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USCB FINANCIAL HOLDINGS, INC. - Quarter Report: 2022 June (Form 10-Q)

uscb-20220630
 
 
 
uscb-20220630p1i0
UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
June 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____to_____
Commission File Number:
001-41196
USCB Financial Holdings, Inc.
(Exact name of registrant as specified in its charter)
 
Florida
87-4070846
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
2301 N.W. 87th Avenue
,
Miami
,
FL
33172
(Address of principal executive offices) (zip code)
Registrant’s telephone number, including area code:
 
(
305
)
715-5200
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A common stock, $1.00 par value per share
USCB
The Nasdaq Stock Market LLC
Indicate by check
 
mark whether the
 
registrant (1) has
 
filed all reports
 
required to be
 
filed by Section
 
13 or 15(d)
 
of the Securities
 
Exchange
Act of 1934 during the preceding 12 months
 
(or for such shorter period that the registrant was
 
required to file such reports), and (2)
 
has
been subject to such filing requirements for the past 90 days.
 
Yes
 
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data
 
File required to be submitted pursuant
to Rule 405
 
of Regulation S-T
 
(§232.405 of this
 
chapter) during the
 
preceding 12 months
 
(or for such
 
shorter period that
 
the registrant
was required to submit such files).
 
Yes
 
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company
 
or
 
an
 
emerging
 
growth
 
company.
 
See
 
the
 
definitions
 
of
 
“large
 
accelerated
 
filer,”
 
“accelerated
 
filer,”
 
“non-accelerated
 
filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
 
Non-accelerated filer
 
Smaller reporting company
 
Emerging growth company
If an
 
emerging growth
 
company, indicate by
 
check mark
 
if the
 
registrant has elected
 
not to
 
use the
 
extended transition
 
period for
 
complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
 
No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of August 1, 2022, the registrant had
20,000,753
 
shares of Class
A
common stock outstanding.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
PART I
Item 1.
 
Financial Statements
 
USCB FINANCIAL HOLDINGS, INC.
Consolidated Balance Sheets - Unaudited
(Dollars in thousands,
 
except share data)
June 30, 2022
December 31, 2021
ASSETS:
Cash and due from banks
$
7,448
$
6,477
Interest-bearing deposits in banks
75,824
39,751
Total cash and cash equivalents
83,272
46,228
Investment securities held to maturity (fair value $
101,067
 
and $
120,157
, respectively)
116,671
122,658
Investment securities available for sale, at fair value
339,464
401,542
Federal Home Loan Bank stock, at cost
3,402
2,100
Loans held for investment, net of allowance of
 
$
15,786
 
and $
15,057
, respectively
1,356,947
1,175,024
Accrued interest receivable
5,991
5,975
Premises and equipment, net
5,088
5,278
Bank owned life insurance
42,249
41,720
Deferred tax asset, net
43,059
34,929
Lease right-of-use asset
13,574
14,185
Other assets
6,369
4,300
Total assets
$
2,016,086
$
1,853,939
 
 
LIABILITIES:
 
 
Deposits:
 
 
Demand
$
653,708
$
$605,425
Money market and savings accounts
802,841
703,856
Interest-bearing checking accounts
63,416
55,878
Time deposits
218,755
225,220
Total deposits
1,738,720
1,590,379
Federal Home Loan Bank advances
66,000
36,000
Lease liability
13,574
14,185
Accrued interest and other liabilities
17,724
9,478
Total liabilities
1,836,018
1,650,042
 
 
Commitments and contingencies (See Notes 5
 
and 10)
 
 
 
 
STOCKHOLDERS' EQUITY:
 
 
Preferred stock - Class C; $
1.00
 
par value; $
1,000
 
per share liquidation preference;
52,748
 
shares
authorized;
0
 
and
0
 
issued and outstanding as of June 30, 2022
 
and December 31, 2021
-
-
 
 
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 June 30, 2022
 
and December 31, 2021
-
-
 
 
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 June 30, 2022
 
and December 31, 2021
-
-
 
 
Common stock - Class A Voting; $
1.00
 
par value;
45,000,000
 
shares authorized;
20,000,753
 
and
19,991,753
 
issued and outstanding as of June 30, 2022
 
and December 31, 2021
20,001
19,992
 
 
Common stock - Class B Non-voting; $
1.00
 
par value;
8,000,000
 
shares authorized;
0
 
and
0
 
issued and
outstanding as of June 30, 2022 and December
 
31, 2021
-
-
 
 
Additional paid-in capital on common stock
311,024
310,666
Accumulated deficit
(114,096)
(124,245)
Accumulated other comprehensive loss
(36,861)
(2,516)
Total stockholders' equity
180,068
203,897
Total liabilities and stockholders' equity
$
2,016,086
$
1,853,939
The accompanying notes are an integral part of
 
these consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Operations - Unaudited
(Dollars in thousands,
 
except per share data)
 
Three Months Ended June 30,
Six Months Ended June 30,
2022
2021
2022
2021
Interest income:
 
Loans, including fees
$
14,053
$
11,538
$
27,035
$
23,406
 
Investment securities
2,510
1,968
4,839
3,812
 
Interest-bearing deposits in financial institutions
121
23
152
39
 
Total interest income
16,684
13,529
32,026
27,257
Interest expense:
 
 
 
 
 
Interest-bearing deposits
17
15
33
29
 
Money market and savings accounts
615
523
1,166
1,071
 
Time deposits
271
379
530
933
 
Federal Home Loan Bank advances
139
138
276
275
 
Total interest expense
1,042
1,055
2,005
2,308
 
Net interest income before provision for
 
credit losses
15,642
12,474
30,021
24,949
Provision for credit losses
705
-
705
(160)
 
Net interest income after provision for
 
credit losses
14,937
12,474
29,316
25,109
Non-interest income:
 
 
 
 
 
Service fees
1,083
903
1,983
1,792
 
Gain (loss) on sale of securities available for sale,
 
net
(3)
187
18
249
 
Gain on sale of loans held for sale, net
22
23
356
987
 
Loan settlement
-
-
161
-
 
Other non-interest income
515
403
1,044
809
 
Total non-interest income
1,617
1,516
3,562
3,837
Non-interest expense:
 
 
 
 
 
Salaries and employee benefits
5,913
5,213
11,788
10,491
 
Occupancy
1,251
1,411
2,521
2,798
 
Regulatory assessment and fees
226
195
439
373
 
Consulting and legal fees
398
373
915
558
 
Network and information technology services
448
332
835
840
 
Other operating expense
1,315
1,150
2,665
2,291
 
Total non-interest expense
9,551
8,674
19,163
17,351
 
Income before income tax expense
7,003
5,316
13,715
11,595
Income tax expense
1,708
1,263
3,566
2,761
 
Net income
5,295
4,053
10,149
8,834
Less: Preferred stock dividend
-
754
-
1,535
Net income available to common stockholders
$
5,295
$
3,299
$
10,149
$
7,299
Per share information:
(1)
 
 
 
 
Class A common stock
 
 
 
 
Net income per share, basic
$
0.26
$
0.65
$
0.51
$
1.43
Net income per share, diluted
$
0.26
$
0.64
$
0.50
$
1.41
Class B common stock
 
 
 
 
Net income per share, basic
$
-
$
0.13
$
-
$
0.29
Net income per share, diluted
$
-
$
0.13
$
-
$
0.29
(1)
 
For further details on the allocation of net
 
income available to common stockholders and per
 
share information, see Note 9 "Earnings per Share".
The accompanying notes are an integral part of
 
these consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Comprehensive Income
 
(Loss) - Unaudited
(Dollars in thousands)
 
Three Months Ended June 30,
Six Months Ended June 30,
2022
2021
2022
2021
Net income
$
5,295
$
4,053
$
10,149
$
8,834
Other comprehensive income (loss):
 
 
Unrealized gain (loss) on investment securities
(23,253)
233
(45,898)
(5,837)
Amortization of net unrealized gains on securities
 
transferred from
available-for-sale to held-to-maturity
(61)
-
(126)
-
Reclassification adjustment for (gain) loss included
 
in net income
3
(187)
(18)
(249)
Tax effect
5,908
(12)
11,697
1,491
Total other comprehensive income (loss), net of tax
(17,403)
34
(34,345)
(4,595)
Total comprehensive (loss) income
 
$
(12,108)
$
4,087
$
(24,196)
$
4,239
The accompanying notes are an integral part of
 
these consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Changes in Stockholders’
 
Equity - Unaudited
(Dollars in thousands,
 
except per share data)
Preferred Stock
Common Stock
Additional Paid-
in Capital on
Common Stock
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Shares
Par Value
Shares
Par Value
Total
Stockholders'
Equity
Balance at April 1, 2022
-
$
-
20,000,753
$
20,001
$
310,887
$
(119,391)
$
(19,458)
$
192,039
Net income
-
-
-
-
-
5,295
-
5,295
Other comprehensive loss
-
-
-
-
-
-
(17,403)
(17,403)
Stock-based compensation
-
-
-
-
137
-
-
137
Balance at June 30, 2022
-
$
-
20,000,753
$
20,001
$
311,024
$
(114,096)
$
(36,861)
$
180,068
Balance at April 1, 2021
12,350,879
$
32,077
10,010,521
$
10,010
$
177,808
$
(49,622)
$
152
$
170,425
Net income
-
-
-
-
-
4,053
-
4,053
Other comprehensive income
-
-
-
-
-
-
34
34
Dividends - preferred stock
-
-
-
-
-
(754)
-
(754)
Preferred stock repurchase
(7,500)
(7,461)
-
-
-
(39)
-
(7,500)
Stock-based compensation
-
-
-
-
44
-
-
44
Balance at June 30, 2021
12,343,379
$
24,616
10,010,521
$
10,010
$
177,852
$
(46,362)
$
186
$
166,302
Preferred Stock
Common Stock
Additional Paid-
in Capital on
Common Stock
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Shares
Par Value
Shares
Par Value
Total
Stockholders'
Equity
Balance at January 1, 2022
-
$
-
19,991,753
$
19,992
$
310,666
$
(124,245)
$
(2,516)
$
203,897
Net income
-
-
-
-
-
10,149
-
10,149
Other comprehensive loss
-
-
-
-
-
-
(34,345)
(34,345)
Exercise of stock options
-
-
9,000
9
93
-
-
102
Stock-based compensation
-
-
-
-
265
-
-
265
Balance at June 30, 2022
-
$
-
20,000,753
$
20,001
$
311,024
$
(114,096)
$
(36,861)
$
180,068
Balance at January 1, 2021
12,350,879
$
32,077
10,010,521
$
10,010
$
177,755
$
(53,622)
$
4,781
$
171,001
Net income
-
-
-
-
-
8,834
-
8,834
Other comprehensive loss
-
-
-
-
-
-
(4,595)
(4,595)
Dividends - preferred stock
-
-
-
-
-
(1,535)
-
(1,535)
Preferred stock repurchase
(7,500)
(7,461)
-
-
-
(39)
-
(7,500)
Stock-based compensation
-
-
-
-
97
-
97
Balance at June 30, 2021
12,343,379
$
24,616
10,010,521
$
10,010
$
177,852
$
(46,362)
$
186
$
166,302
The accompanying notes are an integral part of
 
these consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Cash Flows - Unaudited
(Dollars in thousands)
 
Six Months Ended June 30,
2022
2021
Cash flows from operating activities:
Net income
 
$
10,149
$
8,834
Adjustments to reconcile net income to net
 
cash provided by operating activities:
 
 
Provision for credit losses
 
705
(160)
Depreciation and amortization
363
642
Amortization of premiums on securities, net
306
192
Accretion of deferred loan fees, net
(508)
(2,016)
Stock-based compensation
265
97
Gain on sale of available for sale securities
(18)
(249)
Gain on sale of loans held for sale
(356)
(987)
Increase in cash surrender value of bank owned
 
life insurance
(529)
(335)
Decrease in deferred tax asset
3,567
2,760
Net change in operating assets and liabilities:
 
 
Accrued interest receivable
(16)
(65)
Other assets
(2,069)
(863)
Accrued interest and other liabilities
8,246
6,001
Net cash provided by operating activities
20,105
13,851
 
 
Cash flows from investing activities:
 
 
Purchase of investment securities held to maturity
(2,432)
-
Proceeds from maturities and pay-downs of investment
 
securities held to maturity
8,173
-
Purchase of investment securities available for
 
sale
 
(42,794)
(138,937)
Proceeds from maturities and pay-downs of investment
 
securities available for sale
26,950
28,159
Proceeds from sales of investment securities available
 
for sale
31,838
43,266
Net increase in loans held for investment
(115,607)
(68,609)
Purchase of loans held for investment
(70,175)
(44,868)
Additions to premises and equipment
(173)
(240)
Proceeds from the sale of loans held for
 
sale
4,018
9,811
Proceeds from the redemption of Federal Home
 
Loan Bank stock
-
611
Purchase of Federal Home Loan Bank stock
(1,302)
-
Net cash used in investment activities
(161,504)
(170,807)
Cash flows from financing activities:
Proceeds from issuance of Class A common stock, net
102
-
Dividends paid
-
(1,535)
Redemption of Preferred stock Class E
-
(7,500)
Net increase in deposits
148,341
165,374
Proceeds from Federal Home Loan Bank advances
30,000
-
Net cash provided by financing activities
178,443
156,339
 
 
Net increase in cash and cash equivalents
37,044
(617)
Cash and cash equivalents at beginning of period
46,228
47,734
Cash and cash equivalents at end of period
$
83,272
$
47,117
 
 
Supplemental disclosure of cash flow information:
 
 
Interest paid
$
2,002
$
2,359
 
 
Supplemental schedule of non-cash investing and
 
financing activities:
 
 
Transfer of loans held for investment to loans held for
 
sale
$
3,662
$
8,824
Transfer of premises and equipment to assets held for
 
sale
$
-
$
656
Lease liability arising from obtaining right-of-use assets
$
898
$
-
The accompanying notes are an integral part of
 
these consolidated financial statements.
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
8
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
1.
 
SUMMARY OF SIGNIFICANT ACCOUNTING
 
POLICIES
 
Overview
USCB Financial Holdings, Inc., a
 
Florida corporation incorporated
 
in 2021, is a bank holding
 
company with one wholly
owned subsidiary,
 
U.S. Century Bank (the
 
“Bank”), together referred to
 
as “the Company”. The Bank,
 
established in 2002,
is a Florida
 
state-chartered, non-member financial institution providing financial
 
services through its banking
 
centers located
in South Florida.
During the year ended December 31,
 
2021, the Bank completed an initial
 
public offering (“IPO”) and
 
its Class A voting
common shares began
 
trading on the
 
Nasdaq Stock Market
 
in July 2021.
 
In December 2021,
 
the Bank exchanged
 
all the
outstanding
 
shares
 
of
 
Class
 
B
 
non-voting
 
common
 
stock
 
for
 
shares
 
of
 
Class
 
A
 
voting
 
common
 
stock
 
on
 
a
 
one
 
to
 
five
exchange. Shortly thereafter,
 
USCB Financial Holdings,
 
Inc. acquired all
 
issued and outstanding
 
shares of Class
 
A voting
common stock
 
of the
 
Bank in
 
connection with
 
the reorganization
 
of the
 
Bank into
 
the holding
 
company form
 
of structure.
For further information on the IPO and the exchange
 
and redemption of shares, see Note 8 “Stockholders’
 
Equity”.
The Company’s
 
Consolidated Financial
 
Statements consist
 
of USCB
 
Financial Holdings,
 
Inc. and
 
U.S. Century
 
Bank
as of June 30, 2022 and December
 
31, 2021 and for the three
 
and six month ended June
 
30, 2022 compared to only
 
U.S.
Century Bank as of June 30, 2021 and for the three and six
 
months periods ended June 30, 2021.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with instructions to
Form 10-Q and
 
do not include all
 
the information and
 
footnotes required by U.S.
 
generally accepted accounting
 
principles
(“U.S.
 
GAAP”)
 
for
 
complete
 
financial
 
statements.
 
All
 
adjustments
 
consisting
 
of
 
normally
 
recurring
 
accruals
 
that,
 
in
 
the
opinion
 
of
 
management,
 
are
 
necessary
 
for
 
a
 
fair
 
presentation
 
of
 
the
 
financial
 
position
 
and
 
results
 
of
 
operations
 
for
 
the
periods presented
 
have been
 
included. These
 
unaudited consolidated
 
financial statements
 
should be
 
read in
 
conjunction
with
 
the
 
Company’s
 
consolidated
 
financial
 
statements
 
and
 
related
 
notes
 
appearing
 
in the
 
Company’s
 
Annual
 
Report
 
on
Form 10-K for the year ended December 31, 2021.
Principles of Consolidation
The
 
Company
 
consolidates
 
entities
 
in
 
which
 
it
 
has
 
a
 
controlling
 
financial
 
interest.
 
Intercompany
 
transactions
 
and
balances are eliminated in consolidation.
 
Use of Estimates
To prepare
 
financial statements in conformity with U.S. GAAP,
 
management makes estimates and assumptions based
on available
 
information. These
 
estimates and
 
assumptions affect
 
the amounts
 
reported in
 
the financial
 
statements. The
most significant
 
estimates impacting
 
the Company’s
 
consolidated financial
 
statements are
 
the allowance
 
for credit
 
losses
and income taxes.
Reclassifications
Certain
 
amounts
 
in
 
the
 
Consolidated
 
Financial
 
Statements
 
have
 
been
 
reclassified
 
to
 
conform
 
to
 
the
 
current
presentation. Reclassifications had no impact on the net income
 
or stockholders’ equity of the Company.
Recently Issued Accounting Standards
Issued and Not Yet Adopted
Measurement of Credit Losses
 
on Financial Instruments
In June
 
2016, the FASB issued
 
ASU 2016-13, Financial
 
Instruments - Credit
 
Losses (Topic 326); Measurement of
 
Credit
Losses on Financial Instruments. This accounting standard update (“ASU” or “Update”)
 
on accounting for current expected
credit
 
losses
 
on
 
financial
 
instruments
 
(“CECL”)
 
will
 
replace
 
the
 
current
 
probable
 
incurred
 
loss
 
impairment
 
methodology
under U.S. GAAP
 
with a methodology
 
that reflects the
 
expected credit losses.
 
The Update is
 
intended to provide
 
financial
statement
 
users
 
with
 
more
 
decision-useful
 
information
 
about
 
expected
 
credit
 
losses.
 
This
 
Update
 
is
 
applicable
 
to
 
the
Company
 
on
 
a modified
 
retrospective
 
basis
 
for
 
interim
 
and
 
annual
 
periods
 
in
 
fiscal
 
years
 
beginning
 
after
 
December 15,
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
9
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
2022. Early adoption is permitted for fiscal years beginning after December 15, 2019, including interim periods within those
fiscal
 
years.
 
The
 
Company
 
expects
 
to
 
adopt
 
this
 
ASU
 
on
 
January 1,
 
2023.
 
The
 
impact
 
of
 
adoption
 
on
 
the
 
Company’s
financial statements
 
will depend on
 
the composition
 
of the loan
 
and investment
 
securities portfolio
 
as of January
 
1, 2023,
general economic conditions,
 
and other factors that
 
are not known at
 
this time. Although
 
management is in the
 
process of
evaluating the impact of
 
adoption of this ASU on
 
its consolidated financial statements,
 
management does believe that
 
this
ASU will lead to significant changes
 
in accounting policies and disclosures
 
related to, and the methods used
 
in estimating,
the
 
ACL.
 
The
 
Company
 
has
 
developed
 
a
 
detailed
 
implementation
 
plan
 
through
 
the
 
date
 
of
 
adoption
 
that
 
includes
 
the
implementation of a software solution to assist
 
with the CECL implementation process and is developing
 
measurements in
parallel
 
with
 
the
 
current
 
methodology.
 
To
 
date,
 
the
 
Company
 
has
 
initiated
 
policy
 
discussion
 
with
 
key
 
stakeholders,
completed a data
 
gap analysis
 
and retained the
 
services of a
 
third-party consulting
 
firm to perform
 
an independent model
validation prior to adoption.
Reference Rate Reform
In
 
March
 
2020,
 
the
 
FASB
 
issued
 
ASU
 
2020-04,
 
Reference
 
Rate
 
Reform
 
(Topic
 
848),
 
Facilitation
 
of
 
the
 
Effects
 
of
Reference Rate Reform
 
on Financial Reporting.
 
In January 2021,
 
the FASB
 
clarified the scope
 
of this guidance
 
with ASU
2021-01 which provides optional
 
guidance for a limited
 
period of time to
 
ease the burden in
 
accounting for (or
 
recognizing
the effects of)
 
reference rate reform on
 
financial reporting. This ASU
 
is effective from March 12,
 
2020 through December 31,
2022. The
 
Company is
 
evaluating the
 
impact of
 
this ASU
 
and has
 
not yet
 
determined whether
 
LIBOR transition
 
and this
ASU will have a material effect on our business operations
 
and consolidated financial statements.
Trouble Debt Restructuring
In
 
March
 
2022,
 
the
 
FASB
 
issued
 
ASU
 
2022-02,
 
Financial
 
Instruments—Credit
 
Losses
 
(Topic
 
326):
 
Troubled
 
Debt
Restructurings and Vintage Disclosures.
 
This ASU eliminates the recognition and measurement guidance on troubled debt
restructurings for
 
creditors and
 
aligns it
 
with existing
 
guidance to
 
determine whether
 
a loan
 
modification results
 
in a
 
new
loan
 
or
 
a
 
continuation
 
of
 
an
 
existing
 
loan.
 
The
 
new
 
guidance
 
also
 
requires
 
enhanced
 
disclosures
 
about
 
certain
 
loan
modifications by
 
creditors
 
when a
 
borrower is
 
experiencing financial
 
difficulty.
 
