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USCB FINANCIAL HOLDINGS, INC. - Quarter Report: 2023 September (Form 10-Q)

uscb-20230930
 
 
 
 
 
 
 
 
uscb-20230930p1i0
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
September 30, 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
 
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data
 
File required to be submitted pursuant
to Rule 405
 
of Regulation S-T
 
(§232.405 of this
 
chapter) during the
 
preceding 12 months
 
(or for such
 
shorter period that
 
the registrant
was required to submit such files).
 
Yes
 
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company
 
or
 
an
 
emerging
 
growth
 
company.
 
See
 
the
 
definitions
 
of
 
“large
 
accelerated
 
filer,”
 
“accelerated
 
filer,”
 
“non-accelerated
 
filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
 
Non-accelerated filer
 
Smaller reporting company
 
Emerging growth company
If an
 
emerging growth
 
company, indicate by
 
check mark
 
if the
 
registrant has elected
 
not to
 
use the
 
extended transition
 
period for
 
complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
 
No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of October 30, 2023 the registrant had
19,542,290
 
shares of Class
A
common stock outstanding.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
PART
 
I
Item 1.
 
Financial Statements
USCB FINANCIAL HOLDINGS, INC
Consolidated Balance Sheets – Unaudited
(Dollars in thousands, except share data)
September 30, 2023
December 31, 2022
ASSETS:
Cash and due from banks
$
5,074
$
6,605
Interest-bearing deposits in banks
28,361
47,563
Total cash and cash equivalents
33,435
54,168
Investment securities held to maturity, net of allowance of $
16
 
and $
0
, respectively (fair value $
171,294
and $
169,088
, respectively)
197,311
188,699
Investment securities available for sale, at fair value
218,609
230,140
Federal Home Loan Bank stock, at cost
6,305
2,882
Loans held for investment, net of allowance of $
19,493
 
and $
17,487
, respectively
1,657,027
1,489,851
Accrued interest receivable
8,920
7,546
Premises and equipment, net
4,951
5,263
Bank owned life insurance
51,377
42,781
Deferred tax assets, net
40,430
42,360
Lease right-of-use asset
12,166
14,395
Other assets
14,071
7,749
Total assets
$
2,244,602
$
2,085,834
LIABILITIES:
 
 
Deposits:
Demand deposits
$
573,546
$
629,776
Money market and savings accounts
1,016,564
915,853
Interest-bearing checking
46,537
66,675
Time deposits
284,275
216,977
Total deposits
1,920,922
1,829,281
Federal Home Loan Bank advances
102,000
46,000
Lease liability
12,166
14,395
Accrued interest and other liabilities
26,630
13,730
Total liabilities
2,061,718
1,903,406
Commitments and contingencies (See Notes 5
 
and 10)
.
.
STOCKHOLDERS' EQUITY:
 
 
Preferred stock - Class C; $
1.00
 
par value; $
1,000
 
per share liquidation preference;
52,748
 
shares
authorized;
0
 
and
0
 
issued and outstanding as of September 30, 2023
 
and December 31, 2022
-
-
Preferred stock - Class D; $
1.00
 
par value; $
5.00
 
per share liquidation preference;
12,309,480
 
shares
authorized;
0
 
and
0
 
issued and outstanding as of September 30, 2023
 
and December 31, 2022
-
-
Preferred stock - Class E; $
1.00
 
par value; $
1,000
 
per share liquidation preference;
3,185,024
 
shares
authorized;
0
 
and
0
 
issued and outstanding as of September 30, 2023
 
and December 31, 2022
-
-
Common stock - Class A Voting; $
1.00
 
par value;
45,000,000
 
shares authorized;
19,542,290
 
issued and
outstanding
 
as of September 30, 2023,
20,000,753
 
issued and outstanding as of December 31,
 
2022
19,542
20,001
Common stock - Class B Non-voting; $
1.00
 
par value;
8,000,000
 
shares authorized;
0
 
and
0
 
issued and
outstanding as of September 30, 2023 and
 
December 31, 2022
-
-
Additional paid-in capital on common stock
305,837
311,282
Accumulated deficit
(91,269)
(104,104)
Accumulated other comprehensive loss
(51,226)
(44,751)
Total stockholders' equity
182,884
182,428
Total liabilities and stockholders' equity
$
2,244,602
$
2,085,834
The accompanying notes are an integral part of
 
these unaudited consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Operations - Unaudited
(Dollars in thousands,
 
except per share data)
 
Three Months Ended September 30,
Nine Months Ended September 30,
2023
2022
2023
2022
Interest income:
 
Loans, including fees
$
22,523
$
15,954
$
63,081
$
42,989
 
Investment securities
2,833
2,201
7,501
7,040
 
Interest-bearing deposits in financial institutions
1,026
322
2,459
474
 
Total interest income
26,382
18,477
73,041
50,503
Interest expense:
 
Interest-bearing checking
331
19
574
52
 
Money market and savings accounts
8,779
1,141
20,532
2,307
 
Time deposits
2,565
363
5,767
893
 
Federal Home Loan Bank advances and other borrowings
685
180
1,976
456
 
Total interest expense
12,360
1,703
28,849
3,708
 
Net interest income before provision for
 
credit losses
14,022
16,774
44,192
46,795
Provision for credit losses
653
910
892
1,615
 
Net interest income after provision for
 
credit losses
13,369
15,864
43,300
45,180
Non-interest income:
 
 
 
Service fees
1,329
934
3,707
2,917
 
(Loss) gain on sale of securities available for
 
sale, net
(955)
(558)
(976)
(540)
 
Gain on sale of loans held for sale, net
255
330
696
686
 
Loan settlement
-
-
-
161
 
Other non-interest income
1,532
1,083
2,650
2,127
 
Total non-interest income
2,161
1,789
6,077
5,351
Non-interest expense:
 
Salaries and employee benefits
6,066
6,075
18,325
17,863
 
Occupancy
1,350
1,281
3,968
3,802
 
Regulatory assessment and fees
365
269
1,041
708
 
Consulting and legal fees
513
604
1,257
1,519
 
Network and information technology services
481
488
1,464
1,323
 
Other operating expense
1,686
1,415
5,034
4,080
 
Total non-interest expense
10,461
10,132
31,089
29,295
 
Income before income tax expense
5,069
7,521
18,288
21,236
Income tax expense
1,250
1,963
4,464
5,529
 
Net income
$
3,819
$
5,558
$
13,824
$
15,707
Per share information:
 
 
 
 
Net income per share, basic
$
0.20
$
0.28
$
0.70
$
0.79
Net income per share, diluted
$
0.19
$
0.28
$
0.70
$
0.78
The accompanying notes are an integral part of
 
these unaudited consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Comprehensive Income
 
(Loss) - Unaudited
(Dollars in thousands)
Three Months Ended
September 30,
Nine Months Ended
 
September 30,
2023
2022
2023
2022
Net income
$
3,819
$
5,558
$
13,824
$
15,707
Other comprehensive income (loss):
Unrealized loss on investment securities
(7,858)
(11,679)
(11,145)
(57,577)
Amortization of net unrealized (loss) gain on
 
securities transferred from
available-for-sale to held-to-maturity
64
(52)
184
(177)
Reclassification adjustment for loss included in net
 
income
955
558
976
540
Unrealized gain on cash flow hedge
266
-
1,312
-
Tax effect
1,666
2,832
2,198
14,528
Total other comprehensive loss, net of tax
(4,907)
(8,341)
(6,475)
(42,686)
Total comprehensive income (loss)
$
(1,088)
$
(2,783)
$
7,349
$
(26,979)
The accompanying notes are an integral part of
 
these unaudited consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Changes in Stockholders’
 
Equity - Unaudited
(Dollars in thousands,
 
except per share data)
Common Stock
Additional Paid-in
Capital on Common
Stock
Accumulated Deficit
Accumulated Other
Comprehensive
Loss
Shares
Par Value
Total
 
Stockholders'
Equity
Balance at July 1, 2023
19,544,777
$
19,545
$
305,547
$
(95,088)
$
(46,319)
$
183,685
Net income
-
-
-
3,819
-
3,819
Other comprehensive loss
-
-
-
-
(4,907)
(4,907)
Restricted stock forfeiture
(2,487)
(3)
3
-
-
-
Stock-based compensation
-
-
287
-
-
287
Balance at September 30, 2023
19,542,290
$
19,542
$
305,837
$
(91,269)
$
(51,226)
$
182,884
Balance at July 1, 2022
20,000,753
$
20,001
$
311,024
$
(114,096)
$
(36,861)
$
180,068
Net income
-
-
-
5,558
-
5,558
Other comprehensive loss
-
-
-
-
(8,341)
(8,341)
Stock-based compensation
-
-
132
-
-
132
Balance at September 30, 2022
20,000,753
$
20,001
$
311,156
$
(108,538)
$
(45,202)
$
177,417
Common Stock
Additional Paid-in
Capital on Common
Stock
Accumulated
Deficit
Accumulated Other
Comprehensive
Loss
Shares
Par Value
Total
Stockholders'
Equity
Balance at January 1, 2023
20,000,753
$
20,001
$
311,282
$
(104,104)
$
(44,751)
$
182,428
After tax cumulative effect of adoption of accounting
 
principle related to ASC
326
(989)
(989)
Adjusted beginning balance after cumulative
 
effect adjustment
20,000,753
20,001
311,282
(105,093)
(44,751)
181,439
Net income
-
-
-
13,824
-
13,824
Other comprehensive loss
-
-
-
-
(6,475)
(6,475)
Repurchase of Class A common stock
(577,603)
(577)
(6,036)
-
-
(6,613)
Restricted stock issued
121,627
121
(121)
-
-
-
Restricted stock forfeiture
(2,487)
(3)
3
-
-
Stock-based compensation
-
-
709
-
-
709
Balance at September 30, 2023
19,542,290
$
19,542
$
305,837
$
(91,269)
$
(51,226)
$
182,884
Balance at January 1, 2022
19,991,753
19,992
310,666
(124,245)
(2,516)
203,897
Net income
-
-
-
15,707
-
15,707
Other comprehensive loss
-
-
-
-
(42,686)
(42,686)
Exercise of stock options
9,000
9
93
102
Stock-based compensation
-
-
397
-
-
397
Balance at September 30, 2022
20,000,753
$
20,001
$
311,156
$
(108,538)
$
(45,202)
$
177,417
The accompanying notes are an integral
 
part of these unaudited consolidated financial
 
statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Cash Flows - Unaudited
(Dollars in thousands)
Nine Months Ended September 30,
2023
2022
Cash flows from operating activities:
Net income
$
13,824
$
15,707
Adjustments to reconcile net income
 
to net cash provided by operating activities:
 
 
Provision for credit losses
892
1,615
Depreciation and amortization
443
530
(Accretion) amortization of premiums on securities,
 
net
(651)
412
Accretion of deferred loan fees, net
(236)
(1,364)
Stock-based compensation
709
397
Loss (gain) on sale of available for sale securities
976
540
Gain on sale of loans held for sale
(696)
(686)
Increase in cash surrender value of bank owned
 
life insurance
(775)
(794)
Bank owned life insurance enhancement
(981)
-
Decrease in deferred tax assets
4,465
5,529
Net change in operating assets and liabilities:
Accrued interest receivable
(1,374)
(593)
Other assets
(751)
(4,163)
Accrued interest and other liabilities
12,679
14,432
Net cash provided by operating activities
28,524
31,562
 
 
Cash flows from investing activities:
Purchase of investment securities held
 
to maturity
(86,788)
(2,432)
Proceeds from maturities and pay-downs of investment
 
securities held to maturity
79,085
9,689
Purchase of investment securities available
 
for sale
(26,792)
(49,808)
Proceeds from maturities and pay-downs of investment
 
securities available for sale
11,679
35,502
Proceeds from sales of investment securities
 
available for sale
15,409
45,647
Net increase in loans held for investment
(165,662)
(177,916)
Purchase of loans held for investment
(13,277)
(70,175)
Additions to premises and equipment
(131)
(175)
Proceeds from the sale of loans held for sale
10,715
8,641
Purchase of Bank owned life insurance
(11,100)
-
Proceeds from the redemption of Federal
 
Home Loan Bank stock
6,517
2,250
Purchase of Federal Home Loan Bank stock
(9,940)
(2,052)
Net cash used in investment activities
(190,285)
(200,829)
Cash flows from financing activities:
Proceeds from issuance of Class A common
 
stock, net
-
102
Repurchase of Class A common stock
(6,613)
-
Net increase in deposits
91,641
206,263
Proceeds from Federal Home Loan Bank advances
259,350
60,000
Repayments on Federal Home Loan Bank advances
(203,350)
(70,000)
Net cash provided by financing activities
141,028
196,365
Net increase in cash and cash equivalents
(20,733)
27,098
Cash and cash equivalents at beginning
 
of period
54,168
46,228
Cash and cash equivalents at end of period
$
33,435
$
73,326
Supplemental disclosure of cash flow
 
information:
 
 
Interest paid
$
27,872
$
3,675
 
 
Supplemental schedule of non-cash investing
 
and financing activities:
Transfer of loans held for investment to loans held
 
for sale
$
10,019
$
7,955
Transfer of investment securities from available-for-sale
 
to held-to-maturity
$
-
$
74,444
Lease liability arising from obtaining right-of-use
 
asset
$
-
$
1,550
The accompanying notes are an integral
 
part of these unaudited consolidated financial
 
statements.
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
8
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
1.
 
SUMMARY OF SIGNIFICANT ACCOUNTING
 
POLICIES
Overview
USCB Financial Holdings,
 
Inc.,
 
a Florida corporation
 
incorporated in 2021,
 
is a bank
 
holding company with
 
one direct
wholly owned subsidiary,
 
U.S. Century Bank (the “Bank”), together referred to as “the Company”.
 
The Bank, established in
2002, is a Florida state-chartered,
 
non-member financial institution providing
 
financial services through its
 
banking centers
located in South Florida.
The Bank
 
owns a
 
subsidiary,
 
Florida Peninsula
 
Title LLC,
 
that offers
 
our clients
 
title insurance
 
policies for
 
real estate
transactions closed at the Bank. Licensed in the State of Florida and approved by the Department of Insurance Regulation,
Florida Peninsula Title LLC began operations
 
in 2021.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with instructions to
Form 10-Q and
 
do not include all
 
the information and
 
footnotes required by U.S.
 
generally accepted accounting
 
principles
(“U.S.
 
GAAP”)
 
for
 
complete
 
financial
 
statements.
 
All
 
adjustments
 
consisting
 
of
 
normally
 
recurring
 
accruals
 
that,
 
in
 
the
opinion
 
of
 
management,
 
are
 
necessary
 
for
 
a
 
fair
 
presentation
 
of
 
the
 
financial
 
position
 
and
 
results
 
of
 
operations
 
for
 
the
periods presented
 
have been
 
included. These
 
unaudited consolidated
 
financial statements
 
should be
 
read in
 
conjunction
with
 
the
 
Company’s
 
consolidated
 
financial
 
statements
 
and
 
related
 
notes
 
appearing
 
in the
 
Company’s
 
Annual
 
Report
 
on
Form 10-K/A for the year ended December 31, 2022.
Principles of Consolidation
The
 
Company
 
consolidates
 
entities
 
in
 
which
 
it
 
has
 
a
 
controlling
 
financial
 
interest.
 
Intercompany
 
transactions
 
and
balances are eliminated in consolidation.
 
Use of Estimates
To prepare
 
financial statements in conformity with U.S. GAAP,
 
management makes estimates and assumptions based
on available
 
information. These
 
estimates and
 
assumptions affect
 
the amounts
 
reported in
 
the financial
 
statements. The
most significant
 
estimates impacting
 
the Company’s
 
consolidated financial
 
statements are
 
the allowance
 
for credit
 
losses
(ACL) and income taxes.
Reclassifications
Certain amounts in the consolidated financial statements have been reclassified to conform
 
to the current presentation.
Reclassifications had no impact on the net income or stockholders’
 
equity of the Company.
 
Adoption of New Accounting Standards
Measurement of Credit Losses on Financial Instruments
On January
 
1st, 2023,
 
the
 
Company adopted
 
Accounting Standard
 
Update (“ASU”)
 
2016-13 Financial
 
Instruments
 
-
Credit
 
Losses
 
(Topic
 
326):
 
Measurement
 
of
 
Credit
 
Losses
 
on
 
Financial
 
Instruments,
 
as
 
amended,
 
which
 
replaces
 
the
incurred loss methodology with an expected loss
 
methodology that is referred to as the
 
current expected credit loss (CECL)
methodology.
 
The measurement
 
of expected
 
credit losses
 
under the
 
CECL methodology
 
is applicable
 
to financial
 
assets
measured at
 
amortized cost,
 
including loan
 
receivables and
 
held-to-maturity debt
 
securities. It
 
also applies
 
to off-balance
sheet
 
credit
 
exposures
 
not
 
accounted
 
for
 
as
 
insurance
 
(e.g.,
 
loan
 
commitments,
 
standby
 
letters
 
of
 
credit,
 
financial
guarantees, and other similar
 
instruments) and net investments
 
in leases recognized by
 
a lessor in accordance
 
with Topic
842 on leases. In addition,
 
ASC 326 amended the accounting
 
for available-for-sale debt securities.
 
One such change is to
require credit losses to be presented as an allowance
 
rather than as a write-down on available-for-sale debt
 
securities that
management does not intend to sell or believes that
 
it is more likely than not they will not be required to sell.
 
Under CECL,
 
the Company
 
estimates the
 
allowance for
 
credit losses
 
using relevant
 
available information,
 
from both
internal
 
and
 
external
 
sources,
 
relating
 
to
 
past
 
events,
 
current
 
conditions,
 
and
 
reasonable
 
and
 
supportable
 
forecasts.
Historical credit losses provide the basis for estimation of expected credit losses. Qualitative adjustments are applied to the
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
9
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
 
expected credit
 
losses estimated
 
for the
 
loan portfolio
 
in relation
 
to potential
 
limitations of
 
the quantitative model.
 
A scorecard
is used to aid management in the assessment of qualitative
 
factor adjustments applied to expected credit losses.
The
 
quantitative
 
component
 
of
 
the
 
estimate
 
relies
 
on
 
the
 
statistical
 
relationship
 
between
 
the
 
projected
 
value
 
of
 
an
economic
 
indicator
 
and
 
the
 
implied
 
historical
 
loss
 
experience
 
among
 
a
 
curated
 
group
 
of
 
peers.
 
The
 
Company
 
utilized
regression
 
analyses
 
of peer
 
data,
 
in
 
which
 
the
 
Company
 
was
 
included,
 
and
 
where
 
observed
 
credit
 
losses
 
and selected
economic factors were used
 
to determine suitable
 
loss drivers for modeling
 
the lifetime rates of
 
probability of default (PD).
A
 
loss
 
given
 
default
 
rate
 
(LGD)
 
is
 
assigned
 
to
 
each
 
pool
 
for
 
each
 
period
 
based
 
on
 
these
 
PD
 
outcomes.
 
The
 
model
fundamentally utilizes an
 
expected discounted cash
 
flow (DCF) analysis
 
for
 
loan portfolio segments.
 
The DCF analysis
 
is
run
 
at
 
the
 
instrument-level
 
and
 
incorporates
 
an
 
array
 
of
 
loan-specific
 
data
 
points
 
and
 
segment-implied
 
assumptions
 
to
determine the lifetime expected
 
loss attributable to each
 
instrument. An implicit "hypothetical
 
loss" is derived
 
for each period
of the
 
DCF and
 
helps establish
 
the present
 
value of
 
future cash
 
flows for
 
each period.
 
The reserve
 
applied to
 
a specific
instrument is the difference
 
between the sum of the present
 
value of future cash flows
 
and the book balance of
 
the loan at
the measurement date.
Management
 
elected
 
the
 
Remaining
 
Life
 
(WARM)
 
methodology
 
for
 
five
 
loan
 
portfolio
 
segments.
 
For
 
each
 
of
 
these
segments, a
 
long-term average
 
loss rate
 
is calculated
 
and applied
 
on a
 
quarterly basis
 
for the
 
remaining life
 
of the
 
pool.
Adjustments
 
for
 
economic
 
expectations
 
are
 
made
 
through
 
qualitative
 
assessments.
 
For
 
the
 
remaining
 
life
 
estimated,
management implemented a software solution
 
that uses an attrition-based
 
calculation that performs quarterly, cohort-based
attrition measurements based on the loan portfolio.
 
At adoption of
 
CECL,
84
% or $
1.3
 
billion of loan
 
receivables were collectively
 
evaluated under DCF
 
method and
16
%
or
 
$
251.0
 
million
 
of
 
loan
 
receivables
 
were
 
collectively
 
evaluated
 
under
 
the
 
Remaining
 
Life
 
method.
 
The
 
remaining
 
$
7.9
million of loan receivables of the total loan portfolio were individually
 
evaluated.
 
Portfolio segments are the level at which loss assumptions
 
are applied to a pool of loans based on the similarity
 
of risk
characteristics inherent in
 
the included instruments,
 
relying on collateral
 
codes and
 
FFIEC Call
 
Report codes. The
 
Company
currently segments the portfolio based on collateral codes
 
for purpose of establishing reserves. Each of these
 
segments is
paired
 
to
 
regression
 
models
 
(Loss
 
Driver
 
Analyses)
 
based
 
on
 
peer
 
data
 
for
 
loans
 
of
 
similar
 
risk
 
characteristics.
 
The
Company has established relationships between internal segmentation and FFIEC
 
Call Report codes for this purpose. The
loss driver for each loan
 
portfolio segment is derived
 
from a readily available and
 
reasonable economic forecast, including
the Federal Reserve Bank
 
projections of U.S. civilian
 
unemployment rate and
 
the year-over-year real
 
GDP growth;
 
for the
residential
 
loan
 
segment
 
the
 
House
 
Price
 
index
 
(“HPI”)
 
projections
 
published
 
by
 
Fannie
 
Mae’s
 
Economic
 
and
 
Strategic
Research Group
 
are utilized
 
for the
 
forecast. Forecasts
 
are applied
 
the first
 
four quarters
 
of the
 
credit loss
 
estimate and
revert on a
 
straight-line basis
 
to the lookback
 
period's historical
 
mean for
 
the economic
 
indicator over
 
the expected
 
life of
loans.
 
