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 31, 2024 the registrant had
A
common stock outstanding.
FORM 10-Q
September 30, 2024
TABLE OF CONTENTS
3 USCB Financial Holdings, Inc. Q3 2024 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, 2024
December 31, 2023
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)
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 and other borrowings
Lease liability
Accrued interest and other liabilities
Total liabilities
Commitments and contingencies (See Notes 5 and 10)
(nil)
(nil)
STOCKHOLDERS' EQUITY:
Preferred stock - Class C; $1.00 par value; $1,000 per share liquidation preference; 52,748 shares
authorized; 0 and 0 issued and outstanding as of September 30, 2024 and December 31, 2023
-
-
Preferred stock - Class D; $1.00 par value; $5.00 per share liquidation preference; 12,309,480 shares
authorized; 0 and 0 issued and outstanding as of September 30, 2024 and December 31, 2023
-
-
Preferred stock - Class E; $1.00 par value; $1,000 per share liquidation preference; 3,185,024 shares
authorized; 0 and 0 issued and outstanding as of of September 30, 2024 and December 31, 2023
-
-
Common stock - Class A Voting; $1.00 par value; 45,000,000 shares authorized; 19,620,632 issued and
outstanding as of September 30, 2024, 19,575,435 issued and outstanding as of December 31, 2023
Common stock - Class B Non-voting; $1.00 par value; 8,000,000 shares authorized; 0 and 0 issued and
outstanding as of September 30, 2024 and December 31, 2023
-
-
Additional paid-in capital on common stock
Accumulated deficit
(73,827 )
(88,548 )
Accumulated other comprehensive loss
(37,978 )
(44,271 )
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 2024 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,
2024
2023
2024
2023
Interest income:
$
$
$
$
Interest expense:
Provision for credit losses
Non-interest income:
-
(955 )
(976 )
Non-interest expense:
Income tax expense
$
$
$
$
Per share information:
Net income per share, basic
$
$
$
$
Net income per share, diluted
$
$
$
$
Cash dividend declared
$
$
$
$
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5 USCB Financial Holdings, Inc. Q3 2024 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,
2024
2023
2024
2023
Net income
$
$
$
$
Other comprehensive income (loss):
Unrealized gain (loss) on investment securities
(7,858 )
(11,145 )
Amortization of net unrealized gain on securities transferred from
available-for-sale to held-to-maturity
Reclassification adjustment for (gain) loss included in net income
-
(14 )
Unrealized gain (loss) on cash flow hedge
(930 )
(381 )
Tax effect
(2,277 )
(2,136 )
Total other comprehensive income (loss), net of tax
(4,907 )
(6,475 )
Total comprehensive income (loss)
$
$
(1,088 )
$
$
The accompanying notes are an integral part of these unaudited consolidated financial statements.
6 USCB Financial Holdings, Inc. Q3 2024 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 June 30,2024
$
$
$
(79,760 )
$
(44,686 )
$
Net income
-
-
-
-
Other comprehensive income
-
-
-
-
Repurchase of Class A common stock
(10,000 )
(10 )
(111 )
-
-
(121 )
Dividend payment
-
-
-
(1,016 )
-
(1,016 )
Stock-based compensation
-
-
-
-
Balance at September 30,2024
$
$
$
(73,827 )
$
(37,978 )
$
Balance at June 30, 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 )
$
The accompanying notes are an integral part of these consolidated financial statements.
Common Stock
Additional Paid-in
Capital on Common
Stock
Accumulated
Deficit
Accumulated Other
Comprehensive
Loss
Shares
Par Value
Total
Stockholders'
Equity
Balance at December 31, 2023
$
$
$
(88,548 )
$
(44,271 )
$
Net income
-
-
-
-
Other comprehensive income
-
-
-
-
Repurchase of Class A common stock
(42,100 )
(42 )
(459 )
-
-
(501 )
Restricted stock issued
(58 )
-
-
-
Restricted stock forfeiture
(8,625 )
(8 )
-
-
-
Exercise of stock options
-
-
Dividend payment
-
-
-
(3,049 )
-
(3,049 )
Stock-based compensation
-
-
-
-
Balance at September 30, 2024
$
$
$
(73,827 )
$
(37,978 )
$
Balance at December 31, 2022
(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 )
$
The accompanying notes are an integral part of these unaudited consolidated financial statements.
7 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Cash Flows - Unaudited
(Dollars in thousands)
Nine Months Ended September 30,
2024
2023
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
(365 )
(651 )
Accretion of deferred loan fees, net
(236 )
Stock-based compensation
(Gain) loss on sale of available for sale securities
(14 )
Gain on sale of loans held for sale
(593 )
(696 )
Increase in cash surrender value of bank owned life insurance
(1,257 )
(1,756 )
Decrease in deferred tax assets
Net change in operating assets and liabilities:
Accrued interest receivable
(77 )
(1,374 )
Other assets
(8,292 )
(751 )
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 )
Proceeds from maturities and pay-downs of investment securities held to maturity
Purchase of investment securities available for sale
(70,996 )
(26,792 )
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
(99,627 )
(165,662 )
Purchase of loans held for investment
(58,368 )
(13,277 )
Additions to premises and equipment
(256 )
(131 )
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
(5,734 )
(9,940 )
Net cash used in investment activities
(160,968 )
(190,285 )
Cash flows from financing activities:
Proceeds from issuance of Class A common stock, net
-
Cash dividends paid
(3,049 )
-
Repurchase of Class A common stock
(501 )
(6,613 )
Net increase in deposits
Proceeds from Federal Home Loan Bank advances and other borrowings
Repayments on Federal Home Loan Bank advances and other borrowings
(262,000 )
(203,350 )
Net cash provided by financing activities
Net decrease in cash and cash equivalents
(2,576 )
(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
$
$
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 2024 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 audited consolidated financial statements and related notes appearing in the Company’s Annual Report
on Form 10-K for the year ended December 31, 2023.
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.
Recently Issued Accounting Standards
Adoption of New Accounting Standards
Reference Rate Reform
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2020-
04, Reference Rate Reform (Topic 848), aiming to facilitate the impacts of reference rate reform on financial reporting. This
initiative was subsequently clarified in January 2021 through ASU 2021-01, providing optional directives for a designated
timeframe to alleviate challenges associated with accounting for, or acknowledging the effects of, reference rate reform on
financial reporting. These amendments offer discretionary guidance for a defined period to alleviate potential accounting
complexities associated with reference rate reform in financial reporting. The expedients and exceptions provided by these
amendments are not applicable to contract modifications executed and hedging relationships initiated or reviewed after
December 31, 2022, except for pre-existing hedging relationships as of December 31, 2022, for which an entity has opted
for specific optional expedients, and which are retained until the conclusion of the hedging relationship. Additionally, the
amendments permit entities to make a one-time choice to divest, transfer, or both divest and transfer debt securities
categorized as held to maturity, referencing a rate impacted by reference rate reform, and classified as held to maturity prior
to January 1, 2020. In December 2022, the FASB issued new guidance extending the expiration date of this guidance from
December 31, 2022 to December 31, 2024, after which entities will no longer be authorized to apply the relief provided
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
9 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q
under this guidance. Before this recent guidance, these amendments were effective for all entities from March 12, 2020, to
December 31, 2022. The Company executed its transition strategy in preparation for the cessation of the London Intrabank
Offered Rate (“LIBOR”) and the adjustment of its existing financial instruments affected by LIBOR, whether directly or
indirectly. LIBOR-based originations were ceased as of June 30, 2023, and for existing LIBOR-based transactions, the
Company substituted the Secured Overnight Financing Rate (“SOFR”) for LIBOR. The Company has completed its transition
away from LIBOR for its loan and other financial instruments .
Issued and Not Yet Adopted
Improvements to Income Tax Disclosures
In December 2023, the FASB issued ASU 2023-09, “Income Taxes ” (Topic 740): Improvements to Income Tax
Disclosures. This ASU pertains to disclosures regarding effective tax rates and cash income taxes paid with the goal of
providing stakeholders with more transparent and relevant information. This ASU is effective for public business entities for
annual periods beginning after Dec. 15, 2024. The Company is currently assessing the potential impact of this ASU on its
financial reporting and has not yet concluded whether the changes will materially affect its business operations or
consolidated financial statements.
Improvements to Reportable Segment Disclosures
In November 2023, the FASB issued ASU 2023-07, “Improvements to Reportable Segment Disclosures.” ASU 2023-
07 requires disclosure of significant segment expenses and other segment items on an interim and annual basis. The
standard is effective for fiscal years beginning after December 15, 2023 and for interim periods beginning after December
15, 2024. The Company is evaluating the impact of the changes to its existing disclosures.
2. INVESTMENT SECURITIES
The measurement of expected credit losses under the current expected credit loss (“CECL”) methodology is applicable
to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. The
accounting for available-for-sale debt securities credit losses is presented as an allowance rather than as a write-down.
Management does not intend to sell or believes that it is more likely they will not be required to sell AFS securities.
