株探米国株
英語
エドガーで原本を確認する
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uscb-20230630p1i0
Washington, D.C. 20549
FORM
10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
June 30, 2023
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____to_____
Commission File Number:
001-41196
USCB Financial Holdings, Inc.
(Exact name of registrant as specified in its charter)
 
Florida
87-4070846
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
2301 N.W. 87th Avenue
,
Doral
,
FL
33172
(Address of principal executive offices) (zip code)
Registrant’s telephone number, including area code:
 
(
305
)
715-5200
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A common stock, $1.00 par value per share
USCB
The Nasdaq Stock Market LLC
Indicate by check
 
mark whether the
 
registrant (1) has
 
filed all reports
 
required to be
 
filed by
 
Section 13 or
 
15(d) of the
 
Securities Exchange
Act of 1934 during the preceding 12 months
 
(or for such shorter period that the registrant was
 
required to file such reports), and (2)
 
has
been subject to such filing requirements for the past 90 days.
 
Yes
☒
 
No
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data
 
File required to be submitted pursuant
to Rule 405
 
of Regulation S-T
 
(§232.405 of this
 
chapter) during the
 
preceding 12 months
 
(or for such
 
shorter period that
 
the registrant
was required to submit such files).
 
Yes
☒
 
No
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company
 
or
 
an
 
emerging
 
growth
 
company.
 
See
 
the
 
definitions
 
of
 
“large
 
accelerated
 
filer,”
 
“accelerated
 
filer,”
 
“non-accelerated
 
filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
 
Accelerated filer
☐
 
Non-accelerated filer
☒
 
Smaller reporting company
☒
 
Emerging growth company
☒
If an
 
emerging growth
 
company, indicate by
 
check mark
 
if the
 
registrant has elected
 
not to
 
use the
 
extended transition
 
period for
 
complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐
 
No
☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of July 14, 2023, the registrant had
19,544,777
 
shares of Class
A
common stock outstanding.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
$
7,873
$
6,605
Interest-bearing deposits in banks
79,407
47,563
Total cash and cash equivalents
87,280
54,168
Investment securities held to maturity, net of allowance for credit losses of $
19
 
and $
0
, respectively (fair
value $
199,329
 
and $
169,088
, respectively)
220,956
188,699
Investment securities available for sale, at fair value
218,442
230,140
Federal Home Loan Bank stock, at cost
4,741
2,882
Loans held for investment, net of allowance
 
of $
18,815
 
and $
17,487
, respectively
1,577,144
1,489,851
Accrued interest receivable
8,029
7,546
Premises and equipment, net
5,025
5,263
Bank owned life insurance
43,319
42,781
Deferred tax assets, net
40,014
42,360
Lease right-of-use asset
12,909
14,395
Other assets
8,055
7,749
Total assets
$
2,225,914
$
2,085,834
 
 
LIABILITIES:
 
 
Deposits:
 
 
Demand deposits
$
572,360
$
629,776
Money market and savings accounts
994,429
915,853
Interest-bearing checking
59,501
66,675
Time deposits
295,011
216,977
Total deposits
1,921,301
1,829,281
Federal Home Loan Bank advances
87,000
46,000
Lease liability
12,909
14,395
Accrued interest and other liabilities
21,019
13,730
Total liabilities
2,042,229
1,903,406
 
 
Commitments and contingencies (See Notes 5
 
and 10)
.
 
.
 
 
STOCKHOLDERS' EQUITY:
 
 
Preferred stock - Class C; $
1.00
 
par value; $
1,000
 
per share liquidation preference;
52,748
 
shares
authorized;
0
 
and
0
 
issued and outstanding as of June 30, 2023
 
and December 31, 2022
-
-
Preferred stock - Class D; $
1.00
 
par value; $
5.00
 
per share liquidation preference;
12,309,480
 
shares
authorized;
0
 
and
0
 
issued and outstanding as of June 30, 2023
 
and December 31, 2022
-
-
Preferred stock - Class E; $
1.00
 
par value; $
1,000
 
per share liquidation preference;
3,185,024
 
shares
authorized;
0
 
and
0
 
issued and outstanding as of June 30, 2023
 
and December 31, 2022
-
-
Common stock - Class A Voting; $
1.00
 
par value;
45,000,000
 
shares authorized;
19,544,777
 
issued and
outstanding
 
as of June 30, 2023,
20,000,753
 
issued and outstanding as of December 31,
 
2022
 
19,545
20,001
Common stock - Class B Non-voting; $
1.00
 
par value;
8,000,000
 
shares authorized;
0
 
and
0
 
issued and
outstanding as of June 30, 2023 and December
 
31, 2022
 
-
-
Additional paid-in capital on common stock
305,547
311,282
Accumulated deficit
(95,088)
(104,104)
Accumulated other comprehensive loss
(46,319)
(44,751)
Total stockholders' equity
183,685
182,428
Total liabilities and stockholders' equity
$
2,225,914
$
2,085,834
 
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:
 
Loans, including fees
$
20,847
$
14,053
$
40,558
$
27,035
 
Investment securities
2,382
2,510
4,668
4,839
 
Interest-bearing deposits in financial institutions
1,051
121
1,433
152
 
Total interest income
24,280
16,684
46,659
32,026
Interest expense:
 
 
 
 
 
Interest-bearing checking
200
17
243
33
 
Money market and savings accounts
6,968
615
11,753
1,166
 
Time deposits
2,145
271
3,202
530
 
Federal Home Loan Bank advances and other borrowings
794
139
1,291
276
 
Total interest expense
10,107
1,042
16,489
2,005
 
Net interest income before provision for
 
credit losses
14,173
15,642
30,170
30,021
Provision for credit losses
38
705
239
705
 
Net interest income after provision for
 
credit losses
14,135
14,937
29,931
29,316
Non-interest income:
 
 
 
 
 
Service fees
1,173
1,083
2,378
1,983
 
(Loss) gain 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
Non-interest expense:
 
 
 
 
 
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 expense
1,908
1,315
3,348
2,665
 
Total non-interest expense
10,452
9,551
20,628
19,163
 
Income before income tax expense
5,529
7,003
13,219
13,715
Income tax expense
1,333
1,708
3,214
3,566
 
Net income
$
4,196
$
5,295
$
10,005
$
10,149
Per share information:
 
 
 
 
Net income per share, basic
$
0.21
$
0.26
$
0.51
$
0.51
Net income per share, diluted
$
0.21
$
0.26
$
0.51
$
0.50
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
$
4,196
$
5,295
$
10,005
$
10,149
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
60
(61)
120
(126)
Reclassification adjustment for loss (gain) included
 
in net income
21
3
21
(18)
Unrealized gain on cash flow hedge
1,046
-
1,046
-
Tax effect
1,444
5,908
532
11,697
Total other comprehensive income (loss), net of tax
(4,254)
(17,403)
(1,568)
(34,345)
Total comprehensive income (loss)
 
