USCB Financial (USCB) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the Company's unaudited consolidated financial statements and management's analysis of financial condition and operations Item 1. Financial Statements This section presents USCB Financial Holdings, Inc.'s unaudited consolidated financial statements and detailed notes for Q2 2025 and FY2024 Consolidated Balance Sheets This section summarizes the Company's consolidated balance sheets, highlighting key asset, liability, and equity figures Consolidated Balance Sheet Highlights (Dollars in thousands): | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Total Assets | $2,719,474 | $2,581,216 | | Total Liabilities | $2,487,891 | $2,365,828 | | Total Stockholders' Equity | $231,583 | $215,388 | | Loans held for investment, net | $2,088,385 | $1,948,778 | | Total Deposits | $2,335,661 | $2,174,004 | | Federal Home Loan Bank advances | $108,000 | $163,000 | Consolidated Statements of Operations This section presents the Company's consolidated statements of operations, detailing interest income, expense, and net income Consolidated Statements of Operations Highlights (Dollars in thousands, except per share data): | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total interest income | $36,154 | $32,617 | $70,132 | $63,504 | | Total interest expense | $15,120 | $15,306 | $29,983 | $31,035 | | Net interest income before provision for credit losses | $21,034 | $17,311 | $40,149 | $32,469 | | Provision for credit losses | $1,031 | $786 | $1,712 | $1,196 | | Net income | $8,140 | $6,209 | $15,798 | $10,821 | | Net income per share, basic | $0.41 | $0.32 | $0.79 | $0.55 | | Net income per share, diluted | $0.40 | $0.31 | $0.78 | $0.55 | | Cash dividends declared | $0.10 | $0.05 | $0.20 | $0.10 | Consolidated Statements of Comprehensive Income This section outlines the Company's consolidated statements of comprehensive income, including net income and other comprehensive income Consolidated Statements of Comprehensive Income Highlights (Dollars in thousands): | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $8,140 | $6,209 | $15,798 | $10,821 | | Total other comprehensive income (loss), net of tax | $(639) | $741 | $2,782 | $(415) | | Total comprehensive income | $7,501 | $6,950 | $18,580 | $10,406 | Consolidated Statements of Changes in Stockholders' Equity This section details changes in the Company's stockholders' equity, including net income, dividends, and stock-based compensation Changes in Stockholders' Equity (Dollars in thousands): | Metric | Balance at March 31, 2025 | Balance at June 30, 2025 | | :----------------------------------- | :------------------------ | :----------------------- | | Total Stockholders' Equity | $225,088 | $231,583 | | Net income | - | $8,140 | | Other comprehensive loss | - | $(639) | | Exercise of stock options | - | $225 | | Dividend payment | - | $(2,005) | | Stock-based compensation | - | $774 | Changes in Stockholders' Equity (Dollars in thousands): | Metric | Balance at December 31, 2024 | Balance at June 30, 2025 | | :----------------------------------- | :------------------------- | :----------------------- | | Total Stockholders' Equity | $215,388 | $231,583 | | Net income | - | $15,798 | | Other comprehensive income | - | $2,782 | | Repurchase of Class A common stock | - | $(174) | | Restricted stock issued | - | - | | Exercise of stock options | - | $317 | | Dividend payment | - | $(4,010) | | Stock-based compensation | - | $1,482 | Consolidated Statements of Cash Flows This section presents the Company's consolidated statements of cash flows, categorizing activities into operating, investing, and financing Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30, Dollars in thousands): | Cash Flow Activity | 2025 | 2024 | | :----------------------------------- | :--------- | :--------- | | Net cash provided by operating activities | $32,668 | $26,407 | | Net cash used in investment activities | $(157,674) | $(86,680) | | Net cash provided by financing activities | $102,790 | $96,472 | | Net increase (decrease) in cash and cash equivalents | $(22,216) | $36,199 | | Cash and cash equivalents at end of period | $54,819 | $77,261 | Notes to the Consolidated Financial Statements This section provides detailed notes explaining the significant accounting policies and specific financial statement items 1. Summary of Significant Accounting Policies USCB Financial Holdings, Inc. operates as a bank holding company through its wholly-owned subsidiary, U.S. Century Bank, providing financial services in South Florida. The financial statements are unaudited and prepared in accordance with U.S. GAAP, with the allowance for credit losses (ACL) being the most significant estimate. The company adopted ASU 2023-09, Income Taxes, effective January 1, 2025, with no material impact - USCB Financial Holdings, Inc. is a bank holding company operating through U.S. Century Bank, offering financial services in South Florida and title insurance through Florida Peninsula Title LLC[23][24] - The allowance for credit losses (ACL) is identified as the most significant estimate impacting the Company's consolidated financial statements[27] - The Company adopted ASU 2023-09, Income Taxes, effective January 1, 2025, which did not have a material impact on its consolidated financial statements[29] 2. Investment Securities The Company's investment portfolio includes Available-for-Sale (AFS) and Held-to-Maturity (HTM) securities. As of June 30, 2025, AFS securities had a fair value of $285.4 million with gross unrealized losses of $47.2 million, while HTM securities, net of a $7 thousand ACL, totaled $158.7 million. All HTM securities were investment grade, and no allowance for credit losses was required for AFS securities Investment Securities Summary (Dollars in thousands): | Category | June 30, 2025 (Fair Value) | December 31, 