USCB FINANCIAL HOLDINGS, INC. 10-Q

Item 1. Financial Statements USCB FINANCIAL HOLDINGS, INC Consolidated Balance Sheets – Unaudited (Dollars in thousands, except share data) June 30, 2024 December 31, 2023 ASSETS: Cash and due from banks $ 5,179 $ 8,019 Interest-bearing deposits in banks 72,082 33,043 Total cash and cash equivalents 77,261 41,062 Investment securities held to maturity, net of allowance of $ 9 and $ 8 , respectively (fair value $ 149,573 and $ 155,510 , respectively) 169,606 174,974 Investment securities available for sale, at fair value 236,444 229,329 Federal Home Loan Bank stock, at cost 5,532 10,153 Loans held for investment, net of allowance of $ 22,230 and $ 21,084 , respectively 1,847,019 1,759,743 Accrued interest receivable 11,538 10,688 Premises and equipment, net 4,728 4,836 Bank owned life insurance 52,607 51,781 Deferred tax assets, net 34,030 37,282 Lease right-of-use asset 9,937 11,423 Other assets 9,568 7,822 Total assets $ 2,458,270 $ 2,339,093 LIABILITIES: Deposits: Demand deposits $ 579,243 $ 552,762 Money market and savings accounts 1,097,468 1,048,272 Interest-bearing checking 65,844 47,702 Time deposits 314,147 288,403 Total deposits 2,056,702 1,937,139 Federal Home Loan Bank advances and other borrowings 162,000 183,000 Lease liability 9,937 11,423 Accrued interest and other liabilities 28,611 15,563 Total liabilities 2,257,250 2,147,125 Commitments and contingencies (See Notes 5 and 10) (nil) (nil) 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, 2024 and December 31, 2023 - - 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, 2024 and December 31, 2023 - - 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, 2024 and December 31, 2023 - - Common stock - Class A Voting; $ 1.00 par value; 45,000,000 shares authorized; 19,630,632 issued and outstanding as of June 30, 2024, 19,575,435 issued and outstanding as of December 31, 2023 19,631 19,575 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, 2024 and December 31, 2023 - - Additional paid-in capital on common stock 305,835 305,212 Accumulated deficit ( 79,760 ) ( 88,548 ) Accumulated other comprehensive loss ( 44,686 ) ( 44,271 ) Total stockholders' equity 201,020 191,968 Total liabilities and stockholders' equity $ 2,458,270 $ 2,339,093 The accompanying notes are an integral part of these unaudited consolidated financial statements. Table of Contents 4 USCB Financial Holdings, Inc. Q2 2024 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, 2024 2023 2024 2023 Interest income: Loans, including fees $ 28,017 $ 20,847 $ 54,660 $ 40,558 Investment securities 3,069 2,382 5,880 4,668 Interest-bearing deposits in financial institutions 1,531 1,051 2,964 1,433 Total interest income 32,617 24,280 63,504 46,659 Interest expense: Interest-bearing checking 391 200 760 243 Money market and savings accounts 10,071 6,968 20,465 11,753 Time deposits 3,222 2,145 6,516 3,202 Federal Home Loan Bank advances and other borrowings 1,622 794 3,294 1,291 Total interest expense 15,306 10,107 31,035 16,489 Net interest income before provision for credit losses 17,311 14,173 32,469 30,170 Provision for credit losses 786 38 1,196 239 Net interest income after provision for credit losses 16,525 14,135 31,273 29,931 Non-interest income: Service fees 1,977 1,173 3,628 2,378 Gain (loss) on sale of securities available for sale, net 14 - 14 ( 21 ) Gain on sale of loans held for sale, net 417 94 484 441 Other non-interest income 803 579 1,549 1,118 Total non-interest income 3,211 1,846 5,675 3,916 Non-interest expense: Salaries and employee benefits 7,353 5,882 13,663 12,259 Occupancy 1,266 1,319 2,580 2,618 Regulatory assessment and fees 476 452 909 676 Consulting and legal fees 263 386 855 744 Network and information technology services 479 505 986 983 Other operating expense 1,723 1,908 3,741 3,348 Total non-interest expense 11,560 10,452 22,734 20,628 Income before income tax expense 8,176 5,529 14,214 13,219 Income tax expense 1,967 1,333 3,393 3,214 Net income $ 6,209 $ 4,196 $ 10,821 $ 10,005 Per share information: Net income per share, basic $ 0.32 $ 0.21 $ 0.55 $ 0.51 Net income per share, diluted $ 0.31 $ 0.21 $ 0.55 $ 0.51 Cash dividend declared $ 0.05 $ - $ 0.10 $ - The accompanying notes are an integral part of these unaudited consolidated financial statements. Table of Contents 5 USCB Financial Holdings, Inc. Q2 2024 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, 2024 2023 2024 2023 Net income $ 6,209 $ 4,196 $ 10,821 $ 10,005 Other comprehensive income (loss): Unrealized gain (loss) on investment securities 910 ( 6,804 ) ( 1,224 ) ( 3,287 ) Amortization of net unrealized gain (loss) on securities transferred from available-for-sale to held-to-maturity 66 60 133 120 Reclassification adjustment for (gain) loss included in net income ( 14 ) - ( 14 ) 21 Unrealized gain on cash flow hedge 30 1,046 549 1,046 Tax effect ( 251 ) 1,444 141 532 Total other comprehensive income (loss), net of tax 741 ( 4,254 ) ( 415 ) ( 1,568 ) Total comprehensive income (loss) $ 6,950 $ ( 58 ) $ 10,406 $ 8,437 The accompanying notes are an integral part of these unaudited consolidated financial statements. Table of Contents 6 USCB Financial Holdings, Inc. Q2 2024 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 March 31, 2024 19,650,463 $ 19,650 $ 305,740 $ ( 84,952 ) $ ( 45,427 ) $ 195,011 Net income - - - 6,209 - 6,209 Other comprehensive income - - - - 741 741 Repurchase of Class A common stock ( 25,000 ) ( 25 ) ( 275 ) - - ( 300 ) Restricted stock issued 5,169 6 ( 6 ) - - - Dividend payment - - - ( 1,017 ) - ( 1,017 ) Stock-based compensation - - 376 - - 376 Balance at June 30, 2024 19,630,632 $ 19,631 $ 305,835 $ ( 79,760 ) $ ( 44,686 ) $ 201,020 Balance at March 31, 2023 19,622,380 $ 19,622 $ 305,921 $ ( 99,620 ) $ ( 42,065 ) $ 183,858 Cumulative 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 The accompanying notes are an integral part of these consolidated financial statements. Table of Contents 7 USCB Financial Holdings, Inc. Q2 2024 Form 10-Q Common Stock Additional Paid-in Capital on Common Stock Accumulated Deficit Accumulated Other Comprehensive Loss Shares Par Value Total