UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____to_____
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
,
,
(Address of principal executive offices) (zip code)
Registrant’s telephone number, including area code:
)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
☒
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
☒
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
☐
☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
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Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of October 30, 2023 the registrant had
A
common stock outstanding.
FORM 10-Q
September 30, 2023
TABLE OF CONTENTS
3 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
PART I
Item 1. Financial Statements
USCB FINANCIAL HOLDINGS, INC
Consolidated Balance Sheets – Unaudited
(Dollars in thousands, except share data)
September 30, 2023
December 31, 2022
ASSETS:
Cash and due from banks
$
$
Interest-bearing deposits in banks
Total cash and cash equivalents
Investment securities held to maturity, net of allowance of $
, respectively (fair value $
and $
, respectively)
Investment securities available for sale, at fair value
Federal Home Loan Bank stock, at cost
Loans held for investment, net of allowance of $
, respectively
Accrued interest receivable
Premises and equipment, net
Bank owned life insurance
Deferred tax assets, net
Lease right-of-use asset
Other assets
Total assets
$
$
LIABILITIES:
Deposits:
Demand deposits
$
$
Money market and savings accounts
Interest-bearing checking
Time deposits
Total deposits
Federal Home Loan Bank advances
Lease liability
Accrued interest and other liabilities
Total liabilities
Commitments and contingencies (See Notes 5 and 10)
.
.
STOCKHOLDERS' EQUITY:
Preferred stock - Class C; $
authorized;
-
-
Preferred stock - Class D; $
authorized;
-
-
Preferred stock - Class E; $
authorized;
-
-
Common stock - Class A Voting; $
outstanding as of September 30, 2023,
Common stock - Class B Non-voting; $
outstanding as of September 30, 2023 and December 31, 2022
-
-
Additional paid-in capital on common stock
Accumulated deficit
(91,269 )
(104,104 )
Accumulated other comprehensive loss
(51,226 )
(44,751 )
Total stockholders' equity
Total liabilities and stockholders' equity
$
$
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Operations - Unaudited
(Dollars in thousands, except per share data)
Three Months Ended September 30,
Nine Months Ended September 30,
2023
2022
2023
2022
Interest income:
$
$
$
$
Interest expense:
Provision for credit losses
Non-interest income:
(955 )
(558 )
(976 )
(540 )
-
-
-
Non-interest expense:
Income tax expense
$
$
$
$
Per share information:
Net income per share, basic
$
$
$
$
Net income per share, diluted
$
$
$
$
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Comprehensive Income (Loss) - Unaudited
(Dollars in thousands)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023
2022
2023
2022
Net income
$
$
$
$
Other comprehensive income (loss):
Unrealized loss on investment securities
(7,858 )
(11,679 )
(11,145 )
(57,577 )
Amortization of net unrealized (loss) gain on securities transferred from
available-for-sale to held-to-maturity
(52 )
(177 )
Reclassification adjustment for loss included in net income
Unrealized gain on cash flow hedge
-
-
Tax effect
Total other comprehensive loss, net of tax
(4,907 )
(8,341 )
(6,475 )
(42,686 )
Total comprehensive income (loss)
$
(1,088 )
$
(2,783 )
$
$
(26,979 )
The accompanying notes are an integral part of these unaudited consolidated financial statements.
6 USCB Financial Holdings, Inc. Q3 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 July 1, 2023
$
$
$
(95,088 )
$
(46,319 )
$
Net income
-
-
-
-
Other comprehensive loss
-
-
-
-
(4,907 )
(4,907 )
Restricted stock forfeiture
(2,487 )
(3 )
-
-
-
Stock-based compensation
-
-
-
-
Balance at September 30, 2023
$
$
$
(91,269 )
$
(51,226 )
$
Balance at July 1, 2022
$
$
$
(114,096 )
$
(36,861 )
$
Net income
-
-
-
-
Other comprehensive loss
-
-
-
-
(8,341 )
(8,341 )
Stock-based compensation
-
-
-
-
Balance at September 30, 2022
$
$
$
(108,538 )
$
(45,202 )
$
Common Stock
Additional Paid-in
Capital on Common
Stock
Accumulated
Deficit
Accumulated Other
Comprehensive
Loss
Shares
Par Value
Total
Stockholders'
Equity
Balance at January 1, 2023
$
$
$
(104,104 )
$
(44,751 )
$
After tax cumulative effect of adoption of accounting principle related to ASC
326
(989 )
(989 )
Adjusted beginning balance after cumulative effect adjustment
(105,093 )
(44,751 )
Net income
-
-
-
-
Other comprehensive loss
-
-
-
-
(6,475 )
(6,475 )
Repurchase of Class A common stock
(577,603 )
(577 )
(6,036 )
-
-
(6,613 )
Restricted stock issued
(121 )
-
-
-
Restricted stock forfeiture
(2,487 )
(3 )
-
-
Stock-based compensation
-
-
-
-
Balance at September 30, 2023
$
$
$
(91,269 )
$
(51,226 )
$
Balance at January 1, 2022
(124,245 )
(2,516 )
Net income
-
-
-
-
Other comprehensive loss
-
-
-
-
(42,686 )
(42,686 )
Exercise of stock options
Stock-based compensation
-
-
-
-
Balance at September 30, 2022
$
$
$
(108,538 )
$
(45,202 )
$
The accompanying notes are an integral part of these unaudited consolidated financial statements.
7 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Cash Flows - Unaudited
(Dollars in thousands)
Nine Months Ended September 30,
2023
2022
Cash flows from operating activities:
Net income
$
$
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses
Depreciation and amortization
(Accretion) amortization of premiums on securities, net
(651 )
Accretion of deferred loan fees, net
(236 )
(1,364 )
Stock-based compensation
Loss (gain) on sale of available for sale securities
Gain on sale of loans held for sale
(696 )
(686 )
Increase in cash surrender value of bank owned life insurance
(775 )
(794 )
Bank owned life insurance enhancement
(981 )
-
Decrease in deferred tax assets
Net change in operating assets and liabilities:
Accrued interest receivable
(1,374 )
(593 )
Other assets
(751 )
(4,163 )
Accrued interest and other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of investment securities held to maturity
(86,788 )
(2,432 )
Proceeds from maturities and pay-downs of investment securities held to maturity
Purchase of investment securities available for sale
(26,792 )
(49,808 )
Proceeds from maturities and pay-downs of investment securities available for sale
Proceeds from sales of investment securities available for sale
Net increase in loans held for investment
(165,662 )
(177,916 )
Purchase of loans held for investment
(13,277 )
(70,175 )
Additions to premises and equipment
(131 )
(175 )
Proceeds from the sale of loans held for sale
Purchase of Bank owned life insurance
(11,100 )
-
Proceeds from the redemption of Federal Home Loan Bank stock
Purchase of Federal Home Loan Bank stock
(9,940 )
(2,052 )
Net cash used in investment activities
(190,285 )
(200,829 )
Cash flows from financing activities:
Proceeds from issuance of Class A common stock, net
-
Repurchase of Class A common stock
(6,613 )
-
Net increase in deposits
Proceeds from Federal Home Loan Bank advances
Repayments on Federal Home Loan Bank advances
(203,350 )
(70,000 )
Net cash provided by financing activities
Net increase in cash and cash equivalents
(20,733 )
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
$
$
Supplemental disclosure of cash flow information:
Interest paid
$
$
Supplemental schedule of non-cash investing and financing activities:
Transfer of loans held for investment to loans held for sale
$
$
Transfer of investment securities from available-for-sale to held-to-maturity
$
$
Lease liability arising from obtaining right-of-use asset
$
-
$
The accompanying notes are an integral part of these unaudited consolidated financial statements.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
8 USCB Financial Holdings, Inc. Q3 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 direct
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
(ACL) 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.
Adoption of New Accounting Standards
Measurement of Credit Losses on Financial Instruments
On January 1st, 2023, the Company adopted Accounting Standard Update (“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 not 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.
Historical credit losses provide the basis for estimation of expected credit losses. Qualitative adjustments are applied to the
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
9 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
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 loan 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 solution that uses an attrition-based calculation that performs quarterly, cohort-based
attrition measurements based on the loan portfolio.
At adoption of CECL,
% or $
%
or $
million of loan receivables 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 (ACL) on loans
receivables of $
of tax cumulative adjustment resulted in a increase of $
section in Note 3 for more information on the ACL.
Trouble Debt Restructuring
In March 2022, the Financial Accounting Standards Board (“FASB”) issued 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, require s 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) requires disclosure of
current period gross write-offs of financing receivables within the vintage disclosures table (see Note 3). The Company
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
10 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
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.
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 a 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 bonds, 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.
The Company monitors the credit quality of held to maturity securities through the use of credit ratings. Credit ratings
are monitored by the Company on at least a quarterly basis. As of September 30, 2023 and December 31, 2022, all held-
to-maturity securities held by the Company were rated investment grade.
At quarter end, HTM securities included $
mortgage-backed securities. Because of the explicit and/or implicit guarantee on these bonds, the Company holds
reserves on these holdings. The remaining portion of the HTM portfolio is made up of $
corporate bonds. The required reserve for these holdings is determined each quarter using the model described above. For
the portion of the HTM exposed to non-government credit risk, the Company utilized the PD/LGD methodology to estimate
a $
cost less ACL.