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 forecasts. For U.S. Government bonds and U.S. Agency
issued bonds classified as HTM, the explicit guarantee of the U.S. 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 HTM securities through the use of credit ratings. Credit ratings are monitored
by the Company on at least a quarterly basis. As of September 30, 2024 and December 31, 2023, all HTM 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 the ACL related to these securities.
The Company determined that an ACL on its debt securities available for sale as of September 30, 2024 and
December 31, 2023 was not required.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
10 USCB Financial Holdings, Inc. Q3 2024 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, 2024
Available-for-sale:
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
U.S. Government Agency
$
$
$
(1,204 )
$
Collateralized mortgage obligations
(20,089 )
Mortgage-backed securities - residential
(9,649 )
Mortgage-backed securities - commercial
(5,606 )
Municipal securities
-
(4,520 )
Bank subordinated debt securities
(1,385 )
$
$
$
(42,453 )
$
Held-to-maturity:
U.S. Government Agency
$
$
$
(4,041 )
$
Collateralized mortgage obligations
(6,328 )
Mortgage-backed securities - residential
(3,537 )
Mortgage-backed securities - commercial
(788 )
Corporate bonds
-
(385 )
$
$
$
(15,079 )
$
Allowance for credit losses - securities held-to-maturity
(8 )
Securities held-to maturity, net of allowance for credit losses
$
December 31, 2023
Available-for-sale:
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
U.S. Government Agency
$
$
-
$
(1,491 )
$
Collateralized mortgage obligations
-
(23,039 )
Mortgage-backed securities - residential
-
(11,608 )
Mortgage-backed securities - commercial
(6,504 )
Municipal securities
-
(5,667 )
Bank subordinated debt securities
(2,033 )
$
$
$
(50,342 )
$
Held-to-maturity:
U.S. Government Agency
$
$
$
(5,322 )
$
Collateralized mortgage obligations
-
(7,983 )
Mortgage-backed securities - residential
(4,533 )
Mortgage-backed securities - commercial
-
(1,257 )
Corporate bonds
-
(727 )
$
$
$
(19,822 )
$
Allowance for credit losses - securities held-to-maturity
(8 )
Securities held-to maturity, net of allowance for credit losses
$
During the quarter ended September 30, 2024 there were
for-sale (“AFS”) to HTM. For the three months ended September 30, 2024, total amortization out of Additional Other
Comprehensive Income (“AOCI”) for net unrealized losses on securities transferred in 2022 from AFS to HTM was $
thousand. The unamortized net unrealized loss as of September 30, 2024, was $
September 30, 2024, total amortization out of Additional Other Comprehensive Income (“AOCI”) for net unrealized losses
on securities transferred in 2022 from AFS to HTM was $
For the years ended December 31, 2023 total amortization out of AOCI for the net unrealized losses on securities
transferred from AFS to HTM was $
retained in AOCI was $
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
11 USCB Financial Holdings, Inc. Q3 2024 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, 2024 and 2023 (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
Available-for-sale:
2024
2023
2024
2023
Proceeds from sale and call of securities
$
-
$
$
$
Gross gains
$
-
$
-
$
$
Gross losses
-
(955 )
(181 )
(979 )
Net realized gain (loss)
$
-
$
(955 )
$
$
(976 )
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, 2024:
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, 2024, 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 U.S. Government and Government Agency securities. All the collateralized
mortgage obligations and mortgage-backed securities at September 30, 2024 and December 31, 2023 were issued by U.S.
sponsored entities.
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, 2024
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
$
$
(2 )
$
$
(6,302 )
$
$
(6,304 )
Collateralized mortgage obligations
(1 )
(30,448 )
(30,449 )
Mortgage-backed securities - residential
-
-
(15,097 )
(15,097 )
Mortgage-backed securities - commercial
(173 )
(7,672 )
(7,845 )
Municipal securities
-
-
(4,520 )
(4,520 )
Bank subordinated debt securities
(131 )
(1,254 )
(1,385 )
Corporate bonds
-
-
(170 )
(170 )
$
$
(307 )
$
$
(65,463 )
$
$
(65,770 )
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
12 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q
December 31, 2023
Less than 12 months
12 months or more
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
U.S. Government Agency
$
-
$
-
$
$
(8,043 )
$
$
(8,043 )
Collateralized mortgage obligations
-
-
(35,566 )
(35,566 )
Mortgage-backed securities - residential
(47 )
(18,365 )
(18,412 )
Mortgage-backed securities - commercial
(611 )
(8,623 )
(9,234 )
Municipal securities
-
-
(5,667 )
(5,667 )
Bank subordinated debt securities
(331 )
(1,703 )
(2,034 )
Corporate bonds
-
-
(406 )
(406 )
$
$
(989 )
$
$
(78,373 )
$
$
(79,362 )
The unrealized losses associated with $
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.
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, bond vintage, 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 as of
September 30, 2024.
At September 30, 2024, the Company had $
collateralized mortgage obligations of U.S. 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, 2023, the Company had $
collateralized mortgage obligations of U.S. 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, 2024, the Company did not intend to sell debt securities that are in an unrealized loss position and it
is more than likely not required to sell these securities before recovery of the amortized cost basis.
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 at September 30, 2024
and
% at December 31, 2023. The Bank must also maintain a minimum amount of pledged securities to be in the public
funds program.
As of September 30, 2024, the Bank had a total of $
pledged to the State of Florida for these public funds were
As of December 31, 2023, 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 offered 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. The BTFP program ceased making new loans as of March 2024.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
13 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q
The Company paid off $
maturity of this borrowing under the BTFP program was January 2025, and there are no remaining borrowings under this
program.
3. LOANS
The following table is a summary of the distribution of loans held for investment by type (in thousands):
September 30, 2024
December 31, 2023
Total
Percent of
Total
Total
Percent of
Total
Residential Real Estate
$
%
$
%
Commercial Real Estate
%
%
Commercial and Industrial
%
%
Correspondent Banks
%
%
Consumer and Other
%
%
Total gross loans
%
%
Plus: Deferred fees/costs
Total loans net of deferred fees/costs
Less: Allowance for credit losses
Total net loans
$
$
At September 30, 2024 and December 31, 2023, 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.
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 method uses a loss driver analysis
(“LDA”) and discounted cash flow analyses. Management engaged advisors and consultants with expertise in CECL model
development to assist in development of a LDA 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) or the House Price Index (“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:
•
•
•
•
•
•
•
•
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
14 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q
Changes in the ACL for the three and nine months ended September 30, 2024 and 2023 were as follows (in thousands):
Residential
Real Estate
Commercial
Real Estate
Commercial
and
Industrial
Correspondent
Banks
Consumer
and Other
Total
Three Months Ended September 30,
2024
Beginning balance
$
$
$
$
$
$
Provision for credit losses
(1)
(86 )
(96 )
(69 )
Recoveries
-
-
Charge-offs
-
-
-
-
(7 )
(7 )
Ending Balance
$
$
$
$
$
$
Nine Months Ended September 30, 2024
Beginning balance
$
$
$
$
$
$
Provision for credit losses
(2)
(180 )
(88 )
Recoveries
-
-
Charge-offs
-
-
-
-
(17 )
(17 )
Ending Balance
$
$
$
$
$
$
(1) Provision for credit losses excludes a $
thousand release related to investment securities held to maturity.
(2) Provision for credit losses excludes a $
Residential
Real Estate
Commercial
Real Estate
Commercial
and
Industrial
Correspondent
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 a $
thousand expense related to investment securities held to maturity.
(2) Impact of CECL adoption on January 1, 2023.
(3) Provision for credit losses excludes a $
thousand expense related to investment securities held to maturity.
At September 30, 2024, the ACL was $
$
Charge-offs for the three months ended September 30, 2024 totaled $
Charge-offs for the nine months ended September 30, 2024 totaled $
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
15 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q
The Company had charge offs totaling $
originated in 2023. The Company had charge offs totaling $
related to loans. $
originated in 2015.
The Federal Open Market Committee (“FOMC”) economic forecasts as of September 30, 2024, showed moderate
deterioration in unemployment and a slight improvement forecast for real GDP. Fannie Mae HPI forecast reflected moderate
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. The Q-factor scorecard was updated based on the latest portfolio stress test and the resulting maximum loss
calculation.
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, 2024, for every 100 basis points increase in the HPI
index, the forecast reduces reserves by approximately $
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.
As of September 30, 2024, we stress tested two qualitative factors in our commercial real estate loan pool, as its the
largest segment in our portfolio. We evaluated the impact of a change in the qualitative factors from no risk to maximum
loss to measure the sensitivity of the qualitative factors. The change from no risk to high risk resulted in a $
% increase in ACL. This sensitivity analysis provides a hypothetical result to assess the sensitivity of the ACL and does
not represent a change in management’s judgement.
