UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____to_____
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
,
,
(Address of principal executive offices) (zip code)
Registrant’s telephone number, including area code:
)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Indicate by check
mark whether the
registrant (1) has
filed all reports
required to be
filed by Section
13 or 15(d)
of the Securities
Exchange
Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was
required to file such reports), and (2)
has
been subject to such filing requirements for the past 90 days.
☒
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data
File required to be submitted pursuant
to Rule 405
of Regulation S-T
(§232.405 of this
chapter) during the
preceding 12 months
(or for such
shorter period that
the registrant
was required to submit such files).
☒
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company
or
an
emerging
growth
company.
See
the
definitions
of
“large
accelerated
filer,”
“accelerated
filer,”
“non-accelerated
filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
☐
☒
If an
emerging growth
company, indicate by
check mark
if the
registrant has elected
not to
use the
extended transition
period for
complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐
☒
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
A
common stock outstanding.
FORM 10-Q
September 30, 2023
TABLE OF CONTENTS
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
$
$
Interest-bearing deposits in banks
Total cash and cash equivalents
Investment securities held to maturity, net of allowance of $
, respectively (fair value $
and $
, respectively)
Investment securities available for sale, at fair value
Federal Home Loan Bank stock, at cost
Loans held for investment, net of allowance of $
, respectively
Accrued interest receivable
Premises and equipment, net
Bank owned life insurance
Deferred tax assets, net
Lease right-of-use asset
Other assets
Total assets
$
$
LIABILITIES:
Deposits:
Demand deposits
$
$
Money market and savings accounts
Interest-bearing checking
Time deposits
Total deposits
Federal Home Loan Bank advances
Lease liability
Accrued interest and other liabilities
Total liabilities
Commitments and contingencies (See Notes 5
and 10)
.
.
STOCKHOLDERS' EQUITY:
Preferred stock - Class C; $
authorized;
-
-
Preferred stock - Class D; $
authorized;
-
-
Preferred stock - Class E; $
authorized;
-
-
Common stock - Class A Voting; $
outstanding
as of September 30, 2023,
Common stock - Class B Non-voting; $
outstanding as of September 30, 2023 and
December 31, 2022
-
-
Additional paid-in capital on common stock
Accumulated deficit
(
91,269
)
(
104,104
)
Accumulated other comprehensive loss
(
51,226
)
(
44,751
)
Total stockholders' equity
Total liabilities and stockholders' equity
$
$
The accompanying notes are an integral part of
these unaudited consolidated financial statements.
4
USCB Financial Holdings, Inc.
Q3 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:
$
$
$
$
Interest expense:
Provision for credit losses
Non-interest income:
(
955
)
(
558
)
(
976
)
(
540
)
-
-
-
Non-interest expense:
Income tax expense
$
$
$
$
Per share information:
Net income per share, basic
$
$
$
$
Net income per share, diluted
$
$
$
$
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
$
$
$
$
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
(
52
)
(
177
)
Reclassification adjustment for loss included in net
income
Unrealized gain on cash flow hedge
-
-
Tax effect
Total other comprehensive loss, net of tax
(
4,907
)
(
8,341
)
(
6,475
)
(
42,686
)
Total comprehensive income (loss)
$
(
1,088
)
$
(
2,783
)
$
$
(
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
$
