UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____to_____
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
,
,
(Address of principal executive offices) (zip code)
Registrant’s telephone number, including area code:
)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
☒
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
☒
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
☐
☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐
☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of July 14, 2023, the registrant had
A
common stock outstanding.
FORM 10-Q
June 30, 2023
TABLE OF CONTENTS
3 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
PART I
Item 1. Financial Statements
USCB FINANCIAL HOLDINGS, INC
Consolidated Balance Sheets – Unaudited
(Dollars in thousands, except share data)
June 30, 2023
December 31, 2022
ASSETS:
Cash and due from banks
$
$
Interest-bearing deposits in banks
Total cash and cash equivalents
Investment securities held to maturity, net of allowance for credit losses of $
, respectively (fair
value $
, respectively)
Investment securities available for sale, at fair value
Federal Home Loan Bank stock, at cost
Loans held for investment, net of allowance of $
, respectively
Accrued interest receivable
Premises and equipment, net
Bank owned life insurance
Deferred tax assets, net
Lease right-of-use asset
Other assets
Total assets
$
$
LIABILITIES:
Deposits:
Demand deposits
$
$
Money market and savings accounts
Interest-bearing checking
Time deposits
Total deposits
Federal Home Loan Bank advances
Lease liability
Accrued interest and other liabilities
Total liabilities
Commitments and contingencies (See Notes 5 and 10)
.
.
STOCKHOLDERS' EQUITY:
Preferred stock - Class C; $
authorized;
-
-
Preferred stock - Class D; $
authorized;
-
-
Preferred stock - Class E; $
authorized;
-
-
Common stock - Class A Voting; $
outstanding as of June 30, 2023,
Common stock - Class B Non-voting; $
outstanding as of June 30, 2023 and December 31, 2022
-
-
Additional paid-in capital on common stock
Accumulated deficit
(95,088 )
(104,104 )
Accumulated other comprehensive loss
(46,319 )
(44,751 )
Total stockholders' equity
Total liabilities and stockholders' equity
$
$
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Operations - Unaudited
(Dollars in thousands, except per share data)
Three Months Ended June 30,
Six Months Ended June 30,
2023
2022
2023
2022
Interest income:
$
$
$
$
Interest expense:
Provision for credit losses
Non-interest income:
-
(3 )
(21 )
-
-
-
Non-interest expense:
Income tax expense
$
$
$
$
Per share information:
Net income per share, basic
$
$
$
$
Net income per share, diluted
$
$
$
$
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Comprehensive Income (Loss) - Unaudited
(Dollars in thousands)
Three Months Ended June 30,
Six Months Ended June 30,
2023
2022
2023
2022
Net income
$
$
$
$
Other comprehensive income (loss):
Unrealized loss on investment securities
(6,825 )
(23,253 )
(3,287 )
(45,898 )
Amortization of net unrealized (loss) gain on securities transferred from
available-for-sale to held-to-maturity
(61 )
(126 )
Reclassification adjustment for loss (gain) included in net income
(18 )
Unrealized gain on cash flow hedge
-
-
Tax effect
Total other comprehensive income (loss), net of tax
(4,254 )
(17,403 )
(1,568 )
(34,345 )
Total comprehensive income (loss)
$
(58 )
$
(12,108 )
$
$
(24,196 )
The accompanying notes are an integral part of these unaudited consolidated financial statements.
6 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Changes in Stockholders’ Equity - Unaudited
(Dollars in thousands, except per share data)
Common Stock
Additional Paid-in
Capital on Common
Stock
Accumulated Deficit
Accumulated Other
Comprehensive
Loss
Shares
Par Value
Total
Stockholders'
Equity
Balance at April 1, 2023
$
$
$
(99,620 )
$
(42,065 )
$
Cumulative tax effect of adoption of accounting principle related to ASC 326
-
-
-
-
Adjusted beginning balance after cumulative effect adjustment
(99,284 )
(42,065 )
Net income
-
-
-
-
Other comprehensive loss
-
-
-
-
(4,254 )
(4,254 )
Repurchase of Class A common stock
(77,603 )
(77 )
(670 )
-
-
(747 )
Restricted stock issued
-
-
-
-
-
-
Stock based compensation
-
-
-
-
Balance at June 30, 2023
$
$
$
(95,088 )
$
(46,319 )
$
Balance at April 1, 2022
$
$
$
(119,391 )
$
(19,458 )
$
Net income
-
-
-
-
Other comprehensive loss
-
-
-
-
(17,403 )
(17,403 )
Stock-based compensation
-
-
-
-
Balance at June 30, 2022
$
$
$
(114,096 )
$
(36,861 )
$
Common Stock
Additional Paid-in
Capital on Common
Stock
Accumulated Deficit
Accumulated Other
Comprehensive
Loss
Shares
Par Value
Total
Stockholders'
Equity
Balance at January 1, 2023
$
$
$
(104,104 )
$
(44,751 )
$
After tax cumulative effect of adoption of accounting principle related to ASC
326
(989 )
(989 )
Adjusted beginning balance after cumulative effect adjustment
(105,093 )
(44,751 )
Net income
-
-
-
-
Other comprehensive loss
-
-
-
-
(1,568 )
(1,568 )
Repurchase of Class A common stock
(577,603 )
(577 )
(6,036 )
-
-
(6,613 )
Restricted stock issued
(121 )
-
-
-
Stock-based compensation
-
-
-
-
Balance at June 30, 2023
$
$
$
(95,088 )
$
(46,319 )
$
Balance at January 1, 2022
(124,245 )
(2,516 )
Net income
-
-
-
-
Other comprehensive loss
-
-
-
-
(34,345 )
(34,345 )
Exercise of stock options
Stock-based compensation
-
-
-
-
Balance at June 30, 2022
$
$
$
(114,096 )
$
(36,861 )
$
The accompanying notes are an integral part of these unaudited consolidated financial statements.
7 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
Consolidated Statements of Cash Flows - Unaudited
(Dollars in thousands)
Six Months Ended June 30,
2023
2022
Cash flows from operating activities:
Net income
$
$
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses
Depreciation and amortization
(Accretion) amortization of premiums on securities, net
(178 )
Accretion of deferred loan fees, net
(163 )
(508 )
Stock-based compensation
Loss (gain) on sale of available for sale securities
(18 )
Gain on sale of loans held for sale
(441 )
(356 )
Increase in cash surrender value of bank owned life insurance
(538 )
(529 )
Decrease in deferred tax assets
Net change in operating assets and liabilities:
Accrued interest receivable
(483 )
(16 )
Other assets
(2,069 )
Accrued interest and other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of investment securities held to maturity
(86,788 )
(2,432 )
Proceeds from maturities and pay-downs of investment securities held to maturity
Purchase of investment securities available for sale
(7,667 )
(42,794 )
Proceeds from maturities and pay-downs of investment securities available for sale
Proceeds from sales of investment securities available for sale
Net increase in loans held for investment
(93,737 )
(115,607 )
Purchase of loans held for investment
(700 )
(70,175 )
Additions to premises and equipment
(60 )
(173 )
Proceeds from the sale of loans held for sale
Proceeds from the redemption of Federal Home Loan Bank stock
-
Purchase of Federal Home Loan Bank stock
(8,164 )
(1,302 )
Net cash used in investment activities
(113,481 )
(161,504 )
Cash flows from financing activities:
Proceeds from issuance of Class A common stock, net
-
Repurchase of Class A common stock
(6,613 )
-
Net increase in deposits
Proceeds from Federal Home Loan Bank advances
Repayments on Federal Home Loan Bank advances
(198,350 )
-
Net cash provided by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
$
$
Supplemental disclosure of cash flow information:
Interest paid
$
$
Supplemental schedule of non-cash investing and financing activities:
Transfer of loans held for investment to loans held for sale
$
$
Lease liability arising from obtaining right-of-use assets
$
-
$
The accompanying notes are an integral part of these unaudited consolidated financial statements.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
8 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Overview
USCB Financial Holdings, Inc., a Florida corporation incorporated in 2021, is a bank holding company with one wholly
owned subsidiary, U.S. Century Bank (the “Bank”), together referred to as “the Company”. The Bank, established in 2002,
is a Florida state-chartered, non-member financial institution providing financial services through its banking centers located
in South Florida.
The Bank owns a subsidiary, Florida Peninsula Title LLC, that offers our clients title insurance policies for real estate
transactions closed at the Bank. Licensed in the State of Florida and approved by the Department of Insurance Regulation,
Florida Peninsula Title LLC began operations in 2021.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with instructions to
Form 10-Q and do not include all the information and footnotes required by U.S. generally accepted accounting principles
(“U.S. GAAP”) for complete financial statements. All adjustments consisting of normally recurring accruals that, in the
opinion of management, are necessary for a fair presentation of the financial position and results of operations for the
periods presented have been included. These unaudited consolidated financial statements should be read in conjunction
with the Company’s consolidated financial statements and related notes appearing in the Company’s Annual Report on
Form 10-K/A for the year ended December 31, 2022.
Principles of Consolidation
The Company consolidates entities in which it has a controlling financial interest. Intercompany transactions and
balances are eliminated in consolidation.
Use of Estimates
To prepare financial statements in conformity with U.S. GAAP, management makes estimates and assumptions based
on available information. These estimates and assumptions affect the amounts reported in the financial statements. The
most significant estimates impacting the Company’s consolidated financial statements are the allowance for credit losses
(ACL) and income taxes.
Reclassifications
Certain amounts in the consolidated financial statements have been reclassified to conform to the current presentation.
Reclassifications had no impact on the net income or stockholders’ equity of the Company.
Adoption of New Accounting Standards
Measurement of Credit Losses on Financial Instruments
On January 1st, 2023, the Company adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments, as amended, which replaces the incurred loss methodology with
an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology. The measurement
of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost,
including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not
accounted for as insurance (e.g., loan commitments, standby letters of credit, financial guarantees, and other similar
instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases. In addition,
ASC 326 amended the accounting for available-for-sale debt securities. One such change is to require credit losses to be
presented as an allowance rather than as a write-down on available-for-sale debt securities, that management does not
intend to sell or believes that it is more likely than not they will be required to sell.
Under CECL, the Company estimates the allowance for credit losses using relevant available information, from both
internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.
Historical credit losses provide the basis for estimation of expected credit losses. Qualitative adjustments are applied to the
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
9 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
expected credit losses estimated for the loan portfolio in relation to potential limitations of the quantitative model. A scorecard
is used to aid management in the assessment of qualitative factor adjustments applied to expected credit losses.
The quantitative component of the estimate relies on the statistical relationship between the projected value of an
economic indicator and the implied historical loss experience among a curated group of peers. The Company utilized
regression analyses of peer data, in which the Company was included, and where observed credit losses and selected
economic factors were used to determine suitable loss drivers for modeling the lifetime rates of probability of default (PD).
A loss given default rate (LGD) is assigned to each pool for each period based on these PD outcomes. The model
fundamentally utilizes an expected discounted cash flow (DCF) analysis for loan portfolio segments. The DCF analysis is
run at the instrument-level and incorporates an array of loan-specific data points and segment-implied assumptions to
determine the lifetime expected loss attributable to each instrument. An implicit "hypothetical loss" is derived for each period
of the DCF and helps establish the present value of future cash flows for each period. The reserve applied to a specific
instrument is the difference between the sum of the present value of future cash flows and the book balance of the loan at
the measurement date.
Management elected the Remaining Life (WARM) methodology for five portfolio segments. For each of these segments,
a long-term average loss rate is calculated and applied on a quarterly basis for the remaining life of the pool. Adjustments
for economic expectations are made through qualitative assessments. For the remaining life estimated, management
implemented a software solution that uses an attrition-based calculation that performs quarterly, cohort-based attrition
measurements based on the loan portfolio.
At adoption of CECL,
% or $
%
or $
million loan receivables of the total loan portfolio were individually evaluated.
Portfolio segments are the level at which loss assumptions are applied to a pool of loans based on the similarity of risk
characteristics inherent in the included instruments, relying on collateral codes and FFIEC Call Report codes. The Company
currently segments the portfolio based on collateral codes for purpose of establishing reserves. Each of these segments is
paired to regression models (Loss Driver Analyses) based on peer data for loans of similar risk characteristics. The
Company has established relationships between internal segmentation and FFIEC Call Report codes for this purpose. The
loss driver for each loan portfolio segment is derived from a readily available and reasonable economic forecast, including
the Federal Reserve Bank projections of U.S. civilian unemployment rate and the year-over-year real GDP growth; for the
residential loan segment the House Price index (“HPI”) projections published by Fannie Mae’s Economic and Strategic
Research Group are utilized for the forecast. Forecasts are applied the first four quarters of the credit loss estimate and
revert on a straight-line basis to the lookback period's historical mean for the economic indicator over the expected life of
loans.
The model incorporates qualitative factor adjustments in order to calibrate the model for risk in each portfolio segment
that may not be captured through quantitative analysis. Determinations regarding qualitative adjustments are reflective of
management's expectation of loss conditions differing from those already captured in the quantitative component of the
model.
The Company estimates a reserve for unfunded commitments, which is reported separately from the allowance for
credit losses within other liabilities. The reserve is based upon the same quantitative and qualitative factors applied to the
collectively evaluated loan portfolio.
The impact of adoption of the ASU 2016-13 was an increase to the allowance for credit losses (ACL) on loans
receivables of $
of tax cumulative adjustment resulted in a increase of $
section in Note 3 for more information on ACL.
Trouble Debt Restructuring
In March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-
02, Financial Instruments -Credit Losses (Topic 326): Troubled Debt Restructurings (“TDR”) and Vintage Disclosures. The
standard addresses the following: 1) eliminates the accounting guidance for TDRs, requires an entity to determine whether
a modification results in a new loan or a continuation of an existing loan, 2) expands disclosures related to modifications,
and 3) requires disclosure of current period gross write-offs of financing receivables within the vintage disclosures table
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
10 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
(see note 3). The Company adopted ASU 2022-02 effective January 1, 2023 on a prospective basis. The adoption of ASU
2022-02 did not have a material impact on the Company’s consolidated financial statements.
Issued and Not Yet Adopted
Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of
Reference Rate Reform on Financial Reporting. In January 2021, the FASB clarified the scope of this guidance with ASU
2021-01 which provides optional guidance for a limited period of time to ease the burden in accounting for (or recognizing
the effects of) reference rate reform on financial reporting. This ASU is effective from March 12, 2020 through December 31,
2024. The Company is evaluating the impact of this ASU and has not yet determined whether LIBOR transition and this
ASU will have a material effect on our business operations and consolidated financial statements.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
11 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
2. INVESTMENT SECURITIES
On January 1st, 2023, the Company adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments, as amended, which replaces the incurred loss methodology with
an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology. The measurement
of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost,
including loan receivables and held-to-maturity debt securities. In addition, ASC 326 amended the accounting for available-
for-sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-
down on available-for-sale debt securities management does not intend to sell or believes that it is more likely than not they
will be required to sell.
CECL requires a loss reserve for securities classified as Held-to-Maturity (HTM). The reserve should reflect historical
credit performance as well as the impact of projected economic forecast. For U.S. Government bonds and U.S. Agency
issued bonds in HTM the explicit guarantee of the US Government is sufficient to conclude that a credit loss reserve is not
required. The reserve requirement is for three primary assets groups: municipal bonds, corporate bond, and non-agency
securitizations. The Company calculates quarterly the loss reserve utilizing Moody’s ImpairmentStudio. The CECL
measurement for investment securities incorporates historical data, containing defaults and recoveries information, and
Moody’s baseline economic forecast. The solution uses probability of default/loss given default (“PD/LGD”) approach. PD
represents the likelihood a borrower will default. Within the Moody’s model , this is determined using historical default data,
adjusted for the current economic environment. LGD projects the expected loss if a borrower were to default.
The Company monitors the credit quality of held to maturity securities through the use of credit ratings. Credit ratings
are monitored by the Company on at least a quarterly basis. As of June 30, 2023 and December 31, 2022, all held to
maturity securities held by the Company were rated investment grade.
At quarter end, HTM securities included $
mortgage-backed securities. Because of the explicit and/or implicit guarantee on these bonds, the Company holds
reserves on these holdings. The remaining portion of the HTM portfolio is made up of $
corporate bonds. The required reserve for these holdings is determined each quarter using the model described above. For
the portion of the HTM exposed to non-government credit risk the Company utilized the PD/LGD methodology to estimate
a $
less ACL.
The Company determined that an ACL on its debt securities available for sale as of June 30, 2023 and December 31,
2022 was not required.
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):
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
12 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
June 30, 2023
Available-for-sale:
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
U.S. Government Agency
$
$
-
$
(1,572 )
$
Collateralized mortgage obligations
-
(24,108 )
Mortgage-backed securities - residential
-
(13,180 )
Mortgage-backed securities - commercial
-
(5,923 )
Municipal securities
-
(5,953 )
Bank subordinated debt securities
-
(2,368 )
Corporate bonds
-
(318 )
$
$
-
$
(53,422 )
$
Held-to-maturity:
U.S. Government Agency
$
$
-
$
(6,174 )
$
U.S. Treasury
-
(14 )
Collateralized mortgage obligations
(8,829 )
Mortgage-backed securities - residential
(4,799 )
Mortgage-backed securities - commercial
-
(1,082 )
Corporate bonds
-
(941 )
$
$
$
(21,839 )
$
Allowance for credit losses - securities held-to-maturity
(19 )
Securities held-to maturity, net of allowance for credit losses
$
December 31, 2022
Available-for-sale:
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
U.S. Government Agency
$
$
-
$
(1,522 )
$
Collateralized mortgage obligations
-
(23,410 )
Mortgage-backed securities - residential
-
(12,959 )
Mortgage-backed securities - commercial
(4,305 )
Municipal securities
-
(6,601 )
Bank subordinated debt securities
(1,050 )
Corporate bonds
-
(328 )
$
$
$
(50,175 )
$
Held-to-maturity:
U.S. Government Agency
$
$
$
(5,877 )
$
U.S. Treasury
-
(13 )
Collateralized mortgage obligations
(7,830 )
Mortgage-backed securities - residential
(4,574 )
Mortgage-backed securities - commercial
-
(665 )
Corporate bonds
-
(1,077 )
$
$
$
(20,036 )
$
During the year ended December 31, 2022, a total of
value of $
unrealized loss of $
comprehensive income (“AOCI”) is being amortized over the remaining life of the securities. For the three and six months
ended June 30, 2023, total amortization out of AOCI for net unrealized losses on securities transferred from AFS to HTM
was $
Gains and losses on the sale of securities are recorded on the trade date and are determined on the specific
identification basis. The following table presents the proceeds, realized gross gains and realized gross losses on sales and
calls of AFS debt securities for the three and six months ended June 30, 2023 and 2022 (in thousands):
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
13 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
Three Months Ended June 30,
Six Months Ended June 30,
Available-for-sale:
2023
2022
2023
2022
Proceeds from sale and call of securities
$
-
$
$
$
Gross gains
$
-
$
$
$
Gross losses
-
(61 )
(24 )
(198 )
Net realized (loss) gain
$
-
$
(3 )
$
(21 )
$
The amortized cost and fair value of investment securities, by contractual maturity, are shown below as of the date
indicated (in thousands). Actual maturities may differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown
separately.
Available-for-sale
Held-to-maturity
June 30, 2023:
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
Due within one year
$
-
$
-
$
$
Due after one year through five years
Due after five years through ten years
-
-
Due after ten years
-
-
U.S. Government Agency
Collateralized mortgage obligations
Mortgage-backed securities - residential
Mortgage-backed securities - commercial
$
$
$
$
At June 30, 2023, there were no securities held in the portfolio from any one issuer in an amount greater than 10% of
total stockholders’ equity other than the United States Government and Government Agency securities. All the collateralized
mortgage obligations and mortgage-backed securities are issued by United States sponsored entities at June 30, 2023 and
December 31, 2022.
Information pertaining to investment securities with gross unrealized losses, aggregated by investment category and
length of time that those individual securities have been in a continuous loss position, are presented as of the following
dates (in thousands):
June 30, 2023
Less than 12 months
12 months or more
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
U.S. Government Agency
$
-
$
-
$
$
(9,030 )
$
$
(9,030 )
U.S. Treasury
(14 )
-
-
(14 )
Collateralized mortgage obligations
-
-
(37,550 )
(37,550 )
Mortgage-backed securities - residential
(67 )
(20,400 )
(20,467 )
Mortgage-backed securities - commercial
(315 )
(8,178 )
(8,493 )
Municipal securities
-
-
(5,953 )
(5,953 )
Bank subordinated debt securities
(393 )
(1,975 )
(2,368 )
Corporate bonds
-
-
(865 )
(865 )
$
$
(789 )
$
$
(83,951 )
$
$
(84,740 )
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
14 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
December 31, 2022
Less than 12 months
12 months or more
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
U.S. Government Agency
$
(1,093 )
(7,616 )
$
(8,709 )
U.S. Treasury
(13 )
-
-
(13 )
Collateralized mortgage obligations
(963 )
(34,962 )
(35,925 )
Mortgage-backed securities - residential
(564 )
(19,348 )
(19,912 )
Mortgage-backed securities - commercial
(1,173 )
(5,300 )
(6,473 )
Municipal securities
-
-
(6,601 )
(6,601 )
Bank subordinated debt securities
(670 )
(381 )
(1,051 )
Corporate bonds
(926 )
-
-
(926 )
$
$
(5,402 )
$
$
(74,208 )
$
$
(79,610 )
As of June 30, 2023, the unrealized losses associated with $
AFS portfolio to the HTM portfolio represent unrealized losses since the date of purchase, independent of the impact
associated with changes in the cost basis of the securities upon transfer between portfolios.
ASC Topic 326 amended the existing other-than-temporary-impairment guidance for AFS securities, requiring credit
losses to be recorded as an allowance rather than through a permanent write-down. When evaluating AFS debt securities
under ASC Topic 326, the Company has evaluated whether the decline in fair value is attributed to credit losses or other
factors like interest rate risk, using both quantitative and qualitative analyses, including company performance analysis,
review of credit ratings, remaining payment terms, prepayment speeds and analysis of macro-economic conditions. Each
investment is expected to recover its price depreciation over its holding period as it moves to maturity and the Company
has the intent and ability to hold these securities to maturity if necessary. As a result of this evaluation, the Company
concluded that no allowance was required on AFS securities.
At June 30, 2023, the Company had $
mortgage obligations of government sponsored entities having a fair value of $
combination of factors, including relative changes in interest rates since the time of purchase.
At December 31, 2022, the Company had $
collateralized mortgage obligations of government sponsored entities having a fair value of $
attributable to a combination of factors, including relative changes in interest rates since the time of purchase.
The contractual cash flows for these securities are guaranteed by U.S. government agencies and U.S. government
sponsored entities. The municipal bonds are of high credit quality and the declines in fair value are not due to credit quality.
Based on the assessment of these mitigating factors, management believed that the unrealized losses on these debt
security holdings are a function of changes in investment spreads and interest rate movements and not changes in credit
quality. Management expects to recover the entire amortized cost basis of these securities.
