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uscb-20240630p1i0
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
June 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 July 31, 2024 the registrant had
19,620,632
 
shares of Class
A
common stock outstanding.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3
 
USCB Financial Holdings, Inc.
 
Q2 2024 Form 10-Q
PART
 
I
Item 1.
 
Financial Statements
USCB FINANCIAL HOLDINGS, INC
Consolidated Balance Sheets – Unaudited
(Dollars in thousands, except share data)
June 30, 2024
December 31, 2023
ASSETS:
Cash and due from banks
$
5,179
$
8,019
Interest-bearing deposits in banks
72,082
33,043
Total cash and cash equivalents
77,261
41,062
Investment securities held to maturity, net of allowance of $
9
 
and $
8
, respectively (fair value $
149,573
and $
155,510
, respectively)
169,606
174,974
Investment securities available for sale, at fair value
236,444
229,329
Federal Home Loan Bank stock, at cost
5,532
10,153
Loans held for investment, net of allowance of $
22,230
 
and $
21,084
, respectively
1,847,019
1,759,743
Accrued interest receivable
11,538
10,688
Premises and equipment, net
4,728
4,836
Bank owned life insurance
52,607
51,781
Deferred tax assets, net
34,030
37,282
Lease right-of-use asset
9,937
11,423
Other assets
9,568
7,822
Total assets
$
2,458,270
$
2,339,093
LIABILITIES:
 
Deposits:
Demand deposits
$
579,243
$
552,762
Money market and savings accounts
1,097,468
1,048,272
Interest-bearing checking
65,844
47,702
Time deposits
314,147
288,403
Total deposits
2,056,702
1,937,139
Federal Home Loan Bank advances and other
 
borrowings
162,000
183,000
Lease liability
9,937
11,423
Accrued interest and other liabilities
28,611
15,563
Total liabilities
2,257,250
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 June 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 June 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 June 30, 2024
 
and December 31, 2023
-
-
Common stock - Class A Voting; $
1.00
 
par value;
45,000,000
 
shares authorized;
19,630,632
 
issued and
outstanding
 
as of June 30, 2024,
19,575,435
 
issued and outstanding as of December 31,
 
2023
19,631
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 June 30, 2024 and December
 
31, 2023
-
-
Additional paid-in capital on common stock
305,835
305,212
Accumulated deficit
(79,760)
(88,548)
Accumulated other comprehensive loss
(44,686)
(44,271)
Total stockholders' equity
201,020
191,968
Total liabilities and stockholders' equity
$
2,458,270
$
2,339,093
The accompanying notes are an integral part of
 
these unaudited consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4
 
USCB Financial Holdings, Inc.
 
Q2 2024 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Operations - Unaudited
(Dollars in thousands,
 
except per share data)
 
Three Months Ended June 30,
Six Months Ended June 30,
2024
2023
2024
2023
Interest income:
 
Loans, including fees
$
28,017
$
20,847
$
54,660
$
40,558
 
Investment securities
3,069
2,382
5,880
4,668
 
Interest-bearing deposits in financial institutions
1,531
1,051
2,964
1,433
 
Total interest income
32,617
24,280
63,504
46,659
Interest expense:
 
Interest-bearing checking
391
200
760
243
 
Money market and savings accounts
10,071
6,968
20,465
11,753
 
Time deposits
3,222
2,145
6,516
3,202
 
Federal Home Loan Bank advances and other borrowings
1,622
794
3,294
1,291
 
Total interest expense
15,306
10,107
31,035
16,489
 
Net interest income before provision for
 
credit losses
17,311
14,173
32,469
30,170
Provision for credit losses
786
38
1,196
239
 
Net interest income after provision for
 
credit losses
16,525
14,135
31,273
29,931
Non-interest income:
 
 
 
Service fees
1,977
1,173
3,628
2,378
 
Gain (loss) on sale of securities available for sale,
 
net
14
-
14
(21)
 
Gain on sale of loans held for sale, net
417
94
484
441
 
Other non-interest income
803
579
1,549
1,118
 
Total non-interest income
3,211
1,846
5,675
3,916
Non-interest expense:
 
 
 
 
 
Salaries and employee benefits
7,353
5,882
13,663
12,259
 
Occupancy
1,266
1,319
2,580
2,618
 
Regulatory assessment and fees
476
452
909
676
 
Consulting and legal fees
263
386
855
744
 
Network and information technology services
479
505
986
983
 
Other operating expense
1,723
1,908
3,741
3,348
 
Total non-interest expense
11,560
10,452
22,734
20,628
 
Income before income tax expense
8,176
5,529
14,214
13,219
Income tax expense
1,967
1,333
3,393
3,214
 
Net income
$
6,209
$
4,196
$
10,821
$
10,005
Per share information:
Net income per share, basic
$
0.32
$
0.21
$
0.55
$
0.51
Net income per share, diluted
$
0.31
$
0.21
$
0.55
$
0.51
Cash dividend declared
$
0.05
$
-
$
0.10
$
-
The accompanying notes are an integral part of
 
these unaudited consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5
 
USCB Financial Holdings, Inc.
 
Q2 2024 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Comprehensive Income
 
(Loss) - Unaudited
(Dollars in thousands)
Three Months Ended June 30,
Six Months Ended
 
June 30,
2024
2023
2024
2023
Net income
$
6,209
$
4,196
$
10,821
$
10,005
Other comprehensive income (loss):
Unrealized gain (loss) on investment securities
910
(6,804)
(1,224)
(3,287)
Amortization of net unrealized gain (loss) on securities
 
transferred from
available-for-sale to held-to-maturity
66
60
133
120
Reclassification adjustment for (gain) loss included
 
in net income
(14)
-
(14)
21
Unrealized gain on cash flow hedge
30
1,046
549
1,046
Tax effect
(251)
1,444
141
532
Total other comprehensive income (loss), net of tax
741
(4,254)
(415)
(1,568)
Total comprehensive income (loss)
$
6,950
$
(58)
$
10,406
$
8,437
The accompanying notes are an integral part of
 
these unaudited consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6
 
USCB Financial Holdings, Inc.
 
Q2 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 March 31, 2024
19,650,463
$
19,650
$
305,740
$
(84,952)
$
(45,427)
$
195,011
Net income
-
-
-
6,209
-
6,209
Other comprehensive income
-
-
-
-
741
741
Repurchase of Class A common stock
(25,000)
(25)
(275)
-
-
(300)
Restricted stock issued
5,169
6
(6)
-
-
-
Dividend payment
-
-
-
(1,017)
-
(1,017)
Stock-based compensation
-
-
376
-
-
376
Balance at June 30, 2024
19,630,632
$
19,631
$
305,835
$
(79,760)
$
(44,686)
$
201,020
Balance at March 31, 2023
19,622,380
$
19,622
$
305,921
$
(99,620)
$
(42,065)
$
183,858
Cumulative effect of adoption of accounting principle
 
related to ASC 326
-
-
-
336
-
336
Adjusted beginning balance after cumulative
 
effect adjustment
19,622,380
19,622
305,921
(99,284)
(42,065)
184,194
Net income
-
-
-
4,196
-
4,196
Other comprehensive loss
-
-
-
-
(4,254)
(4,254)
Repurchase of Class A common stock
(77,603)
(77)
(670)
-
-
(747)
Restricted stock issued
-
-
-
-
-
-
Stock-based compensation
-
-
296
-
-
296
Balance at June 30, 2023
19,544,777
$
19,545
$
305,547
$
(95,088)
$
(46,319)
$
183,685
The accompanying notes are an integral
 
part of these consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7
 
USCB Financial Holdings, Inc.
 
Q2 2024 Form 10-Q
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
-
-
-
10,821
-
10,821
Other comprehensive loss
-
-
-
-
(415)
(415)
Repurchase of Class A common stock
(32,100)
(32)
(348)
-
-
(380)
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
-
-
-
(2,033)
-
(2,033)
Stock-based compensation
-
-
736
-
-
736
Balance at June 30, 2024
19,630,632
$
19,631
$
305,835
$
(79,760)
$
(44,686)
$
201,020
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
-
-
-
10,005
-
10,005
Other comprehensive loss
-
-
-
-
(1,568)
(1,568)
Repurchase of Class A common stock
(577,603)
(577)
(6,036)
-
-
(6,613)
Restricted stock issued
121,627
121
(121)
-
-
-
Stock-based compensation
-
-
422
-
-
422
Balance at June 30, 2023
19,544,777
$
19,545
$
305,547
$
(95,088)
$
(46,319)
$
183,685
The accompanying notes are an integral
 
part of these unaudited consolidated financial
 
statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8
 
USCB Financial Holdings, Inc.
 
Q2 2024 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Cash Flows - Unaudited
(Dollars in thousands)
Six Months Ended June 30,
2024
2023
Cash flows from operating activities:
Net income
$
10,821
$
10,005
Adjustments to reconcile net income
 
to net cash provided by operating activities:
 
 
Provision for credit losses
1,196
239
Depreciation and amortization
286
298
(Accretion) amortization of premiums on securities,
 
net
(228)
(178)
Accretion of deferred loan fees, net
100
(163)
Stock-based compensation
736
422
Loss (gain) on sale of available for sale securities
(14)
21
Gain on sale of loans held for sale
(484)
(441)
Increase in cash surrender value of bank owned
 
life insurance
(826)
(538)
Decrease in deferred tax assets
3,393
3,214
Net change in operating assets and liabilities:
 
 
Accrued interest receivable
(850)
(483)
Other assets
(1,198)
739
Accrued interest and other liabilities
12,991
7,051
Net cash provided by operating activities
25,923
20,186
 
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
5,455
54,873
Purchase of investment securities available
 
for sale
(52,449)
(7,667)
Proceeds from maturities and pay-downs of investment
 
securities available for sale
9,630
7,399
Proceeds from sales of investment securities
 
available for sale
34,753
8,617
Net increase in loans held for investment
(49,386)
(93,737)
Purchase of loans held for investment
(44,691)
(700)
Additions to premises and equipment
(178)
(60)
Proceeds from the sale of loans held for sale
6,049
6,441
Proceeds from the redemption of Federal
 
Home Loan Bank stock
4,798
6,305
Purchase of Federal Home Loan Bank stock
(177)
(8,164)
Net cash used in investment activities
(86,196)
(113,481)
Cash flows from financing activities:
Proceeds from issuance of Class A common
 
stock, net
323
-
Cash dividends paid
(2,033)
-
Repurchase of Class A common stock
(380)
(6,613)
Net increase in deposits
119,562
92,020
Proceeds from Federal Home Loan Bank advances
 
and other borrowings
80,000
239,350
Repayments on Federal Home Loan Bank advances
(101,000)
(198,350)
Net cash provided by financing activities
96,472
126,407
 
Net increase in cash and cash equivalents
36,199
33,112
Cash and cash equivalents at beginning
 
of period
41,062
54,168
Cash and cash equivalents at end of period
$
77,261
$
87,280
 
Supplemental disclosure of cash flow
 
information:
Interest paid
$
28,538
$
15,535
Supplemental schedule of non-cash investing
 
and financing activities:
 
Transfer of loans held for investment to loans held
 
for sale
$
5,565
$
6,000
The accompanying notes are an integral
 
part of these unaudited consolidated financial
 
statements.
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
9
 
USCB Financial Holdings, Inc.
 