Stockholders' Equity Balance at December 31, 2023 19,575,435 $ 19,575 $ 305,212 $ ( 88,548 ) $ ( 44,271 ) $ 191,968 Net income - - - 10,821 - 10,821 Other comprehensive loss - - - - ( 415 ) ( 415 ) Repurchase of Class A common stock ( 32,100 ) ( 32 ) ( 348 ) - - ( 380 ) Restricted stock issued 57,922 58 ( 58 ) - - - Restricted stock forfeiture ( 8,625 ) ( 8 ) 8 - - - Exercise of stock options 38,000 38 285 - - 323 Dividend payment - - - ( 2,033 ) - ( 2,033 ) Stock-based compensation - - 736 - - 736 Balance at June 30, 2024 19,630,632 $ 19,631 $ 305,835 $ ( 79,760 ) $ ( 44,686 ) $ 201,020 Balance at December 31, 2022 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 The accompanying notes are an integral part of these unaudited consolidated financial statements. Table of Contents 8 USCB Financial Holdings, Inc. Q2 2024 Form 10-Q USCB FINANCIAL HOLDINGS, INC. Consolidated Statements of Cash Flows - Unaudited (Dollars in thousands) Six Months Ended June 30, 2024 2023 Cash flows from operating activities: Net income $ 10,821 $ 10,005 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 1,196 239 Depreciation and amortization 286 298 (Accretion) amortization of premiums on securities, net ( 228 ) ( 178 ) Accretion of deferred loan fees, net 100 ( 163 ) Stock-based compensation 736 422 Loss (gain) on sale of available for sale securities ( 14 ) 21 Gain on sale of loans held for sale ( 484 ) ( 441 ) Increase in cash surrender value of bank owned life insurance ( 826 ) ( 538 ) Decrease in deferred tax assets 3,393 3,214 Net change in operating assets and liabilities: Accrued interest receivable ( 850 ) ( 483 ) Other assets ( 1,198 ) 739 Accrued interest and other liabilities 12,991 7,051 Net cash provided by operating activities 25,923 20,186 Cash flows from investing activities: Purchase of investment securities held to maturity - ( 86,788 ) Proceeds from maturities and pay-downs of investment securities held to maturity 5,455 54,873 Purchase of investment securities available for sale ( 52,449 ) ( 7,667 ) Proceeds from maturities and pay-downs of investment securities available for sale 9,630 7,399 Proceeds from sales of investment securities available for sale 34,753 8,617 Net increase in loans held for investment ( 49,386 ) ( 93,737 ) Purchase of loans held for investment ( 44,691 ) ( 700 ) Additions to premises and equipment ( 178 ) ( 60 ) Proceeds from the sale of loans held for sale 6,049 6,441 Proceeds from the redemption of Federal Home Loan Bank stock 4,798 6,305 Purchase of Federal Home Loan Bank stock ( 177 ) ( 8,164 ) Net cash used in investment activities ( 86,196 ) ( 113,481 ) Cash flows from financing activities: Proceeds from issuance of Class A common stock, net 323 - Cash dividends paid ( 2,033 ) - Repurchase of Class A common stock ( 380 ) ( 6,613 ) Net increase in deposits 119,562 92,020 Proceeds from Federal Home Loan Bank advances and other borrowings 80,000 239,350 Repayments on Federal Home Loan Bank advances ( 101,000 ) ( 198,350 ) Net cash provided by financing activities 96,472 126,407 Net increase in cash and cash equivalents 36,199 33,112 Cash and cash equivalents at beginning of period 41,062 54,168 Cash and cash equivalents at end of period $ 77,261 $ 87,280 Supplemental disclosure of cash flow information: Interest paid $ 28,538 $ 15,535 Supplemental schedule of non-cash investing and financing activities: Transfer of loans held for investment to loans held for sale $ 5,565 $ 6,000 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 9 USCB Financial Holdings, Inc. Q2 2024 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 audited financial statements and related notes appearing in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. 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. Recently Issued Accounting Standards Adoption of New Accounting Standards Reference Rate Reform In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2020- 04, Reference Rate Reform (Topic 848), aiming to facilitate the impacts of reference rate reform on financial reporting. This initiative was subsequently clarified in January 2021 through ASU 2021-01, providing optional directives for a designated timeframe to alleviate challenges associated with accounting for, or acknowledging the effects of, reference rate reform on financial reporting. These amendments offer discretionary guidance for a defined period to alleviate potential accounting complexities associated with reference rate reform in financial reporting. The expedients and exceptions provided by these amendments are not applicable to contract modifications executed and hedging relationships initiated or reviewed after December 31, 2022, except for pre-existing hedging relationships as of December 31, 2022, for which an entity has opted for specific optional expedients, and which are retained until the conclusion of the hedging relationship. Additionally, the amendments permit entities to make a one-time choice to divest, transfer, or both divest and transfer debt securities categorized as held to maturity, referencing a rate impacted by reference rate reform, and classified as held to maturity prior to January 1, 2020. In December 2022, the FASB issued new guidance extending the expiration date of this guidance from December 31, 2022 to December 31, 2024, after which entities will no longer be authorized to apply the relief provided Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 10 USCB Financial Holdings, Inc. Q2 2024 Form 10-Q under this guidance. Before this recent guidance, these amendments were effective for all entities from March 12, 2020, to December 31, 2022. The Company executed its transition strategy in preparation for the cessation of the London Intrabank Offered Rate (“LIBOR”) and the adjustment of its existing financial instruments affected by LIBOR, whether directly or indirectly. LIBOR-based originations were ceased as of June 30, 2023, and for existing LIBOR-based transactions, the Company substituted the Secured Overnight Financing Rate (“SOFR”) for LIBOR. The Company has completed its transition away from LIBOR for its loan and other financial instruments . Issued and Not Yet Adopted Improvements to Income Tax Disclosures In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU pertains to disclosures regarding effective tax rates and cash income taxes paid with the goal of providing stakeholders with more transparent and relevant information. This ASU is effective for public business entities for annual periods beginning after Dec. 15, 2024. The Company is currently assessing the potential impact of this ASU on its financial reporting and has not yet concluded whether the changes will materially affect its business operations or consolidated financial statements. 