At June 30, 2023, the Company does not intend to sell debt securities that are in an unrealized loss position and it is
not more than likely than not that the Company will be required to sell these securities before recovery of the amortized cost
basis. Therefore, management does not consider any investment to be other than temporarily impaired at June 30, 2023.
Pledged Securities
The Company maintains a master repurchase agreement with a public banking institution for up to $
guaranteed with investment securities upon withdrawal. Any amounts borrowed would be at a variable interest rate based
on prevailing rates at the time funding is requested. As of June 30, 2023, the Company did
t have any securities pledged
under this agreement.
The Company is a Qualified Public Depositor (“QPD”) with the State of Florida. As a QPD, the Company has the legal
authority to maintain public deposits from cities, municipalities, and the State of Florida. These public deposits are secured
by securities pledged to the State of Florida at a ratio of
% of the outstanding uninsured deposits. The Company must
also maintain a minimum amount of pledged securities to be in the public funds program.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
15 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
As of June 30, 2023, the Company had a total of $
to the State of Florida for these public funds were
As of December 31, 2022, the Company had a total of $
pledged to the State of Florida for these public funds were
$
The Federal Reserve Board, on March 12, 2023, announced the creation of a new Bank Term Funding Program (BTFP).
The BTFP offers loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository
institutions pledging U.S. Treasuries, U.S. agency debt and mortgage-backed securities, and other qualifying assets as
collateral. These assets will be valued at par.
The Company had
securities measured at par to the Federal Reserve Bank of Atlanta for the BTFP program.
3. LOANS
On January 1, 2023, the Company adopted FASB ASC Topic 326 using the modified retrospective methodology in
accordance with the amendments of FASB ASU 2016-13. Through the adoption of CECL, the Company developed an
allowance for credit losses (“ACL”) methodology that replaces its previous allowance for loan losses methodology. See the
ACL section in this note for further information regarding the Company’s ACL. Prior periods balance for ACL are presented
under legacy GAAP and may not be comparable to current period presentation.
The following table is a summary of the distribution of loans held for investment by type (in thousands):
June 30, 2023
December 31, 2022
Total
Percent of
Total
Total
Percent of
Total
Residential Real Estate
$
%
$
%
Commercial Real Estate
%
%
Commercial and Industrial
%
%
Foreign Banks
%
%
Consumer and Other
%
%
Total gross loans
%
%
Less: Deferred fees (cost)
(810 )
(110 )
Total loans net of deferred fees (cost)
Less: Allowance for credit losses
Total net loans
$
$
At June 30, 2023 and December 31, 2022, the Company had $
commercial real estate and residential mortgage loans pledged as collateral for lines of credit with the FHLB and the Federal
Reserve Bank of Atlanta.
The Company was a participant in the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”)
loans. These loans were designed to provide a direct incentive for small businesses to keep their workers on payroll and
the funds had to be used towards payroll cost, mortgage interest, rent, utilities and other costs related to COVID-19. These
loans are forgivable under specific criteria as determined by the SBA. The Company had PPP loans totaling $
at June 30, 2023 and $
The Company recognized $
ended June 30, 2023 and 2022, respectively, which is reported under loans, including fees, within the Consolidated
Statements of Operations.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
16 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
Allowance for Credit Losses
In general, the Company utilizes the Discounted Cash Flow (DCF) method or the Remaining Life (WARM) methodology
to estimate the quantitative portion of the ACL for loan pools. The DCF uses a loss driver analysis (LDA) and discounted
cash flow analyses. Management engaged advisors and consultants with expertise in CECL model development to assist
in development of a loss driver analysis based on regression models and supportable forecast. Peer group data obtained
from FFIEC Call Report filings is used to inform regression analyses to quantify the impact of reasonable and supportable
forecasts in projective models. Economic forecasts applied to regression models to estimate probability of default for loan
receivables use at least one of the following economic indicators: civilian unemployment rate (national), real gross domestic
product growth (national GDP) and/or the HPI. For each of the segments in which the WARM methodology is used, the
long-term average loss rate is calculated and applied on a quarterly basis for the remaining life of the pool. Adjustments for
economic expectations are made through qualitative factors .
Qualitative factors used in the ACL methodology include:
• Changes in lending policies, procedures, and strategies
• Changes in international, national, regional, and local conditions
• Changes in nature and volume of portfolio
• Changes in the volume and severity of past due loans and other similar conditions
• Concentration risk
• Changes in the value of underlying collateral
• The effect of other external factors: e.g., competition, legal, and regulatory requirements
• Changes in lending management, among others
ACL for the three and six months ended June 30 2023, was estimated under the CECL methodology, and for all periods
in 2022, it was estimated under the incurred loss model.
Changes in the allowance for credit losses for the three and six months ended June 30 2023 and 2022 were as follows
(in thousands):
Residential
Real Estate
Commercial
Real Estate
Commercial
and
Industrial
Foreign
Banks
Consumer
and Other
Total
Three Months Ended June 30, 2023
Beginning balance
$
$
$
$
$
$
Provision for credit losses
(1)
(148 )
(270 )
(95 )
(43 )
Recoveries
-
-
Charge-offs
-
-
-
-
(40 )
(40 )
Ending Balance
$
$
$
$
$
$
Six Months Ended June 30, 2023
Beginning balance
$
$
$
$
$
$
Cumulative effect of adoption of accounting
principle
(2)
(2,158 )
Provision for credit losses
(3)
(1,065 )
(66 )
Recoveries
-
-
Charge-offs
-
-
-
-
(45 )
(45 )
Ending Balance
$
$
$
$
$
$
(1) Provision for credit losses excludes $
thousand expense due to investment securities held to maturity.
(2) Impact of CECL adoption on January 1, 2023
(3) Provision for credit losses excludes $
thousand expense due to investment securities held to maturity.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
17 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Foreign
Banks
Consumer
and Other
Total
Three Months Ended June 30, 2022
Beginning balance
$
$
$
$
$
$
Provision for credit losses
Recoveries
-
-
-
Charge-offs
-
-
-
-
(1 )
(1 )
Ending Balance
$
$
$
$
$
$
Six Months Ended June 30, 2022
Beginning balance
$
$
$
$
$
$
Provision for credit losses
(148 )
(115 )
Recoveries
-
-
Charge-offs
(16 )
-
-
-
(6 )
(22 )
Ending Balance
$
$
$
$
$
$
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
18 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
At June 30, 2023 the ACL, under the CECL methodology, was $
31, 2022, under the incurred loss methodology. The increase of $
of the ASU 2016-13 on loan receivables, $
thousand decrease due to net charge offs .
The Company had charge offs totaling $
charge offs related to loans were originated in 2015 and $
The Company had charge offs totaling $
of charge offs related to loans were originated in 2015 and $
unemployment and real GDP growth. Fannie Mae HPI forecast reflected deterioration in national housing prices, but to a
lesser extent than forecasts published in first quarter 2023. The Company continued to adjust the HPI index effect on 1-4
Family loan portfolio with a qualitative factor because Florida housing prices are performing better than national levels.
The ACL and the outstanding balances in the specified loan categories as of June 30, 2023 and December 31, 2022
are as follows (in thousands):
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Foreign
Banks
Consumer
and Other
Total
June 30, 2023:
Allowance for credit losses:
Individually evaluated for impairment
$
$
-
$
$
-
$
-
$
Collectively evaluated for impairment
Balances, end of period
$
$
$
$
$
$
Loans:
Individually evaluated for impairment
$
$
-
$
$
-
$
-
$
Collectively evaluated for impairment
Balances, end of period
$
$
$
$
$
$
December 31, 2022:
Allowance for credit losses:
Individually evaluated for impairment
$
$
-
$
$
-
$
$
Collectively evaluated for impairment
Balances, end of period
$
$
$
$
$
$
Loans:
Individually evaluated for impairment
$
$
$
$
-
$
$
Collectively evaluated for impairment
Balances, end of period
$
$
$
$
$
$
Credit Quality Indicators
The Company grades loans based on the estimated capability of the borrower to repay the contractual obligation of the
loan agreement based on relevant information which may include: current financial information on the borrower, historical
payment experience, credit documentation and other current economic trends. Internal credit risk grades are evaluated
periodically.
The Company's internally assigned credit risk grades are as follows:
Pass
– Loans indicate different levels of satisfactory financial condition and performance.
Special Mention
close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment
prospects for the loan or of the institution’s credit position at some future date.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
19 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
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 June 30, 2023
Term Loans by Origination Year
Revolving
Loans
Total
2023
2022
2021
2020
2019
Prior
Residential real estate
Pass
$
$
$
$
$
$
$
$
Total
Commercial real estate
Pass
Substandard
-
-
-
-
-
Total
Commercial and
industrial
Pass
Substandard
-
-
-
-
-
Total
Foreign banks
Pass
-
-
-
-
-
Total
-
-
-
-
-
Consumer and other
loans
Pass
Substandard
-
-
-
-
-
-
-
-
Total
Total Loans
Pass
Special Mention
-
-
-
-
-
-
-
-
Substandard
-
-
-
-
Doubtful
-
-
-
-
-
-
-
-
Total
$
$
$
$
$
$
$
$
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
20 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
As of December 31, 2022
Pass
Special
Mention
Substandard
Doubtful
Total Loans
Residential real estate:
Home equity line of credit and other
$
$
-
$
-
$
-
$
1-4 family residential
-
-
-
Condo residential
-
-
-
-
-
-
-
Commercial real estate:
Land and construction
-
-
-
Multi-family residential
-
-
-
Condo commercial
-
-
Commercial property
-
-
-
-
Commercial and industrial:
Secured
-
807
-
Unsecured
-
-
-
-
-
Foreign banks
-
-
-
Consumer and other loans
-
-
Total
$
$
-
$
$
-
$
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
21 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
Loan Aging
The Company also considers the performance of loans in grading and in evaluating the credit quality of the loan portfolio.
The Company analyzes credit quality and loan grades based on payment performance and the aging status of the loan.
The following tables include an aging analysis of accruing loans and total non-accruing loans as of June 30, 2023 and
December 31, 2022 (in thousands):
Accruing
As of June 30, 2023
Current
Past Due 30-
89 Days
Past Due 90
Days or >
and Still
Accruing
Total
Accruing
Non-Accrual
Total Loans
Residential real estate:
Home equity line of credit and other
$
$
-
$
-
$
$
-
$
1-4 family residential
-
-
-
Condo residential
-
-
-
-
-
-
Commercial real estate:
Land and construction
-
-
-
Multi-family residential
-
-
-
Condo commercial
-
-
-
Commercial property
-
-
-
Leasehold improvements
-
-
-
-
-
-
Commercial and industrial:
Secured
-
Unsecured
-
-
-
-
Foreign banks
-
-
-
Consumer and other
-
-
-
Total
$
$
$
-
$
$
$
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
22 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
Accruing
As of December 31, 2022:
Current
Past Due
30-89 Days
Past Due 90
Days or >
and Still
Accruing
Total
Accruing
Non-Accrual
Total Loans
Residential real estate:
Home equity line of credit and other
$
$
-
$
-
$
$
-
$
1-4 family residential
-
-
Condo residential
-
-
-
-
Commercial real estate:
Land and construction
-
-
-
Multi-family residential
-
-
-
Condo commercial
-
-
-
Commercial property
-
-
Leasehold improvements
-
-
-
-
-
-
-
-
Commercial and industrial:
Secured
-
-
Unsecured
-
-
-
-
Foreign banks
-
-
-
Consumer and other
-
-
Total
$
$
$
-
$
$
$
Nonaccrual Status
The following table includes the amortized cost basis of loans on nonaccrual status and loans past due over 90 days
and still accruing as of June 30 2023:
June 30, 2023
Nonaccrual
Loans With No
Related
Allowance
Nonaccrual
Loans With
Related
Allowance
Total
Nonaccruals
Loans Past
Due Over 90
Days and Still
Accruing
Residential real estate
$
-
$
-
$
-
$
-
Commercial real estate
-
-
-
-
Commercial and industrial
-
-
Consumer and other
-
-
-
-
$
-
$
$
$
-
The Company did
t have loans in nonaccrual status as of December 31, 2022.
Accrued interest receivable is excluded from the estimate of credit losses. There was
attributable to nonaccrual loans outstanding during the three months ended June 30, 2023 and 2022. Interest income on
these loans for the three months ended June 30, 2023 and 2022, would have been approximately $
thousand, respectively, had these loans performed in accordance with their original terms.
Collateral-Dependent Loans
A loan is collateral dependent when the borrower is experiencing financial difficulty and repayment of the loan is
expected to be provided substantially through the sale or operation of the collateral. There were
loans as of June 30 2023 and as of December 31, 2022.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
23 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
Impaired Loans
The following table includes the unpaid principal balances for impaired loans with the associated allowance amount, if
applicable, on the basis of impairment methodology as of December 31, 2022 (in thousands):
December 31, 2022
Unpaid
Principal
Balance
Net
Investment
Balance
Valuation
Allowance
Impaired Loans with No Specific Allowance:
Residential real estate
$
$
$
-
Commercial real estate
-
-
Impaired Loans with Specific Allowance:
Residential real estate
Commercial and industrial
Consumer and other
Total
$
$
$
Net investment balance is the unpaid principal balance of the loan adjusted for the remaining net deferred loan fees.
The following table presents the average recorded investment balance on impaired loans for the periods indicated (in
thousands):
Three Months Ended June 30, 2022
Six Months Ended June 30, 2022
Residential real estate
$
$
Commercial real estate
Commercial and industrial
Consumer and other
Total
$
$
Interest income recognized on impaired loans for the three months ended June 30, 2022 was $
six months ended June 30, 2022 was $
Loan Modifications to Borrowers Experiencing Financial Difficulties
The following table present newly restructured loans, by type of modification, which occurred during the quarter ended
June 30, 2023:
Recorded Investment Prior to Modification
Recorded Investment After Modification
Number of
Loans
Combination
Modifications
Total
Modifications
Number of
Loans
Combination
Modifications
Total
Modifications
Residential real estate
-
$
-
$
-
-
$
-
$
-
Commercial real estate
-
-
-
-
-
-
Commercial and industrial
Consumer and other
-
-
-
-
-
-
$
$
$
$
The Company had
ended June 30, 2023.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
24 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
4. INCOME TAXES
The Company’s provision for income taxes is presented in the following table for the dates indicated (in thousands):
Six Months Ended June 30,
2023
2022
Current:
Federal
$
-
$
-
State
-
-
Total current
-
-
Deferred:
Federal
State
Total deferred
Total tax expense
$
$
The actual income tax expense for the six months ended June 30, 2023 and 2022 differs from the statutory tax expense
for the period (computed by applying the U.S. federal corporate tax rate of
% for 2023 and 2022 to income before provision
for income taxes) as follows (in thousands):
Six Months Ended June 30,
2023
2022
Federal taxes at statutory rate
$
$
State income taxes, net of federal tax benefit
Bank owned life insurance
(136 )
(134 )
Other, net
-
Total tax expense
$
$
The Company’s deferred tax assets and deferred tax liabilities as of the dates indicated were (in thousands):
June 30, 2023
December 31, 2022
Deferred tax assets:
Net operating loss
$
$
Allowance for credit losses
Lease liability
Unrealized losses on available for sale securities
Depreciable property
Equity compensation
Accruals
Deferred tax assets:
Deferred tax liability:
Deferred loan cost
(205 )
(28 )
Lease right of use asset
(3,272 )
(3,648 )
Deferred expenses
(222 )
(175 )
Cash flow hedge
(265 )
-
Other, net
(21 )
(36 )
Deferred tax liability
(3,985 )
(3,887 )
Net deferred tax assets
$
$
The Company has approximately $
expiring in various amounts between 2031 and 2036 and which are limited to offset, to the extent permitted, future taxable
earnings of the Company.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
25 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment.
The major tax jurisdictions where the Company files income tax returns are the U.S. federal jurisdiction and the State
of Florida. With few exceptions, the Company is no longer subject to U.S. federal and state income tax examinations by tax
authorities for years before 2019.
For the three and six months ended June 30, 2023 and 2022, the Company did
t have any unrecognized tax benefits
as a result of tax positions taken during a prior period or during the current period. Additionally,
recorded as a result of tax uncertainties.
5. OFF-BALANCE SHEET ARRANGEMENTS
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business in order to
meet the financial needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial
instruments include unfunded commitments under lines of credit, commitments to extend credit, standby and commercial
letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the Company’s Consolidated Balance Sheets. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet instruments.
The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instruments
for unused lines of credit, and standby letters of credit is represented by the contractual amount of these commitments.
A summary of the amounts of the Company's financial instruments with off-balance sheet risk are shown below at
June 30, 2023 and December 31, 2022 (in thousands):
June 30, 2023
December 31, 2022
Commitments to grant loans and unfunded lines of credit
$
$
Standby and commercial letters of credit
Total
$
$
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration dates or other termination clauses.
Unfunded lines of credit and revolving credit lines are commitments for possible future extensions of credit to existing
customers. These lines of credit are uncollateralized and usually do not contain a specified maturity date and ultimately may
not be drawn upon to the total extent to which the Company committed.
Standby and commercial letters of credit are conditional commitments issued by the Company to guarantee the
performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing
arrangements. Essentially all letters of credit have fixed maturity dates and since many of them expire without being drawn
upon, they do not generally present a significant liquidity risk to the Company.
6. DERIVATIVES
The Company utilizes interest rate swap agreements as part of its asset liability management strategy to help manage
its interest rate risk exposure. The notional amount of the interest rate swaps do not represent actual amounts exchanged
by the parties. The amounts exchanged are determined by reference to the notional amount and the other terms of the
individual interest rate swap agreements.
Interest Rate Swaps Designated as a Cash Flow Hedge
As of June 30, 2023, the Company had
that were designated as cash flow hedges of certificates of deposit. The interest rate swap agreements have an average
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
26 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
maturity of
%, with the weighted average 3-month compound SOFR
being received. The Company had
The changes in fair value on these interest rate swaps are recorded in other assets or other liabilities with a
corresponding recognition in other comprehensive income and subsequently reclassified to earnings when gains or losses
are realized.
Interest Rate Swaps
The Company enters into interest rate swaps with its loan customers. The Company had
with loan customers with an aggregate notional amount of $
December 31, 2022, respectively. These interest rate swaps mature between 2025 and 2051. The Company entered into
corresponding and offsetting derivatives with third parties. The fair value of liability on these derivatives requires the
Company to provide the counterparty with funds to be held as collateral which the Company reports as other assets under
the Consolidated Balance Sheets. While these derivatives represent economic hedges, they do not qualify as hedges for
accounting purposes.
The following table reflects the Company’s interest rate swaps at the dates indicated (in thousands):
Fair Value
Notional
Amount
Collateral
Amount
Balance Sheet Location
Asset
Liability
June 30, 2023:
Derivatives designated as hedging instruments:
Interest rate swaps
$
-
Other assets
$
-
Derivatives not designated as hedging instruments:
Interest rate swaps related to customer loans
$
$
Other assets/Other liabilities
$
$
December 31, 2022:
Derivatives not designated as hedging instruments:
Interest rate swaps related to customer loans
$
$
Other assets/Other liabilities
$
$
7. FAIR VALUE MEASUREMENTS
Determination of Fair Value
The Company uses fair value measurements to record fair-value adjustments to certain assets and liabilities and to
determine fair value disclosures. In accordance with the fair value measurements accounting guidance, the fair value of a
financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Fair value is best determined based upon quoted market prices.
However, in many instances, there are no quoted market prices for the Company's various financial instruments. In cases
where quoted market prices are not available, fair values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates
of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction
(that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current
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.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
27 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
Fair Value Hierarchy
In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured
at fair value in three levels, based on the markets in which the assets and liabilities are traded, and the reliability of the
assumptions used to determine fair value.
Level 1
entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and
equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing
sources for market transactions involving identical assets or liabilities.
Level 2
asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the asset or liability.
Level 3
significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments
whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as
well as instruments for which determination of fair value requires significant management judgment or estimation.
A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is
significant to the fair value measurement.
Items Measured at Fair Value on a Recurring Basis
AFS investment securities:
for such securities, management generally relies on prices obtained from independent vendors or third-party broker-dealers.
Management reviews pricing methodologies provided by the vendors and third-party broker-dealers in order to determine if
observable market information is being utilized. Securities measured with pricing provided by independent vendors or third-
party broker-dealers are classified within Level 2 of the hierarchy and often involve using quoted market prices for similar
securities, pricing models or discounted cash flow analyses utilizing inputs observable in the market where available.
Derivatives:
classified within Level 2 of the hierarchy.
The following table represents the Company's assets and liabilities measured at fair value on a recurring basis at
June 30, 2023 and December 31, 2022 for each of the fair value hierarchy levels (in thousands):
June 30, 2023
December 31, 2022
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Investment securities available for sale:
U.S. Government Agency
$
-
$
$
-
$
$
-
$
$
-
$
Collateralized mortgage obligations
-
-
-
-
Mortgage-backed securities - residential
-
-
-
-
Mortgage-backed securities - commercial
-
-
-
-
Municipal securities
-
-
-
-
Bank subordinated debt securities
-
-
-
-
Corporate bonds
-
-
-
-
Total
-
-
-
-
Derivative assets
-
-
-
-
Total assets at fair value
$
-
$
$
-
$
$
-
$
$
-
$
Derivative liabilities
$
-
$
$
-
$
$
-
$
$
-
$
Total liabilities at fair value
$
-
$
$
-
$
$
-
$
$
-
$
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
28 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
Items Measured at Fair Value on a Non-recurring Basis
Individually Evaluated Loans and Impaired Loans:
ASC 326 eliminates the current accounting model for impaired
loans effective as of January 1, 2023. At December 31, 2022, in accordance with provisions of the loan impairment
guidance, individual loans with a carrying amount of approximately $
approximately $
credit losses at December 31, 2022. Loans subject to write-downs, or impaired loans, are estimated using the present value
of expected cash flows or the appraised value of the underlying collateral discounted as necessary due to management's
estimates of changes in economic conditions 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 June 30, 2023
and December 31, 2022 for each of the fair value hierarchy levels (in thousands):
Level 1
Level 2
Level 3
Total
June 30, 2023:
Individually evaluated loans
$
-
$
-
$
-
$
-
December 31, 2022:
Impaired loans
$
-
$
-
$
$
The following table presents quantified information about Level 3 fair value measurements for assets measured at fair
value on a non-recurring basis at December 31, 2022 (in thousands):
Fair Value
Valuation Technique(s)
Unobservable Input(s)
December 31, 2022:
Residential real estate
$
Sales comparison approach
Adj. for differences between comparable sales
Commercial and industrial
Discounted cash flow
Adj. for differences in net operating income expectations
Consumer and other loans
Discounted cash flow
Adj. for differences in net operating income expectations
Total impaired loans
$
There were
2022.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
29 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
Items Not Measured at Fair Value
The following table presents the carrying amounts and estimated fair values of financial instruments not carried at fair
value as of June 30, 2023 and December 31, 2022 (in thousands):
Fair Value Hierarchy
Carrying
Amount
Level 1
Level 2
Level 3
Fair Value
Amount
June 30, 2023:
Financial Assets:
Cash and due from banks
$
$
$
-
$
-
$
Interest-bearing deposits in banks
$
$
$
-
$
-
$
Investment securities held to maturity, net
$
$
-
$
$
-
$
Loans held for investment, net
$
$
-
$
-
$
$
Accrued interest receivable
$
$
-
$
$
$
Financial Liabilities:
Demand deposits
$
$
$
-
$
-
$
Money market and savings accounts
$
$
$
-
$
-
$
Interest-bearing checking accounts
$
$
$
-
$
-
$
Time deposits
$
$
-
$
-
$
$
FHLB advances
$
$
-
$
$
-
$
Accrued interest payable
$
$
-
$
$
$
December 31, 2022:
Financial Assets:
Cash and due from banks
$
$
$
-
$
-
$
Interest-bearing deposits in banks
$
$
$
-
$
-
$
Investment securities held to maturity
$
$
-
$
$
-
$
Loans held for investment, net
$
$
-
$
-
$
$
Accrued interest receivable
$
$
-
$
$
$
Financial Liabilities:
Demand deposits
$
$
$
-
$
-
$
Money market and savings accounts
$
$
$
-
$
-
$
Interest-bearing checking accounts
$
$
$
-
$
-
$
Time deposits
$
$
-
$
-
$
$
FHLB advances
$
$
-
$
$
-
$
Accrued interest payable
$
$
-
$
$
$
8. STOCKHOLDERS’ EQUITY
Common Stock
In July 2021, the Bank completed the initial public offering of its Class A common stock, in which it issued and sold
million after deducting underwriting discounts and expenses.