The model incorporates qualitative
 
factor adjustments in order to
 
calibrate the model for risk
 
in each portfolio segment
that may
 
not be captured
 
through quantitative
 
analysis. Determinations
 
regarding qualitative
 
adjustments are
 
reflective of
management's
 
expectation
 
of loss
 
conditions
 
differing
 
from those
 
already
 
captured
 
in
 
the
 
quantitative
 
component
 
of
 
the
model.
 
The
 
Company
 
estimates
 
a
 
reserve
 
for
 
unfunded
 
commitments,
 
which
 
is
 
reported
 
separately
 
from
 
the
 
allowance
 
for
credit losses within
 
other liabilities. The
 
reserve is based
 
upon the same
 
quantitative and qualitative
 
factors applied to
 
the
collectively evaluated loan portfolio.
The
 
impact
 
of
 
adoption
 
of
 
the
 
ASU
 
2016-13
 
was
 
an
 
increase
 
to
 
the
 
allowance
 
for
 
credit
 
losses
 
(ACL)
 
on
 
loans
receivables of $
1.1
 
million and an increase
 
to the reserve for unfunded
 
commitments of $
259
 
thousand. This one-time net
of tax cumulative adjustment resulted in a
 
increase of $
1.0
 
million in accumulated deficit. See “Allowance for Credit
 
Losses”
section in Note 3 for more information on the ACL.
 
Trouble Debt Restructuring
In March 2022, the Financial Accounting Standards Board (“FASB”) issued ASU 2022-02, Financial Instruments-Credit
Losses (Topic 326): Troubled
 
Debt Restructurings (“TDR”) and Vintage Disclosures. The standard addresses the following:
1) eliminates
 
the accounting
 
guidance for
 
TDRs, require
 
s
 
an entity
 
to determine
 
whether a
 
modification results
 
in a
 
new
loan or
 
a continuation
 
of an
 
existing
 
loan, 2)
 
expands
 
disclosures
 
related to
 
modifications,
 
and 3)
 
requires
 
disclosure of
current
 
period
 
gross
 
write-offs
 
of
 
financing
 
receivables
 
within
 
the
 
vintage
 
disclosures
 
table
 
(see
 
Note
 
3).
 
The
 
Company
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
10
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
 
adopted
 
ASU
 
2022-02
 
effective
 
January
 
1,
 
2023
 
on
 
a
 
prospective
 
basis.
 
The
 
adoption
 
of
 
ASU
 
2022-02
 
did
 
not
 
have
 
a
material impact on the Company’s consolidated financial
 
statements.
 
Issued and Not Yet Adopted
Reference Rate Reform
In
 
March
 
2020,
 
the
 
FASB
 
issued
 
ASU
 
2020-04,
 
Reference
 
Rate
 
Reform
 
(Topic
 
848),
 
Facilitation
 
of
 
the
 
Effects
 
of
Reference Rate Reform
 
on Financial Reporting.
 
In January 2021,
 
the FASB
 
clarified the scope
 
of this guidance
 
with ASU
2021-01 which provides
 
optional guidance for
 
a limited period of
 
time to ease the
 
burden in accounting for
 
(or recognizing
the effects of)
 
reference rate reform on
 
financial reporting. This ASU
 
is effective from March 12,
 
2020 through December 31,
2024. The
 
Company is
 
evaluating the
 
impact of
 
this ASU
 
and has
 
not yet
 
determined whether
 
LIBOR transition
 
and this
ASU will have a material effect on our business operations
 
and consolidated financial statements.
2.
 
INVESTMENT SECURITIES
 
On
 
January
 
1st,
 
2023,
 
the
 
Company
 
adopted
 
ASU
 
2016-13
 
Financial
 
Instruments
 
-
 
Credit
 
Losses
 
(Topic
 
326):
Measurement of Credit Losses
 
on Financial Instruments,
 
as amended, which replaces
 
the incurred loss methodology
 
with
an expected
 
loss methodology
 
that is
 
referred to
 
as the
 
current expected credit
 
loss (CECL)
 
methodology. The measurement
of
 
expected
 
credit
 
losses
 
under
 
the
 
CECL
 
methodology
 
is
 
applicable
 
to
 
financial
 
assets
 
measured
 
at
 
amortized
 
cost,
including loan receivables and held-to-maturity debt securities. In addition, ASC 326 amended the accounting for available-
for-sale debt securities. One such change is to
 
require credit losses to be presented as an allowance rather
 
than as a write-
down on available-for-sale debt securities management does not intend to
 
sell or believes that it is more likely
 
than not they
will be required to sell.
CECL requires
 
a loss reserve
 
for securities
 
classified as
 
Held-to-Maturity (HTM).
 
The reserve should
 
reflect historical
credit performance
 
as well
 
as the
 
impact of
 
projected
 
economic forecast.
 
For U.S.
 
Government bonds
 
and
 
U.S. Agency
issued bonds in HTM the explicit guarantee
 
of the US Government is sufficient
 
to conclude that a credit loss reserve
 
is not
required. The reserve
 
requirement is for
 
three primary assets
 
groups: municipal bonds,
 
corporate bonds,
 
and non-agency
securitizations.
 
The
 
Company
 
calculates
 
quarterly
 
the
 
loss
 
reserve
 
utilizing
 
Moody’s
 
ImpairmentStudio.
 
The
 
CECL
measurement
 
for
 
investment
 
securities
 
incorporates
 
historical
 
data,
 
containing
 
defaults
 
and
 
recoveries
 
information,
 
and
Moody’s baseline
 
economic forecast.
 
The solution
 
uses probability of
 
default/loss given
 
default (“PD/LGD”)
 
approach. PD
represents the likelihood a borrower will
 
default. Within the Moody’s model
 
,
 
this is determined using historical
 
default data,
adjusted for the current economic environment. LGD projects
 
the expected loss if a borrower were to default.
The Company monitors
 
the credit
 
quality of held
 
to maturity
 
securities through
 
the use of
 
credit ratings.
 
Credit ratings
are monitored by the
 
Company on at
 
least a quarterly
 
basis. As of
 
September 30, 2023
 
and December 31,
 
2022, all held-
to-maturity securities held by the Company were rated investment
 
grade.
At
 
quarter
 
end,
 
HTM
 
securities
 
included
 
$
187.9
 
million
 
of
 
U.S.
 
Government
 
and
 
U.S.
 
Agency
 
issued
 
bonds
 
and
mortgage-backed
 
securities.
 
Because
 
of
 
the
 
explicit
 
and/or
 
implicit
 
guarantee
 
on
 
these
 
bonds,
 
the
 
Company
 
holds
no
reserves
 
on these
 
holdings.
 
The remaining
 
portion
 
of
 
the HTM
 
portfolio
 
is made
 
up of
 
$
9.4
 
million
 
in
 
investment
 
grade
corporate bonds. The required reserve for these holdings is
 
determined each quarter using the model described above. For
the portion of the HTM exposed to non-government
 
credit risk, the Company utilized the PD/LGD
 
methodology to estimate
a $
16
 
thousand ACL as of September 30, 2023. The book value for debt securities classified as HTM represents amortized
cost less ACL.
The Company determined that
 
an ACL on its
 
debt securities available for
 
sale as of September 30,
 
2023 and December
31, 2022 was not required.
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
11
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
The following
 
tables present
 
a summary
 
of the amortized
 
cost, unrealized
 
or unrecognized
 
gains and
 
losses,
 
and fair
value of investment securities at the dates indicated (in
 
thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2023
Available-for-sale:
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
U.S. Government Agency
$
9,913
$
-
$
(1,888)
$
8,025
Collateralized mortgage obligations
105,547
-
(26,976)
78,571
Mortgage-backed securities - residential
66,024
-
(14,867)
51,157
Mortgage-backed securities - commercial
48,010
62
(7,508)
40,564
Municipal securities
25,024
-
(6,908)
18,116
Bank subordinated debt securities
24,417
5
(2,246)
22,176
Corporate bonds
-
-
-
-
$
278,935
$
67
$
(60,393)
$
218,609
Held-to-maturity:
 
 
 
U.S. Government Agency
$
44,087
$
-
$
(7,038)
$
37,049
U.S. Treasury
19,934
-
(28)
19,906
Collateralized mortgage obligations
64,094
-
(10,308)
53,786
Mortgage-backed securities - residential
44,302
-
(6,088)
38,214
Mortgage-backed securities - commercial
15,467
-
(1,583)
13,884
Corporate bonds
9,443
-
(988)
8,455
$
197,327
$
-
$
(26,033)
$
171,294
Allowance for credit losses - securities held-to-maturity
(16)
Securities held-to maturity, net of allowance for credit losses
$
197,311
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
investment securities
 
with an
 
amortized cost
 
basis and
 
fair
value
 
of
 
$
74.4
 
million
 
and
 
$
63.8
 
million,
 
respectively,
 
were
 
transferred
 
from
 
AFS
 
to
 
HTM.
 
These
 
securities
 
had
 
a
 
net
unrealized
 
loss of
 
$
10.6
 
million
 
on
 
the
 
date
 
of
 
transfer.
 
The
 
net
 
unrealized
 
loss
 
that
 
was
 
retained
 
in
 
accumulated
 
other
comprehensive income (“AOCI”) is being amortized over the remaining life of the securities. For
 
the three and nine months
ended September 30,
 
2023, total amortization
 
out of AOCI for
 
net unrealized losses
 
on securities transferred
 
from AFS to
HTM was
 
$
64
 
thousand and
 
$
184
 
thousand, respectively.
 
The unamortized
 
net unrealized
 
loss on
 
September 30,
 
2023,
was $
9.6
 
million. There were
no
 
securities transferred from AFS
 
to HTM during
 
the nine months
 
ended September 30,
 
2023.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
12
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
Gains
 
and
 
losses
 
on
 
the
 
sale
 
of
 
securities
 
are
 
recorded
 
on
 
the
 
trade
 
date
 
and
 
are
 
determined
 
on
 
the
 
specific
identification basis. The following table presents the proceeds, realized gross gains and realized gross losses on sales and
calls of AFS debt securities for the three and nine months
 
ended September 30, 2023 and 2022 (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30,
Nine Months Ended September 30,
Available-for-sale:
2023
2022
2023
2022
Proceeds from sale and call of securities
$
6,792
$
13,809
$
15,409
$
45,647
Gross gains
$
-
$
2
$
3
$
218
Gross losses
(955)
(560)
(979)
(758)
Net realized (loss) gain
$
(955)
$
(558)
$
(976)
$
(540)
The amortized
 
cost
 
and
 
fair
 
value of
 
investment
 
securities,
 
by contractual
 
maturity,
 
are shown
 
below
 
as of
 
the date
indicated (in thousands).
 
Actual maturities may
 
differ from contractual
 
maturities because borrowers
 
may have the right
 
to
call or prepay
 
obligations with or
 
without call or
 
prepayment penalties. Securities not
 
due at a
 
single maturity date are
 
shown
separately.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale
Held-to-maturity
September 30, 2023:
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
Due within one year
$
-
$
-
$
19,934
$
19,906
Due after one year through five years
6,000
5,977
9,443
8,455
Due after five years through ten years
22,059
18,919
-
-
Due after ten years
21,382
15,396
-
-
U.S. Government Agency
9,913
8,025
44,087
37,049
Collateralized mortgage obligations
105,547
78,571
64,094
53,786
Mortgage-backed securities - residential
66,024
51,157
44,302
38,214
Mortgage-backed securities - commercial
48,010
40,564
15,467
13,884
$
278,935
$
218,609
$
197,327
$
171,294
At September 30,
 
2023, there
 
were no
 
securities held
 
in the
 
portfolio from
 
any one
 
issuer in
 
an amount
 
greater than
10%
 
of
 
total
 
stockholders’
 
equity
 
other
 
than
 
the
 
United
 
States
 
Government
 
and
 
Government
 
Agency
 
securities.
 
All
 
the
collateralized
 
mortgage
 
obligations
 
and
 
mortgage-backed
 
securities
 
are
 
issued
 
by
 
United
 
States
 
sponsored
 
entities
 
at
September 30, 2023 and December 31, 2022.
Information pertaining
 
to investment
 
securities with
 
gross unrealized
 
losses, aggregated
 
by investment
 
category
 
and
length of
 
time that
 
those
 
individual securities
 
have been
 
in a
 
continuous
 
loss position,
 
are presented
 
as of
 
the following
dates (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2023
Less than 12 months
12 months or more
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
U.S. Government Agency
$
-
-
45,075
(10,184)
$
45,075
$
(10,184)
U.S. Treasury
19,906
(28)
-
-
19,906
(28)
Collateralized mortgage obligations
-
-
132,357
(41,869)
132,357
(41,869)
Mortgage-backed securities - residential
5,362
(237)
84,009
(23,353)
89,371
(23,590)
Mortgage-backed securities - commercial
20,006
(917)
32,923
(9,656)
52,929
(10,573)
Municipal securities
-
-
18,116
(6,908)
18,116
(6,908)
Bank subordinated debt securities
9,611
(304)
11,560
(1,941)
21,171
(2,245)
Corporate bonds
-
-
8,454
(631)
8,454
(631)
$
54,885
$
(1,486)
$
332,494
$
(94,542)
$
387,379
$
(96,028)
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
13
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2022
Less than 12 months
12 months or more
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
U.S. Government Agency
$
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)
As of
 
September 30,
 
2023,
 
the unrealized
 
losses
 
associated
 
with
 
$
128.5
 
million
 
of investment
 
securities
 
transferred
from
 
the
 
AFS
 
portfolio
 
to
 
the
 
HTM
 
portfolio
 
represent
 
unrealized
 
losses
 
since
 
the
 
date
 
of
 
purchase,
 
independent
 
of
 
the
impact associated with changes in the cost basis of the
 
securities upon transfer between portfolios.
ASC Topic
 
326 amended
 
the
 
existing
 
other-than-temporary-impairment
 
guidance
 
for AFS
 
securities,
 
requiring
 
credit
losses to be recorded as
 
an allowance rather than
 
through a permanent write-down.
 
When evaluating AFS debt
 
securities
under ASC
 
Topic
 
326, the
 
Company has
 
evaluated whether
 
the decline
 
in fair
 
value is
 
attributed to
 
credit losses
 
or other
factors
 
like
 
interest
 
rate
 
risk,
 
using
 
both
 
quantitative
 
and
 
qualitative
 
analyses,
 
including
 
company
 
performance
 
analysis,
review of credit
 
ratings, remaining
 
payment terms,
 
prepayment speeds
 
and analysis
 
of macro-economic
 
conditions. Each
investment is
 
expected to
 
recover its
 
price depreciation
 
over its
 
holding period
 
as it
 
moves to
 
maturity and
 
the Company
has
 
the
 
intent
 
and
 
ability
 
to
 
hold
 
these
 
securities
 
to
 
maturity
 
if
 
necessary.
 
As
 
a
 
result
 
of
 
this
 
evaluation,
 
the
 
Company
concluded that no allowance was required on AFS securities.
At
 
September
 
30,
 
2023,
 
the
 
Company
 
had
 
$
67.3
 
million
 
of
 
unrealized
 
losses
 
on
 
mortgage-backed
 
securities
 
and
collateralized
 
mortgage
 
obligations
 
of
 
government
 
sponsored
 
entities
 
having
 
a
 
fair
 
value
 
of
 
$
276.2
 
million
 
that
 
were
attributable to a combination of factors, including relative
 
changes in interest rates since the time of purchase.
At
 
December
 
31,
 
2022,
 
the
 
Company
 
had
 
$
53.7
 
million
 
of
 
unrealized
 
losses
 
on
 
mortgage
 
backed
 
securities
 
and
collateralized
 
mortgage
 
obligations
 
of
 
government
 
sponsored
 
entities
 
having
 
a
 
fair
 
value
 
of
 
$
294.6
 
million
 
that
 
were
attributable to a combination of factors, including relative
 
changes in interest rates since the time of purchase.
The contractual
 
cash
 
flows
 
for these
 
securities
 
are
 
guaranteed
 
by
 
U.S.
 
government
 
agencies
 
and
 
U.S.
 
government
sponsored entities. The municipal bonds are of high credit quality and the declines in fair
 
value are not due to credit quality.
Based
 
on
 
the
 
assessment
 
of
 
these
 
mitigating
 
factors,
 
management
 
believed
 
that
 
the
 
unrealized
 
losses
 
on
 
these
 
debt
security holdings are
 
a function of
 
changes in investment
 
spreads and interest
 
rate movements
 
and not changes
 
in credit
quality. Management
 
expects to recover the entire amortized cost basis of these
 
securities.
At September 30, 2023, the Company does not intend to sell debt securities
 
that are in an unrealized loss position and
it is not more than likely than not that the Company will be required to sell
 
these securities before recovery of the amortized
cost basis. Therefore, management
 
does not consider any investment
 
to be other than temporarily
 
impaired at September
30, 2023.
Pledged Securities
The Company
 
maintains a
 
master repurchase
 
agreement with
 
a public
 
banking institution
 
for up
 
to $
20.0
 
million fully
guaranteed with investment
 
securities upon withdrawal.
 
Any amounts borrowed
 
would be at a
 
variable interest rate
 
based
on prevailing rates
 
at the time
 
funding is
 
requested. As
 
of September 30,
 
2023, the
 
Company did
no
t have
 
any securities
pledged under this agreement.
The Bank is a Qualified Public Depository
 
(“QPD”) with the State of Florida. As a QPD, the Bank has the legal
 
authority
to
 
maintain
 
public
 
deposits
 
from
 
cities,
 
municipalities,
 
and
 
the
 
State
 
of
 
Florida.
 
These
 
public
 
deposits
 
are
 
secured
 
by
securities
 
pledged
 
to
 
the
 
State
 
of
 
Florida
 
at
 
a
 
ratio
 
of
25
%
 
of
 
the
 
outstanding
 
uninsured
 
deposits.
 
The
 
Bank
 
must
 
also
maintain a minimum amount of pledged securities to be in the
 
public funds program.
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
14
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
As
 
of
 
September 30,
 
2023,
 
the
 
Bank
 
had
 
a
 
total
 
of
 
$
212.3
 
million
 
in
 
deposits
 
under
 
the
 
public
 
funds
 
program
 
and
pledged to the State
 
of Florida for these public
 
funds were
twenty-seven
 
bonds with an aggregate fair
 
value of $
82.6
 
million.
As of
 
December 31, 2022, the
 
Bank had
 
a total
 
of $
204.2
 
million in
 
deposits under the
 
public funds program
 
and pledged
to the State of Florida for these public funds were
eighteen
 
corporate bonds with an aggregate fair value of $
49.0
 
million.
 
The Board
 
of Governors
 
of the
 
Federal Reserve
 
System, on
 
March 12,
 
2023, announced
 
the creation
 
of a
 
new Bank
Term
 
Funding Program
 
(BTFP). The
 
BTFP offers
 
loans of
 
up to
 
one year
 
in length
 
to banks,
 
savings associations,
 
credit
unions,
 
and
 
other
 
eligible
 
depository
 
institutions
 
pledging
 
U.S.
 
Treasuries,
 
U.S.
 
agency
 
debt
 
and
 
mortgage-backed
securities, and other qualifying assets as collateral. These
 
assets will be valued at par.
The Company had
no
 
borrowing under the BTFP
 
program as of September
 
30, 2023, and had
 
pledged $
134.4
 
million
in securities measured at par to the Federal Reserve
 
Bank of Atlanta for the BTFP program.
 
3.
 
LOANS
On
 
January
 
1,
 
2023,
 
the
 
Company
 
adopted
 
FASB
 
ASC
 
Topic
 
326
 
using
 
the
 
modified
 
retrospective
 
methodology
 
in
accordance
 
with
 
the
 
amendments
 
of
 
FASB
 
ASU
 
2016-13.
 
Through
 
the
 
adoption
 
of
 
CECL,
 
the
 
Company
 
developed
 
an
allowance for credit losses (“ACL”) methodology that replaces its previous allowance
 
for loan losses methodology.
 
See the
ACL section in this note for further information regarding the Company’s ACL. Prior periods balance for ACL are presented
under legacy GAAP and may not be comparable to current
 
period presentation.
 
The following table is a summary of the distribution of
 
loans held for investment by type (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2023
December 31, 2022
Total
Percent of
Total
Total
Percent of
Total
Residential Real Estate
$
188,880
11.3
%
$
185,636
12.3
%
Commercial Real Estate
1,005,280
60.0
%
970,410
64.4
%
Commercial and Industrial
212,975
12.7
%
126,984
8.4
%
Foreign Banks
94,640
5.7
%
93,769
6.2
%
Consumer and Other
173,096
10.3
%
130,429
8.7
%
Total
 
gross loans
1,674,871
100.0
%
1,507,228
100.0
%
Plus: Deferred fees (cost)
1,649
 
110
Total
 
loans net of deferred fees (cost)
1,676,520
1,507,338
Less: Allowance for credit losses
19,493
17,487
Total
 
net loans
$
1,657,027
$
1,489,851
At September 30, 2023
 
and December 31, 2022,
 
the Company had
 
$
556.1
 
million and $
338.1
 
million, respectively,
 
of
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 $
295
 
thousand
at September 30, 2023 and $
1.3
 
million at December 31, 2022, which are categorized
 
as commercial and industrial loans.
 
The Company recognized
 
$
6
 
thousand and $
1.6
 
million in PPP
 
loan fees and
 
interest income
 
during the nine
 
months
ended September 30, 2023
 
and 2022, respectively,
 
which is reported
 
under loans, including
 
fees, within the
 
Consolidated
Statements of Operations.
Allowance for Credit Losses
In general, the Company utilizes
 
the Discounted Cash Flow (DCF)
 
method or the Remaining Life
 
(WARM) methodology
to estimate
 
the quantitative
 
portion of the
 
ACL for
 
loan pools.
 
The DCF
 
uses a
 
loss driver
 
analysis (LDA)
 
and discounted
cash flow analyses.
 
Management engaged
 
advisors and consultants
 
with expertise in
 
CECL model development
 
to assist
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
15
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
in development of
 
a loss driver
 
analysis based on
 
regression models
 
and supportable
 
forecast. Peer group
 
data obtained
from FFIEC Call Report
 
filings is used to
 
inform regression analyses
 
to quantify the impact
 
of reasonable and
 
supportable
forecasts in projective
 
models. Economic forecasts
 
applied to regression
 
models to estimate
 
probability of default
 
for loan
receivables use at least one
 
of the following economic indicators: civilian
 
unemployment rate (national), real gross domestic
product growth
 
(national
 
GDP) and/or
 
the HPI.
 
