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

uscb-10K-20211231
 
 
 
uscb-10K-20211231p1i0.jpg
UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
March 31, 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 May 1, 2022, the registrant had
20,000,753
 
shares of Class A common stock outstanding.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
PART I
Item 1.
 
Financial Statements
USCB FINANCIAL HOLDINGS, INC.
Consolidated Balance Sheets - Unaudited
(Dollars in thousands,
 
except share data)
March 31, 2022
December 31, 2021
ASSETS:
Cash and due from banks
$
13,764
$
6,477
Interest-bearing deposits in banks
80,349
39,751
Total cash and cash equivalents
94,113
46,228
Investment securities held to maturity (fair value $
112,690
 
and $
120,157
, respectively)
122,361
122,658
Investment securities available for sale, at fair value
392,214
401,542
Federal Home Loan Bank stock, at cost
2,277
2,100
Loans held for investment, net of allowance of
 
$
15,074
 
and $
15,057
, respectively
1,243,314
1,175,024
Accrued interest receivable
6,303
5,975
Premises and equipment, net
5,245
5,278
Bank owned life insurance
41,986
41,720
Deferred tax asset, net
38,860
34,929
Lease right-of-use asset
13,441
14,185
Other assets
7,138
4,300
Total assets
$
1,967,252
$
1,853,939
LIABILITIES:
 
 
Deposits:
Demand
$
656,622
$
$605,425
Money market and savings accounts
772,022
703,856
Interest-bearing checking accounts
61,619
55,878
Time deposits over $250,000
118,069
119,401
Time deposits $250,000 or less
104,962
105,819
Total deposits
1,713,294
1,590,379
Federal Home Loan Bank advances
36,000
36,000
Lease liability
13,441
14,185
Accrued interest and other liabilities
12,478
9,478
Total liabilities
1,775,213
1,650,042
 
 
Commitments and contingencies (See Notes 6
 
and 12)
 
 
STOCKHOLDERS' EQUITY:
Preferred stock - Class C; $
1.00
 
par value; $
1,000
 
per share liquidation preference;
52,748
 
shares
authorized;
0
 
and
0
 
issued and outstanding as of March 31, 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 March 31, 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 March 31, 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 March 31, 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 March 31, 2022 and December
 
31, 2021
-
-
Additional paid-in capital on common stock
310,887
310,666
Accumulated deficit
(119,391)
(124,245)
Accumulated other comprehensive loss
(19,458)
(2,516)
Total stockholders' equity
192,039
203,897
Total liabilities and stockholders' equity
$
1,967,252
$
1,853,939
The accompanying notes are an integral part of
 
these consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Operations - Unaudited
(Dollars in thousands,
 
except per share data)
 
Three Months Ended March 31,
2022
2021
Interest income:
 
Loans, including fees
$
12,982
$
11,868
 
Investment securities
2,329
1,844
 
Interest-bearing deposits in financial institutions
31
16
 
Total interest income
15,342
13,728
Interest expense:
 
 
Interest-bearing deposits
16
14
 
Money market and savings accounts
551
548
 
Time deposits
259
554
 
Federal Home Loan Bank advances
137
137
 
Total interest expense
963
1,253
 
Net interest income before provision for
 
credit losses
14,379
12,475
Provision for credit losses
-
(160)
 
Net interest income after provision for
 
credit losses
14,379
12,635
Non-interest income:
 
 
Service fees
900
889
 
Gain on sale of securities available for sale, net
21
62
 
Gain on sale of loans held for sale, net
334
964
 
Loan settlement
161
-
 
Other non-interest income
529
406
 
Total non-interest income
1,945
2,321
Non-interest expense:
 
 
Salaries and employee benefits
5,875
5,278
 
Occupancy
1,270
1,387
 
Regulatory assessment and fees
213
178
 
Consulting and legal fees
517
185
 
Network and information technology services
387
508
 
Other operating
1,350
1,141
 
Total non-interest expense
9,612
8,677
 
Net income before income tax expense
6,712
6,279
Income tax expense
1,858
1,498
 
Net income
4,854
4,781
Less: Preferred stock dividend
-
781
Net income available to common stockholders
$
4,854
$
4,000
Per share information:
(1) (2)
 
Class A common stock
 
Net income per share, basic
$
0.24
$
0.78
Net income per share, diluted
$
0.24
$
0.78
Class B common stock
 
 
Net income per share, basic
$
-
$
0.16
Net income per share, diluted
$
-
$
0.16
(1)
 
For further details on the allocation of net
 
income available to common stockholders and per
 
share information, see Note 10 "Earnings per
 
Share".
(2)
 
For the three months ended March 31, 2021,
 
the common stock outstanding, weighted average shares
 
and net income per share for the Class A
common stock were adjusted to reflect the 1
 
for 5 reverse stock split effected in June of 2021.
The accompanying notes are an integral part of
 
these consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Comprehensive Income
 
(Loss) - Unaudited
(Dollars in thousands)
 
Three Months Ended March 31,
 
2022
2021
Net income
$
4,854
$
4,781
Other comprehensive income (loss):
Unrealized loss on investment securities
(22,775)
(6,070)
Amortization of net unrealized gains on securities
 
transferred from available-for-sale to held-to-maturity
65
-
Reclassification adjustment for gain included in net
 
income
(21)
(62)
Tax effect
5,789
1,503
Total other comprehensive loss, net of tax
(16,942)
(4,629)
Total comprehensive (loss) income
 
$
(12,088)
$
152
The accompanying notes are an integral part of
 
these consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6
 
USCB Financial Holdings, Inc.
 
Q1 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 January 1, 2022
-
$
-
19,991,753
$
19,992
$
310,666
$
(124,245)
$
(2,516)
$
203,897
Net income
-
-
-
-
-
4,854
-
4,854
Other comprehensive loss
-
-
-
-
-
-
(16,942)
(16,942)
Exercise of stock options
-
-
9,000
9
93
-
-
102
Stock based compensation
-
-
-
-
128
-
-
128
Balance at March 31, 2022
-
$
-
20,000,753
$
20,001
$
310,887
$
(119,391)
$
(19,458)
$
192,039
Balance at January 1, 2021
(1)
12,350,879
$
32,077
10,010,521
$
10,010
$
177,755
$
(53,622)
$
4,781
$
171,001
Net income
-
-
-
-
-
4,781
-
4,781
Other comprehensive loss
-
-
-
-
-
-
(4,629)
(4,629)
Dividends - preferred stock
-
-
-
-
-
(781)
-
(781)
Stock based compensation
-
-
-
-
53
-
-
53
Balance at March 31, 2021
12,350,879
$
32,077
10,010,521
$
10,010
$
177,808
$
(49,622)
$
152
$
170,425
(1)
 
For the three months ended March 31, 2021,
 
common stock shares, par value, and additional paid-in
 
capital for common stock for 2021 was adjusted
 
to reflect the 1 for 5 reverse stock split. See
Note 9 "Stockholders' Equity" for further details.
The accompanying notes are an integral part of
 
these consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Cash Flows - Unaudited
(Dollars in thousands)
 
Three Months Ended March 31,
2022
2021
Cash flows from operating activities:
Net income
 
$
4,854
$
4,781
Adjustments to reconcile net income to net
 
cash provided by operating activities:
 
 
Provision for credit losses
 
-
(160)
Depreciation and amortization
188
329
Amortization of premiums on securities, net
169
54
Accretion of deferred loan fees, net
(807)
(1,249)
Stock based compensation
128
53
Gain on sale of available for sale securities
(21)
(62)
Gain on sale of loans held for sale
(334)
(964)
Increase in cash surrender value of bank owned
 
life insurance
(266)
(170)
Decrease in deferred tax asset
1,858
1,498
Net change in operating assets and liabilities:
 
 
Accrued interest receivable
(328)
(462)
Other assets
(2,838)
(1,660)
Accrued interest and other liabilities
3,000
2,071
Net cash provided by operating activities
5,603
4,059
 
Cash flows from investing activities:
 
 
Purchase of investment securities held to maturity
(2,432)
-
Proceeds from maturities and pay-downs of investment
 
securities held to maturity
2,626
-
Purchase of investment securities available for
 
sale
 
(42,794)
(41,094)
Proceeds from maturities and pay-downs of investment
 
securities available for sale
14,788
13,699
Proceeds from sales of investment securities available
 
for sale
14,558
14,248
Net increase in loans held for investment
(617)
(72,969)
Purchase of loans held for investment
(70,175)
-
Additions to premises and equipment
(155)
(184)
Proceeds from the sale of loans held for
 
sale
3,643
9,788
Proceeds from the redemption of Federal Home Loan
 
Bank stock
-
611
Purchase of Federal Home Loan Bank stock
(177)
-
Net cash used in investment activities
(80,735)
(75,901)
Cash flows from financing activities:
Proceeds from issuance of Class A common stock,
 
net
102
-
Dividends paid
-
(781)
Net increase in deposits
122,915
130,829
Net cash provided by financing activities
123,017
130,048
 
 
Net increase in cash and cash equivalents
47,885
58,206
Cash and cash equivalents at beginning of period
46,228
47,734
Cash and cash equivalents at end of period
$
94,113
$
105,940
 
 
Supplemental disclosure of cash flow information:
 
 
Interest paid
$
961
$
1,042
 
 
Supplemental schedule of non-cash investing and financing
 
activities:
 
 
Transfer of loans held for investment to loans held for
 
sale
$
3,309
$
8,824
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.
 
Q1 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
outstanding shares
 
of Class
 
B non-voting
 
common stock
 
into shares
 
of Class
 
A voting
 
common stock.
 
Shortly thereafter,
USCB Financial Holdings, Inc. acquired all issued and outstanding shares of the 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 9 “Stockholders’ Equity”.
The Company’s
 
Consolidated Financial
 
Statements consist
 
of USCB
 
Financial Holdings,
 
Inc. and
 
U.S. Century
 
Bank
as of or for the period ended March 31, 2022 and December
 
31, 2021 compared to only U.S. Century Bank as of or for the
period ended March 31, 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 information and
 
footnotes required by U.S.
 
generally accepted accounting principles
 
(“U.S.
GAAP”) for comple
 
te 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.
Concentration of Credit Risks
Credit
 
risk
 
represents
 
the
 
accounting
 
loss
 
that
 
would
 
be
 
recognized
 
at
 
the
 
reporting
 
date
 
if
 
counterparties
 
failed
 
to
perform as contracted and any collateral or security proved to be insufficient
 
to cover the loss. Concentrations of credit risk
(whether on or off-balance sheet) arising from financial instruments exist in relation to certain
 
groups of customers. A group
concentration arises when
 
a number of
 
counterparties have
 
similar economic characteristics
 
that would cause
 
their ability
to meet contractual obligations to be similarly affected by changes in economic or other conditions. The Company does not
have a significant exposure to any individual customer
 
or counterparty.
At March
 
31, 2022
 
and
 
December 31,
 
2021, the
 
Company
 
had
 
a concentration
 
of risk
 
with loans
 
outstanding
 
to the
Company’s
 
top
 
ten
 
lending
 
relationships
 
totaling
 
$
187.1
 
million
 
and
 
$
156.4
 
million,
 
respectively,
 
at
 
such
 
dates.
 