The ACL and the outstanding balances in the specified loan categories as of September 30, 2024 and December 31,
2023 are as follows (in thousands):
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Correspondent
Banks
Consumer
and Other
Total
September 30, 2024:
Allowance for credit losses:
Individually evaluated
$
$
-
$
$
-
$
$
Collectively evaluated
Balances, end of period
$
$
$
$
$
$
Loans:
Individually evaluated
$
$
-
$
$
-
$
$
Collectively evaluated
Balances, end of period
$
$
$
$
$
$
December 31, 2023:
Allowance for credit losses:
Individually evaluated
$
$
-
$
$
-
$
-
$
Collectively evaluated
Balances, end of period
$
$
$
$
$
$
Loans:
Individually evaluated
$
$
-
$
$
-
$
-
$
Collectively evaluated
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
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
16 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q
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
17 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q
Loan credit exposures by internally assigned grades are presented below for the periods indicated (in thousands):
As of September 30, 2024
Term Loans by Origination Year
Revolving
Loans
Total
2024
2023
2022
2021
2020
Prior
Residential real estate
Pass
$
$
$
$
$
$
$
$
Substandard
-
-
-
-
-
-
Total
Commercial real estate
Pass
Substandard
-
-
-
-
-
Total
Commercial and
industrial
Pass
Substandard
-
-
-
-
Total
Correspondent 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
18 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q
As of December 31, 2023
Term Loans by Origination Year
Revolving
Loans
Total
2023
2022
2021
2020
2019
Prior
Residential real estate
Pass
$
$
$
$
$
$
$
$
Substandard
-
-
-
-
-
-
Total
Commercial real estate
Pass
Substandard
-
-
-
-
-
Total
Commercial and
industrial
Pass
Substandard
-
-
-
-
-
Total
Correspondent banks
Pass
-
-
-
-
-
-
Total
-
-
-
-
-
-
Consumer and other
loans
Pass
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 2024 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, 2024
and December 31, 2023 (in thousands):
Accruing
As of September 30, 2024
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
-
-
-
-
-
Correspondent banks
-
-
-
Consumer and other
-
-
Total
$
$
$
-
$
$
$
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
20 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q
Accruing
As of December 31, 2023:
Current
Past Due
30-89 Days
Past Due 90
Days or >
and Still
Accruing
Total
Accruing
Non-Accrual
Total Loans
Residential real estate:
Home equity line of credit and other
$
$
-
$
-
$
$
-
$
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
-
-
-
-
Correspondent 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, 2024 and as of December 31, 2023 (in thousands):
September 30, 2024
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 and industrial
-
-
Consumer and other
-
-
Total
$
$
$
$
-
December 31, 2023
Nonaccrual
Loans With
No Related
Allowance
Nonaccrual
Loans With
Related
Allowance
Total Non-
accruals
Loans Past
Due Over 90
Days and Still
Accruing
Commercial and industrial
$
-
$
$
$
-
Total
$
-
$
$
$
-
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, 2024 and 2023. Interest income
on these loans for the three months ended September 30, 2024 and 2023, would have been approximately $
and $
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
21 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q
loans for the nine months ended September 30, 2024 and 2023, would have been approximately $
thousand, respectively, had these loans performed in accordance with their original terms.
Collateral-Dependent Loans
A loan is collateral dependent when the borrower is experiencing financial difficulty and repayment of the loan is
expected to be provided substantially through the sale or operation of the collateral. There were
loans as of September 30, 2024, or as of December 31, 2023.
Loan Modifications to Borrowers Experiencing Financial Difficulties
The following table presents newly restructured loans, by type of modification, which occurred during the nine months
ended September 30, 2024 (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
Commercial and industrial
$
$
$
$
Total
$
$
$
$
The Company had no new modifications to borrowers experiencing financial difficulties for the three months ended
September 30, 2024 and one new modification for the nine months ended September 30, 2024. There were
loan modifications that subsequently defaulted during the three months and nine months ended September 30, 2024. The
Company had no new modification to borrowers experiencing financial difficulties for the three and nine months ended
September 30, 2023. There were
ended September 30, 2023.
4. INCOME TAXES
The Company’s provision for income taxes is presented in the following table for the periods indicated (in thousands):
Nine Months Ended September 30,
2024
2023
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, 2024 and 2023 differs from the statutory tax
expense for the periods (computed by applying the U.S. federal corporate tax rate of
% for both 2024 and 2023 periods
to income before provision for income taxes) as follows (in thousands):
Nine Months Ended September 30,
2024
2023
Federal taxes at statutory rate
$
$
State income taxes, net of federal tax benefit
Bank owned life insurance
(319 )
(171 )
Other, net
-
-
Total tax expense
$
$
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
22 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q
The Company’s deferred tax assets and deferred tax liabilities as of the dates indicated were (in thousands):
September 30, 2024
December 31, 2023
Deferred tax assets:
Net operating loss
$
$
Allowance for credit losses
Lease liability
Unrealized losses on available for sale securities
Depreciable property
Equity compensation
Accruals
Other, net
Deferred tax assets:
Deferred tax liabilities:
Deferred loan cost
(967 )
(553 )
Lease right of use asset
(2,330 )
(2,895 )
Deferred expenses
(298 )
(180 )
Cash flow hedge
(5 )
(85 )
Other, net
(78 )
(79 )
Deferred tax liabilities
(3,678 )
(3,792 )
Net deferred tax assets
$
$
The Company has approximately $
expiring in various amounts between 2031 and 2036 and which are limited to offset, to the extent permitted, future taxable
earnings of the Company.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent
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 return examinations
by tax authorities for years before 2020.
For the three months and nine months ended September 30, 2024 and 2023, 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,
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.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
23 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q
A summary of the amounts of the Company's financial instruments with off-balance sheet risk are shown below at
September 30, 2024 and December 31, 2023 (in thousands):
September 30, 2024
December 31, 2023
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
As of September 30, 2024, the Company had
$
average maturity of
%, and with a weighted average 3-month
compound SOFR being received.
As of December 31, 2023, the Company had
$
average maturity of
%, and with a weighted average 3-month
compound SOFR being received.
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
During the quarter ended September 30, 2024, the Company unwound
aggregate amount of $
and asset-liability management strategies. The early termination fee to unwind the fair value swaps totaled $
termination fees allocated to each loan category will be amortized over the remining life of the hedge loans on a monthly
straight-line basis with full recognition of the unamortized cost upon the early payoff of the hedge loan. The amortization of
the termination fee is reflected in the loan interest income line in the statement of operations. The original maturities of these
fair value interest swaps were between 2025 and 2026. The fair value interest rate swap agreements had an average
maturity of
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, 2023, respectively. At September 30, 2024, these interest rate swaps mature between 2025 and 2051. The
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
24 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q
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, 2024:
Derivatives designated as cash flow hedges:
Interest rate swaps
$
$
-
Other assets
$
$
-
Derivatives not designated as hedging instruments:
Interest rate swaps related to customer loans
$
$
Other assets/Other liabilities
$
$
December 31, 2023:
Derivatives designated as cash flow hedges:
Interest rate swaps
$
$
-
Other assets
$
$
-
Derivatives designated as fair value hedges:
Interest rate swaps
$
$
-
Other liabilities
$
-
$
Derivatives not designated as hedging instruments:
Interest rate swaps related to customer loans
$
$
Other assets/Other liabilities
$
$
7. FAIR VALUE MEASUREMENTS
Determination of Fair Value
The Company uses fair value measurements to record fair-value adjustments to certain assets and liabilities and to
determine fair value disclosures. In accordance with the fair value measurements accounting guidance, the fair value of a
financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Fair value is best determined based upon quoted market prices.
However, in many instances, there are no quoted market prices for the Company's various financial instruments. In cases
where quoted market prices are not available, fair values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates
of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction
(that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current
market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a
change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining
the price at which willing market participants would transact at the measurement date under current market conditions
depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point
within the range that is most representative of fair value under current market conditions.
Fair Value Hierarchy
In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured
at fair value in three levels, based on the markets in which the assets and liabilities are traded, and the reliability of the
assumptions used to determine fair value.
Level 1
entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and
equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing
sources for market transactions involving identical assets or liabilities.
Level 2
asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
25 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q
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.
The following table represents the Company's assets and liabilities measured at fair value on a recurring basis at
September 30, 2024 and December 31, 2023 for each of the fair value hierarchy levels (in thousands):
September 30, 2024
December 31, 2023
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
-
-
-
-
Total
-
-
-
-
Derivative assets
-
-
-
-
Total assets at fair value
$
-
$
$
-
$
$
-
$
$
-
$
Derivative liabilities
$
-
$
$
-
$
$
-
$
$
-
$
Total liabilities at fair value
$
-
$
$
-
$
$
-
$
$
-
$
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
26 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q
Items Not Measured at Fair Value
The following table presents the carrying amounts and estimated fair values of financial instruments not carried at fair
value as of September 30, 2024 and December 31, 2023 (in thousands):
Fair Value Hierarchy
Carrying
Amount
Level 1
Level 2
Level 3
Fair Value
Amount
September 30, 2024:
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 and other borrowings
$
$
-
$
$
-
$
Accrued interest payable
$
$
-
$
$
$
December 31, 2023:
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.
In the Reorganization, each shareholder of the Bank received securities of the same class, having substantially the
same designations, rights, powers, preferences, qualifications, limitations and restrictions, as those that the shareholder
held in the Bank, and the Company’s then current shareholders owned the same percentages of the Company’s common
stock as they previously owned of the Bank’s common stock.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
27 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q
During the first quarter 2024, the Company issued
stock awards pursuant to the Company’s 2015 equity incentive plan . During the first quarter 2023, the Company issued
2015 equity incentive plan.