2. INVESTMENT SECURITIES The measurement of expected credit losses under the current expected credit loss (“CECL”) methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. The accounting for available-for-sale debt securities credit losses is presented as an allowance rather than as a write-down. Management does not intend to sell or believes that it is more likely they will not be required to sell AFS securities. 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 forecasts. For U.S. Government bonds and U.S. Agency issued bonds classified as HTM, the explicit guarantee of the U.S. 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 June 30, 2024 and December 31, 2023, all HTM securities held by the Company were rated investment grade. At quarter end, HTM securities included $ 160.3 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 $ 9.3 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 $ 9 thousand ACL as of June 30, 2024. The book value for debt securities classified as HTM represents amortized cost less the ACL related to these securities. The Company determined that an ACL on its debt securities available for sale as of June 30, 2024 and December 31, 2023 was not required. Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 11 USCB Financial Holdings, Inc. Q2 2024 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): June 30, 2024 Available-for-sale: Amortized Cost Unrealized Gains Unrealized Losses Fair Value U.S. Government Agency $ 12,420 $ 21 $ ( 1,585 ) $ 10,856 Collateralized mortgage obligations 106,663 - ( 23,671 ) 82,992 Mortgage-backed securities - residential 61,566 - ( 11,788 ) 49,778 Mortgage-backed securities - commercial 57,936 41 ( 7,051 ) 50,926 Municipal securities 24,965 - ( 5,555 ) 19,410 Bank subordinated debt securities 24,230 22 ( 1,770 ) 22,482 $ 287,780 $ 84 $ ( 51,420 ) $ 236,444 Held-to-maturity: U.S. Government Agency $ 43,106 $ - $ ( 5,520 ) $ 37,586 Collateralized mortgage obligations 59,933 4 ( 8,148 ) 51,789 Mortgage-backed securities - residential 41,896 285 ( 4,658 ) 37,523 Mortgage-backed securities - commercial 15,370 - ( 1,381 ) 13,989 Corporate bonds 9,310 - ( 624 ) 8,686 $ 169,615 $ 289 $ ( 20,331 ) $ 149,573 Allowance for credit losses - securities held-to-maturity ( 9 ) Securities held-to maturity, net of allowance for credit losses $ 169,606 December 31, 2023 Available-for-sale: Amortized Cost Unrealized Gains Unrealized Losses Fair Value U.S. Government Agency $ 9,664 $ - $ ( 1,491 ) $ 8,173 Collateralized mortgage obligations 103,645 - ( 23,039 ) 80,606 Mortgage-backed securities - residential 63,795 - ( 11,608 ) 52,187 Mortgage-backed securities - commercial 49,212 56 ( 6,504 ) 42,764 Municipal securities 25,005 - ( 5,667 ) 19,338 Bank subordinated debt securities 28,106 188 ( 2,033 ) 26,261 $ 279,427 $ 244 $ ( 50,342 ) $ 229,329 Held-to-maturity: U.S. Government Agency $ 43,626 $ 2 $ ( 5,322 ) $ 38,306 Collateralized mortgage obligations 62,735 - ( 7,983 ) 54,752 Mortgage-backed securities - residential 43,784 348 ( 4,533 ) 39,599 Mortgage-backed securities - commercial 15,439 - ( 1,257 ) 14,182 Corporate bonds 9,398 - ( 727 ) 8,671 $ 174,982 $ 350 $ ( 19,822 ) $ 155,510 Allowance for credit losses - securities held-to-maturity ( 8 ) Securities held-to maturity, net of allowance for credit losses $ 174,974 During the quarter ended June 30, 2024 there were no investment securities that were transferred from available-for- sale (“AFS”) to HTM. For the three months ended June 30, 2024, total amortization out of Additional Other Comprehensive Income (“AOCI”) for net unrealized losses on securities transferred in 2022 from AFS to HTM was $ 66 thousand. The unamortized net unrealized loss as of June 30, 2024, was $ 9.4 million. For the six months ended June 30, 2024, total amortization out of Additional Other Comprehensive Income (“AOCI”) for net unrealized losses on securities transferred in 2022 from AFS to HTM was $ 133 thousand. Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 12 USCB Financial Holdings, Inc. Q2 2024 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 six months ended June 30, 2024 and 2023 (in thousands): Three Months Ended June 30, Six Months Ended June 30, Available-for-sale: 2024 2023 2024 2023 Proceeds from sale and call of securities $ 34,753 $ - $ 34,753 $ 8,617 Gross gains $ 195 $ - $ 195 $ 3 Gross losses ( 181 ) - ( 181 ) ( 24 ) Net realized gain (loss) $ 14 $ - $ 14 $ ( 21 ) The amortized cost and fair value of investment securities, by contractual maturity, are shown below as of the date indicated (in thousands). Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately. Available-for-sale Held-to-maturity June 30, 2024: Amortized Cost Fair Value Amortized Cost Fair Value Due within one year $ - $ - $ - $ - Due after one year through five years 1,000 996 9,310 8,686 Due after five years through ten years 35,364 31,065 - - Due after ten years 12,831 9,831 - - U.S. Government Agency 12,420 10,856 43,106 37,586 Collateralized mortgage obligations 106,663 82,992 59,933 51,789 Mortgage-backed securities - residential 61,566 49,778 41,896 37,523 Mortgage-backed securities - commercial 57,936 50,926 15,370 13,989 $ 287,780 $ 236,444 $ 169,615 $ 149,573 At June 30, 2024, 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 U.S. Government and Government Agency securities. All the collateralized mortgage obligations and mortgage-backed securities at June 30, 2024 and December 31, 2023 were issued by U.S. sponsored entities. 