$
(58)
$
(12,108)
$
8,437
$
(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
19,622,380
$
19,622
$
305,921
$
(99,620)
$
(42,065)
$
183,858
Cumulative tax effect of adoption of accounting
 
principle related to ASC 326
-
-
-
336
-
336
Adjusted beginning balance after cumulative
 
effect adjustment
19,622,380
19,622
305,921
(99,284)
(42,065)
184,194
Net income
-
-
-
4,196
-
4,196
Other comprehensive loss
-
-
-
-
(4,254)
(4,254)
Repurchase of Class A common stock
(77,603)
(77)
(670)
-
-
(747)
Restricted stock issued
-
-
-
-
-
-
Stock based compensation
-
-
296
-
-
296
Balance at June 30, 2023
19,544,777
$
19,545
$
305,547
$
(95,088)
$
(46,319)
$
183,685
Balance at April 1, 2022
20,000,753
$
20,001
$
310,887
$
(119,391)
$
(19,458)
$
192,039
Net income
-
-
-
5,295
-
5,295
Other comprehensive loss
-
-
-
-
(17,403)
(17,403)
Stock-based compensation
-
-
137
-
-
137
Balance at June 30, 2022
20,000,753
$
20,001
$
311,024
$
(114,096)
$
(36,861)
$
180,068
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
20,000,753
$
20,001
$
311,282
$
(104,104)
$
(44,751)
$
182,428
After tax cumulative effect of adoption of accounting
 
principle related to ASC
326
(989)
(989)
Adjusted beginning balance after cumulative
 
effect adjustment
20,000,753
 
20,001
 
311,282
 
(105,093)
 
(44,751)
 
181,439
Net income
-
-
-
10,005
-
10,005
Other comprehensive loss
-
-
-
-
(1,568)
(1,568)
Repurchase of Class A common stock
(577,603)
(577)
(6,036)
-
-
(6,613)
Restricted stock issued
121,627
121
(121)
-
-
-
Stock-based compensation
-
-
422
-
-
422
Balance at June 30, 2023
19,544,777
$
19,545
$
305,547
$
(95,088)
$
(46,319)
$
183,685
Balance at January 1, 2022
19,991,753
19,992
310,666
(124,245)
(2,516)
203,897
Net income
-
-
-
10,149
-
10,149
Other comprehensive loss
-
-
-
-
(34,345)
(34,345)
Exercise of stock options
9,000
9
93
102
Stock-based compensation
-
-
265
-
-
265
Balance at June 30, 2022
20,000,753
$
20,001
$
311,024
$
(114,096)
$
(36,861)
$
180,068
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
 
$
10,005
$
10,149
Adjustments to reconcile net income
 
to net cash provided by operating activities:
 
 
Provision for credit losses
 
239
705
Depreciation and amortization
298
363
(Accretion) amortization of premiums on
 
securities, net
(178)
306
Accretion of deferred loan fees, net
(163)
(508)
Stock-based compensation
422
265
Loss (gain) on sale of available for sale securities
21
(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
3,214
3,567
Net change in operating assets and liabilities:
 
 
Accrued interest receivable
(483)
(16)
Other assets
739
(2,069)
Accrued interest and other liabilities
7,051
8,246
Net cash provided by operating activities
20,186
20,105
 
 
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
54,873
8,173
Purchase of investment securities available
 
for sale
 
(7,667)
(42,794)
Proceeds from maturities and pay-downs of investment
 
securities available for sale
7,399
26,950
Proceeds from sales of investment securities
 
available for sale
8,617
31,838
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
6,441
4,018
Proceeds from the redemption of Federal Home
 
Loan Bank stock
6,305
-
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
-
102
Repurchase of Class A common stock
(6,613)
-
Net increase in deposits
92,020
148,341
Proceeds from Federal Home Loan Bank advances
239,350
30,000
Repayments on Federal Home Loan Bank advances
(198,350)
-
Net cash provided by financing activities
126,407
178,443
 
 
Net increase in cash and cash equivalents
33,112
37,044
Cash and cash equivalents at beginning
 
of period
54,168
46,228
Cash and cash equivalents at end of period
$
87,280
$
83,272
 
 
Supplemental disclosure of cash flow
 
information:
 
 
Interest paid
$
15,535
$
2,002
 
 
Supplemental schedule of non-cash investing
 
and financing activities:
 
 
Transfer of loans held for investment to loans held
 
for sale
$
6,000
$
3,662
Lease liability arising from obtaining right-of-use
 
assets
$
-
$
898
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 9 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
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,
84
% or $
1.3
 
billion of loan
 
receivables were collectively
 
evaluated under DCF
 
method and
16
%
or
 
$
251.0
 
million
 
of
 
loan receivables
 
were collectively
 
evaluated
 
under
 
the
 
Remaining
 
Life
 
method.
 
The
 
remaining
 
$
7.9
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 $
1.1
 
million and an increase
 
to the reserve for unfunded
 
commitments of $
259
 
thousand. This one-time net
of tax cumulative adjustment resulted in a
 
increase of $
1.0
 
million in accumulated deficit. See “Allowance for Credit Losses”
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 10 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
(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
 
$
210.0
 
million
 
of
 
U.S.
 
Government
 
and
 
U.S.
 
Agency
 
issued
 
bonds
 
and
mortgage-backed
 
securities.
 
Because
 
of
 
the
 
explicit
 
and/or
 
implicit
 
guarantee
 
on
 
these
 
bonds,
 
the
 
Company
 
holds
no
reserves on
 
these holdings.
 