The Company determined that an ACL on its debt securities available for sale as of September 30, 2023 and December
31, 2022 was not required.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
11 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
The following tables present a summary of the amortized cost, unrealized or unrecognized gains and losses, and fair
value of investment securities at the dates indicated (in thousands):
September 30, 2023
Available-for-sale:
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
U.S. Government Agency
$
$
-
$
(1,888 )
$
Collateralized mortgage obligations
-
(26,976 )
Mortgage-backed securities - residential
-
(14,867 )
Mortgage-backed securities - commercial
(7,508 )
Municipal securities
-
(6,908 )
Bank subordinated debt securities
(2,246 )
Corporate bonds
-
-
-
-
$
$
$
(60,393 )
$
Held-to-maturity:
U.S. Government Agency
$
$
-
$
(7,038 )
$
U.S. Treasury
-
(28 )
Collateralized mortgage obligations
-
(10,308 )
Mortgage-backed securities - residential
-
(6,088 )
Mortgage-backed securities - commercial
-
(1,583 )
Corporate bonds
-
(988 )
$
$
-
$
(26,033 )
$
Allowance for credit losses - securities held-to-maturity
(16 )
Securities held-to maturity, net of allowance for credit losses
$
December 31, 2022
Available-for-sale:
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
U.S. Government Agency
$
$
-
$
(1,522 )
$
Collateralized mortgage obligations
-
(23,410 )
Mortgage-backed securities - residential
-
(12,959 )
Mortgage-backed securities - commercial
(4,305 )
Municipal securities
-
(6,601 )
Bank subordinated debt securities
(1,050 )
Corporate bonds
-
(328 )
$
$
$
(50,175 )
$
Held-to-maturity:
U.S. Government Agency
$
$
$
(5,877 )
$
U.S. Treasury
-
(13 )
Collateralized mortgage obligations
(7,830 )
Mortgage-backed securities - residential
(4,574 )
Mortgage-backed securities - commercial
-
(665 )
Corporate bonds
-
(1,077 )
$
$
$
(20,036 )
$
During the year ended December 31, 2022, a total of
value of $
unrealized loss of $
comprehensive income (“AOCI”) is being amortized over the remaining life of the securities. For the three and nine months
ended September 30, 2023, total amortization out of AOCI for net unrealized losses on securities transferred from AFS to
HTM was $
was $
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
12 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
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 and nine months ended September 30, 2023 and 2022 (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
Available-for-sale:
2023
2022
2023
2022
Proceeds from sale and call of securities
$
$
$
$
Gross gains
$
-
$
$
$
Gross losses
(955 )
(560 )
(979 )
(758 )
Net realized (loss) gain
$
(955 )
$
(558 )
$
(976 )
$
(540 )
The amortized cost and fair value of investment securities, by contractual maturity, are shown below as of the date
indicated (in thousands). Actual maturities may differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown
separately.
Available-for-sale
Held-to-maturity
September 30, 2023:
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
Due within one year
$
-
$
-
$
$
Due after one year through five years
Due after five years through ten years
-
-
Due after ten years
-
-
U.S. Government Agency
Collateralized mortgage obligations
Mortgage-backed securities - residential
Mortgage-backed securities - commercial
$
$
$
$
At September 30, 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 Agency securities. All the
collateralized mortgage obligations and mortgage-backed securities are issued by United States sponsored entities at
September 30, 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):
September 30, 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
$
-
-
(10,184 )
$
$
(10,184 )
U.S. Treasury
(28 )
-
-
(28 )
Collateralized mortgage obligations
-
-
(41,869 )
(41,869 )
Mortgage-backed securities - residential
(237 )
(23,353 )
(23,590 )
Mortgage-backed securities - commercial
(917 )
(9,656 )
(10,573 )
Municipal securities
-
-
(6,908 )
(6,908 )
Bank subordinated debt securities
(304 )
(1,941 )
(2,245 )
Corporate bonds
-
-
(631 )
(631 )
$
$
(1,486 )
$
$
(94,542 )
$
$
(96,028 )
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
13 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
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
$
(1,093 )
(7,616 )
$
(8,709 )
U.S. Treasury
(13 )
-
-
(13 )
Collateralized mortgage obligations
(963 )
(34,962 )
(35,925 )
Mortgage-backed securities - residential
(564 )
(19,348 )
(19,912 )
Mortgage-backed securities - commercial
(1,173 )
(5,300 )
(6,473 )
Municipal securities
-
-
(6,601 )
(6,601 )
Bank subordinated debt securities
(670 )
(381 )
(1,051 )
Corporate bonds
(926 )
-
-
(926 )
$
$
(5,402 )
$
$
(74,208 )
$
$
(79,610 )
As of September 30, 2023, the unrealized losses associated with $
from the AFS portfolio to the HTM portfolio represent unrealized losses since the date of purchase, independent of the
impact associated with changes in the cost basis of the securities upon transfer between portfolios.
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 depreciation 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 on AFS securities.
At September 30, 2023, the Company had $
collateralized mortgage obligations of government sponsored entities having a fair value of $
attributable to a combination of factors, including relative changes in interest rates since the time of purchase.
At December 31, 2022, the Company had $
collateralized mortgage obligations of government sponsored entities having a fair value of $
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 September 30, 2023, 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 September
30, 2023.
Pledged Securities
The Company maintains a master repurchase agreement with a public banking institution for up to $
guaranteed with investment securities upon withdrawal. Any amounts borrowed would be at a variable interest rate based
on prevailing rates at the time funding is requested. As of September 30, 2023, the Company did
t have any securities
pledged under this agreement.
The Bank is a Qualified Public Depository (“QPD”) with the State of Florida. As a QPD, the Bank has the legal authority
to maintain public deposits from cities, municipalities, and the State of Florida. These public deposits are secured by
securities pledged to the State of Florida at a ratio of
% of the outstanding uninsured deposits. The Bank must also
maintain a minimum amount of pledged securities to be in the public funds program.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
14 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
As of September 30, 2023, the Bank had a total of $
pledged to the State of Florida for these public funds were
As of December 31, 2022, the Bank had a total of $
to the State of Florida for these public funds were
The Board of Governors of the Federal Reserve System, 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, U.S. agency debt and mortgage-backed
securities, and other qualifying assets as collateral. These assets will be valued at par.
The Company had
in securities measured at par to the Federal Reserve Bank of Atlanta for the BTFP program.
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):
September 30, 2023
December 31, 2022
Total
Percent of
Total
Total
Percent of
Total
Residential Real Estate
$
%
$
%
Commercial Real Estate
%
%
Commercial and Industrial
%
%
Foreign Banks
%
%
Consumer and Other
%
%
Total gross loans
%
%
Plus: Deferred fees (cost)
Total loans net of deferred fees (cost)
Less: Allowance for credit losses
Total net loans
$
$
At September 30, 2023 and December 31, 2022, the Company had $
commercial real estate and residential mortgage loans pledged as collateral for lines of credit with the FHLB and the Federal
Reserve Bank of Atlanta.
The Company was a participant in the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”)
loans. These loans were designed to provide a direct incentive for small businesses to keep their workers on payroll and
the funds had to be used towards payroll cost, mortgage interest, rent, utilities and other costs related to COVID-19. These
loans are forgivable under specific criteria as determined by the SBA. The Company had PPP loans totaling $
at September 30, 2023 and $
The Company recognized $
ended September 30, 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
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
15 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
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 (“Q-Factors”) used in the ACL methodology include:
•
•
•
•
•
•
•
•
ACL for the three and nine months ended September 30, 2023, was estimated under the CECL methodology, and for
all periods in 2022, it was estimated under the incurred loss model.
Changes in the allowance for credit losses for the three and nine months ended September 30, 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 September 30, 2023
Beginning balance
$
$
$
$
$
$
Provision for credit losses
(1)
(162 )
(84 )
Recoveries
-
-
-
-
Charge-offs
-
-
-
-
(3 )
(3 )
Ending Balance
$
$
$
$
$
$
Nine Months Ended September 30, 2023
Beginning balance
$
$
$
$
$
$
Cumulative effect of adoption of accounting
principle
(2)
(2,158 )
Provision for credit losses
(3)
(89 )
(1,149 )
Recoveries
-
-
Charge-offs
-
-
-
-
(48 )
(48 )
Ending Balance
$
$
$
$
$
$
(1) Provision for credit losses excludes $
thousand release due to investment securities held to maturity.
(2) Impact of CECL adoption on January 1, 2023
(3) Provision for credit losses excludes $
thousand expense due to investment securities held to maturity.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
16 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Foreign
Banks
Consumer
and Other
Total
Three Months Ended September 30, 2022
Beginning balance
$
$
$
$
$
$
Provision for credit losses
(1,009 )
Recoveries
-
-
-
-
Charge-offs
-
-
(88 )
-
(5 )
(93 )
Ending Balance
$
$
$
$
$
$
Nine Months Ended September 30, 2022
Beginning balance
$
$
$
$
$
$
Provision for credit losses
(1,157 )
Recoveries
-
-
Charge-offs
(16 )
-
(88 )
-
(11 )
(115 )
Ending Balance
$
$
$
$
$
$
At September 30, 2023 the ACL, under the CECL methodology, was $
December 31, 2022, under the incurred loss methodology. The increase of $
impact of adoption of the ASU 2016-13 on loan receivables, a $
to loan growth and to net charge-offs.
The Company had charge offs totaling $
originated in 2023. The Company had charge offs totaling $
related to loans. $
originated in 2015.
The Company had charge offs totaling $
$
$
The Federal Open Market Committee (“FOMC”) economic forecasts as of September 30, 2023, showed moderate
improvements in unemployment and a slower real GDP growth. Fannie Mae HPI forecast reflected important improvement
in national housing prices over the next four quarters. The Company continued to adjust the HPI index effect on 1-4 Family
loan portfolio with a qualitative factor because Florida housing prices are performing better than national levels. Q-Factors
were reviewed and updated; maximum loss calculations are based on refreshed stress test and risk statuses were updated
based on portfolio and external developments during the third quarter.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
17 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
The ACL and the outstanding balances in the specified loan categories as of September 30, 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
September 30, 2023:
Allowance for credit losses:
Individually evaluated for impairment
$
$
-
$
$
-
$
-
$
Collectively evaluated for impairment
Balances, end of period
$
$
$
$
$
$
Loans:
Individually evaluated for impairment
$
$
-
$
$
-
$
-
$
Collectively evaluated for impairment
Balances, end of period
$
$
$
$
$
$
December 31, 2022:
Allowance for credit losses:
Individually evaluated for impairment
$
$
-
$
$
-
$
$
Collectively evaluated for impairment
Balances, end of period
$
$
$
$
$
$
Loans:
Individually evaluated for impairment
$
$
$
$
-
$
$
Collectively evaluated for impairment
Balances, end of period
$
$
$
$
$
$
Credit Quality Indicators
The Company grades loans based on the estimated capability of the borrower to repay the contractual obligation of the
loan agreement based on relevant information which may include: current financial information on the borrower, historical
payment experience, credit documentation and other current economic trends. Internal credit risk grades are evaluated
periodically.
The Company's internally assigned credit risk grades are as follows:
Pass
– Loans indicate different levels of satisfactory financial condition and performance.
Special Mention
close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment
prospects for the loan or of the institution’s credit position at some future date.
Substandard
– Loans classified as substandard are inadequately protected by the current net worth and paying
capacity of the obligator or of the collateral pledged, if any. Loans so classified have a well-defined weakness or
weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the
institution will sustain some loss if the deficiencies are not corrected.
Doubtful
the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing
facts, conditions, and values, highly questionable and improbable.
