USCB Financial (USCB) - 2025 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements Presents unaudited consolidated financial statements, including balance sheets, income, equity, and cash flows, with detailed accounting notes Consolidated Balance Sheets Presents the company's financial position, detailing assets, liabilities, and stockholders' equity at period-end Consolidated Balance Sheet Highlights (Dollars in thousands): | Item | March 31, 2025 | December 31, 2024 | | :------------------------------------ | :------------- | :---------------- | | Total assets | $2,677,382 | $2,581,216 | | Loans held for investment, net | $2,011,472 | $1,948,778 | | Total deposits | $2,309,569 | $2,174,004 | | Federal Home Loan Bank advances | $108,000 | $163,000 | | Total stockholders' equity | $225,088 | $215,388 | Consolidated Statements of Operations Details the company's revenues, expenses, and net income over specific reporting periods Consolidated Statements of Operations Highlights (Three Months Ended March 31, Dollars in thousands, except per share data): | Item | 2025 | 2024 | | :------------------------------------------ | :----- | :----- | | Interest income: Loans, including fees | $30,245 | $26,643 | | Total interest income | $33,978 | $30,887 | | Total interest expense | $14,863 | $15,729 | | Net interest income before provision for credit losses | $19,115 | $15,158 | | Provision for credit losses | $681 | $410 | | Total non-interest income | $3,716 | $2,464 | | Total non-interest expense | $12,052 | $11,174 | | Net income | $7,658 | $4,612 | | Net income per share, basic | $0.38 | $0.23 | | Net income per share, diluted | $0.38 | $0.23 | | Cash dividends declared | $0.10 | $0.05 | Consolidated Statements of Comprehensive Income Reports net income and other comprehensive income components, reflecting total changes in equity from non-owner sources Consolidated Statements of Comprehensive Income Highlights (Three Months Ended March 31, Dollars in thousands): | Item | 2025 | 2024 | | :-------------------------------------------------------------------------------- | :----- | :----- | | Net income | $7,658 | $4,612 | | Unrealized gain (loss) on investment securities | $4,673 | $(2,134) | | Total other comprehensive income (loss), net of tax | $3,421 | $(1,156) | | Total comprehensive income | $11,079 | $3,456 | Consolidated Statements of Changes in Stockholders' Equity Outlines changes in each component of stockholders' equity, including net income, dividends, and stock transactions Consolidated Statements of Changes in Stockholders' Equity Highlights (Dollars in thousands): | Item | Balance at Dec 31, 2024 | Net Income | Other Comprehensive Income | Repurchase of Class A common stock | Dividend Payment | Balance at Mar 31, 2025 | | :-------------------------- | :---------------------- | :--------- | :------------------------- | :------------------------- | :--------------- | :---------------------- | | Total Stockholders' Equity | $215,388 | $7,658 | $3,421 | $(174) | $(2,005) | $225,088 | Consolidated Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities over the period Consolidated Statements of Cash Flows Highlights (Three Months Ended March 31, Dollars in thousands): | Item | 2025 | 2024 | | :------------------------------------ | :----- | :----- | | Net cash provided by operating activities | $14,628 | $8,093 | | Net cash used in investment activities | $(72,157) | $(66,491) | | Net cash provided by financing activities | $78,478 | $143,882 | | Net decrease in cash and cash equivalents | $20,949 | $85,484 | | Cash and cash equivalents at end of period | $97,984 | $126,546 | Notes to the Consolidated Financial Statements Provides detailed explanations and disclosures supporting the consolidated financial statements, including accounting policies and estimates 1. Summary of Significant Accounting Policies Details the company's operational scope, adherence to U.S. GAAP, reliance on management estimates, and the impact of recent accounting standard adoptions - USCB Financial Holdings, Inc. is a bank holding company with U.S. Century Bank as its wholly-owned subsidiary, providing financial services in South Florida. The Bank also owns Florida Peninsula Title LLC, offering title insurance for real estate transactions since 2021[21][22] - Significant estimates in the financial statements include the Allowance for Credit Losses (ACL) and income taxes[25] - The company adopted ASU 2023-09, 'Improvements to Income Tax Disclosures,' effective January 1, 2025, which did not have a material impact on its consolidated financial statements[27] 2. Investment Securities Details investment securities, including AFS and HTM portfolios, CECL application, credit loss allowances, and pledged securities - The company applies the CECL methodology to held-to-maturity (HTM) debt securities, estimating a $5 thousand Allowance for