USCB 10-Q Quarterly Report Sept. 30, 2024 | Alphaminr
USCB FINANCIAL HOLDINGS, INC.
ALPHAMINR

USCB 10-Q Quarter ended Sept. 30, 2024

Balance Sheet
Cash Flow
Income Statement
uscb-20240930
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uscb-20240930p1i0
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
September 30, 2024
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____to_____
Commission File Number:
001-41196
USCB Financial Holdings, Inc.
(Exact name of registrant as specified in its charter)
Florida
87-4070846
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
2301 N.W. 87th Avenue
,
Doral
,
FL
33172
(Address of principal executive offices) (zip code)
Registrant’s telephone number, including area code:
(
305
)
715-5200
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A common stock, $1.00 par value per share
USCB
The Nasdaq Stock Market LLC
Indicate by check
mark whether the
registrant (1) has
filed all reports
required to be
filed by Section
13 or 15(d)
of the Securities
Exchange
Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was
required to file such reports), and (2)
has
been subject to such filing requirements for the past 90 days.
Yes
☒
No
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data
File required to be submitted pursuant
to Rule 405
of Regulation S-T
(§232.405 of this
chapter) during the
preceding 12 months
(or for such
shorter period that
the registrant
was required to submit such files).
Yes
☒
No
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company
or
an
emerging
growth
company.
See
the
definitions
of
“large
accelerated
filer,”
“accelerated
filer,”
“non-accelerated
filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☐
Non-accelerated filer
☒
Smaller reporting company
☒
Emerging growth company
☒
If an
emerging growth
company, indicate by
check mark
if the
registrant has elected
not to
use the
extended transition
period for
complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐
No
☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of October 31, 2024 the registrant had
19,840,632
shares of Class
A
common stock outstanding.
3
USCB Financial Holdings, Inc.
Q3 2024 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, 2024
December 31, 2023
ASSETS:
Cash and due from banks
$
7,084
$
8,019
Interest-bearing deposits in banks
31,402
33,043
Total cash and cash equivalents
38,486
41,062
Investment securities held to maturity, net of allowance of $
8
for both periods (fair value $
153,125
and
$
155,510
, respectively)
167,001
174,974
Investment securities available for sale, at fair value
259,527
229,329
Federal Home Loan Bank stock, at cost
7,242
10,153
Loans held for investment, net of allowance of $
23,067
and $
21,084
, respectively
1,908,295
1,759,743
Accrued interest receivable
10,765
10,688
Premises and equipment, net
4,656
4,836
Bank owned life insurance
53,038
51,781
Deferred tax assets, net
29,540
37,282
Lease right-of-use asset
9,194
11,423
Other assets
16,210
7,822
Total assets
$
2,503,954
$
2,339,093
LIABILITIES:
Deposits:
Demand deposits
$
637,313
$
552,762
Money market and savings accounts
1,091,029
1,048,272
Interest-bearing checking
64,333
47,702
Time deposits
333,942
288,403
Total deposits
2,126,617
1,937,139
Federal Home Loan Bank advances and other
borrowings
118,000
183,000
Lease liability
9,194
11,423
Accrued interest and other liabilities
36,227
15,563
Total liabilities
2,290,038
2,147,125
Commitments and contingencies (See Notes 5
and 10)
(nil)
(nil)
STOCKHOLDERS' EQUITY:
Preferred stock - Class C; $1.00 par value; $1,000
per share liquidation preference; 52,748 shares
authorized; 0 and 0 issued and outstanding as
of September 30, 2024 and December 31, 2023
-
-
Preferred stock - Class D; $1.00 par value; $5.00
per share liquidation preference; 12,309,480
shares
authorized; 0 and 0 issued and outstanding as
of September 30, 2024 and December 31,
2023
-
-
Preferred stock - Class E; $1.00 par value; $1,000 per
share liquidation preference; 3,185,024 shares
authorized; 0 and 0 issued and outstanding as
of of September 30, 2024 and December 31,
2023
-
-
Common stock - Class A Voting; $1.00 par value; 45,000,000 shares
authorized; 19,620,632 issued and
outstanding
as of September 30, 2024, 19,575,435 issued and
outstanding as of
December 31, 2023
19,621
19,575
Common stock - Class B Non-voting; $1.00 par
value; 8,000,000 shares authorized; 0 and 0
issued and
outstanding as of September 30, 2024 and
December 31, 2023
-
-
Additional paid-in capital on common stock
306,100
305,212
Accumulated deficit
( 73,827 )
( 88,548 )
Accumulated other comprehensive loss
( 37,978 )
( 44,271 )
Total stockholders' equity
213,916
191,968
Total liabilities and stockholders' equity
$
2,503,954
$
2,339,093
The accompanying notes are an integral part of
these unaudited consolidated financial statements.
4
USCB Financial Holdings, Inc.
Q3 2024 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,
2024
2023
2024
2023
Interest income:
Loans, including fees
$
29,819
$
22,523
$
84,479
$
63,081
Investment securities
2,754
2,833
8,634
7,501
Interest-bearing deposits in financial institutions
989
1,026
3,953
2,459
Total interest income
33,562
26,382
97,066
73,041
Interest expense:
Interest-bearing checking
411
331
1,171
574
Money market and savings accounts
10,064
8,779
30,529
20,532
Time deposits
3,391
2,565
9,907
5,767
Federal Home Loan Bank advances and other borrowings
1,587
685
4,881
1,976
Total interest expense
15,453
12,360
46,488
28,849
Net interest income before provision for
credit losses
18,109
14,022
50,578
44,192
Provision for credit losses
931
653
2,127
892
Net interest income after provision for
credit losses
17,178
13,369
48,451
43,300
Non-interest income:
Service fees
2,544
1,329
6,172
3,707
Gain (loss) on sale of securities available for sale,
net
-
( 955 )
14
( 976 )
Gain on sale of loans held for sale, net
109
255
593
696
Other non-interest income
785
1,532
2,334
2,650
Total non-interest income
3,438
2,161
9,113
6,077
Non-interest expense:
Salaries and employee benefits
7,200
6,066
20,863
18,325
Occupancy
1,341
1,350
3,921
3,968
Regulatory assessment and fees
452
365
1,361
1,041
Consulting and legal fees
161
513
1,016
1,257
Network and information technology services
513
481
1,499
1,464
Other operating expense
1,787
1,686
5,528
5,034
Total non-interest expense
11,454
10,461
34,188
31,089
Income before income tax expense
9,162
5,069
23,376
18,288
Income tax expense
2,213
1,250
5,606
4,464
Net income
$
6,949
$
3,819
$
17,770
$
13,824
Per share information:
Net income per share, basic
$
0.35
$
0.20
$
0.90
$
0.70
Net income per share, diluted
$
0.35
$
0.19
$
0.90
$
0.70
Cash dividend declared
$
0.05
$
-
$
0.15
$
-
The accompanying notes are an integral part of
these unaudited consolidated financial statements.
5
USCB Financial Holdings, Inc.
Q3 2024 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,
2024
2023
2024
2023
Net income
$
6,949
$
3,819
$
17,770
$
13,824
Other comprehensive income (loss):
Unrealized gain (loss) on investment securities
9,848
( 7,858 )
8,624
( 11,145 )
Amortization of net unrealized gain on securities
transferred from
available-for-sale to held-to-maturity
67
64
200
184
Reclassification adjustment for (gain) loss included
in net income
-
955
( 14 )
976
Unrealized gain (loss) on cash flow hedge
( 930 )
266
( 381 )
1,312
Tax effect
( 2,277 )
1,666
( 2,136 )
2,198
Total other comprehensive income (loss), net of tax
6,708
( 4,907 )
6,293
( 6,475 )
Total comprehensive income (loss)
$
13,657
$
( 1,088 )
$
24,063
$
7,349
The accompanying notes are an integral part of
these unaudited consolidated financial statements.
6
USCB Financial Holdings, Inc.
Q3 2024 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 June 30,2024
19,630,632
$
19,631
$
305,835
$
( 79,760 )
$
( 44,686 )
$
201,020
Net income
-
-
-
6,949
-
6,949
Other comprehensive income
-
-
-
-
6,708
6,708
Repurchase of Class A common stock
( 10,000 )
( 10 )
( 111 )
-
-
( 121 )
Dividend payment
-
-
-
( 1,016 )
-
( 1,016 )
Stock-based compensation
-
-
376
-
-
376
Balance at September 30,2024
19,620,632
$
19,621
$
306,100
$
( 73,827 )
$
( 37,978 )
$
213,916
Balance at June 30, 2023
19,544,777
$
19,545
$
305,547
$
( 95,088 )
$
( 46,319 )
$
183,685
Net income
-
-
-
3,819
-
3,819
Other comprehensive loss
-
-
-
-
( 4,907 )
( 4,907 )
Restricted stock forfeiture
( 2,487 )
( 3 )
3
-
-
-
Stock-based compensation
-
-
287
-
-
287
Balance at September 30, 2023
19,542,290
$
19,542
$
305,837
$
( 91,269 )
$
( 51,226 )
$
182,884
The accompanying notes are an integral
part of these consolidated financial statements.
Common Stock
Additional Paid-in
Capital on Common
Stock
Accumulated
Deficit
Accumulated Other
Comprehensive
Loss
Shares
Par Value
Total
Stockholders'
Equity
Balance at December 31, 2023
19,575,435
$
19,575
$
305,212
$
( 88,548 )
$
( 44,271 )
$
191,968
Net income
-
-
-
17,770
-
17,770
Other comprehensive income
-
-
-
-
6,293
6,293
Repurchase of Class A common stock
( 42,100 )
( 42 )
( 459 )
-
-
( 501 )
Restricted stock issued
57,922
58
( 58 )
-
-
-
Restricted stock forfeiture
( 8,625 )
( 8 )
8
-
-
-
Exercise of stock options
38,000
38
285
-
-
323
Dividend payment
-
-
-
( 3,049 )
-
( 3,049 )
Stock-based compensation
-
-
1,112
-
-
1,112
Balance at September 30, 2024
19,620,632
$
19,621
$
306,100
$
( 73,827 )
$
( 37,978 )
$
213,916
Balance at December 31, 2022
20,000,753
20,001
311,282
( 104,104 )
( 44,751 )
182,428
After tax cumulative effect of adoption of accounting
principle related to ASC
326
-
-
-
( 989 )
-
( 989 )
Adjusted beginning balance after cumulative
effect adjustment
20,000,753
20,001
311,282
( 105,093 )
( 44,751 )
181,439
Net income
-
-
-
13,824
-
13,824
Other comprehensive loss
-
-
-
-
( 6,475 )
( 6,475 )
Repurchase of Class A common stock
( 577,603 )
( 577 )
( 6,036 )
-
-
( 6,613 )
Restricted stock issued
121,627
121
( 121 )
-
-
-
Restricted stock forfeiture
( 2,487 )
( 3 )
3
-
-
-
Stock-based compensation
-
-
709
-
-
709
Balance at September 30, 2023
19,542,290
$
19,542
$
305,837
$
( 91,269 )
$
( 51,226 )
$
182,884
The accompanying notes are an integral
part of these unaudited consolidated financial
statements.
7
USCB Financial Holdings, Inc.
Q3 2024 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Cash Flows - Unaudited
(Dollars in thousands)
Nine Months Ended September 30,
2024
2023
Cash flows from operating activities:
Net income
$
17,770
$
13,824
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for credit losses
2,127
892
Depreciation and amortization
436
443
(Accretion) amortization of premiums on securities,
net
( 365 )
( 651 )
Accretion of deferred loan fees, net
660
( 236 )
Stock-based compensation
1,112
709
(Gain) loss on sale of available for sale securities
( 14 )
976
Gain on sale of loans held for sale
( 593 )
( 696 )
Increase in cash surrender value of bank owned
life insurance
( 1,257 )
( 1,756 )
Decrease in deferred tax assets
5,129
4,465
Net change in operating assets and liabilities:
Accrued interest receivable
( 77 )
( 1,374 )
Other assets
( 8,292 )
( 751 )
Accrued interest and other liabilities
20,505
12,679
Net cash provided by operating activities
37,141
28,524
Cash flows from investing activities:
Purchase of investment securities held
to maturity
-
( 86,788 )
Proceeds from maturities and pay-downs of investment
securities held to maturity
8,110
79,085
Purchase of investment securities available
for sale
( 70,996 )
( 26,792 )
Proceeds from maturities and pay-downs of investment
securities available for sale
15,097
11,679
Proceeds from sales of investment securities
available for sale
34,753
15,409
Net increase in loans held for investment
( 99,627 )
( 165,662 )
Purchase of loans held for investment
( 58,368 )
( 13,277 )
Additions to premises and equipment
( 256 )
( 131 )
Proceeds from the sale of loans held for sale
7,408
10,715
Purchase of Bank owned life insurance
-
( 11,100 )
Proceeds from the redemption of Federal
Home Loan Bank stock
8,645
6,517
Purchase of Federal Home Loan Bank stock
( 5,734 )
( 9,940 )
Net cash used in investment activities
( 160,968 )
( 190,285 )
Cash flows from financing activities:
Proceeds from issuance of Class A common
stock, net
323
-
Cash dividends paid
( 3,049 )
-
Repurchase of Class A common stock
( 501 )
( 6,613 )
Net increase in deposits
189,478
91,641
Proceeds from Federal Home Loan Bank advances
and other borrowings
197,000
259,350
Repayments on Federal Home Loan Bank advances
and other borrowings
( 262,000 )
( 203,350 )
Net cash provided by financing activities
121,251
141,028
Net decrease in cash and cash equivalents
( 2,576 )
( 20,733 )
Cash and cash equivalents at beginning
of period
41,062
54,168
Cash and cash equivalents at end of period
$
38,486
$
33,435
Supplemental disclosure of cash flow
information:
Interest paid
$
46,058
$
27,872
Supplemental schedule of non-cash investing
and financing activities:
Transfer of loans held for investment to loans held
for sale
$
6,815
$
10,019
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 2024 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 audited
consolidated financial statements and
related notes appearing in
the Company’s Annual Report
on Form 10-K for the year ended December 31, 2023.
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.
Recently Issued Accounting Standards
Adoption of New Accounting Standards
Reference Rate Reform
In March 2020, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standard Update (“ASU”) 2020-
04, Reference Rate Reform (Topic 848), aiming to facilitate the impacts of reference rate reform on financial reporting. This
initiative was
subsequently clarified
in January
2021 through
ASU 2021-01,
providing optional
directives for
a designated
timeframe to alleviate challenges associated
with accounting for,
or acknowledging the effects of, reference
rate reform on
financial reporting.
These amendments
offer
discretionary
guidance for
a defined
period to
alleviate potential
accounting
complexities associated with reference rate reform in financial reporting. The expedients
and exceptions provided by these
amendments
are
not
applicable
to
contract
modifications
executed
and
hedging
relationships
initiated
or
reviewed
after
December 31, 2022, except
for pre-existing hedging relationships
as of December 31, 2022,
for which an entity
has opted
for specific
optional expedients,
and which
are retained
until the
conclusion
of the
hedging relationship.