In December 2021, the Company acquired all the issued and outstanding shares of the Class A voting common stock
of the Bank, which at the time were the only issued and outstanding shares of the Bank’s capital stock, in a share exchange
(the “Reorganization”) effected under the Florida Business Corporation Act. Each outstanding share of the Bank’s Class A
common stock, par value $
newly issued share of the Company’s Class A common stock, par value $
Company’s wholly owned subsidiary.
In the Reorganization, each shareholder of the Bank received securities of the same class, having substantially the
same designations, rights, powers, preferences, qualifications, limitations and restrictions, as those that the shareholder
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
30 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
held in the Bank, and the Company’s then current shareholders owned the same percentages of the Company’s common
stock as they previously owned of the Bank’s common stock.
In March 2023, the Company issued
stock awards pursuant to the Company’s 2015 equity incentive plan. There were
ended June 30, 2023 nor during the three and six months ended June 30, 2022.
During the second quarter of 2023, the Company repurchased
average price per share of $
. The aggregate purchase price for these transactions was approximately $
including transaction costs. These repurchases were made through open market purchases pursuant to the Company’s
publicly announced repurchase program. As of June 30, 2023,
this program.
Shares of the Company’s Class A common stock issued and outstanding as
of June 30, 2023 and December 31, 2022
were
, respectively.
Dividends
Declaration of dividends by the Board is required before dividend payments are made.
the Board for the common stock classes for the three months ended June 30, 2023 and 2022. Additionally, there were
dividends declared and unpaid as of June 30, 2023 and 2022.
The Company and the Bank exceeded all regulatory capital requirements and remained above “well-capitalized”
guidelines as of June 30, 2023 and December 31, 2022. At June 30, 2023, the total risk-based capital ratios for the Company
and the Bank were
% and
%, respectively.
9. EARNINGS PER SHARE
Earnings per share (“EPS”) for common stock is calculated using the two-class method required for participating
securities. Basic EPS is calculated by dividing net income (loss) available to common 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.
The following table reflects the calculation of net income available to common stockholders for the three and six months
ended June 30, 2023 and 2022 (in thousands):
Three Months Ended June 30,
Six Months Ended June 30,
2023
2022
2023
2022
Net Income
$
$
$
$
Net income available to common stockholders
$
$
$
$
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
31 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
The following table reflects the calculation of basic and diluted earnings per common share class for the three and six
months ended June 30, 2023 and 2022 (in thousands, except per share amounts):
Three Months Ended June 30,
2023
2022
Class A
Class A
Basic EPS
Numerator:
Net income available to common shares
$
$
Denominator:
Weighted average shares outstanding
Earnings per share, basic
$
$
Diluted EPS
Numerator:
Net income available to common shares
$
$
Denominator:
Weighted average shares outstanding for basic EPS
Add: Dilutive effects of assumed exercises of stock options
Weighted avg. shares including dilutive potential common shares
Earnings per share, diluted
$
$
Anti-dilutive stock options excluded from diluted EPS
Net income has not been allocated to unvested restricted stock awards that are participating securities because the amounts that would be allocated
are not material to net income per share of common stock. Unvested restricted stock awards that are participating securities represent less than one
percent of all of the outstanding shares of common stock for each of the periods presented.
Six Months Ended June 30,
2023
2022
Class A
Class A
Basic EPS
Numerator:
Net income (loss) available to common shares
$
$
Denominator:
Weighted average shares outstanding
Earnings per share, basic
$
$
Diluted EPS
Numerator:
Net income available to common shares
$
$
Denominator:
Weighted average shares outstanding for basic EPS
Add: Dilutive effects of assumed exercises of stock options
Weighted avg. shares including dilutive potential common shares
Earnings per share, diluted
$
$
Anti-dilutive stock options excluded from diluted EPS
Net income has not been allocated to unvested restricted stock awards that are participating securities because the amounts that would be allocated are
not material to net income per share of common stock. Unvested restricted stock awards that are participating securities represent less than one percent
of all of the outstanding shares of common stock for each of the periods presented.
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
32 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
10. LOSS CONTINGENCIES
Loss contingencies, including claims and legal actions may arise in the ordinary course of business. In the opinion of
management, none of these actions, either individually or in the aggregate, is expected to have a material adverse effect
on the Company’s Consolidated Financial Statements.
11. SUBSEQUENT EVENTS
Management has evaluated subsequent events from July 1, 2023 through August 11, 2023, which is the date this Form
10-Q was available to be issued.
In July 2023,
naming the Bank as a party, alleging the named directors did not have the authority to approve the exchange of preferred
stock in July 2021 as part of the Bank’s initial public offering and that further, such action breached their fiduciary duties.
The Plaintiffs claim this exchange was not permitted by the Bank’s Articles of Incorporation. The Company believes that the
allegations in the lawsuit are legally and factually without merit, and the Company intends to vigorously defend against the
allegations in the lawsuit. Despite the Company’s belief the lawsuit lacks merit, if the plaintiffs were successful, the Court
could award substantial compensatory damages.
33 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis is designed to provide a better understanding of the consolidated financial
condition and results of operations of the Company and the Bank, its wholly owned subsidiary, for the quarter and six months
ended June 30, 2023. This discussion and analysis is best read in conjunction with the unaudited consolidated financial
statements and related footnotes included in this quarterly report on Form 10-Q and the audited consolidated financial
statements and related footnotes included in the Annual Report on Form 10-K/A (“2022 Form 10-K/A”) filed with the
Securities and Exchange Commission (“SEC”) for the year ended December 31, 2022.
This discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause
actual results to differ materially from management's expectations. Factors that could cause such differences are discussed
in the sections entitled "Forward-Looking Statements" and Item 1A “Risk Factors" below and in the 2022 Form 10-K/A filed
with the SEC which is available at the SEC’s website www.sec.gov.
Throughout this document, references to “we,” “us,” “our,” and “the Company” generally refer to USCB Financial
Holdings, Inc.
Forward-Looking Statements
This Quarterly Report on Form 10-Q (“Form 10-Q”) contains statements that are not historical in nature and are intended
to be, and are hereby identified as, forward-looking statements for purposes of the safe harbor provided by Section 21E of
the Securities Exchange Act of 1934, as amended (Exchange Act”). The words “may,” “will,” “anticipate,” “should,” “would,”
“believe,” “contemplate,” “expect,” “aim,” “plan,” “estimate,” “continue,” and “intend,” as well as other similar words and
expressions of the future, are intended to identify forward-looking statements. These forward-looking statements include,
but are not limited to, statements related to our projected growth, anticipated future financial performance, and
management’s long-term performance goals, as well as statements relating to the anticipated effects on results of operations
and financial condition from expected developments or events, or business and growth strategies, including anticipated
internal growth and balance sheet restructuring.
These forward-looking statements involve significant risks and uncertainties that could cause our actual results to differ
materially from those anticipated in such statements. Potential risks and uncertainties include, but are not limited to:
• the strength of the United States economy in general and the strength of the local economies in which we conduct
operations;
• our ability to successfully manage interest rate risk, credit risk, liquidity risk, and other risks inherent to our industry;
• the accuracy of our financial statement estimates and assumptions, including the estimates used for our credit loss
reserve and deferred tax asset valuation allowance;
• the efficiency and effectiveness of our internal control procedures and processes;
• our ability to comply with the extensive laws and regulations to which we are subject, including the laws for each
jurisdiction where we operate;
• adverse changes or conditions in capital and financial markets, including actual or potential stresses in the banking
industry;
• deposit attrition and the level of our uninsured deposits;
• legislative or regulatory changes and changes in accounting principles, policies, practices or guidelines, including
the on-going effects of the implementation of the Current Expected Credit Losses (“CECL”) standard;
• the effects of our lack of a diversified loan portfolio and concentration in the South Florida market, including the
risks of geographic, depositor, and industry concentrations, including our concentration in loans secured by real
estate;
• effects of climate change;
• the concentration of ownership of our common stock;
• fluctuations in the price of our common stock;
• our ability to fund or access the capital markets at attractive rates and terms and manage our growth, both organic
growth as well as growth through other means, such as future acquisitions;
• inflation, interest rate, unemployment rate, market and monetary fluctuations;
• impacts of international hostilities and geopolitical events;
• increased competition and its effect on the pricing of our products and services as well as our margin;
• the effectiveness of our risk management strategies, including operational risks, including, but not limited to, client,
employee, or third-party fraud and security breaches; and
• other risks described in this Form 10-Q, the 2022 Form 10-K/A and other filings we make with the Securities and
Exchange Commission (“SEC”).
34 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
All forward-looking statements are necessarily only estimates of future results, and there can be no assurance that
actual results will not differ materially from expectations. Therefore, you are cautioned not to place undue reliance on any
forward-looking statements. Further, forward-looking statements included in this Form 10-Q are made only as of the date
hereof, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances
after the date on which the statements are made or to reflect the occurrence of unanticipated events, unless required to do
so under the federal securities laws. You should also review the risk factors described in the reports the Company filed or
will file with the SEC.
Overview
The Company reported net income of $4.2 million or $0.21 per diluted share of common stock for the three months
ended June 30, 2023 compared to $5.3 million or $0.26 per diluted share of common stock for the three months ended June
30, 2022. Net income for the six months ended June 30, 2023 was $10.0 million or $0.51 per diluted share of common stock
compared to $10.1 million or $0.50 per diluted share of common stock for the same period in 2022.
During the second quarter of 2023, the Company repurchased 77,603 shares of Class A common stock at a weighted
average price per share of $9.58. The aggregate purchase price for these transactions was approximately $747 thousand,
including transaction costs. Year-to-date, the Company has repurchased 577,603 shares at a weighted average price per
share of $11.41. These repurchases were made through open market purchase pursuant to the Company’s publicly
announced repurchase program. As of June 30, 2023, 172,397 shares remain authorized for repurchase under this program.
In evaluating our financial performance, the Company considers the level of and trends in net interest income, the net
interest margin, the cost of deposits, levels and composition of non-interest income and non-interest expense, performance
ratios, asset quality ratios, regulatory capital ratios, and any significant event or transaction .
Unless otherwise stated, all period comparisons in the bullet points below are calculated for the quarter ended June 30,
2023 compared to the quarter ended June 30, 2022 and to December 31, 2022, comparison annualized where appropriate:
• Net interest income for the three months ended June 30, 2023 decreased $1.5 million or 9.4% to $14.2 million from
$15.6 million for the quarter ended June 30, 2022. Net interest income for the six months ended in June 30, 2023
increased $149 thousand or 0.5% compared to the same period ended June 30, 2022.
• Net interest margin (“NIM”) was 2.73% for the three months ended June 30, 2023 compared to 3.37% for the three
months ended June 30, 2022. NIM was 2.97% for the six months ended in June 30, 2023 compared to 3.30% for
the same period in 2022.
• Total assets were $2.2 billion at June 30, 2023, representing an increase of $209.8 million or 10.4% from June 30,
2022 and an increase of $140.1 million or 13.5% annualized from December 31, 2022.
• Total loans were $1.6 billion at June 30, 2023, representing an increase of $223.2 million or 16.3% from June 30,
2022 and an increase of $88.6 million or 11.9% annualized from December 31, 2022.
• Total deposits were $1.9 billion at June 30, 2023, representing an increase of $182.6 million or 10.5% from June
30, 2022 and an increase of $92.0 million or 10.1% annualized from December 31, 2022.
• Annualized return on average assets for the quarter ended June 30, 2023 was 0.77% compared to 1.08% for the
quarter ended June 30, 2022. Annualized return on average assets was 0.94% for the six months ended June 30,
2023 compared to 1.05% for the same period in 2022.
• Annualized return on average stockholders’ equity for the quarter ended June 30, 2023 was 9.13% compared to
11.38% for quarter ended June 30, 2022. Annualized return on average equity was 10.98% for the six months ended
June 30, 2023 compared to 10.54% for the same period in 2022.
• The ACL to total loans was 1.18% at June 30, 2023 and 1.16% at December 31, 2022. ACL was calculated under
the CECL methodology for three and six months ended June 30, 2023 and the incurred loss methodology for all
periods in 2022.
• Non-performing loans to total loans was 0.03% at June 30, 2023 compared to 0.0% at December 31, 2022.
35 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
• At June 30, 2023, the total risk-based capital ratios for the Company and the Bank were 13.42% and 13.37%,
respectively.
• Tangible book value per common share (non-GAAP financial measurement) of $9.40 as of June 30, 2023 was
negatively affected by $2.41 due to after tax unrealized security losses on securities of $47.1 million at June 30,
2023. At June 30, 2022, tangible book value of $9.00 per common share was negatively affected by $1.84 due to
$36.9 million after tax unrealized security losses. See “Reconciliation and Management Explanation for Non-GAAP
Financial Measures” for a reconciliation of this non-GAAP financial measure.
Critical Accounting Policies and Estimates
The consolidated financial statements are prepared based on the application of U.S. GAAP, the most significant of
which are described in Note 1 “Summary of Significant Accounting Policies” in the Company’s 2022 Form 10-K/A. To prepare
financial statements in conformity with US GAAP, management makes estimates, assumptions, and judgments based on
available information. These estimates, assumptions, and judgments affect the amounts reported in the financial statements
and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date
of the financial statements and, as this information changes, actual results could differ from the estimates, assumptions and
judgments reflected in the financial statements. In particular, management has identified accounting policies that, due to
the estimates, assumptions and judgments inherent in those policies, are critical in understanding our financial statements.
Management has presented the application of these policies to the Audit and Risk Committee of our Board.
Allowance for Credit Losses
On January 1, 2023, the Company adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments, as amended, which replaces the incurred loss methodology with
an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology. See Note 1
“Summary of Significant Accounting Policies” Item 1 of Part I of this Form 10-Q for more information on the adoption ASC
326 and the allowance of credit losses.
Our ACL included residential loans. To assess the potential impact of changes in qualitative factors related to these
loans, management performed a sensitivity analysis. The Company evaluated the impact of the HPI used in calculating
expected losses on the residential loan segment. As of June 30, 2023, for every 100 basis points increase in the HPI index,
the forecast reduces reserves by approximately $240 thousand and about 2 basis points to the reserve coverage ratio,
everything else being constant. This sensitivity analysis provides a hypothetical result to assess the sensitivity of the ACL
and does not represent a change in management’s judgement.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss
and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment
date.
Management is required to assess whether a valuation allowance should be established on the net deferred tax assets
based on the consideration of all available evidence using a more likely than not standard. In its evaluation, management
considers taxable loss carry-back availability, expectation of sufficient taxable income, trends in earnings, the future reversal
of temporary differences, and available tax planning strategies.
The Company recognizes positions taken or expected to be taken in a tax return in accordance with existing accounting
guidance on income taxes which prescribes a recognition threshold and measurement process. Interest and penalties on
tax liabilities, if any, would be recorded in interest expense and other operating non-interest expense, respectively.
Non-GAAP Financial Measures
This Form 10-Q includes financial information determined by methods other than in accordance with generally accepted
accounting principles (“GAAP”). This financial information includes certain operating performance measures. Management
has included these non-GAAP measures because it believes these measures may provide useful supplemental information
for evaluating the Company’s underlying performance trends. Further, management uses these measures in managing and
36 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
evaluating the Company’s business and intends to refer to them in discussions about our operations and performance.
Operating performance measures should be viewed in addition to, and not as an alternative to or substitute for, measures
determined in accordance with GAAP, and are not necessarily comparable to non-GAAP measures that may be presented
by other companies. To the extent applicable, reconciliations of these non-GAAP measures to the most directly comparable
GAAP measures can be found in the section “Reconciliation and Management Explanation of Non-GAAP Financial
Measures” included in this Form 10-Q.
Segment Reporting
Management monitors the revenue streams for all its various products and services. The identifiable segments are not
material and operations are managed and financial performance is evaluated on an overall Company-wide basis.
Accordingly, all the financial service operations are considered by management to be aggregated in one reportable operating
segment.
Results of Operations
General
The following tables present selected balance sheet, income statement, and profitability ratios for the dates indicated
(in thousands, except ratios):
June 30, 2023
December 31, 2022
Consolidated Balance Sheets:
Total assets
$
2,225,914
$
2,085,834
Total loans
(1)
$
1,595,959
$
1,507,338
Total deposits
$
1,921,301
$
1,829,281
Total stockholders' equity
$
183,685
$
182,428
(1) Loan amounts include deferred fees/costs.
Three Months Ended June 30,
Six Months Ended June 30,
2023
2022
2023
2022
Consolidated Statements of Operations:
Net interest income before provision for credit losses
$
14,173
$
15,642
$
30,170
$
30,021
Total non-interest income
$
1,846
$
1,617
$
3,916
$
3,562
Total non-interest expense
$
10,452
$
9,551
$
20,628
$
19,163
Net income
$
4,196
$
5,295
$
10,005
$
10,149
Profitability:
Efficiency ratio
65.25%
55.34%
60.52%
57.06%
Net interest margin
2.73%
3.37%
2.97%
3.30%
The Company’s results of operations depend substantially on net interest income and non-interest income. Other factors
contributing to the results of operations include our provision for credit losses, non-interest expenses, and the provision for
income taxes.
Three months ended June 30, 2023 compared to the three months ended June 30, 2022
Net income decreased to $4.2 million for the three months ended June 30, 2023 from $5.3 million for the same period
in 2022 mainly due to higher weighted average deposit costs.
Six months ended June 30, 2023 compared to six months ended June 30, 2022
Net income slightly decreased to $10.0 million for the six months ended June 30, 2023 from $10.1 million for the same
period in 2022. The main drivers of the slight decrease of net income were a $14.6 million increase in interest income
generated from higher loan yields and a bigger loan portfolio, offset by a $14.5 million increase in interest expense mainly
due to increases in deposit cost, combined with a $1.5 million increase in non-interest expense.
37 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
Net Interest Income
Net interest income is the difference between interest earned on interest-earning assets and interest incurred on
interest-bearing liabilities and is the primary driver of core earnings. Interest income is generated from interest and dividends
on interest-earning assets, including loans, investment securities and other short-term investments. Interest expense is
incurred from interest paid on interest-bearing liabilities, including interest-bearing deposits, FHLB advances and other
borrowings.
To evaluate net interest income, we measure and monitor (i) yields on loans and other interest-earning assets, (ii) the
costs of deposits and other funding sources, (iii) net interest spread, and (iv) net interest margin. Net interest spread is equal
to the difference between yields earned on interest-earning assets and rates paid on interest-bearing liabilities. Net interest
margin is equal to the annualized net interest income divided by average interest -earning assets. Because non-interest-
bearing sources of funds, such as non-interest-bearing deposits and stockholders’ equity, also fund interest-earning assets,
net interest margin includes the indirect benefit of these non-interest-bearing funding sources.
Changes in the market interest rates and interest rates we earn on interest-earning assets or pay on interest-bearing
liabilities, as well as the volume and types of interest-earning assets and interest-bearing and non-interest-bearing liabilities,
are usually the largest drivers of periodic changes in net interest spread, net interest margin and net interest income. Our
asset liability committee (ALCO) has in place asset-liability management techniques to manage major factors that affect net
interest income and net interest margin.
38 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
The following table contains information related to average balances, average yields earned on assets, and average
costs of liabilities for the periods indicated (dollars in thousands):
Three Months Ended June 30,
2023
2022
Average
(1)
Balance
Interest
Yield/Rate
(2)
Average
(1)
Balance
Interest
Yield/Rate
(2)
Assets
Interest-earning assets:
Loans
(3)
$
1,569,266
$
20,847
5.33%
$
1,296,476
$
14,053
4.35%
Investment securities
(4)
422,544
2,382
2.26%
493,352
2,510
2.04%
Other interest-earnings assets
87,536
1,051
4.82%
69,503
121
0.70%
Total interest-earning assets
2,079,346
24,280
4.68%
1,859,331
16,684
3.60%
Non-interest-earning assets
104,196
109,050
Total assets
$
2,183,542
$
1,968,381
Liabilities and stockholders' equity
Interest-bearing liabilities:
Interest-bearing checking
$
53,561
200
1.50%
$
66,349
17
0.10%
Saving and money market deposits
940,095
6,968
2.97%
781,076
615
0.32%
Time deposits
277,001
2,145
3.11%
224,284
271
0.48%
Total interest-bearing deposits
1,270,657
9,313
2.94%
1,071,709
903
0.34%
FHLB advances and other borrowings
93,075
794
3.42%
36,330
139
1.53%
Total interest-bearing liabilities
1,363,732
10,107
2.97%
1,108,039
1,042
0.38%
Non-interest-bearing demand deposits
601,778
644,975
Other non-interest-bearing liabilities
33,794
28,770
Total liabilities
1,999,304
1,781,784
Stockholders' equity
184,238
186,597
Total liabilities and stockholders' equity
$
2,183,542
$
1,968,381
Net interest income
$
14,173
$
15,642
Net interest spread
(5)
1.71%
3.22%
Net interest margin
(6)
2.73%
3.37%
(1) Average balances - Daily average balances are used to calculate yields/rates.
(2) Annualized.
(3) Average loan balances include non-accrual loans. Interest income on loans includes accretion of deferred loan fees, net of deferred loan costs.
(4) At fair value except for securities held to maturity. This amount includes FHLB stock.
(5) Net interest spread is the weighted average yield on total interest-earning assets minus the weighted average rate on total interest-bearing liabilities.
(6) Net interest margin is the ratio of net interest income to average total interest-earning assets.