For each
 
of the
 
segments in
 
which the
 
WARM
 
methodology
 
is used,
 
the
long-term average loss rate is calculated and applied on a quarterly basis for the remaining life of the pool. Adjustments for
economic expectations are made through qualitative factors
 
.
Qualitative factors (“Q-Factors”) used in the ACL methodology
 
include:
 
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
 
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
 
and nine months
 
ended September 30,
 
2023, was estimated
 
under the CECL
 
methodology,
 
and for
all periods in 2022, it was estimated under the incurred
 
loss model.
Changes in the
 
allowance for credit
 
losses for the
 
three and nine
 
months ended September
 
30, 2023 and
 
2022
 
were
as follows (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential
Real Estate
Commercial
Real Estate
Commercial
and
Industrial
Foreign
Banks
Consumer
and Other
Total
Three Months Ended September 30, 2023
Beginning balance
$
2,673
$
10,183
$
2,500
$
677
$
2,782
$
18,815
Provision for credit losses
(1)
(162)
(84)
738
73
108
673
Recoveries
-
-
8
-
-
8
Charge-offs
-
-
-
-
(3)
(3)
Ending Balance
$
2,511
$
10,099
$
3,246
$
750
$
2,887
$
19,493
Nine Months Ended September 30, 2023
Beginning balance
$
1,352
$
10,143
$
4,163
$
720
$
1,109
$
17,487
Cumulative effect of adoption of accounting
principle
(2)
1,238
1,105
(2,158)
23
858
1,066
Provision for credit losses
(3)
(89)
(1,149)
1,181
7
965
915
Recoveries
10
-
60
-
3
73
Charge-offs
-
-
-
-
(48)
(48)
Ending Balance
$
2,511
$
10,099
$
3,246
$
750
$
2,887
$
19,493
(1) Provision for credit losses excludes $
17
 
thousand release due to unfunded commitments included in other liabilities and $
3
thousand release due to investment securities held to maturity.
(2) Impact of CECL adoption on January 1, 2023
(3) Provision for credit losses excludes $
39
 
thousand release due to unfunded commitments included in other liabilities and $
16
thousand expense due to investment securities held to maturity.
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
16
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Foreign
Banks
Consumer
and Other
Total
Three Months Ended September 30, 2022
Beginning balance
$
2,366
$
9,290
$
2,671
$
651
$
808
$
15,786
Provision for credit losses
(1,009)
695
1,126
74
24
910
Recoveries
1
-
-
-
-
1
Charge-offs
-
-
(88)
-
(5)
(93)
Ending Balance
$
1,358
$
9,985
$
3,709
$
725
$
827
$
16,604
Nine Months Ended September 30, 2022
Beginning balance
$
2,498
$
8,758
$
2,775
$
457
$
569
$
15,057
Provision for credit losses
(1,157)
1,227
1,011
268
266
1,615
Recoveries
33
-
11
-
3
47
Charge-offs
(16)
-
(88)
-
(11)
(115)
Ending Balance
$
1,358
$
9,985
$
3,709
$
725
$
827
$
16,604
At
 
September
 
30,
 
2023
 
the
 
ACL,
 
under
 
the
 
CECL
 
methodology,
 
was
 
$
19.5
 
million
 
compared
 
to
 
$
17.5
 
million
 
at
December 31,
 
2022, under
 
the incurred
 
loss
 
methodology.
 
The increase
 
of $
2.0
 
million was
 
composed of
 
a $
1.1
 
million
impact of adoption of the ASU 2016-13 on loan receivables, a $
915
 
thousand increase in the ACL for loan receivables due
to loan growth and to net charge-offs.
 
The
 
Company
 
had
 
charge
 
offs
 
totaling
 
$
3
 
thousand
 
for
 
the
 
quarter
 
ended
 
September
 
30,
 
2023
 
related
 
to
 
loans
originated in
 
2023. The
 
Company had
 
charge offs
 
totaling $
48
 
thousand for
 
the nine
 
months ended
 
September 30,
 
2023
related to loans. $
27
 
thousand was related to loans originated
 
in 2023 and $
21
 
thousand of charge offs was related to
 
loans
originated in 2015.
The Company
 
had
 
charge
 
offs
 
totaling
 
$
115.0
 
thousand
 
for
 
the
 
nine
 
months
 
ended
 
September
 
30,
 
2022,
 
on
 
loans.
$
15.6
 
thousand
 
and $
87.7
 
thousand of
 
charge offs
 
related to
 
loans that
 
were originated
 
in 2004
 
and 2019,
 
respectively.
$
10.9
 
thousand of charge offs related to loans that
 
were originated in 2022.
The
 
Federal
 
Open
 
Market
 
Committee
 
(“FOMC”)
 
economic
 
forecasts
 
as
 
of
 
September
 
30,
 
2023,
 
showed
 
moderate
improvements in unemployment and a slower real GDP growth.
 
Fannie Mae HPI forecast reflected important improvement
in national housing prices over the next four quarters.
 
The Company continued
 
to adjust the HPI index effect on 1-4 Family
loan portfolio with a qualitative
 
factor because Florida
 
housing prices are performing
 
better than national levels.
 
Q-Factors
were reviewed and updated; maximum loss calculations are based on refreshed stress test and risk statuses were
 
updated
based on portfolio and external developments during the third
 
quarter.
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
17
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
The ACL and
 
the outstanding balances
 
in the specified
 
loan categories
 
as of September
 
30, 2023 and
 
December 31,
2022 are as follows (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Foreign
Banks
Consumer
and Other
Total
September 30, 2023:
Allowance for credit losses:
Individually evaluated for impairment
$
146
$
-
$
135
$
-
$
-
$
281
Collectively evaluated for impairment
2,365
10,099
3,111
750
2,887
19,212
Balances, end of period
$
2,511
$
10,099
$
3,246
$
750
$
2,887
$
19,493
Loans:
 
 
 
 
 
Individually evaluated for impairment
$
6,749
$
-
$
869
$
-
$
-
$
7,618
Collectively evaluated for impairment
182,131
1,005,280
212,106
94,640
173,096
1,667,253
Balances, end of period
$
188,880
$
1,005,280
$
212,975
$
94,640
$
173,096
$
1,674,871
 
 
 
 
 
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
 
– Loans classified as special mention have a potential weakness
 
that deserves management’s
close attention. If left uncorrected, these potential weaknesses
 
may result in deterioration of the repayment
prospects for the loan or of the institution’s
 
credit position at some future date.
 
Substandard
– Loans classified as substandard are inadequately protected
 
by the current net worth and paying
capacity of the obligator or of the collateral pledged, if
 
any. Loans so classified
 
have a well-defined weakness or
weaknesses that jeopardize the liquidation of the debt.
 
They are characterized by the distinct possibility that the
institution will sustain some loss if the deficiencies are
 
not corrected.
 
Doubtful
 
– Loans classified as doubtful have all the weaknesses inherent
 
in those classified at substandard, with
the added characteristic that the weaknesses make collection
 
or liquidation in full on the basis of currently existing
facts, conditions, and values, highly questionable and improbable.
 
Loss
– Loans classified as loss are considered uncollectible.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
18
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
Loan credit exposures by internally assigned grades are
 
presented below for the periods indicated (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of September 30, 2023
Term Loans by Origination Year
Revolving
Loans
Total
2023
2022
2021
2020
2019
Prior
Residential real estate
Pass
$
17,760
$
36,828
$
26,315
$
6,527
$
9,749
$
83,244
$
8,457
$
188,880
Total
17,760
36,828
26,315
6,527
9,749
83,244
8,457
188,880
Commercial real estate
Pass
78,285
340,524
210,028
104,816
79,129
186,669
3,314
1,002,765
Substandard
-
-
1,818
697
-
-
-
2,515
Total
78,285
340,524
211,846
105,513
79,129
186,669
3,314
1,005,280
Commercial and
industrial
Pass
92,156
38,012
34,581
7,141
14,001
3,483
21,617
210,991
Substandard
-
-
340
-
1,344
-
300
1,984
Total
92,156
38,012
34,921
7,141
15,345
3,483
21,917
212,975
Foreign banks
Pass
93,515
1,125
-
-
-
-
-
94,640
Total
93,515
1,125
-
-
-
-
-
94,640
Consumer and other
loans
Pass
50,027
74,961
44,249
717
529
1,396
1,217
173,096
Substandard
-
-
-
-
-
-
-
-
Total
50,027
74,961
44,249
717
529
1,396
1,217
173,096
Total
 
Loans
Pass
331,743
491,450
315,173
119,201
103,408
274,792
34,605
1,670,372
Special Mention
-
-
-
-
-
-
-
-
Substandard
-
-
2,158
697
1,344
-
300
4,499
Doubtful
-
-
-
-
-
-
-
-
Total
$
331,743
$
491,450
$
317,331
$
119,898
$
104,752
$
274,792
$
34,905
$
1,674,871
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
19
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2022
Pass
Special
Mention
Substandard
Doubtful
Total Loans
Residential real estate:
Home equity line of credit and other
$
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
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
20
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
Loan Aging
The Company
 
also considers the
 
performance of loans
 
in grading
 
and in
 
evaluating the
 
credit quality
 
of the
 
loan portfolio.
The Company
 
analyzes credit
 
quality and
 
loan grades
 
based on
 
payment performance
 
and the
 
aging status
 
of the
 
loan.
 
The following
 
tables include
 
an aging
 
analysis of
 
accruing loans
 
and total
 
non-accruing
 
loans as
 
of September 30,
 
2023
and December 31, 2022 (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accruing
As of September 30, 2023
Current
Past Due 30-
89 Days
Past Due 90
Days or >
and Still
Accruing
Total
Accruing
Non-Accrual
Total Loans
Residential real estate:
Home equity line of credit and other
$
491
$
-
$
-
$
491
$
-
$
491
1-4 family residential
138,069
-
-
138,069
-
138,069
Condo residential
49,949
371
-
50,320
-
50,320
188,509
371
-
188,880
-
188,880
Commercial real estate:
Land and construction
30,717
-
-
30,717
-
30,717
Multi-family residential
177,573
-
-
177,573
-
177,573
Condo commercial
58,100
-
-
58,100
-
58,100
Commercial property
738,849
-
-
738,849
-
738,849
Leasehold improvements
41
-
-
41
-
41
1,005,280
-
-
1,005,280
-
1,005,280
Commercial and industrial:
Secured
194,119
-
-
194,119
479
194,598
Unsecured
18,377
-
-
18,377
-
18,377
212,496
-
-
212,496
479
212,975
Foreign banks
94,640
-
-
94,640
-
94,640
Consumer and other
173,096
-
-
173,096
-
173,096
Total
$
1,674,021
$
371
$
-
$
1,674,392
$
479
$
1,674,871
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
21
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accruing
As of December 31, 2022:
Current
Past Due
30-89 Days
Past Due 90
Days or >
and Still
Accruing
Total
Accruing
Non-Accrual
Total Loans
Residential real estate:
Home equity line of credit and other
$
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
Non-accrual Status
 
The following table
 
includes the amortized
 
cost basis of
 
loans on non-accrual
 
status and loans
 
past due over
 
90 days
and still accruing as of September 30, 2023 (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2023
Nonaccrual
Loans With No
Related
Allowance
Nonaccrual
Loans With
Related
Allowance
Total Non-
accruals
Loans Past
Due Over 90
Days and Still
Accruing
Residential real estate
$
-
$
-
$
-
$
-
Commercial real estate
-
-
-
-
Commercial and industrial
-
479
479
-
Consumer and other
-
-
-
-
$
-
$
479
$
479
$
-
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
 
interest income
 
recognized
attributable to non-accrual
 
loans outstanding during
 
the three months
 
ended September 30, 2023 and
 
2022. Interest income
on these loans for
 
the three months
 
ended September 30,
 
2023 and 2022,
 
would have been
 
approximately $
12
 
thousand
and $
0
 
thousand, respectively, had these loans performed in accordance with their original terms. Interest income on these
loans
 
for the
 
nine months
 
ended September
 
30,
 
2023 and
 
2022, would
 
have been
 
approximately
 
$
28
 
thousand
 
and
 
$
0
thousand, respectively,
 
had these loans performed in accordance with their
 
original terms.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
22
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
Collateral-Dependent Loans
A
 
loan
 
is
 
collateral
 
dependent
 
when
 
the
 
borrower
 
is
 
experiencing
 
financial
 
difficulty
 
and
 
repayment
 
of
 
the
 
loan
 
is
expected to
 
be provided
 
substantially through
 
the sale
 
or operation
 
of the
 
collateral. There
 
were
no
 
collateral dependent
loans as of September 30, 2023, or as of December 31,
 
2022.
 
Impaired Loans
The following table includes
 
the unpaid principal balances
 
for impaired loans with
 
the associated allowance amount,
 
if
applicable, on the basis of impairment methodology as of December
 
31, 2022 (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2022
Unpaid
Principal
Balance
Net
Investment
Balance
Valuation
Allowance
Impaired Loans with No Specific Allowance:
Residential real estate
$
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 periods indicated
 
(in
thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2022
Nine Months Ended September 30, 2022
Residential real estate
$
7,282
$
7,732
Commercial real estate
590
619
Commercial and industrial
95
116
Consumer and other
207
214
Total
$
8,174
$
8,681
Interest income recognized on impaired loans for
 
the three months ended September 30, 2022
 
was $
90
 
thousand and
for the nine months ended September 30, 2022 was $
271
 
thousand.
Loan Modifications to Borrowers Experiencing Financial
 
Difficulties
 
The following
 
table present
 
newly restructured
 
loans, by
 
type of
 
modification, which
 
occurred during
 
the nine
 
months
ended September 30, 2023 (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Recorded Investment Prior to Modification
Recorded Investment After Modification
Number of
Loans
Combination
Modifications
Total
Modifications
Number of
Loans
Combination
Modifications
Total
Modifications
Residential real estate
-
$
-
$
-
-
$
-
$
-
Commercial real estate
-
-
-
-
-
-
Commercial and industrial
1
350
350
1
350
350
Consumer and other
-
-
-
-
-
-
1
$
350
$
350
1
$
350
$
350
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
23
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
The Company had
no
 
new modifications and
one
 
new modifications to
 
borrowers experiencing financial
 
difficulties for
the
 
three
 
and
 
nine
 
months
 
ended
 
September
 
30,
 
2023,
 
respectively.
 
There
 
were
no
 
existing
 
loan
 
modifications
 
that
subsequently defaulted during the three and nine months
 
ended September 30, 2023.
4.
 
INCOME TAXES
 
The Company’s provision for income taxes is presented
 
in the following table for the dates indicated (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30,
2023
2022
Current:
Federal
$
-
$
-
State
-
-
Total
 
current
-
-
Deferred:
Federal
3,510
4,342
State
954
1,187
Total
 
deferred
4,464
5,529
Total
 
tax expense
$
4,464
$
5,529
The actual income tax expense for the nine months
 
ended September 30, 2023 and 2022 differs
 
from the statutory tax
expense
 
for the
 
period (computed
 
by applying
 
the
 
U.S.
 
federal
 
corporate
 
tax rate
 
of
21
%
 
for
 
2023 and
 
2022 to
 
income
before provision for income taxes) as follows (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30,
2023
2022
Federal taxes at statutory rate
$
3,840
$
4,460
State income taxes, net of federal tax benefit
795
923
Bank owned life insurance
(171)
(202)
Other, net
-
348
Total
 
tax expense
$
4,464
$
5,529
The Company’s deferred tax assets and deferred
 
tax liabilities as of the dates indicated were (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2023
December 31, 2022
Deferred tax assets:
Net operating loss
$
17,588
$
21,720
Allowance for credit losses
4,670
4,432
Lease liability
3,084
3,648
Unrealized losses on available for sale securities
17,723
15,193
Depreciable property
192
158
Equity compensation
554
373
Accruals
411
723
CECL Adoption
336
-
Deferred tax assets:
44,558
46,247
Deferred tax liability:
Deferred loan cost
(418)
(28)
Lease right of use asset
(3,084)
(3,648)
Deferred expenses
(189)
(175)
Cash flow hedge
(332)
-
Other, net
(105)
(36)
Deferred tax liability
(4,128)
(3,887)
Net deferred tax assets
$
40,430
$
42,360
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
24
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
The Company
 
has
 
approximately
 
$
65.5
 
million
 
of federal
 
and
 
$
88.2
 
million
 
of state
 
net
 
operating
 
loss
 
carryforwards
expiring in various amounts between
 
2031 and 2036 and which are
 
limited to offset, to the
 
extent permitted, future taxable
earnings of the Company.
In assessing the realizability of deferred tax assets, management considers
 
whether it is more likely than not that some
portion or
 
all of
 
the deferred
 
tax assets
 
will not
 
be realized.
 
The ultimate
 
realization
 
of deferred
 
tax assets
 
is dependent
upon the generation of
 
future taxable income
 
during the periods
 
in which those temporary
 
differences become deductible.
Management considers the scheduled reversal
 
of deferred tax liabilities, projected future taxable
 
income, and tax planning
strategies in making this assessment.
The major tax
 
jurisdictions where the
 
Company files income
 
tax returns are
 
the U.S. federal
 
jurisdiction and
 
the State
of Florida. With few exceptions, the Company is no longer subject to U.S. federal and state income tax examinations by tax
authorities for years before 2019.
For the three and nine months ended September 30, 2023 and 2022, the Company
 
did
no
t have any unrecognized tax
benefits
 
as
 
a
 
result
 
of
 
tax
 
positions
 
taken
 
during
 
a
 
prior
 
period
 
or
 
during
 
the
 
current
 
period.
 
Additionally,
no
 
interest
 
or
penalties were recorded as a result of tax uncertainties.
5.
 
OFF-BALANCE SHEET ARRANGEMENTS
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business in order to
meet the financial
 
needs of
 
its customers
 
and to reduce
 
its own
 
exposure to
 
fluctuations in
 
interest rates.
 
These financial
instruments include
 
unfunded commitments
 
under lines
 
of credit,
 
commitments to
 
extend credit,
 
standby and
 
commercial
letters of
 
credit. Those
 
instruments involve,
 
to varying
 
degrees, elements
 
of credit
 
and interest
 
rate risk
 
in excess
 
of the
amount recognized in the Company’s Consolidated Balance Sheets. The Company uses the
 
same credit policies in making
commitments and conditional obligations as it does for on-balance
 
sheet instruments.
The Company's
 
exposure to credit
 
loss in the
 
event of nonperformance
 
by the other
 
party to the
 
financial instruments
for unused lines of credit, and standby letters of credit
 
is represented by the contractual amount of these commitments.
A
 
summary
 
of
 
the
 
amounts
 
of
 
the
 
Company's
 
financial
 
instruments
 
with
 
off-balance
 
sheet
 
risk
 
are
 
shown
 
below
 
at
September 30, 2023 and December 31, 2022 (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2023
December 31, 2022
Commitments to grant loans and unfunded lines of credit
$
100,661
$
95,461
Standby and commercial letters of credit
6,490
4,320
Total
$
107,151
$
99,781
Commitments to
 
extend credit
 
are agreements
 
to lend
 
to a
 
customer as
 
long as
 
there is
 
no violation
 
of any
 
condition
established in the contract. Commitments generally have
 
fixed expiration dates or other termination clauses.
Unfunded lines of
 
credit and revolving
 
credit lines are
 
commitments for possible
 
future extensions
 
of credit to
 
existing
customers. These lines of
 
credit are uncollateralized and
 
usually do not contain
 
a specified maturity date
 
and ultimately may
not be drawn upon to the total extent to which the Company
 
committed.
Standby
 
and
 
commercial
 
letters
 
of
 
credit
 
are
 
conditional
 
commitments
 
issued
 
by
 
the
 
Company
 
to
 
guarantee
 
the
performance of a
 
customer to
 
a third
 
party. Those letters of
 
credit are
 
primarily issued to
 
support public and
 
private borrowing
arrangements. Essentially all letters of credit have fixed maturity dates and since
 
many of them expire without being drawn
upon, they do not generally present a significant liquidity
 
risk to the Company.
6.
 
DERIVATIVES
 
The Company utilizes interest rate swap agreements
 
as part of its asset-liability management strategy to help
 
manage
its interest rate
 
risk exposure. The notional
 
amount of the interest
 
rate swaps does not
 
represent actual amounts exchanged
by the
 
parties.
 
The amounts
 
exchanged
 
are determined
 
by reference
 
to the
 
notional amount
 
and the
 
other
 
terms
 
of the
individual interest rate swap agreements.
 
Interest Rate Swaps Designated as a Cash Flow Hedge
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
25
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
As of September 30,
 
2023, the Company
 
had
two
 
interest rate swap agreements
 
with a notional aggregate
 
amount of
$
50
 
million that were designated as cash flow hedges of certificates of deposit. The interest rate swap agreements have an
average
 
maturity
 
of
2.63
 
years,
 
the
 
weighted
 
average
 
fixed
 
rate
 
paid
 
is
3.59
%,
 
with
 
the
 
weighted
 
average
 
3-month
compound SOFR being received. The Company had
no
 
cash flow hedges outstanding on December 31,
 
2022.
 
The
 
changes
 
in
 
fair
 
value
 
on
 
these
 
interest
 
rate
 
swaps
 
are
 
recorded
 
in
 
other
 
assets
 
or
 
other
 
liabilities
 
with
 
a
corresponding recognition
 
in other comprehensive
 
income (loss)
 
and subsequently reclassified
 
to earnings when
 
gains or
losses are realized.
Interest Rate Swaps Designated as Fair Value
 
Hedge
As of September 30, 2023,
 
the Company had four interest
 
rate swap agreements with a
 
notional aggregate amount of
$
200
 
million
 
that
 
were
 
designated
 
as
 
fair
 
value
 
hedges
 
on
 
loans.
 
The
 
interest
 
rate
 
swap
 
agreements
 
have
 
an
 
average
maturity of
2.48
 
years, the weighted average fixed rate paid
 
is
4.74
%, with the weighted average 3-month compound SOFR
being received.
Interest Rate Swaps
The Company enters into interest rate swaps with its loan customers. The Company had
20
 
and
15
 
interest rate swaps
with
 
loan
 
customers
 
with
 
an
 
aggregate
 
notional
 
amount
 
of
 
$
46.7
 
million
 
and
 
$
33.9
 
million
 
at
 
September 30,
 
2023
 
and
December 31, 2022,
 
respectively.
 