Loss
– Loans classified as loss are considered uncollectible.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
18 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
Loan credit exposures by internally assigned grades are presented below for the periods indicated (in thousands):
As of September 30, 2023
Term Loans by Origination Year
Revolving
Loans
Total
2023
2022
2021
2020
2019
Prior
Residential real estate
Pass
$
$
$
$
$
$
$
$
Total
Commercial real estate
Pass
Substandard
-
-
-
-
-
Total
Commercial and
industrial
Pass
Substandard
-
-
-
-
Total
Foreign banks
Pass
-
-
-
-
-
Total
-
-
-
-
-
Consumer and other
loans
Pass
Substandard
-
-
-
-
-
-
-
-
Total
Total Loans
Pass
Special Mention
-
-
-
-
-
-
-
-
Substandard
-
-
-
Doubtful
-
-
-
-
-
-
-
-
Total
$
$
$
$
$
$
$
$
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
19 USCB Financial Holdings, Inc. Q3 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
$
$
-
$
-
$
-
$
1-4 family residential
-
-
-
Condo residential
-
-
-
-
-
-
-
Commercial real estate:
Land and construction
-
-
-
Multi-family residential
-
-
-
Condo commercial
-
-
Commercial property
-
-
-
-
Commercial and industrial:
Secured
-
-
Unsecured
-
-
-
-
-
Foreign banks
-
-
-
Consumer and other loans
-
-
Total
$
$
-
$
$
-
$
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
20 USCB Financial Holdings, Inc. Q3 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 September 30, 2023
and December 31, 2022 (in thousands):
Accruing
As of September 30, 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
$
$
-
$
-
$
$
-
$
1-4 family residential
-
-
-
Condo residential
-
-
-
-
Commercial real estate:
Land and construction
-
-
-
Multi-family residential
-
-
-
Condo commercial
-
-
-
Commercial property
-
-
-
Leasehold improvements
-
-
-
-
-
-
Commercial and industrial:
Secured
-
-
Unsecured
-
-
-
-
-
Foreign banks
-
-
-
Consumer and other
-
-
-
Total
$
$
$
-
$
$
$
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
21 USCB Financial Holdings, Inc. Q3 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
$
$
-
$
-
$
$
-
$
1-4 family residential
-
-
Condo residential
-
-
-
-
Commercial real estate:
Land and construction
-
-
-
Multi-family residential
-
-
-
Condo commercial
-
-
-
Commercial property
-
-
Leasehold improvements
-
-
-
-
-
-
-
-
Commercial and industrial:
Secured
-
-
Unsecured
-
-
-
-
Foreign banks
-
-
-
Consumer and other
-
-
Total
$
$
$
-
$
$
$
Non-accrual Status
The following table includes the amortized cost basis of loans on non-accrual status and loans past due over 90 days
and still accruing as of September 30, 2023 (in thousands):
September 30, 2023
Nonaccrual
Loans With No
Related
Allowance
Nonaccrual
Loans With
Related
Allowance
Total Non-
accruals
Loans Past
Due Over 90
Days and Still
Accruing
Residential real estate
$
-
$
-
$
-
$
-
Commercial real estate
-
-
-
-
Commercial and industrial
-
-
Consumer and other
-
-
-
-
$
-
$
$
$
-
The Company did
t have loans in nonaccrual status as of December 31, 2022.
Accrued interest receivable is excluded from the estimate of credit losses. There was
attributable to non-accrual loans outstanding during the three months ended September 30, 2023 and 2022. Interest income
on these loans for the three months ended September 30, 2023 and 2022, would have been approximately $
and $
loans for the nine months ended September 30, 2023 and 2022, would have been approximately $
thousand, respectively, had these loans performed in accordance with their original terms.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
22 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
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
loans as of September 30, 2023, or as of December 31, 2022.
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
$
$
$
-
Commercial real estate
-
-
Impaired Loans with Specific Allowance:
Residential real estate
Commercial and industrial
Consumer and other
Total
$
$
$
Net investment balance is the unpaid principal balance of the loan adjusted for the remaining net deferred loan fees.
The following table presents the average recorded investment balance on impaired loans for the periods indicated (in
thousands):
Three Months Ended September 30, 2022
Nine Months Ended September 30, 2022
Residential real estate
$
$
Commercial real estate
Commercial and industrial
Consumer and other
Total
$
$
Interest income recognized on impaired loans for the three months ended September 30, 2022 was $
for the nine months ended September 30, 2022 was $
Loan Modifications to Borrowers Experiencing Financial Difficulties
The following table present newly restructured loans, by type of modification, which occurred during the nine months
ended September 30, 2023 (in thousands):
Recorded Investment Prior to Modification
Recorded Investment After Modification
Number of
Loans
Combination
Modifications
Total
Modifications
Number of
Loans
Combination
Modifications
Total
Modifications
Residential real estate
-
$
-
$
-
-
$
-
$
-
Commercial real estate
-
-
-
-
-
-
Commercial and industrial
Consumer and other
-
-
-
-
-
-
$
$
$
$
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
23 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
The Company had
the three and nine months ended September 30, 2023, respectively. There were
subsequently defaulted during the three and nine months ended September 30, 2023.
4. INCOME TAXES
The Company’s provision for income taxes is presented in the following table for the dates indicated (in thousands):
Nine Months Ended September 30,
2023
2022
Current:
Federal
$
-
$
-
State
-
-
Total current
-
-
Deferred:
Federal
State
Total deferred
Total tax expense
$
$
The actual income tax expense for the nine months ended September 30, 2023 and 2022 differs from the statutory tax
expense for the period (computed by applying the U.S. federal corporate tax rate of
% for 2023 and 2022 to income
before provision for income taxes) as follows (in thousands):
Nine Months Ended September 30,
2023
2022
Federal taxes at statutory rate
$
$
State income taxes, net of federal tax benefit
Bank owned life insurance
(171 )
(202 )
Other, net
-
Total tax expense
$
$
The Company’s deferred tax assets and deferred tax liabilities as of the dates indicated were (in thousands):
September 30, 2023
December 31, 2022
Deferred tax assets:
Net operating loss
$
$
Allowance for credit losses
Lease liability
Unrealized losses on available for sale securities
Depreciable property
Equity compensation
Accruals
CECL Adoption
-
Deferred tax assets:
Deferred tax liability:
Deferred loan cost
(418 )
(28 )
Lease right of use asset
(3,084 )
(3,648 )
Deferred expenses
(189 )
(175 )
Cash flow hedge
(332 )
-
Other, net
(105 )
(36 )
Deferred tax liability
(4,128 )
(3,887 )
Net deferred tax assets
$
$
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
24 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
The Company has approximately $
expiring in various amounts between 2031 and 2036 and which are limited to offset, to the extent permitted, future taxable
earnings of the Company.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent
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 and nine months ended September 30, 2023 and 2022, the Company did
t have any unrecognized tax
benefits as a result of tax positions taken during a prior period or during the current period. Additionally,
penalties were recorded as a result of tax uncertainties.
5. OFF-BALANCE SHEET ARRANGEMENTS
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business in order to
meet the financial needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial
instruments include unfunded commitments under lines of credit, commitments to extend credit, standby and commercial
letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the Company’s Consolidated Balance Sheets. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet instruments.
The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instruments
for unused lines of credit, and standby letters of credit is represented by the contractual amount of these commitments.
A summary of the amounts of the Company's financial instruments with off-balance sheet risk are shown below at
September 30, 2023 and December 31, 2022 (in thousands):
September 30, 2023
December 31, 2022
Commitments to grant loans and unfunded lines of credit
$
$
Standby and commercial letters of credit
Total
$
$
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration dates or other termination clauses.
Unfunded lines of credit and revolving credit lines are commitments for possible future extensions of credit to existing
customers. These lines of credit are uncollateralized and usually do not contain a specified maturity date and ultimately may
not be drawn upon to the total extent to which the Company committed.
Standby and commercial letters of credit are conditional commitments issued by the Company to guarantee the
performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing
arrangements. Essentially all letters of credit have fixed maturity dates and since many of them expire without being drawn
upon, they do not generally present a significant liquidity risk to the Company.
6. DERIVATIVES
The Company utilizes interest rate swap agreements as part of its asset-liability management strategy to help manage
its interest rate risk exposure. The notional amount of the interest rate swaps does 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.
Interest Rate Swaps Designated as a Cash Flow Hedge
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
25 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
As of September 30, 2023, the Company had
two
$
average maturity of
%, with the weighted average 3-month
compound SOFR being received. The Company had
The changes in fair value on these interest rate swaps are recorded in other assets or other liabilities with a
corresponding recognition in other comprehensive income (loss) and subsequently reclassified to earnings when gains or
losses are realized.
Interest Rate Swaps Designated as Fair Value Hedge
As of September 30, 2023, the Company had four interest rate swap agreements with a notional aggregate amount of
$
maturity of
%, with the weighted average 3-month compound SOFR
being received.
Interest Rate Swaps
The Company enters into interest rate swaps with its loan customers. The Company had
with loan customers with an aggregate notional amount of $
December 31, 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.
The following table reflects the Company’s interest rate swaps at the dates indicated (in thousands):
Fair Value
Notional
Amount
Collateral
Amount
Balance Sheet Location
Asset
Liability
September 30, 2023:
Derivatives designated as hedging instruments:
Interest rate swaps
$
-
Other assets
$
$
Derivatives not designated as hedging instruments:
Interest rate swaps related to customer loans
$
$
Other assets/Other liabilities
$
$
December 31, 2022:
Derivatives not designated as hedging instruments:
Interest rate swaps related to customer loans
$
$
Other assets/Other liabilities
$
$
7. FAIR VALUE MEASUREMENTS
Determination of Fair Value
The Company uses fair value measurements to record fair-value adjustments to certain assets and liabilities and to
determine fair value disclosures. In accordance with the fair value measurements accounting guidance, the fair value of a
financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Fair value is best determined based upon quoted market prices.
However, in many instances, there are no quoted market prices for the Company's various financial instruments. In cases
where quoted market prices are not available, fair values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates
of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction
(that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
26 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a
change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining
the price at which willing market participants would transact at the measurement date under current market conditions
depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point
within the range that is most representative of fair value under current market conditions.
Fair Value Hierarchy
In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured
at fair value in three levels, based on the markets in which the assets and liabilities are traded, and the reliability of the
assumptions used to determine fair value.
Level 1
entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and
equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing
sources for market transactions involving identical assets or liabilities.
Level 2
asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the asset or liability.
Level 3
significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments
whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as
well as instruments for which determination of fair value requires significant management judgment or estimation.
A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is
significant to the fair value measurement.
Items Measured at Fair Value on a Recurring Basis
AFS investment securities:
for such securities, management generally relies on prices obtained from independent vendors or third-party broker-dealers.
Management reviews pricing methodologies provided by the vendors and third-party broker-dealers in order to determine if
observable market information is being utilized. Securities measured with pricing provided by independent vendors or third-
party broker-dealers are classified within Level 2 of the hierarchy and often involve using quoted market prices for similar
securities, pricing models or discounted cash flow analyses utilizing inputs observable in the market where available.