2024 (Fair Value) | | :----------------------------------- | :------------------------- | :------------------------- | | Available-for-sale securities | $285,382 | $260,221 | | Held-to-maturity securities, net of ACL | $158,740 | $164,694 | Unrealized Losses on AFS Securities (June 30, 2025, Dollars in thousands): | Category | Fair Value (Less than 12 months) | Unrealized Losses (Less than 12 months) | Fair Value (12 months or more) | Unrealized Losses (12 months or more) | Total Fair Value | Total Unrealized Losses | | :----------------------------------- | :------------------------------- | :------------------------------------ | :----------------------------- | :------------------------------------ | :--------------- | :---------------------- | | U.S. Government Agency | $3,163 | $(48) | $8,083 | $(1,428) | $11,246 | $(1,476) | | Collateralized mortgage obligations | - | - | $72,887 | $(20,748) | $72,887 | $(20,748) | | Mortgage-backed securities - residential | $5,980 | $(29) | $43,649 | $(10,995) | $49,629 | $(11,024) | | Mortgage-backed securities - commercial | $60,802 | $(1,637) | $32,732 | $(6,624) | $93,534 | $(8,261) | | Municipal securities | - | - | $19,830 | $(5,054) | $19,830 | $(5,054) | | Bank subordinated debt securities | $6,039 | $(18) | $14,333 | $(639) | $20,372 | $(657) | | Total | $75,984 | $(1,732) | $191,514 | $(45,488) | $267,498 | $(47,220) | - The Company holds a $7 thousand Allowance for Credit Losses (ACL) for HTM securities, primarily for investment-grade corporate bonds, as U.S. Government and Agency bonds are explicitly/implicitly guaranteed[38] - No allowance for credit losses was required on AFS securities as of June 30, 2025, following an evaluation of fair value declines attributed to interest rate risk rather than credit-related factors[39] 3. Loans The loan portfolio increased to $2.11 billion at June 30, 2025, with commercial real estate loans comprising 57.3%. The Allowance for Credit Losses (ACL) for loans increased to $24.9 million due to loan growth, despite charge-offs of $710 thousand for the three months ended June 30, 2025. Non-performing loans decreased to $1.37 million, and the Company had no new loan modifications for borrowers experiencing financial difficulties in Q2 2025 Loan Portfolio Composition (Dollars in thousands): | Loan Type | June 30, 2025 (Total) | June 30, 2025 (Percent of Total) | December 31, 2024 (Total) | December 31, 2024 (Percent of Total) | | :-------------------------- | :-------------------- | :------------------------------- | :------------------------ | :------------------------------- | | Residential Real Estate | $307,020 | 14.6% | $289,961 | 14.8% | | Commercial Real Estate | $1,206,621 | 57.3% | $1,136,417 | 57.8% | | Commercial and Industrial | $263,966 | 12.5% | $258,311 | 13.1% | | Correspondent Banks | $110,155 | 5.2% | $82,438 | 4.2% | | Consumer and Other | $218,426 | 10.4% | $198,091 | 10.1% | | Total gross loans | $2,106,188 | 100.0% | $1,965,218 | 100.0% | | Allowance for credit losses | $24,933 | - | $24,070 | - | | Total net loans | $2,088,385 | - | $1,948,778 | - | Allowance for Credit Losses (ACL) and Charge-offs (Dollars in thousands): | Metric | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | | :----------------------------------- | :------------------------------- | :----------------------------- | | Beginning balance (ACL) | $24,740 | $24,070 | | Provision for credit losses | $895 | $1,567 | | Recoveries | $8 | $19 | | Charge-offs | $(710) | $(723) | | Ending Balance (ACL) | $24,933 | $24,933 | Non-Performing Assets (Dollars in thousands): | Metric | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Non-accrual loans | $1,366 | $2,707 | | Total non-performing loans | $1,366 | $2,707 | | Non-performing loans to total loans | 0.06% | 0.14% | - The increase in ACL for loans by $863 thousand was primarily driven by loan growth[55] - No new loan modifications for borrowers experiencing financial difficulties occurred during the three and six months ended June 30, 2025[78] 4. Income Taxes For the six months ended June 30, 2025, the Company reported a total income tax expense of $5.04 million, an increase from $3.39 million in the prior year, with an effective tax rate of 24.2%. The net deferred tax assets decreased to $23.66 million from $29.65 million at December 31, 2024, primarily due to a reduction in net operating loss deferred tax assets Income Tax Expense (Six Months Ended June 30, Dollars in thousands): | Metric | 2025 | 2024 | | :----------------------------------- | :--------- | :--------- | | Total tax expense | $5,039 | $3,393 | | Effective tax rate | 24.2% | 23.9% | Net Deferred Tax Assets (Dollars in thousands): | Metric | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Net deferred tax assets | $23,663 | $29,646 | | Net operating loss deferred tax assets | $3,942 | $9,276 | - The Company has approximately $11.7 million of federal and $34.4 million of state net operating loss carryforwards expiring between 2031 and 2036[81] 5. Off-Balance Sheet Arrangements The Company engages in off-balance sheet arrangements, including commitments to grant loans, unfunded lines of credit, and standby/commercial letters of credit, totaling $126.67 million at June 30, 2025. These instruments involve credit and interest rate risk, managed with the same credit policies as on-balance sheet instruments Off-Balance Sheet Financial Instruments (Dollars in thousands): | Commitment Type | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Commitments to grant loans and unfunded lines of credit | $124,051 | $122,578 | | Standby and commercial letters of credit | $2,616 | $5,389 | | Total | $126,667 | $127,967 | - The Company uses the same credit policies for off-balance sheet commitments as for on-balance sheet instruments to manage credit and interest rate risk[87] 6. Derivatives As of June 30, 2025, the Company