,642
 
$
14,379
 
Non-interest income
 
2,070
(123)
1,789
 
1,617
 
1,945
 
Less: Net gains (losses) on sale of securities
(21)
(1,989)
(558)
(3)
21
 
Operating revenue
$
18,088
$
18,732
$
19,121
$
17,262
$
16,303
Operating Efficiency Ratio:
 
Total non-interest
 
expense
$
10,176
 
$
10,014
 
$
10,132
 
$
9,551
 
$
9,612
 
Operating revenue
$
18,088
$
18,732
$
19,121
$
17,262
$
16,303
 
Operating efficiency ratio
56.26%
53.46%
52.99%
55.33%
58.96%
(1)
 
Annualized.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
49
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
NON-GAAP FINANCIAL MEASURES (UNAUDITED)
(Dollars in thousands, except per share data)
As of or For the Three Months Ended
3/31/2023
12/31/2022
9/30/2022
6/30/2022
3/31/2022
Tangible book value per common share (at period-end):
(1)
Total stockholders'
 
equity
$
183,858
$
182,428
$
177,417
$
180,068
$
192,039
Less: Intangible assets
-
-
-
-
-
Tangible stockholders'
 
equity
$
183,858
$
182,428
$
177,417
$
180,068
$
192,039
Total shares issued and outstanding (at period-end):
Total common shares
 
issued and outstanding
19,622,380
20,000,753
20,000,753
20,000,753
20,000,753
Tangible book value
 
per common share
(2)
$
9.37
$
9.12
$
8.87
$
9.00
$
9.60
Operating diluted net income per common share:
(1)
Operating net income
$
5,825
$
5,919
$
5,975
$
5,297
$
4,838
Total weighted average
 
diluted shares of common stock
19,940,606
20,172,438
20,148,208
20,171,261
20,109,783
Operating diluted net income per common share:
$
0.29
$
0.29
$
0.30
$
0.26
$
0.24
Tangible Common Equity/Tangible
 
Assets
 
Tangible stockholders'
 
equity
$
183,858
$
182,428
$
177,417
$
180,068
$
192,039
 
Tangible assets
$
2,163,821
$
2,085,834
$
2,037,453
$
2,016,086
$
1,967,252
Tangible Common
 
Equity/Tangible
 
Assets
8.50%
8.75%
8.71%
8.93%
9.76%
(1)
 
The Company believes these non-GAAP measurements are key indicators of the ongoing earnings power of the Company.
(2)
 
Excludes the dilutive effect, if any, of
 
shares of common stock issuable upon exercise of outstanding stock options.
 
 
 
50
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
Item 3.
 
Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to provide the information required by this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the
 
supervision and
 
with the
 
participation of
 
our management,
 
including our
 
President and
 
Chief Executive
 
Officer
and our
 
Chief Financial
 
Officer,
 
we evaluated
 
the effectiveness
 
of the
 
design and
 
operation of
 
the Company’s
 
disclosure
controls
 
and procedures
 
(as defined
 
in Rules
 
13a-15(e) and
 
15d-15(e) under
 
the Exchange
 
Act)
 
as
 
of March 31,
 
2023.
Based on that evaluation, management
 
believes that the Company’s
 
disclosure controls and procedures were effective
 
to
collect, process, and disclose the information required to be disclosed in the reports filed or submitted under the Exchange
Act within the required time periods as of the end of the period covered by this Form 10-Q.
Changes in Internal Control Over Financial Reporting
There has been no change
 
in our internal control over
 
financial reporting (as defined in
 
Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) during
 
the period covered by this
 
Form 10-Q that has materially
 
affected, or is reasonably likely
 
to
materially affect, our internal control over financial reporting.
 
Limitations on Effectiveness of Controls and Procedures
In
 
designing and
 
evaluating the
 
disclosure controls
 
and
 
procedures, management
 
recognizes that
 
any
 
controls
 
and
procedures, no matter how well
 
designed and operated, can provide
 
only reasonable, not absolute, assurance
 
of achieving
the desired control objectives. In addition, the design of
 
disclosure controls and procedures must reflect the fact
 
that there
are resource constraints and that management is required to apply judgment in evaluating the benefits of
 
possible controls
and procedures relative to their costs.
 
 
 
51
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
PART II
Item 1.
 
