USCB FINANCIAL HOLDINGS, INC. - Quarter Report: 2023 March (Form 10-Q)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
March 31, 2023
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____to_____
Commission File Number:
001-41196
USCB Financial Holdings, Inc.
(Exact name of registrant as specified in its charter)
Florida
87-4070846
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
2301 N.W. 87th Avenue
,
Doral
,
FL
33172
(Address of principal executive offices) (zip code)
Registrant’s telephone number, including area code:
305
)
715-5200
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A common stock, $1.00 par value per share
USCB
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes
☒
☐
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
☒
☐
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
☐
☐
Non-accelerated filer
☒
☒
☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐
No
☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of May 1, 2023, the registrant had
19,622,380
A
common stock outstanding.
FORM 10-Q
March 31, 2023
TABLE OF CONTENTS
Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022 (Unaudited)
Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2023 and
3 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
PART I
Item 1. Financial Statements
USCB FINANCIAL HOLDINGS, INC.
Consolidated Balance Sheets - Unaudited
(Dollars in thousands, except share data)
March 31, 2023
December 31, 2022
ASSETS:
Cash and due from banks
$
5,586
$
6,605
Interest-bearing deposits in banks
57,665
47,563
Total cash and cash equivalents
63,251
54,168
Investment securities held to maturity, net of allowance for credit losses of $
0
169,167
$
169,088
, respectively)
186,428
188,699
Investment securities available for sale, at fair value
229,409
230,140
Federal Home Loan Bank stock, at cost
6,143
2,882
Loans held for investment, net of allowance of $
18,887
17,487
, respectively
1,561,507
1,489,851
Accrued interest receivable
8,216
7,546
Premises and equipment, net
5,135
5,263
Bank owned life insurance
43,048
42,781
Deferred tax assets, net
39,567
42,360
Lease right-of-use asset
13,652
14,395
Other assets
7,465
7,749
Total assets
$
2,163,821
$
2,085,834
LIABILITIES:
Deposits:
Demand deposits
$
633,606
$
629,776
Money market and savings accounts
900,478
915,853
Interest-bearing checking
50,573
66,675
Time deposits
245,805
216,977
Total deposits
1,830,462
1,829,281
Federal Home Loan Bank advances
120,000
46,000
Lease liability
13,652
14,395
Accrued interest and other liabilities
15,849
13,730
Total liabilities
1,979,963
1,903,406
Commitments and contingencies (See Notes 5 and 10)
.
.
STOCKHOLDERS' EQUITY:
Preferred stock - Class C; $
1.00
1,000
52,748
authorized;
0
0
-
-
Preferred stock - Class D; $
1.00
5.00
12,309,480
authorized;
0
0
-
-
Preferred stock - Class E; $
1.00
1,000
3,185,024
authorized;
0
0
-
-
Common stock - Class A Voting; $
1.00
45,000,000
19,622,380
outstanding as of March 31, 2023,
20,000,753
19,622
20,001
Common stock - Class B Non-voting; $
1.00
8,000,000
0
0
outstanding as of March 31, 2023 and December 31, 2022
-
-
Additional paid-in capital on common stock
305,921
311,282
Accumulated deficit
(99,620)
(104,104)
Accumulated other comprehensive loss
(42,065)
(44,751)
Total stockholders' equity
183,858
182,428
Total liabilities and stockholders' equity
$
2,163,821
$
2,085,834
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Operations - Unaudited
(Dollars in thousands, except per share data)
Three Months Ended March 31,
2023
2022
Interest income:
$
19,711
$
12,982
2,286
2,329
382
31
22,379
15,342
Interest expense:
43
16
4,785
551
1,057
259
497
137
6,382
963
15,997
14,379
Provision for credit losses
201
-
15,796
14,379
Non-interest income:
1,205
900
(21)
21
347
334
-
161
539
529
2,070
1,945
Non-interest expense:
6,377
5,875
1,299
1,270
224
213
358
517
478
387
1,440
1,350
10,176
9,612
7,690
6,712
Income tax expense
1,881
1,858
$
5,809
$
4,854
Per share information:
Net income per share, basic
$
0.29
$
0.24
Net income per share, diluted
$
0.29
$
0.24
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Comprehensive Income (Loss) - Unaudited
(Dollars in thousands)
Three Months Ended March 31,
2023
2022
Net income
$
5,809
$
4,854
Other comprehensive income (loss):
Unrealized gain (loss) on investment securities
3,637
(22,775)
Amortization of net unrealized (loss) gain on securities transferred from available-for-sale to held-to-maturity
(60)
65
Reclassification adjustment for loss (gain) included in net income
21
(21)
Tax effect
(912)
5,789
Total other comprehensive income (loss), net of tax
2,686
(16,942)
Total comprehensive income (loss)
$
8,495
$
(12,088)
The accompanying notes are an integral part of these unaudited consolidated financial statements.
6 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Changes in Stockholders’ Equity - Unaudited
(Dollars in thousands, except per share data)
Common Stock
Additional Paid-in
Capital on Common
Stock
Accumulated Deficit
Accumulated Other
Comprehensive
Loss
Shares
Par Value
Total Stockholders'
Equity
Balance at December 31, 2022
20,000,753
$
20,001
$
311,282
$
(104,104)
$
(44,751)
$
182,428
Cumulative effect of adoption of accounting principle related to ASC 326
-
-
-
(1,325)
-
(1,325)
Adjusted beginning balance after cumulative effect adjustment
20,000,753
20,001
311,282
(105,429)
(44,751)
181,103
Net income
-
-
-
5,809
-
5,809
Other comprehensive income
-
-
-
-
2,686
2,686
Repurchase of Class A common stock
(500,000)
(500)
(5,367)
-
-
(5,867)
Restricted stock issued
121,627
121
(121)
-
-
-
Stock based compensation
-
-
127
-
-
127
Balance at March 31, 2023
19,622,380
$
19,622
$
305,921
$
(99,620)
$
(42,065)
$
183,858
Balance at January 1, 2022
19,991,753
$
19,992
$
310,666
$
(124,245)
$
(2,516)
$
203,897
Net income
-
-
-
4,854
-
4,854
Other comprehensive loss
-
-
-
-
(16,942)
(16,942)
Exercise of stock options
9,000
9
93
-
-
102
Stock-based compensation
-
-
128
-
-
128
Balance at March 31, 2022
20,000,753
$
20,001
$
310,887
$
(119,391)
$
(19,458)
$
192,039
7 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Cash Flows - Unaudited
(Dollars in thousands)
Three Months Ended March 31,
2023
2022
Cash flows from operating activities:
Net income
$
5,809
$
4,854
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses
201
-
Depreciation and amortization
150
188
(Accretion) Amortization of premiums on securities, net
(38)
169
Accretion of deferred loan fees, net
(93)
(807)
Stock-based compensation
127
128
Loss (gain) on sale of available for sale securities
21
(21)
Gain on sale of loans held for sale
(347)
(334)
Increase in cash surrender value of bank owned life insurance
(267)
(266)
Decrease in deferred tax assets
1,881
1,858
Net change in operating assets and liabilities:
Accrued interest receivable
(670)
(328)
Other assets
284
(2,838)
Accrued interest and other liabilities
1,943
3,000
Net cash provided by operating activities
9,001
5,603
Cash flows from investing activities:
Purchase of investment securities held to maturity
-
(2,432)
Proceeds from maturities and pay-downs of investment securities held to maturity
2,406
2,626
Purchase of investment securities available for sale
(7,667)
(42,794)
Proceeds from maturities and pay-downs of investment securities available for sale
3,261
14,788
Proceeds from sales of investment securities available for sale
8,617
14,558
Net increase in loans held for investment
(77,413)
(617)
Purchase of loans held for investment
-
(70,175)
Additions to premises and equipment
(22)
(155)
Proceeds from the sale of loans held for sale
4,847
3,643
Proceeds from the redemption of Federal Home Loan Bank stock
3,570
-
Purchase of Federal Home Loan Bank stock
(6,831)
(177)
Net cash used in investment activities
(69,232)
(80,735)
Cash flows from financing activities:
Proceeds from issuance of Class A common stock, net
-
102
Repurchase of Class A common stock
(5,867)
-
Net increase in deposits
1,181
122,915
Proceeds from Federal Home Loan Bank advances
158,000
-
Repayments on Federal Home Loan Bank advances
(84,000)
-
Net cash provided by financing activities
69,314
123,017
Net increase in cash and cash equivalents
9,083
47,885
Cash and cash equivalents at beginning of period
54,168
46,228
Cash and cash equivalents at end of period
$
63,251
$
94,113
Supplemental disclosure of cash flow information:
Interest paid
$
6,044
$
961
Supplemental schedule of non-cash investing and financing activities:
Transfer of loans held for investment to loans held for sale
$
4,500
$
3,309
The accompanying notes are an integral part of these unaudited consolidated financial statements.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
8 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Overview
USCB Financial Holdings, Inc., a Florida corporation incorporated in 2021, is a bank holding company with one wholly
owned subsidiary, U.S. Century Bank (the “Bank”), together referred to as “the Company”. The Bank, established in 2002,
is a Florida state-chartered, non-member financial institution providing financial services through its banking centers located
in South Florida.
The Bank owns a subsidiary, Florida Peninsula Title LLC, that offers our clients title insurance policies for real estate
transactions closed at the Bank. Licensed in the State of Florida and approved by the Department of Insurance Regulation,
Florida Peninsula Title LLC began operations in 2021.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with instructions to
Form 10-Q and do not include all the information and footnotes required by U.S. generally accepted accounting principles
(“U.S. GAAP”) for complete financial statements. All adjustments consisting of normally recurring accruals that, in the
opinion of management, are necessary for a fair presentation of the financial position and results of operations for the
periods presented have been included. These unaudited consolidated financial statements should be read in conjunction
with the Company’s consolidated financial statements and related notes appearing in the Company’s Annual Report on
Form 10-K/A for the year ended December 31, 2022.
Principles of Consolidation
The Company consolidates entities in which it has a controlling financial interest. Intercompany transactions and
balances are eliminated in consolidation.
Use of Estimates
To prepare financial statements in conformity with U.S. GAAP, management makes estimates and assumptions based
on available information. These estimates and assumptions affect the amounts reported in the financial statements. The
most significant estimates impacting the Company’s consolidated financial statements are the allowance for credit losses
and income taxes.
Reclassifications
Certain amounts in the consolidated financial statements have been reclassified to conform to the current presentation.
Reclassifications had no impact on the net income or stockholders’ equity of the Company.
Recently Issued Accounting Standards
Adoption of New Accounting Standards
Measurement of Credit Losses on Financial Instruments
On January 1st, 2023, the Company adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments, as amended, which replaces the incurred loss methodology with
an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology. The measurement
of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost,
including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not
accounted for as insurance (e.g., loan commitments, standby letters of credit, financial guarantees, and other similar
instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases. In addition,
ASC 326 amended the accounting for available-for-sale debt securities. One such change is to require credit losses to be
presented as an allowance rather than as a write-down on available-for-sale debt securities, that management does not
intend to sell or believes that it is more likely than not they will be required to sell.
Under CECL, the Company estimates the allowance for credit losses using relevant available information, from both
internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
9 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
Historical credit losses provide the basis for estimation of expected credit losses. Qualitative adjustments are applied to the
expected credit losses estimated for the loan portfolio in relation to potential limitations of the quantitative model. A scorecard
is used to aid management in the assessment of qualitative factor adjustments applied to expected credit losses.
The quantitative component of the estimate relies on the statistical relationship between the projected value of an
economic indicator and the implied historical loss experience among a curated group of peers. The Company utilized
regression analyses of peer data, in which the Company was included, and where observed credit losses and selected
economic factors were used to determine suitable loss drivers for modeling the lifetime rates of probability of default (PD).
A loss given default rate (LGD) is assigned to each pool for each period based on these PD outcomes. The model
fundamentally utilizes an expected discounted cash flow (DCF) analysis for loan portfolio segments. The DCF analysis is
run at the instrument-level and incorporates an array of loan-specific data points and segment- implied assumptions to
determine the lifetime expected loss attributable to each instrument. An implicit "hypothetical loss" is derived for each period
of the DCF and helps establish the present value of future cash flows for each period. The reserve applied to a specific
instrument is the difference between the sum of the present value of future cash flows and the book balance of the loan at
the measurement date.
Management elected the Remaining Life (WARM) methodology for five portfolio segments. For each of these segments,
a long-term average loss rate is calculated and applied on a quarterly basis for the remaining life of the pool. Adjustments
for economic expectations are made through qualitative assessments. For the remaining life estimated management
implemented a software that uses an attrition-based calculation that performs quarterly, cohort-based attrition
measurements based on the loan portfolio.
For loans collectively evaluated, $
1.3
84
% were evaluated under Discounted Cash Flow
method and $
251.0
16
% were evaluated under the Remaining Life method. The remaining
$
7.9
Portfolio segments are the level at which loss assumptions are applied to a pool of loans based on the similarity of risk
characteristics inherent in the included instruments, relying on collateral codes and FFIEC Call Report codes. The Company
currently segments the portfolio based on collateral codes for purpose of establishing reserves. Each of these segments is
paired to regression models (Loss Driver Analyses) based on peer data for loans of similar risk characteristics. The
Company has established relationships between internal segmentation and FFIEC Call Report codes for this purpose. The
loss driver for each loan portfolio segment is derived from a readily available and reasonable economic forecast, including
the Federal Reserve Bank projections of U.S. civilian unemployment rate and the year-over-year real GDP growth; for the
residential loan segment the House Price index (“HPI”) projections published by Fannie Mae’s Economic and Strategic
Research Group are utilized for the forecast. Forecasts are applied the first four quarters of the credit loss estimate and
revert on a straight-line basis to the lookback period's historical mean for the economic indicator over the expected life of
loans.
The model incorporates qualitative factor adjustments in order to calibrate the model for risk in each portfolio segment
that may not be captured through quantitative analysis. Determinations regarding qualitative adjustments are reflective of
management's expectation of loss conditions differing from those already captured in the quantitative component of the
model.
The Company estimates a reserve for unfunded commitments, which is reported separately from the allowance for
credit losses within other liabilities. The reserve is based upon the same quantitative and qualitative factors applied to the
collectively evaluated loan portfolio.
The impact of adoption of the ASU 2016-13 was an increase to the allowance for credit losses on loans receivables of
$
1.1
259
adjustment resulted in a decrease of $
1.
3 million in retained earnings. See “Allowance for Credit Losses” section in Note 3
for more information on the allowance of credit losses (”ACL”).
Trouble Debt Restructuring
In March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-
02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings (“TDR”) and Vintage Disclosures. The
standard addresses the following: 1) eliminates the accounting guidance for TDRs, will require an entity to determine
whether a modification results in a new loan or a continuation of an existing loan, 2) expands disclosures related to
modifications, and 3) will require disclosure of current period gross write-offs of financing receivables within the vintage
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
10 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
disclosures table (see footnote 3 “Loans”). The Company adopted ASU 2022-02 effective January 1, 2023 on a prospective
basis. The adoption of ASU 2022-02 did not have a material impact on the Company’s consolidated financial statements.