$
$
(
95,088
)
$
(
46,319
)
$
Net income
-
-
-
-
Other comprehensive loss
-
-
-
-
(
4,907
)
(
4,907
)
Restricted stock forfeiture
(
2,487
)
(
3
)
-
-
-
Stock-based compensation
-
-
-
-
Balance at September 30, 2023
$
$
$
(
91,269
)
$
(
51,226
)
$
Balance at July 1, 2022
$
$
$
(
114,096
)
$
(
36,861
)
$
Net income
-
-
-
-
Other comprehensive loss
-
-
-
-
(
8,341
)
(
8,341
)
Stock-based compensation
-
-
-
-
Balance at September 30, 2022
$
$
$
(
108,538
)
$
(
45,202
)
$
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
$
$
$
(
104,104
)
$
(
44,751
)
$
After tax cumulative effect of adoption of accounting
principle related to ASC
326
(
989
)
(
989
)
Adjusted beginning balance after cumulative
effect adjustment
(
105,093
)
(
44,751
)
Net income
-
-
-
-
Other comprehensive loss
-
-
-
-
(
6,475
)
(
6,475
)
Repurchase of Class A common stock
(
577,603
)
(
577
)
(
6,036
)
-
-
(
6,613
)
Restricted stock issued
(
121
)
-
-
-
Restricted stock forfeiture
(
2,487
)
(
3
)
-
-
Stock-based compensation
-
-
-
-
Balance at September 30, 2023
$
$
$
(
91,269
)
$
(
51,226
)
$
Balance at January 1, 2022
(
124,245
)
(
2,516
)
Net income
-
-
-
-
Other comprehensive loss
-
-
-
-
(
42,686
)
(
42,686
)
Exercise of stock options
Stock-based compensation
-
-
-
-
Balance at September 30, 2022
$
$
$
(
108,538
)
$
(
45,202
)
$
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
$
$
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for credit losses
Depreciation and amortization
(Accretion) amortization of premiums on securities,
net
(
651
)
Accretion of deferred loan fees, net
(
236
)
(
1,364
)
Stock-based compensation
Loss (gain) on sale of available for sale securities
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
Net change in operating assets and liabilities:
Accrued interest receivable
(
1,374
)
(
593
)
Other assets
(
751
)
(
4,163
)
Accrued interest and other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of investment securities held
to maturity
(
86,788
)
(
2,432
)
Proceeds from maturities and pay-downs of investment
securities held to maturity
Purchase of investment securities available
for sale
(
26,792
)
(
49,808
)
Proceeds from maturities and pay-downs of investment
securities available for sale
Proceeds from sales of investment securities
available for sale
Net increase in loans held for investment
(
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
Purchase of Bank owned life insurance
(
11,100
)
-
Proceeds from the redemption of Federal
Home Loan Bank stock
Purchase of Federal Home Loan Bank stock
(
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
-
Repurchase of Class A common stock
(
6,613
)
-
Net increase in deposits
Proceeds from Federal Home Loan Bank advances
Repayments on Federal Home Loan Bank advances
(
203,350
)
(
70,000
)
Net cash provided by financing activities
Net increase in cash and cash equivalents
(
20,733
)
Cash and cash equivalents at beginning
of period
Cash and cash equivalents at end of period
$
$
Supplemental disclosure of cash flow
information:
Interest paid
$
$
Supplemental schedule of non-cash investing
and financing activities:
Transfer of loans held for investment to loans held
for sale
$
$
Transfer of investment securities from available-for-sale
to held-to-maturity
$
$
Lease liability arising from obtaining right-of-use
asset
$
-
$
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,
% or $
%
or
$
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 $
of tax cumulative adjustment resulted in a
increase of $
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
$
mortgage-backed
securities.
Because
of
the
explicit
and/or
implicit
guarantee
on
these
bonds,
the
Company
holds
reserves
on these
holdings.