These interest
 
rate swaps
 
mature between
 
2025 and
 
2051. The
 
Company entered
 
into
corresponding
 
and
 
offsetting
 
derivatives
 
with
 
third
 
parties.
 
The
 
fair
 
value
 
of
 
liability
 
on
 
these
 
derivatives
 
requires
 
the
Company to provide the counterparty
 
with funds to be held as collateral
 
which the Company reports as other
 
assets under
the Consolidated
 
Balance Sheets.
 
While these
 
derivatives represent
 
economic hedges,
 
they do
 
not qualify
 
as hedges
 
for
accounting purposes.
The following table reflects the Company’s
 
interest rate swaps at the dates indicated (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair Value
Notional
Amount
Collateral
Amount
Balance Sheet Location
Asset
Liability
September 30, 2023:
Derivatives designated as hedging instruments:
Interest rate swaps
$
250,000
-
Other assets
$
1,450
$
294
Derivatives not designated as hedging instruments:
Interest rate swaps related to customer loans
$
46,717
$
1,297
Other assets/Other liabilities
$
5,623
$
5,623
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
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
26
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
market conditions.
 
If there
 
has been
 
a significant
 
decrease
 
in the
 
volume
 
and level
 
of activity
 
for the
 
asset
 
or liability,
 
a
change in
 
valuation technique or
 
the use
 
of multiple
 
valuation techniques may
 
be appropriate.
 
In such
 
instances, determining
the
 
price
 
at
 
which
 
willing
 
market
 
participants
 
would
 
transact
 
at
 
the
 
measurement
 
date
 
under
 
current
 
market
 
conditions
depends on the facts
 
and circumstances and
 
requires the use of
 
significant judgment. The fair
 
value is a reasonable
 
point
within the range that is most representative of fair value under
 
current market conditions.
Fair Value Hierarchy
In accordance with
 
this guidance, the
 
Company groups its
 
financial assets
 
and financial liabilities
 
generally measured
at fair
 
value in
 
three
 
levels, based
 
on the
 
markets
 
in which
 
the assets
 
and liabilities
 
are traded,
 
and the
 
reliability
 
of the
assumptions used to determine fair value.
Level 1
 
- Valuation
 
is based
 
on quoted
 
prices in
 
active markets
 
for identical
 
assets or
 
liabilities that
 
the reporting
entity has
 
the ability
 
to access
 
at the measurement
 
date. Level
 
1 assets
 
and liabilities
 
generally include
 
debt and
equity securities that
 
are traded in
 
an active exchange
 
market. Valuations are obtained from
 
readily available pricing
sources for market transactions involving identical assets
 
or liabilities.
Level 2
 
- Valuation
 
is based on inputs other
 
than quoted prices included
 
within Level 1 that are
 
observable for the
asset
 
or
 
liability,
 
either
 
directly
 
or
 
indirectly.
 
The
 
valuation
 
may
 
be
 
based
 
on
 
quoted
 
prices
 
for
 
similar
 
assets
 
or
liabilities; quoted
 
prices in
 
markets that are
 
not active;
 
or other inputs
 
that are observable
 
or can be
 
corroborated
by observable market data for substantially the full term of the
 
asset or liability.
Level 3
 
- Valuation
 
is based on
 
unobservable inputs that
 
are supported
 
by little or
 
no market activity
 
and that are
significant
 
to
 
the
 
fair
 
value
 
of
 
the
 
assets
 
or
 
liabilities.
 
Level
 
3
 
assets
 
and
 
liabilities
 
include
 
financial
 
instruments
whose value
 
is determined
 
using pricing
 
models, discounted
 
cash
 
flow
 
methodologies,
 
or similar
 
techniques,
 
as
well as instruments for which determination of fair value
 
requires significant management judgment or estimation.
A
 
financial
 
instrument's
 
categorization
 
within
 
the
 
valuation
 
hierarchy
 
is
 
based
 
upon
 
the
 
lowest
 
level
 
of
 
input
 
that
 
is
significant to the fair value measurement.
Items Measured at Fair Value
 
on a Recurring Basis
AFS investment securities:
 
When instruments are traded in
 
secondary markets and quoted market
 
prices do not exist
for such securities,
 
management generally relies
 
on prices obtained
 
from independent vendors
 
or third-party broker-dealers.
Management reviews pricing methodologies provided by the vendors and third-party broker-dealers in order to determine if
observable market information is being utilized. Securities measured with pricing provided by independent vendors or
 
third-
party broker-dealers
 
are classified within
 
Level 2 of
 
the hierarchy
 
and often
 
involve using quoted
 
market prices
 
for similar
securities, pricing models or discounted cash flow analyses
 
utilizing inputs observable in the market where available.
Derivatives:
 
The
 
fair
 
value
 
of
 
derivatives
 
are
 
measured
 
with
 
pricing
 
provided
 
by
 
third-party
 
participants
 
and
 
are
classified within Level 2 of the hierarchy.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
27
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
The
 
following
 
table
 
represents
 
the
 
Company's
 
assets
 
and
 
liabilities
 
measured
 
at
 
fair
 
value
 
on
 
a
 
recurring
 
basis
 
at
September 30, 2023 and December 31, 2022 for each
 
of the fair value hierarchy levels (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2023
December 31, 2022
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Investment securities available for sale:
U.S. Government Agency
$
-
$
8,025
$
-
$
8,025
$
-
$
8,655
$
-
$
8,655
Collateralized mortgage obligations
-
78,571
-
78,571
-
95,541
-
95,541
Mortgage-backed securities - residential
-
51,157
-
51,157
-
60,879
-
60,879
Mortgage-backed securities - commercial
-
40,564
-
40,564
-
27,954
-
27,954
Municipal securities
-
18,116
-
18,116
-
18,483
-
18,483
Bank subordinated debt securities
-
22,176
-
22,176
-
14,919
-
14,919
Corporate bonds
-
-
-
-
-
3,709
-
3,709
Total
-
218,609
-
218,609
-
230,140
-
230,140
Derivative assets
-
7,073
-
7,073
-
5,011
-
5,011
Total assets at fair value
$
-
$
225,682
$
-
$
225,682
$
-
$
235,151
$
-
$
235,151
Derivative liabilities
$
-
$
5,917
$
-
$
5,917
$
-
$
5,011
$
-
$
5,011
Total liabilities at fair value
$
-
$
5,917
$
-
$
5,917
$
-
$
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
 
million
 
were
 
written
 
down
 
to
 
their
 
fair
 
value
 
of
approximately $
3.6
 
million, resulting
 
in an
 
impairment charge
 
of $
294
 
thousand,
 
which was
 
included in
 
the allowance
 
for
credit losses at December 31,
 
2022. Loans subject to write-downs,
 
or impaired loans, are
 
estimated using the present
 
value
of expected cash
 
flows or the
 
appraised value
 
of the underlying
 
collateral discounted
 
as necessary
 
due to management's
estimates of changes in economic conditions and are
 
considered a Level 3 valuation.
Other Real
 
Estate:
 
Other
 
real estate
 
owned
 
is valued
 
at the
 
lesser of
 
the third-party
 
appraisals less
 
management's
estimate of
 
the costs to
 
sell or the
 
carrying cost of
 
the other
 
real estate
 
owned. Appraisals generally
 
use the market
 
approach
valuation technique
 
and use
 
market observable
 
data to
 
formulate an
 
opinion of
 
the fair
 
value of
 
the properties.
 
However,
the appraiser
 
uses professional
 
judgment in
 
determining the
 
fair value
 
of the
 
property and
 
the Company
 
may also
 
adjust
the value for changes in
 
market conditions subsequent to
 
the valuation date when
 
current appraisals are not
 
available. As
a consequence of the carrying cost or the
 
third-party appraisal and adjustments therein, the fair values of the properties are
considered a Level 3 valuation.
 
The following table represents the Company’s assets measured at
 
fair value on a non-recurring basis at
 
September 30,
2023 and December 31, 2022 for each of the fair value
 
hierarchy levels (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Level 1
Level 2
Level 3
Total
September 30, 2023:
Individually evaluated loans
$
-
$
-
$
-
$
-
December 31, 2022:
Impaired loans
$
-
$
-
$
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
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
28
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
There
 
were
no
 
financial
 
liabilities
 
measured
 
at
 
fair
 
value
 
on
 
a
 
non-recurring
 
basis
 
at
 
September 30,
 
2023
 
and
December 31, 2022.
Items Not Measured at Fair Value
The following table
 
presents the carrying
 
amounts and estimated
 
fair values of
 
financial instruments
 
not carried at fair
value as of September 30, 2023 and December 31, 2022
 
(in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair Value Hierarchy
Carrying
Amount
Level 1
Level 2
Level 3
Fair Value
Amount
September 30, 2023:
Financial Assets:
Cash and due from banks
$
5,074
$
5,074
$
-
$
-
$
5,074
Interest-bearing deposits in banks
$
28,361
$
28,361
$
-
$
-
$
28,361
Investment securities held to maturity, net
$
197,311
$
-
$
171,294
$
-
$
171,294
Loans held for investment, net
$
1,657,027
$
-
$
-
$
1,606,440
$
1,606,440
Accrued interest receivable
$
8,920
$
-
$
1,476
$
7,444
$
8,920
Financial Liabilities:
Demand deposits
$
573,546
$
573,546
$
-
$
-
$
573,546
Money market and savings accounts
$
1,016,564
$
1,016,564
$
-
$
-
$
1,016,564
Interest-bearing checking accounts
$
46,537
$
46,537
$
-
$
-
$
46,537
Time deposits
$
284,275
$
-
$
-
$
282,062
$
282,062
FHLB advances
$
102,000
$
-
$
98,718
$
-
$
98,718
Accrued interest payable
$
1,206
$
-
$
469
$
737
$
1,206
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
 
shares of Class A
 
common stock at a
 
price of $
10.00
 
per share. The Bank
 
received total net proceeds
 
of $
40.0
million after deducting underwriting discounts and expenses.
In December 2021,
 
the Company acquired
 
all the issued
 
and outstanding shares
 
of the Class
 
A common stock
 
of the
Bank, which at the time were
 
the only issued and outstanding shares
 
of the Bank’s capital stock,
 
in a share exchange (the
“Reorganization”)
 
effected
 
under
 
the
 
Florida
 
Business
 
Corporation
 
Act.
 
Each
 
outstanding
 
share
 
of
 
the
 
Bank’s
 
Class
 
A
common stock,
 
par value
 
$
1.00
 
per share,
 
formerly held
 
by its
 
Shareholders was
 
converted into
 
and exchanged
 
for
one
newly
 
issued
 
share
 
of
 
the
 
Company’s
 
Class
 
A
 
common
 
stock,
 
par
 
value
 
$
1.00
 
per
 
share,
 
and
 
the
 
Bank
 
became
 
the
Company’s wholly owned subsidiary.
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
29
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
In the
 
Reorganization,
 
each
 
shareholder
 
of the
 
Bank
 
received securities
 
of
 
the same
 
class,
 
having
 
substantially
 
the
same designations,
 
rights,
 
powers, preferences,
 
qualifications,
 
limitations
 
and restrictions,
 
as those
 
that the
 
shareholder
held in the Bank,
 
and the Company’s
 
then current shareholders
 
owned the same
 
percentages of the
 
Company’s common
stock as they previously owned of the Bank’s common
 
stock.
In March 2023, the
 
Company issued
121,627
 
shares of Class A
 
common stock to employees and
 
directors as restricted
stock awards pursuant to the Company’s 2015 equity incentive plan. There were
no
 
stock awards issued during the quarter
ended September 30, 2023 nor during the three and nine
 
months ended September 30, 2022.
 
During the
 
nine months
 
ended September
 
30, 2023
 
the Company
 
repurchased
577,603
 
shares
 
of Class
 
A common
stock
 
at
 
a
 
weighted
 
average
 
price
 
per
 
share
 
of
 
$
9.77
.
 
The
 
aggregate
 
purchase
 
price
 
for
 
these
 
transactions
 
was
approximately
 
$
6.6
 
million,
 
including
 
transaction
 
costs.
 
These
 
repurchases
 
were
 
made
 
through
 
open
 
market
 
purchases
pursuant to the Company’s publicly announced repurchase program.
No
 
shares were repurchased during the three months
ended
 
September
 
30,
 
2023. As
 
of
 
September
 
30,
 
2023,
172,397
 
shares
 
remained
 
authorized
 
for
 
repurchase
 
under
 
this
program.
Shares of the Company’s Class A common stock issued and outstanding as
of September 30, 2023 and December 31,
2022 were
19,542,290
 
and
20,000,753
, respectively.
 
Dividends
Declaration of dividends by the Board is required before dividend payments are made.
No
 
dividends were approved by
the Board for
 
the common stock classes
 
for the three
 
months ended September 30, 2023
 
and 2022. Additionally, there were
no
 
dividends declared and unpaid as of September 30,
 
2023 and 2022.
The
 
Company
 
and
 
the
 
Bank
 
exceeded
 
all
 
regulatory
 
capital
 
requirements
 
and
 
remained
 
above
 
“well-capitalized”
guidelines as of September 30, 2023
 
and December 31, 2022. At September 30, 2023, the
 
total risk-based capital ratios for
the Company and the Bank were
13.10
% and
13.06
%, respectively.
9.
 
EARNINGS PER SHARE
Earnings
 
per
 
share
 
(“EPS”)
 
for
 
common
 
stock
 
is
 
calculated
 
using
 
the
 
two-class
 
method
 
required
 
for
 
participating
securities. Basic EPS
 
is calculated by
 
dividing net income
 
(loss) available to
 
common shareholders by
 
the weighted-average
number of common shares outstanding for
 
the period, without consideration for common
 
stock equivalents. Diluted EPS is
computed by
 
dividing net
 
income (loss)
 
available to
 
common share
 
holders by
 
the weighted
 
-average
 
number of
 
common
shares outstanding for
 
the period and
 
the weighted-average number
 
of dilutive common
 
stock equivalents outstanding
 
for
the period determined using the treasury-stock method. For
 
purposes of this calculation, common stock equivalents
 
include
common stock options and are only included in the calculation
 
of diluted EPS when their effect is dilutive.
 
The
 
following
 
table
 
reflects
 
the
 
calculation
 
of
 
net
 
income
 
available
 
to
 
common
 
shareholders
 
for
 
the
 
three
 
and
 
nine
months ended September 30, 2023 and 2022 (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
September 30,
Nine Months Ended
 
September 30,
2023
2022
2023
2022
Net Income
$
3,819
$
5,558
$
13,824
$
15,707
Net income available to common shareholders
$
3,819
$
5,558
$
13,824
$
15,707
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
30
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
The following table reflects the calculation of basic and diluted earnings per common share class for the three and nine
months ended September 30, 2023 and 2022 (in thousands,
 
except per share amounts):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30,
2023
2022
Class A
Class A
Basic EPS
Numerator:
Net income available to common shares
 
$
3,819
$
5,558
Denominator:
Weighted average shares outstanding
19,542,723
20,000,753
Earnings per share, basic
$
0.20
$
0.28
Diluted EPS
Numerator:
Net income available to common shares
$
3,819
$
5,558
Denominator:
Weighted average shares outstanding for basic EPS
19,542,723
20,000,753
Add: Dilutive effects of assumed exercises of stock options
69,174
147,455
Weighted avg. shares including dilutive potential common shares
19,611,897
20,148,208
Earnings per share, diluted
$
0.19
$
0.28
Anti-dilutive stock options excluded from diluted EPS
720,500
15,000
Net income has not been allocated to unvested restricted
 
stock awards that are participating securities
 
because the amounts that would be allocated
are not material to net income per share of
 
common stock. Unvested restricted stock awards
 
that are participating securities represent less than one
percent of all of the outstanding shares of
 
common stock for each of the periods presented.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30,
2023
2022
Class A
Class A
Basic EPS
Numerator:
Net income available to common shares
$
13,824
$
15,707
Denominator:
Weighted average shares outstanding
19,661,685
19,998,841
Earnings per share, basic
$
0.70
$
0.79
Diluted EPS
Numerator:
Net income available to common shares
$
13,824
$
15,707
Denominator:
Weighted average shares outstanding for basic EPS
19,661,685
19,998,841
Add: Dilutive effects of assumed exercises of stock options
67,496
179,248
Weighted avg. shares including dilutive potential common shares
19,729,181
20,178,089
Earnings per share, diluted
$
0.70
$
0.78
Anti-dilutive stock options excluded from diluted EPS
720,500
15,000
Net income has not been allocated to unvested
 
restricted stock awards that are participating securities
 
because the amounts that would be allocated are
not material to net income per share of common
 
stock. Unvested restricted stock awards that are participating
 
securities represent less than one percent
of all of the outstanding shares of common stock
 
for each of the periods presented.
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
31
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
10.
 
LOSS CONTINGENCIES
 
Loss contingencies,
 
including claims
 
and legal actions
 
may arise in
 
the ordinary
 
course of
 
business. In
 
the opinion
 
of
management, none
 
of these
 
actions, either
 
individually or
 
in the aggregate,
 
is expected to
 
have a
 
material adverse
 
effect
on the Company’s Consolidated Financial Statements.
As previously
 
disclosed, on
 
July 13, 2023,
three
 
individual shareholders
 
(“The Plaintiffs”)
 
filed a complaint
 
against
six
board members
 
serving in
 
July 2021,
 
without naming
 
the Bank
 
as a
 
party,
 
alleging the
 
named directors
 
did not
 
have the
authority to approve the exchange of
 
preferred stock in July 2021 as
 
part of the Bank’s initial public
 
offering and that further,
such action breached
 
their fiduciary duties.
 
The Plaintiffs
 
claim this exchange
 
was not permitted
 
by the Bank’s
 
Articles of
Incorporation.
 
The
 
Company
 
believes
 
that
 
the
 
allegations
 
in
 
the
 
lawsuit
 
are
 
legally
 
and
 
factually
 
without
 
merit,
 
and
 
the
Company intends to vigorously defend against the allegations in
 
the lawsuit. Despite the Company’s belief the lawsuit lacks
merit, if the plaintiffs were successful, the Court
 
could award substantial compensatory damages.
 
 
32
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
Item 2.
 
Management's Discussion and Analysis of Financial Condition
 
and Results of Operations
 
The
 
following
 
discussion
 
and
 
analysis
 
is
 
designed
 
to
 
provide
 
a
 
better
 
understanding
 
of
 
the
 
consolidated
 
financial
condition
 
and
 
results
 
of
 
operations
 
of the
 
Company
 
and the
 
Bank,
 
its wholly
 
owned
 
subsidiary,
 
for
 
the quarter
 
and nine
months ended
 
September 30, 2023. This
 
discussion and analysis
 
is best
 
read in
 
conjunction with
 
the unaudited consolidated
financial statements
 
and related
 
footnotes included
 
in this Quarterly
 
Report on
 
Form 10-Q
 
(“Form 10-Q”)
 
and the
 
audited
consolidated
 
financial
 
statements
 
and
 
related footnotes
 
included in
 
the Annual
 
Report
 
on Form
 
10-K/A (“2022
 
Form 10-
K/A”) filed with the Securities and Exchange Commission (“SEC”)
 
for the year ended December 31, 2022.
This discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause
actual results to differ materially
 
from management's expectations. Factors that could cause
 
such differences are discussed
in the sections entitled "Forward-Looking Statements"
 
and Item 1A “Risk Factors" below and in the 2022 Form 10-K/A filed
with the SEC which is available at the SEC’s website www.sec.gov.
Throughout
 
this
 
document,
 
references
 
to
 
“we,”
 
“us,”
 
“our,”
 
and
 
“the
 
Company”
 
generally
 
refer
 
to
 
USCB
 
Financial
Holdings, Inc.
Forward-Looking Statements
This Form 10-Q contains
 
statements that are
 
not historical in
 
nature and are
 
intended to be, and
 
are hereby identified
as, forward-looking statements for
 
purposes of the safe
 
harbor provided by Section
 
21E of the Securities
 
Exchange Act of
1934,
 
as
 
amended
 
(Exchange
 
Act”).
 
The
 
words
 
“may,”
 
“will,”
 
“anticipate,”
 
“should,”
 
“would,”
 
“believe,”
 
“contemplate,”
“expect,” “aim,” “plan,” “estimate,” “continue,” and “intend,” as well as other similar words and expressions of the future, are
intended
 
to
 
identify
 
forward-looking
 
statements.
 
These
 
forward-looking
 
statements
 
include,
 
but
 
are
 
not
 
limited
 
to,
 
statements
 
related
 
to
 
our
 
projected
 
growth,
 
anticipated
 
future
 
financial
 
performance,
 
and
 
management’s
 
long-term
performance goals, as well as statements relating
 
to the anticipated effects on results
 
of operations and financial condition
from expected
 
developments or events,
 
or business
 
and growth
 
strategies, including anticipated
 
internal growth and
 
balance
sheet restructuring.
 
These forward-looking statements involve significant risks and uncertainties that could cause our actual results to differ
materially from those anticipated in such statements.
 
Potential risks and uncertainties include, but are not
 
limited to:
 
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 procedures and processes;
 
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
 
lack
 
of
 
a
 
significantly
 
diversified
 
loan
 
portfolio
 
and
 
the
 
concentration
 
in
 
the
 
South
 
Florida
 
market,
 
including
 
the
 
risks
 
of
geographic, depositor,
 
and industry
 
concentrations, including
 
our concentration
 
in loans
 
secured by
 
real estate,
 
in particular,
commercial real estate;
 
the 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 interest
 
rate spread
 
and net
interest margin;
 
the loss of key employees;
 
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”).
 
All
 
forward-looking
 
statements
 
are
 
necessarily
 
only
 
estimates
 
of
 
future
 
results,
 
and
 
there
 
can
 
be
 
no
 
assurance
 
that
actual results will
 
not differ
 
materially from expectations.
 
Therefore, you are
 
cautioned not to
 
place undue reliance
 
on any
 
 
33
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
forward-looking statements.
 