Q2 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 consolidated
 
audited 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
 
 
10
 
USCB Financial Holdings, Inc.
 
Q2 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.
 
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 held
 
to maturity
 
securities through
 
the use of
 
credit ratings.
 
Credit ratings
are monitored by
 
the Company on
 
at least
 
a quarterly basis.
 
As of
 
June 30, 2024
 
and December 31,
 
2023, all HTM
 
securities
held by the Company were rated investment grade.
At
 
quarter
 
end,
 
HTM
 
securities
 
included
 
$
160.3
 
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 $
9
 
thousand ACL
 
as of June
 
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 June 30,
 
2024 and December 31,
2023 was not required.
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
11
 
USCB Financial Holdings, Inc.
 
Q2 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):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2024
Available-for-sale:
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
U.S. Government Agency
$
12,420
$
21
$
(1,585)
$
10,856
Collateralized mortgage obligations
106,663
-
(23,671)
82,992
Mortgage-backed securities - residential
61,566
-
(11,788)
49,778
Mortgage-backed securities - commercial
57,936
41
(7,051)
50,926
Municipal securities
24,965
-
(5,555)
19,410
Bank subordinated debt securities
24,230
22
(1,770)
22,482
$
287,780
$
84
$
(51,420)
$
236,444
Held-to-maturity:
U.S. Government Agency
$
43,106
$
-
$
(5,520)
$
37,586
Collateralized mortgage obligations
59,933
4
(8,148)
51,789
Mortgage-backed securities - residential
41,896
285
(4,658)
37,523
Mortgage-backed securities - commercial
15,370
-
(1,381)
13,989
Corporate bonds
9,310
-
(624)
8,686
$
169,615
$
289
$
(20,331)
$
149,573
Allowance for credit losses - securities held-to-maturity
(9)
Securities held-to maturity, net of allowance for credit losses
$
169,606
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 June
 
30, 2024 there
 
were
no
 
investment securities
 
that were transferred
 
from available-for-
sale (“AFS”) to HTM.
 
For the three months ended June 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
 
$
66
 
thousand.
 
The
unamortized
 
net
 
unrealized
 
loss
 
as
 
of
 
June
 
30,
 
2024,
 
was
 
$
9.4
 
million.
 
For
 
the
 
six
 
months
 
ended
 
June
 
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 $
133
 
thousand.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
12
 
USCB Financial Holdings, Inc.
 
Q2 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 six months
 
ended June 30, 2024 and 2023 (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
Six Months Ended June 30,
Available-for-sale:
2024
2023
2024
2023
Proceeds from sale and call of securities
$
34,753
$
-
$
34,753
$
8,617
Gross gains
$
195
$
-
$
195
$
3
Gross losses
(181)
-
(181)
(24)
Net realized gain (loss)
$
14
$
-
$
14
$
(21)
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
June 30, 2024:
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
Due within one year
$
-
$
-
$
-
$
-
Due after one year through five years
1,000
996
9,310
8,686
Due after five years through ten years
35,364
31,065
-
-
Due after ten years
12,831
9,831
-
-
U.S. Government Agency
12,420
10,856
43,106
37,586
Collateralized mortgage obligations
106,663
82,992
59,933
51,789
Mortgage-backed securities - residential
61,566
49,778
41,896
37,523
Mortgage-backed securities - commercial
57,936
50,926
15,370
13,989
$
287,780
$
236,444
$
169,615
$
149,573
At June 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
 
June 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):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
June 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
$
2,171
$
(5)
$
45,377
$
(8,281)
$
47,548
$
(8,286)
Collateralized mortgage obligations
6,614
(69)
128,167
(36,205)
134,781
(36,274)
Mortgage-backed securities - residential
5,543
(57)
81,758
(18,657)
87,301
(18,714)
Mortgage-backed securities - commercial
25,223
(546)
38,214
(9,344)
63,437
(9,890)
Municipal securities
-
-
19,410
(5,555)
19,410
(5,555)
Bank subordinated debt securities
5,278
(157)
13,821
(1,613)
19,099
(1,770)
Corporate bonds
-
-
8,686
(374)
8,686
(374)
$
44,829
$
(834)
$
335,433
$
(80,029)
$
380,262
$
(80,863)
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
13
 
USCB Financial Holdings, Inc.
 
Q2 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
 
$
123.5
 
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
 
attributed to
 
credit losses
 
or other
 
factors like
 
interest rate
 
risk, using
 
both quantitative
 
and qualitative
 
analyses,
including
 
company
 
performance
 
analysis,
 
review
 
of
 
credit
 
ratings,
 
remaining
 
payment
 
terms,
 
prepayment
 
speeds
 
and
analysis of macro-economic conditions.
 
Each investment is
 
expected to recover its
 
price depreciation over its
 
holding period
as it
 
moves to
 
maturity and
 
the Company
 
has the
 
intent and
 
ability to
 
hold these
 
securities to
 
maturity if
 
necessary.
 
As a
result of this evaluation, the Company concluded that
 
no allowance was required on AFS securities as of
 
June 30, 2024.
At June
 
30, 2024, the
 
Company had $
56.7
 
million of unrealized
 
losses on mortgage-backed securities
 
and collateralized
mortgage obligations of U.S. government sponsored entities having a fair value
 
of $
287.0
 
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 June 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
 
for June 30, 2024 and
25
%
for December
 
31, 2023.
 
The Bank
 
must also
 
maintain a
 
minimum amount
 
of pledged
 
securities to
 
be in
 
the public
 
funds
program.
As of June 30, 2024, the
 
Bank had a total of $
145.4
 
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 $
135.2
 
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. These
 
pledged assets were valued
 
at par. The
 
BTFP program ceased
making new loans as of March 2024.
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
14
 
USCB Financial Holdings, Inc.
 
Q2 2024 Form 10-Q
The Company
 
had $
80
 
million in
 
borrowings under
 
the BTFP
 
program as
 
of June
 
30, 2024,
 
and had
 
pledged $
127.4
million in
 
securities
 
measured
 
at par
 
to the
 
Federal
 
Reserve
 
Bank of
 
Atlanta for
 
the BTFP
 
program
 
maturing
 
in January
2025.
 
 
3.
 
LOANS
The following table is a summary of the distribution of
 
loans held for investment by type (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2024
December 31, 2023
Total
Percent of
Total
Total
Percent of
Total
Residential Real Estate
$
256,807
13.8
%
$
204,419
11.5
%
Commercial Real Estate
1,053,030
56.4
%
1,047,593
58.8
%
Commercial and Industrial
248,525
13.3
%
219,757
12.4
%
Foreign Banks
112,510
6.0
%
114,945
6.5
%
Consumer and Other
194,644
10.5
%
191,930
10.8
%
Total
 
gross loans
1,865,516
100.0
%
1,778,644
100.0
%
Plus: Deferred fees/costs
3,733
 
2,183
Total
 
loans net of deferred fees/costs
1,869,249
1,780,827
Less: Allowance for credit losses
22,230
21,084
Total
 
net loans
$
1,847,019
$
1,759,743
At
 
June 30,
 
2024
 
and
 
December 31,
 
2023,
 
the
 
Company
 
had
 
$
547.9
 
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 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
 
 
15
 
USCB Financial Holdings, Inc.
 
Q2 2024 Form 10-Q
Changes in the ACL for the three and six months ended June
 
30, 2024 and 2023 were as follows (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential
Real Estate
Commercial
Real Estate
Commercial
and
Industrial
Foreign
Banks
Consumer
and Other
Total
Three Months Ended June 30, 2024
Beginning balance
$
2,930
$
10,302
$
4,272
$
794
$
3,156
$
21,454
Provision for credit losses
(1)
257
(30)
474
98
(25)
774
Recoveries
6
-
1
-
-
7
Charge-offs
-
-
-
-
(5)
(5)
Ending Balance
$
3,193
$
10,272
$
4,747
$
892
$
3,126
$
22,230
Six Months Ended June 30, 2024
 
 
 
 
 
Beginning balance
$
2,695
$
10,366
$
3,974
$
911
$
3,138
$
21,084
Provision for credit losses
(2)
492
(94)
762
(19)
(4)
1,137
Recoveries
6
-
11
-
2
19
Charge-offs
-
-
-
-
(10)
(10)
Ending Balance
$
3,193
$
10,272
$
4,747
$
892
$
3,126
$
22,230
(1) Provision for credit losses excludes a $
15
 
thousand charge due to unfunded commitments included in other liabilities and a $
3
thousand charge related to investment securities held to maturity.
(2) Provision for credit losses excludes a $
58
 
thousand charge due to unfunded commitments included in other liabilities and a $
1
thousand charge related to investment securities held to maturity.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential
Real Estate
Commercial
Real Estate
Commercial
and
Industrial
Foreign
Banks
Consumer
and Other
Total
Three Months Ended June 30, 2023
Beginning balance
$
2,819
$
10,453
$
2,367
$
772
$
2,476
$
18,887
Provision for credit losses
(1)
(148)
(270)
125
(95)
345
(43)
Recoveries
2
-
8
-
1
11
Charge-offs
-
-
-
-
(40)
(40)
Ending Balance
$
2,673
$
10,183
$
2,500
$
677
$
2,782
$
18,815
Six Months Ended June 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)
73
(1,065)
443
(66)
857
242
Recoveries
10
-
52
-
3
65
Charge-offs
-
-
-
-
(45)
(45)
Ending Balance
$
2,673
$
10,183
$
2,500
$
677
$
2,782
$
18,815
(1) Provision for credit losses excludes a $
62
 
thousand release due to unfunded commitments included in other liabilities and $
19
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 $
22
 
thousand release due to unfunded commitments included in other liabilities and $
19
thousand expense related to investment securities held to maturity.
At June
 
30, 2024,
 
the ACL
 
was $
22.2
 
million compared
 
to $
21.1
 
million at
 
December 31,
 
2023. The
 
increase of
 
$
1.1
million in the ACL was due to loan growth.
 
Charge offs for the three months ended
 
June 30, 2024 totaled $
5
 
thousand and were all originated in
 
2024. Charge offs
for the six months ended June 30, 2024 totaled $
10
 
thousand and were all originated in 2024.
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
16
 
USCB Financial Holdings, Inc.
 
Q2 2024 Form 10-Q
The Company
 
had charge
 
offs totaling
 
$
40
 
thousand for
 
the quarter
 
ended June
 
30 2023
 
on loans.
 