Issued and Not Yet Adopted
Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of
Reference Rate Reform on Financial Reporting. In January 2021, the FASB clarified the scope of this guidance with ASU
2021-01 which provides optional guidance for a limited period of time to ease the burden in accounting for (or recognizing
the effects of) reference rate reform on financial reporting. This ASU is effective from March 12, 2020 through December 31,
2024. The Company is evaluating the impact of this ASU and has not yet determined whether LIBOR transition and this
ASU will have a material effect on our business operations and consolidated financial statements.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
11 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
2. INVESTMENT SECURITIES
On January 1st, 2023, the Company adopted ASU 2016-13 Financial Instruments -Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments, as amended, which replaces the incurred loss methodology with
an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology. The measurement
of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost,
including loan receivables and held-to-maturity debt securities. In addition, ASC 326 amended the accounting for available-
for-sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-
down on available-for-sale debt securities management does not intend to sell or believes that it is more likely than not they
will be required to sell.
CECL requires loss reserve for securities classified as Held-to-Maturity (“HTM”). The reserve should reflect historical
credit performance as well as the impact of projected economic forecast. For U.S. Government bonds and U.S. Agency
issued bonds in HTM the explicit guarantee of the US Government is sufficient to conclude that a credit loss reserve is not
required. The reserve requirement is for three primary assets groups: municipal bonds, corporate bond, and non-agency
securitizations. The Company calculates quarterly the loss reserve utilizing Moody’s ImpairmentStudio. The CECL
measurement for investment securities incorporates historical data, containing defaults and recoveries information, and
Moody’s baseline economic forecast. The solution uses probability of default/loss given default (“PD/LGD”) approach. PD
represents the likelihood a borrower will default. Within the Moody’s model, this is determined using historical default data,
adjusted for the current economic environment. LGD projects the expected loss if a borrower were to default.
At quarter end, HTM securities included $
175.4
mortgage-backed securities, because of the explicit and/or implicit guarantee on these bonds the Company holds
no
reserves on these holdings. The remaining portion of the HTM portfolio is made up of $
11.0
corporate bonds. The required reserve for these holdings is determined each quarter using the model described above. The
resulting amount of allowance was immaterial at March 31, 2023.
There was
no
The following tables present a summary of the amortized cost, unrealized or unrecognized gains and losses, and fair
value of investment securities at the dates indicated (in thousands):
March 31, 2023
Available-for-sale:
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
U.S. Government Agency
$
10,184
$
-
$
(1,353)
$
8,831
Collateralized mortgage obligations
110,180
-
(21,343)
88,837
Mortgage-backed securities - residential
72,690
-
(12,124)
60,566
Mortgage-backed securities - commercial
37,043
6
(4,449)
32,600
Municipal securities
25,064
-
(5,754)
19,310
Bank subordinated debt securities
16,831
18
(1,352)
15,497
Corporate bonds
4,035
-
(267)
3,768
$
276,027
$
24
$
(46,642)
$
229,409
Held-to-maturity:
U.S. Government Agency
$
44,792
$
126
$
(5,182)
$
39,736
U.S. Treasury
9,951
-
(8)
9,943
Collateralized mortgage obligations
67,404
161
(7,019)
60,546
Mortgage-backed securities - residential
41,842
483
(4,237)
38,088
Mortgage-backed securities - commercial
11,399
-
(644)
10,755
Corporate bonds
11,040
-
(941)
10,099
$
186,428
$
770
$
(18,031)
$
169,167
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
12 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
December 31, 2022
Available-for-sale:
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
U.S. Government Agency
$
10,177
$
-
$
(1,522)
$
8,655
Collateralized mortgage obligations
118,951
-
(23,410)
95,541
Mortgage-backed securities - residential
73,838
-
(12,959)
60,879
Mortgage-backed securities - commercial
32,244
15
(4,305)
27,954
Municipal securities
25,084
-
(6,601)
18,483
Bank subordinated debt securities
15,964
5
(1,050)
14,919
Corporate bonds
4,037
-
(328)
3,709
$
280,295
$
20
$
(50,175)
$
230,140
Held-to-maturity:
U.S. Government Agency
$
44,914
$
25
$
(5,877)
$
39,062
U.S. Treasury
9,841
-
(13)
9,828
Collateralized mortgage obligations
68,727
28
(7,830)
60,925
Mortgage-backed securities - residential
42,685
372
(4,574)
38,483
Mortgage-backed securities - commercial
11,442
-
(665)
10,777
Corporate bonds
11,090
-
(1,077)
10,013
$
188,699
$
425
$
(20,036)
$
169,088
During the year ended December 31, 2022, a total of
26
value of $
74.4
63.8
unrealized loss of $
10.6
comprehensive income (“AOCI”) is being amortized over the remaining life of the securities. For the three months ended
March 31, 2023, total amortization out of AOCI for net unrealized losses on securities transferred from AFS to HTM was
$
60
9.7
Gains and losses on the sale of securities are recorded on the trade date and are determined on the specific
identification basis. The following table presents the proceeds, realized gross gains and realized gross losses on sales and
calls of AFS debt securities for the three months ended March 31, 2023 and 2022 (in thousands):
Three Months Ended Mach 31,
Available-for-sale:
2023
2022
Proceeds from sale and call of securities
$
8,617
$
14,558
Gross gains
$
3
$
158
Gross losses
(24)
(137)
Net realized (loss) gain
$
(21)
$
21
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
13 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
The amortized cost and fair value of investment securities, by contractual maturity, are shown below as of the date
indicated (in thousands). Actual maturities may differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown
separately.
Available-for-sale
Held-to-maturity
March 31, 2023:
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
Due within one year
$
-
$
-
$
11,460
$
11,426
Due after one year through five years
4,035
3,768
9,531
8,616
Due after five years through ten years
17,831
16,329
-
-
Due after ten years
24,064
18,478
-
-
U.S. Government Agency
10,184
8,831
44,792
39,736
Collateralized mortgage obligations
110,180
88,837
67,404
60,546
Mortgage-backed securities - residential
72,690
60,566
41,842
38,088
Mortgage-backed securities - commercial
37,043
32,600
11,399
10,755
$
276,027
$
229,409
$
186,428
$
169,167
At March 31, 2023, there were no securities held in the portfolio from any one issuer in an amount greater than 10% of
total stockholders’ equity other than the United States Government and Government Agencies. All the collateralized
mortgage obligations and mortgage-backed securities are issued by United States sponsored entities at March 31, 2023
and December 31, 2022.
Information pertaining to investment securities with gross unrealized losses, aggregated by investment category and
length of time that those individual securities have been in a continuous loss position, are presented as of the following
dates (in thousands):
March 31, 2023
Less than 12 months
12 months or more
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
U.S. Government Agency
$
4,281
$
(245)
$
44,285
$
(7,474)
$
48,566
$
(7,719)
U.S. Treasury
9,943
(8)
-
-
9,943
(8)
Collateralized mortgage obligations
-
-
149,381
(32,872)
149,381
(32,872)
Mortgage-backed securities - residential
-
-
96,290
(18,600)
96,290
(18,600)
Mortgage-backed securities - commercial
4,185
(55)
36,610
(6,534)
40,795
(6,589)
Municipal securities
-
-
19,310
(5,754)
19,310
(5,754)
Bank subordinated debt securities
6,245
(220)
8,369
(1,131)
14,614
(1,351)
Corporate bonds
-
-
13,867
(770)
13,867
(770)
$
24,654
$
(528)
$
368,112
$
(73,135)
$
392,766
$
(73,663)
December 31, 2022
Less than 12 months
12 months or more
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
U.S. Government Agency
$
11,407
(1,093)
36,310
(7,616)
47,717
$
(8,709)
U.S. Treasury
9,828
(13)
-
-
9,828
(13)
Collateralized mortgage obligations
16,500
(963)
139,965
(34,962)
156,465
(35,925)
Mortgage-backed securities - residential
5,059
(564)
91,742
(19,348)
96,801
(19,912)
Mortgage-backed securities - commercial
10,052
(1,173)
26,823
(5,300)
36,875
(6,473)
Municipal securities
-
-
18,483
(6,601)
18,483
(6,601)
Bank subordinated debt securities
11,295
(670)
2,619
(381)
13,914
(1,051)
Corporate bonds
13,723
(926)
-
-
13,723
(926)
$
77,864
$
(5,402)
$
315,942
$
(74,208)
$
393,806
$
(79,610)
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
14 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
As of March 31, 2023, the unrealized losses associated with $
133.4
the AFS portfolio to the HTM portfolio represent unrealized losses since the date of purchase, independent of the impact
associated with changes in the cost basis of the securities upon transfer between portfolios.
ASC Topic 326 amended the existing other-than-temporary-impairment guidance for AFS securities, requiring credit
losses to be recorded as an allowance rather than through a permanent write-down. When evaluating AFS debt securities
under ASC Topic 326, the Company has evaluated whether the decline in fair value is attributed to credit losses or other
factors like interest rate risk, using both quantitative and qualitative analyses, including company performance analysis,
review of credit ratings, remaining payment terms, prepayment speeds and analysis of macro-economic conditions. Each
investment is expected to recover its price depreciations over its holding period as it moves to maturity and the Company
has the intent and ability to hold these securities to maturity if necessary. As a result of this evaluation, the Company
concluded that no allowance was required.
At December 31, 2022, the Company had $
53.7
collateralized mortgage obligations of government sponsored entities having a fair value of $
294.6
attributable to a combination of factors, including relative changes in interest rates since the time of purchase.
The contractual cash flows for these securities are guaranteed by U.S. government agencies and U.S. government
sponsored entities. The municipal bonds are of high credit quality and the declines in fair value are not due to credit quality.
Based on the assessment of these mitigating factors, management believed that the unrealized losses on these debt
security holdings are a function of changes in investment spreads and interest rate movements and not changes in credit
quality. Management expects to recover the entire amortized cost basis of these securities.
At December 31, 2022, the Company does not intend to sell debt securities that are in an unrealized loss position and
it is not more than likely than not that the Company will be required to sell these securities before recovery of the amortized
cost basis. Therefore, management does not consider any investment to be other than temporarily impaired at December
31, 2022.
Pledged Securities
The Company maintains a master repurchase agreement with a public banking institution for up to $
20.0
guaranteed with investment securities upon withdrawal. Any amounts borrowed would be at a variable interest rate based
on prevailing rates at the time funding is requested. As of March 31, 2023, the Company did
no
t have any securities pledged
under this agreement.
The Company is a Qualified Public Depositor (“QPD”) with the State of Florida. As a QPD, the Company has the legal
authority to maintain public deposits from cities, municipalities, and the State of Florida. These public deposits are secured
by securities pledged to the State of Florida at a ratio of
25
% of the outstanding uninsured deposits. The Company must
also maintain a minimum amount of pledged securities to be in the public funds program.
As of March 31, 2023, the Company had a total of $
206.3
to the State of Florida for these public funds were
twenty one
62.3
As of December 31, 2022, the Company had a total of $
204.2
pledged to the State of Florida for these public funds were
eighteen
$
49.0
The Federal Reserve Board, on March 12, 2023, announced the creation of a new Bank Term Funding Program (BTFP).
The BTFP offers loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository
institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral.
These assets will be valued at par.
The Company had
no
24.3
to the Federal Reserve Bank of Atlanta for the BTFP program.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
15 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
3. LOANS
On January 1, 2023, the Company adopted FASB ASC Topic 326 using the modified retrospective methodology in
accordance with the amendments of FASB ASU 2016-13. Through the adoption of CECL, the Company developed an
allowance for credit losses (“ACL”) methodology that replaces its previous allowance for loan losses methodology. See the
ACL section in this note for further information regarding the Company’s ACL. Prior periods balance for ACL are presented
under legacy GAAP and may not be comparable to current period presentation.
The following table is a summary of the distribution of loans held for investment by type (in thousands):
March 31, 2023
December 31, 2022
Total
Percent of
Total
Total
Percent of
Total
Residential Real Estate
$
184,427
11.7
%
$
185,636
12.3
%
Commercial Real Estate
987,757
62.5
%
970,410
64.4
%
Commercial and Industrial
160,947
10.2
%
126,984
8.4
%
Foreign Banks
97,405
6.1
%
93,769
6.2
%
Consumer and Other
149,410
9.5
%
130,429
8.7
%
Total gross loans
1,579,946
100.0
%
1,507,228
100.0
%
Less: Deferred fees (cost)
448
(110)
Total loans net of deferred fees (cost)
1,580,394
1,507,338
Less: Allowance for credit losses
18,887
17,487
Total net loans
$
1,561,507
$
1,489,851
At March 31, 2023 and December 31, 2022, the Company had $
358.8
338.1
commercial real estate and residential mortgage loans pledged as collateral for lines of credit with the FHLB and the Federal
Reserve Bank of Atlanta.
The Company was a participant in the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”)
loans. These loans were designed to provide a direct incentive for small businesses to keep their workers on payroll and
the funds had to be used towards payroll cost, mortgage interest, rent, utilities and other costs related to COVID-19. These
loans are forgivable under specific criteria as determined by the SBA. The Company had PPP loans totaling $
308
at March 31, 2023 and $
1.3
The Company recognized $
1
1.0
ended March 31, 2023 and 2022, respectively, which is reported under loans, including fees, within the Consolidated
Statements of Operations.
Allowance for Credit Losses
In general, the Company utilizes the Discounted Cash Flow (DCF) method or the Remaining Life (WARM) methodology
to estimate the quantitative portion of the ACL for loan pools. The DCF uses a loss driver analysis (LDA) and discounted
cash flow analyses. Management engaged advisors and consultants with expertise in CECL model development to assist
in development of a loss driver analysis based on regression models and supportable forecast. Peer group data obtained
from FFIEC Call Report filings is used to inform regression analyses to quantify the impact of reasonable and supportable
forecasts in projective models. Economic forecasts applied to regression models to estimate probability of default for loan
receivables use at least one of the following economic indicators: civilian unemployment rate (national), real gross domestic
product growth (national GDP) and/or the HPI. For each of the segments in which the WARM methodology is used, the
long-term average loss rate is calculated and applied on a quarterly basis for the remaining life of the pool. Adjustments for
economic expectations are made through qualitative factors.
Qualitative factors used in the ACL methodology include:
• Changes in lending policies, procedures, and strategies
• Changes in international, national, regional, and local conditions
• Changes in nature and volume of portfolio
• Changes in the volume and severity of past due loans and other similar conditions
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
16 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
• Concentration risk
• Changes in the value of underlying collateral
• The effect of other external factors: e.g., competition, legal, and regulatory requirements
• Changes in lending management, among others
ACL for the three months ended March 31, 2023, was estimated under the CECL methodology, and for the three months
ended December 31, 2022, and prior periods, it was estimated under the incurred loss model.
