UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-K/A
(Amendment No. 1)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
December 31, 2022
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 NW 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
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
☐
No
☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
☐
No
☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes
☒
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files).
Yes
☒
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or
an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
☐
Non-accelerated filer
☒
☒
☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that
prepared or issued its audit report.
☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in
the filing reflect the correction of an error to previously issued financial statements.
☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes
☐
No
☒
The aggregate market value of the voting stock held by non-affiliates of the registrant based on the closing price of $11.54 per share on June 30,
2022, the last business day of the registrant’s second quarter, was approximately $
125.4
such date less shares held by affiliates). Although directors and executive officers and their affiliates of the Registrant were assumed to be
“affiliates” of the Registrant for purposes of the calculation, the classification is not to be interpreted as an admission of such status.
As of March 15, 2023, the registrant had had
19,622,380
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant’s Proxy Statement for the 2023 Annual Meeting of Shareholders (the “2023 Proxy Statement”) are incorporated by
reference into Part III of this report.
EXPLANATORY NOTE
This Amendment No. 1 (“Amendment No. 1”) to the Annual Report on Form 10-K of USCB Financial Holdings, Inc. (the “Company”, “we,” “our” or “us”) for
the fiscal year ended December 31, 2022, as filed with the Securities and Exchange Commission (“SEC”) on March 24, 2023 (the “2022 Annual Report”
or “Original Report”), is being filed (i) to correct an HTML conversion error in the stock performance graph included in Item 5 of Part II and (ii) to delete the
logo of the independent registered public accounting firm that was inadvertently included on more pages than the audit report in the consolidated financial
statements included in Item 8 of Part II (none of the financial data contained in the consolidated financial statements and the notes thereto set forth in Item
8 was revised or modified in any way).
In accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended, Item 5 and Item 8 of Part II of the 2022 Annual Report are
hereby amended and restated in their entirety. In addition, pursuant to Rule 12b-15, the Company is including Item 15 of Part IV with this Amendment No.
1, solely to file the certifications required under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002.
This Amendment No. 1 does not affect any other portion of the 2022 Annual Report. Additionally, except as specifically referenced herein, this Amendment
No. 1 does not reflect any event after March 24, 2023, the filing date of the 2022 Annual Report or modify disclosures affected by subsequent events.
Terms used herein but not otherwise defined in Amendment No. 1 have such meaning ascribed to them in the Original Report.
FORM 10-K/A
DECEMBER 31, 2022
TABLE OF CONTENTS
4 USCB Financial Holdings, Inc. 2022 10-K/A
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market Information
In July 2021, the Bank’s Class A common stock began trading on the Nasdaq Stock Market under ticker symbol “USCB”.
The listing of our Class A common stock on the Nasdaq Stock Market has resulted in a more active trading market for our
Class A common stock. However, we cannot assure that a liquid trading market for our Class A common stock will be
sustained.
Effective December 30, 2021, the bank holding company, or the Company, acquired all issued and outstanding shares
of Class A common stock of the Bank. Each of the outstanding shares of the Bank’s common stock formerly held by its
shareholders was converted into and exchanged for one newly issued share of the Company’s common stock. The ticker
symbol “USCB” remained the same.
Prior to our listing on the Nasdaq Stock Market there was not an established public trading market for the Class A
common shares. The following table shows the quarterly high and low closing prices of our Class A common stock traded
on the Nasdaq Stock Market since going public on July 23, 2021:
Stock Price
High
Low
Quarter Ended:
September 30, 2021
$
13.91
$
10.57
December 31, 2021
$
15.89
$
12.30
March 31, 2022
$
15.49
$
13.30
June 30, 2022
$
14.84
$
11.21
September 30, 2022
$
14.74
$
11.08
December 31, 2022
$
14.30
$
12.16
As of December 31, 2022, our Class B common stock is not listed or traded on any stock exchange and no shares were
issued and outstanding at such date.
Holders
As of January 31, 2023, the Company’s Class A common shares were held by approximately 300 shareholders of
record, not including the number of persons or entities whose stock is held in nominee or “street” name through various
brokerage firms and banks.
Dividends
As a bank holding company, the Company’s ability to declare and pay dividends depends on various federal regulatory
considerations, including the guidelines of the Federal Reserve regarding capital adequacy and dividends.
Because we are a bank holding company and currently do not engage directly in business activities of a material nature,
our ability to pay dividends to our shareholders depends, in large part, upon our receipt of dividends from the Bank, which
is also subject to numerous limitations on the payment of dividends under federal and state banking laws, regulations and
policies.
The principal source of revenue with which to pay dividends on common shares are dividends the Bank may declare
and pay out of funds legally available for payment of dividends. As a Florida corporation, we are only permitted to pay
dividends to shareholders if, after giving effect to the dividend, (i) the Company is able to pay its debts as they become due
in the ordinary course of business and (ii) the Company’s assets exceeds the sum of Company’s (a) liabilities plus (b) the
amount that would be needed for the Company to satisfy the preferential rights upon dissolution of shareholders whose
preferential rights are superior to those receiving the dividend, if any.
Securities Authorized for Issuance Under Equity Compensation Plans
See Note 9 ”Equity Based and Other Compensation Plans” to the Consolidated Financial Statements included in this
Annual Report Form on 10-K for additional information required.
5 USCB Financial Holdings, Inc. 2022 10-K/A
Stock Price Performance
The graph below compares the cumulative total return to stockholders of our Class A common stock between July 23,
2021 (the date the Bank’s Class A common stock commenced trading on the Nasdaq Stock Market) and December 31,
2022, with the cumulative total return of (a) the Nasdaq Bank Index (b) the NASDAQ ABA Community Bank Index, and (c)
the Nasdaq Composite Index over the same period. This graph assumes the investment of $100 in our Class A common
stock at the closing sale price of $10.82 per share on July 23, 2021, and assumes the reinvestment of dividends, if any.
The comparisons shown in the graph below are based upon historical data. We caution that the stock price performance
shown in the graph below is not indicative of, nor is it intended to forecast, the potential future performance of our common
stock.
07/23/2021
12/31/2021
12/31/2022
USCB Financial Holdings, Inc. (USCB)
$
100
$
140
$
122
NASDAQ Bank (BANK)
$
100
$
115
$
94
NASDAQ ABA Community Bank (QABA)
$
100
$
114
$
101
NASDAQ Composite (IXIC)
$
100
$
107
$
71
Recent Sales of Unregistered Securities
None.
Purchases of Equity Securities by Issuer and Other Affiliates
On January 24, 2022, the Board approved a share repurchase program of up to 750,000 shares of Class A 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 otherwise in compliance with
Rule 10b-18 under the Exchange Act. As of December 31, 2022, neither the Company nor any of its affiliates had
repurchased any Class A common shares of the Company.
6 USCB Financial Holdings, Inc. 2022 10-K/A
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Crowe LLP
, PCAOB ID:
173
)
7 USCB Financial Holdings, Inc. 2022 10-K/A
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Stockholders and the Board of Directors of
USCB Financial Holdings, Inc.
Doral, Florida
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of USCB Financial Holdings, Inc. (the
"Company") as of December 31, 2022 and 2021, the related consolidated statements of operations,
comprehensive income (loss), changes in stockholders’ equity, and cash flows for the years then ended,
and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial
statements present fairly, in all material respects, the financial position of the Company as of December 31,
2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity
with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to
express an opinion on the Company's financial statements based on our audits. We are a public accounting
firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement, whether due to error or fra ud.
Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
/s/ Crowe LLP
Crowe LLP
We have served as the Company's auditor since 2017.
Fort Lauderdale, Florida
March 24, 2023
8 USCB Financial Holdings, Inc. 2022 10-K/A
USCB FINANCIAL HOLDINGS, INC.
Consolidated Balance Sheets
(Dollars in thousands, except share and per share data)
December 31,
2022
2021
ASSETS:
Cash and due from banks
$
6,605
$
6,477
Interest-bearing deposits in banks
47,563
39,751
Total cash and cash equivalents
54,168
46,228
Investment securities held to maturity (fair value $
169,088
120,157
, respectively)
188,699
122,658
Investment securities available for sale, at fair value
230,140
401,542
Federal Home Loan Bank stock, at cost
2,882
2,100
Loans held for investment, net of allowance of $
17,487
15,057
, respectively
1,489,851
1,175,024
Accrued interest receivable
7,546
5,975
Premises and equipment, net
5,263
5,278
Bank owned life insurance
42,781
41,720
Deferred tax asset, net
42,360
34,929
Lease right-of-use asset
14,395
14,185
Other assets
7,749
4,300
Total assets
$
2,085,834
$
1,853,939
LIABILITIES:
Deposits:
Demand
$
629,776
$
$605,425
Money market and savings accounts
915,853
703,856
Interest-bearing checking accounts
66,675
55,878
Time deposits
216,977
225,220
Total deposits
1,829,281
1,590,379
Federal Home Loan Bank advances
46,000
36,000
Lease liability
14,395
14,185
Accrued interest and other liabilities
13,730
9,478
Total liabilities
1,903,406
1,650,042
Commitments and contingencies (See Note 10 and 18)
(nil)
(nil)
STOCKHOLDERS' EQUITY:
Preferred stock - Class C; $
1.00
1,000
52,748
authorized;
0
-
-
Preferred stock - Class D; $
1.00
5.00
12,309,480
authorized;
0
-
-
Preferred stock - Class E; $
1.00
1,000
3,185,024
authorized;
0
-
-
Common stock - Class A Voting; $
1.00
45,000,000
20,000,753
19,991,753
20,001
19,992
Common stock - Class B Non-voting; $
1.00
8,000,000
0
outstanding as of December 31, 2022 and 2021
-
-
Additional paid-in capital on common stock
311,282
310,666
Accumulated deficit
(104,104)
(124,245)
Accumulated other comprehensive income (loss)
(44,751)
(2,516)
Total stockholders' equity
182,428
203,897
Total liabilities and stockholders' equity
$
2,085,834
$
1,853,939
The accompanying notes are an integral part of these consolidated financial statements.
9 USCB Financial Holdings, Inc. 2022 10-K/A
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Operations
(Dollars in thousands, except per share data)
Years Ended December 31,
2022
2021
Interest income:
$
60,825
$
48,730
9,346
7,886
929
106
71,100
56,722
Interest expense:
86
59
5,173
2,082
1,509
1,531
671
554
7,439
4,226
63,661
52,496
Provision for credit losses
2,495
(160)
61,166
52,656
Non-interest income:
4,010
3,609
1,061
759
(2,529)
214
891
1,626
-
983
161
2,500
1,634
1,007
5,228
10,698
Non-interest expense:
23,943
21,438
5,058
5,257
930
783
1,890
1,454
1,806
1,466
918
975
4,764
4,304
39,309
35,677
27,085
27,677
Income tax expense
6,944
6,600
20,141
21,077
Less: Preferred stock dividend
-
2,077
Less: Exchange and redemption of preferred shares
-
89,585
Net income (loss) available to common stockholders
$
20,141
$
(70,585)
Per share information:
Class A common stock
Net income (loss) per share, basic
$
1.01
$
(6.72)
Net income (loss) per share, diluted
$
1.00
$
(6.72)
(1) See Note 14 "Earnings per Share" for information on the allocation of income available to common stockholders.
The accompanying notes are an integral part of these consolidated financial statements.
10 USCB Financial Holdings, Inc. 2022 10-K/A
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Comprehensive Income (Loss)
(Dollars in thousands)
Years Ended December 31,
2022
2021
Net income
$
20,141
$
21,077
Other comprehensive income (loss):
Unrealized loss on investment securities
(59,260)
(9,561)
Amortization of net unrealized gains on securities transferred from available-for-sale to held-to-maturity
120
108
Reclassification adjustment for (gain) loss included in net income
2,529
(214)
Tax effect
14,376
2,370
Total other comprehensive loss, net of tax
(42,235)
(7,297)
Total comprehensive income (loss)
$
(22,094)
$
13,780
The accompanying notes are an integral part of these consolidated financial statements.