39 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
Six Months Ended June 30,
2023
2022
Average
Balance
(1)
Interest
Yield/Rate
(2)
Average
Balance
(1)
Interest
Yield/Rate
(2)
Assets
Interest-earning assets:
Loans
(3)
$
1,558,390
$
40,558
5.25
%
$
1,254,189
$
27,035
4.35
%
Investment securities
(4)
422,132
4,668
2.23
%
501,758
4,839
1.94
%
Other interest-earnings assets
65,433
1,433
4.42
%
79,763
152
0.38
%
Total interest-earning assets
2,045,955
46,659
4.60
%
1,835,710
32,026
3.52
%
Non-interest earning assets
106,100
105,374
Total assets
$
2,152,055
$
1,941,084
Liabilities and stockholders' equity
Interest-bearing liabilities:
Interest-bearing checking
$
55,812
243
0.88
%
$
65,398
33
0.10
%
Money market and savings accounts
918,697
11,753
2.58
%
758,729
1,166
0.31
%
Time deposits
251,009
3,202
2.57
%
223,781
530
0.48
%
Total interest-bearing deposits
1,225,518
15,198
2.50
%
1,047,908
1,729
0.33
%
Borrowings and repurchase agreements
77,425
1,291
3.36
%
36,171
276
1.54
%
Total interest-bearing liabilities
1,302,943
16,489
2.55
%
1,084,079
2,005
0.37
%
Non-interest bearing demand deposits
632,901
635,740
Other non-interest-bearing liabilities
32,404
27,079
Total liabilities
1,968,248
1,746,898
Stockholders' equity
183,807
194,186
Total liabilities and stockholders' equity
$
2,152,055
$
1,941,084
Net interest income
$
30,170
$
30,021
Net interest spread
(5)
2.05
%
3.15
%
Net interest margin
(6)
2.97
%
3.30
%
(1) Average balances - Daily average balances are used to calculate yields/rates.
(2) Annualized.
(3) Average loan balances include non-accrual loans. Interest income on loans includes accretion of deferred loan fees, net of deferred loan costs.
(4) At fair value except for securities held to maturity. Includes FHLB stock.
(5) Net interest spread is the weighted average yield on total interest-earning assets minus the weighted average rate on total interest-bearing
liabilities.
(6) Net interest margin is the ratio of net interest income to average total interest-earning assets.
Three months ended June 30, 2023 compared to the three months ended June 30, 2022
Net interest income before the provision for credit losses was $14.2 million for the three months ended June 30, 2023,
a decrease of $1.5 million or 9.4%, from $15.6 million for the same period in 2022. The decrease can be attributed to the
impact of higher deposit costs, which was a result to the prevailing market interest rate conditions.
Net interest margin was at 2.73% for the quarter ended June 30, 2023 and 3.37% for the same period in 2022. The
increase in loan yields as well as yields on other interest -earning assets was offset by higher deposit and borrowing costs.
Six months ended June 30, 2023 compared to six months ended June 30, 2022
Net interest income before the provision for credit losses was $30.2 million for the six months ended June 30, 2023, an
increase of $149 thousand or 0.5%, from $30.0 million for the same period in 2022.
Net interest margin decreased to 2.97% for the six months ended June 30, 2023 from 3.30% in the same period in
2022. Overall interest-bearing asset yields grew but were outpaced by the increase in cost of funds.
Provision for Credit Losses
The provision for credit losses represents a charge to earnings necessary to maintain an allowance for credit losses
that, in management's evaluation, is adequate to provide coverage for all expected credit losses. The provision for credit
losses is impacted by variations in our loan and debt securities portfolio, recent historical and projected future economic
40 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
conditions, our internal assessment of the credit quality of the loan and debt securities portfolios and net charge-offs.
Three months ended June 30, 2023 compared to the three months ended June 30, 2022
The provision for credit loss was $38 thousand for the three months ended June 30, 2023 compared to $705 thousand
for the same period in 2022. Growth in unfunded commitments was the primary driver of the provision expense during the
three months ended June 30, 2023 period. The decrease in provision for credit losses in the 2023 period compared to the
June 30, 2022 quarter was due to greater loan growth in second quarter 2022.
Six months ended June 30, 2023 compared to six months ended June 30, 2022
The provision for credit loss was $239 thousand for the six months ended June 30, 2023 compared to $705 thousand
for the same period in 2022. Decrease of $466 thousand due to higher loan growth in the six months ended June 30, 2022.
The ACL as a percentage of total loans increased to 1.18% at June 30, 2023 compared to 1.15% at June 30, 2022.
ACL for the three and six months ended June 30 2023, was estimated under the CECL methodology, and for all periods
in 2022, it was estimated under the incurred loss model . See “Allowance for Credit Losses” below for further discussion on
how the ACL is calculated.
Non-Interest Income
Our services and products generate service charges and fees, mainly from our depository accounts. We also generate
income from gain on sale of loans though our swap and SBA programs. In addition, we own and are beneficiaries of the life
insurance policies on some of our employees and generate income on the increase in the cash surrender value of these
policies.
The following table presents the components of non-interest income for the dates indicated (in thousands):
Three Months Ended June 30,
Six Months Ended June 30,
2023
2022
2023
2022
Service fees
$
1,173
$
1,083
$
2,378
$
1,983
Gain (loss) on sale of securities available for sale, net
-
(3)
(21)
18
Gain on sale of loans held for sale, net
94
22
441
356
Loan settlement
-
-
-
161
Other non-interest income
579
515
1,118
1,044
Total non-interest income
$
1,846
$
1,617
$
3,916
$
3,562
Three months ended June 30, 2023 compared to the three months ended June 30, 2022
Non-interest income for the three months ended June 30, 2023 increased $229 thousand or 14.2%, compared to the
same period in 2022. This increase was primarily driven by an increase in service fees from a larger deposit portfolio and
$72 increase in gain on sale of loans due to higher sales of SBA 7a loans.
Six months ended June 30, 2023 compared to the six months ended June 30, 2022
Non-interest income for the six months ended June 30, 2023 increased $354 thousand or 9.9%, compared to the same
period in 2022. This increase was primarily driven by an increase in service fees from a larger deposit portfolio. For the
period ended June 30, 2022, the Company recognized $161 thousand interest recovery from a prior lending customer of
the Bank. This payment reflected the final payment and settlement of lien judgements against the customer.
41 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
Non-Interest Expense
The following table presents the components of non-interest expense for the dates indicated (in thousands):
Three Months Ended June 30,
Six Months Ended June 30,
2023
2022
2023
2022
Salaries and employee benefits
$
5,882
$
5,913
$
12,259
$
11,788
Occupancy
1,319
1,251
2,618
2,521
Regulatory assessment and fees
452
226
676
439
Consulting and legal fees
386
398
744
915
Network and information technology services
505
448
983
835
Other operating
1,908
1,315
3,348
2,665
Total non-interest expense
$
10,452
$
9,551
$
20,628
$
19,163
Three months ended June 30, 2023 compared to the three months ended June 30, 2022
Non-interest expense for the three months ended June 30, 2023 increased $901 thousand or 9.4%, compared to the
same period in 2022. The increase was primarily driven by an increase in the FDIC deposit insurance assessment rate and
audit and tax services expenses and was partially offset by a decrease in the incentive compensation accrual which is
included in salary and employee benefits expense.
Six months ended June 30, 2023 compared to the six months ended June 30, 2022
Non-interest expense for the six months ended June 30, 2023 increased $1.5 million or 7.6%, compared to the same
period in 2022. The increase was primarily driven by higher salaries and employee benefits expense due to new hires,
increased salary compensation and seasonal payroll taxes as well as increases in the FDIC deposit insurance assessment
rate, and audit and tax services expense.
Provision for Income Tax
Fluctuations in the effective tax rate reflect the effect of the differences in the inclusion or deductibility of certain income
and expenses for income tax purposes. Therefore, future decisions on the investments we choose will affect our effective
tax rate. The cash surrender value of bank-owned life insurance policies covering key employees, purchasing municipal
bonds, and overall levels of taxable income will be important elements in determining our effective tax rate.
Three months ended June 30, 2023 compared to the three months ended June 30, 2022
Income tax expense for the quarter ended June 30, 2023 was $1.3 million as compared to $1.7 million for the same
period in 2022. The effective tax rate for the three months ended June 30, 2023 was 24.1% compared to 24.4% for the
same period in 2022.
Six months ended June 30, 2023 compared to the six months ended June 30, 2022
Income tax expense for the six months ended June 30, 2023 decreased to $3.2 million from $3.6 million for the same
period in 2022. The Company’s effective tax rate was 24.3% for the 2023 period compared to 26.0% for the same period in
2022. The Company’s effective tax rate in the period ended June 30, 2022 was higher primarily because the Company
recorded a one-time adjustment of $300 thousand to deferred tax assets which increased the income tax provision.
For a further discussion of income taxes, see Note 4 “Income Taxes” to the unaudited Consolidated Financial
Statements in Item 1 of Part I of this Form 10-Q.
Analysis of Financial Condition
Total assets at June 30, 2023 were $2.2 billion, an increase of $140.1 million, or 13.5% annualized, over total assets of
$2.1 billion at December 31, 2022. Total loans, net of unearned fees/cost, increased $88.6 million, or 11.9 % annualized, to
$1.6 billion at June 30, 2023 compared to $1.5 billion at December 31, 2022. Total deposits increased by $92.0 million, or
10.1% annualized, to $1.9 billion at June 30, 2023 compared to December 31, 2022.
42 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
Investment Securities
The investment portfolio is used and managed to provide liquidity through cash flows, marketability and, if necessary,
collateral for borrowings. The investment portfolio is also used as a tool to manage interest rate risk and the Company’s
capital market risk exposure. The philosophy of the portfolio is to maximize the Company’s profitability taking into
consideration the Company’s risk appetite and tolerance, manage the asset composition and diversification, and maintain
adequate risk-based capital ratios.
The investment portfolio is managed in accordance with the Asset and Liability Management (“ALM”) policy, which
includes investment guidelines, approved by the Board. Such policy is reviewed at least annually or more frequently if
deemed necessary, depending on market conditions and/or unexpected events. The investment portfolio composition is
subject to change depending on the funding and liquidity needs of the Company, and the interest risk management objective
directed by the ALCO. The portfolio of investments also can be used to modify the duration of the balance sheet. The
allocation of cash into securities takes into consideration anticipated future cash flows (uses and sources) and all available
sources of credit.
Our investment portfolio consists primarily of securities issued by U.S. government-sponsored agencies, U.S. agency
mortgage-backed securities, collateralized mortgage obligation securities, municipal securities, and other debt securities,
all with varying contractual maturities and coupons. Due to the optionality embedded in these securities, the final maturities
do not necessarily represent the expected life of the portfolio. Some of these securities will be called or paid down depending
on capital market conditions and expectations. The investment portfolio is regularly reviewed by the Chief Financial Officer,
Treasurer, and the ALCO of the Company to ensure an appropriate risk and return profile as well as for adherence to the
investment policy.
ASC Topic 326 amended the existing other-than-temporary-impairment guidance for AFS securities, requiring credit
losses to be recorded as an allowance rather than through a permanent write-down. When evaluating AFS debt securities
under ASC Topic 326, the Company has evaluated whether the decline in fair value is attributed to credit losses or other
factors like interest rate risk, using both quantitative and qualitative analyses, including company performance analysis,
review of credit ratings, remaining payment terms, prepayment speeds and analysis of macro-economic conditions. Each
investment is expected to recover its price depreciations over its holding period as it moves to maturity and the Company
has the intent and ability to hold these securities to maturity if necessary. As a result of this evaluation, the Company
concluded that no allowance was required on AFS securities.
AFS and HTM investment securities increased $20.6 million, or 9.9% annualized, to $439.4 million at June 30, 2023
from $418.8 million at December 31, 2022. Investment securities increased due to reinvestment of payments received and
investment of excess in cash balances into high credit quality investments to increase the Company’s profitability and modify
the Company’s balance sheet duration according to the ALM policy. As of June 30, 2023, investment securities with a
market value of $223.2 million were pledged to secure public deposits and BTFP. The investment portfolio does not have
any tax-exempt securities.
43 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
The following table presents the amortized cost and fair value of investment securities for the dates indicated (in
thousands):
June 30, 2023
December 31, 2022
Available-for-sale:
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
U.S. Government Agency
$
9,906
$
8,334
$
10,177
$
8,655
Collateralized mortgage obligations
107,991
83,883
118,951
95,541
Mortgage-backed securities - residential
71,279
58,099
73,838
60,879
Mortgage-backed securities - commercial
36,775
30,852
32,244
27,954
Municipal securities
25,044
19,091
25,084
18,483
Bank subordinated debt securities
16,836
14,468
15,964
14,919
Corporate bonds
4,033
3,715
4,037
3,709
$
271,864
$
218,442
$
280,295
$
230,140
Held-to-maturity:
U.S. Government Agency
$
44,404
$
38,230
$
44,914
$
39,062
U.S. Treasury
39,414
39,400
9,841
9,828
Collateralized mortgage obligations
65,844
57,030
68,727
60,925
Mortgage-backed securities - residential
44,834
40,213
42,685
38,483
Mortgage-backed securities - commercial
15,491
14,409
11,442
10,777
Corporate bonds
10,988
10,047
11,090
10,013
$
220,975
$
199,329
$
188,699
$
169,088
Allowance for credit losses - securities held-to-maturity
(19)
Securities held-to maturity, net of allowance for credit losses
$
220,956
The following table shows the weighted average yields, categorized by contractual maturity, for investment securities
as of June 30, 2023 (in thousands, except ratios):
Within 1 year
After 1 year through
5 years
After 5 years through
10 years
After 10 years
Total
Amortized
Cost
Yield
Amortized
Cost
Yield
Amortized
Cost
Yield
Amortized
Cost
Yield
Amortized
Cost
Yield
Available-for-sale:
U.S. Government Agency
$
-
0.00%
$
-
0.00%
$
2,356
3.17%
$
7,550
2.29%
$
9,906
2.50%
Collateralized mortgage obligations
-
0.00%
-
0.00%
-
0.00%
107,991
1.40%
107,991
1.40%
MBS - residential
-
0.00%
-
0.00%
-
0.00%
71,279
1.62%
71,279
1.62%
MBS - commercial
-
0.00%
-
0.00%
-
0.00%
36,775
2.17%
36,775
2.17%
Municipal securities
-
0.00%
-
0.00%
1,000
2.05%
24,044
1.73%
25,044
1.74%
Bank subordinated debt securities
-
0.00%
-
0.00%
16,836
4.83%
-
0.00%
16,836
4.83%
Corporate bonds
-
0.00%
4,033
2.50%
-
0.00%
-
0.00%
4,033
2.50%
$
-
$
4,033
$
20,192
$
247,639
$
271,864
1.86%
Held-to-maturity:
U.S. Government Agency
$
-
0.00%
$
7,915
1.03%
$
20,358
1.46%
$
16,131
1.85%
$
44,404
1.52%
U.S. Treasury
39,414
5.25%
-
0.00%
-
0.00%
-
0.00%
39,414
5.25%
Collateralized mortgage obligations
-
0.00%
-
0.00%
-
0.00%
65,844
1.66%
65,844
1.66%
MBS - residential
-
0.00%
4,497
1.85%
5,933
1.75%
34,404
2.40%
44,834
2.26%
MBS - commercial
-
0.00%
-
0.00%
3,080
1.62%
12,411
2.12%
15,491
2.02%
Corporate bonds
1,502
2.25%
9,486
2.79%
-
0.00%
-
0.00%
10,988
2.72%
$
40,916
$
21,898
$
29,371
$
128,790
$
220,975
2.13%
Loans
Loans are the largest category of interest-earning assets on the unaudited Consolidated Balance Sheets, and usually
provide higher yields than the remainder of the interest-earning assets. Higher yields typically carry inherent credit and
liquidity risks in comparison to lower yield assets. The Company manages and mitigates such risks in accordance with the
credit and ALM policies, risk tolerance and balance sheet composition.
44 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
The following table shows the loan portfolio composition as of the dates indicated (in thousands):
June 30, 2023
December 31, 2022
Total
Percent of
Total
Total
Percent of
Total
Residential Real Estate
$
183,093
11.5
%
$
185,636
12.3
%
Commercial Real Estate
989,401
62.0
%
970,410
64.4
%
Commercial and Industrial
169,401
10.6
%
126,984
8.4
%
Foreign Banks
85,409
5.4
%
93,769
6.2
%
Consumer and Other
167,845
10.5
%
130,429
8.7
%
Total gross loans
1,595,149
100.0
%
1,507,228
100.0
%
Less: Deferred fees (cost)
(810)
(110)
Total loans net of deferred fees (cost)
1,595,959
1,507,338
Less: Allowance for credit losses
18,815
17,487
Total net loans
$
1,577,144
$
1,489,851
Total loans, net of unearned fees/cost, increased by $88.6 million, or 11.9% annualized, at June 30, 2023 compared to
December 31, 2022. The commercial and industrial, and to a lesser extent, consumer and other and commercial real estate
segments had the most significant growth partially offset by modest declines in the residential real estate and correspondent
bank loan segments.
Our loan portfolio continues to grow, with commercial real estate lending as the primary focus which represented
approximately 62.0% of the total gross loan portfolio as of June 30, 2023. Our loan growth strategy since inception has
been reflective of the market in which we operate and of our strategic plan as approved by the Board.
Most of the commercial real estate exposure represents loans to commercial businesses secured by owner-occupied
real estate. The growth experienced in recent years is primarily due to implementation of our relationship-based banking
model and the success of our relationship managers in competing for new business in a highly competitive metropolitan
area. Many of our larger loan clients have long-term relationships with members of our senior management team or our
relationship managers that date back to former institutions.
From a liquidity perspective, our loan portfolio provides us with additional liquidity due to repayments or unexpected
prepayments. The following table shows maturities and sensitivity to interest rate changes for the loan portfolio at June 30,
2023 (in thousands):
Due in 1 year or
less
Due in 1 to 5
years
Due after 5 to 15
years
Due after 15
years
Total
Residential Real Estate
$
9,924
$
15,866
$
83,937
$
73,366
$
183,093
Commercial Real Estate
79,586
167,334
732,553
9,928
989,401
Commercial and Industrial
5,304
36,175
87,463
40,459
169,401
Foreign Banks
85,409
-
-
-
85,409
Consumer and Other
3,037
1,888
11,612
151,308
167,845
Total gross loans
$
183,260
$
221,263
$
915,565
$
275,061
$
1,595,149
Interest rate sensitivity:
Fixed interest rates
$
161,350
$
122,412
$
162,484
$
164,385
$
610,631
Floating or adjustable rates
21,910
98,851
753,081
110,676
984,518
Total gross loans
$
183,260
$
221,263
$
915,565
$
275,061
$
1,595,149
The information presented in the table above is based upon the contractual maturities of the individual loans, which
may be subject to renewal at their contractual maturity. Renewals will depend on approval by our credit department and
balance sheet composition at the time of the analysis, as well as any modification of terms at the loan’s maturity. Additionally,
maturity concentrations, loan duration, prepayment speeds and other interest rate sensitivity measures are discussed,
reviewed, and analyzed by the ALCO. Decisions on term rate modifications are discussed as well.
As of June 30, 2023, approximately 61.7% of the loans have adjustable/variable rates and 38.3% of the loans have
fixed rates. The adjustable/variable rate loans re-price to different benchmarks and tenors in different periods of time. By
contractual characteristics, there are no material concentrations on anniversary repricing. Additionally, it is important to note
45 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
that most of our loans have interest rate floors. This embedded option protects the Company from a decrease in interest
rates below the floor and positions us to gain in the scenario of higher interest rates.
Asset Quality
Our asset quality grading analysis estimates the capability of the borrower to repay the contractual obligation of the loan
agreement as scheduled or at all. The Company’s internal credit risk grading system is based on experiences with similarly
graded loans. Internal credit risk grades are reviewed at least once a year, and more frequently as needed. Internal credit
risk ratings may change based on management’s assessment of the results from the annual review, portfolio monitoring,
and other developments observed with borrowers.
The internal credit risk grades used by the Company to assess the credit worthiness of a loan are shown below:
Pass
– Loans indicate different levels of satisfactory financial condition and performance.
Special Mention
close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment
prospects for the loan or of the institution’s credit position at some future date.
Substandard
– Loans classified as substandard are inadequately protected by the current net worth and paying
capacity of the obligator or of the collateral pledged, if any. Loans so classified have a well-defined weakness or
weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the
institution will sustain some loss if the deficiencies are not corrected.
Doubtful
the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing
facts, conditions, and values, highly questionable and improbable.
Loss
– Loans classified as loss are considered uncollectible.
Loan credit exposures by internally assigned grades are as follows for the dates indicated (in thousands):
June 30, 2023
Pass
Special Mention
Substandard
Doubtful
Total
Residential Real Estate
$
183,093
$
-
$
-
$
-
$
183,093
Commercial Real Estate
986,874
-
2,527
-
989,401
Commercial and Industrial
168,565
-
836
-
169,401
Foreign Banks
85,409
-
-
-
85,409
Consumer and Other
167,845
-
-
-
167,845
$
1,591,786
$
-
$
3,363
$
-
$
1,595,149
December 31, 2022
Pass
Special Mention
Substandard
Doubtful
Total
Residential Real Estate
$
185,636
$
-
$
-
$
-
$
185,636
Commercial Real Estate
967,465
-
2,945
-
970,410
Commercial and Industrial
126,177
-
807
-
126,984
Foreign Banks
93,769
-
-
-
93,769
Consumer and Other
130,233
-
196
-
130,429
$
1,503,280
$
-
$
3,948
$
-
$
1,507,228
46 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
Non-Performing Assets
The following table presents non-performing assets as of the dates shown (in thousands, except ratios):
June 30, 2023
December 31, 2022
Total non-performing loans
$
486
$
-
Other real estate owned
-
-
Total non-performing assets
$
486
$
-
Asset quality ratios:
(1)
Allowance for credit losses to total loans
1.18%
1.16%
Allowance for credit losses to non-performing loans
3871%
- %
Non-performing loans to total loans
0.03%
- %
(1)
ACL was calculated under CECL methodology for 2023, and incurred loss methodology for 2022
Non-performing assets include all loans categorized as non-accrual or restructured, impaired securities, other real
estate owned (“OREO”) and other repossessed assets. Problem loans for which the collection or liquidation in full is
reasonably uncertain are placed on a non-accrual status. This determination is based on current existing facts concerning
collateral values and the paying capacity of the borrower. When the collection of the full contractual balance is unlikely, the
loan is placed on non-accrual to avoid overstating the Company’s income for a loan with increased credit risk.
If the principal or interest on a commercial loan becomes due and unpaid for 90 days or more, the loan is placed on
non-accrual status as of the date it becomes 90 days past due and remains in non-accrual status until it meets the criteria
for restoration to accrual status. Residential loans, on the other hand, are placed on non-accrual status when the principal
or interest becomes due and unpaid for 120 days or more and remains in non-accrual status until it meets the criteria for
restoration to accrual status. Restoring a loan to accrual status is possible when the borrower resumes payment of all
principal and interest payments for a period of six months and the Company has a documented expectation of repayment
of the remaining contractual principal and interest or the loan becomes secured and in the process of collection.