This
concentration accounted for
14.9
% of net loans outstanding at March 31, 2022 and
13.1
% at December 31, 2021.
At March 31, 2022 and December 31, 2021, the
 
Company also had a concentration of credit
 
risk with loans outstanding
to foreign banks in Ecuador, Honduras, and El
 
Salvador totaling $
61.4
 
million and $
47.9
 
million, respectively, at such dates.
These foreign banks maintained deposits
 
with right of offset totaling
 
$
30.3
 
million and $
28.9
 
million at March 31, 2022 and
December 31, 2021, respectively.
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
9
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
At various times during
 
the year,
 
the Company has maintained
 
deposits with other
 
financial institutions. The exposure
to the Company from
 
these transactions is solely
 
dependent upon daily balances
 
and the financial strength
 
of the respective
institutions.
Bank Owned Life Insurance
Bank owned
 
life insurance
 
(“BOLI”) is
 
carried at
 
the amount
 
that could
 
be realized
 
under the
 
contract at
 
the balance
sheet date, which is typically
 
cash surrender value. Changes
 
in cash surrender value are recorded
 
in non-interest income.
At March 31,
 
2022, the
 
Company
 
maintained
 
BOLI policies
 
with
 
five
 
insurance
 
carriers with
 
a combined
 
cash
 
surrender
value of $
42.0
 
million. The Company is the beneficiary of
 
these policies which covers certain present
 
and former executives
and officers.
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 Adopted
The Company adopted no
 
new accounting pronouncements as of
 
or for the three
 
months ended March 31, 2022. There
were
 
no
 
newly-issued
 
accounting
 
pronouncements
 
that
 
we
 
believe
 
may
 
have
 
a
 
significant
 
impact
 
to
 
the
 
Company’s
consolidated financial statements or internal controls.
 
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,
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.
 
To
 
date, the
 
Company has
 
executed a
 
detailed implementation
 
plan through
 
the adoption
 
date, implemented
 
a
software solution to assist with the CECL estimation process,
 
and has completed a data gap analysis.
Reference Rate Reform
In
 
March
 
2020,
 
the
 
FASB
 
issued
 
ASU
 
2020-04,
 
Reference
 
Rate
 
Reform
 
(Topic
 
848),
 
Facilitation
 
of
 
the
 
Effects
 
of
Reference Rate Reform
 
on Financial Reporting.
 
In January 2021,
 
the FASB
 
clarified the scope
 
of this guidance
 
with ASU
2021-01 which provides optional
 
guidance for a limited
 
period of time to
 
ease the burden in
 
accounting for (or
 
recognizing
the effects
 
of) reference
 
rate
 
reform on
 
financial
 
reporting.
 
This
 
ASU is
 
effective
 
March 12,
 
2020 through
 
December 31,
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 operatio
 
ns and consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
10
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
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.
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):
March 31, 2022
Available-for-sale:
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
U.S. Government Agency
$
28,197
$
-
$
(764)
$
27,433
U.S. Treasury
2,463
-
-
2,463
Collateralized mortgage obligations
163,382
9
(12,653)
150,738
Mortgage-backed securities - residential
114,655
-
(8,617)
106,038
Mortgage-backed securities - commercial
46,280
26
(2,069)
44,237
Municipal securities
25,144
-
(3,163)
21,981
Bank subordinated debt securities
27,003
476
(184)
27,295
Corporate bonds
12,066
91
(128)
12,029
$
419,190
$
602
$
(27,578)
$
392,214
Held-to-maturity:
U.S. Government Agency
$
34,465
$
-
$
(2,802)
$
31,663
Collateralized mortgage obligations
42,567
-
(3,535)
39,032
Mortgage-backed securities - residential
28,981
-
(2,327)
26,654
Mortgage-backed securities - commercial
3,099
-
(282)
2,817
Corporate bonds
13,249
-
(725)
12,524
$
122,361
$
-
$
(9,671)
$
112,690
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
11
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
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
 
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 securities.
 
For the
 
three months
 
ended March
 
31, 2022,
 
total
amortization out of AOCI for net unrealized gains on securities
 
transferred from AFS to HTM was $
65
 
thousand.
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 months ended March 31,
 
2022 and 2021 (in thousands):
Three Months Ended March 31,
Available-for-sale:
2022
2021
Proceeds from sale and call of securities
$
14,558
$
14,248
Gross gains
$
158
$
75
Gross losses
(137)
(13)
Net realized gains
$
21
$
62
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
12
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
The
 
amortized
 
cost
 
and
 
fair
 
value
 
of
 
investment
 
securities,
 
by
 
contractual
 
maturity,
 
are
 
shown
 
below
 
for
 
the
 
date
indicated (in thousands).
 
Actual maturities may
 
differ from contractual
 
maturities because borrowers
 
may have the right
 
to
call or prepay
 
obligations with or without
 
call or prepayment penalties.
 
Securities not due
 
at a single
 
maturity date are
 
shown
separately.
 
Available-for-sale
Held-to-maturity
March 31, 2022:
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
Due within one year
$
1,995
$
2,014
$
2,007
$
2,003
Due after one year through five years
10,518
10,509
11,242
10,521
Due after five years through ten years
29,019
29,131
-
-
Due after ten years
25,144
22,114
-
-
U.S. Government Agency
28,197
27,433
34,465
31,663
Collateralized mortgage obligations
163,382
150,738
42,567
39,032
Mortgage-backed securities - residential
 
114,655
106,038
28,981
26,654
Mortgage-backed securities - commercial
 
46,280
44,237
3,099
2,817
$
419,190
$
392,214
$
122,361
$
112,690
At March 31,
 
2022, there
 
were no
 
securities to
 
any one
 
issuer,
 
in an
 
amount greater
 
than 10%
 
of total
 
stockholders’
equity other than the United States Government and Government Agencies. All the collateralized mortgage obligations and
mortgage-backed securities are issued by United States
 
sponsored entities at March 31, 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):
March 31, 2022
Less than 12 months
12 months or more
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
U.S. Government Agency
$
35,156
$
(1,909)
$
16,223
$
(1,769)
$
51,379
$
(3,678)
U.S. Treasury
2,463
-
-
-
2,463
-
Collateralized mortgage obligations
131,069
(10,567)
52,672
(5,621)
183,741
(16,188)
Mortgage-backed securities - residential
80,981
(5,493)
46,780
(5,109)
127,761
(10,602)
Mortgage-backed securities - commercial
27,614
(1,619)
6,835
(665)
34,449
(2,284)
Municipal securities
 
6,812
(802)
15,169
(2,361)
21,981
(3,163)
Bank subordinated debt securities
6,316
(184)
-
-
6,316
(184)
Corporate bonds
12,953
(247)
-
-
12,953
(247)
$
303,364
$
(20,821)
$
137,679
$
(15,525)
$
441,043
$
(36,346)
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 March 31, 2022, the unrealized losses associated with $
66.0
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
13
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
The Company performs a review
 
of the investments that have
 
an unrealized loss to determine
 
whether there have been
any changes in the
 
economic circumstance of the security
 
issuer to indicate that
 
the unrealized loss is
 
impaired on an other-
than-temporary (“OTTI”) basis. Management considers several factors in their analysis including (i) severity and duration of
the impairment, (ii) credit
 
rating of the security
 
including any downgrade,
 
(iii) intent to sell
 
the security,
 
or if it is
 
more likely
than not that it will be required to
 
sell the security before recovery,
 
(iv) whether there have been any payment
 
defaults and
(v) underlying guarantor of the securities.
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 March 31, 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 authority
to legally maintain public deposits from cities, municipalities, and the state of Florida. These public deposits are secured by
securities pledged to the
 
state of Florida at
 
a ratio of
25
% of the outstanding
 
uninsured deposits. The
 
Company must also
maintain a minimum amount of pledged securities to be in the
 
public funds program.
As of March 31, 2022,
 
the Company had a
 
total of $
63.7
 
million in deposits under
 
the public funds program
 
and pledged
to these public funds were
eleven
 
Corporate Bonds with a fair value of $
19.6
 
million to the state of Florida.
As of
 
December 31,
 
2021, the
 
Company had
 
a total
 
of $
37.3
 
million in
 
deposits under
 
the public
 
funds program
 
and
pledged to these public funds were
eleven
 
Corporate Bonds with a fair value of $
20.4
 
million to the state of Florida.
 
3.
 
LOANS
The following table is a summary of the distribution of
 
loans held for investment by type (in thousands):
 
March 31, 2022
December 31, 2021
Total
Percent of
Total
Total
Percent of
Total
Residential Real Estate
$
204,317
16.2
%
$
201,359
16.9
%
Commercial Real Estate
782,072
62.1
%
704,988
59.2
%
Commercial and Industrial
134,832
10.7
%
146,592
12.3
%
Foreign Banks
63,985
5.1
%
59,491
5.0
%
Consumer and Other
 
73,765
5.9
%
79,229
6.6
%
Total
 
gross loans
1,258,971
100.0
%
1,191,659
100.0
%
Less: Unearned income
583
1,578
Total
 
loans net of unearned income
1,258,388
1,190,081
Less: Allowance for credit losses
15,074
15,057
Total
 
net loans
$
1,243,314
$
1,175,024
At
 
March 31,
 
2022
 
and
 
December 31,
 
2021,
 
the
 
Company
 
had
 
$
171.4
 
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
 
of the Small Business Administration’s
 
(“SBA”) Paycheck Protection Program
 
(“PPP”)
loans. These
 
loans were
 
designed to
 
provide a
 
direct incentive
 
for small
 
businesses to
 
keep their
 
workers on
 
payroll and
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
 
$
24.6
 
million
 
at
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
14
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
March 31, 2022 and $
42.4
 
million at December 31, 2021, which are categorized as commercial and industrial loans. These
PPP loans had deferred loan fees of $
590
 
thousand at March 31, 2022 and $
1.5
 
million at December 31, 2021.
The Company recognized
 
$
1.0
 
million and $
1.5
 
million in PPP
 
loan fees and
 
interest income during
 
the three months
ended
 
March 31,
 
2022
 
and
 
2021,
 
respectively,
 
which
 
is
 
reported
 
under
 
loans,
 
including
 
fees
 
within
 
the
 
Consolidated
Statements of Operations.
The
 
Company
 
segments
 
the
 
portfolio
 
by
 
pools
 
grouping
 
loans
 
that
 
share
 
similar
 
risk
 
characteristics
 
and
 
employing
collateral type
 
and lien
 
position to
 
group loans
 
according to
 
risk. The
 
Company determines
 
historical
 
loss rates
 
for each
loan
 
pool
 
based
 
on
 
its
 
own
 
loss
 
experience.
 
In
 
estimating
 
credit
 
losses,
 
the
 
Company
 
also
 
considers
 
qualitative
 
and
environmental factors that may cause estimated credit losses
 
for the loan portfolio to differ from historical
 
losses.
Changes in
 
the allowance
 
for credit
 
losses for
 
the three
 
months ended
 
March 31, 2022
 
and 2021
 
were as
 
follows (in
thousands):
 
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Foreign
Banks
Consumer
and Other
Total
March 31, 2022:
Beginning balance
$
2,498
$
8,758
$
2,775
$
457
$
569
$
15,057
Provision for credit losses
(157)
425
(426)
34
124
-
Recoveries
32
-
6
-
-
38
Charge-offs
(16)
-
-
-
(5)
(21)
Ending Balance
 
$
2,357
$
9,183
$
2,355
$
491
$
688
$
15,074
March 31, 2021:
Beginning balance
$
3,408
$
9,453
$
1,689
$
348
$
188
$
15,086
Provision for credit losses
(325)
(133)
229
59
10
(160)
Recoveries
4
-
87
-
1
92
Charge-offs
-
-
-
-
(9)
(9)
Ending Balance
 
$
3,087
$
9,320
$
2,005
$
407
$
190
$
15,009
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
15
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
Allowance for credit losses and the outstanding balances in
 
loans as of March 31, 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
March 31, 2022:
Allowance for credit losses:
Individually evaluated for impairment
$
160
$
1
$
66
$
-
$
108
$
335
Collectively evaluated for impairment
2,197
9,182
2,289
491
580
14,739
Balances, end of period
$
2,357
$
9,183
$
2,355
$
491
$
688
$
15,074
Loans:
Individually evaluated for impairment
$
7,357
$
603
$
132
$
-
$
217
$
8,309
Collectively evaluated for impairment
196,960
781,469
134,700
63,985
73,548
1,250,662
Balances, end of period
$
204,317
$
782,072
$
134,832
$
63,985
$
73,765
$
1,258,971
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.
 