Derivatives:
classified within Level 2 of the hierarchy.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
27 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
The following table represents the Company's assets and liabilities measured at fair value on a recurring basis at
September 30, 2023 and December 31, 2022 for each of the fair value hierarchy levels (in thousands):
September 30, 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
$
-
$
$
-
$
$
-
$
$
-
$
Collateralized mortgage obligations
-
-
-
-
Mortgage-backed securities - residential
-
-
-
-
Mortgage-backed securities - commercial
-
-
-
-
Municipal securities
-
-
-
-
Bank subordinated debt securities
-
-
-
-
Corporate bonds
-
-
-
-
-
-
Total
-
-
-
-
Derivative assets
-
-
-
-
Total assets at fair value
$
-
$
$
-
$
$
-
$
$
-
$
Derivative liabilities
$
-
$
$
-
$
$
-
$
$
-
$
Total liabilities at fair value
$
-
$
$
-
$
$
-
$
$
-
$
Items Measured at Fair Value on a Non-recurring Basis
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 $
approximately $
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 and are considered a Level 3 valuation.
Other Real Estate:
estimate of the costs to sell or the carrying cost of the other real estate owned. Appraisals generally use the market approach
valuation technique and use market observable data to formulate an opinion of the fair value of the properties. However,
the appraiser uses professional judgment in determining the fair value of the property and the Company may also adjust
the value for changes in market conditions subsequent to the valuation date when current appraisals are not available. As
a consequence of the carrying cost or the third-party appraisal and adjustments therein, the fair values of the properties are
considered a Level 3 valuation.
The following table represents the Company’s assets measured at fair value on a non-recurring basis at September 30,
2023 and December 31, 2022 for each of the fair value hierarchy levels (in thousands):
Level 1
Level 2
Level 3
Total
September 30, 2023:
Individually evaluated loans
$
-
$
-
$
-
$
-
December 31, 2022:
Impaired loans
$
-
$
-
$
$
The following table presents quantified information about Level 3 fair value measurements for assets measured at fair
value on a non-recurring basis at December 31, 2022 (in thousands):
Fair Value
Valuation Technique(s)
Unobservable Input(s)
December 31, 2022:
Residential real estate
$
Sales comparison approach
Adj. for differences between comparable sales
Commercial and industrial
Discounted cash flow
Adj. for differences in net operating income expectations
Consumer and other loans
Discounted cash flow
Adj. for differences in net operating income expectations
Total impaired loans
$
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
28 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
There were
December 31, 2022.
Items Not Measured at Fair Value
The following table presents the carrying amounts and estimated fair values of financial instruments not carried at fair
value as of September 30, 2023 and December 31, 2022 (in thousands):
Fair Value Hierarchy
Carrying
Amount
Level 1
Level 2
Level 3
Fair Value
Amount
September 30, 2023:
Financial Assets:
Cash and due from banks
$
$
$
-
$
-
$
Interest-bearing deposits in banks
$
$
$
-
$
-
$
Investment securities held to maturity, net
$
$
-
$
$
-
$
Loans held for investment, net
$
$
-
$
-
$
$
Accrued interest receivable
$
$
-
$
$
$
Financial Liabilities:
Demand deposits
$
$
$
-
$
-
$
Money market and savings accounts
$
$
$
-
$
-
$
Interest-bearing checking accounts
$
$
$
-
$
-
$
Time deposits
$
$
-
$
-
$
$
FHLB advances
$
$
-
$
$
-
$
Accrued interest payable
$
$
-
$
$
$
December 31, 2022:
Financial Assets:
Cash and due from banks
$
$
$
-
$
-
$
Interest-bearing deposits in banks
$
$
$
-
$
-
$
Investment securities held to maturity
$
$
-
$
$
-
$
Loans held for investment, net
$
$
-
$
-
$
$
Accrued interest receivable
$
$
-
$
$
$
Financial Liabilities:
Demand deposits
$
$
$
-
$
-
$
Money market and savings accounts
$
$
$
-
$
-
$
Interest-bearing checking accounts
$
$
$
-
$
-
$
Time deposits
$
$
-
$
-
$
$
FHLB advances
$
$
-
$
$
-
$
Accrued interest payable
$
$
-
$
$
$
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
million after deducting underwriting discounts and expenses.
In December 2021, the Company acquired all the issued and outstanding shares of the Class A 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 $
newly issued share of the Company’s Class A common stock, par value $
Company’s wholly owned subsidiary.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
29 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
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.
In March 2023, the Company issued
stock awards pursuant to the Company’s 2015 equity incentive plan. There were
ended September 30, 2023 nor during the three and nine months ended September 30, 2022.
During the nine months ended September 30, 2023 the Company repurchased
stock at a weighted average price per share of $
. The aggregate purchase price for these transactions was
approximately $
pursuant to the Company’s publicly announced repurchase program.
ended September 30, 2023. As of September 30, 2023,
program.
Shares of the Company’s Class A common stock issued and outstanding as
of September 30, 2023 and December 31,
2022 were
, respectively.
Dividends
Declaration of dividends by the Board is required before dividend payments are made.
the Board for the common stock classes for the three months ended September 30, 2023 and 2022. Additionally, there were
The Company and the Bank exceeded all regulatory capital requirements and remained above “well-capitalized”
guidelines as of September 30, 2023 and December 31, 2022. At September 30, 2023, the total risk-based capital ratios for
the Company and the Bank were
% and
%, respectively.
9. EARNINGS PER SHARE
Earnings per share (“EPS”) for common stock is calculated using the two-class method required for participating
securities. Basic EPS is calculated by dividing net income (loss) available to common shareholders 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 share holders 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 shareholders for the three and nine
months ended September 30, 2023 and 2022 (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023
2022
2023
2022
Net Income
$
$
$
$
Net income available to common shareholders
$
$
$
$
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
30 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
The following table reflects the calculation of basic and diluted earnings per common share class for the three and nine
months ended September 30, 2023 and 2022 (in thousands, except per share amounts):
Three Months Ended September 30,
2023
2022
Class A
Class A
Basic EPS
Numerator:
Net income available to common shares
$
$
Denominator:
Weighted average shares outstanding
Earnings per share, basic
$
$
Diluted EPS
Numerator:
Net income available to common shares
$
$
Denominator:
Weighted average shares outstanding for basic EPS
Add: Dilutive effects of assumed exercises of stock options
Weighted avg. shares including dilutive potential common shares
Earnings per share, diluted
$
$
Anti-dilutive stock options excluded from diluted EPS
Net income has not been allocated to unvested restricted stock awards that are participating securities because the amounts that would be allocated
are not material to net income per share of common stock. Unvested restricted stock awards that are participating securities represent less than one
percent of all of the outstanding shares of common stock for each of the periods presented.
Nine Months Ended September 30,
2023
2022
Class A
Class A
Basic EPS
Numerator:
Net income available to common shares
$
$
Denominator:
Weighted average shares outstanding
Earnings per share, basic
$
$
Diluted EPS
Numerator:
Net income available to common shares
$
$
Denominator:
Weighted average shares outstanding for basic EPS
Add: Dilutive effects of assumed exercises of stock options
Weighted avg. shares including dilutive potential common shares
Earnings per share, diluted
$
$
Anti-dilutive stock options excluded from diluted EPS
Net income has not been allocated to unvested restricted stock awards that are participating securities because the amounts that would be allocated are
not material to net income per share of common stock. Unvested restricted stock awards that are participating securities represent less than one percent
of all of the outstanding shares of common stock for each of the periods presented.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
31 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
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.
As previously disclosed, on July 13, 2023,
board members serving in July 2021, without naming the Bank as a party, alleging the named directors did not have the
authority to approve the exchange of preferred stock in July 2021 as part of the Bank’s initial public offering and that further,
such action breached their fiduciary duties. The Plaintiffs claim this exchange was not permitted by the Bank’s Articles of
Incorporation. The Company believes that the allegations in the lawsuit are legally and factually without merit, and the
Company intends to vigorously defend against the allegations in the lawsuit. Despite the Company’s belief the lawsuit lacks
merit, if the plaintiffs were successful, the Court could award substantial compensatory damages.
32 USCB Financial Holdings, Inc. Q3 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 nine
months ended September 30, 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 (“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/A 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 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:
•
•
•
deferred tax asset valuation allowance;
•
•
where we operate;
•
•
•
effects of the implementation of the Current Expected Credit Losses (“CECL”) standard;
•
geographic, depositor, and industry concentrations, including our concentration in loans secured by real estate, in particular,
commercial real estate;
•
•
•
•
well as growth through other means, such as future acquisitions;
•
•
•
interest margin;
•
•
or third-party fraud and security breaches; and
•
Commission (“SEC”).
All forward-looking statements are necessarily only estimates of future results, and there can be no assurance that
actual results will not differ materially from expectations. Therefore, you are cautioned not to place undue reliance on any
33 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
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 has filed
or will file with the SEC.
Overview
The Company reported net income of $3.8 million or $0.19 per diluted share of common stock for the three months
ended September 30, 2023 compared to $5.6 million or $0.28 per diluted share of common stock for the three months
ended September 30, 2022. Net income for the nine months ended September 30, 2023 was $13.8 million or $0.70 per
diluted share of common stock compared to $15.7 million or $0.78 per diluted share of common stock for the same period
in 2022.
No shares were repurchased during the third quarter 2023. Year-to-date, the Company has repurchased 577,603 of
Class A common stock shares at a weighted average price per share of $9.77. These repurchases were made through open
market purchases pursuant to the Company’s publicly announced repurchase program. As of September 30, 2023, 172,397
shares remained 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
September 30, 2023 compared to the quarter ended September 30, 2022 and to December 31, 2022, and annualized where
appropriate:
•
million for the quarter ended September 30, 2022. Net interest income for the nine months ended in September 30, 2023
decreased $2.6 million or 5.6% to $44.2 million compared to the same period ended September 30, 2022.
•
ended September 30, 2022. NIM was 2.84% for the nine months ended in September 30, 2023 compared to 3.36% for the same
period in 2022.
•
2022 and an increase of $158.8 million or 10.2% annualized from December 31, 2022.
•
2022 and an increase of $169.2 million or 15.0% annualized from December 31, 2022.
•
2022 and an increase of $91.6 million or 6.7% annualized from December 31, 2022.
•
ended September 30, 2022.
•
for quarter ended September 30, 2022.
•
methodology for three and nine months ended September 30, 2023 and the incurred loss methodology for all periods in 2022.