Legal Proceedings
We are not currently subject to any
 
material legal proceedings. We are from
 
time to time subject to claims
 
and litigation
arising
 
in
 
the
 
ordinary
 
course
 
of
 
business.
 
These
 
claims
 
and
 
litigation
 
may
 
include,
 
among
 
other
 
things,
 
allegations
 
of
violation of banking and other applicable regulations, competition law, labor laws and consumer protection laws, as well as
claims or
 
litigation relating
 
to intellectual
 
property,
 
securities, breach
 
of contract
 
and tort.
 
We
 
intend to
 
defend ourselves
vigorously against any pending or future claims and litigation.
Item 1A. Risk Factors
For detailed information about certain risk factors that
 
could materially affect our business, financial condition, or future
results, see “Part
 
I, Item 1A
 
– Risk Factors”
 
of the 2022
 
Form 10-K/A and
 
additional risk factors
 
as of March
 
31, 2023 as
set forth below.
Financial
 
challenges
 
at
 
other
 
banking
 
institutions
 
could
 
lead
 
to
 
depositor
 
concerns
 
that
 
spread
 
within
 
the
banking industry causing disruptive and destabilizing deposit outflows.
In March
 
2023, Silicon
 
Valley
 
Bank and
 
Signature Bank
 
experienced large
 
deposit outflows
 
coupled with
 
insufficient
liquidity to
 
meet withdrawal
 
demands, resulting
 
in the
 
institutions being
 
placed into
 
FDIC receiverships.
 
In the
 
aftermath,
there has been
 
substantial market disruption and
 
concerns that diminished
 
depositor confidence could spread
 
across the
banking industry, leading to deposit outflows that could
 
destabilize other institutions. To strengthen public confidence in the
banking
 
system,
 
the
 
FDIC
 
took
 
action
 
to
 
protect
 
funds
 
held
 
in
 
uninsured
 
deposit
 
accounts
 
at
 
Silicon
 
Valley
 
Bank
 
and
Signature Bank. However, the
 
FDIC has not
 
committed to protecting
 
uninsured deposits in
 
other institutions that
 
experience
outsized withdrawal demands.
 
Subsequently, on May 1, 2023 First Republic Bank became another large bank to fail.
 
To
 
further bolster
 
the banking
 
system, the
 
FRB created
 
a new
 
Bank Term
 
Funding Program
 
to provide
 
an additional
source of
 
liquidity.
 
At March
 
31, 2023,
 
the Company
 
had $413.0
 
million in
 
available liquidity
 
on balance
 
sheet, including
$59.0 million in
 
excess cash. The
 
Company has an
 
additional $228.0
 
million in off
 
balance sheet liquidity, it
 
excludes access
to brokered deposits and other off balance sheet
 
sources of funding. Notwithstanding our significant
 
liquidity, large deposit
outflows could adversely affect our financial condition and results of operations and could ultimately result in the closure of
the Bank.
 
Furthermore, the
 
recent bank
 
failures may
 
result in
 
federal and
 
state banking
 
regulators taking
 
steps to
 
strengthen
capital and
 
liquidity rules
 
which, if
 
the revised
 
rules apply
 
to us,
 
could adversely affect
 
the Company’s
 
financial condition
and results of operations.
Our FDIC deposit insurance premiums and assessments may increase, which would reduce our profitability.
On March
 
12, 2023,
 
the Department
 
of the
 
Treasury,
 
the FRB
 
and the
 
FDIC issued
 
a joint
 
statement relating
 
to the
resolution of Silicon Valley
 
Bank and Signature Bank that
 
stated that losses to support
 
uninsured deposits of those banks
would be recovered via a special assessment on banks.
 
The terms of that special assessment have not been
 
announced.
The announced special assessment, as well
 
as any future increases in assessment
 
rates or required prepayments in FDIC
insurance
 
premiums,
 
to
 
the
 
extent
 
that
 
they
 
result
 
in
 
increased
 
deposit
 
insurance
 
costs,
 
would
 
reduce
 
the
 
Company’s
profitability.
Insufficient liquidity could impair our ability to fund operations and
 
jeopardize our financial condition, growth
and prospects.
The
 
Company
 
requires
 
sufficient
 
liquidity
 
to
 
fund
 
loan
 
commitments,
 
satisfy
 
depositor
 
withdrawal
 
requests,
 
make
payments on its debt obligations as they
 
become due, and meet other cash commitments.
 