Credit Losses (ACL) for the portion exposed to non-government credit risk as of March 31, 2025[28][32] - All HTM securities held by the Company were rated investment grade as of March 31, 2025, and December 31, 2024[31] Investment Securities Portfolio (Dollars in thousands): | Category | Amortized Cost (Mar 31, 2025) | Fair Value (Mar 31, 2025) | Amortized Cost (Dec 31, 2024) | Fair Value (Dec 31, 2024) | | :-------------------------------- | :----------------------- | :--------------------- | :----------------------- | :--------------------- | | Available-for-sale | $321,170 | $275,139 | $310,925 | $260,221 | | Held-to-maturity (net of ACL) | $161,790 | $145,665 | $164,694 | $145,540 | - At March 31, 2025, the company had $39.5 million (AFS) and $12.1 million (HTM) of unrealized losses on mortgage-backed securities and collateralized mortgage obligations, primarily due to interest rate movements, not credit quality. Management expects to recover the entire amortized cost basis[40][43] - As of March 31, 2025, $51.1 million in bonds were pledged to the State of Florida for public deposits[49] 3. Loans Details the loan portfolio composition, growth, Allowance for Credit Losses (ACL), non-accrual loans, and loan modification status Loan Portfolio Composition (Dollars in thousands): | Loan Type | March 31, 2025 (Total) | March 31, 2025 (Percent of Total) | December 31, 2024 (Total) | December 31, 2024 (Percent of Total) | | :------------------------ | :----------------------- | :-------------------------------- | :----------------------- | :-------------------------------- | | Residential Real Estate | $301,164 | 14.8% | $289,961 | 14.8% | | Commercial Real Estate | $1,150,129 | 56.7% | $1,136,417 | 57.8% | | Commercial and Industrial | $256,326 | 12.6% | $258,311 | 13.1% | | Correspondent Banks | $103,026 | 5.1% | $82,438 | 4.2% | | Consumer and Other | $218,711 | 10.8% | $198,091 | 10.1% | | Total gross loans | $2,029,356 | 100.0% | $1,965,218 | 100.0% | - The Allowance for Credit Losses (ACL) for loans increased by $670 thousand to $24,740 thousand at March 31, 2025, from $24,070 thousand at December 31, 2024, primarily due to loan growth[55] Non-Accrual Loans (Dollars in thousands): | Loan Type | March 31, 2025 | December 31, 2024 | | :-------------------------- | :------------- | :---------------- | | Residential real estate | $1,312 | $314 | | Commercial and industrial | $854 | $403 | | Consumer and other | $1,990 | $1,990 | | Total Non-Accruals | $4,156 | $2,707 | - No new loan modifications for borrowers experiencing financial difficulties were reported for the three months ended March 31, 2025[76] 4. Income Taxes Discusses income tax expense, effective tax rate, and changes in net deferred tax assets, including the impact of net operating loss carryforwards Income Tax Expense (Three Months Ended March 31, Dollars in thousands): | Item | 2025 | 2024 | | :---------------- | :----- | :----- | | Total tax expense | $2,440 | $1,426 | - The effective tax rate for the three months ended March 31, 2025, was 24.2%, compared to 23.6% for the same period in 2024[166] Net Deferred Tax Assets (Dollars in thousands): | Item | March 31, 2025 | December 31, 2024 | | :-------------------- | :------------- | :---------------- | | Net deferred tax assets | $26,045 | $29,646 | - The company has approximately $23.7 million of federal and $46.4 million of state net operating loss carryforwards expiring between 2031 and 2036[79] 5. Off-Balance Sheet Arrangements Details the company's off-balance sheet commitments, including loan and letter of credit arrangements, and their associated risk management Off-Balance Sheet Commitments (Dollars in thousands): | Commitment Type | March 31, 2025 | December 31, 2024 | | :------------------------------------------ | :------------- | :---------------- | | Commitments to grant loans & unfunded lines | $132,466 | $122,578 | | Standby & commercial letters of credit | $3,346 | $5,389 | | Total | $135,812 | $127,967 | - The company uses the same credit policies for off-balance sheet commitments as it does for on-balance sheet instruments to manage credit and interest rate risk[84] 6. Derivatives Discusses the company's use of interest rate swaps for asset-liability management, including cash flow hedges and customer-related swaps - As of March 31, 2025, the company had two interest rate swap agreements with a notional aggregate amount of $50 million designated as cash flow hedges of certificates of deposit[89] - The company had 62 interest rate swaps with loan customers, with an aggregate notional amount of $211.0 million at March 31, 2025, which are not designated as hedging instruments[95] - During the quarter ended September 30, 2024, the company unwound four fair value interest rate swaps with a notional aggregate amount of $200 million due to changes in interest rate forecasts and asset-liability