had $50 million in interest rate swap agreements designated as cash flow hedges for certificates of deposit, with an average maturity of 0.88 years. The Company also had 70 interest rate swaps with loan customers, totaling $237.8 million in notional amount, which are economically hedged but not designated for accounting purposes Interest Rate Swaps (Dollars in thousands): | Category | Notional Amount (June 30, 2025) | Fair Value Asset (June 30, 2025) | Fair Value Liability (June 30, 2025) | | :----------------------------------- | :------------------------------ | :----------------------------- | :------------------------------- | | Derivatives designated as cash flow hedges | $50,000 | $135 | - | | Derivatives not designated as hedging instruments (customer loans) | $237,804 | $9,260 | $9,260 | - The Company unwound four fair value interest rate swaps with a notional aggregate amount of $200 million during Q3 2024, incurring an early termination fee of $3.7 million, due to changes in interest rate forecasts and asset-liability management strategies[96] 7. Fair Value Measurements The Company measures financial assets and liabilities at fair value using a three-level hierarchy based on input observability. As of June 30, 2025, all investment securities available for sale ($285.38 million) and derivatives ($9.40 million assets, $9.26 million liabilities) were classified as Level 2, indicating valuations based on observable inputs other than quoted prices Assets and Liabilities Measured at Fair Value on a Recurring Basis (June 30, 2025, Dollars in thousands): | Category | Level 1 | Level 2 | Level 3 | Total | | :----------------------------------- | :------ | :------ | :------ | :------ | | Investment securities available for sale | - | $285,382 | - | $285,382 | | Derivative assets | - | $9,395 | - | $9,395 | | Derivative liabilities | - | $9,260 | - | $9,260 | - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1 quoted prices), and Level 3 (unobservable inputs)[104][105][106] 8. Stockholders' Equity As of June 30, 2025, the Company had 20,078,385 shares of Class A common stock outstanding. During the six months ended June 30, 2025, the Company issued 124,424 restricted stock awards and repurchased 9,671 shares. Quarterly cash dividends of $0.10 per share were declared for Q1 and Q2 2025, totaling $4.0 million. The Bank remains 'well-capitalized' with a total risk-based capital ratio of 13.67% at June 30, 2025 Common Stock and Dividends: | Metric | June 30, 2025 | | :----------------------------------- | :------------ | | Class A common stock outstanding | 20,078,385 shares | | Shares repurchased (6 months ended June 30, 2025) | 9,671 shares | | Quarterly dividend per share (Q1 & Q2 2025) | $0.10 | | Total dividends paid (6 months ended June 30, 2025) | $4.0 million | Bank Capital Ratios (June 30, 2025): | Capital Ratio | Actual Ratio | Minimum Capital Requirements | To be Well Capitalized | | :----------------------------------- | :----------- | :--------------------------- | :--------------------- | | Total risk-based capital | 13.67% | 8.00% | 10.00% | | Tier 1 risk-based capital | 12.45% | 6.00% | 8.00% | | Common equity tier 1 capital | 12.45% | 4.50% | 6.50% | | Leverage ratio | 9.65% | 4.00% | 5.00% | - The Company is not subject to Basel III regulatory capital ratios for bank holding companies as it is deemed a small bank holding company[268] 9. Earnings Per Share Basic and diluted earnings per share are calculated using the two-class method. For the three months ended June 30, 2025, basic EPS was $0.41 and diluted EPS was $0.40. For the six months ended June 30, 2025, basic EPS was $0.79 and diluted EPS was $0.78, reflecting an increase compared to the prior year Earnings Per Share (EPS) (Except share amounts): | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income available to common shares | $8,140 | $6,209 | $15,798 | $10,821 | | Basic EPS | $0.41 | $0.32 | $0.79 | $0.55 | | Diluted EPS | $0.40 | $0.31 | $0.78 | $0.55 | 10. Segment Reporting The Company operates as a single reportable segment, as its business activities through U.S. Century Bank are similar in nature and economic characteristics, primarily serving commercial and specialty banking clients in South Florida. The Chief Operating Decision Maker (CODM) reviews consolidated financial information and evaluates performance on an overall Company-wide basis - The Company has determined 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[129][130] 11. Loss Contingencies The Company is subject to claims and legal actions in the ordinary course of business, but management believes none of these are expected to have a material adverse effect on the consolidated financial statements - Management does not expect current loss contingencies, including claims and legal actions, to have a material adverse effect on the Company's Consolidated Financial Statements[132] 12. Related Party Transactions During the six months ended June 30, 2025, the Bank purchased $70.0 million in loans from related entities and acted as lead arranger for a $40.0 million syndicated loan to a related party, holding a $15.0 million outstanding balance. These transactions were reviewed and approved, deemed to be executed on arm's-length terms - The Bank purchased $70.0 million in loans from related parties during the six months ended June 30, 2025, paying net fees of $447 thousand[134] - The Bank arranged a $40.0 million syndicated loan to a related party, holding a $15.0 million balance, which was reviewed and approved as an arm's-length transaction[135] 13. Subsequent Events Subsequent to June 30, 2025, the Board declared a $0.10 per share cash dividend for Q3 2025. The Company also entered into two two-year costless collar hedge agreements in July and August 2025, each with a notional amount of $50 million, to manage interest rate volatility on brokered