•
•
•
affected by $2.62 due to accumulated comprehensive loss of $51.2 million at September 30, 2023. At September 30, 2022,
tangible book value of $8.87 per common share was negatively affected by $2.26 due to $45.2 million accumulated other
comprehensive loss. See “Reconciliation and Management Explanation for Non-GAAP Financial Measures” for a reconciliation
of this non-GAAP financial measure.
34 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
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 US 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 of Directors.
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” in Item 1 of Part I of this Form 10-Q for more information on the adoption ASC
326 and the allowance for credit losses.
Our ACL included residential loans. To assess the potential impact of changes in qualitative factors related to these
loans, management performed a sensitivity analysis. The Company evaluated the impact of the HPI used in calculating
expected losses on the residential loan segment. As of September 30, 2023, for every 100 basis points increase in the HPI
index, the forecast reduces reserves by approximately $217 thousand and about 1 basis point to the reserve coverage ratio,
everything else being constant. 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.
35 USCB Financial Holdings, Inc. Q3 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):
September 30, 2023
December 31, 2022
Consolidated Balance Sheets:
Total assets
$
2,244,602
$
2,085,834
Total loans
(1)
$
1,676,520
$
1,507,338
Total deposits
$
1,920,922
$
1,829,281
Total stockholders' equity
$
182,884
$
182,428
(1) Loan amounts include deferred fees/costs.
Three Months Ended September 30,
Nine Months Ended September 30,
2023
2022
2023
2022
Consolidated Statements of Operations:
Net interest income before provision for credit losses
$
14,022
$
16,774
$
44,192
$
46,795
Total non-interest income
$
2,161
$
1,789
$
6,077
$
5,351
Total non-interest expense
$
10,461
$
10,132
$
31,089
$
29,295
Net income
$
3,819
$
5,558
$
13,824
$
15,707
Profitability:
Efficiency ratio
64.64%
54.58%
61.85%
56.18%
Net interest margin
2.60%
3.47%
2.84%
3.36%
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, the level of non-interest expense, and the
provision for income taxes.
Three months ended September 30, 2023 compared to the three months ended September 30, 2022
Net income decreased to $3.8 million for the three months ended September 30, 2023 from $5.6 million for the same
period in 2022 mainly due to higher weighted average deposit costs.
Nine months ended September 30, 2023 compared to nine months ended September 30, 2022
Net income decreased to $13.8 million for the nine months ended September 30, 2023 from $15.7 million for the same
period in 2022. The main drivers of the variance of net income was a $25.1 million increase in interest expense mainly due
to increases in the cost of deposits partially offset by a $22.5 million increase in interest income generated from higher loan
yields and a larger loan portfolio.
Net Interest Income
Net interest income is the difference between interest earned on interest-earning assets and interest paid 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
36 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
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 funding sources.
Changes in 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.
37 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
The following table contains information related to average balances, average yields earned on assets, and average
costs of liabilities for the periods indicated (dollars in thousands):
Three Months Ended September 30,
2023
2022
Average
(1)
Balance
Interest
Yield/Rate
(2)
Average
(1)
Balance
Interest
Yield/Rate
(2)
Assets
Interest-earning assets:
Loans
(3)
$
1,610,864
$
22,523
5.55%
$
1,398,761
$
15,954
4.53%
Investment securities
(4)
445,828
2,833
2.52%
450,514
2,201
1.94%
Other interest-earnings assets
83,479
1,026
4.88%
70,540
322
1.81%
Total interest-earning assets
2,140,171
26,382
4.89%
1,919,815
18,477
3.82%
Non-interest-earning assets
110,087
106,976
Total assets
$
2,250,258
$
2,026,791
Liabilities and stockholders' equity
Interest-bearing liabilities:
Interest-bearing checking
$
52,080
331
2.52%
$
66,585
19
0.11%
Saving and money market deposits
1,011,164
8,779
3.44%
823,521
1,141
0.55%
Time deposits
290,272
2,565
3.51%
217,023
363
0.66%
Total interest-bearing deposits
1,353,516
11,675
3.42%
1,107,129
1,523
0.55%
FHLB advances and other borrowings
85,326
685
3.19%
43,935
180
1.63%
Total interest-bearing liabilities
1,438,842
12,360
3.41%
1,151,064
1,703
0.59%
Non-interest-bearing demand deposits
587,917
655,853
Other non-interest-bearing liabilities
38,598
34,586
Total liabilities
2,065,357
1,841,503
Stockholders' equity
184,901
185,288
Total liabilities and stockholders' equity
$
2,250,258
$
2,026,791
Net interest income
$
14,022
$
16,774
Net interest spread
(5)
1.48%
3.23%
Net interest margin
(6)
2.60%
3.47%
(1) Average balances - Daily average balances are used to calculate yields/rates.
(2) Annualized.
(3) Average loan balances include non-accrual loans. Interest income on loans includes accretion of deferred loan fees, net of deferred loan costs.
(4) At fair value except for securities held to maturity. This amount includes FHLB stock.
(5) Net interest spread is the weighted average yield on total interest-earning assets minus the weighted average rate on total interest-bearing liabilities.
(6) Net interest margin is the ratio of net interest income to average total interest-earning assets.
38 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
Nine Months Ended September 30,
2023
2022
Average
Balance
(1)
Interest
Yield/Rate
(2)
Average
Balance
(1)
Interest
Yield/Rate
(2)
Assets
Interest-earning assets:
Loans
(3)
$
1,576,074
$
63,081
5.35
%
$
1,302,909
$
42,989
4.41
%
Investment securities
(4)
430,118
7,501
2.33
%
484,489
7,040
1.94
%
Other interest-earnings assets
71,514
2,459
4.60
%
76,655
474
0.83
%
Total interest-earning assets
2,077,706
73,041
4.70
%
1,864,053
50,503
3.62
%
Non-interest earning assets
107,443
105,914
Total assets
$
2,185,149
$
1,969,967
Liabilities and stockholders' equity
Interest-bearing liabilities:
Interest-bearing checking
$
54,554
574
1.41
%
$
65,798
52
0.11
%
Money market and savings accounts
949,858
20,532
2.89
%
780,564
2,307
0.40
%
Time deposits
264,241
5,767
2.92
%
221,504
893
0.54
%
Total interest-bearing deposits
1,268,653
26,873
2.83
%
1,067,866
3,252
0.30
%
Borrowings and repurchase agreements
80,087
1,976
3.30
%
38,788
456
1.57
%
Total interest-bearing liabilities
1,348,740
28,849
2.87
%
1,106,654
3,708
0.45
%
Non-interest bearing demand deposits
617,741
642,396
Other non-interest-bearing liabilities
34,492
29,608
Total liabilities
2,000,973
1,778,658
Stockholders' equity
184,176
191,309
Total liabilities and stockholders' equity
$
2,185,149
$
1,969,967
Net interest income
$
44,192
$
46,795
Net interest spread
(5)
1.83
%
3.17
%
Net interest margin
(6)
2.84
%
3.36
%
(1) Average balances - Daily average balances are used to calculate yields/rates.
(2) Annualized.
(3) Average loan balances include non-accrual loans. Interest income on loans includes accretion of deferred loan fees, net of deferred loan costs.
(4) At fair value except for securities held to maturity. Includes FHLB stock.
(5) Net interest spread is the weighted average yield on total interest-earning assets minus the weighted average rate on total interest-bearing
liabilities.
(6) Net interest margin is the ratio of net interest income to average total interest-earning assets.
Three months ended September 30, 2023 compared to the three months ended September 30, 2022
Net interest income before the provision for credit losses was $14.0 million for the three months ended September 30,
2023, a decrease of $2.8 million or 16.4%, from $16.8 million for the same period in 2022. The decrease was primarily
attributable to the $10.7 million increase in interest expense, which was a result to the prevailing market interest rate
conditions which offset the increase in interest income.
Net interest margin was 2.60% for the quarter ended September 30, 2023 and 3.47% for the same period in 2022. The
increase in loan yields as well as yields on other interest -earning assets was offset by higher deposit and borrowing costs.
Nine months ended September 30, 2023 compared to nine months ended September 30, 2022
Net interest income before the provision for credit losses was $44.2 million for the nine months ended September 30,
2023, a decrease of $2.6 million or 5.6%, from $46.8 million for the same period in 2022. The decrease was primarily
attributable to the $25.1 million increase in interest expense, which was a result to the prevailing market interest rate
conditions which partially offset by the increase in interest income.
Net interest margin decreased to 2.84% for the nine months ended September 30, 2023 from 3.36% for the same period
in 2022. Overall interest-bearing asset yields grew but were outpaced by the increase in the cost of funds.
Provision for Credit Losses
The provision for credit losses represents a charge to earnings necessary to maintain an allowance for credit losses
that, in management's evaluation, is adequate to provide coverage for all expected credit losses. The provision for credit
39 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
losses is impacted by variations in the size and composition of our loan and debt securities portfolio, recent historical and
projected future economic conditions, our internal assessment of the credit quality of the loan and debt securities portfolios
and net charge-offs.
Three months ended September 30, 2023 compared to the three months ended September 30, 2022
The provision for credit loss was $653 thousand for the three months ended September 30, 2023 compared to $910
thousand for the same period in 2022. Growth in the loan portfolio was the primary driver of the provision expense during
the three months ended September 30, 2023 period. The decrease in provision for credit losses in the 2023 period compared
to the September 30, 2022 quarter was due to greater loan growth in third quarter 2022.
Nine months ended September 30, 2023 compared to nine months ended September 30, 2022
The provision for credit loss was $892 thousand for the nine months ended September 30, 2023 compared to $1.6
million for the same period in 2022. Decrease of $723 thousand due to higher loan growth in the nine months ended
September 30, 2022. The ACL as a percentage of total loans was 1.16% at September 30, 2023 and at September 30,
2022.
ACL for the three and nine months ended September 30, 2023, was estimated under the CECL methodology, and for
all periods in 2022, it was estimated under the incurred loss model . 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 from the increase in the cash surrender value of these
policies.
The following table presents the components of non-interest income for the dates indicated (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2023
2022
2023
2022
Service fees
$
1,329
$
934
$
3,707
$
2,917
Gain (loss) on sale of securities available for sale, net
(955)
(558)
(976)
(540)
Gain on sale of loans held for sale, net
255
330
696
686
Loan settlement
-
-
-
161
Other non-interest income
1,532
1,083
2,650
2,127
Total non-interest income
$
2,161
$
1,789
$
6,077
$
5,351
Three months ended September 30, 2023 compared to the three months ended September 30, 2022
Non-interest income for the three months ended September 30, 2023 increased $372 thousand or 20.8%, compared to
the same period in 2022. This increase was primarily driven by growth in service fees from a larger deposit portfolio and an
increase in wire and treasury management fees. A strategic restructuring of bank owned life insurance increased other
income by $982 thousand. However, there was a $955 thousand securities loss experienced during the period. The
Company sold $7.7 million in lower-yielding securities to reinvest the funds in higher-return investments.