$
21
 
thousand of
charge offs related to loans were originated in 2015 and
 
$
19
 
thousand related to loans were originated in 2023. For the six
months ended
 
June 30,
 
2023, the
 
Company had
 
a total
 
of $
45
 
thousand in
 
charge offs,
 
$
24
 
thousand originated
 
in 2023
and $
21
 
originated in 2015.
The
 
Federal
 
Open
 
Market
 
Committee
 
(“FOMC”)
 
economic
 
forecasts
 
as
 
of
 
June
 
30,
 
2024,
 
showed
 
minimal
improvements in
 
unemployment and a
 
slight slower
 
growth forecast
 
for real
 
GDP. Fannie Mae HPI forecast
 
reflected minimal
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 June 30,
 
2024, for every 100 basis points increase in the HPI
 
index,
the
 
forecast
 
reduces
 
reserves
 
by
 
approximately
 
$
218
 
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 June 30, 2024, we stress
 
tested two qualitative factors in our commercial
 
real estate loan pool, as it’s
 
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
 
$
5.9
 
million or
29.5
%
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 June 30,
 
2024 and
 
December 31, 2023
are as follows (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Foreign
Banks
Consumer
and Other
Total
June 30, 2024:
Allowance for credit losses:
Individually evaluated
$
45
$
-
$
50
$
-
$
-
$
95
Collectively evaluated
3,148
10,272
4,697
892
3,126
22,135
Balances, end of period
$
3,193
$
10,272
$
4,747
$
892
$
3,126
$
22,230
Loans:
 
 
 
 
 
Individually evaluated
$
7,209
$
-
$
747
$
-
$
-
$
7,956
Collectively evaluated
249,598
1,053,030
247,778
112,510
194,644
1,857,560
Balances, end of period
$
256,807
$
1,053,030
$
248,525
$
112,510
$
194,644
$
1,865,516
 
 
 
 
 
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
payment
 
experience,
 
credit
 
documentation
 
and
 
other
 
current
 
economic
 
trends.
 
Internal
 
credit
 
risk
 
grades
 
are
 
evaluated
periodically.
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
17
 
USCB Financial Holdings, Inc.
 
Q2 2024 Form 10-Q
The Company's internally assigned credit risk grades are as follows:
Pass
– Loans indicate different levels of satisfactory
 
financial condition and performance.
 
Special Mention
 
– Loans classified as special mention have a potential weakness
 
that deserves management’s
close attention. If left uncorrected, these potential weaknesses
 
may result in deterioration of the repayment
prospects for the loan or of the institution’s
 
credit position at some future date.
 
Substandard
– Loans classified as substandard are inadequately protected
 
by the current net worth and paying
capacity of the obligator or of the collateral pledged, if
 
any. Loans so classified
 
have a well-defined weakness or
weaknesses that jeopardize the liquidation of the debt.
 
They are characterized by the distinct possibility that the
institution will sustain some loss if the deficiencies are
 
not corrected.
 
Doubtful
 
– Loans classified as doubtful have all the weaknesses inherent
 
in those classified at substandard, with
the added characteristic that the weaknesses make collection
 
or liquidation in full on the basis of currently existing
facts, conditions, and values, highly questionable and improbable.
 
Loss
– Loans classified as loss are considered uncollectible.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
18
 
USCB Financial Holdings, Inc.
 
Q2 2024 Form 10-Q
Loan credit exposures by internally assigned grades are
 
presented below for the periods indicated (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of June 30, 2024
Term Loans by Origination Year
Revolving
Loans
Total
2024
2023
2022
2021
2020
Prior
Residential real estate
Pass
$
63,233
$
40,811
$
36,206
$
24,077
$
5,855
$
77,144
$
8,894
$
256,220
Substandard
-
-
-
-
-
587
-
587
Total
63,233
40,811
36,206
24,077
5,855
77,731
8,894
256,807
Commercial real estate
Pass
47,957
141,375
326,081
178,623
100,704
247,850
4,287
1,046,877
Substandard
-
-
-
5,463
690
-
-
6,153
Total
47,957
141,375
326,081
184,086
101,394
247,850
4,287
1,053,030
Commercial and
industrial
Pass
42,342
93,995
36,074
31,401
5,038
15,055
22,869
246,774
Substandard
-
-
-
552
-
1,199
-
1,751
Total
42,342
93,995
36,074
31,953
5,038
16,254
22,869
248,525
Foreign banks
Pass
85,759
26,751
-
-
-
-
-
112,510
Total
85,759
26,751
-
-
-
-
-
112,510
Consumer and other
loans
Pass
25,731
57,722
68,818
38,250
498
1,708
1,917
194,644
Substandard
-
-
-
-
-
-
-
-
Total
25,731
57,722
68,818
38,250
498
1,708
1,917
194,644
Total
 
Loans
Pass
265,022
360,654
467,179
272,351
112,095
341,757
37,967
1,857,025
Special Mention
-
-
-
-
-
-
-
-
Substandard
-
-
-
6,015
690
1,786
-
8,491
Doubtful
-
-
-
-
-
-
-
-
Total
$
265,022
$
360,654
$
467,179
$
278,366
$
112,785
$
343,543
$
37,967
$
1,865,516
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
19
 
USCB Financial Holdings, Inc.
 
Q2 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
Foreign 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
 
 
20
 
USCB Financial Holdings, Inc.
 
Q2 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
 
June 30,
 
2024
 
and
December 31, 2023 (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accruing
As of June 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
$
547
$
-
$
-
$
547
$
-
$
547
1-4 family residential
197,537
5,757
-
203,294
-
203,294
Condo residential
52,646
-
-
52,646
320
52,966
250,730
5,757
-
256,487
320
256,807
Commercial real estate:
Land and construction
40,049
-
-
40,049
-
40,049
Multi-family residential
204,811
-
-
204,811
-
204,811
Condo commercial
58,292
-
-
58,292
-
58,292
Commercial property
749,868
-
-
749,868
-
749,868
Leasehold improvements
10
-
-
10
-
10
1,053,030
-
-
1,053,030
-
1,053,030
Commercial and industrial:
Secured
229,428
-
-
229,428
438
229,866
Unsecured
18,659
-
-
18,659
-
18,659
248,087
-
-
248,087
438
248,525
Foreign banks
112,510
-
-
112,510
-
112,510
Consumer and other
194,644
-
-
194,644
-
194,644
Total
$
1,859,001
$
5,757
$
-
$
1,864,758
$
758
$
1,865,516
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
21
 
USCB Financial Holdings, Inc.
 
Q2 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
 
 
 
 
Foreign 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 June 30, 2024 and as of December
 
31, 2023 (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
June 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
$
320
$
-
$
320
$
-
Commercial and industrial
-
438
438
-
Total
$
320
$
438
$
758
$
-
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 June 30,
 
2024 and 2023.
 
Interest income
 
on
these loans for
 
the three months
 
ended June 30,
 
2024 and 2023,
 
would have been
 
approximately $
11
thousand and
 
$
13
thousand, respectively,
 
had these loans performed in accordance with their
 
original terms.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
22
 
USCB Financial Holdings, Inc.
 
Q2 2024 Form 10-Q
Collateral-Dependent Loans
A
 
loan
 
is
 
collateral
 
dependent
 
when
 
the
 
borrower
 
is
 
experiencing
 
financial
 
difficulty
 
and
 
repayment
 
of
 
the
 
loan
 
is
expected to
 
be provided
 
substantially through
 
the sale
 
or operation
 
of the
 
collateral. There
 
were
no
 
collateral dependent
loans as of June 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 six
 
months
ended June 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 June
30, 2024 and one new modification for the six months ended June 30, 2024. There were
no
 
existing loan modifications that
subsequently
 
defaulted
 
during
 
the
 
three
 
months
 
and
 
six
 
months
 
ended
 
June
 
30,
 
2024.
 
The
 
Company
 
had
 
one
 
new
modification to borrowers experiencing
 
financial difficulties for
 
the three and six
 
months ended June 30,
 
2023. There were
no
 
existing loan modifications that subsequently defaulted
 
for the three and six months ended June 30, 2023.
4.
 
INCOME TAXES
 
The Company’s provision for income taxes is presented
 
in the following table for the periods indicated (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30,
2024
2023
Current:
Federal
$
-
$
-
State
-
-
Total
 
current
-
-
Deferred:
Federal
2,653
2,513
State
740
701
Total
 
deferred
3,393
3,214
Total
 
tax expense
$
3,393
$
3,214
The actual income tax
 
expense for the six
 
months ended June 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
 
to income before
provision for income taxes) as follows (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30,
2024
2023
Federal taxes at statutory rate
$
2,985
$
2,776
State income taxes, net of federal tax benefit
618
574
Bank owned life insurance
(210)
(136)
Other, net
-
-
Total
 
tax expense
$
3,393
$
3,214
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
23
 
USCB Financial Holdings, Inc.
 
Q2 2024 Form 10-Q
The Company’s deferred tax assets and deferred
 
tax liabilities as of the dates indicated were (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2024
December 31, 2023
Deferred tax assets:
Net operating loss
$
13,098
$
16,430
Allowance for credit losses
5,700
5,410
Lease liability
2,519
2,895
Unrealized losses on available for sale securities
15,394
15,114
Depreciable property
141
203
Equity compensation
811
630
Accruals
331
382
Other, net
15
10
Deferred tax assets:
38,009
41,074
Deferred tax liabilities:
Deferred loan cost
(946)
(553)
Lease right of use asset
(2,519)
(2,895)
Deferred expenses
(213)
(180)
Cash flow hedge
(224)
(85)
Other, net
(77)
(79)
Deferred tax liabilities
(3,979)
(3,792)
Net deferred tax assets
$
34,030
$
37,282
The Company
 
has approximately
 
$
47.8
 
million of
 
federal
 
and $
70.5
 
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 examinations by tax
authorities for years before 2020.
For the three months and six months ended June 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
 
 
24
 
USCB Financial Holdings, Inc.
 
Q2 2024 Form 10-Q
A
 
summary
 
of
 
the
 
amounts
 
of
 
the
 
Company's
 
financial
 
instruments
 
with
 
off-balance
 
sheet
 
risk
 
are
 
shown
 
below
 
at
June 30, 2024 and December 31, 2023 (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2024
December 31, 2023
Commitments to grant loans and unfunded lines of credit
$
90,426
$
85,117
Standby and commercial letters of credit
3,566
3,987
Total
$
93,992
$
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
 
June 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
1.88
 
years, the
 
weighted
 
average
 
fixed-rate
 
paid of
3.59
%, and
 
with the
 
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,
 
the
 
weighted
 
average
 
fixed-rate
 
paid
 
of
3.59
%,
 
with
 
the
 
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
As of June 30,
 
2024, the Company
 
had
four
 
interest rate swap
 
agreements with a
 
notional aggregate amount
 
of $
200
million that were designated as fair value hedges on loans. The interest
 
rate swap agreements have an average maturity of
1.73
 
years,
 
the
 
weighted
 
average
 
fixed-rate
 
paid
 
is
4.74
%,
 
with
 
the
 
weighted
 
average
 
3-month
 
compound
 
SOFR
 
being
received.
As of December
 
31, 2023, the
 
Company had
four
 
interest rate swap
 
agreements with a
 
notional aggregate amount
 
of
$
200
 
million
 
that
 
were
 
designated
 
as
 
fair
 
value
 
hedges
 
on
 
loans.
 