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, 2024 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 $ 2,171 $ ( 5 ) $ 45,377 $ ( 8,281 ) $ 47,548 $ ( 8,286 ) Collateralized mortgage obligations 6,614 ( 69 ) 128,167 ( 36,205 ) 134,781 ( 36,274 ) Mortgage-backed securities - residential 5,543 ( 57 ) 81,758 ( 18,657 ) 87,301 ( 18,714 ) Mortgage-backed securities - commercial 25,223 ( 546 ) 38,214 ( 9,344 ) 63,437 ( 9,890 ) Municipal securities - - 19,410 ( 5,555 ) 19,410 ( 5,555 ) Bank subordinated debt securities 5,278 ( 157 ) 13,821 ( 1,613 ) 19,099 ( 1,770 ) Corporate bonds - - 8,686 ( 374 ) 8,686 ( 374 ) $ 44,829 $ ( 834 ) $ 335,433 $ ( 80,029 ) $ 380,262 $ ( 80,863 ) Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 13 USCB Financial Holdings, Inc. Q2 2024 Form 10-Q December 31, 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 $ - $ - $ 46,479 $ ( 8,043 ) $ 46,479 $ ( 8,043 ) Collateralized mortgage obligations - - 135,358 ( 35,566 ) 135,358 ( 35,566 ) Mortgage-backed securities - residential 5,290 ( 47 ) 83,484 ( 18,365 ) 88,774 ( 18,412 ) Mortgage-backed securities - commercial 20,292 ( 611 ) 33,083 ( 8,623 ) 53,375 ( 9,234 ) Municipal securities - - 19,338 ( 5,667 ) 19,338 ( 5,667 ) Bank subordinated debt securities 8,600 ( 331 ) 12,287 ( 1,703 ) 20,887 ( 2,034 ) Corporate bonds - - 8,671 ( 406 ) 8,671 ( 406 ) $ 34,182 $ ( 989 ) $ 338,700 $ ( 78,373 ) $ 372,882 $ ( 79,362 ) The unrealized losses associated with $ 123.5 million of outstanding 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. 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 as of June 30, 2024. At June 30, 2024, the Company had $ 56.7 million of unrealized losses on mortgage-backed securities and collateralized mortgage obligations of U.S. government sponsored entities having a fair value of $ 287.0 million that were attributable to a combination of factors, including relative changes in interest rates since the time of purchase. At December 31, 2023, the Company had $ 54.9 million of unrealized losses on mortgage-backed securities and collateralized mortgage obligations of U.S. government sponsored entities having a fair value of $ 284.1 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, 2024, the Company did not intend to sell debt securities that are in an unrealized loss position and it is more than likely not required to sell these securities before recovery of the amortized cost basis. 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 50 % of the outstanding uninsured deposits for June 30, 2024 and 25 % for December 31, 2023. The Bank must also maintain a minimum amount of pledged securities to be in the public funds program. As of June 30, 2024, the Bank had a total of $ 145.4 million in deposits under the public funds program and pledged to the State of Florida for these public funds were fifty-one bonds with an aggregate fair value of $ 135.2 million. As of December 31, 2023, the Bank had a total of $ 268.4 million in deposits under the public funds program and pledged to the State of Florida for these public funds were twenty-eight bonds with an aggregate fair value of $ 86.9 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 offered 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 pledged assets were valued at par. The BTFP program ceased making new loans as of March 2024. Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 14 USCB Financial Holdings, Inc. Q2 2024 Form 10-Q The Company had $ 80 million in borrowings under the BTFP program as of June 30, 2024, and had pledged $ 127.4 million in securities measured at par to the Federal Reserve Bank of Atlanta for the BTFP program maturing in January 2025. 3. LOANS The following table is a summary of the distribution of loans held for investment by type (in thousands): June 30, 2024 December 31, 2023 Total Percent of Total Total Percent of Total Residential Real Estate $ 256,807 13.8 % $ 204,419 11.5 % Commercial Real Estate 1,053,030 56.4 % 1,047,593 58.8 % Commercial and Industrial 248,525 13.3 % 219,757 12.4 % Foreign Banks 112,510 6.0 % 114,945 6.5 % Consumer and Other 194,644 10.5 % 191,930 10.8 % Total gross loans 1,865,516 100.0 % 1,778,644 100.0 % Plus: Deferred fees/costs 3,733 2,183 Total loans net of deferred fees/costs 1,869,249 1,780,827 Less: Allowance for credit losses 22,230 21,084 Total net loans $ 1,847,019 $ 1,759,743 At June 30, 2024 and December 31, 2023, the Company had $ 547.9 million and $ 534.2 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. 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 LDA 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) or the House Price Index (“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 Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 15 USCB Financial Holdings, Inc. Q2 2024 Form 10-Q Changes in the ACL for the three and six months ended June 30, 2024 and 2023 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, 2024 Beginning balance $ 2,930 $ 10,302 $ 4,272 $ 794 $ 3,156 $ 21,454 Provision for credit losses (1) 257 ( 30 ) 474 98 ( 25 ) 774 Recoveries 6 - 1 - - 7 Charge-offs - - - - ( 5 ) ( 5 ) Ending Balance $ 3,193 $ 10,272 $ 4,747 $ 892 $ 3,126 $ 22,230 Six Months Ended June 30, 2024 Beginning balance $ 2,695 $ 10,366 $ 3,974 $ 911 $ 3,138 $ 21,084 Provision for credit losses (2) 492 ( 94 ) 762 ( 19 ) ( 4 ) 1,137 Recoveries 6 - 11 - 2 19 Charge-offs - - - - ( 10 ) ( 10 ) Ending Balance $ 3,193 $ 10,272 $ 4,747 $ 892 $ 3,126 $ 22,230 (1) Provision for credit losses excludes a $ 15 thousand charge due to unfunded commitments included in other liabilities and a $ 3 thousand charge related to investment securities held to maturity. (2) Provision for credit losses excludes a $ 58 thousand charge due to unfunded commitments included in other liabilities and a $ 1 thousand charge related 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, 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 a $ 62 thousand release due to unfunded commitments included in other liabilities and $ 19 thousand expense related to investment securities held to maturity. (2) Impact of CECL adoption on January 1, 2023. (3) Provision for credit losses excludes a $ 22 thousand release due to unfunded commitments included in other liabilities and $ 19 thousand expense related to investment securities held to maturity. At June 30, 2024, the ACL was $ 22.2 million compared to $ 21.1 million at December 31, 2023. The increase of $ 1.1 million in the ACL was due to loan growth. Charge offs for the three months ended June 30, 2024 totaled $ 5 thousand and were all originated in 2024. Charge offs for the six months ended June 30, 2024 totaled $ 10 thousand and were all originated in 2024. Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 16 USCB Financial Holdings, Inc. Q2 2024 Form 10-Q 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. For the six months ended June 30, 2023, the Company had a total of $ 45 thousand in charge offs, $ 24 thousand originated in 2023 and $ 21 originated in 2015. The Federal Open Market Committee (“FOMC”) economic forecasts as of June 30, 2024, showed minimal improvements in unemployment and a slight slower growth forecast for real GDP. Fannie Mae HPI forecast reflected minimal 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. The Q-factor scorecard was updated based on the latest portfolio stress test and the resulting maximum loss calculation. 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, 2024, for every 100 basis points increase in the HPI index, the forecast reduces reserves by approximately $ 218 thousand and about 1 basis point 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. As of June 30, 2024, we stress tested two qualitative factors in our commercial real estate loan pool, as it’s the largest segment in our portfolio. We evaluated the impact of a change in the qualitative factors from no risk to maximum loss to measure the sensitivity of the qualitative factors. The change from no risk to high risk resulted in a $ 5.9 million or 29.5 % increase in ACL. This sensitivity analysis provides a hypothetical result to assess the sensitivity of the ACL and does not represent a change in management’s judgement. The ACL and the outstanding balances in the specified loan categories as of June 30, 2024 and December 31, 2023 are as follows (in thousands): Residential Real Estate Commercial Real Estate Commercial and Industrial Foreign Banks Consumer and Other Total June 30, 2024: Allowance for credit losses: Individually evaluated $ 45 $ - $ 50 $ - $ - $ 95 Collectively evaluated 3,148 10,272 4,697 892 3,126 22,135 Balances, end of period $ 3,193 $ 10,272 $ 4,747 $ 892 $ 3,126 $ 22,230 Loans: Individually evaluated $ 7,209 $ - $ 747 $ - $ - $ 7,956 Collectively evaluated 249,598 1,053,030 247,778 112,510 194,644 1,857,560 Balances, end of period $ 256,807 $ 1,053,030 $ 248,525 $ 112,510 $ 194,644 $ 1,865,516 December 31, 2023: Allowance for credit losses: Individually evaluated $ 145 $ - $ 128 $ - $ - $ 273 Collectively evaluated 2,550 10,366 3,846 911 3,138 20,811 Balances, end of period $ 2,695 $ 10,366 $ 3,974 $ 911 $ 3,138 $ 21,084 Loans: Individually evaluated $ 6,994 $ - $ 1,668 $ - $ - $ 8,662 Collectively evaluated 197,425 1,047,593 218,089 114,945 191,930 1,769,982 Balances, end of period $ 204,419 $ 1,047,593 $ 219,757 $ 114,945 $ 191,930 $ 1,778,644 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. Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 17 USCB Financial Holdings, Inc. Q2 2024 Form 10-Q 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. Q2 2024 Form 10-Q Loan credit exposures by internally assigned grades are presented below for the periods indicated (in thousands): As of June 30, 2024 Term Loans by Origination Year Revolving Loans Total 2024 2023 2022 2021 2020 Prior Residential real estate Pass $ 63,233 $ 40,811 $ 36,206 $ 24,077 $ 5,855 $ 77,144 $ 8,894 $ 256,220 Substandard - - - - - 587 - 587 Total 63,233 40,811 36,206 24,077 5,855 77,731 8,894 256,807 Commercial real estate Pass 47,957 141,375 326,081 178,623 100,704 247,850 4,287 1,046,877 Substandard - - - 5,463 690 - - 6,153 Total 47,957 141,375 326,081 184,086 101,394 247,850 4,287 1,053,030 Commercial and industrial Pass 42,342 93,995 36,074 31,401 5,038 15,055 22,869 246,774 Substandard - - - 552 - 1,199 - 1,751 Total 42,342 93,995 36,074 31,953 5,038 16,254 22,869 248,525 Foreign banks Pass 85,759 26,751 - - - - - 112,510 Total 85,759 26,751 - - - - - 112,510 Consumer and other loans Pass 25,731 57,722 68,818 38,250 498 1,708 1,917 194,644 Substandard - - - - - - - - Total 25,731 57,722 68,818 38,250 498 1,708 1,917 194,644 Total Loans Pass 265,022 360,654 467,179 272,351 112,095 341,757 37,967 1,857,025 Special Mention - - - - - - - - Substandard - - - 6,015 690 1,786 - 8,491 Doubtful - - - - - - - - Total $ 265,022 $ 360,654 $ 467,179 $ 278,366 $ 112,785 $ 343,543 $ 37,967 $ 1,865,516 Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 19 USCB Financial Holdings, Inc. Q2 2024 Form 10-Q As of December 31, 2023 Term Loans by Origination Year Revolving Loans Total 2023 2022 2021 2020 2019 Prior Residential real estate Pass $ 44,365 $ 36,325 $ 26,180 $ 6,080 $ 9,325 $ 75,654 $ 6,198 $ 204,127 Substandard - - - - 292 - - 292 Total 44,365 36,325 26,180 6,080 9,617 75,654 6,198 204,419 Commercial real estate Pass 148,311 337,938 184,024 104,182 78,153 182,714 4,710 1,040,032 Substandard - - 6,867 694 - - - 7,561 Total 148,311 337,938 190,891 104,876 78,153 182,714 4,710 1,047,593 Commercial and industrial Pass 97,753 37,414 34,090 6,499 13,706 3,113 25,554 218,129 Substandard - - 330 - 1,298 - - 1,628 Total 97,753 37,414 34,420 6,499 15,004 3,113 25,554 219,757 Foreign banks Pass 114,945 - - - - - - 114,945 Total 114,945 - - - - - - 114,945 Consumer and other loans Pass 71,593 74,387 41,966 615 560 1,337 1,472 191,930 Total 71,593 74,387 41,966 615 560 1,337 1,472 191,930 Total Loans Pass 476,967 486,064 286,260 117,376 101,744 262,818 37,934 1,769,163 Special Mention - - - - - - - - Substandard - - 7,197 694 1,590 - - 9,481 Doubtful - - - - - - - - Total $ 476,967 $ 486,064 $ 293,457 $ 118,070 $ 103,334 $ 262,818 $ 37,934 $ 1,778,644 Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 20 USCB Financial Holdings, Inc. Q2 2024 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, 2024 and December 31, 2023 (in thousands): Accruing As of June 30, 2024 