Liquidity risk is the potential that
the Company will
 
not be able
 
to meet its
 
obligations as they
 
become due because
 
of an inability
 
to liquidate assets
 
or obtain
adequate
 
funding
 
at
 
a
 
reasonable
 
cost,
 
in
 
a
 
timely
 
manner
 
and
 
without
 
adverse
 
conditions
 
or
 
consequences.
 
The
Company’s sources of liquidity consist primarily of cash, assets readily convertible to cash (such as investment securities),
increases in
 
deposits, advances,
 
as needed,
 
from the
 
FHLB, borrowings,
 
as needed,
 
from the
 
Federal Reserve
 
Bank of
Atlanta and
 
other borrowings,
 
including pursuant
 
to the
 
Bank Term
 
Funding Program.
 
The Company’s
 
access to
 
funding
sources in
 
amounts adequate
 
to finance
 
its activities
 
or on
 
acceptable terms
 
could be
 
impaired by
 
factors that
 
affect the
Company
 
in
 
particular
 
or
 
the
 
financial
 
services
 
industry
 
or
 
economy
 
in
 
general.
 
Any
 
substantial,
 
unexpected,
 
and/or
prolonged
 
change
 
in
 
the
 
level
 
or
 
cost
 
of
 
liquidity
 
could
 
impair
 
the
 
Company’s
 
ability
 
to
 
fund
 
operations
 
and
 
meet
 
its
obligations as they become
 
due and could have
 
a material adverse effect
 
on the Company’s
 
business, financial condition
and results of operations.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
52
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
Item 2.
 
Unregistered Sales of Equity Securities and Use of Proceeds
(a) None.
(b) Not applicable.
(c) The Company’s repurchases of equity securities for the three months ended March 31, 2023 were as follows:
Total
Number of
Shares
Purchased
Average
Price Paid
Per Share
Total Number of Shares Purchased
as Part of Publicly Announced Plans
or Programs (1)
Maximum Number
of Shares that
May
Yet Be Purchased
Under Plans or
Programs (1)
Period
 
January 1 - 31, 2023
-
$
-
-
750,000
February 1 - 28, 2023
 
250,000
 
12.04
-
 
 
500,000
March 1 - 31, 2023
250,000
 
11.43
-
 
250,000
500,000
$
11.74
-
(1) On January 24, 2022 the Company announced its initial stock repurchase program to repurchase up to 750,000 shares of Class
 
A common stock,
approximately 3.75% of the Company’s then outstanding shares of common stock.
Item 3.
 
Defaults Upon Senior Securities
None.
Item 4.
 
Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
 
 
 
 
 
53
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
Item 6. Exhibits
Exhibit No.
Description of Exhibit
**
**
101
The following
 
financial statements
 
from the
 
Company’s Quarterly
 
Report on
 
Form 10-Q
 
for the
 
quarter ended
 
March 31,
2023 formatted
 
in Inline
 
XBRL: (i)
 
Consolidated Balance
 
Sheets (unaudited),
 
(ii) Consolidated
 
Statements of
 
Operations
(unaudited), (iii)
 
Consolidated
 
Statements of
 
Comprehensive Income
 
(unaudited), (iv)
 
Consolidated Statements
 
of Changes
in Stockholders’
 
Equity (unaudited),
 
(v) Consolidated
 
Statements of
 
Cash Flows
 
(unaudited), (vi)
 
Notes to
 
Consolidated
Financial Statements (unaudited).
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*
Filed herewith.
**
Furnished herby.
 
 
 
 
 
 
 
 
54
 
USCB Financial Holdings, Inc.
 
Q1 2023 Form 10-Q
SIGNATURES
Pursuant to the requirements
 
of the Securities Exchange
 
Act of 1934, the
 
registrant has duly caused
 
this report to be
signed on its behalf by the undersigned thereunto duly authorized.
USCB FINANCIAL HOLDINGS, INC.
(Registrant)
Signature
Title
Date
/s/ Luis de la Aguilera
President, Chief Executive Officer, and Director
 
May 12, 2023
Luis de la Aguilera
(Principal Executive Officer)
/s/ Robert Anderson
Chief Financial Officer
 
May 12, 2023
Robert Anderson
(Principal Financial Officer and Principal
Accounting Officer)
exhibit311_1
 
 
 
Exhibit 31.1
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Luis de la Aguilera, certify that:
1.
 