The remaining
portion
of
the HTM
portfolio
is made
up of
$
corporate bonds. The required reserve for these holdings is
determined each quarter using the model described above. For
the portion of the HTM exposed to non-government
credit risk, the Company utilized the PD/LGD
methodology to estimate
a $
cost less 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
$
$
-
$
(
1,888
)
$
Collateralized mortgage obligations
-
(
26,976
)
Mortgage-backed securities - residential
-
(
14,867
)
Mortgage-backed securities - commercial
(
7,508
)
Municipal securities
-
(
6,908
)
Bank subordinated debt securities
(
2,246
)
Corporate bonds
-
-
-
-
$
$
$
(
60,393
)
$
Held-to-maturity:
U.S. Government Agency
$
$
-
$
(
7,038
)
$
U.S. Treasury
-
(
28
)
Collateralized mortgage obligations
-
(
10,308
)
Mortgage-backed securities - residential
-
(
6,088
)
Mortgage-backed securities - commercial
-
(
1,583
)
Corporate bonds
-
(
988
)
$
$
-
$
(
26,033
)
$
Allowance for credit losses - securities held-to-maturity
(
16
)
Securities held-to maturity, net of allowance for credit losses
$
December 31, 2022
Available-for-sale:
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
U.S. Government Agency
$
$
-
$
(
1,522
)
$
Collateralized mortgage obligations
-
(
23,410
)
Mortgage-backed securities - residential
-
(
12,959
)
Mortgage-backed securities - commercial
(
4,305
)
Municipal securities
-
(
6,601
)
Bank subordinated debt securities
(
1,050
)
Corporate bonds
-
(
328
)
$
$
$
(
50,175
)
$
Held-to-maturity:
U.S. Government Agency
$
$
$
(
5,877
)
$
U.S. Treasury
-
(
13
)
Collateralized mortgage obligations
(
7,830
)
Mortgage-backed securities - residential
(
4,574
)
Mortgage-backed securities - commercial
-
(
665
)
Corporate bonds
-
(
1,077
)
$
$
$
(
20,036
)
$
During the
year ended
December 31,
2022, a
total of
value
of
$
unrealized
loss of
$
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
$
was $
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
$
$
$
$
Gross gains
$
-
$
$
$
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
$
-
$
-
$
$
Due after one year through five years
Due after five years through ten years
-
-
Due after ten years
-
-
U.S. Government Agency
Collateralized mortgage obligations
Mortgage-backed securities - residential
Mortgage-backed securities - commercial
$
$
$
$
At September 30,
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
$
-
-
(
10,184
)
$
$
(
10,184
)
U.S. Treasury
(
28
)
-
-
(
28
)
Collateralized mortgage obligations
-
-
(
41,869
)
(
41,869
)
Mortgage-backed securities - residential
(
237
)
(
23,353
)
(
23,590
)
Mortgage-backed securities - commercial
(
917
)
(
9,656
)
(
10,573
)
Municipal securities
-
-
(
6,908
)
(
6,908
)
Bank subordinated debt securities
(
304
)
(
1,941
)
(
2,245
)
Corporate bonds
-
-
(
631
)
(
631
)
$
$
(
1,486
)
$
$
(
94,542
)
$
$
(
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
$
(
1,093
)
(
7,616
)
$
(
8,709
)
U.S. Treasury
(
13
)
-
-
(
13
)
Collateralized mortgage obligations
(
963
)
(
34,962
)
(
35,925
)
Mortgage-backed securities - residential
(
564
)
(
19,348
)
(
19,912
)
Mortgage-backed securities - commercial
(
1,173
)
(
5,300
)
(
6,473
)
Municipal securities
-
-
(
6,601
)
(
6,601
)
Bank subordinated debt securities
(
670
)
(
381
)
(
1,051
)
Corporate bonds
(
926
)
-
-
(
926
)
$
$
(
5,402
)
$
$
(
74,208
)
$
$
(
79,610
)
As of
September 30,
2023,
the unrealized
losses
associated
with
$
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
$
collateralized
mortgage
obligations
of
government
sponsored
entities
having
a
fair
value
of
$
attributable to a combination of factors, including relative
changes in interest rates since the time of purchase.
At
December
31,
2022,
the
Company
had
$
collateralized
mortgage
obligations
of
government
sponsored
entities
having
a
fair
value
of
$
attributable to a combination of factors, including relative
changes in interest rates since the time of purchase.
The contractual
cash
flows
for these
securities
are
guaranteed
by
U.S.
government
agencies
and
U.S.
government
sponsored entities. The municipal bonds are of high credit quality and the declines in fair
value are not due to credit quality.
Based
on
the
assessment
of
these
mitigating
factors,
management
believed
that
the
unrealized
losses
on
these
debt
security holdings are
a function of
changes in investment
spreads and interest
rate movements
and not changes
in credit
quality. Management
expects to recover the entire amortized cost basis of these
securities.