The
 
interest
 
rate
 
swap
 
agreements
 
have
 
an
 
average
maturity of
2.23
 
years, the weighted average fixed-rate paid
 
is
4.74
%, with the 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 the assets being hedged.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
25
 
USCB Financial Holdings, Inc.
 
Q2 2024 Form 10-Q
Interest Rate Swaps
The Company enters into interest rate swaps with its loan customers. The Company had
28
 
and
20
 
interest rate swaps
with
 
loan
 
customers
 
with
 
an
 
aggregate
 
notional
 
amount
 
of
 
$
82.8
 
million
 
and
 
$
46.5
 
million
 
at
 
June 30,
 
2024
 
and
December 31, 2023,
 
respectively.
 
These interest
 
rate swaps
 
mature between
 
2025 and
 
2051. The
 
Company entered
 
into
corresponding
 
and
 
offsetting
 
derivatives
 
with
 
third
 
parties.
 
The
 
fair
 
value
 
of
 
liability
 
on
 
these
 
derivatives
 
requires
 
the
Company to provide the counterparty
 
with funds to be held as collateral
 
which the Company reports as other
 
assets under
the Consolidated
 
Balance Sheets.
 
While these
 
derivatives represent
 
economic hedges,
 
they do
 
not qualify
 
as hedges
 
for
accounting purposes.
The following table reflects the Company’s
 
interest rate swaps at the dates indicated (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair Value
Notional
Amount
Collateral
Amount
Balance Sheet Location
Asset
Liability
June 30, 2024:
Derivatives designated as cash flow hedges:
Interest rate swaps
$
50,000
$
-
Other assets
$
882
$
-
Derivatives designated as hedging instruments:
Interest rate swaps
$
200,000
$
-
Other liabilities
$
15
$
408
Derivatives not designated as hedging instruments:
Interest rate swaps related to customer loans
$
82,849
$
1,363
Other assets/Other liabilities
$
5,568
$
5,568
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
26
 
USCB Financial Holdings, Inc.
 
Q2 2024 Form 10-Q
equity securities that
 
are traded in
 
an active exchange
 
market. Valuations are obtained from
 
readily available pricing
sources for market transactions involving identical assets
 
or liabilities.
Level 2
 
- Valuation
 
is based on inputs other
 
than quoted prices included
 
within Level 1 that are
 
observable for the
asset
 
or
 
liability,
 
either
 
directly
 
or
 
indirectly.
 
The
 
valuation
 
may
 
be
 
based
 
on
 
quoted
 
prices
 
for
 
similar
 
assets
 
or
liabilities; quoted
 
prices in
 
markets that are
 
not active;
 
or other inputs
 
that are observable
 
or can be
 
corroborated
by observable market data for substantially the full term of the
 
asset or liability.
Level 3
 
- Valuation
 
is based on
 
unobservable inputs that
 
are supported
 
by little or
 
no market activity
 
and that are
significant
 
to
 
the
 
fair
 
value
 
of
 
the
 
assets
 
or
 
liabilities.
 
Level
 
3
 
assets
 
and
 
liabilities
 
include
 
financial
 
instruments
whose value
 
is determined
 
using pricing
 
models, discounted
 
cash
 
flow
 
methodologies,
 
or similar
 
techniques,
 
as
well as instruments for which determination of fair value
 
requires significant management judgment or estimation.
A
 
financial
 
instrument's
 
categorization
 
within
 
the
 
valuation
 
hierarchy
 
is
 
based
 
upon
 
the
 
lowest
 
level
 
of
 
input
 
that
 
is
significant to the fair value measurement.
Items Measured at Fair Value
 
on a Recurring Basis
AFS investment securities:
 
When instruments are traded in
 
secondary markets and quoted market
 
prices do not exist
for such securities,
 
management generally relies
 
on prices obtained
 
from independent vendors
 
or third-party broker-dealers.
Management reviews pricing methodologies provided by the vendors and third-party broker-dealers in order to determine if
observable market information is being utilized. Securities measured with pricing provided by independent vendors or
 
third-
party broker-dealers
 
are classified within
 
Level 2 of
 
the hierarchy and
 
often involve using
 
quoted market
 
prices for similar
securities, pricing models or discounted cash flow analyses
 
utilizing inputs observable in the market where available.
Derivatives:
 
The
 
fair
 
value
 
of
 
derivatives
 
are
 
measured
 
with
 
pricing
 
provided
 
by
 
third-party
 
participants
 
and
 
are
classified within Level 2 of the hierarchy.
The
 
following
 
table
 
represents
 
the
 
Company's
 
assets
 
and
 
liabilities
 
measured
 
at
 
fair
 
value
 
on
 
a
 
recurring
 
basis
 
at
June 30, 2024 and December 31, 2023 for each of the
 
fair value hierarchy levels (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
June 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
$
-
$
10,856
$
-
$
10,856
$
-
$
8,173
$
-
$
8,173
Collateralized mortgage obligations
-
82,992
-
82,992
-
80,606
-
80,606
Mortgage-backed securities - residential
-
49,778
-
49,778
-
52,187
-
52,187
Mortgage-backed securities - commercial
-
50,926
-
50,926
-
42,764
-
42,764
Municipal securities
-
19,410
-
19,410
-
19,338
-
19,338
Bank subordinated debt securities
-
22,482
-
22,482
-
26,261
-
26,261
Total
-
236,444
-
236,444
-
229,329
-
229,329
Derivative assets
-
6,465
-
6,465
-
4,892
-
4,892
Total assets at fair value
$
-
$
242,909
$
-
$
242,909
$
-
$
234,221
$
-
$
234,221
Derivative liabilities
$
-
$
5,976
$
-
$
5,976
$
-
$
7,988
$
-
$
7,988
Total liabilities at fair value
$
-
$
5,976
$
-
$
5,976
$
-
$
7,988
$
-
$
7,988
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
27
 
USCB Financial Holdings, Inc.
 
Q2 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 June 30, 2024 and December 31, 2023 (in
 
thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair Value Hierarchy
Carrying
Amount
Level 1
Level 2
Level 3
Fair Value
Amount
June 30, 2024:
Financial Assets:
Cash and due from banks
$
5,179
$
5,179
$
-
$
-
$
5,179
Interest-bearing deposits in banks
$
72,082
$
72,082
$
-
$
-
$
72,082
Investment securities held to maturity, net
$
169,606
$
-
$
149,573
$
-
$
149,573
Loans held for investment, net
$
1,847,019
$
-
$
-
$
1,821,431
$
1,821,431
Accrued interest receivable
$
11,538
$
-
$
1,454
$
10,084
$
11,538
Financial Liabilities:
Demand deposits
$
579,243
$
579,243
$
-
$
-
$
579,243
Money market and savings accounts
$
1,097,468
$
1,097,468
$
-
$
-
$
1,097,468
Interest-bearing checking accounts
$
65,844
$
65,844
$
-
$
-
$
65,844
Time deposits
$
314,147
$
-
$
-
$
312,428
$
312,428
FHLB advances and other borrowings
$
162,000
$
-
$
160,087
$
-
$
160,087
Accrued interest payable
$
3,869
$
-
$
2,256
$
1,613
$
3,869
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
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
28
 
USCB Financial Holdings, Inc.
 
Q2 2024 Form 10-Q
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.
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 June 30, 2024, the
 
Company repurchased
25,000
 
shares of Class A common stock at
a weighted
 
average
 
price
 
per share
 
of
 
$
12.00
. The
 
aggregate
 
purchase
 
price
 
for
 
these
 
transactions
 
was
 
approximately
$
301
 
thousand, including transaction costs. These repurchases were made pursuant to the Company’s publicly announced
repurchase programs. As of June 30, 2024,
547,980
 
shares remained authorized for repurchase under the Company’s two
stock repurchase
 
programs. During
 
the three
 
months ended
 
June 30,
 
2023, the
 
Company repurchased
77,603
 
shares of
Class A
 
common stock at a
 
weighted average price per
 
share of $
9.58
. The aggregate purchase
 
price for these transactions
was approximately $
747
 
thousand, including transaction costs.
Shares of the Company’s Class A common stock issued and outstanding as of June
 
30, 2024 and December 31, 2023
were
19,630,632
 
and
19,575,435
, respectively.
 
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.
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.
 
No
 
dividends were
 
declared
 
by the
 
Board for
 
the stockholders
 
for the
 
three months
 
and six
 
months ended
 
June 30,
2023.
 
See Note 11, Subsequent
 
Events, for information regarding dividends declared in July 2024.
 
The following table details the dividends declared and paid by
 
the Company during the three months and six months
ended June 30, 2024:
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
29
 
USCB Financial Holdings, Inc.
 
Q2 2024 Form 10-Q
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
The
 
Company
 
and
 
the
 
Bank
 
exceeded
 
all
 
regulatory
 
capital
 
requirements
 
and
 
remained
 
above
 
“well-capitalized”
guidelines as
 
of June
 
30, 2024
 
and December
 
31, 2023. At
 
June 30, 2024, the
 
total risk-based
 
capital ratios for
 
the Company
and the Bank were
13.12
% and
13.01
%, respectively.
9.
 
EARNINGS PER SHARE
Earnings
 
per
 
share
 
(“EPS”)
 
for
 
common
 
stock
 
is
 
calculated
 
using
 
the
 
two-class
 
method
 
required
 
for
 
participating
securities. Basic EPS
 
is calculated by
 
dividing net income
 
(loss) available to
 
common shareholders by
 
the weighted-average
number of common shares outstanding for
 
the period, without consideration for common
 
stock equivalents. Diluted EPS is
computed by
 
dividing net
 
income (loss)
 
available to
 
common share
 
holders by
 
the weighted
 
-average
 
number of
 
common
shares outstanding for
 
the period and
 
the weighted-average number
 
of dilutive common
 
stock equivalents outstanding
 
for
the period determined using the treasury-stock method. For
 
purposes of this calculation, common stock equivalents
 
include
common stock options and are only included in the calculation
 
of diluted EPS when their effect is dilutive.
 
The following table
 
reflects the calculation of
 
net income available to
 
common shareholders for the
 
three and six months
ended June 30, 2024 and 2023 (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
Six Months Ended
 
June 30,
2024
2023
2024
2023
Net Income
$
6,209
$
4,196
$
10,821
$
10,005
Net income available to common shareholders
$
6,209
$
4,196
$
10,821
$
10,005
The following table reflects
 
the calculation of basic
 
and diluted earnings per
 
common share class
 
for the three
 
and six
months ended June 30, 2024 and 2023 (in thousands,
 
except per share amounts):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
2024
2023
Class A
Class A
Basic EPS
Numerator:
Net income available to common shares
 
$
6,209
$
4,196
Denominator:
Weighted average shares outstanding
19,650,681
19,590,359
Earnings per share, basic
$
0.32
$
0.21
Diluted EPS
Numerator:
Net income available to common shares
$
6,209
$
4,196
Denominator:
Weighted average shares outstanding for basic EPS
19,650,681
19,590,359
Add: Dilutive effects of assumed exercises of stock options
66,486
49,323
Weighted avg. shares including dilutive potential common shares
19,717,167
19,639,682
Earnings per share, diluted
$
0.31
$
0.21
Anti-dilutive stock options excluded from diluted EPS
502,500
730,500
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.
 