11 USCB Financial Holdings, Inc. 2022 10-K/A
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Changes in Stockholders’ Equity
(Dollars in thousands, except per share data)
Preferred Stock
Common Stock
Additional Paid-
in Capital on
Common Stock
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Shares
Par Value
Shares
Par Value
Total
Stockholders'
Equity
Balance at January 1, 2022
-
$
-
19,991,753
$
19,992
$
310,666
$
(124,245)
$
(2,516)
$
203,897
Net income
-
-
-
-
-
20,141
-
20,141
Other comprehensive loss
-
-
-
-
-
-
(42,235)
(42,235)
Issuance of common stock - exercised options
-
-
9,000
9
93
-
-
102
Stock based compensation
-
-
-
-
523
-
-
523
Balance at December 31, 2022
-
-
20,000,753
20,001
311,282
(104,104)
(44,751)
182,428
Balance at January 1, 2021
12,350,879
$
32,077
10,010,521
$
10,010
$
177,755
$
(53,622)
$
4,781
$
171,001
Net income
-
-
-
-
-
21,077
-
21,077
Other comprehensive loss
-
-
-
-
-
-
(7,297)
(7,297)
Dividends - preferred stock
-
-
-
-
-
(2,077)
-
(2,077)
Issuance of Class A common stock, net of
offering costs of $
6,048
-
-
4,600,000
4,600
35,226
-
-
39,826
Exchange of preferred stock
(11,109,025)
(22,154)
10,278,072
10,279
92,501
(80,626)
-
-
Redemption of preferred stock
(1,241,854)
(9,923)
-
-
-
(8,997)
-
(18,920)
Exchange of Class B to Class A common stock
-
-
(4,896,840)
(4,897)
4,897
-
-
-
Stock based compensation
-
-
-
-
287
-
-
287
Balance at December 31, 2021
-
$
-
19,991,753
$
19,992
$
310,666
$
(124,245)
$
(2,516)
$
203,897
The accompanying notes are an integral part of these consolidated financial statements.
12 USCB Financial Holdings, Inc. 2022 10-K/A
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
Years Ended December 31,
2022
2021
Cash flows from operating activities:
Net income
$
20,141
$
21,077
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses
2,495
(160)
Depreciation and amortization
688
1,033
Amortization of premiums on securities, net
433
596
Accretion of deferred loan fees, net
(1,497)
(3,754)
Stock based compensation
523
287
Loss (Gain) on sale of available for sale securities, net
2,529
(214)
Gain on sale of loans held for sale
(891)
(1,626)
Gain on sale of premises and equipment, net
-
(983)
Increase in cash surrender value of bank owned life insurance
(1,061)
(759)
Decrease in deferred tax asset
6,945
6,600
Net change in operating assets and liabilities:
Accrued interest receivable
(1,571)
(428)
Other assets
(3,449)
(2,270)
Accrued interest and other liabilities
4,252
2,652
Net cash provided by operating activities
29,537
22,051
Cash flows from investing activities:
Purchase of investment securities held to maturity
(14,739)
(57,917)
Proceeds from maturities and pay-downs of investment securities held to maturity
12,237
3,736
Purchase of investment securities available for sale
(53,113)
(258,767)
Proceeds from maturities and pay-downs of investment securities available for sale
40,754
61,047
Proceeds from sales of investment securities available for sale
60,649
48,940
Proceeds from call of investment securities available for sale
-
3,034
Net increase in loans held for investment
(257,580)
(33,515)
Purchase of loans held for investment
(70,175)
(129,531)
Additions to premises and equipment
(673)
(633)
Proceeds from the sale of loans held for sale
12,821
16,980
Proceeds from the sale of property
-
1,652
Proceeds from the redemption of Federal Home Loan Bank stock
3,440
611
Purchase of Federal Home Loan Bank stock
(4,222)
-
Purchase of bank owned life insurance
-
(15,000)
Net cash used in investment activities
(270,601)
(359,363)
(Continued)
The accompanying notes are an integral part of these consolidated financial statements.
13 USCB Financial Holdings, Inc. 2022 10-K/A
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Cash Flows (Continued)
(Dollars in thousands)
Years Ended December 31,
2022
2021
Cash flows from financing activities:
Proceeds from issuance of Class A common stock, net
102
39,826
Cash dividends paid
-
(2,077)
Redemption of Preferred stock Class C
-
(5,275)
Redemption of Preferred stock Class D
-
(6,145)
Redemption of Preferred stock Class E
-
(7,500)
Net increase in deposits
238,902
316,977
Proceeds from Federal Home Loan Bank advances
126,000
-
Repayments on Federal Home Loan Bank advances
(116,000)
-
Net cash provided by financing activities
249,004
335,806
Net increase (decrease) in cash and cash equivalents
7,940
(1,506)
Cash and cash equivalents at beginning of year
46,228
47,734
Cash and cash equivalents at end of year
$
54,168
$
46,228
Supplemental disclosure of cash flow information:
Interest paid
$
7,306
$
4,286
Supplemental schedule of non-cash investing and financing activities:
Transfer of loans held for investment to loans held for sale
$
11,930
$
15,354
Transfer of investment securities from available-for-sale to held-to-maturity
$
63,798
$
68,667
Transfer of premises and equipment to assets held for sale
$
-
$
652
Lease liability arising from obtaining right-of-use assets
$
3,203
$
328
Exchange of Preferred C for Class A common stock
$
-
$
47,473
Exchange of Preferred D for Class A common stock
$
-
$
55,308
Exchange of Class B common stock for Class A common stock
$
-
$
4,897
The accompanying notes are an integral part of these consolidated financial statements.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
14 USCB Financial Holdings, Inc. 2022 10-K/A
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Overview
USCB Financial Holdings, Inc., a Florida corporation incorporated in 2021, is a bank holding company with one wholly
owned subsidiary, U.S. Century Bank (the “Bank”), together referred to as “the Company”. The Bank, established in 2002,
is a Florida state-chartered, non-member financial institution providing financial services through its banking centers located
in South Florida.
In December 2021, USCB Financial Holdings, Inc. acquired all issued and outstanding shares of the Class A common
stock of the Bank. Each of the outstanding shares of the Bank’s common stock, par value $
1.00
its shareholders were converted into and exchanged for one newly issued share of the Company’s common stock, par value
$
1.00
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 tittle LLC began operations in 2021.
Principles of Consolidation
Intercompany transactions and balances are eliminated in consolidation. The Consolidated financial statements have
been prepared in accordance with U.S. Generally Accepted Accounting Principles ("GAAP").
Initial Public Offering and Exchange and Redemption of Shares
On July 27, 2021, the Company completed an initial public offering (the “IPO”) and its Class A voting common shares
began trading on the Nasdaq Stock Market under ticker symbol “USCB”. Following the IPO, the Company completed an
exchange of then outstanding preferred shares for Class A common shares and thereafter redeemed the remaining
outstanding preferred shares.
In December 2021, the Company reached agreements with the Class B common shareholders to receive Class A voting
common stock in exchange for all outstanding Class B non-voting common stock in a
1 for 5
December 31, 2022, there were no issued and outstanding preferred shares or Class B common shares. See Note 13
“Stockholders’ Equity” for further information about the IPO and the exchange and redemption of shares.
Risk and Uncertainties
Current Banking Environment
Industry events transpiring prior to the Company’s filing date, including bank failures, have led to uncertainty and
concerns regarding the liquidity positions of the banking sector. These failures underscore the importance of maintaining
access to diverse sources of funding. The Company’s deposit base includes a combination of consumer, commercial, and
public funds deposits. The Company’s largest depositors include a mixture of government-related organizations and
commercial clients without a high level of industry concentration.
In response to these events, the Treasury Department, Federal Reserve, and FDIC jointly announced the Bank Term
Funding Program (BTFP) on March 12, 2023. This program aims to enhance liquidity by allowing institutions to pledge
certain securities at the par value of the securities, and at a borrowing rate of ten basis points over the one-year overnight
index swap rate. The BTFP is available to eligible U.S. federally insured depository institutions, with advances having a
term of up to one year and no prepayment penalties. As of the date of the release of the Audited Consolidated Financial
Statements, the Company has not accessed the BTFP.
Market conditions and external factors may unpredictably impact the competitive landscape for deposits in the banking
industry. Additionally, the rising interest rate environment has increased competition for liquidity and the premium at which
liquidity is available to meet funding needs. The Company believes its sources of liquidity are sufficient to meet its needs
on the balance sheet date.
An unexpected influx of withdrawals of deposits could adversely impact the Company's ability to rely on organic deposits
to primarily fund its operations, potentially requiring greater reliance on secondary sources of liquidity to meet withdrawal
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
15 USCB Financial Holdings, Inc. 2022 10-K/A
demands or to fund continuing operations. These sources may include proceeds from FHLB advances, sales of investment
securities and loans, federal funds lines of credit from correspondent banks, and out-of-market time deposits.
Such reliance on secondary funding sources could increase the Company's overall cost of funding and thereby reduce
net income. While the Company believes its current sources of liquidity are adequate to fund operations, there is no
guarantee they will suffice to meet future liquidity demands. This may necessitate slowing or discontinuing loan growth,
capital expenditures, or other investments, or liquidating assets.
For further discussion of the Company's liquidity practices, see page 59 and 62 of this Annual Report on Form 10-K.
Use of Estimates
In preparing the consolidated financial statements, management is required to make estimates and assumptions based
on available information that affect the amounts reported in the financial statements and the disclosures provided.
The coronavirus (“COVID-19”) pandemic has negatively affected many of the Company’s clients and could still impair
their ability to fulfill their financial obligations. The Company’s business is dependent upon the willingness and ability of its
associates and customers to conduct banking and other financial transactions. While we believe conditions have improved
as of December 31, 2022, if there is a resurgence in the virus, the Company could experience further adverse effects on its
business, financial condition, results of operations and cash flows. While it is not possible to know the full extent of the
impact the COVID-19 pandemic will have on the Company's future operations, the Company continues to communicate
with its associates and customers to understand their challenges, which allows us to respond to their needs and issues as
they arise.
While there was not a material impact to the Company’s Consolidated Financial Statements as of and for the year ended
December 31, 2022, future increases in the allowance for credit losses (“ACL”) may be required because of the potential
economic downturn that a resurgence in the virus may cause and those ACL increases can be material. It is difficult to
quantify the impact that COVID-19 will have on the estimates and assumptions used to prepare the financial statements.
Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers investments with a maturity of 90 days or less from its original purchase date to be cash
equivalents. For the Consolidated Statements of Cash Flows, cash and cash equivalents include cash on hand, amounts
due from banks, and interest-bearing deposits in banks.
Restricted Cash
The Company may be required to maintain funds at other banks to satisfy a loan participation agreement. The Company
reports restricted cash within cash and cash equivalents.
Interest-Bearing Deposits in Other Financial Institutions
Interest-bearing deposits in other financial institutions consist of Federal Reserve Bank, Federal Home Loan Bank and
other accounts.
Investment Securities
Debt securities are recorded at fair value except for those securities which the Company has the positive intent and
ability to hold to maturity. Management determines the appropriate classification of its securities at the time of purchase and
accounts for them on a trade date basis.
Debt securities that management has the positive intent and ability to hold to maturity are classified as "held-to-maturity"
and recorded at amortized cost. Trading securities are recorded at fair value with changes in fair value included in earnings.
Securities not classified as held-to-maturity or trading are classified as "available-for-sale" and recorded at fair value, with
unrealized gains and losses excluded from earnings and reported in other comprehensive income (loss). Equity investments
must be recorded at fair value with changes in fair value included in earnings.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
16 USCB Financial Holdings, Inc. 2022 10-K/A
Purchase premiums and discounts are amortized or accreted over the estimated life of the related available-for-sale or
held-to-maturity security as an adjustment to yield using the effective interest method. Prepayments of principal are
considered in determining the estimated life of the security. Such amortization and accretion are included in interest income
in the Consolidated Statements of Operations. Dividend and interest income are recognized when earned. Gains and losses
on the sale of securities are recorded on trade date and are determined on a specific identification basis.
Declines in the fair value of available-for-sale debt securities below their cost that are deemed to be other-than-
temporary are reflected in earnings as realized losses. In determining whether other-than-temporary impairment exists,
management considers several factors in their analysis including (i) severity and duration of the impairment, (ii) credit rating
of security including any downgrade, (iii) intent to sell the security, or if it is more likely than not that it will be required to sell
the security before recovery, (iv) whether there have been any payment defaults and (v) underlying guarantor of the
securities.
Federal Home Loan Bank (FHLB) Stock
The Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level
of borrowings and other factors and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted
asset, and periodically evaluated for impairment based on ultimate recovery of par value. As of December 31, 2022 and
2021, FHLB stock amounted to $
2.9
2.1
cash and stock dividends are reported as interest income.
Loans Held for Investment and Allowance for Credit Losses
Loans held for investment (“loans”) are reported at their outstanding principal balance net of charge-offs, deferred loan
fees, unearned income and the ACL. Interest income is generally recognized when income is earned using the interest
method. Loan origination and commitment fees and the costs associated with the origination of loans are deferred and
amortized, using the interest method or the straight-line method, over the life of the related loan.
If the principal or interest on a commercial loan becomes due and unpaid for 90 days or more, the loan is placed on
non-accrual status as of the date it becomes 90 days past due and remains in non -accrual status until it meets the criteria
for restoration to accrual status. Residential loans, on the other hand, are placed on non-accrual status when the principal
or interest becomes due and unpaid for 120 days or more and remains in non-accrual status until it meets the criteria for
restoration to accrual status. Restoring a loan to accrual status is possible when the borrower resumes payment of all
principal and interest payments for a period of six months and the Company has a documented expectation of repayment
of the remaining contractual principal and interest or the loan becomes secured and in the process of collection. All interest
accrued but not collected for loans that are placed on nonaccrual status is reversed against interest income. The interest
on these loans is accounted for on the cash-basis or cost-recovery method, under which cash collections are applied to
unpaid principal, which may change as conditions dictate.