Changes in the allowance for credit losses for the three months ended March 31, 2023 and 2022 were as follows (in
thousands):
Residential
Real Estate
Commercial
Real Estate
Commercial
and
Industrial
Foreign
Banks
Consumer
and Other
Total
Three Months Ended March 31, 2023
Beginning balance
$
1,352
$
10,143
$
4,163
$
720
$
1,109
$
17,487
Cumulative effect of adoption of accounting
principle
(1)
1,238
1,105
(2,158)
23
858
1,066
Provision for credit losses
(2)
221
(795)
318
29
512
285
Recoveries
8
-
44
-
2
54
Charge-offs
-
-
-
-
(5)
(5)
Ending Balance
$
2,819
$
10,453
$
2,367
$
772
$
2,476
$
18,887
Three Months Ended March 31, 2022
Beginning balance
$
2,498
$
8,758
$
2,775
$
457
$
569
$
15,057
Provision for credit losses
(157)
425
(426)
34
124
-
Recoveries
32
-
6
-
-
38
Charge-offs
(16)
-
-
-
(5)
(21)
Ending Balance
$
2,357
$
9,183
$
2,355
$
491
$
688
$
15,074
(1) Impact of CECL adoption on January 1, 2023
(2) Provision for credit losses excludes $
84
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
17 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
The ACL and the outstanding balances in the specified loan categories as of March 31, 2023 and December 31, 2022
are as follows (in thousands):
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Foreign
Banks
Consumer
and Other
Total
March 31, 2023:
Allowance for credit losses:
Individually evaluated for impairment
$
149
$
-
$
96
$
-
$
94
$
339
Collectively evaluated for impairment
2,670
10,453
2,271
772
2,382
18,548
Balances, end of period
$
2,819
$
10,453
$
2,367
$
772
$
2,476
$
18,887
Loans:
Individually evaluated for impairment
$
7,155
$
-
$
558
$
-
$
171
$
7,884
Collectively evaluated for impairment
177,272
987,757
160,389
97,405
149,239
1,572,062
Balances, end of period
$
184,427
$
987,757
$
160,947
$
97,405
$
149,410
$
1,579,946
December 31, 2022:
Allowance for credit losses:
Individually evaluated for impairment
$
155
$
-
$
41
$
-
$
98
$
294
Collectively evaluated for impairment
1,197
10,143
4,122
720
1,011
17,193
Balances, end of period
$
1,352
$
10,143
$
4,163
$
720
$
1,109
$
17,487
Loans:
Individually evaluated for impairment
$
7,206
$
393
$
82
$
-
$
196
$
7,877
Collectively evaluated for impairment
178,430
970,017
126,902
93,769
130,233
1,499,351
Balances, end of period
$
185,636
$
970,410
$
126,984
$
93,769
$
130,429
$
1,507,228
Credit Quality Indicators
The Company grades loans based on the estimated capability of the borrower to repay the contractual obligation of the
loan agreement based on relevant information which may include: current financial information on the borrower, historical
payment experience, credit documentation and other current economic trends. Internal credit risk grades are evaluated
periodically.
The Company's internally assigned credit risk grades are as follows:
Pass
– Loans indicate different levels of satisfactory financial condition and performance.
Special Mention
close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment
prospects for the loan or of the institution’s credit position at some future date.
Substandard
– Loans classified as substandard are inadequately protected by the current net worth and paying
capacity of the obligator or of the collateral pledged, if any. Loans so classified have a well-defined weakness or
weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the
institution will sustain some loss if the deficiencies are not corrected.
Doubtful
the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing
facts, conditions, and values, highly questionable and improbable.
Loss
– Loans classified as loss are considered uncollectible.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
18 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
Loan credit exposures by internally assigned grades are presented below for the periods indicated (in thousands):
As of March 31, 2023
Term Loans by Origination Year
Revolving
Loans
Total
2023
2022
2021
2020
2019
Prior
Residential real estate
Pass
$
2,736
$
40,571
$
27,348
$
7,224
$
10,119
$
90,718
$
5,711
$
184,427
Total
2,736
40,571
27,348
7,224
10,119
90,718
5,711
184,427
Commercial real estate
Pass
25,800
342,353
226,774
107,237
81,305
197,272
4,474
985,215
Substandard
-
-
1,842
700
-
-
-
2,542
Total
25,800
342,353
228,616
107,937
81,305
197,272
4,474
987,757
Commercial and
industrial
Pass
35,181
39,173
35,534
9,402
17,571
2,994
19,928
159,783
Substandard
-
-
-
-
486
308
370
1,164
Total
35,181
39,173
35,534
9,402
18,057
3,302
20,298
160,947
Foreign banks
Pass
47,410
49,995
-
-
-
-
-
97,405
Total
47,410
49,995
-
-
-
-
-
97,405
Consumer and other
loans
Pass
18,948
76,401
49,777
714
501
1,504
1,394
149,239
Substandard
-
-
-
-
-
171
-
171
Total
18,948
76,401
49,777
714
501
1,675
1,394
149,410
Total Loans
Pass
130,075
548,493
339,433
124,577
109,496
292,488
31,507
1,576,069
Special Mention
-
-
-
-
-
-
-
-
Substandard
-
-
1,842
700
486
479
370
3,877
Doubtful
-
-
-
-
-
-
-
-
Total
$
130,075
$
548,493
$
341,275
$
125,277
$
109,982
$
292,967
$
31,877
$
1,579,946
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
19 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
As of December 31, 2022
Pass
Special
Mention
Substandard
Doubtful
Total Loans
Residential real estate:
Home equity line of credit and other
$
623
$
-
$
-
$
-
$
623
1-4 family residential
132,178
-
-
-
132,178
Condo residential
52,835
-
-
-
52,835
185,636
-
-
-
185,636
-
Commercial real estate:
Land and construction
38,687
-
-
-
38,687
Multi-family residential
176,820
-
-
-
176,820
Condo commercial
49,601
-
393
-
49,994
Commercial property
702,357
-
2,552
-
704,909
967,465
-
2,945
-
970,410
Commercial and industrial:
Secured
120,873
-
807
-
121,680
Unsecured
5,304
-
-
-
5,304
126,177
-
807
-
126,984
Foreign banks
93,769
-
-
-
93,769
Consumer and other loans
130,233
-
196
-
130,429
Total
$
1,503,280
$
-
$
3,948
$
-
$
1,507,228
The Company had charge offs totaling $
5
originated within 2023.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
20 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
Loan Aging
The Company also considers the performance of loans in grading and in evaluating the credit quality of the loan portfolio.
The Company analyzes credit quality and loan grades based on payment performance and the aging status of the loan.
The following tables include an aging analysis of accruing loans and total non-accruing loans as of March 31, 2023 and
December 31, 2022 (in thousands):
Accruing
As of March 31, 2023
Current
Past Due 30-
89 Days
Past Due 90
Days or >
and Still
Accruing
Total
Accruing
Non-Accrual
Total Loans
Residential real estate:
Home equity line of credit and other
$
606
$
-
$
-
$
606
$
-
$
606
1-4 family residential
128,622
1,156
-
129,778
-
129,778
Condo residential
52,859
1,184
-
54,043
-
54,043
182,087
2,340
-
184,427
-
184,427
Commercial real estate:
Land and construction
34,986
-
-
34,986
-
34,986
Multi-family residential
175,358
-
-
175,358
-
175,358
Condo commercial
53,583
-
-
53,583
-
53,583
Commercial property
723,770
-
-
723,770
-
723,770
Leasehold improvements
60
-
-
60
-
60
987,757
-
-
987,757
-
987,757
Commercial and industrial:
Secured
153,810
2,343
-
156,153
486
156,639
Unsecured
4,059
249
-
4,308
-
4,308
157,869
2,592
-
160,461
486
160,947
Foreign banks
97,405
-
-
97,405
-
97,405
Consumer and other
149,239
171
-
149,410
-
149,410
Total
$
1,574,357
$
5,103
$
-
$
1,579,460
$
486
$
1,579,946
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
21 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
Accruing
As of December 31, 2022:
Current
Past Due
30-89 Days
Past Due 90
Days or >
and Still
Accruing
Total
Accruing
Non-Accrual
Total Loans
Residential real estate:
Home equity line of credit and other
$
623
$
-
$
-
$
623
$
-
$
623
1-4 family residential
131,120
1,058
-
132,178
-
132,178
Condo residential
50,310
2,525
-
52,835
-
52,835
182,053
3,583
-
185,636
-
185,636
Commercial real estate:
Land and construction
38,687
-
-
38,687
-
38,687
Multi-family residential
176,820
-
-
176,820
-
176,820
Condo commercial
49,994
-
-
49,994
-
49,994
Commercial property
704,884
25
-
704,909
-
704,909
Leasehold improvements
-
-
-
-
-
-
970,385
25
-
970,410
-
970,410
Commercial and industrial:
Secured
121,649
31
-
121,680
-
121,680
Unsecured
4,332
972
-
5,304
-
5,304
125,981
1,003
-
126,984
-
126,984
Foreign banks
93,769
-
-
93,769
-
93,769
Consumer and other
130,169
260
-
130,429
-
130,429
Total
$
1,502,357
$
4,871
$
-
$
1,507,228
$
-
$
1,507,228
Nonaccrual Status
The following table includes the amortized cost basis of loans on nonaccrual status and loans past due over 90 days
and still accruing as of March 31, 2023:
March 31, 2023
Nonaccrual
Loans With No
Related
Allowance
Nonaccrual
Loans With
Related
Allowance
Total
Nonaccruals
Loans Past
Due Over 90
Days and Still
Accruing
Residential real estate
$
-
$
-
$
-
$
-
Commercial real estate
-
-
-
-
Commercial and industrial
-
486
486
-
Consumer and other
-
-
-
-
$
-
$
486
$
486
$
-
The Company did
no
t have loans in nonaccrual status as of December 31, 2022.
Accrued interest receivable is excluded from the estimate of credit losses. There was
no
attributable to nonaccrual loans outstanding during the three months ended March 31, 2023 and 2022. Interest income on
these loans for the three months ended March 31, 2023 and 2022, would have been approximately $
2
0
respectively, had these loans performed in accordance with their original terms.
Collateral-Dependent Loans
A loan is collateral dependent when the borrower is experiencing financial difficulty and repayment of the loan is
expected to be provided substantially through the sale or operation of the collateral. There were
no
loans as of March 31, 2023 and as of December 31, 2022.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
22 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
Impaired Loans
The following table includes the unpaid principal balances for impaired loans with the associated allowance amount, if
applicable, on the basis of impairment methodology as of December 31, 2022 (in thousands):
December 31, 2022
Unpaid
Principal
Balance
Net
Investment
Balance
Valuation
Allowance
Impaired Loans with No Specific Allowance:
Residential real estate
$
3,551
$
3,544
$
-
Commercial real estate
393
393
-
3,944
3,937
-
Impaired Loans with Specific Allowance:
Residential real estate
3,655
3,626
155
Commercial and industrial
82
82
41
Consumer and other
196
196
98
3,933
3,904
294
Total
$
7,877
$
7,841
$
294
Net investment balance is the unpaid principal balance of the loan adjusted for the remaining net deferred loan fees.
The following table presents the average recorded investment balance on impaired loans for the date indicated (in
thousands):
Three Months Ended March 31, 2022
Residential real estate
$
8,181
Commercial real estate
649
Commercial and industrial
137
Consumer and other
220
Total
$
9,187
Interest income recognized on impaired loans for the three months ended March 31, 2022 was $
91
Loan Modifications to Borrowers Experiencing Financial Difficulties
The Company did
no
t have new modifications to borrowers experiencing financial difficulties and
no
that subsequently defaulted during for the three months ended March 31, 2023.
4. INCOME TAXES
The Company’s provision for income taxes is presented in the following table for the dates indicated (in thousands):
Three Months Ended March 31,
2023
2022
Current:
Federal
$
-
$
-
State
-
-
Total current
-
-
Deferred:
Federal
1,472
1,442
State
409
416
Total deferred
1,881
1,858
Total tax expense
$
1,881
$
1,858
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
23 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
The actual income tax expense for the three months ended March 31, 2023 and 2022 differs from the statutory tax
expense for the period (computed by applying the U.S. federal corporate tax rate of
21
% for 2023 and 2022 to income
before provision for income taxes) as follows (in thousands):
Three Months Ended March 31,
2023
2022
Federal taxes at statutory rate
$
1,615
$
1,409
State income taxes, net of federal tax benefit
334
289
Bank owned life insurance
(68)
(67)
Other, net
-
227
Total tax expense
$
1,881
$
1,858
The Company’s deferred tax assets and deferred tax liabilities as of the dates indicated were (in thousands):
March 31, 2023
December 31, 2022
Deferred tax assets:
Net operating loss
$
19,998
$
21,720
Allowance for credit losses
4,787
4,432
Lease liability
3,460
3,648
Unrealized losses on available for sale securities
14,281
15,193
Deferred loan fees
-
-
Depreciable property
170
158
Stock option compensation
406
373
Accruals
234
723
Deferred tax assets:
43,336
46,247
Deferred tax liability:
Deferred loan cost
(113)
(28)
Lease right of use asset
(3,460)
(3,648)
Deferred expenses
(165)
(175)
Other, net
(31)
(36)
Deferred tax liability
(3,769)
(3,887)
Net deferred tax assets
$
39,567
$
42,360
The Company has approximately $
75.0
97.7
expiring in various amounts between 2031 and 2036 and which are limited to offset, to the extent permitted, future taxable
earnings of the Company.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment.
The major tax jurisdictions where the Company files income tax returns are the U.S. federal jurisdiction and the State
of Florida. With few exceptions, the Company is no longer subject to U.S. federal and state income tax examinations by tax
authorities for years before 2019.
For the three months ended March 31, 2023 and 2022, the Company did
no
t have any unrecognized tax benefits as a
result of tax positions taken during a prior period or during the current period. Additionally,
no
recorded as a result of tax uncertainties.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
24 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
5. OFF-BALANCE SHEET ARRANGEMENTS
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business in order to
meet the financial needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial
instruments include unfunded commitments under lines of credit, commitments to extend credit, standby and commercial
letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the Company’s Consolidated Balance Sheets. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet instruments.
The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instruments
for unused lines of credit, and standby letters of credit is represented by the contractual amount of these commitments.
A summary of the amounts of the Company's financial instruments with off-balance sheet risk are shown below at
March 31, 2023 and December 31, 2022 (in thousands):
March 31, 2023
December 31, 2022
Commitments to grant loans and unfunded lines of credit
$
81,506
$
95,461
Standby and commercial letters of credit
3,542
4,320
Total
$
85,048
$
99,781
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration dates or other termination clauses.
Unfunded lines of credit and revolving credit lines are commitments for possible future extensions of credit to existing
customers. These lines of credit are uncollateralized and usually do not contain a specified maturity date and ultimately may
not be drawn upon to the total extent to which the Company committed.
Standby and commercial letters of credit are conditional commitments issued by the Company to guarantee the
performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing
arrangements. Essentially all letters of credit have fixed maturity dates and since many of them expire without being drawn
upon, they do not generally present a significant liquidity risk to the Company.