I have reviewed this Quarterly Report on Form 10-Q of USCB Financial Holdings, Inc.;
2.
 
Based on my knowledge, this report does not contain
 
any untrue statement of a material fact or
 
omit to state a material fact
necessary
 
to
 
make
 
the
 
statements
 
made,
 
in
 
light
 
of
 
the
 
circumstances
 
under
 
which
 
such
 
statements
 
were
 
made,
 
not
misleading with respect to the period covered by this report;
3.
 
Based on my knowledge, the financial statements,
 
and other financial information included in this
 
report, fairly present in all
material respects
 
the financial
 
condition, results
 
of operations
 
and cash
 
flows of
 
the registrant
 
as of,
 
and for,
 
the periods
presented in this report;
4.
 
The
 
registrant’s
 
other
 
certifying
 
officer
 
and
 
I
 
are
 
responsible
 
for
 
establishing
 
and
 
maintaining
 
disclosure
 
controls
 
and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and have:
a)
 
designed
 
such
 
disclosure
 
controls
 
and
 
procedures,
 
or
 
caused
 
such
 
disclosure
 
controls
 
and
 
procedures
 
to
 
be
designed
 
under
 
our
 
supervision,
 
to
 
ensure
 
that
 
material
 
information
 
relating
 
to
 
the
 
registrant,
 
including
 
its
consolidated subsidiaries,
 
is made
 
known to
 
us by
 
others within
 
those entities,
 
particularly during
 
the period
 
in which
this report is being prepared;
b)
 
evaluated the effectiveness of the
 
registrant’s disclosure controls and procedures
 
and presented in this report
 
our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c)
 
disclosed in this
 
report any change
 
in the registrant’s
 
internal control over
 
financial reporting that
 
occurred during
the registrant’s most recent fiscal quarter (the
 
registrant’s fourth fiscal quarter in the
 
case of an Annual Report) that
has
 
materially
 
affected,
 
or
 
is
 
reasonably likely
 
to
 
materially
 
affect,
 
the
 
registrant’s
 
internal
 
control
 
over
 
financial
reporting; and
5.
 
The registrant’s
 
other certifying
 
officer and
 
I have
 
disclosed, based
 
on our
 
most recent
 
evaluation of
 
internal control
 
over
financial reporting,
 
to the
 
registrant’s
 
auditors and
 
the audit
 
committee of
 
the
 
registrant’s
 
board of
 
directors (or
 
persons
performing the equivalent functions):
a)
 
All
 
significant
 
deficiencies
 
and
 
material
 
weaknesses
 
in
 
the
 
design
 
or
 
operation
 
of
 
internal
 
control
 
over
 
financial
reporting which are reasonably
 
likely to adversely affect
 
the registrant’s ability to
 
record, process, summarize and
report financial information; and
b)
 
Any fraud, whether or
 
not material, that
 
involves management or
 
other employees who
 
have a significant
 
role in the
registrant’s internal control over financial reporting.
/s/ Luis de la Aguilera
Luis de la Aguilera
President and Chief Executive Officer
Date: May 12, 2023
exhibit312_1
 
 
 
Exhibit 31.2
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Robert Anderson, certify that:
1.
 
I have reviewed this Quarterly Report on Form 10-Q of USCB Financial Holdings, Inc.;
2.
 
Based on my knowledge, this report does not contain
 
any untrue statement of a material fact or
 
omit to state a material fact
necessary
 
to
 
make
 
the
 
statements
 
made,
 
in
 
light
 
of
 
the
 
circumstances
 
under
 
which
 
such
 
statements
 
were
 
made,
 
not
misleading with respect to the period covered by this report;
3.
 
Based on my knowledge, the financial statements,
 
and other financial information included in this
 
report, fairly present in all
material respects
 
the financial
 
condition, results
 
of operations
 
and cash
 
flows of
 
the registrant
 
as of,
 
and for,
 
the periods
presented in this report;
4.
 