Q2 2024 Form 10-Q
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30,
2024
2023
Class A
Class A
Basic EPS
Numerator:
Net income available to common shares
$
10,821
$
10,005
Denominator:
Weighted average shares outstanding
19,642,006
19,722,152
Earnings per share, basic
$
0.55
$
0.51
Diluted EPS
Numerator:
Net income available to common shares
$
10,821
$
10,005
Denominator:
Weighted average shares outstanding for basic EPS
19,642,006
19,722,152
Add: Dilutive effects of assumed exercises of stock options
65,555
68,604
Weighted avg. shares including dilutive potential common shares
19,707,561
19,790,756
Earnings per share, diluted
$
0.55
$
0.51
Anti-dilutive stock options excluded from diluted EPS
502,500
730,500
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.
 
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
 
Dividends
 
On July
 
22, 2024,
 
the Company
 
announced that
 
its Board
 
of Directors
 
declared its
 
third quarterly
 
cash dividend.
 
The
quarterly dividend for the
 
third quarter of 2024
 
was $
0.05
 
per share of
 
Class A common
 
stock and will
 
be paid on September
5, 2024, to stockholders of record as of the close of business
 
on August 15, 2024.
 
 
 
31
 
USCB Financial Holdings, Inc.
 
Q2 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
 
six months ended June 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.
 
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 quarterly
 
report on
 
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,
 
 
32
 
USCB Financial Holdings, Inc.
 
Q2 2024 Form 10-Q
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
 
$6.2 million
 
or $0.31
 
per diluted
 
share of
 
common stock
 
for the
 
three
 
months
ended June
 
30, 2024
 
compared
 
to $4.2
 
million
 
or $0.21
 
per diluted
 
share of
 
common
 
stock for
 
the
 
three
 
months ended
June 30,
 
2023.
 
On January 29, 2024, the Company’s Board of Directors announced the adoption
 
of a quarterly dividend program. The
first quarter
 
a cash
 
dividend of
 
$0.05 per
 
share of
 
the Company’s
 
Class A common
 
stock was
 
paid on
 
March 5,
 
2024 to
shareholders of record at the close of business on February 15,
 
2024. The aggregate amount distributed in connection with
this dividend
 
was $1.0
 
million. The
 
second quarter
 
cash dividend
 
of $0.05
 
per share
 
of the
 
Company’s Class
 
A common
stock was paid on June 5, 2024
 
to shareholders of record at the close of
 
business on May 15, 2024. The aggregate amount
distributed in connection with this dividend
 
was $1.0 million. Additionally,
 
the Company’s Board of Directors declared
 
a cash
dividend
 
of
 
$0.05
 
per
 
share
 
of
 
the
 
Company’s
 
Class A
 
common
 
stock
 
on
 
July
 
22,
 
2024.
 
The
 
dividend
 
will
 
be
 
paid
 
on
September 5, 2024 to shareholders of record at the close
 
of business on August 15, 2024.
25,000 shares of Class A common stock were repurchased at a weighted average price per share of $12.00 during the
second quarter 2024.
 
These repurchases were made
 
pursuant to the
 
Company’s publicly announced repurchase programs.
As of June 30, 2024, 547,980 shares remained authorized
 
for repurchase under the
 
Company’s programs.
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
June 30, 2024 compared to at or for the quarter ended June 30, 2023 and as of June 30, 2024
 
compared to December 31,
2023, and annualized where appropriate:
•
 
Net interest income
 
for the three
 
months ended June
 
30, 2024 increased
 
$3.1 million or
 
22.1% to $17.3 million
 
from $14.2 million
for the quarter ended June 30, 2023.
•
 
Net interest
 
margin (“NIM”)
 
was 2.94%
 
for the
 
three months
 
ended June
 
30, 2024
 
compared to
 
2.73% for
 
the three
 
months
ended June 30, 2023.
•
 
Total assets were $2.5 billion at June 30, 2024, representing an increase of $232.4 million or 10.4% from June 30, 2023
 
and an
increase of $119.2 million or 10.2% annualized from December 31, 2023.
 
•
 
Total loans were $1.9 billion at June
 
30, 2024, representing an increase of $273.3
 
million or 17.1% from June 30,
 
2023 and an
increase of $88.4 million or 10.0% annualized from December 31, 2023.
•
 
Total deposits were $2.1 billion at June
 
30, 2024, representing an increase of
 
$135.4 million or 7.0% from June 30,
 
2023 and an
increase of $119.6 million or 12.4% annualized from December 31, 2023.
 
•
 
Annualized return on average assets for the quarter ended June 30,
 
2024 was 1.01% compared to 0.77% for the quarter
 
ended
June 30, 2023.
 
•
 
Annualized return
 
on average
 
stockholders’ equity
 
for the
 
quarter ended
 
June 30,
 
2024 was
 
12.63% compared
 
to 9.13%
 
for
quarter ended June 30, 2023.
 
•
 
The ACL to total loans was 1.19% at June 30, 2024 and 1.18% at December 31, 2023.
 
•
 
Non-performing loans to total loans was 0.04% at June 30, 2024 and 0.03% at December 31, 2023.
 
•
 
At June 30, 2024, the total risk-based capital ratios for the Company and the Bank were 13.12% and 13.01%, respectively.
•
 
Tangible book
 
value per
 
common share
 
(a non-GAAP
 
financial measurement)
 
of $10.24
 
as of
 
June 30,
 
2024 was
 
negatively
affected by $2.28
 
due to accumulated
 
comprehensive loss of
 
$44.7 million at
 
June 30, 2024. At
 
June 30, 2023,
 
tangible book
value of $9.40 per common
 
share was negatively affected
 
by $2.37 due to
 
$46.3 million accumulated other
 
comprehensive loss.
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
33
 
USCB Financial Holdings, Inc.
 
Q2 2024 Form 10-Q
Critical Accounting Policies and Estimates
The
 
consolidated
 
financial
 
statements
 
are
 
prepared
 
based
 
on
 
the
 
application
 
of
 
U.S.
 
GAAP,
 
the
 
most
 
significant
 
of
which
 
are
 
described
 
in
 
Note
 
1
 
“Summary
 
of
 
Significant
 
Accounting
 
Policies”
 
in
 
the
 
Company’s
 
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):
June 30, 2024
December 31, 2023
Consolidated Balance Sheets:
Total
 
assets
$
2,458,270
$
2,339,093
Total
 
loans
(1)
$
1,869,249
$
1,780,827
Total
 
deposits
$
2,056,702
$
1,937,139
Total
 
stockholders' equity
$
201,020
$
191,968
(1)
 
Loan amounts include deferred fees/costs.
Three Months Ended June 30,
Six Months Ended June 30,
2024
2023
2024
2023
Consolidated Statements of Operations:
Net interest income before provision for credit losses
$
17,311
$
14,173
$
32,469
$
30,170
Total
 
non-interest income
$
3,211
$
1,846
$
5,675
$
3,916
Total
 
non-interest expense
$
11,560
$
10,452
$
22,734
$
20,628
Net income
 
$
6,209
$
4,196
$
10,821
$
10,005
Profitability:
Efficiency ratio
56.33%
65.25%
59.60%
60.52%
Net interest margin
2.94%
2.73%
2.78%
2.97%
 
 
34
 
USCB Financial Holdings, Inc.
 
Q2 2024 Form 10-Q
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 June 30, 2024 compared to the three
 
months ended June 30, 2023
 
Net income increased
 
to $6.2 million
 
for the three
 
months ended June
 
30, 2024
from $4.2 million
 
for the same
 
period
in 2023.
 
The $2.0
 
million or
 
48% 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.
Six months ended June 30, 2024 compared to the six
 
months ended June 30, 2023
 
Net income increased
 
to $10.8 million
 
for the six
 
months ended June
 
30, 2024
from $10.0 million
 
for the same
 
period
in 2023. The
 
$816 thousand
 
or 8.2%
 
increase in
 
net income
 
was attributable
 
to higher
 
interest income
 
from a
 
larger loan
portfolio and
 
increased activity
 
in fee
 
generating transactions
 
(wire fees,
 
gain on
 
sale of
 
loans, 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.
 
Q2 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 June 30,
2024
2023
Average
(1)
Balance
Interest
Yield/Rate
(2)
Average
(1)
Balance
Interest
Yield/Rate
(2)
Assets
Interest-earning assets:
Loans
(3)
$
1,828,487
$
28,017
6.16%
$
1,569,266
$
20,847
5.33%
Investment securities
(4)
440,559
3,069
2.80%
422,544
2,382
2.26%
Other interest-earnings assets
100,371
1,531
6.13%
87,536
1,051
4.82%
Total interest-earning assets
2,369,417
32,617
5.54%
2,079,346
24,280
4.68%
Non-interest-earning assets
109,805
 
 
104,196
 
 
Total assets
$
2,479,222
$
2,183,542
Liabilities and stockholders' equity
 
 
 
 
 
 
Interest-bearing liabilities:
Interest-bearing checking
$
56,369
391
2.79%
$
53,561
200
1.50%
Saving and money market deposits
1,101,272
10,071
3.68%
940,095
6,968
2.97%
Time deposits
315,872
3,222
4.10%
277,001
2,145
3.11%
Total interest-bearing deposits
1,473,513
13,684
3.74%
1,270,657
9,313
2.94%
FHLB advances and other borrowings
162,000
1,622
4.03%
93,075
794
3.42%
Total interest-bearing liabilities
1,635,513
15,306
3.76%
1,363,732
10,107
2.97%
Non-interest-bearing demand deposits
610,370
 
 
601,778
 
 
Other non-interest-bearing liabilities
35,584
33,794
Total liabilities
2,281,467
 
 
1,999,304
 
 
Stockholders' equity
197,755
184,238
Total liabilities and stockholders' equity
$
2,479,222
 
 
$
2,183,542
 
 
Net interest income
$
17,311
$
14,173
Net interest spread
(5)
1.78%
1.71%
Net interest margin
(6)
2.94%
2.73%
(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.
 
