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, 2024 December 31, 2023 ASSETS: Cash and due from banks $ 7,084 $ 8,019 Interest-bearing deposits in banks 31,402 33,043 Total cash and cash equivalents 38,486 41,062 Investment securities held to maturity, net of allowance of $ 8 for both periods (fair value $ 153,125 and $ 155,510 , respectively) 167,001 174,974 Investment securities available for sale, at fair value 259,527 229,329 Federal Home Loan Bank stock, at cost 7,242 10,153 Loans held for investment, net of allowance of $ 23,067 and $ 21,084 , respectively 1,908,295 1,759,743 Accrued interest receivable 10,765 10,688 Premises and equipment, net 4,656 4,836 Bank owned life insurance 53,038 51,781 Deferred tax assets, net 29,540 37,282 Lease right-of-use asset 9,194 11,423 Other assets 16,210 7,822 Total assets $ 2,503,954 $ 2,339,093 LIABILITIES: Deposits: Demand deposits $ 637,313 $ 552,762 Money market and savings accounts 1,091,029 1,048,272 Interest-bearing checking 64,333 47,702 Time deposits 333,942 288,403 Total deposits 2,126,617 1,937,139 Federal Home Loan Bank advances and other borrowings 118,000 183,000 Lease liability 9,194 11,423 Accrued interest and other liabilities 36,227 15,563 Total liabilities 2,290,038 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 September 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 September 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 of September 30, 2024 and December 31, 2023 - - Common stock - Class A Voting; $1.00 par value; 45,000,000 shares authorized; 19,620,632 issued and outstanding as of September 30, 2024, 19,575,435 issued and outstanding as of December 31, 2023 19,621 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 September 30, 2024 and December 31, 2023 - - Additional paid-in capital on common stock 306,100 305,212 Accumulated deficit ( 73,827 ) ( 88,548 ) Accumulated other comprehensive loss ( 37,978 ) ( 44,271 ) Total stockholders' equity 213,916 191,968 Total liabilities and stockholders' equity $ 2,503,954 $ 2,339,093 The accompanying notes are an integral part of these unaudited consolidated financial statements. Table of Contents 4 USCB Financial Holdings, Inc. Q3 2024 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, 2024 2023 2024 2023 Interest income: Loans, including fees $ 29,819 $ 22,523 $ 84,479 $ 63,081 Investment securities 2,754 2,833 8,634 7,501 Interest-bearing deposits in financial institutions 989 1,026 3,953 2,459 Total interest income 33,562 26,382 97,066 73,041 Interest expense: Interest-bearing checking 411 331 1,171 574 Money market and savings accounts 10,064 8,779 30,529 20,532 Time deposits 3,391 2,565 9,907 5,767 Federal Home Loan Bank advances and other borrowings 1,587 685 4,881 1,976 Total interest expense 15,453 12,360 46,488 28,849 Net interest income before provision for credit losses 18,109 14,022 50,578 44,192 Provision for credit losses 931 653 2,127 892 Net interest income after provision for credit losses 17,178 13,369 48,451 43,300 Non-interest income: Service fees 2,544 1,329 6,172 3,707 Gain (loss) on sale of securities available for sale, net - ( 955 ) 14 ( 976 ) Gain on sale of loans held for sale, net 109 255 593 696 Other non-interest income 785 1,532 2,334 2,650 Total non-interest income 3,438 2,161 9,113 6,077 Non-interest expense: Salaries and employee benefits 7,200 6,066 20,863 18,325 Occupancy 1,341 1,350 3,921 3,968 Regulatory assessment and fees 452 365 1,361 1,041 Consulting and legal fees 161 513 1,016 1,257 Network and information technology services 513 481 1,499 1,464 Other operating expense 1,787 1,686 5,528 5,034 Total non-interest expense 11,454 10,461 34,188 31,089 Income before income tax expense 9,162 5,069 23,376 18,288 Income tax expense 2,213 1,250 5,606 4,464 Net income $ 6,949 $ 3,819 $ 17,770 $ 13,824 Per share information: Net income per share, basic $ 0.35 $ 0.20 $ 0.90 $ 0.70 Net income per share, diluted $ 0.35 $ 0.19 $ 0.90 $ 0.70 Cash dividend declared $ 0.05 $ - $ 0.15 $ - The accompanying notes are an integral part of these unaudited consolidated financial statements. Table of Contents 5 USCB Financial Holdings, Inc. Q3 2024 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, 2024 2023 2024 2023 Net income $ 6,949 $ 3,819 $ 17,770 $ 13,824 Other comprehensive income (loss): Unrealized gain (loss) on investment securities 9,848 ( 7,858 ) 8,624 ( 11,145 ) Amortization of net unrealized gain on securities transferred from available-for-sale to held-to-maturity 67 64 200 184 Reclassification adjustment for (gain) loss included in net income - 955 ( 14 ) 976 Unrealized gain (loss) on cash