The Company has determined that the entire balance of a loan is contractually delinquent for all classes if the minimum
payment is not received by the specified due date on the borrower's statement. Interest and fees continue to accrue on past
due loans until the date the loan goes into nonaccrual status.
The Company provides for loan losses through a provision for credit losses charged to operations. When management
believes that a loan or a portion of the loan balance is uncollectible, that amount is charged against the ACL. Subsequent
recoveries, if any, are credited to the ACL.
The ACL reflects management's judgment of probable loan losses inherent in the portfolio at the balance sheet date.
Management uses a disciplined process and methodology to establish the ACL each quarter. To determine the total ACL,
the Company estimates the reserves needed for each segment of the portfolio, including loans analyzed individually and
loans analyzed on a pooled basis. The ACL consists of the amount applicable to the following segments:
• Residential real estate
• Commercial real estate
• Commercial and industrial
• Foreign banks
• Other loans (secured and unsecured consumer loans)
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
17 USCB Financial Holdings, Inc. 2022 10-K/A
Residential real estate loans are underwritten following the policies of the Company which includes a review of the
borrower’s credit, capacity and the collateral securing the loan. The borrower’s ability to repay involves an analysis of factors
including: current income, employment status, monthly payment of loan, current debt obligations, monthly debt to income
ratio and credit history. The Company relies on appraisals in determining the value of the property. Risk is mitigated by this
analysis and the diversity of the residential portfolio.
Commercial real estate loans are secured by liens on commercial properties, land, construction and multifamily housing.
Underwriting of commercial loans will analyze the key market and business factors to arrive at a decision on the credit
worthiness of the borrower. The analysis may include the capacity of the borrower, income generated by property for debt
service, other sources of repayment, sensitivity analysis to fluctuations in market conditions including vacancy and rental
rates in geographic location and loan to value. Land and construction analysis will include the time to develop, sell or lease
the property. Appraisals are used to determine the value of the underlying collateral. Risk is mitigated as the properties
securing the commercial real estate loans are diverse in type, location, and loan structure.
Commercial and industrial loans are secured by the business assets of the company and may include equipment,
inventory, and receivables. The loans are underwritten based on the income capacity of the business, the ability to service
the debt based on operating cash flows, the credit worthiness of the borrower, other sources of repayment and collateral.
The Company mitigates the risk in the commercial portfolio through industry diversification.
Foreign Banks loans are short term loans with international correspondent banking institutions primarily domiciled in
Latin America. Most of these loans are for trade capital and have a life of less than one year. The Company’s credit review
includes a credit analysis, peer comparison and current country risk overview. Annual re-evaluation of the risk rating of the
borrower and country and a review of authorized signer within the Company. The risk is mitigated as these loans are short
term, have limited exposure, and are geographically dispersed.
Other loans are secured and unsecured consumer loans including personal loans, overdrafts and deposit account
collateralized loans. Repayment of these loans are primarily from the personal income of the borrowers. Loans are
underwritten based on the credit worthiness of the borrower. The risk on these loans is mitigated by small loan balances.
In determining the balance of the ACL, loans are pooled by product segments with similar risk characteristics and
management evaluates the ACL on each segment and as a whole to maintain the allowance at an adequate level based
on factors which, in management's judgment, deserve current recognition in estimating credit losses. Such factors include
changes in prevailing economic conditions, historical loss experience, delinquency trends, changes in the composition and
size of the loan portfolio and the overall credit worthiness of the borrowers.
The ACL consists of general and specific components. The following is how management determines the balance of
the general component for the ACL account for each segment of the loans as described above.
The loan segments are primarily grouped by collateral type with similar risk characteristics and a historical loss rate is
determined based on a ten year look back period. The Company applies time weights to consider various stages of a credit
cycle.
The ACL calculation is based on the Company’s own net loss experience adjusted for certain qualitative and
environmental factors. To estimate the impact of non-recurrent losses, management has developed a statistical study that
tracks historical non-recurring losses at a loan level. This analysis is used to estimate an adjusted loss rate for each loan
pool. Management believes the effect of these losses results in a loss rate that is more consistent with the behavior of the
loan portfolio in the normal course of business.
Qualitative factors are applied to historical loss rates based on management's experience and assessment. The
following are the factors used to adjust the historical loss rates:
• Loan quality review
• Lending and credit management /staff expertise and practices
• Economic and business conditions
• Lending and credit underwriting policies and procedures
• Problem loan levels and trends
• Collateral concentrations
• Large obligor concentration
• New loan volumes
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
18 USCB Financial Holdings, Inc. 2022 10-K/A
• Combined loan to value (“CLTV”) qualitative adjustment for substandard accrual loan segment
Changes in these factors could result in material adjustments to the ACL. The losses the Company may ultimately incur
could differ materially from the amounts estimated in arriving at the ACL.
In addition to the ACL, the Company also estimates probable losses related to financial instruments with off-balance
sheet risk, such as letters of credit and unfunded loan commitments, and records these estimates in other liabilities on the
Consolidated Balance Sheets with the offset recorded in non-interest expense on the Consolidated Statements of
Operations. Financial instruments with off-balance sheet risk are subject to review on an aggregate basis. Past loss
experience and any other pertinent information is reviewed, resulting in the estimation of the reserve for financial instruments
with off-balance sheet risk.
A loan is considered impaired when, based on current information and events, it is probable that the Company will be
unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan
agreement or when the loan is designated as a Troubled Debt Restructuring (“TDR”). Factors considered by management
in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and
interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not
classified as impaired. Impairment is measured on a loan by loan basis by either the present value of expected future cash
flows discounted at the loan's effective interest rate, the loan's obtainable fair value, or the fair value of the collateral, if the
loan is collateral dependent. If management determines that the value of the impaired loan is less than the recorded
investment in the loan (outstanding principal balance plus accrued interest, net of previous charge-offs, and net of deferred
loan fees or cost), impairment is recognized through an allowance estimate or a charge-off to the ACL.
In situations where, due to a borrower's financial difficulties, management grants a concession for other than an
insignificant period of time to the borrower that would not otherwise be granted, the loan is classified as a TDR.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed by the President
of the United States. The CARES Act has certain provisions which encourage financial institutions to prudently work with
borrowers impacted by COVID -19. Under these provisions, modifications deemed to be COVID -19 related would not be
considered a TDR if the loan was not more than 30 days past due as of December 31, 2019. The deferral would need to be
executed March 1, 2020 and the earlier of 60 days after the date of termination of the COVID-19 national emergency or
December 31, 2020. Additional legislation was passed in December of 2020 that extended the TDR relief to January 1,
2022. Banking regulators issued similar guidance clarifying that a COVID-19 related modification should not be considered
a TDR if the borrower was current on payments at the time the underlying loan modification program was implemented and
considered short-term. See Note 3 “Loans” for additional disclosures of loans that were modified and not considered TDR.
In addition to the allowance for the pooled portfolios, management has developed a separate allowance for loans that
are identified as impaired through a TDR. These loans are excluded from the general component of the ACL, and a separate
reserve is provided under the accounting guidance for loan impairment. Residential loans whose terms have been modified
in a TDR are also individually analyzed for estimated impairment.
The Company's charge-off policy is to review all impaired loans on a quarterly basis in order to monitor the Company's
ability to collect them in full at maturity date and/or in accordance with terms of any restructurings. For loans which are
collateral dependent, or deemed to be uncollectible, any shortfall in the fair value of the collateral relative to the recorded
investment in the loan is charged off.
Concentration of Credit Risks
Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties failed to
perform as contracted and any collateral or security proved to be insufficient to cover the loss. Concentrations of credit risk
(whether on or off-balance sheet) arising from financial instruments exist in relation to certain groups of customers. A group
concentration arises when a number of counterparties have similar economic characteristics that would cause their ability
to meet contractual obligations to be similarly affected by changes in economic or other conditions. The Company does not
have a significant exposure to any individual customer or counterparty.
Most of the Company's business activity is with customers located within its primary market area, which is generally the
State of Florida. The Company's loan portfolio is concentrated largely in real estate and commercial loans in South Florida.
Many of the Company's loan customers are engaged in real estate development. Circumstances, which negatively impact
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
19 USCB Financial Holdings, Inc. 2022 10-K/A
the South Florida real estate industry or the South Florida economy, in general, could adversely impact the Company's loan
portfolio.
At December 31, 2022 and 2021, the Company had a concentration of risk with loans outstanding to the Company’s
top ten lending relationships totaling $
197.9
156.4
concentration represented
13.1
%, of the net loans outstanding. For the period ended December 31, 2022 there was
one
commercial real estate loan note with an outstanding balance of $
20
st
located in New York State.
At December 31, 2022, the Company also had a concentration of risk with loans outstanding totaling $
88.8
foreign banks located in Ecuador, Dominican Republic, Honduras, and El Salvador. At December 31, 2021, the Company
also had a concentration of risk with loans outstanding totaling $
47.9
and El Salvador. These banks maintained deposits with right of offset totaling $
31.4
28.9
December 31, 2022 and 2021, respectively.
At various times during the year, the Company has maintained deposits with other financial institutions. The exposure
to the Company from these transactions is solely dependent upon daily balances and the financial strength of the respective
institution.
Premises and Equipment, net
Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation and amortization.
Depreciation is computed on the straight-line method over the estimated useful life of the asset. Leasehold improvements
are amortized over the remaining term of the applicable leases or their useful lives, whichever is shorter. Estimated useful
lives of these assets were as follows:
Building
40
Furniture, fixtures and equipment
3
25
Computer hardware and software
3
5
Leasehold improvements Shorter of life or term of lease
Maintenance and repairs are charged to expense as incurred while improvements and betterments are capitalized.
When items are retired or are otherwise disposed of, the related costs and accumulated depreciation and amortization are
removed from the accounts and any resulting gains or losses are credited or charged to income.
Other Real Estate Owned
Other real estate owned (“OREO”) consists of real estate property acquired through, or in lieu of, foreclosure that are
held for sale and are initially recorded at the fair value of the property less estimated selling costs at the date of foreclosure,
establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the
assets are carried at the lower of carrying amount or fair value less cost to sell. Subsequent write-downs are recognized as
a valuation allowance with the offset recorded in the Consolidated Statements of Operations. Carrying costs are charged to
other real estate owned expenses in the accompanying Consolidated Statements of Operation. Gains or losses on sale of
OREO are recognized when consideration has been exchanged, all closing conditions have been met and permanent
financing has been arranged.
Bank Owned Life Insurance
Bank owned life insurance (“BOLI”) is carried at the amount that could be realized under the contract at the balance
sheet date, which is typically cash surrender value. Changes in cash surrender value are recorded in non-interest income.
At December 31, 2022, the Company maintained BOLI policies with five insurance carriers with a combined cash surrender
value of $
42.8
beneficiary of these policies.
Employee 401(k) Plan
The Company has an employee 401(k) plan covering substantially all eligible employees. Employee 401(k) plan
expense is the amount of matching contributions.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
20 USCB Financial Holdings, Inc. 2022 10-K/A
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the enactment date.
Management is required to assess whether a valuation allowance should be established on the net deferred tax asset
based on the consideration of all available evidence using a more likely than not standard. In its evaluation, Management
considers taxable loss carry-back availability, expectation of sufficient taxable income, trends in earnings, the future reversal
of temporary differences, and available tax planning strategies.
The Company recognizes positions taken or expected to be taken in a tax return in accordance with existing accounting
guidance on income taxes which prescribes a recognition threshold and measurement process. Interest and penalties on
tax liabilities, if any, would be recorded in interest expense and other operating noninterest expense, respectively.
Impairment of Long-Lived Assets
The Company's long-lived assets, such as premises and equipment, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash
flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the
asset. Assets to be disposed of would be separately presented in the Consolidated Balance Sheets and reported at the
lower of the carrying amount or fair value less costs to sell and are no longer depreciated. The assets and liabilities of a
disposal group classified as held for sale would be presented separately in the appropriate asset and liability sections of the
Consolidated Balance Sheets.
Transfer of Financial Assets
Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control
over transferred assets is deemed to be surrendered when (i) the assets have been isolated from the Company - put
presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership, (ii) the
transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange
the transferred assets, and (iii) the Company does not maintain effective control over the transferred assets through an
agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.
Comprehensive Income (Loss)
Under GAAP, certain changes in assets and liabilities, such as unrealized holding gains and losses on securities
available-for-sale, are excluded from current period earnings and reported as a separate component of the stockholders’
equity section of the Consolidated Balance Sheets, such items, along with net income (loss), are components of
comprehensive income (loss). Additionally, any unrealized gains or losses on transfers of investment securities from
available-for-sale to held-to-maturity are recorded to accumulated other comprehensive income on the date of transfer and
amortized over the remaining life of each security. The amortization of the unrealized gain or loss on transferred securities
is reported as a component of comprehensive income (loss). See Note 2 “Investment Securities” for further discussion.
