10-Q - USCB - Equibles

uscb-20230630p1i0

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-Q

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

June 30, 2023

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____to_____

Commission File Number:

001-41196

USCB Financial Holdings, Inc.

(Exact name of registrant as specified in its charter)

Florida

87-4070846

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

2301 N.W. 87th Avenue

Doral

33172

(Address of principal executive offices) (zip code)

Registrant’s telephone number, including area code:

(

305

)

715-5200

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A common stock, $1.00 par value per share

USCB

The Nasdaq Stock Market LLC

Indicate by check

mark whether the

registrant (1) has

filed all reports

required to be

filed by

Section 13 or

15(d) of the

Securities Exchange

Act of 1934 during the preceding 12 months

(or for such shorter period that the registrant was

required to file such reports), and (2)

has

been subject to such filing requirements for the past 90 days.

Yes

☒

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data

File required to be submitted pursuant

to Rule 405

of Regulation S-T

(§232.405 of this

chapter) during the

preceding 12 months

(or for such

shorter period that

the registrant

was required to submit such files).

Yes

☒

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting

company

emerging

growth

company.

See

the

definitions

“large

accelerated

filer,”

“accelerated

filer,”

“non-accelerated

filer,”

“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☒

If an

emerging growth

company, indicate by

check mark

if the

registrant has elected

not to

use the

extended transition

period for

complying

with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes

☐

☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of July 14, 2023, the registrant had

19,544,777

shares of Class

common stock outstanding.

uscb-20230630p1i0

FORM 10-Q

June 30, 2023

TABLE OF CONTENTS

PART I

Item 1.

Financial Statements

Consolidated Balance Sheets as of June 30, 2023 (Unaudited) and December 31, 2022

Consolidated Statements of Operations for the three and six months ended June 30, 2023 and 2022

(Unaudited)

Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2023

and 2022 (Unaudited)

Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30,

2023 and 2022 (Unaudited)

Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022 (Unaudited)

Notes to the Consolidated Financial Statements (Unaudited)

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

PART II

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

Item 5.

Other Information

Item 6.

Exhibit Index

Signatures

Table of Contents

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

PART

Item 1.

Financial Statements

USCB FINANCIAL HOLDINGS, INC

Consolidated Balance Sheets – Unaudited

(Dollars in thousands, except share data)

June 30, 2023

December 31, 2022

ASSETS:

Cash and due from banks

7,873

6,605

Interest-bearing deposits in banks

79,407

47,563

Total cash and cash equivalents

87,280

54,168

Investment securities held to maturity, net of allowance for credit losses of $

and $

, respectively (fair

value $

199,329

and $

169,088

, respectively)

220,956

188,699

Investment securities available for sale, at fair value

218,442

230,140

Federal Home Loan Bank stock, at cost

4,741

2,882

Loans held for investment, net of allowance

of $

18,815

and $

17,487

, respectively

1,577,144

1,489,851

Accrued interest receivable

8,029

7,546

Premises and equipment, net

5,025

5,263

Bank owned life insurance

43,319

42,781

Deferred tax assets, net

40,014

42,360

Lease right-of-use asset

12,909

14,395

Other assets

8,055

7,749

Total assets

2,225,914

2,085,834

LIABILITIES:

Deposits:

Demand deposits

572,360

629,776

Money market and savings accounts

994,429

915,853

Interest-bearing checking

59,501

66,675

Time deposits

295,011

216,977

Total deposits

1,921,301

1,829,281

Federal Home Loan Bank advances

87,000

46,000

Lease liability

12,909

14,395

Accrued interest and other liabilities

21,019

13,730

Total liabilities

2,042,229

1,903,406

Commitments and contingencies (See Notes 5

and 10)

STOCKHOLDERS' EQUITY:

Preferred stock - Class C; $

1.00

par value; $

1,000

per share liquidation preference;

52,748

authorized;

and

issued and outstanding as of June 30, 2023

and December 31, 2022

Preferred stock - Class D; $

1.00

par value; $

5.00

per share liquidation preference;

12,309,480

authorized;

and

issued and outstanding as of June 30, 2023

and December 31, 2022

Preferred stock - Class E; $

1.00

par value; $

1,000

per share liquidation preference;

3,185,024

authorized;

and

issued and outstanding as of June 30, 2023

and December 31, 2022

Common stock - Class A Voting; $

1.00

par value;

45,000,000

shares authorized;

19,544,777

issued and

outstanding

as of June 30, 2023,

20,000,753

issued and outstanding as of December 31,

2022

19,545

20,001

Common stock - Class B Non-voting; $

1.00

par value;

8,000,000

shares authorized;

and

issued and

outstanding as of June 30, 2023 and December

31, 2022

Additional paid-in capital on common stock

305,547

311,282

Accumulated deficit

(95,088)

(104,104)

Accumulated other comprehensive loss

(46,319)

(44,751)

Total stockholders' equity

183,685

182,428

Total liabilities and stockholders' equity

2,225,914

2,085,834

The accompanying notes are an integral part of

these unaudited consolidated financial statements.

Table of Contents

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

USCB FINANCIAL HOLDINGS, INC.

Consolidated Statements of Operations - Unaudited

(Dollars in thousands,

except per share data)

Three Months Ended June 30,

Six Months Ended June 30,

2023

2022

2023

2022

Interest income:

Loans, including fees

20,847

14,053

40,558

27,035

Investment securities

2,382

2,510

4,668

4,839

Interest-bearing deposits in financial institutions

1,051

121

1,433

152

Total interest income

24,280

16,684

46,659

32,026

Interest expense:

Interest-bearing checking

200

243

Money market and savings accounts

6,968

615

11,753

1,166

Time deposits

2,145

271

3,202

530

Federal Home Loan Bank advances and other borrowings

794

139

1,291

276

Total interest expense

10,107

1,042

16,489

2,005

Net interest income before provision for

credit losses

14,173

15,642

30,170

30,021

Provision for credit losses

705

239

705

Net interest income after provision for

credit losses

14,135

14,937

29,931

29,316

Non-interest income:

Service fees

1,173

1,083

2,378

1,983

(Loss) gain on sale of securities available

for sale, net

(3)

(21)

Gain on sale of loans held for sale, net

441

356

Loan settlement

161

Other non-interest income

579

515

1,118

1,044

Total non-interest income

1,846

1,617

3,916

3,562

Non-interest expense:

Salaries and employee benefits

5,882

5,913

12,259

11,788

Occupancy

1,319

1,251

2,618

2,521

Regulatory assessment and fees

452

226

676

439

Consulting and legal fees

386

398

744

915

Network and information technology services

505

448

983

835

Other operating expense

1,908

1,315

3,348

2,665

Total non-interest expense

10,452

9,551

20,628

19,163

Income before income tax expense

5,529

7,003

13,219

13,715

Income tax expense

1,333

1,708

3,214

3,566

Net income

4,196

5,295

10,005

10,149

Per share information:

Net income per share, basic

0.21

0.26

0.51

Net income per share, diluted

0.21

0.26

0.51

0.50

The accompanying notes are an integral part of

these unaudited consolidated financial statements.

Table of Contents

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

USCB FINANCIAL HOLDINGS, INC.

Consolidated Statements of Comprehensive Income

(Loss) - Unaudited

(Dollars in thousands)

Three Months Ended June 30,

Six Months Ended June 30,

2023

2022

2023

2022

Net income

4,196

5,295

10,005

10,149

Other comprehensive income (loss):

Unrealized loss on investment securities

(6,825)

(23,253)

(3,287)

(45,898)

Amortization of net unrealized (loss) gain on

securities transferred from

available-for-sale to held-to-maturity

(61)

120

(126)

Reclassification adjustment for loss (gain) included

in net income

(18)

Unrealized gain on cash flow hedge

1,046

Tax effect

1,444

5,908

532

11,697

Total other comprehensive income (loss), net of tax

(4,254)

(17,403)

(1,568)

(34,345)

Total comprehensive income (loss)

(58)

(12,108)

8,437

(24,196)

The accompanying notes are an integral part of

these unaudited consolidated financial statements.

Table of Contents

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

USCB FINANCIAL HOLDINGS, INC.

Consolidated Statements of Changes in Stockholders’

Equity - Unaudited

(Dollars in thousands,

except per share data)

Common Stock

Additional Paid-in

Capital on Common

Stock

Accumulated Deficit

Accumulated Other

Comprehensive

Loss

Par Value

Total

Stockholders'

Equity

Balance at April 1, 2023

19,622,380

19,622

305,921

(99,620)

(42,065)

183,858

Cumulative tax effect of adoption of accounting

principle related to ASC 326

336

Adjusted beginning balance after cumulative

effect adjustment

19,622,380

19,622

305,921

(99,284)

(42,065)

184,194

Net income

4,196

Other comprehensive loss

(4,254)

Repurchase of Class A common stock

(77,603)

(77)

(670)

(747)

Restricted stock issued

Stock based compensation

296

Balance at June 30, 2023

19,544,777

19,545

305,547

(95,088)

(46,319)

183,685

Balance at April 1, 2022

20,000,753

20,001

310,887

(119,391)

(19,458)

192,039

Net income

5,295

Other comprehensive loss

(17,403)

Stock-based compensation

137

Balance at June 30, 2022

20,000,753

20,001

311,024

(114,096)

(36,861)

180,068

Common Stock

Additional Paid-in

Capital on Common

Stock

Accumulated Deficit

Accumulated Other

Comprehensive

Loss

Par Value

Total

Stockholders'

Equity

Balance at January 1, 2023

20,000,753

20,001

311,282

(104,104)

(44,751)

182,428

After tax cumulative effect of adoption of accounting

principle related to ASC

326

(989)

Adjusted beginning balance after cumulative

effect adjustment

20,000,753

20,001

311,282

(105,093)

(44,751)

181,439

Net income

10,005

Other comprehensive loss

(1,568)

Repurchase of Class A common stock

(577,603)

(577)

(6,036)

(6,613)

Restricted stock issued

121,627

121

(121)

Stock-based compensation

422

Balance at June 30, 2023

19,544,777

19,545

305,547

(95,088)

(46,319)

183,685

Balance at January 1, 2022

19,991,753

19,992

310,666

(124,245)

(2,516)

203,897

Net income

10,149

Other comprehensive loss

(34,345)

Exercise of stock options

9,000

102

Stock-based compensation

265

Balance at June 30, 2022

20,000,753

20,001

311,024

(114,096)

(36,861)

180,068

The accompanying notes are an integral

part of these unaudited consolidated financial

statements.

Table of Contents

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

USCB FINANCIAL HOLDINGS, INC.

Consolidated Statements of Cash Flows - Unaudited

(Dollars in thousands)

Six Months Ended June 30,

2023

2022

Cash flows from operating activities:

Net income

10,005

10,149

Adjustments to reconcile net income

to net cash provided by operating activities:

Provision for credit losses

239

705

Depreciation and amortization

298

363

(Accretion) amortization of premiums on

securities, net

(178)

306

Accretion of deferred loan fees, net

(163)

(508)

Stock-based compensation

422

265

Loss (gain) on sale of available for sale securities

(18)

Gain on sale of loans held for sale

(441)

(356)

Increase in cash surrender value of bank owned

life insurance

(538)

(529)

Decrease in deferred tax assets

3,214

3,567

Net change in operating assets and liabilities:

Accrued interest receivable

(483)

(16)

Other assets

739

(2,069)

Accrued interest and other liabilities

7,051

8,246

Net cash provided by operating activities

20,186

20,105

Cash flows from investing activities:

Purchase of investment securities held

to maturity

(86,788)

(2,432)

Proceeds from maturities and pay-downs of investment

securities held to maturity

54,873

8,173

Purchase of investment securities available

for sale

(7,667)

(42,794)

Proceeds from maturities and pay-downs of investment

securities available for sale

7,399

26,950

Proceeds from sales of investment securities

available for sale

8,617

31,838

Net increase in loans held for investment

(93,737)

(115,607)

Purchase of loans held for investment

(700)

(70,175)

Additions to premises and equipment

(60)

(173)

Proceeds from the sale of loans held for sale

6,441

4,018

Proceeds from the redemption of Federal Home

Loan Bank stock

6,305

Purchase of Federal Home Loan Bank stock

(8,164)

(1,302)

Net cash used in investment activities

(113,481)

(161,504)

Cash flows from financing activities:

Proceeds from issuance of Class A common

stock, net

102

Repurchase of Class A common stock

(6,613)

Net increase in deposits

92,020

148,341

Proceeds from Federal Home Loan Bank advances

239,350

30,000

Repayments on Federal Home Loan Bank advances

(198,350)

Net cash provided by financing activities

126,407

178,443

Net increase in cash and cash equivalents

33,112

37,044

Cash and cash equivalents at beginning

of period

54,168

46,228

Cash and cash equivalents at end of period

87,280

83,272

Supplemental disclosure of cash flow

information:

Interest paid

15,535

2,002

Supplemental schedule of non-cash investing

and financing activities:

Transfer of loans held for investment to loans held

for sale

6,000

3,662

Lease liability arising from obtaining right-of-use

assets

898

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

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES

Overview

USCB Financial Holdings, Inc., a

Florida corporation incorporated

in 2021, is a bank

holding company with one 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

normally

recurring

accruals

that,

the

opinion

management,

are

necessary

for

fair

presentation

the

financial

position

and

results

operations

for

the

periods presented

have been

included. These

unaudited consolidated

financial statements

should be

read in

conjunction

with

the

Company’s

consolidated

financial

statements

and

notes

appearing

in the

Company’s

Annual

Report

Form 10-K/A for the year ended December 31, 2022.

Principles of Consolidation

The

Company

consolidates

entities

which

has

controlling

financial

interest.

Intercompany

transactions

and

balances are eliminated in consolidation.

Use of Estimates

prepare financial statements in conformity with U.S. GAAP,

management makes estimates and assumptions based

on available

information. These

estimates

and assumptions

affect

the amounts

reported in

the financial

statements.

The

most significant

estimates impacting

the Company’s

consolidated financial

statements are

the allowance

for credit

losses

(ACL) and income taxes.

Reclassifications

Certain amounts in the consolidated financial statements have been reclassified to conform to

the current presentation.

Reclassifications had no impact on the net income or stockholders’

equity of the Company.

Adoption of New Accounting Standards

Measurement of Credit Losses on Financial Instruments

January

1st,

2023,

the

Company

adopted

ASU

2016-13

Financial

Instruments

Credit

Losses

(Topic

326):

Measurement of Credit Losses

on Financial Instruments,

as amended, which replaces

the incurred loss methodology

with

an expected

loss methodology

that is

referred to

as the

current expected credit

loss (CECL)

methodology. The measurement

expected

credit

losses

under

the

CECL

methodology

applicable

financial

assets

measured

amortized

cost,

including

loan

receivables

and

held-to-maturity

debt

securities.

also

applies

off-balance

sheet

credit

exposures

not

accounted

for

insurance

(e.g.,

loan

commitments,

standby

letters

credit,

financial

guarantees,

and

other

similar

instruments)

and net

investments

in leases

recognized

by a

lessor in

accordance

with Topic

842

on leases.

In addition,

ASC 326 amended

the accounting for

available-for-sale debt securities.

One such change

is to require credit

losses to be

presented as

an allowance

rather than

as a

write-down on

available-for-sale

debt securities,

that management

does not

intend to sell or believes that it is more likely than not they

will be required to sell.

Under CECL,

the Company

estimates the

allowance for

credit losses

using relevant

available information,

from both

internal

and

external

sources,

relating

past

events,

current

conditions,

and

reasonable

and

supportable

forecasts.

Historical credit losses provide the basis for estimation of expected credit losses. Qualitative adjustments are applied to the

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

expected credit

losses estimated for

the loan

portfolio in

relation to

potential limitations of

the quantitative

model. A

scorecard

is used to aid management in the assessment of

qualitative factor adjustments applied to expected credit

losses.

The

quantitative

component

the

estimate

relies

the

statistical

relationship

between

the

projected

value

economic

indicator

and

the

implied

historical

loss

experience

among

curated

group

peers.

The

Company

utilized

regression

analyses

peer

data,

which the

Company

was

included,

and

where observed

credit

losses

and selected

economic factors were used

to determine suitable

loss drivers for modeling

the lifetime rates of

probability of default (PD).

loss

given

default

rate

(LGD)

assigned

each

pool

for

each

period

based

these

outcomes.

The

model

fundamentally utilizes an

expected discounted cash

flow (DCF) analysis

for

loan portfolio segments.

The DCF analysis

run

the

instrument-level

and

incorporates

array

loan-specific

data

points

and

segment-implied

assumptions

determine the lifetime expected

loss attributable to each

instrument. An implicit "hypothetical

loss" is derived

for each period

of the

DCF and

helps establish

the present

value of

future cash

flows for

each period.

The reserve

applied to

a specific

instrument is the difference

between the sum of the present

value of future cash flows and

the book balance of

the loan at

the measurement date.

Management elected the

Remaining Life (WARM)

methodology for five

portfolio segments. For

each of these

segments,

a long-term average

loss rate is calculated

and applied on a

quarterly basis for

the remaining life of

the pool. Adjustments

for

economic

expectations

are

made

through

qualitative

assessments.

For

the

remaining

life

estimated,

management

implemented

software

solution

that

uses

attrition-based

calculation

that

performs

quarterly,

cohort-based

attrition

measurements based on the loan portfolio.

At adoption of

CECL,

% or $

1.3

billion of loan

receivables were collectively

evaluated under DCF

method and

251.0

million

loan receivables

were collectively

evaluated

under

the

Remaining

Life

method.

The

remaining

7.9

million loan receivables of the total loan portfolio

were individually evaluated.

Portfolio segments are the level at which loss assumptions

are applied to a pool of loans based on the similarity

of risk

characteristics inherent in

the included instruments,

relying on

collateral codes and

FFIEC Call

Report codes. The

Company

currently segments

the portfolio based on collateral codes for purpose

of establishing reserves. Each of these segments

paired

regression

models

(Loss

Driver

Analyses)

based

peer

data

for

loans

similar

risk

characteristics.

The

Company has established relationships between internal segmentation and FFIEC

Call Report codes for this purpose. The

loss driver for each loan

portfolio segment is derived

from a readily available

and reasonable economic

forecast, including

the Federal Reserve Bank

projections of U.S. civilian

unemployment rate and

the year-over-year real

GDP growth;

for the

residential

loan

segment

the

House

Price

index

(“HPI”)

projections

published

Fannie

Mae’s

Economic

and

Strategic

Research Group

are utilized

for the

forecast. Forecasts

are applied

the first

four quarters

of the

credit loss

estimate and

revert on a

straight-line basis

to the lookback

period's historical mean

for the

economic indicator

over the expected

life of

loans.

The model incorporates qualitative

factor adjustments in order to

calibrate the model for risk

in each portfolio segment

that may

not be captured

through quantitative

analysis. Determinations

regarding qualitative

adjustments are

reflective of

management's

expectation

loss

conditions

differing

from

those already

captured

the

quantitative

component

the

model.

The

Company

estimates

reserve

for

unfunded

commitments,

which

reported

separately

from

the

allowance

for

credit losses within

other liabilities. The

reserve is based

upon the same

quantitative and qualitative

factors applied to

the

collectively evaluated loan portfolio.

The

impact

adoption

the

ASU

2016-13

was

increase

the

allowance

for

credit

losses

(ACL)

loans

receivables of $

1.1

million and an increase

to the reserve for unfunded

commitments of $

259

thousand. This one-time net

of tax cumulative adjustment resulted in a

increase of $

1.0

million in accumulated deficit. See “Allowance for Credit Losses”

section in Note 3 for more

information on ACL.

Trouble Debt Restructuring

In March

2022, the

Financial Accounting Standards

Board (“FASB”) issued Accounting

Standards Update (“ASU”)

2022-

02, Financial Instruments

-Credit Losses (Topic

326): Troubled

Debt Restructurings

(“TDR”) and Vintage

Disclosures. The

standard addresses the following: 1) eliminates the accounting guidance for TDRs, requires an entity to determine whether

a modification

results in a

new loan or

a continuation

of an

existing loan,

2) expands

disclosures related

to modifications,

and 3)

requires

disclosure

of current

period

gross

write-offs

of financing

receivables

within the

vintage disclosures

table

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

(see note 3). The Company adopted

ASU 2022-02 effective January

1, 2023 on a prospective basis.

The adoption of ASU

2022-02 did not have a material impact on the Company’s

consolidated financial statements.