The Company may grant a loan concession to a borrower experiencing financial difficulties. This determination is
performed during the annual review process or whenever problems surface regarding the client’s ability to repay in
accordance with the original terms of the loan or line of credit. The concessions are given to the debtor in various forms,
including interest rate reductions, principal forgiveness, extension of maturity date, waiver, or deferral of payments and other
concessions intended to minimize potential losses.
For further discussion on non-performing loans and borrowers experiencing financial difficulties, see Note 3 “Loans” to
the unaudited Consolidated Financial Statements of this Form 10-Q.
Allowance for Credit Losses
On January 1, 2023, the Company adopted FASB ASU 2016-13, which introduced the current expected credit losses
(CECL) methodology and required us to estimate all expected credit losses over the remaining life of our loan portfolio.
Accordingly, the ACL represents an amount that, in management's evaluation, is adequate to provide coverage for all
expected future credit losses on outstanding loans. Additionally, qualitative adjustments are made to the ACL when, based
on management’s judgment, there are factors impacting the allowance estimate not considered by the quantitative
calculations. See Note 3 “Loans” in Item 1 of Part 1 of this Form 10-Q for more information on the allowance for credit
losses.
47 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
The following table presents ACL and net charge-offs to average loans by type for the periods indicated (in thousands):
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Foreign
Banks
Consumer
and Other
Total
Three Months Ended June 30, 2023
Beginning balance
$
2,819
$
10,453
$
2,367
$
772
$
2,476
$
18,887
Provision for credit losses
(1)
(148)
(270)
125
(95)
345
(43)
Recoveries
2
-
8
-
1
11
Charge-offs
-
-
-
-
(40)
(40)
Ending Balance
$
2,673
$
10,183
$
2,500
$
677
$
2,782
$
18,815
Average loans
$
180,945
983,926
155,241
96,399
152,755
1,569,266
Net charge-offs to average loans
0.00%
-
-0.02%
-
0.10%
0.01%
Six Months Ended June 30, 2023
Beginning balance
$
1,352
$
10,143
$
4,163
$
720
$
1,109
$
17,487
Cumulative effect of adoption of accounting
principle
(2)
1,238
1,105
(2,158)
23
858
1,066
Provision for credit losses
(3)
73
(1,065)
443
(66)
857
242
Recoveries
10
-
52
-
3
65
Charge-offs
-
-
-
-
(45)
(45)
Ending Balance
$
2,673
$
10,183
$
2,500
$
677
$
2,782
$
18,815
Average loans
$
188,630
974,149
156,883
92,238
146,490
1,558,390
Net charge-offs to average loans
-0.01%
-
-0.07%
-
0.06%
0.00%
(1) Provision for credit losses excludes $62 thousand expense due to unfunded commitments included in other liabilities and $19
thousand expense due to investment securities held to maturity.
(2) Impact of CECL adoption on January 1, 2023
(3) Provision for credit losses excludes $22 thousand release due to unfunded commitments included in other liabilities and $19
thousand expense due to investment securities held to maturity.
Residential
Real Estate
Commercial
Real Estate
Commercial
and Industrial
Foreign
Banks
Consumer
and Other
Total
Three Months Ended June 30, 2022
Beginning balance
$
2,357
$
9,183
$
2,355
$
491
$
688
$
15,074
Provision for credit losses
9
107
311
160
118
705
Recoveries
-
-
5
-
3
8
Charge-offs
-
-
-
-
(1)
(1)
Ending Balance
$
2,366
$
9,290
$
2,671
$
651
$
808
$
15,786
Average loans
$
198,812
$
799,846
$
126,434
$
76,968
$
94,416
$
1,296,476
Net charge-offs to average loans
-
-
-0.02%
-
-0.01%
0.00%
Six Months Ended June 30, 2022
Beginning balance
$
2,498
$
8,758
$
2,775
$
457
$
569
$
15,057
Provision for credit losses
(148)
532
(115)
194
242
705
Recoveries
32
-
11
-
3
46
Charge-offs
(16)
-
-
-
(6)
(22)
Ending Balance
$
2,366
$
9,290
$
2,671
$
651
$
808
$
15,786
Average loans
$
198,453
$
769,978
$
133,009
$
68,400
$
84,349
$
1,254,189
Net charge-offs to average loans
-0.02%
-
-0.02%
-
0.01%
0.00%
48 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
Bank-Owned Life Insurance
As of June 30, 2023, the combined cash surrender value of all bank-owned life insurance (“BOLI”) policies was $43.3
million. Changes in cash surrender value are recorded to non-interest income in the unaudited Consolidated Statements of
Operations. The Company had BOLI policies with five insurance carriers. The Company is the beneficiary of these policies.
Deposits
Customer deposits are the primary funding source for the Bank’s growth. Through our network of banking centers, we
offer a competitive array of deposit accounts and treasury management services designed to meet our customers’ business
needs. Our primary deposit customers are small-to-medium sized businesses (“SMBs”), and the personal business of
owners and operators of these SMBs, as well as the retail/consumer relationships of the employees of these businesses.
The following table presents the daily average balance and average rate paid on deposits by category for the periods
presented (in thousands, except ratios):
Three Months Ended June 30,
2023
2022
Average Balance
Average Rate
Paid
Average Balance
Average Rate
Paid
Non-interest-bearing checking
$
601,778
0.00%
$
644,975
0.00%
Interest-bearing checking
53,561
1.50%
66,349
0.10%
Money market and savings deposits
940,095
2.97%
781,076
0.32%
Time deposits
277,001
3.11%
224,284
0.48%
Total
$
1,872,435
1.99%
$
1,716,684
0.21%
The Company has a granular deposit portfolio with outstanding balances comprised of 50% in commercial deposits,
36% personal deposits, 11% public funds which are partially collateralized and 3% brokered deposits. During the second
quarter ended June 30, 2023, the Company acquired $50 million in brokered deposits to boost liquidity. The Company has
approximately 20 thousand deposits accounts with the majority in personal accounts, approximately 13 thousand or 64.4%.
The estimated average account size of our deposit portfolio is approximately $98 thousand as of June 30, 2023. The
Company also offers Insured Cash Sweep (“ICS”) and Certificate of
Deposit Account Registry Service (“CDARS”) deposit
products to fully insure our clients.
The uninsured deposits are estimated based on the FDIC deposit insurance limit of $250 thousand for all deposit
accounts at the Company per account holder. The total estimated amount of uninsured deposits is 53.2% or $1.0 billion at
June 30, 2023.
The following table shows scheduled maturities of uninsured time deposits as of June 30, 2023 (in thousands):
June 30, 2023
Three months or less
$
30,409
Over three through six months
17,692
Over six though twelve months
31,672
Over twelve months
11,696
$
91,469
Other Liabilities
The Company collects from commercial loan customers funds which are held in escrow for future payment of real
estate taxes and insurance. These escrow funds are disbursed by the Company directly to the insurance companies and
taxing authority of the borrower. Escrow funds are recorded as other liabilities.
As of June 30, 2023 escrow balances totaled $12.1 million compared to $3.5 million at December 31, 2022 .
49 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
Borrowings
As a member of the FHLB, we are eligible to obtain advances with various terms and conditions. This accessibility of
additional funding allows us to efficiently and timely meet both expected and unexpected outgoing cash flows and collateral
needs without adversely affecting either daily operation s or the financial condition of the Company.
As of June 30, 2023, we had $87.0 million of fixed-rate advances outstanding from the FHLB with a weighted average
rate of 3.06%. Maturity dates for the advances range between 2023 to 2028 detailed in the table below.
The following table presents the FHLB fixed rate advances as of June 30, 2023 (in thousands):
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
1.07%
Fixed
July 18, 2025
6,000
3.76%
Fixed
January 24, 2028
11,000
3.77%
Fixed
April 25, 2028
50,000
$
87,000
We have also established Federal Funds lines of credit with our upstream correspondent banks, the BTFP, and the
FRB Atlanta Discount Window to manage temporary fluctuations in our daily cash balances. As of June 30, 2023, there
were no outstanding balances with any of these sources.
Off-Balance Sheet Arrangements
We engage in various financial transactions in our operations that, under GAAP, may not be included on the balance
sheet. To meet the financing needs of our customers we may include commitments to extend credit and standby letters of
credit. To a varying degree, such commitments involve elements of credit, market, and interest rate risk in excess of the
amount recognized in the balance sheet. We use more conservative credit and collateral policies in making these credit
commitments than we do for on-balance sheet items. We are not aware of any accounting loss to be incurred by funding
these commitments; however, we maintain an allowance for off-balance sheet credit risk which is recorded under other
liabilities on the unaudited Consolidated Balance Sheets.
Since commitments associated with letters of credit and commitments to extend credit may expire unused, the amounts
shown do not necessarily reflect actual future cash funding requirements. The following table presents lending related
commitments outstanding as of the dates indicated (in thousands ):
June 30, 2023
December 31, 2022
Commitments to grant loans and unfunded lines of credit
$
92,910
$
95,461
Standby and commercial letters of credit
8,344
4,320
Total
$
101,254
$
99,781
Commitments to extend credit are agreements to lend funds to a client, as long as there is no violation of any condition
established in the contract, for a specific purpose. Commitments generally have variable interest rates, fixed expiration
dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to
expire without being fully drawn, the total commitment amounts disclosed above do not necessarily represent future cash
requirements.
Unfunded lines of credit represent unused portions of credit facilities to our current borrowers that represent no change
in credit risk in our portfolio. Lines of credit generally have variable interest rates. The maximum potential amount of future
payments we could be required to make is represented by the contractual amount of the commitment, less the amount of
any advances made.
Letters of credit are conditional commitments issued by us to guarantee the performance of a client to a third party. In
the event of nonperformance by the client in accordance with the terms of the agreement with the third party, we would be
required to fund the commitment. If the commitment is funded, we would be entitled to seek recovery from the client from
the underlying collateral, which can include commercial real estate, physical plant and property, inventory, receivables, cash
or marketable securities.
50 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
Asset and Liability Management Committee
Members of senior management and our Board make up the asset and liability management committee, or ALCO.
Senior management is responsible for ensuring that Board approved strategies, policies, and procedures for managing and
mitigating risks are appropriately executed within the designated lines of authority and responsibility in a timely manner.
ALCO oversees the establishment, approval, implementation, and review of interest rate risk, management, and
mitigation strategies, ALM related policies, ALCO procedures and risk tolerances and appetite.
While some degree of IRR (“Interest Rate Risk”) is inherent to the banking business, we believe our ALCO has put in
place sound risk management practices to identify, quantify, monitor, and limit IRR exposures.
When assessing the scope of IRR exposure and impact on the consolidated balance sheet, cash flows and income
statement, management considers both earnings and economic impacts. Asset price variations, deposit volatility and
reduced earnings or outright losses could adversely affect the Company’s liquidity, performance, and capital adequacy.
Income simulations are used to assess the impact of changing rates on earnings under different rates scenarios and
time horizons. These simulations utilize both instantaneous and parallel changes in the level of interest rates, as well as
non-parallel changes such as changing slopes (flat and steepening) and twists of the yield curve . Static simulation models
are based on current exposures and assume a constant balance sheet with no new growth. Dynamic simulation analysis is
also utilized to have a more comprehensive assessment on IRR. This simulation relies on detailed assumptions outlined in
our budget and strategic plan, and in assumptions regarding changes in existing lines of business, new business,
management strategies and client expected behavior.
To have a more complete picture of IRR, the Company also evaluates the economic value of equity (“EVE”). This
assessment allows us to measure the degree to which the economic values will change under different interest rate
scenarios (parallel and non-parallel). The economic value approach focuses on a longer-term time horizon and captures all
future cash flows expected from existing assets and liabilities. The economic value model utilizes a static approach in that
the analysis does not incorporate new business; rather, the analysis shows a snapshot in time of the risk inherent in the
balance sheet.
Market and Interest Rate Risk Management
According to our ALCO model, as of June 30, 2023, we had a neutral balance sheet for year one modeling and an asset
sensitive balance sheet for year two modeling. Asset sensitivity indicates that our assets generally reprice faster than our
liabilities, which results in a favorable impact to net interest income when market interest rates increase. Liability sensitivity
indicates that our liabilities generally reprice faster than our assets, which results in a favorable impact to net interest income
when market interest rates decrease. Many assumptions are used to calculate the impact of interest rate variations on our
net interest income, such as asset prepayment speeds, non-maturity deposit price sensitivity, pricing correlations, deposit
truncations and decay rates, and key interest rate drivers .
Because of the inherent use of these estimates and assumptions in the model, our actual results may, and most likely
will, differ from static measures results. In addition, static measures like EVE do not include actions that management may
undertake to manage the risks in response to anticipated changes in interest rates or client deposit behavior. As part of our
ALM strategy and policy, management has the ability to modify the balance sheet to either increase asset duration and
decrease liability duration to reduce asset sensitivity, or to decrease asset duration and increase liability duration in order
to increase asset sensitivity.
According to our model, as of June 30, 2023, NIM most likely will remain neutral for year one and should increase for
year two under static rate scenarios (an increase or decrease of 400 basis points). For the static forecast in year one, the
estimated NIM will decrease from the base case scenario to a +400 basis points scenario. Additionally, utilizing an EVE
approach, we analyze the risk to capital from the effects of various interest rate scenarios through a long-term discounted
cash flow model. This measures the difference between the economic value of our assets and the economic value of our
liabilities, which is a proxy for our liquidation value. According to our balance sheet composition, and as expected, our model
stipulates that an increase in rates will have a negative impact on the EVE and lower rates, a positive impact. Results and
analysis are presented quarterly to the ALCO, and strategies are defined.
51 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
Liquidity
Liquidity is defined as a Company’s capacity to meet its cash and collateral obligations at a reasonable cost. Maintaining
an adequate level of liquidity depends on the Company’s ability to efficiently meet both expected and unexpected cash flow
and collateral needs without adversely affecting either daily operations or the financial condition of the Company.
Liquidity risk is the risk that we will be unable to meet our short-term and long-term obligations as they become due
because of an inability to liquidate assets or obtain relatively adequate funding. The Company’s obligations, and the funding
sources used to meet them, depend significantly on our business mix, balance sheet structure and composition, credit
quality of our assets and the cash flow profiles of our on - and off-balance sheet obligations.
In managing inflows and outflows, management regularly monitors situations that can give rise to increased liquidity
risk. These include funding mismatches, market constraints on the ability to convert assets (particularly investments) into
cash or in accessing sources of funds (i.e., market liquidity), and contingent liquidity events.
Changes in macroeconomic conditions, as well as exposure to credit, market, operational, legal and reputational risks,
such as cybersecurity risk, could have an unexpected impact on the Company’s liquidity risk profile and are factored into
the assessment of liquidity and the ALM framework.
Management has established a comprehensive and holistic management process for identifying, measuring, monitoring
and mitigating liquidity risk. Due to its critical importance to the viability of the Company, liquidity risk management is
integrated into our risk management processes, Contingency Funding Plan and ALM policy.
Critical elements of our liquidity risk management include: effective corporate governance consisting of oversight by the
Board and active involvement of senior management; appropriate strategies, policies, procedures, and limits used to identify
and mitigate liquidity risk; comprehensive liquidity risk measurement and monitoring systems (including assessments of the
current and prospective cash flows or sources and uses of funds) that are commensurate with the complexity and business
activities of the Company; active management of intraday liquidity and collateral; an appropriately diverse mix of existing
and potential future funding sources; adequate levels of highly liquid marketable securities free of legal, regulatory, or
operational impediments, that can be used to meet liquidity needs in stressful situations; comprehensive contingency
funding plans that sufficiently address potential adverse liquidity events and emergency cash flow requirements; and internal
controls and internal audit processes sufficient to determine the adequacy of the institution’s liquidity risk management
process.
We expect funds to be available from several basic banking activity sources, including the core deposit base, the
repayment and maturity of loans and investment security cash flows. Other potential funding sources include federal funds
purchased, brokered certificates of deposit, listing services certificate of deposit, the Bank Term Funding Program, FRB
Atlanta discount window, and borrowings from the FHLB. Accordingly, we believe our liquidity resources are adequate to
fund loans and meet other cash needs as necessary.
52 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
Capital Adequacy
As of June 30, 2023, the Bank was well capitalized under the FDIC’s prompt corrective action framework. We also
follow the capital conservation buffer framework, and as of June 30, 2023, we exceeded the capital conversation buffer in
all capital ratios, according to our actual ratios. The following table presents the capital ratios for the Bank at the dates
indicated (in thousands, except ratios).
Actual
Minimum Capital
Requirements
To be Well Capitalized
Under Prompt Corrective
Action Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
June 30, 2023
Total risk-based capital
$
224,719
13.37
%
$
134,413
8.00
%
$
168,017
10.00
%
Tier 1 risk-based capital
$
205,391
12.22
%
$
100,810
6.00
%
$
134,413
8.00
%
Common equity tier 1 capital
$
205,391
12.22
%
$
75,607
4.50
%
$
109,211
6.50
%
Leverage ratio
$
205,391
9.30
%
$
88,361
4.00
%
$
110,451
5.00
%
December 31, 2022:
Total risk-based capital
$
216,693
13.58
%
$
127,616
8.00
%
$
159,520
10.00
%
Tier 1 risk-based capital
$
198,909
12.47
%
$
95,712
6.00
%
$
127,616
8.00
%
Common equity tier 1 capital
$
198,909
12.47
%
$
71,784
4.50
%
$
103,688
6.50
%
Leverage ratio
$
198,909
9.56
%
$
83,210
4.00
%
$
104,012
5.00
%
The Company is not subject to capital ratios imposed by Basel III on bank holding companies because the Company is
deemed to be a small bank holding company.
Impact of Inflation
Our Consolidated Financial Statements and related notes have been prepared in accordance with U.S. GAAP,
which require the measurement of financial position and operating results in terms of historical dollars, without considering
the changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the
increased cost of operations. Unlike most industrial companies, nearly all our assets and liabilities are monetary in nature.
As a result, interest rates have a greater impact on our performance than do the effects of general levels of inflation. Periods
of high inflation are often accompanied by relatively higher interest rates, and periods of low inflation are accompanied by
relatively lower interest rates. As market interest rates rise or fall in relation to the rates earned on loans and investments,
the value of these assets decreases or increases respectively. Inflation can also impact core non-interest expenses
associated with delivering the Company’s services.
Recently Issued Accounting Pronouncements
Recently issued accounting pronouncements are discussed in Note 1 “Summary of Significant Accounting Policies” to
the unaudited Consolidated Financial Statements in this Form 10-Q.
53 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
Reconciliation and Management Explanation of Non -GAAP Financial Measures
Management has included these non-GAAP measures because it believes these measures may provide useful
supplemental information for evaluating the Company’s underlying performance trends. Further, management uses these
measures in managing and evaluating the Company’s business and intends to refer to them in discussions about our
operations and performance. Operating performance measures should be viewed in addition to, and not as an alternative
to or substitute for, measures determined in accordance with GAAP, and are not necessarily comparable to non-GAAP
measures that may be presented by other companies. The following table reconciles the non-GAAP financial measurement
of operating net income available to common stockholders for the periods presented (in thousands, except per share data):
54 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
NON-GAAP FINANCIAL MEASURES (UNAUDITED)
(Dollars in thousands)
As of or For the Three Months Ended
6/30/2023
3/31/2023
12/31/2022
9/30/2022
6/30/2022
Pre-tax pre-provision ("PTPP") income:
(1)
Net income
$
4,196
$
5,809
$
4,434
$
5,558
$
5,295
Plus: Provision for income taxes
1,333
1,881
1,415
1,963
1,708
Plus: Provision for credit losses
38
201
880
910
705
PTPP income
$
5,567
$
7,891
$
6,729
$
8,431
$
7,708
PTPP return on average assets:
(1)
PTPP income
$
5,567
$
7,891
$
6,729
$
8,431
$
7,708
Average assets
$
2,183,542
$
2,120,218
$
2,051,867
$
2,026,791
$
1,968,381
PTPP return on average assets
(2)
1.02%
1.51%
1.30%
1.65%
1.57%
Operating net income:
(1)
Net income
$
4,196
$
5,809
$
4,434
$
5,558
$
5,295
Less: Net gains (losses) on sale of securities
-
(21)
(1,989)
(558)
(3)
Less: Tax effect on sale of securities
-
5
504
141
1
Operating net income
$
4,196
$
5,825
$
5,919
$
5,975
$
5,297
Operating PTPP income:
(1)
PTPP income
$
5,567
$
7,891
$
6,729
$
8,431
$
7,708
Less: Net gains (losses) on sale of securities
-
(21)
(1,989)
(558)
(3)
Operating PTPP income
$
5,567
$
7,912
$
8,718
$
8,989
$
7,711
Operating PTPP return on average assets:
(1)
Operating PTPP income
$
5,567
$
7,912
$
8,718
$
8,989
$
7,711
Average assets
$
2,183,542
$
2,120,218
$
2,051,867
$
2,026,791
$
1,968,381
Operating PTPP return on average assets
(2)
1.02%
1.51%
1.69%
1.76%
1.57%
Operating return on average assets:
(1)
Operating net income
$
4,196
$
5,825
$
5,919
$
5,975
$
5,297
Average assets
$
2,183,542
$
2,120,218
$
2,051,867
$
2,026,791
$
1,968,381
Operating return on average assets
(2)
0.77%
1.11%
1.14%
1.17%
1.08%
Operating return on average equity:
(1)
Operating net income
$
4,196
$
5,825
$
5,919
$
5,975
$
5,297
Average equity
$
184,238
$
183,371
$
177,556
$
185,288
$
186,597
Operating return on average equity
(2)
9.13%
12.88%
13.23%
12.79%
11.39%
Operating Revenue:
(1)
$
14,173
$
15,997
$
16,866
$
16,774
$
15,642
1,846
2,070
(123)
1,789
1,617
-
(21)
(1,989)
(558)
(3)
$
16,019
$
18,088
$
18,732
$
19,121
$
17,262
Operating Efficiency Ratio:
(1)
$
10,452
$
10,176
$
10,014
$
10,132
$
9,551
$
16,019
$
18,088
$
18,732
$
19,121
$
17,262
65.25%
56.26%
53.46%
52.99%
55.33%
(1) The Company believes these non-GAAP measurements are key indicators of the ongoing earnings power of the Company.
(2) Annualized.
55 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
USCB FINANCIAL HOLDINGS, INC.