Nine months ended September 30, 2023 compared to the nine months ended September 30, 2022
Non-interest income for the nine months ended September 30, 2023 increased $726 thousand or 13.6%, compared to
the same period in 2022. This increase was primarily driven by an increase in service fees from a larger deposit portfolio
and an increase in wire and treasury management fees. A strategic restructuring of bank owned life insurance increased
other income by $982 thousand experienced during the period. However, there was a $976 thousand securities loss. The
Company sold $16.4 million in lower-yielding securities to reinvest the funds in higher-return investments. For the period
ended September 30, 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.
40 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
Non-Interest Expense
The following table presents the components of non-interest expense for the dates indicated (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2023
2022
2023
2022
Salaries and employee benefits
$
6,066
$
6,075
$
18,325
$
17,863
Occupancy
1,350
1,281
3,968
3,802
Regulatory assessment and fees
365
269
1,041
708
Consulting and legal fees
513
604
1,257
1,519
Network and information technology services
481
488
1,464
1,323
Other operating
1,686
1,415
5,034
4,080
Total non-interest expense
$
10,461
$
10,132
$
31,089
$
29,295
Three months ended September 30, 2023 compared to the three months ended September 30, 2022
Non-interest expense for the three months ended September 30, 2023 increased $329 thousand or 3.2%, compared to
the same period in 2022. The increase was primarily driven by an increase in the audit and tax services, legal expenses,
FDIC deposit insurance assessment, and was partially offset by a decrease in the professional fees.
Nine months ended September 30, 2023 compared to the nine months ended September 30, 2022
Non-interest expense for the nine months ended September 30, 2023 increased $1.8 million or 6.1%, compared to the
same period in 2022. The increase was primarily driven by higher salaries and employee benefits expense due to new hires,
increased salary compensation and seasonal payroll taxes as well as increases in the FDIC deposit insurance assessment
rate, and audit and tax services expense.
Provision for Income Tax
Fluctuations in the effective tax rate reflect the effect of the differences in the inclusion or deductibility of certain income
and expenses for income tax purposes. Therefore, future decisions on the investments we choose will affect our effective
tax rate. The cash surrender value of bank-owned life insurance policies covering key employees, purchasing municipal
bonds, and overall levels of taxable income will be important elements in determining our effective tax rate.
Three months ended September 30, 2023 compared to the three months ended September 30, 2022
Income tax expense for the quarter ended September 30, 2023 was $1.3 million as compared to $2.0 million for the
same period in 2022. The effective tax rate for the three months ended September 30, 2023 was 24.7% compared to 26.1%
for the same period in 2022.
Nine months ended September 30, 2023 compared to the nine months ended September 30, 2022
Income tax expense for the nine months ended September 30, 2023 decreased to $4.5 million from $5.5 million for the
same period in 2022. The Company’s effective tax rate was 24.4% for the 2023 period compared to 26.0% for the same
period in 2022.
For a further discussion of income taxes, see Note 4 “Income Taxes” to the unaudited Consolidated Financial
Statements in Item 1 of Part I of this Form 10-Q.
Analysis of Financial Condition
Total assets at September 30, 2023 were $2.2 billion, an increase of $158.8 million, or 10.2% annualized, over total
assets of $2.1 billion at December 31, 2022. Total loans, net of unearned fees/cost, increased $169.2 million, or 15.0%
annualized, to $1.7 billion at September 30, 2023 compared to $1.5 billion at December 31, 2022. Total deposits increased
by $91.6 million, or 6.7% annualized, to $1.9 billion at September 30, 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
41 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
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 Board approved Asset and Liability Management (“ALM”)
policy, which includes investment guidelines. 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 Asset-Liability Comittee (“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 prior to
maturity 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 attributable 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 on AFS securities.
AFS and HTM investment securities de creased $2.9 million, or 0.9% annualized, to $415.9 million at September 30,
2023 from $418.8 million at December 31, 2022. Investment securities increased due to reinvestment of payments received
and investment of excess in cash balances into high credit quality investments to increase the Company’s profitability and
modify the Company’s balance sheet duration according to the ALM policy. As of September 30, 2023, investment securities
with a market value of $107.7 million were pledged to secure public deposits and the BTFP. The investment portfolio does
not have any tax-exempt securities.
42 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
The following table presents the amortized cost and fair value of investment securities for the dates indicated (in
thousands):
September 30, 2023
December 31, 2022
Available-for-sale:
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
U.S. Government Agency
$
9,913
$
8,025
$
10,177
$
8,655
Collateralized mortgage obligations
105,547
78,571
118,951
95,541
Mortgage-backed securities - residential
66,024
51,157
73,838
60,879
Mortgage-backed securities - commercial
48,010
40,564
32,244
27,954
Municipal securities
25,024
18,116
25,084
18,483
Bank subordinated debt securities
24,417
22,176
15,964
14,919
Corporate bonds
-
-
4,037
3,709
$
278,935
$
218,609
$
280,295
$
230,140
Held-to-maturity:
U.S. Government Agency
$
44,087
$
37,049
$
44,914
$
39,062
U.S. Treasury
19,934
19,906
9,841
9,828
Collateralized mortgage obligations
64,094
53,786
68,727
60,925
Mortgage-backed securities - residential
44,302
38,214
42,685
38,483
Mortgage-backed securities - commercial
15,467
13,884
11,442
10,777
Corporate bonds
9,443
8,455
11,090
10,013
$
197,327
$
171,294
$
188,699
$
169,088
Allowance for credit losses - securities held-to-maturity
(16)
Securities held-to maturity, net of allowance for credit losses
$
197,311
The following table shows the weighted average yields, categorized by contractual maturity, for investment securities
as of September 30, 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%
$
1,983
3.17%
$
6,042
1.53%
$
8,025
1.93%
Collateralized mortgage obligations
-
0.00%
-
0.00%
-
0.00%
78,571
1.39%
78,571
1.39%
MBS - residential
-
0.00%
-
0.00%
-
0.00%
51,157
1.62%
51,157
1.62%
MBS - commercial
-
0.00%
-
0.00%
-
0.00%
40,564
2.58%
40,564
2.58%
Municipal securities
-
0.00%
-
0.00%
2,720
1.69%
15,396
1.75%
18,116
1.74%
Bank subordinated debt securities
-
0.00%
5,977
5.75%
16,199
4.88%
-
0.00%
22,176
5.12%
Corporate bonds
-
0.00%
-
0.00%
-
0.00%
-
0.00%
-
0.00%
$
-
$
5,977
$
20,902
$
191,730
$
218,609
2.09%
Held-to-maturity:
U.S. Government Agency
$
-
0.00%
$
7,921
1.02%
$
20,141
1.38%
$
16,025
2.01%
$
44,087
1.54%
U.S. Treasury
19,934
5.20%
-
0.00%
-
0.00%
-
0.00%
19,934
5.20%
Collateralized mortgage obligations
-
0.00%
-
0.00%
-
0.00%
64,094
1.66%
64,094
1.66%
MBS - residential
-
0.00%
4,468
1.85%
5,925
1.75%
33,909
2.40%
44,302
2.26%
MBS - commercial
-
0.00%
-
0.00%
3,076
1.62%
12,391
2.60%
15,467
2.40%
Corporate bonds
-
0.00%
9,443
2.80%
-
0.00%
-
0.00%
9,443
2.80%
$
19,934
$
21,832
$
29,142
$
126,419
$
197,327
2.24%
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.
43 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
The following table shows the loan portfolio composition as of the dates indicated (in thousands):
September 30, 2023
December 31, 2022
Total
Percent of
Total
Total
Percent of
Total
Residential Real Estate
$
188,880
11.3
%
$
185,636
12.3
%
Commercial Real Estate
1,005,280
60.0
%
970,410
64.4
%
Commercial and Industrial
212,975
12.7
%
126,984
8.4
%
Foreign Banks
94,640
5.7
%
93,769
6.2
%
Consumer and Other
173,096
10.3
%
130,429
8.7
%
Total gross loans
1,674,871
100.0
%
1,507,228
100.0
%
Plus: Deferred fees (cost)
1,649
110
Total loans net of deferred fees (cost)
1,676,520
1,507,338
Less: Allowance for credit losses
19,493
17,487
Total net loans
$
1,657,027
$
1,489,851
Total loans, net of unearned fees/cost, increased by $169.2 million, or 15.0% annualized to $1.7 billion, at
September 30, 2023 compared to December 31, 2022. The commercial and industrial, and to a lesser extent, consumer
and other and commercial real estate loan segments had the most significant growth.
Our loan portfolio continues to grow, with commercial real estate lending as the primary focus which represented
approximately 60.0% of the total gross loan portfolio as of September 30, 2023. Our loan growth strategy since inception
has been reflective of the market in which we operate and of our strategic plan as approved by the Board.
Most of the commercial real estate exposure represents loans to commercial businesses secured by owner-occupied
real estate. The growth experienced in recent years is primarily due to implementation of our relationship-based banking
model and the success of our relationship managers in competing for new business in a highly competitive metropolitan
area. Many of our larger loan clients have long-term relationships with members of our senior management team or our
relationship managers that date back to former institutions.
From a liquidity perspective, our loan portfolio provides us with additional liquidity due to repayments or unexpected
prepayments. The following table shows maturities and sensitivity to interest rate changes for the loan portfolio at
September 30, 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
$
9,513
$
23,902
$
81,777
$
73,688
$
188,880
Commercial Real Estate
85,013
164,387
747,779
8,101
1,005,280
Commercial and Industrial
5,348
53,234
114,106
40,287
212,975
Foreign Banks
94,640
-
-
-
94,640
Consumer and Other
1,634
3,080
10,223
158,159
173,096
Total gross loans
$
196,148
$
244,603
$
953,885
$
280,235
$
1,674,871
Interest rate sensitivity:
Fixed interest rates
$
174,725
$
144,198
$
193,366
$
170,370
$
682,659
Floating or adjustable rates
21,423
100,405
760,519
109,865
992,212
Total gross loans
$
196,148
$
244,603
$
953,885
$
280,235
$
1,674,871
The information presented in the table above is based upon the contractual maturities of the individual loans, which
may be subject to renewal at their contractual maturity. Renewals will depend on approval by our credit department and
balance sheet composition at the time of the analysis, as well as any modification of terms at the loan’s maturity. Additionally,
maturity concentrations, loan duration, prepayment speeds and other interest rate sensitivity measures are discussed,
reviewed, and analyzed by the ALCO. Decisions on term /rate modifications are discussed as well.