The remaining
 
portion of
 
the HTM
 
portfolio is
 
made up
 
of $
11.0
 
million in
 
investment grade
corporate bonds. The required reserve for these holdings is
 
determined each quarter using the model described above. For
the portion of the HTM
 
exposed to non-government
 
credit risk the Company
 
utilized the PD/LGD methodology
 
to estimate
a $
19
 
thousand ACL as of
 
June 30, 2023. The book
 
value for debt securities
 
classified as HTM represents
 
amortized cost
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
$
9,906
$
-
$
(1,572)
$
8,334
Collateralized mortgage obligations
107,991
-
(24,108)
83,883
Mortgage-backed securities - residential
71,279
-
(13,180)
58,099
Mortgage-backed securities - commercial
36,775
-
(5,923)
30,852
Municipal securities
25,044
-
(5,953)
19,091
Bank subordinated debt securities
16,836
-
(2,368)
14,468
Corporate bonds
4,033
-
(318)
3,715
$
271,864
$
-
$
(53,422)
$
218,442
Held-to-maturity:
 
 
 
U.S. Government Agency
$
44,404
$
-
$
(6,174)
$
38,230
U.S. Treasury
39,414
-
(14)
39,400
Collateralized mortgage obligations
65,844
15
(8,829)
57,030
Mortgage-backed securities - residential
44,834
178
(4,799)
40,213
Mortgage-backed securities - commercial
15,491
-
(1,082)
14,409
Corporate bonds
10,988
-
(941)
10,047
$
220,975
$
193
$
(21,839)
$
199,329
Allowance for credit losses - securities held-to-maturity
(19)
Securities held-to maturity, net of allowance for credit losses
$
220,956
December 31, 2022
Available-for-sale:
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
U.S. Government Agency
$
10,177
$
-
$
(1,522)
$
8,655
Collateralized mortgage obligations
118,951
-
(23,410)
95,541
Mortgage-backed securities - residential
73,838
-
(12,959)
60,879
Mortgage-backed securities - commercial
32,244
15
(4,305)
27,954
Municipal securities
25,084
-
(6,601)
18,483
Bank subordinated debt securities
15,964
5
(1,050)
14,919
Corporate bonds
4,037
-
(328)
3,709
$
280,295
$
20
$
(50,175)
$
230,140
Held-to-maturity:
U.S. Government Agency
$
44,914
$
25
$
(5,877)
$
39,062
U.S. Treasury
9,841
-
(13)
9,828
Collateralized mortgage obligations
68,727
28
(7,830)
60,925
Mortgage-backed securities - residential
42,685
372
(4,574)
38,483
Mortgage-backed securities - commercial
11,442
-
(665)
10,777
Corporate bonds
11,090
-
(1,077)
10,013
$
188,699
$
425
$
(20,036)
$
169,088
During the
 
year ended
 
December
 
31, 2022,
 
a total
 
of
26
 
investment
 
securities
 
with an
 
amortized cost
 
basis and
 
fair
value
 
of
 
$
74.4
 
million
 
and
 
$
63.8
 
million,
 
respectively,
 
were
 
transferred
 
from
 
AFS
 
to
 
HTM.
 
These
 
securities
 
had
 
a
 
net
unrealized
 
loss of
 
$
10.6
 
million
 
on
 
the
 
date
 
of
 
transfer.
 
The
 
net
 
unrealized
 
loss
 
that
 
was retained
 
in
 
accumulated
 
other
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 $
60
 
thousand and $
120
 
thousand, respectively. The unamortized net unrealized
 
loss at June
 
30, 2023 was
 
$
9.7
 
million.
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
$
-
$
17,280
$
8,617
$
31,838
Gross gains
$
-
$
58
$
3
$
216
Gross losses
-
(61)
(24)
(198)
Net realized (loss) gain
$
-
$
(3)
$
(21)
$
18
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
$
-
$
-
$
40,916
$
40,892
Due after one year through five years
4,033
3,715
9,486
8,555
Due after five years through ten years
17,835
15,285
-
-
Due after ten years
24,045
18,274
-
-
U.S. Government Agency
9,906
8,334
44,404
38,230
Collateralized mortgage obligations
107,991
83,883
65,844
57,030
Mortgage-backed securities - residential
 
71,279
58,099
44,834
40,213
Mortgage-backed securities - commercial
 
36,775
30,852
15,491
14,409
$
271,864
$
218,442
$
220,975
$
199,329
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
$
-
$
-
$
46,564
$
(9,030)
$
46,564
$
(9,030)
U.S. Treasury
39,400
(14)
-
-
39,400
(14)
Collateralized mortgage obligations
-
-
140,913
(37,550)
140,913
(37,550)
Mortgage-backed securities - residential
3,686
(67)
92,653
(20,400)
96,339
(20,467)
Mortgage-backed securities - commercial
10,528
(315)
34,733
(8,178)
45,261
(8,493)
Municipal securities
 
-
-
19,091
(5,953)
19,091
(5,953)
Bank subordinated debt securities
3,530
(393)
10,527
(1,975)
14,057
(2,368)
Corporate bonds
-
-
13,762
(865)
13,762
(865)
$
57,144
$
(789)
$
358,243
$
(83,951)
$
415,387
$
(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
$
11,407
(1,093)
36,310
(7,616)
47,717
$
(8,709)
U.S. Treasury
9,828
(13)
-
-
9,828
(13)
Collateralized mortgage obligations
16,500
(963)
139,965
(34,962)
156,465
(35,925)
Mortgage-backed securities - residential
5,059
(564)
91,742
(19,348)
96,801
(19,912)
Mortgage-backed securities - commercial
10,052
(1,173)
26,823
(5,300)
36,875
(6,473)
Municipal securities
 
-
-
18,483
(6,601)
18,483
(6,601)
Bank subordinated debt securities
11,295
(670)
2,619
(381)
13,914
(1,051)
Corporate bonds
13,723
(926)
-
-
13,723
(926)
$
77,864
$
(5,402)
$
315,942
$
(74,208)
$
393,806
$
(79,610)
As of June 30, 2023, the unrealized losses associated
 
with $
131.7
 
million of investment securities transferred from
 
the
AFS
 
portfolio
 
to
 
the
 
HTM
 
portfolio
 
represent
 
unrealized
 
losses
 
since
 
the
 
date
 
of
 
purchase,
 
independent
 
of
 
the
 
impact
associated with changes in the cost basis of the securities
 
upon transfer between portfolios.
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 $
57.9
 
million of unrealized
 
losses on mortgage-backed securities
 
and collateralized
mortgage
 
obligations
 
of
 
government
 
sponsored
 
entities
 
having
 
a
 
fair
 
value
 
of
 
$
284.5
 
million
 
that
 
were
 
attributable
 
to
 
a
combination of factors, including relative changes in
 
interest rates since the time of purchase.
At
 
December
 
31,
 
2022,
 
the
 
Company
 
had
 
$
53.7
 
million
 
of
 
unrealized
 
losses
 
on
 
mortgage
 
backed
 
securities
 
and
collateralized
 
mortgage
 
obligations
 
of
 
government
 
sponsored
 
entities
 
having
 
a
 
fair
 
value
 
of
 
$
294.6
 
million
 
that
 
were
attributable to a combination of factors, including relative changes
 
in interest rates since the time of purchase.
The
 
contractual
 
cash
 
flows
 
for
 
these
 
securities
 
are
 
guaranteed
 
by
 
U.S.
 