This ASU
 
is effective
 
in periods
 
beginning
after
 
December
 
15,
 
2022,
 
using
 
either
 
a
 
prospective
 
or
 
modified
 
retrospective
 
transition
 
approach.
 
Early
 
adoption
 
is
permitted for entities that have already adopted CECL.
 
The Company is in the process of reviewing this
 
ASU, as part of its
CECL implementation efforts,
 
to determine
 
whether it would
 
have a material
 
impact on
 
the Company’s consolidated financial
statements when adopted.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
10
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
2.
 
INVESTMENT SECURITIES
 
The following
 
tables present
 
a summary
 
of the amortized
 
cost, unrealized
 
or unrecognized
 
gains and
 
losses,
 
and fair
value of investment securities at the dates indicated (in
 
thousands):
June 30, 2022
Available-for-sale:
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
U.S. Government Agency
$
27,816
$
-
$
(1,966)
$
25,850
U.S. Treasury
2,468
-
(31)
2,437
Collateralized mortgage obligations
155,340
-
(21,520)
133,820
Mortgage-backed securities - residential
111,708
-
(15,726)
95,982
Mortgage-backed securities - commercial
44,670
-
(4,549)
40,121
Municipal securities
25,124
-
(5,522)
19,602
Bank subordinated debt securities
16,503
53
(584)
15,972
Corporate bonds
6,062
-
(382)
5,680
$
389,691
$
53
$
(50,280)
$
339,464
Held-to-maturity:
 
 
 
U.S. Government Agency
$
34,100
$
-
$
(4,692)
$
29,408
Collateralized mortgage obligations
40,806
-
(5,513)
35,293
Mortgage-backed securities - residential
27,478
-
(3,954)
23,524
Mortgage-backed securities - commercial
3,095
-
(403)
2,692
Corporate bonds
11,192
-
(1,042)
10,150
$
116,671
$
-
$
(15,604)
$
101,067
December 31, 2021
Available-for-sale:
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
U.S. Government Agency
$
10,564
$
6
$
(50)
$
10,520
Collateralized mortgage obligations
160,506
22
(3,699)
156,829
Mortgage-backed securities - residential
120,643
228
(2,029)
118,842
Mortgage-backed securities - commercial
49,905
820
(608)
50,117
Municipal securities
25,164
6
(894)
24,276
Bank subordinated debt securities
27,003
1,418
(13)
28,408
Corporate bonds
12,068
482
-
12,550
$
405,853
$
2,982
$
(7,293)
$
401,542
Held-to-maturity:
U.S. Government Agency
$
34,505
$
14
$
(615)
$
33,904
Collateralized mortgage obligations
44,820
-
(1,021)
43,799
Mortgage-backed securities - residential
26,920
-
(568)
26,352
Mortgage-backed securities - commercial
3,103
-
(90)
3,013
Corporate bonds
13,310
-
(221)
13,089
$
122,658
$
14
$
(2,515)
$
120,157
During the
 
year ended
 
December 31,
 
2021, a
 
total of
28
 
investment securities
 
with an
 
amortized cost
 
basis and
 
fair
value of
 
$
67.6
 
million and
 
$
68.7
 
million, respectively,
 
were transferred
 
from
 
available-for-sale
 
(“AFS”) to
 
held-to-maturity
(“HTM”). These securities had a net unrealized gain
 
of $
1.1
 
million on the date of transfer,
 
with no immediate impact to net
income on the transfer
 
date. The unrealized gain or
 
loss of each security
 
at the date of
 
transfer was retained in accumulated
other comprehensive income (“AOCI”)
 
and in the carrying value
 
of the HTM securities.
 
The net unrealized gains
 
that were
retained in AOCI are being amortized over the remaining
 
life of the transferred securities. For the three
 
months and the six
months ended June 30, 2022, total amortization
 
out of AOCI for net unrealized gains
 
on securities transferred from AFS to
HTM was $
61
 
thousand and $
126
 
thousand, respectively.
 
Two of these
 
transferred securities totaling $
2.0
 
million matured
during the second quarter of 2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
11
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
Gains and losses on
 
the sale of securities are
 
recorded on the trade date
 
and are determined on a
 
specific identification
basis. The following table presents the proceeds, realized
 
gross gains and realized gross losses on sales and
 
calls of AFS
debt securities for the three and six months ended June
 
30, 2022 and 2021 (in thousands):
Three Months Ended June 30,
Six Months Ended June 30,
Available-for-sale:
2022
2021
2022
2021
Proceeds from sale and call of securities
$
17,280
$
29,018
$
31,838
$
43,266
Gross gains
$
58
$
363
$
216
$
438
Gross losses
(61)
(176)
(198)
(189)
Net realized gain (loss)
$
(3)
$
187
$
18
$
249
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
June 30, 2022:
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
Due after one year through five years
$
8,530
$
8,117
$
11,192
$
10,150
Due after five years through ten years
17,503
16,822
-
-
Due after ten years
24,124
18,752
-
-
U.S. Government Agency
27,816
25,850
34,100
29,408
Collateralized mortgage obligations
155,340
133,820
40,806
35,293
Mortgage-backed securities - residential
 
111,708
95,982
27,478
23,524
Mortgage-backed securities - commercial
 
44,670
40,121
3,095
2,692
$
389,691
$
339,464
$
116,671
$
101,067
At June 30, 2022, there were
 
no securities held in the
 
portfolio from any one issuer,
 
in an amount greater than
 
10% of
total
 
stockholders’
 
equity
 
other
 
than
 
the
 
United
 
States
 
Government
 
and
 
Government
 
Agencies.
 
All
 
the
 
collateralized
mortgage obligations and mortgage-backed securities are issued by United States sponsored entities
 
at June 30, 2022 and
December 31, 2021.
Information pertaining
 
to investment
 
securities with
 
gross unrealized
 
losses, aggregated
 
by investment
 
category
 
and
length of
 
time that
 
those
 
individual securities
 
have been
 
in a
 
continuous
 
loss position,
 
are presented
 
as of
 
the following
dates (in thousands):
June 30, 2022
Less than 12 months
12 months or more
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
U.S. Government Agency
$
40,053
$
(3,976)
$
15,205
$
(2,787)
$
55,258
$
(6,763)
U.S. Treasury
2,437
(31)
-
-
2,437
(31)
Collateralized mortgage obligations
100,414
(14,042)
68,699
(12,991)
169,113
(27,033)
Mortgage-backed securities - residential
77,724
(10,426)
41,782
(8,927)
119,506
(19,353)
Mortgage-backed securities - commercial
36,712
(3,830)
6,101
(1,057)
42,813
(4,887)
Municipal securities
 
6,050
(1,560)
13,552
(3,962)
19,602
(5,522)
Bank subordinated debt securities
11,919
(584)
-
-
11,919
(584)
Corporate bonds
15,830
(859)
-
-
15,830
(859)
$
291,139
$
(35,308)
$
145,339
$
(29,724)
$
436,478
$
(65,032)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
12
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
December 31, 2021
Less than 12 months
12 months or more
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
U.S. Government Agency
$
25,951
$
(254)
$
15,477
$
(516)
$
41,428
$
(770)
Collateralized mortgage obligations
155,668
(3,223)
38,459
(1,497)
194,127
(4,720)
Mortgage-backed securities - residential
88,772
(1,178)
37,373
(1,274)
126,145
(2,452)
Mortgage-backed securities - commercial
25,289
(318)
7,507
(309)
32,796
(627)
Municipal securities
 
11,292
(395)
11,978
(499)
23,270
(894)
Bank subordinated debt securities
4,487
(13)
-
-
4,487
(13)
$
311,459
$
(5,381)
$
110,794
$
(4,095)
$
422,253
$
(9,476)
As of June 30,
 
2022, the unrealized
 
losses associated
 
with $
62.2
 
million of
 
investment securities
 
transferred from
 
the
AFS
 
portfolio
 
to
 
the
 
HTM
 
portfolio
 
represent
 
unrealized
 
losses
 
since
 
the
 
date
 
of
 
purchase,
 
independent
 
of
 
the
 
impact
associated with changes in the cost basis upon transfer
 
between portfolios.
The Company performs a review
 
of the investments that have
 
an unrealized loss to determine
 
whether there have been
any changes in the
 
economic circumstance of the security
 
issuer to indicate that
 
the unrealized loss is
 
impaired on an other-
than-temporary (“OTTI”) basis. Management
 
considers several factors in
 
their analysis including
 
(i) the severity
 
and duration
of the impairment,
 
(ii) the
 
credit rating
 
of the
 
security including
 
any downgrade,
 
(iii) the
 
intent to
 
sell the security,
 
or if
 
it is
more likely than
 
not that it
 
will be required
 
to sell the
 
security before recovery
 
,
 
(iv) whether
 
there have been
 
any payment
defaults and (v) the underlying guarantor of the securities.
The company does not consider these investments to be OTTI as the decline in market value
 
is attributable to changes
in market
 
interest rates
 
and not
 
credit quality,
 
and because
 
the Company
 
does not
 
intend to
 
sell the
 
investments before
recovery
 
of its
 
amortized
 
cost
 
basis, which
 
may be
 
maturity,
 
and
 
it
 
is more
 
likely
 
than not
 
that
 
the Company
 
will not
 
be
required to sell the securities before maturity.
Pledged Securities
The Company
 
maintains a
 
master repurchase
 
agreement with
 
a public
 
banking institution
 
for up
 
to $
20.0
 
million fully
guaranteed with investment
 
securities upon withdrawal.
 
Any amounts borrowed
 
would be at a
 
variable interest rate
 
based
on prevailing rates at the time funding is requested. As of June 30, 2022, the Company did not have any
 
securities pledged
under this agreement.
The Company is a
 
Qualified Public Depositor
 
(“QPD”) with the
 
state of Florida.
 
As a QPD, the
 
Company has the
 
legal
authority to maintain public deposits
 
from cities, municipalities, and the state
 
of Florida. These public deposits
 
are secured
by securities
 
pledged to
 
the state
 
of Florida
 
at a
 
ratio of
25
% of
 
the outstanding
 
uninsured deposits.
 
The Company
 
must
also maintain a minimum amount of pledged securities to be
 
in the public funds program.
As of June 30, 2022, the Company had a total of $
93.7
 
million in deposits under the public funds program and pledged
to the state of Florida for these public funds were
fourteen
 
corporate bonds with an aggregate fair value of $
23.6
 
million.
As of
 
December 31,
 
2021, the
 
Company had
 
a total
 
of $
37.3
 
million in
 
deposits under
 
the public
 
funds program
 
and
pledged
 
to
 
the
 
state
 
of
 
Florida
 
for
 
these
 
public
 
funds
 
were
eleven
 
corporate
 
bonds
 
with
 
an
 
aggregate
 
fair
 
value
 
of
$
20.4
 
million.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
13
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
3.
 
LOANS
The following table is a summary of the distribution of
 
loans held for investment by type (in thousands):
 
June 30, 2022
December 31, 2021
Total
Percent of
Total
Total
Percent of
Total
Residential Real Estate
$
203,662
14.8
%
$
201,359
16.9
%
Commercial Real Estate
843,445
61.5
%
704,988
59.2
%
Commercial and Industrial
131,271
9.5
%
146,592
12.3
%
Foreign Banks
84,770
6.2
%
59,491
5.0
%
Consumer and Other
 
109,250
8.0
%
79,229
6.6
%
Total
 
gross loans
1,372,398
100.0
%
1,191,659
100.0
%
Less: Deferred fees (cost)
(335)
1,578
Total
 
loans net of deferred fees (cost)
1,372,733
1,190,081
Less: Allowance for credit losses
15,786
15,057
Total
 
net loans
$
1,356,947
$
1,175,024
At
 
June 30,
 
2022
 
and
 
December 31,
 
2021,
 
the
 
Company
 
had
 
$
159.9
 
million
 
and
 
$
185.1
 
million,
 
respectively,
 
of
commercial real estate
 
and residential mortgage loans
 
pledged as collateral
 
on lines of
 
credit with the
 
FHLB and the
 
Federal
Reserve Bank of Atlanta.
The Company was a participant
 
in the Small Business
 
Administration’s (“SBA”) Paycheck
 
Protection Program (“PPP”)
loans. These
 
loans were
 
designed to
 
provide a
 
direct incentive
 
for small
 
businesses to
 
keep their
 
workers on
 
payroll and
the funds had to be used towards payroll cost, mortgage interest, rent, utilities and other costs related to COVID-19. These
loans
 
are
 
forgivable
 
under
 
specific criteria
 
as
 
determined
 
by the
 
SBA.
 
The
 
Company
 
had
 
PPP
 
loans
 
of
 
$
13.5
 
million
 
at
June 30, 2022 and
 
$
42.4
 
million at December 31,
 
2021, which are
 
categorized as commercial
 
and industrial loans.
 
These
PPP loans had deferred loan fees of $
149
 
thousand at June 30, 2022 and $
1.5
 
million at December 31, 2021.
The Company
 
recognized
 
$
1.5
 
million
 
and $
2.4
 
million
 
in
 
PPP loan
 
fees
 
and
 
interest
 
income
 
during the
 
six
 
months
ended
 
June 30,
 
2022
 
and
 
2021,
 
respectively,
 
which
 
is
 
reported
 
under
 
loans,
 
including
 
fees,
 
within
 
the
 
Consolidated
Statements of Operations.
The
 
Company
 
segments
 
the
 
portfolio
 
by
 
pools
 
grouping
 
loans
 
that
 
share
 
similar
 
risk
 
characteristics
 
and
 
employing
collateral type
 
and lien
 
position to
 
group loans
 
according to
 
risk. The
 
Company determines
 
historical
 
loss rates
 
for each
loan
 
pool
 
based
 
on
 
its
 
own
 
loss
 
experience.
 
In
 
estimating
 
credit
 
losses,
 
the
 
Company
 
also
 
considers
 
qualitative
 
and
environmental factors that may cause estimated credit losses
 
for the loan portfolio to differ from historical
 
losses.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
14
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
Changes in the allowance for credit losses for
 
the three and six months ended June 30, 2022 and
 
2021 were as follows
(in thousands):
 
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Foreign
Banks
Consumer
and Other
Total
Three Months Ended June 30, 2022
Beginning balance
$
2,357
$
9,183
$
2,355
$
491
$
688
$
15,074
Provision for credit losses
9
107
311
160
118
705
Recoveries
-
-
5
-
3
8
Charge-offs
-
-
-
-
(1)
(1)
Ending Balance
 
$
2,366
$
9,290
$
2,671
$
651
$
808
$
15,786
 
 
 
 
 
Six Months Ended June 30, 2022
 
 
 
 
 
Beginning balance
$
2,498
$
8,758
$
2,775
$
457
$
569
$
15,057
Provision for credit losses
(148)
532
(115)
194
242
705
Recoveries
32
-
11
-
3
46
Charge-offs
(16)
-
-
-
(6)
(22)
Ending Balance
 
$
2,366
$
9,290
$
2,671
$
651
$
808
$
15,786
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Foreign
Banks
Consumer
and Other
Total
Three Months Ended June 30, 2021
Beginning balance
$
3,087
$
9,320
$
2,005
$
407
$
190
$
15,009
Provision for credit losses
(322)
(568)
398
147
345
-
Recoveries
4
-
64
-
1
69
Charge-offs
(229)
-
-
-
(1)
(230)
Ending Balance
 
$
2,540
$
8,752
$
2,467
$
554
$
535
$
14,848
 
 
 
 
 
Six Months Ended June 30, 2021
 
 
 
 
 
Beginning balance
$
3,408
$
9,453
$
1,689
$
348
$
188
$
15,086
Provision for credit losses
(647)
(701)
627
206
355
(160)
Recoveries
8
-
151
-
2
161
Charge-offs
(229)
-
-
-
(10)
(239)
Ending Balance
 
$
2,540
$
8,752
$
2,467
$
554
$
535
$
14,848
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
15
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
Allowance for credit losses and the
 
outstanding balances in loans as
 
of June 30, 2022 and December
 
31, 2021 are as
follows (in thousands):
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Foreign
Banks
Consumer
and Other
Total
June 30, 2022:
Allowance for credit losses:
Individually evaluated for impairment
$
165
$
-
$
50
$
-
$
104
$
319
Collectively evaluated for impairment
2,201
9,290
2,621
651
704
15,467
Balances, end of period
$
2,366
$
9,290
$
2,671
$
651
$
808
$
15,786
 
 
 
 
 
Loans:
 
 
 
 
 
Individually evaluated for impairment
$
7,307
$
594
$
99
$
-
$
210
$
8,210
Collectively evaluated for impairment
196,355
842,851
131,172
84,770
109,040
1,364,188
Balances, end of period
$
203,662
$
843,445
$
131,271
$
84,770
$
109,250
$
1,372,398
 
 
 
 
 
December 31, 2021:
 
 
 
 
 
Allowance for credit losses:
 
 
 
 
 
Individually evaluated for impairment
$
178
$
-
$
71
$
-
$
111
$
360
Collectively evaluated for impairment
2,320
8,758
2,704
457
458
14,697
Balances, end of period
$
2,498
$
8,758
$
2,775
$
457
$
569
$
15,057
 
 
 
 
 
Loans:
 
 
 
 
 
Individually evaluated for impairment
$
9,006
$
696
$
141
$
-
$
224
$
10,067
Collectively evaluated for impairment
192,353
704,292
146,451
59,491
79,005
1,181,592
Balances, end of period
$
201,359
$
704,988
$
146,592
$
59,491
$
79,229
$
1,191,659
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
16
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
Credit Quality Indicators
The Company grades loans based on the estimated capability of the borrower to repay the contractual obligation of the
loan agreement based
 
on relevant information
 
which may include:
 
current financial information
 
on the borrower,
 
historical
payment
 
experience,
 
credit
 
documentation
 
and
 
other
 
current
 
economic
 
trends.
 
Internal
 
credit
 
risk
 
grades
 
are
 
evaluated
periodically.
 
The Company's internally assigned credit risk grades are as follows:
Pass
– Loans indicate different levels of satisfactory
 
financial condition and performance.
 
Special Mention
 
– Loans classified as special mention have a potential weakness
 
that deserves management’s
close attention. If left uncorrected, these potential weaknesses
 
may result in deterioration of the repayment
prospects for the loan or of the institution’s
 
credit position at some future date.
 
Substandard
– Loans classified as substandard are inadequately protected
 
by the current net worth and paying
capacity of the obligator or of the collateral pledged, if
 
any. Loans so classified
 
have a well-defined weakness or
weaknesses that jeopardize the liquidation of the debt.
 
They are characterized by the distinct possibility that the
institution will sustain some loss if the deficiencies are
 
not corrected.
 
Doubtful
 
– Loans classified as doubtful have all the weaknesses inherent
 
in those classified at substandard, with
the added characteristic that the weaknesses make collection
 
or liquidation in full on the basis of currently existing
facts, conditions, and values, highly questionable and improbable.
 
Loss
– Loans classified as loss are considered uncollectible.
Loan credit exposures by internally assigned grades are
 
presented below for the periods indicated (in thousands):
As of June 30, 2022
Pass
Special
Mention
Substandard
Doubtful
Total Loans
Residential real estate:
Home equity line of credit ("HELOC") and other
$
707
$
-
$
-
$
-
$
707
1-4 family residential
144,937
-
-
-
144,937
Condo residential
58,018
-
-
-
58,018
203,662
-
-
-
203,662
Commercial real estate:
 
 
 
 
Land and construction
37,326
-
-
-
37,326
Multi-family residential
134,535
-
-
-
134,535
Condo commercial
48,103
-
406
-
48,509
Commercial property
621,789
1,197
-
-
622,986
Leasehold improvements
89
-
-
-
89
841,842
1,197
406
-
843,445
Commercial and industrial:
(1)
 
 
 
 
Secured
111,293
-
462
-
111,755
Unsecured
19,516
-
-
-
19,516
130,809
-
462
-
131,271
 
 
 
 
Foreign banks
84,770
-
-
-
84,770
Consumer and other loans
109,040
-
210
-
109,250
 
 
 
 
Total
$
1,370,123
$
1,197
$
1,078
$
-
$
1,372,398
(1)
 
All outstanding PPP loans were internally graded
 
pass.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
17
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
As of December 31, 2021
Pass
Special
Mention
Substandard
Doubtful
Total Loans
Residential real estate:
Home equity line of credit ("HELOC") and other
$
701
$
-
$
-
$
-
$
701
1-4 family residential
130,840
-
4,581
-
135,421
Condo residential
65,237
-
-
-
65,237
196,778
-
4,581
-
201,359
Commercial real estate:
Land and construction
24,581
-
-
-
24,581
Multi-family residential
127,489
-
-
-
127,489
Condo commercial
41,983
-
417
-
42,400
Commercial property
509,189
1,222
-
-
510,411
Leasehold improvements
107
-
-
-
107
703,349
1,222
417
-
704,988
Commercial and industrial:
(1)
Secured
97,605
-
536
-
98,141
Unsecured
48,434
-
17
-
48,451
146,039
-
553
-
146,592
Foreign banks
59,491
-
-
-
59,491
Consumer and other loans
79,005
-
224
-
79,229
Total
$
1,184,662
$
1,222
$
5,775
$
-
$
1,191,659
(1)
 
All outstanding PPP loans were internally graded
 
pass.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
18
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
Loan Aging
The Company
 
also considers the
 
performance of loans
 
in grading
 
and in
 
evaluating the
 
credit quality
 
of the
 
loan portfolio.
The Company
 
analyzes credit
 
quality and
 
loan grades
 
based on
 
payment performance
 
and the
 
aging status
 
of the
 
loan.
 