Additionally,
the
amendments
permit
entities
to
make
a
one-time
choice
to
divest,
transfer,
or
both
divest
and
transfer
debt
securities
categorized as held to
maturity, referencing a rate impacted by reference rate
reform, and classified as
held to maturity prior
to January 1, 2020. In December 2022, the FASB issued new guidance extending the expiration date of this guidance from
December
31, 2022
to
December
31,
2024, after
which
entities will
no longer
be
authorized
to
apply
the relief
provided
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
9
USCB Financial Holdings, Inc.
Q3 2024 Form 10-Q
under this guidance. Before this recent guidance, these amendments
were effective for all entities from March 12, 2020, to
December 31, 2022. The Company executed its transition strategy in preparation for the cessation of the London Intrabank
Offered
Rate
(“LIBOR”)
and
the
adjustment
of
its
existing
financial
instruments
affected
by
LIBOR,
whether
directly
or
indirectly.
LIBOR-based
originations
were
ceased
as
of
June
30,
2023,
and
for
existing
LIBOR-based
transactions,
the
Company substituted
the Secured
Overnight Financing Rate
(“SOFR”) for
LIBOR. The
Company has
completed its
transition
away from LIBOR for its loan and other financial instruments
.
Issued and Not Yet Adopted
Improvements to Income Tax
Disclosures
In
December
2023,
the
FASB
issued
ASU
2023-09,
“Income
Taxes
”
(Topic
740):
Improvements
to
Income
Tax
Disclosures. This
ASU pertains
to disclosures
regarding effective
tax rates
and
cash income
taxes
paid with
the goal
of
providing stakeholders with more transparent and relevant information. This ASU is effective for public business entities for
annual periods beginning
after Dec. 15,
2024. The Company
is currently assessing
the potential impact
of this ASU
on its
financial
reporting
and
has
not
yet
concluded
whether
the
changes
will
materially
affect
its
business
operations
or
consolidated financial statements.
Improvements to Reportable Segment Disclosures
In November
2023, the
FASB
issued ASU
2023-07, “Improvements
to Reportable
Segment Disclosures.”
ASU 2023-
07
requires
disclosure
of
significant
segment
expenses
and
other
segment
items
on
an
interim
and
annual
basis.
The
standard is effective
for fiscal years beginning
after December 15,
2023 and for
interim periods beginning
after December
15, 2024. The Company is evaluating the impact of the
changes to its existing disclosures.
2.
INVESTMENT SECURITIES
The measurement of expected credit losses under the current expected credit loss (“CECL”) methodology is applicable
to
financial
assets
measured
at
amortized
cost,
including
loan
receivables
and
held-to-maturity
debt
securities.
The
accounting
for available-for-sale
debt securities
credit
losses is
presented
as an
allowance rather
than
as a
write-down.
Management does not intend to sell or believes that
it is more likely they will not be required to sell AFS
securities.
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
forecasts.
For U.S.
Government bonds
and U.S.
Agency
issued bonds
classified as
HTM, the
explicit guarantee
of the U.S.
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 HTM
securities through the
use of
credit ratings. Credit
ratings are monitored
by the Company on
at least a quarterly basis.
As of September 30, 2024
and December 31, 2023,
all HTM securities held
by the Company were rated investment grade.
At
quarter
end,
HTM
securities
included
$
157.7
million
of
U.S.
Government
and
U.S.
Agency
issued
bonds
and
mortgage-backed
securities.
Because
of
the
explicit
and/or
implicit
guarantee
on
these
bonds,
the
Company
holds
no
reserves
on these
holdings.
The remaining
portion
of
the HTM
portfolio
is made
up of
$
9.3
million
in
investment
grade
corporate bonds. The required reserve for these holdings is
determined each quarter using the model described above.
For
the portion of the HTM exposed to non-government
credit risk, the Company utilized the PD/LGD
methodology to estimate
a $
8
thousand ACL as of September
30, 2024. The book value
for debt securities classified
as HTM represents amortized
cost less the ACL related to these securities.
The
Company
determined
that
an
ACL
on
its
debt
securities
available
for
sale
as
of
September 30,
2024
and
December 31, 2023 was not required.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
10
USCB Financial Holdings, Inc.
Q3 2024 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, 2024
Available-for-sale:
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
U.S. Government Agency
$
11,916
$
21
$
( 1,204 )
$
10,733
Collateralized mortgage obligations
104,228
55
( 20,089 )
84,194
Mortgage-backed securities - residential
60,390
21
( 9,649 )
50,762
Mortgage-backed securities - commercial
75,263
676
( 5,606 )
70,333
Municipal securities
24,945
-
( 4,520 )
20,425
Bank subordinated debt securities
24,272
193
( 1,385 )
23,080
$
301,014
$
966
$
( 42,453 )
$
259,527
Held-to-maturity:
U.S. Government Agency
$
42,909
$
97
$
( 4,041 )
$
38,965
Collateralized mortgage obligations
58,345
386
( 6,328 )
52,403
Mortgage-backed securities - residential
41,173
677
( 3,537 )
38,313
Mortgage-backed securities - commercial
15,316
35
( 788 )
14,563
Corporate bonds
9,266
-
( 385 )
8,881
$
167,009
$
1,195
$
( 15,079 )
$
153,125
Allowance for credit losses - securities held-to-maturity
( 8 )
Securities held-to maturity, net of allowance for credit losses
$
167,001
December 31, 2023
Available-for-sale:
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
U.S. Government Agency
$
9,664
$
-
$
( 1,491 )
$
8,173
Collateralized mortgage obligations
103,645
-
( 23,039 )
80,606
Mortgage-backed securities - residential
63,795
-
( 11,608 )
52,187
Mortgage-backed securities - commercial
49,212
56
( 6,504 )
42,764
Municipal securities
25,005
-
( 5,667 )
19,338
Bank subordinated debt securities
28,106
188
( 2,033 )
26,261
$
279,427
$
244
$
( 50,342 )
$
229,329
Held-to-maturity:
U.S. Government Agency
$
43,626
$
2
$
( 5,322 )
$
38,306
Collateralized mortgage obligations
62,735
-
( 7,983 )
54,752
Mortgage-backed securities - residential
43,784
348
( 4,533 )
39,599
Mortgage-backed securities - commercial
15,439
-
( 1,257 )
14,182
Corporate bonds
9,398
-
( 727 )
8,671
$
174,982
$
350
$
( 19,822 )
$
155,510
Allowance for credit losses - securities held-to-maturity
( 8 )
Securities held-to maturity, net of allowance for credit losses
$
174,974
During the quarter ended
September 30, 2024 there were
no
investment securities that were
transferred from available-
for-sale
(“AFS”)
to
HTM.
For
the
three
months
ended
September 30,
2024,
total
amortization
out
of
Additional
Other
Comprehensive
Income
(“AOCI”)
for net
unrealized
losses
on securities
transferred
in
2022 from
AFS to
HTM was
$
67
thousand. The
unamortized net
unrealized loss
as of
September 30,
2024, was
$
9.3
million. For
the nine
months ended
September 30, 2024,
total amortization
out of Additional
Other Comprehensive
Income (“AOCI”) for
net unrealized
losses
on securities transferred in 2022 from AFS to HTM was
$
200
thousand.
For
the
years
ended
December
31,
2023
total
amortization
out
of
AOCI
for
the
net
unrealized
losses
on
securities
transferred from AFS to HTM was $
251
thousand. In addition for these securities,
the balance of the net unrealized
losses
retained in AOCI was $
9.5
million at December 31, 2023.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
11
USCB Financial Holdings, Inc.
Q3 2024 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, 2024 and 2023 (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
Available-for-sale:
2024
2023
2024
2023
Proceeds from sale and call of securities
$
-
$
6,792
$
34,753
$
15,409
Gross gains
$
-
$
-
$
195
$
3
Gross losses
-
( 955 )
( 181 )
( 979 )
Net realized gain (loss)
$
-
$
( 955 )
$
14
$
( 976 )
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, 2024:
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
Due within one year
$
-
$
-
$
-
$
-
Due after one year through five years
1,000
1,006
9,266
8,881
Due after five years through ten years
42,975
38,294
-
-
Due after ten years
5,242
4,205
-
-
U.S. Government Agency
11,916
10,733
42,909
38,965
Collateralized mortgage obligations
104,228
84,194
58,345
52,403
Mortgage-backed securities - residential
60,390
50,762
41,173
38,313
Mortgage-backed securities - commercial
75,263
70,333
15,316
14,563
$
301,014
$
259,527
$
167,009
$
153,125
At September 30,
2024, 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 U.S. Government and Government Agency
securities. All the collateralized
mortgage obligations and mortgage-backed securities at September 30, 2024 and
December 31, 2023 were issued by U.S.
sponsored entities.
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, 2024
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
$
796
$
( 2 )
$
47,141
$
( 6,302 )
$
47,937
$
( 6,304 )
Collateralized mortgage obligations
1,854
( 1 )
130,104
( 30,448 )
131,958
( 30,449 )
Mortgage-backed securities - residential
-
-
82,457
( 15,097 )
82,457
( 15,097 )
Mortgage-backed securities - commercial
15,347
( 173 )
39,657
( 7,672 )
55,004
( 7,845 )
Municipal securities
-
-
20,425
( 4,520 )
20,425
( 4,520 )
Bank subordinated debt securities
3,062
( 131 )
14,605
( 1,254 )
17,667
( 1,385 )
Corporate bonds
-
-
8,881
( 170 )
8,881
( 170 )
$
21,059
$
( 307 )
$
343,270
$
( 65,463 )
$
364,329
$
( 65,770 )
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
12
USCB Financial Holdings, Inc.
Q3 2024 Form 10-Q
December 31, 2023
Less than 12 months
12 months or more
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
U.S. Government Agency
$
-
$
-
$
46,479
$
( 8,043 )
$
46,479
$
( 8,043 )
Collateralized mortgage obligations
-
-
135,358
( 35,566 )
135,358
( 35,566 )
Mortgage-backed securities - residential
5,290
( 47 )
83,484
( 18,365 )
88,774
( 18,412 )
Mortgage-backed securities - commercial
20,292
( 611 )
33,083
( 8,623 )
53,375
( 9,234 )
Municipal securities
-
-
19,338
( 5,667 )
19,338
( 5,667 )
Bank subordinated debt securities
8,600
( 331 )
12,287
( 1,703 )
20,887
( 2,034 )
Corporate bonds
-
-
8,671
( 406 )
8,671
( 406 )
$
34,182
$
( 989 )
$
338,700
$
( 78,373 )
$
372,882
$
( 79,362 )
The
unrealized
losses
associated
with
$
121.9
million
of
outstanding
investment
securities
transferred
from
the
AFS
portfolio to the HTM portfolio represent unrealized losses since the date of purchase, independent of the impact associated
with changes in the cost basis of the securities upon transfer
between portfolios.
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,
bond
vintage,
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 as of
September 30, 2024.
At
September 30,
2024,
the
Company
had
$
46.0
million
of
unrealized
losses
on
mortgage-backed
securities
and
collateralized mortgage
obligations of
U.S. government
sponsored entities
having a
fair value
of $
310.6
million that
were
attributable to a combination of factors, including relative
changes in interest rates since the time of purchase.
At
December 31,
2023,
the
Company
had
$
54.9
million
of
unrealized
losses
on
mortgage-backed
securities
and
collateralized mortgage
obligations of
U.S. government
sponsored entities
having a
fair value
of $
284.1
million that
were
attributable to a combination of factors, including relative
changes in interest rates since the time of purchase.
The contractual
cash
flows
for these
securities
are
guaranteed
by
U.S.
government
agencies
and
U.S.
government
sponsored entities. The municipal bonds are of high credit quality and the declines in fair
value are not due to credit quality.
Based
on
the
assessment
of
these
mitigating
factors,
management
believed
that
the
unrealized
losses
on
these
debt
security holdings are
a function of
changes in investment
spreads and interest
rate movements
and not changes
in credit
quality. Management
expects to recover the entire amortized cost basis of these
securities.
At September 30, 2024, the Company did not intend to
sell debt securities that are in an unrealized loss position
and it
is more than likely not required to sell these securities
before recovery of the amortized cost basis.
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
50
% of
the outstanding
uninsured deposits
at September 30,
2024
and
25
% at December 31, 2023. The Bank
must also maintain a minimum amount of pledged
securities to be in the public
funds program.
As
of
September 30,
2024,
the
Bank
had
a
total
of
$
114.4
million
in
deposits
under
the
public
funds
program
and
pledged to the State of Florida for these public funds were
fifty-one
bonds with an aggregate fair value of $
69.7
million.
As of
December 31, 2023, the
Bank had
a total
of $
268.4
million in
deposits under the
public funds program
and pledged
to the State of Florida for these public funds were
twenty-eight
bonds with an aggregate fair value of $
86.9
million.
The Board
of Governors
of the Federal
Reserve System,
on March
12, 2023,
announced the
creation of
a new
Bank
Term
Funding Program (“BTFP”). The BTFP offered 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. The
BTFP program ceased making new loans as of March
2024.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
13
USCB Financial Holdings, Inc.
Q3 2024 Form 10-Q
The Company
paid off
$
80
million in
borrowings under
the BTFP
program during
the third
quarter 2024.
The original
maturity of this
borrowing under the
BTFP program
was January 2025,
and there
are no remaining
borrowings under
this
program.
3.
LOANS
The following table is a summary of the distribution of
loans held for investment by type (in thousands):
September 30, 2024
December 31, 2023
Total
Percent of
Total
Total
Percent of
Total
Residential Real Estate
$
283,477
14.7
%
$
204,419
11.5
%
Commercial Real Estate
1,095,112
56.8
%
1,047,593
58.8
%
Commercial and Industrial
246,539
12.8
%
219,757
12.4
%
Correspondent Banks
103,815
5.4
%
114,945
6.5
%
Consumer and Other
198,604
10.3
%
191,930
10.8
%
Total
gross loans
1,927,547
100.0
%
1,778,644
100.0
%
Plus: Deferred fees/costs
3,815
2,183
Total
loans net of deferred fees/costs
1,931,362
1,780,827
Less: Allowance for credit losses
23,067
21,084
Total
net loans
$
1,908,295
$
1,759,743
At September 30, 2024
and December 31, 2023,
the Company had
$
535.7
million and $
534.2
million, respectively,
of
commercial real estate
and residential mortgage loans
pledged as collateral
for lines of
credit with the
FHLB and the
Federal
Reserve Bank of Atlanta.
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
method uses
a loss
driver analysis
(“LDA”) and discounted cash flow analyses. Management engaged
advisors and consultants with expertise in CECL model
development to
assist in
development of
a LDA
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)
or the
House Price
Index (“HPI”).
For each
of the
segments
in which
the
WARM methodology is used,
the long-term average
loss rate is
calculated and applied
on a quarterly
basis for the
remaining
life of the pool. Adjustments for economic expectations are
made through qualitative factors.
Qualitative factors (“Q-Factors”) used in the ACL methodology
include:
•
Changes in lending policies, procedures, and strategies
•
Changes in international, national, regional, and local conditions
•
Changes in nature and volume of portfolio
•
Changes in the volume and severity of past due loans
and other similar conditions
•
Concentration risk
•
Changes in the value of underlying collateral
•
The effect of other external factors: e.g., competition,
legal, and regulatory requirements
•
Changes in lending management, among others
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
14
USCB Financial Holdings, Inc.