Advertising Costs
Advertising costs are expensed as incurred.
Earnings per Common Share
Basic earnings per common share is net income available to common stockholders divided by the weighted average
number of common shares outstanding during the period. Diluted earnings per common share included the effect of
additional potential common shares issuable under vested stock options. Basic and diluted earnings per share are updated
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
21 USCB Financial Holdings, Inc. 2022 10-K/A
to reflect the effect of stock splits as occurred. See Note 14 “Earnings Per Share” for additional information on earnings per
common share. See Note 13 “Stockholders’ Equity” for further discussion on stock splits.
Interest Income
Interest income is recognized as earned, based upon the principal amount outstanding, on an accrual basis.
Operating Segments
While the Company monitors the revenue streams of the various products and services, operations are managed and
financial performance is evaluated on a Company wide basis. Operating results of the individual products are not used to
make resource allocations or performance decisions by Company management.
Stock-Based Compensation
Stock based compensation accounting guidance requires that the compensation cost relating to share-based payment
transactions be recognized in the accompanying Consolidated Financial Statements. That cost will be measured based on
the grant date fair value of the equity or liability instruments issued. The stock-based compensation accounting guidance
covers a wide range of share-based compensation arrangements including stock options, restricted share plans,
performance-based awards, share appreciation rights, and employee share purchase plans.
The stock-based compensation accounting guidance requires that compensation cost for all stock awards be calculated
and recognized over the employees' service period, generally defined as the vesting period. For awards with graded-vesting,
compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. A Black-
Scholes model is used to estimate the fair value of stock options.
Loss Contingencies
Loss contingencies, including claims and legal actions arising in the normal course of business, are recorded as
liabilities when the likelihood of loss is probable, and an amount or range of loss can be reasonably estimated. 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. See Note 18 “Loss Contingencies” for further details.
Dividend Restrictions
Banking regulations require maintaining certain capital levels and may limit the dividends paid by the Bank to the
Company or by the Company to the shareholders.
Fair Value Measurements
Fair values of financial instruments are estimated using relevant market information and other assumptions, as more
fully disclosed in Note 12 “Fair Value Measurements”. Fair value estimates involve uncertainties and matters of significant
judgment. Changes in assumptions or in market conditions could significantly affect the estimates.
Derivative Instruments
Derivative financial instruments are carried at fair value and reflect the estimated amount that would have been received
to terminate these contracts at the reporting date based upon pricing or valuation models applied to current market
information.
The Company enters into interest rate swaps to provide commercial loan clients the ability to swap from a variable
interest rate to a fixed rate. The Company enter into a floating-rate loan with a customer with a separately issued swap
agreement allowing the customer to convert floating payments of the loan into a fixed interest rate. To mitigate risk, the
Company will enter into a matching agreement with a third party to offset the exposure on the customer agreement. These
swaps are not considered to be qualified hedging transactions and the unmatched unrealized gain or loss is recorded in
other non-interest income.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
22 USCB Financial Holdings, Inc. 2022 10-K/A
Revenue from Contracts with Customers
Revenue from contracts with customers is recognized in an amount that reflects the consideration the Company expects
to receive for the services the Company provides to its customers. The main revenue earned by the Company from loans
and investment securities are excluded from the accounting standard update “Revenue from Contracts with Customers”.
Deposit and service charge fees, consisting of primarily monthly maintenance fees, wire fees, ATM interchange fees and
other transaction-based fees, are the most significant types of revenue within the accounting standard update. Revenue is
recognized when the service provided by the Company is complete. The aggregate amount of revenue within the scope of
this standard that is received from sources other than deposit service charges and fees is not material.
Cash Flow Statement
The Company reports the net activity rather than gross activity in the Consolidated Statements of Cash Flows. The net
cash flows are reported for loans held for investment, accrued interest receivable, deferred tax asset, other assets, customer
deposits, accrued interest payable, other liabilities, and proceeds from issuance of Class A common shares.
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 – Not Yet Adopted
Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326); Measurement of Credit
Losses on Financial Instruments. This accounting standard update (“ASU” or “Update”) on accounting for current expected
credit losses on financial instruments (“CECL”) will replace the current probable incurred loss impairment methodology
under U.S. GAAP with a methodology that reflects the expected credit losses. The Update is intended to provide financial
statement users with more decision-useful information about expected credit losses. This Update is applicable to the
Company on a modified retrospective basis for interim and annual periods in fiscal years beginning after December 15,
2022. The Company adopted this ASU on January 1, 2023. To date, the Company executed a detailed implementation plan
through the adoption date, implemented a software solution to assist with the CECL estimation process, and has completed
parallel run models, and finished a data gap analysis.
The company expects its allowance for credit losses to increase in 2023 approximately $
1.0
2.0
adoption of ASU 2016-13 compared to its allowance for loan losses at December 31, 2022. Reserve on unfunded
commitments will also increase approximately $
200
600
the Consolidated Balance Sheet. The Company reviewed it’s held-to-maturity debt securities and the allowance was
deemed immaterial. The Company will initially apply the impact of the new guidance through a cumulative-effect adjustment
to retained earnings as of January 1, 2023. Future adjustments to credit loss expectations will be recorded through the
income statement as charges or credits to earnings.
The disclosed estimates are subject to further refinement upon finalization of the Company’s review of the calculations,
assumptions, methodologies and judgments. Internal controls over financial reporting relating to these new processes have
been designed and implemented and are being evaluated. The Company is in the final stages of completing the formal
governance and approval process. The ongoing impact to the Company’s results of operations in future periods will be
influenced by the loan portfolio composition and by macroeconomic conditions and forecasts at each reporting date.
Adoption of the standard on the first quarter of 2023 is expected to result in higher volatility in the quarterly provision for
credit losses when compared to the Company’s historical results under the incurred loss model.
Troubled Debt Restructurings and Vintage Disclosures
In March 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt
Restructurings and Vintage Disclosures. This accounting standard eliminates the accounting guidance for troubled debt
restructurings by creditors in ASC 310-40, and it enhances disclosure requirements for some loan refinancings and
restructurings involving borrowers experiencing financial difficulty. Specifically, rather than applying the troubled debt
restructuring recognition and measurement guidance, creditors will evaluate all loan modifications to determine if they result
in a new loan or a continuation of the existing loan. Losses associated with troubled debt restructurings should be
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
23 USCB Financial Holdings, Inc. 2022 10-K/A
incorporated in a creditor’s estimate of its allowance for credit losses. Additionally, public business entities are required to
disclose current-period gross write-offs by year of origination for loan financing receivables and net investment in leases.
Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of
Reference Rate Reform on Financial Reporting. In January 2021, the FASB clarified the scope of this guidance with ASU
2021-01 which provides optional guidance for a limited period of time to ease the burden in accounting for (or recognizing
the effects of) reference rate reform on financial reporting. This ASU is effective March 12, 2020 through December 31,
2024. The Company is evaluating the impact of this ASU and has not yet determined whether LIBOR transition and this
ASU will have material effects on our business operations and consolidated financial statements.
2. INVESTMENT SECURITIES
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):
December 31, 2022
Available-for-sale:
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
U.S. Government Agency
$
10,177
$
-
$
(1,522)
$
8,655
Collateralized mortgage obligations
118,951
-
(23,410)
95,541
Mortgage-backed securities - Residential
73,838
-
(12,959)
60,879
Mortgage-backed securities - Commercial
32,244
15
(4,305)
27,954
Municipal securities
25,084
-
(6,601)
18,483
Bank subordinated debt securities
15,964
5
(1,050)
14,919
Corporate bonds
4,037
-
(328)
3,709
$
280,295
$
20
$
(50,175)
$
230,140
Held-to-maturity:
U.S. Government Agency
$
44,914
$
25
$
(5,877)
$
39,062
U.S. Treasury
9,841
-
(13)
9,828
Collateralized mortgage obligations
68,727
28
(7,830)
60,925
Mortgage-backed securities - Residential
42,685
372
(4,574)
38,483
Mortgage-backed securities - Commercial
11,442
-
(665)
10,777
Corporate bonds
11,090
-
(1,077)
10,013
$
188,699
$
425
$
(20,036)
$
169,088
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
24 USCB Financial Holdings, Inc. 2022 10-K/A
December 31, 2021
Available-for-sale:
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
U.S. Government Agency
$
10,564
$
6
$
(50)
$
10,520
Collateralized mortgage obligations
160,506
22
(3,699)
156,829
Mortgage-backed securities - Residential
120,643
228
(2,029)
118,842
Mortgage-backed securities - Commercial
49,905
820
(608)
50,117
Municipal securities
25,164
6
(894)
24,276
Bank subordinated debt securities
27,003
1,418
(13)
28,408
Corporate bonds
12,068
482
-
12,550
$
405,853
$
2,982
$
(7,293)
$
401,542
Held-to-maturity:
U.S. Government Agency
$
34,505
$
14
$
(615)
$
33,904
Collateralized mortgage obligations
44,820
-
(1,021)
43,799
Mortgage-backed securities - Residential
26,920
-
(568)
26,352
Mortgage-backed securities - Commercial
3,103
-
(90)
3,013
Corporate bonds
13,310
-
(221)
13,089
$
122,658
$
14
$
(2,515)
$
120,157
For the year ended December 31, 2022, there were
26
sale (“AFS”) to held-to-maturity (“HTM”) with an amortized cost basis and fair value amount of $
74.4
$
63.8
10.6
was included in accumulated other comprehensive income (loss).
Transfers of debt securities into the HTM category from the AFS category are made at fair value at the date of transfer.
The unrealized gain or loss at the date of transfer is retained in accumulated other comprehensive income (“AOCI”) and in
the carrying value of the held-to-maturity securities. Such amounts are amortized over the remaining life of the security. For
the year ended December 31, 2022, total amortization out of AOCI for the net unrealized losses on securities transferred
from AFS to HTM was $
120
108
The following table presents the proceeds, realized gross gains and realized gross losses on sales and calls of AFS
debt securities for the years ended December 31, 2022 and 2021 (in thousands):
Available-for-sale:
2022
2021
Proceeds from sales and call of securities
$
60,649
$
51,974
Gross Gains
$
217
$
545
Gross Losses
(2,746)
(331)
Net realized gains (losses)
$
(2,529)
$
214
The amortized cost and fair value of investment securities, by contractual maturity, are shown below for 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.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
25 USCB Financial Holdings, Inc. 2022 10-K/A
Available-for-sale
Held-to-maturity
December 31, 2022:
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
Due within one year
$
-
$
-
$
1,515
$
1,475
Due after one year through five years
4,037
3,709
9,575
8,539
Due after five years through ten years
16,964
15,722
-
-
Due after ten years
24,084
17,680
-
-
U.S. Government Agency
10,177
8,655
44,914
39,061
U.S. Treasury
-
-
9,841
9,828
Collateralized mortgage obligations
118,951
95,541
68,727
60,925
Mortgage-backed securities - Residential
73,838
60,879
42,685
38,483
Mortgage-backed securities - Commercial
32,244
27,954
11,442
10,777
$
280,295
$
230,140
$
188,699
$
169,088
At December 31, 2022 and 2021, there were no securities to any one issuer, in an amount greater than 10% of total
stockholders’ equity other than the United States Government and Government Agencies. All the collateralized mortgage
obligations and mortgage-backed securities are issued by United States sponsored entities at December 31, 2022 and
2021.
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):
December 31, 2022
Less than 12 months
12 months or more
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
U.S. Government Agency
$
11,407
(1,093)
36,310
(7,616)
$
47,717
$
(8,709)
U.S. Treasury
9,828
(13)
-
-
9,828
$
(13)
Collateralized mortgage obligations
16,500
(963)
139,965
(34,962)
156,465
$
(35,925)
Mortgage-backed securities -
Residential
5,059
(564)
91,742
(19,348)
96,801
$
(19,912)
Mortgage-backed securities -
Commercial
10,052
(1,173)
26,823
(5,300)
36,875
$
(6,473)
Municipal securities
-
-
18,483
(6,601)
18,483
$
(6,601)
Bank subordinated debt securities
11,295
(670)
2,619
(381)
13,914
$
(1,051)
Corporate bonds
13,723
(926)
-
-
13,723
$
(926)
$
77,864
$
(5,402)
$
315,942
$
(74,208)
$
393,806
$
(79,610)
December 31, 2021
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
$
25,951
$
(254)
$
15,477
$
(516)
$
41,428
$
(770)
Collateralized mortgage obligations
155,668
(3,223)
38,459
(1,497)
194,127
$
(4,720)
Mortgage-backed securities -
Residential
88,772
(1,178)
37,373
(1,274)
126,145
$
(2,452)
Mortgage-backed securities -
Commercial
25,289
(318)
7,507
(309)
32,796
$
(627)
Municipal securities
11,292
(395)
11,978
(499)
23,270
$
(894)
Bank subordinated debt securities
4,487
(13)
-
-
4,487
$
(13)
$
311,459
$
(5,381)
$
110,794
$
(4,095)
$
422,253
$
(9,476)
The unrealized losses associated with $
134.7
HTM portfolio represent unrealized losses since the date of purchase, independent of the impact associated with changes
in the cost basis upon transfer between portfolios.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
26 USCB Financial Holdings, Inc. 2022 10-K/A
The Company performs a review of the investments that have an unrealized loss to determine whether there have been
any changes in the economic circumstance of the security issuer to indicate that the unrealized loss is impaired on an other-
than-temporary (“OTTI”) basis. Management considers several factors in their analysis including (i) severity and duration of
the impairment, (ii) credit rating of the security including any downgrade, (iii) intent to sell the security, or if it is more likely
than not that it will be required to sell the security before recovery, (iv) whether there have been any payment defaults and
(v) underlying guarantor of the securities.