Further,
 
forward-looking statements
 
included in
 
this Form
 
10-Q are
 
made only
 
as of the
 
date
hereof, and we undertake
 
no obligation to update
 
or revise any forward-looking
 
statement to reflect events
 
or circumstances
after the date on which the statements are made or to reflect the occurrence of unanticipated
 
events, unless required to do
so under the federal securities laws. You should also review the risk factors described in the reports the Company has filed
or will file with the SEC.
Overview
The Company
 
reported net
 
income of
 
$3.8 million
 
or $0.19
 
per diluted
 
share of
 
common stock
 
for the
 
three
 
months
ended
 
September 30,
 
2023
 
compared
 
to
 
$5.6
 
million
 
or
 
$0.28
 
per
 
diluted
 
share
 
of
 
common
 
stock
 
for
 
the
 
three
 
months
ended September
 
30, 2022.
 
Net income
 
for the
 
nine months
 
ended September
 
30, 2023
 
was $13.8
 
million or
 
$0.70 per
diluted share of common stock
 
compared to $15.7 million
 
or $0.78 per diluted
 
share of common stock
 
for the same period
in 2022.
No shares
 
were repurchased
 
during the
 
third
 
quarter 2023.
 
Year-to-date, the
 
Company
 
has repurchased
 
577,603 of
Class A
 
common stock shares at
 
a weighted average price
 
per share of
 
$9.77. These repurchases were
 
made through open
market purchases pursuant to
 
the Company’s publicly announced repurchase
 
program. As of
 
September 30, 2023, 172,397
shares remained authorized for repurchase under this
 
program.
In evaluating our financial
 
performance, the Company
 
considers the level of
 
and trends in net
 
interest income, the
 
net
interest margin, the cost of deposits, levels
 
and composition of non-interest income and non-interest expense, performance
ratios, asset quality ratios, regulatory capital ratios, and any
 
significant event or transaction.
Unless
 
otherwise
 
stated,
 
all
 
period
 
comparisons
 
in
 
the
 
bullet
 
points
 
below
 
are
 
calculated
 
for
 
the
 
quarter
 
ended
September 30, 2023 compared
 
to the quarter
 
ended September 30, 2022
 
and to
 
December 31, 2022,
 
and annualized where
appropriate:
 
Net interest income
 
for the three
 
months ended September
 
30, 2023 decreased
 
$2.8 million or
 
16.4% to $14.0 million
 
from $16.8
million
 
for
 
the
 
quarter
 
ended
 
September 30,
 
2022.
 
Net
 
interest
 
income
 
for
 
the
 
nine
 
months
 
ended
 
in
 
September
 
30,
 
2023
decreased $2.6 million or 5.6% to $44.2 million compared to the same period ended September 30, 2022.
 
Net interest margin
 
(“NIM”) was 2.60%
 
for the three
 
months ended September
 
30, 2023 compared
 
to 3.47% for
 
the three months
ended September 30, 2022.
 
NIM was 2.84% for
 
the nine months ended
 
in September 30, 2023
 
compared to 3.36% for
 
the same
period in 2022.
 
 
Total assets were $2.2 billion at September 30,
 
2023, representing an increase of $207.1 million or 10.2%
 
from September 30,
2022 and an increase of $158.8 million or 10.2% annualized from December 31, 2022.
 
 
Total loans were
 
$1.7 billion at
 
September 30, 2023,
 
representing an increase
 
of $245.0 million
 
or 17.1% from
 
September 30,
2022 and an increase of $169.2 million or 15.0% annualized from December 31, 2022.
 
Total deposits were $1.9 billion at September 30, 2023, representing an increase of $124.3 million or 6.9% from September 30,
2022 and an increase of $91.6 million or 6.7% annualized from December 31, 2022.
 
 
Annualized return on average assets for the quarter ended September 30, 2023 was 0.67% compared to 1.09% for the quarter
ended September 30, 2022.
 
 
Annualized return on average stockholders’ equity for the quarter
 
ended September 30, 2023 was 8.19% compared
 
to 11.90%
for quarter ended September 30, 2022.
 
 
The ACL to total loans was
 
1.16% at both
 
September 30, 2023 and December
 
31, 2022. ACL was calculated under
 
the CECL
methodology for three and nine months ended September 30, 2023 and the incurred loss methodology for all periods in 2022.
 
Non-performing loans to total loans was 0.03% at September 30, 2023 compared to 0.00% at December 31, 2022.
 
 
At September 30, 2023,
 
the total risk-based
 
capital ratios for
 
the Company and
 
the Bank were
 
13.10% and 13.06%,
 
respectively.
 
Tangible book value
 
per common share
 
(a non-GAAP financial
 
measurement) of $9.36
 
as of September
 
30, 2023 was
 
negatively
affected by
 
$2.62 due
 
to accumulated
 
comprehensive loss
 
of $51.2
 
million at
 
September 30,
 
2023. At
 
September 30,
 
2022,
tangible
 
book
 
value
 
of
 
$8.87
 
per
 
common
 
share
 
was
 
negatively
 
affected
 
by
 
$2.26
 
due
 
to
 
$45.2
 
million
 
accumulated
 
other
comprehensive loss.
 
See “Reconciliation and Management Explanation for Non-GAAP Financial Measures” for a reconciliation
of this non-GAAP financial measure.
 
 
 
34
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
Critical Accounting Policies and Estimates
The
 
consolidated
 
financial
 
statements
 
are
 
prepared
 
based
 
on
 
the
 
application
 
of
 
U.S.
 
GAAP,
 
the
 
most
 
significant
 
of
which are
 
described in
 
Note 1
 
“Summary of
 
Significant Accounting Policies”
 
in the
 
Company’s 2022 Form
 
10-K/A. To prepare
financial statements
 
in conformity
 
with US
 
GAAP,
 
management makes
 
estimates, assumptions,
 
and judgments
 
based on
available information. These estimates,
 
assumptions, and judgments affect
 
the amounts reported in
 
the financial statements
and accompanying notes. These estimates, assumptions,
 
and judgments are based on information available as of the date
of the financial statements and,
 
as this information changes, actual results
 
could differ from the estimates, assumptions and
judgments reflected
 
in the
 
financial statements.
 
In particular,
 
management
 
has identified
 
accounting
 
policies that,
 
due to
the estimates, assumptions and judgments inherent in those policies, are critical in understanding our financial statements.
Management has presented the application of these policies
 
to the Audit and Risk Committee of our Board of
 
Directors.
 
Allowance for Credit Losses
On
 
January
 
1,
 
2023,
 
the
 
Company
 
adopted
 
ASU
 
2016-13
 
Financial
 
Instruments
 
-
 
Credit
 
Losses
 
(Topic
 
326):
Measurement of Credit Losses
 
on Financial Instruments,
 
as amended, which replaces
 
the incurred loss methodology
 
with
an
 
expected
 
loss
 
methodology
 
that
 
is
 
referred
 
to
 
as
 
the
 
current
 
expected
 
credit
 
loss
 
(CECL)
 
methodology.
 
See
 
Note
 
1
“Summary of Significant Accounting Policies” in Item 1
 
of Part I of this
 
Form 10-Q for more information on the
 
adoption ASC
326 and the allowance for credit losses.
 
Our ACL
 
included residential
 
loans. To
 
assess the
 
potential impact
 
of changes
 
in qualitative
 
factors related
 
to these
loans,
 
management
 
performed
 
a sensitivity
 
analysis.
 
The Company
 
evaluated
 
the
 
impact
 
of the
 
HPI
 
used
 
in calculating
expected losses on the residential loan segment. As of September 30, 2023, for every 100 basis points increase in the HPI
index, the forecast reduces
 
reserves
 
by approximately $217
 
thousand and about 1
 
basis point to
 
the reserve coverage ratio,
everything else being
 
constant. This
 
sensitivity analysis provides
 
a hypothetical result
 
to assess the
 
sensitivity of the
 
ACL
and does not represent a change in management’s
 
judgement.
Income Taxes
Deferred tax
 
assets and
 
liabilities are
 
recognized for
 
the future
 
tax consequences
 
attributable to
 
differences
 
between
the financial statement carrying amounts of
 
existing assets and liabilities and their
 
respective tax bases and operating loss
and tax credit carryforwards. Deferred tax
 
assets and liabilities are measured
 
using enacted tax rates expected
 
to apply to
taxable income
 
in the
 
years in
 
which those
 
temporary differences
 
are expected
 
to be
 
recovered or
 
settled. The
 
effect
 
on
deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment
date.
 
Management is required to assess whether a valuation allowance should be established on the net deferred tax assets
based on the
 
consideration of
 
all available evidence
 
using a more
 
likely than not
 
standard. In its
 
evaluation, management
considers taxable loss
 
carry-back availability, expectation of sufficient
 
taxable income, trends
 
in earnings, the
 
future reversal
of temporary differences, and available tax planning
 
strategies.
The Company recognizes positions taken
 
or expected to be
 
taken in a tax
 
return in accordance with existing accounting
guidance on
 
income taxes
 
which prescribes
 
a recognition threshold
 
and measurement
 
process. Interest
 
and penalties
 
on
tax liabilities, if any, would
 
be recorded in interest expense and other operating non-interest
 
expense, respectively.
Non-GAAP Financial Measures
This Form 10-Q
 
includes financial information determined by
 
methods other than in
 
accordance with generally accepted
accounting principles (“GAAP”). This financial information
 
includes certain operating performance measures.
 
Management
has included these non-GAAP measures because it believes these
 
measures may provide useful supplemental information
for evaluating the Company’s underlying performance trends. Further, management uses these measures in
 
managing and
evaluating
 
the
 
Company’s
 
business
 
and
 
intends
 
to
 
refer
 
to
 
them
 
in
 
discussions
 
about
 
our
 
operations
 
and
 
performance.
Operating performance measures
 
should be viewed in
 
addition to, and not
 
as an alternative to
 
or substitute for,
 
measures
determined in accordance with GAAP,
 
and are not necessarily comparable to non-GAAP measures that may
 
be presented
by other companies. To the extent applicable, reconciliations of these
 
non-GAAP measures to the most
 
directly comparable
GAAP
 
measures
 
can
 
be
 
found
 
in
 
the
 
section
 
“Reconciliation
 
and
 
Management
 
Explanation
 
of
 
Non-GAAP
 
Financial
Measures” included in this Form 10-Q.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
35
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
Segment Reporting
Management monitors the revenue streams for all its various
 
products and services. The identifiable segments are not
material
 
and
 
operations
 
are
 
managed
 
and
 
financial
 
performance
 
is
 
evaluated
 
on
 
an
 
overall
 
Company-wide
 
basis.
Accordingly, all
 
the financial service
 
operations are
 
considered by management
 
to be
 
aggregated in one
 
reportable operating
segment.
Results of Operations
General
The following
 
tables present
 
selected balance
 
sheet, income
 
statement, and
 
profitability ratios
 
for the
 
dates indicated
(in thousands, except ratios):
September 30, 2023
December 31, 2022
Consolidated Balance Sheets:
Total
 
assets
$
2,244,602
$
2,085,834
Total
 
loans
(1)
$
1,676,520
$
1,507,338
Total
 
deposits
$
1,920,922
$
1,829,281
Total
 
stockholders' equity
$
182,884
$
182,428
(1)
 
Loan amounts include deferred fees/costs.
Three Months Ended September 30,
Nine Months Ended September 30,
2023
2022
2023
2022
Consolidated Statements of Operations:
Net interest income before provision for credit losses
$
14,022
$
16,774
$
44,192
$
46,795
Total
 
non-interest income
$
2,161
$
1,789
$
6,077
$
5,351
Total
 
non-interest expense
$
10,461
$
10,132
$
31,089
$
29,295
Net income
 
$
3,819
$
5,558
$
13,824
$
15,707
Profitability:
Efficiency ratio
64.64%
54.58%
61.85%
56.18%
Net interest margin
2.60%
3.47%
2.84%
3.36%
The Company’s results
 
of operations
 
depend substantially on
 
net interest income
 
and non-interest income.
 
Other factors
contributing to
 
the results
 
of operations
 
include our
 
provision for
 
credit losses,
 
the level
 
of non-interest
 
expense, and
 
the
provision for income taxes.
Three months ended September 30, 2023 compared to the
 
three months ended September 30, 2022
 
Net income decreased
 
to $3.8 million
 
for the three
 
months ended September
 
30, 2023 from
 
$5.6 million for
 
the same
period in 2022 mainly due to higher weighted average
 
deposit costs.
 
Nine months ended September 30, 2023 compared to nine
 
months ended September 30, 2022
 
Net income decreased to $13.8 million for the nine months ended September 30,
 
2023 from $15.7 million for the same
period in 2022. The main drivers of the variance of net income was a $25.1 million increase in
 
interest expense mainly due
to increases in the cost of deposits partially offset by a $22.5 million increase in interest income generated from higher loan
yields and a larger loan portfolio.
 
Net Interest Income
Net interest income
 
is the difference
 
between interest
 
earned on interest-earning
 
assets and interest
 
paid on interest-
bearing liabilities
 
and is
 
the primary
 
driver of
 
core earnings.
 
Interest income
 
is generated
 
from interest
 
and dividends
 
on
interest-earning
 
assets,
 
including
 
loans,
 
investment
 
securities
 
and
 
other
 
short-term
 
investments.
 
Interest
 
expense
 
is
incurred
 
from
 
interest
 
paid
 
on
 
interest-bearing
 
liabilities,
 
including
 
interest-bearing
 
deposits,
 
FHLB
 
advances
 
and
 
other
borrowings.
To evaluate net
 
interest income, we
 
measure and monitor
 
(i) yields on
 
loans and other
 
interest-earning assets, (ii)
 
the
costs of deposits
 
and other funding
 
sources, (iii) net
 
interest spread, and
 
(iv) net interest margin.
 
Net interest spread is
 
equal
to the difference between yields earned on interest-earning assets and rates paid on interest-bearing liabilities. Net interest
 
 
36
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
margin is
 
equal to
 
the annualized
 
net interest
 
income
 
divided by
 
average interest
 
-earning assets.
 
Because
 
non-interest-
bearing sources of funds, such as non-interest-bearing deposits
 
and stockholders’ equity, also fund
 
interest-earning assets,
net interest margin includes the indirect benefit of these
 
non-interest-bearing funding sources.
Changes
 
in
 
market
 
interest
 
rates
 
and
 
interest
 
rates
 
we
 
earn
 
on
 
interest-earning
 
assets
 
or
 
pay
 
on
 
interest-bearing
liabilities, as well
 
as the volume
 
and types of
 
interest-earning assets and interest-bearing
 
and non-interest-bearing liabilities,
are usually the
 
largest drivers
 
of periodic changes
 
in net interest
 
spread, net interest
 
margin and net
 
interest income.
 
Our
asset liability committee (ALCO) has in
 
place asset-liability management techniques to manage major factors that
 
affect net
interest income and net interest margin.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
37
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
The following
 
table contains
 
information related
 
to average
 
balances, average
 
yields earned
 
on assets,
 
and average
costs of liabilities for the periods indicated (dollars in
 
thousands):
Three Months Ended September 30,
2023
2022
Average
(1)
Balance
Interest
Yield/Rate
(2)
Average
(1)
Balance
Interest
Yield/Rate
(2)
Assets
Interest-earning assets:
Loans
(3)
$
1,610,864
$
22,523
5.55%
$
1,398,761
$
15,954
4.53%
Investment securities
(4)
445,828
2,833
2.52%
450,514
2,201
1.94%
Other interest-earnings assets
83,479
1,026
4.88%
70,540
322
1.81%
Total interest-earning assets
2,140,171
26,382
4.89%
1,919,815
18,477
3.82%
Non-interest-earning assets
110,087
 
 
106,976
 
 
Total assets
$
2,250,258
$
2,026,791
Liabilities and stockholders' equity
 
 
 
 
 
 
Interest-bearing liabilities:
Interest-bearing checking
$
52,080
331
2.52%
$
66,585
19
0.11%
Saving and money market deposits
1,011,164
8,779
3.44%
823,521
1,141
0.55%
Time deposits
290,272
2,565
3.51%
217,023
363
0.66%
Total interest-bearing deposits
1,353,516
11,675
3.42%
1,107,129
1,523
0.55%
FHLB advances and other borrowings
85,326
685
3.19%
43,935
180
1.63%
Total interest-bearing liabilities
1,438,842
12,360
3.41%
1,151,064
1,703
0.59%
Non-interest-bearing demand deposits
587,917
 
 
655,853
 
 
Other non-interest-bearing liabilities
38,598
34,586
Total liabilities
2,065,357
 
 
1,841,503
 
 
Stockholders' equity
184,901
185,288
Total liabilities and stockholders' equity
$
2,250,258
 
 
$
2,026,791
 
 
Net interest income
$
14,022
$
16,774
Net interest spread
(5)
1.48%
3.23%
Net interest margin
(6)
2.60%
3.47%
(1)
 
Average balances - Daily average balances are used
 
to calculate yields/rates.
(2)
 
Annualized.
(3)
 
Average loan balances include non-accrual loans. Interest income
 
on loans includes accretion of deferred loan
 
fees, net of deferred loan costs.
(4)
 
At fair value except for securities held to maturity. This amount includes
 
FHLB stock.
(5)
 
Net interest spread is the weighted average
 
yield on total interest-earning assets minus the weighted
 
average rate on total interest-bearing liabilities.
(6)
 
Net interest margin is the ratio of net interest
 
income to average total interest-earning assets.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
38
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
Nine Months Ended September 30,
2023
2022
Average
Balance
(1)
Interest
Yield/Rate
(2)
Average
Balance
(1)
Interest
Yield/Rate
(2)
Assets
Interest-earning assets:
Loans
(3)
$
1,576,074
$
63,081
5.35
%
$
1,302,909
$
42,989
4.41
%
Investment securities
(4)
430,118
7,501
2.33
%
484,489
7,040
1.94
%
Other interest-earnings assets
71,514
2,459
4.60
%
76,655
474
0.83
%
Total interest-earning assets
2,077,706
73,041
4.70
%
1,864,053
50,503
3.62
%
Non-interest earning assets
107,443
105,914
Total assets
$
2,185,149
$
1,969,967
Liabilities and stockholders' equity
Interest-bearing liabilities:
Interest-bearing checking
$
54,554
574
1.41
%
$
65,798
52
0.11
%
Money market and savings accounts
949,858
20,532
2.89
%
780,564
2,307
0.40
%
Time deposits
264,241
5,767
2.92
%
221,504
893
0.54
%
Total interest-bearing deposits
1,268,653
26,873
2.83
%
1,067,866
3,252
0.30
%
Borrowings and repurchase agreements
80,087
1,976
3.30
%
38,788
456
1.57
%
Total interest-bearing liabilities
1,348,740
28,849
2.87
%
1,106,654
3,708
0.45
%
Non-interest bearing demand deposits
617,741
642,396
Other non-interest-bearing liabilities
34,492
29,608
Total liabilities
2,000,973
1,778,658
Stockholders' equity
184,176
191,309
Total liabilities and stockholders' equity
$
2,185,149
$
1,969,967
Net interest income
$
44,192
$
46,795
Net interest spread
(5)
1.83
%
3.17
%
Net interest margin
(6)
2.84
%
3.36
%
(1)
 
Average balances - Daily average balances are used
 
to calculate yields/rates.
(2)
 
Annualized.
(3)
 
Average loan balances include non-accrual loans. Interest income
 
on loans includes accretion of deferred loan fees,
 
net of deferred loan costs.
(4)
 
At fair value except for securities held to maturity. Includes FHLB stock.
(5)
 
Net interest spread is the weighted average
 
yield on total interest-earning assets minus the weighted
 
average rate on total interest-bearing
liabilities.
(6)
 
Net interest margin is the ratio of net interest
 
income to average total interest-earning assets.
Three months ended September 30, 2023 compared to the
 
three months ended September 30, 2022
 
Net interest income before the provision
 
for credit losses was $14.0
 
million for the three months
 
ended September 30,
2023, a
 
decrease
 
of
 
$2.8
 
million
 
or
 
16.4%,
 
from
 
$16.8
 
million
 
for the
 
same
 
period in
 
2022. The
 
decrease
 
was
 
primarily
attributable
 
to
 
the
 
$10.7
 
million
 
increase
 
in
 
interest
 
expense,
 
which
 
was
 
a
 
result
 
to
 
the
 
prevailing
 
market
 
interest
 
rate
conditions which offset the increase in interest income.
Net interest margin was 2.60%
 
for the quarter ended September 30, 2023 and 3.47% for the same period in 2022. The
increase in loan yields as well as yields on other interest
 
-earning assets was offset by higher deposit and borrowing
 
costs.
 
Nine months ended September 30, 2023 compared to nine
 
months ended September 30, 2022
Net interest income
 
before the provision
 
for credit losses
 
was $44.2 million
 
for the nine
 
months ended September
 
30,
2023,
 
a
 
decrease
 
of
 
$2.6
 
million
 
or
 
5.6%,
 
from
 
$46.8
 
million
 
for
 
the
 
same
 
period
 
in
 
2022.
 
The
 
decrease
 
was
 
primarily
attributable
 
to
 
the
 
$25.1
 
million
 
increase
 
in
 
interest
 
expense,
 
which
 
was
 
a
 
result
 
to
 
the
 
prevailing
 
market
 
interest
 
rate
conditions which partially offset by the increase in interest
 
income.
Net interest margin
 
decreased to 2.84%
 
for the nine
 
months ended September
 
30, 2023 from
 
3.36% for the
 
same period
in 2022. Overall interest-bearing asset yields grew but
 
were outpaced by the increase in the cost of funds.
 
Provision for Credit Losses
The provision
 
for credit
 
losses represents
 
a charge
 
to earnings
 
necessary to
 
maintain an
 
allowance for
 
credit losses
that, in
 
management's evaluation,
 
is adequate
 
to provide
 
coverage for
 
all expected
 
credit losses.
 
The provision
 
for credit
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
39
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
losses is impacted
 
by variations in
 
the size and
 
composition of our
 
loan and debt
 
securities portfolio, recent
 
historical and
projected future economic conditions, our internal assessment of the credit quality of the loan and debt
 
securities portfolios
and net charge-offs.
Three months ended September 30, 2023 compared to the
 
three months ended September 30, 2022
 
The provision
 
for credit
 
loss was
 
$653 thousand
 
for the
 
three months
 
ended September 30,
 
2023 compared
 
to $910
thousand for the
 
same period in
 
2022. Growth in
 
the loan portfolio
 
was the primary
 
driver of the
 
provision expense during
the three
 
months ended
 
September 30, 2023
 
period.
 
The decrease
 
in provision
 
for credit
 
losses in
 
the 2023
 
period compared
to the September 30, 2022 quarter was due to greater loan
 
growth in third quarter 2022.
 