flow hedge ( 930 ) 266 ( 381 ) 1,312 Tax effect ( 2,277 ) 1,666 ( 2,136 ) 2,198 Total other comprehensive income (loss), net of tax 6,708 ( 4,907 ) 6,293 ( 6,475 ) Total comprehensive income (loss) $ 13,657 $ ( 1,088 ) $ 24,063 $ 7,349 The accompanying notes are an integral part of these unaudited consolidated financial statements. Table of Contents 6 USCB Financial Holdings, Inc. Q3 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 June 30,2024 19,630,632 $ 19,631 $ 305,835 $ ( 79,760 ) $ ( 44,686 ) $ 201,020 Net income - - - 6,949 - 6,949 Other comprehensive income - - - - 6,708 6,708 Repurchase of Class A common stock ( 10,000 ) ( 10 ) ( 111 ) - - ( 121 ) Dividend payment - - - ( 1,016 ) - ( 1,016 ) Stock-based compensation - - 376 - - 376 Balance at September 30,2024 19,620,632 $ 19,621 $ 306,100 $ ( 73,827 ) $ ( 37,978 ) $ 213,916 Balance at June 30, 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 The accompanying notes are an integral part of these consolidated financial statements. 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 - - - 17,770 - 17,770 Other comprehensive income - - - - 6,293 6,293 Repurchase of Class A common stock ( 42,100 ) ( 42 ) ( 459 ) - - ( 501 ) 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 - - - ( 3,049 ) - ( 3,049 ) Stock-based compensation - - 1,112 - - 1,112 Balance at September 30, 2024 19,620,632 $ 19,621 $ 306,100 $ ( 73,827 ) $ ( 37,978 ) $ 213,916 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 - - - 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 The accompanying notes are an integral part of these unaudited consolidated financial statements. Table of Contents 7 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q USCB FINANCIAL HOLDINGS, INC. Consolidated Statements of Cash Flows - Unaudited (Dollars in thousands) Nine Months Ended September 30, 2024 2023 Cash flows from operating activities: Net income $ 17,770 $ 13,824 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 2,127 892 Depreciation and amortization 436 443 (Accretion) amortization of premiums on securities, net ( 365 ) ( 651 ) Accretion of deferred loan fees, net 660 ( 236 ) Stock-based compensation 1,112 709 (Gain) loss on sale of available for sale securities ( 14 ) 976 Gain on sale of loans held for sale ( 593 ) ( 696 ) Increase in cash surrender value of bank owned life insurance ( 1,257 ) ( 1,756 ) Decrease in deferred tax assets 5,129 4,465 Net change in operating assets and liabilities: Accrued interest receivable ( 77 ) ( 1,374 ) Other assets ( 8,292 ) ( 751 ) Accrued interest and other liabilities 20,505 12,679 Net cash provided by operating activities 37,141 28,524 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 8,110 79,085 Purchase of investment securities available for sale ( 70,996 ) ( 26,792 ) Proceeds from maturities and pay-downs of investment securities available for sale 15,097 11,679 Proceeds from sales of investment securities available for sale 34,753 15,409 Net increase in loans held for investment ( 99,627 ) ( 165,662 ) Purchase of loans held for investment ( 58,368 ) ( 13,277 ) Additions to premises and equipment ( 256 ) ( 131 ) Proceeds from the sale of loans held for sale 7,408 10,715 Purchase of Bank owned life insurance - ( 11,100 ) Proceeds from the redemption of Federal Home Loan Bank stock 8,645 6,517 Purchase of Federal Home Loan Bank stock ( 5,734 ) ( 9,940 ) Net cash used in investment activities ( 160,968 ) ( 190,285 ) Cash flows from financing activities: Proceeds from issuance of Class A common stock, net 323 - Cash dividends paid ( 3,049 ) - Repurchase of Class A common stock ( 501 ) ( 6,613 ) Net increase in deposits 189,478 91,641 Proceeds from Federal Home Loan Bank advances and other borrowings 197,000 259,350 Repayments on Federal Home Loan Bank advances and other borrowings ( 262,000 ) ( 203,350 ) Net cash provided by financing activities 121,251 141,028 Net decrease in cash and cash equivalents ( 2,576 ) ( 20,733 ) Cash and cash equivalents at beginning of period 41,062 54,168 Cash and cash equivalents at end of period $ 38,486 $ 33,435 Supplemental disclosure of cash flow information: Interest paid $ 46,058 $ 27,872 Supplemental schedule of non-cash investing and financing activities: Transfer of loans held for investment to loans held for sale $ 6,815 $ 10,019 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 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 audited consolidated 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 9 USCB Financial Holdings, Inc. Q3 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. Improvements to Reportable Segment Disclosures In November 2023, the FASB issued ASU 2023-07, “Improvements to Reportable Segment Disclosures.” ASU 2023- 07 requires disclosure of significant segment expenses and other segment items on an interim and annual basis. The standard is effective for fiscal years beginning after December 15, 2023 and for interim periods beginning after December 15, 2024. The Company is evaluating the impact of the changes to its existing disclosures. 