government
 
agencies
 
and
 
U.S.
 
government
sponsored entities. The municipal bonds are of high credit quality and the declines in fair value
 
are not due to credit quality.
Based
 
on
 
the
 
assessment
 
of
 
these
 
mitigating
 
factors,
 
management
 
believed
 
that
 
the
 
unrealized
 
losses
 
on
 
these
 
debt
security holdings are
 
a function of
 
changes in investment
 
spreads and interest
 
rate movements
 
and not changes
 
in credit
quality. Management
 
expects to recover the entire amortized cost basis of these securities.
At June 30,
 
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 $
20.0
 
million fully
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
no
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
25
% 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 $
219.4
 
million in deposits under the
 
public funds program and pledged
to the State of Florida for these public funds were
twenty nine
 
bonds with an aggregate fair value of $
78.4
 
million.
As of December
 
31, 2022,
 
the Company had
 
a total of
 
$
204.2
 
million in deposits
 
under the public
 
funds program
 
and
pledged
 
to
 
the
 
State
 
of
 
Florida
 
for
 
these
 
public
 
funds
 
were
eighteen
 
corporate
 
bonds
 
with
 
an
 
aggregate
 
fair
 
value
 
of
$
49.0
 
million.
 
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
no
 
borrowing
 
under
 
the
 
BTFP
 
program
 
as
 
of
 
June
 
30,
 
2023
 
and
 
had
 
pledged
 
$
136.8
 
million
 
in
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
$
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
At
 
June 30,
 
2023
 
and
 
December 31,
 
2022,
 
the
 
Company
 
had
 
$
582.9
 
million
 
and
 
$
338.1
 
million,
 
respectively,
 
of
commercial real estate
 
and residential mortgage loans
 
pledged as collateral
 
for lines of
 
credit with the
 
FHLB and the
 
Federal
Reserve Bank of Atlanta.
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 $
299
 
thousand
at June 30, 2023 and $
1.3
 
million at December 31, 2022, which are categorized as
 
commercial and industrial loans.
 
The Company
 
recognized $
4
 
thousand and
 
$
1.5
million in PPP loan fees and interest income during the six months 16 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
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
 
 
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
$
2,819
$
10,453
$
2,367
$
772
$
2,476
$
18,887
Provision for credit losses
(1)
 
(148)
(270)
125
(95)
345
(43)
Recoveries
2
-
8
-
1
11
Charge-offs
-
-
-
-
(40)
(40)
Ending Balance
 
$
2,673
$
10,183
$
2,500
$
677
$
2,782
$
18,815
Six Months Ended June 30, 2023
 
 
 
 
 
Beginning balance
$
1,352
$
10,143
$
4,163
$
720
$
1,109
$
17,487
Cumulative effect of adoption of accounting
principle
(2)
 
1,238
1,105
(2,158)
23
858
1,066
Provision for credit losses
(3)
 
73
(1,065)
443
(66)
857
242
Recoveries
10
-
52
-
3
65
Charge-offs
-
-
-
-
(45)
(45)
Ending Balance
 
$
2,673
$
10,183
$
2,500
$
677
$
2,782
$
18,815
(1) Provision for credit losses excludes $
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 $ 17 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
19
thousand expense due to investment securities held to maturity.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
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
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 $
18.8
 
million compared
 
to $
17.5
 
million at
 
December
31, 2022,
 
under the
 
incurred loss
 
methodology. The increase of
 
$
1.3
 
million was
 
composed of $
1.1
 
million impact of
 
adoption
of the ASU 2016-13 on loan receivables, $
242
 
thousand increase on ACL for loan receivables due to loan growth, and $
20
thousand decrease due to net charge offs
 
.
 
The Company
 
had charge
 
offs totaling
 
$
40
 
thousand for
 
the quarter
 
ended June
 
30 2023
 
on loans.
 
$
21
 
thousand of
charge offs related to loans were originated in 2015
 
and $
19
 
thousand related to loans were originated in 2023.
 
The Company had
 
charge offs
 
totaling $
45
 
thousand for
 
the six months
 
ended June 30
 
2023 on loans.
 
$
21
 
thousand
of charge offs related to loans were originated
 
in 2015 and $
24
 
thousand related to loans were originated in 2023.
 
The
 
Federal
 
Open
 
Market
 
Committee
 
(“FOMC”)
 
economic
 
forecasts
 
as of
 
June
 
30,
 
2023
 
showed
 
improvements
 
in
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
$
144
$
-
$
82
$
-
$
-
$
226
Collectively evaluated for impairment
2,529
10,183
2,418
677
2,782
18,589
Balances, end of period
$
2,673
$
10,183
$
2,500
$
677
$
2,782
$
18,815
 
 
 
 
 
Loans:
 
 
 
 
 
Individually evaluated for impairment
$
7,105
$
-
$
547
$
-
$
-
$
7,652
Collectively evaluated for impairment
175,988
989,401
168,854
85,409
167,845
1,587,497
Balances, end of period
$
183,093
$
989,401
$
169,401
$
85,409
$
167,845
$
1,595,149
 
 
 
 
 
December 31, 2022:
 
 
 
 
 
Allowance for credit losses:
 
 
 
 
 
Individually evaluated for impairment
$
155
$
-
$
41
$
-
$
98
$
294
Collectively evaluated for impairment
1,197
10,143
4,122
720
1,011
17,193
Balances, end of period
$
1,352
$
10,143
$
4,163
$
720
$
1,109
$
17,487
 
 
 
 
 
Loans:
 
 
 
 
 
Individually evaluated for impairment
$
7,206
$
393
$
82
$
-
$
196
$
7,877
Collectively evaluated for impairment
178,430
970,017
126,902
93,769
130,233
1,499,351
Balances, end of period
$
185,636
$
970,410
$
126,984
$
93,769
$
130,429
$
1,507,228
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
 
– Loans classified as special mention have a potential weakness
 
that deserves management’s
close attention. If left uncorrected, these potential weaknesses
 
may result in deterioration of the repayment
prospects for the loan or of the institution’s
 
credit position at some future date.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
– Loans classified as doubtful have all the weaknesses
 
inherent in those classified at substandard, with
the added characteristic that the weaknesses make collection or
 
liquidation in full on the basis of currently existing
facts, conditions, and values, highly questionable and improbable.
 