Nine months ended September 30, 2023 compared to nine
 
months ended September 30, 2022
The provision
 
for credit
 
loss
 
was
 
$892 thousand
 
for the
 
nine
 
months
 
ended
 
September
 
30,
 
2023 compared
 
to
 
$1.6
million
 
for
 
the
 
same
 
period
 
in
 
2022.
 
Decrease
 
of
 
$723
 
thousand
 
due
 
to
 
higher
 
loan
 
growth
 
in
 
the
 
nine
 
months
 
ended
September 30,
 
2022. The ACL
 
as a
 
percentage
 
of total
 
loans was
 
1.16% at
 
September
 
30, 2023
 
and at
 
September 30,
2022.
ACL for the three
 
and nine months
 
ended September 30,
 
2023, was estimated
 
under the CECL methodology,
 
and for
all periods
 
in 2022,
 
it was
 
estimated under
 
the incurred
 
loss model
 
.
 
See “Allowance
 
for Credit
 
Losses”
 
below for
 
further
discussion on how the ACL is calculated.
 
Non-Interest Income
Our services and products generate service charges and fees, mainly from our depository
 
accounts. We also generate
income from gain on sale of loans though our swap and SBA
 
programs. In addition, we own and are beneficiaries of the life
insurance policies on some of our
 
employees and generate income from
 
the increase in the cash surrender
 
value of these
policies.
The following table presents the components of non-interest
 
income for the dates indicated (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2023
2022
2023
2022
Service fees
$
1,329
$
934
$
3,707
$
2,917
Gain (loss) on sale of securities available for sale, net
(955)
(558)
(976)
(540)
Gain on sale of loans held for sale, net
255
330
696
686
Loan settlement
-
-
-
161
Other non-interest income
1,532
1,083
2,650
2,127
Total
 
non-interest income
$
2,161
$
1,789
$
6,077
$
5,351
Three months ended September 30, 2023 compared to the
 
three months ended September 30, 2022
 
Non-interest income for the three months ended September 30, 2023 increased $372 thousand or 20.8%, compared to
the same period in 2022.
 
This increase was primarily driven by growth in service fees from a larger deposit portfolio and an
increase in
 
wire and
 
treasury
 
management
 
fees.
 
A strategic
 
restructuring
 
of
 
bank
 
owned
 
life insurance
 
increased
 
other
income
 
by
 
$982
 
thousand.
 
However,
 
there
 
was
 
a
 
$955
 
thousand
 
securities
 
loss
 
experienced
 
during
 
the
 
period.
 
The
Company sold $7.7 million in lower-yielding securities to reinvest
 
the funds in higher-return investments.
 
Nine months ended September 30, 2023 compared to the
 
nine months ended September 30, 2022
Non-interest income for the nine months
 
ended September 30, 2023 increased $726
 
thousand or 13.6%, compared to
the same
 
period in
 
2022. This increase
 
was primarily
 
driven by
 
an increase
 
in service
 
fees from
 
a larger
 
deposit portfolio
and an
 
increase in
 
wire and
 
treasury management
 
fees. A strategic restructuring
 
of bank
 
owned life
 
insurance increased
other income by
 
$982 thousand
 
experienced during
 
the period. However,
 
there was a
 
$976 thousand securities
 
loss. The
Company sold
 
$16.4 million
 
in lower-yielding
 
securities
 
to reinvest
 
the funds
 
in higher-return
 
investments. For
 
the period
ended September 30, 2022, the Company recognized $161 thousand interest
 
recovery from a prior lending customer of the
Bank. This payment reflected the final payment and settlement of
 
lien judgements against the customer.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
40
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
Non-Interest Expense
The following table presents the components of non-interest
 
expense for the dates indicated (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2023
2022
2023
2022
Salaries and employee benefits
$
6,066
$
6,075
$
18,325
$
17,863
Occupancy
1,350
1,281
3,968
3,802
Regulatory assessment and fees
365
269
1,041
708
Consulting and legal fees
513
604
1,257
1,519
Network and information technology services
481
488
1,464
1,323
Other operating
1,686
1,415
5,034
4,080
Total
 
non-interest expense
$
10,461
$
10,132
$
31,089
$
29,295
Three months ended September 30, 2023 compared to the
 
three months ended September 30, 2022
 
Non-interest expense for the three months ended September 30, 2023 increased $329 thousand or 3.2%, compared to
the same
 
period in
 
2022. The increase
 
was primarily
 
driven by
 
an increase
 
in the audit
 
and tax
 
services, legal
 
expenses,
FDIC deposit insurance assessment,
 
and was partially offset by a decrease in the professional
 
fees.
 
Nine months ended September 30, 2023 compared to
 
the nine months ended September 30, 2022
Non-interest expense for the nine months ended September 30,
 
2023 increased $1.8 million or 6.1%, compared to
 
the
same period in
 
2022. The increase
 
was primarily driven
 
by higher salaries
 
and employee benefits
 
expense due to
 
new hires,
increased salary compensation and seasonal payroll taxes as well as increases in the FDIC deposit insurance assessment
rate, and audit and tax services expense.
 
Provision for Income Tax
Fluctuations in the effective tax rate reflect the effect of the differences in the inclusion or deductibility of certain income
and expenses for
 
income tax purposes.
 
Therefore, future
 
decisions on the
 
investments we choose
 
will affect our
 
effective
tax rate.
 
The cash
 
surrender value
 
of bank-owned
 
life insurance
 
policies covering
 
key employees,
 
purchasing municipal
bonds, and overall levels of taxable income will be important
 
elements in determining our effective tax rate.
Three months ended September 30, 2023 compared to the
 
three months ended September 30, 2022
 
Income tax
 
expense for
 
the quarter
 
ended September
 
30, 2023
 
was $1.3
 
million as
 
compared to
 
$2.0 million
 
for the
same period in 2022.
 
The effective tax rate
 
for the three months ended
 
September 30, 2023 was 24.7% compared to
 
26.1%
for the same period in 2022.
 
Nine months ended September 30, 2023 compared to the
 
nine months ended September 30, 2022
Income tax expense for the nine months ended September 30, 2023 decreased to $4.5 million from $5.5 million for
 
the
same period
 
in 2022.
 
The Company’s
 
effective tax
 
rate was
 
24.4% for
 
the 2023
 
period compared
 
to 26.0%
 
for the
 
same
period in 2022.
 
For
 
a
 
further
 
discussion
 
of
 
income
 
taxes,
 
see
 
Note
 
4
 
“Income
 
Taxes”
 
to
 
the
 
unaudited
 
Consolidated
 
Financial
Statements in Item 1 of Part I of this Form 10-Q.
Analysis of Financial Condition
Total
 
assets at
 
September 30, 2023
 
were $2.2
 
billion, an
 
increase of
 
$158.8 million,
 
or 10.2%
 
annualized,
 
over total
assets of
 
$2.1 billion
 
at December
 
31, 2022.
 
Total
 
loans,
 
net of
 
unearned
 
fees/cost,
 
increased
 
$169.2
 
million,
 
or 15.0%
annualized, to $1.7 billion at September 30, 2023 compared to $1.5 billion at December 31, 2022. Total
 
deposits increased
by $91.6 million,
 
or 6.7% annualized, to $1.9 billion at September 30, 2023
 
compared to December 31, 2022.
Investment Securities
The investment portfolio
 
is used and
 
managed to provide
 
liquidity through cash
 
flows, marketability
 
and, if necessary,
collateral for
 
borrowings. The
 
investment portfolio
 
is also
 
used as
 
a tool
 
to manage
 
interest rate
 
risk and
 
the Company’s
capital
 
market
 
risk
 
exposure.
 
The
 
philosophy
 
of
 
the
 
portfolio
 
is
 
to
 
maximize
 
the
 
Company’s
 
profitability
 
taking
 
into
 
 
41
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
consideration the Company’s
 
risk appetite and
 
tolerance, manage
 
the asset composition
 
and diversification,
 
and maintain
adequate risk-based capital ratios.
The investment portfolio
 
is managed in accordance
 
with the Board approved
 
Asset and Liability
 
Management (“ALM”)
policy,
 
which
 
includes
 
investment
 
guidelines.
 
Such
 
policy
 
is
 
reviewed
 
at
 
least
 
annually
 
or
 
more
 
frequently
 
if
 
deemed
necessary,
 
depending on
 
market conditions
 
and/or unexpected
 
events. The investment
 
portfolio composition
 
is subject to
change depending on the funding and liquidity needs of the Company, and the interest risk management objective directed
by the Asset-Liability
 
Comittee (“ALCO”). The
 
portfolio of investments
 
also can be
 
used to modify
 
the duration of
 
the balance
sheet. The allocation
 
of cash into
 
securities takes into
 
consideration anticipated future
 
cash flows (uses
 
and sources) and
all available sources of credit.
Our investment portfolio consists
 
primarily of securities issued
 
by U.S. government-sponsored agencies,
 
U.S.
 
agency
mortgage-backed securities,
 
collateralized mortgage
 
obligation securities,
 
municipal securities,
 
and other
 
debt securities,
all with varying contractual maturities and coupons. Due to the optionality embedded in these securities, the final maturities
do not necessarily represent
 
the expected life of
 
the portfolio. Some
 
of these securities will
 
be called or paid
 
down prior to
maturity
 
depending on
 
capital market
 
conditions
 
and
 
expectations.
 
The
 
investment
 
portfolio
 
is regularly
 
reviewed by
 
the
Chief Financial
 
Officer,
 
Treasurer,
 
and the
 
ALCO of
 
the Company
 
to ensure
 
an appropriate
 
risk and
 
return profile
 
as well
as for adherence to the investment policy.
ASC Topic
 
326 amended
 
the
 
existing
 
other-than-temporary-impairment
 
guidance
 
for AFS
 
securities,
 
requiring
 
credit
losses to be recorded as
 
an allowance rather than
 
through a permanent write-down.
 
When evaluating AFS debt
 
securities
under ASC Topic
 
326, the Company has evaluated
 
whether the decline in fair value
 
is attributable to credit losses
 
or other
factors
 
like
 
interest
 
rate
 
risk,
 
using
 
both
 
quantitative
 
and
 
qualitative
 
analyses,
 
including
 
company
 
performance
 
analysis,
review of credit
 
ratings, remaining
 
payment terms,
 
prepayment speeds
 
and analysis
 
of macro-economic
 
conditions. Each
investment is expected
 
to recover
 
its price depreciations
 
over its holding
 
period as
 
it moves to
 
maturity and the
 
Company
has
 
the
 
intent
 
and
 
ability
 
to
 
hold
 
these
 
securities
 
to
 
maturity
 
if
 
necessary.
 
As
 
a
 
result
 
of
 
this
 
evaluation,
 
the
 
Company
concluded that no allowance was required on AFS securities.
AFS and
 
HTM investment
 
securities de
 
creased $2.9
 
million, or
 
0.9% annualized,
 
to $415.9 million
 
at September
 
30,
2023 from $418.8 million at December 31,
 
2022. Investment securities increased due
 
to reinvestment of payments received
and investment of excess
 
in cash balances into
 
high credit quality investments
 
to increase the Company’s
 
profitability and
modify the
 
Company’s balance sheet
 
duration according to
 
the ALM policy. As
 
of September 30, 2023,
 
investment securities
with a market value of $107.7 million
 
were pledged to secure public deposits
 
and the BTFP.
 
The investment portfolio does
not have any tax-exempt securities.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
42
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
The
 
following
 
table
 
presents
 
the
 
amortized
 
cost
 
and
 
fair
 
value
 
of
 
investment
 
securities
 
for
 
the
 
dates
 
indicated
 
(in
thousands):
September 30, 2023
December 31, 2022
Available-for-sale:
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
U.S. Government Agency
$
9,913
$
8,025
$
10,177
$
8,655
Collateralized mortgage obligations
105,547
78,571
118,951
95,541
Mortgage-backed securities - residential
66,024
51,157
73,838
60,879
Mortgage-backed securities - commercial
48,010
40,564
32,244
27,954
Municipal securities
25,024
18,116
25,084
18,483
Bank subordinated debt securities
24,417
22,176
15,964
14,919
Corporate bonds
-
-
4,037
3,709
$
278,935
$
218,609
$
280,295
$
230,140
Held-to-maturity:
U.S. Government Agency
$
44,087
$
37,049
$
44,914
$
39,062
U.S. Treasury
19,934
19,906
9,841
9,828
Collateralized mortgage obligations
64,094
53,786
68,727
60,925
Mortgage-backed securities - residential
44,302
38,214
42,685
38,483
Mortgage-backed securities - commercial
15,467
13,884
11,442
10,777
Corporate bonds
9,443
8,455
11,090
10,013
$
197,327
$
171,294
$
188,699
$
169,088
Allowance for credit losses - securities held-to-maturity
(16)
Securities held-to maturity, net of allowance for credit losses
$
197,311
The following
 
table shows
 
the weighted
 
average yields,
 
categorized by
 
contractual maturity,
 
for investment
 
securities
as of September 30, 2023 (in thousands,
 
except ratios):
 
Within 1 year
After 1 year through
5 years
After 5 years through
10 years
After 10 years
Total
Amortized
Cost
Yield
Amortized
Cost
Yield
Amortized
Cost
Yield
Amortized
Cost
Yield
Amortized
Cost
Yield
Available-for-sale:
U.S. Government Agency
$
-
0.00%
$
-
0.00%
$
1,983
3.17%
$
6,042
1.53%
$
8,025
1.93%
Collateralized mortgage obligations
-
0.00%
-
0.00%
-
0.00%
78,571
1.39%
78,571
1.39%
MBS - residential
-
0.00%
-
0.00%
-
0.00%
51,157
1.62%
51,157
1.62%
MBS - commercial
-
0.00%
-
0.00%
-
0.00%
40,564
2.58%
40,564
2.58%
Municipal securities
 
-
0.00%
-
0.00%
2,720
1.69%
15,396
1.75%
18,116
1.74%
Bank subordinated debt securities
-
0.00%
5,977
5.75%
16,199
4.88%
-
0.00%
22,176
5.12%
Corporate bonds
-
0.00%
-
0.00%
-
0.00%
-
0.00%
-
0.00%
$
-
$
5,977
$
20,902
$
191,730
$
218,609
2.09%
Held-to-maturity:
U.S. Government Agency
$
-
0.00%
$
7,921
1.02%
$
20,141
1.38%
$
16,025
2.01%
$
44,087
1.54%
U.S. Treasury
19,934
5.20%
-
0.00%
-
0.00%
-
0.00%
19,934
5.20%
Collateralized mortgage obligations
-
0.00%
-
0.00%
-
0.00%
64,094
1.66%
64,094
1.66%
MBS - residential
-
0.00%
4,468
1.85%
5,925
1.75%
33,909
2.40%
44,302
2.26%
MBS - commercial
-
0.00%
-
0.00%
3,076
1.62%
12,391
2.60%
15,467
2.40%
Corporate bonds
-
0.00%
9,443
2.80%
-
0.00%
-
0.00%
9,443
2.80%
$
19,934
$
21,832
$
29,142
$
126,419
$
197,327
2.24%
Loans
Loans are the
 
largest category of
 
interest-earning assets
 
on the unaudited
 
Consolidated Balance
 
Sheets, and usually
provide
 
higher
 
yields
 
than
 
the
 
remainder
 
of
 
the
 
interest-earning
 
assets.
 
Higher
 
yields
 
typically
 
carry
 
inherent
 
credit
 
and
liquidity risks in comparison to lower
 
yield assets. The Company manages
 
and mitigates such risks in accordance
 
with the
credit and ALM policies, risk tolerance and balance sheet
 
composition.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
43
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
The following table shows the loan portfolio composition
 
as of the dates indicated (in thousands):
September 30, 2023
December 31, 2022
Total
Percent of
Total
Total
Percent of
Total
Residential Real Estate
$
188,880
11.3
%
$
185,636
12.3
%
Commercial Real Estate
1,005,280
60.0
%
970,410
64.4
%
Commercial and Industrial
212,975
12.7
%
126,984
8.4
%
Foreign Banks
94,640
5.7
%
93,769
6.2
%
Consumer and Other
173,096
10.3
%
130,429
8.7
%
Total
 
gross loans
1,674,871
100.0
%
1,507,228
100.0
%
Plus: Deferred fees (cost)
1,649
 
110
Total
 
loans net of deferred fees (cost)
1,676,520
1,507,338
Less: Allowance for credit losses
19,493
17,487
Total
 
net loans
$
1,657,027
$
1,489,851
Total
 
loans,
 
net
 
of
 
unearned
 
fees/cost,
 
increased
 
by
 
$169.2 million,
 
or
 
15.0%
 
annualized
 
to
 
$1.7
 
billion,
 
at
September 30, 2023
 
compared to
 
December 31,
 
2022. The
 
commercial
 
and industrial,
 
and to
 
a lesser
 
extent, consumer
and other and commercial real estate loan segments had the
 
most significant growth.
 
Our
 
loan
 
portfolio
 
continues
 
to
 
grow,
 
with
 
commercial
 
real
 
estate
 
lending
 
as
 
the
 
primary
 
focus
 
which
 
represented
approximately 60.0%
 
of the
 
total gross
 
loan portfolio
 
as of
 
September 30, 2023.
 
Our loan
 
growth strategy
 
since inception
has been reflective of the market in which we operate and of our
 
strategic plan as approved by the Board.
Most of the
 
commercial real estate
 
exposure represents
 
loans to commercial
 
businesses secured
 
by owner-occupied
real estate.
 
The growth
 
experienced in
 
recent years
 
is primarily
 
due to
 
implementation of
 
our relationship-based
 
banking
model and
 
the success
 
of our
 
relationship managers
 
in competing
 
for new
 
business
 
in a
 
highly competitive
 
metropolitan
area. Many
 
of our
 
larger loan
 
clients have
 
long-term relationships
 
with members
 
of our
 
senior management
 
team or
 
our
relationship managers that date back to former institutions.
 
From a
 
liquidity perspective,
 
our loan
 
portfolio provides
 
us with
 
additional
 
liquidity due
 
to repayments
 
or unexpected
prepayments.
 
The
 
following
 
table
 
shows
 
maturities
 
and
 
sensitivity
 
to
 
interest
 
rate
 
changes
 
for
 
the
 
loan
 
portfolio
 
at
September 30, 2023 (in thousands):
Due in 1 year or
less
Due in 1 to 5
years
Due after 5 to 15
years
Due after 15
years
Total
Residential Real Estate
$
9,513
$
23,902
$
81,777
$
73,688
$
188,880
Commercial Real Estate
85,013
164,387
747,779
8,101
1,005,280
Commercial and Industrial
5,348
53,234
114,106
40,287
212,975
Foreign Banks
94,640
-
-
-
94,640
Consumer and Other
1,634
3,080
10,223
158,159
173,096
Total
 
gross loans
$
196,148
$
244,603
$
953,885
$
280,235
$
1,674,871
Interest rate sensitivity:
Fixed interest rates
$
174,725
$
144,198
$
193,366
$
170,370
$
682,659
Floating or adjustable rates
21,423
100,405
760,519
109,865
992,212
Total
 
gross loans
$
196,148
$
244,603
$
953,885
$
280,235
$
1,674,871
The information
 
presented
 
in the
 
table above
 
is based
 
upon the
 
contractual
 
maturities of
 
the individual
 
loans, which
may be
 
subject to
 
renewal at
 
their contractual
 
maturity.
 
Renewals will
 
depend on
 
approval by
 
our credit
 
department and
balance sheet
 
composition at the
 
time of
 
the analysis,
 
as well
 
as any
 
modification of terms
 
at the
 
loan’s maturity. Additionally,
maturity
 
concentrations,
 
loan
 
duration,
 
prepayment
 
speeds
 
and
 
other
 
interest
 
rate
 
sensitivity
 
measures
 
are
 
discussed,
reviewed, and analyzed by the ALCO. Decisions on term
 
/rate modifications are discussed as well.
 
As of September 30,
 
2023, approximately 59%
 
of the loans have
 
adjustable/variable rates and
 
41% of the
 
loans have
fixed rates.
 
The adjustable/variable
 
rate loans
 
re-price to
 
different benchmarks
 
and tenors
 
in different
 
periods of
 
time. By
contractual characteristics, there are no
 
material concentrations on anniversary repricing. Additionally, it is
 
important to note
that most
 
of our
 
loans have
 
interest rate
 
floors. This
 
embedded option
 
protects the
 
Company from
 
a decrease
 
in interest
rates below the floor and positions us to gain in the scenario
 
of higher interest rates.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
44
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
Asset Quality
 
Our asset quality grading
 
analysis estimates the capability of
 
the borrower to repay
 
the contractual obligation of
 
the loan
agreement as scheduled or at all. The Company’s internal credit risk grading system is based on experiences with similarly
graded loans. Internal credit
 
risk grades are reviewed
 
at least once a
 
year, and
 
more frequently as
 
needed. Internal credit
risk ratings
 
may change
 
based on
 
management’s
 
assessment of
 
the results
 
from the
 
annual review,
 
portfolio monitoring,
and other developments observed with borrowers.
 
The internal credit risk grades used by the Company to
 
assess the credit worthiness of a loan are shown below:
Pass
– Loans indicate different levels of satisfactory
 
financial condition and performance.
 
Special Mention
 
– Loans classified as special mention have a potential weakness
 
that deserves management’s
close attention. If left uncorrected, these potential weaknesses
 
may result in deterioration of the repayment
prospects for the loan or of the institution’s
 
credit position at some future date.
 
Substandard
– Loans classified as substandard are inadequately protected
 
by the current net worth and paying
capacity of the obligator or of the collateral pledged, if
 
any. Loans so classified
 
have a well-defined weakness or
weaknesses that jeopardize the liquidation of the debt.
 
They are characterized by the distinct possibility that the
institution will sustain some loss if the deficiencies are
 
not corrected.
 
Doubtful
 
– Loans classified as doubtful have all the weaknesses inherent
 
in those classified at substandard, with
the added characteristic that the weaknesses make collection
 
or liquidation in full on the basis of currently existing
facts, conditions, and values, highly questionable and improbable.
 