6. DERIVATIVES
The Company utilizes interest rate swap agreements as part of its asset liability management strategy to help manage
its interest rate risk exposure. The notional amount of the interest rate swaps do not represent actual amounts exchanged
by the parties. The amounts exchanged are determined by reference to the notional amount and the other terms of the
individual interest rate swap agreements.
The Company enters into interest rate swaps with its loan customers. The Company had
17
15
with loan customers with an aggregate notional amount of $
40.9
33.9
December 31, 2022, respectively. These interest rate swaps mature between 2025 and 2051. The Company entered into
corresponding and offsetting derivatives with third parties. The fair value of liability on these derivatives requires the
Company to provide the counterparty with funds to be held as collateral which the Company reports as other assets under
the Consolidated Balance Sheets. While these derivatives represent economic hedges, they do not qualify as hedges for
accounting purposes.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
25 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
The following table reflects the Company’s customer-related interest rate swaps at the dates indicated (in thousands):
Fair Value
Notional
Amount
Collateral
Amount
Balance Sheet Location
Asset
Liability
March 31, 2023:
Derivatives not designated as hedging instruments:
Interest rate swaps related to customer loans
$
40,896
$
1,287
Other assets/Other liabilities
$
4,673
$
4,673
December 31, 2022:
Derivatives not designated as hedging instruments:
Interest rate swaps related to customer loans
$
33,893
$
1,278
Other assets/Other liabilities
$
5,011
$
5,011
7. FAIR VALUE MEASUREMENTS
Determination of Fair Value
The Company uses fair value measurements to record fair-value adjustments to certain assets and liabilities and to
determine fair value disclosures. In accordance with the fair value measurements accounting guidance, the fair value of a
financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Fair value is best determined based upon quoted market prices.
However, in many instances, there are no quoted market prices for the Company's various financial instruments. In cases
where quoted market prices are not available, fair values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates
of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction
(that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current
market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a
change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining
the price at which willing market participants would transact at the measurement date under current market conditions
depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point
within the range that is most representative of fair value under current market conditions.
Fair Value Hierarchy
In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured
at fair value in three levels, based on the markets in which the assets and liabilities are traded, and the reliability of the
assumptions used to determine fair value.
Level 1
entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and
equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing
sources for market transactions involving identical assets or liabilities.
Level 2
asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the asset or liability.
Level 3
significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments
whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as
well as instruments for which determination of fair value requires significant management judgment or estimation.
A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is
significant to the fair value measurement.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
26 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
Items Measured at Fair Value on a Recurring Basis
AFS investment securities:
for such securities, management generally relies on prices obtained from independent vendors or third-party broker-dealers.
Management reviews pricing methodologies provided by the vendors and third-party broker-dealers in order to determine if
observable market information is being utilized. Securities measured with pricing provided by independent vendors or third-
party broker-dealers are classified within Level 2 of the hierarchy and often involve using quoted market prices for similar
securities, pricing models or discounted cash flow analyses utilizing inputs observable in the market where available.
Derivatives:
classified within Level 2 of the hierarchy.
The following table represents the Company's assets and liabilities measured at fair value on a recurring basis at
March 31, 2023 and December 31, 2022 for each of the fair value hierarchy levels (in thousands):
March 31, 2023
December 31, 2022
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Investment securities available for sale:
U.S. Government Agency
$
-
$
8,831
$
-
$
8,831
$
-
$
8,655
$
-
$
8,655
Collateralized mortgage obligations
-
88,837
-
88,837
-
95,541
-
95,541
Mortgage-backed securities - residential
-
60,566
-
60,566
-
60,879
-
60,879
Mortgage-backed securities - commercial
-
32,600
-
32,600
-
27,954
-
27,954
Municipal securities
-
19,310
-
19,310
-
18,483
-
18,483
Bank subordinated debt securities
-
15,497
-
15,497
-
14,919
-
14,919
Corporate bonds
-
3,768
-
3,768
-
3,709
-
3,709
Total
-
229,409
-
229,409
-
230,140
-
230,140
Derivative assets
-
4,673
-
4,673
-
5,011
-
5,011
Total assets at fair value
$
-
$
234,082
$
-
$
234,082
$
-
$
235,151
$
-
$
235,151
Derivative liabilities
$
-
$
4,673
$
-
$
4,673
$
-
$
5,011
$
-
$
5,011
Total liabilities at fair value
$
-
$
4,673
$
-
$
4,673
$
-
$
5,011
$
-
$
5,011
Items Measured at Fair Value on a Non-recurring Basis
Individually Evaluated Loans and Impaired Loans:
ASC 326 eliminates the current accounting model for impaired
loans effective as of January 1, 2023. At December 31, 2022, in accordance with provisions of the loan impairment
guidance, individual loans with a carrying amount of approximately $
3.9
approximately $
3.6
294
credit losses at December 31, 2022. Loans subject to write-downs, or impaired loans, are estimated using the present value
of expected cash flows or the appraised value of the underlying collateral discounted as necessary due to management's
estimates of changes in economic conditions are considered a Level 3 valuation.
Other Real Estate:
estimate of the costs to sell or the carrying cost of the other real estate owned. Appraisals generally use the market approach
valuation technique and use market observable data to formulate an opinion of the fair value of the properties. However,
the appraiser uses professional judgment in determining the fair value of the property and the Company may also adjust
the value for changes in market conditions subsequent to the valuation date when current appraisals are not available. As
a consequence of the carrying cost or the third-party appraisal and adjustments therein, the fair values of the properties are
considered a Level 3 valuation.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
27 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
The following table represents the Company’s assets measured at fair value on a non-recurring basis at March 31, 2023
and December 31, 2022 for each of the fair value hierarchy levels (in thousands):
Level 1
Level 2
Level 3
Total
March 31, 2023:
Individually evaluated loans
$
-
$
-
$
-
$
-
December 31, 2022:
Impaired loans
$
-
$
-
$
3,639
$
3,639
The following table presents quantified information about Level 3 fair value measurements for assets measured at fair
value on a non-recurring basis at December 31, 2022 (in thousands):
Fair Value
Valuation Technique(s)
Unobservable Input(s)
December 31, 2022:
Residential real estate
$
3,500
Sales comparison approach
Adj. for differences between comparable sales
Commercial and industrial
41
Discounted cash flow
Adj. for differences in net operating income expectations
Consumer and other loans
98
Discounted cash flow
Adj. for differences in net operating income expectations
Total impaired loans
$
3,639
There were
no
2022.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
28 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
Items Not Measured at Fair Value
The following table presents the carrying amounts and estimated fair values of financial instruments not carried at fair
value as of December 31, 2022 (in thousands):
Fair Value Hierarchy
Carrying
Amount
Level 1
Level 2
Level 3
Fair Value
Amount
March 31, 2023:
Financial Assets:
Cash and due from banks
$
5,586
$
5,586
$
-
$
-
$
5,586
Interest-bearing deposits in banks
$
57,665
$
57,665
$
-
$
-
$
57,665
Investment securities held to maturity, net
$
186,428
$
-
$
169,167
$
-
$
169,167
Loans held for investment, net
$
1,561,507
$
-
$
-
$
1,518,178
$
1,518,178
Accrued interest receivable
$
8,216
$
-
$
1,248
$
6,968
$
8,216
Financial Liabilities:
Demand deposits
$
633,606
$
633,606
$
-
$
-
$
633,606
Money market and savings accounts
$
900,478
$
900,478
$
-
$
-
$
900,478
Interest-bearing checking accounts
$
50,573
$
50,573
$
-
$
-
$
50,573
Time deposits
$
245,805
$
-
$
-
$
241,263
$
241,263
FHLB advances
$
120,000
$
-
$
118,852
$
-
$
118,852
Accrued interest payable
$
567
$
-
$
327
$
240
$
567
December 31, 2022:
Financial Assets:
Cash and due from banks
$
6,605
$
6,605
$
-
$
-
$
6,605
Interest-bearing deposits in banks
$
47,563
$
47,563
$
-
$
-
$
47,563
Investment securities held to maturity
$
188,699
$
-
$
169,088
$
-
$
169,088
Loans held for investment, net
$
1,489,851
$
-
$
-
$
1,436,877
$
1,436,877
Accrued interest receivable
$
7,546
$
-
$
1,183
$
6,363
$
7,546
Financial Liabilities:
Demand deposits
$
629,776
$
629,776
$
-
$
-
$
629,776
Money market and savings accounts
$
915,853
$
915,853
$
-
$
-
$
915,853
Interest-bearing checking accounts
$
66,675
$
66,675
$
-
$
-
$
66,675
Time deposits
$
216,977
$
-
$
-
$
211,406
$
211,406
FHLB advances
$
46,000
$
-
$
44,547
$
-
$
44,547
Accrued interest payable
$
229
$
-
$
92
$
137
$
229
8. STOCKHOLDERS’ EQUITY
Common Stock
In July 2021, the Bank completed the initial public offering of its Class A common stock, in which it issued and sold
4,600,000
10.00
40.0
million after deducting underwriting discounts and expenses.
In December 2021, the Company acquired all the issued and outstanding shares of the Class A voting common stock
of the Bank, which at the time were the only issued and outstanding shares of the Bank’s capital stock, in a share exchange
(the “Reorganization”) effected under the Florida Business Corporation Act. Each outstanding share of the Bank’s Class A
common stock, par value $
1.00
one
newly issued share of the Company’s Class A common stock, par value $
1.00
Company’s wholly owned subsidiary.
In the Reorganization, each shareholder of the Bank received securities of the same class, having substantially the
same designations, rights, powers, preferences, qualifications, limitations and restrictions, as those that the shareholder
held in the Bank, and the Company’s then current shareholders owned the same percentages of the Company’s common
stock as they previously owned of the Bank’s common stock.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
29 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
The Company issued
121,627
pursuant to the Company’s 2015 equity incentive plan in March 2023.
During the first quarter of 2023, the Company repurchased
500,000
weighted average price per share of $
11.74
. The aggregate purchase price for these transactions was approximately $
5.9
million, including transaction costs. These repurchases were made through open market purchases pursuant to the
Company’s publicly announced repurchase program. As of March 31, 2023,
250,000
repurchase under this program.
Shares of the Company’s Class A common stock issued and outstanding as
of March 31, 2023 and December 31, 2022
were
19,622,380
20,000,753
, respectively.
Dividends
Declaration of dividends by the Board is required before dividend payments are made.
No
the Board for the common stock classes for the three months ended March 31, 2023 and 2022. Additionally, there were
no
dividends declared and unpaid as of March 31, 2023 and 2022.
The Company and the Bank exceeded all regulatory capital requirements and remained significantly above “well-
capitalized” guidelines as of December 31, 2022 and March 31, 2023. At March 31, 2023, the total risk-based capital ratios
for the Company and the Bank were
13.20
% and
13.12
%, respectively.
9. EARNINGS PER SHARE
Earnings per share (“EPS”) for common stock is calculated using the two-class method required for participating
securities. Basic EPS is calculated by dividing net income (loss) available to common stockholders by the weighted-average
number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted EPS is
computed by dividing net income (loss) available to common stockholders by the weighted-average number of common
shares outstanding for the period and the weighted-average number of dilutive common stock equivalents outstanding for
the period determined using the treasury-stock method. For purposes of this calculation, common stock equivalents include
common stock options and are only included in the calculation of diluted EPS when their effect is dilutive.
The following table reflects the calculation of net income available to common stockholders for the three months ended
March 31, 2023 and 2022 (in thousands):
Three Months Ended March 31,
2023
2022
Net Income
$
5,809
$
4,854
Less: Preferred stock dividends
-
-
Net income available to common stockholders
$
5,809
$
4,854
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
30 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
The following table reflects the calculation of basic and diluted earnings per common share class for the three months
ended March 31, 2023 and 2022 (in thousands, except per share amounts):
Three Months Ended March 31,
2023
2022
Class A
Class A
Basic EPS
Numerator:
Net income available to common shares
$
5,809
$
4,854
Denominator:
Weighted average shares outstanding
19,855,409
19,994,953
Earnings per share, basic
$
0.29
$
0.24
Diluted EPS
Numerator:
Net income available to common shares
$
5,809
$
4,854
Denominator:
Weighted average shares outstanding for basic EPS
19,855,409
19,994,953
Add: Dilutive effects of assumed exercises of stock options
85,197
114,830
Weighted avg. shares including dilutive potential common shares
19,940,606
20,109,783
Earnings per share, diluted
$
0.29
$
0.24
Anti-dilutive stock options excluded from diluted EPS
572,500
-
10. LOSS CONTINGENCIES
Loss contingencies, including claims and legal actions may arise in the ordinary course of business. In the opinion of
management, none of these actions, either individually or in the aggregate, is expected to have a material adverse effect
on the Company’s Consolidated Financial Statements.
31 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis is designed to provide a better understanding of the consolidated financial
condition and results of operations of the Company and the Bank, its wholly owned subsidiary, for the quarter and three
months ended March 31, 2023. This discussion and analysis is best read in conjunction with the unaudited consolidated
financial statements and related footnotes included in this quarterly report on Form 10-Q and the audited consolidated
financial statements and related footnotes included in the Annual Report on Form 10-K/A (“2022 Form 10-K/A”) filed with
the Securities and Exchange Commission (“SEC”) for the year ended December 31, 2022.
This discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause
actual results to differ materially from management's expectations. Factors that could cause such differences are discussed
in the sections entitled "Forward-Looking Statements" and Item 1A “Risk Factors" below and in the 2022 Form 10-K filed
with the SEC which is available at the SEC’s website www.sec.gov.
Throughout this document, references to “we,” “us,” “our,” and “the Company” generally refer to USCB Financial
Holdings, Inc.
Forward-Looking Statements
This Quarterly Report on Form 10-Q (“Form 10-Q”) contains statements that are not historical in nature and are intended
to be, and are hereby identified as, forward-looking statements for purposes of the safe harbor provided by Section 21E of
the Securities Exchange Act of 1934, as amended (Exchange Act”). The words “may,” “will,” “anticipate,” “should,” “would,”
“believe,” “contemplate,” “expect,” “aim,” “plan,” “estimate,” “continue,” and “intend,” as well as other similar words and
expressions of the future, are intended to identify forward-looking statements. These forward-looking statements include,
but are not limited to, statements related to our projected growth, anticipated future financial performance, and
management’s long-term performance goals, as well as statements relating to the anticipated effects on results of operations
and financial condition from expected developments or events, or business and growth strategies, including anticipated
internal growth and balance sheet restructuring.