The
 
registrant’s
 
other
 
certifying
 
officer
 
and
 
I
 
are
 
responsible
 
for
 
establishing
 
and
 
maintaining
 
disclosure
 
controls
 
and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and have:
a)
 
designed
 
such
 
disclosure
 
controls
 
and
 
procedures,
 
or
 
caused
 
such
 
disclosure
 
controls
 
and
 
procedures
 
to
 
be
designed
 
under
 
our
 
supervision,
 
to
 
ensure
 
that
 
material
 
information
 
relating
 
to
 
the
 
registrant,
 
including
 
its
consolidated subsidiaries,
 
is made
 
known to
 
us by
 
others within
 
those entities,
 
particularly during
 
the period
 
in which
this report is being prepared;
b)
 
evaluated the effectiveness of the
 
registrant’s disclosure controls and procedures
 
and presented in this report
 
our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c)
 
disclosed in this
 
report any change
 
in the registrant’s
 
internal control over
 
financial reporting that
 
occurred during
the registrant’s most recent fiscal quarter (the
 
registrant’s fourth fiscal quarter in the
 
case of an Annual Report) that
has
 
materially
 
affected,
 
or
 
is
 
reasonably likely
 
to
 
materially
 
affect,
 
the
 
registrant’s
 
internal
 
control
 
over
 
financial
reporting; and
5.
 
The registrant’s
 
other certifying
 
officer and
 
I have
 
disclosed, based
 
on our
 
most recent
 
evaluation of
 
internal control
 
over
financial reporting,
 
to the
 
registrant’s
 
auditors and
 
the audit
 
committee of
 
the
 
registrant’s
 
board of
 
directors (or
 
persons
performing the equivalent functions):
a)
 
All
 
significant
 
deficiencies
 
and
 
material
 
weaknesses
 
in
 
the
 
design
 
or
 
operation
 
of
 
internal
 
control
 
over
 
financial
reporting which are reasonably
 
likely to adversely affect
 
the registrant’s ability to
 
record, process, summarize and
report financial information; and
b)
 
Any fraud, whether or
 
not material, that involves
 
management or other employees
 
who have a significant
 
role in the
registrant’s internal control over financial reporting.
/s/ Robert Anderson
Robert Anderson
Chief Financial Officer
Date: May 12, 2023
exhibit321_1
 
 
 
Exhibit 32.1
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with
 
the Quarterly Report
 
of USCB Financial
 
Holdings, Inc. (the
 
“Company”) on Form
 
10-Q for the
 
quarter
ended March 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Luis de
la Aguilera, as President and Chief Executive Officer of the Company,
 
certify, to the
 
best of my knowledge, pursuant to 18
U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1)
 
The
 
Report
 
fully
 
complies
 
with
 
the
 
requirements
 
of
 
Section 13(a) or
 
15(d),
 
as
 
applicable,
 
of
 
the
 
Securities
Exchange Act of 1934; and
2)
 
The
 
information
 
contained
 
in
 
the
 
Report
 
fairly
 
presents,
 
in
 
all
 
material
 
respects,
 
the
 
financial
 
condition
 
and
results of operations of the Company.
/s/ Luis de la Aguilera
Luis de la Aguilera
President and Chief Executive Officer
Date: May 12, 2023
exhibit322_1
 
 
 
Exhibit 32.2
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with
 
the Quarterly Report
 
of USCB Financial
 
Holdings, Inc. (the
 
“Company”) on Form
 
10-Q for the
 
quarter
ended March 31, 2023, as filed with
 
the Securities and Exchange Commission on the
 
date hereof (the “Report”), I, Robert
Anderson, as Chief Financial
 
Officer of the Company, certify, to the best of my knowledge,
 
pursuant to 18 U.S.C.
 
§1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1)
 
The
 
Report
 
fully
 
complies
 
with
 
the
 
requirements
 
of
 
Section 13(a) or
 
15(d),
 
as
 
applicable,
 
of
 
the
 
Securities
Exchange Act of 1934; and
2)
 
The
 
information
 
contained
 
in
 
the
 
Report
 
fairly
 
presents,
 
in
 
all
 
material
 
respects,
 
the
 
financial
 
condition
 
and
results of operations of the Company.
/s/ Robert Anderson
Robert Anderson
Chief Financial Officer
Date: May 12, 2023