As previously announced, on April 22, 2024, the Board of Directors approved a new share repurchase program of up
to
% of the Company’s issued and outstanding shares of
common stock. Under the repurchase program, the Company may purchase shares of Class A common stock on a
discretionary basis from time to time through open market repurchases, privately negotiated transactions, or other means.
The repurchase program has no expiration date and may be modified, suspended, or terminated at any time. The new
repurchase program will commence upon completion of the Company’s current repurchase program. Repurchases under
this new program will be funded from the Company’s existing cash and cash equivalents or future cash flow.
During the three months ended September 30, 2024, the Company repurchased
stock at a weighted average price per share of $
. The aggregate purchase price for these transactions was
approximately $
publicly announced repurchase programs. As of September 30, 2024,
under the Company’s two stock repurchase programs. During the nine months ended September 30, 2023, the Company
repurchased
. The aggregate
purchase price for these transactions was approximately $
In addition, the Company will provide prior notification to the Federal Reserve prior to effecting proposed share
repurchases in new share repurchase programs.
Shares of the Company’s Class A common stock issued and outstanding as of September 30, 2024 and December 31,
2023 were
, respectively.
See Note 11, Subsequent Events, for information regarding issuance of Class A common stock to employees in October
2024.
Dividends
Declaration of dividends by the Board is required before dividend payments are made. The Company is limited in the
amount of cash dividends that it may pay. Payment of dividends is generally limited to the Company’s net income of the
current year combined with the Company’s retained income for the preceding two years, as defined by state banking
regulations. However, for any dividend declaration, the Company must consider additional factors such as the amount of
current period net income, liquidity, asset quality, capital adequacy and economic conditions at the Bank since the Bank is
the primary source of funds to fund dividends by the Company. It is likely that these factors would further limit the amount
of dividends which the Company could declare. In addition, bank regulators have the authority to prohibit banks and bank
holding companies from paying dividends if they deem such payment to be an unsafe or unsound practice.
As of September 30, 2024, the Company was not subject to any formal supervisory restrictions on its ability to pay
dividends but will notify the Federal Reserve Bank of Atlanta in advance of any proposed dividend to the Company's
shareholders in light of the Bank's negative retained earnings. In addition, under applicable FDIC regulations and policy,
because the Bank has negative retained earnings, it must obtain the prior approval of the FDIC before effecting a cash
dividend or other capital distribution.
On January 29, 2024, the Company announced that its Board of Directors approved a quarterly cash dividend program.
The quarterly dividend for the first quarter of 2024 was $
to stockholders of record as of the close of business on February 15, 2024. The aggregate distribution in connection with
the first quarter dividend was $
common stock, paid on June 5, 2024, to stockholders of record as of the close of business on May 15, 2024. The aggregate
distribution on connection with the second quarter dividend was $
$
on August 15, 2024. The aggregate distribution on connection with the second quarter dividend was $
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
28 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q
September 30, 2023.
See Note 11, Subsequent Events, for information regarding dividends declared in October 2024.
The following table details the dividends declared and paid by the Company during the three months and nine months
ended September 30, 2024:
Declaration Date
Record Date
Payment Date
Dividend Per Share
Dividend Amount
$
$
$
$
$
$
The Company and the Bank exceeded all regulatory capital requirements and remained above “well-capitalized”
guidelines as of September 30, 2024 and December 31, 2023. At September 30, 2024, the total risk-based capital ratios for
the Bank was
%.
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, 2024 and 2023 (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2024
2023
2024
2023
Net Income
$
$
$
$
Net income available to common shareholders
$
$
$
$
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
29 USCB Financial Holdings, Inc. Q3 2024 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, 2024 and 2023 (in thousands, except per share amounts):
Three Months Ended September 30,
2024
2023
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,
2024
2023
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
30 USCB Financial Holdings, Inc. Q3 2024 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.
11. SUBSEQUENT EVENTS
Common Stock
During the month of October 2024, the Company issued
restricted stock awards pursuant to the Company’s 2015 equity incentive plan. Shares of the Company’s Class A common
stock issued and outstanding as of October 31, 2024 was
.
Dividends
On October 28, 2024, the Company announced that its Board of Directors declared its fourth quarterly cash dividend.
The quarterly dividend for the fourth quarter of 2024 was $
December 5, 2024, to stockholders of record as of the close of business on November 15, 2024.
31 USCB Financial Holdings, Inc. Q3 2024 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, as of and for the three and
nine months ended September 30, 2024. This discussion and analysis is best read in conjunction with the unaudited
consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q (“Form 10-Q”) and the
audited consolidated financial statements and related notes included in the Annual Report on Form 10-K (“2023 Form 10-
K”) filed with the Securities and Exchange Commission (“SEC”) for the year ended December 31, 2023.
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 in Part II hereof and in the 2023
Form 10-K filed with the SEC which is available at the SEC’s website www.sec.gov.
Throughout this document, references to “we,” “us,” “our,” and “the Company” generally refer to USCB Financial
Holdings, Inc.
Forward-Looking Statements
This Form 10 -Q contains statements that are not historical in nature 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. The words “may,” “will,” “anticipate,” “could,” “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 statements related to our projected growth,
anticipated future financial performance, and management’s long-term performance goals, as well as statements relating
to the anticipated effects on results of operations and financial condition from expected developments or events, or business
and growth strategies, including anticipated internal growth.
These forward-looking statements involve significant risks and uncertainties that could cause our actual results to differ
materially from those anticipated in such statements. Potential risks and uncertainties include, but are not limited to:
•
operations;
•
•
reserve and deferred tax asset valuation allowance;
•
•
jurisdiction where we operate;
•
industry;
•
•
the on-going effects of the implementation of the Current Expected Credit Losses (“CECL”) standard;
•
risks of geographic, depositor, and industry concentrations, including our concentration in loans secured by real
estate, in particular, commercial real estate;
•
•
•
•
growth as well as growth through other means, such as future acquisitions;
•
•
•
and net interest margin;
•
•
employee, or third-party fraud and security breaches; and
•
32 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q
All forward-looking statements are necessarily only estimates of future results, and there can be no assurance that
actual results will not differ materially from expectations. Therefore, you are cautioned not to place undue reliance on any
forward-looking statements. Further, forward-looking statements included in this Form 10-Q are made only as of the date
hereof, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances
after the date on which the statement is made or to reflect the occurrence of unanticipated events, unless required to do so
under the federal securities laws. You should also review the risk factors described in the 2023 Form 10-K and in the reports
the Company filed or will file with the SEC.
Overview
The Company reported net income of $6.9 million or $0.35 per diluted share of common stock for the three months
ended September 30, 2024 compared to $3.8 million or $0.19 per diluted share of common stock for the three months
ended September 30, 2023.
On October 28, 2024, the Company’s Board of Directors declared its fourth quarterly cash dividend of $0.05 per share
of the Company’s Class A common stock. The cash dividend will be paid on December 5, 2024 to shareholders of record at
the close of business on November 15, 2024. The aggregate amount distributed in connection with the three prior quarterly
cash dividends paid in 2024 was $3.0 million.
10,000 shares of Class A common stock were repurchased at a weighted average price per share of $11.99 during the
third quarter 2024. These repurchases were made pursuant to the Company’s publicly announced repurchase programs.
As of September 30, 2024, 537,980 shares remained authorized for repurchase under the Company’s program s.
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 and borrowings, 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 at or for the quarter ended
September 30, 2024 compared to at or for the quarter ended September 30, 2023 and as of September 30, 2024 compared
to December 31, 2023, and annualized where appropriate:
•
from $14.0 million for the quarter ended September 30, 2023.
•
three months ended September 30, 2023.
•
September 30, 2023 and an increase of $164.9 million or 9.4% annualized from December 31, 2023.
•
September 30, 2023 and an increase of $150.5 million or 11.3% annualized from December 31, 2023.
•
September 30, 2023 and an increase of $189.5 million or 13.1% annualized from December 31, 2023.
•
the quarter ended September 30, 2023.
•
compared to 8.19% for quarter ended September 30, 2023.
•
•
•
respectively.
•
an increase of $0.66 or 25.6% annualized from $10.24 at June 30, 2024. At September 30, 2024, tangible book
value per common share was negatively affected by $1.94 due to an accumulated comprehensive loss of $38.0
33 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q
million. At June 30, 2024, tangible book value per common share was negatively affected by $2.28 due to an
accumulated comprehensive loss of $44.7 million. See “Reconciliation and Management Explanation for Non-GAAP
Financial Measures” included in this Form 10-Q for a reconciliation of this non-GAAP financial measure.
Critical Accounting Policies and Estimates
The consolidated financial statements are prepared based on the application of U.S. GAAP, the most significant of
which are described in Note 1 “Summary of Significant Accounting Policies” in the Company’s 2023 Form 10-K and
“Summary of Significant Accounting Policies” in Part I in this Form 10-Q . 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 to an understanding of our financial statements. Management has
presented the application of these policies to the Audit and Risk Committee of our Board of Directors.
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.