Q3 2024 Form 10-Q
Changes in the
ACL for the
three and nine
months ended September 30,
2024 and 2023
were as follows
(in thousands):
Residential
Real Estate
Commercial
Real Estate
Commercial
and
Industrial
Correspondent
Banks
Consumer
and Other
Total
Three Months Ended September 30,
2024
Beginning balance
$
3,193
$
10,272
$
4,747
$
892
$
3,126
$
22,230
Provision for credit losses
(1)
760
( 86 )
( 96 )
( 69 )
322
831
Recoveries
2
-
10
-
1
13
Charge-offs
-
-
-
-
( 7 )
( 7 )
Ending Balance
$
3,955
$
10,186
$
4,661
$
823
$
3,442
$
23,067
Nine Months Ended September 30, 2024
Beginning balance
$
2,695
$
10,366
$
3,974
$
911
$
3,138
$
21,084
Provision for credit losses
(2)
1,252
( 180 )
666
( 88 )
318
1,968
Recoveries
8
-
21
-
3
32
Charge-offs
-
-
-
-
( 17 )
( 17 )
Ending Balance
$
3,955
$
10,186
$
4,661
$
823
$
3,442
$
23,067
(1) Provision for credit losses excludes a $
101
thousand charge due to unfunded commitments included in other liabilities and a $
1
thousand release related to investment securities held to maturity.
(2) Provision for credit losses excludes a $
159
thousand charge due to unfunded commitments included in other liabilities.
Residential
Real Estate
Commercial
Real Estate
Commercial
and
Industrial
Correspondent
Banks
Consumer
and Other
Total
Three Months Ended September 30,
2023
Beginning balance
$
2,673
$
10,183
$
2,500
$
677
$
2,782
$
18,815
Provision for credit losses
(1)
( 162 )
( 84 )
738
73
108
673
Recoveries
-
-
8
-
-
8
Charge-offs
-
-
-
-
( 3 )
( 3 )
Ending Balance
$
2,511
$
10,099
$
3,246
$
750
$
2,887
$
19,493
Nine Months Ended September 30, 2023
Beginning balance
$
1,352
$
10,143
$
4,163
$
720
$
1,109
$
17,487
Cumulative effect of adoption of accounting
principle
(2)
1,238
1,105
( 2,158 )
23
858
1,066
Provision for credit losses
(3)
( 89 )
( 1,149 )
1,181
7
965
915
Recoveries
10
-
60
-
3
73
Charge-offs
-
-
-
-
( 48 )
( 48 )
Ending Balance
$
2,511
$
10,099
$
3,246
$
750
$
2,887
$
19,493
(1) Provision for credit losses excludes a $
17
thousand release due to unfunded commitments included in other liabilities and $
3
thousand expense related to investment securities held to maturity.
(2) Impact of CECL adoption on January 1, 2023.
(3) Provision for credit losses excludes a $
39
thousand release due to unfunded commitments included in other liabilities and $
16
thousand expense related to investment securities held to maturity.
At September 30, 2024,
the ACL was
$
23.1
million compared to
$
21.1
million at December 31,
2023. The increase
of
$
2.0
million in the ACL was due to loan growth.
Charge-offs
for
the
three
months
ended
September 30,
2024
totaled
$
7
thousand
and
were
all
originated
in
2024.
Charge-offs for the nine months ended September
30, 2024 totaled $
17
thousand and were all originated in 2024.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
15
USCB Financial Holdings, Inc.
Q3 2024 Form 10-Q
The
Company
had
charge
offs
totaling
$
3
thousand
for
the
quarter
ended
September
30,
2023
related
to
loans
originated in
2023. The
Company had
charge offs
totaling $
48
thousand for
the nine
months ended
September 30,
2023
related to loans. $
27
thousand was related to loans originated
in 2023 and $
21
thousand of charge offs was related to
loans
originated in 2015.
The
Federal
Open
Market
Committee
(“FOMC”)
economic
forecasts
as
of
September 30,
2024,
showed
moderate
deterioration in unemployment
and a slight
improvement forecast for
real GDP. Fannie Mae HPI forecast
reflected moderate
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.
The
Q-factor
scorecard
was
updated
based
on
the
latest
portfolio
stress
test
and
the
resulting
maximum
loss
calculation.
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, 2024, for every 100 basis points increase in the HPI
index, the forecast reduces
reserves by approximately $
244
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.
As of
September 30, 2024,
we stress
tested two
qualitative factors
in our commercial
real estate
loan pool,
as its
the
largest segment
in our
portfolio. We
evaluated the
impact of
a change
in the
qualitative factors
from no
risk to
maximum
loss to
measure the
sensitivity of
the qualitative
factors. The
change from
no risk
to high
risk resulted
in a
$
6.4
million or
29.3
% increase in ACL. This sensitivity analysis provides a
hypothetical result to assess the sensitivity of
the ACL and does
not represent a change in management’s judgement.
The ACL and
the outstanding balances
in the specified
loan categories
as of September
30, 2024 and
December 31,
2023 are as follows (in thousands):
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Correspondent
Banks
Consumer
and Other
Total
September 30, 2024:
Allowance for credit losses:
Individually evaluated
$
43
$
-
$
38
$
-
$
17
$
98
Collectively evaluated
3,912
10,186
4,623
823
3,425
22,969
Balances, end of period
$
3,955
$
10,186
$
4,661
$
823
$
3,442
$
23,067
Loans:
Individually evaluated
$
6,848
$
-
$
719
$
-
$
1,990
$
9,557
Collectively evaluated
276,629
1,095,112
245,820
103,815
196,614
1,917,990
Balances, end of period
$
283,477
$
1,095,112
$
246,539
$
103,815
$
198,604
$
1,927,547
December 31, 2023:
Allowance for credit losses:
Individually evaluated
$
145
$
-
$
128
$
-
$
-
$
273
Collectively evaluated
2,550
10,366
3,846
911
3,138
20,811
Balances, end of period
$
2,695
$
10,366
$
3,974
$
911
$
3,138
$
21,084
Loans:
Individually evaluated
$
6,994
$
-
$
1,668
$
-
$
-
$
8,662
Collectively evaluated
197,425
1,047,593
218,089
114,945
191,930
1,769,982
Balances, end of period
$
204,419
$
1,047,593
$
219,757
$
114,945
$
191,930
$
1,778,644
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
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
16
USCB Financial Holdings, Inc.
Q3 2024 Form 10-Q
payment
experience,
credit
documentation
and
other
current
economic
trends.
Internal
credit
risk
grades
are
evaluated
periodically.
The Company's internally assigned credit risk grades are as follows:
Pass
– Loans indicate different levels of satisfactory
financial condition and performance.
Special Mention
– Loans classified as special mention have a potential weakness
that deserves management’s
close attention. If left uncorrected, these potential weaknesses
may result in deterioration of the repayment
prospects for the loan or of the institution’s
credit position at some future date.
Substandard
– Loans classified as substandard are inadequately protected
by the current net worth and paying
capacity of the obligator or of the collateral pledged, if
any. Loans so classified
have a well-defined weakness or
weaknesses that jeopardize the liquidation of the debt.
They are characterized by the distinct possibility that the
institution will sustain some loss if the deficiencies are
not corrected.
Doubtful
– Loans classified as doubtful have all the weaknesses inherent
in those classified at substandard, with
the added characteristic that the weaknesses make collection
or liquidation in full on the basis of currently existing
facts, conditions, and values, highly questionable and improbable.
Loss
– Loans classified as loss are considered uncollectible.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
17
USCB Financial Holdings, Inc.
Q3 2024 Form 10-Q
Loan credit exposures by internally assigned grades are
presented below for the periods indicated (in thousands):
As of September 30, 2024
Term Loans by Origination Year
Revolving
Loans
Total
2024
2023
2022
2021
2020
Prior
Residential real estate
Pass
$
96,900
$
40,187
$
34,454
$
23,930
$
5,823
$
71,867
$
9,748
$
282,909
Substandard
-
-
-
-
-
568
-
568
Total
96,900
40,187
34,454
23,930
5,823
72,435
9,748
283,477
Commercial real estate
Pass
116,130
132,831
323,299
177,281
99,368
239,803
3,936
1,092,648
Substandard
-
-
-
1,776
688
-
-
2,464
Total
116,130
132,831
323,299
179,057
100,056
239,803
3,936
1,095,112
Commercial and
industrial
Pass
46,599
91,611
35,031
30,950
4,469
12,494
23,466
244,620
Substandard
-
-
-
536
-
1,146
237
1,919
Total
46,599
91,611
35,031
31,486
4,469
13,640
23,703
246,539
Correspondent banks
Pass
100,865
2,950
-
-
-
-
-
103,815
Total
100,865
2,950
-
-
-
-
-
103,815
Consumer and other
loans
Pass
34,623
53,815
66,254
37,800
495
1,636
1,990
196,613
Substandard
-
-
1,991
-
-
-
-
1,991
Total
34,623
53,815
68,245
37,800
495
1,636
1,990
198,604
Total
Loans
Pass
395,117
321,394
459,038
269,961
110,155
325,800
39,140
1,920,605
Special Mention
-
-
-
-
-
-
-
-
Substandard
-
-
1,991
2,312
688
1,714
237
6,942
Doubtful
-
-
-
-
-
-
-
-
Total
$
395,117
$
321,394
$
461,029
$
272,273
$
110,843
$
327,514
$
39,377
$
1,927,547
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
18
USCB Financial Holdings, Inc.
Q3 2024 Form 10-Q
As of December 31, 2023
Term Loans by Origination Year
Revolving
Loans
Total
2023
2022
2021
2020
2019
Prior
Residential real estate
Pass
$
44,365
$
36,325
$
26,180
$
6,080
$
9,325
$
75,654
$
6,198
$
204,127
Substandard
-
-
-
-
292
-
-
292
Total
44,365
36,325
26,180
6,080
9,617
75,654
6,198
204,419
Commercial real estate
Pass
148,311
337,938
184,024
104,182
78,153
182,714
4,710
1,040,032
Substandard
-
-
6,867
694
-
-
-
7,561
Total
148,311
337,938
190,891
104,876
78,153
182,714
4,710
1,047,593
Commercial and
industrial
Pass
97,753
37,414
34,090
6,499
13,706
3,113
25,554
218,129
Substandard
-
-
330
-
1,298
-
-
1,628
Total
97,753
37,414
34,420
6,499
15,004
3,113
25,554
219,757
Correspondent banks
Pass
114,945
-
-
-
-
-
-
114,945
Total
114,945
-
-
-
-
-
-
114,945
Consumer and other
loans
Pass
71,593
74,387
41,966
615
560
1,337
1,472
191,930
Total
71,593
74,387
41,966
615
560
1,337
1,472
191,930
Total
Loans
Pass
476,967
486,064
286,260
117,376
101,744
262,818
37,934
1,769,163
Special Mention
-
-
-
-
-
-
-
-
Substandard
-
-
7,197
694
1,590
-
-
9,481
Doubtful
-
-
-
-
-
-
-
-
Total
$
476,967
$
486,064
$
293,457
$
118,070
$
103,334
$
262,818
$
37,934
$
1,778,644
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
19
USCB Financial Holdings, Inc.
Q3 2024 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,
2024
and December 31, 2023 (in thousands):
Accruing
As of September 30, 2024
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
$
843
$
-
$
-
$
843
$
-
$
843
1-4 family residential
229,797
4,017
-
233,814
-
233,814
Condo residential
48,506
-
-
48,506
314
48,820
279,146
4,017
-
283,163
314
283,477
Commercial real estate:
Land and construction
38,342
-
-
38,342
-
38,342
Multi-family residential
204,298
-
-
204,298
-
204,298
Condo commercial
56,921
-
-
56,921
-
56,921
Commercial property
795,551
-
-
795,551
-
795,551
Leasehold improvements
-
-
-
-
-
-
1,095,112
-
-
1,095,112
-
1,095,112
Commercial and industrial:
Secured
230,202
-
-
230,202
420
230,622
Unsecured
15,917
-
-
15,917
-
15,917
246,119
-
-
246,119
420
246,539
Correspondent banks
103,815
-
-
103,815
-
103,815
Consumer and other
196,613
-
-
196,613
1,991
198,604
Total
$
1,920,805
$
4,017
$
-
$
1,924,822
$
2,725
$
1,927,547
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
20
USCB Financial Holdings, Inc.
Q3 2024 Form 10-Q
Accruing
As of December 31, 2023:
Current
Past Due
30-89 Days
Past Due 90
Days or >
and Still
Accruing
Total
Accruing
Non-Accrual
Total Loans
Residential real estate:
Home equity line of credit and other
$
559
$
-
$
-
$
559
$
-
$
559
1-4 family residential
155,842
711
-
156,553
-
156,553
Condo residential
43,572
3,735
-
47,307
-
47,307
199,973
4,446
-
204,419
-
204,419
Commercial real estate:
Land and construction
33,710
-
-
33,710
-
33,710
Multi-family residential
181,287
-
-
181,287
-
181,287
Condo commercial
58,106
-
-
58,106
-
58,106
Commercial property
772,569
1,890
-
774,459
-
774,459
Leasehold improvements
31
-
-
31
-
31
1,045,703
1,890
-
1,047,593
-
1,047,593
Commercial and industrial:
Secured
200,235
29
-
200,264
468
200,732
Unsecured
19,025
-
-
19,025
-
19,025
219,260
29
-
219,289
468
219,757
Correspondent banks
114,945
-
-
114,945
-
114,945
Consumer and other
191,930
-
-
191,930
-
191,930
Total
$
1,771,811
$
6,365
$
-
$
1,778,176
$
468
$
1,778,644
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, 2024 and as of
December 31, 2023 (in thousands):
September 30, 2024
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
$
314
$
-
$
314
$
-
Commercial and industrial
-
420
420
-
Consumer and other
-
1,991
1,991
-
Total
$
314
$
2,411
$
2,725
$
-
December 31, 2023
Nonaccrual
Loans With
No Related
Allowance
Nonaccrual
Loans With
Related
Allowance
Total Non-
accruals
Loans Past
Due Over 90
Days and Still
Accruing
Commercial and industrial
$
-
$
468
$
468
$
-
Total
$
-
$
468
$
468
$
-
Accrued interest
receivable is
excluded from
the estimate
of credit
losses. There
was
no
interest income
recognized
attributable to non-accrual
loans outstanding during
the three months
ended September 30, 2024 and
2023. Interest income
on these loans for
the three months
ended September 30,
2024 and 2023,
would have been
approximately $
24
thousand
and $
12
thousand, respectively, had these loans performed
in accordance with
their original terms.
Interest income on
these
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
21
USCB Financial Holdings, Inc.
Q3 2024 Form 10-Q
loans for
the nine
months ended
September 30, 2024
and 2023,
would have
been approximately
$
44
thousand and
$
28
thousand, respectively,
had these loans performed in accordance with their
original terms.
Collateral-Dependent Loans
A
loan
is
collateral
dependent
when
the
borrower
is
experiencing
financial
difficulty
and
repayment
of
the
loan
is
expected to
be provided
substantially through
the sale
or operation
of the
collateral. There
were
no
collateral dependent
loans as of September 30, 2024, or as of December 31,
2023.