At December 31, 2022, the Company had $
53.7
collateralized mortgage obligations of government sponsored entities having a fair value of $
294.6
attributable to a combination of factors, including relative changes in interest rates since the time of purchase. The
contractual cash flows for these securities are guaranteed by U.S. government agencies and U.S. government sponsored
entities. The municipal bonds are of high credit quality and the declines in fair value are not due to credit quality. Based on
the assessment of these mitigating factors, management believes that the unrealized losses on these debt security holdings
are a function of changes in investment spreads and interest rate movements and not changes in credit quality. Management
expects to recover the entire amortized cost basis of these securities.
At December 31, 2022, the Company does not intend to sell debt securities that are in an unrealized loss position and
it is not more than likely than not that the Company will be required to sell these securities before recovery of the amortized
cost basis. Therefore, management does not consider any investment to be other than temporarily impaired at December
31, 2022.
As of December 31, 2022, the Company maintains a master repurchase agreement with a public banking institution for
up to $
20.0
variable interest rate based on prevailing rates at the time funding is requested. At December 31, 2022, the Company did
no
t have any securities pledged under this agreement.
In 2018, the Company became a Qualified Public Depositor (“QPD”) with the State of Florida. As a QPD, the Company
has the authority to legally maintain public deposits from cities, municipalities, and the State of Florida. These public deposits
are secured by securities pledged to the State of Florida at a ratio of
25
% of the average outstanding uninsured deposits.
The Company must also maintain a minimum amount of pledged securities to be in the program.
At December 31, 2022, the Company had
eighteen
49.0
Florida under the public funds program. The Company held a total of $
204.2
At December 31, 2021, the Company had
eleven
20.4
Florida under the public funds program. The Company held a total of $
37.3
3. LOANS
The following table is a summary of the distribution of loans held for investment by type (in thousands):
December 31, 2022
December 31, 2021
Total
Percent of
Total
Total
Percent of
Total
Residential Real Estate
$
185,636
12.3
%
$
201,359
16.9
%
Commercial Real Estate
970,410
64.4
%
704,988
59.2
%
Commercial and Industrial
126,984
8.4
%
146,592
12.3
%
Foreign Banks
93,769
6.2
%
59,491
5.0
%
Consumer and Other
130,429
8.7
%
79,229
6.6
%
Total gross loans
1,507,228
100.0
%
1,191,659
100.0
%
Less: Unearned income
(110)
1,578
Total loans net of unearned income
1,507,338
1,190,081
Less: Allowance for credit losses
17,487
15,057
Total net loans
$
1,489,851
$
1,175,024
At December 31, 2022 and 2021, the Company had $
338.1
185.1
estate and residential mortgage loans pledged as collateral on lines of credit with the FHLB and the Federal Reserve Bank
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
27 USCB Financial Holdings, Inc. 2022 10-K/A
of Atlanta. At December 31, 2022 and 2021 the Company had
no
1.2
process of foreclosure.
The Company was a participant of the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”)
loans. These loans were designed to provide a direct incentive for small businesses to keep their workers on payroll and
had to be used towards payroll cost, mortgage interest, rent, utilities and other costs related to COVID-19. These loans are
forgivable under specific criteria as determined by the SBA. The Company had PPP loans of $
1.3
2022 and $
42.4
had deferred loan fees of $
13
1.5
The Company recognized $
1.6
4.5
December 31, 2022 and 2021, respectively, which is reported under loans, including fees within the Consolidated
Statements of Operations.
The Company segments the portfolio by pools grouping loans that share similar risk characteristics and employing
collateral type and lien position to group loans according to risk. The Company determines historical loss rates for each
loan pool based on its own loss experience. In estimating credit losses, the Company also considers qualitative and
environmental factors that may cause estimated credit losses for the loan portfolio to differ from historical losses.
Changes in the allowance for credit losses for the years ended December 31, 2022 and 2021 are as follows (in
thousands):
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Foreign
Banks
Consumer
and Other
Total
December 31, 2022:
Beginning balance
$
2,498
$
8,758
$
2,775
$
457
$
569
$
15,057
Provision for credit losses
(1,179)
1,385
1,474
263
552
2,495
Recoveries
33
-
18
-
4
55
Charge-offs
-
-
(104)
-
(16)
(120)
Ending Balance
$
1,352
$
10,143
$
4,163
$
720
$
1,109
$
17,487
December 31, 2021:
Beginning balance
$
3,408
$
9,453
$
1,689
$
348
$
188
$
15,086
Provision for credit losses
(919)
(695)
955
109
390
(160)
Recoveries
238
-
149
-
5
392
Charge-offs
(229)
-
(18)
-
(14)
(261)
Ending Balance
$
2,498
$
8,758
$
2,775
$
457
$
569
$
15,057
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
28 USCB Financial Holdings, Inc. 2022 10-K/A
Allowance for credit losses and the outstanding balances in loans as of December 31, 2022 and 2021 are as follows (in
thousands):
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Foreign
Banks
Consumer
and Other
Total
December 31, 2022:
Allowance for credit losses:
Individually evaluated for impairment
$
155
$
-
$
41
$
-
$
98
$
294
Collectively evaluated for impairment
1,197
10,143
4,122
720
1,011
17,193
Balances, end of period
$
1,352
$
10,143
$
4,163
$
720
$
1,109
$
17,487
Loans:
Individually evaluated for impairment
$
7,206
$
393
$
82
$
-
$
196
$
7,877
Collectively evaluated for impairment
178,430
970,017
126,902
93,769
130,233
1,499,351
Balances, end of period
$
185,636
$
970,410
$
126,984
$
93,769
$
130,429
$
1,507,228
December 31, 2021:
Allowance for credit losses:
Individually evaluated for impairment
$
178
$
-
$
71
$
-
$
111
$
360
Collectively evaluated for impairment
2,320
8,758
2,704
457
458
14,697
Balances, end of period
$
2,498
$
8,758
$
2,775
$
457
$
569
$
15,057
Loans:
Individually evaluated for impairment
$
9,006
$
696
$
141
$
-
$
224
$
10,067
Collectively evaluated for impairment
192,353
704,292
146,451
59,491
79,005
1,181,592
Balances, end of period
$
201,359
$
704,988
$
146,592
$
59,491
$
79,229
$
1,191,659
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
29 USCB Financial Holdings, Inc. 2022 10-K/A
Credit Quality Indicators
The Company grades loans based on the estimated capability of the borrower to repay the contractual obligation of the
loan agreement based on relevant information which may include: current financial information on the borrower, historical
payment experience, credit documentation and other current economic trends. Internal credit risk grades are evaluated
periodically.
The Company's internally assigned credit risk grades are as follows:
Pass
– Loans indicate different levels of satisfactory financial condition and performance.
Special Mention
close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment
prospects for the loan or of the institution’s credit position at some future date.
Substandard
– Loans classified as substandard are inadequately protected by the current net worth and paying
capacity of the obligator or of the collateral pledged, if any. Loans so classified have a well-defined weakness or
weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the
institution will sustain some loss if the deficiencies are not corrected.
Doubtful
the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing
facts, conditions, and values, highly questionable and improbable.
Loss
– Loans classified as loss are considered uncollectible.
Loan credit exposures by internally assigned grades are presented below for the periods indicated (in thousands):
As of December 31, 2022
Pass
Special
Mention
Substandard
Doubtful
Total Loans
Residential real estate:
Home equity line of credit ("HELOC") and other
$
623
$
-
$
-
$
-
$
623
1-4 family residential
132,178
-
-
-
132,178
Condo residential
52,835
-
-
-
52,835
185,636
-
-
-
185,636
Commercial real estate:
Land and construction
38,687
-
-
-
38,687
Multi family residential
176,820
-
-
-
176,820
Condo commercial
49,601
-
393
-
49,994
Commercial property
702,357
-
2,552
-
704,909
Leasehold improvements
-
-
-
-
-
967,465
-
2,945
-
970,410
Commercial and industrial:
(1)
Secured
120,873
-
807
-
121,680
Unsecured
5,304
-
-
-
5,304
126,177
-
807
-
126,984
Foreign banks
93,769
-
-
-
93,769
Consumer and other loans
130,233
-
196
-
130,429
Total
$
1,503,280
$
-
$
3,948
$
-
$
1,507,228
(1) All outstanding PPP loans were internally graded pass.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
30 USCB Financial Holdings, Inc. 2022 10-K/A
As of December 31, 2021
Pass
Special
Mention
Substandard
Doubtful
Total Loans
Residential real estate:
Home equity line of credit ("HELOC") and other
$
701
$
-
$
-
$
-
$
701
1-4 family residential
130,840
-
4,581
-
135,421
Condo residential
65,237
-
-
-
65,237
196,778
-
4,581
-
201,359
Commercial real estate:
Land and construction
24,581
-
-
-
24,581
Multi family residential
127,489
-
-
-
127,489
Condo commercial
41,983
-
417
-
42,400
Commercial property
509,189
1,222
-
-
510,411
Leasehold improvements
107
-
-
-
107
703,349
1,222
417
-
704,988
Commercial and industrial:
(1)
Secured
97,605
-
536
-
98,141
Unsecured
48,434
-
17
-
48,451
146,039
-
553
-
146,592
Foreign banks
59,491
-
-
-
59,491
Consumer and other loans
79,005
-
224
-
79,229
Total
$
1,184,662
$
1,222
$
5,775
$
-
$
1,191,659
(1) All outstanding PPP loans were internally graded pass.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
31 USCB Financial Holdings, Inc. 2022 10-K/A
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 table include an aging analysis of accruing loans and total non-accruing loans as of December 31, 2022 and
2021 (in thousands):
Accruing
As of December 31, 2022:
Current
Past Due 30-
89 Days
Past Due >
90 Days and
Still
Accruing
Total
Accruing
Non-Accrual
Total Loans
Residential real estate:
Home equity line of credit and other
$
623
$
-
$
-
$
623
$
-
$
623
1-4 family residential
131,120
1,058
-
132,178
-
132,178
Condo residential
50,310
2,525
-
52,835
-
52,835
182,053
3,583
-
185,636
-
185,636
Commercial real estate:
Land and construction
38,687
-
-
38,687
-
38,687
Multi family residential
176,820
-
-
176,820
-
176,820
Condo commercial
49,994
-
-
49,994
-
49,994
Commercial property
704,884
25
-
704,909
-
704,909
Leasehold improvements
-
-
-
-
-
-
970,385
25
-
970,410
-
970,410
Commercial and industrial:
Secured
121,649
31
-
121,680
-
121,680
Unsecured
4,332
972
-
5,304
-
5,304
125,981
1,003
-
126,984
-
126,984
Foreign banks
93,769
-
-
93,769
-
93,769
Consumer and other
130,169
260
-
130,429
-
130,429
Total
$
1,502,357
$
4,871
$
-
$
1,507,228
$
-
$
1,507,228
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
32 USCB Financial Holdings, Inc. 2022 10-K/A
Accruing
As of December 31, 2021:
Current
Past Due
30-89 Days
Past Due >
90 Days and
Still
Accruing
Total
Accruing
Non-Accrual
Total Loans
Residential real estate:
Home equity line of credit and other
$
701
$
-
$
-
$
701
$
-
$
701
1-4 family residential
133,942
289
-
134,231
1,190
135,421
Condo residential
64,243
994
-
65,237
-
65,237
198,886
1,283
-
200,169
1,190
201,359
Commercial real estate:
Land and construction
24,581
-
-
24,581
-
24,581
Multi family residential
127,053
436
-
127,489
-
127,489
Condo commercial
42,400
-
-
42,400
-
42,400
Commercial property
510,411
-
-
510,411
-
510,411
Leasehold improvements
107
-
-
107
-
107
704,552
436
-
704,988
-
704,988
Commercial and industrial:
Secured
98,141
-
-
98,141
-
98,141
Unsecured
48,041
410
-
48,451
-
48,451
146,182
410
-
146,592
-
146,592
Foreign banks
59,491
-
-
59,491
-
59,491
Consumer and other
78,969
260
-
79,229
-
79,229
Total
$
1,188,080
$
2,389
$
-
$
1,190,469
$
1,190
$
1,191,659
There was
no
Interest income on these loans for the years ended December 31, 2022 and 2021, would have been approximately
$
0
5
There were no loans over 90 days past due and accruing as of December 31, 2022 and 2021.