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 $ 547 $ - $ - $ 547 $ - $ 547 1-4 family residential 197,537 5,757 - 203,294 - 203,294 Condo residential 52,646 - - 52,646 320 52,966 250,730 5,757 - 256,487 320 256,807 Commercial real estate: Land and construction 40,049 - - 40,049 - 40,049 Multi-family residential 204,811 - - 204,811 - 204,811 Condo commercial 58,292 - - 58,292 - 58,292 Commercial property 749,868 - - 749,868 - 749,868 Leasehold improvements 10 - - 10 - 10 1,053,030 - - 1,053,030 - 1,053,030 Commercial and industrial: Secured 229,428 - - 229,428 438 229,866 Unsecured 18,659 - - 18,659 - 18,659 248,087 - - 248,087 438 248,525 Foreign banks 112,510 - - 112,510 - 112,510 Consumer and other 194,644 - - 194,644 - 194,644 Total $ 1,859,001 $ 5,757 $ - $ 1,864,758 $ 758 $ 1,865,516 Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 21 USCB Financial Holdings, Inc. Q2 2024 Form 10-Q Accruing As of December 31, 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 $ 559 $ - $ - $ 559 $ - $ 559 1-4 family residential 155,842 711 - 156,553 - 156,553 Condo residential 43,572 3,735 - 47,307 - 47,307 199,973 4,446 - 204,419 - 204,419 Commercial real estate: Land and construction 33,710 - - 33,710 - 33,710 Multi-family residential 181,287 - - 181,287 - 181,287 Condo commercial 58,106 - - 58,106 - 58,106 Commercial property 772,569 1,890 - 774,459 - 774,459 Leasehold improvements 31 - - 31 - 31 1,045,703 1,890 - 1,047,593 - 1,047,593 Commercial and industrial: Secured 200,235 29 - 200,264 468 200,732 Unsecured 19,025 - - 19,025 - 19,025 219,260 29 - 219,289 468 219,757 Foreign banks 114,945 - - 114,945 - 114,945 Consumer and other 191,930 - - 191,930 - 191,930 Total $ 1,771,811 $ 6,365 $ - $ 1,778,176 $ 468 $ 1,778,644 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 June 30, 2024 and as of December 31, 2023 (in thousands): June 30, 2024 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 $ 320 $ - $ 320 $ - Commercial and industrial - 438 438 - Total $ 320 $ 438 $ 758 $ - December 31, 2023 Nonaccrual Loans With No Related Allowance Nonaccrual Loans With Related Allowance Total Non- accruals Loans Past Due Over 90 Days and Still Accruing Commercial and industrial $ - $ 468 $ 468 $ - Total $ - $ 468 $ 468 $ - 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 June 30, 2024 and 2023. Interest income on these loans for the three months ended June 30, 2024 and 2023, would have been approximately $ 11 thousand and $ 13 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. Q2 2024 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 June 30, 2024, or as of December 31, 2023. Loan Modifications to Borrowers Experiencing Financial Difficulties The following table presents newly restructured loans, by type of modification, which occurred during the six months ended June 30, 2024 (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 Commercial and industrial 1 $ 468 $ 468 1 $ 468 $ 468 Total 1 $ 468 $ 468 1 $ 468 $ 468 The Company had no new modifications to borrowers experiencing financial difficulties for the three months ended June 30, 2024 and one new modification for the six months ended June 30, 2024. There were no existing loan modifications that subsequently defaulted during the three months and six months ended June 30, 2024. The Company had one new modification to borrowers experiencing financial difficulties for the three and six months ended June 30, 2023. There were no existing loan modifications that subsequently defaulted for the three and six months ended June 30, 2023. 4. INCOME TAXES The Company’s provision for income taxes is presented in the following table for the periods indicated (in thousands): Six Months Ended June 30, 2024 2023 Current: Federal $ - $ - State - - Total current - - Deferred: Federal 2,653 2,513 State 740 701 Total deferred 3,393 3,214 Total tax expense $ 3,393 $ 3,214 The actual income tax expense for the six months ended June 30, 2024 and 2023 differs from the statutory tax expense for the periods (computed by applying the U.S. federal corporate tax rate of 21 % for both 2024 and 2023 to income before provision for income taxes) as follows (in thousands): Six Months Ended June 30, 2024 2023 Federal taxes at statutory rate $ 2,985 $ 2,776 State income taxes, net of federal tax benefit 618 574 Bank owned life insurance ( 210 ) ( 136 ) Other, net - - Total tax expense $ 3,393 $ 3,214 Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 23 USCB Financial Holdings, Inc. Q2 2024 Form 10-Q The Company’s deferred tax assets and deferred tax liabilities as of the dates indicated were (in thousands): June 30, 2024 December 31, 2023 Deferred tax assets: Net operating loss $ 13,098 $ 16,430 Allowance for credit losses 5,700 5,410 Lease liability 2,519 2,895 Unrealized losses on available for sale securities 15,394 15,114 Depreciable property 141 203 Equity compensation 811 630 Accruals 331 382 Other, net 15 10 Deferred tax assets: 38,009 41,074 Deferred tax liabilities: Deferred loan cost ( 946 ) ( 553 ) Lease right of use asset ( 2,519 ) ( 2,895 ) Deferred expenses ( 213 ) ( 180 ) Cash flow hedge ( 224 ) ( 85 ) Other, net ( 77 ) ( 79 ) Deferred tax liabilities ( 3,979 ) ( 3,792 ) Net deferred tax assets $ 34,030 $ 37,282 The Company has approximately $ 47.8 million of federal and $ 70.5 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 2020. For the three months and six months ended June 30, 2024 and 2023, 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. Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 24 USCB Financial Holdings, Inc. Q2 2024 Form 10-Q A summary of the amounts of the Company's financial instruments with off-balance sheet risk are shown below at June 30, 2024 and December 31, 2023 (in thousands): June 30, 2024 December 31, 2023 Commitments to grant loans and unfunded lines of credit $ 90,426 $ 85,117 Standby and commercial letters of credit 3,566 3,987 Total $ 93,992 $ 89,104 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 As of June 30, 2024, 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 1.88 years, the weighted average fixed-rate paid of 3.59 %, and with the weighted average 3-month compound SOFR being received. As of December 31, 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 2.38 years, the weighted average fixed-rate paid of 3.59 %, with the weighted average 3-month compound SOFR being received. 