Loan Modifications to Borrowers Experiencing Financial
Difficulties
The following table
presents newly restructured
loans, by type of
modification, which occurred
during the nine
months
ended September 30, 2024 (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
Commercial and industrial
1
$
468
$
468
1
$
468
$
468
Total
1
$
468
$
468
1
$
468
$
468
The
Company
had
no
new
modifications
to
borrowers
experiencing
financial
difficulties
for
the
three
months
ended
September 30,
2024 and
one
new modification
for the
nine months
ended
September 30,
2024.
There were
no
existing
loan modifications that subsequently
defaulted during the three
months and nine
months ended September 30,
2024. The
Company
had
no
new
modification
to
borrowers
experiencing
financial
difficulties
for
the
three
and
nine
months
ended
September 30, 2023. There were
no
existing loan modifications that subsequently
defaulted for 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 periods indicated (in thousands):
Nine Months Ended September 30,
2024
2023
Current:
Federal
$
-
$
-
State
-
-
Total
current
-
-
Deferred:
Federal
4,384
3,510
State
1,222
954
Total
deferred
5,606
4,464
Total
tax expense
$
5,606
$
4,464
The actual income tax expense for the nine months
ended September 30, 2024 and 2023 differs
from the statutory tax
expense for the periods (computed by applying the U.S.
federal corporate tax rate of
21
% for both 2024 and 2023
periods
to income before provision for income taxes) as follows
(in thousands):
Nine Months Ended September 30,
2024
2023
Federal taxes at statutory rate
$
4,909
$
3,840
State income taxes, net of federal tax benefit
1,016
795
Bank owned life insurance
( 319 )
( 171 )
Other, net
-
-
Total
tax expense
$
5,606
$
4,464
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
22
USCB Financial Holdings, Inc.
Q3 2024 Form 10-Q
The Company’s deferred tax assets and deferred
tax liabilities as of the dates indicated were (in thousands):
September 30, 2024
December 31, 2023
Deferred tax assets:
Net operating loss
$
10,562
$
16,430
Allowance for credit losses
5,912
5,410
Lease liability
2,330
2,895
Unrealized losses on available for sale securities
12,881
15,114
Depreciable property
149
203
Equity compensation
906
630
Accruals
417
382
Other, net
61
10
Deferred tax assets:
33,218
41,074
Deferred tax liabilities:
Deferred loan cost
( 967 )
( 553 )
Lease right of use asset
( 2,330 )
( 2,895 )
Deferred expenses
( 298 )
( 180 )
Cash flow hedge
( 5 )
( 85 )
Other, net
( 78 )
( 79 )
Deferred tax liabilities
( 3,678 )
( 3,792 )
Net deferred tax assets
$
29,540
$
37,282
The Company
has approximately
$
37.8
million of
federal
and $
60.5
million of
state net
operating
loss carryforwards
expiring in various amounts between
2031 and 2036 and which
are limited to offset,
to the extent permitted, future
taxable
earnings of the Company.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some
portion or
all of
the deferred
tax assets
will not
be realized.
The ultimate
realization
of deferred
tax assets
is dependent
upon the generation of
future taxable income
during the periods
in which those temporary
differences become deductible.
Management considers the scheduled reversal
of deferred tax liabilities, projected future taxable
income, and tax planning
strategies in making this assessment.
The major tax
jurisdictions where the
Company files income
tax returns are
the U.S. federal
jurisdiction and
the State
of Florida. With few exceptions, the Company is no longer subject to U.S. federal and state income tax return examinations
by tax authorities for years before 2020.
For
the
three
months
and
nine
months
ended
September 30,
2024
and
2023,
the
Company
did
no
t
have
any
unrecognized tax benefits
as a result of
tax positions taken
during a prior
period or during
the current period.
Additionally,
no
interest or penalties were recorded as a result
of tax uncertainties.
5.
OFF-BALANCE SHEET ARRANGEMENTS
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business in order to
meet the financial
needs of
its customers
and to reduce
its own
exposure to
fluctuations in
interest rates.
These financial
instruments include
unfunded commitments
under lines
of credit,
commitments to
extend credit,
standby and
commercial
letters of
credit. Those
instruments involve,
to varying
degrees, elements
of credit
and interest
rate risk
in excess
of the
amount recognized in the Company’s Consolidated Balance Sheets. The Company uses the
same credit policies in making
commitments and conditional obligations as it does for on-balance
sheet instruments.
The Company's
exposure to credit
loss in the
event of nonperformance
by the other
party to the
financial instruments
for unused lines of credit, and standby letters of credit
is represented by the contractual amount of these commitments.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
23
USCB Financial Holdings, Inc.
Q3 2024 Form 10-Q
A
summary
of
the
amounts
of
the
Company's
financial
instruments
with
off-balance
sheet
risk
are
shown
below
at
September 30, 2024 and December 31, 2023 (in thousands):
September 30, 2024
December 31, 2023
Commitments to grant loans and unfunded lines of credit
$
104,851
$
85,117
Standby and commercial letters of credit
4,507
3,987
Total
$
109,358
$
89,104
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
As of September 30,
2024, the Company
had
two
interest rate swap
agreements with a
notional aggregate amount
of
$
50
million that were designated as cash flow hedges of certificates of deposit. The interest rate swap agreements have an
average
maturity
of
1.63
years,
a
weighted
average
fixed-rate
paid
of
3.59
%,
and
with
a
weighted
average
3-month
compound SOFR being received.
As of December
31, 2023,
the Company had
two
interest rate swap
agreements with
a notional aggregate
amount of
$
50
million that were designated as cash flow hedges of certificates of deposit. The interest rate swap agreements have an
average
maturity
of
2.38
years,
a
weighted
average
fixed-rate
paid
of
3.59
%,
and
with
a
weighted
average
3-month
compound SOFR being received.
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
During the quarter
ended September 30, 2024,
the Company unwound
four
fair value interest rate
swaps with a
notional
aggregate amount
of $
200
million. The
decision to
unwind these
swaps was
driven by
changes in
interest rate
forecasts
and asset-liability management strategies. The early
termination fee to unwind the
fair value swaps totaled $
3.7
million. The
termination fees
allocated to
each loan
category will
be amortized
over the
remining life
of the
hedge loans
on a
monthly
straight-line basis with full recognition of the unamortized
cost upon the early payoff of the hedge
loan. The amortization of
the termination fee
is reflected in
the loan interest income
line in the
statement of operations.
The original maturities of
these
fair
value
interest
swaps
were
between
2025
and
2026.
The
fair
value
interest
rate
swap
agreements
had
an
average
maturity of
1.51
years at the date of termination.
Interest Rate Swaps
The Company enters into interest rate swaps with its loan customers. The Company had
39
and
20
interest rate swaps
with
loan
customers
with
an
aggregate
notional
amount
of
$
143.8
million
and
$
46.5
million
at
September 30,
2024
and
December 31, 2023, respectively.
At September 30, 2024, these
interest rate swaps mature between
2025 and 2051. The
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
24
USCB Financial Holdings, Inc.
Q3 2024 Form 10-Q
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, 2024:
Derivatives designated as cash flow hedges:
Interest rate swaps
$
50,000
$
-
Other assets
$
18
$
-
Derivatives not designated as hedging instruments:
Interest rate swaps related to customer loans
$
143,801
$
4,886
Other assets/Other liabilities
$
7,695
$
7,695
December 31, 2023:
Derivatives designated as cash flow hedges:
Interest rate swaps
$
50,000
$
-
Other assets
$
334
$
-
Derivatives designated as fair value hedges:
Interest rate swaps
$
200,000
$
-
Other liabilities
$
-
$
3,430
Derivatives not designated as hedging instruments:
Interest rate swaps related to customer loans
$
46,463
$
1,326
Other assets/Other liabilities
$
4,558
$
4,558
7.
FAIR VALUE
MEASUREMENTS
Determination of Fair Value
The Company
uses
fair value
measurements
to record
fair-value
adjustments
to certain
assets
and liabilities
and to
determine fair value
disclosures. In accordance
with the fair
value measurements
accounting guidance, the
fair value of
a
financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market
participants
at the
measurement
date.
Fair value
is best
determined based
upon quoted
market prices.
However, in
many instances, there
are no quoted
market prices for the
Company's various financial
instruments. In cases
where quoted
market prices
are not
available, fair
values are
based on
estimates using
present value
or other
valuation
techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates
of future cash flows. Accordingly, the fair value estimates may not be realized in
an immediate settlement of the instrument.
The fair
value guidance provides
a consistent definition
of fair
value, which focuses
on exit
price in
an orderly transaction
(that is,
not a
forced
liquidation
or distressed
sale) between
market participants
at the
measurement
date
under current
market conditions.
If there
has been
a significant
decrease
in the
volume
and level
of activity
for the
asset
or liability,
a
change in
valuation technique or
the use
of multiple
valuation techniques may
be appropriate.
In such
instances, determining
the
price
at
which
willing
market
participants
would
transact
at
the
measurement
date
under
current
market
conditions
depends on the facts
and circumstances and
requires the use of
significant judgment. The fair
value is a reasonable
point
within the range that is most representative of fair value under
current market conditions.
Fair Value Hierarchy
In accordance with
this guidance, the
Company groups its
financial assets
and financial liabilities
generally measured
at fair
value in
three
levels, based
on the
markets
in which
the assets
and liabilities
are traded,
and the
reliability
of the
assumptions used to determine fair value.
Level 1
- Valuation
is based
on quoted
prices in
active markets
for identical
assets or
liabilities that
the reporting
entity has
the ability
to access
at the measurement
date. Level
1 assets
and liabilities
generally include
debt and
equity securities that
are traded in
an active exchange
market. Valuations are obtained from
readily available pricing
sources for market transactions involving identical assets
or liabilities.
Level 2
- Valuation
is based on inputs other
than quoted prices included
within Level 1 that are
observable for the
asset
or
liability,
either
directly
or
indirectly.
The
valuation
may
be
based
on
quoted
prices
for
similar
assets
or
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
25
USCB Financial Holdings, Inc.
Q3 2024 Form 10-Q
liabilities; quoted
prices in
markets that are
not active;
or other inputs
that are observable
or can be
corroborated
by observable market data for substantially the full term of the
asset or liability.
Level 3
- Valuation
is based on
unobservable inputs that
are supported
by little or
no market activity
and that are
significant
to
the
fair
value
of
the
assets
or
liabilities.
Level
3
assets
and
liabilities
include
financial
instruments
whose value
is determined
using pricing
models, discounted
cash
flow
methodologies,
or similar
techniques,
as
well as instruments for which determination of fair value
requires significant management judgment or estimation.
A
financial
instrument's
categorization
within
the
valuation
hierarchy
is
based
upon
the
lowest
level
of
input
that
is
significant to the fair value measurement.
Items Measured at Fair Value
on a Recurring Basis
AFS investment securities:
When instruments are traded in
secondary markets and quoted market
prices do not exist
for such securities,
management generally relies
on prices obtained
from independent vendors
or third-party broker-dealers.
Management reviews pricing methodologies provided by the vendors and third-party broker-dealers in order to determine if
observable market information is being utilized. Securities measured with pricing provided by independent vendors or
third-
party broker-dealers
are classified within
Level 2 of
the hierarchy and
often involve using
quoted market
prices for similar
securities, pricing models or discounted cash flow analyses
utilizing inputs observable in the market where available.
Derivatives:
The
fair
value
of
derivatives
are
measured
with
pricing
provided
by
third-party
participants
and
are
classified within Level 2 of the hierarchy.
The
following
table
represents
the
Company's
assets
and
liabilities
measured
at
fair
value
on
a
recurring
basis
at
September 30, 2024 and December 31, 2023 for each
of the fair value hierarchy levels (in thousands):
September 30, 2024
December 31, 2023
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Investment securities available for sale:
U.S. Government Agency
$
-
$
10,733
$
-
$
10,733
$
-
$
8,173
$
-
$
8,173
Collateralized mortgage obligations
-
84,194
-
84,194
-
80,606
-
80,606
Mortgage-backed securities - residential
-
50,762
-
50,762
-
52,187
-
52,187
Mortgage-backed securities - commercial
-
70,333
-
70,333
-
42,764
-
42,764
Municipal securities
-
20,425
-
20,425
-
19,338
-
19,338
Bank subordinated debt securities
-
23,080
-
23,080
-
26,261
-
26,261
Total
-
259,527
-
259,527
-
229,329
-
229,329
Derivative assets
-
7,713
-
7,713
-
4,892
-
4,892
Total assets at fair value
$
-
$
267,240
$
-
$
267,240
$
-
$
234,221
$
-
$
234,221
Derivative liabilities
$
-
$
7,695
$
-
$
7,695
$
-
$
7,988
$
-
$
7,988
Total liabilities at fair value
$
-
$
7,695
$
-
$
7,695
$
-
$
7,988
$
-
$
7,988
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
26
USCB Financial Holdings, Inc.
Q3 2024 Form 10-Q
Items Not Measured at Fair Value
The following table
presents the carrying
amounts and estimated
fair values of
financial instruments
not carried at fair
value as of September 30, 2024 and December 31, 2023
(in thousands):
Fair Value Hierarchy
Carrying
Amount
Level 1
Level 2
Level 3
Fair Value
Amount
September 30, 2024:
Financial Assets:
Cash and due from banks
$
7,084
$
7,084
$
-
$
-
$
7,084
Interest-bearing deposits in banks
$
31,402
$
31,402
$
-
$
-
$
31,402
Investment securities held to maturity, net
$
167,001
$
-
$
153,125
$
-
$
153,125
Loans held for investment, net
$
1,908,295
$
-
$
-
$
1,924,884
$
1,924,884
Accrued interest receivable
$
10,765
$
-
$
1,536
$
9,229
$
10,765
Financial Liabilities:
Demand deposits
$
637,313
$
637,313
$
-
$
-
$
637,313
Money market and savings accounts
$
1,091,029
$
1,091,029
$
-
$
-
$
1,091,029
Interest-bearing checking accounts
$
64,333
$
64,333
$
-
$
-
$
64,333
Time deposits
$
333,942
$
-
$
-
$
333,659
$
333,659
FHLB advances and other borrowings
$
118,000
$
-
$
118,193
$
-
$
118,193
Accrued interest payable
$
1,802
$
-
$
537
$
1,265
$
1,802
December 31, 2023:
Financial Assets:
Cash and due from banks
$
8,019
$
8,019
$
-
$
-
$
8,019
Interest-bearing deposits in banks
$
33,043
$
33,043
$
-
$
-
$
33,043
Investment securities held to maturity
$
174,974
$
-
$
155,510
$
-
$
155,510
Loans held for investment, net
$
1,759,743
$
-
$
-
$
1,723,210
$
1,723,210
Accrued interest receivable
$
10,688
$
-
$
1,448
$
9,240
$
10,688
Financial Liabilities:
Demand deposits
$
552,762
$
552,762
$
-
$
-
$
552,762
Money market and savings accounts
$
1,048,272
$
1,048,272
$
-
$
-
$
1,048,272
Interest-bearing checking accounts
$
47,702
$
47,702
$
-
$
-
$
47,702
Time deposits
$
288,403
$
-
$
-
$
287,104
$
287,104
FHLB advances
$
183,000
$
-
$
182,282
$
-
$
182,282
Accrued interest payable
$
1,372
$
-
$
551
$
821
$
1,372
8.