Issued and Not Yet

Adopted

Reference Rate Reform

March

2020,

the

FASB

issued

ASU

2020-04,

Reference

Rate

Reform

(Topic

848),

Facilitation

the

Effects

Reference Rate Reform

on Financial Reporting.

In January 2021,

the FASB

clarified the scope

of this guidance

with ASU

2021-01 which provides

optional guidance for

a limited period of

time to ease the

burden in accounting for

(or recognizing

the effects of) reference

rate reform on

financial reporting. This ASU

is effective from March 12,

2020 through December 31,

Company is

evaluating the

impact of

this ASU

and has

not yet

determined

whether LIBOR

transition and

this

ASU will have a material effect on our business operations

and consolidated financial statements.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

INVESTMENT SECURITIES

January

1st,

2023,

the

Company

adopted

ASU

2016-13

Financial

Instruments

Credit

Losses

(Topic

326):

Measurement of Credit Losses

on Financial Instruments,

as amended, which replaces

the incurred loss methodology

with

an expected

loss methodology

that is

referred to

as the

current expected credit

loss (CECL)

methodology. The measurement

expected

credit

losses

under

the

CECL

methodology

applicable

financial

assets

measured

amortized

cost,

including loan receivables and held-to-maturity debt securities. In addition, ASC 326 amended the accounting for available-

for-sale debt securities. One such change is to

require credit losses to be presented as an allowance rather

than as a write-

down on available-for-sale debt securities management does not intend to

sell or believes that it is more likely

than not they

will be required to sell.

CECL requires

a loss reserve

for securities

classified as

Held-to-Maturity (HTM).

The reserve should

reflect historical

credit performance

as well

as the

impact

of projected

economic

forecast.

For U.S.

Government

bonds and

U.S. Agency

issued bonds in HTM the explicit guarantee

of the US Government is sufficient

to conclude that a credit loss reserve is

not

required. The

reserve requirement

is for

three primary

assets groups:

municipal bonds,

corporate bond,

and non-agency

securitizations.

The

Company

calculates

quarterly

the

loss

reserve

utilizing

Moody’s

ImpairmentStudio.

The

CECL

measurement

for

investment

securities

incorporates

historical

data,

containing

defaults

and

recoveries

information,

and

Moody’s baseline

economic forecast.

The solution uses

probability of

default/loss given

default (“PD/LGD”)

approach. PD

represents the likelihood a borrower will

default. Within the Moody’s model

this is determined using historical

default data,

adjusted for the current economic environment. LGD projects

the expected loss if a borrower were to default.

The Company monitors

the credit

quality of held

to maturity

securities through

the use of

credit ratings.

Credit ratings

are

monitored

the

Company

least

quarterly

basis.

June

30,

2023

and

December

31,

2022,

all

held

maturity securities held by the Company were rated investment

grade.

quarter

end,

HTM

securities

included

210.0

million

U.S.

Government

and

U.S.

Agency

issued

bonds

and

mortgage-backed

securities.

Because

the

explicit

and/or

implicit

guarantee

these

bonds,

the

Company

holds

reserves on

these holdings.

The remaining

portion of

the HTM

portfolio is

made up

of $

11.0

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 $

thousand ACL as of

June 30, 2023. The book

value for debt securities

classified as HTM represents

amortized cost

less ACL.

The Company determined that

an ACL on its debt

securities available for sale

as of June 30, 2023

and December 31,

2022 was not required.

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):

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

June 30, 2023

Available-for-sale:

Amortized

Cost

Unrealized

Gains

Unrealized

Losses

Fair Value

U.S. Government Agency

9,906

(1,572)

8,334

Collateralized mortgage obligations

107,991

(24,108)

83,883

Mortgage-backed securities - residential

71,279

(13,180)

58,099

Mortgage-backed securities - commercial

36,775

(5,923)

30,852

Municipal securities

25,044

(5,953)

19,091

Bank subordinated debt securities

16,836

(2,368)

14,468

Corporate bonds

4,033

(318)

3,715

271,864

(53,422)

218,442

Held-to-maturity:

U.S. Government Agency

44,404

(6,174)

38,230

U.S. Treasury

39,414

(14)

39,400

Collateralized mortgage obligations

65,844

(8,829)

57,030

Mortgage-backed securities - residential

44,834

178

(4,799)

40,213

Mortgage-backed securities - commercial

15,491

(1,082)

14,409

Corporate bonds

10,988

(941)

10,047

220,975

193

(21,839)

199,329

Allowance for credit losses - securities held-to-maturity

(19)

Securities held-to maturity, net of allowance for credit losses

220,956

December 31, 2022

Available-for-sale:

Amortized

Cost

Unrealized

Gains

Unrealized

Losses

Fair Value

U.S. Government Agency

10,177

(1,522)

8,655

Collateralized mortgage obligations

118,951

(23,410)

95,541

Mortgage-backed securities - residential

73,838

(12,959)

60,879

Mortgage-backed securities - commercial

32,244

(4,305)

27,954

Municipal securities

25,084

(6,601)

18,483

Bank subordinated debt securities

15,964

(1,050)

14,919

Corporate bonds

4,037

(328)

3,709

280,295

(50,175)

230,140

Held-to-maturity:

U.S. Government Agency

44,914

(5,877)

39,062

U.S. Treasury

9,841

(13)

9,828

Collateralized mortgage obligations

68,727

(7,830)

60,925

Mortgage-backed securities - residential

42,685

372

(4,574)

38,483

Mortgage-backed securities - commercial

11,442

(665)

10,777

Corporate bonds

11,090

(1,077)

10,013

188,699

425

(20,036)

169,088

During the

year ended

December

31, 2022,

a total

investment

securities

with an

amortized cost

basis and

fair

value

74.4

million

and

63.8

million,

respectively,

were

transferred

from

AFS

HTM.

These

securities

had

net

unrealized

loss of

10.6

million

the

date

transfer.

The

net

unrealized

loss

that

was retained

accumulated

other

comprehensive income

(“AOCI”) is being

amortized over the

remaining life of

the securities. For

the three and

six months

ended June 30,

2023, total amortization

out of AOCI

for net unrealized

losses on securities

transferred from

AFS to HTM

was $

thousand and $

120

thousand, respectively. The unamortized net unrealized

loss at June

30, 2023 was

9.7

million.

Gains

and

losses

the

sale

securities

are

recorded

the

trade

date

and

are

determined

the

specific

identification basis. The following table presents the proceeds, realized gross gains and realized gross losses on sales and

calls of AFS debt securities for the three and six months

ended June 30, 2023 and 2022 (in thousands):

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

Three Months Ended June 30,

Six Months Ended June 30,

Available-for-sale:

2023

2022

2023

2022

Proceeds from sale and call of securities

17,280

8,617

31,838

Gross gains

216

Gross losses

(61)

(24)

(198)

Net realized (loss) gain

(3)

(21)

The

amortized cost

and

fair

value of

investment

securities,

by contractual

maturity,

are shown

below

as of

the date

indicated (in thousands).

Actual maturities may differ

from contractual maturities

because borrowers may have

the right to

call or prepay

obligations with or without

call or prepayment penalties.

Securities not due

at a single

maturity date are shown

separately.

Available-for-sale

Held-to-maturity

June 30, 2023:

Amortized

Cost

Fair Value

Amortized

Cost

Fair Value

Due within one year

40,916

40,892

Due after one year through five years

4,033

3,715

9,486

8,555

Due after five years through ten years

17,835

15,285

Due after ten years

24,045

18,274

U.S. Government Agency

9,906

8,334

44,404

38,230

Collateralized mortgage obligations

107,991

83,883

65,844

57,030

Mortgage-backed securities - residential

71,279

58,099

44,834

40,213

Mortgage-backed securities - commercial

36,775

30,852

15,491

14,409

271,864

218,442

220,975

199,329

At June 30, 2023,

there were no

securities held in

the portfolio from

any one issuer in

an amount greater

than 10% of

total stockholders’

equity other than

the United States

Government and Government

Agency securities. All the

collateralized

mortgage obligations and mortgage-backed securities are issued by United States sponsored entities

at June 30, 2023 and

December 31, 2022.

Information pertaining

to investment

securities with

gross unrealized

losses, aggregated

by investment

category and

length of

time that

those

individual securities

have been

in a

continuous

loss position,

are presented

as of

the following

dates (in thousands):

June 30, 2023

Less than 12 months

12 months or more

Total

Fair Value

Unrealized

Losses

Fair Value

Unrealized

Losses

Fair Value

Unrealized

Losses

U.S. Government Agency

46,564

(9,030)

46,564

(9,030)

U.S. Treasury

39,400

(14)

39,400

(14)

Collateralized mortgage obligations

140,913

(37,550)

140,913

(37,550)

Mortgage-backed securities - residential

3,686

(67)

92,653

(20,400)

96,339

(20,467)

Mortgage-backed securities - commercial

10,528

(315)

34,733

(8,178)

45,261

(8,493)

Municipal securities

19,091

(5,953)

19,091

(5,953)

Bank subordinated debt securities

3,530

(393)

10,527

(1,975)

14,057

(2,368)

Corporate bonds

13,762

(865)

13,762

(865)

57,144

(789)

358,243

(83,951)

415,387

(84,740)

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

December 31, 2022

Less than 12 months

12 months or more

Total

Fair Value

Unrealized

Losses

Fair Value

Unrealized

Losses

Fair Value

Unrealized

Losses

U.S. Government Agency

11,407

(1,093)

36,310

(7,616)

47,717

(8,709)

U.S. Treasury

9,828

(13)

9,828

(13)

Collateralized mortgage obligations

16,500

(963)

139,965

(34,962)

156,465

(35,925)

Mortgage-backed securities - residential

5,059

(564)

91,742

(19,348)

96,801

(19,912)

Mortgage-backed securities - commercial

10,052

(1,173)

26,823

(5,300)

36,875

(6,473)

Municipal securities

18,483

(6,601)

18,483

(6,601)

Bank subordinated debt securities

11,295

(670)

2,619

(381)

13,914

(1,051)

Corporate bonds

13,723

(926)

13,723

(926)

77,864

(5,402)

315,942

(74,208)

393,806

(79,610)

As of June 30, 2023, the unrealized losses associated

with $

131.7

million of investment securities transferred from

the

AFS

portfolio

the

HTM

portfolio

represent

unrealized

losses

since

the

date

purchase,

independent

the

impact

associated with changes in the cost basis of the securities

upon transfer between portfolios.

ASC Topic

326 amended

the

existing

other-than-temporary-impairment

guidance

for AFS

securities,

requiring

credit

losses to be recorded as

an allowance rather than

through a permanent write-down.

When evaluating AFS

debt securities

under ASC

Topic

326, the

Company has

evaluated whether

the decline

in fair

value is

attributed to

credit losses

or other

factors

interest

rate

risk,

using

both

quantitative

and

qualitative

analyses,

including

company

performance

analysis,

review of credit

ratings, remaining

payment terms,

prepayment speeds

and analysis

of macro-economic

conditions. Each

investment is

expected to

recover its

price depreciation

over its

holding period

as it

moves to

maturity and

the Company

has

the

intent

and

ability

hold

these

securities

maturity

necessary.

result

this

evaluation,

the

Company

concluded that no allowance was required on AFS securities.

At June

30, 2023, the

Company had $

57.9

million of unrealized

losses on mortgage-backed securities

and collateralized

mortgage

obligations

government

sponsored

entities

having

fair

value

294.6

million

that

were

attributable to a combination of factors, including relative changes

in interest rates since the time of purchase.

The

contractual

cash

flows

for

these

securities

are

guaranteed

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

the

assessment

these

mitigating

factors,

management

believed

that

the

unrealized

losses

these

debt

security holdings are

a function of

changes in investment

spreads and interest

rate movements

and not changes

in credit

quality. Management

expects to recover the entire amortized cost basis of these securities.

At June 30,

2023, the

Company does

not intend

to sell debt

securities that

are in an

unrealized loss position

and it is

not more than likely than

not that the Company will

be required to sell these

securities before recovery of the amortized

cost

basis. Therefore, management does not consider any investment

to be other than temporarily impaired at June 30,

2023.

Pledged Securities

The Company

maintains a

master repurchase

agreement with

a public

banking institution

for up

to $

20.0

million fully

guaranteed with investment

securities upon withdrawal.

Any amounts borrowed

would be at a

variable interest rate

based

on prevailing rates at the time funding is requested. As of June 30, 2023, the Company did

t have any securities pledged

under this agreement.

The Company is a Qualified

Public Depositor (“QPD”) with

the State of Florida. As

a QPD, the Company 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

% of

the outstanding

uninsured deposits.

The Company

must

also maintain a minimum amount of pledged securities to be

in the public funds program.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

As of June 30, 2023,

the Company had a

total of $

219.4

million in deposits under the

public funds program and pledged

to the State of Florida for these public funds were

twenty nine

bonds with an aggregate fair value of $

78.4

million.

As of December

31, 2022,

the Company had

a total of

204.2

million in deposits

under the public

funds program

and

pledged

the

State

Florida

for

these

public

funds

were

eighteen

corporate

bonds

with

aggregate

fair

value

49.0

million.

The Federal

Reserve Board, on

March 12, 2023,

announced the creation

of a

new Bank Term Funding Program

(BTFP).

The BTFP offers loans

of up to

one year in

length to banks,

savings associations, credit

unions, and other

eligible depository

institutions

pledging

U.S.

Treasuries,

U.S.

agency

debt

and

mortgage-backed

securities,

and

other

qualifying

assets

collateral. These assets will be valued at par.

The

Company

had

borrowing

under

the

BTFP

program

June

30,

2023

and

had

pledged

136.8

million

securities measured at par to the Federal Reserve Bank

of Atlanta for the BTFP program.

LOANS

January

2023,

the

Company

adopted

FASB

ASC

Topic

326

using

the

modified

retrospective

methodology

accordance

with

the

amendments

FASB

ASU

2016-13.

Through

the

adoption

CECL,

the

Company

developed

allowance for credit losses (“ACL”) methodology that replaces its previous allowance

for loan losses methodology.

See the

ACL section in this note for further information regarding the Company’s ACL. Prior periods balance for ACL are presented

under legacy GAAP and may not be comparable to current

period presentation.

The following table is a summary of the distribution of

loans held for investment by type (in thousands):

June 30, 2023

December 31, 2022

Total

Percent of

Total

Percent of

Total

Residential Real Estate

183,093

11.5

185,636

12.3

Commercial Real Estate

989,401

62.0

970,410

64.4

Commercial and Industrial

169,401

10.6

126,984

8.4

Foreign Banks

85,409

5.4

93,769

6.2

Consumer and Other

167,845

10.5

130,429

8.7

Total

gross loans

1,595,149

100.0

1,507,228

100.0

Less: Deferred fees (cost)

(810)

(110)

Total

loans net of deferred fees (cost)

1,595,959

1,507,338

Less: Allowance for credit losses

18,815

17,487

Total

net loans

1,577,144

1,489,851

June 30,

2023

and

December 31,

2022,

the

Company

had

582.9

million

and

338.1

million,

respectively,

commercial real estate

and residential mortgage loans

pledged as collateral

for lines of

credit with the

FHLB and the

Federal

Reserve Bank of Atlanta.

The Company was a participant

in the Small Business

Administration’s (“SBA”) Paycheck

Protection Program (“PPP”)

loans. These

loans were

designed to

provide a

direct incentive

for small

businesses to

keep their

workers on

payroll and

the funds had to be used towards payroll cost, mortgage

interest, rent, utilities and other costs related to COVID-19. These

loans are forgivable under specific criteria as

determined by the SBA. The Company had

PPP loans totaling $

299

thousand

at June 30, 2023 and $

1.3

million at December 31, 2022, which are categorized as

commercial and industrial loans.

The Company

recognized $

thousand and

1.5

million in

PPP loan

fees and

interest income

during the

six months

ended

June 30,

2023

and

2022,

respectively,

which

reported

under

loans,

including

fees,

within

the

Consolidated

Statements of Operations.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

Allowance for Credit Losses

In general, the Company utilizes

the Discounted Cash Flow (DCF)

method or the Remaining Life

(WARM) methodology

to estimate

the quantitative

portion of

the ACL for

loan pools.

The DCF

uses a

loss driver

analysis (LDA)

and discounted

cash flow analyses.

Management engaged

advisors and consultants

with expertise in

CECL model development

to assist

in development of

a loss driver

analysis based on

regression models

and supportable

forecast. Peer group

data obtained

from FFIEC Call Report

filings is used to

inform regression analyses

to quantify the impact

of reasonable and supportable

forecasts in projective

models. Economic

forecasts

applied to regression

models to estimate

probability of default

for loan

receivables use at least one

of the following economic indicators: civilian

unemployment rate (national), real gross domestic

product growth

(national

GDP) and/or

the HPI.

For each

of the

segments in

which the

WARM

methodology is

used,

the

long-term average loss rate is calculated and applied on a quarterly basis for the remaining life of the pool. Adjustments for

economic expectations are made through qualitative factors

Qualitative factors used in the ACL methodology include:

•

Changes in lending policies, procedures, and strategies

•

Changes in international, national, regional, and local conditions

•

Changes in nature and volume of portfolio

•

Changes in the volume and severity of past due loans

and other similar conditions

•

Concentration risk

•

Changes in the value of underlying collateral

•

The effect of other external factors: e.g., competition,

legal, and regulatory requirements

•

Changes in lending management, among others

ACL for the three

and six months ended

June 30 2023, was

estimated under the CECL

methodology, and for all periods

in 2022, it was estimated under the incurred loss model.

Changes in the allowance for credit losses for the three

and six months ended June 30 2023 and 2022

were as follows

(in thousands):

Residential

Real Estate

Commercial

Real Estate

Commercial

and

Industrial

Foreign

Banks

Consumer

and Other

Total

Three Months Ended June 30, 2023

Beginning balance

2,819

10,453

2,367

772

2,476

18,887

Provision for credit losses

(1)

(148)

(270)

125

(95)

345

(43)

Recoveries

Charge-offs

(40)

Ending Balance

2,673

10,183

2,500

677

2,782

18,815

Six Months Ended June 30, 2023

Beginning balance

1,352

10,143

4,163

720

1,109

17,487

Cumulative effect of adoption of accounting

principle

(2)

1,238

1,105

(2,158)

858

1,066

Provision for credit losses

(3)

(1,065)

443

(66)

857

242

Recoveries

Charge-offs

(45)

Ending Balance

2,673

10,183

2,500

677

2,782

18,815

(1) Provision for credit losses excludes $

thousand expense due to unfunded commitments included in other liabilities and $

thousand expense due to investment securities held to maturity.

(2) Impact of CECL adoption on January 1, 2023

(3) Provision for credit losses excludes $

thousand release due to unfunded commitments included in other liabilities and $

thousand expense due to investment securities held to maturity.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

Residential

Real Estate

Commercial

Real Estate

Commercial

and Industrial

Foreign

Banks

Consumer

and Other

Total

Three Months Ended June 30, 2022

Beginning balance

2,357

9,183

2,355

491

688

15,074

Provision for credit losses

107

311

160

118

705

Recoveries

Charge-offs

(1)

Ending Balance

2,366

9,290

2,671

651

808

15,786

Six Months Ended June 30, 2022

Beginning balance

2,498

8,758

2,775

457

569

15,057

Provision for credit losses

(148)

532

(115)

194

242

705

Recoveries

Charge-offs

(16)

(6)

(22)

Ending Balance

2,366

9,290

2,671

651

808

15,786

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

At June

30, 2023

the ACL,

under the

CECL methodology,

was $

18.8

million compared

to $

17.5

million at

December

31, 2022,

under the

incurred loss

methodology. The increase of

1.3

million was

composed of $

1.1

million impact of

adoption

of the ASU 2016-13 on loan receivables, $

242

thousand increase on ACL for loan receivables due to loan growth, and $

thousand decrease due to net charge offs

The Company

had charge

offs totaling

thousand for

the quarter

ended June

30 2023

on loans.

thousand of

charge offs related to loans were originated in 2015

and $

thousand related to loans were originated in 2023.

The Company had

charge offs

totaling $

thousand for

the six months

ended June 30

2023 on loans.

thousand

of charge offs related to loans were originated

in 2015 and $

thousand related to loans were originated in 2023.