Loss
– Loans classified as loss are considered uncollectible.
Loan credit exposures by internally assigned grades are
 
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
$
5,028
$
38,626
$
26,459
$
7,189
$
9,813
$
87,326
$
8,652
$
183,093
Total
5,028
38,626
26,459
7,189
9,813
87,326
8,652
183,093
Commercial real estate
Pass
38,191
341,882
227,443
103,150
80,974
191,613
3,621
986,874
Substandard
-
-
1,828
699
-
-
-
2,527
Total
38,191
341,882
229,271
103,849
80,974
191,613
3,621
989,401
Commercial and
industrial
Pass
48,282
38,589
35,029
7,757
17,243
2,740
18,925
168,565
Substandard
-
-
350
-
486
-
-
836
Total
48,282
38,589
35,379
7,757
17,729
2,740
18,925
169,401
Foreign banks
Pass
80,909
4,500
-
-
-
-
-
85,409
Total
80,909
4,500
-
-
-
-
-
85,409
Consumer and other
loans
 
Pass
39,715
75,831
48,250
724
513
1,424
1,388
167,845
Substandard
-
-
-
-
-
-
-
-
Total
39,715
75,831
48,250
724
513
1,424
1,388
167,845
Total
 
Loans
Pass
212,125
499,428
337,181
118,820
108,543
283,103
 
32,586
1,591,786
Special Mention
-
-
-
-
-
-
-
-
Substandard
-
-
2,178
699
486
-
-
3,363
Doubtful
-
-
-
-
-
-
-
-
Total
$
212,125
$
499,428
$
339,359
$
119,519
$
109,029
$
283,103
$
32,586
$
1,595,149
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
$
623
$
-
$
-
$
-
$
623
1-4 family residential
132,178
-
-
-
132,178
Condo residential
 
52,835
-
-
-
52,835
 
185,636
-
-
-
185,636
-
Commercial real estate:
 
 
 
 
 
Land and construction
38,687
-
-
-
38,687
Multi-family residential
176,820
-
-
-
176,820
Condo commercial
49,601
-
393
-
49,994
Commercial property
702,357
-
2,552
-
704,909
967,465
-
2,945
-
970,410
Commercial and industrial:
Secured
120,873
-
807
-
121,680
Unsecured
5,304
-
-
-
5,304
126,177
-
807
-
126,984
Foreign banks
93,769
-
-
-
93,769
Consumer and other loans
130,233
-
196
-
130,429
 
Total
$
1,503,280
$
-
$
3,948
$
-
$
1,507,228
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
$
543
$
-
$
-
$
543
$
-
$
543
1-4 family residential
129,987
-
-
129,987
-
129,987
Condo residential
52,563
-
-
52,563
-
52,563
183,093
-
-
183,093
-
183,093
Commercial real estate:
Land and construction
33,606
-
-
33,606
-
33,606
Multi-family residential
173,360
-
-
173,360
-
173,360
Condo commercial
56,255
-
-
56,255
-
56,255
Commercial property
726,129
-
-
726,129
-
726,129
Leasehold improvements
51
-
-
51
-
51
989,401
-
-
989,401
-
989,401
Commercial and industrial:
Secured
149,392
224
-
149,616
486
150,102
Unsecured
19,299
-
-
19,299
-
19,299
168,691
224
-
168,915
486
169,401
Foreign banks
85,409
-
-
85,409
-
85,409
Consumer and other
167,845
-
-
167,845
-
167,845
Total
$
1,594,439
$
224
$
-
$
1,594,663
$
486
$
1,595,149
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
$
623
$
-
$
-
$
623
$
-
$
623
1-4 family residential
131,120
1,058
-
132,178
-
132,178
Condo residential
50,310
2,525
-
52,835
-
52,835
182,053
3,583
-
185,636
-
185,636
Commercial real estate:
 
 
 
 
Land and construction
38,687
-
-
38,687
-
38,687
Multi-family residential
176,820
-
-
176,820
-
176,820
Condo commercial
49,994
-
-
49,994
-
49,994
Commercial property
704,884
25
-
704,909
-
704,909
Leasehold improvements
-
-
-
-
-
-
970,385
25
-
970,410
-
970,410
Commercial and industrial:
 
 
 
 
Secured
121,649
31
-
121,680
-
121,680
Unsecured
4,332
972
-
5,304
-
5,304
125,981
1,003
-
126,984
-
126,984
 
 
 
 
Foreign banks
93,769
-
-
93,769
-
93,769
Consumer and other
130,169
260
-
130,429
-
130,429
 
 
Total
$
1,502,357
$
4,871
$
-
$
1,507,228
$
-
$
1,507,228
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
-
486
486
-
Consumer and other
-
-
-
-
$
-
$
486
$
486
$
-
The Company did
no
t have loans in nonaccrual status as of December
 
31, 2022.
Accrued interest
 
receivable is
 
excluded from
 
the estimate
 
of credit
 
losses. There
 
was
no
 
interest income
 
recognized
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
 
$
13
 
thousand and
 
$
0
thousand, respectively,
 
had these loans performed in accordance with their
 
original terms.
Collateral-Dependent Loans
A
 
loan
 
is
 
collateral
 
dependent
 
when
 
the
 
borrower
 
is
 
experiencing
 
financial
 
difficulty
 
and
 
repayment
 
of
 
the
 
loan
 
is
expected to
 
be provided
 
substantially through
 
the sale
 
or operation
 
of the
 
collateral. There
 
were
no
 
collateral dependent
loans as of 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
$
3,551
$
3,544
$
-
Commercial real estate
393
393
-
3,944
3,937
-
Impaired Loans with Specific Allowance:
 
 
 
Residential real estate
3,655
3,626
155
Commercial and industrial
82
82
41
Consumer and other
196
196
98
3,933
3,904
294
Total
$
7,877
$
7,841
$
294
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
$
7,332
$
7,890
Commercial real estate
599
631
Commercial and industrial
115
124
Consumer and other
214
217
Total
$
8,260
$
8,862
Interest income recognized on impaired loans for the three months ended June 30,
 
2022 was $
90
 
thousand and for the
six months ended June 30, 2022 was $
181
 
thousand..
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
1
 
350
350
1
350
350
Consumer and other
-
-
-
-
-
-
1
$
350
 
$
350
1
$
350
$
350
The Company
 
had
one
 
new modifications
 
to borrowers
 
experiencing financial
 
difficulties for
 
the three and
 
six months
ended June 30, 2023.
No
 
loan modifications that subsequently defaulted for
 
the three and six
 
months 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
2,513
2,778
State
701
788
Total
 
deferred
3,214
3,566
Total
 
tax expense
$
3,214
$
3,566
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
21
% 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
$
2,776
$
2,880
State income taxes, net of federal tax benefit
574
596
Bank owned life insurance
(136)
(134)
Other, net
-
224
Total
 
tax expense
$
3,214
$
3,566
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
$
18,951
$
21,720
Allowance for credit losses
4,834
4,432
Lease liability
3,272
3,648
Unrealized losses on available for sale securities
15,990
15,193
Depreciable property
181
158
Equity compensation
481
373
Accruals
290
723
Deferred tax assets:
43,999
46,247
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
$
40,014
$
42,360
The
 
Company has
 
approximately
 
$
70.9
 
million
 
of
 
federal and
 
$
93.6
 
million
 
of
 
state net
 
operating
 
loss
 
carryforwards
expiring in various amounts between 2031 and 2036 and which are limited to offset, to the extent permitted, future taxable 25 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
earnings of the Company.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
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
no
t have any unrecognized tax benefits
as a result of
 
tax positions taken during a prior
 
period or during the current period. Additionally,
no
 
interest or penalties were
recorded as a result of tax uncertainties.
5.
 
