USCB FINANCIAL HOLDINGS, INC. 10-Q

Item 1. Financial Statements USCB FINANCIAL HOLDINGS, INC Consolidated Balance Sheets – Unaudited (Dollars in thousands, except share data) September 30, 2023 December 31, 2022 ASSETS: Cash and due from banks $ 5,074 $ 6,605 Interest-bearing deposits in banks 28,361 47,563 Total cash and cash equivalents 33,435 54,168 Investment securities held to maturity, net of allowance of $ 16 and $ 0 , respectively (fair value $ 171,294 and $ 169,088 , respectively) 197,311 188,699 Investment securities available for sale, at fair value 218,609 230,140 Federal Home Loan Bank stock, at cost 6,305 2,882 Loans held for investment, net of allowance of $ 19,493 and $ 17,487 , respectively 1,657,027 1,489,851 Accrued interest receivable 8,920 7,546 Premises and equipment, net 4,951 5,263 Bank owned life insurance 51,377 42,781 Deferred tax assets, net 40,430 42,360 Lease right-of-use asset 12,166 14,395 Other assets 14,071 7,749 Total assets $ 2,244,602 $ 2,085,834 LIABILITIES: Deposits: Demand deposits $ 573,546 $ 629,776 Money market and savings accounts 1,016,564 915,853 Interest-bearing checking 46,537 66,675 Time deposits 284,275 216,977 Total deposits 1,920,922 1,829,281 Federal Home Loan Bank advances 102,000 46,000 Lease liability 12,166 14,395 Accrued interest and other liabilities 26,630 13,730 Total liabilities 2,061,718 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 September 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 September 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 September 30, 2023 and December 31, 2022 - - Common stock - Class A Voting; $ 1.00 par value; 45,000,000 shares authorized; 19,542,290 issued and outstanding as of September 30, 2023, 20,000,753 issued and outstanding as of December 31, 2022 19,542 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 September 30, 2023 and December 31, 2022 - - Additional paid-in capital on common stock 305,837 311,282 Accumulated deficit ( 91,269 ) ( 104,104 ) Accumulated other comprehensive loss ( 51,226 ) ( 44,751 ) Total stockholders' equity 182,884 182,428 Total liabilities and stockholders' equity $ 2,244,602 $ 2,085,834 The accompanying notes are an integral part of these unaudited consolidated financial statements. Table of Contents 4 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q USCB FINANCIAL HOLDINGS, INC. Consolidated Statements of Operations - Unaudited (Dollars in thousands, except per share data) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Interest income: Loans, including fees $ 22,523 $ 15,954 $ 63,081 $ 42,989 Investment securities 2,833 2,201 7,501 7,040 Interest-bearing deposits in financial institutions 1,026 322 2,459 474 Total interest income 26,382 18,477 73,041 50,503 Interest expense: Interest-bearing checking 331 19 574 52 Money market and savings accounts 8,779 1,141 20,532 2,307 Time deposits 2,565 363 5,767 893 Federal Home Loan Bank advances and other borrowings 685 180 1,976 456 Total interest expense 12,360 1,703 28,849 3,708 Net interest income before provision for credit losses 14,022 16,774 44,192 46,795 Provision for credit losses 653 910 892 1,615 Net interest income after provision for credit losses 13,369 15,864 43,300 45,180 Non-interest income: Service fees 1,329 934 3,707 2,917 (Loss) gain on sale of securities available for sale, net ( 955 ) ( 558 ) ( 976 ) ( 540 ) Gain on sale of loans held for sale, net 255 330 696 686 Loan settlement - - - 161 Other non-interest income 1,532 1,083 2,650 2,127 Total non-interest income 2,161 1,789 6,077 5,351 Non-interest expense: Salaries and employee benefits 6,066 6,075 18,325 17,863 Occupancy 1,350 1,281 3,968 3,802 Regulatory assessment and fees 365 269 1,041 708 Consulting and legal fees 513 604 1,257 1,519 Network and information technology services 481 488 1,464 1,323 Other operating expense 1,686 1,415 5,034 4,080 Total non-interest expense 10,461 10,132 31,089 29,295 Income before income tax expense 5,069 7,521 18,288 21,236 Income tax expense 1,250 1,963 4,464 5,529 Net income $ 3,819 $ 5,558 $ 13,824 $ 15,707 Per share information: Net income per share, basic $ 0.20 $ 0.28 $ 0.70 $ 0.79 Net income per share, diluted $ 0.19 $ 0.28 $ 0.70 $ 0.78 The accompanying notes are an integral part of these unaudited consolidated financial statements. Table of Contents 5 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q USCB FINANCIAL HOLDINGS, INC. Consolidated Statements of Comprehensive Income (Loss) - Unaudited (Dollars in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Net income $ 3,819 $ 5,558 $ 13,824 $ 15,707 Other comprehensive income (loss): Unrealized loss on investment securities ( 7,858 ) ( 11,679 ) ( 11,145 ) ( 57,577 ) Amortization of net unrealized (loss) gain on securities transferred from available-for-sale to held-to-maturity 64 ( 52 ) 184 ( 177 ) Reclassification adjustment for loss included in net income 955 558 976 540 Unrealized gain on cash flow hedge 266 - 1,312 - Tax effect 1,666 2,832 2,198 14,528 Total other comprehensive loss, net of tax ( 4,907 ) ( 8,341 ) ( 6,475 ) ( 42,686 ) Total comprehensive income (loss) $ ( 1,088 ) $ ( 2,783 ) $ 7,349 $ ( 26,979 ) The accompanying notes are an integral part of these unaudited consolidated financial statements. Table of Contents 6 USCB Financial Holdings, Inc. Q3 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 July 1, 2023 19,544,777 $ 19,545 $ 305,547 $ ( 95,088 ) $ ( 46,319 ) $ 183,685 Net income - - - 3,819 - 3,819 Other comprehensive loss - - - - ( 4,907 ) ( 4,907 ) Restricted stock forfeiture ( 2,487 ) ( 3 ) 3 - - - Stock-based compensation - - 287 - - 287 Balance at September 30, 2023 19,542,290 $ 19,542 $ 305,837 $ ( 91,269 ) $ ( 51,226 ) $ 182,884 Balance at July 1, 2022 20,000,753 $ 20,001 $ 311,024 $ ( 114,096 ) $ ( 36,861 ) $ 180,068 Net income - - - 5,558 - 5,558 Other comprehensive loss - - - - ( 8,341 ) ( 8,341 ) Stock-based compensation - - 132 - - 132 Balance at September 30, 2022 20,000,753 $ 20,001 $ 311,156 $ ( 108,538 ) $ ( 45,202 ) $ 177,417 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 - - - 13,824 - 13,824 Other comprehensive loss - - - - ( 6,475 ) ( 6,475 ) Repurchase of Class A common stock ( 577,603 ) ( 577 ) ( 6,036 ) - - ( 6,613 ) Restricted stock issued 121,627 121 ( 121 ) - - - Restricted stock forfeiture ( 2,487 ) ( 3 ) 3 - - Stock-based compensation - - 709 - - 709 Balance at September 30, 2023 19,542,290 $ 19,542 $ 305,837 $ ( 91,269 ) $ ( 51,226 ) $ 182,884 Balance at January 1, 2022 19,991,753 19,992 310,666 ( 124,245 ) ( 2,516 ) 203,897 Net income - - - 15,707 - 15,707 Other comprehensive loss - - - - ( 42,686 ) ( 42,686 ) Exercise of stock options 9,000 9 93 102 Stock-based compensation - - 397 - - 397 Balance at September 30, 2022 20,000,753 $ 20,001 $ 311,156 $ ( 108,538 ) $ ( 45,202 ) $ 177,417 The accompanying notes are an integral part of these unaudited consolidated financial statements. Table of Contents 7 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q USCB FINANCIAL HOLDINGS, INC. Consolidated Statements of Cash Flows - Unaudited (Dollars in thousands) Nine Months Ended September 30, 2023 2022 Cash flows from operating activities: Net income $ 13,824 $ 15,707 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 892 1,615 Depreciation and amortization 443 530 (Accretion) amortization of premiums on securities, net ( 651 ) 412 Accretion of deferred loan fees, net ( 236 ) ( 1,364 ) Stock-based compensation 709 397 Loss (gain) on sale of available for sale securities 976 540 Gain on sale of loans held for sale ( 696 ) ( 686 ) Increase in cash surrender value of bank owned life insurance ( 775 ) ( 794 ) Bank owned life insurance enhancement ( 981 ) - Decrease in deferred tax assets 4,465 5,529 Net change in operating assets and liabilities: Accrued interest receivable ( 1,374 ) ( 593 ) Other assets ( 751 ) ( 4,163 ) Accrued interest and other liabilities 12,679 14,432 Net cash provided by operating activities 28,524 31,562 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 79,085 9,689 Purchase of investment securities available for sale ( 26,792 ) ( 49,808 ) Proceeds from maturities and pay-downs of investment securities available for sale 11,679 35,502 Proceeds from sales of investment securities available for sale 15,409 45,647 Net increase in loans held for investment ( 165,662 ) ( 177,916 ) Purchase of loans held for investment ( 13,277 ) ( 70,175 ) Additions to premises and equipment ( 131 ) ( 175 ) Proceeds from the sale of loans held for sale 10,715 8,641 Purchase of Bank owned life insurance ( 11,100 ) - Proceeds from the redemption of Federal Home Loan Bank stock 6,517 2,250 Purchase of Federal Home Loan Bank stock ( 9,940 ) ( 2,052 ) Net cash used in investment activities ( 190,285 ) ( 200,829 ) 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 91,641 206,263 Proceeds from Federal Home Loan Bank advances 259,350 60,000 Repayments on Federal Home Loan Bank advances ( 203,350 ) ( 70,000 ) Net cash provided by financing activities 141,028 196,365 Net increase in cash and cash equivalents ( 20,733 ) 27,098 Cash and cash equivalents at beginning of period 54,168 46,228 Cash and cash equivalents at end of period $ 33,435 $ 73,326 Supplemental disclosure of cash flow information: Interest paid $ 27,872 $ 3,675 Supplemental schedule of non-cash investing and financing activities: Transfer of loans held for investment to loans held for sale $ 10,019 $ 7,955 Transfer of investment securities from available-for-sale to held-to-maturity $ - $ 74,444 Lease liability arising from obtaining right-of-use asset $ - $ 1,550 The accompanying notes are an integral part of these unaudited consolidated financial statements. Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 8 USCB Financial Holdings, Inc. Q3 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 direct wholly owned subsidiary, U.S. Century Bank (the “Bank”), together referred to as “the Company”. The Bank, established in 2002, is a Florida state-chartered, non-member financial institution providing financial services through its banking centers located in South Florida. The Bank owns a subsidiary, Florida Peninsula Title LLC, that offers our clients title insurance policies for real estate transactions closed at the Bank. Licensed in the State of Florida and approved by the Department of Insurance Regulation, Florida Peninsula Title LLC began operations in 2021. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with instructions to Form 10-Q and do not include all the information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. All adjustments consisting of normally recurring accruals that, in the opinion of management, are necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. These unaudited consolidated financial statements should be read in conjunction with the Company’s consolidated 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 Accounting Standard Update (“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 not 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 Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 9 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q expected credit losses estimated for the loan portfolio in relation to potential limitations of the quantitative model. A scorecard is used to aid management in the assessment of qualitative factor adjustments applied to expected credit losses. The quantitative component of the estimate relies on the statistical relationship between the projected value of an economic indicator and the implied historical loss experience among a curated group of peers. The Company utilized regression analyses of peer data, in which the Company was included, and where observed credit losses and selected economic factors were used to determine suitable loss drivers for modeling the lifetime rates of probability of default (PD). A loss given default rate (LGD) is assigned to each pool for each period based on these PD outcomes. The model fundamentally utilizes an expected discounted cash flow (DCF) analysis for loan portfolio segments. The DCF analysis is run at the instrument-level and incorporates an array of loan-specific data points and segment-implied assumptions to determine the lifetime expected loss attributable to each instrument. An implicit "hypothetical loss" is derived for each period of the DCF and helps establish the present value of future cash flows for each period. The reserve applied to a specific instrument is the difference between the sum of the present value of future cash flows and the book balance of the loan at the measurement date. Management elected the Remaining Life (WARM) methodology for five loan 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 of 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 the ACL. Trouble Debt Restructuring In March 2022, the Financial Accounting Standards Board (“FASB”) issued 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, require s 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 (see Note 3). The Company Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 10 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q 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. 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 bonds, and non-agency securitizations. The Company calculates quarterly the loss reserve utilizing Moody’s ImpairmentStudio. The CECL measurement for investment securities incorporates historical data, containing defaults and recoveries information, and Moody’s baseline economic forecast. The solution uses probability of default/loss given default (“PD/LGD”) approach. PD represents the likelihood a borrower will default. Within the Moody’s model , this is determined using historical default data, adjusted for the current economic environment. LGD projects the expected loss if a borrower were to default. The Company monitors the credit quality of held to maturity securities through the use of credit ratings. Credit ratings are monitored by the Company on at least a quarterly basis. As of September 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 $ 187.9 million of U.S. Government and U.S. Agency issued bonds and mortgage-backed securities. Because of the explicit and/or implicit guarantee on these bonds, the Company holds no reserves on these holdings. The remaining portion of the HTM portfolio is made up of $ 9.4 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 $ 16 thousand ACL as of September 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 September 30, 2023 and December 31, 2022 was not required. Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 11 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q The following tables present a summary of the amortized cost, unrealized or unrecognized gains and losses, and fair value of investment securities at the dates indicated (in thousands): September 30, 2023 Available-for-sale: Amortized Cost Unrealized Gains Unrealized Losses Fair Value U.S. Government Agency $ 9,913 $ - $ ( 1,888 ) $ 8,025 Collateralized mortgage obligations 105,547 - ( 26,976 ) 78,571 Mortgage-backed securities - residential 66,024 - ( 14,867 ) 51,157 Mortgage-backed securities - commercial 48,010 62 ( 7,508 ) 40,564 Municipal securities 25,024 - ( 6,908 ) 18,116 Bank subordinated debt securities 24,417 5 ( 2,246 ) 22,176 Corporate bonds - - - - $ 278,935 $ 67 $ ( 60,393 ) $ 218,609 Held-to-maturity: U.S. Government Agency $ 44,087 $ - $ ( 7,038 ) $ 37,049 U.S. Treasury 19,934 - ( 28 ) 19,906 Collateralized mortgage obligations 64,094 - ( 10,308 ) 53,786 Mortgage-backed securities - residential 44,302 - ( 6,088 ) 38,214 Mortgage-backed securities - commercial 15,467 - ( 1,583 ) 13,884 Corporate bonds 9,443 - ( 988 ) 8,455 $ 197,327 $ - $ ( 26,033 ) $ 171,294 Allowance for credit losses - securities held-to-maturity ( 16 ) Securities held-to maturity, net of allowance for credit losses $ 197,311 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 nine months ended September 30, 2023, total amortization out of AOCI for net unrealized losses on securities transferred from AFS to HTM was $ 64 thousand and $ 184 thousand, respectively. The unamortized net unrealized loss on September 30, 2023, was $ 9.6 million. There were no securities transferred from AFS to HTM during the nine months ended September 30, 2023. Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 12 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q Gains and losses on the sale of securities are recorded on the trade date and are determined on the specific identification basis. The following table presents the proceeds, realized gross gains and realized gross losses on sales and calls of AFS debt securities for the three and nine months ended September 30, 2023 and 2022 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, Available-for-sale: 2023 2022 2023 2022 Proceeds from sale and call of securities $ 6,792 $ 13,809 $ 15,409 $ 45,647 Gross gains $ - $ 2 $ 3 $ 218 Gross losses ( 955 ) ( 560 ) ( 979 ) ( 758 ) Net realized (loss) gain $ ( 955 ) $ ( 558 ) $ ( 976 ) $ ( 540 ) 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 September 30, 2023: Amortized Cost Fair Value Amortized Cost Fair Value Due within one year $ - $ - $ 19,934 $ 19,906 Due after one year through five years 6,000 5,977 9,443 8,455 Due after five years through ten years 22,059 18,919 - - Due after ten years 21,382 15,396 - - U.S. Government Agency 9,913 8,025 44,087 37,049 Collateralized mortgage obligations 105,547 78,571 64,094 53,786 Mortgage-backed securities - residential 66,024 51,157 44,302 38,214 Mortgage-backed securities - commercial 48,010 40,564 15,467 13,884 $ 278,935 $ 218,609 $ 197,327 $ 171,294 At September 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 September 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): September 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 $ - - 45,075 ( 10,184 ) $ 45,075 $ ( 10,184 ) U.S. Treasury 19,906 ( 28 ) - - 19,906 ( 28 ) Collateralized mortgage obligations - - 132,357 ( 41,869 ) 132,357 ( 41,869 ) Mortgage-backed securities - residential 5,362 ( 237 ) 84,009 ( 23,353 ) 89,371 ( 23,590 ) Mortgage-backed securities - commercial 20,006 ( 917 ) 32,923 ( 9,656 ) 52,929 ( 10,573 ) Municipal securities - - 18,116 ( 6,908 ) 18,116 ( 6,908 ) Bank subordinated debt securities 9,611 ( 304 ) 11,560 ( 1,941 ) 21,171 ( 2,245 ) Corporate bonds - - 8,454 ( 631 ) 8,454 ( 631 ) $ 54,885 $ ( 1,486 ) $ 332,494 $ ( 94,542 ) $ 387,379 $ ( 96,028 ) Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 13 USCB Financial Holdings, Inc. Q3 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 September 30, 2023, the unrealized losses associated with $ 128.5 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 September 30, 2023, the Company had $ 67.3 million of unrealized losses on mortgage-backed securities and collateralized mortgage obligations of government sponsored entities having a fair value of $ 276.2 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 September 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 September 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 September 30, 2023, the Company did no t have any securities pledged under this agreement. The Bank is a Qualified Public Depository (“QPD”) with the State of Florida. As a QPD, the Bank has the legal authority to maintain public deposits from cities, municipalities, and the State of Florida. These public deposits are secured by securities pledged to the State of Florida at a ratio of 25 % of the outstanding uninsured deposits. The Bank must also maintain a minimum amount of pledged securities to be in the public funds program. Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 14 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q As of September 30, 2023, the Bank had a total of $ 212.3 million in deposits under the public funds program and pledged to the State of Florida for these public funds were twenty-seven bonds with an aggregate fair value of $ 82.6 million. As of December 31, 2022, the Bank 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 Board of Governors of the Federal Reserve System, on March 12, 2023, announced the creation of a new Bank Term Funding Program (BTFP). The BTFP 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 September 30, 2023, and had pledged $ 134.4 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): September 30, 2023 December 31, 2022 Total Percent of Total Total Percent of Total Residential Real Estate $ 188,880 11.3 % $ 185,636 12.3 % Commercial Real Estate 1,005,280 60.0 % 970,410 64.4 % Commercial and Industrial 212,975 12.7 % 126,984 8.4 % Foreign Banks 94,640 5.7 % 93,769 6.2 % Consumer and Other 173,096 10.3 % 130,429 8.7 % Total gross loans 1,674,871 100.0 % 1,507,228 100.0 % Plus: Deferred fees (cost) 1,649 110 Total loans net of deferred fees (cost) 1,676,520 1,507,338 Less: Allowance for credit losses 19,493 17,487 Total net loans $ 1,657,027 $ 1,489,851 At September 30, 2023 and December 31, 2022, the Company had $ 556.1 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 $ 295 thousand at September 30, 2023 and $ 1.3 million at December 31, 2022, which are categorized as commercial and industrial loans. The Company recognized $ 6 thousand and $ 1.6 million in PPP loan fees and interest income during the nine months ended September 30, 2023 and 2022, respectively, which is reported under loans, including fees, within the Consolidated Statements of Operations. 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 Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 15 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q 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 (“Q-Factors”) used in the ACL methodology include: • Changes in lending policies, procedures, and strategies • Changes in international, national, regional, and local conditions • Changes in nature and volume of portfolio • Changes in the volume and severity of past due loans and other similar conditions • Concentration risk • Changes in the value of underlying collateral • The effect of other external factors: e.g., competition, legal, and regulatory requirements • Changes in lending management, among others ACL for the three and nine months ended September 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 nine months ended September 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 