management strategies[94] 7. Fair Value Measurements Explains the company's fair value measurement hierarchy for financial instruments, including Level 2 classifications and fair value disclosures - The company groups its financial assets and liabilities measured at fair value into three levels based on market activity and reliability of assumptions: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[100][101][102][103] Assets and Liabilities Measured at Fair Value on a Recurring Basis (March 31, 2025, Dollars in thousands): | Category | Level 1 | Level 2 | Level 3 | Total | | :-------------------------------- | :------ | :------ | :------ | :------ | | Investment securities available for sale | $0 | $275,139 | $0 | $275,139 | | Derivative assets | $0 | $8,000 | $0 | $8,000 | | Derivative liabilities | $0 | $7,837 | $0 | $7,837 | - Loans held for investment, net, had a carrying amount of $2,011,472 thousand and an estimated fair value of $2,022,078 thousand as of March 31, 2025[109] 8. Stockholders' Equity Details changes in stockholders' equity, including common stock, restricted awards, repurchases, dividends, and regulatory capital status - Class A common stock outstanding increased to 20,048,385 shares as of March 31, 2025, from 19,924,632 shares as of December 31, 2024[115] - The company issued 124,424 shares of Class A common stock as restricted stock awards in Q1 2025 and repurchased 9,671 shares for approximately $174 thousand[113][114] Cash Dividends Declared (Class A Common Stock): | Declaration Date | Record Date | Payment Date | Dividend Per Share | Dividend Amount (Millions) | | :--------------- | :---------- | :----------- | :----------------- | :----------------------- | | Jan 21, 2025 | Feb 14, 2025 | Mar 5, 2025 | $0.10 | $2.0 | | Jan 22, 2024 | Feb 15, 2024 | Mar 5, 2024 | $0.05 | $1.0 | - The Company and the Bank exceeded all regulatory capital requirements and remained above 'well-capitalized' guidelines as of March 31, 2025. However, the Bank must obtain prior FDIC approval for cash dividends due to negative retained earnings[117][120] 9. Earnings Per Share Reports basic and diluted earnings per share for Class A common stock, reflecting net income available to common shareholders Earnings Per Share (Three Months Ended March 31, Dollars in thousands, except per share amounts): | Item | 2025 | 2024 | | :------------------------------------------ | :----- | :----- | | Net income available to common shares | $7,658 | $4,612 | | Basic EPS | $0.38 | $0.23 | | Diluted EPS | $0.38 | $0.23 | 10. Segment Reporting Explains the company's single reportable segment structure, based on similar business activities and overall performance evaluation - The company has determined that it has only one reportable segment, as its business activities are similar and performance is evaluated on an overall company-wide basis by the CODM[128] - The company, through its subsidiary U.S. Century Bank, operates 10 banking centers in South Florida, offering a wide range of personal and business banking products and services, and title insurance[127] 11. Loss Contingencies Assesses the potential impact of current loss contingencies, including legal claims, on the company's financial statements - Management's opinion is that none of the current loss contingencies, individually or in aggregate, are expected to have a material adverse effect on the Company's Consolidated Financial Statements[130] 12. Subsequent Events Reports significant events occurring after the balance sheet date, including the declaration of a quarterly cash dividend - On April 21, 2025, the Board of Directors declared a quarterly cash dividend of $0.10 per share of Class A common stock for Q2 2025, to be paid on June 5, 2025[131] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Analyzes the company's financial condition and operational results, covering performance drivers, balance sheet, asset quality, liquidity, and capital adequacy Forward-Looking Statements Highlights statements regarding future expectations, growth, and performance, emphasizing inherent risks and uncertainties - This Form 10-Q contains forward-looking statements regarding projected growth, anticipated future financial performance, and management's long-term goals, identified by words such as 'may,' 'will,' 'anticipate,' and 'expect'[136] - These statements involve significant risks and uncertainties, including economic conditions, interest rate risk, credit risk, regulatory changes, and market fluctuations, which could cause actual results to differ materially from expectations[137] - Readers are cautioned not to place undue reliance on forward-looking statements, and the company undertakes no obligation to update or revise them unless required by federal securities laws[138] Overview Provides a high-level summary of the company's financial performance, highlighting key metrics