NON-GAAP FINANCIAL MEASURES (UNAUDITED)
(Dollars in thousands, except per share data)
As of or For the Three Months Ended
6/30/2023
3/31/2023
12/31/2022
9/30/2022
6/30/2022
Tangible book value per common share (at period-end):
(1)
Total stockholders' equity
$
183,685
$
183,858
$
182,428
$
177,417
$
180,068
Less: Intangible assets
-
-
-
-
-
Tangible stockholders' equity
$
183,685
$
183,858
$
182,428
$
177,417
$
180,068
Total shares issued and outstanding (at period-end):
Total common shares issued and outstanding
19,544,777
19,622,380
20,000,753
20,000,753
20,000,753
Tangible book value per common share
(2)
$
9.40
$
9.37
$
9.12
$
8.87
$
9.00
Operating diluted net income per common share:
(1)
Operating net income
$
4,196
$
5,825
$
5,919
$
5,975
$
5,297
Total weighted average diluted shares of common stock
19,639,682
19,940,606
20,172,438
20,148,208
20,171,261
Operating diluted net income per common share:
$
0.21
$
0.29
$
0.29
$
0.30
$
0.26
Tangible Common Equity/Tangible Assets
(1)
$
183,685
$
183,858
$
182,428
$
177,417
$
180,068
$
2,225,914
$
2,163,821
$
2,085,834
$
2,037,453
$
2,016,086
Tangible Common Equity/Tangible Assets
8.25%
8.50%
8.75%
8.71%
8.93%
(1) The Company believes these non-GAAP measurements are key indicators of the ongoing earnings power of the Company.
(2) Excludes the dilutive effect, if any, of shares of common stock issuable upon exercise of outstanding stock options.
56 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to provide the information required by this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our President and Chief Executive Officer
and our Chief Financial Officer, we evaluated the effectiveness of the design and operation of the Company’s disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2023. Based
on that evaluation, management believes that the Company’s disclosure controls and procedures were effective to collect,
process, and disclose the information required to be disclosed in the reports filed or submitted under the Exchange Act
within the required time periods as of the end of the period covered by this Form 10-Q.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) during the period covered by this Form 10-Q that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving
the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there
are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls
and procedures relative to their costs.
57 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
PART II
Item 1. Legal Proceedings
On July 13, 2023, three individuals who were shareholders of the Bank prior to its reorganization into the holding
company form of organization (the “Plaintiffs”) filed a lawsuit against six persons, all of whom were directors of the Bank at
the relevant time (the “Defendants”), in the Circuit Court, Eleventh Judicial Circuit for Miami-Dade County (the “Court”)
(Benes et al. v. de la Aguilera et al.) alleging the Defendants (i) caused the Bank, as directors thereof, to engage in ultra
vires conduct by devising and approving the exchange transaction effected in July 2021 pursuant to which the Bank’s then
outstanding Class C and Class D preferred stock was exchanged (the “Exchange Transaction”), which action the Plaintiffs
allege was not permitted by the Bank’s Articles of Incorporation, and (ii) breached their fiduciary duty as directors of the
Bank by approving and engaging in the Exchange Transaction. The Plaintiffs seek the Court to certify the action as a class
action and to award damages in an amount to be proven at trial. Plaintiffs seek damages exceeding $750,000 plus
attorney’s fees and costs as well as such other relief as the Court may determine. The Company believes that the allegations
in the lawsuit are legally and factually without merit, and it intends to vigorously defend against the allegations in the lawsuit,
pursue any potential counterclaims against the plaintiffs as it deems appropriate, and seek coverage from its insurance
carriers. However, there can be no assurance that this litigation will be resolved favorably. Furthermore, there is also no
assurance that we will be able to secure coverage from our insurance carriers for any expenses incurred by us in connection
with this litigation. If the plaintiff shareholders are successful, the Court could award substantial compensatory damages.
In addition to the foregoing, we are from time to time subject to claims and litigation arising in the ordinary course of
business. These claims and litigation may include, among other things, allegations of violation of banking and other
applicable regulations, competition law, labor laws and consumer protection laws, as well as claims or litigation relating to
intellectual property, securities, breach of contract and tort. We intend to defend ourselves vigorously against any pending
or future claims and litigation.
At this time, in the opinion of management, the likelihood is remote that the impact of such proceedings, either
individually or in the aggregate, would have a material adverse effect on our consolidated results of operations, financial
condition or cash flows. However, one or more unfavorable outcomes in any claim or litigation against us, including the
aforementioned litigation regarding the Exchange Transaction, could have a material adverse effect on the period in which
such claims or litigation are resolved. In addition, regardless of their merits or their ultimate outcomes, such matters are
costly, divert management’s attention and may materially adversely affect our reputation, even if resolved in our favor.
Item 1A. Risk Factors
For detailed information about certain risk factors that could materially affect our business, financial condition, or future
results, see “Part I, Item 1A – Risk Factors” of the 2022 Form 10-K/A and see “Part II, Item 1A – Risk Factors” of the March
31, 2023 Form 10-Q.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) None.
(b) Not applicable.
(c) The Company’s repurchases of equity securities for the quarter ended June 30, 2023 were as follows:
Total
Number of
Shares
Purchased
Average
Price Paid
Per Share
Total Number of Shares Purchased
as Part of Publicly Announced Plans
or Programs (1)
Maximum Number
of Shares that
May
Yet Be Purchased
Under Plans or
Programs (1)
Period
April 1 - 30, 2023
-
-
-
250,000
May 1 - 31, 2023
46,498
9.38
203,502
June 1 - 30, 2023
31,105
9.89
172,397
77,603
$
9.58
-
(1) On January 24, 2022 the Company announced its initial stock repurchase program to repurchase up to 750,000 shares of Class A common stock,
approximately 3.75% of the Company’s then outstanding shares of common stock.
58 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
Item 3. Defaults Upon Senior Securities
(a) Not applicable
(b) Not applicable
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
(a) Not applicable
(b) Not applicable
(c) Not applicable
59 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
Item 6. Exhibits
Exhibit No.
Description of Exhibit
*
*
*
**
**
101
The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023
formatted in Inline XBRL: (i) Consolidated Balance Sheets (unaudited), (ii) Consolidated Statements of Operations
(unaudited), (iii) Consolidated Statements of Comprehensive Income (unaudited), (iv) Consolidated Statements of Changes
in Stockholders’ Equity (unaudited), (v) Consolidated Statements of Cash Flows (unaudited), (vi) Notes to Consolidated
Financial Statements (unaudited).
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*
Filed herewith.
**
Furnished herby.
60 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
USCB FINANCIAL HOLDINGS, INC.
(Registrant)
Signature
Title
Date
/s/ Luis de la Aguilera
President, Chief Executive Officer, and Director
August 11, 2023
Luis de la Aguilera
(Principal Executive Officer)
/s/ Robert Anderson
Chief Financial Officer
August 11, 2023
Robert Anderson
(Principal Financial Officer and Principal
Accounting Officer)
Exhibit 3.1
ARTICLES OF INCORPORATION, AS AMENDED
OF
USCB FINANCIAL HOLDINGS, INC.
The undersigned, being of legal age and desiring to form a corporation
pursuant to the provisions of the Florida Business Corporation Act, as amended, executes
the following Articles of Incorporation.
ARTICLE I
The name of the corporation (hereinafter called the "Corporation") is
USCB
Financial Holdings, Inc.
The address of the Corporation's principal place of business is
2301 NW 87th Avenue, Doral 33172, in the County of Miami-Dade and State of Florida.
ARTICLE II
The objects, purposes, and powers for which the Corporation is organized
are as follows:
(1) to purchase or otherwise acquire, to own and to hold the stock of
banks and other corporations, and to do every act and thing covered generally by the
denominations "holding corporation", "bank holding company", and "financial holding
company", and especially to direct the operations of other entities through the ownership
of stock or other interests therein;
(2) to purchase, subscribe for, acquire, own, hold, sell, exchange,
assign, transfer, mortgage, pledge, hypothecate or otherwise transfer or dispose of stock,
scrip, warrants, rights, bonds, securities or evidences of indebtedness issued or
guaranteed by any other corporations, partnerships, limited liability companies, or trusts,
or any bonds or evidences of indebtedness of the United States or any other country or
jurisdiction, or any state, district, territory, dependency or county or subdivision or
municipality thereof, and to issue and exchange therefor cash, capital stock, bonds, notes
or other securities, evidences of indebtedness or obligations of the Corporation and while
the owner thereof to exercise all rights, powers and privileges of ownership, including the
right to vote on any shares of stock, voting trust certificates or other instruments so owned;
and
(3) to transact any business, to engage in any lawful act or activity and
to exercise all powers permitted to corporations by the Florida Business Corporation Act,
as the same exists or may hereafter be amended.
The enumeration herein of the objects, purposes, and powers of the
Corporation shall not be deemed to exclude or in any way limit by inference any powers,
objects or purposes that the Corporation is empowered to exercise, whether expressly,
by purpose or by any of the laws of the State of Florida or any reasonable construction of
such laws.
2
ARTICLE III
The aggregate number of shares of all classes of capital stock which the
Corporation shall have authority to issue is 68,600,000, consisting of (i) 53,000,000
shares of common stock, par value $1.00 per share (the "Common Stock"), and (ii)
15,600,000 shares of preferred stock, par value $1.00 per share, except as set forth below
or any articles of amendment of any classes or series of preferred stock (the "Preferred
Stock").
A. Common Stock
The Common Stock shall consist of two classes of stock: (1) 45,000,000
shares of Class A Voting Common Stock, par value $1.00 per share (the "Voting Common
Stock") and (ii) 8,000,000 shares of Class B Non-Voting Common Stock, par value $1.00
per share (the "Non-Voting Common Stock").
Unless otherwise indicated, references to "sections" or "subsections" in this
Paragraph A of this Article III refer to sections and subsections of this Paragraph A of this
Article III.
1. General
(a) The dividend, liquidation and other rights of the holders of the
Common Stock are expressly made subject to and qualified by the rights of the holders
of any classes or series of Preferred Stock. Except as set forth below, all shares of
Common Stock (whether Voting Common Stock or Non-Voting Common Stock) will be
identical and will entitle the holders thereof to the same rights and privileges.
(b)
Definitions.
For purposes of this Paragraph A of this Article III,
the following terms shall have the meanings indicated:
(i) "Affiliate" of any specified Person means any other
Person directly or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person, including as such term is defined in Section 2(k) of
the federal Bank Holding Company Act of 1956, as amended. For the purposes of this
definition, "control" when used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms "controlling"
and "controlled" have meanings correlative to the foregoing.
(ii) "Beneficially own," "beneficial owner" and "beneficial
ownership" and similar terms are defined in Rules 13d-3 and 13d-5 of the Exchange Act.
(iii) "Business Day" means any day other than a Saturday
or Sunday, a day on which, in the County of Miami-Dade, State of Florida, banking
institutions generally are authorized or obligated by law or executive order to be closed.
3
(iv) "Conversion Agent" means the Transfer Agent acting in
its capacity as conversion agent for the shares of the Non-Voting Common Stock, and its
successors and assigns.
(v) "Conversion Date" means, with respect to any given
share of Non-Voting Common Stock, the date on which such share of Non-Voting
Common Stock has been converted pursuant to Section 3(c)(i).
(vi) "Converted Stock Equivalent Amount" means, for each
share of Non-Voting Common Stock, one
1
if, after issuance of any Non-Voting Common Stock, the Corporation subdivides or splits
its outstanding shares of Voting Common Stock, including by way of a dividend or
distribution of Voting Common Stock, or combines its outstanding shares of Voting
Common Stock into a lesser number of shares, the "Converted Stock Equivalent Amount"
with respect to such issued and outstanding shares of Non-Voting Common Stock shall
be proportionately adjusted as if such action applied to the shares of Voting Common
Stock represented by the Converted Stock Equivalent Amount.
(vii) "DTC" shall have the meaning set forth in Section
3(c)(ii).
(viii) "Exchange Act" means the Securities Exchange Act of
1934, as amended, and the regulations promulgated thereunder.
(ix) "Holder" means the Person in whose name shares of
the Voting Common Stock or the Non-Voting Common Stock, as the case may be, are
registered, who may be treated by the Corporation, Transfer Agent, registrar, paying agent
and Conversion Agent as the absolute owner of such stock for all purposes.
(x) "Liquidation Event" means any voluntary or involuntary
liquidation, dissolution or winding-up of the affairs of the Corporation.
(xi) "Person" means a legal person, including any
individual, corporation, estate, partnership, joint venture, association, joint-stock
company, limited liability company or trust.
(xii) "Senior Stock" means any class or series of capital
stock of the Corporation the terms of which expressly provide that such class or series
will rank senior to the Voting Common Stock and the Non-Voting Common Stock as to
dividend rights and/or as to rights on liquidation, dissolution or winding-up of the
Corporation (in each case, without regard to whether dividends accrue cumulatively or
non-cumulatively).
(xiii) "Transfer" means any sale, transfer, assignment or
other disposition (including by merger, reorganization, operation of law or otherwise).
1
4
(xiv) "Transfer Agent" means initially the Corporation acting
as transfer agent, registrar, paying agent and Conversion Agent and its successors and
assigns and thereafter any Person appointed by the Corporation as Transfer Agent.
(xv) "Transfer Certification" shall have the meaning set forth
in Section 3(c)(ii).
(xvi) "Voting Group" has the meaning set forth in Section
607.01401(78), Florida Business Corporation Act.
(xvii) "Voting Securities" means capital stock of the
Corporation that is then entitled to vote generally in the election of directors of the
Corporation.
2. Voting Common Stock
(a)
Voting Rights.
The Holders of record of the Voting Common
Stock are entitled to one (1) vote per share on all matters to be voted on by the
Corporation's shareholders; provided, that, except as otherwise required by law, Holders
of Voting Common Stock, as such, shall not be entitled to vote on any amendment to any
provision of these Articles of Incorporation that relates solely to the terms of one or more
outstanding classes or series of Preferred Stock or the Non-Voting Common Stock if
these Articles of Incorporation provide that only the holders of one or more classes or
series of stock of the Corporation not including the Voting Common Stock are entitled to
vote thereon.
(b)
Dividends.
Dividends may be declared and paid on the Voting
Common Stock from funds lawfully available therefor if, as and when determined by the
Board of Directors of the Corporation (the "Board of Directors") in its sole discretion,
subject to applicable provisions of Federal and Florida law and of these Articles of
Incorporation, as amended from time to time, and subject to the relative rights and
preferences of any shares of Non-Voting Common Stock and any shares of Preferred
Stock authorized, issued and outstanding hereunder.
(c)
Liquidation Rights.
(i) Liquidation. In the event of a Liquidation Event, after
payment or provision for payment of the debts and other liabilities of the Corporation and
after any payment of the prior preferences and other rights of any Senior Stock shall have
been made or irrevocably set apart for payment, the assets of the Corporation legally
remaining available for distribution to the Corporation's shareholders shall be distributed
pro rata among (A) the Holders of Voting Common Stock, (B) the Holders of Non-Voting
Common Stock (with each such Holder of Non-Voting Common Stock being treated for
this purpose as holding the number of whole shares of Common Stock equal to the
product of the Converted Stock Equivalent Amount and the number of such shares of
Non-Voting Common Stock immediately prior to such Liquidation Event), and (C) the
Holders of any other securities of the Corporation having the right to participate in such
5
distributions upon the occurrence of a Liquidation Event, in accordance with the
respective terms thereof.
(ii) Merger, Consolidation and Sale of Assets Not
Liquidation. For purposes of this Section 2(c), the merger or consolidation of the
Corporation with any other corporation or other entity, including a merger or consolidation
in which the Holders of Voting Common Stock receive cash, securities or other property
for their shares, or the sale, lease or exchange (for cash, securities or other property) of
all or substantially all of the assets of the Corporation, shall not constitute a Liquidation
Event.
3. Non-Voting Common Stock
(a)
Dividends.
(i) General. Each share of Non-Voting Common Stock
shall be entitled to receive, if, as and when declared by the Board of Directors or any duly
authorized committee thereof, but only out of assets legally available therefor, dividends
or distributions of the same amount, in an identical form of consideration and at the same
time, as those dividends or distributions that would have been payable on the number of
whole shares of Voting Common Stock equal to the Converted Stock Equivalent Amount
(rounding any fractional shares resulting from such computation to the nearest whole
number), such that no share of Voting Common Stock shall receive a dividend or
distribution unless equivalent dividends or distributions (as described above) are also
made with respect to each share of Non-Voting Common Stock, taking into account any
adjustment to the Converted Stock Equivalent Amount as provided herein; provided, that
the foregoing shall not apply to any dividend or distribution payable in Voting Common
Stock that results in an adjustment in the Converted Stock Equivalent Amount, as set
forth in Section 1(b)(vi) in the definition of "Converted Stock Equivalent Amount." The
Corporation shall not declare a dividend or distribution on the shares of the Voting
Common Stock unless a dividend or distribution (as described above) is also declared on
the shares of Non-Voting Common Stock in accordance with this Section 3(a)(i).
Notwithstanding anything set forth in this Section 3(a)(i), if any dividend or distribution is
payable in rights or warrants to subscribe for Voting Common Stock or purchase Voting
Common Stock pursuant to a conversion feature in a debt or equity security, the
corresponding dividend or distribution payable on the Non-Voting Common Stock shall
consist of an identical right or warrant, except that such right or warrant shall be a right or
warrant to subscribe for a number of shares of Non-Voting Common Stock equal to the
number of shares of Voting Common Stock that would otherwise be subject to such right
or warrant. The Non-Voting Common Stock shall have no fixed dividend rate. Each
declared dividend or distribution shall be payable to the Holders of record of Non-Voting
Common Stock at the same time as dividends or distributions are payable to the Holders
of record of Voting Common Stock. The record dates for dividends or distributions to the
Holders of Non-Voting Common Stock shall be the same as the record dates for the Voting
Common Stock, and vice-versa. The Corporation shall not declare or pay a dividend or
distribution to the Holders of the Non-Voting Common Stock other than as expressly
provided in this Section 3(a)(i).
6
(ii) Priority of Dividends. The Non-Voting Common Stock
shall rank junior with regard to dividends to the Senior Stock. The Non-Voting Common
Stock shall have the same priority, with regard to dividends, as the Voting Common Stock.
(b)
Liquidation Rights.
(i) Liquidation. In the event of a Liquidation Event, after
payment or provision for payment of the debts and other liabilities of the Corporation and
after any payment of the prior preferences and other rights of any Senior Stock shall have
been made or irrevocably set apart for payment, the assets of the Corporation legally
remaining available for distribution to the Corporation's shareholders shall be distributed
pro rata among (A) the Holders of Voting Common Stock, (B) the Holders of Non-Voting
Common Stock (with each such Holder of Non-Voting Common Stock being treated for
this purpose as holding the number of whole shares of Common Stock equal to the
product of the Converted Stock Equivalent Amount and the number of such shares of
Non-Voting Common Stock immediately prior to such Liquidation Event), and (C) the
Holders of any other securities of the Corporation having the right to participate in such
distributions upon the occurrence of a Liquidation Event, in accordance with the
respective terms thereof.
(ii) Merger, Consolidation and Sale of Assets Not
Liquidation. For purposes of this Section 3(b), the merger or consolidation of the
Corporation with any other corporation or other entity, including a merger or consolidation
in which the Holders of Non-Voting Common Stock receive cash, securities or other
property for their shares, or the sale, lease or exchange (for cash, securities or other
property) of all or substantially all of the assets of the Corporation, shall not constitute a
Liquidation Event.
(c)
Transfers and Conversion.
(i) Transfers; Conversion Upon Certain Transfers. The
Non-Voting Common Stock may be Transferred only: (A) to an Affiliate of the Holder of
Non-Voting Common Stock or to the Corporation; (B) pursuant to a widespread public
distribution of Common Stock (including a transfer to an underwriter for the purpose of
conducting a widespread public distribution or pursuant to Rule 144 under the Securities
Act of 1933, as amended); (C) if no transferee (or group of associated transferees) would
receive 2% or more of any class of Voting Securities or (D) to a transferee that would
control more than 50% of the Voting Securities without any transfer from the transferor.
Each share of Non-Voting Common Stock shall
automatically convert into a number of shares of Voting Common Stock equal to the
Converted Stock Equivalent Amount immediately following a Transfer of the type
described in clauses (B), (C) or (D) of this Section 3(c)(i). Each certificate representing
shares of Non-Voting Common Stock in respect of which a conversion has occurred in
accordance with this Section 3(c)(i) shall be deemed to represent the number of shares
of Voting Common Stock into which such shares of Non-Voting Common Stock have so
converted.
7
(ii) Transfer Procedures. Upon the physical surrender to
the Corporation (or, if the Transfer Agent is not the Corporation, the Transfer Agent) of the
certificate representing shares of Non-Voting Common Stock converted pursuant to
Section 3(c)(i) above, together with a written certification to the effect that such shares
are being Transferred in accordance with clauses (B), (C) or (D) of Section 3(c)(i) above
(a "Transfer Certification"), the Corporation will, or will cause the Transfer Agent to, issue
and deliver a new certificate, registered as the Holder of Non-Voting Common Stock
making the transfer may request, representing the aggregate number of shares of Voting
Common Stock issued upon conversion of the shares of Non-Voting Common Stock
being Transferred (provided that, if the transfer agent for the Common Stock is
participating in The Depository Trust Company ("DTC") Fast Automated Securities
Transfer Program and the transferee is eligible to receive shares through DTC, the
Transfer Agent shall instead credit such number of full Voting Common Stock to such
transferee's balance account with DTC through its Deposit/Withdrawal at Custodian
system). In the event that less than all of the shares of Non-Voting Common Stock
represented by a certificate are Transferred pursuant to clauses (B), (C) or (D) of Section
3(c)(i) above, the Corporation shall promptly issue a new certificate registered in the name
of the transferor Holder of Non-Voting Common Stock representing such remaining
shares of Non-Voting Common Stock not subject to such Transfer.
(iii) No Responsibility of the Corporation. In connection
with any Transfer or conversion of any shares of Non-Voting Common Stock pursuant to
or as permitted by Section 3(c)(i):
(A) The Corporation shall be under no obligation to
make any investigation of facts.
(B) Except as otherwise required by law, neither the
Corporation nor any director, officer, employee or agent of the
Corporation shall be liable in any manner for any action taken or
omitted in good faith in connection with the registration of any such
Transfer or the issuance of shares of Voting Common Stock in
connection with any such conversion.
(iv) Legend. Every certificate representing shares of Non-
Voting Common Stock shall bear a legend on the face thereof providing as follows:
"THE SHARES OF NON-VOTING COMMON STOCK REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO PROVISIONS WITH RESPECT TO,
INCLUDING RESTRICTIONS ON PERMITTED SALE, ASSIGNMENT OR
OTHER TRANSFER SET FORTH IN ARTICLE III, PARAGRAPH A, SECTION
3(C)(I), AND ARTICLE X, OF THE CORPORATION'S ARTICLES OF
INCORPORATION, INCLUDING A PROVISION PROVIDING FOR AUTOMATIC
CONVERSION OF SHARES OF NON-VOTING COMMON STOCK INTO
SHARES OF VOTING COMMON STOCK UPON CERTAIN SALES,
ASSIGNMENTS OR OTHER TRANSFERS OF THE SHARES."
8
(v) No Effect on Other Obligations. Nothing contained in
this Section 3(c) shall be deemed to eliminate or otherwise modify any other requirements
applicable to Transfers under these Articles of Incorporation or applicable law.