Q1 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 March 31, 2022
Pass
Special
Mention
Substandard
Doubtful
Total Loans
Residential real estate:
Home equity line of credit ("HELOC") and other
$
716
$
-
$
-
$
-
$
716
1-4 family residential
134,373
-
3,180
-
137,553
Condo residential
66,048
-
-
-
66,048
201,137
-
3,180
-
204,317
Commercial real estate:
Land and construction
31,454
-
-
-
31,454
Multi family residential
129,217
-
-
-
129,217
Condo commercial
42,315
-
414
-
42,729
Commercial property
577,364
1,210
-
-
578,574
Leasehold improvements
98
-
-
-
98
780,448
1,210
414
-
782,072
Commercial and industrial:
(1)
Secured
103,668
-
508
-
104,176
Unsecured
30,656
-
-
-
30,656
134,324
-
508
-
134,832
Foreign banks
63,985
-
-
-
63,985
Consumer and other loans
73,548
-
217
-
73,765
Total
$
1,253,442
$
1,210
$
4,319
$
-
$
1,258,971
(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.
 
Q1 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.
 
Q1 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 March 31,
 
2022 and
December 31, 2021 (in thousands):
Accruing
As of March 31, 2022:
Current
Past Due 30-
89 Days
Past Due >
90 Days and
Still
Accruing
Total
Accruing
Non-Accrual
Total Loans
Residential real estate:
Home equity line of credit and other
$
716
$
-
 
$
-
$
716
$
-
$
716
1-4 family residential
136,793
760
-
137,553
-
137,553
Condo residential
64,760
1,288
-
66,048
-
66,048
202,269
2,048
-
204,317
-
204,317
Commercial real estate:
Land and construction
31,454
-
-
31,454
-
31,454
Multi family residential
129,217
-
-
129,217
-
129,217
Condo commercial
42,729
-
-
42,729
-
42,729
Commercial property
576,451
2,123
-
578,574
-
578,574
Leasehold improvements
98
-
-
98
-
98
779,949
2,123
-
782,072
-
782,072
Commercial and industrial:
Secured
104,058
118
-
104,176
-
104,176
Unsecured
30,598
58
-
30,656
-
30,656
134,656
176
-
134,832
-
134,832
Foreign banks
63,985
-
-
63,985
-
63,985
Consumer and other
73,485
280
-
73,765
-
73,765
Total
$
1,254,344
$
4,627
$
-
$
1,258,971
$
-
$
1,258,971
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
19
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
Accruing
As of December 31, 2021:
Current
Past Due
30-89 Days
Past Due >
90 Days and
Still
Accruing
Total
Accruing
Non-Accrual
Total Loans
Residential real estate:
Home equity line of credit and other
$
701
$
-
$
-
$
701
$
-
$
701
1-4 family residential
133,942
289
-
134,231
1,190
135,421
Condo residential
64,243
994
-
65,237
-
65,237
198,886
1,283
-
200,169
1,190
201,359
Commercial real estate:
Land and construction
24,581
-
-
24,581
-
24,581
Multi family residential
127,053
436
-
127,489
-
127,489
Condo commercial
42,400
-
-
42,400
-
42,400
Commercial property
510,411
-
-
510,411
-
510,411
Leasehold improvements
107
-
-
107
-
107
704,552
436
-
704,988
-
704,988
Commercial and industrial:
 
 
 
 
Secured
98,141
-
-
98,141
-
98,141
Unsecured
48,041
410
-
48,451
-
48,451
146,182
410
-
146,592
-
146,592
 
 
 
 
Foreign banks
59,491
-
-
59,491
-
59,491
Consumer and other
78,969
260
-
79,229
-
79,229
Total
$
1,188,080
$
2,389
$
-
$
1,190,469
$
1,190
$
1,191,659
There was
no
 
interest income recognized
 
attributable to nonaccrual loans
 
outstanding during March 31, 2022
 
and 2021.
Interest
 
income
 
on
 
these
 
loans
 
for
 
the
 
three
 
months
 
ended
 
March 31,
 
2022
 
and
 
2021,
 
would
 
have
 
been
 
approximately
$
0
 
thousand and $
7
 
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 for the dates
 
indicated (in thousands):
March 31, 2022
December 31, 2021
Unpaid
Principal
Balance
Net
Investment
Balance
Valuation
Allowance
Unpaid
Principal
Balance
Net
Investment
Balance
Valuation
Allowance
Impaired Loans with No Specific Allowance:
Residential real estate
$
3,621
$
3,614
$
-
$
5,021
$
5,035
$
-
Commercial real estate
189
190
-
696
695
-
3,810
3,804
-
5,717
5,730
-
Impaired Loans with Specific Allowance:
Residential real estate
3,737
3,702
160
3,985
3,950
178
Commercial real estate
413
413
1
-
-
-
Commercial and industrial
132
132
66
141
141
71
Consumer and other
217
217
108
224
224
111
4,499
4,464
335
4,350
4,315
360
Total
$
8,309
$
8,268
$
335
$
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.
 
Q1 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 March 31,
2022
2021
Residential real estate
$
8,181
$
9,494
Commercial real estate
649
727
Commercial and industrial
137
197
Consumer and other
220
276
Total
$
9,187
$
10,694
Interest income recognized on impaired loans for the three months ended March 31, 2022
 
and 2021 was $
91
 
thousand
and $
109
 
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 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):
March 31, 2022
December 31, 2021
Accrual Status
Non-Accrual
Status
Total TDRs
Accrual Status
Non-Accrual
Status
Total TDRs
Residential real estate
$
7,357
$
-
$
7,357
$
7,815
$
-
$
7,815
Commercial real estate
603
-
603
696
-
696
Commercial and industrial
132
-
132
141
-
141
Consumer and other
 
217
-
217
224
-
224
Total
$
8,309
$
-
$
8,309
$
8,876
$
-
$
8,876
The Company had allocated $
335
 
thousand and $
360
 
thousand of specific allowance for TDR loans at March 31, 2022
and December 31, 2021,
 
respectively. There were
no
 
charge-offs on TDR loans for
 
the three months
 
ended March 31, 2022
and 2021. There was
no
 
commitment to lend additional funds to these TDR customers
 
as of March 31, 2022.
During the
 
quarter ended
 
March 31, 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
 
months ended March 31, 2022
and 2021.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
21
 
USCB Financial Holdings, Inc.
 
Q1 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):
Three Months Ended March 31,
2022
2021
Current:
Federal
$
-
$
-
State
-
-
Total
 
current
-
-
Deferred:
Federal
1,442
1,235
State
416
263
Total
 
deferred
1,858
1,498
Total
 
tax expense
$
1,858
$
1,498
The actual
 
income
 
tax
 
expense
 
for the
 
three
 
months
 
ended March
 
31,
 
2022 and
 
2021 differs
 
from
 
the
 
statutory
 
tax
expense for the year (computed by applying the U.S. federal corporate tax rate of
21
% for 2022 and 2021 to income before
provision for income taxes) as follows (in thousands):
Three Months Ended March 31,
2022
2021
Federal taxes at statutory rate
$
1,409
$
1,319
State income taxes, net of federal tax benefit
289
220
Bank owned life insurance
(67)
(42)
Other, net
227
1
Total
 
tax expense
$
1,858
$
1,498
The Company’s deferred tax assets and deferred
 
tax liabilities as of the dates indicated were (in thousands):
March 31, 2022
December 31, 2021
Deferred tax assets:
Net operating loss
$
27,731
$
28,819
Allowance for credit losses
3,820
3,816
Lease liability
3,407
3,595
Unrealized loss on available for sale securities
6,606
817
Deferred loan fees
148
400
Depreciable property
106
361
Stock option compensation
264
241
Accruals
195
600
Other, net
142
2
Deferred tax asset
42,419
38,651
Deferred tax liability:
Lease right of use asset
(3,407)
(3,595)
Deferred expenses
(152)
(127)
Deferred tax liability
(3,559)
(3,722)
Net deferred tax asset
$
38,860
$
34,929
The Company has approximately
 
$
105.5
 
million of federal and $
128.2
 
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.
In assessing the
 
realizability of deferred
 
tax assets, management considered
 
whether it is
 
more likely than
 
not that some
portion or
 
all of
 
the deferred
 
tax assets
 
will not
 
be realized.
 
The ultimate
 
realization
 
of deferred
 
tax assets
 
is dependent
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
22
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
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
 
March 31, 2022 and 2021, the
 
Company did
no
t have any unrecognized
 
tax benefits as a
result of
 
tax positions
 
taken during
 
a prior
 
period or
 
during the
 
current period.
 
Additionally,
no
 
interest or
 
penalties
 
were
recorded as a result of tax uncertainties.
5.
 
STOCK OPTIONS
 
The Company’s Amended and Restated 2015 Equity Incentive Plan (the “2015 Option Plan”) is used to issue shares of
common
 
stock
 
to
 
employees
 
and
 
the
 
Board
 
of
 
Directors.
 
See
 
Note
 
9
 
to
 
the
 
Company’s
 
audited
 
consolidated
 
financial
statements on the Form 10-K for more information on the 2015
 
Option Plan.
At
 
March 31,
 
2022,
 
there
 
were
1,391,667
 
shares
 
available
 
for
 
stock
 
option
 
grants.
 
At
 
March 31,
 
2021,
 
there
 
were
557,667
shares available for grant under the 2015 Option Plan
 
after the 1 for 5 reverse stock split.
 
Stock option balances,
 
weighted average
 
exercise price, and
 
weighted average fair
 
value of options
 
granted for three
months
 
ended March
 
31,
 
2021 were
 
adjusted
 
to reflect
 
the 1
 
for 5
 
reverse
 
stock
 
split on
 
Class
 
A common
 
stock.
 
Stock
options issued are only
 
exercisable to Class A
 
common stock. See Note
 
9 “Stockholders’ Equity”
 
for further discussion on
the stock split.
 
The Company recognizes compensation expense based
 
on the estimated grant date
 
fair value method using the
 
Black-
Scholes
 
option
 
pricing
 
model and
 
accounts
 
for this
 
expense
 
using
 
a prorated
 
straight-line
 
amortization
 
method over
 
the
vesting
 
period
 
of
 
the
 
option.
 
Stock
 
based
 
compensation
 
expense
 
is
 
based
 
on
 
awards
 
that
 
the
 
Company
 
expects
 
will
ultimately vest,
 
reduced by estimated forfeitures.
 
Estimated forfeitures consider the voluntary
 
termination trends as well as
actual option forfeitures.
The
 
compensation
 
expense
 
is
 
reported
 
within
 
salaries
 
and
 
employee
 
benefits
 
in
 
the
 
accompanying
 
Consolidated
Statements
 
of
 
Operations.
 
Compensation
 
expense
 
totaling
 
$
128
 
thousand
 
was
 
recognized
 
for
 
the
 
three
 
months
 
ended
March 31, 2022 and $
53
 
thousand for the three months ended March 31, 2021.
 
Cash
 
flows
 
resulting
 
from
 
excess
 
tax
 
benefits
 
are
 
required
 
to
 
be
 
classified
 
as
 
a
 
part
 
of
 
cash
 
flows
 
from
 
operating
activities. Excess tax benefits
 
are realized tax benefits
 
from tax deductions for
 
exercised options in
 
excess of the deferred
tax asset
 
attributable to
 
the compensation
 
cost for
 
such options.
 