The

Federal

Open

Market

Committee

(“FOMC”)

economic

forecasts

as of

June

30,

2023

showed

improvements

unemployment and

real GDP

growth. Fannie

Mae HPI

forecast reflected

deterioration in

national housing

prices, but

to a

lesser extent than

forecasts published

in first quarter

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 ACL

and the

outstanding balances

in the

specified loan

categories as

of June 30,

2023 and

December 31, 2022

are as follows (in thousands):

Residential

Real Estate

Commercial

Real Estate

Commercial

and Industrial

Foreign

Banks

Consumer

and Other

Total

June 30, 2023:

Allowance for credit losses:

Individually evaluated for impairment

144

226

Collectively evaluated for impairment

2,529

10,183

2,418

677

2,782

18,589

Balances, end of period

2,673

10,183

2,500

677

2,782

18,815

Loans:

Individually evaluated for impairment

7,105

547

7,652

Collectively evaluated for impairment

175,988

989,401

168,854

85,409

167,845

1,587,497

Balances, end of period

183,093

989,401

169,401

85,409

167,845

1,595,149

December 31, 2022:

Allowance for credit losses:

Individually evaluated for impairment

155

294

Collectively evaluated for impairment

1,197

10,143

4,122

720

1,011

17,193

Balances, end of period

1,352

10,143

4,163

720

1,109

17,487

Loans:

Individually evaluated for impairment

7,206

393

196

7,877

Collectively evaluated for impairment

178,430

970,017

126,902

93,769

130,233

1,499,351

Balances, end of period

185,636

970,410

126,984

93,769

130,429

1,507,228

Credit Quality Indicators

The Company grades loans based on the estimated capability of the borrower to repay the contractual obligation of the

loan agreement based

on relevant information

which may include:

current financial information

on the borrower,

historical

payment

experience,

credit

documentation

and

other

current

economic

trends.

Internal

credit

risk

grades

are

evaluated

periodically.

The Company's internally assigned credit risk

grades are as follows:

Pass

– Loans indicate different levels of satisfactory financial

condition and performance.

Special Mention

– Loans classified as special mention have a potential weakness

that deserves management’s

close attention. If left uncorrected, these potential weaknesses

may result in deterioration of the repayment

prospects for the loan or of the institution’s

credit position at some future date.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

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.

Loan credit exposures by internally assigned grades are

presented below for the periods indicated (in thousands):

As of June 30, 2023

Term Loans by Origination Year

Revolving

Loans

Total

2023

2022

2021

2020

2019

Prior

Residential real estate

Pass

5,028

38,626

26,459

7,189

9,813

87,326

8,652

183,093

Total

5,028

38,626

26,459

7,189

9,813

87,326

8,652

183,093

Commercial real estate

Pass

38,191

341,882

227,443

103,150

80,974

191,613

3,621

986,874

Substandard

1,828

699

2,527

Total

38,191

341,882

229,271

103,849

80,974

191,613

3,621

989,401

Commercial and

industrial

Pass

48,282

38,589

35,029

7,757

17,243

2,740

18,925

168,565

Substandard

350

486

836

Total

48,282

38,589

35,379

7,757

17,729

2,740

18,925

169,401

Foreign banks

Pass

80,909

4,500

85,409

Total

80,909

4,500

85,409

Consumer and other

loans

Pass

39,715

75,831

48,250

724

513

1,424

1,388

167,845

Substandard

Total

39,715

75,831

48,250

724

513

1,424

1,388

167,845

Total

Loans

Pass

212,125

499,428

337,181

118,820

108,543

283,103

32,586

1,591,786

Special Mention

Substandard

2,178

699

486

3,363

Doubtful

Total

212,125

499,428

339,359

119,519

109,029

283,103

32,586

1,595,149

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

As of December 31, 2022

Pass

Special

Mention

Substandard

Doubtful

Total Loans

Residential real estate:

Home equity line of credit and other

623

1-4 family residential

132,178

Condo residential

52,835

185,636

Commercial real estate:

Land and construction

38,687

Multi-family residential

176,820

Condo commercial

49,601

393

49,994

Commercial property

702,357

2,552

704,909

967,465

2,945

970,410

Commercial and industrial:

Secured

120,873

807

121,680

Unsecured

5,304

126,177

807

126,984

Foreign banks

93,769

Consumer and other loans

130,233

196

130,429

Total

1,503,280

3,948

1,507,228

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

Loan Aging

The Company

also considers the

performance of loans

in grading

and in

evaluating the

credit quality

of the

loan portfolio.

The Company

analyzes credit

quality and

loan grades

based on

payment performance

and the

aging status

of the

loan.

The

following

tables

include

aging

analysis

accruing

loans

and

total

non-accruing

loans

June 30,

2023

and

December 31, 2022 (in thousands):

Accruing

As of June 30, 2023

Current

Past Due 30-

89 Days

Past Due 90

Days or >

and Still

Accruing

Total

Accruing

Non-Accrual

Total Loans

Residential real estate:

Home equity line of credit and other

543

1-4 family residential

129,987

Condo residential

52,563

183,093

Commercial real estate:

Land and construction

33,606

Multi-family residential

173,360

Condo commercial

56,255

Commercial property

726,129

Leasehold improvements

989,401

Commercial and industrial:

Secured

149,392

224

149,616

486

150,102

Unsecured

19,299

168,691

224

168,915

486

169,401

Foreign banks

85,409

Consumer and other

167,845

Total

1,594,439

224

1,594,663

486

1,595,149

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

Accruing

As of December 31, 2022:

Current

Past Due

30-89 Days

Past Due 90

Days or >

and Still

Accruing

Total

Accruing

Non-Accrual

Total Loans

Residential real estate:

Home equity line of credit and other

623

1-4 family residential

131,120

1,058

132,178

Condo residential

50,310

2,525

52,835

182,053

3,583

185,636

Commercial real estate:

Land and construction

38,687

Multi-family residential

176,820

Condo commercial

49,994

Commercial property

704,884

704,909

Leasehold improvements

970,385

970,410

Commercial and industrial:

Secured

121,649

121,680

Unsecured

4,332

972

5,304

125,981

1,003

126,984

Foreign banks

93,769

Consumer and other

130,169

260

130,429

Total

1,502,357

4,871

1,507,228

Nonaccrual Status

The following

table includes

the amortized cost

basis of

loans on nonaccrual

status and

loans past

due over

90 days

and still accruing as of June 30 2023:

June 30, 2023

Nonaccrual

Loans With No

Allowance

Nonaccrual

Loans With

Allowance

Total

Nonaccruals

Loans Past

Due Over 90

Days and Still

Accruing

Residential real estate

Commercial real estate

Commercial and industrial

486

Consumer and other

486

The Company did

t have loans in nonaccrual status as of December

31, 2022.

Accrued interest

receivable is

excluded from

the estimate

of credit

losses. There

was

interest income

recognized

attributable to

nonaccrual loans

outstanding during

the three

months ended

June 30, 2023

and 2022.

Interest income

these loans

for the

three months

ended June

30, 2023

and 2022,

would have

been approximately

thousand and

thousand, respectively,

had these loans performed in accordance with their

original terms.

Collateral-Dependent Loans

loan

collateral

dependent

when

the

borrower

experiencing

financial

difficulty

and

repayment

the

loan

expected to

be provided

substantially through

the sale

or operation

of the

collateral. There

were

collateral dependent

loans as of June 30 2023 and as of December 31, 2022.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

Impaired Loans

The following table includes

the unpaid principal balances

for impaired loans with

the associated allowance amount,

applicable, on the basis of impairment methodology as of

December 31, 2022 (in thousands):

December 31, 2022

Unpaid

Principal

Balance

Net

Investment

Balance

Valuation

Allowance

Impaired Loans with No Specific Allowance:

Residential real estate

3,551

3,544

Commercial real estate

393

3,944

3,937

Impaired Loans with Specific Allowance:

Residential real estate

3,655

3,626

155

Commercial and industrial

Consumer and other

196

3,933

3,904

294

Total

7,877

7,841

294

Net investment balance is the unpaid principal balance

of the loan adjusted for the remaining net deferred loan

fees.

The following table

presents the average

recorded investment

balance on impaired

loans for the

periods indicated (in

thousands):

Three Months Ended June 30, 2022

Six Months Ended June 30, 2022

Residential real estate

7,332

7,890

Commercial real estate

599

631

Commercial and industrial

115

124

Consumer and other

214

217

Total

8,260

8,862

Interest income recognized on impaired loans for the three months ended June 30,

2022 was $

thousand and for the

six months ended June 30, 2022 was $

181

thousand..

Loan Modifications to Borrowers Experiencing Financial

Difficulties

The following table present newly restructured

loans, by type of modification,

which occurred during the quarter ended

June 30, 2023:

Recorded Investment Prior to Modification

Recorded Investment After Modification

Number of

Loans

Combination

Modifications

Total

Modifications

Number of

Loans

Combination

Modifications

Total

Modifications

Residential real estate

Commercial real estate

Commercial and industrial

350

Consumer and other

350

The Company

had

one

new modifications

to borrowers

experiencing financial

difficulties for

the three and

six months

ended June 30, 2023.

loan modifications that subsequently defaulted for

the three and six

months ended June 30, 2023.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

INCOME TAXES

The Company’s provision for income taxes is

presented in the following table for the dates indicated

(in thousands):

Six Months Ended June 30,

2023

2022

Current:

Federal

State

Total

current

Deferred:

Federal

2,513

2,778

State

701

788

Total

deferred

3,214

3,566

Total

tax expense

3,214

3,566

The actual income tax

expense for the six

months ended June 30, 2023 and

2022 differs from the statutory

tax expense

for the

period (computed

by applying

the U.S.

federal corporate

tax rate

% for

2023 and

2022 to

income before provision

for income taxes) as follows (in thousands):

Six Months Ended June 30,

2023

2022

Federal taxes at statutory rate

2,776

2,880

State income taxes, net of federal tax benefit

574

596

Bank owned life insurance

(136)

(134)

Other, net

224

Total

tax expense

3,214

3,566

The Company’s deferred tax assets and deferred

tax liabilities as of the dates indicated were (in thousands):

June 30, 2023

December 31, 2022

Deferred tax assets:

Net operating loss

18,951

21,720

Allowance for credit losses

4,834

4,432

Lease liability

3,272

3,648

Unrealized losses on available for sale securities

15,990

15,193

Depreciable property

181

158

Equity compensation

481

373

Accruals

290

723

Deferred tax assets:

43,999

46,247

Deferred tax liability:

Deferred loan cost

(205)

(28)

Lease right of use asset

(3,272)

(3,648)

Deferred expenses

(222)

(175)

Cash flow hedge

(265)

Other, net

(21)

(36)

Deferred tax liability

(3,985)

(3,887)

Net deferred tax assets

40,014

42,360

The

Company has

approximately

70.9

million

federal and

93.6

million

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.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

In assessing the realizability of deferred tax assets, management considers

whether it is more likely than not that some

portion or

all of

the deferred

tax assets

will not

be realized.

The ultimate

realization of

deferred tax

assets is

dependent

upon the generation of

future taxable income

during the periods in

which those temporary differences

become deductible.

Management considers the scheduled reversal

of deferred tax liabilities, projected future taxable

income, and tax planning

strategies in making this assessment.

The major tax

jurisdictions where the

Company files income

tax returns are

the U.S. federal

jurisdiction and

the State

of Florida. With few exceptions, the Company is no longer subject to U.S. federal and state income tax examinations by tax

authorities for years before 2019.

For the three and six months ended June

30, 2023 and 2022, the Company did

t have any unrecognized tax benefits

as a result of

tax positions taken during a prior

period or during the current period. Additionally,

interest or penalties were

recorded as a result of tax uncertainties.

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.

summary

the

amounts

the

Company's

financial

instruments

with

off-balance

sheet

risk

are

shown

below

June 30, 2023 and December 31, 2022 (in thousands):

June 30, 2023

December 31, 2022

Commitments to grant loans and unfunded lines of credit

92,910

95,461

Standby and commercial letters of credit

8,344

4,320

Total

101,254

99,781

Commitments to

extend credit

are agreements

to lend

to a

customer as

long as

there is

no violation

of any

condition

established in the contract. Commitments generally have fixed

expiration dates or other termination clauses.

Unfunded lines of

credit and revolving

credit lines are

commitments for

possible future extensions

of credit to

existing

customers. These lines of

credit are uncollateralized and

usually do not contain

a specified maturity date

and ultimately may

not be drawn upon to the total extent to which the Company

committed.

Standby

and

commercial

letters

credit

are

conditional

commitments

issued

the

Company

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.

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

do not represent actual

amounts exchanged

by the

parties.

The amounts

exchanged

are determined

by reference

to the

notional amount

and the

other

terms

of the

individual interest rate swap agreements.

Interest Rate Swaps Designated as a Cash Flow Hedge

As of June

30, 2023, the

Company had

interest rate swap

agreements with a notional

aggregate amount of $

million

that were

designated as

cash flow

hedges of

certificates

of deposit.

The interest

rate swap

agreements have

an average

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

maturity of

2.88

years, the weighted average fixed

rate paid is

3.59

%, with the weighted average 3-month compound SOFR

being received. The Company had

cash flow hedges at December 31, 2022.

The

changes

fair

value

these

interest

rate

swaps

are

recorded

other

assets

other

liabilities

with

corresponding recognition in other comprehensive

income and subsequently reclassified to

earnings when gains or losses

are realized.

Interest Rate Swaps

The Company enters into interest rate swaps with its loan customers. The Company had

and

interest rate swaps

with

loan

customers

with

aggregate

notional

amount

39.8

million

and

33.9

million

June 30,

2023

and

December 31, 2022,

respectively.

These interest

rate swaps

mature between

2025 and

Company entered

into

corresponding

and

offsetting

derivatives

with

third

parties.

The

fair

value

liability

these

derivatives

requires

the

Company to provide the counterparty

with funds to be held as collateral

which the Company reports as other

assets under

the Consolidated

Balance Sheets.

While these

derivatives represent

economic hedges,

they do

not qualify

as hedges

for

accounting purposes.

The following table reflects the Company’s

interest rate swaps at the dates indicated (in thousands):

Fair Value

Notional

Amount

Collateral

Amount

Balance Sheet Location

Asset

Liability

June 30, 2023:

Derivatives designated as hedging instruments:

Interest rate swaps

50,000

Other assets

1,046

Derivatives not designated as hedging instruments:

Interest rate swaps related to customer loans

39,818

1,297

Other assets/Other liabilities

4,577

December 31, 2022:

Derivatives not designated as hedging instruments:

Interest rate swaps related to customer loans

33,893

1,278

Other assets/Other liabilities

5,011

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,

change in

valuation technique or

the use

of multiple

valuation techniques

may be

appropriate. In

such instances, determining

the

price

which

willing

market

participants

would

transact

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.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

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

liability,

either

directly

indirectly.

The

valuation

may

based

quoted

prices

for

similar

assets

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

the

fair

value

the

assets

liabilities.

Level

assets

and

liabilities

include

financial

instruments

whose value

is determined

using pricing

models, discounted

cash

flow methodologies,

or similar

techniques,

well as instruments for which determination of fair value

requires significant management judgment or estimation.

financial

instrument's

categorization

within

the

valuation

hierarchy

based

upon

the

lowest

level

input

that

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

derivatives

are

measured

with

pricing

provided

third-party

participants

and

are

classified within Level 2 of the hierarchy.

The

following

table

represents

the

Company's

assets

and

liabilities

measured

fair

value

recurring

basis

June 30, 2023 and December 31, 2022 for each of

the fair value hierarchy levels (in thousands):

June 30, 2023

December 31, 2022

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

Investment securities available for sale:

U.S. Government Agency

8,334

8,655

Collateralized mortgage obligations

83,883

95,541

Mortgage-backed securities - residential

58,099

60,879

Mortgage-backed securities - commercial

30,852

27,954

Municipal securities

19,091

18,483

Bank subordinated debt securities

14,468

14,919

Corporate bonds

3,715

3,709

Total

218,442

230,140

Derivative assets

5,623

5,011

Total assets at fair value

224,065

235,151

Derivative liabilities

4,577

5,011

Total liabilities at fair value

4,577

5,011

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

Items Measured at Fair Value

on a Non-recurring Basis

Individually Evaluated

Loans and

Impaired Loans:

ASC 326

eliminates the

current accounting

model for

impaired

loans

effective

January

2023.

December 31,

2022,

accordance

with

provisions

the

loan

impairment

guidance,

individual

loans

with

carrying

amount

approximately

3.9

million,

were

written

down

their

fair

value

approximately $

3.6

million, resulting

in an

impairment charge

of $

294

thousand,

which was

included in

the allowance

for

credit losses at December 31,

Loans subject to write-downs,

or impaired loans, are

estimated using the present value

of expected cash

flows or the

appraised value

of the underlying

collateral discounted

as necessary due

to management's

estimates of changes in economic conditions are considered

a Level 3 valuation.

Other Real

Estate:

Other

real estate

owned

is valued

at the

lesser of

the third-party

appraisals less

management's

estimate of the

costs to

sell or the

carrying cost of

the other

real estate

owned. Appraisals generally

use the

market approach

valuation technique

and use

market observable

data to

formulate an

opinion of

the fair

value of

the properties.

However,

the appraiser

uses professional

judgment in

determining the

fair value

of the

property and

the Company

may also

adjust

the value for changes in

market conditions subsequent to

the valuation date when

current appraisals are not

available. As

a consequence of the carrying cost or the

third-party appraisal and adjustments therein, the fair values of the properties are

considered a Level 3 valuation.

The following table represents the Company’s assets measured at fair value on a non-recurring basis at June 30, 2023

and December 31, 2022 for each of the fair value hierarchy

levels (in thousands):

Level 1

Level 2

Level 3

Total

June 30, 2023:

Individually evaluated loans

December 31, 2022:

Impaired loans

3,639

The following table presents

quantified information about

Level 3 fair value

measurements for assets measured

at fair

value on a non-recurring basis at December 31, 2022 (in

thousands):

Fair Value

Valuation Technique(s)

Unobservable Input(s)

December 31, 2022:

Residential real estate

3,500

Sales comparison approach

Adj. for differences between comparable sales

Commercial and industrial

Discounted cash flow

Adj. for differences in net operating income expectations

Consumer and other loans

Discounted cash flow

Adj. for differences in net operating income expectations

Total

impaired loans

3,639

There were

financial liabilities measured

at fair value on a

non-recurring basis at June

30, 2023 and December

31,

2022.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

Items Not Measured at Fair Value

The following table

presents the carrying

amounts and estimated

fair values of

financial instruments not

carried at fair

value as of June 30, 2023 and December 31, 2022 (in

thousands):

Fair Value Hierarchy

Carrying

Amount

Level 1

Level 2

Level 3

Fair Value

Amount

June 30, 2023:

Financial Assets:

Cash and due from banks

7,873

Interest-bearing deposits in banks

79,407

Investment securities held to maturity, net

220,956

199,329

Loans held for investment, net

1,577,144

1,519,939

Accrued interest receivable

8,029

1,293

6,736

8,029

Financial Liabilities:

Demand deposits

572,360

Money market and savings accounts

994,429

Interest-bearing checking accounts

59,501

Time deposits

295,011

292,428

FHLB advances

87,000

84,564

Accrued interest payable

1,183

459

724

1,183

December 31, 2022:

Financial Assets:

Cash and due from banks

6,605

Interest-bearing deposits in banks

47,563

Investment securities held to maturity

188,699

169,088

Loans held for investment, net

1,489,851

1,436,877

Accrued interest receivable

7,546

1,183

6,363

7,546

Financial Liabilities:

Demand deposits

629,776

Money market and savings accounts

915,853

Interest-bearing checking accounts

66,675

Time deposits

216,977

211,406

FHLB advances

46,000

44,547

Accrued interest payable

229

137

229

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 voting 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

common

stock, par

value $

1.00

per share,

formerly

held by

its shareholders

was

converted into

and exchanged

for

one

newly

issued

the

Company’s

Class

common

stock,

par

value

1.00

per

share,

and

the

Bank

became

the

Company’s wholly owned subsidiary.

In the

Reorganization,

each

shareholder

the Bank

received securities

the same

class,

having substantially

the

same designations,

rights,

powers, preferences,

qualifications,

limitations

and restrictions,

as those

that the

shareholder

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

held in the Bank,

and the Company’s

then current shareholders

owned the same

percentages of the

Company’s common

stock as they previously owned of the Bank’s common

stock.

In March 2023, the

Company issued

121,627

shares of Class A

common stock to employees and

directors as restricted

stock awards pursuant to the Company’s 2015 equity incentive plan. There were

stock awards issued during the quarter

ended June 30, 2023 nor during the three and six months

ended June 30, 2022.