OFF-BALANCE SHEET ARRANGEMENTS
The Company is a party to financial
 
instruments with off-balance-sheet risk in the normal course of business in order to
meet the
 
financial needs
 
of its
 
customers and
 
to reduce its
 
own exposure
 
to fluctuations
 
in interest
 
rates. These
 
financial
instruments include
 
unfunded commitments
 
under lines
 
of credit,
 
commitments to
 
extend credit,
 
standby and
 
commercial
letters of
 
credit. Those
 
instruments
 
involve, to
 
varying degrees,
 
elements of
 
credit and
 
interest rate
 
risk in
 
excess
 
of the
amount recognized in the Company’s Consolidated Balance Sheets. The Company uses
 
the same credit policies in making
commitments and conditional obligations as it does for
 
on-balance sheet instruments.
The Company's
 
exposure to credit
 
loss in the
 
event of nonperformance
 
by the other
 
party to the
 
financial instruments
for unused lines of credit, and standby letters of credit
 
is represented by the contractual amount of these commitments.
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
$
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
 
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
2
 
interest rate swap
 
agreements with a notional
 
aggregate amount of $
50
 
million
that were designated as cash flow hedges of certificates of deposit. The interest rate swap agreements have an average 26 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
maturity of
2.88
 
years, the weighted average fixed
 
rate paid is
3.59
%, with the weighted average 3-month compound SOFR
being received. The Company had
no
 
cash flow hedges at December 31, 2022.
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
17
 
and
15
 
interest rate swaps
with
 
loan
 
customers
 
with
 
an
 
aggregate
 
notional
 
amount
 
of
 
$
39.8
 
million
 
and
 
$
33.9
 
million
 
at
 
June 30,
 
2023
 
and
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
$
50,000
-
Other assets
$
1,046
-
Derivatives not designated as hedging instruments:
Interest rate swaps related to customer loans
$
39,818
$
1,297
Other assets/Other liabilities
$
4,577
$
4,577
December 31, 2022:
Derivatives not designated as hedging instruments:
Interest rate swaps related to customer loans
$
33,893
$
1,278
Other assets/Other liabilities
$
5,011
$
5,011
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
 
- Valuation
 
is based
 
on quoted
 
prices in
 
active markets
 
for identical
 
assets or
 
liabilities that
 
the reporting
entity has
 
the ability to
 
access at
 
the measurement
 
date. Level
 
1 assets
 
and liabilities
 
generally include
 
debt and
equity securities that
 
are traded in
 
an active exchange
 
market. Valuations are obtained from
 
readily available pricing
sources for market transactions involving identical assets
 
or liabilities.
Level 2
 
- Valuation
 
is based on inputs other
 
than quoted prices included
 
within Level 1 that are
 
observable for the
asset
 
or
 
liability,
 
either
 
directly
 
or
 
indirectly.
 
The
 
valuation
 
may
 
be
 
based
 
on
 
quoted
 
prices
 
for
 
similar
 
assets
 
or
liabilities; quoted
 
prices in
 
markets that
 
are not active;
 
or other inputs
 
that are observable
 
or can be
 
corroborated
by observable market data for substantially the full term
 
of the asset or liability.
Level 3
 
- Valuation
 
is based on
 
unobservable inputs that
 
are supported
 
by little or
 
no market activity
 
and that are
significant
 
to
 
the
 
fair
 
value
 
of
 
the
 
assets
 
or
 
liabilities.
 
Level
 
3
 
assets
 
and
 
liabilities
 
include
 
financial
 
instruments
whose value
 
is determined
 
using pricing
 
models, discounted
 
cash
 
flow methodologies,
 
or similar
 
techniques,
 
as
well as instruments for which determination of fair value
 
requires significant management judgment or estimation.
A
 
financial
 
instrument's
 
categorization
 
within
 
the
 
valuation
 
hierarchy
 
is
 
based
 
upon
 
the
 
lowest
 
level
 
of
 
input
 
that
 
is
significant to the fair value measurement.
Items Measured at Fair Value
 
on a Recurring Basis
AFS investment securities:
 
When instruments are traded in secondary
 
markets and quoted market prices
 
do not exist
for such securities,
 
management generally relies
 
on prices obtained
 
from independent vendors or
 
third-party broker-dealers.
Management reviews pricing methodologies provided by the vendors and third-party broker-dealers in order to determine if
observable market information is being utilized. Securities measured with pricing provided by independent vendors or
 
third-
party broker-dealers
 
are classified
 
within Level 2
 
of the hierarchy
 
and often
 
involve using quoted
 
market prices
 
for similar
securities, pricing models or discounted cash flow analyses
 
utilizing inputs observable in the market where available.
Derivatives:
 
The
 
fair
 
value
 
of
 
derivatives
 
are
 
measured
 
with
 
pricing
 
provided
 
by
 
third-party
 
participants
 
and
 
are
classified within Level 2 of the hierarchy.
The
 
following
 
table
 
represents
 
the
 
Company's
 
assets
 
and
 
liabilities
 
measured
 
at
 
fair
 
value
 
on
 
a
 
recurring
 
basis
 
at
June 30, 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
$
-
$
8,334
$
-
$
8,334
$
-
$
8,655
$
-
$
8,655
Collateralized mortgage obligations
-
83,883
-
83,883
-
95,541
-
95,541
Mortgage-backed securities - residential
 