Impaired Loans
The following table includes the unpaid principal balances for impaired loans with the associated allowance amount, if
applicable, on the basis of impairment methodology for the dates indicated (in thousands):
December 31, 2022
December 31, 2021
Unpaid
Principal
Balance
Net
Investment
Balance
Valuation
Allowance
Unpaid
Principal
Balance
Net
Investment
Balance
Valuation
Allowance
Impaired Loans with No Specific Allowance:
Residential real estate
$
3,551
$
3,544
$
-
$
5,021
$
5,035
$
-
Commercial real estate
393
393
-
696
695
-
3,944
3,937
-
5,717
5,730
-
Impaired Loans with Specific Allowance:
Residential real estate
3,655
3,626
155
3,985
3,950
178
Commercial and industrial
82
82
41
141
141
71
Consumer and other
196
196
98
224
224
111
3,933
3,904
294
4,350
4,315
360
Total
$
7,877
$
7,841
$
294
$
10,067
$
10,045
$
360
Net investment balance is the unpaid principal balance of the loan adjusted for the remaining net deferred loan fees.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
33 USCB Financial Holdings, Inc. 2022 10-K/A
The following table presents the average recorded investment balance on impaired loans as of December 31, 2022 and
2021 (in thousands):
2022
2021
Residential real estate
$
7,626
$
8,791
Commercial real estate
575
714
Commercial and industrial
109
178
Consumer and other
210
254
Total
$
8,520
$
9,937
Interest income recognized on impaired loans for the years ended December 31, 2022 and 2021 was $
351
and $
415
Troubled Debt Restructuring
A troubled debt restructuring (“TDR”) occurs when the Company has agreed to a loan modification in the form of a
concession for a borrower who is experiencing financial difficulty.
The following table presents performing and non-performing TDRs for the dates indicated (in thousands):
December 31, 2022
December 31, 2021
Accrual Status
Non-Accrual
Status
Total TDRs
Accrual Status
Non-Accrual
Status
Total TDRs
Residential real estate
$
7,206
$
-
$
7,206
$
7,815
$
-
$
7,815
Commercial real estate
393
-
393
696
-
696
Commercial and industrial
82
-
82
141
-
141
Consumer and other
196
-
196
224
-
224
Total
$
7,877
$
-
$
7,877
$
8,876
$
-
$
8,876
The Company had allocated $
294
360
2022 and 2021, respectively. Charge-offs on TDR loans for the years ended December 31, 2022 and 2021 was $
0
and $
18
no
The Company did
no
t have any new TDR loans, loan modifications,
no
r defaults for the years ended December 31,
2022 and December 31, 2021.
During the year ended December 31, 2022 and 2021, the Company did
no
t modify any new loans to borrowers impacted
by COVID-19. At December 31, 2022, there was
no
4. LEASES
The Company enters into leases in the normal course of business primarily for banking centers and back-office
operations. As of December 31, 2022, the Company leased nine of the ten banking centers and the headquarter building.
The Company is obligated under non-cancelable operating leases for these premises with expiration dates ranging from
2026 to 2036, many of these leases have extension clauses which the Company could exercise which would extend these
dates.
The Company has classified all leases as operating leases. Lease expense for operating leases are recognized on a
straight-line basis over the lease term. Right-of-use (“ROU”) assets represent the right to use the underlying asset for the
lease term and lease liabilities represent the obligation to make lease payments arising from the lease. The Company
elected the short-term lease recognition exemption for all leases that qualify, meaning those with terms under 12 months.
ROU assets or lease liabilities are not to be recognized for short-term leases.
ROU assets and lease liabilities are recognized at the lease commencement date based on the estimated present value
of lease payments over the lease term. In the Company’s Consolidated Balance Sheets, ROU assets are reported under
other assets while lease liabilities are classified under accrued interest and other liabilities.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
34 USCB Financial Holdings, Inc. 2022 10-K/A
As most of the Company’s leases do not provide an implicit rate, the incremental borrowing rate based on the
information available at commencement date is used. The Company’s incremental borrowing rate is based on the FHLB
advance rate matching or nearing the lease term.
The following table presents the ROU assets and lease liabilities as of December 31, 2022 and 2021 (in thousands):
2022
2021
ROU assets:
Operating leases
$
14,395
$
14,185
Lease liabilities:
Operating leases
$
14,395
$
14,185
The weighted average remaining lease term and weighted average discount rate as of December 31, 2022 and 2021:
2022
2021
Weighted average remaining lease term (in years):
Operating leases
6.98
8.28
Weighted average discount rate:
Operating leases
2.94
%
2.32
%
Future lease payment obligations and a reconciliation to lease liability as of December 31, 2022 (in thousands):
2023
$
3,158
2024
3,236
2025
3,312
2026
2,383
2027
951
Thereafter
3,478
Total future minimum lease payments
16,518
Less: interest component
(2,123)
Total lease liability
$
14,395
5. PREMISES AND EQUIPMENT
A summary of premises and equipment are presented below as of December 31, 2022 and 2021 (in thousands):
2022
2021
Land
$
972
$
972
Building
1,952
1,947
Furniture, fixtures and equipment
8,841
8,726
Computer hardware and software
4,575
4,552
Leasehold improvements
10,451
9,921
Premises and equipment, gross
26,791
26,118
Accumulated depreciation and amortization
(21,528)
(20,840)
Premises and equipment, net
$
5,263
$
5,278
Depreciation and amortization expense was $
688
1.0
and 2021, respectively. During 2021, the Company eliminated $
0.6
and relocation of another banking center. The depreciation on these assets was $
0.6
recognized as an immaterial loss.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
35 USCB Financial Holdings, Inc. 2022 10-K/A
6. INCOME TAXES
The Company’s provision for income taxes is presented in the following table for the years ended December 31, 2022
and 2021 (in thousands):
2022
2021
Current:
Federal
$
-
$
-
State
-
$
-
Total current
-
$
-
Deferred:
Federal
5,462
$
5,314
State
1,482
$
1,286
Total deferred
6,944
$
6,600
Total tax expense
$
6,944
$
6,600
The actual income tax expense for the years ended December 31, 2022 and 2021 differs from the statutory tax expense
for the year (computed by applying the U.S. federal corporate tax rate of
21
% for 2022 and 2021 to income before provision
for income taxes) as follows (in thousands):
2022
2021
Federal taxes at statutory rate
$
5,688
$
5,812
State income taxes, net of federal tax benefit
1,177
$
969
Bank owned life insurance
(269)
$
(186)
Other, net
348
$
5
Total tax expense
$
6,944
$
6,600
The following table presents the deferred tax assets and deferred tax liabilities as of December 31, 2022 and 2021 (in
thousands):
2022
2021
Deferred tax assets:
Net operating loss
$
21,720
$
28,819
Allowance for credit losses
4,432
3,816
Lease liability
3,648
3,595
Unrealized loss on available for sale securities
15,193
817
Deferred loan fees
-
400
Depreciable property
158
361
Stock option compensation
373
241
Accruals
723
600
Other, net
-
2
Deferred tax asset
$
46,247
$
38,651
Deferred tax liability:
Deferred loan cost
(28)
-
Lease right of use asset
(3,648)
(3,595)
Deferred expenses
(175)
(127)
Other, net
(36)
-
Deferred tax liability
$
(3,887)
$
(3,722)
Net deferred tax asset
$
42,360
$
34,929
At December 31, 2022 the Company had approximately $
81.8
104.5
operating loss carryforwards expiring in various amounts from 2031 to 2036. Their utilization is limited to future taxable
earnings of the Company.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
36 USCB Financial Holdings, Inc. 2022 10-K/A
In assessing the realizability of deferred tax assets, management considered 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 U.S. Federal jurisdiction and Florida are the major tax jurisdictions where the Company files income tax returns.
The Company is generally no longer subject to U.S. Federal or State examinations by tax authorities for years before 2019.
For the years ended December 31, 2022 and 2021, the Company did
no
t have any unrecognized tax benefits as a
result of tax positions taken during a prior period or during the current period. Additionally,
no
recorded as a result of tax uncertainties.
7. DEPOSITS
The following table presents deposits by type at December 31, 2022 and 2021 (in thousands):
2022
2021
Non-interest bearing deposits
$
629,776
$
605,425
Interest-bearing transaction accounts
66,675
55,878
Saving and money market deposits
915,853
703,856
Time deposits
216,977
225,220
Total deposits
$
1,829,281
$
1,590,379
Time deposits exceeding the FDIC deposit insurance limit of $250 thousand at December 31, 2022 and 2021 were
$
82.0
119.4
At December 31, 2022, the scheduled maturities of time deposits were (in thousands):
2023
$
182,647
2024
11,135
2025
1,998
2026
20,402
2027
549
Thereafter
246
$
216,977
At December 31, 2022 and 2021, the aggregate amount of demand deposits reclassified to loans as overdrafts was
$
230
247
8. BORROWINGS
Borrowed funds consist of fixed rate advances from the FHLB. At December 31, 2022 FHLB advances were $
46.0
million and at December 31, 2021 were $
36
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
37 USCB Financial Holdings, Inc. 2022 10-K/A
The following table presents the fixed interest rates and expected maturities of the FHLB advances at December 31,
2022 and 2021 (in thousands):
At December 31, 2022
Interest Rate
Type of Rate
Maturity Date
Amount
2.05
%
Fixed
March 27, 2025
$
10,000
1.07
%
Fixed
July 18, 2025
6,000
1.04
%
Fixed
July 30, 2024
5,000
0.81
%
Fixed
August 17, 2023
5,000
4.17
%
Fixed
January 13, 2023
20,000
$
46,000
At December 31, 2021
Interest Rate
Type of Rate
Maturity Date
Amount
0.81
%
Fixed
August 17, 2023
$
5,000
1.04
%
Fixed
July 30, 2024
5,000
2.05
%
Fixed
March 27, 2025
10,000
1.91
%
Fixed
March 28, 2025
5,000
1.81
%
Fixed
April 17, 2025
5,000
1.07
%
Fixed
July 18, 2025
6,000
$
36,000
The FHLB holds a blanket lien on the Company's loan portfolio that may be pledged as collateral for outstanding
advances, subject to eligibility under the borrowing agreement. The Company may also choose to assign cash balances
held at the FHLB as additional collateral. See Note 3 “Loans” for further discussion on pledged loans.
9. EQUITY BASED AND OTHER COMPENSATION PLANS
Employee 401(k) Plan
The Company has an employee 401(k) plan (the “Plan”) covering substantially all eligible employees. The Plan includes
a provision that the employer may contribute to the accounts of eligible employees for whom a salary deferral is made.
There was $
313
296
2022 and 2021, respectively, and are included under salaries and employee benefits in the Consolidated Statements of
Operations.
Stock-Based Compensation
Stock option balances, weighted average exercise price, and weighted average fair value of options granted for the
year ended December 31, 2021 were adjusted to reflect the
1 for 5
options are only exercisable to Class A common stock. See Note 13 “Stockholders’ Equity” for further discussion on stock
split.
In 2015, the Company's shareholders approved the 2015 Equity Incentive Plan (the “2015 Option Plan”), which
authorized grants of options to purchase up to
2,000,000
2015
Option Plan provided that
vesting schedules will be determined upon issuance of options by the Board of Directors or compensation committee.
Options granted under the 2015 Option Plan have a
10
-year life, in no event shall an option be exercisable after the
expiration of
10
10
-year life and will terminate in 2025. In July 2020,
the shareholders of the Company approved to amend the 2015 Option plan authorizing the issuance of an additional
3,000,000
5
shares after being adjusted to reflect the
1 for 5
1,000,000
shareholders of the Company approved to amend the 2015 Option plan authorizing the issuance of an additional
1,400,000
shares of common stock.
At December 31, 2022, there were
1,386,667
2021, there were
1,401,667
shares available for grant under the 2015 Option Plan.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
38 USCB Financial Holdings, Inc. 2022 10-K/A
The Company recognizes compensation expense based on the estimated grant date fair value method using the Black-
Scholes option pricing model and accounts for this expense using a prorated straight-line amortization method over the
vesting period of the option. Stock based compensation expense is based on awards that the Company expects will
ultimately vest, reduced by estimated forfeitures. Estimated forfeitures consider the voluntary termination trends as well as
actual option forfeitures.
The compensation expense is reported under salaries and employee benefits in the accompanying Consolidated
Statements of Operations. Compensation expense totaling $
523
December 31, 2022 and $
287
no
years ended December 31, 2022 and 2021.
Unrecognized compensation cost remaining on stock-based compensation totaled $
787
1.3
the years ended December 31, 2022 and 2021, respectively .
Cash flows resulting from excess tax benefits are required to be classified as a part of cash flows from operating
activities. Excess tax benefits are realized tax benefits from tax deductions for exercised options in excess of the deferred
tax asset attributable to the compensation cost for such options.