STOCKHOLDERS’ EQUITY
Common Stock
In July
2021, the
Bank completed
the initial
public offering
of its
Class
A common
stock, in
which it
issued
and sold
4,600,000
shares of Class A
common stock at a
price of $
10.00
per share. The Bank
received total net proceeds
of $
40.0
million after deducting underwriting discounts and expenses.
In December 2021,
the Company acquired
all the issued
and outstanding shares
of the Class
A common stock
of the
Bank, which at the time were
the only issued and outstanding shares
of the Bank’s capital stock,
in a share exchange (the
“Reorganization”)
effected
under
the
Florida
Business
Corporation
Act.
Each
outstanding
share
of
the
Bank’s
Class
A
common stock,
par value
$
1.00
per share,
formerly held
by its
shareholders
was
converted into
and exchanged
for
one
newly
issued
share
of
the
Company’s
Class
A
common
stock,
par
value
$
1.00
per
share,
and
the
Bank
became
the
Company’s wholly owned subsidiary.
In the
Reorganization,
each
shareholder
of the
Bank
received securities
of
the same
class,
having
substantially
the
same designations,
rights,
powers, preferences,
qualifications,
limitations
and restrictions,
as those
that the
shareholder
held in the Bank,
and the Company’s
then current shareholders
owned the same
percentages of the
Company’s common
stock as they previously owned of the Bank’s common
stock.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
27
USCB Financial Holdings, Inc.
Q3 2024 Form 10-Q
During the first quarter 2024, the Company issued
52,753
shares of Class A common stock to employees as restricted
stock awards
pursuant to
the Company’s
2015 equity
incentive plan
.
During
the first
quarter 2023,
the Company
issued
121,627
shares of Class A
common stock to
employees and directors as
restricted stock awards pursuant
to the Company’s
2015 equity incentive plan.
As previously announced,
on April 22,
2024, the
Board of Directors
approved a
new share repurchase
program of up
to
500,000
shares of
Class A
common stock
or approximately
2.5
% of
the Company’s
issued and
outstanding shares
of
common
stock.
Under
the
repurchase
program,
the
Company
may
purchase
shares
of
Class
A
common
stock
on
a
discretionary basis from time
to time through open
market repurchases, privately negotiated
transactions, or other means.
The
repurchase
program
has
no
expiration
date
and
may
be
modified,
suspended,
or
terminated
at
any
time.
The
new
repurchase program
will commence
upon completion
of the Company’s
current repurchase
program. Repurchases
under
this new program will be funded from the Company’s
existing cash and cash equivalents or future cash flow.
During the
three
months ended
September 30,
2024, the
Company
repurchased
10,000
shares
of Class
A common
stock
at
a
weighted
average
price
per
share
of
$
11.99
.
The
aggregate
purchase
price
for
these
transactions
was
approximately
$
120
thousand,
including
transaction
costs.
These
repurchases
were
made
pursuant
to
the
Company’s
publicly announced repurchase programs. As of September 30, 2024,
537,980
shares remained authorized for repurchase
under the Company’s
two stock repurchase
programs. During
the nine months
ended September 30,
2023, the Company
repurchased
577,603
shares
of
Class A common
stock
at
a
weighted
average
price
per
share
of
$
9.77
. The
aggregate
purchase price for these transactions was approximately $
6.6
million, including transaction costs.
In
addition,
the
Company
will
provide
prior
notification
to
the
Federal
Reserve
prior
to
effecting
proposed
share
repurchases in new share repurchase programs.
Shares of the Company’s Class A common stock issued and outstanding as
of September 30, 2024 and December 31,
2023 were
19,620,632
and
19,575,435
, respectively.
See Note
11, Subsequent Events, for
information regarding issuance
of Class
A common
stock to
employees
in October
2024.
Dividends
Declaration of dividends
by the Board
is required before
dividend payments
are made. The
Company is
limited in the
amount of
cash dividends
that it
may pay.
Payment of
dividends is
generally limited
to the
Company’s
net income
of the
current
year
combined
with
the
Company’s
retained
income
for
the
preceding
two
years,
as
defined
by
state
banking
regulations. However,
for any
dividend declaration,
the Company
must consider
additional factors
such as
the amount
of
current period net income, liquidity,
asset quality,
capital adequacy and economic conditions
at the Bank since the Bank is
the primary source
of funds to fund
dividends by the Company.
It is likely that
these factors would
further limit the
amount
of dividends which
the Company could
declare. In addition,
bank regulators have
the authority to
prohibit banks and
bank
holding companies from paying dividends if they deem
such payment to be an unsafe or unsound practice.
As of
September
30,
2024,
the
Company
was
not
subject
to any
formal
supervisory
restrictions
on
its
ability
to pay
dividends
but
will
notify
the
Federal
Reserve
Bank
of
Atlanta
in
advance
of
any
proposed
dividend
to
the
Company's
shareholders in
light of
the Bank's
negative retained
earnings. In
addition, under
applicable FDIC
regulations and
policy,
because the
Bank has
negative
retained
earnings,
it
must obtain
the
prior approval
of the
FDIC before
effecting
a cash
dividend or other capital distribution.
On January 29, 2024, the
Company announced that its Board of
Directors approved a quarterly cash dividend program.
The quarterly dividend for
the first quarter of
2024 was $
0.05
per share of Class
A common stock, paid
on March 5, 2024,
to stockholders
of record as
of the close
of business
on February 15,
2024. The
aggregate distribution
in connection
with
the first
quarter dividend
was $
1.0
million. The
quarterly dividend
for the
second quarter
was $
0.05
per share
of Class
A
common stock, paid on June
5, 2024, to stockholders of
record as of the
close of business on May 15,
2024. The aggregate
distribution on connection with
the second quarter dividend
was $
1.0
million. The quarterly dividend
for the third quarter
was
$
0.05
per share of Class
A common stock, paid on
September 5, 2024, to
stockholders of record as of
the close of business
on August 15, 2024. The aggregate distribution on connection with
the second quarter dividend was $
1.0
million.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
28
USCB Financial Holdings, Inc.
Q3 2024 Form 10-Q
No
dividends
were
declared
by
the
Board
for
the
stockholders
for
the
three
months
and
nine
months
ended
September 30, 2023.
See Note 11, Subsequent
Events, for information regarding dividends declared in October
2024.
The following table details the dividends declared and paid by
the Company during the three months and nine months
ended September 30, 2024:
Declaration Date
Record Date
Payment Date
Dividend Per Share
Dividend Amount
January 22, 2024
February 15, 2024
March 5, 2024
$
0.05
$
1.0
million
April 22, 2024
May 15, 2024
June 5, 2024
$
0.05
$
1.0
million
July 22, 2024
August 15, 2024
September 5, 2024
$
0.05
$
1.0
million
The
Company
and
the
Bank
exceeded
all
regulatory
capital
requirements
and
remained
above
“well-capitalized”
guidelines as of September 30, 2024 and December 31,
2023. At September 30, 2024, the total
risk-based capital ratios for
the Bank was
13.14
%.
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, 2024 and 2023 (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2024
2023
2024
2023
Net Income
$
6,949
$
3,819
$
17,770
$
13,824
Net income available to common shareholders
$
6,949
$
3,819
$
17,770
$
13,824
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
29
USCB Financial Holdings, Inc.
Q3 2024 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, 2024 and 2023 (in thousands,
except per share amounts):
Three Months Ended September 30,
2024
2023
Class A
Class A
Basic EPS
Numerator:
Net income available to common shares
$
6,949
$
3,819
Denominator:
Weighted average shares outstanding
19,621,447
19,542,723
Earnings per share, basic
$
0.35
$
0.20
Diluted EPS
Numerator:
Net income available to common shares
$
6,949
$
3,819
Denominator:
Weighted average shares outstanding for basic EPS
19,621,447
19,542,723
Add: Dilutive effects of assumed exercises of stock options
203,764
69,174
Weighted avg. shares including dilutive potential common shares
19,825,211
19,611,897
Earnings per share, diluted
$
0.35
$
0.19
Anti-dilutive stock options excluded from diluted EPS
-
720,500
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,
2024
2023
Class A
Class A
Basic EPS
Numerator:
Net income available to common shares
$
17,770
$
13,824
Denominator:
Weighted average shares outstanding
19,653,103
19,661,685
Earnings per share, basic
$
0.90
$
0.70
Diluted EPS
Numerator:
Net income available to common shares
$
17,770
$
13,824
Denominator:
Weighted average shares outstanding for basic EPS
19,653,103
19,661,685
Add: Dilutive effects of assumed exercises of stock options
108,139
67,496
Weighted avg. shares including dilutive potential common shares
19,761,242
19,729,181
Earnings per share, diluted
$
0.90
$
0.70
Anti-dilutive stock options excluded from diluted EPS
15,000
720,500
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
30
USCB Financial Holdings, Inc.
Q3 2024 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.
11.
SUBSEQUENT EVENTS
Common Stock
During the
month of
October 2024,
the Company
issued
220,000
shares of
Class A
common stock
to employees
as
restricted stock awards pursuant to the Company’s
2015 equity incentive plan. Shares of the
Company’s Class A common
stock issued and outstanding as of October 31, 2024
was
19,840,632
.
Dividends
On October 28,
2024, the Company
announced that its
Board of Directors
declared its fourth
quarterly cash
dividend.
The quarterly
dividend for
the fourth
quarter of
2024 was
$
0.05
per share
of Class
A common
stock and
will be
paid on
December 5, 2024, to stockholders of record as of the close
of business on November 15, 2024.
31
USCB Financial Holdings, Inc.
Q3 2024 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,
as of and for
the three and
nine
months
ended
September 30,
2024.
This
discussion
and
analysis
is
best
read
in
conjunction
with
the
unaudited
consolidated financial statements and related
notes included in this Quarterly
Report on Form 10-Q (“Form
10-Q”) and the
audited consolidated financial
statements and related
notes included in the
Annual Report on
Form 10-K (“2023
Form 10-
K”) filed with the Securities and Exchange Commission
(“SEC”) for the year ended December 31, 2023.
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
in Part II
hereof and in
the 2023
Form 10-K filed with the SEC which is available at the
SEC’s website www.sec.gov.
Throughout
this
document,
references
to
“we,”
“us,”
“our,”
and
“the
Company”
generally
refer
to
USCB
Financial
Holdings, Inc.
Forward-Looking Statements
This Form 10
-Q contains
statements that
are not
historical in
nature are
intended to
be, and are
hereby identified
as,
forward-looking statements for purposes
of the safe
harbor provided by
Section 21E of
the Securities Exchange Act
of 1934,
as amended. The
words “may,” “will,” “anticipate,” “could,”
“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
statements
related
to
our
projected
growth,
anticipated future
financial performance,
and management’s
long-term performance
goals, as
well as
statements relating
to the anticipated
effects on results
of operations and
financial condition from
expected developments or
events, or business
and growth strategies, including anticipated internal growth.
These forward-looking statements involve significant risks and uncertainties that could cause our actual results to differ
materially from those anticipated in such statements.
Potential risks and uncertainties include, but are not
limited to:
•
the strength of the United States economy
in general and the strength of the local
economies in which we conduct
operations;
•
our ability to successfully manage interest rate risk, credit
risk, liquidity risk, and other risks inherent to our industry;
•
the accuracy of our financial statement estimates and assumptions, including the estimates used for our credit loss
reserve and deferred tax asset valuation allowance;
•
the efficiency and effectiveness of our
internal control procedures and processes;
•
our ability
to comply
with the
extensive laws
and regulations
to which
we are
subject, including
the laws
for each
jurisdiction where we operate;
•
adverse changes or conditions in capital and financial markets, including actual or potential stresses in
the banking
industry;
•
deposit attrition and the level of our uninsured deposits;
•
legislative or regulatory
changes and changes
in accounting
principles, policies,
practices or guidelines,
including
the on-going effects of the implementation of the
Current Expected Credit Losses (“CECL”) standard;
•
the lack of a
significantly diversified loan
portfolio and the concentration
in the South Florida
market, including the
risks
of geographic,
depositor,
and
industry concentrations,
including our
concentration
in
loans secured
by real
estate, in particular, commercial real
estate;
•
the effects of climate change;
•
the concentration of ownership of our common stock;
•
fluctuations in the price of our common stock;
•
our ability to fund or access the capital markets at attractive
rates and terms and manage our growth, both organic
growth as well as growth through other means, such as
future acquisitions;
•
inflation, interest rate, unemployment rate, market and monetary
fluctuations;
•
impacts of international hostilities and geopolitical events;
•
increased competition and its
effect on the pricing
of our products and services
as well as our interest
rate spread
and net interest margin;
•
the loss of key employees;
•
the effectiveness of our risk management strategies, including operational risks, including, but not limited to, client,
employee, or third-party fraud and security breaches; and
•
other risks described in this Form 10-Q, the 2023 Form
10-K and other filings we make with the SEC.
32
USCB Financial Holdings, Inc.
Q3 2024 Form 10-Q
All
forward-looking
statements
are
necessarily
only
estimates
of
future
results,
and
there
can
be
no
assurance
that
actual results will
not differ
materially from expectations.
Therefore, you are
cautioned not to
place undue reliance
on any
forward-looking statements.
Further,
forward-looking statements
included in
this Form
10-Q are
made only
as of the
date
hereof, and we undertake
no obligation to update
or revise any forward-looking
statement to reflect events
or circumstances
after the date on which the statement is 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 2023 Form 10-K
and in the
reports
the Company filed or will file with the SEC.
Overview
The Company
reported net
income of
$6.9 million
or $0.35
per diluted
share of
common stock
for the
three
months
ended
September
30,
2024
compared
to
$3.8
million
or
$0.19
per
diluted
share
of
common
stock
for
the
three
months
ended September 30, 2023.
On October 28, 2024, the Company’s
Board of Directors declared its fourth
quarterly cash dividend of $0.05
per share
of the Company’s Class A
common stock. The cash dividend will be paid on December 5, 2024 to
shareholders of record at
the close of business on November 15, 2024. The aggregate amount distributed in connection with the three prior quarterly
cash dividends paid in 2024 was $3.0 million.
10,000 shares of Class A common stock were repurchased at a weighted average price per share of $11.99 during the
third quarter
2024. These repurchases
were made
pursuant to
the Company’s
publicly announced
repurchase programs.
As of September 30, 2024, 537,980 shares remained
authorized for repurchase under the Company’s program
s.
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
and
borrowings,
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
at or
for the
quarter ended
September 30, 2024 compared to at
or for the quarter ended
September 30, 2023 and as of
September 30, 2024 compared
to December 31, 2023, and annualized where appropriate:
•
Net interest
income for
the three
months ended September
30, 2024
increased $4.1 million
or 29.1%
to $18.1 million
from $14.0 million for the quarter ended September
30, 2023.
•
Net interest margin (“NIM”) was 3.03% for the three months ended September 30, 2024
compared to 2.60% for the
three months ended September 30, 2023.
•
Total assets
were $2.5
billion
at September
30, 2024,
representing
an
increase
of $259.4
million
or 11.6%
from
September 30, 2023 and an increase of $164.9 million
or 9.4% annualized from December 31, 2023.
•
Total
loans
were
$1.9
billion
at
September
30,
2024,
representing
an
increase
of
$254.8
million
or
15.2%
from
September 30, 2023 and an increase of $150.5 million
or 11.3% annualized from December 31, 2023.