-
58,099
-
58,099
-
60,879
-
60,879
Mortgage-backed securities - commercial
-
30,852
-
30,852
-
27,954
-
27,954
Municipal securities
-
19,091
-
19,091
-
18,483
-
18,483
Bank subordinated debt securities
-
14,468
-
14,468
-
14,919
-
14,919
Corporate bonds
-
3,715
-
3,715
-
3,709
-
3,709
Total
-
218,442
-
218,442
-
230,140
-
230,140
Derivative assets
-
5,623
-
5,623
-
5,011
-
5,011
Total assets at fair value
$
-
$
224,065
$
-
$
224,065
$
-
$
235,151
$
-
$
235,151
Derivative liabilities
$
-
$
4,577
$
-
$
4,577
$
-
$
5,011
$
-
$
5,011
Total liabilities at fair value 28 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
$
-
$
4,577
$
-
$
4,577
$
-
$
5,011
$
-
$
5,011
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
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
 
$
3.9
 
million,
 
were
 
written
 
down
 
to
 
their
 
fair
 
value
 
of
approximately $
3.6
 
million, resulting
 
in an
 
impairment charge
 
of $
294
 
thousand,
 
which was
 
included in
 
the allowance
 
for
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:
 
Other
 
real estate
 
owned
 
is valued
 
at the
 
lesser of
 
the third-party
 
appraisals less
 
management's
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
$
-
$
-
$
3,639
$
3,639
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
$
3,500
Sales comparison approach
Adj. for differences between comparable sales
Commercial and industrial
41
Discounted cash flow
Adj. for differences in net operating income expectations
Consumer and other loans
98
Discounted cash flow
Adj. for differences in net operating income expectations
Total
 
impaired loans
$
3,639
There were
no
financial liabilities measured at fair value on a non-recurring basis at June 30, 2023 and December 31, 29 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
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
$
7,873
$
7,873
$
-
$
-
$
7,873
Interest-bearing deposits in banks
$
79,407
$
79,407
$
-
$
-
$
79,407
Investment securities held to maturity, net
$
220,956
$
-
$
199,329
$
-
$
199,329
Loans held for investment, net
$
1,577,144
$
-
$
-
$
1,519,939
$
1,519,939
Accrued interest receivable
$
8,029
$
-
$
1,293
$
6,736
$
8,029
Financial Liabilities:
Demand deposits
$
572,360
$
572,360
$
-
$
-
$
572,360
Money market and savings accounts
$
994,429
$
994,429
$
-
$
-
$
994,429
Interest-bearing checking accounts
$
59,501
$
59,501
$
-
$
-
$
59,501
Time deposits
$
295,011
$
-
$
-
$
292,428
$
292,428
FHLB advances
$
87,000
$
-
$
84,564
$
-
$
84,564
Accrued interest payable
$
1,183
$
-
$
459
$
724
$
1,183
December 31, 2022:
Financial Assets:
Cash and due from banks
$
6,605
$
6,605
$
-
$
-
$
6,605
Interest-bearing deposits in banks
$
47,563
$
47,563
$
-
$
-
$
47,563
Investment securities held to maturity
$
188,699
$
-
$
169,088
$
-
$
169,088
Loans held for investment, net
$
1,489,851
$
-
$
-
$
1,436,877
$
1,436,877
Accrued interest receivable
$
7,546
$
-
$
1,183
$
6,363
$
7,546
Financial Liabilities:
Demand deposits
$
629,776
$
629,776
$
-
$
-
$
629,776
Money market and savings accounts
$
915,853
$
915,853
$
-
$
-
$
915,853
Interest-bearing checking accounts
$
66,675
$
66,675
$
-
$
-
$
66,675
Time deposits
$
216,977
$
-
$
-
$
211,406
$
211,406
FHLB advances
$
46,000
$
-
$
44,547
$
-
$
44,547
Accrued interest payable
$
229
$
-
$
92
$
137
$
229
 
8.
 
STOCKHOLDERS’ EQUITY
Common Stock
In July
 
2021, the
 
Bank
 
completed the
 
initial public
 
offering
 
of its
 
Class A
 
common stock,
 
in which
 
it issued
 
and sold
4,600,000
 
shares of Class A
 
common stock at a
 
price of $
10.00
 
per share. The Bank
 
received total net proceeds
 
of $
40.0
million after deducting underwriting discounts and expenses.
In December 2021, the
 
Company acquired all
 
the issued and outstanding
 
shares of the Class
 
A 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 $
1.00
 
per share,
 
formerly
 
held by
 
its shareholders
 
was
 
converted into
 
and exchanged
 
for
one
newly
 
issued
 
share
 
of
 
the
 
Company’s
 
Class
 
A
 
common
 
stock,
 
par
 
value
 
$
1.00
 
per
 
share,
 
and
 
the
 
Bank
 
became
 
the
Company’s wholly owned subsidiary.
 
In the
 
Reorganization,
 
each
 
shareholder
 
of
 
the Bank
 
received securities
 
of
 
the same
 
class,
 
having substantially
 
the
same designations, rights, powers, preferences, qualifications, limitations and restrictions, as those that the shareholder 30 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
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
121,627
 
shares of Class A
 
common stock to employees and
 
directors as restricted
stock awards pursuant to the Company’s 2015 equity incentive plan. There were
no
 
stock awards issued during the quarter
ended June 30, 2023 nor during the three and six months
 
ended June 30, 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. These
 
repurchases
 
were made
 
through
 
open market
 
purchases
 
pursuant
 
to
 
the
 
Company’s
publicly announced repurchase
 
program. As of June 30, 2023,
172,397
 
shares remained authorized
 
for repurchase under
this program.
Shares of the Company’s Class A common stock issued and outstanding as
of June 30, 2023 and December 31, 2022
were
19,544,777
 
and
20,000,753
, respectively.
 
Dividends
Declaration of dividends by the Board is required before dividend payments are made.
No
 
dividends were approved by
the Board for the
 
common stock
 
classes for the three
 
months ended June 30,
 
2023 and 2022.
 
Additionally,
 
there were
no
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
13.42
% and
13.37
%, 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
$
4,196
$
5,295
$
10,005
$
10,149
Net income available to common stockholders 31 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
$
4,196
$
5,295
$
10,005
$
10,149
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USCB FINANCIAL HOLDINGS, INC.
Notes to the Consolidated Financial Statements - Unaudited
 
 
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
 
$
4,196
$
5,295
Denominator:
Weighted average shares outstanding
19,590,359
20,000,753
Earnings per share, basic
$
0.21
$
0.26
Diluted EPS
Numerator:
Net income available to common shares
$
4,196
$
5,295
Denominator:
Weighted average shares outstanding for basic EPS
19,590,359
20,000,753
Add: Dilutive effects of assumed exercises of stock options
49,323
170,508
Weighted avg. shares including dilutive potential common shares
19,639,682
20,171,261
Earnings per share, diluted
$
0.21
$
0.26
Anti-dilutive stock options excluded from diluted EPS
730,500
15,000
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
$
10,005
$
10,149
Denominator:
Weighted average shares outstanding
19,722,152
19,997,869
Earnings per share, basic
$
0.51
$
0.51
Diluted EPS
Numerator:
Net income available to common shares
$
10,005
$
10,149
Denominator:
Weighted average shares outstanding for basic EPS
19,722,152
19,997,869
Add: Dilutive effects of assumed exercises of stock options
68,604
195,049
Weighted avg. shares including dilutive potential common shares
19,790,756
20,192,918
Earnings per share, diluted
$
0.51
$
0.50
Anti-dilutive stock options excluded from diluted EPS
730,500
15,000
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,
three
 
individual shareholders
 
filed a
 
complaint against
six
 
board members
 
serving in
 
July 2021,
 
without
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 34 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
Exchange Commission (“SEC”).
 