September 30, 2023 Beginning balance $ 2,673 $ 10,183 $ 2,500 $ 677 $ 2,782 $ 18,815 Provision for credit losses (1) ( 162 ) ( 84 ) 738 73 108 673 Recoveries - - 8 - - 8 Charge-offs - - - - ( 3 ) ( 3 ) Ending Balance $ 2,511 $ 10,099 $ 3,246 $ 750 $ 2,887 $ 19,493 Nine Months Ended September 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) ( 89 ) ( 1,149 ) 1,181 7 965 915 Recoveries 10 - 60 - 3 73 Charge-offs - - - - ( 48 ) ( 48 ) Ending Balance $ 2,511 $ 10,099 $ 3,246 $ 750 $ 2,887 $ 19,493 (1) Provision for credit losses excludes $ 17 thousand release due to unfunded commitments included in other liabilities and $ 3 thousand release due to investment securities held to maturity. (2) Impact of CECL adoption on January 1, 2023 (3) Provision for credit losses excludes $ 39 thousand release due to unfunded commitments included in other liabilities and $ 16 thousand expense due to investment securities held to maturity. Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 16 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q Residential Real Estate Commercial Real Estate Commercial and Industrial Foreign Banks Consumer and Other Total Three Months Ended September 30, 2022 Beginning balance $ 2,366 $ 9,290 $ 2,671 $ 651 $ 808 $ 15,786 Provision for credit losses ( 1,009 ) 695 1,126 74 24 910 Recoveries 1 - - - - 1 Charge-offs - - ( 88 ) - ( 5 ) ( 93 ) Ending Balance $ 1,358 $ 9,985 $ 3,709 $ 725 $ 827 $ 16,604 Nine Months Ended September 30, 2022 Beginning balance $ 2,498 $ 8,758 $ 2,775 $ 457 $ 569 $ 15,057 Provision for credit losses ( 1,157 ) 1,227 1,011 268 266 1,615 Recoveries 33 - 11 - 3 47 Charge-offs ( 16 ) - ( 88 ) - ( 11 ) ( 115 ) Ending Balance $ 1,358 $ 9,985 $ 3,709 $ 725 $ 827 $ 16,604 At September 30, 2023 the ACL, under the CECL methodology, was $ 19.5 million compared to $ 17.5 million at December 31, 2022, under the incurred loss methodology. The increase of $ 2.0 million was composed of a $ 1.1 million impact of adoption of the ASU 2016-13 on loan receivables, a $ 915 thousand increase in the ACL for loan receivables due to loan growth and to net charge-offs. The Company had charge offs totaling $ 3 thousand for the quarter ended September 30, 2023 related to loans originated in 2023. The Company had charge offs totaling $ 48 thousand for the nine months ended September 30, 2023 related to loans. $ 27 thousand was related to loans originated in 2023 and $ 21 thousand of charge offs was related to loans originated in 2015. The Company had charge offs totaling $ 115.0 thousand for the nine months ended September 30, 2022, on loans. $ 15.6 thousand and $ 87.7 thousand of charge offs related to loans that were originated in 2004 and 2019, respectively. $ 10.9 thousand of charge offs related to loans that were originated in 2022. The Federal Open Market Committee (“FOMC”) economic forecasts as of September 30, 2023, showed moderate improvements in unemployment and a slower real GDP growth. Fannie Mae HPI forecast reflected important improvement in national housing prices over the next four quarters. The Company continued to adjust the HPI index effect on 1-4 Family loan portfolio with a qualitative factor because Florida housing prices are performing better than national levels. Q-Factors were reviewed and updated; maximum loss calculations are based on refreshed stress test and risk statuses were updated based on portfolio and external developments during the third quarter. Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 17 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q The ACL and the outstanding balances in the specified loan categories as of September 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 September 30, 2023: Allowance for credit losses: Individually evaluated for impairment $ 146 $ - $ 135 $ - $ - $ 281 Collectively evaluated for impairment 2,365 10,099 3,111 750 2,887 19,212 Balances, end of period $ 2,511 $ 10,099 $ 3,246 $ 750 $ 2,887 $ 19,493 Loans: Individually evaluated for impairment $ 6,749 $ - $ 869 $ - $ - $ 7,618 Collectively evaluated for impairment 182,131 1,005,280 212,106 94,640 173,096 1,667,253 Balances, end of period $ 188,880 $ 1,005,280 $ 212,975 $ 94,640 $ 173,096 $ 1,674,871 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. 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. Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 18 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q Loan credit exposures by internally assigned grades are presented below for the periods indicated (in thousands): As of September 30, 2023 Term Loans by Origination Year Revolving Loans Total 2023 2022 2021 2020 2019 Prior Residential real estate Pass $ 17,760 $ 36,828 $ 26,315 $ 6,527 $ 9,749 $ 83,244 $ 8,457 $ 188,880 Total 17,760 36,828 26,315 6,527 9,749 83,244 8,457 188,880 Commercial real estate Pass 78,285 340,524 210,028 104,816 79,129 186,669 3,314 1,002,765 Substandard - - 1,818 697 - - - 2,515 Total 78,285 340,524 211,846 105,513 79,129 186,669 3,314 1,005,280 Commercial and industrial Pass 92,156 38,012 34,581 7,141 14,001 3,483 21,617 210,991 Substandard - - 340 - 1,344 - 300 1,984 Total 92,156 38,012 34,921 7,141 15,345 3,483 21,917 212,975 Foreign banks Pass 93,515 1,125 - - - - - 94,640 Total 93,515 1,125 - - - - - 94,640 Consumer and other loans Pass 50,027 74,961 44,249 717 529 1,396 1,217 173,096 Substandard - - - - - - - - Total 50,027 74,961 44,249 717 529 1,396 1,217 173,096 Total Loans Pass 331,743 491,450 315,173 119,201 103,408 274,792 34,605 1,670,372 Special Mention - - - - - - - - Substandard - - 2,158 697 1,344 - 300 4,499 