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, 2024
December 31, 2023
Consolidated Balance Sheets:
Total assets
$
2,503,954
$
2,339,093
Total loans
(1)
$
1,931,362
$
1,780,827
Total deposits
$
2,126,617
$
1,937,139
Total stockholders' equity
$
213,916
$
191,968
(1) Loan amounts include deferred fees/costs.
34 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q
Three Months Ended
September 30,
Nine Months Ended
September 30,
2024
2023
2024
2023
Consolidated Statements of Operations:
Net interest income before provision for credit losses
$
18,109
$
14,022
$
50,578
$
44,192
Total non-interest income
$
3,438
$
2,161
$
9,113
$
6,077
Total non-interest expense
$
11,454
$
10,461
$
34,188
$
31,089
Net income
$
6,949
$
3,819
$
17,770
$
13,824
Profitability:
Efficiency ratio
53.16%
64.64%
57.27%
61.85%
Net interest margin
3.03%
2.60%
2.87%
2.84%
The Company’s results of operations depend substantially on the levels of our 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, 2024 compared to the three months ended September 30, 2023
Net income increased to $6.9 million for the three months ended September 30, 2024
from $3.8 million for the same
period in 2023. The $3.1 million or 82% increase in net income was attributable to higher interest income from a larger loan
portfolio, net interest margin expansion, and increased activity in fee generating transactions (wire fees, gain on sale of
loans, SWAP fees, and treasury management fees) between periods.
Nine months ended September 30, 2024 compared to the nine months ended September 30, 2023
Net income increased to $1 7.8 million for the nine months ended September 30, 2024
from $13.8 million for the same
period in 2023. The $3.9 million or 28.5% increase in net income was attributable to higher interest income from a larger
loan portfolio and increased activity in fee generating transactions (wire fees, SWAP fees, and treasury management fees)
between periods.
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
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.
35 USCB Financial Holdings, Inc. Q3 2024 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,
2024
2023
Average
(1)
Balance
Interest
Yield/Rate
(2)
Average
(1)
Balance
Interest
Yield/Rate
(2)
Assets
Interest-earning assets:
Loans
(3)
$
1,878,230
$
29,819
6.32%
$
1,610,864
$
22,523
5.55%
Investment securities
(4)
419,315
2,754
2.61%
445,828
2,833
2.52%
Other interest-earnings assets
80,378
989
4.89%
83,479
1,026
4.88%
Total interest-earning assets
2,377,923
33,562
5.61%
2,140,171
26,382
4.89%
Non-interest-earning assets
107,511
110,087
Total assets
$
2,485,434
$
2,250,258
Liabilities and stockholders' equity
Interest-bearing liabilities:
Interest-bearing checking
$
57,925
411
2.82%
$
52,080
331
2.52%
Saving and money market deposits
1,084,562
10,064
3.69%
1,011,164
8,779
3.44%
Time deposits
325,580
3,391
4.14%
290,272
2,565
3.51%
Total interest-bearing deposits
1,468,067
13,866
3.76%
1,353,516
11,675
3.42%
FHLB advances and other borrowings
156,043
1,587
4.05%
85,326
685
3.19%
Total interest-bearing liabilities
1,624,110
15,453
3.79%
1,438,842
12,360
3.41%
Non-interest-bearing demand deposits
609,456
587,917
Other non-interest-bearing liabilities
45,227
38,598
Total liabilities
2,278,793
2,065,357
Stockholders' equity
206,641
184,901
Total liabilities and stockholders' equity
$
2,485,434
$
2,250,258
Net interest income
$
18,109
$
14,022
Net interest spread
(5)
1.82%
1.48%
Net interest margin
(6)
3.03%
2.60%
(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.
36 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q
Nine Months Ended September 30,
2024
2023
Average
Balance
(1)
Interest
Yield/Rate
(2)
Average
Balance
(1)
Interest
Yield/Rate
(2)
Assets
Interest-earning assets:
Loans
(3)
$
1,829,593
$
84,479
6.17
%
$
1,576,074
$
63,081
5.35
%
Investment securities
(4)
426,594
8,634
2.70
%
430,118
7,501
2.33
%
Other interest-earnings assets
101,919
3,953
5.18
%
71,514
2,459
4.60
%
Total interest-earning assets
2,358,106
97,066
5.50
%
2,077,706
73,041
4.70
%
Non-interest earning assets
108,902
107,443
Total assets
$
2,467,008
$
2,185,149
$
Liabilities and stockholders' equity
Interest-bearing liabilities:
Interest-bearing checking
$
55,887
1,171
2.80
%
$
54,554
$
574
1.41
%
Money market and savings accounts
1,094,433
30,529
3.73
%
949,858
20,532
2.89
%
Time deposits
321,470
9,907
4.12
%
264,241
5,767
2.92
%
Total interest-bearing deposits
1,471,790
41,607
3.78
%
1,268,653
26,873
2.83
%
Borrowings and repurchase agreements
160,726
4,881
4.06
%
80,087
1,976
3.30
%
Total interest-bearing liabilities
1,632,516
46,488
3.80
%
1,348,740
28,849
2.87
%
Non-interest bearing demand deposits
598,294
617,741
Other non-interest-bearing liabilities
37,045
34,492
Total liabilities
2,267,855
2,000,973
Stockholders' equity
199,153
184,176
Total liabilities and stockholders' equity
$
2,467,008
$
2,185,149
Net interest income
$
50,578
$
44,192
Net interest spread
(5)
1.70
%
1.83
%
Net interest margin
(6)
2.87
%
2.84
%
(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.
Three months ended September 30, 2024 compared to the three months ended September 30, 2023
Net interest income before the provision for credit losses was $18.1 million for the three months ended September 30,
2024, an increase of $4.1 million or 29.1%, from $14.0 million for the same period in 2023. This increase was primarily
attributable to higher income from a larger loan portfolio combined with an increase in the weighted average loan yield .
Net interest margin was 3.03% for the quarter ended September 30, 2024 and 2.60% for the same period in 2023. The
volume of and rates on loans and interest-bearing liabilities both increased; however, the volume of and yields on loans
grew at a higher rate, offsetting the increase in deposits and borrowing costs.
Nine months ended September 30, 2024 compared to the nine months ended September 30, 2023
Net interest income before the provision for credit losses was $50.6 million for the nine months ended September 30,
2024, an increase of $6.4 million or 14.5%, from $44.2 million for the same period in 2023. This increase was primarily
attributable to higher income from a larger loan portfolio combined with an increase in the weighted average loan yield.
Net interest margin was 2.87% for the nine months ended September 30, 2024 and 2.84% for the same period in 2023.
Loan yields and the rate paid on interest -bearing liabilities both increased; however , the interest -earning assets balance
was greater than that of interest-bearing liabilities. Therefore the effect of the increase in yields resulted in a NIM expansion
of 3 bps between periods.
37 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q
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
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, 2024 compared to the three months ended September 30, 2023
The provision for credit loss was $931 thousand for the three months ended September 30, 2024 compared to $653
thousand for the same period in 2023. Growth in the loan portfolio was the primary driver of the increase in the provision
expense during the three months ended September 30, 2024.
Nine months ended September 30, 2024 compared to the nine months ended September 30, 2023
The provision for credit loss was $2.1 million for the nine months ended September 30, 2024 compared to $892
thousand for the same period in 2023. Growth in the loan portfolio was the primary driver of the increase in the provision
expense during the nine months ended September 30, 2024.
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,
2024
2023
2024
2023
Service fees
$
2,544
$
1,329
$
6,172
$
3,707
Gain (loss) on sale of securities available for sale, net
-
(955)
14
(976)
Gain on sale of loans held for sale, net
109
255
593
696
Other non-interest income
785
1,532
2,334
2,650
Total non-interest income
$
3,438
$
2,161
$
9,113
$
6,077
Three months ended September 30, 2024 compared to the three months ended September 30, 2023
Non-interest income for the three months ended September 30, 2024 increased $1.3 million or 59.1% to $3.4 million,
compared to the same period in 2023. This increase was primarily driven by growth in SWAP loan fees reported under
service fees category, partially offset by declines in gains on sale of loans and other non-interest income.
Nine months ended September 30, 2024 compared to the nine months ended September 30, 2023
Non-interest income for the nine months ended September 30, 2024 increased $3.0 million or 50.0%, compared to the
same period in 2023. This increase was primarily driven by growth in SWAP loan fees reported under service fees category
and gain on sale of loans, , partially offset by declines in gains on sale of loans and other non-interest income.
38 USCB Financial Holdings, Inc. Q3 2024 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,
2024
2023
2024
2023
Salaries and employee benefits
$
7,200
$
6,066
$
20,863
$
18,325
Occupancy
1,341
1,350
3,921
3,968
Regulatory assessment and fees
452
365
1,361
1,041
Consulting and legal fees
161
513
1,016
1,257
Network and information technology services
513
481
1,499
1,464
Other operating
1,787
1,686
5,528
5,034
Total non-interest expense
$
11,454
$
10,461
$
34,188
$
31,089
Three months ended September 30, 2024 compared to the three months ended September 30, 2023
Non-interest expense for the three months ended September 30, 2024 increased $1.0 million or 9.5%, compared to the
same period in 2023. The increase was primarily driven by an increase of $1.1 million in salaries and employee benefits
due to management bonus accrual based on the Company’s performance, and stock-based compensation expense.