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 HTM securities through the use of credit ratings. Credit ratings are monitored by the Company on at least a quarterly basis. As of September 30, 2024 and December 31, 2023, all HTM securities held by the Company were rated investment grade. At quarter end, HTM securities included $ 157.7 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 $ 8 thousand ACL as of September 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 September 30, 2024 and December 31, 2023 was not required. Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 10 USCB Financial Holdings, Inc. Q3 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): September 30, 2024 Available-for-sale: Amortized Cost Unrealized Gains Unrealized Losses Fair Value U.S. Government Agency $ 11,916 $ 21 $ ( 1,204 ) $ 10,733 Collateralized mortgage obligations 104,228 55 ( 20,089 ) 84,194 Mortgage-backed securities - residential 60,390 21 ( 9,649 ) 50,762 Mortgage-backed securities - commercial 75,263 676 ( 5,606 ) 70,333 Municipal securities 24,945 - ( 4,520 ) 20,425 Bank subordinated debt securities 24,272 193 ( 1,385 ) 23,080 $ 301,014 $ 966 $ ( 42,453 ) $ 259,527 Held-to-maturity: U.S. Government Agency $ 42,909 $ 97 $ ( 4,041 ) $ 38,965 Collateralized mortgage obligations 58,345 386 ( 6,328 ) 52,403 Mortgage-backed securities - residential 41,173 677 ( 3,537 ) 38,313 Mortgage-backed securities - commercial 15,316 35 ( 788 ) 14,563 Corporate bonds 9,266 - ( 385 ) 8,881 $ 167,009 $ 1,195 $ ( 15,079 ) $ 153,125 Allowance for credit losses - securities held-to-maturity ( 8 ) Securities held-to maturity, net of allowance for credit losses $ 167,001 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 September 30, 2024 there were no investment securities that were transferred from available- for-sale (“AFS”) to HTM. For the three months ended September 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 $ 67 thousand. The unamortized net unrealized loss as of September 30, 2024, was $ 9.3 million. For the nine months ended September 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 $ 200 thousand. For the years ended December 31, 2023 total amortization out of AOCI for the net unrealized losses on securities transferred from AFS to HTM was $ 251 thousand. In addition for these securities, the balance of the net unrealized losses retained in AOCI was $ 9.5 million at December 31, 2023. Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 11 USCB Financial Holdings, Inc. Q3 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 nine months ended September 30, 2024 and 2023 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, Available-for-sale: 2024 2023 2024 2023 Proceeds from sale and call of securities $ - $ 6,792 $ 34,753 $ 15,409 Gross gains $ - $ - $ 195 $ 3 Gross losses - ( 955 ) ( 181 ) ( 979 ) Net realized gain (loss) $ - $ ( 955 ) $ 14 $ ( 976 ) 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, 2024: Amortized Cost Fair Value Amortized Cost Fair Value Due within one year $ - $ - $ - $ - Due after one year through five years 1,000 1,006 9,266 8,881 Due after five years through ten years 42,975 38,294 - - Due after ten years 5,242 4,205 - - U.S. Government Agency 11,916 10,733 42,909 38,965 Collateralized mortgage obligations 104,228 84,194 58,345 52,403 Mortgage-backed securities - residential 60,390 50,762 41,173 38,313 Mortgage-backed securities - commercial 75,263 70,333 15,316 14,563 $ 301,014 $ 259,527 $ 167,009 $ 153,125 At September 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 September 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): September 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 $ 796 $ ( 2 ) $ 47,141 $ ( 6,302 ) $ 47,937 $ ( 6,304 ) Collateralized mortgage obligations 1,854 ( 1 ) 130,104 ( 30,448 ) 131,958 ( 30,449 ) Mortgage-backed securities - residential - - 82,457 ( 15,097 ) 82,457 ( 15,097 ) Mortgage-backed securities - commercial 15,347 ( 173 ) 39,657 ( 7,672 ) 55,004 ( 7,845 ) Municipal securities - - 20,425 ( 4,520 ) 20,425 ( 4,520 ) Bank subordinated debt securities 3,062 ( 131 ) 14,605 ( 1,254 ) 17,667 ( 1,385 ) Corporate bonds - - 8,881 ( 170 ) 8,881 ( 170 ) $ 21,059 $ ( 307 ) $ 343,270 $ ( 65,463 ) $ 364,329 $ ( 65,770 ) Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 12 USCB Financial Holdings, Inc. Q3 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 $ 121.9 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 attributable to credit losses or other factors like interest rate risk, using both quantitative and qualitative analyses, including company performance analysis, review of credit ratings, bond vintage, 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 September 30, 2024. At September 30, 2024, the Company had $ 46.0 million of unrealized losses on mortgage-backed securities and collateralized mortgage obligations of U.S. government sponsored entities having a fair value of $ 310.6 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 September 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 at September 30, 2024 and 25 % at December 31, 2023. The Bank must also maintain a minimum amount of pledged securities to be in the public funds program. As of September 30, 2024, the Bank had a total of $ 114.4 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 $ 69.7 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. 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 13 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q The Company paid off $ 80 million in borrowings under the BTFP program during the third quarter 2024. The original maturity of this borrowing under the BTFP program was January 2025, and there are no remaining borrowings under this program. 3. LOANS The following table is a summary of the distribution of loans held for investment by type (in thousands): September 30, 2024 December 31, 2023 Total Percent of Total Total Percent of Total Residential Real Estate $ 283,477 14.7 % $ 204,419 11.5 % Commercial Real Estate 1,095,112 56.8 % 1,047,593 58.8 % Commercial and Industrial 246,539 12.8 % 219,757 12.4 % Correspondent Banks 103,815 5.4 % 114,945 6.5 % Consumer and Other 198,604 10.3 % 191,930 10.8 % Total gross loans 1,927,547 100.0 % 1,778,644 100.0 % Plus: Deferred fees/costs 3,815 2,183 Total loans net of deferred fees/costs 1,931,362 1,780,827 Less: Allowance for credit losses 23,067 21,084 Total net loans $ 1,908,295 $ 1,759,743 At September 30, 2024 and December 31, 2023, the Company had $ 535.7 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 method 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 14 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q Changes in the ACL for the three and nine months ended September 30, 2024 and 2023 were as follows (in thousands): Residential Real Estate Commercial Real Estate Commercial and Industrial Correspondent Banks Consumer and Other Total Three Months Ended September 30, 2024 Beginning balance $ 3,193 $ 10,272 $ 4,747 $ 892 $ 3,126 $ 22,230 Provision for credit losses (1) 760 ( 86 ) ( 96 ) ( 69 ) 322 831 Recoveries 2 - 10 - 1 13 Charge-offs - - - - ( 7 ) ( 7 ) Ending Balance $ 3,955 $ 10,186 $ 4,661 $ 823 $ 3,442 $ 23,067 Nine Months Ended September 30, 2024 Beginning balance $ 2,695 $ 10,366 $ 3,974 $ 911 $ 3,138 $ 21,084 Provision for credit losses (2) 1,252 ( 180 ) 666 ( 88 ) 318 1,968 Recoveries 8 - 21 - 3 32 Charge-offs - - - - ( 17 ) ( 17 ) Ending Balance $ 3,955 $ 10,186 $ 4,661 $ 823 $ 3,442 $ 23,067 (1) Provision for credit losses excludes a $ 101 thousand charge due to unfunded commitments included in other liabilities and a $ 1 thousand release related to investment securities held to maturity. (2) Provision for credit losses excludes a $ 159 thousand charge due to unfunded commitments included in other liabilities. Residential Real Estate Commercial Real Estate Commercial and Industrial Correspondent 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 a $ 17 thousand release due to unfunded commitments included in other liabilities and $ 3 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 $ 39 thousand release due to unfunded commitments included in other liabilities and $ 16 thousand expense related to investment securities held to maturity. At September 30, 2024, the ACL was $ 23.1 million compared to $ 21.1 million at December 31, 2023. The increase of $ 2.0 million in the ACL was due to loan growth. Charge-offs for the three months ended September 30, 2024 totaled $ 7 thousand and were all originated in 2024. Charge-offs for the nine months ended September 30, 2024 totaled $ 17 thousand and were all originated in 2024. Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 15 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q 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 Federal Open Market Committee (“FOMC”) economic forecasts as of September 30, 2024, showed moderate deterioration in unemployment and a slight improvement forecast for real GDP. Fannie Mae HPI forecast reflected moderate 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 September 30, 2024, for every 100 basis points increase in the HPI index, the forecast reduces reserves by approximately $ 244 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 September 30, 2024, we stress tested two qualitative factors in our commercial real estate loan pool, as its 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 $ 6.4 million or 29.3 % 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 September 30, 2024 and December 31, 2023 are as follows (in thousands): Residential Real Estate Commercial Real Estate Commercial and Industrial Correspondent Banks Consumer and Other Total September 30, 2024: Allowance for credit losses: Individually evaluated $ 43 $ - $ 38 $ - $ 17 $ 98 Collectively evaluated 3,912 10,186 4,623 823 3,425 22,969 Balances, end of period $ 3,955 $ 10,186 $ 4,661 $ 823 $ 3,442 $ 23,067 Loans: Individually evaluated $ 6,848 $ - $ 719 $ - $ 1,990 $ 9,557 Collectively evaluated 276,629 1,095,112 245,820 103,815 196,614 1,917,990 Balances, end of period $ 283,477 $ 1,095,112 $ 246,539 $ 103,815 $ 198,604 $ 1,927,547 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 Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 16 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q 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 17 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q Loan credit exposures by internally assigned grades are presented below for the periods indicated (in thousands): As of September 30, 2024 Term Loans by Origination Year Revolving Loans Total 2024 2023 2022 2021 2020 Prior Residential real estate Pass $ 96,900 $ 40,187 $ 34,454 $ 23,930 $ 5,823 $ 71,867 $ 9,748 $ 282,909 Substandard - - - - - 568 - 568 Total 96,900 40,187 34,454 23,930 5,823 72,435 9,748 283,477 Commercial real estate Pass 116,130 132,831 323,299 177,281 99,368 239,803 3,936 1,092,648 Substandard - - - 1,776 688 - - 2,464 Total 116,130 132,831 323,299 179,057 100,056 239,803 3,936 1,095,112 Commercial and industrial Pass 46,599 91,611 35,031 30,950 4,469 12,494 23,466 244,620 Substandard - - - 536 - 1,146 237 1,919 Total 46,599 91,611 35,031 31,486 4,469 13,640 23,703 246,539 Correspondent banks Pass 100,865 2,950 - - - - - 103,815 Total 100,865 2,950 - - - - - 103,815 Consumer and other loans Pass 34,623 53,815 66,254 37,800 495 1,636 1,990 196,613 Substandard - - 1,991 - - - - 1,991 Total 34,623 53,815 68,245 37,800 495 1,636 1,990 198,604 Total Loans Pass 395,117 321,394 459,038 269,961 110,155 325,800 39,140 1,920,605 Special Mention - - - - - - - - Substandard - - 1,991 2,312 688 1,714 237 6,942 Doubtful - - - - - - - - Total $ 395,117 $ 321,394 $ 461,029 $ 272,273 $ 110,843 $ 327,514 $ 39,377 $ 1,927,547 Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 18 USCB Financial Holdings, Inc. Q3 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 Correspondent 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 19 USCB Financial Holdings, Inc. Q3 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 September 30, 2024 and December 31, 2023 (in thousands): Accruing As of September 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 $ 843 $ - $ - $ 843 $ - $ 843 1-4 family residential 229,797 4,017 - 233,814 - 233,814 Condo residential 48,506 - - 48,506 314 48,820 279,146 4,017 - 283,163 314 283,477 Commercial real estate: Land and construction 38,342 - - 38,342 - 38,342 Multi-family residential 204,298 - - 204,298 - 204,298 Condo commercial 56,921 - - 56,921 - 56,921 Commercial property 795,551 - - 795,551 - 795,551 Leasehold improvements - - - - - - 1,095,112 - - 1,095,112 - 1,095,112 Commercial and industrial: Secured 230,202 - - 230,202 420 230,622 Unsecured 15,917 - - 15,917 - 15,917 246,119 - - 246,119 420 246,539 Correspondent banks 103,815 - - 103,815 - 103,815 Consumer and other 196,613 - - 196,613 1,991 198,604 Total $ 1,920,805 $ 4,017 $ - $ 1,924,822 $ 2,725 $ 1,927,547 Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 20 USCB Financial Holdings, Inc. Q3 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 Correspondent 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 September 30, 2024 and as of December 31, 2023 (in thousands): September 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 $ 314 $ - $ 314 $ - Commercial and industrial - 420 420 - Consumer and other - 1,991 1,991 - Total $ 314 $ 2,411 $ 2,725 $ - 