(vi) Conversion Date. Effective immediately prior to the
close of business on the Conversion Date, dividends shall no longer be declared on any
such converted shares of Non-Voting Common Stock, and such shares of Non-Voting
Common Stock shall represent only the right to receive shares of Voting Common Stock
issuable upon conversion of such shares; provided, that Holders of Non-Voting Common
Stock shall have the right to receive any declared and unpaid dividends as of the
Conversion Date on such shares and any other payments to which they are otherwise
entitled pursuant to the terms hereof.
(vii) Record Holder as of Conversion Date. The Person or
Persons entitled to receive shares of Voting Common Stock issuable upon conversion of
Non-Voting Common Stock on any applicable Conversion Date shall be treated for all
purposes as the record Holder(s) of such shares of Voting Common Stock immediately
upon Conversion in accordance with Section 3(c)(i).
(d)
Voting Rights.
(i) General. The Holders of Non-Voting Common Stock
shall be entitled to notice of and attendance at all shareholder meetings at which Holders
of shares of Voting Common Stock shall be entitled to vote; provided, that notwithstanding
any such notice, except as required by applicable law or as expressly set forth herein, the
Holders of Non-Voting Common Stock shall not be entitled to vote on any matter
presented to the shareholders of the Corporation for their action or consideration,
including the election of directors of the Corporation.
(ii) Protective Consent Rights. In addition to any approval
rights that may be required by applicable law, the consent of the Holders of Non-Voting
Common Stock representing a majority of the number of shares of Non-Voting Common
Stock then issued and outstanding, given in person or by proxy, either in writing or by
vote, at a special or annual meeting, voting or consenting as a separate class, shall be
necessary to: (A) amend, alter or repeal (including by merger, consolidation or
otherwise) any provision of these Articles of Incorporation that significantly and
adversely affects the rights, preferences or terms of the Non-Voting Common Stock
contained herein in a manner that is different from the effect of such amendment,
alteration or repeal on the Voting Common Stock or (B) liquidate, dissolve or windup the
business and affairs of the Corporation.
(iii) Action by Written Consent. Any action, including any
vote required or permitted to be taken at any annual or special meeting of shareholders
of the Corporation, that requires a separate vote of the Holders of Non-Voting Common
Stock voting as a Voting Group, may be adopted or taken by such Holders without a
meeting, without prior notice and without a vote, if a consent or consents in writing,
setting forth the action so adopted or taken, are signed by Holders of Non-Voting
9
Common Stock having not less than the minimum number of votes that would be
required to adopt or take such action at a meeting at which all shares of Non-Voting
Common Stock entitled to vote thereon were present and voted, and is delivered to the
Corporation by delivery to the Corporate Secretary of the Corporation at its principal
executive office.
(e)
Subdivision; Stock Splits; Combinations.
The Corporation
shall not at any time subdivide (by any stock split, stock dividend, recapitalization or
otherwise) its outstanding shares of Non-Voting Common Stock into a greater number of
shares, or combine (by combination, reverse stock split or otherwise) its outstanding
shares of Non-Voting Common Stock into a smaller number of shares.
(f)
Reclassification, Consolidation, Merger or Sale.
In the event
of any merger, consolidation, share exchange, reclassification or other similar transaction
in which the shares of Voting Common Stock are exchanged for or changed into other
stock or securities, cash and/or any other property, each share of Non-Voting Common
Stock will at the same time be similarly exchanged or changed in an amount equal to the
aggregate amount of stock, securities, cash and/or any other property (payable in kind),
as the case may be, based upon the Converted Stock Equivalent Amount immediately
prior to such transaction; provided that at the election of such Holder of Non-Voting
Common Stock, any securities issued with respect to the Non-Voting Common Stock shall
be non-voting securities under the resulting corporation's organizational documents and
the Corporation shall make appropriate provisions (in form and substance reasonably
satisfactory to the Holders of at least a majority of the Non-Voting Common Stock then
outstanding) and take such actions necessary to ensure that Holders of the Non-Voting
Common Stock shall retain securities with substantially the same privileges, limitations
and relative rights as the Non-Voting Common Stock. Subject to the foregoing, in the
event the Holders of Voting Common Stock are provided the right to convert or exchange
Voting Common Stock for stock or securities, cash and/or any other property, then the
Holders of the Non-Voting Common Stock shall be provided the same right based upon
the Converted Stock Equivalent Amount immediately prior to such transaction. In the
event that the Corporation offers to repurchase shares of Voting Common Stock from its
shareholders generally, the Corporation shall offer to repurchase Non-Voting Common
Stock pro rata based upon the Converted Stock Equivalent Amount of such Holders of
Non-Voting Common Stock immediately prior to such repurchase. In the event of any pro
rata subscription offer, rights offer or similar offer to holders of Voting Common Stock, the
Corporation shall provide the Holders of the Non-Voting Common Stock the right to
participate based upon the Converted Stock Equivalent Amount immediately prior to such
offering; provided that at the election of such Holder, any shares issued with respect to
the Non-Voting Common Stock shall be issued in the form of Non-Voting Common Stock
rather than Voting Common Stock.
(g)
Unissued or Reacquired Shares.
Shares of Non-Voting
Common Stock that have been issued and converted, redeemed or otherwise purchased
or acquired by the Corporation shall, upon the taking of any action required by law,
automatically revert to authorized but unissued shares of Non-Voting Common Stock.
10
(h)
Reservation of Voting Common Stock.
(i) Sufficient Shares. The Corporation shall at all times
reserve and keep available out of its authorized and unissued shares of Voting Common
Stock or shares of Voting Common Stock acquired by the Corporation, solely for issuance
upon the conversion of shares of Non-Voting Common Stock as provided in this Article
III, Paragraph A, Section 3, free from any preemptive or other similar rights, such number
of shares of Voting Common Stock as shall from time to time be issuable upon the
conversion of all the shares of Non-Voting Common Stock then outstanding.
(ii) Free and Clear Delivery. All shares of Voting Common
Stock delivered upon conversion of the shares of Non-Voting Common Stock, shall, upon
issuance, be duly authorized, validly issued, fully paid and non-assessable, free and clear
of all liens, claims, security interests and other encumbrances (other than liens, charges,
security interests and other encumbrances created by the Holders thereof).
(iii) Compliance with Law. Prior to the delivery of any Voting
Common Stock that the Corporation shall be obligated to deliver upon conversion of the
Non-Voting Common Stock, the Corporation shall use its reasonable best efforts to
comply with any federal and state laws and regulations thereunder requiring the
registration of such securities with, or any approval of or consent to the delivery thereof
by, any governmental authority.
(i)
Transfer Agent, Conversion Agent, Registrar and Paying
Agent.
The duly appointed Transfer Agent, Conversion Agent, registrar and paying agent,
as applicable, for the Common Stock shall initially be the Corporation. The Corporation
may appoint a successor Transfer Agent that shall accept such appointment prior to the
effectiveness of such removal. Upon any such appointment, the Corporation shall send
notice thereof to the Holders of Common Stock.
(j)
Mutilated, Destroyed, Stolen and Lost Certificates.
If physical
certificates are issued, the Corporation shall replace any mutilated certificate at the
Holder's expense upon surrender of that certificate to the Transfer Agent. The Corporation
shall replace any certificate that becomes destroyed, stolen or lost, at the Holder's
expense, upon delivery to the Corporation and the Transfer Agent of satisfactory evidence
that the certificate has been destroyed, stolen or lost, together with any indemnity and
bond that may be required by the Transfer Agent or the Corporation.
(k)
No Closing of Books; Cooperation.
The Corporation shall not
close its books against the Transfer of shares of Non-Voting Common Stock or of shares
of Voting Common Stock issued or issuable upon conversion of Non-Voting Common
Stock in any manner which interferes with the timely conversion of Non-Voting Common
Stock. The Corporation shall assist and cooperate with any Holder of Non-Voting
Common Stock required to make any governmental filings or obtain any governmental
approval or non-objection prior to or in connection with any conversion of Non-Voting
Common Stock hereunder (including, without limitation, making any governmental filings
11
required to be made by the Corporation), but the Corporation shall not be obligated to
reimburse any such Holder for expenses incurred in connection therewith.
(l)
Taxes.
(i) Transfer Taxes. The Corporation shall pay any and all
stock transfer, documentary, stamp and similar taxes that may be payable in respect of
any issuance or delivery of shares of Non-Voting Common Stock or Voting Common Stock
issued on account of Non-Voting Common Stock pursuant hereto or certificates
representing such shares; provided, that the Corporation shall not be required to pay any
such tax that may be payable in respect of any Transfer involved in the issuance or
delivery of shares in a name other than that in which the shares of Non-Voting Common
Stock involved were registered, or in respect of any payment to any Person other than a
payment to the registered Holder thereof, and shall not be required to make any such
issuance or delivery unless and until it is satisfied that any such tax for which the
Corporation is not responsible has been or will be paid.
(ii) Withholding. All payments and distributions (or deemed
distributions) on the shares of Non-Voting Common Stock (and on the shares of Voting
Common Stock received upon their conversion) shall be subject to withholding and
backup withholding of tax to the extent required by law, subject to applicable exemptions,
and amounts withheld, if any, shall be treated as received by the Holders thereof.
B. Preferred Stock
1. General
Subject to applicable law, to these Articles of Incorporation and to the
Corporation's Bylaws, the Board of Directors is authorized, at any time or from time to
time, to issue Preferred Stock and: (i) to provide for the issuance of shares of Preferred
Stock in one or more classes or series, and any restrictions on the issuance or reissuance
of any additional Preferred Stock; (ii) to determine the designation for any such classes
or series by number, letter or title that shall distinguish such classes or series from any
other classes or series, respectively, of Preferred Stock; (iii) to establish from time to time
the number of shares to be included in any such class or series, including a determination
that such class or series shall consist of a single share, or that the number of shares shall
be decreased (but not below the number of shares thereof then outstanding); and (iv) to
determine with respect to the shares of any class or series of Preferred Stock the terms,
powers, preferences, qualifications, limitations, restrictions and relative, participating,
optional or other special rights of the shares of such class or series of Preferred Stock,
including, but not limited to:
(a) whether, with respect to shares entitled to dividends, the
holders thereof shall be entitled to cumulative, noncumulative or partially cumulative
dividends, the dividend rate or rates (including the methods and procedures for
determining such rate or rates), and any other terms and conditions relating to such
12
dividends (including the relation which such dividends shall bear to the dividends payable
on any other class or series of the Corporation's capital stock);
(b) whether, and, if so, to what extent and upon what terms and
conditions, the holders thereof shall be entitled to rights upon the voluntary or involuntary
liquidation, dissolution or winding-up of, or upon any distribution of the assets of, the
Corporation;
(c) whether, and, if so, upon what terms and conditions, such
shares shall be convertible into, or exchangeable for, other securities or property;
(d) whether, and, if so, upon what terms and conditions, such
shares shall be redeemable by the Corporation;
(e) whether the shares shall be subject to any sinking fund
provided for the purchase or redemption of such shares and, if so, the terms and amount
of such fund;
(f) whether the holders thereof shall be entitled to voting rights
and, if so, the terms and conditions for the exercise thereof; and
(g) whether the holders thereof shall be entitled to other relative,
participating, optional or other special powers, preferences or rights and, if so, the
qualifications, limitations and restrictions of such preferences or rights.
ARTICLE IV
The term for which the Corporation shall exist shall be perpetual.
ARTICLE V
A. Management. The management of the business and the conduct of the
affairs of the Corporation shall be vested in the Board of Directors. The initial Board of
Directors of the Corporation shall consist of seven (7) directors. The name and street
address of the initial director of this Corporation is:
13
Name
Address
Luis de la Aguilera
2301 NW 87th Avenue, Doral, Florida
33172
Aida Levitan
2301 NW 87th Avenue, Doral, Florida
33172
Ramón Abadin
2301 NW 87th Avenue, Doral, Florida
33172
Howard P. Feinglas
2301 NW 87th Avenue, Doral, Florida
33172
Bernardo Fernandez, M.D.
2301 NW 87th Avenue, Doral, Florida
33172
Wayne K. Goldstein
2301 NW 87th Avenue, Doral, Florida
33172
W. Kirk Wycoff
2301 NW 87th Avenue, Doral, Florida
33172
B. Number of Directors; Election; Tenn. Subject to the rights of holders of any
class or series of Preferred Stock with respect to the election of directors, the number of
directors which shall constitute the whole Board of Directors shall be fixed by, or in the
manner provided in, the Bylaws of the Corporation. Elections of directors need not be by
written ballot unless the Bylaws of the Corporation shall so provide. Notwithstanding the
foregoing provisions of this Section B, and subject to the rights of holders of any class or
series of Preferred Stock with respect to the election of directors, each director shall
serve until his or her successor is duly elected and qualified or until his or her earlier
death, resignation or removal.
C. Removal. Subject to the rights of holders of any class or series of Preferred
Stock with respect to the election of directors, a director may be removed from office by
the affirmative vote of holders of shares of capital stock issued and outstanding and
entitled to vote in an election of Directors representing at least a majority of the votes
entitled to be cast thereon, and then, only for cause:
D. Amendment of Bylaws. Subject to the restrictions set forth in these Articles
of Incorporation, the power to adopt, amend or repeal the Bylaws of the Corporation may
be exercised by the Board of Directors.
ARTICLE VI
A. No Action by Written Consent of Shareholders. Except as otherwise
expressly provided by the terms of the Non-Voting Common Stock and any class or series
of Preferred Stock permitting the holders of the Non-Voting Common Stock or such class
or series of Preferred Stock, as the case may be, to act by written consent, any action
required or permitted to be taken by shareholders of the Corporation must be effected at
a duly called annual or special meeting of the shareholders and may not be effected by
written consent in lieu of a meeting.
14
B. Special Meetings. Except as otherwise expressly provided by the terms of
any class or series of Preferred Stock permitting the holders of such class or series of
Preferred Stock to call a special meeting of the holders of such class or series, special
meetings of shareholders of the Corporation may be called by the Board of Directors or
any one or more shareholders owning, in the aggregate, not less than ten percent of the
Voting Common Stock. The Board of Directors may cancel, postpone or reschedule any
previously scheduled special meeting at any time, before or after the notice for such
meeting has been sent to the shareholders.
C. Fractional Shares. Shares of Common Stock or Preferred Stock may be
issued in fractions of a share which shall entitle the holder thereof, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends, participate in
distributions and to have the benefit of all other rights of holders of shares of such
Common Stock or Preferred Stock, as the case may be.
D. Exclusion of Statutory Provisions Relating to Affiliate Transactions and
Control Share Acquisitions. Sections 607.0901 and 607.0902 of the Florida Business
Corporation Act shall not apply to the Corporation.
E. Notices. Unless otherwise provided herein, all notices referred to herein
shall be in writing, and, unless otherwise specified herein, all notices hereunder shall be
deemed to have been given upon the earlier of receipt thereof or five days after its deposit
in the U.S. mail if sent by registered or certified mail with postage prepaid, or the date
shown on the return receipt if sent by registered or certified mail, return receipt requested,
and the receipt is signed by or on behalf of the addressee, addressed: (i) if to the
Corporation, to the principal executive office of the Corporation or to the transfer agent at
its principal office in the United States of America, (ii) if to any holder, to such holder at
the address of such holder as listed in the stock record books of the Corporation, or (iii)
to such other address as the Corporation or any such holder, as the case may be, shall
have designated by notice similarly given.
ARTICLE VII
A. Indemnification. To the fullest extent permitted by applicable law, the
Corporation is authorized to provide indemnification of (and advancement of expenses
to) the directors, officers, employees and agents of the Corporation (and any other
persons to which the applicable provisions of the Florida Business Corporation Act or any
other applicable law not in conflict therewith permits the Corporation to provide
indemnification) through Bylaw provisions, agreements with such agents or other
persons, vote of shareholders or disinterested directors, or otherwise.
B. Priority of Indemnification. The Corporation acknowledges that the directors
nominated by the Priam Capital Fund II, LP. ("Priam") and Patriot Financial Partners II,
L.P. and Patriot Financial Partners Parallel II, L.P. (collectively, "Patriot") (each an
"Investor Director") may have certain rights to indemnification, advancement of expenses
and/or insurance provided by the Priam and Patriot and/or certain of their respective
affiliates (collectively, the "Investor Indemnitors"). The Corporation hereby agrees (1) that
15
it is the indemnitor of first resort (i.e., its obligations to each Investor Director are primary
and any obligation of Investor Indemnitors to advance expenses or to provide
indemnification for the same expenses or liabilities incurred by any Investor Director are
secondary), and (2) that it shall be required to advance the full amount of expenses
incurred by each Investor Director and shall be liable for the full amount of all expenses
and liabilities, in each case, to the extent permitted by law, without regard to any rights
an Investor Director may have against any Investor Indemnitor. The Corporation further
agrees that no advancement or payment by any Investor Indemnitor on behalf of any
Investor Director with respect to any claim for which such Investor Director has sought
indemnification from the Corporation shall affect the foregoing and Investor Indemnitors
shall have a right of contribution and/or be subrogated to the extent of such advancement
or payment to all of the rights of recovery of such Investor Director against the
Corporation.
C. Limitation of Personal Liability. To the fullest extent permitted by applicable
law as the same exists or hereafter may be amended, no director of the Corporation shall
be personally liable to the Corporation or its shareholders for monetary damages for
breach of fiduciary duty as a director. If applicable provisions of the Florida Business
Corporations Act or any other applicable law not in conflict therewith are amended to
authorize corporate action further eliminating or limiting the personal liability of directors,
then the liability of a director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the applicable provisions of the Florida Business Corporations Act
and such other applicable law, as so amended. No amendment, modification or repeal of
this paragraph or any adoption of any other provision of these Articles of Incorporation
inconsistent with this paragraph shall apply to or adversely affect any right or protection
of a director of the Corporation existing at the time of such amendment, modification,
repeal or adoption with respect to any acts or omissions of such director occurring prior
to such amendment, modification, repeal or adoption.
ARTICLE VIII
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in these Articles of Incorporation (including any rights, preferences or
other designations of Preferred Stock), in the manner now or hereafter prescribed by
these Articles of Incorporation and the Florida Business Corporations Act; and all rights,
preferences and privileges herein conferred upon shareholders by and pursuant to this
Articles of Incorporation in its present form or as hereafter amended are granted subject
to the right reserved in this Article VIII. Notwithstanding any other provision of these
Articles of Incorporation to the contrary, and in addition to any other vote that may be
required by law or the terms of these Articles of Incorporation, the affirmative vote of the
holders of at least sixty six and two-thirds percent (66 2/3%) of the then outstanding
shares of Voting Common Stock, voting together as a single class, shall be required to (i)
amend, alter or repeal, or adopt any provision as part of this Articles of Incorporation
inconsistent with the purpose and intent of, Article IV, Article V, Article VI, Article VII, this
Article VIII or Article X (including, without limitation, any such Article as renumbered as a
result of any amendment, alteration, change, repeal or adoption of any other Article) or
(ii) amend, alter or repeal, or adopt any provision as part of these Articles of Incorporation
16
or the Corporation's Bylaws inconsistent with the purpose and intent of, Sections 2.1, 2.2
and 2.12 or Articles VII or IX (including, without limitation, any such Article or Section as
renumbered as a result of any amendment, alteration, change, repeal or adoption of any
other Article or Section) of the Corporation's Bylaws.
ARTICLE IX
Notwithstanding anything in these Articles to the contrary, the Corporation
and the members of the Board of Directors (the "Directors") shall at all times comply with
the requirements of Sections 655.0385 and 655.0386 of the Florida Statutes. The
Corporation acknowledges that the Directors and their respective affiliates and related
investment funds may review the business plans and related proprietary information of
other enterprises which may have products or services which may or may not compete
directly or indirectly with those of the Corporation and its subsidiaries, and may trade in
the securities of such enterprises. No Directors, any of their respective affiliates or related
investment funds shall be precluded or in any way restricted from investing or participating
in any particular enterprise, or trading in the securities thereof whether or not such
enterprise has products or services that compete with those of the Corporation and its
subsidiaries and affiliates. The Corporation expressly acknowledges and agrees that: (a)
the Directors and their respective affiliates have the right to, and shall have no duty
(contractual or otherwise) not to, directly or indirectly, engage in the same or similar
business activities or lines of business as the Corporation and its subsidiaries and
affiliates; and (b) in the event that any Director or its affiliates acquires knowledge of a
potential transaction or matter that may be a corporate opportunity for the Corporation or
any of its subsidiaries or affiliates, such Director or its affiliate shall have no duty
(contractual or otherwise) to communicate or present such corporate opportunity to the
Corporation or any of its subsidiaries and affiliates, and, notwithstanding any provision of
this Articles of Incorporation, the Bylaws or applicable law to the contrary, shall not be
liable to the Corporation or any of its subsidiaries or affiliates or the shareholders of the
Corporation for breach of any duty (contractual or otherwise) by reason of the fact that
such Director or any of its affiliates thereof, directly or indirectly, pursues or acquires such
opportunity for itself, directs such opportunity to another person, or does not present such
opportunity to the Corporation.
ARTICLE X
A. Certain Definitions. For purposes of this Article X, the following terms shall
have the meanings indicated (and any references to any portions of Treasury Regulation
§ 1.3822T shall include any successor provisions):
1. "Affiliate" shall have the meanings set forth in Rule 12b-2 under the
Securities Exchange Act of 1934, as amended.
2. "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
17
3. "Entity" means an "entity" as defined in Treasury Regulation § 1.382-
3(a).
4. "Expiration Date" means the earlier of (A) January 1, 2035, (B) the
repeal of Section 382 of the Code or any successor statute if the Board of Directors
determines that this Article X is no longer necessary for the preservation of Tax Benefits
and (C) the beginning of a taxable year of the Corporation to which the Board of Directors
determines that no Tax Benefits may be carried forward, unless the Board of Directors
shall fix an earlier or later date in accordance with Article X, Section G.
5. "Five-Percent Shareholder" means an individual, an Entity or a Public
Group" whose Ownership Interest Percentage is greater than or equal to 5% or who would
be treated as a "5-percent shareholder" under Section 382 of the Code and applicable
Treasury Regulations. For purposes of determining whether a Person is a Five-percent
Shareholder, any options (as defined in Treasury Regulations) treated as owned by such
Person shall be deemed exercised if the result is to cause such Person to be treated as
a Five-percent Shareholder.
6. "Large Investor" means any Person that is identified as a Large
Investor in a stock purchase agreement between such Person and the Corporation.
7. "Option" shall have the meaning set forth in Treasury Regulation
§§1.382-2T(h)(4)(v) and 1.382-4(d)(9).
8. "Ownership Interest Percentage" means, as of any determination
date, the percentage of the Corporation's issued and outstanding Stock (not including
treasury shares or shares subject to vesting in connection with compensatory
arrangements with the Corporation) that an individual or Entity would be treated as
owning for purposes of Section 382 of the Code, applying the following additional rules:
(A) in the event that such individual or Entity, or any Affiliate of such individual or Entity,
owns or is party to an Option with respect to Stock (including, for the avoidance of doubt,
any cash-settled derivative contract that gives such individual or Entity a "long" exposure
with respect to Stock), such individual, Entity or affiliate will be treated as owning an
amount of Stock equal to the number of shares referenced by such Option, (B) for
purposes of applying Treasury Regulation § 1.382-2T(k)(2), the Corporation shall be
treated as having "actual knowledge" of the beneficial ownership of all outstanding shares
of Stock that would be attributed to any such individual or Entity, (C) Section
382(l)(3)(A)(ii)(II) of the Code shall not apply and (D) any additional rules the Board of
Directors may establish from time to time.