Nine months ended September 30, 2024 compared to the nine months ended September 30, 2023
Non-interest expense for the nine months ended September 30, 2024 increased $3.1 million or 10.0%, compared to the
same period in 2023. The increase was primarily driven by an increase of $2.5 million in salaries and employee benefits
due to sales incentives, management bonus accrual based on the Company’s performance, merit increases, and stock-
based compensation expense. Regulatory assessment and fees increased by $306 thousand due to FDIC deposit
insurance. Other operating expenses increased due to an increase of $153 thousand in audit and tax services.
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, 2024 compared to the three months ended September 30, 2023
Income tax expense for the quarter ended September 30, 2024 was $2.2 million as compared to $1.3 million for the
same period in 2023. The effective tax rate for the three months ended September 30, 2024 was 24.2% compared to 24.7%
for 2023.
Nine months ended September 30, 2024 compared to the nine months ended September 30, 2023
Income tax expense for the nine months ended September 30, 2024 was $5.6 million as compared to $4.5 million for
the same period in 2023. The effective tax rate for the nine months ended September 30, 2024 was 24.0% compared to
24.4% for the same period in 2023.
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, 2024 were $2.50 billion, an increase of $164.9 million, or 9.4% annualized, over total
assets of $2.34 billion at December 31, 2023. Total loans, net of deferred fees/costs, increased $150.5 million, or 11.3%
annualized, to $1.93 billion at September 30, 2024 compared to $1.78 billion at December 31, 2023. Total deposits
increased by $189.5 million, or 13.1% annualized, to $2.13 billion at September 30, 2024 compared to $1.94 billion
December 31, 2023.
39 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q
Investment Securities
The investment portfolio is used and managed to provide liquidity through cash flows, marketability and, if necessary,
collateral for borrowings. The investment portfolio is also used as a tool to manage interest rate risk and the Company’s
capital market risk exposure. The philosophy of the portfolio is to maximize the Company’s profitability taking into
consideration the Company’s risk appetite and tolerance, manage the asset composition and diversification, and maintain
adequate risk-based capital ratios.
The investment portfolio is managed in accordance with the 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 Committee (“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, corporate securities, other debt securities, and
municipal 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.
When evaluating AFS debt securities under ASC Topic 326, the Company evaluates 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, vintage bonds, remaining payment terms, prepayment speeds and
analysis of macro-economic conditions. Each investment is expected to recover its unrealized loss position over its holding
period as it approaches to maturity and the Company has the intent and ability to hold these securities maturity. As a result
of this evaluation, the Company concluded that no allowance was required on AFS securities as of September 30, 2024.
At quarter end, HTM securities included $157.7 million of U.S. Government and U.S. Agency issued bonds and
mortgage-backed securities. Because of the explicit and/or implicit guarantee on these bonds, the Company holds no
reserves on these holdings. The remaining portion of the HTM portfolio is made up of $9.3 million in investment grade
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 $8 thousand allowance for credit losses (“ACL”) as of September 30, 2024. The book value for debt securities classified
as HTM represents amortized cost less ACL.
AFS and HTM investment securities increased $22.2 million, or 7.3% annualized, to $426.5 million at September 30,
2024 from $404.3 million at December 31, 2023. 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, 2024, investment securities
with a market value of $69.7 million were pledged to secure public deposits. The investment portfolio does not have any
tax-exempt securities.
40 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q
The following table presents the amortized cost and fair value of investment securities for the dates indicated (in
thousands):
September 30, 2024
December 31, 2023
Available-for-sale:
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
U.S. Government Agency
$
11,916
$
10,733
$
9,664
$
8,173
Collateralized mortgage obligations
104,228
84,194
103,645
80,606
Mortgage-backed securities - residential
60,390
50,762
63,795
52,187
Mortgage-backed securities - commercial
75,263
70,333
49,212
42,764
Municipal securities
24,945
20,425
25,005
19,338
Bank subordinated debt securities
24,272
23,080
28,106
26,261
$
301,014
$
259,527
$
279,427
$
229,329
Held-to-maturity:
U.S. Government Agency
$
42,909
$
38,965
$
43,626
$
38,306
Collateralized mortgage obligations
58,345
52,403
62,735
54,752
Mortgage-backed securities - residential
41,173
38,313
43,784
39,599
Mortgage-backed securities - commercial
15,316
14,563
15,439
14,182
Corporate bonds
9,266
8,881
9,398
8,671
$
167,009
$
153,125
$
174,982
$
155,510
Allowance for credit losses - securities held-to-maturity
(8)
(8)
Securities held-to maturity, net of allowance for credit losses
$
167,001
$
174,974
The following table shows the weighted average yields, categorized by contractual maturity, for investment securities
as of September 30, 2024 (in thousands, except yields):
Within 1 year
After 1 year
through 5 years
After 5 years
through 10 years
After 10 years
Total
Amortized
Cost
Yield
Amortized
Cost
Yield
Amortized
Cost
Yield
Amortized
Cost
Yield
Amortized
Cost
Yield
Available-for-sale:
U.S. Government Agency
$
-
0.00%
$
-
0.00%
$
2,375
3.15%
$
9,541
1.96%
$
11,916
2.19%
Collateralized mortgage obligations
-
0.00%
-
0.00%
-
0.00%
104,228
1.64%
104,228
1.64%
MBS - residential
-
0.00%
-
0.00%
-
0.00%
60,390
1.84%
60,390
1.84%
MBS - commercial
-
0.00%
-
0.00%
4,099
4.70%
71,164
3.40%
75,263
3.47%
Municipal securities
-
0.00%
-
0.00%
19,704
1.72%
5,241
1.85%
24,945
1.75%
Bank subordinated debt securities
-
0.00%
1,000
7.99%
23,272
5.07%
-
0.00%
24,272
5.19%
$
-
$
1,000
$
49,450
$
250,564
$
301,014
2.45%
Held-to-maturity:
U.S. Government Agency
$
-
0.00%
$
7,945
1.02%
$
20,067
1.42%
$
14,897
2.06%
$
42,909
1.57%
Collateralized mortgage obligations
-
0.00%
-
0.00%
-
0.00%
58,345
1.66%
58,345
1.66%
MBS - residential
-
0.00%
4,352
1.86%
5,891
1.75%
30,930
2.22%
41,173
2.12%
MBS - commercial
-
0.00%
3,061
1.62%
-
0.00%
12,255
2.85%
15,316
2.60%
Corporate bonds
-
0.00%
9,266
2.81%
-
0.00%
-
0.00%
9,266
2.81%
$
-
$
24,624
$
25,958
$
116,427
$
167,009
1.90%
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 greater 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.
41 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q
The following table shows the loan portfolio composition as of the dates indicated (in thousands):
September 30, 2024
December 31, 2023
Total
Percent of
Total
Total
Percent of
Total
Residential Real Estate
$
283,477
14.7
%
$
204,419
11.5
%
Commercial Real Estate
1,095,112
56.8
%
1,047,593
58.8
%
Commercial and Industrial
246,539
12.8
%
219,757
12.4
%
Correspondent Banks
103,815
5.4
%
114,945
6.5
%
Consumer and Other
198,604
10.3
%
191,930
10.8
%
Total gross loans
1,927,547
100.0
%
1,778,644
100.0
%
Plus: Deferred fees/costs
3,815
2,183
Total loans net of deferred fees/costs
1,931,362
1,780,827
Less: Allowance for credit losses
23,067
21,084
Total net loans
$
1,908,295
$
1,759,743
Total loans, net of deferred fees/costs, increased by $150.5 million, or 11.3% annualized to $1.93 billion, at
September 30, 2024 compared to December 31, 2023. The residential real estate loan segment had the most significant
growth.
Our loan portfolio continues to grow, with commercial real estate lending as the primary focus which represented
approximately 56.8% of the total gross loan portfolio as of September 30, 2024. 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 of the loan portfolio at
September 30, 2024 (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
$
6,136
$
69,921
$
67,027
$
140,393
$
283,477
Commercial Real Estate
88,789
304,663
696,167
5,493
1,095,112
Commercial and Industrial
10,396
64,579
125,719
45,845
246,539
Correspondent Banks
103,815
-
-
-
103,815
Consumer and Other
3,186
2,976
14,144
178,298
198,604
Total gross loans
$
212,322
$
442,139
$
903,057
$
370,029
$
1,927,547
Interest rate sensitivity:
Fixed interest rates
$
177,851
$
208,887
$
184,199
$
279,696
$
850,633
Floating or adjustable rates
34,471
233,252
718,858
90,333
1,076,914
Total gross loans
$
212,322
$
442,139
$
903,057
$
370,029
$
1,927,547
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, 2024, approximately 56% of the loans have adjustable/variable rates and 44% of the loans have
fixed rates. The adjustable/variable rate loans re-price to different benchmarks and tenors and 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.
