USCB Financial (US:USCB)2023-05-12 19:50Part I Financial Statements This section presents USCB Financial Holdings, Inc.'s unaudited consolidated financial statements for Q1 2023, detailing financial position, operations, and cash flows, including the adoption of the CECL standard - The Company adopted the Current Expected Credit Loss (CECL) methodology (ASU 2016-13) on January 1, 2023, which replaced the previous incurred loss model, resulting in a one-time cumulative adjustment that decreased retained earnings by $1.3 million2737 Consolidated Balance Sheets Total assets increased to $2.16 billion driven by a $71.6 million rise in net loans, while deposits remained stable and FHLB advances significantly increased to $120.0 million Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 | December 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $2,163,821 | $2,085,834 | +$77,987 | | Total cash and cash equivalents | $63,251 | $54,168 | +$9,083 | | Investment securities (AFS & HTM) | $415,837 | $418,839 | -$3,002 | | Loans held for investment, net | $1,561,507 | $1,489,851 | +$71,656 | | Total Liabilities | $1,979,963 | $1,903,406 | +$76,557 | | Total deposits | $1,830,462 | $1,829,281 | +$1,181 | | Federal Home Loan Bank advances | $120,000 | $46,000 | +$74,000 | | Total Stockholders' Equity | $183,858 | $182,428 | +$1,430 | Consolidated Statements of Operations Net income increased 19.7% to $5.8 million in Q1 2023, driven by an 11.3% rise in net interest income to $16.0 million, with a $201 thousand provision for credit losses Q1 2023 vs. Q1 2022 Performance (in thousands, except per share data) | Metric | Q1 2023 | Q1 2022 | Change | | :--- | :--- | :--- | :--- | | Total interest income | $22,379 | $15,342 | +45.9% | | Total interest expense | $6,382 | $963 | +562.7% | | Net interest income | $15,997 | $14,379 | +11.3% | | Provision for credit losses | $201 | $0 | N/A | | Total non-interest income | $2,070 | $1,945 | +6.4% | | Total non-interest expense | $10,176 | $9,612 | +5.9% | | Net income | $5,809 | $4,854 | +19.7% | | Net income per share, diluted | $0.29 | $0.24 | +20.8% | Consolidated Statements of Comprehensive Income (Loss) Total comprehensive income reached $8.5 million in Q1 2023, a significant improvement from a ($12.1 million) loss in Q1 2022, primarily due to $2.7 million in unrealized gains on investment securities Comprehensive Income (Loss) (in thousands) | Component | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net income | $5,809 | $4,854 | | Other comprehensive income (loss), net of tax | $2,686 | ($16,942) | | Total comprehensive income (loss) | $8,495 | ($12,088) | Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity increased to $183.9 million driven by net income and other comprehensive income, partially offset by a $1.3 million CECL adjustment and $5.9 million in share repurchases - During Q1 2023, the Company repurchased 500,000 shares of Class A common stock for approximately $5.9 million16130 - The adoption of the new credit loss standard (ASC 326) resulted in a cumulative effect adjustment that reduced the opening accumulated deficit by $1.3 million16 Consolidated Statements of Cash Flows Cash and cash equivalents increased by $9.1 million in Q1 2023, with $9.0 million from operations, $69.2 million used in investing, and $69.3 million provided by financing, primarily FHLB advances Cash Flow Summary (in thousands) | Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $9,001 | $5,603 | | Net cash used in investing activities | ($69,232) | ($80,735) | | Net cash provided by financing activities | $69,314 | $123,017 | | Net increase in cash and cash equivalents | $9,083 | $47,885 | Notes to the Consolidated Financial Statements These notes detail accounting policies and financial statement figures, including CECL adoption, investment and loan portfolio composition, income taxes, off-balance sheet arrangements, and share repurchase activities - The company's loan portfolio is segmented for CECL analysis, with 84% ($1.3 billion) evaluated under a Discounted Cash Flow method and 16% ($251.0 million) under a Remaining Life (WARM) method33 - As of March 31, 2023, the company had pledged $24.3 million in securities to the Federal Reserve's Bank Term Funding Program (BTFP) but had no borrowings under the program62 - During Q1 2023, the company repurchased 500,000 shares at a weighted average price of $11.74 per share, with 250,000 shares remaining authorized for repurchase as of March 31, 2023130 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2023 financial performance, highlighting increased net interest income and net income, driven by loan growth and stable net interest margin, alongside analysis of financial condition, liquidity, and capital adequacy, including CECL impacts Overview The company reported strong Q1 2023 results with net income of $5.8 million and $0.29 diluted EPS, driven by an 11.3% increase in net interest income and 25.6% loan growth, alongside 500,000 share repurchases Q1 2023 Key Performance Indicators | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net