Loss
– Loans classified as loss are considered uncollectible.
Loan credit exposures by internally assigned grades are
 
as follows for the dates indicated (in thousands):
 
September 30, 2023
Pass
Special Mention
Substandard
Doubtful
Total
Residential Real Estate
$
188,880
$
-
$
-
$
-
$
188,880
Commercial Real Estate
1,002,765
-
2,515
-
1,005,280
Commercial and Industrial
210,991
-
1,984
-
212,975
Foreign Banks
94,640
-
-
-
94,640
Consumer and Other
173,096
-
-
-
173,096
$
1,670,372
$
-
$
4,499
$
-
$
1,674,871
December 31, 2022
Pass
Special Mention
Substandard
Doubtful
Total
Residential Real Estate
$
185,636
$
-
$
-
$
-
$
185,636
Commercial Real Estate
967,465
-
2,945
-
970,410
Commercial and Industrial
126,177
-
807
-
126,984
Foreign Banks
93,769
-
-
-
93,769
Consumer and Other
130,233
-
196
-
130,429
$
1,503,280
$
-
$
3,948
$
-
$
1,507,228
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
45
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
Non-Performing Assets
The following table presents non-performing assets as
 
of the dates shown (in thousands,
 
except ratios):
September 30, 2023
December 31, 2022
Total
 
non-performing loans
$
479
$
-
Other real estate owned
-
-
Total
 
non-performing assets
$
479
$
-
Asset quality ratios:
(1)
Allowance for credit losses to total loans
1.16%
1.16%
Allowance for credit losses to non-performing loans
4070%
- %
Non-performing loans to total loans
0.03%
- %
(1)
ACL was calculated under CECL methodology for 2023, and incurred loss methodology for 2022
Non-performing
 
assets
 
include
 
all
 
loans
 
categorized
 
as
 
non-accrual
 
or
 
restructured,
 
impaired
 
securities,
 
other
 
real
estate
 
owned
 
(“OREO”)
 
and
 
other
 
repossessed
 
assets.
 
Problem
 
loans
 
for
 
which
 
the
 
collection
 
or
 
liquidation
 
in
 
full
 
is
reasonably uncertain are
 
placed on a non-accrual
 
status. This determination
 
is based on current
 
existing facts concerning
collateral values and the paying capacity of the borrower.
 
When the collection of the full contractual balance is unlikely,
 
the
loan is placed on non-accrual to avoid overstating the
 
Company’s income for a loan with increased credit
 
risk.
 
If the
 
principal or
 
interest on
 
a commercial
 
loan becomes
 
due and
 
unpaid for
 
90 days
 
or more,
 
the loan
 
is placed
 
on
non-accrual status as of
 
the date it becomes
 
90 days past due
 
and remains in non-accrual
 
status until it meets
 
the criteria
for restoration to accrual status.
 
Residential loans, on
 
the other hand, are placed
 
on non-accrual status when
 
the principal
or interest
 
becomes due
 
and unpaid
 
for 120
 
days or
 
more and remains
 
in non-accrual
 
status until
 
it meets
 
the criteria
 
for
restoration
 
to
 
accrual
 
status.
 
Restoring
 
a
 
loan
 
to
 
accrual
 
status
 
is
 
possible
 
when
 
the
 
borrower
 
resumes
 
payment
 
of
 
all
principal and interest
 
payments for a period
 
of six months
 
and the Company
 
has a documented
 
expectation of repayment
of the remaining contractual principal and interest or the
 
loan becomes secured and in the process of collection.
The
 
Company
 
may
 
grant
 
a
 
loan
 
concession
 
to
 
a
 
borrower
 
experiencing
 
financial
 
difficulties.
 
This
 
determination
 
is
performed
 
during
 
the
 
annual
 
review
 
process
 
or
 
whenever
 
problems
 
surface
 
regarding
 
the
 
client’s
 
ability
 
to
 
repay
 
in
accordance with
 
the original
 
terms of
 
the loan
 
or line
 
of credit.
 
The concessions
 
are given
 
to the
 
debtor in
 
various forms,
including interest rate
 
reductions, principal forgiveness, extension
 
of maturity date,
 
waiver, or deferral of
 
payments and other
concessions intended to minimize potential losses.
For further discussion on non-performing loans
 
and borrowers experiencing financial difficulties,
 
see Note 3 “Loans” to
the unaudited Consolidated Financial Statements in Item
 
1 of Part 1 this Form 10-Q.
Allowance for Credit Losses
On January 1,
 
2023, the Company
 
adopted FASB
 
ASU 2016-13,
 
which introduced the
 
current expected
 
credit losses
(CECL)
 
methodology
 
and
 
required
 
us to
 
estimate
 
all expected
 
credit
 
losses over
 
the remaining
 
life of
 
our loan
 
portfolio.
Accordingly,
 
the
 
ACL
 
represents
 
an
 
amount
 
that,
 
in
 
management's
 
evaluation,
 
is
 
adequate
 
to
 
provide
 
coverage
 
for
 
all
expected future credit losses on outstanding loans. Additionally,
 
qualitative adjustments are made to the ACL when, based
on
 
management’s
 
judgment,
 
there
 
are
 
factors
 
impacting
 
the
 
allowance
 
estimate
 
not
 
considered
 
by
 
the
 
quantitative
calculations.
 
See
 
Note
 
3 “Loans”
 
in Item
 
1
 
of
 
Part 1
 
of this
 
Form
 
10-Q
 
for
 
more
 
information
 
on
 
the
 
allowance
 
for credit
losses.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
46
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
The following table presents ACL and net charge-offs to average loans by
 
type for the periods indicated (in thousands):
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Foreign
 
Banks
Consumer
and Other
Total
Three Months Ended September 30, 2023
 
 
 
 
 
 
Beginning balance
$
2,673
$
10,183
$
2,500
$
677
$
2,782
$
18,815
Provision for credit losses
(1)
(162)
(84)
738
73
108
673
Recoveries
-
-
8
-
-
8
Charge-offs
-
-
-
-
(3)
(3)
Ending Balance
$
2,511
$
10,099
$
3,246
$
750
$
2,887
$
19,493
Average loans
$
183,643
$
992,171
$
179,127
$
87,847
$
168,076
$
1,610,864
Net charge-offs to average loans
-
-
-0.02%
-
0.01%
0.00%
Nine Months Ended September 30, 2023
Beginning balance
$
1,352
$
10,143
$
4,163
$
720
$
1,109
$
17,487
Cumulative effect of adoption of accounting
principle
(2)
1,238
1,105
(2,158)
23
858
1,066
Provision for credit losses
(3)
(89)
(1,149)
1,181
7
965
915
Recoveries
10
-
60
-
3
73
Charge-offs
-
-
-
-
(48)
(48)
Ending Balance
$
2,511
$
10,099
$
3,246
$
750
$
2,887
$
19,493
Average loans
$
186,918
$
980,244
$
164,466
$
90,597
$
153,849
$
1,576,074
Net charge-offs to average loans
-0.01%
-
-0.05%
-
0.04%
0.00%
(1) Provision for credit losses excludes $17 thousand release due to unfunded commitments included in other liabilities and $3
thousand release due to investment securities held to maturity.
(2) Impact of CECL adoption on January 1, 2023.
(3) Provision for credit losses excludes $39 thousand release due to unfunded commitments included in other liabilities and $16
thousand expense due to investment securities held to maturity.
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Foreign
 
Banks
Consumer
and Other
Total
Three Months Ended September 30, 2022
 
 
 
 
 
 
Beginning balance
$
2,366
$
9,290
$
2,671
$
651
$
808
$
15,786
Provision for credit losses
(1,009)
695
1,126
74
24
910
Recoveries
1
-
-
-
-
1
Charge-offs
-
-
(88)
-
(5)
(93)
Ending Balance
$
1,358
$
9,985
$
3,709
$
725
$
827
$
16,604
Average loans
$
190,757
$
887,000
$
119,993
$
94,628
$
106,382
$
1,398,761
Net charge-offs to average loans
-
-
0.29%
-
0.02%
0.03%
Nine Months Ended September 30, 2022
Beginning balance
$
2,498
$
8,758
$
2,775
$
457
$
569
$
15,057
Provision for credit losses
(1,157)
1,227
1,011
268
266
1,615
Recoveries
33
-
11
-
3
47
Charge-offs
(16)
-
(88)
-
(11)
(115)
Ending Balance
$
1,358
$
9,985
$
3,709
$
725
$
827
$
16,604
 
Average loans
$
195,863
$
809,411
$
128,625
$
77,237
$
91,773
$
1,302,909
Net charge-offs to average loans
-0.02%
0.00%
0.12%
0.00%
0.02%
0.01%
 
Bank-Owned Life Insurance
As of September 30,
 
2023, the combined
 
cash surrender
 
value of all
 
bank-owned life
 
insurance (“BOLI”)
 
policies was
$51.4
 
million.
 
Changes
 
in
 
cash
 
surrender
 
value
 
are
 
recorded
 
to
 
non-interest
 
income
 
in
 
the
 
unaudited
 
Consolidated
Statements of Operations. The Company had BOLI policies with five insurance carriers. The Company is the beneficiary of
these policies.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
47
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
During the
 
third quarter
 
of 2023,
 
the Company
 
restructured its
 
BOLI, cancelling
 
a $7.1
 
million policy
 
by surrendering
$4.2 million of the value and transferring the remaining $2.9 million to a new BOLI
 
policy. The new BOLI policy
 
was funded
with an additional
 
$11.1
 
million for
 
a total of
 
$14.1 million.
 
This new
 
BOLI policy
 
received a cash
 
surrender enhancement
from the new insurance carrier of $981 thousand.
Deposits
Customer deposits are the
 
primary funding source for
 
the Bank’s growth.
 
Through our network of
 
banking centers, we
offer a competitive array of deposit
 
accounts and treasury management services designed
 
to meet our customers’ business
needs.
 
Our
 
primary
 
deposit
 
customers
 
are
 
small-to-medium
 
sized
 
businesses
 
(“SMBs”),
 
and
 
the
 
personal
 
business
 
of
owners and operators of these SMBs, as well as the retail/consumer
 
relationships of the employees of these businesses.
 
The following table
 
presents the daily
 
average balance and
 
average rate paid
 
on deposits by
 
category for
 
the periods
presented (in thousands, except ratios):
Three Months Ended September 30,
2023
2022
Average Balance
Average Rate
Paid
Average Balance
Average Rate
Paid
Non-interest-bearing checking
$
587,917
0.00%
$
655,853
0.00%
Interest-bearing checking
52,080
2.52%
66,585
0.11%
Money market and savings deposits
1,011,164
3.44%
823,521
0.55%
Time deposits
290,272
3.51%
217,023
0.66%
Total
$
1,941,433
2.39%
$
1,762,982
0.34%
The Company
 
has a
 
granular deposit
 
portfolio with
 
outstanding balances
 
comprised of
 
49% in
 
commercial
 
deposits,
37%
 
personal
 
deposits,
 
11%
 
public
 
funds
 
which
 
are
 
partially
 
collateralized
 
and
 
3%
 
brokered
 
deposits.
 
During
 
the
 
nine
months ended September
 
30, 2023, the
 
Company acquired $50
 
million in brokered
 
deposits to boost
 
liquidity. The Company
has
 
approximately
 
20
 
thousand
 
deposit
 
accounts
 
with
 
the
 
majority
 
in
 
personal
 
accounts,
 
approximately
 
13
 
thousand
 
or
63.8%. The
 
estimated average
 
account size
 
of our
 
deposit portfolio
 
is approximately
 
$95
 
thousand
 
as of
 
September 30,
2023. The
 
Company also offers
 
Insured Cash
 
Sweep (“ICS”) and
 
Certificate of
Deposit Account Registry Service
 
(“CDARS”)
deposit products to fully insure our clients.
 
The
 
uninsured
 
deposits
 
are
 
estimated
 
based
 
on
 
the
 
FDIC
 
deposit
 
insurance
 
limit
 
of
 
$250
 
thousand
 
for
 
all
 
deposit
accounts at the Company
 
per account holder.
 
The total estimated
 
amount of uninsured deposits
 
is 53% at
 
September 30,
2023.
 
The following table shows scheduled maturities of uninsured
 
time deposits as of September 30, 2023 (in thousands):
September 30, 2023
Three months or less
$
18,563
Over three through six months
32,457
Over six though twelve months
28,769
Over twelve months
2,566
$
82,355
 
Other Liabilities
The Company collects from commercial and residential loan
 
customers funds which are held in escrow for future
payment of real estate taxes and insurance. These escrow
 
funds are disbursed by the Company directly to the
 
insurance
companies and taxing authority of the borrower.
 
Escrow funds are recorded as other liabilities.
 
As of September 30, 2023 escrow balances totaled $16.7 million
 
compared to $3.5 million at December 31, 2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
48
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
Borrowings
As a member
 
of the FHLB,
 
we are eligible
 
to obtain
 
advances with
 
various terms
 
and conditions.
 
This accessibility
 
of
additional funding allows us to efficiently and timely meet both expected
 
and unexpected outgoing cash flows and collateral
needs without adversely affecting either daily operations
 
or the financial condition of the Company.
As of September 30, 2023,
 
we had $102.0 million
 
of fixed and variable rate
 
advances outstanding from
 
the FHLB with
a weighted average rate of 3.66%.
 
Maturity dates for the advances range
 
between 2023 to 2028 detailed
 
in the table below.
 
The following table presents the FHLB advances as of
 
September 30, 2023 (in thousands):
Interest Rate
Type of Rate
Maturity Date
Amount
5.57%
Variable
December 22, 2023
$
20,000
1.04%
Fixed
July 30, 2024
5,000
2.05%
Fixed
March 27, 2025
10,000
1.07%
Fixed
July 18, 2025
6,000
3.76%
Fixed
January 24, 2028
11,000
3.77%
Fixed
April 25, 2028
50,000
$
102,000
We have
 
also established
 
Federal Funds
 
lines of
 
credit with
 
our upstream
 
correspondent
 
banks,
 
the BTFP,
 
and the
FRB Atlanta
 
Discount Window
 
to manage
 
temporary fluctuations
 
in our
 
daily cash
 
balances. As
 
of September
 
30, 2023,
there were no outstanding balances with any of these
 
liquidity sources.
Off-Balance Sheet Arrangements
We engage
 
in various financial
 
transactions in
 
our operations
 
that, under GAAP,
 
may not be
 
included on
 
the balance
sheet. To
 
meet the financing needs
 
of our customers we may
 
include commitments to extend
 
credit and standby letters
 
of
credit. To
 
a varying
 
degree, such
 
commitments involve
 
elements of
 
credit, market,
 
and interest
 
rate risk
 
in excess
 
of the
amount recognized
 
in the
 
balance sheet.
 
We use
 
more conservative
 
credit and
 
collateral policies
 
in making
 
these credit
commitments than
 
we do
 
for on-balance
 
sheet items.
 
We are
 
not aware
 
of any accounting
 
loss to
 
be incurred
 
by funding
these commitments;
 
however,
 
we
 
maintain
 
an
 
allowance
 
for
 
off-balance
 
sheet
 
credit
 
risk
 
which
 
is recorded
 
under
 
other
liabilities on the unaudited Consolidated Balance Sheets.
Since commitments associated with letters of
 
credit and commitments to extend
 
credit may expire unused, the
 
amounts
shown
 
do
 
not
 
necessarily
 
reflect
 
actual
 
future
 
cash
 
funding
 
requirements.
 
The
 
following
 
table
 
presents
 
lending
 
related
commitments outstanding as of the dates indicated (in thousands
 
):
September 30, 2023
December 31, 2022
Commitments to grant loans and unfunded lines of credit
$
100,661
$
95,461
Standby and commercial letters of credit
6,490
4,320
Total
$
107,151
$
99,781
Commitments to extend credit are agreements to lend funds to a client, as long as there is no violation of any condition
established
 
in
 
the
 
contract,
 
for
 
a
 
specific
 
purpose.
 
Commitments
 
generally
 
have
 
variable
 
interest
 
rates,
 
fixed
 
expiration
dates or
 
other
 
termination
 
clauses
 
and
 
may require
 
payment
 
of
 
a fee.
 
Since many
 
of the
 
commitments
 
are
 
expected to
expire without being
 
fully drawn, the
 
total commitment
 
amounts disclosed
 
above do not
 
necessarily represent
 
future cash
requirements.
Unfunded lines of credit represent unused portions of credit facilities to our current borrowers that represent no change
in credit risk in our portfolio. Lines
 
of credit generally have variable interest
 
rates. The maximum potential amount
 
of future
payments we could
 
be required to
 
make is represented
 
by the contractual
 
amount of the
 
commitment, less
 
the amount of
any advances made.
Letters of credit are
 
conditional commitments issued
 
by us to guarantee
 
the performance of a
 
client to a third
 
party.
 
In
the event of nonperformance by
 
the client in accordance with the
 
terms of the agreement with the
 
third party,
 
we would be
required to fund
 
the commitment.
 
If the commitment
 
is funded, we
 
would be entitled
 
to seek recovery
 
from the client
 
from
the underlying collateral,
 
which can include
 
commercial real estate,
 
physical plant and
 
property, inventory, receivables, cash
or marketable securities.
 
 
49
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
 
Asset and Liability Management Committee
Members
 
of
 
senior
 
management
 
and
 
our
 
Board
 
make
 
up
 
the
 
asset
 
and
 
liability
 
management
 
committee,
 
or
 
ALCO.
Senior management
 
is responsible
 
for ensuring
 
that Board
 
approved strategies
 
and policies
 
for managing
 
and mitigating
risks are appropriately executed within the designated lines of
 
authority and responsibility in a timely manner.
ALCO
 
oversees
 
the
 
establishment,
 
approval,
 
implementation,
 
and
 
review
 
of
 
interest
 
rate
 
risk,
 
management,
 
and
mitigation strategies, ALM related policies, ALCO procedures
 
and risk tolerances and appetite.
While some degree of
 
IRR (“Interest Rate
 
Risk”) is inherent to
 
the banking business, we
 
believe our ALCO implemented
sound risk management practices to identify,
 
quantify,
 
monitor, and limit IRR exposures.
When assessing
 
the scope
 
of IRR
 
exposure
 
and
 
impact on
 
the consolidated
 
balance sheet,
 
cash
 
flows and
 
income
statement,
 
management
 
considers
 
both
 
earnings
 
and
 
economic
 
impacts.
 
Asset
 
price
 
variations,
 
deposit
 
volatility
 
and
reduced earnings or outright losses could adversely affect
 
the Company’s liquidity,
 
performance, and capital adequacy.
Income simulations
 
are used
 
to assess
 
the impact
 
of changing
 
rates on
 
earnings under
 
different rates
 
scenarios and
time horizons.
 
These simulations
 
utilize both
 
instantaneous and
 
parallel changes
 
in the
 
level of
 
interest rates,
 
as well
 
as
non-parallel changes such as
 
changing slopes (flat and steepening)
 
and twists of the yield curve.
 
Static simulation models
are based on current exposures and assume a constant balance sheet with no new growth. Dynamic simulation analysis is
also utilized to have a more comprehensive assessment on IRR. This
 
simulation relies on detailed assumptions outlined in
our
 
budget
 
and
 
strategic
 
plan,
 
and
 
in
 
assumptions
 
regarding
 
changes
 
in
 
existing
 
lines
 
of
 
business,
 
new
 
business,
management strategies and client expected behavior.
To
 
have
 
a
 
more
 
complete
 
picture
 
of
 
IRR,
 
the
 
Company
 
also
 
evaluates
 
the
 
economic
 
value
 
of
 
equity
 
(“EVE”).
 
This
assessment
 
allows
 
us
 
to
 
measure
 
the
 
degree
 
to
 
which
 
the
 
economic
 
values
 
will
 
change
 
under
 
different
 
interest
 
rate
scenarios (parallel and non-parallel). The economic value approach focuses on a longer-term time horizon and captures all
future cash flows expected
 
from existing assets and
 
liabilities. The economic value
 
model utilizes a static
 
approach in that
the analysis
 
does not
 
incorporate new
 
business; rather,
 
the analysis
 
shows a
 
snapshot in
 
time of
 
the risk
 
inherent in
 
the
balance sheet.
Market and Interest Rate Risk Management
According to our
 
ALCO model, as of
 
September 30, 2023,
 
we had an asset
 
sensitive balance sheet
 
both for year one
and two
 
modeling,
 
using the
 
static modeling.
 
Asset sensitivity
 
indicates
 
that
 
our assets
 
generally reprice
 
faster
 
than our
liabilities, which results in a favorable impact to net interest income when market interest rates
 
increase. Liability sensitivity
indicates that our
 
liabilities generally reprice faster
 
than our assets,
 
which results in
 
a favorable impact
 
to net interest
 
income
when market interest rates decrease.
 
Many assumptions are used
 
to calculate the impact of interest
 
rate variations on our
net interest income,
 
such as asset
 
prepayment speeds, non-maturity
 
deposit price sensitivity,
 
pricing correlations, deposit
truncations and decay rates, and key interest rate drivers.
Because of the inherent use
 
of these estimates and
 
assumptions in the model,
 
our actual results may,
 
and most likely
will, differ from static measures results.
 
In addition, static measures like EVE
 
do not include actions that management
 
may
undertake to manage the risks in response to anticipated changes in interest rates or client deposit behavior. As part of our
ALM strategy
 
and
 
policy,
 
management
 
has the
 
ability
 
to modify
 
the
 
balance sheet
 
to
 
either increase
 
asset
 
duration
 
and
decrease liability
 
duration to reduce
 
asset sensitivity,
 
or to decrease
 
asset duration and
 
increase liability duration
 
in order
to increase asset sensitivity.
According to our
 
model, as of September
 
30, 2023, our balance
 
sheet is asset
 
sensitive for both year
 
one and two
 
under
interest static rate
 
scenarios (an increase
 
or decrease of
 
400 basis points).
 
This means than
 
if rates increase the
 
NIM will
increase and if rates decrease the NIM will decrease. Additionally, utilizing an EVE approach, we analyze the risk to capital
from
 
the
 
effects
 
of
 
various
 
interest
 
rate
 
scenarios
 
through
 
a
 
long-term
 
discounted
 
cash
 
flow
 
model.
 
This
 
measures
 
the
difference
 
between
 
the
 
economic
 
value
 
of
 
our
 
assets
 
and
 
the
 
economic
 
value
 
of
 
our
 
liabilities,
 
which
 
is
 
a
 
proxy
 
for
 
our
liquidation value.
 
According to
 
our balance
 
sheet composition,
 
and as
 
expected, our
 
model stipulates
 
that an
 
increase in
interest rates will have a
 
negative impact on the EVE and
 
lower rates, a positive impact.
 