42 USCB Financial Holdings, Inc. Q3 2024 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, 2024
Pass
Special Mention
Substandard
Doubtful
Total
Residential Real Estate
$
282,909
$
-
$
568
$
-
$
283,477
Commercial Real Estate
1,092,648
-
2,464
-
1,095,112
Commercial and Industrial
244,620
-
1,919
-
246,539
Correspondent Banks
103,815
-
-
-
103,815
Consumer and Other
196,613
-
1,991
-
198,604
$
1,920,605
$
-
$
6,942
$
-
$
1,927,547
December 31, 2023
Pass
Special Mention
Substandard
Doubtful
Total
Residential Real Estate
$
204,127
$
-
$
292
$
-
$
204,419
Commercial Real Estate
1,040,032
-
7,561
-
1,047,593
Commercial and Industrial
218,129
-
1,628
-
219,757
Correspondent Banks
114,945
-
-
-
114,945
Consumer and Other
191,930
-
-
-
191,930
$
1,769,163
$
-
$
9,481
$
-
$
1,778,644
43 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q
Non-Performing Assets
The following table presents non-performing assets as of the dates shown (in thousands, except ratios):
September 30, 2024
December 31, 2023
Non-accrual loans
$
2,725
$
468
Loans past due over 90 days and still accruing
-
-
Total non-performing loans
$
2,725
$
468
Other real estate owned
-
-
Total non-performing assets
$
2,725
$
468
Asset quality ratios:
Allowance for credit losses to total loans
1.19%
1.18%
Allowance for credit losses to non-performing loans
846%
4,505%
Non-performing loans to total loans
0.14%
0.03%
Non-performing assets include all loans categorized as non-accrual, 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 consecutive 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 borrower’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 of 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
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 ACL.
44 USCB Financial Holdings, Inc. Q3 2024 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
Correspondent
Banks
Consumer
and Other
Total
Three Months Ended September 30,
2024
Beginning balance
$
3,193
$
10,272
$
4,747
$
892
$
3,126
$
22,230
Provision for credit losses
(1)
760
(86)
(96)
(69)
322
831
Recoveries
2
-
10
-
1
13
Charge-offs
-
-
-
-
(7)
(7)
Ending Balance
$
3,955
$
10,186
$
4,661
$
823
$
3,442
$
23,067
Average loans
$
238,113
$
1,093,599
$
238,331
$
105,388
$
202,799
$
1,878,230
Net charge-offs to average loans
(3)
(0.00)%
-
(0.02)%
-
0.01%
0.00%
Nine Months Ended September 30, 2024
Beginning balance
$
2,695
$
10,366
$
3,974
$
911
$
3,138
$
21,084
Provision for credit losses
(2)
1,252
(180)
666
(88)
318
1,968
Recoveries
8
-
21
-
3
32
Charge-offs
-
-
-
-
(17)
(17)
Ending Balance
$
3,955
$
10,186
$
4,661
$
823
$
3,442
$
23,067
Average loans
$
231,947
$
1,065,280
$
232,160
$
102,659
$
197,547
$
1,829,593
Net charge-offs to average loans
(3)
(0.01)%
-
(0.02)%
-
0.01%
0.00%
(1) Provision for credit losses excludes a $101 thousand expense due to unfunded commitments included in other liabilities and a $1
thousand release related to investment securities held to maturity.
(2) Provision for credit losses excludes $159 thousand expense due to unfunded commitments included in other liabilities.
(3) Annualized.
Residential
Real Estate
Commercial
Real Estate
Commercial
and
Industrial
Correspondent
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
(4)
-
-
(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
(4)
(0.01)%
-
(0.05)%
-
0.04%
0.00%
(1) Provision for credit losses excludes a $17 thousand expense due to unfunded commitments included in other liabilities and a $3
thousand release related 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.
(4) Annualized.
45 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q
Bank-Owned Life Insurance
As of September 30, 2024, the combined cash surrender value of all bank-owned life insurance (“BOLI”) policies was
$53.0 million. Changes in cash surrender value are recorded to non-interest income in the unaudited Consolidated
Statements of Operations. The Company had BOLI policies with five insurance carriers. The Company is the beneficiary of
these policies.
Deposits
Customer deposits are the primary funding source for the Bank’s growth. Through our network of banking centers, we
offer a competitive array of deposit accounts and treasury management services designed to meet our customers’ business
needs. Our primary deposit customers are small-to-medium sized businesses (“SMBs”), and the personal business of
owners and operators of these SMBs, as well as the retail/consumer relationships of the employees of these businesses.
The following table presents the daily average balance and average rate paid on deposits by category for the periods
presented (in thousands, except ratios):
Three Months Ended September 30,
2024
2023
Average Balance
Average Rate
Paid
Average Balance
Average Rate
Paid
Non-interest-bearing checking
$
609,456
0.00%
$
587,917
0.00%
Interest-bearing checking
57,925
2.82%
52,080
2.52%
Money market and savings deposits
1,084,562
3.69%
1,011,164
3.44%
Time deposits
325,580
4.14%
290,272
3.51%
Total
$
2,077,523
2.66%
$
1,941,433
2.39%
The Company has a granular deposit portfolio with outstanding balances comprised of 59% in commercial deposits,
31% personal deposits, 5% public funds (which are partially collateralized) and 5% brokered deposits. The brokered
deposits balance at September 30, 2024 was $100.0 million and $50.0 million at December 31, 2024.
The Company has approximately 20 thousand deposit accounts with the majority in personal accounts, approximately
13 thousand or 62.3%. The estimated average account size of our deposit portfolio was approximately $104 thousand as
of September 30, 2024.
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 was 56% at September 30,
2024 and 53% at September 30, 2023. The Company offers Insured Cash Sweep (“ICS”) and Certificate of
Deposit Account
Registry Service (“CDARS”) deposit products to fully insure our clients. The deposit balance in ICS/CDARS at quarter end
was $106.0 million at September 30, 2024 and $107.3 million at December 31, 2023.
The following table shows scheduled maturities of uninsured time deposits as of September 30, 2024 (in thousands):
September 30, 2024
Three months or less
$
33,952
Over three through six months
50,797
Over six though twelve months
10,780
Over twelve months
776
$
96,305
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, 2024 escrow balances totaled $22.5 million compared to $2.3 million at December 31, 2023.
46 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q
Borrowings
As a member of the FHLB of Atlanta, 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, 2024, we had $118.0 million of fixed-rate advances outstanding from the FHLB with a weighted
average rate of 3.47%. Maturity dates for the advances range between 2024 to 2028 as detailed in the table below.
The following table presents the FHLB advances as of September 30, 2024 (in thousands):
Interest Rate
Type of Rate
Maturity Date
Amount
2.05%
Fixed
March 27, 2025
10,000
1.07%
Fixed
July 18, 2025
6,000
3.76%
Fixed
January 24, 2028
11,000
3.77%
Fixed
April 25, 2028
50,000
3.68%
Fixed
September 13, 2027
21,000
3.79%
Fixed
March 23, 2026
20,000
$
118,000
During the third quarter 2024, the Company paid off the $80.0 million fixed-rate loan outstanding from the Bank Term
Funding Program with an original maturity date of January 10, 2025.
The Company has also established Federal Funds lines of credit with our upstream correspondent banks and the
Federal Reserve Bank of Atlanta Discount Window to manage temporary fluctuations in our daily cash balances. As of
September 30, 2024, 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, 2024
December 31, 2023
Commitments to grant loans and unfunded lines of credit
$
104,851
$
85,117
Standby and commercial letters of credit
4,507
3,987
Total
$
109,358
$
89,104
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
47 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q
the underlying collateral, which can include commercial real estate, physical plant and property, inventory, receivables, cash
or marketable securities.
Asset and Liability Management Committee
Members of senior management and our Board make up the asset and liability management committee, or ALCO.
Senior management is responsible for ensuring that Board approved strategies 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 Interest Rate Risk (“IRR”) is inherent to the banking business, we believe our ALCO implements
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 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, 2024, we had a neutral to slightly asset sensitive balance sheet
both for year one and year 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
(betas), 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 customer 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, 2024, our balance sheet is neutral to slightly asset sensitive for both year
one and year two under interest static rate scenarios (an increase or decrease of 400 basis points). This means that the
impact of rates variations will be minimal to our NIM. 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 defined.
48 USCB Financial Holdings, Inc. Q3 2024 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), pledging of assets 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, and draws from the Federal Reserve
Bank of 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.
49 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q
Capital Adequacy
As of September 30, 2024, 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, 2024, 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, 2024
Total risk-based capital
$
257,212
13.14
%
$
156,587
8.00
%
$
195,733
10.00
%
Tier 1 risk-based capital
$
233,606
11.93
%
$
117,440
6.00
%
$
156,587
8.00
%
Common equity tier 1 capital
$
233,606
11.93
%
$
88,080
4.50
%
$
127,227
6.50
%
Leverage ratio
$
233,606
9.28
%
$
100,700
4.00
%
$
125,874
5.00
%
December 31, 2023:
Total risk-based capital
$
233,109
12.65
%
$
147,432
8.00
%
$
184,290
10.00
%
Tier 1 risk-based capital
$
211,645
11.48
%
$
110,574
6.00
%
$
147,432
8.00
%
Common equity tier 1 capital
$
211,645
11.48
%
$
82,931
4.50
%
$
119,789
6.50
%
Leverage ratio
$
211,645
9.17
%
$
92,328
4.00
%
$
115,410
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.