At September 30, 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 $
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
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
%
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
$
pledged to the State
of Florida for these public
funds were
As of
December 31, 2022, the
Bank had
a total
of $
to the State of Florida for these public funds were
The Board
of Governors
of the
Federal Reserve
System, on
March 12,
2023, announced
the creation
of a
new Bank
Term
Funding Program
(BTFP). The
BTFP 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
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
$
%
$
%
Commercial Real Estate
%
%
Commercial and Industrial
%
%
Foreign Banks
%
%
Consumer and Other
%
%
Total
gross loans
%
%
Plus: Deferred fees (cost)
Total
loans net of deferred fees (cost)
Less: Allowance for credit losses
Total
net loans
$
$
At September 30, 2023
and December 31, 2022,
the Company had
$
commercial real estate
and residential mortgage loans
pledged as collateral
for lines of
credit with the
FHLB and the
Federal
Reserve Bank of Atlanta.
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 $
at September 30, 2023 and $
The Company recognized
$
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:
•
•
•
•
•
•
•
•
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
$
$
$
$
$
$
Provision for credit losses
(1)
(
162
)
(
84
)
Recoveries
-
-
-
-
Charge-offs
-
-
-
-
(
3
)
(
3
)
Ending Balance
$
$
$
$
$
$
Nine Months Ended September 30, 2023
Beginning balance
$
$
$
$
$
$
Cumulative effect of adoption of accounting
principle
(2)
(
2,158
)
Provision for credit losses
(3)
(
89
)
(
1,149
)
Recoveries
-
-
Charge-offs
-
-
-
-
(
48
)
(
48
)
Ending Balance
$
$
$
$
$
$
(1) Provision for credit losses excludes $
thousand release due to investment securities held to maturity.
(2) Impact of CECL adoption on January 1, 2023
(3) Provision for credit losses excludes $
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
$
$
$
$
$
$
Provision for credit losses
(
1,009
)
Recoveries
-
-
-
-
Charge-offs
-
-
(
88
)
-
(
5
)
(
93
)
Ending Balance
$
$
$
$
$
$
Nine Months Ended September 30, 2022
Beginning balance
$
$
$
$
$
$
Provision for credit losses
(
1,157
)
Recoveries
-
-
Charge-offs
(
16
)
-
(
88
)
-
(
11
)
(
115
)
Ending Balance
$
$
$
$
$
$
At
September
30,
2023
the
ACL,
under
the
CECL
methodology,
was
$
December 31,
2022, under
the incurred
loss
methodology.
The increase
of $
impact of adoption of the ASU 2016-13 on loan receivables, a $
to loan growth and to net charge-offs.
The
Company
had
charge
offs
totaling
$
originated in
2023. The
Company had
charge offs
totaling $
related to loans. $
originated in 2015.
The Company
had
charge
offs
totaling
$
$
$
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
$
$
-
$
$
-
$
-
$
Collectively evaluated for impairment
Balances, end of period
$
$
$
$
$
$
Loans:
Individually evaluated for impairment
$
$
-
$
$
-
$
-
$
Collectively evaluated for impairment
Balances, end of period
$
$
$
$
$
$
December 31, 2022:
Allowance for credit losses:
Individually evaluated for impairment
$
$
-
$
$
-
$
$
Collectively evaluated for impairment
Balances, end of period
$
$
$
$
$
$
Loans:
Individually evaluated for impairment
$
$
$
$
-
$
$
Collectively evaluated for impairment
Balances, end of period
$
$
$
$
$
$
Credit Quality Indicators
The Company grades loans based on the estimated capability of the borrower to repay the contractual obligation of the
loan agreement based
on relevant information
which may include:
current financial information
on the borrower,
historical
payment
experience,
credit
documentation
and
other
current
economic
trends.
Internal
credit
risk
grades
are
evaluated
periodically.
The Company's internally assigned credit risk grades are as follows:
Pass
– Loans indicate different levels of satisfactory
financial condition and performance.
Special Mention
close attention. If left uncorrected, these potential weaknesses
may result in deterioration of the repayment
prospects for the loan or of the institution’s
credit position at some future date.
Substandard
– Loans classified as substandard are inadequately protected
by the current net worth and paying
capacity of the obligator or of the collateral pledged, if
any. Loans so classified
have a well-defined weakness or
weaknesses that jeopardize the liquidation of the debt.
They are characterized by the distinct possibility that the
institution will sustain some loss if the deficiencies are
not corrected.
Doubtful
the added characteristic that the weaknesses make collection
or liquidation in full on the basis of currently existing
facts, conditions, and values, highly questionable and improbable.