•
Total deposits were
$2.1 billion at
September 30,
2024, representing
an increase
of $205.7 million
or 10.7%
from
September 30, 2023 and an increase of $189.5 million
or 13.1% annualized from December 31, 2023.
•
Annualized return on average assets for the quarter ended September 30, 2024 was
1.11%
compared to 0.67% for
the quarter ended September 30, 2023.
•
Annualized
return
on
average
stockholders’
equity
for
the
quarter
ended
September
30,
2024
was
13.38%
compared to 8.19%
for quarter ended September 30, 2023.
•
The ACL to total loans was 1.19% at September 30, 2024 and 1.18% at December 31, 2023.
•
Non-performing loans to total loans was 0.14% at September
30, 2024 and 0.03% at December 31, 2023.
•
At September 30, 2024, the total
risk-based capital ratios
for the Company and
the Bank were 13.22% and
13.14%,
respectively.
•
Tangible book value per
common share (a non-GAAP
measure) was $10.90 at
September 30, 2024, representing
an increase
of $0.66
or 25.6%
annualized from
$10.24 at
June 30,
2024. At September
30, 2024,
tangible book
value per
common share
was negatively
affected by
$1.94 due
to an
accumulated comprehensive
loss of
$38.0
33
USCB Financial Holdings, Inc.
Q3 2024 Form 10-Q
million. At
June
30,
2024,
tangible
book
value
per
common
share
was
negatively
affected
by
$2.28
due
to
an
accumulated comprehensive loss
of $44.7
million. See
“Reconciliation and Management
Explanation for
Non-GAAP
Financial Measures” included in this Form 10-Q for a reconciliation
of this non-GAAP financial measure.
Critical Accounting Policies and Estimates
The
consolidated
financial
statements
are
prepared
based
on
the
application
of
U.S.
GAAP,
the
most
significant
of
which
are
described
in
Note
1
“Summary
of
Significant
Accounting
Policies”
in
the
Company’s
2023
Form
10-K
and
“Summary of Significant Accounting Policies” in Part I
in this Form 10-Q . 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
to
an
understanding
of
our
financial
statements.
Management
has
presented the application of these policies to the Audit
and Risk Committee of our Board of Directors.
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.
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, 2024
December 31, 2023
Consolidated Balance Sheets:
Total
assets
$
2,503,954
$
2,339,093
Total
loans
(1)
$
1,931,362
$
1,780,827
Total
deposits
$
2,126,617
$
1,937,139
Total
stockholders' equity
$
213,916
$
191,968
(1)
Loan amounts include deferred fees/costs.
34
USCB Financial Holdings, Inc.
Q3 2024 Form 10-Q
Three Months Ended
September 30,
Nine Months Ended
September 30,
2024
2023
2024
2023
Consolidated Statements of Operations:
Net interest income before provision for credit losses
$
18,109
$
14,022
$
50,578
$
44,192
Total
non-interest income
$
3,438
$
2,161
$
9,113
$
6,077
Total
non-interest expense
$
11,454
$
10,461
$
34,188
$
31,089
Net income
$
6,949
$
3,819
$
17,770
$
13,824
Profitability:
Efficiency ratio
53.16%
64.64%
57.27%
61.85%
Net interest margin
3.03%
2.60%
2.87%
2.84%
The Company’s
results
of
operations
depend
substantially
on
the
levels
of
our
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, 2024 compared to the
three months ended September 30, 2023
Net income
increased to
$6.9 million
for the
three months
ended September 30,
2024
from $3.8
million for
the same
period in 2023. The $3.1 million or 82% increase in net income was attributable to higher interest income from a larger loan
portfolio,
net interest
margin expansion,
and
increased activity
in fee
generating
transactions
(wire fees,
gain on
sale
of
loans, SWAP fees, and treasury management
fees) between periods.
Nine months ended September 30, 2024 compared to the
nine months ended September 30, 2023
Net income increased to $1
7.8 million for the nine
months ended September 30,
2024
from $13.8 million for the
same
period in
2023. The $3.9
million or
28.5% increase
in net
income was
attributable to
higher interest
income from
a larger
loan portfolio and increased activity in fee generating transactions (wire fees,
SWAP fees, and treasury management
fees)
between periods.
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
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.
35
USCB Financial Holdings, Inc.
Q3 2024 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,
2024
2023
Average
(1)
Balance
Interest
Yield/Rate
(2)
Average
(1)
Balance
Interest
Yield/Rate
(2)
Assets
Interest-earning assets:
Loans
(3)
$
1,878,230
$
29,819
6.32%
$
1,610,864
$
22,523
5.55%
Investment securities
(4)
419,315
2,754
2.61%
445,828
2,833
2.52%
Other interest-earnings assets
80,378
989
4.89%
83,479
1,026
4.88%
Total interest-earning assets
2,377,923
33,562
5.61%
2,140,171
26,382
4.89%
Non-interest-earning assets
107,511
110,087
Total assets
$
2,485,434
$
2,250,258
Liabilities and stockholders' equity
Interest-bearing liabilities:
Interest-bearing checking
$
57,925
411
2.82%
$
52,080
331
2.52%
Saving and money market deposits
1,084,562
10,064
3.69%
1,011,164
8,779
3.44%
Time deposits
325,580
3,391
4.14%
290,272
2,565
3.51%
Total interest-bearing deposits
1,468,067
13,866
3.76%
1,353,516
11,675
3.42%
FHLB advances and other borrowings
156,043
1,587
4.05%
85,326
685
3.19%
Total interest-bearing liabilities
1,624,110
15,453
3.79%
1,438,842
12,360
3.41%
Non-interest-bearing demand deposits
609,456
587,917
Other non-interest-bearing liabilities
45,227
38,598
Total liabilities
2,278,793
2,065,357
Stockholders' equity
206,641
184,901
Total liabilities and stockholders' equity
$
2,485,434
$
2,250,258
Net interest income
$
18,109
$
14,022
Net interest spread
(5)
1.82%
1.48%
Net interest margin
(6)
3.03%
2.60%
(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.
36
USCB Financial Holdings, Inc.
Q3 2024 Form 10-Q
Nine Months Ended September 30,
2024
2023
Average
Balance
(1)
Interest
Yield/Rate
(2)
Average
Balance
(1)
Interest
Yield/Rate
(2)
Assets
Interest-earning assets:
Loans
(3)
$
1,829,593
$
84,479
6.17
%
$
1,576,074
$
63,081
5.35
%
Investment securities
(4)
426,594
8,634
2.70
%
430,118
7,501
2.33
%
Other interest-earnings assets
101,919
3,953
5.18
%
71,514
2,459
4.60
%
Total interest-earning assets
2,358,106
97,066
5.50
%
2,077,706
73,041
4.70
%
Non-interest earning assets
108,902
107,443
Total assets
$
2,467,008
$
2,185,149
$
Liabilities and stockholders' equity
Interest-bearing liabilities:
Interest-bearing checking
$
55,887
1,171
2.80
%
$
54,554
$
574
1.41
%
Money market and savings accounts
1,094,433
30,529
3.73
%
949,858
20,532
2.89
%
Time deposits
321,470
9,907
4.12
%
264,241
5,767
2.92
%
Total interest-bearing deposits
1,471,790
41,607
3.78
%
1,268,653
26,873
2.83
%
Borrowings and repurchase agreements
160,726
4,881
4.06
%
80,087
1,976
3.30
%
Total interest-bearing liabilities
1,632,516
46,488
3.80
%
1,348,740
28,849
2.87
%
Non-interest bearing demand deposits
598,294
617,741
Other non-interest-bearing liabilities
37,045
34,492
Total liabilities
2,267,855
2,000,973
Stockholders' equity
199,153
184,176
Total liabilities and stockholders' equity
$
2,467,008
$
2,185,149
Net interest income
$
50,578
$
44,192
Net interest spread
(5)
1.70
%
1.83
%
Net interest margin
(6)
2.87
%
2.84
%
(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.
Three months ended September 30, 2024 compared to the three months
ended September 30, 2023
Net interest income before the provision
for credit losses was $18.1
million for the three months
ended September 30,
2024, an
increase
of $4.1
million or
29.1%,
from
$14.0
million for
the same
period in
2023. This
increase
was
primarily
attributable to higher income from a larger loan portfolio combined
with an increase in the weighted average loan yield
.
Net interest margin was 3.03%
for the quarter ended September 30, 2024 and 2.60%
for the same period in 2023. The
volume of
and rates
on loans
and interest-bearing
liabilities both
increased; however,
the volume
of and
yields on
loans
grew at a higher rate, offsetting the increase in deposits
and borrowing costs.
Nine months ended September 30, 2024 compared to the nine months
ended September 30, 2023
Net interest income
before the provision
for credit losses
was $50.6 million
for the nine
months ended September
30,
2024, an
increase
of $6.4
million or
14.5%,
from
$44.2
million for
the same
period in
2023. This
increase
was
primarily
attributable to higher income from a larger loan portfolio combined
with an increase in the weighted average loan yield.
Net interest margin was 2.87% for the nine
months ended September 30, 2024 and 2.84%
for the same period in 2023.
Loan yields
and the
rate paid
on interest
-bearing
liabilities both
increased; however
,
the interest
-earning
assets balance
was greater than that of interest-bearing liabilities. Therefore
the effect of the increase in yields
resulted in a NIM expansion
of 3 bps between periods.
37
USCB Financial Holdings, Inc.
Q3 2024 Form 10-Q
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
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, 2024 compared to the three months
ended September 30, 2023
The provision
for credit
loss was
$931 thousand
for the
three months
ended September 30,
2024 compared
to $653
thousand for
the same
period in
2023. Growth
in the
loan portfolio
was the
primary driver
of the increase
in the provision
expense during the three months ended September 30,
2024.
Nine months ended September 30, 2024 compared to the nine months
ended September 30, 2023
The
provision
for
credit
loss
was
$2.1
million
for
the
nine
months
ended
September 30,
2024
compared
to
$892
thousand for
the same
period in
2023. Growth
in the
loan portfolio
was the
primary driver
of the increase
in the provision
expense during the nine months ended September 30, 2024.
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,
2024
2023
2024
2023
Service fees
$
2,544
$
1,329
$
6,172
$
3,707
Gain (loss) on sale of securities available for sale, net
-
(955)
14
(976)
Gain on sale of loans held for sale, net
109
255
593
696
Other non-interest income
785
1,532
2,334
2,650
Total
non-interest income
$
3,438
$
2,161
$
9,113
$
6,077
Three months ended September 30, 2024 compared to the three months
ended September 30, 2023
Non-interest income
for the
three months
ended September 30,
2024 increased
$1.3 million
or 59.1% to
$3.4 million,
compared
to
the
same
period in
2023. This
increase
was
primarily
driven
by
growth
in
SWAP loan
fees
reported
under
service fees category,
partially offset by declines in gains on sale of loans and
other non-interest income.
Nine months ended September 30, 2024 compared to the nine months
ended September 30, 2023
Non-interest income for the nine months ended September
30, 2024 increased $3.0 million or 50.0%, compared
to the
same period in 2023. This increase was
primarily driven by growth in SWAP loan
fees reported under service fees category
and gain on sale of loans, , partially offset by declines in gains
on sale of loans and other non-interest income.
38
USCB Financial Holdings, Inc.
Q3 2024 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,
2024
2023
2024
2023
Salaries and employee benefits
$
7,200
$
6,066
$
20,863
$
18,325
Occupancy
1,341
1,350
3,921
3,968
Regulatory assessment and fees
452
365
1,361
1,041
Consulting and legal fees
161
513
1,016
1,257
Network and information technology services
513
481
1,499
1,464
Other operating
1,787
1,686
5,528
5,034
Total
non-interest expense
$
11,454
$
10,461
$
34,188
$
31,089
Three months ended September 30, 2024 compared to the three months
ended September 30, 2023
Non-interest expense for the three months ended September 30, 2024
increased $1.0 million or 9.5%, compared to the
same period
in 2023.
The increase
was primarily
driven by
an increase
of $1.1
million in
salaries and
employee benefits
due to management bonus accrual based on the Company’s
performance, and stock-based compensation expense.
Nine months ended September 30, 2024 compared to the nine months
ended September 30, 2023
Non-interest expense for the nine
months ended September 30, 2024 increased $3.1
million or 10.0%, compared to
the
same period
in 2023.
The increase
was primarily
driven by
an increase
of $2.5
million in
salaries and
employee benefits
due to
sales incentives,
management
bonus accrual
based on
the Company’s
performance,
merit
increases,
and stock-
based
compensation
expense.
Regulatory
assessment
and
fees
increased
by
$306
thousand
due
to
FDIC
deposit
insurance. Other operating expenses increased due to
an increase of $153 thousand in audit and tax services.
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, 2024 compared to the three months
ended September 30, 2023
Income tax
expense for
the quarter
ended September
30, 2024
was $2.2
million as
compared to
$1.3 million
for the
same period in 2023.
The effective tax rate
for the three months ended
September 30, 2024 was 24.2% compared to
24.7%
for 2023.
Nine months ended September 30, 2024 compared to the nine months
ended September 30, 2023
Income tax expense
for the
nine months ended
September 30, 2024
was $5.6 million
as compared to
$4.5 million
for
the same
period in
2023. The
effective tax
rate for
the nine
months ended
September 30,
2024 was
24.0% compared
to
24.4% for the same period in 2023.
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, 2024
were $2.50
billion, an
increase of
$164.9 million,
or 9.4%
annualized, over
total
assets of
$2.34 billion
at December 31,
2023. Total
loans, net
of deferred
fees/costs, increased
$150.5 million,
or 11.3%
annualized,
to
$1.93
billion
at
September 30,
2024
compared
to
$1.78
billion
at
December 31,
2023.
Total
deposits
increased
by
$189.5
million,
or
13.1%
annualized,
to
$2.13
billion
at
September 30,
2024
compared
to
$1.94
billion
December 31, 2023.
39
USCB Financial Holdings, Inc.
Q3 2024 Form 10-Q
Investment Securities
The investment portfolio
is used and
managed to provide
liquidity through cash
flows, marketability
and, if necessary,
collateral for
borrowings. The
investment portfolio
is also
used as
a tool
to manage
interest rate
risk and
the Company’s
capital
market
risk
exposure.
The
philosophy
of
the
portfolio
is
to
maximize
the
Company’s
profitability
taking
into
consideration the Company’s
risk appetite and
tolerance, manage
the asset composition
and diversification,
and maintain
adequate risk-based capital ratios.
The investment portfolio
is managed in accordance
with the 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
Committee
(“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,
corporate securities,
other debt
securities, and
municipal 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.
When evaluating AFS
debt securities under
ASC Topic
326, the Company
evaluates
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, vintage bonds, remaining payment terms, prepayment speeds and
analysis of macro-economic conditions. Each investment is expected to recover its unrealized loss position over its holding
period as it approaches
to maturity and the Company has the intent and ability to hold these securities maturity.
As a result
of this evaluation, the Company concluded that no allowance
was required on AFS securities as of September
30, 2024.
At
quarter
end,
HTM
securities
included
$157.7
million
of
U.S.
Government
and
U.S.
Agency
issued
bonds
and
mortgage-backed
securities.
Because
of
the
explicit
and/or
implicit
guarantee
on
these
bonds,
the
Company
holds
no
reserves
on these
holdings.