The
 
following
 
tables
 
include
 
an
 
aging
 
analysis
 
of
 
accruing
 
loans
 
and
 
total
 
non-accruing
 
loans
 
as
 
of
 
June 30,
 
2022
 
and
December 31, 2021 (in thousands):
Accruing
As of June 30, 2022:
Current
Past Due 30-
89 Days
Past Due 90
Days or >
and Still
Accruing
Total
Accruing
Non-Accrual
Total Loans
Residential real estate:
Home equity line of credit and other
$
707
$
-
 
$
-
$
707
$
-
$
707
1-4 family residential
144,937
-
-
144,937
-
144,937
Condo residential
57,338
680
-
58,018
-
58,018
202,982
680
-
203,662
-
203,662
Commercial real estate:
 
-
 
Land and construction
37,326
-
-
37,326
-
37,326
Multi-family residential
134,535
-
-
134,535
-
134,535
Condo commercial
48,509
-
-
48,509
-
48,509
Commercial property
622,986
-
-
622,986
-
622,986
Leasehold improvements
89
-
-
89
-
89
843,445
-
-
843,445
-
843,445
Commercial and industrial:
 
-
 
Secured
111,556
199
-
111,755
-
111,755
Unsecured
19,516
-
-
19,516
-
19,516
131,072
199
-
131,271
-
131,271
 
-
 
Foreign banks
84,770
-
-
84,770
-
84,770
Consumer and other
109,250
-
-
109,250
-
109,250
 
-
 
Total
$
1,371,519
$
879
$
-
$
1,372,398
$
-
$
1,372,398
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
19
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
Accruing
As of December 31, 2021:
Current
Past Due
30-89 Days
Past Due 90
Days or >
and Still
Accruing
Total
Accruing
Non-Accrual
Total Loans
Residential real estate:
Home equity line of credit and other
$
701
$
-
$
-
$
701
$
-
$
701
1-4 family residential
133,942
289
-
134,231
1,190
135,421
Condo residential
64,243
994
-
65,237
-
65,237
198,886
1,283
-
200,169
1,190
201,359
Commercial real estate:
 
 
 
 
Land and construction
24,581
-
-
24,581
-
24,581
Multi-family residential
127,053
436
-
127,489
-
127,489
Condo commercial
42,400
-
-
42,400
-
42,400
Commercial property
510,411
-
-
510,411
-
510,411
Leasehold improvements
107
-
-
107
-
107
704,552
436
-
704,988
-
704,988
Commercial and industrial:
 
 
 
 
Secured
98,141
-
-
98,141
-
98,141
Unsecured
48,041
410
-
48,451
-
48,451
146,182
410
-
146,592
-
146,592
 
 
 
 
Foreign banks
59,491
-
-
59,491
-
59,491
Consumer and other
78,969
260
-
79,229
-
79,229
 
 
Total
$
1,188,080
$
2,389
$
-
$
1,190,469
$
1,190
$
1,191,659
There was
no
 
interest income recognized attributable to nonaccrual loans outstanding during June 30, 2022 and 2021.
Interest income on
 
these loans for
 
the three months
 
ended June 30, 2022
 
and 2021, would
 
have been approximately $
0
 
and
$
1
 
thousand, respectively,
 
had these loans performed in accordance with their original terms.
 
Impaired Loans
The following table includes
 
the unpaid principal balances
 
for impaired loans with
 
the associated allowance amount,
 
if
applicable, on the basis of impairment methodology at
 
the dates indicated (in thousands):
June 30, 2022
December 31, 2021
Unpaid
Principal
Balance
Net
Investment
Balance
Valuation
Allowance
Unpaid
Principal
Balance
Net
Investment
Balance
Valuation
Allowance
Impaired Loans with No Specific Allowance:
Residential real estate
$
3,598
$
3,592
$
-
$
5,021
$
5,035
$
-
Commercial real estate
593
593
-
696
695
-
4,191
4,185
-
5,717
5,730
-
Impaired Loans with Specific Allowance:
 
 
 
 
 
 
Residential real estate
3,710
3,677
165
3,985
3,950
178
Commercial and industrial
99
99
50
141
141
71
Consumer and other
210
210
104
224
224
111
4,019
3,986
319
4,350
4,315
360
Total
$
8,210
$
8,171
$
319
$
10,067
$
10,045
$
360
Net investment balance is the unpaid principal balance
 
of the loan adjusted for the remaining net deferred loan
 
fees.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
20
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
The following
 
table presents
 
the average
 
recorded
 
investment
 
balance
 
on impaired
 
loans for
 
the dates
 
indicated
 
(in
thousands):
Three Months Ended June 30,
Six Months Ended June 30,
2022
2021
2022
2021
Residential real estate
$
7,332
$
8,321
$
7,890
$
9,027
Commercial real estate
599
718
631
723
Commercial and industrial
115
188
124
192
Consumer and other
214
262
217
268
Total
$
8,260
$
9,489
$
8,862
$
10,210
Interest income recognized on
 
impaired loans for the
 
three months ended June
 
30, 2022 and 2021
 
was $
90
 
thousand
and $
105
 
thousand, respectively.
Interest income
 
recognized on
 
impaired loans
 
for the
 
six months
 
ended June 30,
 
2022 and
 
2021 was
 
$
181
 
thousand
and $
214
 
thousand, respectively.
Troubled Debt Restructuring
A troubled
 
debt
 
restructuring
 
(“TDR”)
 
occurs
 
when
 
the
 
Company
 
has agreed
 
to
 
a loan
 
modification
 
in
 
the
 
form
 
of
 
a
concession
 
for
 
a
 
borrower
 
who
 
is
 
experiencing
 
financial
 
difficulty.
 
Modifications
 
to
 
loans
 
can
 
be
 
made
 
for
 
rate,
 
term,
payment, conversion of
 
loan to interest
 
only for a
 
limited period of
 
time or a
 
combination to include
 
more than one
 
type of
modification.
 
The following table presents performing and non-performing
 
TDRs at the dates indicated (in thousands):
June 30, 2022
December 31, 2021
Accrual Status
Non-Accrual
Status
Total TDRs
Accrual Status
Non-Accrual
Status
Total TDRs
Residential real estate
$
7,307
$
-
$
7,307
$
7,815
$
-
$
7,815
Commercial real estate
594
-
594
696
-
696
Commercial and industrial
99
-
99
141
-
141
Consumer and other
 
210
-
210
224
-
224
Total
$
8,210
$
-
$
8,210
$
8,876
$
-
$
8,876
The Company had allocated
 
$
319
 
thousand and $
360
 
thousand of specific allowance
 
for TDR loans at
 
June 30, 2022
and December
 
31, 2021,
 
respectively.
 
There were
no
 
charge-offs
 
on TDR
 
loans
 
during the
 
three and
 
six
 
months ended
June 30, 2022 and 2021. There were
no
 
commitments outstanding to lend additional funds to any of these TDR customers
as of June 30, 2022.
During the
 
quarter ended
 
June 30,
 
2022
 
and 2021,
 
there were
no
 
defaults on
 
loans
 
which
 
were modified
 
as a
 
TDR
within the prior
 
12 months. The
 
Company also did
no
t have any
 
new TDR loans
 
for the three
 
and six months ended
 
June 30,
2022 and 2021.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
21
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
4.
 
INCOME TAXES
 
The Company’s provision for income taxes is presented
 
in the following table for the dates indicated (in thousands):
Six Months Ended June 30,
2022
2021
Current:
Federal
$
-
$
-
State
-
-
Total
 
current
-
-
Deferred:
Federal
2,778
2,268
State
788
493
Total
 
deferred
3,566
2,761
Total
 
tax expense
$
3,566
$
2,761
The actual income tax
 
expense for the six
 
months ended June 30, 2022 and
 
2021 differs from the statutory
 
tax expense
for the year (computed by applying the
 
U.S. federal corporate tax rate of
21
% for 2022 and 2021 to
 
income before provision
for income taxes) as follows (in thousands):
Six Months Ended June 30,
2022
2021
Federal taxes at statutory rate
$
2,880
$
2,435
State income taxes, net of federal tax benefit
596
406
Bank owned life insurance
(134)
(82)
Other, net
224
2
Total
 
tax expense
$
3,566
$
2,761
The Company’s deferred tax assets and deferred
 
tax liabilities as of the dates indicated were (in thousands):
June 30, 2022
December 31, 2021
Deferred tax assets:
Net operating loss
$
25,768
$
28,819
Allowance for credit losses
4,001
3,816
Lease liability
3,440
3,595
Unrealized losses on available for sale securities
12,514
817
Deferred loan fees
-
400
Depreciable property
134
361
Stock option compensation
298
241
Accruals
447
600
Other, net
144
2
Deferred tax assets:
46,746
38,651
Deferred tax liability:
Deferred loan cost
(85)
-
Lease right of use asset
(3,440)
(3,595)
Deferred expenses
(162)
(127)
Deferred tax liability
(3,687)
(3,722)
Net deferred tax assets
$
43,059
$
34,929
The Company
 
has approximately
 
$
97.8
 
million of
 
federal and
 
$
120.5
 
million of
 
state net
 
operating loss
 
carryforwards
expiring in various amounts between 2031 and 2036 and are
 
limited to future taxable earnings of the Company.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
22
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
In assessing the realizability of deferred tax assets, management considers
 
whether it is more likely than not that some
portion or
 
all of
 
the deferred
 
tax assets
 
will not
 
be realized.
 
The ultimate
 
realization
 
of deferred
 
tax assets
 
is dependent
upon the generation of
 
future taxable income
 
during the periods
 
in which those temporary
 
differences become deductible.
Management considers the scheduled reversal
 
of deferred tax liabilities, projected future taxable
 
income, and tax planning
strategies in making this assessment.
The major tax jurisdictions where the Company files income tax returns are the U.S. federal jurisdiction and the state
 
of
Florida. With few
 
exceptions, the
 
Company is
 
no longer
 
subject to
 
U.S. federal and
 
state income
 
tax examinations
 
by tax
authorities for years before 2018.
For the three
 
months ended
 
June 30, 2022
 
and 2021,
 
the Company
 
did
no
t have
 
any unrecognized
 
tax benefits
 
as a
result of
 
tax positions
 
taken during
 
a prior
 
period or
 
during the
 
current period.
 
Additionally,
no
 
interest or
 
penalties
 
were
recorded as a result of tax uncertainties.
5.
 
OFF-BALANCE SHEET ARRANGEMENTS
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business in order to
meet the financial
 
needs of
 
its customers
 
and to reduce
 
its own
 
exposure to
 
fluctuations in
 
interest rates.
 
These financial
instruments include
 
unfunded commitments
 
under lines
 
of credit,
 
commitments to
 
extend credit,
 
standby and
 
commercial
letters of
 
credit. Those
 
instruments involve,
 
to varying
 
degrees, elements
 
of credit
 
and interest
 
rate risk
 
in excess
 
of the
amount recognized in the Company’s Consolidated Balance Sheets. The Company uses the
 
same credit policies in making
commitments and conditional obligations as it does for on-balance
 
sheet instruments.
The Company's exposure
 
to credit loss
 
in the event
 
of nonperformance by
 
the other party
 
to the financial
 
instruments
for unused lines of credit, and standby letters of credit
 
is represented by the contractual amount of these commitments.
A
 
summary
 
of
 
the
 
amounts
 
of
 
the
 
Company's
 
financial
 
instruments
 
with
 
off-balance
 
sheet
 
risk
 
are
 
shown
 
below
 
at
June 30, 2022 and December 31, 2021 (in thousands):
 
June 30, 2022
December 31, 2021
Commitments to grant loans and unfunded lines of credit
$
142,498
$
134,877
Standby and commercial letters of credit
3,843
6,420
$
146,341
$
141,297
Commitments to
 
extend credit
 
are agreements
 
to lend
 
to a
 
customer as
 
long as
 
there is
 
no violation
 
of any
 
condition
established in the contract. Commitments generally have
 
fixed expiration dates or other termination clauses.
Unfunded lines of
 
credit and revolving
 
credit lines are
 
commitments for possible
 
future extensions
 
of credit to
 
existing
customers. These lines of
 
credit are uncollateralized and
 
usually do not contain
 
a specified maturity date
 
and ultimately may
not be drawn upon to the total extent to which the Company
 
committed.
Standby
 
and
 
commercial
 
letters
 
of
 
credit
 
are
 
conditional
 
commitments
 
issued
 
by
 
the
 
Company
 
to
 
guarantee
 
the
performance of a
 
customer to
 
a third
 
party. Those letters of
 
credit are
 
primarily issued to
 
support public and
 
private borrowing
arrangements. Essentially all letters of credit have fixed maturity dates and many of them expire without being drawn upon,
they do not generally present a significant liquidity risk
 
to the Company.
6.
 
DERIVATIVES
 
The Company utilizes interest rate swap agreements
 
as part of its asset liability management strategy
 
to help manage
its interest
 
rate risk
 
position. The
 
notional amount
 
of the
 
interest rate
 
swaps do
 
not represent
 
amounts exchanged
 
by the
parties. The amounts exchanged are
 
determined by reference to
 
the notional amount and the
 
other terms of the individual
interest rate swap agreements.
 
The Company enters into interest rate swaps with its loan customers. The Company had
17
 
and
18
 
interest rate swaps
with
 
loan
 
customers
 
with
 
an
 
aggregate
 
notional
 
amount
 
of
 
$
36.3
 
million
 
and
 
$
39.2
 
million
 
at
 
June 30,
 
2022
 
and
December 31, 2021,
 
respectively.
 
These interest
 
rate swaps
 
mature between
 
2025 and
 
2051. The
 
Company entered
 
into
corresponding
 
and
 
offsetting
 
derivatives
 
with
 
third
 
parties.
 
The
 
fair
 
value
 
of
 
liability
 
on
 
these
 
derivatives
 
requires
 
the
Company to provide the counterparty
 
with funds to be held as collateral
 
which the Company reports as other
 
assets under
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
23
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
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 customer-related
 
interest rate swaps at the dates indicated (in thousands):
 
Fair Value
Notional
Amount
Collateral
Amount
Balance Sheet Location
Asset
Liability
June 30, 2022:
Derivatives not designated as hedging instruments:
Interest rate swaps related to customer loans
$
36,315
$
1,260
Other assets/Other liabilities
$
3,831
$
3,831
December 31, 2021:
Derivatives not designated as hedging instruments:
Interest rate swaps related to customer loans
$
39,156
$
1,260
Other assets/Other liabilities
$
1,434
$
1,434
7.
 
FAIR VALUE
 
MEASUREMENTS
 
Determination of Fair Value
The Company
 
uses
 
fair value
 
measurements
 
to record
 
fair-value
 
adjustments
 
to certain
 
assets
 
and liabilities
 
and to
determine fair value
 
disclosures. In accordance
 
with the fair
 
value measurements
 
accounting guidance, the
 
fair value of
 
a
financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market
 
participants
 
at the
 
measurement
 
date.
 
Fair value
 
is best
 
determined based
 
upon quoted
 
market prices.
However, in
 
many instances, there
 
are no quoted
 
market prices for the
 
Company's various financial
 
instruments. In cases
where quoted
 
market prices
 
are not
 
available, fair
 
values are
 
based on
 
estimates using
 
present value
 
or other
 
valuation
techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates
of future cash flows. Accordingly, the fair value estimates may not be realized in
 
an immediate settlement of the instrument.
The fair
 
value guidance provides
 
a consistent definition
 
of fair
 
value, which focuses
 
on exit
 
price in
 
an orderly transaction
(that is,
 
not a
 
forced
 
liquidation
 
or distressed
 
sale) between
 
market participants
 
at the
 
measurement
 
date
 
under current
market conditions.
 
If there
 
has been
 
a significant
 
decrease
 
in the
 
volume
 
and level
 
of activity
 
for the
 
asset
 
or liability,
 
a
change in
 
valuation technique or
 
the use
 
of multiple
 
valuation techniques may
 
be appropriate.
 
In such
 
instances, determining
the
 
price
 
at
 
which
 
willing
 
market
 
participants
 
would
 
transact
 
at
 
the
 
measurement
 
date
 
under
 
current
 
market
 
conditions
depends on the facts
 
and circumstances and
 
requires the use of
 
significant judgment. The fair
 
value is a reasonable
 
point
within the range that is most representative of fair value under
 
current market conditions.
Fair Value Hierarchy
In accordance with
 
this guidance, the
 
Company groups its
 
financial assets
 
and financial liabilities
 
generally measured
at fair
 
value in
 
three
 
levels, based
 
on the
 
markets
 
in which
 
the assets
 
and liabilities
 
are traded,
 
and the
 
reliability
 
of the
assumptions used to determine fair value.
Level 1
 
- Valuation
 
is based
 
on quoted
 
prices in
 
active markets
 
for identical
 
assets or
 
liabilities that
 
the reporting
entity has
 
the ability
 
to access
 
at the measurement
 
date. Level
 
1 assets
 
and liabilities
 
generally include
 
debt and
equity securities that
 
are traded in
 
an active exchange
 
market. Valuations are obtained from
 
readily available pricing
sources for market transactions involving identical assets
 
or liabilities.
Level 2
 
- Valuation
 
is based on inputs other
 
than quoted prices included
 
within Level 1 that are
 
observable for the
asset
 
or
 
liability,
 
either
 
directly
 
or
 
indirectly.
 
The
 
valuation
 
may
 
be
 
based
 
on
 
quoted
 
prices
 
for
 
similar
 
assets
 
or
liabilities; quoted
 
prices in
 
markets that are
 
not active;
 
or other inputs
 
that are observable
 
or can be
 
corroborated
by observable market data for substantially the full term of the
 
asset or liability.
Level 3
 
- Valuation
 
is based on
 
unobservable inputs that
 
are supported
 
by little or
 
no market activity
 
and that are
significant
 
to
 
the
 
fair
 
value
 
of
 
the
 
assets
 
or
 
liabilities.
 
Level
 
3
 
assets
 
and
 
liabilities
 
include
 
financial
 
instruments
whose value
 
is determined
 
using pricing
 
models, discounted
 
cash
 
flow
 
methodologies,
 
or similar
 
techniques,
 
as
well as instruments for which determination of fair value
 
requires significant management judgment or estimation.
A
 
financial
 
instrument's
 
categorization
 
within
 
the
 
valuation
 
hierarchy
 
is
 
based
 
upon
 
the
 
lowest
 
level
 
of
 
input
 
that
 
is
significant to the fair value measurement.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
24
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
Items Measured at Fair Value
 
on a Recurring Basis
AFS investment securities:
 
When instruments are traded in
 
secondary markets and quoted market
 
prices do not exist
for such securities,
 
management generally relies
 
on prices obtained
 
from independent vendors
 
or third-party broker-dealers.
Management reviews pricing methodologies provided by the vendors and third-party broker-dealers in order to determine if
observable market information is being utilized. Securities measured with pricing provided by independent vendors or
 
third-
party broker-dealers
 
are classified within
 
Level 2 of
 
the hierarchy and
 
often involve using
 
quoted market
 
prices for similar
securities, pricing models or discounted cash flow analyses
 
utilizing inputs observable in the market where available.
Derivatives:
 
The
 
fair
 
value
 
of
 
derivatives
 
are
 
measured
 
with
 
pricing
 
provided
 
by
 
third-party
 
participants
 
and
 
are
classified within Level 2 of the hierarchy.
The following table represents the Company's assets measured at fair value on a recurring basis at June 30, 2022 and
December 31, 2021 for each of the fair value hierarchy
 
levels (in thousands):
June 30, 2022
December 31, 2021
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Investment securities available for sale:
U.S. Government Agency
$
-
$
25,850
$
-
$
25,850
$
-
$
10,520
$
-
$
10,520
U.S. Treasury
2,437
-
-
2,437
-
-
-
-
Collateralized mortgage obligations
-
133,820
-
133,820
-
156,829
-
156,829
Mortgage-backed securities - residential
 
-
95,982
-
95,982
-
118,842
-
118,842
Mortgage-backed securities - commercial
-
40,121
-
40,121
-
50,117
-
50,117
Municipal Securities
-
19,602
-
19,602
-
24,276
-
24,276
Bank subordinated debt securities
-
15,972
-
15,972
-
28,408
-
28,408
Corporate bonds
-
5,680
-
5,680
-
12,550
-
12,550
Total
2,437
337,027
-
339,464
-
401,542
-
401,542
Derivative assets
-
3,831
-
3,831
-
1,434
-
1,434
Total assets at fair value
$
2,437
$
340,858
$
-
$
343,295
$
-
$
402,976
$
-
$
402,976
Derivative liabilities
$
-
$
3,831
$
-
$
3,831
$
-
$
1,434
$
-
$
1,434
Total liabilities at fair value
$
-
$
3,831
$
-
$
3,831
$
-
$
1,434
$
-
$
1,434
Items Measured at Fair Value
 
on a Non-recurring Basis
 
Impaired
 
Loans:
At
 
June 30,
 
2022
 
and
 
December 31,
 
2021,
 
in
 
accordance
 
with
 
provisions
 
of
 
the
 
loan
 
impairment
guidance, individual loans with
 
a carrying amount of approximately
 
$
4.0
 
million and $
4.4
 
million, respectively,
 
were written
down to
 
their
 
fair value
 
of
 
approximately
 
$
3.7
 
million
 
and $
4.0
 
million,
 
respectively,
 
resulting
 
in
 
an impairment
 
charge
 
of
$
319
 
thousand and
 
$
360
 
thousand, respectively,
 
which was
 
included in
 
the allowance
 
for credit
 
losses at
 
June 30, 2022
and December 31, 2021, respectively.
 
Loans applicable to write-downs, or impaired loans, are estimated using the present
value
 
of
 
expected
 
cash
 
flows
 
or
 
the
 
appraised
 
value
 
of
 
the
 
underlying
 
collateral
 
discounted
 
as
 
necessary
 
due
 
to
management's estimates of changes in economic conditions
 
are considered a Level 3 valuation.
Other Real
 
Estate:
 
Other
 
real estate
 
owned
 
is valued
 
at the
 
lesser of
 
the third-party
 
appraisals less
 
management's
estimate of
 
the costs to
 
sell or the
 
carrying cost of
 
the other
 
real estate
 
owned. Appraisals generally
 
use the market
 
approach
valuation technique
 
and use
 
market observable
 
data to
 
formulate an
 
opinion of
 
the fair
 
value of
 
the properties.
 