CDs. Kroll Bond Rating Agency assigned investment grade debt ratings to both the Company and the Bank in July 2025 - A quarterly cash dividend of $0.10 per share for Q3 2025 was declared on July 21, 2025, to be paid on September 5, 2025[137] - In July and August 2025, the Company entered into two separate two-year costless collar hedge agreements, each with a notional amount of $50 million, to manage interest rate volatility on three-month brokered CDs[138][139] - Kroll Bond Rating Agency assigned investment grade debt ratings to both the Company and the Bank in July 2025[141] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the Company's financial condition and results of operations for Q2 and H1 2025, including key highlights, income, expenses, and capital Forward-Looking Statements This section identifies forward-looking statements within the Form 10-Q, which involve significant risks and uncertainties that could cause actual results to differ materially from expectations. These risks include economic conditions, interest rate and credit risk management, regulatory compliance, market changes, and concentration risks - Forward-looking statements are identified by words like "may," "will," "anticipate," and "expect," and involve significant risks and uncertainties[146][147] - Potential risks include economic strength, interest rate and credit risk management, accuracy of financial estimates, regulatory compliance, market conditions, and concentration in the South Florida market and real estate loans[147] Overview The Company reported increased net income and diluted EPS for both the three and six months ended June 30, 2025, driven by improved net interest margin and loan portfolio growth. Total assets, loans, and deposits also saw significant increases. The Bank maintained a 'well-capitalized' status, and tangible book value per common share increased Key Financial Highlights (Quarter Ended June 30, 2025 vs. 2024, and Period-End June 30, 2025 vs. Dec 31, 2024): | Metric | Q2 2025 | Q2 2024 | Change (YoY) | June 30, 2025 | Dec 31, 2024 | Change (Annualized) | | :----------------------------------- | :------ | :------ | :----------- | :------------ | :----------- | :------------------ | | Net income (in millions) | $8.1 | $6.2 | +31.1% | - | - | - | | Diluted EPS | $0.40 | $0.31 | +29.0% | - | - | - | | Net interest income (in millions) | $21.0 | $17.3 | +21.5% | - | - | - | | Net interest margin (NIM) | 3.28% | 2.94% | +34 bps | - | - | - | | Total assets (in billions) | - | - | - | $2.72 | $2.58 | +10.8% | | Total loans held for investment (in billions) | - | - | - | $2.11 | $1.97 | +14.4% | | Total deposits (in billions) | - | - | - | $2.34 | $2.17 | +15.0% | | Annualized return on average assets | 1.22% | 1.01% | +21 bps | - | - | - | | Annualized return on average stockholders' equity | 14.29% | 12.63% | +166 bps | - | - | - | | Non-performing loans to total loans | 0.06% | - | - | 0.06% | 0.14% | - | | Total risk-based capital ratio (Bank) | 13.67% | - | - | 13.67% | 13.34% | - | | Tangible book value per common share | - | - | - | $11.53 | $10.81 | +13.5% | | ACL to total loans | 1.18% | - | - | 1.18% | 1.22% | - | - The Company filed a $100.0 million universal shelf offering to allow for future securities offerings without new registration statements[154] Critical Accounting Policies and Estimates The Company's financial statements rely on U.S. GAAP, with critical estimates including the allowance for credit losses (ACL) and deferred tax asset valuation allowance. Management's judgments in these areas are significant and can lead to differences between estimates and actual results - The most significant estimates impacting financial statements are the allowance for credit losses (ACL) and deferred tax asset valuation allowance[155] Non-GAAP Financial Measures The Company uses non-GAAP financial measures to provide supplemental information for evaluating underlying performance trends, which management utilizes in business management and evaluation. These measures are presented in addition to, not as a substitute for, GAAP measures and are reconciled in a dedicated section - Non-GAAP measures are used to provide useful supplemental information for evaluating underlying performance trends and are reconciled to the most directly comparable GAAP measures[156] Segment Reporting Management monitors revenue streams across all products and services, but due to immateriality of identifiable segments and overall Company-wide performance evaluation, all financial service operations are aggregated into one reportable operating segment - All financial service operations are aggregated into one reportable operating segment due to the immateriality of identifiable segments and overall Company-wide performance evaluation[157] Results of Operations Net income increased significantly for both the three and six months ended June 30, 2025, primarily driven by an improved net interest margin, a larger loan portfolio with higher yields, and reduced interest expense. Increased fee-generating transactions also contributed to the six-month growth Consolidated Statements of Operations Highlights (Dollars in thousands): | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net interest income before provision for credit losses | $21,034 | $17,311 | $40,149 | $32,469 | | Total non-interest income | $3,370 | $3,211 | $7,086 | $5,675 | | Total non-interest expense | $12,634 | $11,560 | $24,686 | $22,734 | | Net income | $8,140 | $6,209 | $15,798 | $10,821 | | Efficiency ratio | 51.77% | 56.33% | 52.26% | 59.60% | | Net interest margin | 3.28% | 2.94% | 3.18% | 2.78% | - Net income for the three months ended June 30, 2025, increased by $1.9 million (31.1%) to $8.1 million, primarily due to improved net interest margin, a larger loan portfolio, and reduced interest expense[161] - Net income for the six months ended June 30, 