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 Part 1 of this Form 10-Q.
50 USCB Financial Holdings, Inc. Q3 2024 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 shareholders for the periods presented (in thousands, except per share data):
USCB FINANCIAL HOLDINGS, INC.
NON-GAAP FINANCIAL MEASURES (UNAUDITED)
(Dollars in thousands)
As of or For the Three Months Ended
9/30/2024
6/30/2024
3/31/2024
12/31/2023
9/30/2023
Pre-tax pre-provision ("PTPP") income:
(1)
Net income
$
6,949
$
6,209
$
4,612
$
2,721
$
3,819
Plus: Provision for income taxes
2,213
1,967
1,426
787
1,250
Plus: Provision for credit losses
931
786
410
1,475
653
PTPP income
$
10,093
$
8,962
$
6,448
$
4,983
$
5,722
PTPP return on average assets:
(1)
PTPP income
$
10,093
$
8,962
$
6,448
$
4,983
$
5,722
Average assets
$
2,485,434
$
2,479,222
$
2,436,103
$
2,268,811
$
2,250,258
PTPP return on average assets
(2)
1.62%
1.45%
1.06%
0.87%
1.01%
Operating net income:
(1)
Net income
$
6,949
$
6,209
$
4,612
$
2,721
$
3,819
Less: Net gains (losses) on sale of securities
-
14
-
(883)
(955)
Less: Tax effect on sale of securities
-
(4)
-
224
242
Operating net income
$
6,949
$
6,199
$
4,612
$
3,380
$
4,532
Operating PTPP income:
(1)
PTPP income
$
10,093
$
8,962
$
6,448
$
4,983
$
5,722
Less: Net gains (losses) on sale of securities
-
14
-
(883)
(955)
Operating PTPP income
$
10,093
$
8,948
$
6,448
$
5,866
$
6,677
Operating PTPP return on average assets:
(1)
Operating PTPP income
$
10,093
$
8,948
$
6,448
$
5,866
$
6,677
Average assets
$
2,485,434
$
2,479,222
$
2,436,103
$
2,268,811
$
2,250,258
Operating PTPP return on average assets
(2)
1.62%
1.45%
1.06%
1.03%
1.18%
Operating return on average assets:
(1)
Operating net income
$
6,949
$
6,199
$
4,612
$
3,380
$
4,532
Average assets
$
2,485,434
$
2,479,222
$
2,436,103
$
2,268,811
$
2,250,258
Operating return on average assets
(2)
1.11%
1.01%
0.76%
0.59%
0.80%
Operating return on average equity:
(1)
Operating net income
$
6,949
$
6,199
$
4,612
$
3,380
$
4,532
Average equity
$
206,641
$
197,755
$
193,092
$
183,629
$
184,901
Operating return on average equity
(2)
13.38%
12.61%
9.61%
7.30%
9.72%
Operating Revenue:
(1)
$
18,109
$
17,311
$
15,158
$
14,376
$
14,022
3,438
3,211
2,464
1,326
2,161
-
14
-
(883)
(955)
$
21,547
$
20,508
$
17,622
$
16,585
$
17,138
Operating Efficiency Ratio:
(1)
$
11,454
$
11,560
$
11,174
$
10,719
$
10,461
$
21,547
$
20,508
$
17,622
$
16,585
$
17,138
53.16%
56.37%
63.41%
64.63%
61.04%
(1) The Company believes these non-GAAP measurements are key indicators of the ongoing earnings power of the Company.
(2) Annualized.
51 USCB Financial Holdings, Inc. Q3 2024 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
9/30/2024
6/30/2024
3/31/2024
12/31/2023
9/30/2023
Tangible book value per common share (at period-end):
(1)
Total stockholders' equity
$
213,916
$
201,020
$
195,011
$
191,968
$
182,884
Less: Intangible assets
-
-
-
-
-
Tangible stockholders' equity
$
213,916
$
201,020
$
195,011
$
191,968
$
182,884
Total shares issued and outstanding (at period-end):
Total common shares issued and outstanding
19,620,632
19,630,632
19,650,463
19,575,435
19,542,290
Tangible book value per common share
(2)
$
10.90
$
10.24
$
9.92
$
9.81
$
9.36
Operating diluted net income per common share:
(1)
Operating net income
$
6,949
$
6,199
$
4,612
$
3,380
$
4,532
Total weighted average diluted shares of common stock
19,825,211
19,717,167
19,698,258
19,573,350
19,611,897
Operating diluted net income per common share:
$
0.35
$
0.31
$
0.23
$
0.17
$
0.23
Tangible Common Equity/Tangible Assets
(1)
$
213,916
$
201,020
$
195,011
$
191,968
$
182,884
(3)
$
2,503,954
$
2,458,270
$
2,489,142
$
2,339,093
$
2,244,602
Tangible Common Equity/Tangible Assets
8.54%
8.18%
7.83%
8.21%
8.15%
(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.
(3) Since the Company has no intangible assets, tangible total assets is the same amount as total assets calculated under GAA
P.
52 USCB Financial Holdings, Inc. Q3 2024 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 Securities Exchange Act of 1934) as of
September 30, 2024. Based on that evaluation, management believes that, as of the end of the period covered by this Form
10-Q, 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.
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.
53 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q
PART II
Item 1. Legal Proceedings
The Company previously disclosed that litigation (the “Litigation”) had been commenced on July 13, 2023 by three
individuals who were shareholders of the Bank prior to the Bank’s reorganization into the holding company form of
organization in 2021 (the “Plaintiffs”) 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, Florida (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
shares of Class C and Class D preferred stock was exchanged for shares of Class A voting common stock in the Bank (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 sought the Court to certify the action as a class action and to award damages in an amount to be proven at trial.
The Plaintiffs sought damages exceeding $750,000 plus attorney’s fees and costs as well as such other relief as the Court
determined to award.
The Defendants filed a motion to dismiss the Litigation with prejudice (the “Motion”). On December 27, 2023, the Court,
after reviewing the Motion, the Plaintiff’s response thereto and the Defendant’s reply as well as the oral arguments presented
by the parties on December 14, 2023, granted the Motion, dismissing the Litigation with prejudice and rendering final
judgment in favor of the Defendants (the “Order”). The Court reserved jurisdiction to award costs or grant any post-judgment
relief.
On May 1, 2024, the Plaintiffs filed in the Third District Court of Appeal for the State of Florida (the “Appellate Court”)
an appeal (the “Appeal”), appealing the issuance of the Order and seeking a reversal of the Order. The Plaintiffs claimed
the Court erred by concluding (i) the Exchange Transaction was not ultra vires, and (ii) that the Legacy Shareholders (which
includes the Plaintiffs) lacked direct standing. The Plaintiffs filed their initial brief and the Defendants filed on July 1, 2024
their answer brief (“Answer Brief”) responding to the allegations contained in the Appeal. The Plaintiffs have the ability to
file a Reply Brief responding to the Defendant’s Answer Brief but have not done so as of the date hereof. The Plaintiff’s
have requested oral argument.
The Company believes that the positions in the Appeal are legally and factually without merit, and it intends to vigorously
defend against the Appeal, 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 the Appeal 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 defending against the Appeal. The Appellate Court could grant the Plaintiff’s motion to
reverse the Order and remand the case to the Court.
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 Appeal 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.
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.
There can be no assurance that any future legal proceedings to which we are a party will not be decided adversely to
our interests and have a material adverse effect on our financial condition and operations.
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 2023 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) None.
54 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q
(b) Not applicable.
(c) The Company’s repurchases of equity securities for the quarter ended September 30, 2024 were as follows:
Total
Number of
Shares
Purchased
Average
Price Paid
Per Share
Total Number of Shares Purchased
as Part of Publicly Announced Plans
or Programs (1)
Maximum Number
of Shares that May
Yet Be Purchased
Under Plans or
Programs (1)
Period
July 1 - 31, 2024
10,000
$
11.99
10,000
537,980
August 1 -31, 2024
-
$
-
-
537,980
September 1 - 30, 2024
-
$
-
-
537,980
On April 22, 2024, the Company announced the adoption of a second repurchase program to repurchase up to 500,000
shares of Class A common stock, which repurchase program will commence upon completion of its first repurchase
program.
Item 3. Defaults Upon Senior Securities
(a)
(b)
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
(a)
(b)
(c)
officers
such terms are defined in Item 408 of the SEC’s Regulation S-K).
55 USCB Financial Holdings, Inc. Q3 2024 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,
2024 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.
56 USCB Financial Holdings, Inc. Q3 2024 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 12, 2024
Luis de la Aguilera
(Principal Executive Officer)
/s/ Robert Anderson
Executive Vice President and Chief Financial
Officer
November 12, 2024
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 internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant 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)
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
c)
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
d)
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 12, 2024
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 internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant 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)
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
c)
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
d)
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 12, 2024
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, 2024, 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 12, 2024
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, 2024, 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 12, 2024