However,
the appraiser
 
uses professional
 
judgment in
 
determining the
 
fair value
 
of the
 
property and
 
the Company
 
may also
 
adjust
the value for changes in
 
market conditions subsequent
 
to the valuation date
 
when current appraisals
 
are not available. As
a consequence of the carrying cost or the
 
third-party appraisal and adjustments therein, the fair values of the properties are
considered a Level 3 valuation.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
25
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
The following table represents the Company’s assets measured at fair value on a non-recurring basis at June 30, 2022
and December 31, 2021 for each of the fair value hierarchy
 
levels (in thousands):
Level 1
Level 2
Level 3
Total
June 30, 2022:
Impaired loans
$
-
$
-
$
3,700
$
3,700
December 31, 2021:
Impaired loans
$
-
$
-
$
3,990
$
3,990
The following table presents
 
quantified information about
 
Level 3 fair value
 
measurements for assets measured
 
at fair
value on a non-recurring basis at June 30, 2022 and December
 
31, 2021 (in thousands):
Fair Value
Valuation Technique(s)
Unobservable Input(s)
June 30, 2022:
Residential real estate
$
3,546
Sales comparison approach
Adj. for differences between comparable sales
Commercial and industrial
48
Discounted cash flow
Adj. for differences in net operating income expectations
Consumer and other loans
106
Discounted cash flow
Adj. for differences in net operating income expectations
Total
 
impaired loans
$
3,700
December 31, 2021:
Residential real estate
$
3,807
Sales comparison approach
Adj. for differences between comparable sales
Commercial and industrial
70
Discounted cash flow
Adj. for differences in net operating income expectations
Consumer and other loans
113
Discounted cash flow
Adj. for differences in net operating income expectations
Total
 
impaired loans
$
3,990
There were
no
 
financial liabilities measured
 
at fair value on a
 
non-recurring basis at June
 
30, 2022 and December
 
31,
2021.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
26
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
Items Not Measured at Fair Value
The following table
 
presents the carrying
 
amounts and estimated
 
fair values of
 
financial instruments
 
not carried at fair
value as of June 30, 2022 and December 31, 2021 (in
 
thousands):
Fair Value Hierarchy
Carrying
Amount
Level 1
Level 2
Level 3
Fair Value
Amount
June 30, 2022:
Financial Assets:
Cash and due from banks
$
7,448
$
7,448
$
-
$
-
$
7,448
Interest-bearing deposits in banks
$
75,824
$
75,824
$
-
$
-
$
75,824
Investment securities held to maturity
$
116,671
$
-
$
101,067
$
-
$
101,067
Loans held for investment, net
$
1,356,947
$
-
$
-
$
1,339,283
$
1,339,283
Accrued interest receivable
$
5,991
$
-
$
1,246
$
4,745
$
5,991
Financial Liabilities:
Demand deposits
$
653,708
$
653,708
$
-
$
-
$
653,708
Money market and savings accounts
$
802,841
$
802,841
$
-
$
-
$
802,841
Interest-bearing checking accounts
$
63,416
$
63,416
$
-
$
-
$
63,416
Time deposits
$
218,755
$
-
$
-
$
214,737
$
214,737
FHLB advances
$
66,000
$
-
$
64,985
$
-
$
64,985
Accrued interest payable
$
99
$
-
$
50
$
49
$
99
December 31, 2021:
Financial Assets:
Cash and due from banks
$
6,477
$
6,477
$
-
$
-
$
6,477
Interest-bearing deposits in banks
$
39,751
$
39,751
$
-
$
-
$
39,751
Investment securities held to maturity
$
122,658
$
-
$
120,157
$
-
$
120,157
Loans held for investment, net
$
1,175,024
$
-
$
-
$
1,189,191
$
1,189,191
Accrued interest receivable
$
5,975
$
-
$
1,222
$
4,753
$
5,975
Financial Liabilities:
Demand deposits
$
605,425
$
605,425
$
-
$
-
$
605,425
Money market and savings accounts
$
703,856
$
703,856
$
-
$
-
$
703,856
Interest-bearing checking accounts
$
55,878
$
55,878
$
-
$
-
$
55,878
Time deposits
$
225,200
$
-
$
-
$
224,688
$
224,688
FHLB advances
$
36,000
$
-
$
36,479
$
-
$
36,479
Accrued interest payable
$
96
$
-
$
50
$
46
$
96
8.
 
STOCKHOLDERS’ EQUITY
Common Stock
The rights
 
of the
 
holders of
 
Class A
 
common stock
 
and Class
 
B common
 
stock are
 
the same,
 
except for
 
voting and
conversion rights.
 
Holders of
 
Class A
 
common stock
 
are entitled
 
to voting
 
rights, while
 
holders of
 
Class B
 
common stock
have no
 
voting rights.
 
Shares of
 
Class
 
B common
 
stock
 
are convertible
 
into shares
 
of Class
 
A common
 
stock
 
if sold
 
or
transferred.
In June 2021, the Bank effected a 1 for 5
 
reverse stock split of all the Class A common
 
stock $
1.00
 
par value. Each five
shares of
 
the Bank’s Class
 
A common
 
stock was combined
 
into
one
 
fully paid
 
share of Class
 
A common
 
stock. Any fractional
shares
 
resulting from
 
this
 
reverse
 
stock
 
split were
 
rounded
 
up to
 
one whole
 
share.
 
The
 
Bank has
 
adjusted
 
the Class
 
A
common stock, earnings per share and stock
 
options for this 1 for 5 reverse stock
 
split for all periods in 2021. The Class
 
B
common stock was not adjusted but if sold or exchanged would be converted
 
at the 1 for 5 reverse stock split of
1
 
share of
Class
 
A
 
common
 
stock
 
for
 
5
 
shares
 
of
 
Class
 
B
 
common
 
stock.
 
Any
 
dividends
 
declared
 
by
 
the
 
Board
 
of
 
Directors
 
(the
“Board”)
 
to
 
include
 
Class
 
B
 
common
 
stock
 
will
 
also
 
be
 
paid
 
as
 
if
 
converted.
 
The
 
1
 
for
 
5
 
reverse
 
stock
 
split
 
resulted
 
in
adjustments
 
to
 
Consolidated
 
Balance
 
Sheets,
 
Consolidated
 
Statements
 
of
 
Operations,
 
and
 
Consolidated
 
Statements
 
of
Changes in Stockholders’ Equity.
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
27
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
In July 2021,
 
the Bank completed
 
the IPO of
 
its Class A
 
common stock, in
 
which it issued
 
and sold
4,600,000
 
shares
of
 
Class
 
A
 
common
 
stock
 
at
 
a
 
price
 
of
 
$
10.00
 
per
 
share.
 
The
 
Bank
 
received
 
total
 
net
 
proceeds
 
of
 
$
40.0
 
million
 
after
deducting underwriting discounts and expenses.
In December 2021, the Bank entered into agreements with the
 
Class B shareholders to exchange all outstanding Class
B common stock for Class A common stock at
 
a ratio of 5 to 1. As a result, a total of
6,121,052
 
shares of Class B common
stock were exchanged for
1,224,212
 
shares of Class A common stock.
 
In December 2021,
 
USCB Financial Holdings,
 
Inc. (the “Company”)
 
acquired all the
 
issued and outstanding
 
shares of
the Class A voting
 
common stock of
 
U.S. Century Bank
 
(the “Bank”), which are
 
the only issued and
 
outstanding shares of
the Bank’s capital
 
stock, in a share
 
exchange (the “Reorga
 
nization”) effected
 
under the Florida
 
Business Corporation
 
Act.
Each of the outstanding
 
shares of the
 
Bank’s common stock,
 
par value $
1.00
 
per share, formerly
 
held by its
 
shareholders
was converted into and
 
exchanged for one newly issued
 
share of the Company’s common stock,
 
par value $
1.00
 
per share,
and the Bank became the Company’s wholly owned
 
subsidiary.
 
In the
 
Reorganization,
 
each
 
shareholder
 
of the
 
Bank
 
received securities
 
of
 
the same
 
class,
 
having
 
substantially
 
the
same designations,
 
rights,
 
powers,
 
preferences,
 
qualifications,
 
limitations
 
and restrictions,
 
as those
 
that the
 
shareholder
held
 
in
 
the
 
Bank,
 
and
 
the
 
Company’s
 
current
 
shareholders
 
own
 
the
 
same
 
percentages
 
of
 
its
 
common
 
stock
 
as
 
they
previously owned of the Bank’s common stock.
Preferred Stock
In April 2021,
 
the Board
 
authorized and
 
approved the
 
offer to
 
repurchase all
 
outstanding shares
 
of Class
 
E preferred
stock at
 
the liquidation
 
value of
 
$
7.5
 
million along
 
with declared
 
dividends of
 
$
103
 
thousand.
 
All Class
 
E preferred
 
stock
shareholders approved the repurchase which the Bank
 
completed in April 2021.
 
The
 
Bank
 
offered
 
the
 
Class
 
C
 
and
 
Class
 
D
 
preferred
 
stockholders
 
the
 
ability
 
to
 
exchange
 
their
 
shares
 
for
 
Class
 
A
common stock. The offer
 
to exchange was voluntary
 
and the preferred stockholders
 
were given the option to
 
convert
90
%
of
 
their
 
preferred
 
shares
 
for
 
Class
 
A
 
common
 
stock
 
with
 
the
 
remaining
10
%
 
to
 
be
 
redeemed
 
in
 
the
 
form
 
of
 
cash.
 
The
exchange ratio for the
 
shares of Class A
 
common stock issued in
 
the preferred stock exchange transaction
 
was based upon
the IPO price for shares of Class A common stock.
 
During the year ended December 31, 2021,
47,473
 
shares of Class C preferred stock
 
and
11,061,552
 
shares of Class
D preferred stock converted into an aggregate of
10,278,072
 
shares of Class A common stock. The exchange of the Class
C and Class D preferred shares had
 
a total liquidation value of $
102.8
 
million. The remaining unconverted shares of
 
Class
C preferred stock
 
and Class
 
D preferred stock
 
totaling
1,234,354
 
shares were subsequently
 
redeemed at their
 
liquidation
value for $
11.4
 
million.
 
The fair value of consideration
 
on the preferred stock
 
exchange and redemption of
 
the Class C and
 
Class D preferred
shares
 
exceeded
 
the
 
book
 
value
 
causing
 
a
 
one-time
 
reduction
 
in
 
net
 
income
 
available
 
to
 
common
 
stockholders
 
of
$
89.6
 
million. As of June
 
30, 2022 and December
 
31, 2021, there were
no
 
preferred shares and
no
 
outstanding dividends
to be paid these on.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
28
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
Dividends
The following dividend
 
amounts were paid
 
on the preferred
 
shares for the
 
three and six
 
months ended June 30,
 
2022
and 2021 (in thousands):
 
Three Months Ended June 30,
Six Months Ended June 30,
2022
2021
2022
2021
Preferred stock - Class C: Non-voting, Non-cumulative, Perpetual:
$
1.00
 
par value; $
1,000
 
per share liquidation preference; annual
dividend rate of
4
% of liquidation preference paid quarterly. Quarterly
dividend of $
10.00
 
per share.
$
-
$
528
$
-
$
1,055
Preferred stock - Class D: Non-voting, Non-cumulative, Perpetual:
$
1.00
 
par value; $
5.00
 
per share liquidation preference; annual
dividend rate of
4
% of par value paid quarterly. Quarterly dividend of
$
0.01
 
per share.
-
123
-
246
Preferred stock - Class E: Non-voting, Partially Cumulative,
Perpetual: $
1.00
 
par value; $
1,000
 
per share liquidation preference;
annual dividend rate of
7
% of liquidation preference paid quarterly.
Quarterly dividend of $
17.50
 
per share.
-
103
-
234
Total
 
dividends paid
$
-
$
754
$
-
$
1,535
Declaration of dividends by the Board is required before dividend payments are made.
No
 
dividends were approved by
the Board for the
 
common stock classes
 
for the three
 
months ended June 30,
 
2022 and 2021.
 
Additionally,
 
there were
no
dividends declared and unpaid as of June 30, 2022 and 2021.
The
 
Company
 
and
 
the
 
Bank
 
exceeded
 
all
 
regulatory
 
capital
 
requirements
 
and
 
remained
 
significantly
 
above
 
“well-
capitalized” guidelines.
 
At June
 
30, 2022,
 
total risk-based
 
capital ratio
 
for the
 
Company
 
and the
 
Bank were
13.74
% and
13.67
%, respectively.
9.
 
EARNINGS PER SHARE
Earnings
 
per
 
share
 
(“EPS”)
 
for
 
common
 
stock
 
is
 
calculated
 
using
 
the
 
two-class
 
method
 
required
 
for
 
participating
securities. Basic EPS
 
is calculated by
 
dividing net income
 
(loss) available to
 
common stockholders by the
 
weighted-average
number of common shares outstanding for
 
the period, without consideration for common
 
stock equivalents. Diluted EPS is
computed by
 
dividing net
 
income (loss)
 
available to
 
common stockholders
 
by the
 
weighted-average
 
number
 
of common
shares outstanding for
 
the period and
 
the weighted-average number
 
of dilutive common
 
stock equivalents outstanding
 
for
the period determined using the treasury-stock method. For
 
purposes of this calculation, common stock equivalents
 
include
common stock options and are only included in the calculation
 
of diluted EPS when their effect is dilutive.
 
To calculate EPS for the three and six
 
months ended June 30, 2022, net
 
income available to common stockholders
 
was
not allocated between
 
Class A and
 
Class B common
 
stock since there were
 
no issued and outstanding
 
shares of Class
 
B
common stock as of June 30, 2022.
To calculate EPS for the three and six
 
months ended June 30, 2021, net
 
income available to common stockholders
 
was
allocated
 
as if
 
all
 
the
 
income
 
for
 
the
 
period
 
were
 
distributed
 
to
 
common
 
stockholders.
 
The
 
allocation
 
was
 
based
 
on
 
the
outstanding shares
 
per common
 
share class
 
to the
 
total common
 
shares outstanding
 
during each
 
period giving
 
effect for
the 1 for
 
5 reverse stock
 
split. The Company’s Articles
 
of Incorporation require that
 
the distribution of
 
net income to
 
Common
B
 
stockholders
 
be
 
adjusted
 
to
 
give
 
effect
 
for
 
Class
 
A
 
stock
 
splits.
 
Therefore,
 
the
 
income
 
allocated
 
to
 
Class
 
B
 
common
shares was calculated based on their
20
% per share equivalent to Class A common shares.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
29
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
The following
 
table reflects
 
the calculation
 
of net
 
income available
 
to common
 
stockholders
 
for three
 
and six
 
months
ended June 30, 2022 and 2021 (in thousands):
Three Months Ended June 30,
Six Months Ended June 30,
2022
2021
2022
2021
Net Income
$
5,295
$
4,053
$
10,149
$
8,834
Less: Preferred stock dividends
 
-
754
-
1,535
Net income available to common stockholders
$
5,295
$
3,299
$
10,149
$
7,299
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
30
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
The following table reflects
 
the calculation of basic
 
and diluted earnings per
 
common share class
 
for the three
 
and six
months ended June 30, 2022 and 2021 (in thousands,
 
except per share amounts):
Three Months Ended June 30,
2022
2021
Class A
Class B
 
Class A
Class B
(1)
Basic EPS
Numerator:
Net income available to common shares before allocation
$
5,295
$
-
$
3,299
$
3,299
Multiply: % allocated on weighted avg. shares outstanding
100.0%
-
76.0%
24.0%
Net income available to common shares after allocation
$
5,295
$
-
$
2,509
$
790
Denominator:
Weighted average shares outstanding
20,000,753
-
3,889,469
6,121,052
Earnings per share, basic
$
0.26
$
-
$
0.65
$
0.13
Diluted EPS
Numerator:
Net income available to common shares before allocation
$
5,295
$
-
$
3,299
$
3,299
Multiply: % allocated on weighted avg. shares outstanding
100.0%
-
76.0%
24.0%
Net income available to common shares after allocation
$
5,295
$
-
$
2,509
$
790
Denominator:
Weighted average shares outstanding for basic EPS
20,000,753
-
3,889,469
6,121,052
Add: Dilutive effects of assumed exercises of stock options
170,508
-
44,167
-
Weighted avg. shares including dilutive potential common shares
20,171,261
-
3,933,636
6,121,052
Earnings per share, diluted
$
0.26
$
-
$
0.64
$
0.13
Anti-dilutive stock options excluded from diluted EPS
15,000
-
103,666
-
(1)
 
Net income available to common shares between Class
 
A and Class B common stock was allocated
 
based on the weighted average number of
shares outstanding. The allocation also assumes that
 
Class B shares had converted to Class A shares which is equivalent
 
to
0.20
 
per share of Class B
or
1,224,212
 
shares of Class A shares.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
31
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
Six Months Ended June 30,
2022
2021
Class A
Class B
 
Class A
Class B
(1)
Basic EPS
Numerator:
Net income available to common shares before allocation
$
10,149
$
-
$
7,299
$
7,299
Multiply: % allocated on weighted avg. shares outstanding
100.0%
-
76.1%
23.9%
Net income available to common shares after allocation
$
10,149
$
-
$
5,551
$
1,748
Denominator:
Weighted average shares outstanding
19,997,869
-
3,889,469
6,121,052
Earnings per share, basic
$
0.51
$
-
$
1.43
$
0.29
Diluted EPS
Numerator:
Net income available to common shares before allocation
$
10,149
$
-
$
7,299
$
7,299
Multiply: % allocated on weighted avg. shares outstanding
100.0%
-
76.1%
23.9%
Net income available to common shares after allocation
$
10,149
$
-
$
5,551
$
1,748
Denominator:
Weighted average shares outstanding for basic EPS
19,997,869
-
3,889,469
6,121,052
Add: Dilutive effects of assumed exercises of stock options
195,049
-
44,167
-
Weighted avg. shares including dilutive potential common shares
20,192,918
-
3,933,636
6,121,052
Earnings per share, diluted
$
0.50
$
-
$
1.41
$
0.29
Anti-dilutive stock options excluded from diluted EPS
15,000
-
103,666
-
(1)
 
Net income available to common shares between Class
 
A and Class B common stock was allocated
 
based on the weighted average number of
shares outstanding. The allocation also assumes that
 
Class B shares had converted to Class A shares which is equivalent
 
to 0.20 per share of Class B
or 1,224,212 shares of Class A shares.
See Note 8 “Stockholders’ Equity” for further discussion
 
of the stock split.
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.
 
 
32
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
Item 2.
 
Management's Discussion and Analysis of Financial Condition
 
and Results of Operations
 
 
The
 
following
 
discussion
 
and
 
analysis
 
are
 
designed
 
to
 
provide
 
a
 
better
 
understanding
 
of
 
the
 
consolidated
 
financial
condition and results
 
of operations of
 
the Company and
 
the Bank,
 
its wholly
 
owned subsidiary, for
 
the quarter and
 
six months
ended June 30, 2022. This discussion and
 
analysis are best read in conjunction with the
 
consolidated financial statements
and related footnotes
 
included in this Form
 
10-Q and in the Annual
 
Report filed on
 
the Form 10-K (“2021
 
form 10-K”) filed
with the Security and Exchange Commission (“SEC”) for the year
 
ended December 31, 2021.
This discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause
actual results to differ materially
 
from management's expectations. Factors that could cause
 
such differences are discussed
in the
 
sections entitled
 
"Forward-Looking Statements"
 
and Item
 
1A “Risk Factors"
 
below and
 
in the
 
2021 Form
 
10-K filed
with the SEC which is available at the SEC’s website www.sec.gov.
Throughout
 
this
 
document,
 
references
 
to
 
“we,”
 
“us,”
 
“our,”
 
and
 
“the
 
Company”
 
generally
 
refer
 
to
 
USCB
 
Financial
Holdings, Inc.
Forward-Looking Statements
This Quarterly Report
 
on Form 10-Q
 
contains statements
 
that are not
 
historical in
 
nature and
 
are intended to
 
be, and
are
 
hereby
 
identified
 
as,
 
forward-looking
 
statements
 
for
 
purposes
 
of
 
the
 
safe
 
harbor
 
provided
 
by
 
Section
 
21E
 
of
 
the
Securities
 
Exchange
 
Act
 
of
 
1934,
 
as
 
amended
 
(Exchange
 
Act”).
 
The
 
words
 
“may,”
 
“will,”
 
“anticipate,”
 
“should,”
 
“would,”
“believe,”
 
“contemplate,”
 
“expect,”
 
“aim,”
 
“plan,”
 
“estimate,”
 
“continue,”
 
and
 
“intend,”
 
as
 
well
 
as
 
other
 
similar
 
words
 
and
expressions of
 
the future,
 
are intended
 
to identify
 
forward-looking statements.
 
These forward-looking
 
statements include,
but
 
are
 
not
 
limited
 
to,
 
statements
 
related
 
to
 
our
 
projected
 
growth,
 
anticipated
 
future
 
financial
 
performance,
 
and
management’s long-term performance
 
goals, as
 
well as
 
statements relating
 
to the
 
anticipated effects on
 
results of
 
operations
and
 
financial
 
condition
 
from
 
expected
 
developments
 
or
 
events,
 
or
 
business
 
and
 
growth
 
strategies,
 
including
 
anticipated
internal growth.
These forward-looking statements involve significant risks and uncertainties that could cause our actual results to differ
materially from those anticipated in such statements.
 