During the second quarter

of 2023, the Company

repurchased

77,603

shares of Class A common stock

at a weighted

average price per share of $

9.58

. The aggregate purchase price for these

transactions was approximately $

747

thousand,

including transaction

costs. These

repurchases

were made

through

open market

purchases

pursuant

the

Company’s

publicly announced repurchase

program. As of June 30, 2023,

172,397

shares remained authorized

for repurchase under

this program.

Shares of the Company’s Class A common stock issued and outstanding as

of June 30, 2023 and December 31, 2022

were

19,544,777

and

20,000,753

, respectively.

Dividends

Declaration of dividends by the Board is required before dividend payments are made.

dividends were approved by

the Board for the

common stock

classes for the three

months ended June 30,

2023 and 2022.

Additionally,

there were

dividends declared and unpaid as of June 30, 2023 and 2022.

The

Company

and

the

Bank

exceeded

all

regulatory

capital

requirements

and

remained

above

“well-capitalized”

guidelines as

of June

30, 2023

and December 31,

June 30, 2023, the

total risk-based

capital ratios

for the

Company

and the Bank were

13.42

% and

13.37

%, respectively.

EARNINGS PER SHARE

Earnings

per

(“EPS”)

for

common

stock

calculated

using

the

two-class

method

required

for

participating

securities. Basic EPS

is calculated by

dividing net income (loss)

available to common

stockholders 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

stockholders 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 stockholders for the three

and six months

ended June 30, 2023 and 2022 (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

2023

2022

2023

2022

Net Income

4,196

5,295

10,005

10,149

Net income available to common stockholders

4,196

5,295

10,005

10,149

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

The following table reflects

the calculation of basic

and diluted earnings per

common share class

for the three

and six

months ended June 30, 2023 and 2022 (in thousands,

except per share amounts):

Three Months Ended June 30,

2023

2022

Class A

Basic EPS

Numerator:

Net income available to common shares

4,196

5,295

Denominator:

Weighted average shares outstanding

19,590,359

20,000,753

Earnings per share, basic

0.21

0.26

Diluted EPS

Numerator:

Net income available to common shares

4,196

5,295

Denominator:

Weighted average shares outstanding for basic EPS

19,590,359

20,000,753

Add: Dilutive effects of assumed exercises of stock options

49,323

170,508

Weighted avg. shares including dilutive potential common shares

19,639,682

20,171,261

Earnings per share, diluted

0.21

0.26

Anti-dilutive stock options excluded from diluted EPS

730,500

15,000

Net income has not been allocated to unvested restricted

stock awards that are participating securities

because the amounts that would be allocated

are not material to net income per share of

common stock. Unvested restricted stock awards

that are participating securities represent less than one

percent of all of the outstanding shares of

common stock for each of the periods presented.

Six Months Ended June 30,

2023

2022

Class A

Basic EPS

Numerator:

Net income (loss) available to common shares

10,005

10,149

Denominator:

Weighted average shares outstanding

19,722,152

19,997,869

Earnings per share, basic

0.51

Diluted EPS

Numerator:

Net income available to common shares

10,005

10,149

Denominator:

Weighted average shares outstanding for basic EPS

19,722,152

19,997,869

Add: Dilutive effects of assumed exercises of stock options

68,604

195,049

Weighted avg. shares including dilutive potential common shares

19,790,756

20,192,918

Earnings per share, diluted

0.51

0.50

Anti-dilutive stock options excluded from diluted EPS

730,500

15,000

Net income has not been allocated to unvested

restricted stock awards that are participating securities

because the amounts that would be allocated

are

not material to net income per share of common

stock. Unvested restricted stock awards that are participating

securities represent less than one percent

of all of the outstanding shares of common stock

for each of the periods presented.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

10.

LOSS CONTINGENCIES

Loss contingencies,

including claims

and legal actions

may arise

in the ordinary

course of

business. In the

opinion of

management, none

of these

actions, either

individually or

in the aggregate,

is expected to

have a material

adverse effect

on the Company’s Consolidated Financial Statements.

11.

SUBSEQUENT EVENTS

Management has evaluated subsequent events from July 1, 2023

through August 11, 2023, which is the date this Form

10-Q was available to be issued.

In July

2023,

three

individual shareholders

filed a

complaint against

six

board members

serving in

July 2021,

without

naming the Bank

as a party,

alleging the named

directors did not

have the authority

to approve the exchange

of preferred

stock in

July 2021

as part

of the

Bank’s initial

public offering

and that

further,

such action

breached their

fiduciary duties.

The Plaintiffs claim this exchange was not

permitted by the Bank’s Articles of Incorporation. The Company believes

that the

allegations in the lawsuit are legally

and factually without merit, and the

Company intends to vigorously defend

against the

allegations in

the lawsuit.

Despite the Company’s

belief the

lawsuit lacks

merit, if

the plaintiffs

were successful,

the Court

could award substantial compensatory damages.

Table of Contents

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

Item 2.

Management's Discussion and Analysis of Financial Condition

and Results of Operations

The

following

discussion

and

analysis

designed

provide

better

understanding

the

consolidated

financial

condition and results

of operations of

the Company and

the Bank, its

wholly owned subsidiary,

for the quarter

and six months

ended June

30, 2023.

This discussion

and analysis

is best

read in

conjunction

with the

unaudited consolidated

financial

statements

and

footnotes

included

this

quarterly

report

Form

10-Q

and

the

audited

consolidated

financial

statements

and

footnotes

included

the

Annual

Report

Form

10-K/A

(“2022

Form

10-K/A”)

filed

with

the

Securities and Exchange Commission (“SEC”) for the year ended

December 31, 2022.

This discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause

actual results to differ materially

from management's expectations. Factors that could cause

such differences are discussed

in the sections entitled "Forward-Looking Statements"

and Item 1A “Risk Factors" below and in the 2022 Form 10-K/A filed

with the SEC which is available at the SEC’s website

www.sec.gov.

Throughout

this

document,

references

“we,”

“us,”

“our,”

and

“the

Company”

generally

refer

USCB

Financial

Holdings, Inc.

Forward-Looking Statements

This Quarterly Report

on Form 10-Q

(“Form 10-Q”) contains

statements that are

not historical in

nature and are

intended

to be, and are hereby identified

as, forward-looking statements for

purposes of the safe harbor provided by

Section 21E of

the Securities Exchange Act of 1934, as amended (Exchange Act”). The words “may,”

“will,” “anticipate,” “should,” “would,”

“believe,”

“contemplate,”

“expect,”

“aim,”

“plan,”

“estimate,”

“continue,”

and

“intend,”

well

other

similar

words

and

expressions of

the future,

are intended

to identify

forward-looking statements.

These forward-looking

statements include,

but

are

not

limited

to,

statements

our

projected

growth,

anticipated

future

financial

performance,

and

management’s long-term performance

goals, as

well as

statements relating

to the

anticipated effects on

results of

operations

and

financial

condition

from

expected

developments

events,

business

and

growth

strategies,

including

anticipated

internal growth and balance sheet restructuring.

These forward-looking statements involve significant risks and uncertainties that could cause our actual results to differ

materially from those anticipated in such statements.

Potential risks and uncertainties include, but are not

limited to:

•

the strength of the United States economy

in general and the strength of the local

economies in which we conduct

operations;

•

our ability to successfully manage interest rate risk, credit

risk, liquidity risk, and other risks inherent to our industry;

•

the accuracy of our financial statement estimates and assumptions, including the estimates used for our credit loss

reserve and deferred tax asset valuation allowance;

•

the efficiency and effectiveness of

our internal control procedures and processes;

•

our ability

to comply

with the

extensive laws

and regulations

to which

we are subject,

including the

laws for

each

jurisdiction where we operate;

•

adverse changes or conditions in capital and financial markets, including actual or potential stresses in

the banking

industry;

•

deposit attrition and the level of our uninsured deposits;

•

legislative or regulatory

changes and

changes in accounting

principles, policies,

practices or guidelines,

including

the on-going effects of the implementation of the

Current Expected Credit Losses (“CECL”) standard;

•

the effects

of our

lack of

a diversified

loan portfolio

and concentration

in the

South Florida

market,

including the

risks

of geographic,

depositor,

and

industry concentrations,

including our

concentration

loans secured

by real

estate;

•

effects of climate change;

•

the concentration of ownership of our common stock;

•

fluctuations in the price of our common stock;

•

our ability to fund or access the capital markets at attractive rates

and terms and manage our growth, both organic

growth as well as growth through other means, such as

future acquisitions;

•

inflation, interest rate, unemployment rate, market

and monetary fluctuations;

•

impacts of international hostilities and geopolitical events;

•

increased competition and its effect

on the pricing of our products and services as well as our margin;

•

the effectiveness of our risk management strategies, including operational risks, including, but not limited to, client,

employee, or third-party fraud and security breaches; and

•

other risks

described in this

Form 10-Q,

the 2022 Form

10-K/A and other

filings we

make with the

Securities and

Exchange Commission (“SEC”).

Table of Contents

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

All

forward-looking

statements

are

necessarily

only

estimates

future

results,

and

there

can

assurance

that

actual results will

not differ

materially from

expectations. Therefore,

you are cautioned

not to place

undue reliance on

any

forward-looking statements.

Further,

forward-looking statements

included in this

Form 10-Q

are made only

as of

the date

hereof, and we undertake

no obligation to

update or revise any

forward-looking statement to reflect events

or circumstances

after the date on which the statements are made or to reflect the occurrence of unanticipated events,

unless required to do

so under the federal

securities laws. You

should also review

the risk factors

described in the reports

the Company filed

will file with the SEC.

Overview

The Company

reported

net

income

of $4.2

million or

$0.21 per

diluted

share of

common

stock for

the three

months

ended June 30, 2023 compared

to $5.3 million or

$0.26 per diluted share

of common stock for

the three months ended

June

30, 2022. Net income

for the six months

ended June 30, 2023

was $10.0 million or

$0.51 per diluted share

of common stock

compared to $10.1 million or $0.50 per diluted share of

common stock for the same period in 2022.

During the second quarter

of 2023, the Company

repurchased 77,603 shares

of Class A common stock at a

weighted

average price per share of $9.58. The aggregate

purchase price for these transactions

was approximately $747 thousand,

including transaction costs.

Year-to-date, the Company

has repurchased

577,603 shares

at a

weighted average

price per

$11.41.

These

repurchases

were

made

through

open

market

purchase

pursuant

the

Company’s

publicly

announced repurchase

program. As

of June

30, 2023,

172,397 shares

remain authorized for

repurchase under

this program.

In evaluating our financial

performance, the Company

considers the level of

and trends in net

interest income, the

net

interest margin, the cost of deposits, levels

and composition of non-interest income and non-interest expense, performance

ratios, asset quality ratios,

regulatory capital ratios, and any significant event or transaction

Unless otherwise stated, all period comparisons in the

bullet points below are calculated for the

quarter ended June 30,

2023 compared to the quarter ended June 30,

2022 and to December 31, 2022,

comparison annualized where appropriate:

•

Net interest income for the three months ended

June 30, 2023 decreased $1.5 million or 9.4% to

$14.2 million from

$15.6 million for

the quarter ended

June 30, 2022. Net

interest income for

the six months

ended in June 30,

2023

increased $149 thousand or 0.5% compared to the same

period ended June 30, 2022.

•

Net interest margin (“NIM”) was 2.73% for the three months ended June 30, 2023 compared to 3.37% for the three

months ended June 30,

NIM was 2.97% for

the six months ended

in June 30, 2023

compared to 3.30% for

the same period in 2022.

•

Total assets were $2.2 billion at June

30, 2023, representing an increase of $209.8

million or 10.4% from June 30,

2022 and an increase of $140.1 million or 13.5% annualized

from December 31, 2022.

•

Total loans were

$1.6 billion at

June 30, 2023,

representing an increase

of $223.2 million

or 16.3% from

June 30,

2022 and an increase of $88.6 million or 11.9% annualized

from December 31, 2022.

•

Total deposits

were $1.9

billion at

June 30,

2023, representing

an increase

of $182.6

million or

10.5% from

June

30, 2022 and an increase of $92.0 million or 10.1% annualized

from December 31, 2022.

•

Annualized return on

average assets for

the quarter ended

June 30, 2023

was 0.77% compared

to 1.08% for

the

quarter ended June 30, 2022. Annualized return

on average assets was

0.94% for the six months

ended June 30,

2023 compared to 1.05% for the same period in 2022.

•

Annualized return

on average

stockholders’

equity for

the quarter

ended June

30, 2023

was 9.13%

compared to

11.38% for

quarter ended

June 30, 2022.

Annualized return on

average equity was

10.98% for

the six

months ended

June 30, 2023 compared to 10.54% for the same period

in 2022.

•

The ACL to total loans was 1.18%

at June 30, 2023 and

1.16% at December

31, 2022. ACL was calculated under

the CECL methodology

for three

and six

months ended

June 30,

2023 and

the incurred

loss methodology

for all

periods in 2022.

•

Non-performing loans to total loans was 0.03% at June

30, 2023 compared to 0.0% at December 31, 2022.

Table of Contents

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

•

June 30,

2023,

the

total

risk-based

capital

ratios

for

the

Company

and

the

Bank

were

13.42%

and

13.37%,

respectively.

•

Tangible

book

value

per

common

(non-GAAP

financial

measurement)

$9.40

June

30,

2023

was

negatively affected

by $2.41

due to

after tax

unrealized security

losses on

securities of

$47.1 million

at June

30,

At June 30, 2022,

tangible book value

of $9.00 per

common share was

negatively affected

by $1.84 due

$36.9 million after tax unrealized security losses. See “Reconciliation and Management Explanation for Non-GAAP

Financial Measures”

for a reconciliation of this non-GAAP financial measure.

Critical Accounting Policies and Estimates

The

consolidated

financial

statements

are

prepared

based

the

application

U.S.

GAAP,

the

most

significant

which are

described in

Note 1

“Summary of

Significant Accounting Policies”

in the

Company’s 2022 Form

10-K/A. To prepare

financial statements

in conformity

with US GAAP,

management makes

estimates, assumptions,

and judgments

based on

available information. These estimates,

assumptions,

and judgments affect the

amounts reported in

the financial statements

and accompanying notes. These estimates, assumptions,

and judgments are based on information available as of the date

of the financial statements and,

as this information changes, actual results

could differ from the estimates, assumptions and

judgments reflected

in the

financial statements.

In particular,

management

has identified

accounting

policies that,

due to

the estimates, assumptions and judgments inherent in those policies, are critical in understanding our financial statements.

Management has presented the application of these policies to

the Audit and Risk Committee of our Board.

Allowance for Credit Losses

January

2023,

the

Company

adopted

ASU

2016-13

Financial

Instruments

Credit

Losses

(Topic

326):

Measurement of Credit Losses

on Financial Instruments,

as amended, which replaces

the incurred loss methodology

with

expected

loss

methodology

that

referred

the

current

expected

credit

loss

(CECL)

methodology.

See

Note

“Summary of Significant

Accounting Policies” Item

1 of Part I

of this Form

10-Q for more information

on the adoption

ASC

326 and the allowance of credit losses.

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

the HPI

used

in calculating

expected losses on the residential loan segment. As of June 30,

2023, for every 100 basis points increase in the

HPI index,

the forecast

reduces

reserves

approximately

$240

thousand

and

about

2 basis

points

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.

Income Taxes

Deferred tax

assets and

liabilities are

recognized for

the future

tax consequences

attributable to

differences

between

the financial statement carrying amounts of

existing assets and liabilities and their

respective tax bases and operating loss

and tax credit carryforwards. Deferred

tax assets and liabilities are measured

using enacted tax rates expected to

apply to

taxable income

in the

years in

which those

temporary differences

are expected

to be

recovered or

settled. The

effect

deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment

date.

Management is required to assess whether a valuation allowance should be established on the net deferred tax assets

based on the

consideration of

all available evidence

using a more

likely than not

standard. In its

evaluation, management

considers taxable loss

carry-back availability, expectation of sufficient taxable

income, trends in

earnings, the future

reversal

of temporary differences, and available tax planning

strategies.

The Company recognizes positions taken

or expected to be

taken in a tax

return in accordance with existing accounting

guidance on

income taxes

which prescribes

a recognition threshold

and measurement

process. Interest

and penalties on

tax liabilities, if any,

would be recorded in interest expense and other operating

non-interest expense, respectively.

Non-GAAP Financial Measures

This Form 10-Q

includes financial information determined by

methods other than in

accordance with generally accepted

accounting principles (“GAAP”). This financial

information includes certain operating performance

measures. Management

has included these non-GAAP measures because it believes

these measures may provide useful supplemental information

for evaluating the Company’s underlying performance trends. Further, management uses these measures in

managing and

Table of Contents

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

evaluating

the

Company’s

business

and

intends

refer

them

discussions

about

our

operations

and

performance.

Operating performance measures

should be viewed in

addition to, and not

as an alternative to

or substitute for,

measures

determined in accordance with GAAP,

and are not necessarily comparable to non-GAAP measures

that may be presented

by other companies. To the extent applicable, reconciliations of these

non-GAAP measures to the most directly

comparable

GAAP

measures

can

found

the

section

“Reconciliation

and

Management

Explanation

Non-GAAP

Financial

Measures” included in this Form 10-Q.

Segment Reporting

Management monitors the revenue streams for

all its various products and services. The identifiable segments

are not

material

and

operations

are

managed

and

financial

performance

evaluated

overall

Company-wide

basis.

Accordingly, all

the financial service

operations are

considered by

management to be

aggregated in one

reportable operating

segment.

Results of Operations

General

The following

tables present

selected balance

sheet, income

statement, and

profitability ratios

for the

dates indicated

(in thousands, except ratios):

June 30, 2023

December 31, 2022

Consolidated Balance Sheets:

Total

assets

2,225,914

2,085,834

Total

loans

(1)

1,595,959

1,507,338

Total

deposits

1,921,301

1,829,281

Total

stockholders' equity

183,685

182,428

(1)

Loan amounts include deferred fees/costs.

Three Months Ended June 30,

Six Months Ended June 30,

2023

2022

2023

2022

Consolidated Statements of Operations:

Net interest income before provision for credit losses

14,173

15,642

30,170

30,021

Total

non-interest income

1,846

1,617

3,916

3,562

Total

non-interest expense

10,452

9,551

20,628

19,163

Net income

4,196

5,295

10,005

10,149

Profitability:

Efficiency ratio

65.25%

55.34%

60.52%

57.06%

Net interest margin

2.73%

3.37%

2.97%

3.30%

The Company’s results

of operations depend

substantially on net

interest income and

non-interest income. Other

factors

contributing to the results of operations include our provision

for credit losses, non-interest expenses,

and the provision for

income taxes.

Three months ended June 30, 2023 compared to the three

months ended June 30, 2022

Net income decreased to

$4.2 million for the

three months ended June

30, 2023 from $5.3 million

for the same period

in 2022 mainly due to higher weighted average deposit

costs.

Six months ended June 30, 2023 compared to six months

ended June 30, 2022

Net income slightly decreased to $10.0 million for the six months

ended June 30, 2023 from $10.1 million for the same

period

2022.

The

main

drivers

the

slight

decrease

net

income

were

$14.6

million

increase

interest

income

generated from higher loan

yields and a bigger loan

portfolio, offset by a

$14.5 million increase in

interest expense mainly

due to increases in deposit cost, combined with a $1.5

million increase in non-interest expense.

Table of Contents

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

Net Interest Income

Net

interest

income

the

difference

between

interest

earned

interest-earning

assets

and

interest

incurred

interest-bearing liabilities and

is the

primary driver of

core earnings. Interest

income is generated

from interest and

dividends

interest-earning

assets,

including

loans,

investment

securities

and

other

short-term

investments.

Interest

expense

incurred

from

interest

paid

interest-bearing

liabilities,

including

interest-bearing

deposits,

FHLB

advances

and

other

borrowings.

To evaluate net

interest income, we

measure and monitor

(i) yields on

loans and other

interest-earning assets, (ii)

the

costs of deposits

and other funding

sources, (iii) net

interest spread, and

(iv) net interest margin.

Net interest spread is

equal

to the difference between yields earned on interest-earning assets and rates paid on interest-bearing liabilities. Net interest

margin is

equal to

the annualized

net interest

income

divided by

average interest

-earning assets.

Because

non-interest-

bearing sources of funds, such as non-interest-bearing deposits

and stockholders’

equity, also fund interest-earning assets,

net interest margin includes the indirect benefit of these

non-interest-bearing funding sources.