Doubtful - - - - - - - - Total $ 331,743 $ 491,450 $ 317,331 $ 119,898 $ 104,752 $ 274,792 $ 34,905 $ 1,674,871 Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 19 USCB Financial Holdings, Inc. Q3 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 Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 20 USCB Financial Holdings, Inc. Q3 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 September 30, 2023 and December 31, 2022 (in thousands): Accruing As of September 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 $ 491 $ - $ - $ 491 $ - $ 491 1-4 family residential 138,069 - - 138,069 - 138,069 Condo residential 49,949 371 - 50,320 - 50,320 188,509 371 - 188,880 - 188,880 Commercial real estate: Land and construction 30,717 - - 30,717 - 30,717 Multi-family residential 177,573 - - 177,573 - 177,573 Condo commercial 58,100 - - 58,100 - 58,100 Commercial property 738,849 - - 738,849 - 738,849 Leasehold improvements 41 - - 41 - 41 1,005,280 - - 1,005,280 - 1,005,280 Commercial and industrial: Secured 194,119 - - 194,119 479 194,598 Unsecured 18,377 - - 18,377 - 18,377 212,496 - - 212,496 479 212,975 Foreign banks 94,640 - - 94,640 - 94,640 Consumer and other 173,096 - - 173,096 - 173,096 Total $ 1,674,021 $ 371 $ - $ 1,674,392 $ 479 $ 1,674,871 Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 21 USCB Financial Holdings, Inc. Q3 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 Non-accrual Status The following table includes the amortized cost basis of loans on non-accrual status and loans past due over 90 days and still accruing as of September 30, 2023 (in thousands): September 30, 2023 Nonaccrual Loans With No Related Allowance Nonaccrual Loans With Related Allowance Total Non- accruals Loans Past Due Over 90 Days and Still Accruing Residential real estate $ - $ - $ - $ - Commercial real estate - - - - Commercial and industrial - 479 479 - Consumer and other - - - - $ - $ 479 $ 479 $ - 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 non-accrual loans outstanding during the three months ended September 30, 2023 and 2022. Interest income on these loans for the three months ended September 30, 2023 and 2022, would have been approximately $ 12 thousand and $ 0 thousand, respectively, had these loans performed in accordance with their original terms. Interest income on these loans for the nine months ended September 30, 2023 and 2022, would have been approximately $ 28 thousand and $ 0 thousand, respectively, had these loans performed in accordance with their original terms. Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 22 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q Collateral-Dependent Loans A loan is collateral dependent when the borrower is experiencing financial difficulty and repayment of the loan is expected to be provided substantially through the sale or operation of the collateral. There were no collateral dependent loans as of September 30, 2023, or as of December 31, 2022. 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 September 30, 2022 Nine Months Ended September 30, 2022 Residential real estate $ 7,282 $ 7,732 Commercial real estate 590 619 Commercial and industrial 95 116 Consumer and other 207 214 Total $ 8,174 $ 8,681 Interest income recognized on impaired loans for the three months ended September 30, 2022 was $ 90 thousand and for the nine months ended September 30, 2022 was $ 271 thousand. Loan Modifications to Borrowers Experiencing Financial Difficulties The following table present newly restructured loans, by type of modification, which occurred during the nine months ended September 30, 2023 (in thousands): Recorded Investment Prior to Modification Recorded Investment After Modification Number of Loans Combination Modifications Total Modifications Number of Loans Combination Modifications Total Modifications Residential real estate - $ - $ - - $ - $ - Commercial real estate - - - - - - Commercial and industrial 1 350 350 1 350 350 Consumer and other - - - - - - 1 $ 350 $ 350 1 $ 350 $ 350 Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 23 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q The Company had no new modifications and one new modifications to borrowers experiencing financial difficulties for the three and nine months ended September 30, 2023, respectively. There were no existing loan modifications that subsequently defaulted during the three and nine months ended September 30, 2023. 4. INCOME TAXES The Company’s provision for income taxes is presented in the following table for the dates indicated (in thousands): Nine Months Ended September 30, 2023 2022 Current: Federal $ - $ - State - - Total current - - Deferred: Federal 3,510 4,342 State 954 1,187 Total deferred 4,464 5,529 Total tax expense $ 4,464 $ 5,529 The actual income tax expense for the nine months ended September 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): Nine Months Ended September 30, 2023 2022 Federal taxes at statutory rate $ 3,840 $ 4,460 State income taxes, net of federal tax benefit 795 923 Bank owned life insurance ( 171 ) ( 202 ) Other, net - 348 Total tax expense $ 4,464 $ 5,529 The Company’s deferred tax assets and deferred tax liabilities as of the dates indicated were (in thousands): September 30, 2023 December 31, 2022 Deferred tax assets: Net operating loss $ 17,588 $ 21,720 Allowance for credit losses 4,670 4,432 Lease liability 3,084 3,648 Unrealized losses on available for sale securities 17,723 15,193 Depreciable property 192 158 Equity compensation 554 373 Accruals 411 723 CECL Adoption 336 - Deferred tax assets: 44,558 46,247 Deferred tax liability: Deferred loan cost ( 418 ) ( 28 ) Lease right of use asset ( 3,084 ) ( 3,648 ) Deferred expenses ( 189 ) ( 175 ) Cash flow hedge ( 332 ) - Other, net ( 105 ) ( 36 ) Deferred tax liability ( 4,128 ) ( 3,887 ) Net deferred tax assets $ 40,430 $ 42,360 Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 24 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q The Company has approximately $ 65.5 million of federal and $ 88.2 million of state net operating loss carryforwards expiring in various amounts between 2031 and 2036 and which are limited to offset, to the extent permitted, future taxable earnings of the Company. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. The major tax jurisdictions where the Company files income tax returns are the U.S. federal jurisdiction and the State of Florida. With few exceptions, the Company is no longer subject to U.S. federal and state income tax examinations by tax authorities for years before 2019. For the three and nine months ended September 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 September 30, 2023 and December 31, 2022 (in thousands): September 30, 2023 December 31, 2022 Commitments to grant loans and unfunded lines of credit $ 100,661 $ 95,461 Standby and commercial letters of credit 6,490 4,320 Total $ 107,151 $ 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 does not represent actual amounts exchanged by the parties. The amounts exchanged are determined by reference to the notional amount and the other terms of the individual interest rate swap agreements. Interest Rate Swaps Designated as a Cash Flow Hedge Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 25 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q As of September 30, 2023, the Company had two interest rate swap agreements with a notional aggregate amount of $ 50 million that were designated as cash flow hedges of certificates of deposit. The interest rate swap agreements have an average maturity of 2.63 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 outstanding on 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 (loss) and subsequently reclassified to earnings when gains or losses are realized. Interest Rate Swaps Designated as Fair Value Hedge As of September 30, 2023, the Company had four interest rate swap agreements with a notional aggregate amount of $ 200 million that were designated as fair value hedges on loans. The interest rate swap agreements have an average maturity of 2.48 years, the weighted average fixed rate paid is 4.74 %, with the weighted average 3-month compound SOFR being received. Interest Rate Swaps The Company enters into interest rate swaps with its loan customers. The Company had 20 and 15 interest rate swaps with loan customers with an aggregate notional amount of $ 46.7 million and $ 33.9 million at September 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 September 30, 2023: Derivatives designated as hedging instruments: Interest rate swaps $ 250,000 - Other assets $ 1,450 $ 294 Derivatives not designated as hedging instruments: Interest rate swaps related to customer loans $ 46,717 $ 1,297 Other assets/Other liabilities $ 5,623 $ 5,623 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 Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 26 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions. Fair Value Hierarchy In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded, and the reliability of the assumptions used to determine fair value. Level 1 - Valuation is based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and 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. Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 27 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q The following table represents the Company's assets and liabilities measured at fair value on a recurring basis at September 30, 2023 and December 31, 2022 for each of the fair value hierarchy levels (in thousands): September 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 $ - $ 8,025 $ - $ 8,025 $ - $ 8,655 $ - $ 8,655 Collateralized mortgage obligations - 78,571 - 78,571 - 95,541 - 95,541 Mortgage-backed securities - residential - 51,157 - 51,157 - 60,879 - 60,879 Mortgage-backed securities - commercial - 40,564 - 40,564 - 27,954 - 27,954 Municipal securities - 18,116 - 18,116 - 18,483 - 18,483 Bank subordinated debt securities - 22,176 - 22,176 - 14,919 - 14,919 Corporate bonds - - - - - 3,709 - 3,709 Total - 218,609 - 218,609 - 230,140 - 230,140 Derivative assets - 7,073 - 7,073 - 5,011 - 5,011 Total assets at fair value $ - $ 225,682 $ - $ 225,682 $ - $ 235,151 $ - $ 235,151 Derivative liabilities $ - $ 5,917 $ - $ 5,917 $ - $ 5,011 $ - $ 5,011 Total liabilities at fair value $ - $ 5,917 $ - $ 5,917 $ - $ 5,011 $ - $ 5,011 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 and 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 September 30, 2023 and December 31, 2022 for each of the fair value hierarchy levels (in thousands): Level 1 Level 2 Level 3 Total September 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 Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 28 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q There were no financial liabilities measured at fair value on a non-recurring basis at September 30, 2023 and December 31, 2022. 