Potential risks and uncertainties include, but are not
 
limited to:
 
the strength of the United States economy
 
in general and the strength of the local
 
economies in which we conduct
operations;
 
the continuation
 
of COVID-19
 
pandemic and
 
its impact
 
on us,
 
our employees,
 
customers and
 
third-party
 
service
providers, and the ultimate extent of the impacts of the
 
pandemic and related government stimulus programs;
 
 
our ability to successfully manage interest rate risk, credit
 
risk, liquidity risk, and other risks inherent to our industry;
 
the accuracy of our financial statement estimates and assumptions, including the estimates used for our credit loss
reserve and deferred tax asset valuation allowance;
 
the efficiency and effectiveness of our
 
internal control environment;
 
our ability
 
to comply
 
with the
 
extensive laws
 
and regulations
 
to which
 
we are
 
subject, including
 
the laws
 
for each
jurisdiction where we operate;
 
legislative or regulatory
 
changes and changes
 
in accounting
 
principles, policies,
 
practices or guidelines,
 
including
the effects of the forthcoming implementation
 
of the Current Expected Credit Losses (“CECL”) standard;
 
the effects
 
of our
 
lack of
 
a diversified
 
loan portfolio
 
and concentration
 
in the
 
South Florida
 
market, including
 
the
risks
 
of geographic,
 
depositor,
 
and
 
industry concentrations,
 
including our
 
concentration
 
in
 
loans secured
 
by real
estate;
 
the concentration of ownership of our Class A common
 
stock;
 
fluctuations in the price of our Class A common stock;
 
our ability to fund or access the capital markets at attractive
 
rates and terms and manage our growth, both organic
growth as well as growth through other means, such as
 
future acquisitions;
 
inflation, interest rate, unemployment rate, market, and monetary
 
fluctuations;
 
increased competition and its effect on the pricing
 
of our products and services as well as our interest rate margin;
 
 
the effectiveness of our risk management strategies, including operational risks, including, but not limited to, client,
employee, or third-party fraud and security breaches; and
 
 
other risks described in this Form 10-Q and other filings
 
we make with the SEC.
All
 
forward-looking
 
statements
 
are
 
necessarily
 
only
 
estimates
 
of
 
future
 
results,
 
and
 
there
 
can
 
be
 
no
 
assurance
 
that
actual results will
 
not differ
 
materially from expectations.
 
Therefore, you are
 
cautioned not to
 
place undue reliance
 
on any
forward-looking statements.
 
Further,
 
forward-looking statements
 
included in
 
this Form
 
10-Q are
 
made only
 
as of the
 
date
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
 
 
33
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
under the federal securities laws. You
 
should also review the risk factors
 
described in the reports the Company
 
filed or will
file with the
 
SEC and,
 
for periods
 
prior to
 
the completion
 
of the bank
 
holding company
 
reorganization in
 
December 2021,
U.S. Century Bank (“Bank”) filed with the Federal Depository
 
Institution Corporation (“FDIC”).
Non-GAAP Financial Measures
This Quarterly
 
Report on
 
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
 
‘Reconciliation
 
and
 
Management
Explanation of Non-GAAP Financial Measures’
 
included in this Form 10-Q.
Overview
The Company,
 
the holding
 
company of
 
the Bank,
 
reported net
 
income
 
of
 
$5.3 million
 
or $0.26
 
per diluted
 
share for
class A common stock for the three months
 
ended June 30, 2022, compared
 
with net income of
 
$4.1 million or $0.64
 
and
$0.13 per
 
diluted share
 
for Class
 
A and
 
Class B
 
common stock,
 
respectively, for
 
the same
 
period in
 
2021. In
 
December
2021, the Company agreed to exchange all the outstanding
 
shares of Class B common stock for Class A common stock at
a ratio
 
of 5
 
to 1.
 
As of June 30,
 
2022 and December 31,
 
2021, the Company’s
 
only class of
 
securities issued and
 
outstanding
was Class A
 
common stock.
During the
 
first quarter
 
in 2022,
 
the Board
 
of Directors
 
(the “Board”)
 
approved a
 
share repurchase
 
program
 
of up
 
to
750,000 shares of Class A common stock.
 
Under the repurchase program,
 
the Company may
 
purchase shares of Class A
common
 
stock
 
on
 
a discretionary
 
basis from
 
time to
 
time. As
 
of June
 
30,
 
2022,
 
the
 
Company
 
had
 
not
 
repurchased
 
any
shares.
In
 
evaluating
 
our
 
financial
 
performance,
 
we
 
consider
 
the
 
level
 
of
 
and
 
trends
 
in
 
net
 
interest
 
income,
 
the
 
net
 
interest
margin, the cost of deposits,
 
levels and composition of
 
non-interest income and non-interest
 
expense, performance ratios,
asset quality ratios, regulatory capital ratios, and any significant
 
event or transaction.
Unless otherwise stated, all comparisons in
 
the bullet points below are calculated
 
for the quarter ended June 30, 2022
compared to the quarter ended June 30, 2021 and annualized
 
where appropriate:
 
Net
 
interest
 
income
 
increased
 
$3.2
 
million
 
or
 
25.4%
 
to
 
$15.6 million
 
from
 
$12.5
 
million
 
for
 
the
 
quarter
 
ended
June 30, 2021.
 
Net interest margin (“NIM”) increased to 3.37% from 3.14%
 
for the second quarter of 2021.
 
 
Total assets exceeded $2.0 billion, an increase of $161.1
 
million or 8.7%, compared to December 31, 2021.
 
 
Total loans grew to $1.4 billion, an increase of $182.7 million
 
or 15.3%, compared to December 31, 2021.
 
 
Total deposits increased $148.3 million or 9.3% to $1.7
 
billion from $1.6 billion at December 31, 2021.
 
 
Annualized return on average assets was 1.08% compared
 
to 0.98% at June 30, 2021.
 
Annualized return on average stockholders’ equity was 11.38% compared
 
to 9.74% at June 30, 2021.
 
The allowance
 
for credit
 
losses to
 
total loans
 
ratio decreased
 
to 1.15%
 
at June
 
30, 2022
 
from 1.30%
 
at June 30,
2021.
 
Non-performing loans to total loans was 0.00% at June
 
30, 2022 and 2021.
 
The Company and
 
the Bank exceeded
 
all regulatory
 
capital requirements
 
and remained
 
significantly above
 
“well-
capitalized” guidelines. At June 30, 2022, total risk-based capital ratio for the Company and the Bank were 13.74%
and 13.67%, respectively.
 
 
34
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
 
Tangible book value
 
per common share
 
(a Non-GAAP financial
 
measure) was $9.00
 
as of June 30,
 
2022, compared
to $27.71
 
at June
 
30,
 
2021. The
 
decline
 
was
 
primarily
 
driven by
 
an
 
increase
 
in
 
issued
 
and
 
outstanding
 
Class A
common shares as result of the exchange and redemption of preferred
 
shares combined with the completion of the
IPO
 
in
 
2021.
 
See
 
“Reconciliation
 
and
 
Management
 
Explanation
 
for
 
Non-GAAP
 
Financial
 
Measures”
 
for
 
a
reconciliation of this non-GAAP financial measure.
Critical Accounting Policies and Estimates
The
 
consolidated
 
financial
 
statements
 
are
 
prepared
 
based
 
on
 
the
 
application
 
of
 
U.S.
 
GAAP,
 
the
 
most
 
significant
 
of
which are described in Note 1 “Summary of Significant Accounting Policies” of
 
the Company’s 2021 Form 10-K. To prepare
financial
 
statements
 
in
 
conformity
 
with
 
GAAP,
 
management
 
makes
 
estimates,
 
assumptions,
 
and
 
judgments
 
based
 
on
available information. These estimates,
 
assumptions, and judgments affect
 
the amounts reported in
 
the financial statements
and accompanying notes. These estimates, assumptions,
 
and judgments are based on information available as of the date
of the financial statements and,
 
as this information changes, actual results
 
could differ from the estimates, assumptions and
judgments reflected
 
in the
 
financial statements.
 
In particular,
 
management
 
has identified
 
accounting
 
policies that,
 
due to
the estimates, assumptions and judgments inherent in those policies, are critical in understanding our financial statements.
Management has presented the application of these policies
 
to the audit and risk committee of our Board.
 
Allowance for Credit Losses
The allowance for credit
 
losses (“ACL”) is
 
a valuation allowance that
 
is established through charges
 
to earnings in the
form of
 
a provision for
 
credit losses. The
 
amount of the
 
ACL is
 
affected by the
 
following: (i) charge-offs
 
of loans that
 
decrease
the allowance;
 
(ii) subsequent
 
recoveries on
 
loans previously
 
charged off
 
that increase
 
the allowance;
 
and (iii)
 
provisions
for credit losses charged to
 
income that increase the allowance.
 
Management considers the policies
 
related to the ACL as
the most critical to
 
the financial statement
 
presentation. The total
 
ACL includes activity
 
related to allowances
 
calculated in
accordance with Accounting Standards Codification (“ASC”)
 
310, Receivables, and ASC 450, Contingencies.
Throughout the year,
 
management estimates the probable
 
incurred losses in the loan portfolio
 
to determine if the ACL
is adequate to absorb such losses. The ACL
 
consists of specific and general components.
 
The specific component relates
to loans that are
 
individually classified as
 
impaired. We follow
 
a loan review program
 
to evaluate the credit
 
risk in the loan
portfolio. Loans
 
that have
 
been identified
 
as impaired
 
are reviewed
 
on a
 
quarterly basis
 
in order
 
to determine
 
whether a
specific reserve is
 
required. The general
 
component covers
 
non-impaired loans
 
and is based
 
on industry and
 
our specific
historical loan
 
loss experience,
 
volume, growth
 
and composition
 
of the
 
loan portfolio,
 
the evaluation
 
of our
 
loan portfolio
through our
 
internal
 
loan review
 
process, general
 
current
 
economic
 
conditions
 
both
 
internal and
 
external to
 
us that
 
may
affect the borrower’s ability to pay,
 
value of collateral and other qualitative relevant risk factors. Based on
 
a review of these
estimates, we
 
adjust the ACL
 
to a
 
level determined by
 
management to be
 
adequate. Estimates of
 
credit losses are
 
inherently
subjective as they involve an exercise of judgment.
The
 
CARES
 
Act,
 
as
 
amended
 
by
 
the
 
Consolidated
 
Appropriations
 
Act,
 
2021,
 
specified
 
that
 
COVID-19
 
related
 
loan
modifications executed
 
between March 1,
 
2020 and
 
the earlier
 
of (i)
 
60 days
 
after the
 
date of
 
termination
 
of the
 
national
emergency declared by President Trump and (ii) January 1, 2022, on loans
 
that were current as of December 31, 2019,
 
are
not TDRs. Additionally,
 
under guidance from the federal banking agencies,
 
other short-term modifications made on a good
faith basis
 
in response
 
to COVID-19
 
to borrowers
 
that were
 
current prior
 
to any
 
relief are
 
not TDRs
 
under ASC
 
Subtopic
310-40,
 
“Troubled
 
Debt
 
Restructurings
 
by
 
Creditors.”
 
These
 
modifications
 
include
 
short-term
 
(i.e.,
 
up
 
to
 
six
 
months)
modifications
 
such
 
as
 
payment
 
deferrals,
 
fee
 
waivers,
 
extensions
 
of
 
repayment
 
terms,
 
or
 
delays
 
in
 
payment
 
that
 
are
insignificant. The Company’s charge-off policy is to continuously
 
review all impaired loans to monitor the Company’s ability
to collect them in full at the applicable maturity date and/or in accordance
 
with terms of any restructurings. For loans which
are collateral dependent,
 
or deemed to
 
be uncollectible, any
 
shortfall in the
 
fair value of
 
the collateral relative to
 
the recorded
investment in the loan is charged off. The amount charged
 
-off conforms to the amount necessary
 
to comply with GAAP.
Income Taxes
Deferred tax
 
assets and
 
liabilities are
 
recognized for
 
the future
 
tax consequences
 
attributable to
 
differences
 
between
the financial statement carrying amounts of
 
existing assets and liabilities and their
 
respective tax bases and operating loss
and tax credit carryforwards. Deferred tax
 
assets and liabilities are measured
 
using enacted tax rates expected
 
to apply to
taxable income
 
in the
 
years in
 
which those
 
temporary differences
 
are expected
 
to be
 
recovered or
 
settled. The
 
effect
 
on
deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment
date.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
35
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
Management is required to assess whether a valuation allowance should be established on the net deferred tax assets
based on the
 
consideration of
 
all available evidence
 
using a more
 
likely than not
 
standard. In its
 
evaluation, management
considers taxable loss
 
carry-back availability, expectation of sufficient
 
taxable income, trends
 
in earnings, the
 
future reversal
of temporary differences, and available tax planning
 
strategies.
The Company recognizes positions taken
 
or expected to be
 
taken in a tax
 
return in accordance with existing accounting
guidance on
 
income taxes
 
which prescribes
 
a recognition threshold
 
and measurement
 
process. Interest
 
and penalties
 
on
tax liabilities, if any, would
 
be recorded in interest expense and other operating non-interest
 
expense, respectively.
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):
June 30, 2022
December 31, 2021
Consolidated Balance Sheets:
Total
 
assets
$
2,016,086
$
1,853,939
Total
 
loans
(1)
$
1,372,733
$
1,190,081
Total
 
deposits
$
1,738,720
$
1,590,379
Total
 
stockholders' equity
$
180,068
$
203,897
(1)
 
Loan amounts include deferred fees/costs.
Three Months Ended June 30,
Six Months Ended June 30,
2022
2021
2022
2021
Consolidated Statements of Operations:
Net interest income before provision for credit losses
$
15,642
$
12,474
$
30,021
$
24,949
Total
 
non-interest income
$
1,617
$
1,516
$
3,562
$
3,837
Total
 
non-interest expense
$
9,551
$
8,674
$
19,163
$
17,351
Net income
 
$
5,295
$
4,053
$
10,149
$
8,834
Net income available to common stockholders
$
5,295
$
3,299
$
10,149
$
7,299
Profitability:
Efficiency ratio
55.34%
62.00%
57.06%
60.28%
Net interest margin
 
3.37%
3.14%
3.30%
3.24%
The Company’s results
 
of operations
 
depend substantially on
 
net interest income
 
and non-interest income.
 
Other factors
contributing
 
to
 
the
 
results
 
of
 
operations
 
include
 
our
 
provision
 
for
 
credit
 
losses,
 
non-interest
 
expenses,
 
and
 
provision
 
for
income taxes.
Three months ended June 30, 2022 compared to the three months
 
ended June 30, 2021
 
Net income increased
 
to $5.3 million
 
for the three
 
months ended June
 
30, 2022 from
 
$4.1 million for
 
the same period
in 2021.
 
Net income
 
available to
 
common stockholders
 
increased $2.0
 
million for
 
the three
 
months ended
 
June 30, 2022
compared to
 
the same
 
period in
 
2021 primarily
 
because of
 
increase in
 
net interest
 
income and
 
no dividend
 
payments in
2022.
 
Six months ended June 30, 2022 compared to six months
 
ended June 30, 2021
 
Net income increased to $10.1 million for
 
the six months ended June 30, 2022
 
from $8.8 million for the same period
 
in
2021.
 
Net
 
income
 
available
 
to
 
common
 
stockholders
 
increased
 
$2.9
 
million
 
for
 
the
 
six
 
months
 
ended
 
June 30,
 
2022
 
 
36
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
compared to
 
the same
 
period in
 
2021 primarily
 
because of
 
increase in
 
net interest
 
income and
 
no dividend
 
payments in
2022.
Net Interest Income
Net
 
interest
 
income
 
is
 
the
 
difference
 
between
 
interest
 
earned
 
on
 
interest-earning
 
assets
 
and
 
interest
 
incurred
 
on
interest-bearing liabilities and
 
is the
 
primary driver of
 
core earnings. Interest
 
income is generated
 
from interest and
 
dividends
on
 
interest-earning
 
assets,
 
including
 
loans,
 
investment
 
securities
 
and
 
other
 
short-term
 
investments.
 
Interest
 
expense
 
is
incurred
 
from
 
interest
 
paid
 
on
 
interest-bearing
 
liabilities,
 
including
 
interest-bearing
 
deposits,
 
FHLB
 
advances
 
and
 
other
borrowings.
To evaluate net
 
interest income, we
 
measure and monitor
 
(i) yields on
 
loans and other
 
interest-earning assets, (ii)
 
the
costs of deposits
 
and other funding
 
sources, (iii) net
 
interest spread, and
 
(iv) net interest margin.
 
Net interest spread is
 
equal
to the difference between rates
 
earned on interest-earning assets
 
and rates paid on interest-bearing
 
liabilities. Net interest
margin is
 
equal to
 
the annualized
 
net interest
 
income
 
divided by
 
average interest
 
-earning assets.
 
Because
 
non-interest-
bearing sources of funds, such as non-interest-bearing deposits
 
and stockholders’ equity, also fund
 
interest-earning assets,
net interest margin includes the indirect benefit of these
 
non-interest-bearing sources.
Changes in
 
the market
 
interest rates
 
and interest
 
rates we
 
earn on
 
interest-earning assets
 
or pay on
 
interest-bearing
liabilities, as well
 
as the volume
 
and types of
 
interest-earning assets and interest-bearing
 
and non-interest-bearing liabilities,
are usually the
 
largest drivers
 
of periodic changes
 
in net interest
 
spread, net interest
 
margin and net
 
interest income.
 
Our
asset liability committee
 
(“ALCO”) has
 
in place asset-liability
 
management techniques
 
to manage major
 
factors that
 
affect
net interest income and net interest margin.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
37
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
The following table contains information related
 
to average balance sheet, average yields
 
on assets, and average costs
of liabilities for the periods indicated (in thousands):
Three Months Ended June 30,
2022
2021
Average
Balance
(1)
Interest
Yield/Rate
(2)
 
Average
Balance
Interest
Yield/Rate
(2)
Assets
Interest-earning assets:
Loans
(3)
$
1,296,476
$
14,053
4.35
%
$
1,088,492
$
11,538
4.19
%
Investment securities
(4)
493,352
2,510
2.04
%
385,090
1,968
2.04
%
Other interest earnings assets
69,503
121
0.70
%
101,134
23
0.09
%
Total
 
interest-earning assets
1,859,331
16,684
3.60
%
1,574,716
13,529
3.41
%
Non-interest earning assets
109,050
 
 
85,344
Total
 
assets
$
1,968,381
 
 
$
1,660,060
Liabilities and stockholders' equity
 
 
 
Interest-bearing liabilities:
 
 
 
Interest-bearing demand deposits
$
66,349
17
0.10
%
$
52,620
15
0.11
%
Saving and money market deposits
781,076
615
0.32
%
607,752
523
0.35
%
Time deposits
224,284
271
0.48
%
235,899
379
0.65
%
Total
 
interest-bearing deposits
1,071,709
903
0.34
%
896,271
917
0.41
%
Borrowings and repurchase agreements
36,330
139
1.53
%
36,000
138
1.52
%
Total
 
interest-bearing liabilities
1,108,039
1,042
0.38
%
932,271
1,055
0.45
%
Non-interest bearing demand deposits
644,975
 
 
535,894
Other non-interest-bearing liabilities
28,770
 
 
24,964
Total
 
liabilities
1,781,784
 
 
1,493,129
Stockholders' equity
186,597
 
 
166,931
Total
 
liabilities and stockholders' equity
$
1,968,381
 
 
$
1,660,060
Net interest income
 
$
15,642
 
$
12,474
Net interest spread
(5)
3.23
%
2.96
%
Net interest margin
(6)
3.37
%
3.14
%
(1)
 
Average balances - Daily average balances are used
 
to calculate yields/rates.
(2)
 
Annualized.
(3)
 
Average loan balances include non-accrual loans. Interest income
 
on loans includes accretion of deferred
 
loan fees, net of deferred loan costs.
(4)
 
At fair value except for securities held to maturity. Includes FHLB stock.
(5)
 
Net interest spread is the average yield on
 
total interest-earning assets minus the average
 
rate on total interest-bearing liabilities.
(6)
 
Net interest margin is the ratio of net interest
 
income to average total interest-earning assets.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
38
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
Six Months Ended June 30,
2022
2021
Average
Balance
(1)
Interest
Yield/Rate
(2)
Average
Balance
(1)
Interest
Yield/Rate
(2)
Assets
Interest-earning assets:
Loans
(3)
$
1,254,189
$
27,035
4.35
%
$
1,080,183
$
23,406
4.31
%
Investment securities
(4)
501,758
4,839
1.94
%
361,394
3,812
2.11
%
Other interest-earnings assets
79,763
152
0.38
%
89,914
39
0.90
%
Total
 
interest-earning assets
1,835,710
32,026
3.52
%
1,531,491
27,257
3.54
%
Non-interest earning assets
105,374
85,718
Total
 
assets
$
1,941,084
$
1,617,209
Liabilities and stockholders' equity
Interest-bearing liabilities:
Interest-bearing demand deposits
$
65,398
33
0.10
%
$
48,607
29
0.12
%
Saving and money market deposits
758,729
1,166
0.31
%
588,282
1,071
0.37
%
Time deposits
223,781
530
0.48
%
241,993
933
0.78
%
Total
 
interest-bearing deposits
1,047,908
1,729
0.33
%
878,882
2,033
0.47
%
Borrowings and repurchase agreements
36,171
276
1.54
%
36,000
275
1.52
%
Total
 
interest-bearing liabilities
1,084,079
2,005
0.37
%
914,882
2,308
0.51
%
Non-interest bearing demand deposits
635,740
509,283
Other non-interest-bearing liabilities
27,079
23,803
Total
 
liabilities
1,746,898
1,447,968
Stockholders' equity
194,186
169,241
Total
 
liabilities and stockholders' equity
$
1,941,084
$
1,617,209
Net interest income
$
30,021
$
24,949
Net interest spread
(5)
3.15
%
3.03
%
Net interest margin
(6)
3.30
%
3.24
%
(1)
 
Average balances - Daily average balances are used
 
to calculate yields/rates.
(2)
 
Annualized.
(3)
 
Average loan balances include non-accrual loans. Interest income
 
on loans includes accretion of deferred loan
 
fees, net of deferred loan costs.
(4)
 
At fair value except for securities held to maturity. Includes FHLB stock.
(5)
 
Net interest spread is the average yield on
 
total interest-earning assets minus the average
 
rate on total interest-bearing liabilities.
(6)
 
Net interest margin is the ratio of net interest
 
income to average total interest-earning assets.
Three months ended June 30, 2022 compared to the three months
 
ended June 30, 2021
 
Net interest income before the provision
 
for credit losses was $15.6 million
 
for the three months ended June
 
30, 2022,
an increase of $3.2 million or
 
25.4%, from $12.5 million for
 
the same period in 2021.
 