Loss
– Loans classified as loss are considered uncollectible.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
18
USCB Financial Holdings, Inc.
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
$
$
$
$
$
$
$
$
Total
Commercial real estate
Pass
Substandard
-
-
-
-
-
Total
Commercial and
industrial
Pass
Substandard
-
-
-
-
Total
Foreign banks
Pass
-
-
-
-
-
Total
-
-
-
-
-
Consumer and other
loans
Pass
Substandard
-
-
-
-
-
-
-
-
Total
Total
Loans
Pass
Special Mention
-
-
-
-
-
-
-
-
Substandard
-
-
-
Doubtful
-
-
-
-
-
-
-
-
Total
$
$
$
$
$
$
$
$
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
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
$
$
-
$
-
$
-
$
1-4 family residential
-
-
-
Condo residential
-
-
-
-
-
-
-
Commercial real estate:
Land and construction
-
-
-
Multi-family residential
-
-
-
Condo commercial
-
-
Commercial property
-
-
-
-
Commercial and industrial:
Secured
-
-
Unsecured
-
-
-
-
-
Foreign banks
-
-
-
Consumer and other loans
-
-
Total
$
$
-
$
$
-
$
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
$
$
-
$
-
$
$
-
$
1-4 family residential
-
-
-
Condo residential
-
-
-
-
Commercial real estate:
Land and construction
-
-
-
Multi-family residential
-
-
-
Condo commercial
-
-
-
Commercial property
-
-
-
Leasehold improvements
-
-
-
-
-
-
Commercial and industrial:
Secured
-
-
Unsecured
-
-
-
-
-
Foreign banks
-
-
-
Consumer and other
-
-
-
Total
$
$
$
-
$
$
$
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
$
$
-
$
-
$
$
-
$
1-4 family residential
-
-
Condo residential
-
-
-
-
Commercial real estate:
Land and construction
-
-
-
Multi-family residential
-
-
-
Condo commercial
-
-
-
Commercial property
-
-
Leasehold improvements
-
-
-
-
-
-
-
-
Commercial and industrial:
Secured
-
-
Unsecured
-
-
-
-
Foreign banks
-
-
-
Consumer and other
-
-
Total
$
$
$
-
$
$
$
Non-accrual Status
The following table
includes the amortized
cost basis of
loans on non-accrual
status and loans
past due over
90 days
and still accruing as of September 30, 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
-
-
Consumer and other
-
-
-
-
$
-
$
$
$
-
The Company did
t have loans in nonaccrual status as of December
31, 2022.
Accrued interest
receivable is
excluded from
the estimate
of credit
losses. There
was
attributable to non-accrual
loans outstanding during
the three months
ended September 30, 2023 and
2022. Interest income
on these loans for
the three months
ended September 30,
2023 and 2022,
would have been
approximately $
and $
loans
for the
nine months
ended September
30,
2023 and
2022, would
have been
approximately
$
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
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
$
$
$
-
Commercial real estate
-
-
Impaired Loans with Specific Allowance:
Residential real estate
Commercial and industrial
Consumer and other
Total
$
$
$
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
$
$
Commercial real estate
Commercial and industrial
Consumer and other
Total
$
$
Interest income recognized on impaired loans for
the three months ended September 30, 2022
was $
for the nine months ended September 30, 2022 was $
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
Consumer and other
-
-
-
-
-
-
$
$
$
$
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
23
USCB Financial Holdings, Inc.
Q3 2023 Form 10-Q
The Company had
the
three
and
nine
months
ended
September
30,
2023,
respectively.
There
were
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
State
Total
deferred
Total
tax expense
$
$
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
%
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
$
$
State income taxes, net of federal tax benefit
Bank owned life insurance
(
171
)
(
202
)
Other, net
-
Total
tax expense
$
$
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
$
$
Allowance for credit losses
Lease liability
Unrealized losses on available for sale securities
Depreciable property
Equity compensation
Accruals
CECL Adoption
-
Deferred tax assets:
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
$
$
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
$
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
t have any unrecognized tax
benefits
as
a
result
of
tax
positions
taken
during
a
prior
period
or
during
the
current
period.