 
 
All
 
forward-looking
 
statements
 
are
 
necessarily
 
only
 
estimates
 
of
 
future
 
results,
 
and
 
there
 
can
 
be
 
no
 
assurance
 
that
actual results will
 
not differ
 
materially from
 
expectations. Therefore,
 
you are cautioned
 
not to place
 
undue reliance on
 
any
forward-looking statements.
 
Further,
 
forward-looking statements
 
included in this
 
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 43 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
any tax-exempt securities.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
– Loans classified as special mention have a potential weakness
 
that deserves management’s
close attention. If left uncorrected, these potential weaknesses
 
may result in deterioration of the repayment
prospects for the loan or of the institution’s
 
credit position at some future date.
 
Substandard
– Loans classified as substandard are inadequately protected
 
by the current net worth and paying
capacity of the obligator or of the collateral pledged, if
 
any. Loans so classified
 
have a well-defined weakness or
weaknesses that jeopardize the liquidation of the debt.
 
They are characterized by the distinct possibility that the
institution will sustain some loss if the deficiencies are
 
not corrected.
 
Doubtful
 
– Loans classified as doubtful have all the weaknesses
 
inherent in those classified at substandard, with
the added characteristic that the weaknesses make collection or
 
liquidation in full on the basis of currently existing
facts, conditions, and values, highly questionable and improbable.
 
Loss
– Loans classified as loss are considered uncollectible.
Loan credit exposures by internally assigned grades are
 
as follows for the dates indicated (in thousands):
 
June 30, 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 47 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
losses.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 50 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
or marketable securities.
 
 
Asset and Liability Management Committee
Members
 
of
 
senior
 
management
 
and
 
our
 
Board
 
make
 
up
 
the
 
asset
 
and
 
liability
 
management
 
committee,
 
or
 
ALCO.
Senior management is responsible for ensuring that Board
 
approved strategies, 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)
 
 
Net interest income
$
14,173
 
$
15,997
 
$
16,866
 
$
16,774
 
$
15,642
 
Plus: Non-interest income
 
1,846
2,070
(123)
 
1,789
 
1,617
 
Less: Net gains (losses) on sale of
 
securities
-
(21)
(1,989)
(558)
(3)
 
Operating revenue
$
16,019
$
18,088
$
18,732
$
19,121
$
17,262
 
Operating Efficiency Ratio:
(1)
 
 
Total non-interest expense
$
10,452
 
$
10,176
 
$
10,014
 
$
10,132
 
$
9,551
 
Operating revenue
$
16,019
$
18,088
$
18,732
$
19,121
$
17,262
 
Operating efficiency ratio
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)
 
Tangible stockholders' equity
$
183,685
$
183,858
$
182,428
$
177,417
$
180,068
 
Tangible assets
$
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 59 USCB Financial Holdings, Inc. Q2 2023 Form 10-Q
(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
 
 
 
 
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 pursuant to the provisions of the Florida Business Corporation Act, as amended, executes
Accounting Officer)
EX-3.1 8 exhibit31.htm EX-3.1 exhibit31
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
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 The aggregate number of shares of all classes of capital stock which the
such laws.
 
 
 
2
ARTICLE III
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
 
share of Voting Common Stock; provided that
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
 
Articles amended, effective May 24, 2023, to change
 
the conversion ratio from 0.2 to one.
 
 
 
 
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 in which the Holders of Voting Common Stock receive cash, securities or other property
 
 
 
 
 
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
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 the Corporation (or, if the Transfer Agent is not the Corporation, the Transfer Agent) of the
converted.
 
 
 
 
7
(ii)
 
Transfer
 
Procedures.
 
Upon
 
the
 
physical
 
surrender
 
to
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." this Section 3(c) shall be deemed to eliminate or otherwise modify any other requirements
 
 
 
 
 
 
 
8
(v)
 
No
 
Effect
 
on
 
Other
 
Obligations.
 
Nothing
 
contained
 
in
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 Common Stock entitled to vote thereon were present and voted, and is delivered to the
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
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 reimburse any such Holder for expenses incurred in connection therewith.
 
 
 
 
 
11
required
 
to
 
be
 
made
 
by the
 
Corporation),
 
but the
 
Corporation
 
shall not
 
be
 
obligated
 
to
(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 it is the indemnitor of first resort (i.e., its obligations to each Investor Director are primary
 
 
15
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 or the Corporation's Bylaws inconsistent with the purpose and intent of, Sections 2.1, 2.2
 
 
16
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 3. "Entity" means an "entity" as defined in Treasury Regulation § 1.382-
time to time.
 
17
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 or Public Group to increase to 4.95 percent (4.95%) or above, or from 4.95% or above to
 
 
19
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.
 
 
20
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 such Prohibited Shares (and Prohibited Distributions with respect thereto) to the Agent
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
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." Expiration Date, waive this Article X in respect of any or all transfers notwithstanding the
 
 
 
23
G.
 
Waiver
 
of
 
Article
 
X.
 
The
 
Board
 
of
 
Directors
 
may,
 
at
 
any
 
time
 
prior
 
to
 
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 shall be conclusive and binding on the Corporation, the Agent, and all other parties for
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
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
 
 
Name:
 
Jalal Shehadeh
Title: Executive Vice President and General SERVICE OF PROCESS WITHIN FLORIDA AND REGISTERED
Counsel
 
 
 
CERTIFICATE DESIGNATING
 
PLACE OF
 
BUSINESS
 
FOR THE
 
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
EX-31.1 9 exhibit311.htm EX-31.1 exhibit311
 
 
 
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
EX-31.2 10 exhibit312.htm EX-31.2 exhibit312
 
 
 
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
EX-32.1 11 exhibit321.htm EX-32.1 exhibit321
 
 
 
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
EX-32.2 12 exhibit322.htm EX-32.2 exhibit322
 
 
 
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