This increase was primarily attributable
to higher income from larger loan and investment portfolio
 
s
 
combined with an increase in the weighted average
 
loan yield.
 
Included with loan interest
 
income are PPP loan
 
fees totaling $484 thousand
 
and $925 thousand for
 
the three months
ended June 30, 2022 and 2021, respectively.
 
PPP loan fees are recognized upon loan forgiveness by the SBA
 
.
 
Net interest margin
 
increased to 3.37%
 
for the quarter
 
ended June 30, 2022
 
from 3.14%
 
for the same
 
period in 2021.
The yield for loans and other interest-earning assets increased
 
,
 
while the overall interest-bearing deposits cost decreased
 
.
Six months ended June 30, 2022 compared to six months
 
ended June 30, 2021
Net interest
 
income before
 
the provision
 
for credit
 
losses
 
was $30.0
 
million for
 
the six
 
months ended
 
June 30,
 
2022, an
increase of $5.1 million or 20.3%, from $24.9 million for the same period in
 
2021. This increase was primarily attributable to
higher income from larger loan and investment portfolios combined
 
with a decrease in the average deposit cost.
 
Included with loan
 
interest income are PPP
 
loan fees totaling $1.5
 
million and $2.4 million
 
for the six
 
months ended June 30,
2022 and 2021, respectively. PPP loan fees are recognized upon
 
loan forgiveness by the SBA.
 
Net
 
interest
 
margin
 
increased
 
to
 
3.30%
 
at
 
June 30,
 
2022
 
from
 
3.24%
 
in
 
the
 
same
 
period
 
in
 
2021.
 
The
 
overall
 
interest-
bearing liabilities yields decreased.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
39
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
Provision for Credit
 
Losses
The ACL
 
represents probable incurred losses in our portfolio. We maintain an adequate ACL
 
that can mitigate probable
losses inherent
 
in the
 
loan portfolio.
 
The ACL is increased
 
by the
 
provision for
 
credit losses
 
and is
 
decreased by
 
charge-
offs,
 
net
 
of
 
recoveries
 
on
 
prior
 
loan
 
charge-offs.
 
There
 
are
 
multiple
 
credit
 
quality
 
metrics
 
that
 
we
 
use
 
to
 
base
 
our
determination of
 
the amount
 
of the ACL
 
and corresponding
 
provision for
 
credit losses.
 
These credit
 
metrics evaluate
 
the
credit
 
quality
 
and
 
level
 
of
 
credit
 
risk
 
inherent
 
in
 
our
 
loan
 
portfolio,
 
assess
 
non-performing
 
loans
 
and
 
charge-offs
 
levels,
considers statistical and historical trends and economic conditions
 
and other applicable factors.
 
Three months ended June 30, 2022 compared to the three months
 
ended June 30, 2021
 
The
 
provision
 
for credit
 
loss
 
was
 
$705
 
thousand
 
for
 
the
 
three
 
months
 
ended
 
June 30,
 
2022 compared
 
no
 
provision
recorded for the same period in 2021. The primary driver of the provision
 
expense was attributed to loan growth.
 
Six months ended June 30, 2022 compared to six months
 
ended June 30, 2021
 
The provision for
 
credit loss
 
was $705 thousand
 
for the six
 
months ended
 
June 30, 2022
 
compared a
 
net recovery of
$160 thousand for the same period in 2021. The primary driver of the provision expense was attributed to loan growth. The
ACL as a percentage of total
 
loans decreased to 1.15%
 
at June 30, 2022 compared
 
to 1.30% at June 30,
 
2021 due to the
growth of the loan portfolio.
See “Allowance for Credit Losses” below for further discussion
 
on how the ACL is calculated.
 
Non-Interest Income
Our services and products generate service charges and fees, mainly from our depository
 
accounts. We also generate
income from gain on sale of loans though our swap and SBA
 
programs. In addition, we own and are beneficiaries of the life
insurance policies
 
on some
 
of our
 
employees and
 
generate income
 
on the
 
increase in
 
the cash
 
surrender value
 
of these
policies.
The following table presents the components of non-interest
 
income for the dates indicated (in thousands):
Three Months Ended June 30,
Six Months Ended June 30,
2022
2021
2022
2021
Service fees
$
1,083
$
903
$
1,983
$
1,792
Gain (loss) on sale of securities available for sale, net
(3)
187
18
249
Gain on sale of loans held for sale, net
22
23
356
987
Loan settlement
-
-
161
-
Other non-interest income
515
403
1,044
809
Total
 
non-interest income
$
1,617
$
1,516
$
3,562
$
3,837
Three months ended June 30, 2022 compared to the three months
 
ended June 30, 2021
 
Non-interest
 
income for
 
the
 
three months
 
ended June
 
30, 2022
 
increased
 
$101 thousand
 
or 6.7%,
 
compared
 
to the
same period in 2021. This increase was primarily driven by higher
 
services fees.
Six months ended June 30, 2022 compared to the six
 
months ended June 30, 2021
 
Non-interest income for the
 
six months ended June 30,
 
2022 decreased $275 thousand
 
or 7.2%, compared to
 
the same
period in 2021. This decrease was primarily driven by fewer loan sales
 
resulting in reduced gains.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
40
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
Non-Interest Expense
The following table presents the components of non-interest
 
expense for the dates indicated (in thousands):
Three Months Ended June 30,
Six Months Ended June 30,
2022
2021
2022
2021
Salaries and employee benefits
$
5,913
$
5,213
$
11,788
$
10,491
Occupancy
1,251
1,411
2,521
2,798
Regulatory assessment and fees
226
195
439
373
Consulting and legal fees
398
373
915
558
Network and information technology services
448
332
835
840
Other operating
1,315
1,150
2,665
2,291
Total
 
non-interest expense
$
9,551
$
8,674
$
19,163
$
17,351
Three months ended June 30, 2022 compared to the three months
 
ended June 30, 2021
 
Non-interest expense for the
 
three months ended June 30,
 
2022 increased $877 thousand
 
or 10.1%, compared to
 
the
same period in 2021. The increase
 
was primarily driven by higher salaries
 
and employee benefits due to
 
new hires, salary
compensation, and seasonal payroll taxes.
Six months ended June 30, 2022 compared to the six
 
months ended June 30, 2021
 
Non-interest expense for the six months
 
ended June 30, 2022 increased $1.8
 
million or 10.4%, compared to the
 
same
period
 
in
 
2021.
 
The
 
increase
 
was
 
primarily
 
driven
 
by
 
higher
 
salaries
 
and
 
employee
 
benefits
 
due
 
to
 
new
 
hires,
 
salary
compensation, and seasonal payroll taxes.
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. 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 June 30, 2022 compared to the three months
 
ended June 30, 2021
 
Income tax expense for the three months
 
ended June 30, 2022 increased to $1.7 million from
 
$1.3 million for the same
period in 2021. The effective tax
 
rate for the three months ended June 30, 2022
 
was 24.4% and for the three months
 
ended
2021 was 23.8%.
Six months ended June 30, 2022 compared to the six
 
months ended June 30, 2021
 
Income tax
 
expense for
 
the six
 
months ended
 
June 30, 2022
 
increased to
 
$3.6 million
 
from $2.8 million
 
for the
 
same
period in 2021. The Company’s effective tax rate was 26.0% compared
 
to 23.8% for the same period in 2021.
For a further discussion
 
on income taxes, see
 
Note 4 “Income Taxes” to
 
the Consolidated Financial
 
Statements in this
Form 10-Q.
Analysis of Financial Condition
Total
 
assets at June 30, 2022 were
 
$2.0 billion, an increase of
 
$162.1 million, or 8.7%,
 
over total assets of $1.9
 
billion
at December
 
31, 2021. Total
 
loans increased
 
$182.7 million,
 
or 15.3%,
 
to $1.4 billion
 
at June 30,
 
2022 compared
 
to $1.2
billion at December 31,
 
2021. Total deposits increased by $148.3 million,
 
or 9.3%, to $1.7
 
billion at June 30, 2022
 
compared
to December 31, 2021.
Investment Securities
The investment portfolio
 
is used and
 
managed to provide
 
liquidity through cash
 
flows, marketability
 
and, if necessary,
collateral for
 
borrowings. The
 
investment portfolio
 
is also
 
used as
 
a tool
 
to manage
 
interest rate
 
risk and
 
the Company’s
capital
 
market
 
risk
 
exposure.
 
The
 
philosophy
 
of
 
the
 
portfolio
 
is
 
to
 
maximize
 
the
 
Company’s
 
profitability
 
taking
 
into
 
 
41
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
consideration the Company’s
 
risk appetite and
 
tolerance, manage
 
the asset composition
 
and diversification,
 
and maintain
adequate risk-based capital ratios.
The
 
investment
 
portfolio
 
is
 
managed
 
in
 
accordance
 
with
 
the
 
Asset
 
and
 
Liability
 
Management
 
(“ALM”)
 
policy,
 
which
includes an
 
investment guideline,
 
approved by
 
the Board.
 
Such policy
 
is reviewed
 
at least
 
annually or
 
more frequently
 
if
deemed necessary,
 
depending
 
on market
 
conditions
 
and/or
 
unexpected
 
events.
 
The investment
 
portfolio
 
composition
 
is
subject to change
 
depending on the
 
funding and liquidity
 
needs of
 
the Company, and the interest
 
risk management objective
directed by the ALCO. The portfolio of investments can be used to modify the duration of the balance
 
sheet. The allocation
of cash into
 
securities takes
 
into consideration
 
anticipated future cash
 
flows (uses
 
and sources) and
 
all available sources
of credit.
Our investment portfolio consists
 
primarily of securities issued
 
by U.S. government-sponsored agencies,
 
U.S.
 
agency
mortgage-backed securities,
 
collateralized mortgage
 
obligation securities,
 
municipal securities,
 
and other
 
debt securities,
all with varying contractual maturities and coupons. Due to the optionality embedded in these securities, the final maturities
do not
 
necessarily represent the
 
expected life of
 
the portfolio. Some
 
of these
 
securities will be
 
called or paid
 
down depending
on capital market conditions and expectations. The investment portfolio is regularly reviewed by the Chief Financial Officer,
Treasurer,
 
or the
 
ALCO of
 
the Company
 
to ensure
 
an appropriate
 
risk and
 
return profile
 
as well
 
as for
 
adherence to
 
the
investment policy.
As of June 30, 2022, the
 
investment portfolio consisted
 
of available-for-sale (“AFS”) and
 
held-to-maturity (“HTM”) debt
securities. During the year ended December 31, 2021,
 
there were 28 investment securities that were transferred from AFS
to HTM with an
 
amortized cost basis
 
and fair value amount
 
of $67.6 million and
 
$68.7 million, respectively.
 
On the date of
transfer, these securities had a total net unrealized gain of $1.1
 
million. The transfer of debt securities from the AFS
 
to HTM
category was
 
made at
 
fair value
 
at the
 
date of
 
transfer.
 
The unrealized
 
gain or
 
loss
 
at the
 
date of
 
transfer is
 
retained in
accumulated other
 
comprehensive income
 
and in
 
the carrying
 
value of
 
the HTM
 
securities. Such
 
amounts are
 
amortized
over the remaining life of
 
the security.
 
There was no immediate
 
impact to net income on
 
the date of transfer.
 
Two of these
transferred securities totaling $2.0 million matured during
 
the second quarter of 2022.
 
The book value of the AFS securities is adjusted monthly
 
for unrealized gain or loss as a valuation allowance,
 
and any
gain
 
or
 
loss
 
is
 
reported
 
on
 
an
 
after-tax
 
basis
 
as
 
a
 
component
 
of
 
other
 
comprehensive
 
income
 
in
 
stockholders’
 
equity.
Periodically,
 
we
 
may
 
need
 
to
 
assess
 
whether
 
there
 
have
 
been
 
any
 
events
 
or
 
unexpected
 
economic
 
circumstances
 
to
indicate that
 
a security
 
on which
 
there is
 
an unrealized
 
loss is
 
impaired on
 
an other-than-temporary
 
basis (“OTTI”).
 
If the
impairment
 
is
 
deemed
 
to
 
be
 
permanent,
 
an
 
analysis
 
is
 
then
 
made
 
considering
 
many
 
factors,
 
including
 
the
 
severity
 
and
duration of the impairment, the severity
 
of the event, our intent and
 
ability to hold the security for a
 
period of time sufficient
for a
 
recovery in
 
value, recent
 
events specific
 
to the
 
issuer or
 
industry,
 
any related
 
credit events,
 
and for
 
debt securities,
external
 
credit
 
ratings
 
and
 
recent
 
downgrades
 
related
 
to
 
deterioration
 
of
 
credit
 
quality.
 
Securities
 
on
 
which
 
there
 
is
 
an
unrealized loss
 
that is
 
deemed to
 
be OTTI
 
are written
 
down to
 
fair value,
 
with the
 
write-down recorded
 
as a
 
realized loss
under line item
 
“Gain (loss) on
 
sale of securities
 
available-for-sale,
 
net” of the Consolidated
 
Statements of Operations.
 
As
of June 30, 2022, there are no securities
 
which management has classified as OTTI
 
.
 
For further discussion of our analysis
on impaired investment securities for OTTI, see Note 2 “Investment Securities” to the Consolidated Financial Statements in
this Form 10-Q.
AFS
 
and
 
HTM
 
investment
 
securities
 
decreased
 
$68.1 million
 
or
 
13.0%
 
to
 
$456.1 million
 
at
 
June 30,
 
2022
 
from
$524.2 million
 
at December
 
31, 2021.
 
Investment
 
securities
 
decreased
 
due to
 
payments received
 
and higher
 
unrealized
losses.
 
Management
 
reinvested
 
excess
 
cash
 
balances
 
into
 
high
 
credit
 
quality
 
investments
 
to
 
increase
 
the
 
Company’s
profitability and modify the Company’s balance sheet duration according
 
to the ALM policy. As of June
 
30, 2022, corporate
bond securities with a market value
 
of $23.6 million were pledged to secure
 
public deposits. The investment portfolio
 
does
not have any tax-exempt securities.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
42
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
The
 
following
 
table
 
presents
 
the
 
amortized
 
cost
 
and
 
fair
 
value
 
of
 
investment
 
securities
 
for
 
the
 
dates
 
indicated
 
(in
thousands):
June 30, 2022
December 31, 2021
Available-for-sale:
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
U.S. Government Agency
$
27,816
$
25,850
$
10,564
$
10,520
U.S. Treasury
2,468
2,437
-
-
Collateralized mortgage obligations
155,340
133,820
160,506
156,829
Mortgage-backed securities - residential
111,708
95,982
120,643
118,842
Mortgage-backed securities - commercial
44,670
40,121
49,905
50,117
Municipal securities
25,124
19,602
25,164
24,276
Bank subordinated debt securities
16,503
15,972
27,003
28,408
Corporate bonds
6,062
5,680
12,068
12,550
$
389,691
$
339,464
$
405,853
$
401,542
Held-to-maturity:
U.S. Government Agency
$
34,100
$
29,408
$
34,505
$
33,904
Collateralized mortgage obligations
40,806
35,293
44,820
43,799
Mortgage-backed securities - residential
27,478
23,524
26,920
26,352
Mortgage-backed securities - commercial
3,095
2,692
3,103
3,013
Corporate bonds
11,192
10,150
13,310
13,089
$
116,671
$
101,067
$
122,658
$
120,157
The following
 
table shows
 
the weighted
 
average yields,
 
categorized by
 
contractual maturity,
 
for investment
 
securities
as of June 30, 2022 (in thousands,
 
except ratios):
 
Within 1 year
After 1 year through 5
years
After 5 years through
10 years
After 10 years
Total
Amortized
Cost
Yield
Amortized
Cost
Yield
Amortized
Cost
Yield
Amortized
Cost
Yield
Amortized
Cost
Yield
Available-for-sale:
U.S. Government Agency
$
-
0.00%
$
4,810
2.76%
$
2,015
2.84%
$
20,991
2.82%
$
27,816
2.81%
U.S. Treasury
-
0.00%
2,468
2.32%
-
0.00%
-
0.00%
2,468
2.32%
Collateralized mortgage obligations
-
0.00%
-
0.00%
-
0.00%
155,340
1.49%
155,340
1.49%
MBS - residential
-
0.00%
-
0.00%
-
0.00%
111,708
1.61%
111,708
1.61%
MBS - commercial
-
0.00%
-
0.00%
-
0.00%
44,670
1.99%
44,670
1.99%
Municipal securities
 
-
0.00%
-
0.00%
1,000
2.05%
24,124
1.72%
25,124
1.73%
Bank subordinated debt securities
-
0.00%
-
0.00%
16,503
4.71%
-
0.00%
16,503
4.71%
Corporate bonds
-
0.00%
6,062
2.59%
-
0.00%
-
0.00%
6,062
2.59%
$
-
$
13,340
$
19,518
$
356,833
$
389,691
1.85%
Held-to-maturity:
U.S. Government Agency
$
-
0.00%
$
7,890
1.03%
$
18,540
1.32%
$
7,670
1.58%
$
34,100
1.31%
Collateralized mortgage obligations
-
0.00%
-
0.00%
-
0.00%
40,806
1.42%
40,806
1.42%
MBS - residential
-
0.00%
1,354
2.63%
9,224
1.61%
16,900
2.05%
27,478
1.93%
MBS - commercial
-
0.00%
-
0.00%
3,095
1.62%
-
0.00%
3,095
1.62%
Corporate bonds
-
0.00%
11,192
2.71%
-
0.00%
-
0.00%
11,192
2.71%
$
-
$
20,436
$
30,859
$
65,376
$
116,671
1.64%
Loans
Loans
 
are
 
the
 
largest
 
category
 
of
 
interest-earning
 
assets
 
on
 
the
 
Consolidated
 
Balance
 
Sheets,
 
and
 
usually
 
provide
higher yields
 
than the
 
rest of
 
the interest-earning
 
assets. Higher
 
yields typically
 
carry inherent
 
credit and
 
liquidity risks
 
in
comparison to lower yield assets.
 
The Company manages and mitigates
 
such risks in accordance with the
 
credit and ALM
policies, risk tolerance and balance sheet composition.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
43
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
The following table shows the loan portfolio composition
 
as of the dates indicated (in thousands):
 
June 30, 2022
December 31, 2021
Total
Percent of
Total
Total
Percent of
Total
Residential Real Estate
$
203,662
14.8
%
$
201,359
16.9
%
Commercial Real Estate
843,445
61.5
%
704,988
59.2
%
Commercial and Industrial
131,271
9.5
%
146,592
12.3
%
Foreign Banks
84,770
6.2
%
59,491
5.0
%
Consumer and Other
 
109,250
8.0
%
79,229
6.6
%
Total
 
gross loans
1,372,398
100.0
%
1,191,659
100.0
%
Less: Deferred fees (cost)
(335)
1,578
Total
 
loans net of deferred fees (cost)
1,372,733
1,190,081
Less: Allowance for credit losses
15,786
15,057
Total
 
net loans
$
1,356,947
$
1,175,024
Total
 
gross
 
loans
 
increased
 
by
 
$180.7 million
 
or
 
15.2%
 
at
 
June 30,
 
2022
 
compared
 
to
 
December 31,
 
2021.
 
The
commercial real estate
 
and to
 
a lesser
 
extent, foreign banks
 
and consumer and
 
other loan
 
segments had the
 
most significant
growth partially offset by declines in the commercial and industrial loan segment. Commercial and industrial loans declined
primarily because of continuing PPP loan forgiveness.
Our
 
loan
 
portfolio
 
continues
 
to
 
grow,
 
with
 
commercial
 
real
 
estate
 
lending
 
as
 
the
 
primary
 
focus
 
which
 
represented
approximately 61.5%
 
of the total
 
gross loan portfolio
 
as of June 30,
 
2022. We
 
do not expect
 
any significant changes
 
over
the foreseeable
 
future in
 
the composition
 
of our
 
loan portfolio
 
or in
 
our emphasis
 
on commercial
 
real estate
 
lending. Our
loan growth
 
strategy
 
since
 
inception
 
has been
 
reflective
 
of the
 
market in
 
which
 
we operate
 
and
 
of
 
our strategic
 
plan
 
as
approved by the Board.
Most of the
 
commercial real estate
 
exposure represents
 
loans to commercial
 
businesses secured
 
by owner-occupied
real estate.
 
The growth
 
experienced in
 
recent years
 
is primarily
 
due to
 
implementation of
 
our relationship-based
 
banking
model and
 
the success
 
of our
 
relationship managers
 
in competing
 
for new
 
business
 
in a
 
highly competitive
 
metropolitan
area. Many
 
of our
 
larger loan
 
clients have
 
leng-term relationships
 
with members
 
of our
 
senior management
 
team or
 
our
relationship managers that date back to former institutions.
 