There were
no
 
related tax
 
benefits for
 
the three
 
months
ended March 31, 2022 and 2021.
Unrecognized
 
compensation
 
cost
 
remaining
 
on
 
stock-based
 
compensation
 
was
 
$
1.2
 
million
 
and
 
$
145
 
thousand
 
at
March 31, 2022 and 2021, respectively.
The fair value of options granted was determined using
 
the following weighted-average assumptions as of:
Assumption
March 31, 2022
Risk-free interest rate
 
2.19%
 
Expected term
10
 
years
Expected stock price volatility
10
%
Dividend yield
0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
23
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
The following table presents a summary of stock options
 
for the three months ended March 31, 2022 and 2021:
Stock Options
Weighted Average
Exercise Price
Weighted Average
Remaining
Contractual Years
Aggregate Intrinsic
Value
Balance at January 1, 2022
959,667
$
10.87
8.4
Granted
10,000
$
14.12
Exercised
9,000
$
11.35
Balance at March 31, 2022
960,667
$
10.90
8.1
Exercisable at March 31, 2022
322,667
$
9.08
5.8
$
1,693
Balance at January 1, 2021
(1)
339,667
$
9.37
7.1
Granted
64,000
$
8.91
Balance at March 31, 2021
403,667
$
9.29
7.1
Exercisable at March 31, 2021
243,666
$
8.73
6.3
$
208
(1)
 
For the three months ended March 31, 2021,
 
Class A common stock outstanding and additional
 
paid-in-capital were adjusted to reflect the
 
1 for 5
reverse stock split. See Note 9 "Stockholders' Equity"
 
for further discussion on the stock split.
The aggregate intrinsic value in
 
the table above represents
 
the total pre-tax intrinsic
 
value (the difference between
 
the
valuation of the Company’s stock and the exercise price, multiplied by
 
the number of options considered in-the-money) that
would have been received by the option holders had all option
 
holders exercised their options.
The weighted average
 
fair value of
 
options granted was
 
$
3.35
 
and $
1.85
 
for the three
 
months ended March
 
31, 2022
and 2021
, respectively.
6.
 
OFF-BALANCE SHEET ARRANGEMENTS
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business in order to
meet the financial
 
needs of
 
its customers
 
and to reduce
 
its own
 
exposure to
 
fluctuations in
 
interest rates.
 
These financial
instruments include
 
unfunded commitments
 
under lines
 
of credit,
 
commitments to
 
extend credit,
 
standby and
 
commercial
letters of
 
credit. Those
 
instruments involve,
 
to varying
 
degrees, elements
 
of credit
 
and interest
 
rate risk
 
in excess
 
of the
amount recognized in the Company’s Consolidated Balance Sheets. The Company uses the
 
same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
 
instruments.
The Company's exposure
 
to credit loss
 
in the event
 
of nonperformance by
 
the other party
 
to the financial
 
instruments
for unused lines of credit, and standby letters of credit
 
is represented by the contractual amount of these commitments.
A
 
summary
 
of
 
the
 
amounts
 
of
 
the
 
Company's
 
financial
 
instruments
 
with
 
off-balance
 
sheet
 
risk
 
are
 
shown
 
below
 
at
March 31, 2022 and December 31, 2021 (in thousands):
 
March 31, 2022
December 31, 2021
Commitments to grant loans and unfunded lines of credit
$
125,484
$
134,877
Standby and commercial letters of credit
5,552
6,420
$
131,036
$
141,297
Commitments to
 
extend credit
 
are agreements
 
to lend
 
to a
 
customer as
 
long as
 
there is
 
no violation
 
of any
 
condition
established in the contract. Commitments generally have
 
fixed expiration dates or other termination clauses.
Unfunded lines of
 
credit and revolving
 
credit lines are
 
commitments for possible
 
future extensions
 
of credit to
 
existing
customers. These lines of
 
credit are uncollateralized and
 
usually do not contain
 
a specified maturity date
 
and ultimately may
not be drawn upon to the total extent to which the Company is committed.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
24
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
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.
7.
 
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
 
$
36.5
 
million
 
and
 
$
39.2
 
million
 
at
 
March 31,
 
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
the Consolidated
 
Balance Sheets.
 
While these
 
derivatives represent
 
economic hedges,
 
it does
 
not qualify
 
as hedges
 
for
accounting purposes.
The following table reflects the Company’s customer
 
related interest rate swaps at the dates indicated (in
 
thousands):
 
Fair Value
Notional
Amount
Collateral
Amount
Balance Sheet Location
Asset
Liability
March 31, 2022:
Derivatives not designated as hedging instruments:
Interest rate swaps related to customer loans
$
36,513
$
1,260
Other assets/Other liabilities
$
2,277
$
2,277
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
8.
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
25
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
Fair Value Hierarchy
In accordance with
 
this guidance, the
 
Company groups its
 
financial assets
 
and financial liabilities
 
generally measured
at fair
 
value in
 
three
 
levels, based
 
on the
 
markets
 
in which
 
the assets
 
and liabilities
 
are traded,
 
and the
 
reliability
 
of the
assumptions used to determine fair value.
Level 1
 
- Valuation
 
is based
 
on quoted
 
prices in
 
active markets
 
for identical
 
assets or
 
liabilities that
 
the reporting
entity has
 
the ability
 
to access
 
at the measurement
 
date. Level
 
1 assets
 
and liabilities
 
generally include
 
debt and
equity securities that
 
are traded in
 
an active exchange
 
market. Valuations are obtained from
 
readily available pricing
sources for market transactions involving identical assets
 
or liabilities.
Level 2
 
- Valuation
 
is based on inputs other
 
than quoted prices included
 
within Level 1 that are
 
observable for the
asset
 
or
 
liability,
 
either
 
directly
 
or
 
indirectly.
 
The
 
valuation
 
may
 
be
 
based
 
on
 
quoted
 
prices
 
for
 
similar
 
assets
 
or
liabilities; quoted
 
prices in
 
markets that are
 
not active;
 
or other inputs
 
that are observable
 
or can be
 
corroborated
by observable market data for substantially the full term of the
 
asset or liability.
Level 3
 
- Valuation
 
is based on
 
unobservable inputs that
 
are supported
 
by little or
 
no market activity
 
and that are
significant
 
to
 
the
 
fair
 
value
 
of
 
the
 
assets
 
or
 
liabilities.
 
Level
 
3
 
assets
 
and
 
liabilities
 
include
 
financial
 
instruments
whose value
 
is determined
 
using pricing
 
models, discounted
 
cash
 
flow
 
methodologies,
 
or similar
 
techniques,
 
as
well as instruments for which determination of fair value
 
requires significant management judgment or estimation.
A
 
financial
 
instrument's
 
categorization
 
within
 
the
 
valuation
 
hierarchy
 
is
 
based
 
upon
 
the
 
lowest
 
level
 
of
 
input
 
that
 
is
significant to the fair value measurement.
Items Measured at Fair Value
 
on a Recurring Basis
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
 
March 31, 2022
and December 31, 2021 for each of the fair value hierarchy
 
levels (in thousands):
March 31, 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
$
-
$
27,433
$
-
$
27,433
$
-
$
10,520
$
-
$
10,520
U.S. Treasury
-
2,463
-
2,463
-
-
-
-
Collateralized mortgage obligations
-
150,738
-
150,738
-
156,829
-
156,829
Mortgage-backed securities - residential
 
-
106,038
-
106,038
-
118,842
-
118,842
Mortgage-backed securities - commercial
-
44,237
-
44,237
-
50,117
-
50,117
Municipal Securities
-
21,981
-
21,981
-
24,276
-
24,276
Bank subordinated debt securities
-
27,295
-
27,295
-
28,408
-
28,408
Corporate bonds
-
12,029
-
12,029
-
12,550
-
12,550
Total
-
392,214
-
392,214
-
401,542
-
401,542
Derivative assets
-
2,277
-
2,277
-
1,434
-
1,434
Total assets at fair value
$
-
$
394,491
$
-
$
394,491
$
-
$
402,976
$
-
$
402,976
Derivative liabilities
$
-
$
2,277
$
-
$
2,277
$
-
$
1,434
$
-
$
1,434
Total liabilities at fair value
$
-
$
2,277
$
-
$
2,277
$
-
$
1,434
$
-
$
1,434
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
26
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
Items Measured at Fair Value
 
on a Non-recurring Basis
 
Impaired Loans:
At March
 
31, 2022
 
and December
 
31, 2021,
 
in accordance
 
with
 
provisions of
 
the loan
 
impairment
guidance, individual loans with
 
a carrying amount of approximately
 
$
4.5
 
million and $
4.4
 
million, respectively,
 
were written
down to
 
their
 
fair value
 
of
 
approximately
 
$
4.2
 
million
 
and $
4.0
 
million,
 
respectively,
 
resulting
 
in
 
an impairment
 
charge
 
of
$
335
 
thousand and $
360
 
thousand, respectively,
 
which was included
 
in the allowance
 
for credit losses
 
at March 31, 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 are
 
valued at the
 
lesser of the
 
third-party appraisals
 
less management's
estimate of
 
the costs to
 
sell or the
 
carrying cost of
 
the other
 
real estate
 
owned. Appraisals generally
 
use the market
 
approach
valuation technique
 
and use
 
market observable
 
data to
 
formulate an
 
opinion of
 
the fair
 
value of
 
the properties.
 
However,
the appraiser
 
uses professional
 
judgment in
 
determining the
 
fair value
 
of the
 
property and
 
the Company
 
may also
 
adjust
the value for changes in
 
market conditions subsequent
 
to the valuation date
 
when current appraisals
 
are not available. As
a consequence of the carrying cost or the
 
third-party appraisal and adjustments therein, the fair values of the properties are
considered a Level 3 valuation.
 
The following table
 
represents the Company’s assets
 
measured at fair
 
value on a
 
non-recurring basis at
 
March 31, 2022
and December 31, 2021 for each of the fair value hierarchy
 
levels (in thousands):
Level 1
Level 2
Level 3
Total
March 31, 2022:
Impaired loans
$
-
$
-
$
4,164
$
4,164
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 March 31, 2022 and
 
December 31, 2021 (in thousands):
Fair Value
Valuation Technique(s)
Unobservable Input(s)
March 31, 2022:
Residential real estate
$
3,576
Sales comparison approach
Adj. for differences between comparable sales
Commercial real estate
413
Sales comparison approach
Adj. for differences between comparable sales
Commercial and industrial
66
Discounted cash flow
Adj. for differences in net operating income expectations
Other
109
Discounted cash flow
Adj. for differences in net operating income expectations
Total
 
impaired loans
$
4,164
December 31, 2021:
Residential real estate
$
3,807
Sales comparison approach
Adj. for differences between comparable sales
Commercial and industrial
70
Discounted cash flow
Adj. for differences in net operating income expectations
Other
113
Discounted cash flow
Adj. for differences in net operating income expectations
Total
 
impaired loans
$
3,990
There were
no
 
financial liabilities measured at fair value on a non-recurring basis at March 31, 2022 and
 
December 31,
2021.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
27
 
USCB Financial Holdings, Inc.
 