Changes in

the market

interest rates and

interest rates

we earn on

interest-earning assets

or pay on

interest-bearing

liabilities, as well

as the volume and

types of interest-earning

assets and interest-bearing and

non-interest-bearing liabilities,

are usually the

largest drivers

of periodic changes

in net interest

spread, net interest

margin and net

interest income.

Our

asset liability committee (ALCO) has in

place asset-liability management techniques to manage major factors that

affect net

interest income and net interest margin.

Table of Contents

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

The following

table contains

information related

to average

balances, average

yields earned

on assets,

and average

costs of liabilities for the periods indicated (dollars in

thousands):

Three Months Ended June 30,

2023

2022

Average

(1)

Balance

Interest

Yield/Rate

(2)

Average

(1)

Balance

Interest

Yield/Rate

(2)

Assets

Interest-earning assets:

Loans

(3)

1,569,266

20,847

5.33%

1,296,476

14,053

4.35%

Investment securities

(4)

422,544

2,382

2.26%

493,352

2,510

2.04%

Other interest-earnings assets

87,536

1,051

4.82%

69,503

121

0.70%

Total interest-earning assets

2,079,346

24,280

4.68%

1,859,331

16,684

3.60%

Non-interest-earning assets

104,196

109,050

Total assets

2,183,542

1,968,381

Liabilities and stockholders' equity

Interest-bearing liabilities:

Interest-bearing checking

53,561

200

1.50%

66,349

0.10%

Saving and money market deposits

940,095

6,968

2.97%

781,076

615

0.32%

Time deposits

277,001

2,145

3.11%

224,284

271

0.48%

Total interest-bearing deposits

1,270,657

9,313

2.94%

1,071,709

903

0.34%

FHLB advances and other borrowings

93,075

794

3.42%

36,330

139

1.53%

Total interest-bearing liabilities

1,363,732

10,107

2.97%

1,108,039

1,042

0.38%

Non-interest-bearing demand deposits

601,778

644,975

Other non-interest-bearing liabilities

33,794

28,770

Total liabilities

1,999,304

1,781,784

Stockholders' equity

184,238

186,597

Total liabilities and stockholders' equity

2,183,542

1,968,381

Net interest income

14,173

15,642

Net interest spread

(5)

1.71%

3.22%

Net interest margin

(6)

2.73%

3.37%

(1)

Average balances - Daily average balances are used

to calculate yields/rates.

(2)

Annualized.

(3)

Average loan balances include non-accrual loans. Interest income

on loans includes accretion of deferred loan

fees, net of deferred loan costs.

(4)

At fair value except for securities held to maturity. This amount includes

FHLB stock.

(5)

Net interest spread is the weighted average

yield on total interest-earning assets minus the weighted

average rate on total interest-bearing liabilities.

(6)

Net interest margin is the ratio of net interest

income to average total interest-earning assets.

Table of Contents

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

Six Months Ended June 30,

2023

2022

Average

Balance

(1)

Interest

Yield/Rate

(2)

Average

Balance

(1)

Interest

Yield/Rate

(2)

Assets

Interest-earning assets:

Loans

(3)

1,558,390

40,558

5.25

1,254,189

27,035

4.35

Investment securities

(4)

422,132

4,668

2.23

501,758

4,839

1.94

Other interest-earnings assets

65,433

1,433

4.42

79,763

152

0.38

Total interest-earning assets

2,045,955

46,659

4.60

1,835,710

32,026

3.52

Non-interest earning assets

106,100

105,374

Total assets

2,152,055

1,941,084

Liabilities and stockholders' equity

Interest-bearing liabilities:

Interest-bearing checking

55,812

243

0.88

65,398

0.10

Money market and savings accounts

918,697

11,753

2.58

758,729

1,166

0.31

Time deposits

251,009

3,202

2.57

223,781

530

0.48

Total interest-bearing deposits

1,225,518

15,198

2.50

1,047,908

1,729

0.33

Borrowings and repurchase agreements

77,425

1,291

3.36

36,171

276

1.54

Total interest-bearing liabilities

1,302,943

16,489

2.55

1,084,079

2,005

0.37

Non-interest bearing demand deposits

632,901

635,740

Other non-interest-bearing liabilities

32,404

27,079

Total liabilities

1,968,248

1,746,898

Stockholders' equity

183,807

194,186

Total liabilities and stockholders' equity

2,152,055

1,941,084

Net interest income

30,170

30,021

Net interest spread

(5)

2.05

3.15

Net interest margin

(6)

2.97

3.30

(1)

Average balances - Daily average balances are used

to calculate yields/rates.

(2)

Annualized.

(3)

Average loan balances include non-accrual loans. Interest income

on loans includes accretion of deferred loan fees,

net of deferred loan costs.

(4)

At fair value except for securities held to maturity. Includes FHLB stock.

(5)

Net interest spread is the weighted average

yield on total interest-earning assets minus the weighted

average rate on total interest-bearing

liabilities.

(6)

Net interest margin is the ratio of net interest

income to average total interest-earning assets.

Three months ended June 30, 2023 compared to the three

months ended June 30, 2022

Net interest income before the provision

for credit losses was $14.2 million for

the three months ended June 30,

2023,

a decrease of

$1.5 million or

9.4%, from

$15.6 million

for the same

period in 2022.

The decrease can

be attributed to

the

impact of higher deposit costs, which was a result to

the prevailing market interest rate conditions.

Net interest

margin was

at 2.73%

for the

quarter ended

June 30, 2023

and 3.37%

for the

same period

in 2022.

The

increase in loan yields as well as yields on other interest

-earning assets was offset by higher deposit and borrowing

costs.

Six months ended June 30, 2023 compared to six months

ended June 30, 2022

Net interest income before the provision for credit losses was $30.2 million for the six months ended June 30, 2023, an

increase of $149 thousand or 0.5%, from $30.0 million for

the same period in 2022.

Net interest

margin

decreased

to 2.97%

for the

six

months

ended June

30,

2023 from

3.30% in

the same

period in

Overall interest-bearing asset yields grew but were outpaced

by the increase in cost of funds.

Provision for Credit Losses

The provision

for credit

losses represents

a charge

to earnings

necessary to

maintain an

allowance for

credit losses

that, in

management's evaluation,

is adequate

to provide

coverage for

all expected

credit losses.

The provision

for credit

losses is

impacted by

variations in

our loan

and debt

securities portfolio,

recent historical

and projected

future economic

Table of Contents

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

conditions, our internal assessment of the credit quality of

the loan and debt securities portfolios

and net charge-offs.

Three months ended June 30, 2023 compared to the three

months ended June 30, 2022

The provision for credit loss was $38 thousand for the three months

ended June 30, 2023 compared to $705 thousand

for the same period

in 2022.

Growth in unfunded commitments

was the primary driver

of the provision expense

during the

three months ended June

30, 2023 period. The

decrease in provision for

credit losses in the

2023 period compared to

the

June 30, 2022 quarter was due to greater loan growth

in second quarter 2022.

Six months ended June 30, 2023 compared to six months

ended June 30, 2022

The provision for credit

loss was $239

thousand for the six

months ended June

30, 2023 compared

to $705 thousand

for the same period in 2022. Decrease of $466 thousand due to higher loan growth in the six months ended

June 30, 2022.

The ACL as a percentage of total loans increased to 1.18% at June 30, 2023 compared to 1.15% at June 30,

2022.

ACL for the

three and six months ended

June 30 2023, was estimated under

the CECL methodology, and for

all periods

in 2022, it was estimated under the incurred loss model

See “Allowance for Credit Losses”

below for further discussion on

how the ACL is calculated.

Non-Interest Income

Our services and products generate service charges and fees, mainly from our depository

accounts. We also generate

income from gain on sale of loans though our swap and SBA

programs. In addition, we own and are beneficiaries of the life

insurance policies

on some

of our

employees and

generate income

on the

increase in

the cash

surrender value

of these

policies.

The following table presents the components of non-interest

income for the dates indicated (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

2023

2022

2023

2022

Service fees

1,173

1,083

2,378

1,983

Gain (loss) on sale of securities available for sale, net

(3)

(21)

Gain on sale of loans held for sale, net

441

356

Loan settlement

161

Other non-interest income

579

515

1,118

1,044

Total

non-interest income

1,846

1,617

3,916

3,562

Three months ended June 30, 2023 compared to the three

months ended June 30, 2022

Non-interest income

for the

three months

ended June 30,

2023 increased

$229 thousand

or 14.2%,

compared to

the

same period in

This increase

was primarily driven

by an increase

in service fees

from a larger

deposit portfolio and

$72 increase in gain on sale of loans due to higher sales

of SBA

7a loans.

Six months ended June 30, 2023 compared to the six

months ended June 30, 2022

Non-interest income for the six months ended June 30, 2023 increased $354 thousand or 9.9%,

compared to the same

period in

This

increase was

primarily

driven by

an increase

in service

fees

from a

larger deposit

portfolio.

For the

period ended

June 30,

2022,

the Company

recognized $161

thousand interest

recovery from

a prior

lending customer

the Bank. This payment reflected the final payment and settlement

of lien judgements against the customer.

Table of Contents

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

Non-Interest Expense

The following table presents the components of non-interest

expense for the dates indicated (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

2023

2022

2023

2022

Salaries and employee benefits

5,882

5,913

12,259

11,788

Occupancy

1,319

1,251

2,618

2,521

Regulatory assessment and fees

452

226

676

439

Consulting and legal fees

386

398

744

915

Network and information technology services

505

448

983

835

Other operating

1,908

1,315

3,348

2,665

Total

non-interest expense

10,452

9,551

20,628

19,163

Three months ended June 30, 2023 compared to the three

months ended June 30, 2022

Non-interest expense

for the

three months

ended June 30,

2023 increased

$901 thousand

or 9.4%,

compared to

the

same period in 2022. The increase was primarily driven by an increase in the FDIC deposit insurance assessment rate and

audit

and

tax

services

expenses

and

was

partially

offset

decrease

the

incentive

compensation

accrual

which

included in salary and employee benefits expense.

Six months ended June 30, 2023 compared to the six

months ended June 30, 2022

Non-interest expense

for the six

months ended June

30, 2023 increased

$1.5 million or

7.6%, compared

to the same

period

increase

was

primarily

driven

higher

salaries

and

employee

benefits

expense

due

to new

hires,

increased salary compensation and seasonal payroll taxes as well as increases

in the FDIC deposit insurance assessment

rate, and audit and tax services expense.

Provision for Income Tax

Fluctuations in the effective tax rate reflect the effect of the differences in the inclusion or deductibility of certain income

and expenses for

income tax purposes.

Therefore, future

decisions on the

investments we choose

will affect our

effective

tax rate.

The cash

surrender value

of bank-owned

life insurance

policies covering

key employees,

purchasing municipal

bonds, and overall levels of taxable income will be important

elements in determining our effective tax rate.

Three months ended June 30, 2023 compared to the three

months ended June 30, 2022

Income tax

expense for

the quarter

ended June 30,

2023 was

$1.3 million

as compared

to $1.7

million for

the same

period in

effective tax

rate for

the three

months ended

June 30,

2023

was 24.1%

compared

24.4% for

the

same period in 2022.

Six months ended June 30, 2023 compared to the six

months ended June 30, 2022

Income tax expense

for the six

months ended June

30, 2023 decreased

to $3.2 million

from $3.6 million

for the same

period in 2022. The Company’s effective tax rate was 24.3% for the 2023 period compared to 26.0% for the same period in

Company’s

effective

tax rate

the

period

ended June

30,

2022

was

higher primarily

because

the

Company

recorded a one-time adjustment of $300 thousand to deferred

tax assets which increased the income tax provision.

For

further

discussion

income

taxes,

see

Note

“Income

Taxes”

the

unaudited

Consolidated

Financial

Statements in Item 1 of Part I of this Form 10-Q.

Analysis of Financial Condition

Total

assets at June 30, 2023 were $2.2 billion, an increase of $140.1 million, or 13.5%

annualized, over total assets of

$2.1 billion at December 31, 2022. Total

loans, net of unearned fees/cost, increased $88.6 million, or 11.9

annualized, to

$1.6 billion at June 30,

2023 compared to $1.5

billion at December

31, 2022. Total

deposits increased by $92.0

million, or

10.1% annualized, to $1.9 billion at June 30, 2023 compared

to December 31, 2022.

Table of Contents

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

Investment Securities

The investment portfolio

is used and

managed to provide

liquidity through cash

flows, marketability

and, if necessary,

collateral for

borrowings. The

investment portfolio

is also

used as

a tool

to manage

interest rate

risk and

the Company’s

capital

market

risk

exposure.

The

philosophy

the

portfolio

maximize

the

Company’s

profitability

taking

into

consideration the Company’s

risk appetite and

tolerance, manage

the asset composition

and diversification,

and maintain

adequate risk-based capital ratios.

The

investment

portfolio

managed

accordance

with

the

Asset

and

Liability

Management

(“ALM”)

policy,

which

includes

investment

guidelines,

approved

the

Board.

Such

policy

reviewed

least

annually

frequently

deemed

necessary,

depending

on market

conditions and/or

unexpected

events.

The

investment

portfolio

composition

subject to change

depending on the

funding and liquidity

needs of the

Company, and the interest risk

management objective

directed

the

ALCO.

The

portfolio

investments

also

can

used

modify

the

duration

the

balance

sheet.

The

allocation of cash into securities takes into consideration anticipated

future cash flows (uses and sources) and all available

sources of credit.

Our investment portfolio consists

primarily of securities issued

by U.S. government-sponsored agencies,

U.S.

agency

mortgage-backed securities,

collateralized mortgage

obligation securities,

municipal securities,

and other

debt securities,

all with varying contractual maturities and coupons. Due to the optionality embedded in these securities, the final maturities

do not

necessarily represent the

expected life of

the portfolio. Some

of these

securities will be

called or paid

down depending

on capital market conditions and expectations. The investment portfolio is regularly reviewed by the Chief Financial Officer,

Treasurer,

and the ALCO

of the Company

to ensure an

appropriate risk

and return profile

as well as

for adherence to

the

investment policy.

ASC Topic

326 amended

the

existing

other-than-temporary-impairment

guidance

for AFS

securities,

requiring

credit

losses to be recorded as

an allowance rather than

through a permanent write-down.

When evaluating AFS

debt securities

under ASC

Topic

326, the

Company has

evaluated whether

the decline

in fair

value is

attributed to

credit losses

or other

factors

interest

rate

risk,

using

both

quantitative

and

qualitative

analyses,

including

company

performance

analysis,

review of credit

ratings, remaining

payment terms,

prepayment speeds

and analysis

of macro-economic

conditions. Each

investment is expected

to recover

its price depreciations

over its holding

period as

it moves to

maturity and the

Company

has

the

intent

and

ability

hold

these

securities

maturity

necessary.

result

this

evaluation,

the

Company

concluded that no allowance was required on AFS securities.

AFS and

HTM investment

securities increased

$20.6 million, or

9.9% annualized,

to $439.4 million

at June 30,

2023

from $418.8 million at December 31, 2022. Investment

securities increased due to reinvestment of payments

received and

investment of excess

in cash

balances into high

credit quality investments

to increase the

Company’s profitability and

modify

the

Company’s

balance

sheet

duration

according

the

ALM

policy.

June 30,

2023,

investment

securities

with

market value of

$223.2 million were

pledged to secure

public deposits and

BTFP.

The investment portfolio

does not have

any tax-exempt securities.

Table of Contents

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

The

following

table

presents

the

amortized

cost

and

fair

value

investment

securities

for

the

dates

indicated

(in

thousands):

June 30, 2023

December 31, 2022

Available-for-sale:

Amortized

Cost

Fair Value

Amortized

Cost

Fair Value

U.S. Government Agency

9,906

8,334

10,177

8,655

Collateralized mortgage obligations

107,991

83,883

118,951

95,541

Mortgage-backed securities - residential

71,279

58,099

73,838

60,879

Mortgage-backed securities - commercial

36,775

30,852

32,244

27,954

Municipal securities

25,044

19,091

25,084

18,483

Bank subordinated debt securities

16,836

14,468

15,964

14,919

Corporate bonds

4,033

3,715

4,037

3,709

271,864

218,442

280,295

230,140

Held-to-maturity:

U.S. Government Agency

44,404

38,230

44,914

39,062

U.S. Treasury

39,414

39,400

9,841

9,828

Collateralized mortgage obligations

65,844

57,030

68,727

60,925

Mortgage-backed securities - residential

44,834

40,213

42,685

38,483

Mortgage-backed securities - commercial

15,491

14,409

11,442

10,777

Corporate bonds

10,988

10,047

11,090

10,013

220,975

199,329

188,699

169,088

Allowance for credit losses - securities held-to-maturity

(19)

Securities held-to maturity, net of allowance for credit losses

220,956

The following

table shows

the weighted

average yields,

categorized by

contractual maturity,

for investment

securities

as of June 30, 2023 (in thousands,

except ratios):

Within 1 year

After 1 year through

5 years

After 5 years through

10 years

After 10 years

Total

Amortized

Cost

Yield

Amortized

Cost

Yield

Amortized

Cost

Yield

Amortized

Cost

Yield

Amortized

Cost

Yield

Available-for-sale:

U.S. Government Agency

0.00%

2,356

3.17%

7,550

2.29%

9,906

2.50%

Collateralized mortgage obligations

0.00%

107,991

1.40%

107,991

1.40%

MBS - residential

0.00%

71,279

1.62%

71,279

1.62%

MBS - commercial

0.00%

36,775

2.17%

36,775

2.17%

Municipal securities

0.00%

1,000

2.05%

24,044

1.73%

25,044

1.74%

Bank subordinated debt securities

0.00%

16,836

4.83%

0.00%

16,836

4.83%

Corporate bonds

0.00%

4,033

2.50%

0.00%

4,033

2.50%

4,033

20,192

247,639

271,864

1.86%

Held-to-maturity:

U.S. Government Agency

0.00%

7,915

1.03%

20,358

1.46%

16,131

1.85%

44,404

1.52%

U.S. Treasury

39,414

5.25%

0.00%

39,414

5.25%

Collateralized mortgage obligations

0.00%

65,844

1.66%

65,844

1.66%

MBS - residential

0.00%

4,497

1.85%

5,933

1.75%

34,404

2.40%

44,834

2.26%

MBS - commercial

0.00%

3,080

1.62%

12,411

2.12%

15,491

2.02%

Corporate bonds

1,502

2.25%

9,486

2.79%

0.00%

10,988

2.72%

40,916

21,898

29,371

128,790

220,975

2.13%

Loans

Loans are the

largest category of

interest-earning assets

on the unaudited

Consolidated Balance

Sheets, and usually

provide

higher

yields

than

the

remainder

the

interest-earning

assets.

Higher

yields

typically

carry

inherent

credit

and

liquidity risks in comparison to lower

yield assets. The Company manages

and mitigates such risks in accordance

with the

credit and ALM policies, risk tolerance and balance sheet composition.

Table of Contents

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

The following table shows the loan portfolio composition

as of the dates indicated (in thousands):

June 30, 2023

December 31, 2022

Total

Percent of

Total

Percent of

Total

Residential Real Estate

183,093

11.5

185,636

12.3

Commercial Real Estate

989,401

62.0

970,410

64.4

Commercial and Industrial

169,401

10.6

126,984

8.4

Foreign Banks

85,409

5.4

93,769

6.2

Consumer and Other

167,845

10.5

130,429

8.7

Total

gross loans

1,595,149

100.0

1,507,228

100.0

Less: Deferred fees (cost)

(810)

(110)

Total

loans net of deferred fees (cost)

1,595,959

1,507,338

Less: Allowance for credit losses

18,815

17,487

Total

net loans

1,577,144

1,489,851

Total

loans, net of unearned fees/cost, increased by $88.6 million,

or 11.9%

annualized, at June 30, 2023 compared to

December 31, 2022. The commercial and industrial, and

to a lesser extent, consumer and

other and commercial real estate

segments had the

most significant growth partially

offset by modest declines

in the residential

real estate and

correspondent

bank loan segments.

Our

loan

portfolio

continues

grow,

with

commercial

real

estate

lending

the

primary

focus

which

represented

approximately

62.0%

the total

gross

loan portfolio

as of

June 30, 2023.

Our

loan growth

strategy

since

inception

has

been reflective of the market in which we operate and

of our strategic plan as approved by the Board.

Most of the

commercial real estate

exposure represents

loans to commercial

businesses secured

by owner-occupied

real estate.