From a
 
liquidity perspective,
 
our loan
 
portfolio provides
 
us with
 
additional
 
liquidity due
 
to repayments
 
or unexpected
prepayments. The following table shows maturities and sensitivity
 
to interest rate changes for the loan portfolio at June 30,
2022 (in thousands):
Due in 1 year or
less
Due in 1 to 5
years
Due after 5 to 15
years
Due after 15
years
Total
Residential Real Estate
$
10,471
$
26,776
$
79,213
$
87,202
$
203,662
Commercial Real Estate
41,993
186,681
610,145
4,626
843,445
Commercial and Industrial
20,660
37,175
29,233
44,203
131,271
Foreign Banks
84,770
-
-
-
84,770
Consumer and Other
1,338
3,732
11,856
92,324
109,250
Total
 
gross loans
$
159,232
$
254,364
$
730,447
$
228,355
$
1,372,398
Interest rate sensitivity:
Fixed interest rates
$
125,693
$
179,013
$
140,784
$
115,986
$
561,476
Floating or adjustable rates
33,539
75,351
589,663
112,369
810,922
Total
 
gross loans
$
159,232
$
254,364
$
730,447
$
228,355
$
1,372,398
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
 
June 30,
 
2022, approximately
 
59.1% of
 
the loans
 
have adjustable/variable
 
rates and
 
40.9% of
 
the loans
 
have
fixed
 
rates.
 
The
 
adjustable/variable
 
loans
 
re-price
 
to
 
different
 
benchmarks
 
and
 
tenors
 
in
 
different
 
periods
 
of
 
time.
 
By
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
44
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
contractual characteristics, there are no
 
material concentrations on anniversary repricing. Additionally, it is
 
important to note
that most
 
of our
 
loans have
 
interest rate
 
floors. This
 
embedded option
 
protects the
 
Company from
 
a decrease
 
in interest
rates and positions us to gain in the scenario of higher interest
 
rates.
Asset Quality
 
Our asset quality grading
 
analysis estimates the capability of
 
the borrower to repay
 
the contractual obligation of
 
the loan
agreement as scheduled or at all. The Company’s internal credit risk grading system is based on experiences with similarly
graded loans. Internal credit
 
risk grades are reviewed
 
at least once a
 
year, and
 
more frequently as
 
needed. Internal credit
risk ratings
 
may change
 
based on
 
management’s
 
assessment of
 
the results
 
from the
 
annual review,
 
portfolio monitoring,
and other developments observed with borrowers.
 
The internal credit risk grades used by the Company to
 
assess the credit worthiness of a loan are shown below:
Pass
– Loans indicate different levels of satisfactory
 
financial condition and performance.
 
Special Mention
 
– Loans classified as special mention have a potential weakness
 
that deserves management’s
close attention. If left uncorrected, these potential weaknesses
 
may result in deterioration of the repayment
prospects for the loan or of the institution’s
 
credit position at some future date.
 
Substandard
– Loans classified as substandard are inadequately protected
 
by the current net worth and paying
capacity of the obligator or of the collateral pledged, if
 
any. Loans so classified
 
have a well-defined weakness or
weaknesses that jeopardize the liquidation of the debt.
 
They are characterized by the distinct possibility that the
institution will sustain some loss if the deficiencies are
 
not corrected.
 
Doubtful
 
– Loans classified as doubtful have all the weaknesses inherent
 
in those classified at substandard, with
the added characteristic that the weaknesses make collection
 
or liquidation in full on the basis of currently existing
facts, conditions, and values, highly questionable and improbable.
 
Loss
– Loans classified as loss are considered uncollectible.
Loan credit exposures by internally assigned grades are
 
as follows for the dates indicated (in thousands):
 
June 30, 2022
Pass
Special Mention
Substandard
Doubtful
Total
Residential Real Estate
$
203,662
$
-
$
-
$
-
$
203,662
Commercial Real Estate
841,842
1,197
406
-
843,445
Commercial and Industrial
130,809
-
462
-
131,271
Foreign Banks
84,770
-
-
-
84,770
Consumer and Other
 
109,040
-
210
-
109,250
$
1,370,123
$
1,197
$
1,078
$
-
$
1,372,398
December 31, 2021
Pass
Special Mention
Substandard
Doubtful
Total
Residential Real Estate
$
196,778
$
-
$
4,581
$
-
$
201,359
Commercial Real Estate
703,349
1,222
417
-
704,988
Commercial and Industrial
146,039
-
553
-
146,592
Foreign Banks
59,491
-
-
-
59,491
Consumer and Other
 
79,005
-
224
-
79,229
$
1,184,662
$
1,222
$
5,775
$
-
$
1,191,659
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
45
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
Non-Performing Assets
The following table presents non-performing assets as
 
of the dates shown (in thousands,
 
except ratios):
June 30, 2022
December 31, 2021
Non-accrual loans, less non-accrual TDR loans
$
-
$
1,190
Non-accrual TDRs
-
-
Loans past due over 90 days and still accruing
-
-
Total
 
non-performing loans
-
1,190
Other real estate owned
-
-
Total
 
non-performing assets
$
-
$
1,190
Asset quality ratios:
Allowance for credit losses to total loans
1.15%
1.27%
Allowance for credit losses to non-performing loans
0%
1,265%
Non-performing loans to total loans
0%
0.10%
Non-performing
 
assets include
 
all loans
 
categorized as
 
non-accrual or
 
restructured,
 
impaired securities,
 
non-accrual
troubled debt restructuring
 
(“TDRs”), other real
 
estate owned (“OREO”)
 
and other repossessed
 
assets. Problem
 
loans for
which the collection
 
or liquidation
 
in full
 
is reasonably
 
uncertain are
 
placed on
 
a non-accrual
 
status. This
 
determination is
based on current existing facts concerning collateral values and the paying capacity of
 
the borrower. When the collection of
the full contractual
 
balance is unlikely,
 
the loan is
 
placed on non-accrual
 
to avoid overstating
 
the Company’s
 
income for a
loan with increased credit risk.
 
If the
 
principal or
 
interest on
 
a commercial
 
loan becomes
 
due and
 
unpaid for
 
90 days
 
or more,
 
the loan
 
is placed
 
on
non-accrual status as of
 
the date it becomes
 
90 days past due
 
and remains in non-accrual
 
status until it meets
 
the criteria
for restoration to accrual status.
 
Residential loans, on
 
the other hand, are placed
 
on non-accrual status when
 
the principal
or interest
 
becomes due
 
and unpaid
 
for 120
 
days or
 
more and
 
remains in
 
non-accrual status
 
until it
 
meets the
 
criteria for
restoration
 
to
 
accrual
 
status.
 
Restoring
 
a
 
loan
 
to
 
accrual
 
status
 
is
 
possible
 
when
 
the
 
borrower
 
resumes
 
payment
 
of
 
all
principal and interest
 
payments for a period
 
of six months
 
and the Company
 
has a documented
 
expectation of repayment
of the remaining contractual principal and interest or the
 
loan becomes secured and in the process of collection.
A TDR is
 
a debtor
 
that is experiencing
 
financial difficulties
 
and to whom
 
the Company grants
 
a loan concession.
 
This
determination
 
is performed
 
during the
 
annual
 
review
 
process
 
or whenever
 
problems
 
are surfacing
 
regarding
 
the client’s
ability to repay in accordance with
 
the original terms of the loan
 
or line of credit. In general,
 
a borrower that can obtain funds
from sources
 
other than
 
the Company
 
at market
 
interest rates
 
at or
 
near those
 
for non-troubled
 
debt is
 
not involved
 
in a
troubled debt
 
restructuring.
 
The concessions
 
are given
 
to the
 
debtor
 
in various
 
forms,
 
including
 
interest rate
 
reductions,
principal
 
forgiveness,
 
extension
 
of
 
maturity
 
date,
 
waiver,
 
or
 
deferral
 
of
 
payments
 
and
 
other
 
concessions
 
intended
 
to
minimize potential losses.
The following tables present performing and non-performing
 
TDRs at the dates indicated (in thousands):
June 30, 2022
December 31, 2021
Accrual Status
Non-Accrual
Status
Total TDRs
Accrual Status
Non-Accrual
Status
Total TDRs
Residential real estate
$
7,307
$
-
$
7,307
$
7,815
$
-
$
7,815
Commercial real estate
594
-
594
696
-
696
Commercial and industrial
99
-
99
141
-
141
Consumer and other
 
210
-
210
224
-
224
Total
$
8,210
$
-
$
8,210
$
8,876
$
-
$
8,876
The Company allocated
 
$319 thousand and $360
 
thousand of specific
 
allowance for TDR loans
 
at June 30, 2022 and
December 31,
 
2021, respectively.
 
There
 
was
 
no
 
commitment
 
to
 
lend additional
 
funds to
 
these
 
TDR
 
customers
 
at either
date.
 
During the
 
quarter ended
 
June 30, 2022
 
and 2021,
 
there were
 
no defaults
 
on TDR
 
loans within
 
the prior
 
12 months.
Additionally, the Company
 
did not have any new TDR loans during the three months
 
ended June 30, 2022 and 2021.
The
 
Company
 
provided
 
financial
 
relief
 
to
 
borrowers
 
impacted
 
by
 
COVID-19
 
and
 
provided
 
modifications
 
to
 
include
interest
 
only
 
deferral
 
or
 
principal
 
and
 
interest
 
deferral.
 
These
 
modifications
 
are
 
excluded
 
from
 
TDR,
 
classification
 
under
Section 4013 of the CARES Act or under applicable interagency
 
guidance of the federal banking regulators.
 
 
 
46
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
For further
 
discussion on
 
non-performing loans,
 
see Note
 
3 “Loans”
 
to the Consolidated
 
Financial Statements
 
on this
Form 10-Q.
Allowance for Credit Losses
In
 
determining
 
the
 
balance
 
of
 
the
 
allowance
 
account,
 
loans
 
are
 
pooled
 
by
 
product
 
segments
 
with
 
similar
 
risk
characteristics and management
 
evaluates the ACL on
 
each segment and on
 
a regular basis to maintain
 
the allowance at
an
 
adequate
 
level
 
based
 
on
 
factors
 
which,
 
in
 
management’s
 
judgment,
 
deserve
 
current
 
recognition
 
in
 
estimating
 
credit
losses.
 
Such
 
factors
 
include
 
changes
 
in
 
prevailing
 
economic
 
conditions,
 
historical
 
loss
 
experience,
 
delinquency
 
trends,
changes in the composition and size of the loan portfolio
 
and the overall credit worthiness of the borrowers.
Additionally,
 
qualitative adjustments
 
are made to
 
the ACL when,
 
based on management’s
 
judgment, there are
 
factors
impacting the allowance estimate not considered by the
 
quantitative calculations.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
47
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
The following table presents ACL and net charge-offs to average loans by
 
type for the periods indicated (in thousands):
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Foreign
 
Banks
Consumer
and Other
Total
Three Months Ended June 30, 2022
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
2,357
$
9,183
$
2,355
$
491
$
688
$
15,074
Provision for credit losses
9
107
311
160
118
705
Recoveries
-
-
5
-
3
8
Charge-offs
-
-
-
-
(1)
(1)
Ending Balance
 
$
2,366
$
9,290
$
2,671
$
651
$
808
$
15,786
Average loans
$
198,812
799,846
126,434
76,968
94,416
1,296,476
Net charge-offs to average loans
 
0.00%
0.00%
-0.02%
0.00%
-0.01%
0.00%
Six Months Ended June 30, 2022
 
 
 
 
 
 
Beginning balance
$
2,498
$
8,758
$
2,775
$
457
$
569
$
15,057
Provision for credit losses
(148)
532
(115)
194
242
705
Recoveries
32
-
11
-
3
46
Charge-offs
(16)
-
-
-
(6)
(22)
Ending Balance
 
$
2,366
$
9,290
$
2,671
$
651
$
808
$
15,786
Average loans
$
198,453
769,978
133,009
68,400
84,349
1,254,189
Charge-offs
-0.02%
0.00%
-0.02%
0.00%
0.01%
0.00%
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Foreign
 
Banks
Consumer
and Other
Total
Three Months Ended June 30, 2021
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
3,087
$
9,320
$
2,005
$
407
$
190
$
15,009
Provision for credit losses
(322)
(568)
398
147
345
-
Recoveries
4
-
64.00
-
1
69
Charge-offs
(229)
-
-
-
(1)
(230)
Ending Balance
 
$
2,540
$
8,752
$
2,467
$
554
$
535
$
14,848
Average loans
$
216,190
$
650,871
$
160,968
$
48,551
$
11,912
$
1,088,492
Net charge-offs to average loans
 
0.42%
0.00%
-0.16%
0.00%
0.00%
0.06%
Six Months Ended June 30, 2021
 
 
 
 
 
 
Beginning balance
$
3,408
$
9,453
$
1,689
$
348
$
188
$
15,086
Provision for credit losses
(647)
(701)
627
206
355
(160)
Recoveries
8
-
151
-
2
161
Charge-offs
(229)
-
-
-
(10)
(239)
Ending Balance
 
$
2,540
$
8,752
$
2,467
$
554
$
535
$
14,848
 
Average loans
$
223,628
$
638,444
$
163,922
$
45,432
$
8,757
$
1,080,183
Net charge-offs to average loans
0.20%
0.00%
-0.19%
0.00%
0.18%
0.01%
Bank-Owned Life Insurance
As of June 30,
 
2022, the combined
 
cash surrender value
 
of all bank-owned
 
life insurance (“BOLI”)
 
policies was $42.2
million. Changes in
 
cash surrender value
 
are recorded to
 
non-interest income in
 
the 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
48
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
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 June 30,
2022
2021
Average Balance
Average Rate
Paid
Average Balance
Average Rate
Paid
Non-interest-bearing demand deposits
$
644,975
0.00%
$
535,894
0.00%
Interest-bearing demand deposits
66,349
0.10%
52,620
0.11%
Saving and money market deposits
781,076
0.32%
607,752
0.35%
Time deposits
224,284
0.48%
235,899
0.65%
$
1,716,684
0.21%
$
1,432,165
0.26%
The
 
uninsured
 
deposits
 
are
 
estimated
 
based
 
on
 
the
 
FDIC
 
deposit
 
insurance
 
limit
 
of
 
$250 thousand
 
for
 
all
 
deposit
accounts at
 
the Bank
 
per account
 
holder. Total estimated uninsured deposits
 
were $1.0 billion and
 
$897.8 million at June 30,
2022 and December 31, 2021, respectively.
 
The following table shows scheduled maturities of uninsured
 
time deposits as of June 30, 2022 (in thousands):
June 30, 2022
Three months or less
$
27,087
Over three through six months
22,393
Over six though twelve months
31,622
Over twelve months
23,301
$
104,403
Other Liabilities
The Company collects from commercial loan customers
 
funds which are held in escrow for future payment of
 
real
estate taxes and insurance. These escrow funds are disbursed
 
by the Company directly to the insurance companies
 
and
taxing authority of the borrower.
 
Escrow funds are recognized as other liabilities.
 
As of June 30, 2022 escrow balances totaled $10.2 million
 
compared to $4.0 million at December 31, 2021.
Borrowings
As a
 
member of
 
the FHLB, we
 
are eligible for
 
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 June 30,
 
2022 we had
 
$66.0 million of
 
fixed-rate advances outstanding
 
from the FHLB
 
with a weighted
 
average
rate of 1.55%. Most of the advances are due in the first
 
two calendar quarters of 2025.
 
The following table presents the FHLB fixed rate advances
 
as of June 30, 2022 (in thousands):
Interest Rate
Type of Rate
Maturity Date
Amount
0.81%
Fixed
August 17, 2023
$
5,000
1.04%
Fixed
July 30, 2024
5,000
2.05%
Fixed
March 27, 2025
10,000
1.91%
Fixed
March 28, 2025
5,000
1.81%
Fixed
April 17, 2025
5,000
1.07%
Fixed
July 18, 2025
6,000
1.58%
Fixed
July 14, 2022
30,000
$
66,000
We
 
have
 
also
 
established
 
Fed
 
Funds
 
lines
 
of
 
credit
 
with
 
our
 
upstream
 
correspondent
 
banks
 
to
 
manage
 
temporary
fluctuations in our daily cash balances.
 
As of June 30, 2022, there
 
were no outstanding balances with
 
the Fed Funds lines
of credit.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
49
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
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 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
 
):
June 30, 2022
December 31, 2021
Commitments to grant loans and unfunded lines of credit
$
142,498
$
134,877
Standby and commercial letters of credit
3,843
6,420
$
146,341
$
141,297
Commitments to extend credit are agreements to lend funds to a client, as long as there is no violation of any condition
established
 
in
 
the
 
contract,
 
for
 
a
 
specific
 
purpose.
 
Commitments
 
generally
 
have
 
variable
 
interest
 
rates,
 
fixed
 
expiration
dates or
 
other
 
termination
 
clauses
 
and
 
may require
 
payment
 
of
 
a fee.
 
Since many
 
of the
 
commitments
 
are
 
expected to
expire without being
 
fully drawn, the
 
total commitment
 
amounts disclosed
 
above do not
 
necessarily represent
 
future cash
requirements.
Unfunded lines of credit represent unused portions of credit facilities to our current borrowers that represent no change
in credit risk in our portfolio. Lines
 
of credit generally have variable interest
 
rates. The maximum potential amount
 
of future
payments we could
 
be required to
 
make is represented
 
by the contractual
 
amount of the
 
commitment, less
 
the amount of
any advances made.
Letters of credit are
 
conditional commitments issued
 
by us to guarantee
 
the performance of a
 
client to a third
 
party.
 
In
the event of nonperformance by
 
the client in accordance with the
 
terms of the agreement with the
 
third party,
 
we would be
required to fund
 
the commitment.
 
If the commitment
 
is funded, we
 
would be entitled
 
to seek recovery
 
from the client
 
from
the underlying collateral,
 
which can include
 
commercial real estate,
 
physical plant and
 
property, inventory, receivables, cash
or marketable securities.
Asset and Liability Management Committee
Members
 
of
 
senior
 
management
 
and
 
our
 
Board
 
make
 
up
 
the
 
asset
 
and
 
liability
 
management
 
committee,
 
or
 
ALCO.
Senior management is responsible for ensuring that Board
 
approved strategies, policies, and procedures for managing and
mitigating risks are appropriately executed within the designated
 
lines of authority and responsibility in a timely
 
manner.
ALCO
 
oversees
 
the
 
establishment,
 
approval,
 
implementation,
 
and
 
review
 
of
 
interest
 
rate
 
risk,
 
management,
 
and
mitigation strategies, ALM related policies, ALCO procedures
 
and risk tolerances and appetite.
While some degree
 
of IRR (“Interest
 
Rate Risk”) is
 
inherent to the banking
 
business, we
 
believe our ALCO
 
has put in
place sound risk management practices to identify,
 
quantify, monitor,
 
and limit IRR exposures.
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,
 
deposits
 
volatility
 
and
reduced earnings or outright losses could adversely affect
 
the Company’s liquidity,
 
performance, and capital adequacy.
Income simulations
 
are used
 
to assess
 
the impact
 
of changing
 
rates on
 
earnings under
 
different rates
 
scenarios and
time horizons.
 
These simulations
 
utilize both
 
instantaneous and
 
parallel changes
 
in the
 
level of
 
interest rates,
 
as well
 
as
non-parallel changes such as changing slopes (flat and steeping) and
 
twists of the yield curve, Static simulation models are
based on current exposures and
 
assume a constant balance sheet with
 
no new growth. Dynamic simulation analysis
 
is also
utilized to have a
 
more comprehensive assessment
 
on IRR. This simulation
 
relies on detailed
 
assumptions outlined in
 
our
budget and strategic plan, and in assumptions regarding changes in
 
existing lines of business, new business, management
strategies and client expected behavior.
 
 
50
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
To
 
have
 
a
 
more
 
complete
 
picture
 
of
 
IRR,
 
the
 
Company
 
also
 
evaluates
 
the
 
economic
 
value
 
of
 
equity
 
(“EVE”).
 
This
assessment
 
allows
 
us
 
to
 
measure
 
the
 
degree
 
to
 
which
 
the
 
economic
 
values
 
will
 
change
 
under
 
different
 
interest
 
rate
scenarios (parallel and non-parallel). The economic value approach focuses on a longer-term time horizon and captures all
future cash flows expected
 
from existing assets and
 
liabilities. The economic value
 
model utilizes a static
 
approach in that
the analysis
 
does not
 
incorporate new
 
business; rather,
 
the analysis
 
shows a
 
snapshot in
 
time of
 
the risk
 
inherent in
 
the
balance sheet.
Market and Interest Rate Risk Management
According to our last ALCO model run as of June 30, 2022, we are an
 
asset-sensitive company for years one and two.
This 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. Many assumptions are used
 
to calculate the impact of interest
 
rate variations
on our
 
net interest
 
income, such
 
as asset
 
prepayment speeds,
 
non-maturity deposit
 
price sensitivity,
 
pricing correlations,
deposit truncations and decay rates, and key rate drivers.
Because of the inherent
 
use of these estimates and
 
assumptions in the model,
 
our actual results may,
 
and most likely
will, differ from static measures results. In addition, static measures like
 
EVEs do not include actions that management may
undertake to manage the risks in response to anticipated changes in interest rates or client deposit behavior. As part of our
ALM strategy
 
and
 
policy,
 
management
 
has the
 
ability
 
to modify
 
the
 
balance sheet
 
to
 
either increase
 
asset
 
duration
 
and
decrease liability
 
duration to reduce
 
asset sensitivity,
 
or to decrease
 
asset duration and
 
increase liability duration
 
in order
to increase asset sensitivity.
According to our model,
 
as of June 30,
 
2022, NIM should
 
increase for static rate
 
scenarios (-400 basis
 
points or +400
basis points).
 
For the static
 
forecast in year
 
one, the
 
estimated NIM
 
will remain
 
stable from
 
the
 
base case
 
scenario to
 
a
+400 basis points scenario. Additionally, utilizing an EVE
 
approach, we analyze the risk
 
to capital from the
 
effects of various
interest
 
rate
 
scenarios
 
through
 
a
 
long-term
 
discounted
 
cash
 
flow
 
model.
 