These forward-looking statements involve significant risks and uncertainties that could cause our actual results to differ
materially from those anticipated in such statements. Potential risks and uncertainties include, but are not limited to:
• the strength of the United States economy in general and the strength of the local economies in which we conduct
operations;
• our ability to successfully manage interest rate risk, credit risk, liquidity risk, and other risks inherent to our industry;
• the accuracy of our financial statement estimates and assumptions, including the estimates used for our credit loss
reserve and deferred tax asset valuation allowance;
• the efficiency and effectiveness of our internal control environment;
• our ability to comply with the extensive laws and regulations to which we are subject, including the laws for each
jurisdiction where we operate;
• adverse changes or conditions in capital and financial markets, including actual or potential stresses in the banking
industry;
• deposit attrition and the level of our uninsured deposits;
• legislative or regulatory changes and changes in accounting principles, policies, practices or guidelines, including
the on-going effects of the implementation of the Current Expected Credit Losses (“CECL”) standard;
• the effects of our lack of a diversified loan portfolio and concentration in the South Florida market, including the
risks of geographic, depositor, and industry concentrations, including our concentration in loans secured by real
estate;
• effects of climate change;
• the concentration of ownership of our common stock;
• fluctuations in the price of our common stock;
• our ability to fund or access the capital markets at attractive rates and terms and manage our growth, both organic
growth as well as growth through other means, such as future acquisitions;
• inflation, interest rate, unemployment rate, market and monetary fluctuations;
• impacts of international hostilities and geopolitical events;
• increased competition and its effect on the pricing of our products and services as well as our margin;
• the effectiveness of our risk management strategies, including operational risks, including, but not limited to, client,
employee, or third-party fraud and security breaches; and
• other risks described in this Form 10-Q, the 2022 Form 10-K/A and other filings we make with the Securities and
Exchange Commission (“SEC”).
32 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
All forward-looking statements are necessarily only estimates of future results, and there can be no assurance that
actual results will not differ materially from expectations. Therefore, you are cautioned not to place undue reliance on any
forward-looking statements. Further, forward-looking statements included in this Form 10-Q are made only as of the date
hereof, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances
after the date on which the statements are made or to reflect the occurrence of unanticipated events, unless required to do
so under the federal securities laws. You should also review the risk factors described in the reports the Company filed or
will file with the SEC and, for periods prior to the completion of the bank holding company reorganization in December 2021,
the Bank filed with the FDIC.
Overview
The Company reported net income of $5.8 million or $0.29 per diluted share for Class A common stock for the three
months ended March 31, 2023, compared with net income of $4.9 million or $0.24 per diluted share for Class A common
stock, respectively, for the same period in 2022.
During the first quarter of 2023, the Company repurchased 500,000 shares of USCB Financial Holdings Inc at a
weighted average price per share of $11.74. The aggregate purchase price for these transactions was approximately $5.9
million, including transaction costs. These repurchases were made through open market purchase pursuant to the
Company’s publicly announced repurchase program. As of March 31, 2023, 250,000 shares remain authorized for
repurchase under this program.
In evaluating our financial performance, the Company considers the level of and trends in net interest income, the net
interest margin, the cost of deposits, levels and composition of non-interest income and non-interest expense, performance
ratios, asset quality ratios, regulatory capital ratios, and any significant event or transaction.
Unless otherwise stated, all period comparisons in the bullet points below are calculated for the quarter ended March 31,
2023 compared to the quarter ended March 31, 2022 and annualized where appropriate:
• Net interest income increased $1.6 million or 11.3% to $16.0 million from $14.4 million for the quarter ended
March 31, 2022.
• Net interest margin (“NIM”) was 3.22% for both quarters ended at March 31, 2023 and 2022.
• Total assets were $2.2 billion at March 31, 2023, representing an increase of $196.6 million or 10.0% from March
31, 2022 and an increase of $78.0 million or 15.2% annualized from December 31, 2022.
• Total loans were $1.6 billion at March 31, 2023, representing an increase of $322.0 million or 25.6% from March
31, 2022 and an increase of $73.1 million or 19.7% annualized from December 2022.
• Total deposits were $1.8 billion at March 31, 2023, representing an increase of $117.2 million or 6.8% from March
31, 2022 and $1.2 million from December 31, 2022.
• Annualized return on average assets was 1.11% compared to 1.03% at March 31, 2022.
• Annualized return on average stockholders’ equity was 12.85% compared to 9.75% for quarter ended March 31,
2022.
• The allowance for credit losses to total loans was 1.20% for March 31, 2023 and 1.16% for December 31, 2022.
ACL was calculated under the CECL methodology for the first quarter 2023 and the incurred loss methodology for
the first quarter 2022.
• Non-performing loans to total loans was 0.03% at March 31, 2023 compared to 0.0% at December 31, 2022.
• At March 31, 2023, the total risk-based capital ratios for the Company and the Bank were 13.20% and 13.12%,
respectively.
• Tangible book value per common share of $9.37 as of March 31, 2023 was negatively affected by $2.14 due to after
tax unrealized security losses of $42.1 million at March 31, 2023. At March 31, 2022, tangible book value of $9.60
was negatively affected by $0.97 due to $19.5 million after tax unrealized security losses. See “Reconciliation and
33 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
Management Explanation for Non-GAAP Financial Measures” for a reconciliation of this non-GAAP financial
measure.
Critical Accounting Policies and Estimates
The consolidated financial statements are prepared based on the application of U.S. GAAP, the most significant of
which are described in Note 1 “Summary of Significant Accounting Policies” in the Company’s 2022 Form 10-K/A. To prepare
financial statements in conformity with GAAP, management makes estimates, assumptions, and judgments based on
available information. These estimates, assumptions, and judgments affect the amounts reported in the financial statements
and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date
of the financial statements and, as this information changes, actual results could differ from the estimates, assumptions and
judgments reflected in the financial statements. In particular, management has identified accounting policies that, due to
the estimates, assumptions and judgments inherent in those policies, are critical in understanding our financial statements.
Management has presented the application of these policies to the Audit and Risk Committee of our Board.
Allowance for Credit Losses
On January 1, 2023, the Company adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments, as amended, which replaces the incurred loss methodology with
an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology. See Note 1
“Summary of Significant Accounting Policies” for more information on the adoption ASC 326 and the allowance of credit
losses.
As of March 31, 2023, our ACL included a concentration of commercial real estate loans. To assess the potential impact
of changes in qualitative factors related to these loans, management performed a sensitivity analysis. Specially we
evaluated the impact of two scenarios: (1) an increase in qualitative factors to simulate a maximum loss scenario and (2) a
reduction to all qualitative factors to zero. Under the first scenario, the ACL increased by $4.6 million or 24.2% and under
the second scenario the ACL was reduced by $1.1 million or 6.3%. This sensitivity analysis provides a hypothetical result
to assess the sensitivity of the ACL and does not represent a change in management’s judgement.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss
and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment
date.
Management is required to assess whether a valuation allowance should be established on the net deferred tax assets
based on the consideration of all available evidence using a more likely than not standard. In its evaluation, management
considers taxable loss carry-back availability, expectation of sufficient taxable income, trends in earnings, the future reversal
of temporary differences, and available tax planning strategies.
The Company recognizes positions taken or expected to be taken in a tax return in accordance with existing accounting
guidance on income taxes which prescribes a recognition threshold and measurement process. Interest and penalties on
tax liabilities, if any, would be recorded in interest expense and other operating non-interest expense, respectively.
Non-GAAP Financial Measures
This Form 10-Q includes financial information determined by methods other than in accordance with generally accepted
accounting principles (“GAAP”). This financial information includes certain operating performance measures. Management
has included these non-GAAP measures because it believes these measures may provide useful supplemental information
for evaluating the Company’s underlying performance trends. Further, management uses these measures in managing and
evaluating the Company’s business and intends to refer to them in discussions about our operations and performance.
Operating performance measures should be viewed in addition to, and not as an alternative to or substitute for, measures
determined in accordance with GAAP, and are not necessarily comparable to non-GAAP measures that may be presented
by other companies. To the extent applicable, reconciliations of these non-GAAP measures to the most directly comparable
GAAP measures can be found in the section “Reconciliation and Management Explanation of Non-GAAP Financial
Measures” included in this Form 10-Q.
34 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
Segment Reporting
Management monitors the revenue streams for all its various products and services. The identifiable segments are not
material and operations are managed and financial performance is evaluated on an overall Company-wide basis.
Accordingly, all the financial service operations are considered by management to be aggregated in one reportable operating
segment.
Results of Operations
General
The following tables present selected balance sheet, income statement, and profitability ratios for the dates indicated
(in thousands, except ratios):
March 31, 2023
December 31, 2022
Consolidated Balance Sheets:
Total assets
$
2,163,821
$
2,085,834
Total loans
(1)
$
1,580,394
$
1,507,338
Total deposits
$
1,830,462
$
1,829,281
Total stockholders' equity
$
183,858
$
182,428
(1) Loan amounts include deferred fees/costs.
Three Months Ended March 31,
2023
2022
Consolidated Statements of Operations:
Net interest income before provision for credit losses
$
15,997
$
14,379
Total non-interest income
$
2,070
$
1,945
Total non-interest expense
$
10,176
$
9,612
Net income
$
5,809
$
4,854
Profitability:
Efficiency ratio
56.32%
58.88%
Net interest margin
3.22%
3.22%
The Company’s results of operations depend substantially on net interest income and non-interest income. Other factors
contributing to the results of operations include our provision for credit losses, non-interest expenses, and provision for
income taxes.
Three months ended March 31, 2023 compared to the three months ended March 31, 2022
Net income increased to $5.8 million for the three months ended March 31, 2023 from $4.9 million for the same period
in 2022 due to higher interest income generated by a larger loan portfolio and higher yields.
Net Interest Income
Net interest income is the difference between interest earned on interest-earning assets and interest incurred on
interest-bearing liabilities and is the primary driver of core earnings. Interest income is generated from interest and dividends
on interest-earning assets, including loans, investment securities and other short-term investments. Interest expense is
incurred from interest paid on interest-bearing liabilities, including interest-bearing deposits, FHLB advances and other
borrowings.
To evaluate net interest income, we measure and monitor (i) yields on loans and other interest-earning assets, (ii) the
costs of deposits and other funding sources, (iii) net interest spread, and (iv) net interest margin. Net interest spread is equal
to the difference between yields earned on interest-earning assets and rates paid on interest-bearing liabilities. Net interest
margin is equal to the annualized net interest income divided by average interest-earning assets. Because non-interest-
bearing sources of funds, such as non-interest-bearing deposits and stockholders’ equity, also fund interest-earning assets,
net interest margin includes the indirect benefit of these non-interest-bearing sources.
35 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
Changes in the market interest rates and interest rates we earn on interest-earning assets or pay on interest-bearing
liabilities, as well as the volume and types of interest-earning assets and interest-bearing and non-interest-bearing liabilities,
are usually the largest drivers of periodic changes in net interest spread, net interest margin and net interest income. Our
asset liability committee (“ALCO”) has in place asset-liability management techniques to manage major factors that affect
net interest income and net interest margin.
The following table contains information related to average balance sheet, average yields on assets, and average costs
of liabilities for the periods indicated (dollars in thousands):
Three Months Ended March 31,
2023
2022
Average
Balance
Interest
Yield/Rate
(1)
Average
Balance
Interest
Yield/Rate
(1)
Assets
Interest-earning assets:
Loans
(2)
$
1,547,393
$
19,711
5.17%
$
1,211,432
$
12,982
4.35%
Investment securities
(3)
421,717
2,286
2.20%
510,257
2,329
1.85%
Other interest-earnings assets
43,084
382
3.60%
90,137
31
0.14%
Total interest-earning assets
2,012,194
22,379
4.51%
1,811,826
15,342
3.43%
Non-interest-earning assets
108,024
101,658
Total assets
$
2,120,218
$
1,913,484
Liabilities and stockholders' equity
Interest-bearing liabilities:
Interest-bearing checking
$
58,087
43
0.30%
$
64,436
16
0.10%
Saving and money market deposits
897,061
4,785
2.16%
736,134
551
0.30%
Time deposits
224,730
1,057
1.91%
223,274
259
0.47%
Total interest-bearing deposits
1,179,878
5,885
2.02%
1,023,844
826
0.33%
FHLB advances and other borrowings
61,600
497
3.27%
36,011
137
1.54%
Total interest-bearing liabilities
1,241,478
6,382
2.08%
1,059,855
963
0.37%
Non-interest-bearing demand deposits
664,369
626,400
Other non-interest-bearing liabilities
31,000
25,369
Total liabilities
1,936,847
1,711,624
Stockholders' equity
183,371
201,860
Total liabilities and stockholders' equity
$
2,120,218
$
1,913,484
Net interest income
$
15,997
$
14,379
Net interest spread
(4)
2.43%
3.07%
Net interest margin
(5)
3.22%
3.22%
(1) Annualized.
(2) Average loan balances include non-accrual loans. Interest income on loans includes accretion of deferred loan fees, net of deferred loan costs.
(3) At fair value except for securities held to maturity. This amount includes FHLB stock.
(4) Net interest spread is the average yield on total interest-earning assets minus the average rate on total interest-bearing liabilities.
(5) Net interest margin is the ratio of net interest income to total interest-earning assets.
Three months ended March 31, 2023 compared to the three months ended March 31, 2022
Net interest income before the provision for credit losses was $16.0 million for the three months ended March 31, 2023,
an increase of $1.6 million or 11.3%, from $14.4 million for the same period in 2022. This increase was primarily attributable
to higher income from a larger loan portfolio combined with an increase in the weighted average loan yield.
Included with loan interest income are PPP interest and loan fees totaling $1 thousand and $1.0 million for the three
months ended March 31, 2023 and 2022, respectively. PPP loan fees are recognized upon loan forgiveness by the SBA.
Net interest margin was at 3.22% for both the quarters ended March 31, 2023 and 2022. The increase in loan yields
was partially offset by higher interest-bearing liabilities cost. Increase in deposit cost was mainly attributed to current interest
market conditions.
36 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
Provision for Credit Losses
The provision for credit losses represents a charge to earnings necessary to establish an allowance for credit losses
that, in management's evaluation, is adequate to provide coverage for all expected credit losses. The provision for credit
losses is impacted by growth in our loan portfolio, recent historical and projected future economic conditions, our internal
assessment of the credit quality of the loan portfolio and net charge-offs.
Three months ended March 31, 2023 compared to the three months ended March 31, 2022
The provision for credit loss was $201 thousand for the three months ended March 31, 2023 compared to no provision
recorded for the same period in 2022. The primary driver of the provision expense in 2023 was attributable to loan growth.
See “Allowance for Credit Losses” below for further discussion on how the ACL is calculated.
Non-Interest Income
Our services and products generate service charges and fees, mainly from our depository accounts. We also generate
income from gain on sale of loans though our swap and SBA programs. In addition, we own and are beneficiaries of the life
insurance policies on some of our employees and generate income on the increase in the cash surrender value of these
policies.
The following table presents the components of non-interest income for the dates indicated (in thousands):
Three Months Ended March 31,
2023
2022
Service fees
$
1,205
$
900
Gain (loss) on sale of securities available for sale, net
(21)
21
Gain on sale of loans held for sale, net
347
334
Loan settlement
-
161
Other non-interest income
539
529
Total non-interest income
$
2,070
$
1,945
Three months ended March 31, 2023 compared to the three months ended March 31, 2022
Non-interest income for the three months ended March 31, 2023 increased $125 thousand or 6.4%, compared to the
same period in 2022. This increase was primarily driven by a $305 thousand increase in fees related to SWAP loans. For
the period ended March 31, 2022 the Company recognized $161 thousand interest recovery from a prior lending customer
of the Bank. This payment reflected the final payment and settlement of lien judgements against the customer.