2025, increased by $5.0 million (46.0%) to $15.8 million, driven by improved net interest margin, a larger loan portfolio, reduced interest expense, and increased fee-generating transactions[162] Net Interest Income Net interest income before provision for credit losses increased by $3.7 million (21.5%) to $21.0 million for the three months ended June 30, 2025, and by $7.7 million (23.7%) to $40.1 million for the six months ended June 30, 2025. This growth was primarily due to an expanded loan portfolio earning higher yields and a reduction in rates paid on interest-bearing liabilities, leading to a Net Interest Margin (NIM) expansion of 34 basis points (to 3.28%) and 40 basis points (to 3.18%) for the respective periods Net Interest Income and Margin (Dollars in thousands): | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net interest income before provision for credit losses | $21,034 | $17,311 | $40,149 | $32,469 | | Net interest margin (NIM) | 3.28% | 2.94% | 3.18% | 2.78% | | Net interest spread | 2.32% | 1.78% | 2.23% | 1.63% | - The NIM expanded by 34 basis points for the three months ended June 30, 2025, and by 40 basis points for the six months ended June 30, 2025, reflecting higher loan yields, loan portfolio growth, and decreased interest rates on liabilities[174][176] Provision for Credit Losses The provision for credit losses increased to $1.0 million for the three months and $1.7 million for the six months ended June 30, 2025, compared to the prior year periods. This increase was primarily driven by loan portfolio growth, partially offset by a release of reserves related to individually evaluated loans following a charge-off Provision for Credit Losses (Dollars in thousands): | Period | 2025 | 2024 | | :----------------------------------- | :--------- | :--------- | | Three months ended June 30, | $1,031 | $786 | | Six months ended June 30, | $1,712 | $1,196 | - The increase in provision for credit losses was primarily driven by loan portfolio growth, partially offset by a release of reserves from individually evaluated loans[179][180] Non-Interest Income Non-interest income increased by $159 thousand (5.0%) to $3.37 million for the three months ended June 30, 2025, and by $1.4 million (24.9%) to $7.09 million for the six months ended June 30, 2025. This growth was mainly attributed to higher prepayment penalties and title insurance income, with the six-month period also benefiting from increased gains on loan sales Non-Interest Income (Dollars in thousands): | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Service fees | $2,402 | $1,977 | $4,733 | $3,628 | | Gain on sale of loans held for sale, net | $151 | $417 | $676 | $484 | | Other non-interest income | $817 | $803 | $1,677 | $1,549 | | Total non-interest income | $3,370 | $3,211 | $7,086 | $5,675 | - The increase in non-interest income was primarily driven by growth in prepayment penalties and title insurance income, with the six-month period also seeing an increase in gain on sale of loans[183][184] Non-Interest Expense Non-interest expense increased by $1.1 million (9.3%) to $12.63 million for the three months ended June 30, 2025, and by $2.0 million (8.6%) to $24.69 million for the six months ended June 30, 2025. This rise was mainly due to higher salaries and employee benefits, reflecting merit increases and increased stock-based compensation, and a comparative increase in other operating expenses due to a prior-year reimbursement Non-Interest Expense (Dollars in thousands): | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Salaries and employee benefits | $7,954 | $7,353 | $15,590 | $13,663 | | Other operating expense | $2,120 | $1,723 | $4,133 | $3,741 | | Total non-interest expense | $12,634 | $11,560 | $24,686 | $22,734 | - The increase in non-interest expense was primarily driven by a $601 thousand rise in salaries and employee benefits (merit increases, stock-based compensation) for the three-month period, and a $1.9 million increase for the six-month period (merit increases, new FTE salaries, payroll taxes, group insurance, stock-based compensation)[187][188] Provision for Income Tax Income tax expense increased to $2.6 million for the three months and $5.0 million for the six months ended June 30, 2025, reflecting the higher net income. The effective tax rate remained stable at approximately 24.2% for both periods Income Tax Expense and Effective Tax Rate: | Period | Income Tax Expense (Dollars in thousands) | Effective Tax Rate | | :----------------------------------- | :-------------------------------- | :----------------- | | Three months ended June 30, 2025 | $2,599 | 24.2% | | Three months ended June 30, 2024 | $1,967 | 24.1% | | Six months ended June 30, 2025 | $5,039 | 24.2% | | Six months ended June 30, 2024 | $3,393 | 23.9% | Analysis of Financial Condition The Company's financial condition improved with total assets increasing to $2.72 billion, driven by a 14.4% annualized growth in total loans to $2.11 billion and a 15.0% annualized growth in total deposits to $2.34 billion at June 30, 2025. This section details the management of investment securities, loan portfolio composition and quality, deposit funding, borrowings, off-balance sheet arrangements, and capital adequacy, all managed under the ALCO's risk management framework Key Financial Condition Metrics (Dollars in thousands): | Metric | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Total assets | $2,719,474 | $2,581,216 | | Total loans (net of deferred fees/costs) | $2,113,318 | $1,972,848 | | Total deposits | $2,335,661 | $2,174,004 | - Total assets increased by $138.3 million (10.8% annualized), total loans by $140.5 million (14.4% annualized), and total deposits by $161.7 million (15.0% annualized) from December 31, 2024, to June 30, 2025[193] Investment Securities The investment portfolio, comprising AFS and HTM securities, increased