Additionally,
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
$
$
Standby and commercial letters of credit
Total
$
$
Commitments to
extend credit
are agreements
to lend
to a
customer as
long as
there is
no violation
of any
condition
established in the contract. Commitments generally have
fixed expiration dates or other termination clauses.
Unfunded lines of
credit and revolving
credit lines are
commitments for possible
future extensions
of credit to
existing
customers. These lines of
credit are uncollateralized and
usually do not contain
a specified maturity date
and ultimately may
not be drawn upon to the total extent to which the Company
committed.
Standby
and
commercial
letters
of
credit
are
conditional
commitments
issued
by
the
Company
to
guarantee
the
performance of a
customer to
a third
party. Those letters of
credit are
primarily issued to
support public and
private borrowing
arrangements. Essentially all letters of credit have fixed maturity dates and since
many of them expire without being drawn
upon, they do not generally present a significant liquidity
risk to the Company.
6.
DERIVATIVES
The Company utilizes interest rate swap agreements
as part of its asset-liability management strategy to help
manage
its interest rate
risk exposure. The notional
amount of the interest
rate swaps does not
represent actual amounts exchanged
by the
parties.
The amounts
exchanged
are determined
by reference
to the
notional amount
and the
other
terms
of the
individual interest rate swap agreements.
Interest Rate Swaps Designated as a Cash Flow Hedge
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
$
average
maturity
of
%,
with
the
weighted
average
3-month
compound SOFR being received. The Company had
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
$
maturity of
%, 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
with
loan
customers
with
an
aggregate
notional
amount
of
$
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
$
-
Other assets
$
$
Derivatives not designated as hedging instruments:
Interest rate swaps related to customer loans
$
$
Other assets/Other liabilities
$
$
December 31, 2022:
Derivatives not designated as hedging instruments:
Interest rate swaps related to customer loans
$
$
Other assets/Other liabilities
$
$
7.
FAIR VALUE
MEASUREMENTS
Determination of Fair Value
The Company
uses
fair value
measurements
to record
fair-value
adjustments
to certain
assets
and liabilities
and to
determine fair value
disclosures. In accordance
with the fair
value measurements
accounting guidance, the
fair value of
a
financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market
participants
at the
measurement
date.
Fair value
is best
determined based
upon quoted
market prices.
However, in
many instances, there
are no quoted
market prices for the
Company's various financial
instruments. In cases
where quoted
market prices
are not
available, fair
values are
based on
estimates using
present value
or other
valuation
techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates
of future cash flows. Accordingly, the fair value estimates may not be realized in
an immediate settlement of the instrument.
The fair
value guidance provides
a consistent definition
of fair
value, which focuses
on exit
price in
an orderly transaction
(that is,
not a
forced
liquidation
or distressed
sale) between
market participants
at the
measurement
date
under current
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
entity has
the ability
to access
at the measurement
date. Level
1 assets
and liabilities
generally include
debt and
equity securities that
are traded in
an active exchange
market. Valuations are obtained from
readily available pricing
sources for market transactions involving identical assets
or liabilities.
Level 2
asset
or
liability,
either
directly
or
indirectly.
The
valuation
may
be
based
on
quoted
prices
for
similar
assets
or
liabilities; quoted
prices in
markets that are
not active;
or other inputs
that are observable
or can be
corroborated
by observable market data for substantially the full term of the
asset or liability.
Level 3
significant
to
the
fair
value
of
the
assets
or
liabilities.
Level
3
assets
and
liabilities
include
financial
instruments
whose value
is determined
using pricing
models, discounted
cash
flow
methodologies,
or similar
techniques,
as
well as instruments for which determination of fair value
requires significant management judgment or estimation.
A
financial
instrument's
categorization
within
the
valuation
hierarchy
is
based
upon
the
lowest
level
of
input
that
is
significant to the fair value measurement.
Items Measured at Fair Value
on a Recurring Basis
AFS investment securities:
for such securities,
management generally relies
on prices obtained
from independent vendors
or third-party broker-dealers.