Q1 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 March 31, 2022 and December 31, 2021 (in
 
thousands):
Fair Value Hierarchy
Carrying
Amount
Level 1
Level 2
Level 3
Fair Value
Amount
March 31, 2022:
Financial Assets:
Cash and due from banks
$
13,764
$
13,764
$
-
$
-
$
13,764
Interest-bearing deposits in banks
$
80,349
$
80,349
$
-
$
-
$
80,349
Investment securities held to maturity
$
122,361
$
-
$
112,690
$
-
$
112,690
Loans held for investment, net
$
1,243,314
$
-
$
-
$
1,276,299
$
1,276,299
Accrued interest receivable
$
6,303
$
-
$
1,681
$
4,622
$
6,303
Financial Liabilities:
 
Demand deposits
$
656,622
$
656,622
$
-
$
-
$
656,622
Money market and savings accounts
$
772,022
$
772,022
$
-
$
-
$
772,022
Interest-bearing checking accounts
$
61,619
$
61,619
$
-
$
-
$
61,619
Time deposits
$
223,031
$
-
$
-
$
220,103
$
220,103
FHLB advances
$
36,000
$
-
$
36,100
$
-
$
36,100
Accrued interest payable
$
98
$
-
$
48
$
50
$
98
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
9.
 
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
 
28
 
USCB Financial Holdings, Inc.
 
Q1 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 “Reorganization”)
 
effected under the
 
Florida Business Corporation
 
Act.
Each of the outstanding
 
shares of the
 
Bank’s common
 
stock, par value
 
$
1.00
 
per share, formerly
 
held by its
 
shareholders
was converted into and
 
exchanged for one newly issued
 
share of the Company’s common
 
stock, par value $
1.00
 
per share,
and the Bank became the Company’s wholly owned
 
subsidiary.
 
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
 
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 liquidation value
for $11.4 million.
 
The fair value of
 
consideration on the exchange and redemption of
 
the Class C and Class
 
D preferred shares exceeded
the
 
book
 
value
 
causing
 
a
 
one-time
 
reduction
 
in
 
net
 
income
 
available
 
to
 
common
 
stockholders
 
of
 
$
89.6
 
million.
 
As
 
of
March 31, 2022 and December 31, 2021, there were
no
 
preferred shares and
no
 
outstanding dividends to be paid.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
29
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
Dividends
The following
 
dividend amounts
 
were paid
 
on the
 
preferred shares
 
for the
 
three
 
months ended
 
March 31,
 
2022 and
2021 (in thousands):
 
Three Months Ended March 31,
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.
$
-
$
527
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
Preferred stock - Class E: Non-voting, partially cumulative, Perpetual: $
1.00
 
par value;
$
1,000
 
per share liquidation preference; annual dividend rate of
7
% of liquidation
preferences paid quarterly. Quarterly dividend of $
17.50
 
per share.
-
131
Total
 
dividends paid
$
-
$
781
Declaration of dividends by the Board is required before dividend payments are made.
No
 
dividends were approved by
the Board for the common stock classes for the three months ended March 31, 2022 and 2021.
 
Additionally, there were
no
dividends declared and unpaid as of March 31, 2022 and
 
2021.
10.
 
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 stockho
 
lders 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 months
 
ended March 31, 2022
 
,
 
net income available
 
to common stockholders
 
was not
allocated between Class A and Class
 
B common stock since there
 
was no issued and outstanding Class
 
B common stock
as of March 31, 2022.
To
 
calculate
 
EPS
 
for
 
the
 
three
 
months
 
ended
 
March 31,
 
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.
The following
 
table reflects
 
the calculation
 
of net
 
income
 
available to
 
common
 
stockholders
 
for three
 
months
 
ended
March 31, 2022 and 2021 (in thousands):
Three Months Ended March 31,
2022
2021
Net Income
$
4,854
$
4,781
Less: Preferred stock dividends
 
-
781
Net income available to common stockholders
$
4,854
$
4,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
30
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
The following table reflects
 
the calculation of basic and
 
diluted earnings per common
 
share class for the
 
three months
ended March 31, 2022 and 2021 (in thousands, except
 
per share amounts):
Three Months Ended March 31,
2022
2021
Class A
Class B
 
Class A
Class B
(1)
Basic EPS
Numerator:
Net income available to common shares before allocation
$
4,854
$
-
$
4,000
$
4,000
Multiply: % allocated on weighted avg. shares outstanding
100.0%
- %
76.0%
24.0%
Net income available to common shares after allocation
$
4,854
$
-
$
3,040
$
960
Denominator:
Weighted average shares outstanding
19,994,953
-
3,889,469
6,121,052
Earnings per share, basic
$
0.24
$
-
$
0.78
$
0.16
Diluted EPS
Numerator:
Net income available to common shares before allocation
$
4,854
$
-
$
4,000
$
4,000
Multiply: % allocated on weighted avg. shares outstanding
100.0%
- %
76.0%
24.0%
Net income available to common shares after allocation
$
4,854
$
-
$
3,040
$
960
Denominator:
Weighted average shares outstanding for basic EPS
19,994,953
-
3,889,469
6,121,052
Add: Dilutive effects of assumed exercises of stock options
114,830
-
23,810
-
Weighted avg. shares including dilutive potential common shares
20,109,783
-
3,913,279
6,121,052
Earnings per share, diluted
$
0.24
$
-
$
0.78
$
0.16
Anti-dilutive stock options excluded from diluted EPS
-
-
77,000
-
(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 are converted to Class A which is
 
equivalent to
0.20
 
per share of Class B or
1,224,212
 
shares of Class A shares.
See Note 9 “Stockholders’ Equity” for further discussion
 
on the stock split.
11.
 
REGULATORY
 
MATTERS
The Bank is
 
subject to the
 
rules of the
 
Basel III regulatory capital
 
framework and related Dodd-Frank
 
Wall Street Reform
and Consumer Protection
 
Act. The rules include
 
the implementation of
 
a
2.5
% capital conservation
 
buffer that is
 
added to
the minimum requirements
 
for capital adequacy
 
purposes. Failure
 
to maintain the
 
required capital conservation
 
buffer will
limit
 
the
 
ability
 
of
 
the
 
Bank
 
to
 
pay
 
dividends,
 
repurchase
 
shares
 
or
 
pay
 
discretionary
 
bonuses.
 
At
 
March 31,
 
2022
 
and
December 31, 2021, the capital ratios for the Bank were
 
sufficient to meet the conservation buffer.
At March 31, 2022, the most recent notification from the regulatory authorities
 
categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
31
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
Actual and required capital
 
amounts and ratios are
 
presented below for both
 
the Company and the
 
Bank at March 31,
2022
 
and
 
December 31,
 
2021
 
(in
 
thousands,
 
except
 
ratios).
 
The
 
required
 
amounts
 
for
 
capital
 
adequacy
 
shown
 
do
 
not
include the capital conservation buffer previously
 
discussed.
Actual
Minimum Capital
Requirements
 
To be Well Capitalized
Under Prompt Corrective
Action Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
March 31, 2022:
Total
 
risk-based capital:
USCB Financial Holdings, Inc.
$
194,564
14.49
%
$
107,425
8.00
%
$
134,281
10.00
%
U.S. Century Bank
$
193,462
14.41
%
$
107,425
8.00
%
$
134,281
10.00
%
Tier 1 risk-based capital:
 
 
 
 
 
 
USCB Financial Holdings, Inc.
$
179,243
13.35
%
$
80,568
6.00
%
$
107,425
8.00
%
U.S. Century Bank
$
178,141
13.27
%
$
80,568
6.00
%
$
107,425
8.00
%
Common equity tier 1 capital:
USCB Financial Holdings, Inc.
$
179,243
13.35
%
$
60,426
4.50
%
$
87,282
6.50
%
U.S. Century Bank
$
178,141
13.27
%
$
60,426
4.50
%
$
87,282
6.50
%
Leverage ratio:
 
 
 
 
 
 
USCB Financial Holdings, Inc.
$
179,243
9.47
%
$
75,681
4.00
%
$
94,601
5.00
%
U.S. Century Bank
$
178,141
9.42
%
$
75,681
4.00
%
$
94,601
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.
 
Effective December
 
2021, the Company
 
acquired the Bank
 
in a merger
 
and reorganization
 
through the formation
 
of a
bank holding company. Pursuant to this transaction, each of the outstanding shares of the Bank’s $
1.00
 
par value common
stock held by its
 
shareholders was converted
 
into and exchanged for
 
one newly issued share
 
of the Company’s
 
$
1.00
 
par
value common stock,
 
and the Bank
 
became the wholly
 
owned subsidiary of
 
the Company. See Note
 
9 “Stockholders’ Equity”
for further details.
12.
 
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.
 
Q1 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
 
ended
March 31, 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 the
 
2021 Form 10-K filed with
 
the 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 of
 
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
 
are intended
 
to be,
 
and are
hereby identified as, forward-looking
 
statements for purposes of
 
the safe harbor provided by
 
Section 21E of the Securities
Exchange
 
Act
 
of
 
1934,
 
as
 
amended.
 
The
 
words
 
“may,”
 
“will,”
 
“anticipate,”
 
“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 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 pricing
 
of our products and services as well as our margins;
 
 
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
 
Securities and
 
Exchange Commission
(“SEC”).
All
 
forward-looking
 
statements
 
are
 
necessarily
 
only
 
estimates
 
of
 
future
 
results,
 
and
 
there
 
can
 
be
 
no
 
assurance
 
that
actual results will
 
not differ
 
materially from expectations.
 
Therefore, you are
 
cautioned not to
 
place undue reliance
 
on any
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.
 
Q1 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,
the Bank filed with the 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 ‘Non-GAAP Reconciliation Tables’ included
in this Form 10-Q.
Overview
USCB Financial
 
Holdings, Inc.
 
(the “Company”),
 
the holding
 
company for
 
U.S. Century
 
Bank, reported
 
net income
 
of
 
$4.9
 
million
 
or $0.24
 
per diluted
 
share
 
for the
 
three
 
months
 
ended
 
March 31,
 
2022, compared
 
with
 
net
 
income
 
of
 
$4.8
million or
 
$0.78 and
 
$0.16 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 March 31, 2022 and December 31,
 
2021, the Company’s only class of securities
issued and outstanding was Class A common stock.
During the quarter ended
 
March 31, 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 March 31, 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 March 31, 2022
versus the quarter ended March 31, 2021 and annualized where
 
appropriate:
 
Net interest income increased $1.9 million or 15.3% to
 
$14.4 million from $12.5 million at March 31, 2021.
 
Net interest margin (“NIM”) decreased to 3.22% from 3.35%
 
for the first quarter of 2021.
 
 
Total assets grew to $2.0 billion, an increase of $333.9
 
million or 20.4%, compared to March 31, 2021.
 
Total loans grew to $1.3 billion, an increase of $154.4 million
 
or 14.0%, compared to March 31, 2021.
 
Total deposits increased $309.1 million or 22.0% to $1.7
 
billion from $1.4 billion at March 31, 2021.
 
Annualized return on average assets was 1.03% compared
 
to 1.23%
 
at March 31, 2021.
 
Annualized return on average stockholders’ equity was 9.75% compared to 11.30%
 
at March 31, 2021.
 
The allowance for credit losses to total loans ratio decreased to
 
1.20% from 1.36% at March 31, 2021.
 
Non-performing loans to total loans was 0.00% compared to
 
0.06% at March 31, 2021.
 
The Company and
 
the Bank
 
exceeded all regulatory
 
capital requirements
 
and remained
 
significantly above
 
“well-
capitalized” guidelines.
 
At March 31, 2022,
 
total risk-based capital
 
ratio for the
 
Company and the
 
Bank were 14.49%
and 14.41%, respectively.
 
 
34
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
 
Tangible book value per
 
common share was
 
$9.60 as of
 
March 31, 2022, compared
 
to $27.05 at March
 
31, 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 “Tangible book
value per common share” 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 Annual Report on
 
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.
 