The growth

experienced in

recent years

is primarily

due to

implementation of

our relationship-based

banking

model and

the success

of our

relationship managers

in competing

for new

business

in a

highly competitive

metropolitan

area. Many

of our

larger loan

clients have

long-term

relationships with

members

of our

senior management

team or

our

relationship managers that date back to former institutions.

From a

liquidity perspective,

our loan

portfolio provides

us with

additional

liquidity due

to repayments

or unexpected

prepayments. The following table shows maturities and sensitivity to

interest rate changes for the loan portfolio at June 30,

2023 (in thousands):

Due in 1 year or

less

Due in 1 to 5

years

Due after 5 to 15

years

Due after 15

years

Total

Residential Real Estate

9,924

15,866

83,937

73,366

183,093

Commercial Real Estate

79,586

167,334

732,553

9,928

989,401

Commercial and Industrial

5,304

36,175

87,463

40,459

169,401

Foreign Banks

85,409

Consumer and Other

3,037

1,888

11,612

151,308

167,845

Total

gross loans

183,260

221,263

915,565

275,061

1,595,149

Interest rate sensitivity:

Fixed interest rates

161,350

122,412

162,484

164,385

610,631

Floating or adjustable rates

21,910

98,851

753,081

110,676

984,518

Total

gross loans

183,260

221,263

915,565

275,061

1,595,149

The information

presented

in the

table above

is based

upon the

contractual maturities

of the

individual

loans, which

may be

subject to

renewal at

their contractual

maturity.

Renewals will

depend on

approval by

our credit

department

and

balance sheet

composition at the

time of the

analysis, as

well as

any modification of

terms at

the loan’s maturity. Additionally,

maturity

concentrations,

loan

duration,

prepayment

speeds

and

other

interest

rate

sensitivity

measures

are

discussed,

reviewed, and analyzed by the ALCO. Decisions on term

rate modifications are discussed as well.

As of

June 30,

2023, approximately

61.7% of

the loans

have adjustable/variable

rates and

38.3% of

the loans

have

fixed rates.

The adjustable/variable

rate loans

re-price to

different benchmarks

and tenors

in different

periods of

time. By

contractual characteristics, there are no

material concentrations on anniversary repricing. Additionally, it is

important to note

Table of Contents

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

that most

of our

loans have

interest rate

floors. This

embedded option

protects the

Company from

a decrease

in interest

rates below the floor and positions us to gain in the scenario

of higher interest rates.

Asset Quality

Our asset quality grading

analysis estimates the capability of

the borrower to

repay the contractual obligation of

the loan

agreement as scheduled or at all. The Company’s internal credit risk grading system is based on experiences with similarly

graded loans. Internal credit

risk grades are reviewed

at least once a

year, and

more frequently as

needed. Internal credit

risk ratings

may change

based on

management’s

assessment of

the results

from the

annual review,

portfolio monitoring,

and other developments observed with borrowers.

The internal credit risk grades used by the Company to

assess the credit worthiness of a loan are shown below:

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.

Loan credit exposures by internally assigned grades are

as follows for the dates indicated (in thousands):

June 30, 2023

Pass

Special Mention

Substandard

Doubtful

Total

Residential Real Estate

183,093

Commercial Real Estate

986,874

2,527

989,401

Commercial and Industrial

168,565

836

169,401

Foreign Banks

85,409

Consumer and Other

167,845

1,591,786

3,363

1,595,149

December 31, 2022

Pass

Special Mention

Substandard

Doubtful

Total

Residential Real Estate

185,636

Commercial Real Estate

967,465

2,945

970,410

Commercial and Industrial

126,177

807

126,984

Foreign Banks

93,769

Consumer and Other

130,233

196

130,429

1,503,280

3,948

1,507,228

Table of Contents

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

Non-Performing Assets

The following table presents non-performing assets

as of the dates shown (in thousands,

except ratios):

June 30, 2023

December 31, 2022

Total

non-performing loans

486

Other real estate owned

Total

non-performing assets

486

Asset quality ratios:

(1)

Allowance for credit losses to total loans

1.18%

1.16%

Allowance for credit losses to non-performing loans

3871%

Non-performing loans to total loans

0.03%

(1)

ACL was calculated under CECL methodology for 2023, and incurred loss methodology for 2022

Non-performing

assets

include

all

loans

categorized

non-accrual

restructured,

impaired

securities,

other

real

estate

owned

(“OREO”)

and

other

repossessed

assets.

Problem

loans

for

which

the

collection

liquidation

full

reasonably uncertain are

placed on a non-accrual

status. This determination

is based on current

existing facts concerning

collateral values and the paying capacity of the borrower. When

the collection of the full contractual balance is unlikely,

the

loan is placed on non-accrual to avoid overstating the

Company’s income for a loan with increased credit

risk.

If the

principal or

interest on

a commercial

loan becomes

due and

unpaid for

90 days

or more,

the loan

is placed

non-accrual status as of

the date it becomes

90 days past due and

remains in non-accrual

status until it meets

the criteria

for restoration to accrual status.

Residential loans, on

the other hand, are placed

on non-accrual status when

the principal

or interest

becomes due

and unpaid

for 120

days or

more and

remains in

non-accrual status

until it meets

the criteria

for

restoration

accrual

status.

Restoring

loan

accrual

status

possible

when

the

borrower

resumes

payment

all

principal and interest

payments for a

period of six

months and the

Company has a

documented expectation

of repayment

of the remaining contractual principal and interest or the

loan becomes secured and in the process of collection.

The

Company

may

grant

loan

concession

borrower

experiencing

financial

difficulties.

This

determination

performed

during

the

annual

review

process

whenever

problems

surface

regarding

the

client’s

ability

repay

accordance with

the original

terms of

the loan

or line

of credit.

The concessions

are given

to the

debtor in

various forms,

including interest rate

reductions, principal forgiveness, extension

of maturity date,

waiver, or deferral of

payments and other

concessions intended to minimize potential losses.

For further discussion on non-performing loans

and borrowers experiencing financial difficulties,

see Note 3 “Loans” to

the unaudited Consolidated Financial Statements of this

Form 10-Q.

Allowance for Credit Losses

On January 1,

2023, the Company

adopted FASB

ASU 2016-13,

which introduced the

current expected

credit losses

(CECL) methodology

and

required

us to

estimate

all expected

credit

losses over

the remaining

life of

our loan

portfolio.

Accordingly,

the

ACL

represents

amount

that,

management's

evaluation,

adequate

provide

coverage

for

all

expected future credit losses on outstanding loans. Additionally,

qualitative adjustments are made to the ACL when, based

management’s

judgment,

there

are

factors

impacting

the

allowance

estimate

not

considered

the

quantitative

calculations.

See

Note

3 “Loans”

in Item

1 of

Part 1

this Form

10-Q

for more

information

the

allowance

for

credit

losses.

Table of Contents

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

The following table presents ACL and net charge-offs to average loans by

type for the periods indicated (in thousands):

Residential

Real Estate

Commercial

Real Estate

Commercial

and Industrial

Foreign

Banks

Consumer

and Other

Total

Three Months Ended June 30, 2023

Beginning balance

2,819

10,453

2,367

772

2,476

18,887

Provision for credit losses

(1)

(148)

(270)

125

(95)

345

(43)

Recoveries

Charge-offs

(40)

Ending Balance

2,673

10,183

2,500

677

2,782

18,815

Average loans

180,945

983,926

155,241

96,399

152,755

1,569,266

Net charge-offs to average loans

0.00%

-0.02%

0.10%

0.01%

Six Months Ended June 30, 2023

Beginning balance

1,352

10,143

4,163

720

1,109

17,487

Cumulative effect of adoption of accounting

principle

(2)

1,238

1,105

(2,158)

858

1,066

Provision for credit losses

(3)

(1,065)

443

(66)

857

242

Recoveries

Charge-offs

(45)

Ending Balance

2,673

10,183

2,500

677

2,782

18,815

Average loans

188,630

974,149

156,883

92,238

146,490

1,558,390

Net charge-offs to average loans

-0.01%

-0.07%

0.06%

0.00%

(1) Provision for credit losses excludes $62 thousand expense due to unfunded commitments included in other liabilities and $19

thousand expense due to investment securities held to maturity.

(2) Impact of CECL adoption on January 1, 2023

(3) Provision for credit losses excludes $22 thousand release due to unfunded commitments included in other liabilities and $19

thousand expense due to investment securities held to maturity.

Residential

Real Estate

Commercial

Real Estate

Commercial

and Industrial

Foreign

Banks

Consumer

and Other

Total

Three Months Ended June 30, 2022

Beginning balance

2,357

9,183

2,355

491

688

15,074

Provision for credit losses

107

311

160

118

705

Recoveries

Charge-offs

(1)

Ending Balance

2,366

9,290

2,671

651

808

15,786

Average loans

198,812

799,846

126,434

76,968

94,416

1,296,476

Net charge-offs to average loans

-0.02%

-0.01%

0.00%

Six Months Ended June 30, 2022

Beginning balance

2,498

8,758

2,775

457

569

15,057

Provision for credit losses

(148)

532

(115)

194

242

705

Recoveries

Charge-offs

(16)

(6)

(22)

Ending Balance

2,366

9,290

2,671

651

808

15,786

Average loans

198,453

769,978

133,009

68,400

84,349

1,254,189

Net charge-offs to average loans

-0.02%

0.01%

0.00%

Table of Contents

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

Bank-Owned Life Insurance

As of June 30,

2023, the combined

cash surrender

value of all bank-owned

life insurance (“BOLI”)

policies was $43.3

million. Changes in cash surrender value are recorded to non-interest income in the unaudited Consolidated Statements of

Operations. The Company had BOLI policies with five insurance carriers. The Company is the beneficiary of these policies.

Deposits

Customer deposits are the

primary funding source for

the Bank’s growth.

Through our network of

banking centers, we

offer a competitive array of deposit

accounts and treasury management services designed

to meet our customers’ business

needs.

Our

primary

deposit

customers

are

small-to-medium

sized

businesses

(“SMBs”),

and

the

personal

business

owners and operators of these SMBs, as well as the retail/consumer

relationships of the employees of these businesses.

The following table

presents the daily

average balance

and average rate

paid on deposits

by category for

the periods

presented (in thousands, except ratios):

Three Months Ended June 30,

2023

2022

Average Balance

Average Rate

Paid

Average Balance

Average Rate

Paid

Non-interest-bearing checking

601,778

0.00%

644,975

0.00%

Interest-bearing checking

53,561

1.50%

66,349

0.10%

Money market and savings deposits

940,095

2.97%

781,076

0.32%

Time deposits

277,001

3.11%

224,284

0.48%

Total

1,872,435

1.99%

1,716,684

0.21%

The Company

has a

granular deposit

portfolio

with outstanding

balances comprised

of 50%

in commercial

deposits,

36% personal

deposits, 11%

public funds

which are

partially collateralized

and 3%

brokered deposits.

During the

second

quarter ended June 30, 2023, the Company acquired

$50 million in brokered deposits to boost liquidity.

The Company has

approximately 20 thousand deposits accounts with the majority in personal

accounts,

approximately 13 thousand or 64.4%.

The

estimated

average

account

size

our

deposit

portfolio

approximately

$98

thousand

June

30,

2023.

The

Company also offers

Insured Cash Sweep (“ICS”) and Certificate

Deposit Account Registry Service (“CDARS”)

deposit

products to fully insure our clients.

The

uninsured

deposits

are

estimated

based

the

FDIC

deposit

insurance

limit

$250

thousand

for

all

deposit

accounts at the Company per

account holder. The

total estimated amount of uninsured

deposits is 53.2% or $1.0 billion

June 30, 2023.

The following table shows scheduled maturities of uninsured

time deposits as of June 30, 2023 (in thousands):

June 30, 2023

Three months or less

30,409

Over three through six months

17,692

Over six though twelve months

31,672

Over twelve months

11,696

91,469

Other Liabilities

The Company collects from commercial loan customers

funds which are held in escrow for future payment of

real

estate taxes and insurance. These escrow funds are disbursed

by the Company directly to the insurance companies

and

taxing authority of the borrower.

Escrow funds are recorded as other liabilities.

As of June 30, 2023 escrow balances totaled $12.1 million

compared to $3.5 million at December 31, 2022

Table of Contents

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

Borrowings

As a member

of the FHLB,

we are eligible

to obtain

advances with

various terms

and conditions.

This accessibility

additional funding allows us to efficiently and timely meet both expected

and unexpected outgoing cash flows and collateral

needs without adversely affecting either daily operation

or the financial condition of the Company.

As of June 30, 2023, we

had $87.0 million of fixed-rate

advances outstanding from

the FHLB with a weighted average

rate of 3.06%. Maturity dates for the advances range between

2023 to 2028 detailed in the table below.

The following table presents the FHLB fixed rate advances

as of June 30, 2023 (in thousands):

Interest Rate

Type of Rate

Maturity Date

Amount

0.81%

Fixed

August 17, 2023

5,000

1.04%

Fixed

July 30, 2024

5,000

2.05%

Fixed

March 27, 2025

10,000

1.07%

Fixed

July 18, 2025

6,000

3.76%

Fixed

January 24, 2028

11,000

3.77%

Fixed

April 25, 2028

50,000

87,000

have also

established

Federal Funds

lines of

credit with

our upstream

correspondent banks,

the BTFP,

and the

FRB Atlanta

Discount Window

to manage

temporary

fluctuations in

our daily

cash

balances.

As of

June 30, 2023,

there

were no outstanding balances with any of these sources.

Off-Balance Sheet Arrangements

We engage

in various financial

transactions in

our operations

that, under GAAP,

may not be

included on

the balance

sheet. To

meet the financing needs

of our customers we may

include commitments to extend

credit and standby letters

credit. To

a varying

degree, such

commitments

involve elements

of credit,

market,

and interest

rate risk

in excess

of the

amount recognized

in the

balance sheet.

use more

conservative credit

and collateral

policies in

making these

credit

commitments than

we do for

on-balance sheet

items. We

are not aware

of any accounting

loss to

be incurred

by funding

these commitments;

however,

we maintain

allowance

for

off-balance

sheet

credit

risk

which

is recorded

under

other

liabilities on the unaudited Consolidated Balance Sheets.

Since commitments associated with letters of

credit and commitments to extend

credit may expire unused, the

amounts

shown

not

necessarily

reflect

actual

future

cash

funding

requirements.

The

following

table

presents

lending

commitments outstanding as of the dates indicated (in thousands

June 30, 2023

December 31, 2022

Commitments to grant loans and unfunded lines of credit

92,910

95,461

Standby and commercial letters of credit

8,344

4,320

Total

101,254

99,781

Commitments to extend credit are agreements to lend funds to a client, as long as there is no violation of any condition

established

the

contract,

for

specific

purpose.

Commitments

generally

have

variable

interest

rates,

fixed

expiration

dates or

other

termination

clauses

and may

require

payment

a fee.

Since many

the commitments

are expected

expire without being

fully drawn, the

total commitment

amounts disclosed

above do not

necessarily represent

future cash

requirements.

Unfunded lines of credit represent unused portions of credit facilities to our current borrowers that represent no change

in credit risk in our portfolio. Lines

of credit generally have variable interest

rates. The maximum potential amount

of future

payments we could

be required to

make is represented

by the contractual

amount of

the commitment,

less the amount

any advances made.

Letters of credit are

conditional commitments

issued by us to guarantee

the performance of

a client to a third

party. In

the event of nonperformance by the

client in accordance with the terms

of the agreement with the third party,

we would be

required to fund

the commitment.

If the commitment

is funded, we

would be entitled

to seek

recovery from

the client from

the underlying collateral,

which can include

commercial real estate,

physical plant and

property, inventory, receivables, cash

or marketable securities.

Table of Contents

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

Asset and Liability Management Committee

Members

senior

management

and

our

Board

make

the

asset

and

liability

management

committee,

ALCO.

Senior management is responsible for ensuring that Board

approved strategies, policies, and procedures for managing and

mitigating risks are appropriately executed within the designated

lines of authority and responsibility in a timely manner.

ALCO

oversees

the

establishment,

approval,

implementation,

and

review

interest

rate

risk,

management,

and

mitigation strategies, ALM related policies, ALCO procedures

and risk tolerances and appetite.

While some

degree of IRR

(“Interest Rate Risk”)

is inherent to the

banking business,

we believe our

ALCO has put

place sound risk management practices to identify,

quantify, monitor,

and limit IRR exposures.

When assessing

the scope

of IRR

exposure

and

impact on

the consolidated

balance sheet,

cash

flows and

income

statement,

management

considers

both

earnings

and

economic

impacts.

Asset

price

variations,

deposit

volatility

and

reduced earnings or outright losses could adversely affect

the Company’s liquidity,

performance, and capital adequacy.

Income simulations

are used

to assess

the impact

of changing

rates on

earnings under

different rates

scenarios and

time horizons.

These simulations

utilize both

instantaneous and

parallel changes

in the

level of

interest rates,

as well

non-parallel changes such as changing

slopes (flat and steepening)

and twists of the yield curve

Static simulation models

are based on current exposures and assume a constant balance sheet with no new growth. Dynamic simulation analysis is

also utilized to have a more comprehensive assessment on IRR. This

simulation relies on detailed assumptions outlined in

our

budget

and

strategic

plan,

and

assumptions

regarding

changes

existing

lines

business,

new

business,

management strategies and client expected behavior.

have

complete

picture

IRR,

the

Company

also

evaluates

the

economic

value

equity

(“EVE”).

This

assessment

allows

measure

the

degree

which

the

economic

values

will

change

under

different

interest

rate

scenarios (parallel and non-parallel). The economic value approach focuses on a longer-term time horizon and captures all

future cash flows expected

from existing assets and

liabilities. The economic

value model utilizes a

static approach in that

the analysis

does not

incorporate new

business; rather,

the analysis

shows a

snapshot in

time of

the risk

inherent in

the

balance sheet.

Market and Interest Rate Risk Management

According to our ALCO

model, as of June

30, 2023, we had

a neutral balance sheet

for year one modeling

and an asset

sensitive balance

sheet for year

two modeling.

Asset sensitivity indicates

that our

assets generally reprice

faster than our

liabilities, which results in a favorable impact to net interest income when market

interest rates increase. Liability sensitivity

indicates that our

liabilities generally reprice

faster than our

assets, which results

in a favorable

impact to net

interest income

when market interest rates decrease.

Many assumptions are used

to calculate the impact of

interest rate variations on our

net interest income,

such as asset

prepayment speeds, non-maturity

deposit price sensitivity,

pricing correlations, deposit

truncations and decay rates, and key interest rate drivers

Because of the inherent use

of these estimates and

assumptions in the model,

our actual results may,

and most likely

will, differ from static measures results.

In addition, static measures like EVE

do not include actions that management

may

undertake to manage the risks in response to anticipated changes in interest rates or client deposit behavior. As part of our

ALM strategy

and

policy,

management

has the

ability to

modify

the

balance sheet

either increase

asset

duration

and

decrease liability

duration to reduce

asset sensitivity,

or to decrease

asset duration and

increase liability duration

in order

to increase asset sensitivity.

According to our

model, as of

June 30, 2023,

NIM most likely

will remain neutral

for year one

and should increase

for

year two under static

rate scenarios (an

increase or decrease

of 400 basis

points). For the

static forecast in

year one, the

estimated NIM

will decrease

from the

base case scenario

a +400 basis

points scenario.

Additionally,

utilizing an

EVE

approach, we analyze

the risk to capital

from the effects

of various interest

rate scenarios through

a long-term

discounted

cash flow model.

This measures

the difference

between the

economic value

of our assets

and the economic

value of our

liabilities, which is

a proxy for

our liquidation value.

According to our

balance sheet composition, and

as expected, our

model

stipulates that an increase

in rates will have a

negative impact on the EVE

and lower rates, a

positive impact. Results and

analysis are presented quarterly to the ALCO, and strategies

are defined.

Table of Contents

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

Liquidity

Liquidity is defined

as a Company’s

capacity to meet

its cash and

collateral obligations at

a reasonable cost.

Maintaining

an adequate level of liquidity depends on the Company’s ability to

efficiently meet both expected and unexpected cash flow

and collateral needs without adversely affecting

either daily operations or the financial condition of

the Company.

Liquidity risk

is the

risk that

we will

be unable

to meet

our short-term

and long-term

obligations as

they become

due

because of an inability

to liquidate assets or

obtain relatively adequate funding. The

Company’s obligations, and the funding

sources

used

meet

them,

depend

significantly

our

business

mix,

balance

sheet

structure

and

composition,

credit

quality of our assets and the cash flow profiles of our on

and off-balance sheet obligations.