Management reviews pricing methodologies provided by the vendors and third-party broker-dealers in order to determine if
observable market information is being utilized. Securities measured with pricing provided by independent vendors or
third-
party broker-dealers
are classified within
Level 2 of
the hierarchy
and often
involve using quoted
market prices
for similar
securities, pricing models or discounted cash flow analyses
utilizing inputs observable in the market where available.
Derivatives:
classified within Level 2 of the hierarchy.
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
$
-
$
$
-
$
$
-
$
$
-
$
Collateralized mortgage obligations
-
-
-
-
Mortgage-backed securities - residential
-
-
-
-
Mortgage-backed securities - commercial
-
-
-
-
Municipal securities
-
-
-
-
Bank subordinated debt securities
-
-
-
-
Corporate bonds
-
-
-
-
-
-
Total
-
-
-
-
Derivative assets
-
-
-
-
Total assets at fair value
$
-
$
$
-
$
$
-
$
$
-
$
Derivative liabilities
$
-
$
$
-
$
$
-
$
$
-
$
Total liabilities at fair value
$
-
$
$
-
$
$
-
$
$
-
$
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
$
approximately $
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:
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
$
-
$
-
$
$
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
$
Sales comparison approach
Adj. for differences between comparable sales
Commercial and industrial
Discounted cash flow
Adj. for differences in net operating income expectations
Consumer and other loans
Discounted cash flow
Adj. for differences in net operating income expectations
Total
impaired loans
$
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
28
USCB Financial Holdings, Inc.
Q3 2023 Form 10-Q
There
were
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
$
$
$
-
$
-
$
Interest-bearing deposits in banks
$
$
$
-
$
-
$
Investment securities held to maturity, net
$
$
-
$
$
-
$
Loans held for investment, net
$
$
-
$
-
$
$
Accrued interest receivable
$
$
-
$
$
$
Financial Liabilities:
Demand deposits
$
$
$
-
$
-
$
Money market and savings accounts
$
$
$
-
$
-
$
Interest-bearing checking accounts
$
$
$
-
$
-
$
Time deposits
$
$
-
$
-
$
$
FHLB advances
$
$
-
$
$
-
$
Accrued interest payable
$
$
-
$
$
$
December 31, 2022:
Financial Assets:
Cash and due from banks
$
$
$
-
$
-
$
Interest-bearing deposits in banks
$
$
$
-
$
-
$
Investment securities held to maturity
$
$
-
$
$
-
$
Loans held for investment, net
$
$
-
$
-
$
$
Accrued interest receivable
$
$
-
$
$
$
Financial Liabilities:
Demand deposits
$
$
$
-
$
-
$
Money market and savings accounts
$
$
$
-
$
-
$
Interest-bearing checking accounts
$
$
$
-
$
-
$
Time deposits
$
$
-
$
-
$
$
FHLB advances
$
$
-
$
$
-
$
Accrued interest payable
$
$
-
$
$
$
8.
STOCKHOLDERS’ EQUITY
Common Stock
In July
2021, the
Bank completed
the initial
public offering
of its
Class
A common
stock, in
which it
issued
and sold
million after deducting underwriting discounts and expenses.
In December 2021,
the Company acquired
all the issued
and outstanding shares
of the Class
A common stock
of the
Bank, which at the time were
the only issued and outstanding shares
of the Bank’s capital stock,
in a share exchange (the
“Reorganization”)
effected
under
the
Florida
Business
Corporation
Act.
Each
outstanding
share
of
the
Bank’s
Class
A
common stock,
par value
$
newly
issued
share
of
the
Company’s
Class
A
common
stock,
par
value
$
Company’s wholly owned subsidiary.
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
stock awards pursuant to the Company’s 2015 equity incentive plan. There were
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
stock
at
a
weighted
average
price
per
share
of
$
.
The
aggregate
purchase
price
for
these
transactions
was
approximately
$
pursuant to the Company’s publicly announced repurchase program.
ended
September
30,
2023. As
of
September
30,
2023,
program.
Shares of the Company’s Class A common stock issued and outstanding as
of September 30, 2023 and December 31,
2022 were
, respectively.