The fair value of options granted was determined using the following weighted-average assumptions at December 31,
2022:
Assumption
2022
Risk-free interest rate
2.34
%
Expected term
10
Expected stock price volatility
10
%
Dividend yield
0
%
The following table presents a summary of stock options for the years ended December 31, 2022 and 2021:
Stock Options
Weighted Average
Exercise Price
Weighted Average
Remaining
Contractual Years
Aggregate Intrinsic
Value (in
thousands)
Balance at January 1, 2022
959,667
$
10.87
8.4
Granted
15,000
$
14.03
Exercised
(9,000)
$
11.35
Balance at December 31, 2022
965,667
$
10.91
7.4
Exercisable at December 31, 2022
560,000
$
10.18
6.4
$
1,131
Balance at January 1, 2021
339,667
$
9.37
7.1
Granted
620,000
$
11.69
Balance at December 31, 2021
959,667
$
10.87
8.4
Exercisable at December 31, 2021
319,667
$
9.07
6.0
$
663
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the
valuation of the Company’s stock and the exercise price, multiplied by the number of options considered in-the-money) that
would have been received by the option holders had all option holders exercised their options.
The weighted average fair value of options granted for the years ended December 31, 2022 and 2021 was $
3.45
$
2.32
, respectively.
There were
no
There are
no
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
39 USCB Financial Holdings, Inc. 2022 10-K/A
10. OFF-BALANCE SHEET ARRANGEMENTS
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business in order to
meet the financial needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial
instruments include unfunded commitments under lines of credit, commitments to extend credit, standby and commercial
letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the Company’s Consolidated Balance Sheets. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet instruments.
The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instruments
for unused lines of credit, and standby letters of credit is represented by the contractual amount of these commitments.
A summary of the amounts of the Company's financial instruments with off-balance sheet risk are shown below at
December 31, 2022 and 2021 (in thousands):
2022
2021
Commitments to grant loans and unfunded lines of credit
$
95,461
$
134,877
Standby and commercial letters of credit
4,320
6,420
Total
$
99,781
$
141,297
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 is 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 many of them expire without being drawn upon,
they do not generally present a significant liquidity risk to the Company.
11. DERIVATIVES
The Company utilizes interest rate swap agreements as part of its asset liability management strategy to help manage
its interest rate risk position. The notional amount of the interest rate swaps do not represent amounts exchanged by the
parties. The amounts exchanged are determined by reference to the notional amount and the other terms of the individual
interest rate swap agreements.
The Company enters into interest rate swaps with its loan customers. The Company had
15
18
with loan customers with a notional amount of $
33.9
39.2
These interest rate swaps have a maturity date 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, it does not qualify as hedges for accounting purposes.
The following table reflects the Company’s customer related interest rate swaps for the dates indicated (in thousands):
Fair Value
Notional
Amount
Collateral
Amount
Balance Sheet Location
Asset
Liability
December 31, 2022:
Derivatives not designated as hedging instruments:
Interest rate swaps related to customer loans
$
33,893
$
1,278
Other assets/Other liabilities
$
5,011
$
5,011
December 31, 2021:
Derivatives not designated as hedging instruments:
Interest rate swaps related to customer loans
$
39,156
$
1,260
Other assets/Other liabilities
$
1,434
$
1,434
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
40 USCB Financial Holdings, Inc. 2022 10-K/A
12. FAIR VALUE MEASUREMENTS
Determination of Fair Value
The Company uses fair value measurements to record fair-value adjustments to certain assets and liabilities and to
determine fair value disclosures. In accordance with the fair value measurements accounting guidance, the fair value of a
financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Fair value is best determined based upon quoted market prices.
However, in many instances, there are no quoted market prices for the Company's various financial instruments. In cases
where quoted market prices are not available, fair values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates
of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction
(that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current
market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a
change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining
the price at which willing market participants would transact at the measurement date under current market conditions
depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point
within the range that is most representative of fair value under current market conditions.
Fair Value Hierarchy
In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured
at fair value in three levels, based on the markets in which the assets and liabilities are traded, and the reliability of the
assumptions used to determine fair value.
Level 1
entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and
equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing
sources for market transactions involving identical assets or liabilities.
Level 2
asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the asset or liability.
Level 3
significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments
whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as
well as instruments for which determination of fair value requires significant management judgment or estimation.
A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is
significant to the fair value measurement.
Items Measured at Fair Value on a Recurring Basis
Investment securities:
such securities, management generally relies on prices obtained from independent vendors or third-party broker -dealers.
Management reviews pricing methodologies provided by the vendors and third-party broker-dealers in order to determine if
observable market information is being utilized. Securities measured with pricing provided by independent vendors or third-
party broker-dealers are classified within Level 2 of the hierarchy and often involve using quoted market prices for similar
securities, pricing models or discounted cash flow analyses utilizing inputs observable in the market where available.
Derivatives:
classified within Level 2 of the hierarchy.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
41 USCB Financial Holdings, Inc. 2022 10-K/A
The following table represents the Company's assets measured at fair value on a recurring basis at December 31, 2022
and 2021 for each of the fair value hierarchy levels (in thousands):
2022
2021
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Investment securities available for sale:
U.S. Government Agency
$
-
$
8,655
$
-
$
8,655
$
-
$
10,520
$
-
$
10,520
Collateralized mortgage obligations
-
95,541
-
95,541
-
156,829
-
156,829
Mortgage-backed securities - Residential
-
60,879
-
60,879
-
118,842
-
118,842
Mortgage-backed securities - Commercial
-
27,954
-
27,954
-
50,117
-
50,117
Municipal securities
-
18,483
-
18,483
-
24,276
-
24,276
Bank subordinated debt securities
-
14,919
-
14,919
-
28,408
-
28,408
Corporate bonds
-
3,709
-
3,709
-
12,550
-
12,550
Total
-
230,140
-
230,140
-
401,542
-
401,542
Derivative assets
-
5,011
-
5,011
-
1,434
-
1,434
Total assets at fair value
$
-
$
235,151
$
-
$
235,151
$
-
$
402,976
$
-
$
402,976
Derivative liabilities
$
-
$
5,011
$
-
$
5,011
$
-
$
1,434
$
-
$
1,434
Total liabilities at fair value
$
-
$
5,011
$
-
$
5,011
$
-
$
1,434
$
-
$
1,434
Items Measured at Fair Value on a Non-recurring Basis
Impaired Loans:
At December 31, 2022 and 2021, in accordance with provisions of the loan impairment guidance,
individual loans with a carrying amount of approximately $
3.9
4.4
their fair value of approximately $
3.6
4.0
$
294
360
2022 and 2021, respectively. Loans applicable to write-downs, or impaired loans, are estimated using the present value of
expected cash flows or the appraised value of the underlying collateral discounted as necessary due to management's
estimates of changes in economic conditions are considered a Level 3 valuation.
Other Real Estate:
estimate of the costs to sell or the carrying cost of the other real estate owned. Appraisals generally use the market approach
valuation technique and use market observable data to formulate an opinion of the fair value of the properties. However,
the appraiser uses professional judgment in determining the fair value of the property and the Company may also adjust
the value for changes in market conditions subsequent to the valuation date when current appraisals are not available. As
a consequence of the carrying cost or the third-party appraisal and adjustments therein, the fair values of the properties are
considered a Level 3 valuation.
The following table represents the Company’s assets measured at fair value on a non-recurring basis at December 31,
2022 and 2021 for each of the fair value hierarchy levels (in thousands):
Level 1
Level 2
Level 3
Total
December 31, 2022:
Impaired loans
$
-
$
-
$
3,639
$
3,639
December 31, 2021:
Impaired loans
$
-
$
-
$
3,990
$
3,990
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
42 USCB Financial Holdings, Inc. 2022 10-K/A
The following table presents quantified information about Level 3 fair value measurements for assets measured at fair
value on a non-recurring basis at December 31, 2022 and 2021 (in thousands):
Fair Value
Valuation Technique(s)
Unobservable Input(s)
December 31, 2022:
Residential real estate
$
3,500
Sales comparison approach
Adj. for differences between comparable sales
Commercial and industrial
41
Discounted cash flow
Adj. for differences in net operating income expectations
Other
98
Discounted cash flow
Adj. for differences in net operating income expectations
Total impaired loans
$
3,639
December 31, 2021:
Residential real estate
$
3,807
Sales comparison approach
Adj. for differences between comparable sales
Commercial and industrial
70
Discounted cash flow
Adj. for differences in net operating income expectations
Other
113
Discounted cash flow
Adj. for differences in net operating income expectations
Total impaired loans
$
3,990
There were
no
Items Not Measured at Fair Value
The carrying amounts and estimated fair values of financial instruments not carried at fair value, at December 31, 2022
and 2021 are as follows (in thousands):
Fair Value Hierarchy
Carrying
Amount
Level 1
Level 2
Level 3
Fair Value
Amount
December 31, 2022:
Financial Assets:
Cash and due from banks
$
$6,605
$
$6,605
$
-
$
-
$
6,605
Interest-bearing deposits in banks
$
47,563
$
47,563
$
-
$
-
$
47,563
Investment securities held to maturity
$
188,699
$
-
$
169,088
$
-
$
169,088
Loans held for investment, net
$
1,489,851
$
-
$
-
$
1,436,877
$
1,436,877
Accrued interest receivable
$
7,546
$
-
$
1,183
$
6,363
$
7,546
Financial Liabilities:
Demand Deposits
$
$629,776
$
$629,776
$
-
$
-
$
629,776
Money market and savings accounts
$
915,853
$
915,853
$
-
$
-
$
915,853
Interest-bearing checking accounts
$
66,675
$
66,675
$
-
$
-
$
66,675
Time deposits
$
216,977
$
-
$
-
$
211,406
$
211,406
FHLB advances
$
46,000
$
-
$
44,547
$
-
$
44,547
Accrued interest payable
$
229
$
-
$
92
$
137
$
229
December 31, 2021:
Financial Assets:
Cash and due from banks
$
6,477
$
6,477
$
-
$
-
$
6,477
Interest-bearing deposits in banks
$
39,751
$
39,751
$
-
$
-
$
39,751
Investment securities held to maturity
122,658
$
-
$
120,157
$
-
$
120,157
Loans held for investment, net
$
1,175,024
$
-
$
-
$
1,189,191
$
1,189,191
Accrued interest receivable
$
5,975
$
-
$
1,222
$
4,753
$
5,975
Financial Liabilities:
Demand Deposits
$
605,425
$
605,425
$
-
$
-
$
605,425
Money market and savings accounts
$
703,856
$
703,856
$
-
$
-
$
703,856
Interest-bearing checking accounts
$
55,878
$
55,878
$
-
$
-
$
55,878
Time deposits
$
225,220
$
-
$
-
$
224,688
$
224,688
FHLB advances
$
36,000
$
-
$
36,479
$
-
$
36,479
Accrued interest payable
$
96
$
-
$
50
$
46
$
96
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
43 USCB Financial Holdings, Inc. 2022 10-K/A
13. STOCKHOLDERS’ EQUITY
Common Stock
On June 16, 2021, the Bank effected a
1 for 5
1.00
share. As of the effective date of June 16, 2021, each five shares of the Company’s Class A common stock was combined
into
one
up to one whole share. The Bank has adjusted the Class A common stock, earnings per share and stock options adjusted
for this
1 for 5
but if sold or exchanged would be converted at the
1 for 5
1
Class A common stock.
On July 27, 2021, the Bank completed the Initial Public Offering (“IPO”) of its Class A common stock, in which it issued
and sold
4,600,000
10.00
proceeds of $
40.0
On December 21, 2021, the Company entered into agreements with the Class B shareholders to exchange all
outstanding Class B non-voting common stock for Class A voting common stock at a ratio of 5 to 1. On the same day, a
total of
6,121,052
1,224,212
In December 2021, the Company acquired all the issued and outstanding shares of the Class A voting common stock
of the Bank, which 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 of the outstanding shares of the Bank’s
common stock, par value $
1.00
newly issued share of the Company’s common stock, par value $
1.00
wholly-owned subsidiary. Prior to completing the bank holding company formation, the Company had no material assets
and had not conducted any business or operations except for activities related to our organization and the Reorganization.
In the Reorganization, each shareholder of the Bank received securities of the same class, having substantially the
same designations, rights, powers, preferences, qualifications, limitations and restrictions, as those that the shareholder
held in the Bank, and the Company’s current shareholders own the same percentages of its common stock as they
previously owned of the Bank’s common stock.
Preferred Stock
On April 5, 2021, the Board authorized and approved the offer to repurchase all outstanding shares of Class E preferred
stock at the liquidation value of $
7.5
103
shareholders approved the repurchase which the Company completed on April 26, 2021.