In managing

inflows and

outflows,

management

regularly monitors

situations that

can give

rise to

increased

liquidity

risk. These

include funding

mismatches, market

constraints on

the ability

to convert

assets (particularly

investments) into

cash or in accessing sources of funds (i.e., market liquidity),

and contingent liquidity events.

Changes in macroeconomic conditions, as well as exposure

to credit, market, operational, legal and reputational

risks,

such as

cybersecurity risk,

could have

an unexpected

impact on

the Company’s

liquidity risk

profile and

are factored

into

the assessment of liquidity and the ALM framework.

Management has established

a comprehensive and

holistic management process for

identifying, measuring, monitoring

and

mitigating

liquidity

risk.

Due

its

critical

importance

the

viability

the

Company,

liquidity

risk

management

integrated into our risk management processes,

Contingency Funding Plan and ALM policy.

Critical elements of our liquidity

risk management include: effective corporate governance consisting of

oversight by the

Board and active

involvement of senior

management; appropriate strategies, policies,

procedures, and limits

used to identify

and mitigate liquidity risk; comprehensive liquidity risk measurement and

monitoring systems (including assessments of the

current and prospective cash flows or sources and uses of funds) that are commensurate with the complexity and

business

activities of

the Company;

active management

of intraday

liquidity and

collateral; an

appropriately diverse

mix of

existing

and

potential

future

funding

sources;

adequate

levels

highly

liquid

marketable

securities

free

legal,

regulatory,

operational

impediments,

that

can

used

meet

liquidity

needs

stressful

situations;

comprehensive

contingency

funding plans

that sufficiently address

potential adverse liquidity

events and emergency

cash flow

requirements; and internal

controls

and

internal

audit

processes

sufficient

determine

the

adequacy

the

institution’s

liquidity

risk

management

process.

expect

funds

available

from

several

basic

banking

activity

sources,

including

the

core

deposit

base,

the

repayment and maturity of loans and investment security

cash flows. Other potential funding sources include

federal funds

purchased, brokered

certificates

of deposit,

listing services

certificate

of deposit,

the Bank

Term

Funding Program,

FRB

Atlanta discount

window,

and borrowings

from the

FHLB. Accordingly,

we believe

our liquidity

resources are

adequate to

fund loans and meet other cash needs as necessary.

Table of Contents

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

Capital Adequacy

June 30,

2023,

the

Bank

was

well capitalized

under

the

FDIC’s

prompt

corrective

action

framework.

also

follow the capital conservation

buffer framework,

and as of June

30, 2023, we

exceeded the capital

conversation buffer

all capital

ratios,

according

our actual

ratios.

The

following

table

presents

the

capital

ratios

for

the

Bank

at the

dates

indicated (in thousands, except ratios).

Actual

Minimum Capital

Requirements

To be Well Capitalized

Under Prompt Corrective

Action Provisions

Amount

Ratio

Amount

Ratio

Amount

Ratio

June 30, 2023

Total

risk-based capital

224,719

13.37

134,413

8.00

168,017

10.00

Tier 1 risk-based capital

205,391

12.22

100,810

6.00

134,413

8.00

Common equity tier 1 capital

205,391

12.22

75,607

4.50

109,211

6.50

Leverage ratio

205,391

9.30

88,361

4.00

110,451

5.00

December 31, 2022:

Total

risk-based capital

216,693

13.58

127,616

8.00

159,520

10.00

Tier 1 risk-based capital

198,909

12.47

95,712

6.00

127,616

8.00

Common equity tier 1 capital

198,909

12.47

71,784

4.50

103,688

6.50

Leverage ratio

198,909

9.56

83,210

4.00

104,012

5.00

The Company is not subject to capital ratios imposed by Basel III on bank holding companies because the Company is

deemed to be a small bank holding company.

Impact of Inflation

Our

Consolidated

Financial

Statements

and

notes

have

been

prepared

accordance

with

U.S.

GAAP,

which require the measurement of financial

position and operating results in terms

of historical dollars, without considering

the changes in the

relative purchasing power

of money over time

due to inflation. The

impact of inflation is reflected

in the

increased cost of operations.

Unlike most industrial companies,

nearly all our assets and

liabilities are monetary in

nature.

As a result,

interest rates have a

greater impact on our

performance than do the

effects of general levels

of inflation. Periods

of high inflation

are often accompanied

by relatively higher

interest rates, and

periods of low

inflation are accompanied

relatively lower interest rates.

As market interest rates

rise or fall in relation

to the rates earned

on loans and investments,

the

value

these

assets

decreases

increases

respectively.

Inflation

can

also

impact

core

non-interest

expenses

associated with delivering the Company’s services.

Recently Issued Accounting Pronouncements

Recently issued accounting

pronouncements are discussed

in Note 1 “Summary

of Significant Accounting

Policies” to

the unaudited Consolidated Financial Statements in this

Form 10-Q.

Table of Contents

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

Reconciliation and Management Explanation of Non

-GAAP Financial Measures

Management

has

included

these

non-GAAP

measures

because

believes

these

measures

may

provide

useful

supplemental information

for evaluating

the Company’s

underlying performance

trends. Further,

management uses

these

measures

managing

and

evaluating

the

Company’s

business

and

intends

refer

them

discussions

about

our

operations and performance.

Operating performance

measures should be

viewed in addition

to, and not

as an alternative

to or

substitute

for,

measures

determined

accordance

with GAAP,

and

are

not

necessarily

comparable

to non-GAAP

measures that may be presented by other

companies. The following table reconciles the non-GAAP financial measurement

of operating net income available to common stockholders for the periods presented (in thousands,

except per share data):

Table of Contents

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

USCB FINANCIAL HOLDINGS, INC.

NON-GAAP FINANCIAL MEASURES (UNAUDITED)

(Dollars in thousands)

As of or For the Three Months Ended

6/30/2023

3/31/2023

12/31/2022

9/30/2022

6/30/2022

Pre-tax pre-provision ("PTPP") income:

(1)

Net income

4,196

5,809

4,434

5,558

5,295

Plus: Provision for income taxes

1,333

1,881

1,415

1,963

1,708

Plus: Provision for credit losses

201

880

910

705

PTPP income

5,567

7,891

6,729

8,431

7,708

PTPP return on average assets:

(1)

PTPP income

5,567

7,891

6,729

8,431

7,708

Average assets

2,183,542

2,120,218

2,051,867

2,026,791

1,968,381

PTPP return on average assets

(2)

1.02%

1.51%

1.30%

1.65%

1.57%

Operating net income:

(1)

Net income

4,196

5,809

4,434

5,558

5,295

Less: Net gains (losses) on sale of securities

(21)

(1,989)

(558)

(3)

Less: Tax effect on sale of securities

504

141

Operating net income

4,196

5,825

5,919

5,975

5,297

Operating PTPP income:

(1)

PTPP income

5,567

7,891

6,729

8,431

7,708

Less: Net gains (losses) on sale of securities

(21)

(1,989)

(558)

(3)

Operating PTPP income

5,567

7,912

8,718

8,989

7,711

Operating PTPP return on average assets:

(1)

Operating PTPP income

5,567

7,912

8,718

8,989

7,711

Average assets

2,183,542

2,120,218

2,051,867

2,026,791

1,968,381

Operating PTPP return on average assets

(2)

1.02%

1.51%

1.69%

1.76%

1.57%

Operating return on average assets:

(1)

Operating net income

4,196

5,825

5,919

5,975

5,297

Average assets

2,183,542

2,120,218

2,051,867

2,026,791

1,968,381

Operating return on average assets

(2)

0.77%

1.11%

1.14%

1.17%

1.08%

Operating return on average equity:

(1)

Operating net income

4,196

5,825

5,919

5,975

5,297

Average equity

184,238

183,371

177,556

185,288

186,597

Operating return on average equity

(2)

9.13%

12.88%

13.23%

12.79%

11.39%

Operating Revenue:

(1)

Net interest income

14,173

15,997

16,866

16,774

15,642

Plus: Non-interest income

1,846

2,070

(123)

1,789

1,617

Less: Net gains (losses) on sale of

securities

(21)

(1,989)

(558)

(3)

Operating revenue

16,019

18,088

18,732

19,121

17,262

Operating Efficiency Ratio:

(1)

Total non-interest expense

10,452

10,176

10,014

10,132

9,551

Operating revenue

16,019

18,088

18,732

19,121

17,262

Operating efficiency ratio

65.25%

56.26%

53.46%

52.99%

55.33%

(1)

The Company believes these non-GAAP measurements are

key indicators of the ongoing earnings power

of the Company.

(2)

Annualized.

Table of Contents

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

USCB FINANCIAL HOLDINGS, INC.

NON-GAAP FINANCIAL MEASURES (UNAUDITED)

(Dollars in thousands, except per share data)

As of or For the Three Months Ended

6/30/2023

3/31/2023

12/31/2022

9/30/2022

6/30/2022

Tangible book value per common share (at period-end):

(1)

Total stockholders' equity

183,685

183,858

182,428

177,417

180,068

Less: Intangible assets

Tangible stockholders' equity

183,685

183,858

182,428

177,417

180,068

Total shares issued and outstanding (at period-end):

Total common shares issued and outstanding

19,544,777

19,622,380

20,000,753

Tangible book value per common share

(2)

9.40

9.37

9.12

8.87

9.00

Operating diluted net income per common share:

(1)

Operating net income

4,196

5,825

5,919

5,975

5,297

Total weighted average diluted shares of common stock

19,639,682

19,940,606

20,172,438

20,148,208

20,171,261

Operating diluted net income per common share:

0.21

0.29

0.30

0.26

Tangible Common Equity/Tangible Assets

(1)

Tangible stockholders' equity

183,685

183,858

182,428

177,417

180,068

Tangible assets

2,225,914

2,163,821

2,085,834

2,037,453

2,016,086

Tangible Common Equity/Tangible

Assets

8.25%

8.50%

8.75%

8.71%

8.93%

(1)

The Company believes these non-GAAP measurements are

key indicators of the ongoing earnings power

of the Company.

(2)

Excludes the dilutive effect, if any, of shares of common stock issuable upon exercise

of outstanding stock options.

Table of Contents

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

As a smaller reporting company,

we are not required to provide the information required by

this item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the

supervision and with

the participation of

our management, including

our President and

Chief Executive Officer

and our

Chief Financial

Officer,

we evaluated

the effectiveness

of the

design and

operation of

the Company’s

disclosure

controls and procedures (as

defined in Rules 13a-15(e)

and 15d-15(e) under the

Exchange Act) as of

June 30, 2023. Based

on that evaluation, management

believes that the Company’s disclosure

controls and procedures were

effective to collect,

process,

and disclose

the information

required

disclosed

in the

reports

filed

or submitted

under the

Exchange

Act

within the required time periods as of the end of the period covered

by this Form 10-Q.

Changes in Internal Control Over Financial Reporting

There has been

no change in

our internal control

over financial reporting

(as defined in

Rules 13a-15(f)

and 15d-15(f)

under the Exchange Act) during the period covered by this Form 10-Q that has

materially affected, or is reasonably likely to

materially affect, our internal control over financial

reporting.

Limitations on Effectiveness of Controls and Procedures

designing

and

evaluating

the

disclosure

controls

and

procedures,

management

recognizes

that

any

controls

and

procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving

the desired control objectives.

In addition, the design

of disclosure controls and

procedures must reflect the

fact that there

are resource constraints and that management is required to apply judgment

in evaluating the benefits of possible controls

and procedures relative to their costs.

Table of Contents

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

PART II

Item 1.

Legal Proceedings

July

13,

2023,

three

individuals

who

were

shareholders

the

Bank

prior

its

reorganization

into

the

holding

company form of organization (the “Plaintiffs”)

filed a lawsuit against six persons, all of whom

were directors of the Bank at

the

relevant

time

(the

“Defendants”),

the

Circuit

Court,

Eleventh

Judicial

Circuit

for

Miami-Dade

County

(the

“Court”)

(Benes et

al. v.

de la

Aguilera et

al.) alleging

the Defendants

(i) caused

the Bank,

as directors

thereof, to

engage in

ultra

vires conduct by devising and approving the exchange

transaction effected in July 2021 pursuant to

which the Bank’s then

outstanding Class C and Class

D preferred stock was exchanged (the

“Exchange Transaction”),

which action the Plaintiffs

allege was

not permitted

by the

Bank’s

Articles of

Incorporation, and

(ii) breached

their fiduciary

duty as

directors of

the

Bank by approving and engaging in the Exchange Transaction.

The Plaintiffs seek the Court to certify the action as a class

action

and

award

damages

amount

proven

trial.

Plaintiffs

seek

damages

exceeding

$750,000

plus

attorney’s fees and

costs as well

as such other

relief as

the Court

may determine. The

Company believes that

the allegations

in the lawsuit are

legally and factually without

merit, and it intends

to vigorously defend against

the allegations in the

lawsuit,

pursue any

potential

counterclaims

against the

plaintiffs

as it

deems

appropriate,

and seek

coverage

from

its insurance

carriers. However,

there can

be no

assurance that

this litigation

will be

resolved favorably.

Furthermore,

there is

also no

assurance that we

will be able

to secure coverage

from our insurance

carriers for any

expenses incurred by us

in connection

with this litigation. If the plaintiff shareholders are successful,

the Court could

award substantial compensatory damages.

In addition

to the

foregoing, we

are from

time to

time subject

to claims

and litigation

arising in

the ordinary

course of

business.

These

claims

and

litigation

may

include,

among

other

things,

allegations

violation

banking

and

other

applicable regulations, competition

law, labor

laws and consumer

protection laws, as

well as claims

or litigation relating to

intellectual property,

securities, breach of contract

and tort. We

intend to defend ourselves vigorously

against any pending

or future claims and litigation.

this

time,

the

opinion

management,

the

likelihood

remote

that

the

impact

such

proceedings,

either

individually or

in the

aggregate, would

have a

material adverse

effect

on our

consolidated results

of operations,

financial

condition

or cash

flows. However,

one

or more

unfavorable outcomes

in any

claim

or litigation

against

us, including

the

aforementioned litigation regarding the Exchange

Transaction, could have

a material adverse effect

on the period in which

such claims

or litigation

are resolved.

In addition,

regardless of

their merits

or their

ultimate outcomes,

such matters

are

costly, divert management’s

attention and may materially adversely affect

our reputation, even if resolved in our favor.

Item 1A. Risk Factors

For detailed information about certain risk factors that could materially affect our business, financial

condition, or future

results, see “Part I, Item 1A – Risk Factors” of the 2022 Form 10-K/A and see “Part II, Item 1A – Risk Factors” of the March

31, 2023 Form 10-Q.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

(a) None.

(b) Not applicable.

for the quarter ended June 30, 2023 were as follows:

Total

Number of

Purchased

Average

Price Paid

Per Share

Total Number of Shares Purchased

as Part of Publicly Announced Plans

or Programs (1)

Maximum Number

of Shares that

May

Yet Be Purchased

Under Plans or

Programs (1)

Period

April 1 - 30, 2023

250,000

May 1 - 31, 2023

46,498

9.38

203,502

June 1 - 30, 2023

31,105

9.89

172,397

77,603

9.58

(1) On January 24, 2022 the Company

announced its initial stock repurchase program to repurchase

up to 750,000 shares of Class

A common stock,

approximately 3.75% of the Company’s then outstanding

shares of common stock.

Table of Contents

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

Item 3.

Defaults Upon Senior Securities

(a)

Not applicable

(b)

Not applicable

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5. Other Information

(a)

Not applicable

(b)

Not applicable

(c)

Not applicable

Table of Contents

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

Item 6. Exhibits

Exhibit No.

Description of Exhibit

2.1

Agreement and Plan of Share Exchange, dated December 27, 2021, by and between U.S. Century Bank and USCB

Financial Holdings, Inc. (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K (File No.

001-41196) filed with the Securities and Exchange Commission on December 30, 2021).

3.1

Articles of Incorporation, as amended, of USCB Financial Holdings, Inc.

3.2

Amended and Restated Bylaws of USCB Financial Holdings, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s

Current Report on Form 8-K (File No. 001-41196) filed with the Securities and Exchange Commission on July 26, 2023).

4.1

Side Letter Agreement, dated December 30, 2021, between USCB Financial Holdings, Inc., U.S. Century Bank, Priam

Capital Fund II, LP, Patriot Financial Partners II, L.P. and Patriot Financial Partners Parallel II, L.P. (incorporated by

reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K (File No. 001-41196) filed with the Securities and

Exchange Commission on December 30, 2021).

4.2

Registration Rights Agreement, dated March 17, 2015, between U.S. Century Bank, Priam Capital Fund II, LP, Patriot

Financial Partners II, L.P., Patriot Financial Partners Parallel II, L.P., and certain other shareholders of U.S. Century Bank

(incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K (File No. 001-41196) filed with the

Securities and Exchange Commission on December 30, 2021).

4.3

Assignment and Assumption of Agreement, dated December 30, 2021, between U.S. Century Bank and USCB Financial

Holdings, Inc. (incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K (File No. 001-41196)

filed with the Securities and Exchange Commission on December 30, 2021).

4.4

Description of USCB Financial Holdings, Inc.’s securities (incorporated by reference to Exhibit 4.4 to the Registrant's Annual

Report on Form 10-K (File No. 001-41196) filed with the Securities and Exchange Commission on March 24, 2022)

31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.

31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.

32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.

32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.

101

The following financial statements

from the Company’s Quarterly

Report on Form 10-Q

for the quarter

ended June 30, 2023

formatted

Inline

XBRL:

(i)

Consolidated

Balance

Sheets

(unaudited),

(ii)

Consolidated

Statements

Operations

(unaudited), (iii) Consolidated

Statements

of Comprehensive

Income (unaudited), (iv)

Consolidated Statements

of Changes

in Stockholders’

Equity (unaudited),

(v) Consolidated

Statements of

Cash Flows

(unaudited), (vi)

Notes to

Consolidated

Financial Statements (unaudited).

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

Filed herewith.

Furnished herby.

Table of Contents

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

SIGNATURES

Pursuant to the

requirements of

the Securities Exchange

Act of 1934,

the registrant has

duly caused this

report to be

signed on its behalf by the undersigned thereunto duly authorized.

USCB FINANCIAL HOLDINGS, INC.

(Registrant)

Signature

Title

Date

/s/ Luis de la Aguilera

President, Chief Executive Officer,

and Director

August 11, 2023

Luis de la Aguilera

(Principal Executive Officer)

/s/ Robert Anderson

Chief Financial Officer

August 11, 2023

Robert Anderson

(Principal Financial Officer and Principal

Accounting Officer)

exhibit31

Exhibit 3.1

ARTICLES OF INCORPORATION,

AS AMENDED

USCB FINANCIAL HOLDINGS, INC.

The

undersigned,

being

legal

age

and

desiring

form

corporation

pursuant to

the provisions

of the

Florida Business

Corporation Act,

as amended,

executes

the following Articles of Incorporation.

ARTICLE I

The name of the corporation (hereinafter

called the "Corporation") is

USCB

Financial Holdings, Inc.

The address of the Corporation's principal place of business is

2301 NW 87th Avenue, Doral 33172, in the County of Miami-Dade and State of Florida.

ARTICLE II

The objects, purposes,

and powers for

which the Corporation

is organized

are as follows:

(1)

purchase

otherwise

acquire,

own

and

hold

the

stock

banks

and

other

corporations,

and

every

act

and

thing

covered

generally

the

denominations

"holding

corporation",

"bank

holding

company",

and

"financial

holding

company", and especially to direct the operations of other entities through the ownership

of stock or other interests therein;

(2)

purchase,

for,

acquire,

own,

hold,

sell,

exchange,

assign, transfer, mortgage, pledge,

hypothecate or otherwise

transfer or dispose

of stock,

scrip,

warrants,

rights,

bonds,

securities

evidences

indebtedness

issued

guaranteed by any other corporations, partnerships, limited liability companies, or trusts,

or any bonds

or evidences of

indebtedness of the

United States or

any other country

jurisdiction,

any

state,

district,

territory,

dependency

county

subdivision

municipality thereof,

and to

issue and

exchange therefor

cash, capital

stock, bonds,

notes

or other securities,

evidences of indebtedness

or obligations of the

Corporation and while

the owner thereof to exercise

all rights, powers and privileges

of ownership, including the

right to

vote on

any shares

of stock,

voting trust

certificates or

other instruments

so owned;

and

(3)

to transact any

business, to engage

in any lawful

act or activity and

to exercise all powers permitted to corporations by

the Florida Business Corporation Act,

as the same exists or may hereafter be amended.