to $444.1 million at June 30, 2025, up 9.1% annualized from December 31, 2024. The portfolio is managed for liquidity, interest rate risk, and profitability, with a focus on high credit quality securities. $49.6 million in securities were pledged to secure public deposits Investment Securities (Dollars in thousands): | Category | June 30, 2025 (Amortized Cost) | June 30, 2025 (Fair Value) | December 31, 2024 (Amortized Cost) | December 31, 2024 (Fair Value) | | :----------------------------------- | :----------------------------- | :------------------------- | :--------------------------------- | :------------------------- | | Available-for-sale | $332,309 | $285,382 | $310,925 | $260,221 | | Held-to-maturity, net of ACL | $158,740 | $142,877 | $164,694 | $145,540 | | Aggregate AFS and HTM | $491,049 | $428,259 | $475,619 | $405,761 | - Aggregate AFS and HTM investment securities increased by $19.2 million (9.1% annualized) to $444.1 million at June 30, 2025, driven by reinvestment of payments and excess cash into high credit quality securities[200] - As of June 30, 2025, $49.6 million of investment securities were pledged to secure public deposits[201] Loans The total loan portfolio, net of deferred fees/costs, grew by $140.5 million (14.4% annualized) to $2.11 billion at June 30, 2025, with commercial real estate loans remaining the primary focus at 57.3% of the total gross loan portfolio. Approximately 59.1% of the loan portfolio has adjustable/variable rates, providing protection against decreasing interest rates due to embedded floors Loan Portfolio Composition (Dollars in thousands): | Loan Type | June 30, 2025 (Total) | June 30, 2025 (Percent of Total) | December 31, 2024 (Total) | December 31, 2024 (Percent of Total) | | :-------------------------- | :-------------------- | :------------------------------- | :------------------------ | :------------------------------- | | Residential Real Estate | $307,020 | 14.6% | $289,961 | 14.8% | | Commercial Real Estate | $1,206,621 | 57.3% | $1,136,417 | 57.8% | | Commercial and Industrial | $263,966 | 12.5% | $258,311 | 13.1% | | Correspondent Banks | $110,155 | 5.2% | $82,438 | 4.2% | | Consumer and Other | $218,426 | 10.4% | $198,091 | 10.1% | | Total gross loans | $2,106,188 | 100.0% | $1,965,218 | 100.0% | | Total loans net of deferred fees/costs | $2,113,318 | - | $1,972,848 | - | - Commercial real estate lending remains the primary focus, representing approximately 57.3% of the total gross loan portfolio at June 30, 2025[207] - Approximately 59.1% of the loan portfolio has adjustable/variable rates, with most loans having interest rate floors to protect against decreasing interest rates[210] Asset Quality The Company's asset quality is assessed through internal credit risk grades, with the majority of loans classified as 'Pass'. Non-performing loans decreased to $1.37 million (0.06% of total loans) at June 30, 2025, from $2.71 million (0.14%) at December 31, 2024. The Allowance for Credit Losses (ACL) for loans increased to $24.93 million, primarily due to loan growth, and sensitivity analyses were performed on residential and commercial real estate loan pools Loan Credit Exposures by Internal Grade (June 30, 2025, Dollars in thousands): | Loan Type | Pass | Special Mention | Substandard | Doubtful | Total | | :-------------------------- | :------- | :-------------- | :---------- | :------- | :-------- | | Residential Real Estate | $303,536 | $2,925 | $559 | - | $307,020 | | Commercial Real Estate | $1,198,870 | $5,327 | $2,424 | - | $1,206,621 | | Commercial and Industrial | $260,342 | $965 | $2,659 | - | $263,966 | | Correspondent Banks | $110,155 | - | - | - | $110,155 | | Consumer and Other | $218,426 | - | - | - | $218,426 | | Total | $2,091,329 | $9,217 | $5,642 | - | $2,106,188 | Non-Performing Assets and Ratios (Dollars in thousands): | Metric | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Non-accrual loans | $1,366 | $2,707 | | Total non-performing loans | $1,366 | $2,707 | | Allowance for credit losses to total loans | 1.18% | 1.22% | | Non-performing loans to total loans | 0.06% | 0.14% | - The ACL for loans was $24.9 million at June 30, 2025, an increase of $863 thousand from December 31, 2024, primarily due to loan growth[55][223] - A sensitivity analysis on the commercial real estate loan pool showed that a change from no risk to high risk in qualitative factors would result in a $9.4 million (36.4%) increase in the ACL[232] Bank-Owned Life Insurance As of June 30, 2025, the combined cash surrender value of the Company's Bank-Owned Life Insurance (BOLI) policies was $58.4 million. Changes in this value are recognized as non-interest income - The combined cash surrender value of BOLI policies was $58.4 million at June 30, 2025, with changes recorded as non-interest income[233] Deposits Customer deposits, the primary funding source, totaled $2.29 billion (daily average) for the three months ended June 30, 2025, with a weighted average rate paid of 2.46%. The deposit portfolio is granular, with 57% commercial, 28% personal, 8% public funds, and 8% brokered deposits. Uninsured deposits were estimated at 52% of total deposits, with $143.4 million covered by ICS/CDARS products Daily Average Deposit Balances and Rates (Three Months Ended June 30, Dollars in thousands): | Deposit Type | 2025 Average Balance | 2025 Average Rate Paid | 2024 Average Balance | 2024 Average Rate Paid | | :----------------------------------- | :------------------- | :------------------- | :------------------- | :------------------- | | Non-interest bearing demand deposits | $580,121 | 0.00% | $610,370 | 0.00% | | Interest-bearing demand deposits | $46,694 | 2.45% | $56,369 | 2.79% | | Saving and money market deposits | $1,211,513 | 3.12% | $1,101,272 | 3.68% | | Time deposits | $452,361 | 3.85% | $315,872 | 4.10% | | Total | $2,290,689 | 2.46% | $2,083,883 | 2.64% | - The deposit portfolio composition at June 30, 2025, was 57% commercial, 28% personal, 8% public funds, and 8% brokered deposits[235] - Estimated uninsured deposits were 52% at June 30, 2025, with $143.4 million covered by Insured Cash Sweep (ICS) and Certificate of Deposit Account Registry Service (CDARS) products[237] Other Liabilities Escrow balances, held for future payment of real estate taxes and insurance for loan customers, totaled $20.9 million at June 30, 2025, a significant increase from $6.1 million at December 31, 2024 - Escrow balances, recorded as accrued interest and other liabilities, totaled $20.9 million at June 30, 2025, up from $6.1 million at December 31, 2024[240] Borrowings As of June 30, 2025, the Company had $108.0 million in fixed-rate advances outstanding from the FHLB, with a weighted average rate of 3.60% and maturities ranging from 2025 to 2028. The Company also has Federal Funds lines of credit and access to the Federal Reserve Bank of Atlanta Discount Window, with no outstanding balances at period-end FHLB Advances (June 30, 2025, Dollars in thousands): | Interest Rate | Type of Rate | Maturity Date | Amount | | :------------ | :----------- | :------------ | :----- | | 1.07% | Fixed | July 18, 2025 | $6,000 | | 3.76% | Fixed | January 24, 2028 | $11,000 | | 3.77% | Fixed | April 25, 2028 | $50,000 | | 3.68% | Fixed | September 13, 2027 | $21,000 | | 3.79% | Fixed | March 23, 2026 | $20,000 | | Total | | | $108,000 | - The Company paid off an $80.0 million fixed-rate loan from the Bank Term Funding Program during Q3 2024[244] Off-Balance Sheet Arrangements Off-balance sheet commitments, including loan commitments and letters of credit, totaled $126.67 million at June 30, 2025. The Allowance for Credit Losses (ACL) related to unfunded commitments increased to $716 thousand, driven by an increase in commitments and a deterioration of the estimated loss rate Lending Related Commitments Outstanding (Dollars in thousands): | Commitment Type | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Commitments to grant loans and unfunded lines of credit | $124,051 | $122,578 | | Standby and commercial letters of credit | $2,616 | $5,389 | | Total | $126,667 | $127,967 | - The ACL related to unfunded commitments increased to $716 thousand at June 30, 2025, from $571 thousand at December 31, 2024, due to increased commitments and a deteriorating estimated loss rate[246] Asset and Liability Management Committee The Asset and Liability Management Committee (ALCO), composed of senior management and Board members, oversees the establishment and implementation of interest rate risk (IRR) management strategies and policies. ALCO utilizes income simulations and Economic Value of Equity (EVE) assessments to quantify and monitor IRR exposures, considering both earnings and economic impacts - ALCO is responsible for establishing, approving, implementing, and reviewing interest rate risk management strategies, policies, procedures, and risk tolerances[252] - The Company uses income simulations and Economic Value of Equity (EVE) assessments to evaluate the impact of changing interest rates on earnings and capital, respectively[254][255] Market and Interest Rate Risk Management As of June 30, 2025, the Company's balance sheet was slightly liability sensitive for year one and neutral for year two under static interest rate scenarios. An increase in interest rates is projected to negatively impact the Economic Value of Equity (EVE), while lower rates would have a positive impact. ALCO regularly reviews these analyses and defines strategies to manage interest rate risk - The balance sheet is slightly liability sensitive for year one and neutral for year two under static interest rate scenarios (increase/decrease of 400 basis points)[256][258] - An increase in interest rates is expected to have a negative impact on the Economic Value of Equity (EVE), while lower rates would have a positive impact[258] Liquidity The Company maintains adequate liquidity to meet cash and collateral obligations, managing liquidity risk through a comprehensive process integrated into its risk management, Contingency Funding Plan, and ALM policy. Funding sources include core deposits, loan repayments, investment portfolio cash flows, and access to Federal Funds, brokered CDs, and FHLB advances - Liquidity risk management is integrated into the Company's risk management processes, Contingency Funding Plan, and ALM policy[264] - Primary funding sources include core deposits, loan repayments, and investment portfolio cash flows, supplemented by Federal Funds, brokered CDs, and FHLB advances[266] Capital Adequacy As of June 30, 2025, the Bank was 'well capitalized' under FDIC's prompt corrective action framework, exceeding all regulatory capital requirements and capital conservation buffer ratios. The Company, as a small bank holding company, is not subject to Basel III regulatory capital ratios Bank Capital Ratios (June 30, 2025, Dollars in thousands): | Capital Ratio | Actual Amount | Actual Ratio | Minimum Capital Requirements Amount | Minimum Capital Requirements Ratio | To be Well Capitalized Amount | To be Well Capitalized Ratio | | :----------------------------------- | :------------ | :----------- | :---------------------------------- | :--------------------------------- | :---------------------------- | :--------------------------- | | Total risk-based capital | $287,836 | 13.67% | $168,507 | 8.00% | $210,634 | 10.00% | | Tier 1 risk-based capital | $262,180 | 12.45% | $126,380 | 6.00% | $168,507 | 8.00% | | Common equity tier 1 capital | $262,180 | 12.45% | $94,785 | 4.50% | $136,912 | 6.50% | | Leverage ratio | $262,180 | 9.65% | $108,629 | 4.00% | $135,786 | 5.00% | - The Bank exceeded all regulatory capital requirements and remained above 'well-capitalized' guidelines as of June 30, 2025[267] Impact of