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 June 30, 2024, 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 1.73 years, the weighted average fixed-rate paid is 4.74 %, with the weighted average 3-month compound SOFR being received. As of December 31, 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 2.23 years, the weighted average fixed-rate paid is 4.74 %, with the weighted average 3-month compound SOFR being received. The changes in fair value on these interest rate swaps are recorded in other assets or other liabilities with a corresponding recognition in the assets being hedged. Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 25 USCB Financial Holdings, Inc. Q2 2024 Form 10-Q Interest Rate Swaps The Company enters into interest rate swaps with its loan customers. The Company had 28 and 20 interest rate swaps with loan customers with an aggregate notional amount of $ 82.8 million and $ 46.5 million at June 30, 2024 and December 31, 2023, 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, 2024: Derivatives designated as cash flow hedges: Interest rate swaps $ 50,000 $ - Other assets $ 882 $ - Derivatives designated as hedging instruments: Interest rate swaps $ 200,000 $ - Other liabilities $ 15 $ 408 Derivatives not designated as hedging instruments: Interest rate swaps related to customer loans $ 82,849 $ 1,363 Other assets/Other liabilities $ 5,568 $ 5,568 December 31, 2023: Derivatives designated as cash flow hedges: Interest rate swaps $ 50,000 $ - Other assets $ 334 $ - Derivatives designated as fair value hedges: Interest rate swaps $ 200,000 $ - Other liabilities $ - $ 3,430 Derivatives not designated as hedging instruments: Interest rate swaps related to customer loans $ 46,463 $ 1,326 Other assets/Other liabilities $ 4,558 $ 4,558 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. 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 Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 26 USCB Financial Holdings, Inc. Q2 2024 Form 10-Q 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, 2024 and December 31, 2023 for each of the fair value hierarchy levels (in thousands): June 30, 2024 December 31, 2023 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Investment securities available for sale: U.S. Government Agency $ - $ 10,856 $ - $ 10,856 $ - $ 8,173 $ - $ 8,173 Collateralized mortgage obligations - 82,992 - 82,992 - 80,606 - 80,606 Mortgage-backed securities - residential - 49,778 - 49,778 - 52,187 - 52,187 Mortgage-backed securities - commercial - 50,926 - 50,926 - 42,764 - 42,764 Municipal securities - 19,410 - 19,410 - 19,338 - 19,338 Bank subordinated debt securities - 22,482 - 22,482 - 26,261 - 26,261 Total - 236,444 - 236,444 - 229,329 - 229,329 Derivative assets - 6,465 - 6,465 - 4,892 - 4,892 Total assets at fair value $ - $ 242,909 $ - $ 242,909 $ - $ 234,221 $ - $ 234,221 Derivative liabilities $ - $ 5,976 $ - $ 5,976 $ - $ 7,988 $ - $ 7,988 Total liabilities at fair value $ - $ 5,976 $ - $ 5,976 $ - $ 7,988 $ - $ 7,988 Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 27 USCB Financial Holdings, Inc. Q2 2024 Form 10-Q Items Not Measured at Fair Value The following table presents the carrying amounts and estimated fair values of financial instruments not carried at fair value as of June 30, 2024 and December 31, 2023 (in thousands): Fair Value Hierarchy Carrying Amount Level 1 Level 2 Level 3 Fair Value Amount June 30, 2024: Financial Assets: Cash and due from banks $ 5,179 $ 5,179 $ - $ - $ 5,179 Interest-bearing deposits in banks $ 72,082 $ 72,082 $ - $ - $ 72,082 Investment securities held to maturity, net $ 169,606 $ - $ 149,573 $ - $ 149,573 Loans held for investment, net $ 1,847,019 $ - $ - $ 1,821,431 $ 1,821,431 Accrued interest receivable $ 11,538 $ - $ 1,454 $ 10,084 $ 11,538 Financial Liabilities: Demand deposits $ 579,243 $ 579,243 $ - $ - $ 579,243 Money market and savings accounts $ 1,097,468 $ 1,097,468 $ - $ - $ 1,097,468 Interest-bearing checking accounts $ 65,844 $ 65,844 $ - $ - $ 65,844 Time deposits $ 314,147 $ - $ - $ 312,428 $ 312,428 FHLB advances and other borrowings $ 162,000 $ - $ 160,087 $ - $ 160,087 Accrued interest payable $ 3,869 $ - $ 2,256 $ 1,613 $ 3,869 December 31, 2023: Financial Assets: Cash and due from banks $ 8,019 $ 8,019 $ - $ - $ 8,019 Interest-bearing deposits in banks $ 33,043 $ 33,043 $ - $ - $ 33,043 Investment securities held to maturity $ 174,974 $ - $ 155,510 $ - $ 155,510 Loans held for investment, net $ 1,759,743 $ - $ - $ 1,723,210 $ 1,723,210 Accrued interest receivable $ 10,688 $ - $ 1,448 $ 9,240 $ 10,688 Financial Liabilities: Demand deposits $ 552,762 $ 552,762 $ - $ - $ 552,762 Money market and savings accounts $ 1,048,272 $ 1,048,272 $ - $ - $ 1,048,272 Interest-bearing checking accounts $ 47,702 $ 47,702 $ - $ - $ 47,702 Time deposits $ 288,403 $ - $ - $ 287,104 $ 287,104 FHLB advances $ 183,000 $ - $ 182,282 $ - $ 182,282 Accrued interest payable $ 1,372 $ - $ 551 $ 821 $ 1,372 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. 