Q2 2024 Form 10-Q
Six Months Ended June 30,
2024
2023
Average
Balance
(1)
Interest
Yield/Rate
(2)
Average
Balance
(1)
Interest
Yield/Rate
(2)
Assets
Interest-earning assets:
Loans
(3)
$
1,805,008
$
54,660
6.09
%
$
1,558,390
$
40,558
5.25
%
Investment securities
(4)
430,274
5,880
2.75
%
422,132
4,668
2.23
%
Other interest-earnings assets
112,808
2,964
5.28
%
65,433
1,433
4.42
%
Total interest-earning assets
2,348,090
63,504
5.44
%
2,045,955
46,659
4.60
%
Non-interest earning assets
109,572
106,100
Total assets
$
2,457,662
$
2,152,055
$
Liabilities and stockholders' equity
Interest-bearing liabilities:
Interest-bearing checking
$
54,857
760
2.79
%
$
55,812
$
243
0.88
%
Money market and savings accounts
1,099,423
20,465
3.74
%
918,697
11,753
2.58
%
Time deposits
319,392
6,516
4.10
%
251,009
3,202
2.57
%
Total interest-bearing deposits
1,473,672
27,741
3.79
%
1,225,518
15,198
2.50
%
Borrowings and repurchase agreements
163,093
3,294
4.06
%
77,425
1,291
3.36
%
Total interest-bearing liabilities
1,636,765
31,035
3.81
%
1,302,943
16,489
2.55
%
Non-interest bearing demand deposits
592,565
632,901
Other non-interest-bearing liabilities
32,908
32,404
Total liabilities
2,262,238
1,968,248
Stockholders' equity
195,424
183,807
Total liabilities and stockholders' equity
$
2,457,662
$
2,152,055
$
Net interest income
$
32,469
30,170
Net interest spread
(5)
1.63
%
2.05
%
Net interest margin
(6)
2.78
%
2.97
%
(1)
 
Average balances - Daily average balances are used
 
to calculate yields/rates.
(2)
 
Annualized.
(3)
 
Average loan balances include non-accrual loans. Interest income
 
on loans includes accretion of deferred loan fees,
 
net of deferred loan costs.
(4)
 
At fair value except for securities held to maturity. Includes FHLB stock.
(5)
 
Net interest spread is the weighted average
 
yield on total interest-earning assets minus the weighted
 
average rate on total interest-bearing
liabilities.
(6)
 
Net interest margin is the ratio of net interest
 
income to average total interest-earning assets.
Three months ended June 30, 2024 compared to the three months
 
ended June 30, 2023
 
Net interest income before the provision
 
for credit losses was $17.3 million
 
for the three months ended June
 
30, 2024,
an increase of $3.1 million
 
or 22.1%, from $14.2 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
 
2.94%
 
for the quarter ended
 
June 30, 2024 and 2.73%
 
for the same period
 
in 2023. Loan yields
and rate paid on cost of funds both increased,
 
however loan yields grew at a higher rate
 
offsetting the increase in deposits
and borrowing costs.
 
Six months ended June 30, 2024 compared to the six months ended
 
June 30, 2023
 
Net interest income before the provision for credit losses was $32.5 million for the six months ended June 30, 2024, an
increase of $2.3 million or
 
7.6%, from $30.2 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
 
2.78% for the
 
six months ended
 
June 30, 2024 and
 
2.97%
 
for the same period
 
in 2023. Loan
yields and
 
rate paid
 
on cost
 
of funds
 
both increased,
 
however the
 
increase in
 
volume and
 
rate paid
 
on cost
 
of funds
 
was
higher than the increase in total interest-bearing assets.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
37
 
USCB Financial Holdings, Inc.
 
Q2 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 June 30, 2024 compared to the three months
 
ended June 30, 2023
 
The provision for credit loss was $786 thousand for the three months ended
 
June 30, 2024 compared to $38 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 June 30, 2024.
 
Six months ended June 30, 2024 compared to the six months ended
 
June 30, 2023
 
The provision for
 
credit loss was
 
$1.2 million for
 
the six months
 
ended June 30,
 
2024 compared to
 
$239 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 six months ended June 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 June 30,
Six Months Ended June 30,
2024
2023
2024
2023
Service fees
$
1,977
$
1,173
$
3,628
$
2,378
Gain (loss) on sale of securities available for sale, net
14
-
14
(21)
Gain on sale of loans held for sale, net
417
94
484
441
Other non-interest income
803
579
1,549
1,118
Total
 
non-interest income
$
3,211
$
1,846
$
5,675
$
3,916
Three months ended June 30, 2024 compared to the three months
 
ended June 30, 2023
 
Non-interest
 
income
 
for
 
the
 
three
 
months
 
ended
 
June 30,
 
2024
 
increased
 
$1.4
 
million
 
or
 
73.9%
 
to
 
$3.2
 
million,
compared to
 
the same
 
period in
 
2023. This
 
increase was
 
primarily driven
 
by growth
 
in wire
 
fees, gain
 
on sale
 
of a
 
loans,
SWAP loan fees, and treasury management fees.
 
Six months ended June 30, 2024 compared to the six months ended
 
June 30, 2023
 
Non-interest income
 
for the six
 
months ended June
 
30, 2024
 
increased $1.8
 
million or 44.9%,
 
compared to
 
the same
period
 
in
 
2023. This
 
increase
 
was
 
primarily
 
driven
 
by
 
growth
 
in
 
wire
 
fees,
 
gain
 
on
 
sale
 
of
 
loans,
 
SWAP
 
loan
 
fees,
 
and
treasury management fees.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
38
 
USCB Financial Holdings, Inc.
 
Q2 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 June 30,
Six Months Ended June 30,
2024
2023
2024
2023
Salaries and employee benefits
$
7,353
$
5,882
$
13,663
$
12,259
Occupancy
1,266
1,319
2,580
2,618
Regulatory assessment and fees
476
452
909
676
Consulting and legal fees
263
386
855
744
Network and information technology services
479
505
986
983
Other operating
1,723
1,908
3,741
3,348
Total
 
non-interest expense
$
11,560
$
10,452
$
22,734
$
20,628
Three months ended June 30, 2024 compared to the three months
 
ended June 30, 2023
 
Non-interest expense for
 
the three months
 
ended June 30, 2024
 
increased $1.1 million
 
or 10.6%, compared
 
to the
 
same
period in 2023.
 
The increase
 
was primarily
 
driven by an
 
increase of
 
$1.5 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.
Six months ended June 30, 2024 compared to the six months ended
 
June 30, 2023
 
Non-interest expense for the six
 
months ended June 30, 2024 increased $2.1
 
million or 10.2%, compared to the
 
same
period in 2023.
 
The increase
 
was primarily
 
driven by an
 
increase of
 
$1.4 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
 
$233
 
thousand
 
due
 
to
 
FDIC
 
deposit
 
insurance.
Other operating expenses increased due to 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 June 30, 2024 compared to the three months
 
ended June 30, 2023
 
Income tax
 
expense for
 
the quarter
 
ended June 30,
 
2024 was
 
$2.0 million
 
as compared
 
to $1.3
 
million for
 
the same
period in 2023. The effective tax rate for the three months ended June
 
30, 2024 and 2023 was 24.1%.
 
Six months ended June 30, 2024 compared to the six months ended
 
June 30, 2023
 
Income tax expense for the six months ended June 30, 2024 was $3.4 million as compared to $3.2 million for
 
the same
period in 2023. The effective tax rate for the six months ended June
 
30, 2024 was 23.9% compared to 24.3% 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 June 30, 2024 were
 
$2.46 billion, an increase
 
of $119.2
 
million, or 10.2% annualized,
 
over total assets
of $2.34 billion at December 31, 2023. Total
 
loans, net of deferred fees/cost, increased $88.4 million, or 10.0% annualized,
to
 
$1.87
 
billion
 
at
 
June 30,
 
2024
 
compared
 
to
 
$1.78
 
billion
 
at
 
December
 
31,
 
2023.
 
Total
 
deposits
 
increased
 
by
 
$119.6
million, or 12.4% annualized, to $2.06 billion at June 30,
 
2024 compared to $1.94 billion December 31, 2023.
 
 
39
 
USCB Financial Holdings, Inc.
 
Q2 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,
 
municipal securities,
 
and other
 
debt securities,
all with varying contractual maturities and coupons. Due to the optionality embedded in these securities, the final maturities
do not necessarily represent
 
the expected life of
 
the portfolio. Some
 
of these securities will
 
be called or paid
 
down prior to
maturity
 
depending
 
on
 
capital market
 
conditions
 
and
 
expectations.
 
The
 
investment
 
portfolio
 
is regularly
 
reviewed by
 
the
Chief Financial
 
Officer,
 
Treasurer,
 
and the
 
ALCO of
 
the Company
 
to ensure
 
an appropriate
 
risk and
 
return profile
 
as well
as for adherence to the investment policy.
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,
 
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 to maturity.
 
As a result of this
evaluation, the Company concluded that no allowance
 
was required on AFS securities as of June 30, 2024.
At
 
quarter
 
end,
 
HTM
 
securities
 
included
 
$160.3
 
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 $9 thousand Allowance
 
for credit losses (“ACL”)
 
as of June 30,
 
2024. The book value
 
for debt securities classified as
 
HTM
represents amortized cost less ACL.
AFS and HTM
 
investment securities increased $1.7 million,
 
or 0.9% annualized, to
 
$406.1 million at June 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
 
June 30,
 
2024,
 
investment
 
securities
 
with
 
a
market value
 
of $262.6 million
 
were pledged
 
to secure
 
public deposits
 
and the
 
BTFP.
 
The investment
 
portfolio does
 
not
have any tax-exempt securities.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
40
 
USCB Financial Holdings, Inc.
 
Q2 2024 Form 10-Q
The
 
following
 
table
 
presents
 
the
 
amortized
 
cost
 
and
 
fair
 
value
 
of
 
investment
 
securities
 
for
 
the
 
dates
 
indicated
 
(in
thousands):
June 30, 2024
December 31, 2023
Available-for-sale:
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
U.S. Government Agency
$
12,420
$
10,856
$
9,664
$
8,173
Collateralized mortgage obligations
106,663
82,992
103,645
80,606
Mortgage-backed securities - residential
61,566
49,778
63,795
52,187
Mortgage-backed securities - commercial
57,936
50,926
49,212
42,764
Municipal securities
24,965
19,410
25,005
19,338
Bank subordinated debt securities
24,230
22,482
28,106
26,261
$
287,780
$
236,444
$
279,427
$
229,329
Held-to-maturity:
U.S. Government Agency
$
43,106
$
37,586
$
43,626
$
38,306
Collateralized mortgage obligations
59,933
51,789
62,735
54,752
Mortgage-backed securities - residential
41,896
37,523
43,784
39,599
Mortgage-backed securities - commercial
15,370
13,989
15,439
14,182
Corporate bonds
9,310
8,686
9,398
8,671
$
169,615
$
149,573
$
174,982
$
155,510
Allowance for credit losses - securities held-to-maturity
(9)
(8)
 
Securities held-to maturity, net of allowance for credit losses
$
169,606
$
174,974
The following
 
table shows
 
the weighted
 
average yields,
 
categorized by
 
contractual maturity,
 
for investment
 
securities
as of June 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%
$
2,371
3.15%
$
10,049
6.82%
$
12,420
6.12%
Collateralized mortgage obligations
-
0.00%
-
0.00%
-
0.00%
106,663
1.64%
106,663
1.64%
MBS - residential
-
0.00%
-
0.00%
-
0.00%
61,566
1.82%
61,566
1.82%
MBS - commercial
-
0.00%
-
0.00%
4,102
4.70%
53,834
3.03%
57,936
3.15%
Municipal securities
 
-
0.00%
-
0.00%
12,134
1.71%
12,831
1.78%
24,965
1.74%
Bank subordinated debt securities
-
0.00%
1,000
8.00%
23,230
5.25%
-
0.00%
24,230
5.36%
Corporate bonds
-
0.00%
-
0.00%
-
0.00%
-
0.00%
-
0.00%
$
-
$
1,000
$
41,837
$
244,943
$
287,780
2.50%
Held-to-maturity:
U.S. Government Agency
$
-
0.00%
$
7,939
1.02%
$
20,154
1.46%
$
15,013
1.85%
$
43,106
1.51%
Collateralized mortgage obligations
-
0.00%
-
0.00%
-
0.00%
59,933
1.66%
59,933
1.66%
MBS - residential
-
0.00%
4,381
1.86%
5,899
1.75%
31,616
2.20%
41,896
2.10%
MBS - commercial
-
0.00%
3,065
1.62%
-
0.00%
12,305
2.60%
15,370
2.40%
Corporate bonds
-
0.00%
9,310
2.80%
-
0.00%
-
0.00%
9,310
2.80%
$
-
$
24,695
$
26,053
$
118,867
$
169,615
1.86%
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.
 