Inflation Inflation primarily impacts the Company through increased operating costs, but interest rates have a greater influence on performance due to the monetary nature of most assets and liabilities. Periods of high inflation typically correlate with higher interest rates - Inflation's impact is mainly reflected in increased operating costs, but interest rates have a greater influence on the Company's performance due to the monetary nature of its assets and liabilities[270] Recently Issued Accounting Pronouncements Information regarding recently issued accounting pronouncements is detailed in Note 1, 'Summary of Significant Accounting Policies,' within Part I of this Form 10-Q - Recently issued accounting pronouncements are discussed in Note 1, 'Summary of Significant Accounting Policies'[271] Reconciliation and Management Explanation of Non-GAAP Financial Measures This section provides reconciliations of non-GAAP financial measures, such as Pre-tax Pre-provision (PTPP) income, operating net income, and tangible book value per common share, to their most directly comparable GAAP measures. These metrics are considered key indicators of the Company's ongoing earnings power and underlying performance trends Non-GAAP Financial Measures (Three Months Ended June 30, 2025, Dollars in thousands, except per share data): | Metric | 6/30/2025 | | :----------------------------------- | :-------- | | PTPP income | $11,770 | | PTPP return on average assets | 1.76% | | Operating net income | $8,140 | | Operating PTPP income | $11,770 | | Operating PTPP return on average assets | 1.76% | | Operating return on average assets | 1.22% | | Operating return on average equity | 14.29% | | Operating revenue | $24,404 | | Operating efficiency ratio | 51.77% | | Tangible book value per common share | $11.53 | | Operating diluted net income per common share | $0.40 | | Tangible Common Equity/Tangible Assets | 8.52% | - Non-GAAP measures are included to provide useful supplemental information for evaluating the Company's underlying performance trends and ongoing earnings power[273][275] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, USCB Financial Holdings, Inc. is not required to provide the information typically required by this item - The Company, as a smaller reporting company, is exempt from providing quantitative and qualitative disclosures about market risk[280] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of the Company's disclosure controls and procedures as of June 30, 2025, concluding they were effective. There were no material changes in internal control over financial reporting during the period. Management acknowledges that controls provide reasonable, not absolute, assurance - The Company's disclosure controls and procedures were evaluated as effective as of June 30, 2025[281] - No material changes in internal control over financial reporting occurred during the period covered by this Form 10-Q[282] - Management recognizes that controls and procedures provide reasonable, not absolute, assurance of achieving desired control objectives[283] PART II. OTHER INFORMATION This section presents other information, including legal proceedings, risk factors, equity sales, and various exhibits Item 1. Legal Proceedings The Company is not currently subject to any material legal proceedings, though it may face claims and litigation in the ordinary course of business. Management intends to vigorously defend against any such claims, acknowledging that future adverse decisions could materially affect financial condition - The Company is not currently subject to any material legal proceedings[285] - Future legal proceedings could materially affect the Company's financial condition and operations[286] Item 1A. Risk Factors For detailed information on risk factors that could materially affect the Company's business, financial condition, or future results, readers are directed to 'Part I, Item 1A – Risk Factors' of the 2024 Form 10-K - Detailed risk factors are provided in 'Part I, Item 1A – Risk Factors' of the 2024 Form 10-K[287] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no repurchases of equity securities during the three months ended June 30, 2025. As of that date, 528,309 shares remained authorized for repurchase under the Company's Board-approved stock repurchase programs - No equity securities were repurchased during the three months ended June 30, 2025[289] - As of June 30, 2025, 528,309 shares remained authorized for repurchase under the Company's stock repurchase programs[289] Item 3. Defaults Upon Senior Securities This item is not applicable to the Company Item 4. Mine Safety Disclosures This item is not applicable to the Company Item 5. Other Information During the three months ended June 30, 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 - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated by directors or Section 16 reporting persons during the three months ended June 30, 2025[292] Item 6. Exhibit Index This section provides a comprehensive list of exhibits filed with the Form 10-Q, including organizational documents, agreements, certifications, and interactive data files - The exhibit index lists various documents filed, including the Agreement and Plan of Share Exchange, Articles of Incorporation, Bylaws, Side Letter Agreement, Registration Rights Agreement, Assignment and Assumption of Agreement, Description of Securities, CEO and CFO certifications, and Inline XBRL financial statements[293] Signatures The report is duly signed on behalf of USCB Financial Holdings, Inc. by its Chairman, President and Chief Executive Officer, Luis de la Aguilera, and its Executive Vice President and Chief Financial Officer, Robert Anderson, both dated August 8, 2025 - The report is signed by Luis de la Aguilera (Chairman, President and CEO) and Robert Anderson (EVP and CFO) on August 8, 2025[295]