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 September 30, 2024 and 2023. Interest income on these loans for the three months ended September 30, 2024 and 2023, would have been approximately $ 24 thousand and $ 12 thousand, respectively, had these loans performed in accordance with their original terms. Interest income on these Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 21 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q loans for the nine months ended September 30, 2024 and 2023, would have been approximately $ 44 thousand and $ 28 thousand, respectively, had these loans performed in accordance with their original terms. Collateral-Dependent Loans A loan is collateral dependent when the borrower is experiencing financial difficulty and repayment of the loan is expected to be provided substantially through the sale or operation of the collateral. There were no collateral dependent loans as of September 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 nine months ended September 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 September 30, 2024 and one new modification for the nine months ended September 30, 2024. There were no existing loan modifications that subsequently defaulted during the three months and nine months ended September 30, 2024. The Company had no new modification to borrowers experiencing financial difficulties for the three and nine months ended September 30, 2023. There were no existing loan modifications that subsequently defaulted for 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 periods indicated (in thousands): Nine Months Ended September 30, 2024 2023 Current: Federal $ - $ - State - - Total current - - Deferred: Federal 4,384 3,510 State 1,222 954 Total deferred 5,606 4,464 Total tax expense $ 5,606 $ 4,464 The actual income tax expense for the nine months ended September 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 periods to income before provision for income taxes) as follows (in thousands): Nine Months Ended September 30, 2024 2023 Federal taxes at statutory rate $ 4,909 $ 3,840 State income taxes, net of federal tax benefit 1,016 795 Bank owned life insurance ( 319 ) ( 171 ) Other, net - - Total tax expense $ 5,606 $ 4,464 Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 22 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q The Company’s deferred tax assets and deferred tax liabilities as of the dates indicated were (in thousands): September 30, 2024 December 31, 2023 Deferred tax assets: Net operating loss $ 10,562 $ 16,430 Allowance for credit losses 5,912 5,410 Lease liability 2,330 2,895 Unrealized losses on available for sale securities 12,881 15,114 Depreciable property 149 203 Equity compensation 906 630 Accruals 417 382 Other, net 61 10 Deferred tax assets: 33,218 41,074 Deferred tax liabilities: Deferred loan cost ( 967 ) ( 553 ) Lease right of use asset ( 2,330 ) ( 2,895 ) Deferred expenses ( 298 ) ( 180 ) Cash flow hedge ( 5 ) ( 85 ) Other, net ( 78 ) ( 79 ) Deferred tax liabilities ( 3,678 ) ( 3,792 ) Net deferred tax assets $ 29,540 $ 37,282 The Company has approximately $ 37.8 million of federal and $ 60.5 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 return examinations by tax authorities for years before 2020. For the three months and nine months ended September 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 23 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q A summary of the amounts of the Company's financial instruments with off-balance sheet risk are shown below at September 30, 2024 and December 31, 2023 (in thousands): September 30, 2024 December 31, 2023 Commitments to grant loans and unfunded lines of credit $ 104,851 $ 85,117 Standby and commercial letters of credit 4,507 3,987 Total $ 109,358 $ 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 September 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 1.63 years, a weighted average fixed-rate paid of 3.59 %, and with a 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, a weighted average fixed-rate paid of 3.59 %, and with a 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 During the quarter ended September 30, 2024, the Company unwound four fair value interest rate swaps with a notional aggregate amount of $ 200 million. The decision to unwind these swaps was driven by changes in interest rate forecasts and asset-liability management strategies. The early termination fee to unwind the fair value swaps totaled $ 3.7 million. The termination fees allocated to each loan category will be amortized over the remining life of the hedge loans on a monthly straight-line basis with full recognition