The Company offered the Class C and Class D preferred stockholders the ability to exchange their shares for Class A
common stock. The offer to exchange was voluntary and the preferred stockholders were given the option to convert
90
%
of their preferred shares for Class A common stock with the remaining
10
% to be redeemed in the form of cash. The
exchange ratio for the shares of Class A common stock issued in the exchange transaction was based upon the IPO price
for shares of Class A common stock.
During the year ended 2021,
47,473
11,061,552
stock converted into
10,278,072
shares had a total liquidation value of $
102.8
Class D preferred stock totaling
1,234,354
11.4
The fair value of consideration on the exchange and redemption of the Class C and Class D preferred shares exceeded
the book value causing a one-time reduction in net income available to common stockholders of $
89.6
December 31, 2022, there were
no
no
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
44 USCB Financial Holdings, Inc. 2022 10-K/A
Dividends
The Board approved the following dividend amounts on the preferred shares for the years ended December 31, 2022
and 2021 (in thousands):
2022
2021
Preferred stock - Class C: Non-voting, Non-cumulative, Perpetual: $
1.00
1,000
per share liquidation preference; annual dividend rate of
4
% of liquidation preference paid
quarterly. Quarterly dividend of $
10.00
$
-
$
1,494
Preferred stock - Class D: Non-voting, Non-cumulative, Perpetual: $
1.00
5.00
per share liquidation preference; annual dividend rate of
4
% of par value paid quarterly.
Quarterly dividend of $
0.01
-
348
Preferred stock - Class E: Non-voting, partially cumulative, Perpetual: $
1.00
$
1,000
7
% of liquidation
preferences paid quarterly. Quarterly dividend of $
17.50
-
235
Total dividends paid
$
-
$
2,077
Declaration of dividends by the Board is required before dividend payments are made. The dividend payment dates for
Class C and Class D preferred shares were set by the Board while the Class E preferred shares had a set dividend payment
date on the fifteenth of February, May, August, and November.
No
2021. Additionally, there were
no
14. EARNINGS PER SHARE
Earnings per share (“EPS”) for common stock is calculated using the two-class method required for participating
securities. Basic EPS is calculated by dividing net income (loss) available to common stockholders by the weighted-average
number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted EPS is
computed by dividing net income (loss) available to common stockholders by the weighted-average number of common
shares outstanding for the period and the weighted-average number of dilutive common stock equivalents outstanding for
the period determined using the treasury-stock method. For purposes of this calculation, common stock equivalents include
common stock options and are only included in the calculation of diluted EPS when their effect is dilutive.
In calculating EPS for the year ended December 31, 2022 and 2021, net income available to common stockholders was
not allocated between Class A and Class B common stock since there was
no
stock at year-end.
The following table reflects the calculation of net income (loss) available to common stockholders for the years ended
December 31, 2022 and 2021 (in thousands):
2022
2021
Net Income
$
20,141
$
21,077
Less: Preferred stock dividends
-
2,077
Less: Exchange and redemption of preferred shares
-
89,585
Net income (loss) available to common stockholders
$
20,141
$
(70,585)
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
45 USCB Financial Holdings, Inc. 2022 10-K/A
The following table reflects the calculation of basic and diluted earnings (loss) per common share class for the years
ended December 31, 2022 and 2021 (in thousands, except per share amounts):
2022
2021
Class A
Class A
Basic EPS
Numerator:
Net income (loss) available to common shares before allocation
$
20,141
$
(70,585)
Multiply: % allocated on weighted avg. shares outstanding
100.0%
100.0%
Net income (loss) available to common shares after allocation
$
20,141
$
(70,585)
Denominator:
Weighted average shares outstanding
19,999,323
10,507,530
Earnings (loss) per share, basic
$
1.01
$
(6.72)
Diluted EPS
Numerator:
Net income (loss) available to common shares before allocation
$
20,141
$
(70,585)
Multiply: % allocated on weighted avg. shares outstanding
100.0%
100.0%
Net income (loss) available to common shares after allocation
$
20,141
$
(70,585)
Denominator:
Weighted average shares outstanding for basic EPS
19,999,323
10,507,530
Add: Dilutive effects of assumed exercises of stock options
177,515
-
Weighted avg. shares including dilutive potential common shares
20,176,838
10,507,530
Earnings (loss) per share, diluted
$
1.00
$
(6.72)
Anti-dilutive stock options excluded from diluted EPS
15,000
183,303
For the year ended 2021, the Company was in a net loss position after adjusting for the exchange and redemption of
the Class C and Class D preferred shares, making basic net loss per share the same as diluted net loss per share as the
inclusion of all potential common shares outstanding would have been antidilutive.
See Note 13 “Stockholders’ Equity” for further discussion on the stock splits.
15. REGULATORY MATTERS
Banks and bank holding companies are subject to regulatory capital requirements administered by federal and state
banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's consolidated
financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the
Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities,
and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company and the Bank’s
capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Based on changes to the Federal Reserve’s definition of a “Small Bank Holding Company” that increased the threshold
to $3.0 billion in assets in August 2018, the Company is not currently subject to separate minimum capital measurements.
At such time when the Company reaches the $3.0 billion asset level, it will be subject to capital measurements independent
of the Bank.
The Bank has elected to permanently opt-out of the inclusion of accumulated other comprehensive income in the capital
calculations, as permitted by the regulations. This opt-out will reduce the impact of market volatility on the Bank’s regulatory
capital levels.
The Bank is subject to the rules of the Basel III regulatory capital framework and related Dodd-Frank Wall Street Reform
and Consumer Protection Act. The rules include the implementation of a
2.5
% capital conservation buffer that is added to
the minimum requirements for capital adequacy purposes. Failure to maintain the required capital conservation buffer will
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
46 USCB Financial Holdings, Inc. 2022 10-K/A
limit the ability of the Bank to pay dividends, repurchase shares or pay discretionary bonuses. At December 31, 2022 and
2021, the capital ratios for the Bank were sufficient to meet the conservation buffer.
Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to
represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits.
If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are
required.
At December 31, 2022 and 2021, the most recent notification from the regulatory authorities categorized the Bank as
well capitalized under the regulatory framework for prompt corrective action. Failure to meet statutorily mandated capital
guidelines could subject the Bank to a variety of enforcement remedies, including issuance of a capital directive, the
termination of deposit insurance by the FDIC, a prohibition on accepting or renewing brokered deposits, limitations on the
rates of interest that the Bank may pay on its deposits and other restrictions on its business. To be categorized as well
capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth
in the table below. There are no conditions or events since the notification that management believes have changed the
Bank’s category.
Actual and required capital amounts and ratios are presented below for the Bank at December 31, 2022 and 2021 (in
thousands, except ratios). The required amounts for capital adequacy shown do not include the capital conservation buffer
previously discussed.
Actual
Minimum Capital
Requirements
To be Well Capitalized
Under Prompt Corrective
Action Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
December 31, 2022:
Total risk-based capital:
$
216,693
13.58
%
$
127,616
8.00
%
$
159,520
10.00
%
Tier 1 risk-based capital:
$
198,909
12.47
%
$
95,712
6.00
%
$
127,616
8.00
%
Common equity tier 1 capital:
$
198,909
12.47
%
$
71,784
4.50
%
$
103,688
6.50
%
Leverage ratio:
198,909
9.56
%
$
83,210
4.00
%
$
104,012
5.00
%
December 31, 2021:
(1)
Total risk-based capital
$
186,735
14.92
%
$
100,125
8.00
%
$
125,157
10.00
%
Tier 1 risk-based capital
$
171,484
13.70
%
$
75,094
6.00
%
$
100,125
8.00
%
Common equity tier 1 capital
$
171,484
13.70
%
$
56,321
4.50
%
$
81,352
6.50
%
Leverage ratio
$
171,484
9.55
%
$
71,825
4.00
%
$
89,781
5.00
%
Effective December 30, 2021, the Company acquired the Bank in a merger and reorganization through the formation of
a bank holding company. Pursuant to this transaction, all of the outstanding shares of the Bank’s $
1.00
stock formerly held by its shareholders was converted into and exchanged for one newly issued share of the Company’s
par value common stock, and the Bank became a subsidiary of the Company. See Note 13 “Stockholders’ Equity” for further
details.
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 Bank’s retained income of 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. 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 from paying dividends if they deem such payment to be an unsafe or
unsound practice.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
47 USCB Financial Holdings, Inc. 2022 10-K/A
16. RELATED PARTY TRANSACTIONS
In the ordinary course of business, principal officers, directors, and affiliates may engage in transactions with the
Company. The following table presents loans to and deposits from related parties included within the accompanying
Consolidated Financial Statements at December 31, 2022 and 2021 (in thousands):
2022
2021
Consolidated Balance Sheets:
Loans held for investment, net
$
-
$
-
Deposits
$
6,825
$
1,905
Consolidated Statements of Operations:
Interest income
$
-
$
-
Interest expense
$
54
$
16
Loan Purchases
42.8
paid those entities fees of $
881
17. PARENT COMPANY CONDENSED FINANCIAL INFORMATION
In December 2021, USCB Financial Holdings, Inc. was formed as the parent bank holding company of U.S. Century
Bank. The condensed balance sheet is presented below for USCB Financial Holdings, Inc. at the dates indicated (in
thousands):
December 31, 2022
December 31, 2021
ASSETS:
Cash and Cash Equivalents
$
1,102
$
-
Investment in bank subsidiary
181,326
203,897
Other assets
-
-
Total assets
$
182,428
$
203,897
LIABILITIES AND STOCKHOLDERS' EQUITY:
Other liabilities
$
-
$
-
Stockholders' equity
182,428
203,897
Total liabilities and stockholders' equity
$
182,428
$
203,897
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
48 USCB Financial Holdings, Inc. 2022 10-K/A
The condensed income statement is presented below for USCB Financial Holdings, Inc. at the dates indicated (in
thousands):
December 31, 2022
December 31, 2021
INCOME:
Dividends from subsidiaries
$
1,000
$
-
Service fees from subsidiaries
-
-
Total
$
1,000
$
-
EXPENSE:
Employee compensation and benefits
-
-
Total
-
-
Income before income taxes and undistributed subsidiary income
1,000
Provision (benefit) for income taxes
-
-
Equity in undisbursed subsidiary income
19,141
Net Income
$
20,141
$
-
The condensed cash flow is presented below for USCB Financial Holdings, Inc. at the dates indicated (in thousands):
December 31, 2022
December 31, 2021
Cash flows from operating activities:
Net income
$
20,141
$
-
Adjustments to reconcile net income to net cash provided by operating
activities:
-
Equity in undistributed earnings of subsidiaries
(19,141)
-
Other
-
Net cash provided by operating activities
$
1,000
$
-
Cash flows from investing activities:
Capital contributions to subsidiary
-
-
Other
-
-
Net cash used in investing activities
-
-
Cash flows from financing activities:
Dividends paid
-
-
Proceeds from exercise of stock options
102
-
Repurchase of common stock
-
-
Net cash (used in) provided by financing activities
102
-
Net increase (decrease) in cash and cash equivalents
1,102
-
Cash and cash equivalents, beginning of period
-
-
Cash and cash equivalents, end of period
$
1,102
$
-
18. 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.
19. SUBSEQUENT EVENTS
Management has evaluated subsequent events from January 1, 2023 through March 24, 2023, which is the date this
Annual Report Form 10-K was available to be issued.
Share Repurchase Program
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
49 USCB Financial Holdings, Inc. 2022 10-K/A
In February 2023 the Company repurchased
250,000
at a price of $
12.04
. Additionally, the Company repurchased
250,000
Common stock at a price of $
11.39
Company’s publicly announced repurchase program.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
50 USCB Financial Holdings, Inc. 2022 10-K/A
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) List of documents filed as part of this Amendment No. 1 to the Annual Report on Form 10-K and are set forth in Item 8
hereto:
1)
Financial Statements:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Operations for the years ended December 31, 2022 and 2021
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2022 and 2021
Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2022 and 2021
Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021
Notes to Consolidated Financial Statements
2)
Financial Statement Schedules:
Financial statement schedules are omitted as not required or not applicable or because the information is
included in the Consolidated Financial Statements or notes thereto.
(b) List of Exhibits:
Item 15(b) of the Original Report is hereby amended solely to provide the exhibits required to be filed in
connection with the Form 10-K/A.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
51 USCB Financial Holdings, Inc. 2022 10-K/A
EXHIBIT INDEX
Exhibit
Number
Description of Exhibit
*
*
**
**
101
The following financial statements from the Company’s Annual Report on Form 10-K for the year ended December 31, 2021,
formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated
Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated
Statements of Cash Flows, (vi) Notes to Consolidated Financial Statements.
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*
Filed herewith.
**
Furnished hereby.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements
52 USCB Financial Holdings, Inc. 2022 10-K/A
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant has duly caused this Amendment No. 1 to this report
to be signed on its behalf by the undersigned thereunto duly authorized.
USCB FINANCIAL HOLDINGS, INC.
Date: March 27, 2023
By:
/s/ Luis de la Aguilera
Luis de la Aguilera
President and Chief Executive Officer