Non-Interest Expense
The following table presents the components of non-interest expense for the dates indicated (in thousands):
Three Months Ended March 31,
2023
2022
Salaries and employee benefits
$
6,377
$
5,875
Occupancy
1,299
1,270
Regulatory assessment and fees
224
213
Consulting and legal fees
358
517
Network and information technology services
478
387
Other operating
1,440
1,350
Total non-interest expense
$
10,176
$
9,612
Three months ended March 31, 2023 compared to the three months ended March 31, 2022
Non-interest expense for the three months ended March 31, 2023 increased $564 thousand or 5.9%, compared to the
same period in 2022. The increase was primarily driven by higher salaries and employee benefits expense due to new hires
and increased salary compensation.
37 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
Provision for Income Tax
Fluctuations in the effective tax rate reflect the effect of the differences in the inclusion or deductibility of certain income
and expenses for income tax purposes. Therefore, future decisions on the investments we choose will affect our effective
tax rate. The cash surrender value of bank-owned life insurance policies covering key employees, purchasing municipal
bonds, and overall levels of taxable income will be important elements in determining our effective tax rate.
Three months ended March 31, 2023 compared to the three months ended March 31, 2022
Income tax expense for both the quarters ended March 31, 2023 and 2022 was $1.9 million. The effective tax rate for
the three months ended March 31, 2023 was 24.5% compared to 27.7% for the same period in 2022. The Company’s
effective tax rate in the quarter ended March 31, 2022 was higher primarily because the Company recorded a one-time
adjustment of $300 thousand to deferred tax assets which increased the income tax provision.
For a further discussion of income taxes, see Note 4 “Income Taxes” to the unaudited Consolidated Financial
Statements in this Form 10-Q.
Analysis of Financial Condition
Total assets at March 31, 2023 were $2.2 billion, an increase of $78.0 million, or 3.7%, over total assets of $2.1 billion
at December 31, 2022. Total loans increased $73.1 million, or 4.8%, to $1.6 billion at March 31, 2023 compared to $1.5
billion at December 31, 2022. Total deposits increased by $1.2 million to $1.8 billion at March 31, 2023 compared to
December 31, 2022.
Investment Securities
The investment portfolio is used and managed to provide liquidity through cash flows, marketability and, if necessary,
collateral for borrowings. The investment portfolio is also used as a tool to manage interest rate risk and the Company’s
capital market risk exposure. The philosophy of the portfolio is to maximize the Company’s profitability taking into
consideration the Company’s risk appetite and tolerance, manage the asset composition and diversification, and maintain
adequate risk-based capital ratios.
The investment portfolio is managed in accordance with the Asset and Liability Management (“ALM”) policy, which
includes investment guidelines, approved by the Board. Such policy is reviewed at least annually or more frequently if
deemed necessary, depending on market conditions and/or unexpected events. The investment portfolio composition is
subject to change depending on the funding and liquidity needs of the Company, and the interest risk management objective
directed by the ALCO. The portfolio of investments also can be used to modify the duration of the balance sheet. The
allocation of cash into securities takes into consideration anticipated future cash flows (uses and sources) and all available
sources of credit.
Our investment portfolio consists primarily of securities issued by U.S. government-sponsored agencies, U.S. agency
mortgage-backed securities, collateralized mortgage obligation securities, municipal securities, and other debt securities,
all with varying contractual maturities and coupons. Due to the optionality embedded in these securities, the final maturities
do not necessarily represent the expected life of the portfolio. Some of these securities will be called or paid down depending
on capital market conditions and expectations. The investment portfolio is regularly reviewed by the Chief Financial Officer,
Treasurer, and the ALCO of the Company to ensure an appropriate risk and return profile as well as for adherence to the
investment policy.
ASC Topic 326 amended the existing other-than-temporary-impairment guidance for AFS securities, requiring credit
losses to be recorded as an allowance rather than through a permanent write-down. When evaluating AFS debt securities
under ASC Topic 326, the Company has evaluated whether the decline in fair value is attributed to credit losses or other
factors like interest rate risk, using both quantitative and qualitative analyses, including company performance analysis,
review of credit ratings, remaining payment terms, prepayment speeds and analysis of macro-economic conditions. Each
investment is expected to recover its price depreciations over its holding period as it moves to maturity and the Company
has the intent and ability to hold these securities to maturity if necessary. As a result of this evaluation, the Company
concluded that no allowance was appropriate.
AFS and HTM investment securities decreased $3.0 million or 1.0% to $415.8 million at March 31, 2023 from
$418.8 million at December 31, 2022. Investment securities decreased due to payments received and sales of securities
during the quarter. Management reinvested excess cash balances into high credit quality investments to increase the
Company’s profitability and modify the Company’s balance sheet duration according to the ALM policy. As of March 31,
38 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
2023, investment securities with a market value of $83.5 million were pledged to secure public deposits and Fed Borrowing
Program. The investment portfolio does not have any tax-exempt securities.
The following table presents the amortized cost and fair value of investment securities for the dates indicated (in
thousands):
March 31, 2023
December 31, 2022
Available-for-sale:
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
U.S. Government Agency
$
10,184
$
8,831
$
10,177
$
8,655
Collateralized mortgage obligations
110,180
88,837
118,951
95,541
Mortgage-backed securities - residential
72,690
60,566
73,838
60,879
Mortgage-backed securities - commercial
37,043
32,600
32,244
27,954
Municipal securities
25,064
19,310
25,084
18,483
Bank subordinated debt securities
16,831
15,497
15,964
14,919
Corporate bonds
4,035
3,768
4,037
3,709
$
276,027
$
229,409
$
280,295
$
230,140
Held-to-maturity:
U.S. Government Agency
$
44,792
$
39,736
$
44,914
$
39,062
U.S. Treasury
9,951
9,943
9,841
9,828
Collateralized mortgage obligations
67,404
60,546
68,727
60,925
Mortgage-backed securities - residential
41,842
38,088
42,685
38,483
Mortgage-backed securities - commercial
11,399
10,755
11,442
10,777
Corporate bonds
11,040
10,099
11,090
10,013
$
186,428
$
169,167
$
188,699
$
169,088
The following table shows the weighted average yields, categorized by contractual maturity, for investment securities
as of March 31, 2023 (in thousands, except ratios):
Within 1 year
After 1 year through
5 years
After 5 years through
10 years
After 10 years
Total
Amortized
Cost
Yield
Amortized
Cost
Yield
Amortized
Cost
Yield
Amortized
Cost
Yield
Amortized
Cost
Yield
Available-for-sale:
U.S. Government Agency
$
-
0.00%
$
-
0.00%
$
2,352
3.18%
$
7,832
2.04%
$
10,184
2.30%
U.S. Treasury
-
0.00%
-
0.00%
-
0.00%
-
0.00%
-
0.00%
Collateralized mortgage obligations
-
0.00%
-
0.00%
-
0.00%
110,180
1.40%
110,180
1.40%
MBS - residential
-
0.00%
-
0.00%
-
0.00%
72,690
1.67%
72,690
1.67%
MBS - commercial
-
0.00%
-
0.00%
-
0.00%
37,043
2.17%
37,043
2.17%
Municipal securities
-
0.00%
-
0.00%
1,000
2.05%
24,064
1.72%
25,064
1.74%
Bank subordinated debt securities
-
0.00%
-
0.00%
16,831
4.99%
-
0.00%
16,831
4.99%
Corporate bonds
-
0.00%
4,035
2.50%
-
0.00%
-
0.00%
4,035
2.50%
$
-
$
4,035
$
20,183
$
251,809
$
276,027
1.87%
Held-to-maturity:
U.S. Government Agency
$
-
0.00%
$
7,909
1.03%
$
20,346
1.45%
$
16,537
1.98%
$
44,792
1.57%
U.S. Treasury
9,951
4.44%
-
0.00%
-
0.00%
-
0.00%
9,951
4.44%
Collateralized mortgage obligations
-
0.00%
-
0.00%
-
0.00%
67,404
1.69%
67,404
1.69%
MBS - residential
-
0.00%
4,526
1.84%
5,941
1.74%
31,375
2.24%
41,842
2.12%
MBS - commercial
-
0.00%
-
0.00%
3,084
1.62%
8,315
1.69%
11,399
1.67%
Corporate bonds
1,509
2.25%
9,531
2.79%
-
0.00%
-
0.00%
11,040
2.72%
$
11,460
$
21,966
$
29,371
$
123,631
$
186,428
1.96%
Loans
Loans are the largest category of interest-earning assets on the unaudited Consolidated Balance Sheets, and usually
provide higher yields than the remainder of the interest-earning assets. Higher yields typically carry inherent credit and
liquidity risks in comparison to lower yield assets. The Company manages and mitigates such risks in accordance with the
credit and ALM policies, risk tolerance and balance sheet composition.
39 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
The following table shows the loan portfolio composition as of the dates indicated (in thousands):
March 31, 2023
December 31, 2022
Total
Percent of
Total
Total
Percent of
Total
Residential Real Estate
$
184,427
11.7
%
$
185,636
12.3
%
Commercial Real Estate
987,757
62.5
%
970,410
64.4
%
Commercial and Industrial
160,947
10.2
%
126,984
8.4
%
Foreign Banks
97,405
6.1
%
93,769
6.2
%
Consumer and Other
149,410
9.5
%
130,429
8.7
%
Total gross loans
1,579,946
100.0
%
1,507,228
100.0
%
Less: Deferred fees (cost)
448
(110)
Total loans net of deferred fees (cost)
1,580,394
1,507,338
Less: Allowance for credit losses
18,887
17,487
Total net loans
$
1,561,507
$
1,489,851
Total loans increased by $73.1 million or 4.8% at March 31, 2023 compared to December 31, 2022. The commercial
and industrial, and to a lesser extent, consumer and other loan and commercial real estate segments had the most
significant growth partially offset by declines in the residential real estate loan segment.
Our loan portfolio continues to grow, with commercial real estate lending as the primary focus which represented
approximately 62.5% of the total gross loan portfolio as of March 31, 2023. We do not expect any significant changes over
the foreseeable future in the composition of our loan portfolio or in our emphasis on commercial real estate lending. Our
loan growth strategy since inception has been reflective of the market in which we operate and of our strategic plan as
approved by the Board.
Most of the commercial real estate exposure represents loans to commercial businesses secured by owner-occupied
real estate. The growth experienced in recent years is primarily due to implementation of our relationship-based banking
model and the success of our relationship managers in competing for new business in a highly competitive metropolitan
area. Many of our larger loan clients have long-term relationships with members of our senior management team or our
relationship managers that date back to former institutions.
From a liquidity perspective, our loan portfolio provides us with additional liquidity due to repayments or unexpected
prepayments. The following table shows maturities and sensitivity to interest rate changes for the loan portfolio at March 31,
2023 (in thousands):
Due in 1 year or
less
Due in 1 to 5
years
Due after 5 to 15
years
Due after 15
years
Total
Residential Real Estate
$
15,740
$
7,809
$
84,011
$
76,867
$
184,427
Commercial Real Estate
92,411
155,604
729,841
9,901
987,757
Commercial and Industrial
8,392
30,996
80,925
40,634
160,947
Foreign Banks
97,405
-
-
-
97,405
Consumer and Other
3,424
1,992
10,980
133,014
149,410
Total gross loans
$
217,372
$
196,401
$
905,757
$
260,416
$
1,579,946
Interest rate sensitivity:
Fixed interest rates
$
186,433
$
105,797
$
176,867
$
155,007
$
624,104
Floating or adjustable rates
30,939
90,604
728,890
105,409
955,842
Total gross loans
$
217,372
$
196,401
$
905,757
$
260,416
$
1,579,946
The information presented in the table above is based upon the contractual maturities of the individual loans, which
may be subject to renewal at their contractual maturity. Renewals will depend on approval by our credit department and
balance sheet composition at the time of the analysis, as well as any modification of terms at the loan’s maturity. Additionally,
maturity concentrations, loan duration, prepayment speeds and other interest rate sensitivity measures are discussed,
reviewed, and analyzed by the ALCO. Decisions on term rate modifications are discussed as well.
As of March 31, 2023, approximately 60.5% of the loans have adjustable/variable rates and 39.5% of the loans have
fixed rates. The adjustable/variable rate loans re-price to different benchmarks and tenors in different periods of time. By
contractual characteristics, there are no material concentrations on anniversary repricing. Additionally, it is important to note
40 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
that most of our loans have interest rate floors. This embedded option protects the Company from a decrease in interest
rates and positions us to gain in the scenario of higher interest rates.
Asset Quality
Our asset quality grading analysis estimates the capability of the borrower to repay the contractual obligation of the loan
agreement as scheduled or at all. The Company’s internal credit risk grading system is based on experiences with similarly
graded loans. Internal credit risk grades are reviewed at least once a year, and more frequently as needed. Internal credit
risk ratings may change based on management’s assessment of the results from the annual review, portfolio monitoring,
and other developments observed with borrowers.
The internal credit risk grades used by the Company to assess the credit worthiness of a loan are shown below:
Pass
– Loans indicate different levels of satisfactory financial condition and performance.
Special Mention
close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment
prospects for the loan or of the institution’s credit position at some future date.
Substandard
– Loans classified as substandard are inadequately protected by the current net worth and paying
capacity of the obligator or of the collateral pledged, if any. Loans so classified have a well-defined weakness or
weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the
institution will sustain some loss if the deficiencies are not corrected.
Doubtful
the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing
facts, conditions, and values, highly questionable and improbable.
Loss
– Loans classified as loss are considered uncollectible.
Loan credit exposures by internally assigned grades are as follows for the dates indicated (in thousands):
March 31, 2023
Pass
Special Mention
Substandard
Doubtful
Total
Residential Real Estate
$
184,427
$
-
$
-
$
-
$
184,427
Commercial Real Estate
985,214
-
2,542
-
987,756
Commercial and Industrial
159,783
-
1,164
-
160,947
Foreign Banks
97,405
-
-
-
97,405
Consumer and Other
149,239
-
171
-
149,410
$
1,576,068
$
-
$
3,877
$
-
$
1,579,945
December 31, 2022
Pass
Special Mention
Substandard
Doubtful
Total
Residential Real Estate
$
185,636
$
-
$
-
$
-
$
185,636
Commercial Real Estate
967,465
-
2,945
-
970,410
Commercial and Industrial
126,177
-
807
-
126,984
Foreign Banks
93,769
-
-
-
93,769
Consumer and Other
130,233
-
196
-
130,429
$
1,503,280
$
-
$
3,948
$
-
$
1,507,228
41 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
Non-Performing Assets
The following table presents non-performing assets as of the dates shown (in thousands, except ratios):
March 31, 2023
December 31, 2022
Total non-performing loans
$
486
$
-
Other real estate owned
-
-
Total non-performing assets
$
486
$
-
Asset quality ratios:
(1)
Allowance for credit losses to total loans
1.20%
1.16%
Allowance for credit losses to non-performing loans
3886%
- %
Non-performing loans to total loans
0.03%
- %
(1)
ACL was calculated under CECL methodology for first quarter 2023, and incurred loss methodology for fourth quarter 2022
Non-performing assets include all loans categorized as non-accrual or restructured, impaired securities, other real
estate owned (“OREO”) and other repossessed assets. Problem loans for which the collection or liquidation in full is
reasonably uncertain are placed on a non-accrual status. This determination is based on current existing facts concerning
collateral values and the paying capacity of the borrower. When the collection of the full contractual balance is unlikely, the
loan is placed on non-accrual to avoid overstating the Company’s income for a loan with increased credit risk.