Dividends
Declaration of dividends by the Board is required before dividend payments are made.
the Board for
the common stock classes
for the three
months ended September 30, 2023
and 2022. Additionally, there were
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
% and
%, 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
$
$
$
$
Net income available to common shareholders
$
$
$
$
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
$
$
Denominator:
Weighted average shares outstanding
Earnings per share, basic
$
$
Diluted EPS
Numerator:
Net income available to common shares
$
$
Denominator:
Weighted average shares outstanding for basic EPS
Add: Dilutive effects of assumed exercises of stock options
Weighted avg. shares including dilutive potential common shares
Earnings per share, diluted
$
$
Anti-dilutive stock options excluded from diluted EPS
Net income has not been allocated to unvested restricted
stock awards that are participating securities
because the amounts that would be allocated
are not material to net income per share of
common stock. Unvested restricted stock awards
that are participating securities represent less than one
percent of all of the outstanding shares of
common stock for each of the periods presented.
Nine Months Ended September 30,
2023
2022
Class A
Class A
Basic EPS
Numerator:
Net income available to common shares
$
$
Denominator:
Weighted average shares outstanding
Earnings per share, basic
$
$
Diluted EPS
Numerator:
Net income available to common shares
$
$
Denominator:
Weighted average shares outstanding for basic EPS
Add: Dilutive effects of assumed exercises of stock options
Weighted avg. shares including dilutive potential common shares
Earnings per share, diluted
$
$
Anti-dilutive stock options excluded from diluted EPS
Net income has not been allocated to unvested
restricted stock awards that are participating securities
because the amounts that would be allocated are
not material to net income per share of common
stock. Unvested restricted stock awards that are participating
securities represent less than one percent
of all of the outstanding shares of common stock
for each of the periods presented.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
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,
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:
•
•
•
deferred tax asset valuation allowance;
•
•
where we operate;
•
•
•
effects of the implementation of the Current Expected Credit Losses (“CECL”) standard;
•
geographic, depositor,
and industry
concentrations, including
our concentration
in loans
secured by
real estate,
in particular,
commercial real estate;
•
•
•
•
well as growth through other means, such as future acquisitions;
•
•
•
interest margin;
•
•
or third-party fraud and security breaches; and
•
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:
•
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.
•
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.
•
2022 and an increase of $158.8 million or 10.2% annualized from December 31, 2022.
•
2022 and an increase of $169.2 million or 15.0% annualized from December 31, 2022.
•
2022 and an increase of $91.6 million or 6.7% annualized from December 31, 2022.
•
ended September 30, 2022.
•
for quarter ended September 30, 2022.
•
methodology for three and nine months ended September 30, 2023 and the incurred loss methodology for all periods in 2022.
•
•
•
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
close attention. If left uncorrected, these potential weaknesses
may result in deterioration of the repayment
prospects for the loan or of the institution’s
credit position at some future date.
Substandard
– Loans classified as substandard are inadequately protected
by the current net worth and paying
capacity of the obligator or of the collateral pledged, if
any. Loans so classified
have a well-defined weakness or
weaknesses that jeopardize the liquidation of the debt.
They are characterized by the distinct possibility that the
institution will sustain some loss if the deficiencies are
not corrected.
Doubtful
the added characteristic that the weaknesses make collection
or liquidation in full on the basis of currently existing
facts, conditions, and values, highly questionable and improbable.
Loss
– Loans classified as loss are considered uncollectible.
Loan credit exposures by internally assigned grades are
as follows for the dates indicated (in thousands):
September 30, 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)
$
14,022
$
14,173
$
15,997
$
16,866
$
16,774
2,161
1,846
2,070
(123)
1,789
(955)
-
(21)
(1,989)
(558)
$
17,138
$
16,019
$
18,088
$
18,732
$
19,121
Operating Efficiency Ratio:
(1)
$
10,461
$
10,452
$
10,176
$
10,014
$
10,132
$
17,138
$
16,019
$
18,088
$
18,732
$
19,121
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)
$
182,884
$
183,685
$
183,858
$
182,428
$
177,417
$
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)
(b)
Item 4.
Mine Safety Disclosures
Not applicable.
Item 5. Other Information
(a)
(b)
(c)
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)
TABLE OF CONTENTS
Part IItem 1. Financial StatementsItem 2. Management's Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart IIItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 6. Exhibits