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
35
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
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):
March 31, 2022
December 31, 2021
Consolidated Balance Sheets:
Total
 
assets
$
1,967,252
$
1,853,939
Total
 
loans
(1)
$
1,258,388
$
1,190,081
Total
 
deposits
$
1,713,294
$
1,590,379
Total
 
stockholders' equity
$
192,039
$
203,897
(1)
 
Loan amounts include deferred fees/costs.
Three Months Ended March 31,
2022
2021
Consolidated Statements of Operations:
Net interest income before provision for credit losses
$
14,379
$
12,475
Total
 
non-interest income
$
1,945
$
2,321
Total
 
non-interest expense
$
9,612
$
8,677
Net income
 
$
4,854
$
4,781
Net income available to common stockholders
$
4,854
$
4,000
Profitability:
Efficiency ratio
58.88%
58.64%
Net interest margin
 
3.22%
3.35%
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.
Net income slightly increased to $4.9 million for the three months ended March 31, 2022 from $4.8 million for the same
period
 
in
 
2021.
 
Net
 
income
 
available
 
to
 
common
 
stockholders
 
increased
 
$854
 
thousand
 
for
 
the
 
three
 
months
 
ended
March 31, 2022
 
compared to
 
the same
 
period in
 
2021 primarily because
 
there were no
 
dividend payments made
 
to preferred
shareholders.
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
36
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
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 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.
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 March 31,
2022
2021
Average
Balance
Interest
Yield/Rate
(1)
Average
Balance
Interest
Yield/Rate
(1)
Assets
Interest-earning assets:
Loans
(2)
$
1,211,432
$
12,982
4.35
%
$
1,071,782
$
11,868
4.43
%
Investment securities
(3)
510,257
2,329
1.85
%
337,434
1,844
2.19
%
Other interest-earnings assets
90,137
31
0.14
%
78,568
16
0.08
%
Total
 
interest-earning assets
1,811,826
15,342
3.43
%
1,487,784
13,728
3.69
%
Non-interest earning assets
101,658
86,097
Total
 
assets
$
1,913,484
$
1,573,881
Liabilities and stockholders' equity
Interest-bearing liabilities:
Interest-bearing demand deposits
$
64,436
16
0.10
%
$
44,549
14
0.13
%
Saving and money market deposits
736,134
551
0.30
%
568,595
548
0.39
%
Time deposits
223,274
259
0.47
%
248,156
554
0.91
%
Total
 
interest-bearing deposits
1,023,844
826
0.33
%
861,300
1,116
0.53
%
Borrowings and repurchase agreements
36,011
137
1.54
%
36,000
137
1.52
%
Total
 
interest-bearing liabilities
1,059,855
963
0.37
%
897,300
1,253
0.57
%
Non-interest bearing demand deposits
626,400
482,376
Other non-interest-bearing liabilities
25,369
22,629
Total
 
liabilities
1,711,624
1,402,305
Stockholders' equity
201,860
171,576
Total
 
liabilities and stockholders' equity
$
1,913,484
$
1,573,881
Net interest income
$
14,379
$
12,475
Net interest spread
(4)
3.06
%
3.12
%
Net interest margin
(5)
3.22
%
3.35
%
(1)
 
Annualized.
(2)
 
Average loan balances include non-accrual loans. Interest income
 
on loans includes accretion of deferred
 
loan fees, net of deferred loan costs.
(3)
 
At fair value except for securities held to maturity. Includes FHLB stock.
(4)
 
Net interest spread is the average yield on
 
total interest-earning assets minus the average
 
rate on total interest-bearing liabilities.
(5)
 
Net interest margin is the ratio of net interest
 
income to total interest-earning assets.
Net interest income before the provision
 
for credit losses was $14.4 million for
 
the three months ended March 31, 2022,
an increase of $1.9 million or
 
15.3%, from $12.5 million for
 
the same period in 2021.
 
This increase was primarily attributable
to higher income from investment securities and loan fees as well as lower costs for interest-bearing liabilities because of a
lower interest rate environment.
 
Included with
 
loan interest
 
income are
 
PPP fees
 
totaling $917
 
thousand and
 
$1.2
 
million for
 
the three
 
months ended
March 31, 2022 and 2021, respectively.
 
PPP loan fees are recognized upon forgiveness by the SBA.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
37
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
Net interest
 
margin decreased
 
to 3.22%
 
at March 31,
 
2022 from
 
3.35% in
 
the same
 
period in
 
2021. The
 
overall and
individual yields for interest-bearing assets and interest-bearing
 
liabilities both decreased.
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 trends and economic conditions and other
 
applicable factors.
 
There
 
was
 
no
 
provision
 
for
 
credit
 
loss
 
for
 
the
 
three
 
months
 
ended
 
March 31,
 
2022
 
compared
 
to
 
a
 
net
 
reduction
 
of
$160 thousand
 
for
 
the
 
same
 
period
 
in
 
2021. The
 
primary
 
driver
 
of
 
the
 
decrease
 
was
 
the
 
improvement
 
of
 
the
 
credit
 
risk
associated with
 
the COVID-19 pandemic.
 
The ACL as a percentage
 
of total loans
 
decreased to 1.20%
 
at March 31,
 
2022
compared to 1.36%
 
at March 31, 2021.
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
 
policy
 
on some
 
of our
 
employees
 
and
 
generate
 
income
 
on
 
the
 
increase
 
in the
 
cash
 
surrender
 
value
 
of these
policies.
The following table presents the components of non-interest
 
income for the dates indicated (in thousands):
Three Months Ended March 31,
2022
2021
Service fees
$
900
$
889
Gain on sale of securities available for sale, net
21
62
Gain on sale of loans held for sale, net
334
964
Loan settlement
161
-
Other non-interest income
529
406
Total
 
non-interest income
$
1,945
$
2,321
Non-interest income for the three months ended March 31, 2022 decreased $376 thousand or 16.2%, compared to the
same period in 2021. This decrease was primarily driven by fewer
 
loan sales resulting in reduced gains.
Non-Interest Expense
The following table presents the components of non-interest
 
expense for the dates indicated (in thousands):
Three Months Ended March 31,
2022
2021
Salaries and employee benefits
$
5,875
$
5,278
Occupancy
1,270
1,387
Regulatory assessment and fees
213
178
Consulting and legal fees
517
185
Network and information technology services
387
508
Other operating
1,350
1,141
Total
 
non-interest expense
$
9,612
$
8,677
Non-interest expense for the three months ended March 31, 2022 increased
 
$935 thousand or 10.8%, 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.
 
 
38
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
Provision for Income Tax
Fluctuations in the effective tax rate reflect the effect of the differences in the inclusion or deductibility of certain income
and expenses for
 
income tax purposes.
 
Therefore, future
 
decisions on the
 
investments we
 
choose will affect
 
our effective
tax rate. Surrender value of
 
bank-owned life insurance policies
 
covering key employees, purchasing
 
municipal bonds, and
overall taxable income will be important elements in determining
 
our effective tax rate.
Income
 
tax
 
expense
 
for
 
the
 
three
 
months
 
ended
 
March 31,
 
2022
 
increased
 
to
 
$1.9
 
million
 
from
 
$1.5 million
 
for the
same period
 
in 2021.
 
The Company’s
 
effective tax
 
rate was
 
27.7% primarily
 
because the
 
Company recorded
 
a one-time
adjustment of $300 thousand to deferred tax assets which
 
increased the income tax provision.
For a further discussion
 
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 March 31, 2022 were $2.0
 
billion, an increase
 
of $333.9 million,
 
or 20.4%, over
 
total assets of $1.6
 
billion
at March 31, 2021.
 
Total loans increased $150.8 million, or 13.6%, to
 
$1.3 billion at March 31,
 
2022 compared to
 
$1.1 billion
at March 31,
 
2021. Total
 
deposits
 
increased
 
by $309.1
 
million,
 
or 22.0%,
 
to $1.7
 
billion at
 
March 31,
 
2022
 
compared to
March 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
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,
 
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
 
ALCO
 
of
 
the
 
Company
 
to
 
ensure
 
an
 
appropriate
 
risk
 
and
 
return
 
profile
 
as
 
well
 
as
 
for
 
adherence
 
to
 
the
investment policy.
As of March 31, 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.
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
 
would be
 
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
39
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
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 March 31, 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
 
increased
 
$173.2 million
 
or
 
50.7%
 
to
 
$514.6 million
 
at
 
March 31,
 
2022
 
from
$341.3 million
 
at
 
March 31,
 
2021. Investment
 
securities
 
increased
 
over
 
the
 
past
 
year
 
due
 
to
 
higher
 
than
 
expected
 
cash
balances. Management
 
reinvested excess
 
cash balances
 
into high
 
credit quality
 
investments to
 
increase the
 
Company’s
profitability and modify the
 
Company’s balance sheet duration according
 
to the ALM
 
policy. As of March 31, 2022, corporate
bond securities with a market value
 
of $19.6 million were pledged to
 
secure public deposits. The investment
 
portfolio does
not have any tax-exempt securities.
The
 
following
 
table
 
presents
 
the
 
amortized
 
cost
 
and
 
fair
 
value
 
of
 
investment
 
securities
 
for
 
the
 
dates
 
indicated
 
(in
thousands):
March 31, 2022
December 31, 2021
Available-for-sale:
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
U.S. Government Agency
$
28,197
$
27,433
$
10,564
$
10,520
U.S. Treasury
2,463
2,463
-
-
Collateralized mortgage obligations
163,382
150,738
160,506
156,829
Mortgage-backed securities - residential
114,655
106,038
120,643
118,842
Mortgage-backed securities - commercial
46,280
44,237
49,905
50,117
Municipal securities
25,144
21,981
25,164
24,276
Bank subordinated debt securities
27,003
27,295
27,003
28,408
Corporate bonds
12,066
12,029
12,068
12,550
$
419,190
$
392,214
$
405,853
$
401,542
Held-to-maturity:
U.S. Government Agency
$
34,465
$
31,663
$
34,505
$
33,904
Collateralized mortgage obligations
42,567
39,032
44,820
43,799
Mortgage-backed securities - residential
28,981
26,654
26,920
26,352
Mortgage-backed securities - commercial
3,099
2,817
3,103
3,013
Corporate bonds
13,249
12,524
13,310
13,089
$
122,361
$
112,690
$
122,658
$
120,157
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
40
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
The following
 
table shows
 
the weighted
 
average yields,
 
categorized by
 
contractual maturity,
 
for investment
 
securities
as of March 31, 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%
$
4,800
2.76%
$
2,015
2.84%
$
21,382
1.37%
$
28,197
1.71%
U.S. Treasury
-
0.00%
2,463
2.32%
-
0.00%
-
0.00%
2,463
2.32%
Collateralized mortgage obligations
-
0.00%
-
0.00%
-
0.00%
163,382
1.38%
163,382
1.38%
MBS - residential
-
0.00%
-
0.00%
-
0.00%
114,655
1.45%
114,655
1.45%
MBS - commercial
-
0.00%
-
0.00%
-
0.00%
46,280
1.67%
46,280
1.67%
Municipal securities
 
-
0.00%
-
0.00%
1,000
2.05%
24,144
1.72%
25,144
1.73%
Bank subordinated debt securities
-
0.00%
-
0.00%
26,003
5.02%
1,000
6.13%
27,003
5.02%
Corporate bonds
1,995
3.38%
8,055
3.74%
2,016
2.79%
-
0.00%
12,066
3.52%
$
1,995
$
15,318
$
31,034
$
370,843
$
419,190
1.78%
Held-to-maturity:
U.S. Government Agency
$
-
0.00%
$
7,884
1.03%
$
18,533
1.30%
$
8,048
1.58%
$
34,465
1.32%
Collateralized mortgage obligations
-
0.00%
-
0.00%
-
0.00%
42,567
1.45%
42,567
1.45%
MBS - residential
-
0.00%
2,727
2.98%
9,244
1.60%
17,010
2.04%
28,981
1.98%
MBS - commercial
-
0.00%
-
0.00%
3,099
1.62%
-
0.00%
3,099
1.62%
Corporate bonds
2,007
3.06%
11,242
2.71%
-
0.00%
-
0.00%
13,249
2.76%
$
2,007
$
21,853
$
30,876
$
67,625
$
122,361
1.67%
Loans
Loans are
 
the largest
 
category of
 
interest-earning assets
 
on the
 
Consolidated
 
Balance Sheets,
 
and usually
 
provides
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.
The following table shows the loan portfolio composition
 
as of the dates indicated (in thousands):
 
March 31, 2022
December 31, 2021
Total
Percent of
Total
Total
Percent of
Total
Residential Real Estate
$
204,317
16.2
%
$
201,359
16.9
%
Commercial Real Estate
782,072
62.1
%
704,988
59.2
%
Commercial and Industrial
134,832
10.7
%
146,592
12.3
%
Foreign Banks
63,985
5.1
%
59,491
5.0
%
Consumer and Other
 
73,765
5.9
%
79,229
6.6
%
Total
 
gross loans
1,258,971
100.0
%
1,191,659
100.0
%
Less: Unearned income
583
1,578
Total
 
loans net of unearned income
1,258,388
1,190,081
Less: Allowance for credit losses
15,074
15,057
Total
 
net loans
$
1,243,314
$
1,175,024
Total
 
gross
 
loans
 
increased
 
by
 
$67.3 million
 
or
 
5.6%
 
at
 
March 31,
 
2022
 
compared
 
to
 
December 31,
 
2021.
 