Q2 2024 Form 10-Q
The following table shows the loan portfolio composition
 
as of the dates indicated (in thousands):
June 30, 2024
December 31, 2023
Total
Percent of
Total
Total
Percent of
Total
Residential Real Estate
$
256,807
13.8
%
$
204,419
11.5
%
Commercial Real Estate
1,053,030
56.4
%
1,047,593
58.8
%
Commercial and Industrial
248,525
13.3
%
219,757
12.4
%
Foreign Banks
112,510
6.0
%
114,945
6.5
%
Consumer and Other
194,644
10.5
%
191,930
10.8
%
Total
 
gross loans
1,865,516
100.0
%
1,778,644
100.0
%
Plus: Deferred fees/costs
3,733
 
2,183
Total
 
loans net of deferred fees/costs
1,869,249
1,780,827
Less: Allowance for credit losses
22,230
21,084
Total
 
net loans
$
1,847,019
$
1,759,743
Total
 
loans,
 
net of
 
deferred
 
fees/costs,
 
increased by
 
$88.4 million,
 
or 10.0%
 
annualized
 
to
 
$1.87
 
billion,
 
at
 
June 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
 
56.4%
 
of the
 
total gross
 
loan portfolio
 
as of
 
June 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 for the loan portfolio at June 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
$
5,882
$
47,825
$
69,779
$
133,321
$
256,807
Commercial Real Estate
106,558
215,026
725,714
5,732
1,053,030
Commercial and Industrial
10,690
67,196
125,700
44,939
248,525
Foreign Banks
112,510
-
-
-
112,510
Consumer and Other
1,809
3,273
11,398
178,164
194,644
Total
 
gross loans
$
237,449
$
333,320
$
932,591
$
362,156
$
1,865,516
Interest rate sensitivity:
Fixed interest rates
$
198,101
$
179,866
$
185,436
$
265,058
$
828,461
Floating or adjustable rates
39,348
153,454
747,155
97,098
1,037,055
Total
 
gross loans
$
237,449
$
333,320
$
932,591
$
362,156
$
1,865,516
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 June 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
 
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.
 
Q2 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):
 
June 30, 2024
Pass
Special Mention
Substandard
Doubtful
Total
Residential Real Estate
$
256,220
$
-
$
587
$
-
$
256,807
Commercial Real Estate
1,046,877
-
6,153
-
1,053,030
Commercial and Industrial
246,774
-
1,751
-
248,525
Foreign Banks
112,510
-
-
-
112,510
Consumer and Other
194,644
-
-
-
194,644
$
1,857,025
$
-
$
8,491
$
-
$
1,865,516
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
Foreign 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.
 
Q2 2024 Form 10-Q
Non-Performing Assets
The following table presents non-performing assets as
 
of the dates shown (in thousands,
 
except ratios):
June 30, 2024
December 31, 2023
Non-accrual loans
$
758
$
468
Loans past due over 90 days and still accruing
-
-
Total
 
non-performing loans
$
758
$
468
Other real estate owned
-
-
Total
 
non-performing assets
$
758
$
468
Asset quality ratios:
Allowance for credit losses to total loans
1.19%
1.18%
Allowance for credit losses to non-performing loans
2,933%
4,505%
Non-performing loans to total loans
0.04%
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.
 
Q2 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
Foreign
 
Banks
Consumer
and Other
Total
Three Months Ended June 30, 2024
 
 
 
 
 
 
Beginning balance
$
2,930
$
10,302
$
4,272
$
794
$
3,156
$
21,454
Provision for credit losses
(1)
257
(30)
474
98
(25)
774
Recoveries
6
-
1
-
-
7
Charge-offs
-
-
-
-
(5)
(5)
Ending Balance
$
3,193
$
10,272
$
4,747
$
892
$
3,126
$
22,230
Average loans
$
231,807
$
1,064,636
$
232,019
$
102,597
$
197,428
$
1,828,487
Net charge-offs to average loans
(0.01)%
-
(0.00)%
-
0.01%
0.00%
Six Months Ended June 30, 2024
Beginning balance
$
2,695
$
10,366
$
3,974
$
911
$
3,138
$
21,084
Provision for credit losses
(2)
492
(94)
762
(19)
(4)
1,137
Recoveries
6
-
11
-
2
19
Charge-offs
-
-
-
-
(10)
(10)
Ending Balance
$
3,193
$
10,272
$
4,747
$
892
$
3,126
$
22,230
Average loans
$
228,830
$
1,050,965
$
229,040
$
101,280
$
194,893
$
1,805,008
Net charge-offs to average loans
(0.01)%
-
(0.01)%
-
0.01%
0.00%
(1) Provision for credit losses excludes a $15 thousand expense due to unfunded commitments included in other liabilities and a $3
thousand release related to investment securities held to maturity.
(2) Provision for credit losses excludes $58 thousand expense due to unfunded commitments included in other liabilities and $1
thousand expense due to investment securities held to maturity.
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Foreign
 
Banks
Consumer
and Other
Total
Three Months Ended June 30, 2023
 
 
 
 
 
 
Beginning balance
$
2,819
$
10,453
$
2,367
$
772
$
2,476
$
18,887
Provision for credit losses
(1)
(148)
(270)
125
(95)
345
(43)
Recoveries
2
-
8
-
1
11
Charge-offs
-
-
-
-
(40)
(40)
Ending Balance
$
2,673
$
10,183
$
2,500
$
677
$
2,782
$
18,815
Average loans
$
180,945
$
983,926
$
155,241
$
96,399
$
152,755
$
1,569,266
Net charge-offs to average loans
0.00%
-
(0.02)%
-
0.10%
0.01%
Six Months Ended June 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)
73
(1,065)
443
(66)
857
242
Recoveries
10
-
52
-
3
65
Charge-offs
-
-
-
-
(45)
(45)
Ending Balance
$
2,673
$
10,183
$
2,500
$
677
$
2,782
$
18,815
Average loans
$
188,630
$
974,149
$
153,883
$
92,238
$
146,490
$
1,555,390
Net charge-offs to average loans
(0.01)%
-
(0.07)%
-
0.06%
0.00%
(1) Provision for credit losses excludes a $62 thousand expense due to unfunded commitments included in other liabilities and a $19
thousand expense related to investment securities held to maturity.
(2) Impact of CECL adoption on January 1, 2023.
(3) Provision for credit losses excludes $22 thousand release due to unfunded commitments included in other liabilities and $19
thousand expense due to investment securities held to maturity.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
45
 
USCB Financial Holdings, Inc.
 
Q2 2024 Form 10-Q
 
Bank-Owned Life Insurance
As of June 30,
 
2024, the combined
 
cash surrender value
 
of all bank-owned
 
life insurance (“BOLI”)
 
policies was $52.6
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 June 30,
2024
2023
Average Balance
Average Rate
Paid
Average Balance
Average Rate
Paid
Non-interest-bearing checking
$
610,370
0.00%
$
601,778
0.00%
Interest-bearing checking
56,369
2.79%
53,561
1.50%
Money market and savings deposits
1,101,272
3.68%
940,095
2.97%
Time deposits
315,872
4.10%
277,001
3.11%
Total
$
2,083,883
2.64%
$
1,872,435
1.99%
The Company
 
has a
 
granular deposit
 
portfolio with
 
outstanding balances
 
comprised of
 
57% in
 
commercial
 
deposits,
32%
 
personal
 
deposits,
 
7%
 
public
 
funds
 
(which
 
are
 
partially
 
collateralized)
 
and
 
4%
 
brokered
 
deposits.
 
The
 
brokered
deposits balance at June 30, 2024 was $90.0 million
 
and $50.0 million at June 30, 2023.
 
The Company has approximately
 
20 thousand deposit accounts
 
with the majority in
 
personal accounts, approximately
13 thousand or
 
62.4%. The
 
estimated average
 
account size of
 
our deposit portfolio
 
was approximately
 
$101 thousand
 
as
of June 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
 
54% at June 30, 2024
and 53% at
 
June 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
$121.8 million at June 30, 2024 and $107.3 million at December
 
31, 2023.
The following table shows scheduled maturities of uninsured
 
time deposits as of June 30, 2024 (in thousands):
June 30, 2024
Three months or less
$
19,097
Over three through six months
27,505
Over six though twelve months
41,110
Over twelve months
890
$
88,602
 
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 June 30, 2024 escrow balances totaled $14.8 million
 
compared to $2.3 million at December 31, 2023
 
.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
46
 
USCB Financial Holdings, Inc.
 
Q2 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 June 30, 2024, we
 
had $82.0 million of fixed-rate
 
advances outstanding from the
 
FHLB with a weighted average
rate of 3.19%. 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
 
June 30, 2024 (in thousands):
Interest Rate
Type of Rate
Maturity Date
Amount
1.04%
Fixed
July 30, 2024
$
5,000
2.05%
Fixed
March 27, 2025
10,000
1.07%
Fixed
July 18, 2025
6,000
3.76%
Fixed
January 24, 2028
11,000
3.77%
Fixed
April 25, 2028
50,000
$
82,000
As of June 30, 2024,
 
we had a $80.0
 
million fixed-rate loan outstanding from
 
the FRB issued pursuant
 
to the Bank Term
Funding Program with an interest rate of 4.81% and a maturity
 
date of January 10, 2025.
 
We
 
have
 
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
 
June 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
 
):
June 30, 2024
December 31, 2023
Commitments to grant loans and unfunded lines of credit
$
90,426
$
85,117
Standby and commercial letters of credit
3,566
3,987
Total
$
93,992
$
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.
 
Q2 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 implemented
sound risk management practices to identify,
 
quantify,
 
monitor, and limit IRR exposures.
When assessing
 
the scope
 
of IRR
 
exposure
 
and
 
impact on
 
the consolidated
 
balance sheet,
 
cash
 
flows and
 
income
statement,
 
management
 
considers
 
both
 
earnings
 
and
 
economic
 
impacts.
 