This
 
measures
 
the
 
difference
 
between
 
the
economic value of our assets and the economic value
 
of our liabilities, which is a proxy for our liquidation value.
 
According
to our
 
balance
 
sheet
 
composition,
 
and
 
as expected,
 
our model
 
stipulates
 
that
 
an
 
increase
 
of rates
 
will
 
have
 
a
 
negative
impact on the EVE. Results and analysis are presented quarterly
 
to the Board, and strategies are defined.
We have also
 
been reducing asset
 
sensitivity by extending
 
asset duration, which
 
has lowered our
 
net interest income
volatility and allowed us to keep the net interest income
 
consistent with ALCO objectives.
Liquidity
Liquidity is defined
 
as a Company’s
 
capacity to meet
 
its cash and
 
collateral obligations at
 
a reasonable cost.
 
Maintaining
an adequate level of liquidity depends on the Company’s ability to
 
efficiently meet both expected and unexpected cash flow
and collateral needs without adversely affecting
 
either daily operations or the financial condition of the
 
Company.
Liquidity risk
 
is the
 
risk that
 
we will
 
be unable
 
to meet
 
our short-term
 
and long-term
 
obligations as
 
they become
 
due
because of an inability
 
to liquidate assets or
 
obtain relatively adequate funding. The
 
Company’s obligations, and the funding
sources
 
used
 
to
 
meet
 
them,
 
depend
 
significantly
 
on
 
our
 
business
 
mix,
 
balance
 
sheet
 
structure
 
and
 
composition,
 
credit
quality of our assets and the cash flow profiles of our on-
 
and off-balance sheet obligations.
In managing
 
inflows and
 
outflows,
 
management
 
regularly
 
monitors situations
 
that can
 
give rise
 
to increased
 
liquidity
risk. These
 
include funding
 
mismatches, market
 
constraints on
 
the ability
 
to convert
 
assets (particularly
 
investments) into
cash or in accessing sources of funds (i.e., market liquidity),
 
and contingent liquidity events.
Changes in macroeconomic conditions, as well as exposure
 
to credit, market, operational, legal and reputational
 
risks,
such as
 
cybersecurity risk,
 
could have
 
an unexpected
 
impact on
 
the Company’s
 
liquidity risk
 
profile and
 
are factored
 
into
the assessment of liquidity and the ALM framework.
Management has established
 
a comprehensive and
 
holistic management process for
 
identifying, measuring, monitoring
and
 
mitigating
 
liquidity
 
risk.
 
Due
 
to
 
its
 
critical
 
importance
 
to
 
the
 
viability
 
of
 
the
 
Company,
 
liquidity
 
risk
 
management
 
is
integrated into our risk management processes 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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
51
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
and
 
potential
 
future
 
funding
 
sources;
 
adequate
 
levels
 
of
 
highly
 
liquid
 
marketable
 
securities
 
free
 
of
 
legal,
 
regulatory,
 
or
operational
 
impediments,
 
that
 
can
 
be
 
used
 
to
 
meet
 
liquidity
 
needs
 
in
 
stressful
 
situations;
 
comprehensive
 
contingency
funding plans
 
that sufficiently address
 
potential adverse liquidity
 
events and emergency
 
cash flow
 
requirements; and internal
controls
 
and
 
internal
 
audit
 
processes
 
sufficient
 
to
 
determine
 
the
 
adequacy
 
of
 
the
 
institution’s
 
liquidity
 
risk
 
management
process.
We
 
expect
 
funds
 
to
 
be
 
available
 
from
 
several
 
basic
 
banking
 
activity
 
sources,
 
including
 
the
 
core
 
deposit
 
base,
 
the
repayment and maturity of loans and investment security
 
cash flows. Other potential funding sources include
 
federal funds
purchased, brokered certificates
 
of deposit, listing
 
certificates of deposit,
 
and borrowings
 
from the FHLB.
 
Accordingly,
 
our
liquidity
 
resources
 
were
 
adequate
 
to
 
fund
 
loans
 
and
 
meet
 
other
 
cash
 
needs
 
as
 
necessary.
 
We
 
do
 
not
 
expect
 
liquidity
resources to be compromised at this time.
Capital Adequacy
As
 
of
 
June 30,
 
2022,
 
the
 
Bank
 
was
 
well
 
capitalized
 
under
 
the
 
FDIC’s
 
prompt
 
corrective
 
action
 
framework.
 
We
 
also
follow the capital conservation
 
buffer framework,
 
and as of June
 
30, 2022, we
 
exceeded the capital
 
conversation buffer
 
in
all capital ratios, according to our actual ratios. The following table presents the
 
capital ratios for both the Company and the
Bank at the dates indicated (in thousands,
 
except ratios):
Actual
Minimum Capital
Requirements
 
To be Well Capitalized
Under Prompt Corrective
Action Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
June 30, 2022:
Total
 
risk-based capital:
USCB Financial Holdings, Inc.
$
202,417
13.74
%
$
117,842
8.00
%
$
147,302
10.00
%
U.S. Century Bank
$
201,314
13.67
%
$
117,842
8.00
%
$
147,302
10.00
%
Tier 1 risk-based capital:
 
 
 
 
 
 
USCB Financial Holdings, Inc.
$
186,384
12.65
%
$
88,381
6.00
%
$
117,842
8.00
%
U.S. Century Bank
$
185,281
12.58
%
$
88,381
6.00
%
$
117,842
8.00
%
Common equity tier 1 capital:
USCB Financial Holdings, Inc.
$
186,384
12.65
%
$
66,286
4.50
%
$
95,746
6.50
%
U.S. Century Bank
$
185,281
12.58
%
$
66,286
4.50
%
$
95,746
6.50
%
Leverage ratio:
 
 
 
 
 
 
USCB Financial Holdings, Inc.
$
186,384
9.43
%
$
79,040
4.00
%
$
98,800
5.00
%
U.S. Century Bank
$
185,281
9.38
%
$
79,040
4.00
%
$
98,800
5.00
%
December 31, 2021:
(1)
Total
 
risk-based capital
$
186,735
14.92
%
$
100,125
8.00
%
$
125,157
10.00
%
Tier 1 risk-based capital
$
171,484
13.70
%
$
75,094
6.00
%
$
100,125
8.00
%
Common equity tier 1 capital
$
171,484
13.70
%
$
56,321
4.50
%
$
81,352
6.50
%
Leverage ratio
$
171,484
9.55
%
$
71,825
4.00
%
$
89,781
5.00
%
(1)
 
As of December 31, 2021, the regulatory capital
 
ratios for both USCB Financial Holdings, Inc. and
 
U.S. Century Bank were the same since there
was no activity between both of these entities.
 
Impact of Inflation
Our
 
Consolidated
 
Financial
 
Statements
 
and
 
related
 
notes
 
have
 
been
 
prepared
 
in
 
accordance
 
with
 
U.S.
 
GAAP,
which require the measurement of financial
 
position and operating results in terms
 
of historical dollars, without considering
the changes in the
 
relative purchasing power
 
of money over time
 
due to inflation. The
 
impact of inflation is
 
reflected in the
increased cost of operations.
 
Unlike most industrial companies,
 
nearly all our assets and
 
liabilities are monetary in
 
nature.
As a result,
 
interest rates have a
 
greater impact on our
 
performance than do the
 
effects of general levels
 
of inflation. Periods
of high inflation
 
are often accompanied
 
by relatively higher
 
interest rates, and
 
periods of low
 
inflation are accompanied
 
by
relatively lower interest rates.
 
As market interest rates
 
rise or fall in relation
 
to the rates earned
 
on loans and investments,
the
 
value
 
of
 
these
 
assets
 
decreases
 
or
 
increases
 
respectively.
 
Inflation
 
can
 
also
 
impact
 
core
 
non-interest
 
expenses
associated with delivering the Company’s services.
Recently Issued Accounting Pronouncements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
52
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
Recently issued accounting
 
pronouncements are discussed
 
in Note 1 “Summary
 
of Significant Accounting Policies”
 
to
the Consolidated Financial Statements on this Form 10-Q.
Reconciliation and Management Explanation of Non
 
-GAAP Financial Measures
Management
 
has
 
included
 
these
 
non-GAAP
 
measures
 
because
 
it
 
believes
 
these
 
measures
 
may
 
provide
 
useful
supplemental information
 
for evaluating
 
the Company’s
 
underlying performance
 
trends. Further,
 
management uses
 
these
measures
 
in
 
managing
 
and
 
evaluating
 
the
 
Company’s
 
business
 
and
 
intends
 
to
 
refer
 
to
 
them
 
in
 
discussions
 
about
 
our
operations and performance.
 
Operating performance
 
measures should be
 
viewed in addition
 
to, and not
 
as an alternative
to or
 
substitute
 
for,
 
measures
 
determined
 
in
 
accordance
 
with
 
GAAP,
 
and
 
are
 
not
 
necessarily
 
comparable
 
to non-GAAP
measures that may be presented by other companies. The
 
following table reconciles the non-GAAP financial measurement
of operating net income available to common stockholders for the periods presented (in thousands,
 
except per share data):
As of or For the Three Months Ended
6/30/2022
3/31/2022
12/31/2021
9/30/2021
6/30/2021
Pre-Tax Pre-Provision ("PTPP") Income:
(1)
 
Net income
 
$
5,295
$
4,854
$
5,650
$
6,593
$
4,053
 
Plus: Provision for income taxes
1,708
1,858
$
1,751
$
2,088
$
1,263
 
Plus: Provision for (recovery of) credit losses
705
-
$
-
$
-
$
-
 
PTPP income
$
7,708
$
6,712
$
7,401
$
8,681
$
5,316
PTPP Return on Average Assets:
(1)
 
PTPP income
$
7,708
$
6,712
$
7,401
$
8,681
$
5,316
 
Average assets
$
1,968,381
$
1,913,484
$
1,828,037
$
1,741,423
$
1,660,060
 
PTPP return on average assets
(2)
1.57%
$
1.42%
$
1.61%
$
1.98%
$
1.28%
Operating Net Income:
 
Net income
$
5,295
$
4,854
$
5,650
$
6,593
$
4,053
 
Less: Net gains (losses) on sale of
 
securities
(3)
$
21
$
35
$
(70)
$
187
 
Less: Tax effect on sale of securities
1
$
(5)
$
(9)
$
17
$
(46)
 
Operating net income
$
5,297
$
4,838
$
5,624
$
6,646
$
3,912
Operating PTPP Income:
(1)
 
PTPP income
$
7,708
$
6,712
$
7,401
$
8,681
$
5,316
 
Less: Net gains (losses) on sale of
 
securities
(3)
$
21
$
35
$
(70)
$
187
 
Operating PTPP Income
$
7,711
$
6,691
$
7,366
$
8,751
$
5,129
Operating PTPP Return on Average Assets:
(1)
 
Operating PTPP income
$
7,711
$
6,691
$
7,366
$
8,751
$
5,129
 
Average assets
$
1,968,381
$
1,913,484
$
1,828,037
$
1,741,423
$
1,660,060
 
Operating PTPP Return on average assets
(2)
1.57%
$
1.42%
$
1.60%
$
1.99%
$
1.24%
Operating Return on Average Assets:
(1)
 
Operating net income
$
5,297
$
4,838
$
5,624
$
6,646
$
3,912
 
Average assets
$
1,968,381
$
1,913,484
$
1,828,037
$
1,741,423
$
1,660,060
 
Operating return on average assets
(2)
1.08%
$
1.03%
$
1.22%
$
1.51%
$
0.95%
(1)
 
The Company believes these non-GAAP measurements
 
are a key indicator of the ongoing earnings
 
power of the Company.
(2) Annualized.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
53
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
As of or For the Three Months Ended
6/30/2022
3/31/2022
12/31/2021
9/30/2021
6/30/2021
Tangible book value per common share (at period-end):
(1)
Total stockholders' equity (GAAP)
$
180,068
$
192,039
$
203,897
$
201,918
$
166,302
Less: Intangible assets
-
-
-
-
-
Less: Preferred stock
-
-
-
-
24,616
Tangible stockholders' equity (non-GAAP)
$
180,068
$
192,039
$
203,897
$
201,918
$
141,686
Total shares issued and outstanding (at period-end):
(2)
Class A common shares
20,000,753
20,000,753
19,991,753
18,767,541
3,889,469
Class B common shares
-
-
-
1,224,212
1,224,212
Total common shares issued and outstanding
20,000,753
20,000,753
19,991,753
19,991,753
5,113,681
Tangible book value per common share (non-GAAP)
$
9.00
$
9.60
$
10.20
$
10.10
$
27.71
 
 
 
 
 
Operating net income available to common stockholders:
(1)
Net income (GAAP)
$
5,295
$
4,854
$
5,650
$
6,593
$
4,053
Less: Preferred dividends
-
-
-
542
754
Less: Exchange and redemption of preferred shares
-
-
-
89,585
-
Net income (loss) available to common stockholders
 
(GAAP)
5,295
4,854
5,650
(83,534)
3,299
Add back: Exchange and redemption of preferred
 
shares
-
-
-
89,585
-
Operating net income avail. to common stock (non-GAAP)
 
$
5,295
$
4,854
$
5,650
$
6,051
$
3,299
Allocation of operating net income per common
 
stock class:
 
 
 
 
 
Class A common stock
$
5,295
$
4,854
$
5,650
$
5,598
$
2,509
Class B common stock
$
-
$
-
$
-
$
453
$
790
Weighted average shares outstanding:
Class A common stock
 
 
 
 
 
Basic
20,000,753
19,994,953
18,913,914
15,121,460
3,889,469
Diluted
20,171,261
20,109,783
19,023,686
15,187,729
3,933,636
Class B common stock
Basic
-
-
-
6,121,052
6,121,052
Diluted
-
-
-
6,121,052
6,121,052
Diluted EPS:
(3) (4)
 
 
 
 
 
Class A common stock
Net income (loss) per diluted share (GAAP)
$
0.26
$
0.24
$
0.30
$
(5.11)
$
0.64
Add back: Exchange and redemption of preferred
 
shares
-
-
-
5.48
-
Operating net income per diluted share (non-GAAP)
$
0.26
$
0.24
$
0.30
$
0.37
$
0.64
Class B common stock
Net income (loss) per diluted share (GAAP)
$
-
$
-
$
-
$
(1.02)
$
0.13
Add back: Exchange and redemption of preferred
 
shares
-
-
-
1.09
-
Operating net income per diluted share (non-GAAP)
$
-
$
-
$
-
$
0.07
$
0.13
(1)
 
The Company believes these non-GAAP measurements are
 
a key indicator of the ongoing earnings power
 
of the Company.
(2)
 
During the quarter ended September 30, 2021,
 
47,473 shares of Class C preferred stock and
 
11,061,552 shares of Class D preferred stock were
exchanged for an aggregate of 10,278,072 shares
 
of Class A common stock. Additionally, the Bank completed the initial
 
public offering of its Class A
common stock on July 27, 2021, in which it
 
issued 4,600,000 shares of Class A common stock.
 
As such, the total shares issued and outstanding of
Class A common stock was 18,767,541 shares
 
at September 30, 2021.
(3)
 
During the quarter ended September 30, 2021,
 
basic net loss per share is the same as
 
diluted net loss per share as the inclusion of all
 
potential
common shares outstanding would have been antidilutive.
 
(4)
 
During the quarter ended December 31, 2021,
 
the Company entered into agreements with
 
the Class B shareholders to exchange all
 
outstanding
shares of Class B non-voting stock for Class A
 
voting common stock at a ratio of 5 to 1.
 
In calculating net income (loss) per diluted
 
share for the prior
quarters presented, the allocation of operating net income
 
available to common stockholders was based
 
on the weighted average shares outstanding
per common share class to the total weighted average
 
shares outstanding during each period. The
 
operating net income allocation was calculated using
the weighted average shares outstanding of Class
 
B common stock on a as-converted basis.
 
 
54
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
Item 3.
 
Quantitative and Qualitative Disclosures About Market Risk
 
As a smaller reporting company,
 
we are not required to provide the information required
 
by this item.
Item 4. Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
Under the
 
supervision and with
 
the participation of
 
our management, including
 
our President and
 
Chief Executive Officer
and our
 
Chief Financial
 
Officer,
 
we evaluated
 
the effectiveness
 
of the
 
design and
 
operation of
 
the Company’s
 
disclosure
controls and procedures (as
 
defined in Rules 13a-15(e)
 
and 15d-15(e) under the
 
Exchange Act) as
 
of June 30, 2022. Based
on that evaluation, management believes
 
that the Company’s disclosure
 
controls and procedures were
 
effective to collect,
process,
 
and disclose
 
the information
 
required
 
to
 
be
 
disclosed
 
in the
 
reports
 
filed
 
or submitted
 
under
 
the
 
Exchange
 
Act
within the required time periods as of the end of the period covered
 
by this Form 10-Q.
Changes in Internal Control Over Financial Reporting
There has been
 
no change in
 
our internal control
 
over financial reporting
 
(as defined in
 
Rules 13a-15(f) and
 
15d-15(f)
under the Exchange
 
Act) during the period covered by this Form 10-Q that has materially affected, or is reasonably likely
 
to
materially affect, our internal control over financial
 
reporting.
 
Limitations on Effectiveness of Controls and Procedures
In
 
designing
 
and
 
evaluating
 
the
 
disclosure
 
controls
 
and
 
procedures,
 
management
 
recognizes
 
that
 
any
 
controls
 
and
procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving
the desired control objectives.
 
In addition, the design
 
of disclosure controls and
 
procedures must reflect the
 
fact that there
are resource constrains and that
 
management is required to
 
apply judgment in evaluating
 
the benefits of possible
 
controls
and procedures relative to their costs.
 
 
55
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
PART II
 
Item 1.
 
Legal Proceedings
We are not currently subject to any material legal proceedings. We are from time to time subject to claims and litigation
arising
 
in
 
the
 
ordinary
 
course
 
of
 
business.
 
These
 
claims
 
and
 
litigation
 
may
 
include,
 
among
 
other
 
things,
 
allegations
 
of
violation of banking and other applicable regulations, competition
 
law, labor laws and consumer
 
protection laws, as well as
claims or
 
litigation
 
relating
 
to intellectual
 
property,
 
securities, breach
 
of contract
 
and tort.
 
We
 
intend to
 
defend
 
ourselves
vigorously against any pending or future claims and litigation.
Item 1A. Risk Factors
 
For detailed information about certain risk factors that could materially affect our business, financial
 
condition, or future
results, see
 
“Part I,
 
Item 1A
 
– Risk
 
Factors” of
 
the 2021
 
Form 10-K.
 
There have
 
been no
 
material changes
 
from the
 
risk
factors previously disclosed in the 2021 Form 10-K.
Item 2.
 
Unregistered Sales of Equity Securities and Use of Proceeds
(a) On February 28, 2022, stock options
 
previously granted to a former Board member of
 
the Company,
 
pursuant to the
Amended and Restated
 
2015 Equity
 
Incentive Plan
 
covering 9,000
 
shares of
 
Class A common
 
stock at
 
an exercise
 
price
per share of $11.35
 
of the Company were
 
exercised for an aggregate
 
amount of $102 thousand.
 
The options were issued
while the former Board member was
 
still serving as a director and
 
prior to the issuer becoming a
 
reporting company under
the
 
Exchange
 
Act.
 
The
 
shares
 
of
 
Class
 
A
 
common
 
stock
 
subject
 
to
 
the
 
exercised
 
options
 
were
 
issued
 
pursuant
 
to
 
the
exemption provided by Rule 701 of the Securities Act
 
of 1933.
(b) Not applicable.
(c)
 
As
 
previously
 
described
 
The
 
Board
 
adopted
 
a
 
stock
 
repurchase
 
program
 
covering
 
750,000
 
shares
 
of
 
Class
 
A
common stock. No
 
shares were purchased
 
pursuant to such
 
program by the
 
Company during the
 
three and six
 
month ended
June 30, 2022.
Item 3.
 
Defaults Upon Senior Securities
 
None.
Item 4.
 
Mine Safety Disclosures
Not applicable.
Item 5. Other Information
 
None.
 
 
 
 
56
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
Item 6. Exhibits
 
Exhibit No.
Description of Exhibit
*
*
*
*
101
The following financial statements
 
from the Company’s Quarterly
 
Report on Form
 
10-Q for the
 
quarter ended June 30,
 
2022
formatted
 
in
 
Inline
 
XBRL:
 
(i)
 
Consolidated
 
Balance
 
Sheets
 
(unaudited),
 
(ii)
 
Consolidated
 
Statements
 
of
 
Operations
(unaudited), (iii) Consolidated
 
Statements
 
of Comprehensive
 
Income (unaudited), (iv)
 
Consolidated Statements
 
of Changes
in Stockholders’
 
Equity (unaudited),
 
(v) Consolidated
 
Statements of
 
Cash Flows
 
(unaudited), (vi)
 
Notes to
 
Consolidated
Financial Statements (unaudited).
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*
Filed herewith.
 
 
 
 
 
 
 
57
 
USCB Financial Holdings, Inc.
 
Q2 2022 Form 10-Q
SIGNATURES
 
Pursuant to the
 
requirements of
 
the Securities
 
Exchange Act of
 
1934, the registrant
 
has duly caused
 
this report to
 
be
signed on its behalf by the undersigned thereunto duly authorized.
USCB FINANCIAL HOLDINGS, INC.
(Registrant)
Signature
Title
Date
/s/ Luis de la Aguilera
President, Chief Executive Officer,
 
and Director
 
August 11, 2022
Luis de la Aguilera
(Principal Executive Officer)
/s/ Robert Anderson
Chief Financial Officer
 
August 11, 2022
Robert Anderson
(Principal Financial Officer and Principal
Accounting Officer)