The
commercial
 
real
 
estate
 
and
 
to
 
a
 
lesser
 
extent,
 
foreign
 
banks
 
and
 
residential
 
real
 
estate
 
loan
 
segments
 
had
 
the
 
most
significant
 
growth
 
partially
 
offset
 
by
 
declines
 
in
 
the
 
commercial
 
and
 
industrial
 
and
 
consumer
 
and
 
other
 
loan
 
segments.
During
 
the
 
three
 
months
 
ended,
 
the
 
Company
 
purchased
 
$57.2
 
million
 
and
 
$12.9
 
million
 
in
 
commercial
 
real
 
estate
 
and
residential
 
loans,
 
respectively.
 
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 62.1% of the total gross loan
 
portfolio as of March 31, 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
41
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
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
 
lengthy
 
relationships
 
with
 
members
 
of
 
our
 
senior
 
management
 
team
 
or
 
our
relationship managers that date back to former institutions.
 
From a
 
liquidity perspective,
 
our loan
 
portfolio provides
 
us with
 
additional
 
liquidity due
 
to repayments
 
or unexpected
prepayments. The following table shows
 
maturities and sensitivity to
 
interest rate changes for the
 
loan portfolio at March 31,
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
$
3,002
$
27,512
$
81,030
$
92,773
$
204,317
Commercial Real Estate
22,358
218,552
536,837
4,325
782,072
Commercial and Industrial
18,010
44,725
30,771
41,326
134,832
Foreign Banks
63,985
-
-
-
63,985
Consumer and Other
2,330
3,075
2,468
65,892
73,765
Total
 
gross loans
$
109,685
$
293,864
$
651,106
$
204,316
$
1,258,971
Interest rate sensitivity:
Fixed interest rates
$
85,107
$
216,592
$
137,043
$
86,568
$
525,310
Floating or adjustable rates
24,578
77,272
514,063
117,748
733,661
Total
 
gross loans
$
109,685
$
293,864
$
651,106
$
204,316
$
1,258,971
The information
 
presented
 
in the
 
table above
 
is based
 
upon the
 
contractual
 
maturities of
 
the individual
 
loans, which
may be
 
subject to
 
renewal at
 
their contractual
 
maturity.
 
Renewals will
 
depend on
 
approval by
 
our credit
 
department and
balance sheet
 
composition at the
 
time of
 
the analysis,
 
as well
 
as any
 
modification of terms
 
at the
 
loan’s maturity. Additionally,
maturity
 
concentrations,
 
loan
 
duration,
 
prepayment
 
speeds
 
and
 
other
 
interest
 
rate
 
sensitivity
 
measures
 
are
 
discussed,
reviewed, and analyzed by the ALCO. Decisions on term
 
rate modifications are discussed as well.
 
As of
 
March 31, 2022,
 
approximately 58.3%
 
of the
 
loans have
 
adjustable/variable rates
 
and 41.7%
 
of the
 
loans have
fixed
 
rates.
 
The
 
adjustable/variable
 
loans
 
re-price
 
to
 
different
 
benchmarks
 
and
 
tenors
 
in
 
different
 
periods
 
of
 
time.
 
By
contractual characteristics, there are no
 
material concentrations on anniversary repricing. Additionally, it is
 
important to note
that most
 
of our
 
loans have
 
interest rate
 
floors. This
 
embedded option
 
protects the
 
Company from
 
a decrease
 
in interest
rates 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
42
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
The internal credit risk grades used by the Company to
 
assess the credit worthiness of a loan are shown below:
Pass
– Loans indicate different levels of satisfactory
 
financial condition and performance.
 
Special Mention
 
– Loans classified as special mention have a potential weakness
 
that deserves management’s
close attention. If left uncorrected, these potential weaknesses
 
may result in deterioration of the repayment
prospects for the loan or of the institution’s
 
credit position at some future date.
 
Substandard
– Loans classified as substandard are inadequately protected
 
by the current net worth and paying
capacity of the obligator or of the collateral pledged, if
 
any. Loans so classified
 
have a well-defined weakness or
weaknesses that jeopardize the liquidation of the debt.
 
They are characterized by the distinct possibility that the
institution will sustain some loss if the deficiencies are
 
not corrected.
 
Doubtful
 
– Loans classified as doubtful have all the weaknesses inherent
 
in those classified at substandard, with
the added characteristic that the weaknesses make collection
 
or liquidation in full on the basis of currently existing
facts, conditions, and values, highly questionable and improbable.
 
Loss
– Loans classified as loss are considered uncollectible.
Loan credit exposures by internally assigned grades are
 
as follows for the dates indicated (in thousands):
 
March 31, 2022
Pass
Special Mention
Substandard
Doubtful
Total
Residential Real Estate
$
201,137
$
-
$
3,180
$
-
$
204,317
Commercial Real Estate
780,448
1,210
414
-
782,072
Commercial and Industrial
134,324
-
508
-
134,832
Foreign Banks
63,985
-
-
-
63,985
Consumer and Other
 
73,548
-
217
-
73,765
$
1,253,442
$
1,210
$
4,319
$
-
$
1,258,971
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
Non-Performing Assets
The following table presents non-performing assets as
 
of the dates shown (in thousands,
 
except ratios):
March 31, 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
1.20%
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
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
43
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
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 the Company
 
grants a 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 for the dates indicated (in thousands):
March 31, 2022
Accruing
Non-Accruing
Total
Residential Real Estate
$
7,357
$
-
$
7,357
Commercial Real Estate
603
-
603
Commercial and Industrial
132
-
132
Consumer and Other
 
217
-
217
$
8,309
$
-
$
8,309
December 31, 2021
Accruing
Non-Accruing
Total
Residential Real Estate
$
7,815
$
-
$
7,815
Commercial Real Estate
696
-
696
Commercial and Industrial
141
-
141
Consumer and Other
 
224
-
224
$
8,876
$
-
$
8,876
The Company allocated $335 thousand and $360 thousand of specific allowance for TDR loans at March 31, 2022 and
December 31, 2021, respectively.
 
There was no commitment to lend additional funds to
 
these TDR customers.
 
During the quarter
 
ended March 31,
 
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 March 31, 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.
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
44
 
USCB Financial Holdings, Inc.
 
Q1 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
March 31, 2022:
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
2,498
$
8,758
$
2,775
$
457
$
569
$
15,057
Provision for credit losses
(157)
425
(426)
34
124
-
Recoveries
32
-
6
-
-
38
Charge-offs
(16)
-
-
-
(5)
(21)
Ending Balance
 
$
2,357
$
9,183
$
2,355
$
491
$
688
$
15,074
Average loans
$
198,162
$
739,732
$
139,781
$
59,667
$
74,090
$
1,211,432
Net charge-offs to average loans
 
(0.03)%
- %
(0.02)%
- %
0.03%
(0.01)%
March 31, 2021:
 
 
 
 
 
 
Beginning balance
$
3,408
$
9,453
$
1,689
$
348
$
188
$
15,086
Provision for credit losses
(325)
(133)
229
59
10
(160)
Recoveries
4
-
87
-
1
92
Charge-offs
-
-
-
-
(9)
(9)
Ending Balance
 
$
3,087
$
9,320
$
2,005
$
407
$
190
$
15,009
Average loans
$
231,185
$
625,849
$
166,925
$
42,267
$
5,555
$
1,071,782
Net charge-offs to average loans
(0.01)%
- %
(0.21)%
- %
0.58%
(0.03)%
Bank-Owned Life Insurance
As of March 31, 2022, the combined
 
cash surrender value of all bank-owned
 
life insurance (“BOLI”) policies
 
was 42.0.
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.
 
The following table
 
presents the daily
 
average balance and
 
average rate paid
 
on deposits by
 
category for
 
the periods
presented (in thousands, except ratios):
Three Months Ended March 31,
2022
2021
Average Balance
Average Rate
Paid
Average Balance
Average Rate
Paid
Non-interest bearing demand deposits
$
626,400
0.00%
$
482,376
0.00%
Interest-bearing demand deposits
64,436
0.10%
44,549
0.13%
Saving and money market deposits
736,134
0.30%
568,595
0.39%
Time deposits
223,274
0.47%
248,156
0.91%
$
1,650,244
0.20%
$
1,343,676
0.34%
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
March 31,
 
2022
 
and
 
December 31,
 
2021,
 
respectively.
 
Time
 
deposits
 
with
 
balances
 
of
 
$250
 
thousand
 
or
 
more
 
totaled
$147.6 million and $119.4
 
million at March 31, 2022 and December 31, 2021, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
45
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
The following table shows scheduled maturities of uninsured
 
time deposits as of March 31, 2022 (in thousands):
March 31, 2022
Three months or less
$
10,111
Over three through six months
25,531
Over six though twelve months
24,122
Over twelve months
43,342
$
103,106
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 March 31, 2022 and December 31, 2021, we had $36.0 million of fixed rate advances outstanding from the FHLB
with a weighted average rate of 1.52%. 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 March 31, 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
$
36,000
We
 
have
 
also
 
established
 
Fed
 
Funds
 
lines
 
of
 
credit
 
with
 
our
 
upstream
 
correspondent
 
banks
 
to
 
manage
 
temporary
fluctuations in our daily cash balances. As of
 
March 31, 2022, there were no outstanding
 
balances with the Fed Funds line
of credit.
Off-Balance Sheet Arrangements
We engage
 
in various financial
 
transactions in
 
our operations
 
that, under GAAP,
 
may not be
 
included on
 
the balance
sheet. To
 
meet the financing needs
 
of our customers we may
 
include commitments to extend
 
credit and standby letters
 
of
credit. To
 
a varying
 
degree, such
 
commitments involve
 
elements of
 
credit, market,
 
and interest
 
rate risk
 
in excess
 
of the
amount recognized
 
in the
 
balance sheet.
 
We use
 
more conservative
 
credit and
 
collateral policies
 
in making
 
these credit
commitments as 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 the actual
 
future cash funding requirements
 
.
 