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 September 30, 2023 and December 31, 2022 (in thousands): Fair Value Hierarchy Carrying Amount Level 1 Level 2 Level 3 Fair Value Amount September 30, 2023: Financial Assets: Cash and due from banks $ 5,074 $ 5,074 $ - $ - $ 5,074 Interest-bearing deposits in banks $ 28,361 $ 28,361 $ - $ - $ 28,361 Investment securities held to maturity, net $ 197,311 $ - $ 171,294 $ - $ 171,294 Loans held for investment, net $ 1,657,027 $ - $ - $ 1,606,440 $ 1,606,440 Accrued interest receivable $ 8,920 $ - $ 1,476 $ 7,444 $ 8,920 Financial Liabilities: Demand deposits $ 573,546 $ 573,546 $ - $ - $ 573,546 Money market and savings accounts $ 1,016,564 $ 1,016,564 $ - $ - $ 1,016,564 Interest-bearing checking accounts $ 46,537 $ 46,537 $ - $ - $ 46,537 Time deposits $ 284,275 $ - $ - $ 282,062 $ 282,062 FHLB advances $ 102,000 $ - $ 98,718 $ - $ 98,718 Accrued interest payable $ 1,206 $ - $ 469 $ 737 $ 1,206 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 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. Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 29 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q In the Reorganization, each shareholder of the Bank received securities of the same class, having substantially the same designations, rights, powers, preferences, qualifications, limitations and restrictions, as those that the shareholder held in the Bank, and the Company’s 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 September 30, 2023 nor during the three and nine months ended September 30, 2022. During the nine months ended September 30, 2023 the Company repurchased 577,603 shares of Class A common stock at a weighted average price per share of $ 9.77 . The aggregate purchase price for these transactions was approximately $ 6.6 million, including transaction costs. These repurchases were made through open market purchases pursuant to the Company’s publicly announced repurchase program. No shares were repurchased during the three months ended September 30, 2023. As of September 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 September 30, 2023 and December 31, 2022 were 19,542,290 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 September 30, 2023 and 2022. Additionally, there were no dividends declared and unpaid as of September 30, 2023 and 2022. The Company and the Bank exceeded all regulatory capital requirements and remained above “well-capitalized” guidelines as of September 30, 2023 and December 31, 2022. At September 30, 2023, the total risk-based capital ratios for the Company and the Bank were 13.10 % and 13.06 %, respectively. 9. EARNINGS PER SHARE Earnings per share (“EPS”) for common stock is calculated using the two-class method required for participating securities. Basic EPS is calculated by dividing net income (loss) available to common shareholders by the weighted-average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted EPS is computed by dividing net income (loss) available to common share holders by the weighted -average number of common shares outstanding for the period and the weighted-average number of dilutive common stock equivalents outstanding for the period determined using the treasury-stock method. For purposes of this calculation, common stock equivalents include common stock options and are only included in the calculation of diluted EPS when their effect is dilutive. The following table reflects the calculation of net income available to common shareholders for the three and nine months ended September 30, 2023 and 2022 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Net Income $ 3,819 $ 5,558 $ 13,824 $ 15,707 Net income available to common shareholders $ 3,819 $ 5,558 $ 13,824 $ 15,707 Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 30 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q The following table reflects the calculation of basic and diluted earnings per common share class for the three and nine months ended September 30, 2023 and 2022 (in thousands, except per share amounts): Three Months Ended September 30, 2023 2022 Class A Class A Basic EPS Numerator: Net income available to common shares $ 3,819 $ 5,558 Denominator: Weighted average shares outstanding 19,542,723 20,000,753 Earnings per share, basic $ 0.20 $ 0.28 Diluted EPS Numerator: Net income available to common shares $ 3,819 $ 5,558 Denominator: Weighted average shares outstanding for basic EPS 19,542,723 20,000,753 Add: Dilutive effects of assumed exercises of stock options 69,174 147,455 Weighted avg. shares including dilutive potential common shares 19,611,897 20,148,208 Earnings per share, diluted $ 0.19 $ 0.28 Anti-dilutive stock options excluded from diluted EPS 720,500 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. Nine Months Ended September 30, 2023 2022 Class A Class A Basic EPS Numerator: Net income available to common shares $ 13,824 $ 15,707 Denominator: Weighted average shares outstanding 19,661,685 19,998,841 Earnings per share, basic $ 0.70 $ 0.79 Diluted EPS Numerator: Net income available to common shares $ 13,824 $ 15,707 Denominator: Weighted average shares outstanding for basic EPS 19,661,685 19,998,841 Add: Dilutive effects of assumed exercises of stock options 67,496 179,248 Weighted avg. shares including dilutive potential common shares 19,729,181 20,178,089 Earnings per share, diluted $ 0.70 $ 0.78 Anti-dilutive stock options excluded from diluted EPS 720,500 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. Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 31 USCB Financial Holdings, Inc. Q3 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. As previously disclosed, on July 13, 2023, three individual shareholders (“The Plaintiffs”) 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. Table of Contents 32 USCB Financial Holdings, Inc. Q3 2023 Form 10-Q