As of September 30, 2023, approximately 59% of the loans have adjustable/variable rates and 41% 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
that most of our loans have interest rate floors. This embedded option protects the Company from a decrease in interest
rates below the floor and positions us to gain in the scenario of higher interest rates.
44 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
Asset Quality
Our asset quality grading analysis estimates the capability of the borrower to repay the contractual obligation of the loan
agreement as scheduled or at all. The Company’s internal credit risk grading system is based on experiences with similarly
graded loans. Internal credit risk grades are reviewed at least once a year, and more frequently as needed. Internal credit
risk ratings may change based on management’s assessment of the results from the annual review, portfolio monitoring,
and other developments observed with borrowers.
The internal credit risk grades used by the Company to assess the credit worthiness of a loan are shown below:
Pass
– Loans indicate different levels of satisfactory financial condition and performance.
Special Mention
close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment
prospects for the loan or of the institution’s credit position at some future date.
Substandard
– Loans classified as substandard are inadequately protected by the current net worth and paying
capacity of the obligator or of the collateral pledged, if any. Loans so classified have a well-defined weakness or
weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the
institution will sustain some loss if the deficiencies are not corrected.
Doubtful
the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing
facts, conditions, and values, highly questionable and improbable.
Loss
– Loans classified as loss are considered uncollectible.
Loan credit exposures by internally assigned grades are as follows for the dates indicated (in thousands):
September 30, 2023
Pass
Special Mention
Substandard
Doubtful
Total
Residential Real Estate
$
188,880
$
-
$
-
$
-
$
188,880
Commercial Real Estate
1,002,765
-
2,515
-
1,005,280
Commercial and Industrial
210,991
-
1,984
-
212,975
Foreign Banks
94,640
-
-
-
94,640
Consumer and Other
173,096
-
-
-
173,096
$
1,670,372
$
-
$
4,499
$
-
$
1,674,871
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
45 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
Non-Performing Assets
The following table presents non-performing assets as of the dates shown (in thousands, except ratios):
September 30, 2023
December 31, 2022
Total non-performing loans
$
479
$
-
Other real estate owned
-
-
Total non-performing assets
$
479
$
-
Asset quality ratios:
(1)
Allowance for credit losses to total loans
1.16%
1.16%
Allowance for credit losses to non-performing loans
4070%
- %
Non-performing loans to total loans
0.03%
- %
(1)
ACL was calculated under CECL methodology for 2023, and incurred loss methodology for 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 in Item 1 of Part 1 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” in Item 1 of Part 1 of this Form 10-Q for more information on the allowance for credit
losses.
46 USCB Financial Holdings, Inc. Q3 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 September 30, 2023
Beginning balance
$
2,673
$
10,183
$
2,500
$
677
$
2,782
$
18,815
Provision for credit losses
(1)
(162)
(84)
738
73
108
673
Recoveries
-
-
8
-
-
8
Charge-offs
-
-
-
-
(3)
(3)
Ending Balance
$
2,511
$
10,099
$
3,246
$
750
$
2,887
$
19,493
Average loans
$
183,643
$
992,171
$
179,127
$
87,847
$
168,076
$
1,610,864
Net charge-offs to average loans
-
-
-0.02%
-
0.01%
0.00%
Nine Months Ended September 30, 2023
Beginning balance
$
1,352
$
10,143
$
4,163
$
720
$
1,109
$
17,487
Cumulative effect of adoption of accounting
principle
(2)
1,238
1,105
(2,158)
23
858
1,066
Provision for credit losses
(3)
(89)
(1,149)
1,181
7
965
915
Recoveries
10
-
60
-
3
73
Charge-offs
-
-
-
-
(48)
(48)
Ending Balance
$
2,511
$
10,099
$
3,246
$
750
$
2,887
$
19,493
Average loans
$
186,918
$
980,244
$
164,466
$
90,597
$
153,849
$
1,576,074
Net charge-offs to average loans
-0.01%
-
-0.05%
-
0.04%
0.00%
(1) Provision for credit losses excludes $17 thousand release due to unfunded commitments included in other liabilities and $3
thousand release due to investment securities held to maturity.
(2) Impact of CECL adoption on January 1, 2023.
(3) Provision for credit losses excludes $39 thousand release due to unfunded commitments included in other liabilities and $16
thousand expense due to investment securities held to maturity.
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Foreign
Banks
Consumer
and Other
Total
Three Months Ended September 30, 2022
Beginning balance
$
2,366
$
9,290
$
2,671
$
651
$
808
$
15,786
Provision for credit losses
(1,009)
695
1,126
74
24
910
Recoveries
1
-
-
-
-
1
Charge-offs
-
-
(88)
-
(5)
(93)
Ending Balance
$
1,358
$
9,985
$
3,709
$
725
$
827
$
16,604
Average loans
$
190,757
$
887,000
$
119,993
$
94,628
$
106,382
$
1,398,761
Net charge-offs to average loans
-
-
0.29%
-
0.02%
0.03%
Nine Months Ended September 30, 2022
Beginning balance
$
2,498
$
8,758
$
2,775
$
457
$
569
$
15,057
Provision for credit losses
(1,157)
1,227
1,011
268
266
1,615
Recoveries
33
-
11
-
3
47
Charge-offs
(16)
-
(88)
-
(11)
(115)
Ending Balance
$
1,358
$
9,985
$
3,709
$
725
$
827
$
16,604
Average loans
$
195,863
$
809,411
$
128,625
$
77,237
$
91,773
$
1,302,909
Net charge-offs to average loans
-0.02%
0.00%
0.12%
0.00%
0.02%
0.01%
Bank-Owned Life Insurance
As of September 30, 2023, the combined cash surrender value of all bank-owned life insurance (“BOLI”) policies was
$51.4 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.
47 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
During the third quarter of 2023, the Company restructured its BOLI, cancelling a $7.1 million policy by surrendering
$4.2 million of the value and transferring the remaining $2.9 million to a new BOLI policy. The new BOLI policy was funded
with an additional $11.1 million for a total of $14.1 million. This new BOLI policy received a cash surrender enhancement
from the new insurance carrier of $981 thousand.
Deposits
Customer deposits are the primary funding source for the Bank’s growth. Through our network of banking centers, we
offer a competitive array of deposit accounts and treasury management services designed to meet our customers’ business
needs. Our primary deposit customers are small-to-medium sized businesses (“SMBs”), and the personal business of
owners and operators of these SMBs, as well as the retail/consumer relationships of the employees of these businesses.
The following table presents the daily average balance and average rate paid on deposits by category for the periods
presented (in thousands, except ratios):
Three Months Ended September 30,
2023
2022
Average Balance
Average Rate
Paid
Average Balance
Average Rate
Paid
Non-interest-bearing checking
$
587,917
0.00%
$
655,853
0.00%
Interest-bearing checking
52,080
2.52%
66,585
0.11%
Money market and savings deposits
1,011,164
3.44%
823,521
0.55%
Time deposits
290,272
3.51%
217,023
0.66%
Total
$
1,941,433
2.39%
$
1,762,982
0.34%
The Company has a granular deposit portfolio with outstanding balances comprised of 49% in commercial deposits,
37% personal deposits, 11% public funds which are partially collateralized and 3% brokered deposits. During the nine
months ended September 30, 2023, the Company acquired $50 million in brokered deposits to boost liquidity. The Company
has approximately 20 thousand deposit accounts with the majority in personal accounts, approximately 13 thousand or
63.8%. The estimated average account size of our deposit portfolio is approximately $95 thousand as of September 30,
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. The total estimated amount of uninsured deposits is 53% at September 30,
2023.
The following table shows scheduled maturities of uninsured time deposits as of September 30, 2023 (in thousands):
September 30, 2023
Three months or less
$
18,563
Over three through six months
32,457
Over six though twelve months
28,769
Over twelve months
2,566
$
82,355
Other Liabilities
The Company collects from commercial and residential loan customers funds which are held in escrow for future
payment of real estate taxes and insurance. These escrow funds are disbursed by the Company directly to the insurance
companies and taxing authority of the borrower. Escrow funds are recorded as other liabilities.
As of September 30, 2023 escrow balances totaled $16.7 million compared to $3.5 million at December 31, 2022.
48 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
Borrowings
As a member of the FHLB, we are eligible to obtain advances with various terms and conditions. This accessibility of
additional funding allows us to efficiently and timely meet both expected and unexpected outgoing cash flows and collateral
needs without adversely affecting either daily operations or the financial condition of the Company.
As of September 30, 2023, we had $102.0 million of fixed and variable rate advances outstanding from the FHLB with
a weighted average rate of 3.66%. Maturity dates for the advances range between 2023 to 2028 detailed in the table below.
The following table presents the FHLB advances as of September 30, 2023 (in thousands):
Interest Rate
Type of Rate
Maturity Date
Amount
5.57%
Variable
December 22, 2023
$
20,000
1.04%
Fixed
July 30, 2024
5,000
2.05%
Fixed
March 27, 2025
10,000
1.07%
Fixed
July 18, 2025
6,000
3.76%
Fixed
January 24, 2028
11,000
3.77%
Fixed
April 25, 2028
50,000
$
102,000
We have also established Federal Funds lines of credit with our upstream correspondent banks, the BTFP, and the
FRB Atlanta Discount Window to manage temporary fluctuations in our daily cash balances. As of September 30, 2023,
there were no outstanding balances with any of these liquidity sources.
Off-Balance Sheet Arrangements
We engage in various financial transactions in our operations that, under GAAP, may not be included on the balance
sheet. To meet the financing needs of our customers we may include commitments to extend credit and standby letters of
credit. To a varying degree, such commitments involve elements of credit, market, and interest rate risk in excess of the
amount recognized in the balance sheet. We use more conservative credit and collateral policies in making these credit
commitments than we do for on-balance sheet items. We are not aware of any accounting loss to be incurred by funding
these commitments; however, we maintain an allowance for off-balance sheet credit risk which is recorded under other
liabilities on the unaudited Consolidated Balance Sheets.
Since commitments associated with letters of credit and commitments to extend credit may expire unused, the amounts
shown do not necessarily reflect actual future cash funding requirements. The following table presents lending related
commitments outstanding as of the dates indicated (in thousands ):
September 30, 2023
December 31, 2022
Commitments to grant loans and unfunded lines of credit
$
100,661
$
95,461
Standby and commercial letters of credit
6,490
4,320
Total
$
107,151
$
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.
49 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
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 and policies 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 implemented
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 steepening) and twists of the yield curve. Static simulation models
are based on current exposures and assume a constant balance sheet with no new growth. Dynamic simulation analysis is
also utilized to have a more comprehensive assessment on IRR. This simulation relies on detailed assumptions outlined in
our budget and strategic plan, and in assumptions regarding changes in existing lines of business, new business,
management strategies and client expected behavior.