9. "Permissible Transferee" means a transferee that, immediately prior
to any transfer, has an Ownership Interest Percentage equal to (A) zero percentage
points, plus (B) any percentage attributable to a prior transfer from, or attribution of
ownership from, a Large Investor or another Permissible Transferee.
18
10. "Person" means any individual, Entity, firm, corporation, partnership,
trust association, limited liability company, limited liability partnership, governmental entity
or other entity and shall include any successor (by merger or otherwise) of any such entity.
11.
"Prohibited Transfer" means any purported transfer of Stock to the
extent that such transfer is prohibited under this Article X.
12.
"Public Group" means a "public group" as defined in Treasury
Regulation §1.382-2T(f)(13).
13.
"Stock" means (A) shares of Common Stock, (B) shares of Preferred
Stock (other than shares of any class of Preferred Stock described in Section 1504(a)(4)
of the Code) and (C) any other interest (other than any Option) that would be treated as
"stock" of the Corporation pursuant to Treasury Regulation § 1.382-2T(f)(18).
14.
"Tax Benefit" means the net operating loss carryovers, capital loss
carryovers, general business credit carryovers, alternative minimum tax credit carryovers
and foreign tax credit carryovers, as well as any potential loss or deduction attributable to
an existing "net unrealized built-in loss" within the meaning of Section 382 of the Code,
of the Corporation or any direct or indirect subsidiary thereof.
15.
"Transfer" refers to any means of conveying record, beneficial or tax
ownership (applying, in the case of tax ownership, applicable attribution rules for
purposes of Section 382 of the Code) of Stock, whether such means is direct or indirect,
voluntary or involuntary. A Transfer also shall include the creation or grant of an option
(including an option within the meaning of Treasury Regulations § 1.382-2T(h)(4)(v) and
§ 1.382-4(d)(9)).
16.
"Transferee" means any Person to whom any such security is
transferred.
17.
"Treasury Regulations" means the regulations, including temporary
regulations or any successor regulations promulgated under the Code, as amended from
time to time.
B. Transfer Restrictions. Solely for the purpose of permitting the utilization of
the Tax Benefits to which the Corporation (or any other member of the consolidated group
of which the Corporation is the common parent for U.S. federal income tax purposes) is
or may be entitled pursuant to the Code and the regulations thereunder, the following
restrictions shall apply until the Expiration Date, unless the Board of Directors has waived
any such restrictions in accordance with Article X, Section G:
1. From and after the effective date of this Articles of Incorporation and
prior to the Expiration Date, except as otherwise provided in this Article X, Section (B)(1),
no individual or Entity other than the Corporation shall, except as provided in Article X,
Section (C)(1) below, transfer to any individual or Entity any direct or indirect interest in
any Stock or Options to acquire Stock to the extent that such transfer, if effective, would
cause the Ownership Interest Percentage of the transferee or any other individual, Entity
19
or Public Group to increase to 4.95 percent (4.95%) or above, or from 4.95% or above to
a greater Ownership Interest Percentage or to the extent that such transfer would
constitute a transfer to a Five-Percent Shareholder. Nothing in this Article X shall preclude
the settlement of any transaction with respect to the Stock entered into through the
facilities of any national securities exchange or over-the-counter market; provided,
however, that the fact that the settlement of any transaction occurs shall not negate the
effect of any other provision of this Article X and the securities involved in such
transaction, and the purported transferor and Purported Acquiror (as defined below)
thereof, shall remain subject to the provisions of this Article X in respect of such
transaction.
2. From and after the effective date of this Articles of Incorporation and
prior to the Expiration Date, except as otherwise provided in this Article X, Section (C)(2),
no Five-Percent Shareholder shall, except as provided in Article X, Section (C)(2) below,
transfer to any individual or Entity any direct or indirect interest in any Stock or Options to
acquire Stock owned by such Five-Percent Shareholder without the prior approval of the
Board of Directors. Nothing in this Article X shall preclude the settlement of any
transaction with respect to the Stock entered into through the facilities of any national
securities exchange or over-the-counter market; provided, however, that the fact that the
settlement of any transaction occurs shall not negate the effect of any other provision of
this Article X, and the securities involved in such transaction, and the purported transferor
and Purported Acquiror (as defined below) thereof, shall remain subject to the provisions
of this Article X in respect of such transaction.
C. Permitted Transfers.
1. Any transfer that would otherwise be prohibited pursuant to Article X,
Section (B)(1) shall nonetheless be permitted if (A) such transfer is made by a Large
Investor to a Large Investor or a Permissible Transferee or by a Permissible Transferee
to a Large Investor or a Permissible Transferee, (B) prior to such transfer being
consummated (or, in the case of an involuntary transfer, as soon as practicable after the
transaction is consummated), the Board of Directors, in its sole discretion, approves the
transfer (such approval may relate to a transfer or series of identified transfers), (C) such
transfer is pursuant to any transaction, including, but not limited to, a merger or
consolidation, in which all holders of Stock receive, or are offered the same opportunity
to receive, cash or other consideration for all such Stock, and upon the consummation of
which the acquiror will own at least a majority of the outstanding shares of Stock, or (D)
such transfer is a transfer by the Corporation to an underwriter or placement agent for
distribution in a public offering, whether registered or conducted pursuant to an exception
from registration; provided, however, that transfers by such underwriter or placement
agent to purchasers in such offering remain subject to this Article X. In determining
whether to approve a proposed transfer pursuant to Article X, Section (C)(1)(B), the Board
of Directors may, in its sole discretion, require (at the expense of the transferor and/or
transferee) an opinion of counsel or an independent nationally recognized accounting firm
selected by the Board of Directors on any matter, which may include an opinion with
respect to the transfer not causing an "ownership change" or an "owner shift" within the
meaning of Section 382 of the Code.
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2. Any transfer that would otherwise be prohibited pursuant to Article X,
Section (B)(2) shall nonetheless be permitted, provided that it is otherwise permitted by
Article X, Section (B)(1), if applicable, if (A) such transfer is made by a Large Investor or
a Permissible Transferee, (B) prior to such transfer being consummated (or, in the case
of an involuntary transfer, as soon as practicable after the transaction is consummated),
the Board of Directors, in its sole discretion, approves the transfer (such approval may
relate to a transfer or series of identified transfers) or (C) such transfer is pursuant to any
transaction, including, but not limited to, a merger or consolidation, in which all holders of
Stock receive, or are offered the same opportunity to receive, cash or other consideration
for all such Stock, and upon the consummation of which the acquiror will own at least a
majority of the outstanding shares of Stock. In determining whether to approve a
proposed transfer pursuant to Article X, Section (C)(2)(B), the Board of Directors may, in
its sole discretion, require (at the expense of the transferor and/or transferee) an opinion
of counsel or an independent nationally recognized accounting firm selected by the Board
of Directors on any matter, which may include an opinion with respect to the transfer not
causing an "ownership change" or an "owner shift" within the meaning of Section 382 of
the Code.
3. The Board of Directors may exercise the authority granted by this
Article X, Section C through duly authorized officers or agents of the Corporation. The
Board of Directors may establish a committee to determine whether to approve a
proposed transfer or for any other purpose relating to this Article X. As a condition to the
Corporation's consideration of a request to approve a proposed transfer, the Board of
Directors may require the transferor and/or transferee to reimburse or agree to reimburse
the Corporation, on demand, for all costs and expenses incurred by the Corporation with
respect to such proposed transfer, including, without limitation, the Corporation's costs
and expenses incurred in determining whether to authorize such proposed transfer.
D. Treatment of Prohibited Transfers. Unless the transfer is permitted as
provided in Article X, Section C, any attempted transfer of Stock or Options in excess of
the Stock or Options that could be transferred to the transferee without restriction under
Article X, Section (B)(1) shall be prohibited, shall be null and void ab initio and shall not
be effective to transfer ownership of such excess Stock or Options (the "Prohibited
Shares") to the purported acquiror thereof (the "Purported Acquiror"), who shall not be
entitled to any rights as a shareholder of the Corporation with respect to such Prohibited
Shares (including, without limitation, the right to vote or to receive dividends with respect
thereto).
1. Upon demand by the Corporation, the Purported Acquiror shall,
within thirty (30) days of the date of such a demand, transfer or cause to be transferred
any certificate or other evidence of purported ownership of Prohibited Shares within the
Purported Acquiror's possession or control, along with any dividends or other distributions
paid by the Corporation with respect to any Prohibited Shares that were received by the
Purported Acquiror (the "Prohibited Distributions"), to such Person as the Corporation
shall designate to act as transfe r agent for such Prohibited Shares (the "Agent"). If the
Purported Acquiror has sold any Prohibited Shares to an unrelated party in an arm's-
length transaction after purportedly acquiring them, the Purported Acquiror shall be
21
deemed to have sold such Prohibited Shares for the Agent, and in lieu of transferring
such Prohibited Shares (and Prohibited Distributions with respect thereto) to the Agent
shall transfer to the Agent any such Prohibited Distributions and the proceeds of such
sale (the "Resale Proceeds") except to the extent that the Agent grants written permission
to the Purported Acquiror to retain a portion of such Resale Proceeds not exceeding the
amount that would have been payable by the Agent to the Purported Acquiror pursuant
to Article X, Section (D)(2) below if such Prohibited Shares had been sold by the Agent
rather than by the Purported Acquiror. Any purported transfer of Prohibited Shares by the
Purported Acquiror other than a transfer described in one of the first two sentences of this
Article X, Section (D)(1) shall not be effective to transfer any ownership of such Prohibited
Shares.
2. The Agent shall sell in one or more arm's-length transactions any
Prohibited Shares transferred to the Agent by the Purported Acquiror, provided, however,
that any such sale must not constitute a Prohibited Transfer and provided, further, that
the Agent shall effect such sale or sales in an orderly fashion and shall not be required to
effect any such sale within any specific time frame if, in the Agent's discretion, such sale
or sales would disrupt the market for the Stock or otherwise would adversely affect the
value of the Stock. The proceeds of such sale (the "Sales Proceeds"), or the Resale
Proceeds, if applicable, shall be used to pay the expenses of the Agent in connection with
its duties under this Article X, Section D with respect to such Prohibited Shares, and any
excess shall be allocated to the Purported Acquiror up to the following amount: (A) where
applicable, the purported purchase price paid or value of consideration surrendered by
the Purported Acquiror for such Prohibited Shares; and (B) where the purported transfer
of Prohibited Shares to the Purported Acquiror was by gift, inheritance, or any similar
purported transfer, the fair market value (as determined in good faith by the Board of
Directors) of such Prohibited Shares at the time of such purported transfer. Subject to the
succeeding provisions of this Article X, Section (D)(2), any Resale Proceeds or Sales
Proceeds in excess of the amount allocable to the Purported Acquiror pursuant to the
preceding sentence, together with any Prohibited Distributions, shall be transferred to an
entity described in Section 501(c)(3) of the Code and selected by the Board of Directors
or its designee; provided, however, that if the Prohibited Shares (including any Prohibited
Shares arising from a previous Prohibited Transfer not sold by the Agent in a prior sale
or sales) represent a 4.95% or greater Ownership Interest Percentage, then any such
remaining amounts to the extent attributable to the disposition of the portion of such
Prohibited Shares exceeding a 4.94% Ownership Interest Percentage shall be paid to two
or more organizations qualifying under Section 501(c)(3) selected by the Board of
Directors. In no event shall any such amounts described in the preceding sentence inure
to the benefit of the Purported Acquiror, the Corporation or the Agent, but such amounts
may be used to cover expenses incurred by the Agent in connection with its duties under
this Article X, Section D with respect to the related Prohibited Shares. Notwithstanding
anything in this Article X to the contrary, the Corporation shall at all times be entitled to
make application to any court of equitable jurisdiction within the State of Florida for an
adjudication of the respective rights and interests of any Person in and to any Sale
Proceeds, Resale Proceeds and Prohibited Distributions pursuant to this Article X and
applicable law and for leave to pay such amounts into such court.
22
3. Within thirty (30) business days of learning of a purported transfer of
Prohibited Shares to a Purported Acquiror, the Corporation through its Secretary shall
demand that the Purported Acquiror surrender to the Agent the certificates representing
the Prohibited Shares, or any Resale Proceeds, and any Prohibited Distributions, and if
such surrender is not made by the Purported Acquiror, the Corporation may institute legal
proceedings to compel such transfer; provided, however, that nothing in this Article X,
Section (D)(3) shall preclude the Corporation in its discretion from immediately bringing
legal proceedings without a prior demand, and provided, further that failure of the
Corporation to act within the time periods set out in this paragraph (c) shall not constitute
a waiver of any right of the Corporation to compel any transfer required by Article X,
Section (D)(1).
4. Upon a determination by the Corporation that there has been or is
threatened a purported transfer of Prohibited Shares to a Purported Acquiror, the
Corporation may take such action in addition to any action permitted by the preceding
paragraph as it deems advisable to give effect to the provisions of this Article X, including,
without limitation, refusing to give effect on the books of this Corporation to such purported
transfer or instituting proceedings to enjoin such purported transfer.
E. Transferee Information. The Corporation may require as a condition to the
approval of the transfer of any shares of its Stock or Options to acquire Stock pursuant to
this Article X that the proposed transferee furnish to the Corporation all information
requested by the Corporation and available to the proposed transferee and its affiliates
with respect to the direct or indirect ownership interests of the proposed transferee (and
of Persons to whom ownership interests of the proposed transferee would be attributed
for purposes of Section 382 of the Code) in Stock or other options or rights to acquire
Stock.
F.
Legend on Certificates. All certificates evidencing ownership of shares of
Stock that are subject to the restrictions on transfer contained in this Article X shall bear
a conspicuous legend referencing the restrictions set forth in this Article X as follows:
"THE ARTICLES OF INCORPORATION OF THE CORPORATION, AS
AMENDED, CONTAIN RESTRICTIONS PROHIBITING THE TRANSFER OF STOCK
(INCLUDING THE CREATION OR GRANT OF CERTAIN OPTIONS, RIGHTS AND
WARRANTS) WITHOUT THE PRIOR AUTHORIZATION OF THE BOARD OF
DIRECTORS OF THE CORPORATION IF SUCH TRANSFER AFFECTS THE
PERCENTAGE OF STOCK OF THE CORPORATION THAT IS TREATED AS OWNED
BY A FIVE-PERCENT SHAREHOLDER. IF THE TRANSFER RESTRICTIONS ARE
VIOLATED, THEN THE TRANSFER WILL BE VOID AB INITIO AND THE PURPORTED
ACQUIROR OF THE STOCK WILL BE REQUIRED TO TRANSFER SUFFICIENT
SECURITIES TO CAUSE THE FIVE-PERCENT SHAREHOLDER TO NO LONGER BE
IN VIOLATION OF THE TRANSFER RESTRICTIONS. THE CORPORATION WILL
FURNISH WITHOUT CHARGE TO THE HOLDER OF RECORD OF THIS CERTIFICATE
A COPY OF ITS ARTICLES OF INCORPORATION, CONTAINING THE ABOVE
REFERENCED TRANSFER RESTRICTIONS, UPON WRITTEN REQUEST TO THE
CORPORATION AT ITS PRINCIPAL PLACE OF BUSINESS."
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G. Waiver of Article X. The Board of Directors may, at any time prior to the
Expiration Date, waive this Article X in respect of any or all transfers notwithstanding the
effect or potential effect of such waiver on the Tax Benefits if it determines that such
waiver is in the best interests of the Corporation, including as may be necessary for the
safety and soundness of the Corporation or to comply with any order issued by an
applicable bank regulatory authority. Any such determination to waive this Article X in
respect of any or all transfers shall be filed with the Secretary of the Corporation. Nothing
in this Article X shall be construed to limit or restrict the Board of Directors in the exercise
of its fiduciary duties under applicable law.
H. Board Authority.
1. The Board of Directors shall have the power to determine, in its sole
discretion, all matters necessary for assessing compliance with this Article X, including,
without limitation, the identification of Five-Percent Shareholders with respect to the
Corporation within the meaning of Section 382 of the Code and the regulations
thereunder; the owner shifts, within the meaning of Section 382 of the Code, that have
previously taken place; the magnitude of the owner shift that would result from the
proposed transaction; the effect of any reasonably foreseeable transactions by the
Corporation or any other Person (including any transfer of Stock or Options to acquire
Stock that the Corporation has no power to prevent, without regard to any knowledge on
the part of the Corporation as to the likelihood of such transfer); the possible effects of an
ownership change within the meaning of Section 382 of the Code and any other matters
which the Board of Directors determines to be relevant. Moreover, the Corporation and
the Board of Directors shall be entitled to rely in good faith upon the information, opinions,
reports or statements of the chief executive officer, the chief financial officer, and the chief
accounting officer of the Corporation and of the Corporation's legal counsel, independent
auditors, transfer agent, investment bankers, and other employees and agents in making
the determinations and findings contemplated by this Article X to the fullest extent
permitted by law. Any determination by the Board of Directors pursuant to this Article X
shall be conclusive and binding on the Corporation, the Agent, and all other parties for all
purposes of this Article X.
2. Nothing contained in this Article X shall limit the authority of the
Board of Directors to take such other action, in its sole discretion, to the extent permitted
by law as it deems necessary or advisable to preserve the Tax Benefits.
3. In the case of an ambiguity in the application of any of the provisions
of this Article X, including any definition used herein, the Board of Directors shall have
the power to determine, in its sole discretion, the application of such provisions with
respect to any situation based on its belief, understanding or knowledge of the
circumstances. In the event this Article X requires an action by the Board of Directors but
fails to provide specific guidance with respect to such action, the Board of Directors shall
have the power to determine, in its sole discretion, the action to be taken so long as such
action is not contrary to the provisions of this Article X. All such actions, calculations,
interpretations and determinations which are done or made by the Board of Directors
24
shall be conclusive and binding on the Corporation, the Agent, and all other parties for
all purposes of this Article X.
I. Liability. To the fullest extent permitted by law, any shareholder subject to
the provisions of this Article X who knowingly violates the provisions of this Article X and
any Persons controlling, controlled by or under common control with such shareholder
shall be jointly and severally liable to the Corporation for, and shall indemnify and hold
the Corporation harmless against, any and all damages suffered as a result of such
violation, including but not limited to damages resulting from a reduction in, or elimination
of, the Corporation's ability to utilize its Tax Benefits, and attorneys' and auditors' fees
incurred in connection with, resulting from or that are in any way attributable to such
violation.
J. Severability. If any provision of this Article X or any application of such
provision is determined to be invalid by any federal or state court having jurisdiction over
the issue, the validity of the remaining provisions shall not be affected and other
applications of such provision shall be affected only to the extent necessary to comply
with the determination of such court.
K. Benefits of Article X. Nothing in this Article X shall be construed to give to
any Person other than the Corporation or the Agent any legal or equitable right, remedy
or claim under this Article X. This Article X shall be for the sole and exclusive benefit of
the Corporation and the Agent.
ARTICLE XI
The initial registered office of this Corporation shall be located at the City of Doral,
the County of Miami-Dade, State of Florida, and its address there shall be, at present,
2301 N.W. 87th Avenue, Doral, Florida 33172, and the initial registered agent of the
Corporation at that address shall be Jalal Shehadeh. The Corporation may change its
registered agent or the location of its registered office, or both, from time to time without
amendment of these Articles of Incorporation.
ARTICLE XII
The name and street address of the person signing these Articles of Incorporation
as Incorporator are: 2301 N.W. 87th Avenue, Doral, Florida 33172.
IN WITNESS WHEREOF, the undersigned does hereby make and file these
Articles of Incorporation declaring and certifying that the facts stated here are true, and
hereby subscribes thereto and hereunto sets his hand this 18 day of November, 2021.
/s/ Luis de la Aguilera
Luis de la Aguilera
25
IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment to
the Articles of Incorporation to be signed by its duly authorized officer this 24th day of May, 2023.
USCB FINANCIAL HOLDINGS, INC.
By: /s/ Jalal Shehadeh
Counsel
CERTIFICATE DESIGNATING PLACE OF BUSINESS FOR THE
SERVICE OF PROCESS WITHIN FLORIDA AND REGISTERED
AGENT UPON WHOM PROCESS MAY BE SERVED
In compliance with Sections 48.091 and 607.0501. Florida Statutes, the following
is submitted:
USCB Financial Holdings, Inc. (the "Corporation") desiring to organize as a
domestic corporation or qualify under the laws of the State of Florida has named and
designated Jalal Shehadeh as its Registered Agent to accept service of process within
the State of Florida with its registered office located at 2301 NW 87th Avenue, Doral,
Florida 33172.
ACKNOWLEDGMENT
Having been named as Registered Agent for the Corporation at the place
designated in this Certificate, I hereby agree to act in this capacity; and I am familiar with
and accept the obligations relating to service as a registered agent, as the same may
apply to the Corporation; and I further agree to comply with the provisions of Florida
Statutes, Section 48,091 and all other statutes, all as the same may apply to the
Corporation relating to the proper and complete performance of my duties as Registered
Agent.
Dated this 18th day of November, 2021.
/s/ Jalal Shehadeh
Jalal Shehadeh, Registered Agent
Exhibit 31.1
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Luis de la Aguilera, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of USCB Financial Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which
this report is being prepared;
b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an Annual Report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
/s/ Luis de la Aguilera
Luis de la Aguilera
President and Chief Executive Officer
Date: August 11, 2023
Exhibit 31.2
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Robert Anderson, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of USCB Financial Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which
this report is being prepared;
b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an Annual Report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
/s/ Robert Anderson
Robert Anderson
Chief Financial Officer
Date: August 11, 2023
Exhibit 32.1
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
as Adopted Pursuant to Section 906 of the Sarbanes -Oxley Act of 2002
In connection with the Quarterly Report of USCB Financial Holdings, Inc. (the “Company”) on Form 10-Q for the quarter
ended June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Luis de la
Aguilera, as President and Chief Executive Officer of the Company, certify, to the best of my knowledge, pursuant to 18
U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities
Exchange Act of 1934; and
2) The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
/s/ Luis de la Aguilera
Luis de la Aguilera
President and Chief Executive Officer
Date: August 11, 2023
Exhibit 32.2
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
as Adopted Pursuant to Section 906 of the Sarbanes -Oxley Act of 2002
In connection with the Quarterly Report of USCB Financial Holdings, Inc. (the “Company”) on Form 10-Q for the quarter
ended June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert
Anderson, as Chief Financial Officer of the Company, certify, to the best of my knowledge, pursuant to 18 U.S.C. §1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities
Exchange Act of 1934; and
2) The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
/s/ Robert Anderson
Robert Anderson
Chief Financial Officer
Date: August 11, 2023