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 Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 28 USCB Financial Holdings, Inc. Q2 2024 Form 10-Q held in the Bank, and the Company’s then current shareholders owned the same percentages of the Company’s common stock as they previously owned of the Bank’s common stock. During the first quarter 2024, the Company issued 52,753 shares of Class A common stock to employees as restricted stock awards pursuant to the Company’s 2015 equity incentive plan . During the first quarter 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. As previously announced, on April 22, 2024, the Board of Directors approved a new share repurchase program of up to 500,000 shares of Class A common stock or approximately 2.5 % of the Company’s issued and outstanding shares of common stock. Under the repurchase program, the Company may purchase shares of Class A common stock on a discretionary basis from time to time through open market repurchases, privately negotiated transactions, or other means. The repurchase program has no expiration date and may be modified, suspended, or terminated at any time. The new repurchase program will commence upon completion of the Company’s current repurchase program. Repurchases under this new program will be funded from the Company’s existing cash and cash equivalents or future cash flow. During the three months ended June 30, 2024, the Company repurchased 25,000 shares of Class A common stock at a weighted average price per share of $ 12.00 . The aggregate purchase price for these transactions was approximately $ 301 thousand, including transaction costs. These repurchases were made pursuant to the Company’s publicly announced repurchase programs. As of June 30, 2024, 547,980 shares remained authorized for repurchase under the Company’s two stock repurchase programs. During the three months ended June 30, 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. Shares of the Company’s Class A common stock issued and outstanding as of June 30, 2024 and December 31, 2023 were 19,630,632 and 19,575,435 , respectively. Dividends Declaration of dividends by the Board is required before dividend payments are made. The Company is limited in the amount of cash dividends that it may pay. Payment of dividends is generally limited to the Company’s net income of the current year combined with the Company’s retained income for the preceding two years, as defined by state banking regulations. However, for any dividend declaration, the Company must consider additional factors such as the amount of current period net income, liquidity, asset quality, capital adequacy and economic conditions at the Bank since the Bank is the primary source of funds to fund dividends by the Company. It is likely that these factors would further limit the amount of dividends which the Company could declare. In addition, bank regulators have the authority to prohibit banks and bank holding companies from paying dividends if they deem such payment to be an unsafe or unsound practice. On January 29, 2024, the Company announced that its Board of Directors approved a quarterly cash dividend program. The quarterly dividend for the first quarter of 2024 was $ 0.05 per share of Class A common stock, paid on March 5, 2024, to stockholders of record as of the close of business on February 15, 2024. The aggregate distribution in connection with the first quarter dividend was $ 1.0 million. The quarterly dividend for the second quarter was $ 0.05 per share of Class A common stock, paid on June 5, 2024, to stockholders of record as of the close of business on May 15, 2024. The aggregate distribution on connection with the second quarter dividend was $ 1.0 million. No dividends were declared by the Board for the stockholders for the three months and six months ended June 30, 2023. See Note 11, Subsequent Events, for information regarding dividends declared in July 2024. The following table details the dividends declared and paid by the Company during the three months and six months ended June 30, 2024: Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 29 USCB Financial Holdings, Inc. Q2 2024 Form 10-Q Declaration Date Record Date Payment Date Dividend Per Share Dividend Amount January 22, 2024 February 15, 2024 March 5, 2024 $ 0.05 $ 1.0 million April 22, 2024 May 15, 2024 June 5, 2024 $ 0.05 $ 1.0 million The Company and the Bank exceeded all regulatory capital requirements and remained above “well-capitalized” guidelines as of June 30, 2024 and December 31, 2023. At June 30, 2024, the total risk-based capital ratios for the Company and the Bank were 13.12 % and 13.01 %, 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 six months ended June 30, 2024 and 2023 (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Net Income $ 6,209 $ 4,196 $ 10,821 $ 10,005 Net income available to common shareholders $ 6,209 $ 4,196 $ 10,821 $ 10,005 The following table reflects the calculation of basic and diluted earnings per common share class for the three and six months ended June 30, 2024 and 2023 (in thousands, except per share amounts): Three Months Ended June 30, 2024 2023 Class A Class A Basic EPS Numerator: Net income available to common shares $ 6,209 $ 4,196 Denominator: Weighted average shares outstanding 19,650,681 19,590,359 Earnings per share, basic $ 0.32 $ 0.21 Diluted EPS Numerator: Net income available to common shares $ 6,209 $ 4,196 Denominator: Weighted average shares outstanding for basic EPS 19,650,681 19,590,359 Add: Dilutive effects of assumed exercises of stock options 66,486 49,323 Weighted avg. shares including dilutive potential common shares 19,717,167 19,639,682 Earnings per share, diluted $ 0.31 $ 0.21 Anti-dilutive stock options excluded from diluted EPS 502,500 730,500 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 30 USCB Financial Holdings, Inc. Q2 2024 Form 10-Q Six Months Ended June 30, 2024 2023 Class A Class A Basic EPS Numerator: Net income available to common shares $ 10,821 $ 10,005 Denominator: Weighted average shares outstanding 19,642,006 19,722,152 Earnings per share, basic $ 0.55 $ 0.51 Diluted EPS Numerator: Net income available to common shares $ 10,821 $ 10,005 Denominator: Weighted average shares outstanding for basic EPS 19,642,006 19,722,152 Add: Dilutive effects of assumed exercises of stock options 65,555 68,604 Weighted avg. shares including dilutive potential common shares 19,707,561 19,790,756 Earnings per share, diluted $ 0.55 $ 0.51 Anti-dilutive stock options excluded from diluted EPS 502,500 730,500 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. 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 Dividends On July 22, 2024, the Company announced that its Board of Directors declared its third quarterly cash dividend. The quarterly dividend for the third quarter of 2024 was $ 0.05 per share of Class A common stock and will be paid on September 5, 2024, to stockholders of record as of the close of business on August 15, 2024. Table of Contents 31 USCB Financial Holdings, Inc. Q2 2024 Form 10-Q