and growth drivers - Net income for the three months ended March 31, 2025, increased by 66% to $7.7 million ($0.38 diluted EPS) compared to $4.6 million ($0.23 diluted EPS) for the same period in 2024, driven by higher interest and fee income[139][149] Key Financial Highlights (Q1 2025 vs. Q1 2024 / Dec 31, 2024): | Metric | March 31, 2025 | March 31, 2024 | Change (YoY) | Dec 31, 2024 | Change (QoQ Annualized) | | :------------------------------------ | :------------- | :------------- | :----------- | :----------- | :----------------------- | | Net interest income | $19.1 million | $15.2 million | +26.1% | N/A | N/A | | Net interest margin (NIM) | 3.10% | 2.62% | +48 bps | N/A | N/A | | Total assets | $2.68 billion | $2.49 billion | +7.6% | $2.58 billion | +15.1% | | Total loans (net of deferred cost/fees) | $2.04 billion | $1.82 billion | +11.8% | $1.97 billion | +13.0% | | Total deposits | $2.31 billion | $2.10 billion | +9.8% | $2.17 billion | +25.3% | | Annualized return on average assets | 1.19% | 0.76% | +0.43% | N/A | N/A | | Annualized return on average stockholders' equity | 14.15% | 9.61% | +4.54% | N/A | N/A | | ACL to total loans | 1.22% | N/A | N/A | 1.22% | 0% | | Non-performing loans to total loans | 0.20% | N/A | N/A | 0.14% | +0.06% | | Total risk-based capital ratio (Company) | 13.72% | N/A | N/A | N/A | N/A | | Total risk-based capital ratio (Bank) | 13.65% | N/A | N/A | N/A | N/A | | Tangible book value per common share | $11.23 | N/A | N/A | $10.81 | +15.6% annualized | Critical Accounting Policies and Estimates Discusses key accounting policies and estimates, such as ACL and income taxes, which require significant management judgment - The consolidated financial statements are prepared based on U.S. GAAP, requiring management to make estimates, assumptions, and judgments, particularly for the allowance for credit losses (ACL) and income taxes[143] - These estimates are based on available information, and actual results could differ from those reflected in the financial statements[143] Non-GAAP Financial Measures Explains the inclusion of non-GAAP financial measures to provide supplemental information for performance trend evaluation - The report includes non-GAAP financial measures to provide useful supplemental information for evaluating the company's underlying performance trends[144] - These measures are used by management but should be viewed in addition to, and not as an alternative or substitute for, measures determined in accordance with GAAP[144] Segment Reporting Confirms the company operates as a single reportable segment, with financial service operations aggregated for management evaluation - The company operates as a single reportable operating segment, as its financial service operations are aggregated and evaluated on an overall company-wide basis by management[145] Results of Operations Analyzes the company's financial performance, focusing on key revenue and expense drivers and their impact on net income General Highlights the primary drivers of operational results, including net interest income, non-interest income, and overall profitability improvements - Net income increased to $7.7 million for Q1 2025 from $4.6 million for Q1 2024, a $3.0 million or 66% increase[149] Profitability Ratios (Three Months Ended March 31): | Ratio | 2025 | 2024 | | :---------------- | :----- | :----- | | Efficiency ratio | 52.79% | 63.41% | | Net interest margin | 3.10% | 2.62% | Net Interest Income Examines the growth in net interest income and expansion of net interest margin, driven by loan portfolio and yield changes - Net interest income before the provision for credit losses increased by $4.0 million, or 26.1%, to $19.1 million for Q1 2025 from $15.2 million for Q1 2024, primarily due to higher income from a larger loan portfolio and increased weighted average loan yield[157] - Net interest margin (NIM) expanded by 48 basis points to 3.10% for Q1 2025 from 2.62% for Q1 2024, driven by increases in loan yields and average interest-earning assets, and a decrease in rates paid on interest-bearing liabilities[158] Average Balances, Yields, and Rates (Three Months Ended March 31, Dollars in thousands): | Item | 2025 Average Balance | 2025 Interest | 2025 Yield/Rate | 2024 Average Balance | 2024 Interest | 2024 Yield/Rate | | :-------------------------------- | :------------------- | :------------ | :-------------- | :------------------- | :------------ | :-------------- | | Loans | $1,986,856 | $30,245 | 6.17% | $1,781,528 | $26,643 | 6.01% | | Total interest-earning assets | $2,498,973 | $33,978 | 5.51% | $2,326,761 | $30,887 | 5.34% | | Total interest-bearing deposits | $1,652,147 | $13,591 | 3.34% | $1,473,831 | $14,057 | 3.84% | | Total interest-bearing liabilities | $1,791,091 | $14,863 | 3.37% | $1,638,018 | $15,729 | 3.86% | | Net interest spread | N/A | N/A | 2.14% | N/A | N/A | 