To have a more complete picture of IRR, the Company also evaluates the economic value of equity (“EVE”). This
assessment allows us to measure the degree to which the economic values will change under different interest rate
scenarios (parallel and non-parallel). The economic value approach focuses on a longer-term time horizon and captures all
future cash flows expected from existing assets and liabilities. The economic value model utilizes a static approach in that
the analysis does not incorporate new business; rather, the analysis shows a snapshot in time of the risk inherent in the
balance sheet.
Market and Interest Rate Risk Management
According to our ALCO model, as of September 30, 2023, we had an asset sensitive balance sheet both for year one
and two modeling, using the static 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 September 30, 2023, our balance sheet is asset sensitive for both year one and two under
interest static rate scenarios (an increase or decrease of 400 basis points). This means than if rates increase the NIM will
increase and if rates decrease the NIM will decrease. 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 in
interest rates will have a negative impact on the EVE and lower rates, a positive impact. Results and analysis are presented
quarterly to the ALCO, and strategies are reviewed and refined.
50 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
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.
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 services certificates of deposit, the Bank Term Funding Program, FRB
Atlanta discount window, and borrowings from the FHLB. Accordingly, we believe our liquidity resources are adequate to
fund loans and meet other cash needs as necessary.
51 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
Capital Adequacy
As of September 30, 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 September 30, 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
September 30, 2023
Total risk-based capital
$
230,801
13.06
%
$
141,327
8.00
%
$
176,659
10.00
%
Tier 1 risk-based capital
$
210,815
11.93
%
$
105,995
6.00
%
$
141,327
8.00
%
Common equity tier 1 capital
$
210,815
11.93
%
$
79,496
4.50
%
$
114,828
6.50
%
Leverage ratio
$
210,815
9.24
%
$
91,310
4.00
%
$
114,138
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 regulatory 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 servi ces.
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.
52 USCB Financial Holdings, Inc. Q3 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):
53 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
NON-GAAP FINANCIAL MEASURES (UNAUDITED)
(Dollars in thousands)
As of or For the Three Months Ended
9/30/2023
6/30/2023
3/31/2023
12/31/2022
9/30/2022
Pre-tax pre-provision ("PTPP") income:
(1)
Net income
$
3,819
$
4,196
$
5,809
$
4,434
$
5,558
Plus: Provision for income taxes
1,250
1,333
1,881
1,415
1,963
Plus: Provision for credit losses
653
38
201
880
910
PTPP income
$
5,722
$
5,567
$
7,891
$
6,729
$
8,431
PTPP return on average assets:
(1)
PTPP income
$
5,722
$
5,567
$
7,891
$
6,729
$
8,431
Average assets
$
2,250,258
$
2,183,542
$
2,120,218
$
2,051,867
$
2,026,791
PTPP return on average assets
(2)
1.01%
1.02%
1.51%
1.30%
1.65%
Operating net income:
(1)
Net income
$
3,819
$
4,196
$
5,809
$
4,434
$
5,558
Less: Net gains (losses) on sale of securities
(955)
-
(21)
(1,989)
(558)
Less: Tax effect on sale of securities
242
-
5
504
141
Operating net income
$
4,532
$
4,196
$
5,825
$
5,919
$
5,975
Operating PTPP income:
(1)
PTPP income
$
5,722
$
5,567
$
7,891
$
6,729
$
8,431
Less: Net gains (losses) on sale of securities
(955)
-
(21)
(1,989)
(558)
Operating PTPP income
$
6,677
$
5,567
$
7,912
$
8,718
$
8,989
Operating PTPP return on average assets:
(1)
Operating PTPP income
$
6,677
$
5,567
$
7,912
$
8,718
$
8,989
Average assets
$
2,250,258
$
2,183,542
$
2,120,218
$
2,051,867
$
2,026,791
Operating PTPP return on average assets
(2)
1.18%
1.02%
1.51%
1.69%
1.76%
Operating return on average assets:
(1)
Operating net income
$
4,532
$
4,196
$
5,825
$
5,919
$
5,975
Average assets
$
2,250,258
$
2,183,542
$
2,120,218
$
2,051,867
$
2,026,791
Operating return on average assets
(2)
0.80%
0.77%
1.11%
1.14%
1.17%
Operating return on average equity:
(1)
Operating net income
$
4,532
$
4,196
$
5,825
$
5,919
$
5,975
Average equity
$
184,901
$
184,238
$
183,371
$
177,556
$
185,288
Operating return on average equity
(2)
9.72%
9.13%
12.88%
13.23%
12.79%
Operating Revenue:
(1)
$
14,022
$
14,173
$
15,997
$
16,866
$
16,774
2,161
1,846
2,070
(123)
1,789
(955)
-
(21)
(1,989)
(558)
$
17,138
$
16,019
$
18,088
$
18,732
$
19,121
Operating Efficiency Ratio:
(1)
$
10,461
$
10,452
$
10,176
$
10,014
$
10,132
$
17,138
$
16,019
$
18,088
$
18,732
$
19,121
61.04%
65.25%
56.26%
53.46%
52.99%
(1) The Company believes these non-GAAP measurements are key indicators of the ongoing earnings power of the Company.
(2) Annualized.
54 USCB Financial Holdings, Inc. Q3 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
9/30/2023
6/30/2023
3/31/2023
12/31/2022
9/30/2022
Tangible book value per common share (at period-end):
(1)
Total stockholders' equity
$
182,884
$
183,685
$
183,858
$
182,428
$
177,417
Less: Intangible assets
-
-
-
-
-
Tangible stockholders' equity
$
182,884
$
183,685
$
183,858
$
182,428
$
177,417
Total shares issued and outstanding (at period-end):
Total common shares issued and outstanding
19,544,777
19,622,380
19,622,380
20,000,753
20,000,753
Tangible book value per common share
(2)
$
9.36
$
9.40
$
9.37
$
9.12
$
8.87
Operating diluted net income per common share:
(1)
Operating net income
$
4,532
$
4,196
$
5,825
$
5,919
$
5,975
Total weighted average diluted shares of common stock
19,611,897
19,639,682
19,940,606
20,172,438
20,148,208
Operating diluted net income per common share:
$
0.23
$
0.21
$
0.29
$
0.29
$
0.30
Tangible Common Equity/Tangible Assets
(1)
$
182,884
$
183,685
$
183,858
$
182,428
$
177,417
$
2,244,602
$
2,225,914
$
2,163,821
$
2,085,834
$
2,037,453
Tangible Common Equity/Tangible Assets
8.15%
8.25%
8.50%
8.75%
8.71%
(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.
55 USCB Financial Holdings, Inc. Q3 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 September 30, 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.
56 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
PART II
Item 1. Legal Proceedings
As previously disclosed, on July 13, 2023, three individuals who were shareholders of the Bank prior to its reorganization
into the holding company form of organization (the “Plaintiffs”) filed a lawsuit against six persons, all of whom were directors
of the Bank at the relevant time (the “Defendants”), in the Circuit Court, Eleventh Judicial Circuit for Miami-Dade County
(the “Court”) (Benes et al. v. de la Aguilera et al.) alleging the Defendants (i) caused the Bank, as directors thereof, to
engage in ultra vires conduct by devising and approving the exchange transaction effected in July 2021 pursuant to which
the Bank’s then outstanding Class C and Class D preferred stock was exchanged (the “Exchange Transaction”), which
action the Plaintiffs allege was not permitted by the Bank’s Articles of Incorporation, and (ii) breached their fiduciary duty as
directors of the Bank by approving and engaging in the Exchange Transaction. The Plaintiffs seek the Court to certify the
action as a class action and to award damages in an amount to be proven at trial. Plaintiffs seek damages exceeding
$750,000 plus attorney’s fees and costs as well as such other relief as the Court may determine. The Company believes
that the allegations in the lawsuit are legally and factually without merit, and it intends to vigorously defend against the
allegations in the lawsuit, pursue any potential counterclaims against the plaintiffs as it deems appropriate, and seek
coverage from its insurance carriers. However, there can be no assurance that this litigation will be resolved favorably.
Furthermore, there is also no assurance that we will be able to secure coverage from our insurance carriers for any expenses
incurred by us in connection with this litigation. If the plaintiff shareholders are successful, the Court could award substantial
compensatory damages.
In addition to the foregoing, 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.
At this time, in the opinion of management, the likelihood is remote that the impact of such proceedings, either
individually or in the aggregate, would have a material adverse effect on our consolidated results of operations, financial
condition or cash flows. However, one or more unfavorable outcomes in any claim or litigation against us, including the
aforementioned litigation regarding the Exchange Transaction, could have a material adverse effect on the period in which
such claims or litigation are resolved. In addition, regardless of their merits or their ultimate outcomes, such matters are
costly, divert management’s attention and may materially adversely affect our reputation, even if resolved in our favor.
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 see “Part II, Item 1A – Risk Factors” of the March
31, 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 quarter ended September 30, 2023 were as follows:
57 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q
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
July 1-31, 2023
-
$
-
-
172,397
August 1-30, 2023
-
-
-
172,397
September 1-30, 2023
-
-
-
172,397
-
$
-
-
(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
(a)
(b)
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
(a)
(b)
(c)
58 USCB Financial Holdings, Inc. Q3 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 September 30,
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.
59 USCB Financial Holdings, Inc. Q3 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
Chairman, President and Chief Executive
Officer
November 9, 2023
Luis de la Aguilera
(Principal Executive Officer)
/s/ Robert Anderson
Chief Financial Officer
November 9, 2023
Robert Anderson
(Principal Financial Officer and Principal
Accounting Officer)
Exhibit 31.1
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Luis de la Aguilera, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of USCB Financial Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and have:
a)
designed 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)
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)
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
Chairman, President and Chief Executive Officer
Date: November 9, 2023
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.
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 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)
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)
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an Annual Report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
/s/ Robert Anderson
Robert Anderson
Chief Financial Officer
Date: November 9, 2023
Exhibit 32.1
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
as Adopted Pursuant to Section 906 of the Sarbanes -Oxley Act of 2002
In connection with the Quarterly Report of USCB Financial Holdings, Inc. (the “Company”) on Form 10-Q for the quarter
ended September 30, 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
Chairman, President and Chief Executive Officer
Date: November 9, 2023
Exhibit 32.2
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
as Adopted Pursuant to Section 906 of the Sarbanes -Oxley Act of 2002
In connection with the Quarterly Report of USCB Financial Holdings, Inc. (the “Company”) on Form 10-Q for the quarter
ended September 30, 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: November 9, 2023