The remaining
portion of
the HTM
portfolio
is made
up of
$9.3
million
in investment
grade
corporate bonds. The required reserve for these holdings is
determined each quarter using the model described above. For
the portion of the HTM exposed to non-government
credit risk, the Company utilized the PD/LGD
methodology to estimate
a $8 thousand allowance
for credit losses (“ACL”)
as of September 30,
2024. The book value
for debt securities
classified
as HTM represents amortized cost less ACL.
AFS and
HTM investment
securities increased
$22.2 million, or
7.3% annualized,
to $426.5 million
at September 30,
2024 from $404.3 million at December 31,
2023. 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, 2024,
investment securities
with a
market value
of $69.7 million
were pledged
to secure
public deposits.
The investment
portfolio does
not have
any
tax-exempt securities.
40
USCB Financial Holdings, Inc.
Q3 2024 Form 10-Q
The
following
table
presents
the
amortized
cost
and
fair
value
of
investment
securities
for
the
dates
indicated
(in
thousands):
September 30, 2024
December 31, 2023
Available-for-sale:
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
U.S. Government Agency
$
11,916
$
10,733
$
9,664
$
8,173
Collateralized mortgage obligations
104,228
84,194
103,645
80,606
Mortgage-backed securities - residential
60,390
50,762
63,795
52,187
Mortgage-backed securities - commercial
75,263
70,333
49,212
42,764
Municipal securities
24,945
20,425
25,005
19,338
Bank subordinated debt securities
24,272
23,080
28,106
26,261
$
301,014
$
259,527
$
279,427
$
229,329
Held-to-maturity:
U.S. Government Agency
$
42,909
$
38,965
$
43,626
$
38,306
Collateralized mortgage obligations
58,345
52,403
62,735
54,752
Mortgage-backed securities - residential
41,173
38,313
43,784
39,599
Mortgage-backed securities - commercial
15,316
14,563
15,439
14,182
Corporate bonds
9,266
8,881
9,398
8,671
$
167,009
$
153,125
$
174,982
$
155,510
Allowance for credit losses - securities held-to-maturity
(8)
(8)
Securities held-to maturity, net of allowance for credit losses
$
167,001
$
174,974
The following
table shows
the weighted
average yields,
categorized by
contractual maturity,
for investment
securities
as of September 30, 2024 (in thousands,
except yields):
Within 1 year
After 1 year
through 5 years
After 5 years
through 10 years
After 10 years
Total
Amortized
Cost
Yield
Amortized
Cost
Yield
Amortized
Cost
Yield
Amortized
Cost
Yield
Amortized
Cost
Yield
Available-for-sale:
U.S. Government Agency
$
-
0.00%
$
-
0.00%
$
2,375
3.15%
$
9,541
1.96%
$
11,916
2.19%
Collateralized mortgage obligations
-
0.00%
-
0.00%
-
0.00%
104,228
1.64%
104,228
1.64%
MBS - residential
-
0.00%
-
0.00%
-
0.00%
60,390
1.84%
60,390
1.84%
MBS - commercial
-
0.00%
-
0.00%
4,099
4.70%
71,164
3.40%
75,263
3.47%
Municipal securities
-
0.00%
-
0.00%
19,704
1.72%
5,241
1.85%
24,945
1.75%
Bank subordinated debt securities
-
0.00%
1,000
7.99%
23,272
5.07%
-
0.00%
24,272
5.19%
$
-
$
1,000
$
49,450
$
250,564
$
301,014
2.45%
Held-to-maturity:
U.S. Government Agency
$
-
0.00%
$
7,945
1.02%
$
20,067
1.42%
$
14,897
2.06%
$
42,909
1.57%
Collateralized mortgage obligations
-
0.00%
-
0.00%
-
0.00%
58,345
1.66%
58,345
1.66%
MBS - residential
-
0.00%
4,352
1.86%
5,891
1.75%
30,930
2.22%
41,173
2.12%
MBS - commercial
-
0.00%
3,061
1.62%
-
0.00%
12,255
2.85%
15,316
2.60%
Corporate bonds
-
0.00%
9,266
2.81%
-
0.00%
-
0.00%
9,266
2.81%
$
-
$
24,624
$
25,958
$
116,427
$
167,009
1.90%
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 greater
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.
41
USCB Financial Holdings, Inc.
Q3 2024 Form 10-Q
The following table shows the loan portfolio composition
as of the dates indicated (in thousands):
September 30, 2024
December 31, 2023
Total
Percent of
Total
Total
Percent of
Total
Residential Real Estate
$
283,477
14.7
%
$
204,419
11.5
%
Commercial Real Estate
1,095,112
56.8
%
1,047,593
58.8
%
Commercial and Industrial
246,539
12.8
%
219,757
12.4
%
Correspondent Banks
103,815
5.4
%
114,945
6.5
%
Consumer and Other
198,604
10.3
%
191,930
10.8
%
Total
gross loans
1,927,547
100.0
%
1,778,644
100.0
%
Plus: Deferred fees/costs
3,815
2,183
Total
loans net of deferred fees/costs
1,931,362
1,780,827
Less: Allowance for credit losses
23,067
21,084
Total
net loans
$
1,908,295
$
1,759,743
Total
loans,
net
of
deferred
fees/costs,
increased
by
$150.5 million,
or
11.3%
annualized
to
$1.93
billion,
at
September 30, 2024
compared to
December 31, 2023.
The residential
real estate
loan segment
had the
most significant
growth.
Our
loan
portfolio
continues
to
grow,
with
commercial
real
estate
lending
as
the
primary
focus
which
represented
approximately 56.8%
of the
total gross
loan portfolio
as of
September 30, 2024.
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
of
the
loan
portfolio
at
September 30, 2024 (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
$
6,136
$
69,921
$
67,027
$
140,393
$
283,477
Commercial Real Estate
88,789
304,663
696,167
5,493
1,095,112
Commercial and Industrial
10,396
64,579
125,719
45,845
246,539
Correspondent Banks
103,815
-
-
-
103,815
Consumer and Other
3,186
2,976
14,144
178,298
198,604
Total
gross loans
$
212,322
$
442,139
$
903,057
$
370,029
$
1,927,547
Interest rate sensitivity:
Fixed interest rates
$
177,851
$
208,887
$
184,199
$
279,696
$
850,633
Floating or adjustable rates
34,471
233,252
718,858
90,333
1,076,914
Total
gross loans
$
212,322
$
442,139
$
903,057
$
370,029
$
1,927,547
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,
2024, approximately 56%
of the loans have
adjustable/variable rates and
44% of the
loans have
fixed rates. The adjustable/variable
rate loans re-price
to different benchmarks
and tenors and
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.
42
USCB Financial Holdings, Inc.
Q3 2024 Form 10-Q
Asset Quality
Our asset quality grading
analysis estimates the capability of
the borrower to repay
the contractual obligation of
the loan
agreement as scheduled or at all. The Company’s internal credit risk grading system is based on experiences with similarly
graded loans. Internal credit
risk grades are reviewed
at least once a
year, and
more frequently as
needed. Internal credit
risk ratings
may change
based on
management’s
assessment of
the results
from the
annual review,
portfolio monitoring,
and other developments observed with borrowers.
The internal credit risk grades used by the Company to
assess the credit worthiness of a loan are shown below:
Pass
– Loans indicate different levels of satisfactory
financial condition and performance.
Special Mention
– Loans classified as special mention have a potential weakness
that deserves management’s
close attention. If left uncorrected, these potential weaknesses
may result in deterioration of the repayment
prospects for the loan or of the institution’s
credit position at some future date.
Substandard
– Loans classified as substandard are inadequately protected
by the current net worth and paying
capacity of the obligator or of the collateral pledged, if
any. Loans so classified
have a well-defined weakness or
weaknesses that jeopardize the liquidation of the debt.
They are characterized by the distinct possibility that the
institution will sustain some loss if the deficiencies are
not corrected.
Doubtful
– Loans classified as doubtful have all the weaknesses inherent
in those classified at substandard, with
the added characteristic that the weaknesses make collection
or liquidation in full on the basis of currently existing
facts, conditions, and values, highly questionable and improbable.
Loss
– Loans classified as loss are considered uncollectible.
Loan credit exposures by internally assigned grades are
as follows for the dates indicated (in thousands):
September 30, 2024
Pass
Special Mention
Substandard
Doubtful
Total
Residential Real Estate
$
282,909
$
-
$
568
$
-
$
283,477
Commercial Real Estate
1,092,648
-
2,464
-
1,095,112
Commercial and Industrial
244,620
-
1,919
-
246,539
Correspondent Banks
103,815
-
-
-
103,815
Consumer and Other
196,613
-
1,991
-
198,604
$
1,920,605
$
-
$
6,942
$
-
$
1,927,547
December 31, 2023
Pass
Special Mention
Substandard
Doubtful
Total
Residential Real Estate
$
204,127
$
-
$
292
$
-
$
204,419
Commercial Real Estate
1,040,032
-
7,561
-
1,047,593
Commercial and Industrial
218,129
-
1,628
-
219,757
Correspondent Banks
114,945
-
-
-
114,945
Consumer and Other
191,930
-
-
-
191,930
$
1,769,163
$
-
$
9,481
$
-
$
1,778,644
43
USCB Financial Holdings, Inc.
Q3 2024 Form 10-Q
Non-Performing Assets
The following table presents non-performing assets as
of the dates shown (in thousands,
except ratios):
September 30, 2024
December 31, 2023
Non-accrual loans
$
2,725
$
468
Loans past due over 90 days and still accruing
-
-
Total
non-performing loans
$
2,725
$
468
Other real estate owned
-
-
Total
non-performing assets
$
2,725
$
468
Asset quality ratios:
Allowance for credit losses to total loans
1.19%
1.18%
Allowance for credit losses to non-performing loans
846%
4,505%
Non-performing loans to total loans
0.14%
0.03%
Non-performing
assets
include
all
loans
categorized
as
non-accrual,
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 consecutive 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
borrower’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 of
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
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 ACL.
44
USCB Financial Holdings, Inc.
Q3 2024 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
Correspondent
Banks
Consumer
and Other
Total
Three Months Ended September 30,
2024
Beginning balance
$
3,193
$
10,272
$
4,747
$
892
$
3,126
$
22,230
Provision for credit losses
(1)
760
(86)
(96)
(69)
322
831
Recoveries
2
-
10
-
1
13
Charge-offs
-
-
-
-
(7)
(7)
Ending Balance
$
3,955
$
10,186
$
4,661
$
823
$
3,442
$
23,067
Average loans
$
238,113
$
1,093,599
$
238,331
$
105,388
$
202,799
$
1,878,230
Net charge-offs to average loans
(3)
(0.00)%
-
(0.02)%
-
0.01%
0.00%
Nine Months Ended September 30, 2024
Beginning balance
$
2,695
$
10,366
$
3,974
$
911
$
3,138
$
21,084
Provision for credit losses
(2)
1,252
(180)
666
(88)
318
1,968
Recoveries
8
-
21
-
3
32
Charge-offs
-
-
-
-
(17)
(17)
Ending Balance
$
3,955
$
10,186
$
4,661
$
823
$
3,442
$
23,067
Average loans
$
231,947
$
1,065,280
$
232,160
$
102,659
$
197,547
$
1,829,593
Net charge-offs to average loans
(3)
(0.01)%
-
(0.02)%
-
0.01%
0.00%
(1) Provision for credit losses excludes a $101 thousand expense due to unfunded commitments included in other liabilities and a $1
thousand release related to investment securities held to maturity.
(2) Provision for credit losses excludes $159 thousand expense due to unfunded commitments included in other liabilities.
(3) Annualized.
Residential
Real Estate
Commercial
Real Estate
Commercial
and
Industrial
Correspondent
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
(4)
-
-
(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
(4)
(0.01)%
-
(0.05)%
-
0.04%
0.00%
(1) Provision for credit losses excludes a $17 thousand expense due to unfunded commitments included in other liabilities and a $3
thousand release related 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.
(4) Annualized.
45
USCB Financial Holdings, Inc.
Q3 2024 Form 10-Q
Bank-Owned Life Insurance
As of September 30,
2024, the combined
cash surrender
value of all
bank-owned life
insurance (“BOLI”)
policies was
$53.0
million.
Changes
in
cash
surrender
value
are
recorded
to
non-interest
income
in
the
unaudited
Consolidated
Statements of Operations. The Company had BOLI policies with five insurance carriers. The Company is the beneficiary of
these policies.
Deposits
Customer deposits are the
primary funding source for
the Bank’s growth.
Through our network of
banking centers, we
offer a competitive array of deposit
accounts and treasury management services designed
to meet our customers’ business
needs.
Our
primary
deposit
customers
are
small-to-medium
sized
businesses
(“SMBs”),
and
the
personal
business
of
owners and operators of these SMBs, as well as the retail/consumer
relationships of the employees of these businesses.
The following table
presents the daily
average balance and
average rate paid
on deposits by
category for
the periods
presented (in thousands, except ratios):
Three Months Ended September 30,
2024
2023
Average Balance
Average Rate
Paid
Average Balance
Average Rate
Paid
Non-interest-bearing checking
$
609,456
0.00%
$
587,917
0.00%
Interest-bearing checking
57,925
2.82%
52,080
2.52%
Money market and savings deposits
1,084,562
3.69%
1,011,164
3.44%
Time deposits
325,580
4.14%
290,272
3.51%
Total
$
2,077,523
2.66%
$
1,941,433
2.39%
The Company
has a
granular deposit
portfolio with
outstanding balances
comprised of
59% in
commercial
deposits,
31%
personal
deposits,
5%
public
funds
(which
are
partially
collateralized)
and
5%
brokered
deposits.
The
brokered
deposits balance at September 30, 2024 was $100.0
million and $50.0 million at December 31, 2024.
The Company has approximately
20 thousand deposit accounts
with the majority in
personal accounts, approximately
13 thousand or
62.3%. The
estimated average
account size of
our deposit portfolio
was approximately
$104 thousand
as
of September 30, 2024.
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 was
56% at September 30,
2024 and 53%
at September 30, 2023.
The Company offers Insured
Cash Sweep (“ICS”)
and Certificate of
Deposit Account
Registry Service (“CDARS”) deposit products
to fully insure our clients. The
deposit balance in ICS/CDARS at
quarter end
was $106.0 million at September 30, 2024 and $107.3
million at December 31, 2023.
The following table shows scheduled maturities of uninsured
time deposits as of September 30, 2024 (in thousands):
September 30, 2024
Three months or less
$
33,952
Over three through six months
50,797
Over six though twelve months
10,780
Over twelve months
776
$
96,305
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, 2024 escrow balances totaled $22.5 million
compared to $2.3 million at December 31, 2023.
46
USCB Financial Holdings, Inc.
Q3 2024 Form 10-Q
Borrowings
As
a
member
of
the
FHLB
of
Atlanta,
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, 2024,
we had
$118.0
million of
fixed-rate advances
outstanding from
the FHLB
with a
weighted
average rate of 3.47%. Maturity dates for the advances
range between 2024 to 2028 as detailed in the table below.