of the unamortized cost upon the early payoff of the hedge loan. The amortization of the termination fee is reflected in the loan interest income line in the statement of operations. The original maturities of these fair value interest swaps were between 2025 and 2026. The fair value interest rate swap agreements had an average maturity of 1.51 years at the date of termination. Interest Rate Swaps The Company enters into interest rate swaps with its loan customers. The Company had 39 and 20 interest rate swaps with loan customers with an aggregate notional amount of $ 143.8 million and $ 46.5 million at September 30, 2024 and December 31, 2023, respectively. At September 30, 2024, these interest rate swaps mature between 2025 and 2051. The Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 24 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q 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, 2024: Derivatives designated as cash flow hedges: Interest rate swaps $ 50,000 $ - Other assets $ 18 $ - Derivatives not designated as hedging instruments: Interest rate swaps related to customer loans $ 143,801 $ 4,886 Other assets/Other liabilities $ 7,695 $ 7,695 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 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 Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 25 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q 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 September 30, 2024 and December 31, 2023 for each of the fair value hierarchy levels (in thousands): September 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 $ - $ 10,733 $ - $ 10,733 $ - $ 8,173 $ - $ 8,173 Collateralized mortgage obligations - 84,194 - 84,194 - 80,606 - 80,606 Mortgage-backed securities - residential - 50,762 - 50,762 - 52,187 - 52,187 Mortgage-backed securities - commercial - 70,333 - 70,333 - 42,764 - 42,764 Municipal securities - 20,425 - 20,425 - 19,338 - 19,338 Bank subordinated debt securities - 23,080 - 23,080 - 26,261 - 26,261 Total - 259,527 - 259,527 - 229,329 - 229,329 Derivative assets - 7,713 - 7,713 - 4,892 - 4,892 Total assets at fair value $ - $ 267,240 $ - $ 267,240 $ - $ 234,221 $ - $ 234,221 Derivative liabilities $ - $ 7,695 $ - $ 7,695 $ - $ 7,988 $ - $ 7,988 Total liabilities at fair value $ - $ 7,695 $ - $ 7,695 $ - $ 7,988 $ - $ 7,988 Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 26 USCB Financial Holdings, Inc. Q3 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 September 30, 2024 and December 31, 2023 (in thousands): Fair Value Hierarchy Carrying Amount Level 1 Level 2 Level 3 Fair Value Amount September 30, 2024: Financial Assets: Cash and due from banks $ 7,084 $ 7,084 $ - $ - $ 7,084 Interest-bearing deposits in banks $ 31,402 $ 31,402 $ - $ - $ 31,402 Investment securities held to maturity, net $ 167,001 $ - $ 153,125 $ - $ 153,125 Loans held for investment, net $ 1,908,295 $ - $ - $ 1,924,884 $ 1,924,884 Accrued interest receivable $ 10,765 $ - $ 1,536 $ 9,229 $ 10,765 Financial Liabilities: Demand deposits $ 637,313 $ 637,313 $ - $ - $ 637,313 Money market and savings accounts $ 1,091,029 $ 1,091,029 $ - $ - $ 1,091,029 Interest-bearing checking accounts $ 64,333 $ 64,333 $ - $ - $ 64,333 Time deposits $ 333,942 $ - $ - $ 333,659 $ 333,659 FHLB advances and other borrowings $ 118,000 $ - $ 118,193 $ - $ 118,193 Accrued interest payable $ 1,802 $ - $ 537 $ 1,265 $ 1,802 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 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. Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 27 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q 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 September 30, 2024, the Company repurchased 10,000 shares of Class A common stock at a weighted average price per share of $ 11.99 . The aggregate purchase price for these transactions was approximately $ 120 thousand, including transaction costs. These repurchases were made pursuant to the Company’s publicly announced repurchase programs. As of September 30, 2024, 537,980 shares remained authorized for repurchase under the Company’s two stock repurchase programs. 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. In addition, the Company will provide prior notification to the Federal Reserve prior to effecting proposed share repurchases in new share repurchase programs. Shares of the Company’s Class A common stock issued and outstanding as of September 30, 2024 and December 31, 2023 were 19,620,632 and 19,575,435 , respectively. See Note 11, Subsequent Events, for information regarding issuance of Class A common stock to employees in October 2024. 