Asset
 
price
 
variations,
 
deposit
 
volatility
 
and
reduced earnings or outright losses could adversely affect
 
the Company’s liquidity,
 
performance, and capital adequacy.
Income simulations
 
are used
 
to assess
 
the impact
 
of changing
 
rates on
 
earnings under
 
different rates
 
scenarios and
time horizons.
 
These simulations
 
utilize both
 
instantaneous and
 
parallel changes
 
in the
 
level of
 
interest rates,
 
as well
 
as
non-parallel changes such as
 
changing slopes (flat and steepening)
 
and twists of the yield curve.
 
Static simulation models
are based on current exposures and assume a constant balance sheet with no new growth. Dynamic simulation analysis is
also utilized to have a more comprehensive assessment on IRR. This
 
simulation relies on detailed assumptions outlined in
our
 
budget
 
and
 
strategic
 
plan,
 
and
 
in
 
assumptions
 
regarding
 
changes
 
in
 
existing
 
lines
 
of
 
business,
 
new
 
business,
management strategies and client expected behavior.
To
 
have
 
a
 
more
 
complete
 
picture
 
of
 
IRR,
 
the
 
Company
 
also
 
evaluates
 
the
 
economic
 
value
 
of
 
equity
 
(“EVE”).
 
This
assessment
 
allows
 
us
 
to
 
measure
 
the
 
degree
 
to
 
which
 
the
 
economic
 
values
 
will
 
change
 
under
 
different
 
interest
 
rate
scenarios (parallel and non-parallel). The economic value approach focuses on a longer-term time horizon and captures all
future cash flows expected
 
from existing assets and
 
liabilities. The economic value
 
model utilizes a static
 
approach in that
the analysis
 
does not
 
incorporate new
 
business; rather,
 
the analysis
 
shows a
 
snapshot in
 
time of
 
the risk
 
inherent in
 
the
balance sheet.
Market and Interest Rate Risk Management
According to
 
our ALCO
 
model, as
 
of June
 
30, 2024,
 
we had
 
an 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,
 
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 June 30, 2024,
 
our balance sheet is asset sensitive for both year
 
one and year two under
interest static rate scenarios
 
(an increase or decrease of
 
400 basis points). This
 
means than if rates increase
 
,
 
the NIM will
increase and if rates decrease,
 
the NIM will decrease. Additionally, utilizing an EVE approach, we analyze
 
the risk to capital
from
 
the
 
effects
 
of
 
various
 
interest
 
rate
 
scenarios
 
through
 
a
 
long-term
 
discounted
 
cash
 
flow
 
model.
 
This
 
measures
 
the
difference
 
between
 
the
 
economic
 
value
 
of
 
our
 
assets
 
and
 
the
 
economic
 
value
 
of
 
our
 
liabilities,
 
which
 
is
 
a
 
proxy
 
for
 
our
liquidation value.
 
According to
 
our balance
 
sheet composition,
 
and as
 
expected, our
 
model stipulates
 
that an
 
increase in
interest rates will have a
 
negative impact on the EVE and
 
lower rates, a positive impact.
 
Results and analysis are presented
quarterly to the ALCO, and strategies are reviewed and refined.
 
 
48
 
USCB Financial Holdings, Inc.
 
Q2 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),
 
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.
 
Q2 2024 Form 10-Q
Capital Adequacy
As
 
of
 
June 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 June
 
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
June 30, 2024
Total
 
risk-based capital
$
247,580
13.01
%
$
152,201
8.00
%
$
190,251
10.00
%
Tier 1 risk-based capital
$
224,911
11.82
%
$
114,151
6.00
%
$
152,201
8.00
%
Common equity tier 1 capital
$
224,911
11.82
%
$
85,613
4.50
%
$
123,663
6.50
%
Leverage ratio
$
224,911
8.94
%
$
100,597
4.00
%
$
125,746
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.
 
Q2 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 stockholders for the periods presented (in thousands,
 
except per share data):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
51
 
USCB Financial Holdings, Inc.
 
Q2 2024 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
NON-GAAP FINANCIAL MEASURES (UNAUDITED)
(Dollars in thousands)
As of or For the Three Months Ended
6/30/2024
3/31/2024
12/31/2023
9/30/2023
6/30/2023
Pre-tax pre-provision ("PTPP") income:
(1)
Net income
$
6,209
$
4,612
$
2,721
$
3,819
$
4,196
Plus: Provision for income taxes
1,967
1,426
787
1,250
1,333
Plus: Provision for credit losses
786
410
1,475
653
38
PTPP income
$
8,962
$
6,448
$
4,983
$
5,722
$
5,567
PTPP return on average assets:
(1)
 
 
PTPP income
$
8,962
$
6,448
$
4,983
$
5,722
$
5,567
Average assets
$
2,479,222
$
2,436,103
$
2,268,811
$
2,250,258
$
2,183,542
PTPP return on average assets
(2)
1.45%
1.06%
0.87%
1.01%
1.02%
 
 
Operating net income:
(1)
Net income
$
6,209
$
4,612
$
2,721
$
3,819
$
4,196
Less: Net gains (losses) on sale of securities
14
-
(883)
(955)
-
Less: Tax effect on sale of securities
(4)
-
224
242
-
Operating net income
$
6,199
$
4,612
$
3,380
$
4,532
$
4,196
 
 
Operating PTPP income:
(1)
PTPP income
$
8,962
$
6,448
$
4,983
$
5,722
$
5,567
Less: Net gains (losses) on sale of securities
14
-
(883)
(955)
-
Operating PTPP income
$
8,948
$
6,448
$
5,866
$
6,677
$
5,567
Operating PTPP return on average assets:
(1)
 
 
Operating PTPP income
$
8,948
$
6,448
$
5,866
$
6,677
$
5,567
Average assets
$
2,479,222
$
2,436,103
$
2,268,811
$
2,250,258
$
2,183,542
Operating PTPP return on average assets
(2)
1.45%
1.06%
1.03%
1.18%
1.02%
 
 
Operating return on average assets:
(1)
Operating net income
$
6,199
$
4,612
$
3,380
$
4,532
$
4,196
Average assets
$
2,479,222
$
2,436,103
$
2,268,811
$
2,250,258
$
2,183,542
Operating return on average assets
(2)
1.01%
0.76%
0.59%
0.80%
0.77%
Operating return on average equity:
(1)
Operating net income
$
6,199
$
4,612
$
3,380
$
4,532
$
4,196
Average equity
$
197,755
$
193,092
$
183,629
$
184,901
$
184,238
Operating return on average equity
(2)
12.63%
9.61%
7.30%
9.72%
9.13%
Operating Revenue:
(1)
 
Net interest income
$
17,311
$
15,158
$
14,376
$
14,022
$
14,173
 
Plus: Non-interest income
3,211
2,464
1,326
2,161
1,846
 
Less: Net gains (losses) on sale of
 
securities
14
-
(883)
(955)
-
 
Operating revenue
$
20,508
$
17,622
$
16,585
$
17,138
$
16,019
 
Operating Efficiency Ratio:
(1)
 
Total non-interest expense
$
11,560
$
11,174
$
10,719
$
10,461
$
10,452
 
Operating revenue
$
20,508
$
17,622
$
16,585
$
17,138
$
16,019
 
Operating efficiency ratio
56.37%
63.41%
64.63%
61.04%
65.25%
(1)
 
The Company believes these non-GAAP measurements
 
are key indicators of the ongoing earnings
 
power of the Company.
(2)
 
Annualized.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
52
 
USCB Financial Holdings, Inc.
 
Q2 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
6/30/2024
3/31/2024
12/31/2023
9/30/2023
6/30/2023
Tangible book value per common share (at period-end):
(1)
Total stockholders' equity
$
201,020
$
195,011
$
191,968
$
182,884
$
183,685
Less: Intangible assets
-
-
-
-
-
Tangible stockholders' equity
$
201,020
$
195,011
$
191,968
$
182,884
$
183,685
Total shares issued and outstanding (at period-end):
Total common shares issued and outstanding
19,630,632
19,650,463
19,575,435
19,542,290
19,544,777
Tangible book value per common share
(2)
$
10.24
$
9.92
$
9.81
$
9.36
$
9.40
Operating diluted net income per common share:
(1)
Operating net income
$
6,199
$
4,612
$
3,380
$
4,532
$
4,196
Total weighted average diluted shares of common stock
19,717,167
19,698,258
19,573,350
19,611,897
19,639,682
Operating diluted net income per common share:
$
0.31
$
0.23
$
0.17
$
0.23
$
0.21
Tangible Common Equity/Tangible Assets
(1)
 
Tangible stockholders' equity
$
201,020
$
195,011
$
191,968
$
182,884
$
183,685
 
Tangible total assets
(3)
$
2,458,270
$
2,489,142
 
$
2,339,093
$
2,244,602
$
2,225,914
Tangible Common Equity/Tangible
 
Assets
8.18%
7.83%
8.21%
8.15%
8.25%
(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.
 
 
53
 
USCB Financial Holdings, Inc.
 
Q2 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
 
Exchange Act) as of
 
June 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.
 
 
54
 
USCB Financial Holdings, Inc.
 
Q2 2024 Form 10-Q
PART II
Item 1.
 
Legal Proceedings
We are not currently subject to any material legal proceedings. We are from time to time subject to claims and litigation
arising
 
in
 
the
 
ordinary
 
course
 
of
 
business.
 
These
 
claims
 
and
 
litigation
 
may
 
include,
 
among
 
other
 
things,
 
allegations
 
of
violation of banking and other applicable regulations, competition
 
law, labor laws and consumer
 
protection laws, as well as
claims or
 
litigation
 
relating
 
to intellectual
 
property,
 
securities, breach
 
of contract
 
and tort.
 
We
 
intend to
 
defend ourselves
vigorously against any pending or future claims and litigation.
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
 
Thirds 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 claim 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 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
55
 
USCB Financial Holdings, Inc.
 
Q2 2024 Form 10-Q
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.
(b) Not applicable.
(c) The Company’s repurchases of equity securities
 
for the quarter ended June 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
 
April 1 - 30, 2024
-
$
-
-
572,980
May 1 -31, 2024
 
-
$
-
-
 
 
572,980
June 1 - 30, 2024
25,000
$
12.00
25,000
 
547,980
(1) As of March 31, 2024 there were 72,980
 
number of shares available for repurchase. As
 
of June 30, 2024 there are two outstanding
 
share repurchase
programs:
- On January 24, 2022, the Company announced
 
its initial stock repurchase program to repurchase
 
up to 750,000 shares of Class A common
 
stock.
- On April 22, 2024, the Company announced the
 
adoption of a second repurchase program to repurchase
 
up to 500,000 share of Class A common
stock. To 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 June
 
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).
 
 
 
 
56
 
USCB Financial Holdings, Inc.
 
Q2 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 June 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.
 
 
 
 
 
 
 
57
 
USCB Financial Holdings, Inc.
 
Q2 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
 
August 12, 2024
Luis de la Aguilera
(Principal Executive Officer)
/s/ Robert Anderson
Executive Vice President and Chief Financial
Officer
 
August 12, 2024
Robert Anderson
(Principal Financial Officer and Principal
Accounting Officer)