If the principal or interest on a commercial loan becomes due and unpaid for 90 days or more, the loan is placed on
non-accrual status as of the date it becomes 90 days past due and remains in non-accrual status until it meets the criteria
for restoration to accrual status. Residential loans, on the other hand, are placed on non-accrual status when the principal
or interest becomes due and unpaid for 120 days or more and remains in non-accrual status until it meets the criteria for
restoration to accrual status. Restoring a loan to accrual status is possible when the borrower resumes payment of all
principal and interest payments for a period of six months and the Company has a documented expectation of repayment
of the remaining contractual principal and interest or the loan becomes secured and in the process of collection.
The Company may grant a loan concession to a borrower experiencing financial difficulties. This determination is
performed during the annual review process or whenever problems surface regarding the client’s ability to repay in
accordance with the original terms of the loan or line of credit. The concessions are given to the debtor in various forms,
including interest rate reductions, principal forgiveness, extension of maturity date, waiver, or deferral of payments and other
concessions intended to minimize potential losses.
For further discussion on non-performing loans and borrowers experiencing financial difficulties, see Note 3 “Loans” to
the unaudited Consolidated Financial Statements on this Form 10-Q.
Allowance for Credit Losses
On January 1, 2023, the Company adopted FASB ASU 2016-13, which introduced the current expected credit losses
(CECL) methodology and required us to estimate all expected credit losses over the remaining life of our loan portfolio.
Accordingly, the ACL represents an amount that, in management's evaluation, is adequate to provide coverage for all
expected future credit losses on outstanding loans. Additionally, qualitative adjustments are made to the ACL when, based
on management’s judgment, there are factors impacting the allowance estimate not considered by the quantitative
calculations. See Note 3 “Loans” for more information on the allowance for credit losses on this Form 10-Q.
42 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
The following table presents ACL and net charge-offs to average loans by type for the periods indicated (in thousands):
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Foreign
Banks
Consumer
and Other
Total
Three Months Ended March 31, 2023
Beginning balance
$
1,352
$
10,143
$
4,163
$
720
$
1,109
$
17,487
Cumulative effect of adoption of accounting
principle
(1)
1,238
1,105
(2,158)
23
858
1,066
Provision for credit losses
(2)
221
(795)
318
29
512
285
Recoveries
8
-
44
-
2
54
Charge-offs
-
-
-
-
(5)
(5)
Ending Balance
$
2,819
$
10,453
$
2,367
$
772
$
2,476
$
18,887
Average loans
$
194,355
964,682
158,509
89,020
140,826
1,547,392
Net charge-offs to average loans
-0.02%
0.00%
-0.11%
0.00%
0.01%
-0.01%
(1)
(2)
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Foreign
Banks
Consumer
and Other
Total
Three Months Ended March 31, 2022
Beginning balance
$
2,498
$
8,758
$
2,775
$
457
$
569
$
15,057
Provision for credit losses
(157)
425
(426)
34
124
-
Recoveries
32
-
6
-
-
38
Charge-offs
(16)
-
-
-
(5)
(21)
Ending Balance
$
2,357
$
9,183
$
2,355
$
491
$
688
$
15,074
Average loans
$
198,162
$
739,732
$
139,781
$
59,667
$
74,090
$
1,211,432
Net charge-offs to average loans
-0.03%
-
-0.02%
-
0.03%
-0.01%
Bank-Owned Life Insurance
As of March 31, 2023, the combined cash surrender value of all bank-owned life insurance (“BOLI”) policies was $43.0
million. Changes in cash surrender value are recorded to non-interest income in the unaudited Consolidated Statements of
Operations. The Company had BOLI policies with five insurance carriers. The Company is the beneficiary of these policies.
Deposits
Customer deposits are the primary funding source for the Bank’s growth. Through our network of banking centers, we
offer a competitive array of deposit accounts and treasury management services designed to meet our customers’ business
needs. Our primary deposit customers are small-to-medium sized businesses (“SMBs”), and the personal business of
owners and operators of these SMBs, as well as the retail/consumer relationships of the employees of these businesses.
The following table presents the daily average balance and average rate paid on deposits by category for the periods
presented (in thousands, except ratios):
Three Months Ended March 31,
2023
2022
Average Balance
Average Rate
Paid
Average Balance
Average Rate
Paid
Non-interest-bearing checking
$
664,369
0.00%
$
626,400
0.00%
Interest-bearing checking
58,087
0.30%
64,436
0.10%
Money market and savings deposits
897,061
2.16%
736,134
0.30%
Time deposits
224,730
1.91%
223,274
0.47%
Total
$
1,844,247
1.29%
$
1,650,244
0.20%
43 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
The Company has a granular deposit portfolio with outstanding balances comprised of 54% in commercial deposits,
35% personal deposits and 11% public funds, which are partially collateralized. The Company has approximately 19
thousand deposits accounts with the majority in personal accounts, approximately 12 thousand or 64.4%. The total amount
of uninsured deposits adjusted by the collateralized portion of public funds is 56% at March 31, 2023, a decrease of 3%
compared to December 31, 2022 and below the 2022 average. The estimated average account size of our deposit portfolio
is $96 thousand as of March 31, 2023. The Company also offers Insured Cash Sweep (“ICS”) and Certificate
of
Deposit Account Registry Service (“CDARS”) deposit products to fully insure our clients.
The uninsured deposits are estimated based on the FDIC deposit insurance limit of $250 thousand for all deposit
accounts at the Company per account holder. Total estimated uninsured deposits adjusted for collateralized public deposits
were $1.0 billion and $1.1 billion at March 31, 2023 and December 31, 2022, respectively.
The following table shows scheduled maturities of uninsured time deposits as of March 31, 2023 (in thousands):
March 31, 2023
Three months or less
$
21,116
Over three through six months
26,996
Over six though twelve months
29,135
Over twelve months
23,038
$
100,285
Other Liabilities
The Company collects from commercial loan customers funds which are held in escrow for future payment of real
estate taxes and insurance. These escrow funds are disbursed by the Company directly to the insurance companies and
taxing authority of the borrower. Escrow funds are recorded as other liabilities.
As of March 31, 2023 escrow balances totaled $8.3 million compared to $3.5 million at December 31, 2022.
Borrowings
As a member of the FHLB, we are eligible to obtain advances with various terms and conditions. This accessibility of
additional funding allows us to efficiently and timely meet both expected and unexpected outgoing cash flows and collateral
needs without adversely affecting either daily operations or the financial condition of the Company.
As of March 31, 2023, we had $120.0 million of fixed-rate advances outstanding from the FHLB with a weighted average
rate of 4.15%. Maturity dates for the advances are between third quarter 2023 and third quarter 2025 as detailed in the table
below.
The following table presents the FHLB fixed rate advances as of March 31, 2023 (in thousands):
Interest Rate
Type of Rate
Maturity Date
Amount
2.05%
Fixed
March 27, 2025
$
10,000
1.07%
Fixed
July 18, 2025
6,000
1.04%
Fixed
July 30, 2024
5,000
0.81%
Fixed
August 17, 2023
5,000
5.07%
Daily
December 22, 2023
83,000
3.76%
Fixed
January 24, 2028
11,000
$
120,000
We have also established Fed Funds lines of credit with our upstream correspondent banks to manage temporary
fluctuations in our daily cash balances. As of March 31, 2023, there were no outstanding balances with the Fed Funds lines
of credit.
Off-Balance Sheet Arrangements
We engage in various financial transactions in our operations that, under GAAP, may not be included on the balance
sheet. To meet the financing needs of our customers we may include commitments to extend credit and standby letters of
credit. To a varying degree, such commitments involve elements of credit, market, and interest rate risk in excess of the
44 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
amount recognized in the balance sheet. We use more conservative credit and collateral policies in making these credit
commitments than we do for on-balance sheet items. We are not aware of any accounting loss to be incurred by funding
these commitments; however, we maintain an allowance for off -balance sheet credit risk which is recorded under other
liabilities on the unaudited Consolidated Balance Sheets.
Since commitments associated with letters of credit and commitments to extend credit may expire unused, the amounts
shown do not necessarily reflect actual future cash funding requirements. The following table presents lending related
commitments outstanding as of the dates indicated (in thousands):
March 31, 2023
December 31, 2022
Commitments to grant loans and unfunded lines of credit
$
81,506
$
95,461
Standby and commercial letters of credit
3,542
4,320
Total
$
85,048
$
99,781
Commitments to extend credit are agreements to lend funds to a client, as long as there is no violation of any condition
established in the contract, for a specific purpose. Commitments generally have variable interest rates, fixed expiration
dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to
expire without being fully drawn, the total commitment amounts disclosed above do not necessarily represent future cash
requirements.
Unfunded lines of credit represent unused portions of credit facilities to our current borrowers that represent no change
in credit risk in our portfolio. Lines of credit generally have variable interest rates. The maximum potential amount of future
payments we could be required to make is represented by the contractual amount of the commitment, less the amount of
any advances made.
Letters of credit are conditional commitments issued by us to guarantee the performance of a client to a third party. In
the event of nonperformance by the client in accordance with the terms of the agreement with the third party, we would be
required to fund the commitment. If the commitment is funded, we would be entitled to seek recovery from the client from
the underlying collateral, which can include commercial real estate, physical plant and property, inventory, receivables, cash
or marketable securities.
Asset and Liability Management Committee
Members of senior management and our Board make up the asset and liability management committee, or ALCO.
Senior management is responsible for ensuring that Board approved strategies, policies, and procedures for managing and
mitigating risks are appropriately executed within the designated lines of authority and responsibility in a timely manner.
ALCO oversees the establishment, approval, implementation, and review of interest rate risk, management, and
mitigation strategies, ALM related policies, ALCO procedures and risk tolerances and appetite.
While some degree of IRR (“Interest Rate Risk”) is inherent to the banking business, we believe our ALCO has put in
place sound risk management practices to identify, quantify, monitor, and limit IRR exposures.
When assessing the scope of IRR exposure and impact on the consolidated balance sheet, cash flows and income
statement, management considers both earnings and economic impacts. Asset price variations, deposit volatility and
reduced earnings or outright losses could adversely affect the Company’s liquidity, performance, and capital adequacy.
Income simulations are used to assess the impact of changing rates on earnings under different rates scenarios and
time horizons. These simulations utilize both instantaneous and parallel changes in the level of interest rates, as well as
non-parallel changes such as changing slopes (flat and steeping) and twists of the yield curve. Static simulation models are
based on current exposures and assume a constant balance sheet with no new growth. Dynamic simulation analysis is also
utilized to have a more comprehensive assessment on IRR. This simulation relies on detailed assumptions outlined in our
budget and strategic plan, and in assumptions regarding changes in existing lines of business, new business, management
strategies and client expected behavior.
To have a more complete picture of IRR, the Company also evaluates the economic value of equity (“EVE”). This
assessment allows us to measure the degree to which the economic values will change under different interest rate
scenarios (parallel and non-parallel). The economic value approach focuses on a longer-term time horizon and captures all
future cash flows expected from existing assets and liabilities. The economic value model utilizes a static approach in that
the analysis does not incorporate new business; rather, the analysis shows a snapshot in time of the risk inherent in the
balance sheet.
45 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
Market and Interest Rate Risk Management
According to our ALCO model, as of March 31, 2023, we were a liability sensitive Bank for year one modeling and asset
sensitive for year two modeling. Asset sensitivity indicates that our assets generally reprice faster than our liabilities, which
results in a favorable impact to net interest income when market interest rates increase. Liability sensitivity indicates that
our liabilities generally reprice faster than our assets, which results in a favorable impact to net interest income when market
interest rates decrease. Many assumptions are used to calculate the impact of interest rate variations on our net interest
income, such as asset prepayment speeds, non-maturity deposit price sensitivity, pricing correlations, deposit truncations
and decay rates, and key interest rate drivers.
Because of the inherent use of these estimates and assumptions in the model, our actual results may, and most likely
will, differ from static measures results. In addition, static measures like EVE do not include actions that management may
undertake to manage the risks in response to anticipated changes in interest rates or client deposit behavior. As part of our
ALM strategy and policy, management has the ability to modify the balance sheet to either increase asset duration and
decrease liability duration to reduce asset sensitivity, or to decrease asset duration and increase liability duration in order
to increase asset sensitivity.
According to our model, as of March 31, 2023, NIM most likely will decrease for year one and should increase for year
two under static rate scenarios (-400 basis points or +400 basis points). For the static forecast in year one, the estimated
NIM will decrease from the base case scenario to a +400 basis points scenario. Additionally, utilizing an EVE approach,
we analyze the risk to capital from the effects of various interest rate scenarios through a long-term discounted cash flow
model. This measures the difference between the economic value of our assets and the economic value of our liabilities,
which is a proxy for our liquidation value. According to our balance sheet composition, and as expected, our model stipulates
that an increase of rates will have a negative impact on the EVE and lower rates and positive impact. Results and analysis
are presented quarterly to the ALCO, and strategies are defined.
Liquidity
Liquidity is defined as a Company’s capacity to meet its cash and collateral obligations at a reasonable cost. Maintaining
an adequate level of liquidity depends on the Company’s ability to efficiently meet both expected and unexpected cash flow
and collateral needs without adversely affecting either daily operations or the financial condition of the Company.
Liquidity risk is the risk that we will be unable to meet our short-term and long-term obligations as they become due
because of an inability to liquidate assets or obtain relatively adequate funding. The Company’s obligations, and the funding
sources used to meet them, depend significantly on our business mix, balance sheet structure and composition, credit
quality of our assets and the cash flow profiles of our on- and off-balance sheet obligations.
In managing inflows and outflows, management regularly monitors situations that can give rise to increased liquidity
risk. These include funding mismatches, market constraints on the ability to convert assets (particularly investments) into
cash or in accessing sources of funds (i.e., market liquidity), and contingent liquidity events.
Changes in macroeconomic conditions, as well as exposure to credit, market, operational, legal and reputational risks,
such as cybersecurity risk, could have an unexpected impact on the Company’s liquidity risk profile and are factored into
the assessment of liquidity and the ALM framework.
Management has established a comprehensive and holistic management process for identifying, measuring, monitoring
and mitigating liquidity risk. Due to its critical importance to the viability of the Company, liquidity risk management is
integrated into our risk management processes, Contingency Funding Plan and ALM policy.