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. As of September 30, 2024, the Company was not subject to any formal supervisory restrictions on its ability to pay dividends but will notify the Federal Reserve Bank of Atlanta in advance of any proposed dividend to the Company's shareholders in light of the Bank's negative retained earnings. In addition, under applicable FDIC regulations and policy, because the Bank has negative retained earnings, it must obtain the prior approval of the FDIC before effecting a cash dividend or other capital distribution. 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. The quarterly dividend for the third quarter was $ 0.05 per share of Class A common stock, paid on September 5, 2024, to stockholders of record as of the close of business on August 15, 2024. The aggregate distribution on connection with the second quarter dividend was $ 1.0 million. Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 28 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q No dividends were declared by the Board for the stockholders for the three months and nine months ended September 30, 2023. See Note 11, Subsequent Events, for information regarding dividends declared in October 2024. The following table details the dividends declared and paid by the Company during the three months and nine months ended September 30, 2024: 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 July 22, 2024 August 15, 2024 September 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 September 30, 2024 and December 31, 2023. At September 30, 2024, the total risk-based capital ratios for the Bank was 13.14 %. 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, 2024 and 2023 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Net Income $ 6,949 $ 3,819 $ 17,770 $ 13,824 Net income available to common shareholders $ 6,949 $ 3,819 $ 17,770 $ 13,824 Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 29 USCB Financial Holdings, Inc. Q3 2024 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, 2024 and 2023 (in thousands, except per share amounts): Three Months Ended September 30, 2024 2023 Class A Class A Basic EPS Numerator: Net income available to common shares $ 6,949 $ 3,819 Denominator: Weighted average shares outstanding 19,621,447 19,542,723 Earnings per share, basic $ 0.35 $ 0.20 Diluted EPS Numerator: Net income available to common shares $ 6,949 $ 3,819 Denominator: Weighted average shares outstanding for basic EPS 19,621,447 19,542,723 Add: Dilutive effects of assumed exercises of stock options 203,764 69,174 Weighted avg. shares including dilutive potential common shares 19,825,211 19,611,897 Earnings per share, diluted $ 0.35 $ 0.19 Anti-dilutive stock options excluded from diluted EPS - 720,500 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. Nine Months Ended September 30, 2024 2023 Class A Class A Basic EPS Numerator: Net income available to common shares $ 17,770 $ 13,824 Denominator: Weighted average shares outstanding 19,653,103 19,661,685 Earnings per share, basic $ 0.90 $ 0.70 Diluted EPS Numerator: Net income available to common shares $ 17,770 $ 13,824 Denominator: Weighted average shares outstanding for basic EPS 19,653,103 19,661,685 Add: Dilutive effects of assumed exercises of stock options 108,139 67,496 Weighted avg. shares including dilutive potential common shares 19,761,242 19,729,181 Earnings per share, diluted $ 0.90 $ 0.70 Anti-dilutive stock options excluded from diluted EPS 15,000 720,500 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. Q3 2024 Form 10-Q 10. LOSS CONTINGENCIES Loss contingencies, including claims and legal actions may arise in the ordinary course of business. In the opinion of management, none of these actions, either individually or in the aggregate, is expected to have a material adverse effect on the Company’s Consolidated Financial Statements. 11. SUBSEQUENT EVENTS Common Stock During the month of October 2024, the Company issued 220,000 shares of Class A common stock to employees as restricted stock awards pursuant to the Company’s 2015 equity incentive plan. Shares of the Company’s Class A common stock issued and outstanding as of October 31, 2024 was 19,840,632 . Dividends On October 28, 2024, the Company announced that its Board of Directors declared its fourth quarterly cash dividend. The quarterly dividend for the fourth quarter of 2024 was $ 0.05 per share of Class A common stock and will be paid on December 5, 2024, to stockholders of record as of the close of business on November 15, 2024. Table of Contents 31 USCB Financial Holdings, Inc. Q3 2024 Form 10-Q