The following table presents the FHLB advances as of
September 30, 2024 (in thousands):
Interest Rate
Type of Rate
Maturity Date
Amount
2.05%
Fixed
March 27, 2025
10,000
1.07%
Fixed
July 18, 2025
6,000
3.76%
Fixed
January 24, 2028
11,000
3.77%
Fixed
April 25, 2028
50,000
3.68%
Fixed
September 13, 2027
21,000
3.79%
Fixed
March 23, 2026
20,000
$
118,000
During the third
quarter 2024, the
Company paid off
the $80.0 million
fixed-rate loan outstanding
from the Bank
Term
Funding Program with an original maturity date of January
10, 2025.
The
Company
has
also
established
Federal
Funds
lines
of
credit
with
our
upstream
correspondent
banks
and
the
Federal
Reserve
Bank
of
Atlanta
Discount
Window
to
manage
temporary
fluctuations
in
our
daily
cash
balances.
As
of
September 30, 2024, 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, 2024
December 31, 2023
Commitments to grant loans and unfunded lines of credit
$
104,851
$
85,117
Standby and commercial letters of credit
4,507
3,987
Total
$
109,358
$
89,104
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
47
USCB Financial Holdings, Inc.
Q3 2024 Form 10-Q
the underlying collateral,
which can include
commercial real estate,
physical plant and
property, inventory, receivables, cash
or marketable securities.
Asset and Liability Management Committee
Members
of
senior
management
and
our
Board
make
up
the
asset
and
liability
management
committee,
or
ALCO.
Senior management
is responsible
for ensuring
that Board
approved strategies
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 Interest Rate Risk (“IRR”) is inherent to the banking business, we believe our ALCO implements
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
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, 2024,
we had
a neutral
to slightly
asset sensitive
balance sheet
both for
year one
and year
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
(betas), 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 customer 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, 2024, our balance sheet is neutral to slightly asset sensitive for both year
one and
year two
under interest
static rate
scenarios (an
increase or
decrease of
400 basis
points). This
means that
the
impact of rates variations will be minimal
to our NIM. 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 defined.
48
USCB Financial Holdings, Inc.
Q3 2024 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),
pledging of assets 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,
and
draws
from
the
Federal
Reserve
Bank
of
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.
49
USCB Financial Holdings, Inc.
Q3 2024 Form 10-Q
Capital Adequacy
As of
September 30,
2024, 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, 2024, 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, 2024
Total
risk-based capital
$
257,212
13.14
%
$
156,587
8.00
%
$
195,733
10.00
%
Tier 1 risk-based capital
$
233,606
11.93
%
$
117,440
6.00
%
$
156,587
8.00
%
Common equity tier 1 capital
$
233,606
11.93
%
$
88,080
4.50
%
$
127,227
6.50
%
Leverage ratio
$
233,606
9.28
%
$
100,700
4.00
%
$
125,874
5.00
%
December 31, 2023:
Total
risk-based capital
$
233,109
12.65
%
$
147,432
8.00
%
$
184,290
10.00
%
Tier 1 risk-based capital
$
211,645
11.48
%
$
110,574
6.00
%
$
147,432
8.00
%
Common equity tier 1 capital
$
211,645
11.48
%
$
82,931
4.50
%
$
119,789
6.50
%
Leverage ratio
$
211,645
9.17
%
$
92,328
4.00
%
$
115,410
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.
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 Part
1 of this Form 10-Q.
50
USCB Financial Holdings, Inc.
Q3 2024 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 shareholders for the periods presented (in
thousands,
except per share data):
USCB FINANCIAL HOLDINGS, INC.
NON-GAAP FINANCIAL MEASURES (UNAUDITED)
(Dollars in thousands)
As of or For the Three Months Ended
9/30/2024
6/30/2024
3/31/2024
12/31/2023
9/30/2023
Pre-tax pre-provision ("PTPP") income:
(1)
Net income
$
6,949
$
6,209
$
4,612
$
2,721
$
3,819
Plus: Provision for income taxes
2,213
1,967
1,426
787
1,250
Plus: Provision for credit losses
931
786
410
1,475
653
PTPP income
$
10,093
$
8,962
$
6,448
$
4,983
$
5,722
PTPP return on average assets:
(1)
PTPP income
$
10,093
$
8,962
$
6,448
$
4,983
$
5,722
Average assets
$
2,485,434
$
2,479,222
$
2,436,103
$
2,268,811
$
2,250,258
PTPP return on average assets
(2)
1.62%
1.45%
1.06%
0.87%
1.01%
Operating net income:
(1)
Net income
$
6,949
$
6,209
$
4,612
$
2,721
$
3,819
Less: Net gains (losses) on sale of securities
-
14
-
(883)
(955)
Less: Tax effect on sale of securities
-
(4)
-
224
242
Operating net income
$
6,949
$
6,199
$
4,612
$
3,380
$
4,532
Operating PTPP income:
(1)
PTPP income
$
10,093
$
8,962
$
6,448
$
4,983
$
5,722
Less: Net gains (losses) on sale of securities
-
14
-
(883)
(955)
Operating PTPP income
$
10,093
$
8,948
$
6,448
$
5,866
$
6,677
Operating PTPP return on average assets:
(1)
Operating PTPP income
$
10,093
$
8,948
$
6,448
$
5,866
$
6,677
Average assets
$
2,485,434
$
2,479,222
$
2,436,103
$
2,268,811
$
2,250,258
Operating PTPP return on average assets
(2)
1.62%
1.45%
1.06%
1.03%
1.18%
Operating return on average assets:
(1)
Operating net income
$
6,949
$
6,199
$
4,612
$
3,380
$
4,532
Average assets
$
2,485,434
$
2,479,222
$
2,436,103
$
2,268,811
$
2,250,258
Operating return on average assets
(2)
1.11%
1.01%
0.76%
0.59%
0.80%
Operating return on average equity:
(1)
Operating net income
$
6,949
$
6,199
$
4,612
$
3,380
$
4,532
Average equity
$
206,641
$
197,755
$
193,092
$
183,629
$
184,901
Operating return on average equity
(2)
13.38%
12.61%
9.61%
7.30%
9.72%
Operating Revenue:
(1)
Net interest income
$
18,109
$
17,311
$
15,158
$
14,376
$
14,022
Plus: Non-interest income
3,438
3,211
2,464
1,326
2,161
Less: Net gains (losses) on sale of
securities
-
14
-
(883)
(955)
Operating revenue
$
21,547
$
20,508
$
17,622
$
16,585
$
17,138
Operating Efficiency Ratio:
(1)
Total non-interest expense
$
11,454
$
11,560
$
11,174
$
10,719
$
10,461
Operating revenue
$
21,547
$
20,508
$
17,622
$
16,585
$
17,138
Operating efficiency ratio
53.16%
56.37%
63.41%
64.63%
61.04%
(1)
The Company believes these non-GAAP measurements
are key indicators of the ongoing earnings
power of the Company.
(2)
Annualized.
51
USCB Financial Holdings, Inc.
Q3 2024 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
9/30/2024
6/30/2024
3/31/2024
12/31/2023
9/30/2023
Tangible book value per common share (at period-end):
(1)
Total stockholders' equity
$
213,916
$
201,020
$
195,011
$
191,968
$
182,884
Less: Intangible assets
-
-
-
-
-
Tangible stockholders' equity
$
213,916
$
201,020
$
195,011
$
191,968
$
182,884
Total shares issued and outstanding (at period-end):
Total common shares issued and outstanding
19,620,632
19,630,632
19,650,463
19,575,435
19,542,290
Tangible book value per common share
(2)
$
10.90
$
10.24
$
9.92
$
9.81
$
9.36
Operating diluted net income per common share:
(1)
Operating net income
$
6,949
$
6,199
$
4,612
$
3,380
$
4,532
Total weighted average diluted shares of common stock
19,825,211
19,717,167
19,698,258
19,573,350
19,611,897
Operating diluted net income per common share:
$
0.35
$
0.31
$
0.23
$
0.17
$
0.23
Tangible Common Equity/Tangible Assets
(1)
Tangible stockholders' equity
$
213,916
$
201,020
$
195,011
$
191,968
$
182,884
Tangible total assets
(3)
$
2,503,954
$
2,458,270
$
2,489,142
$
2,339,093
$
2,244,602
Tangible Common Equity/Tangible
Assets
8.54%
8.18%
7.83%
8.21%
8.15%
(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.
(3) Since the Company has no intangible
assets, tangible total assets is the same amount
as total assets calculated under GAA
P.
52
USCB Financial Holdings, Inc.
Q3 2024 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
Securities Exchange
Act of
1934) as
of
September 30, 2024. Based on
that evaluation, management believes that,
as of the end
of the period covered
by this Form
10-Q, 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.
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.
53
USCB Financial Holdings, Inc.
Q3 2024 Form 10-Q
PART II
Item 1.
Legal Proceedings
The
Company
previously
disclosed
that
litigation
(the
“Litigation”)
had
been
commenced
on
July
13,
2023
by
three
individuals
who
were
shareholders
of
the
Bank
prior
to
the
Bank’s
reorganization
into
the
holding
company
form
of
organization in 2021
(the “Plaintiffs”)
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, Florida (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
shares of Class C and Class D preferred stock was exchanged for shares of Class A voting common stock in the
Bank (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 sought the
Court to certify the
action as a class
action and to award
damages in an
amount to be
proven at trial.
The Plaintiffs sought damages exceeding $750,000
plus attorney’s fees and costs
as well as such other relief as the Court
determined to award.
The Defendants filed a motion to dismiss the Litigation with
prejudice (the “Motion”). On December 27, 2023, the Court,
after reviewing
the Motion,
the Plaintiff’s response
thereto and
the Defendant’s reply
as well
as the
oral arguments presented
by
the
parties
on
December
14,
2023,
granted
the
Motion,
dismissing
the
Litigation
with
prejudice
and
rendering
final
judgment in favor
of the Defendants
(the “Order”). The Court
reserved jurisdiction to award
costs or grant
any post-judgment
relief.
On May 1,
2024, the
Plaintiffs filed
in the Third
District Court
of Appeal for
the State of
Florida (the “Appellate
Court”)
an appeal (the “Appeal”),
appealing the issuance
of the Order and
seeking a reversal
of the Order.
The Plaintiffs claimed
the Court erred by
concluding (i) the Exchange Transaction was not
ultra vires, and (ii)
that the Legacy Shareholders (which
includes the Plaintiffs)
lacked direct standing.
The Plaintiffs
filed their initial
brief and the
Defendants filed
on July 1,
2024
their answer brief
(“Answer Brief”) responding
to the allegations
contained in the
Appeal.
The Plaintiffs
have the ability
to
file a
Reply Brief
responding to
the Defendant’s
Answer Brief
but have
not done
so as
of the
date hereof.
The Plaintiff’s
have requested oral argument.
The Company believes
that the positions
in the Appeal
are legally
and factually without
merit, and it
intends to vigorously
defend
against
the
Appeal,
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
the
Appeal
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
defending against
the Appeal.
The Appellate
Court could
grant the
Plaintiff’s motion
to
reverse the Order and remand the case to the Court.
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 Appeal
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.
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.
There can be no
assurance that any
future legal proceedings
to which we are
a party will not
be decided adversely
to
our interests and have a material adverse effect
on our financial condition and operations.
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
2023 Form 10-K.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
(a) None.
54
USCB Financial Holdings, Inc.
Q3 2024 Form 10-Q
(b) Not applicable.
(c) The Company’s repurchases of equity securities
for the quarter ended September 30, 2024 were as follows:
Total
Number of
Shares
Purchased
Average
Price Paid
Per Share
Total Number of Shares Purchased
as Part of Publicly Announced Plans
or Programs (1)
Maximum Number
of Shares that May
Yet Be Purchased
Under Plans or
Programs (1)
Period
July 1 - 31, 2024
10,000
$
11.99
10,000
537,980
August 1 -31, 2024
-
$
-
-
537,980
September 1 - 30, 2024
-
$
-
-
537,980
On April 22, 2024,
the Company announced the adoption
of a second repurchase program
to repurchase up to 500,000
shares
of
Class
A
common
stock,
which
repurchase
program
will
commence
upon
completion
of
its
first
repurchase
program.
Item 3.
Defaults Upon Senior Securities
(a)
Not applicable
(b)
Not applicable
Item 4.
Mine Safety Disclosures
Not applicable.
Item 5. Other Information
(a)
Not applicable
(b)
Not applicable
(c)
During
the
three
months
ended
September
30,
2024,
none
of
the
Company’s
directors
or
Section
16
reporting
officers
adopted
or
terminated
any Rule 10b5-1
trading arrangement or
non-Rule
10b5-1
trading arrangement (as
such terms are defined in Item 408 of the SEC’s
Regulation S-K).
55
USCB Financial Holdings, Inc.
Q3 2024 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,
2024 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.
56
USCB Financial Holdings, Inc.
Q3 2024 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 12, 2024
Luis de la Aguilera
(Principal Executive Officer)
/s/ Robert Anderson
Executive Vice President and Chief Financial
Officer
November 12, 2024
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

Exhibits

2.1AgreementandPlanofShareExchange,datedDecember27,2021,byandbetweenU.S.CenturyBankandUSCBFinancial Holdings, Inc. (incorporatedby reference to Exhibit 2.1to the Registrants CurrentReport on Form 8-K(File No.001-41196) filed with the Securities and Exchange Commission on December 30, 2021).3.1Articles ofIncorporation, asamended, ofUSCB FinancialHoldings, Inc.(incorporated byreference toExhibit 3.1to theRegistrant's Quarterly Report on Form 10-Qfor the quarter ended September 30,2023 (File No. 001-41196)filed with theSecurities and Exchange Commission on August 11, 2023).3.2Amended andRestated Bylawsof USCBFinancial Holdings,Inc. (incorporatedby referenceto Exhibit3.1 tothe RegistrantsCurrent Report on Form 8-K (File No. 001-41196) filed with the Securities and Exchange Commission on July 26, 2023).4.1SideLetterAgreement,datedDecember30,2021,betweenUSCBFinancialHoldings,Inc.,U.S.CenturyBank,PriamCapitalFundII,LP,PatriotFinancialPartnersII,L.P.andPatriotFinancialPartnersParallelII,L.P.(incorporatedbyreference to Exhibit4.1 to theRegistrants CurrentReport on Form 8-K(File No. 001-41196)filed with theSecurities andExchange Commission on December 30, 2021).4.2RegistrationRightsAgreement,datedMarch17,2015,betweenU.S.CenturyBank,PriamCapitalFundII,LP,PatriotFinancial Partners II, L.P.,Patriot Financial Partners Parallel II, L.P.,and certain other shareholders ofU.S. Century Bank(incorporated by reference to Exhibit 4.2 to the Registrants Current Report on Form 8-K (File No. 001-41196) filed with theSecurities and Exchange Commission on December 30, 2021).4.3Assignment andAssumption of Agreement,dated December 30,2021, between U.S.Century Bank andUSCB FinancialHoldings, Inc. (incorporated byreference to Exhibit 4.3to the Registrants CurrentReport on Form 8-K(File No. 001-41196)filed with the Securities and Exchange Commission on December 30, 2021).4.4Description of USCBFinancial Holdings, Inc.ssecurities (incorporated byreference to Exhibit4.4 to theRegistrant's AnnualReport on Form 10-K (File No. 001-41196) filed with the Securities and Exchange Commission on March 22, 2024).31.1Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.31.2Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.32.1Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.32.2Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.