1.48% | Provision for Credit Losses Analyzes the increase in provision for credit losses, attributing it to loan growth and a slight deterioration in economic forecasts - The provision for credit losses increased to $681 thousand for Q1 2025, compared to $410 thousand for Q1 2024[161] - The increase was primarily driven by loan portfolio growth and a slight deterioration in the economic forecast under the CECL methodology[161] Non-Interest Income Details the significant increase in non-interest income, driven by prepayment penalties, title insurance, and SBA loan sales - Non-interest income for Q1 2025 increased by $1.3 million, or 50.8%, to $3,716 thousand, compared to $2,464 thousand for Q1 2024[163] - This increase was primarily driven by growth in prepayment penalties and title insurance income (under service fees) and higher gains on the sale of SBA 7a loans[163] Components of Non-Interest Income (Three Months Ended March 31, Dollars in thousands): | Item | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Service fees | $2,331 | $1,651 | | Gain on sale of loans held for sale, net | $525 | $67 | | Other non-interest income | $860 | $746 | Non-Interest Expense Analyzes the increase in non-interest expense, primarily due to higher salaries and employee benefits, including compensation and payroll taxes - Non-interest expense for Q1 2025 increased by $878 thousand, or 7.9%, to $12,052 thousand, compared to $11,174 thousand for Q1 2024[164] - The increase was primarily driven by a $1.3 million rise in salaries and employee benefits due to merit increases, management bonuses, stock-based compensation expense, and payroll taxes[164] Components of Non-Interest Expense (Three Months Ended March 31, Dollars in thousands): | Item | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Salaries and employee benefits | $7,636 | $6,310 | | Occupancy | $1,284 | $1,314 | | Regulatory assessment and fees | $421 | $433 | | Consulting and legal fees | $193 | $592 | | Network and information technology services | $505 | $507 | | Other operating | $2,013 | $2,018 | Provision for Income Tax Discusses the increase in income tax expense and the slight rise in the effective tax rate for the period - Income tax expense for Q1 2025 was $2.4 million, compared to $1.4 million for Q1 2024[166] - The effective tax rate for Q1 2025 was 24.2%, slightly up from 23.6% for Q1 2024[166] Analysis of Financial Condition Analyzes the company's balance sheet, including asset, liability, and equity changes, and their impact on financial health General Provides an overview of balance sheet expansion, highlighting significant annualized growth in total assets, loans, and deposits - Total assets increased by $96.2 million, or 15.1% annualized, to $2.68 billion at March 31, 2025, from $2.58 billion at December 31, 2024[169] - Total loans, net of deferred fees/costs, increased by $63.4 million, or 13.0% annualized, to $2.04 billion at March 31, 2025, compared to $1.97 billion at December 31, 2024[169] - Total deposits increased by $135.6 million, or 25.3% annualized, to $2.31 billion at March 31, 2025, compared to $2.17 billion at December 31, 2024[169] Investment Securities Analyzes the growth and composition of the investment portfolio, including AFS and HTM securities, credit risk, and pledged assets - AFS and HTM investment securities increased by $12.0 million, or 11.5% annualized, to $436.9 million at March 31, 2025, from $424.9 million at December 31, 2024[175] - No allowance for credit losses was required on AFS securities as of March 31, 2025, as unrealized losses were attributed to interest rate risk, not credit quality, and management intends to hold these securities to maturity[173] - A $5 thousand allowance for credit losses (ACL) was estimated for the non-government credit risk portion of HTM corporate bonds as of March 31, 2025[174] - As of March 31, 2025, investment securities with a market value of $51.1 million were pledged to secure public deposits[175] Loans Details the continued growth of the loan portfolio, emphasizing commercial real estate, interest rate sensitivity, and rate floors - Total loans, net of deferred fees/costs, increased by $63.4 million, or 13.0% annualized, to $2.04 billion at March 31, 2025, compared to December 31, 2024[180] - Commercial real estate lending remains the primary focus, representing approximately 56.7% of the total gross loan portfolio as of March 31, 2025[181] - Approximately 57.6% of the loans have adjustable/variable rates, and 42.4% have fixed rates, with most loans including interest rate floors[184] Asset Quality Describes the company's internal credit risk grading system for loans, categorizing them from 'Pass' to 'Loss' based on repayment capability - The company grades loans based on the borrower's estimated repayment capability, using internal credit risk grades: Pass, Special Mention, Substandard, Doubtful, and