The following table
 
presents lending related
commitments outstanding as of the dates indicated (in thousands
 
):
March 31, 2022
December 31, 2021
Commitments to grant loans and unfunded lines of credit
$
125,484
$
134,877
Standby and commercial letters of credit
5,552
6,420
$
131,036
$
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
 
 
46
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
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
 
(“Internal Rate
 
of Return”)
 
is inherent to
 
the banking
 
business, 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 co
 
nsolidated
 
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, performa
 
nce, and capital adequacy.
Income simulations
 
are used
 
to assess
 
the impact
 
of changing
 
rates on
 
earnings under
 
different rates
 
scenarios and
time horizons.
 
These simulations
 
utilize both
 
instantaneous and
 
parallel changes
 
in the
 
level of
 
interest rates,
 
as well
 
as
non-parallel changes such as changing slopes (flat and steeping) and
 
twists of the yield curve, Static simulation models are
based on current exposures and
 
assume a constant balance sheet with
 
no new growth. Dynamic simulation analysis
 
is also
utilized to have a
 
more comprehensive assessment
 
on IRR. This simulation
 
relies on detailed
 
assumptions outlined in
 
our
budget and strategic plan, and in assumptions regarding changes in
 
existing lines of business, new business, management
strategies and client expected behavior.
To
 
have
 
a
 
more
 
complete
 
picture
 
of
 
IRR,
 
the
 
Company
 
also
 
evaluates
 
the
 
economic
 
value
 
of
 
equity,
 
or
 
EVE.
 
This
assessment
 
allows
 
us
 
to
 
measure
 
the
 
degree
 
to
 
which
 
the
 
economic
 
values
 
will
 
change
 
under
 
different
 
interest
 
rate
scenarios (parallel and non-parallel). The economic value approach focuses on a longer-term time horizon and captures all
future cash flows expected
 
from existing assets and
 
liabilities. The economic value
 
model utilizes a static
 
approach in that
the analysis
 
does not
 
incorporate new
 
business; rather,
 
the analysis
 
shows a
 
snapshot in
 
time of
 
the risk
 
inherent in
 
the
balance sheet.
Market and Interest Rate Risk Management
 
According to
 
our ALCO
 
model,
 
we are
 
an asset-sensitive
 
company.
 
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 March 31, 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 increase from
 
3.17% base case scenario to 3.28%
under a +400
 
basis points scenario.
 
Additionally,
 
utilizing an economic
 
value of equity,
 
or 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
 
 
47
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
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
 
NII
 
volatility
 
and
allowed us to keep the NII consistent with the 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
 
by senior
 
management; appropriate strategies,
 
policies, procedures, and
 
limits used
 
to identify
and mitigate liquidity risk; comprehensive liquidity risk measurement and
 
monitoring systems (including assessments of the
current and prospective cash flows or sources and uses of funds) that are commensurate with the complexity and
 
business
activities of
 
the Company;
 
active management
 
of intraday
 
liquidity and
 
collateral; an
 
appropriately diverse
 
mix of
 
existing
and
 
potential
 
future
 
funding
 
sources;
 
adequate
 
levels
 
of
 
highly
 
liquid
 
marketable
 
securities
 
free
 
of
 
legal,
 
regulatory,
 
or
operational
 
impediments,
 
that
 
can
 
be
 
used
 
to
 
meet
 
liquidity
 
needs
 
in
 
stressful
 
situations;
 
comprehensive
 
contingency
funding plans
 
that sufficiently address
 
potential adverse liquidity
 
events and emergency
 
cash flow
 
requirements; and internal
controls
 
and
 
internal
 
audit
 
processes
 
sufficient
 
to
 
determine
 
the
 
adequacy
 
of
 
the
 
institution’s
 
liquidity
 
risk
 
management
process.
We
 
expect
 
funds
 
to
 
be
 
available
 
from
 
several
 
basic
 
banking
 
activity
 
sources,
 
including
 
the
 
core
 
deposit
 
base,
 
the
repayment and maturity of loans and investment security
 
cash flows. Other potential funding sources include
 
federal funds
purchased, brokered certificates
 
of deposit, listing
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
48
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
Capital Adequacy
As of
 
March 31, 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 March 31, 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
March 31, 2022:
Total
 
risk-based capital:
USCB Financial Holdings, Inc.
$
194,564
14.49
%
$
107,425
8.00
%
$
134,281
10.00
%
U.S. Century Bank
$
193,462
14.41
%
$
107,425
8.00
%
$
134,281
10.00
%
Tier 1 risk-based capital:
 
 
 
 
 
 
USCB Financial Holdings, Inc.
$
179,243
13.35
%
$
80,568
6.00
%
$
107,425
8.00
%
U.S. Century Bank
$
178,141
13.27
%
$
80,568
6.00
%
$
107,425
8.00
%
Common equity tier 1 capital:
USCB Financial Holdings, Inc.
$
179,243
13.35
%
$
60,426
4.50
%
$
87,282
6.50
%
U.S. Century Bank
$
178,141
13.27
%
$
60,426
4.50
%
$
87,282
6.50
%
Leverage ratio:
 
 
 
 
 
 
USCB Financial Holdings, Inc.
$
179,243
9.47
%
$
75,681
4.00
%
$
94,601
5.00
%
U.S. Century Bank
$
178,141
9.42
%
$
75,681
4.00
%
$
94,601
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
 
Recently issued accounting
 
pronouncements are discussed
 
in Note 1 “Summary
 
of Significant Accounting Policies”
 
to
the Consolidated Financial Statements on this Form 10-Q.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
49
 
USCB Financial Holdings, Inc.
 
Q1 2022 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
3/31/2022
12/31/2021
9/30/2021
6/30/2021
3/31/2021
Pre-Tax Pre-Provision ("PTPP") Income:
 
Net income
 
$
4,854
$
5,650
$
6,593
$
4,053
$
4,781
 
Plus: Provision for income taxes
1,858
1,751
2,088
1,263
1,498
 
Plus: Provision for (recovery of) credit losses
-
-
-
-
(160)
 
PTPP income
$
6,712
$
7,401
$
8,681
$
5,316
$
6,119
PTPP Return on Average Assets:
 
PTPP income
$
6,712
$
7,401
$
8,681
$
5,316
$
6,119
 
Average assets
$
1,913,484
$
1,828,037
$
1,741,423
$
1,660,060
$
1,573,881
 
PTPP return on average assets
(1)
1.42%
1.61%
1.98%
1.28%
1.58%
Operating Net Income:
 
Net income
$
4,854
$
5,650
$
6,593
$
4,053
$
4,781
 
Less: Net gains (losses) on sale of
 
securities
21
35
(70)
187
62
 
Less: Tax effect on sale of securities
(5)
(9)
17
(46)
(15)
 
Operating net income
$
4,838
$
5,624
$
6,646
$
3,912
$
4,734
Operating PTPP Income:
 
PTPP income
$
6,712
$
7,401
$
8,681
$
5,316
$
6,119
 
Less: Net gains (losses) on sale of
 
securities
21
35
(70)
187
62
 
Operating PTPP Income
$
6,691
$
7,366
$
8,751
$
5,129
$
6,057
Operating PTPP Return on Average Assets:
 
Operating PTPP income
$
6,691
$
7,366
$
8,751
$
5,129
$
6,057
 
Average assets
$
1,913,484
$
1,828,037
$
1,741,423
$
1,660,060
$
1,573,881
 
Operating PTPP Return on average assets
(1)
1.42%
1.60%
1.99%
1.24%
1.56%
Operating Return on Average Assets:
 
Operating net income
$
4,838
$
5,624
$
6,646
$
3,912
$
4,734
 
Average assets
$
1,913,484
$
1,828,037
$
1,741,423
$
1,660,060
$
1,573,881
 
Operating return on average assets
(1)
1.03%
1.22%
1.51%
0.95%
1.22%
(1) Annualized.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
50
 
USCB Financial Holdings, Inc.
 
Q1 2022 Form 10-Q
As of or For the Three Months Ended
3/31/2022
12/31/2021
9/30/2021
6/30/2021
3/31/2021
Tangible book value per common share (at period-end):
(1)
Total stockholders' equity (GAAP)
$
192,039
$
203,897
$
201,918
$
166,302
$
170,425
Less: Intangible assets
-
-
-
-
-
Less: Preferred stock
-
-
-
24,616
32,077
Tangible stockholders' equity (non-GAAP)
$
192,039
$
203,897
$
201,918
$
141,686
$
138,348
Total shares issued and outstanding (at period-end):
(2)
Class A common shares
20,000,753
19,991,753
18,767,541
3,889,469
3,889,469
Class B common shares
-
-
1,224,212
1,224,212
1,224,212
Total common shares issued and outstanding
20,000,753
19,991,753
19,991,753
5,113,681
5,113,681
Tangible book value per common share (non-GAAP)
$
9.60
$
10.20
$
10.10
$
27.71
$
27.05
 
 
 
 
 
Operating net income available to common stockholders:
(1)
Net income (GAAP)
$
4,854
$
5,650
$
6,593
$
4,053
$
4,781
Less: Preferred dividends
-
-
542
754
781
Less: Exchange and redemption of preferred shares
-
-
89,585
-
-
Net income (loss) available to common stockholders
4,854
5,650
(83,534)
3,299
4,000
Add back: Exchange and redemption of preferred
 
shares
-
-
89,585
-
-
Operating net income avail. to common stock (non-GAAP)
 
$
4,854
$
5,650
$
6,051
$
3,299
$
4,000
Allocation of operating net income per common
 
stock class:
 
 
 
 
 
Class A common stock
$
4,854
$
5,650
$
5,598
$
2,509
$
3,042
Class B common stock
$
-
$
-
$
453
$
790
$
958
Weighted average shares outstanding:
Class A common stock
 
 
 
 
 
Basic
19,994,953
18,913,914
15,121,460
3,889,469
3,889,469
Diluted
20,109,783
19,023,686
15,187,729
3,933,636
3,913,279
Class B common stock
Basic
-
-
6,121,052
6,121,052
6,121,052
Diluted
-
-
6,121,052
6,121,052
6,121,052
Diluted EPS:
(3) (4)
 
 
 
 
 
Class A common stock
Net income (loss) per diluted share (GAAP)
$
0.24
$
0.30
$
(5.11)
$
0.64
$
0.78
Add back: Exchange and redemption of preferred
 
shares
-
-
5.48
-
-
Operating net income per diluted share (non-GAAP)
$
0.24
$
0.30
$
0.37
$
0.64
$
0.78
Class B common stock
Net income (loss) per diluted share (GAAP)
$
-
$
-
$
(1.02)
$
0.13
$
0.16
Add back: Exchange and redemption of preferred
 
shares
-
-
1.09
-
-
Operating net income per diluted share (non-GAAP)
$
-
$
-
$
0.07
$
0.13
$
0.16
(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
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.
 
 
51
 
USCB Financial Holdings, Inc.
 
Q1 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
 
of
 
March 31,
 
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.
 
 
52
 
USCB Financial Holdings, Inc.
 
Q1 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 Annual
 
Report on
 
Form 10-K,
 
for the
 
year ended
 
December 31, 2021.
There have been no material changes from the risk factors
 
previously disclosed in the Form 10-K.
Item 2.
 
Unregistered Sales of Equity Securities and Use of Proceeds
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 Securities
 
Exchange Act
 
of 1934.
 
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.
Item 3.
 
Defaults Upon Senior Securities
None.
Item 4.
 
Mine Safety Disclosures
Not applicable.
 
Item 5. Other Information
None.
 
 
 
 
53
 
USCB Financial Holdings, Inc.
 
Q1 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
 
March 31,
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.
 
 
 
 
 
 
 
54
 
USCB Financial Holdings, Inc.
 
Q1 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
 
May 12, 2022
Luis de la Aguilera
(Principal Executive Officer)
/s/ Robert Anderson
Chief Financial Officer
 
May 12, 2022
Robert Anderson
(Principal Financial Officer and Principal
Accounting Officer)