Income | $5.8 million | $4.9 million | | Diluted EPS | $0.29 | $0.24 | | Net Interest Income | $16.0 million | $14.4 million | | Net Interest Margin (NIM) | 3.22% | 3.22% | | Total Loans | $1.6 billion | $1.3 billion | | Annualized ROA | 1.11% | 1.03% | | Annualized ROE | 12.85% | 9.75% | Results of Operations Net interest income grew 11.3% to $16.0 million with a stable 3.22% net interest margin, while a $201 thousand provision for credit losses was recorded, and non-interest expenses increased 5.9% - Net interest income increased by $1.6 million (11.3%) YoY, primarily due to a larger loan portfolio and higher loan yields, while the Net Interest Margin (NIM) remained flat at 3.22%169170 - A provision for credit loss of $201 thousand was recorded in Q1 2023, mainly attributable to loan growth, compared to no provision in Q1 2022173 - Non-interest expense increased by $564 thousand (5.9%) YoY, primarily driven by higher salaries and employee benefits from new hires and increased compensation176 Analysis of Financial Condition Total assets increased to $2.2 billion, with loans growing 4.8% to $1.6 billion and commercial real estate dominating the portfolio, while asset quality remained strong, deposits stable, and FHLB borrowings increased to $120 million - Total loans increased by $73.1 million (4.8%) in Q1 2023, with commercial real estate loans representing the largest portion of the portfolio at 62.5%190191 - Non-performing assets were minimal at $486 thousand, representing 0.03% of total loans as of March 31, 2023202 - Total estimated uninsured deposits, adjusted for collateralized public deposits, were $1.0 billion, representing 56% of total deposits at March 31, 2023213214 Liquidity and Capital Adequacy The company maintains robust liquidity through diverse funding sources and was "well capitalized" as of March 31, 2023, with a 13.12% total risk-based capital ratio and 9.30% Tier 1 leverage ratio, exceeding regulatory minimums - The company has a comprehensive Contingency Funding Plan and utilizes various sources for liquidity, including core deposits, FHLB advances, and access to the Bank Term Funding Program (BTFP)239242 Bank Capital Ratios as of March 31, 2023 | Ratio | Actual | Minimum Requirement | Well Capitalized Minimum | | :--- | :--- | :--- | :--- | | Total risk-based capital | 13.12% | 8.00% | 10.00% | | Tier 1 risk-based capital | 11.96% | 6.00% | 8.00% | | Common equity tier 1 capital | 11.96% | 4.50% | 6.50% | | Leverage ratio | 9.30% | 4.00% | 5.00% | Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, USCB Financial Holdings, Inc. is exempt from providing quantitative and qualitative disclosures about market risk - The company is not required to provide quantitative and qualitative disclosures about market risk because it qualifies as a smaller reporting company257 Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of March 31, 2023, management concluded that the Company's disclosure controls and procedures were effective258 - There were no material changes to the Company's internal control over financial reporting during the first quarter of 2023259 Part II Legal Proceedings The company is not currently subject to any material legal proceedings, though it may encounter claims in the ordinary course of business - The company reports that it is not currently subject to any material legal proceedings262 Risk Factors This section highlights new and updated risk factors as of March 31, 2023, primarily related to banking industry turmoil, including potential deposit outflows, increased FDIC premiums, and liquidity risks - Financial challenges at other banking institutions, such as the failures of Silicon Valley Bank and Signature Bank in March 2023, could lead to diminished depositor confidence and cause disruptive deposit outflows264 - The company's FDIC deposit insurance premiums may increase due to a planned special assessment on banks to recover losses from protecting uninsured deposits at failed institutions266 - The company identifies insufficient liquidity as a key risk, which could impair its ability to fund operations, satisfy depositor withdrawals, and meet other obligations, potentially jeopardizing its financial condition267 Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's common stock repurchase activity for Q1 2023, where 500,000 shares were repurchased, leaving 250,000 shares available Share Repurchases for Q1 2023 | Period | Total Shares Purchased | Average Price Paid Per Share | Shares Remaining in Program | | :--- | :--- | :--- | :--- | | January 2023 | 0 | N/A | 750,000 | | February 2023 | 250,000 | $12.04 | 500,000 | | March 2023 | 250,000 | $11.43 | 250,000 | | Total Q1 2023 | 500,000 | $11.74 | 250,000 | Exhibits This section provides an index of exhibits filed with the Form 10-Q, including organizational documents, material contracts, CEO/CFO certifications, and Interactive Data Files (XBRL) - The report includes standard exhibits such as CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1, 32.2) and financial statements formatted in Inline XBRL (Exhibit 101)273