Loss[187][188][189][190] Loan Credit Exposures by Internally Assigned Grades (March 31, 2025, Dollars in thousands): | Loan Type | Pass | Special Mention | Substandard | Doubtful | Total | | :------------------------ | :--------- | :-------------- | :---------- | :------- | :---------- | | Residential Real Estate | $299,971 | $0 | $1,193 | $0 | $301,164 | | Commercial Real Estate | $1,143,041 | $4,643 | $2,445 | $0 | $1,150,129 | | Commercial and Industrial | $253,196 | $76 | $3,054 | $0 | $256,326 | | Correspondent Banks | $103,026 | $0 | $0 | $0 | $103,026 | | Consumer and Other | $216,721 | $0 | $1,990 | $0 | $218,711 | | Total Loans | $2,015,955 | $4,719 | $8,682 | $0 | $2,029,356 | Non-Performing Assets Reports the increase in non-performing assets, primarily non-accrual loans, while noting the strong allowance for credit losses Non-Performing Assets (Dollars in thousands, except ratios): | Item | March 31, 2025 | December 31, 2024 | | :------------------------------------ | :------------- | :---------------- | | Total non-performing loans | $4,156 | $2,707 | | Total non-performing assets | $4,156 | $2,707 | | Non-performing loans to total loans | 0.20% | 0.14% | | Allowance for credit losses to non-performing loans | 595% | 889% | - Commercial loans are placed on non-accrual status after 90 days past due, and residential loans after 120 days past due[194] Allowance for Credit Losses Details the increase in ACL for loans, driven by portfolio growth and economic forecast changes, including sensitivity analysis on qualitative factors Allowance for Credit Losses (ACL) on Loans (Dollars in thousands): | Item | March 31, 2025 | December 31, 2024 | | :-------------------- | :------------- | :---------------- | | Ending Balance (ACL) | $24,740 | $24,070 | | Net charge-offs (recoveries) to average loans (annualized) | 0.00% | 0.00% | - The FOMC economic forecasts as of March 31, 2025, showed moderate deterioration in unemployment and real GDP, and the Fannie Mae House Price Index (HPI) forecast reflected a deterioration in national housing prices, influencing the ACL[201] - A sensitivity analysis showed that for every 100 basis points increase in the HPI, the forecast reduces residential loan reserves by approximately $334 thousand. For commercial real estate, a change from no risk to high risk in qualitative factors resulted in a $10.2 million (41.0%) increase in the ACL[202][203] Bank-Owned Life Insurance Reports the cash surrender value of Bank-Owned Life Insurance (BOLI) policies and how changes are recognized as non-interest income - As of March 31, 2025, the combined cash surrender value of all bank-owned life insurance (BOLI) policies was $57.9 million[204] - Changes in cash surrender value are recorded as non-interest income in the Consolidated Statements of Operations[204] Deposits Analyzes the significant increase in customer deposits, detailing the granular portfolio composition and management of uninsured deposits - Total deposits increased by $135.6 million, or 25.3% annualized, to $2.31 billion at March 31, 2025, compared to $2.17 billion at December 31, 2024[169] - The deposit portfolio is granular, with 55% in commercial deposits, 32% personal deposits, 5% public funds, and 8% brokered deposits as of March 31, 2025[207] - The estimated percentage of uninsured deposits was 54% at March 31, 2025. The company offers Insured Cash Sweep (ICS) and Certificate of Deposit Account Registry Service (CDARS) products, with balances of $158.5 million at March 31, 2025, to fully insure clients[209] Other Liabilities Reports the significant increase in escrow balances held for real estate taxes and insurance for loan customers - Escrow balances totaled $13.5 million as of March 31, 2025, compared to $6.1 million at December 31, 2024[212] Borrowings Details the company's borrowing sources, including FHLB advances, Federal Funds lines, and Federal Reserve Discount Window access - As of March 31, 2025, the company had $108.0 million of fixed-rate advances outstanding from the FHLB, with a weighted average rate of 3.60% and maturity dates ranging from 2025 to 2028[214][216] - The company also has Federal Funds lines of credit and access to the Federal Reserve Bank of Atlanta Discount Window, with no outstanding balances as of March 31, 2025[217] - During Q3 2024, the company paid off an $80.0 million fixed-rate loan from the Bank Term Funding Program[216] Off-Balance Sheet Arrangements Reports the increase in off-balance sheet commitments, including credit extensions and letters of credit, and associated risk management Lending Related Commitments Outstanding (Dollars in thousands): | Commitment Type | March 31, 2025 | December 31, 2024 | | :------------------------------------------ | :------------- | :---------------- | | Commitments to grant loans & unfunded lines | $132,466 | $122,578 | | Standby & commercial letters of credit | $3,346 | $5,389 | | Total | $135,812 | $127,967 | - An allowance for off-balance sheet credit risk of $581 thousand was recorded at March 31, 2025 (compared to $415 thousand at March 31, 2024)[218] Asset and Liability Management Committee Describes the ALCO's role in overseeing interest rate risk management, utilizing income simulations and EVE assessments for monitoring exposures - The ALCO oversees the establishment, approval, implementation, and review of interest rate risk management strategies, policies, and risk tolerances[224] - Income simulations (static and dynamic) are used to assess the impact of changing rates on earnings, while Economic Value of Equity (EVE) is used to measure the long-term economic impact on capital[226][227] Market and Interest Rate Risk Management Assesses the company's balance sheet sensitivity to interest rate changes, indicating a favorable impact on net interest income from rising rates - As of March 31, 2025, the company had a neutral to slightly asset sensitive balance sheet for year one and an asset sensitive balance sheet for year two, using the static model[228] - Asset sensitivity implies that assets reprice faster than liabilities, leading to a favorable impact on net interest income when market interest rates increase[228] - Management can modify the balance sheet to adjust asset or liability duration to manage asset sensitivity[229] Liquidity Details the company's liquidity management, including funding sources, access to external lines, and comprehensive risk management processes - Liquidity is defined as the company's capacity to meet its cash and collateral obligations at a reasonable cost[231] - Primary funding sources include the core deposit base, repayment and maturity of loans, and investment portfolio cash flows[238] - Additional funding sources include Federal Funds purchased, brokered certificates of deposit, unsecured fed funds lines, and borrowings from the FHLB and Federal Reserve Bank of Atlanta discount window[238] - The company has established a comprehensive process for identifying, measuring, monitoring, and mitigating liquidity risk, integrated into its risk management processes and Contingency Funding Plan[236] Capital Adequacy Assesses the company's and Bank's capital adequacy, confirming 'well capitalized' status and compliance with regulatory requirements - As of March 31, 2025, the Bank was 'well capitalized' under the FDIC's prompt corrective action framework, and both the Company and the Bank exceeded all regulatory capital requirements[239] Bank Capital Ratios (Dollars in thousands, except ratios): | Capital Ratio | March 31, 2025 (Actual Ratio) | December 31, 2024 (Actual Ratio) | Minimum Capital Requirements | Well Capitalized Provisions | | :---------------------- | :---------------------------- | :--------------------------- | :--------------------------- | :-------------------------- | | Total risk-based capital | 13.65% | 13.34% | 8.00% | 10.00% | | Tier 1 risk-based capital | 12.41% | 12.10% | 6.00% | 8.00% | | Common equity tier 1 capital | 12.41% | 12.10% | 4.50% | 6.50% | | Leverage ratio | 9.55% | 9.38% | 4.00% | 5.00% | - The Company is not subject to regulatory capital ratios imposed by Basel III on bank holding companies because it is deemed a small bank holding company[240] Impact of Inflation Analyzes the impact of inflation on operating costs and emphasizes the greater influence of interest rates on company performance - The impact of inflation is mostly reflected in the increased cost of operations and overhead expenses[242] - Interest rates have a greater impact on the company's performance than the effects of inflation, as nearly all assets and liabilities are monetary in nature[242] Recently Issued Accounting Pronouncements Refers to Note 1 for details on recently issued accounting pronouncements and their impact on financial reporting - Details on recently issued accounting pronouncements are discussed in Note 1 'Summary of Significant Accounting Policies' to the unaudited Consolidated Financial Statements in Part I of this Form 10-Q[243] Reconciliation and Management Explanation of Non-GAAP Financial Measures Provides reconciliation and management's explanation of non-GAAP financial measures, offering supplemental insights into performance trends - Management includes non-GAAP measures to provide useful supplemental information for evaluating the company's underlying performance trends[245] Selected Non-GAAP Financial Measures (As of or For the Three Months Ended, Dollars in thousands, except per share data): | Metric | Mar 31, 2025 | Dec 31, 2024 | Sep 30, 2024 | Jun 30, 2024 | Mar 31, 2024 | | :------------------------------------------ | :----------- | :----------- | :----------- | :----------- | :----------- | | Pre-tax pre-provision ("PTPP") income | $10,779 | $10,131 | $10,093 | $8,962 | $6,448 | | Operating net income | $7,658 | $6,904 | $6,949 | $6,199 | $4,612 | | Operating efficiency ratio | 52.79% | 55.92% | 53.16% | 56.37% | 63.41% | | Tangible book value per common share | $11.23 | $10.81 | $10.90 | $10.24 | $9.92 | | Operating diluted net income per common share | $0.38 | $0.34 | $0.35 | $0.31 | $0.23 | | Tangible Common Equity/Tangible Assets | 8.41% | 8.34% | 8.54% | 8.18% | 7.83% | Item 3. Quantitative and Qualitative Disclosures About Market Risk States that as a smaller reporting company, the registrant is exempt from providing quantitative and qualitative market risk disclosures - As a smaller reporting company, the registrant is not required to provide quantitative and qualitative disclosures about market risk[252] Item 4. Controls and Procedures Details management's evaluation of disclosure controls and procedures, confirming their effectiveness and reporting no material changes in internal controls Evaluation of Disclosure Controls and Procedures Reports management's evaluation of disclosure controls and procedures, concluding their effectiveness as of March 31, 2025 - Management, including the President and CEO and CFO, evaluated the effectiveness of the company's disclosure controls and procedures as of March 31, 2025[253] - Based on this evaluation, management believes the disclosure controls and procedures were effective to collect, process, and disclose required information within the specified time periods[253] Changes in Internal Control Over Financial Reporting Confirms no material changes in internal control over financial reporting occurred during the period covered by this Form 10-Q - There has been no change in the company's internal control over financial reporting during the period covered by this Form 10-Q that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting[254] Limitations on Effectiveness of Controls and Procedures Acknowledges that all controls and procedures inherently provide only reasonable, not absolute, assurance of achieving objectives - Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving desired control objectives[255] PART II - OTHER INFORMATION Item 1. Legal Proceedings Reports no material legal proceedings, but acknowledges routine claims and litigation, with potential future financial impacts - The company is not currently subject to any material legal proceedings[257] - The company is from time to time subject to claims and litigation arising in the ordinary course of business, including allegations of banking and other regulatory violations, labor laws, and consumer protection laws[257] - There is no assurance that future legal proceedings will not be decided adversely to the company's interests and have a material adverse effect on its financial condition and operations[258] Item 1A. Risk Factors Refers readers to the 2024 Form 10-K for detailed information on risk factors that could materially affect the company's business - For detailed information about certain risk factors, refer to 'Part I, Item 1A – Risk Factors' of the 2024 Form 10-K[259] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Reports the repurchase of Class A common stock during Q1 2025 and the remaining authorized shares under repurchase programs - The company repurchased 9,671 shares of Class A common stock at a weighted average cost of $17.91 per share, totaling approximately $174 thousand, during the three months ended March 31, 2025[114][262] - As of March 31, 2025, 528,309 shares remained authorized for repurchase under the company's two stock repurchase programs[262] Item 3. Defaults Upon Senior Securities States that this item is not applicable to the company - This item is not applicable to the company[263] Item 4. Mine Safety Disclosures States that this item is not applicable to the company - This item is not applicable to the company[263] Item 5. Other Information Reports no adoption or termination of Rule 10b5-1 or non-Rule 10b5-1 trading arrangements by directors or Section 16 persons - During the three months ended March 31, 2025, none of the company's directors or Section 16 reporting persons adopted or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement[264] Item 6. Exhibit Index Lists all exhibits filed with the 10-Q report, including corporate governance documents, agreements, and certifications - The exhibit index includes corporate governance documents (Articles of Incorporation, Bylaws), various agreements, certifications from the Chief Executive Officer and Chief Financial Officer, and Inline XBRL formatted financial statements[265] Signatures Identifies the key executives, Luis de la Aguilera and Robert Anderson, who signed the report on May 9, 2025 - The report was signed by Luis de la Aguilera (Chairman, President and Chief Executive Officer) and Robert Anderson (Executive Vice President and Chief Financial Officer) on May 9, 2025[266]