Critical elements of our liquidity risk management include: effective corporate governance consisting of oversight by the
Board and active involvement of senior management; appropriate strategies, policies, procedures, and limits used to identify
and mitigate liquidity risk; comprehensive liquidity risk measurement and monitoring systems (including assessments of the
current and prospective cash flows or sources and uses of funds) that are commensurate with the complexity and business
activities of the Company; active management of intraday liquidity and collateral; an appropriately diverse mix of existing
and potential future funding sources; adequate levels of highly liquid marketable securities free of legal, regulatory, or
operational impediments, that can be used to meet liquidity needs in stressful situations; comprehensive contingency
funding plans that sufficiently address potential adverse liquidity events and emergency cash flow requirements; and internal
controls and internal audit processes sufficient to determine the adequacy of the institution’s liquidity risk management
process.
46 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
We expect funds to be available from several basic banking activity sources, including the core deposit base, the
repayment and maturity of loans and investment security cash flows. Other potential funding sources include federal funds
purchased, brokered certificates of deposit, listing certificates of deposit, The Bank Term Funding Program, and borrowings
from the FHLB. Accordingly, our liquidity resources were adequate to fund loans and meet other cash needs as necessary.
Capital Adequacy
As of March 31, 2023, the Bank was well capitalized under the FDIC’s prompt corrective action framework. We also
follow the capital conservation buffer framework, and as of March 31, 2023, we exceeded the capital conversation buffer in
all capital ratios, according to our actual ratios. The following table presents the capital ratios for the Bank at the dates
indicated (in thousands, except ratios).
Actual
Minimum Capital
Requirements
To be Well Capitalized
Under Prompt Corrective
Action Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
March 31, 2023
Total risk-based capital
$
218,621
13.12
%
$
133,293
8.00
%
$
166,616
10.00
%
Tier 1 risk-based capital
$
199,301
11.96
%
$
99,970
6.00
%
$
133,293
8.00
%
Common equity tier 1 capital
$
199,301
11.96
%
$
74,977
4.50
%
$
108,301
6.50
%
Leverage ratio
$
199,301
9.30
%
$
85,760
4.00
%
$
107,201
5.00
%
December 31, 2022:
Total risk-based capital
$
216,693
13.58
%
$
127,616
8.00
%
$
159,520
10.00
%
Tier 1 risk-based capital
$
198,909
12.47
%
$
95,712
6.00
%
$
127,616
8.00
%
Common equity tier 1 capital
$
198,909
12.47
%
$
71,784
4.50
%
$
103,688
6.50
%
Leverage ratio
$
198,909
9.56
%
$
83,210
4.00
%
$
104,012
5.00
%
The Company is not subject to capital ratios imposed by Basel III on bank holding companies because the Company is
deemed to be a small bank holding company.
Impact of Inflation
Our Consolidated Financial Statements and related notes have been prepared in accordance with U.S. GAAP,
which require the measurement of financial position and operating results in terms of historical dollars, without considering
the changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the
increased cost of operations. Unlike most industrial companies, nearly all our assets and liabilities are monetary in nature.
As a result, interest rates have a greater impact on our performance than do the effects of general levels of inflation. Periods
of high inflation are often accompanied by relatively higher interest rates, and periods of low inflation are accompanied by
relatively lower interest rates. As market interest rates rise or fall in relation to the rates earned on loans and investments,
the value of these assets decreases or increases respectively. Inflation can also impact core non-interest expenses
associated with delivering the Company’s services.
Recently Issued Accounting Pronouncements
Recently issued accounting pronouncements are discussed in Note 1 “Summary of Significant Accounting Policies” to
the unaudited Consolidated Financial Statements in this Form 10-Q.
47 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
Reconciliation and Management Explanation of Non-GAAP Financial Measures
Management has included these non-GAAP measures because it believes these measures may provide useful
supplemental information for evaluating the Company’s underlying performance trends. Further, management uses these
measures in managing and evaluating the Company’s business and intends to refer to them in discussions about our
operations and performance. Operating performance measures should be viewed in addition to, and not as an alternative
to or substitute for, measures determined in accordance with GAAP, and are not necessarily comparable to non-GAAP
measures that may be presented by other companies. The following table reconciles the non-GAAP financial measurement
of operating net income available to common stockholders for the periods presented (in thousands, except per share data):
48 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
NON-GAAP FINANCIAL MEASURES (UNAUDITED)
(Dollars in thousands)
As of or For the Three Months Ended
3/31/2023
12/31/2022
9/30/2022
6/30/2022
3/31/2022
Pre-tax pre-provision ("PTPP") income:
Net income
$
5,809
$
4,434
$
5,558
$
5,295
$
4,854
Plus: Provision for income taxes
1,881
1,415
1,963
1,708
1,858
Plus: Provision for credit losses
201
880
910
705
-
PTPP income
$
7,891
$
6,729
$
8,431
$
7,708
$
6,712
PTPP return on average assets:
PTPP income
$
7,891
$
6,729
$
8,431
$
7,708
$
6,712
Average assets
$
2,120,218
$
2,051,867
$
2,026,791
$
1,968,381
$
1,913,484
PTPP return on average assets
(1)
1.51%
1.30%
1.65%
1.57%
1.42%
Operating net income:
Net income
$
5,809
$
4,434
$
5,558
$
5,295
$
4,854
Less: Net gains (losses) on sale of securities
(21)
(1,989)
(558)
(3)
21
Less: Tax effect on sale of securities
5
504
141
1
(5)
Operating net income
$
5,825
$
5,919
$
5,975
$
5,297
$
4,838
Operating PTPP income:
PTPP income
$
7,891
$
6,729
$
8,431
$
7,708
$
6,712
Less: Net gains (losses) on sale of securities
(21)
(1,989)
(558)
(3)
21
Operating PTPP income
$
7,912
$
8,718
$
8,989
$
7,711
$
6,691
Operating PTPP return on average assets:
Operating PTPP income
$
7,912
$
8,718
$
8,989
$
7,711
$
6,691
Average assets
$
2,120,218
$
2,051,867
$
2,026,791
$
1,968,381
$
1,913,484
Operating PTPP return on average assets
(1)
1.51%
1.69%
1.76%
1.57%
1.42%
Operating return on average assets:
Operating net income
$
5,825
$
5,919
$
5,975
$
5,297
$
4,838
Average assets
$
2,120,218
$
2,051,867
$
2,026,791
$
1,968,381
$
1,913,484
Operating return on average assets
(1)
1.11%
1.14%
1.17%
1.08%
1.03%
Operating return on average equity:
Operating net income
$
5,825
$
5,919
$
5,975
$
5,297
$
4,838
Average equity
$
183,371
$
177,556
$
185,288
$
186,597
$
201,860
Operating return on average equity
12.88%
13.23%
12.79%
11.39%
9.72%
Operating Revenue:
$
15,997
$
16,866
$
16,774
$
15,642
$
14,379
2,070
(123)
1,789
1,617
1,945
(21)
(1,989)
(558)
(3)
21
$
18,088
$
18,732
$
19,121
$
17,262
$
16,303
Operating Efficiency Ratio:
$
10,176
$
10,014
$
10,132
$
9,551
$
9,612
$
18,088
$
18,732
$
19,121
$
17,262
$
16,303
56.26%
53.46%
52.99%
55.33%
58.96%
(1) Annualized.
49 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
NON-GAAP FINANCIAL MEASURES (UNAUDITED)
(Dollars in thousands, except per share data)
As of or For the Three Months Ended
3/31/2023
12/31/2022
9/30/2022
6/30/2022
3/31/2022
Tangible book value per common share (at period-end):
(1)
Total stockholders' equity
$
183,858
$
182,428
$
177,417
$
180,068
$
192,039
Less: Intangible assets
-
-
-
-
-
Tangible stockholders' equity
$
183,858
$
182,428
$
177,417
$
180,068
$
192,039
Total shares issued and outstanding (at period-end):
Total common shares issued and outstanding
19,622,380
20,000,753
20,000,753
20,000,753
20,000,753
Tangible book value per common share
(2)
$
9.37
$
9.12
$
8.87
$
9.00
$
9.60
Operating diluted net income per common share:
(1)
Operating net income
$
5,825
$
5,919
$
5,975
$
5,297
$
4,838
Total weighted average diluted shares of common stock
19,940,606
20,172,438
20,148,208
20,171,261
20,109,783
Operating diluted net income per common share:
$
0.29
$
0.29
$
0.30
$
0.26
$
0.24
Tangible Common Equity/Tangible Assets
$
183,858
$
182,428
$
177,417
$
180,068
$
192,039
$
2,163,821
$
2,085,834
$
2,037,453
$
2,016,086
$
1,967,252
Tangible Common Equity/Tangible Assets
8.50%
8.75%
8.71%
8.93%
9.76%
(1) The Company believes these non-GAAP measurements are key indicators of the ongoing earnings power of the Company.
(2) Excludes the dilutive effect, if any, of shares of common stock issuable upon exercise of outstanding stock options.
50 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to provide the information required by this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our President and Chief Executive Officer
and our Chief Financial Officer, we evaluated the effectiveness of the design and operation of the Company’s disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2023.
Based on that evaluation, management believes that the Company’s disclosure controls and procedures were effective to
collect, process, and disclose the information required to be disclosed in the reports filed or submitted under the Exchange
Act within the required time periods as of the end of the period covered by this Form 10-Q.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) during the period covered by this Form 10-Q that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving
the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there
are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls
and procedures relative to their costs.
51 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
PART II
Item 1. Legal Proceedings
We are not currently subject to any material legal proceedings. We are from time to time subject to claims and litigation
arising in the ordinary course of business. These claims and litigation may include, among other things, allegations of
violation of banking and other applicable regulations, competition law, labor laws and consumer protection laws, as well as
claims or litigation relating to intellectual property, securities, breach of contract and tort. We intend to defend ourselves
vigorously against any pending or future claims and litigation.
Item 1A. Risk Factors
For detailed information about certain risk factors that could materially affect our business, financial condition, or future
results, see “Part I, Item 1A – Risk Factors” of the 2022 Form 10-K/A and additional risk factors as of March 31, 2023 as
set forth below.
Financial challenges at other banking institutions could lead to depositor concerns that spread within the
banking industry causing disruptive and destabilizing deposit outflows.
In March 2023, Silicon Valley Bank and Signature Bank experienced large deposit outflows coupled with insufficient
liquidity to meet withdrawal demands, resulting in the institutions being placed into FDIC receiverships. In the aftermath,
there has been substantial market disruption and concerns that diminished depositor confidence could spread across the
banking industry, leading to deposit outflows that could destabilize other institutions. To strengthen public confidence in the
banking system, the FDIC took action to protect funds held in uninsured deposit accounts at Silicon Valley Bank and
Signature Bank. However, the FDIC has not committed to protecting uninsured deposits in other institutions that experience
outsized withdrawal demands. Subsequently, on May 1, 2023 First Republic Bank became another large bank to fail.
To further bolster the banking system, the FRB created a new Bank Term Funding Program to provide an additional
source of liquidity. At March 31, 2023, the Company had $413.0 million in available liquidity on balance sheet, including
$59.0 million in excess cash. The Company has an additional $228.0 million in off balance sheet liquidity, it excludes access
to brokered deposits and other off balance sheet sources of funding. Notwithstanding our significant liquidity, large deposit
outflows could adversely affect our financial condition and results of operations and could ultimately result in the closure of
the Bank. Furthermore, the recent bank failures may result in federal and state banking regulators taking steps to strengthen
capital and liquidity rules which, if the revised rules apply to us, could adversely affect the Company’s financial condition
and results of operations.
Our FDIC deposit insurance premiums and assessments may increase, which would reduce our profitability.
On March 12, 2023, the Department of the Treasury, the FRB and the FDIC issued a joint statement relating to the
resolution of Silicon Valley Bank and Signature Bank that stated that losses to support uninsured deposits of those banks
would be recovered via a special assessment on banks. The terms of that special assessment have not been announced.
The announced special assessment, as well as any future increases in assessment rates or required prepayments in FDIC
insurance premiums, to the extent that they result in increased deposit insurance costs, would reduce the Company’s
profitability.
Insufficient liquidity could impair our ability to fund operations and jeopardize our financial condition, growth
and prospects.
The Company requires sufficient liquidity to fund loan commitments, satisfy depositor withdrawal requests, make
payments on its debt obligations as they become due, and meet other cash commitments. Liquidity risk is the potential that
the Company will not be able to meet its obligations as they become due because of an inability to liquidate assets or obtain
adequate funding at a reasonable cost, in a timely manner and without adverse conditions or consequences. The
Company’s sources of liquidity consist primarily of cash, assets readily convertible to cash (such as investment securities),
increases in deposits, advances, as needed, from the FHLB, borrowings, as needed, from the Federal Reserve Bank of
Atlanta and other borrowings, including pursuant to the Bank Term Funding Program. The Company’s access to funding
sources in amounts adequate to finance its activities or on acceptable terms could be impaired by factors that affect the
Company in particular or the financial services industry or economy in general. Any substantial, unexpected, and/or
prolonged change in the level or cost of liquidity could impair the Company’s ability to fund operations and meet its
obligations as they become due and could have a material adverse effect on the Company’s business, financial condition
and results of operations.
52 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) None.
(b) Not applicable.
(c) The Company’s repurchases of equity securities for the three months ended March 31, 2023 were as follows:
Total
Number of
Shares
Purchased
Average
Price Paid
Per Share
Total Number of Shares Purchased
as Part of Publicly Announced Plans
or Programs (1)
Maximum Number
of Shares that
May
Yet Be Purchased
Under Plans or
Programs (1)
Period
January 1 - 31, 2023
-
$
-
-
750,000
February 1 - 28, 2023
250,000
12.04
-
500,000
March 1 - 31, 2023
250,000
11.43
-
250,000
500,000
$
11.74
-
(1) On January 24, 2022 the Company announced its initial stock repurchase program to repurchase up to 750,000 shares of Class A common stock,
approximately 3.75% of the Company’s then outstanding shares of common stock.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
53 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
Item 6. Exhibits
Exhibit No.
Description of Exhibit
**
**
101
The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31,
2023 formatted in Inline XBRL: (i) Consolidated Balance Sheets (unaudited), (ii) Consolidated Statements of Operations
(unaudited), (iii) Consolidated Statements of Comprehensive Income (unaudited), (iv) Consolidated Statements of Changes
in Stockholders’ Equity (unaudited), (v) Consolidated Statements of Cash Flows (unaudited), (vi) Notes to Consolidated
Financial Statements (unaudited).
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*
Filed herewith.
**
Furnished herby.
54 USCB Financial Holdings, Inc. Q1 2023 Form 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
USCB FINANCIAL HOLDINGS, INC.
(Registrant)
Signature
Title
Date
/s/ Luis de la Aguilera
President, Chief Executive Officer, and Director
May 12, 2023
Luis de la Aguilera
(Principal Executive Officer)
/s/ Robert Anderson
Chief Financial Officer
May 12, 2023
Robert Anderson
(Principal Financial Officer and Principal
Accounting Officer)