Results and analysis are presented
quarterly to the ALCO, and strategies are reviewed and refined.
 
 
50
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
Liquidity
Liquidity is defined
 
as a Company’s
 
capacity to meet
 
its cash and
 
collateral obligations at
 
a reasonable cost.
 
Maintaining
an adequate level of liquidity depends on the Company’s ability to
 
efficiently meet both expected and unexpected cash flow
and collateral needs without adversely affecting
 
either daily operations or the financial condition of the
 
Company.
Liquidity risk
 
is the
 
risk that
 
we will
 
be unable
 
to meet
 
our short-term
 
and long-term
 
obligations as
 
they become
 
due
because of an inability
 
to liquidate assets or
 
obtain relatively adequate funding. The
 
Company’s obligations, and the funding
sources
 
used
 
to
 
meet
 
them,
 
depend
 
significantly
 
on
 
our
 
business
 
mix,
 
balance
 
sheet
 
structure
 
and
 
composition,
 
credit
quality of our assets and the cash flow profiles of our on-
 
and off-balance sheet obligations.
In managing
 
inflows and
 
outflows,
 
management
 
regularly
 
monitors situations
 
that can
 
give rise
 
to increased
 
liquidity
risk. These
 
include funding
 
mismatches, market
 
constraints on
 
the ability
 
to convert
 
assets (particularly
 
investments) into
cash or in accessing sources of funds (i.e., market liquidity),
 
and contingent liquidity events.
Changes in macroeconomic conditions, as well as exposure
 
to credit, market, operational, legal and reputational
 
risks,
such as
 
cybersecurity risk,
 
could have
 
an unexpected
 
impact on
 
the Company’s
 
liquidity risk
 
profile and
 
are factored
 
into
the assessment of liquidity and the ALM framework.
Management has established
 
a comprehensive and
 
holistic management process for
 
identifying, measuring, monitoring
and
 
mitigating
 
liquidity
 
risk.
 
Due
 
to
 
its
 
critical
 
importance
 
to
 
the
 
viability
 
of
 
the
 
Company,
 
liquidity
 
risk
 
management
 
is
integrated into our risk management processes, Contingency
 
Funding Plan and ALM policy.
Critical elements of our liquidity
 
risk management include: effective corporate governance consisting of
 
oversight by the
Board and active
 
involvement of senior
 
management; appropriate strategies, policies,
 
procedures, and limits
 
used to identify
and mitigate liquidity risk; comprehensive liquidity risk measurement and
 
monitoring systems (including assessments of the
current and prospective cash flows or sources and uses of funds) that are commensurate with the complexity and
 
business
activities of
 
the Company;
 
active management
 
of intraday
 
liquidity and
 
collateral; an
 
appropriately diverse
 
mix of
 
existing
and
 
potential
 
future
 
funding
 
sources;
 
adequate
 
levels
 
of
 
highly
 
liquid
 
marketable
 
securities
 
free
 
of
 
legal,
 
regulatory,
 
or
operational
 
impediments,
 
that
 
can
 
be
 
used
 
to
 
meet
 
liquidity
 
needs
 
in
 
stressful
 
situations;
 
comprehensive
 
contingency
funding plans
 
that sufficiently address
 
potential adverse liquidity
 
events and emergency
 
cash flow
 
requirements; and internal
controls
 
and
 
internal
 
audit
 
processes
 
sufficient
 
to
 
determine
 
the
 
adequacy
 
of
 
the
 
institution’s
 
liquidity
 
risk
 
management
process.
We
 
expect
 
funds
 
to
 
be
 
available
 
from
 
several
 
basic
 
banking
 
activity
 
sources,
 
including
 
the
 
core
 
deposit
 
base,
 
the
repayment and maturity of loans and investment security
 
cash flows. Other potential funding sources include
 
federal funds
purchased, brokered
 
certificates of
 
deposit, listing
 
services certificates
 
of deposit,
 
the Bank
 
Term
 
Funding Program,
 
FRB
Atlanta discount
 
window,
 
and borrowings
 
from the
 
FHLB. Accordingly,
 
we believe
 
our liquidity
 
resources are
 
adequate to
fund loans and meet other cash needs as necessary.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
51
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
Capital Adequacy
As of
 
September 30,
 
2023, the
 
Bank was
 
well capitalized
 
under the
 
FDIC’s
 
prompt corrective
 
action framework.
 
We
also follow the capital conservation buffer framework, and
 
as of September 30, 2023, we exceeded the
 
capital conversation
buffer in
 
all capital ratios,
 
according to
 
our actual ratios.
 
The following table
 
presents the capital
 
ratios for
 
the Bank at
 
the
dates indicated (in thousands,
 
except ratios).
Actual
Minimum Capital
Requirements
To be Well Capitalized
Under Prompt Corrective
Action Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
September 30, 2023
Total
 
risk-based capital
$
230,801
13.06
%
$
141,327
8.00
%
$
176,659
10.00
%
Tier 1 risk-based capital
$
210,815
11.93
%
$
105,995
6.00
%
$
141,327
8.00
%
Common equity tier 1 capital
$
210,815
11.93
%
$
79,496
4.50
%
$
114,828
6.50
%
Leverage ratio
$
210,815
9.24
%
$
91,310
4.00
%
$
114,138
5.00
%
December 31, 2022:
Total
 
risk-based capital
$
216,693
13.58
%
$
127,616
8.00
%
$
159,520
10.00
%
Tier 1 risk-based capital
$
198,909
12.47
%
$
95,712
6.00
%
$
127,616
8.00
%
Common equity tier 1 capital
$
198,909
12.47
%
$
71,784
4.50
%
$
103,688
6.50
%
Leverage ratio
$
198,909
9.56
%
$
83,210
4.00
%
$
104,012
5.00
%
The Company is
 
not subject to
 
regulatory capital ratios
 
imposed by Basel
 
III on bank
 
holding companies because
 
the
Company is deemed to be a small bank holding company.
 
Impact of Inflation
Our
 
Consolidated
 
Financial
 
Statements
 
and
 
related
 
notes
 
have
 
been
 
prepared
 
in
 
accordance
 
with
 
U.S.
 
GAAP,
which require the measurement of financial
 
position and operating results in terms
 
of historical dollars, without considering
the changes in the
 
relative purchasing power
 
of money over time
 
due to inflation. The
 
impact of inflation is
 
reflected in the
increased cost of operations.
 
Unlike most industrial companies,
 
nearly all our assets and
 
liabilities are monetary in
 
nature.
As a result,
 
interest rates have a
 
greater impact on our
 
performance than do the
 
effects of general levels
 
of inflation. Periods
of high inflation
 
are often accompanied
 
by relatively higher
 
interest rates, and
 
periods of low
 
inflation are accompanied
 
by
relatively lower interest rates.
 
As market interest rates
 
rise or fall in relation
 
to the rates earned
 
on loans and investments,
the
 
value
 
of
 
these
 
assets
 
decreases
 
or
 
increases
 
respectively.
 
Inflation
 
can
 
also
 
impact
 
core
 
non-interest
 
expenses
associated with delivering the Company’s servi
 
ces.
Recently Issued Accounting Pronouncements
 
Recently issued accounting
 
pronouncements are discussed
 
in Note 1 “Summary
 
of Significant Accounting Policies”
 
to
the unaudited Consolidated Financial Statements in this
 
Form 10-Q.
 
 
52
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
Reconciliation and Management Explanation of Non
 
-GAAP Financial Measures
Management
 
has
 
included
 
these
 
non-GAAP
 
measures
 
because
 
it
 
believes
 
these
 
measures
 
may
 
provide
 
useful
supplemental information
 
for evaluating
 
the Company’s
 
underlying performance
 
trends. Further,
 
management uses
 
these
measures
 
in
 
managing
 
and
 
evaluating
 
the
 
Company’s
 
business
 
and
 
intends
 
to
 
refer
 
to
 
them
 
in
 
discussions
 
about
 
our
operations and performance.
 
Operating performance
 
measures should be
 
viewed in addition
 
to, and not
 
as an alternative
to or
 
substitute
 
for,
 
measures
 
determined
 
in
 
accordance
 
with
 
GAAP,
 
and
 
are
 
not
 
necessarily
 
comparable
 
to non-GAAP
measures that may be presented by other
 
companies. The following table reconciles the non-GAAP financial measurement
of operating net income available to common stockholders for the periods presented (in thousands,
 
except per share data):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
53
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
NON-GAAP FINANCIAL MEASURES (UNAUDITED)
(Dollars in thousands)
As of or For the Three Months Ended
9/30/2023
6/30/2023
3/31/2023
12/31/2022
9/30/2022
Pre-tax pre-provision ("PTPP") income:
(1)
Net income
$
3,819
$
4,196
$
5,809
$
4,434
$
5,558
Plus: Provision for income taxes
1,250
1,333
1,881
1,415
1,963
Plus: Provision for credit losses
653
38
201
880
910
PTPP income
$
5,722
$
5,567
$
7,891
$
6,729
$
8,431
PTPP return on average assets:
(1)
 
 
PTPP income
$
5,722
$
5,567
$
7,891
$
6,729
$
8,431
Average assets
$
2,250,258
$
2,183,542
$
2,120,218
$
2,051,867
$
2,026,791
PTPP return on average assets
(2)
1.01%
1.02%
1.51%
1.30%
1.65%
 
 
Operating net income:
(1)
Net income
$
3,819
$
4,196
$
5,809
$
4,434
$
5,558
Less: Net gains (losses) on sale of securities
(955)
-
(21)
(1,989)
(558)
Less: Tax effect on sale of securities
242
-
5
504
141
Operating net income
$
4,532
$
4,196
$
5,825
$
5,919
$
5,975
 
 
Operating PTPP income:
(1)
PTPP income
$
5,722
$
5,567
$
7,891
$
6,729
$
8,431
Less: Net gains (losses) on sale of securities
(955)
-
(21)
(1,989)
(558)
Operating PTPP income
$
6,677
$
5,567
$
7,912
$
8,718
$
8,989
Operating PTPP return on average assets:
(1)
 
 
Operating PTPP income
$
6,677
$
5,567
$
7,912
$
8,718
$
8,989
Average assets
$
2,250,258
$
2,183,542
$
2,120,218
$
2,051,867
$
2,026,791
Operating PTPP return on average assets
(2)
1.18%
1.02%
1.51%
1.69%
1.76%
 
 
Operating return on average assets:
(1)
Operating net income
$
4,532
$
4,196
$
5,825
$
5,919
$
5,975
Average assets
$
2,250,258
$
2,183,542
$
2,120,218
$
2,051,867
$
2,026,791
Operating return on average assets
(2)
0.80%
0.77%
1.11%
1.14%
1.17%
Operating return on average equity:
(1)
Operating net income
$
4,532
$
4,196
$
5,825
$
5,919
$
5,975
Average equity
$
184,901
$
184,238
$
183,371
$
177,556
$
185,288
Operating return on average equity
(2)
9.72%
9.13%
12.88%
13.23%
12.79%
Operating Revenue:
(1)
 
Net interest income
$
14,022
$
14,173
$
15,997
$
16,866
$
16,774
 
Plus: Non-interest income
2,161
1,846
2,070
(123)
1,789
 
Less: Net gains (losses) on sale of
 
securities
(955)
-
(21)
(1,989)
(558)
 
Operating revenue
$
17,138
$
16,019
$
18,088
$
18,732
$
19,121
 
Operating Efficiency Ratio:
(1)
 
Total non-interest expense
$
10,461
$
10,452
$
10,176
$
10,014
$
10,132
 
Operating revenue
$
17,138
$
16,019
$
18,088
$
18,732
$
19,121
 
Operating efficiency ratio
61.04%
65.25%
56.26%
53.46%
52.99%
(1)
 
The Company believes these non-GAAP measurements
 
are key indicators of the ongoing earnings
 
power of the Company.
(2)
 
Annualized.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
54
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
NON-GAAP FINANCIAL MEASURES (UNAUDITED)
(Dollars in thousands, except per share data)
As of or For the Three Months Ended
9/30/2023
6/30/2023
3/31/2023
12/31/2022
9/30/2022
Tangible book value per common share (at period-end):
(1)
Total stockholders' equity
$
182,884
$
183,685
$
183,858
$
182,428
$
177,417
Less: Intangible assets
-
-
-
-
-
Tangible stockholders' equity
$
182,884
$
183,685
$
183,858
$
182,428
$
177,417
Total shares issued and outstanding (at period-end):
Total common shares issued and outstanding
19,544,777
19,622,380
19,622,380
20,000,753
20,000,753
Tangible book value per common share
(2)
$
9.36
$
9.40
$
9.37
$
9.12
$
8.87
Operating diluted net income per common share:
(1)
Operating net income
$
4,532
$
4,196
$
5,825
$
5,919
$
5,975
Total weighted average diluted shares of common stock
19,611,897
19,639,682
19,940,606
20,172,438
20,148,208
Operating diluted net income per common share:
$
0.23
$
0.21
$
0.29
$
0.29
$
0.30
Tangible Common Equity/Tangible Assets
(1)
 
Tangible stockholders' equity
$
182,884
$
183,685
$
183,858
$
182,428
$
177,417
 
Tangible assets
$
2,244,602
$
2,225,914
 
$
2,163,821
$
2,085,834
$
2,037,453
Tangible Common Equity/Tangible
 
Assets
8.15%
8.25%
8.50%
8.75%
8.71%
(1)
 
The Company believes these non-GAAP measurements
 
are key indicators of the ongoing earnings
 
power of the Company.
(2)
 
Excludes the dilutive effect, if any, of shares of common stock issuable upon exercise
 
of outstanding stock options.
 
 
55
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
Item 3.
 
Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company,
 
we are not required to provide the information required
 
by this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the
 
supervision and with
 
the participation of
 
our management, including
 
our President and
 
Chief Executive Officer
and our
 
Chief Financial
 
Officer,
 
we evaluated
 
the effectiveness
 
of the
 
design and
 
operation of
 
the Company’s
 
disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under
 
the Exchange Act) as of September 30, 2023.
Based on that
 
evaluation, management believes
 
that the Company’s
 
disclosure controls and
 
procedures were effective
 
to
collect, process, and disclose the information required to be
 
disclosed in the reports filed or submitted under the Exchange
Act within the required time periods as of the end of the
 
period covered by this Form 10-Q.
Changes in Internal Control Over Financial Reporting
There has been
 
no change in
 
our internal control
 
over financial reporting
 
(as defined in
 
Rules 13a-15(f) and
 
15d-15(f)
under the Exchange Act) during the period covered by this Form 10-Q that has
 
materially affected, or is reasonably likely to
materially affect, our internal control over financial
 
reporting.
 
Limitations on Effectiveness of Controls and Procedures
In
 
designing
 
and
 
evaluating
 
the
 
disclosure
 
controls
 
and
 
procedures,
 
management
 
recognizes
 
that
 
any
 
controls
 
and
procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving
the desired control objectives.
 
In addition, the design
 
of disclosure controls and
 
procedures must reflect the
 
fact that there
are resource constraints and that management is required to apply
 
judgment in evaluating the benefits of possible controls
and procedures relative to their costs.
 
 
56
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
PART II
Item 1.
 
Legal Proceedings
As previously
 
disclosed, on July
 
13, 2023,
 
three individuals who
 
were shareholders of
 
the Bank
 
prior to
 
its reorganization
into the holding company form
 
of organization (the “Plaintiffs”) filed a lawsuit
 
against six persons, all of
 
whom were directors
of the
 
Bank at
 
the relevant
 
time (the
 
“Defendants”),
 
in the
 
Circuit Court,
 
Eleventh Judicial
 
Circuit for
 
Miami-Dade County
(the
 
“Court”)
 
(Benes
 
et
 
al.
 
v.
 
de
 
la
 
Aguilera
 
et
 
al.)
 
alleging
 
the
 
Defendants
 
(i)
 
caused
 
the
 
Bank,
 
as
 
directors
 
thereof,
 
to
engage in ultra vires conduct
 
by devising and approving
 
the exchange transaction
 
effected in July 2021
 
pursuant to which
the
 
Bank’s
 
then
 
outstanding
 
Class
 
C
 
and
 
Class
 
D
 
preferred
 
stock
 
was
 
exchanged
 
(the
 
“Exchange
 
Transaction”),
 
which
action the Plaintiffs allege was not permitted by the Bank’s Articles of Incorporation, and (ii) breached their
 
fiduciary duty as
directors of the Bank
 
by approving and engaging
 
in the Exchange Transaction.
 
The Plaintiffs seek
 
the Court to certify
 
the
action
 
as
 
a class
 
action
 
and
 
to
 
award
 
damages
 
in
 
an
 
amount
 
to
 
be
 
proven
 
at
 
trial.
 
Plaintiffs
 
seek
 
damages
 
exceeding
$750,000 plus
 
attorney’s fees
 
and costs
 
as well
 
as such
 
other relief
 
as the
 
Court may
 
determine. The
 
Company believes
that
 
the
 
allegations
 
in
 
the
 
lawsuit
 
are
 
legally
 
and
 
factually
 
without
 
merit,
 
and
 
it
 
intends
 
to
 
vigorously
 
defend
 
against
 
the
allegations
 
in
 
the
 
lawsuit,
 
pursue
 
any
 
potential
 
counterclaims
 
against
 
the
 
plaintiffs
 
as
 
it
 
deems
 
appropriate,
 
and
 
seek
coverage
 
from
 
its
 
insurance
 
carriers.
 
However,
 
there
 
can
 
be
 
no
 
assurance
 
that
 
this
 
litigation
 
will
 
be
 
resolved
 
favorably.
Furthermore, there
 
is also
 
no assurance
 
that we
 
will be
 
able to
 
secure coverage
 
from our
 
insurance carriers
 
for any
 
expenses
incurred by us in
 
connection with this litigation. If
 
the plaintiff shareholders are successful, the
 
Court could award substantial
compensatory damages.
In addition
 
to the
 
foregoing, we
 
are from
 
time to
 
time subject
 
to claims
 
and litigation
 
arising in
 
the ordinary
 
course of
business.
 
These
 
claims
 
and
 
litigation
 
may
 
include,
 
among
 
other
 
things,
 
allegations
 
of
 
violation
 
of
 
banking
 
and
 
other
applicable regulations, competition
 
law, labor
 
laws and consumer
 
protection laws, as
 
well as claims or
 
litigation relating to
intellectual property,
 
securities, breach of contract
 
and tort. We intend
 
to defend ourselves vigorously
 
against any pending
or future claims and litigation.
At
 
this
 
time,
 
in
 
the
 
opinion
 
of
 
management,
 
the
 
likelihood
 
is
 
remote
 
that
 
the
 
impact
 
of
 
such
 
proceedings,
 
either
individually or
 
in the
 
aggregate, would
 
have a
 
material adverse
 
effect
 
on our
 
consolidated results
 
of operations,
 
financial
condition
 
or cash
 
flows. However,
 
one
 
or more
 
unfavorable
 
outcomes
 
in any
 
claim or
 
litigation
 
against
 
us, including
 
the
aforementioned litigation regarding the Exchange
 
Transaction, could have
 
a material adverse effect on
 
the period in which
such claims
 
or litigation
 
are resolved.
 
In addition,
 
regardless of
 
their merits
 
or their
 
ultimate outcomes,
 
such matters
 
are
costly, divert management’s
 
attention and may materially adversely affect our
 
reputation, even if resolved in our favor.
Item 1A. Risk Factors
For detailed information about certain risk factors that could materially affect our business, financial
 
condition, or future
results, see “Part I, Item 1A – Risk Factors” of the 2022 Form 10-K/A and see “Part II, Item 1A – Risk Factors” of the March
31, 2023 Form 10-Q.
Item 2.
 
Unregistered Sales of Equity Securities and Use of Proceeds
(a) None.
(b) Not applicable.
(c) The Company’s repurchases of equity securities
 
for the quarter ended September 30, 2023 were as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
57
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
Total
Number of
Shares
Purchased
Average
Price Paid
Per Share
Total Number of Shares Purchased
as Part of Publicly Announced Plans
or Programs (1)
Maximum Number
of Shares that May
Yet Be Purchased
Under Plans or
Programs (1)
Period
 
July 1-31, 2023
 
-
$
-
-
172,397
August 1-30, 2023
-
-
-
172,397
September 1-30, 2023
-
-
-
172,397
-
$
-
-
(1) On January 24, 2022 the Company announced
 
its initial stock repurchase program to repurchase
 
up to 750,000 shares of Class A common
 
stock,
approximately 3.75% of the Company’s then outstanding
 
shares of common stock.
 
Item 3.
 
Defaults Upon Senior Securities
(a)
 
Not applicable
(b)
 
Not applicable
Item 4.
 
Mine Safety Disclosures
Not applicable.
Item 5. Other Information
(a)
 
Not applicable
(b)
 
Not applicable
(c)
 
Not applicable
 
 
 
 
58
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
Item 6. Exhibits
Exhibit No.
Description of Exhibit
*
*
**
**
101
The following financial
 
statements from
 
the Company’s Quarterly
 
Report on
 
Form 10-Q for
 
the quarter ended
 
September 30,
2023 formatted
 
in Inline
 
XBRL: (i)
 
Consolidated Balance
 
Sheets (unaudited),
 
(ii) Consolidated
 
Statements of
 
Operations
(unaudited), (iii) Consolidated
 
Statements
 
of Comprehensive
 
Income (unaudited), (iv)
 
Consolidated Statements
 
of Changes
in Stockholders’
 
Equity (unaudited),
 
(v) Consolidated
 
Statements of
 
Cash Flows
 
(unaudited), (vi)
 
Notes to
 
Consolidated
Financial Statements (unaudited).
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*
Filed herewith.
**
Furnished herby.
 
 
 
 
 
 
 
59
 
USCB Financial Holdings, Inc.
 
Q3 2023 Form 10-Q
SIGNATURES
Pursuant to the
 
requirements of
 
the Securities Exchange
 
Act of 1934,
 
the registrant has
 
duly caused this
 
report to be
signed on its behalf by the undersigned thereunto duly authorized.
USCB FINANCIAL HOLDINGS, INC.
(Registrant)
Signature
Title
Date
/s/ Luis de la Aguilera
Chairman, President and Chief Executive
Officer
 
November 9, 2023
Luis de la Aguilera
(Principal Executive Officer)
/s/ Robert Anderson
Chief Financial Officer
 
November 9, 2023
Robert Anderson
(Principal Financial Officer and Principal
Accounting Officer)