The

enumeration

herein

the

objects,

purposes,

and

powers

the

Corporation shall not be deemed to exclude or in any way limit by inference any powers,

objects or

purposes that

the Corporation

is empowered

to exercise,

whether expressly,

by purpose or by any

of the laws of the State

of Florida or any reasonable construction

such laws.

ARTICLE III

The

aggregate

number of

shares of

all

classes of

capital stock

which

the

Corporation

shall

have

authority

issue

68,600,000,

consisting

(i)

53,000,000

common

stock,

par

value

$1.00

per

(the

"Common

Stock"),

and

(ii)

15,600,000 shares

of preferred

stock, par

value $1.00

per share,

except as

set forth

below

or any articles

of amendment of

any classes or

series of preferred

stock (the "Preferred

Stock").

Common Stock

The

Common

Stock

shall

consist

two

classes

stock:

(1)

45,000,000

shares of

Class

Voting Common

Stock, par

value $1.00

per share

(the "Voting

Common

Stock") and (ii)

8,000,000 shares of

Class B Non-Voting

Common Stock, par

value $1.00

per share (the "Non-Voting Common Stock").

Unless otherwise indicated, references

to "sections" or

"subsections" in this

Paragraph A

of this

Article III refer

to sections and subsections

of this Paragraph

of this

Article III.

General

(a)

The dividend, liquidation and other rights of the

holders of the

Common Stock

are expressly made

subject to and

qualified by

the rights of

the holders

any

classes

series

Preferred

Stock.

Except

set

forth

below,

all

Common

Stock (whether

Voting Common

Stock or

Non-Voting

Common

Stock) will

identical and will entitle the holders thereof to the same rights and privileges.

(b)

Definitions.

For purposes of this

Paragraph A

of this

Article III,

the following terms shall have the meanings indicated:

(i)

"Affiliate"

any

specified

Person

means

any

other

Person directly or

indirectly controlling or

controlled by or

under direct or

indirect common

control with

such specified

Person, including

as such

term is

defined in

Section 2(k)

the federal

Bank Holding

Company Act

of 1956,

amended. For

the purposes

of this

definition, "control" when used with respect to any specified Person, means the power to

direct the

management and policies

of such

Person, directly

or indirectly,

whether through

the ownership

of voting

securities, by

contract or

otherwise; and

the terms

"controlling"

and "controlled" have meanings correlative to the foregoing.

(ii)

"Beneficially

own,"

"beneficial

owner"

and

"beneficial

ownership" and similar terms are defined in Rules 13d-3 and 13d-5 of the Exchange

Act.

(iii)

"Business Day"

means any

day other

than a

Saturday

Sunday,

day

which,

the

County

Miami-Dade,

State

Florida,

banking

institutions generally are authorized or obligated by law or executive order to be closed.

(iv)

"Conversion Agent" means the

Transfer Agent acting in

its capacity as conversion agent for the shares

of the Non-Voting Common Stock, and its

successors and assigns.

(v)

"Conversion

Date"

means,

with

respect

any

given

Non-Voting

Common

Stock,

the

date

which

such

Non-Voting

Common Stock has been converted pursuant to Section 3(c)(i).

(vi)

"Converted Stock Equivalent Amount" means, for each

share of Non-Voting Common Stock, one

share of Voting Common Stock; provided that

if, after issuance of any Non-Voting

Common Stock, the Corporation subdivides

or splits

its

outstanding

Voting

Common

Stock,

including

way

dividend

distribution

Voting

Common

Stock,

combines

its

outstanding

Voting

Common Stock into

a lesser number

of shares, the

"Converted Stock

Equivalent

Amount"

with respect

to such

issued and

outstanding shares

of Non-Voting

Common Stock

shall

proportionately

adjusted

such

action

applied

the

Voting

Common

Stock represented by the Converted Stock Equivalent Amount.

(vii)

"DTC"

shall

have

the

meaning

set

forth

Section

3(c)(ii).

(viii)

"Exchange Act" means

the Securities

Exchange Act of

1934, as amended, and the regulations promulgated thereunder.

(ix)

"Holder"

means

the

Person

whose

name

the Voting

Common Stock

or the

Non-Voting Common

Stock, as

the case

may be,

are

registered, who

may be

treated by

the Corporation,

Transfer

Agent, registrar,

paying agent

and Conversion Agent as the absolute owner of such stock for all purposes.

(x)

"Liquidation Event" means any voluntary

or involuntary

liquidation, dissolution or winding-up of the affairs of the Corporation.

(xi)

"Person"

means

legal

person,

including

any

individual,

corporation,

estate,

partnership,

joint

venture,

association,

joint-stock

company, limited liability company or trust.

(xii)

"Senior

Stock"

means

any

class

series

capital

stock of

the Corporation

the terms

of which

expressly provide

that such

class or

series

will rank

senior to

the Voting

Common

Stock and

the Non-Voting

Common Stock

as to

dividend

rights

and/or

rights

liquidation,

dissolution

winding-up

the

Corporation

(in

each

case,

without

regard

to whether

dividends

accrue

cumulatively or

non-cumulatively).

(xiii)

"Transfer"

means

any

sale,

transfer,

assignment

other disposition (including by merger, reorganization, operation of law or otherwise).

Articles amended, effective May 24, 2023, to change

the conversion ratio from 0.2 to one.

(xiv)

"Transfer Agent" means

initially the

Corporation acting

as transfer

agent, registrar, paying

agent and

Conversion Agent and its

successors and

assigns and thereafter any Person appointed by the Corporation as Transfer Agent.

(xv)

"Transfer Certification" shall have the meaning

set forth

in Section 3(c)(ii).

(xvi)

"Voting

Group"

has

the

meaning

set

forth

Section

607.01401(78), Florida Business Corporation Act.

(xvii)

"Voting

Securities"

means

capital

stock

the

Corporation

that

then

entitled

vote

generally

the

election

directors

the

Corporation.

Voting Common Stock

(a)

Voting

Rights.

The

Holders of

record of

the Voting

Common

Stock

are

entitled

one

(1)

vote

per

all

matters

voted

the

Corporation's shareholders; provided, that, except as otherwise required by law, Holders

of Voting Common Stock, as

such, shall not be entitled

to vote on any

amendment to any

provision of these Articles of Incorporation that relates solely to the terms of one or more

outstanding

classes

series

Preferred

Stock

the

Non-Voting

Common

Stock

these Articles

Incorporation

provide

that

only

the

holders

one

classes

series of stock of the

Corporation not including the Voting

Common Stock are entitled to

vote thereon.

(b)

Dividends.

Dividends may be

declared and paid on

the Voting

Common Stock from

funds lawfully available

therefor if, as

and when determined

by the

Board

Directors

the

Corporation

(the

"Board

Directors")

its

sole

discretion,

subject

applicable

provisions

Federal

and

Florida

law

and

these

Articles

Incorporation,

amended

from

time

time,

and

subject

the

relative

rights

and

preferences

any

Non-Voting

Common

Stock

and

any

Preferred

Stock authorized, issued and outstanding hereunder.

(c)

Liquidation Rights.

(i)

Liquidation.

the

event

Liquidation

Event,

after

payment or provision for payment of the debts and other

liabilities of the Corporation and

after any payment

of the prior

preferences and

other rights of

any Senior Stock

shall have

been

made

irrevocably

set

apart

for

payment,

the

assets

the

Corporation

legally

remaining available for distribution

to the Corporation's shareholders shall be

distributed

pro rata among (A)

the Holders of Voting

Common Stock, (B) the

Holders of Non-Voting

Common Stock

(with each

such Holder

of Non-Voting

Common Stock

being treated

for

this

purpose

holding

the

number

whole

Common

Stock

equal

the

product

the

Converted

Stock

Equivalent Amount

and

the

number

such

Non-Voting

Common

Stock

immediately

prior

such

Liquidation

Event),

and

(C)

the

Holders of

any other

securities of

the Corporation

having the

right to

participate in

such

distributions

upon

the

occurrence

Liquidation

Event,

accordance

with

the

respective terms thereof.

(ii)

Merger,

Consolidation

and

Sale

Assets

Not

Liquidation.

For

purposes

this

Section

2(c),

the

merger

consolidation

the

Corporation with any

other corporation or

other entity, including

a merger or

consolidation

in which the

Holders of Voting

Common Stock receive

cash, securities or

other property

for their shares, or

the sale, lease or

exchange (for cash, securities or

other property) of

all or

substantially all

of the

assets of

the Corporation,

shall not

constitute a

Liquidation

Event.

Non-Voting Common Stock

(a)

Dividends.

(i)

General.

Each

Non-Voting

Common

Stock

shall be entitled to

receive, if, as and

when declared by

the Board of Directors

or any duly

authorized committee thereof, but

only out of assets

legally available therefor, dividends

or distributions of the same

amount, in an identical

form of consideration and

at the same

time, as those dividends or distributions that would have been payable on the

number of

whole shares of Voting Common Stock equal to the Converted Stock Equivalent Amount

(rounding

any

fractional

resulting

from

such

computation

the

nearest

whole

number),

such

that

Voting

Common

Stock

shall

receive

dividend

distribution

unless

equivalent

dividends

distributions

(as

described

above)

are

also

made with respect to

each share of Non-Voting

Common Stock, taking into

account any

adjustment to the Converted Stock Equivalent

Amount as provided herein; provided, that

the foregoing

shall not

apply to

any dividend

or distribution

payable in

Voting Common

Stock

that

results

adjustment

the

Converted

Stock

Equivalent Amount,

set

forth

Section

1(b)(vi)

the

definition

"Converted

Stock

Equivalent Amount."

The

Corporation

shall

not

declare

dividend

distribution

the

Voting

Common Stock unless a

dividend or distribution

(as described above)

is also declared on

the

Non-Voting

Common

Stock

accordance

with

this

Section

3(a)(i).

Notwithstanding anything set forth

in this Section 3(a)(i), if

any dividend or distribution

payable in

rights or warrants

to subscribe for

Voting Common

Stock or

purchase Voting

Common

Stock

pursuant

conversion

feature

debt

equity

security,

the

corresponding

dividend

or distribution

payable

the Non-Voting

Common

Stock

shall

consist of an identical right

or warrant, except that such

right or warrant shall

be a right or

warrant to

subscribe for

a number

of shares

of Non-Voting

Common Stock

equal to

the

number of shares of Voting Common Stock that would otherwise be subject to such right

warrant.

The

Non-Voting

Common

Stock

shall

have

fixed

dividend

rate.

Each

declared dividend or distribution

shall be payable to

the Holders of record

of Non-Voting

Common Stock at the same time as dividends or distributions are

payable to the Holders

of record of Voting Common Stock. The record dates

for dividends or distributions to the

Holders of

Non-Voting Common

Stock shall

be the

same as

the record

dates for

the Voting

Common Stock,

and vice-versa. The

Corporation shall

not declare

or pay

a dividend

distribution

the

Holders

the

Non-Voting

Common

Stock

other

than

expressly

provided in this Section 3(a)(i).

(ii)

Priority of

Dividends. The

Non-Voting

Common

Stock

shall rank

junior with

regard to

dividends to

the Senior

Stock. The Non-Voting

Common

Stock shall

have the

same priority,

with regard

to dividends,

as the

Voting Common

Stock.

(b)

Liquidation Rights.

(i)

Liquidation.

the

event

Liquidation

Event,

after

payment or provision for payment of the debts and other

liabilities of the Corporation and

after any payment

of the prior

preferences and

other rights of

any Senior Stock

shall have

been

made

irrevocably

set

apart

for

payment,

the

assets

the

Corporation

legally

remaining available for distribution

to the Corporation's shareholders shall be

distributed

pro rata among (A)

the Holders of Voting

Common Stock, (B) the

Holders of Non-Voting

Common Stock

(with each

such Holder

of Non-Voting

Common Stock

being treated

for

this

purpose

holding

the

number

whole

Common

Stock

equal

the

product

the

Converted

Stock

Equivalent Amount

and

the

number

such

Non-Voting

Common

Stock

immediately

prior

such

Liquidation

Event),

and

(C)

the

Holders of

any other

securities of

the Corporation

having the

right to

participate in

such

distributions

upon

the

occurrence

Liquidation

Event,

accordance

with

the

respective terms thereof.

(ii)

Merger,

Consolidation

and

Sale

Assets

Not

Liquidation.

For

purposes

this

Section

3(b),

the

merger

consolidation

the

Corporation with any

other corporation or

other entity, including

a merger or

consolidation

which

the

Holders

Non-Voting

Common

Stock

receive

cash,

securities

other

property

for

their

shares,

the

sale,

lease

exchange

(for

cash,

securities

other

property) of all

or substantially all

of the assets

of the Corporation,

shall not constitute

Liquidation Event.

(c)

Transfers and Conversion.

(i)

Transfers;

Conversion

Upon

Certain

Transfers.

The

Non-Voting Common

Stock may

be Transferred

only: (A)

to an Affiliate

of the

Holder of

Non-Voting

Common

Stock

the

Corporation;

(B)

pursuant

widespread

public

distribution

of Common

Stock (including

transfer to

an underwriter

for

the purpose

conducting a widespread public distribution or pursuant to Rule 144 under the Securities

Act of 1933, as

amended); (C) if no

transferee (or group

of associated transferees) would

receive

any

class

Voting

Securities

(D)

transferee

that

would

control more than 50% of the Voting Securities without any transfer from the transferor.

Each

Non-Voting

Common

Stock

shall

automatically

convert

into

number

Voting

Common

Stock

equal

the

Converted

Stock

Equivalent

Amount

immediately

following

Transfer

the

type

described in

clauses (B),

(D) of

this Section

3(c)(i). Each

certificate representing

shares of

Non-Voting Common

Stock in

respect of

which a

conversion has

occurred in

accordance with

this Section 3(c)(i)

shall be deemed

to represent the

number of shares

of Voting Common

Stock into which

such shares of

Non-Voting Common Stock

have so

converted.

(ii)

Transfer

Procedures.

Upon

the

physical

surrender

the Corporation (or,

if the

Transfer

Agent is not

the Corporation, the

Transfer

Agent) of the

certificate

representing

Non-Voting

Common

Stock

converted

pursuant

Section

3(c)(i) above,

together with

written certification

to the

effect

that such

are being Transferred in accordance with clauses

(B), (C) or (D) of Section

3(c)(i) above

(a "Transfer Certification"), the Corporation will, or will cause the Transfer

Agent to, issue

and

deliver

new

certificate,

registered

the

Holder

Non-Voting

Common

Stock

making the transfer may request, representing the aggregate number

of shares of Voting

Common

Stock

issued

upon

conversion

the

Non-Voting

Common

Stock

being

Transferred

(provided

that,

the

transfer

agent

for

the

Common

Stock

participating

The

Depository

Trust

Company

("DTC")

Fast

Automated

Securities

Transfer

Program

and

the

transferee

eligible

receive

through

DTC,

the

Transfer Agent

shall

instead

credit

such

number

full

Voting

Common

Stock

such

transferee's

balance

account

with

DTC

through

its

Deposit/Withdrawal

Custodian

system).

the

event

that

less

than

all

the

Non-Voting

Common

Stock

represented by a certificate are

Transferred pursuant to clauses (B),

3(c)(i) above,

the Corporation

shall promptly

issue a

new certificate

registered in

the name

the

transferor

Holder

Non-Voting

Common

Stock

representing

such

remaining

shares of Non-Voting Common Stock not subject to such Transfer.

(iii)

Responsibility

the

Corporation.

connection

with any Transfer or conversion of any shares of Non-Voting Common Stock pursuant to

or as permitted by Section 3(c)(i):

(A)

The Corporation shall be

under no obligation to

make any investigation of facts.

(B)

Except as

otherwise required

by law,

neither the

Corporation

nor

any

director,

officer,

employee

agent

the

Corporation

shall

liable

any

manner

for

any

action

taken

omitted in

good faith

in connection

with the

registration of

any such

Transfer

the

issuance

Voting

Common

Stock

connection with any such conversion.

(iv)

Legend. Every

certificate representing

shares of

Non-

Voting Common Stock shall bear a legend on the face thereof providing as follows:

"THE SHARES

OF NON-VOTING

COMMON STOCK

REPRESENTED BY THIS

CERTIFICATE

ARE

SUBJECT

PROVISIONS

WITH

RESPECT

TO,

INCLUDING

RESTRICTIONS

PERMITTED

SALE,

ASSIGNMENT

OTHER

TRANSFER

SET

FORTH

IN ARTICLE

III,

PARAGRAPH A,

SECTION

3(C)(I),

AND

ARTICLE

THE

CORPORATION'S

ARTICLES

INCORPORATION,

INCLUDING A

PROVISION

PROVIDING

FOR AUTOMATIC

CONVERSION

NON-VOTING

COMMON

STOCK

INTO

VOTING

COMMON

STOCK

UPON

CERTAIN

SALES,

ASSIGNMENTS OR OTHER TRANSFERS OF THE SHARES."

(v)

Effect

Other

Obligations.

Nothing

contained

this Section

3(c) shall

be deemed

to eliminate

or otherwise

modify any

other requirements

applicable to Transfers under these Articles of

Incorporation or applicable law.

(vi)

Conversion

Date.

Effective

immediately

prior

the

close of business on the Conversion

Date, dividends shall no longer be

declared on any

such

converted

Non-Voting

Common

Stock,

and

such

Non-Voting

Common Stock shall represent only the right

to receive shares of Voting Common Stock

issuable upon conversion of such shares; provided, that Holders of Non-Voting Common

Stock

shall

have

the

right

receive

any

declared

and

unpaid

dividends

the

Conversion

Date

such shares

and

any other

payments

which they

are

otherwise

entitled pursuant to the terms hereof.

(vii)

Record Holder

as of

Conversion Date.

The Person

Persons entitled to receive shares of Voting Common Stock issuable upon conversion of

Non-Voting

Common

Stock

any

applicable

Conversion

Date

shall

treated

for

all

purposes as

the record

Holder(s) of

such shares

of Voting

Common Stock

immediately

upon Conversion in accordance with Section 3(c)(i).

(d)

Voting Rights.

(i)

General.

The

Holders

Non-Voting

Common

Stock

shall be entitled to notice

of and attendance at all shareholder

meetings at which Holders

of shares

of Voting

Common Stock

shall be

entitled to

vote; provided,

that notwithstanding

any such notice,

except as required

by applicable law

or as expressly

set forth herein,

the

Holders

Non-Voting

Common

Stock

shall

not

entitled

vote

any

matter

presented

the

shareholders

the

Corporation

for

their

action

consideration,

including the election of directors of the Corporation.

(ii)

Protective Consent Rights. In

addition to any approval

rights that may be required by applicable law, the consent of the

Holders of Non-Voting

Common Stock representing

a majority of

the number of

shares of Non-Voting

Common

Stock then

issued and

outstanding, given

in person

or by

proxy, either

in writing

or by

vote, at a special or annual

meeting, voting or consenting as a separate

class, shall be

necessary

to:

(A)

amend,

alter

repeal

(including

merger,

consolidation

otherwise)

any

provision

these

Articles

Incorporation

that

significantly

and

adversely

affects

the

rights,

preferences

terms

the

Non-Voting

Common

Stock

contained

herein

manner

that

different

from

the

effect

such

amendment,

alteration or repeal on

the Voting Common

Stock or (B)

liquidate, dissolve or

windup the

business and affairs of the Corporation.

(iii)

Action

Written

Consent. Any

action,

including

any

vote required or permitted to be taken at any

annual or special meeting of shareholders

of the Corporation, that requires a separate vote of the Holders of Non-Voting Common

Stock

voting

Voting Group,

may

adopted

taken

such

Holders

without

meeting,

without

prior

notice

and

without

vote,

consent

consents

writing,

setting

forth

the

action

adopted

taken,

are

signed

Holders

Non-Voting

Common

Stock

having

not

less

than

the

minimum

number

votes

that

would

required

adopt

take

such

action

meeting

which

all

Non-Voting

Common Stock entitled to vote thereon were present and voted, and is delivered to the

Corporation

delivery

the

Corporate

Secretary

the

Corporation

its

principal

executive office.

(e)

Subdivision;

Stock

Splits;

Combinations.

The

Corporation

shall

not

any

time

subdivide

(by

any

stock

split,

stock

dividend,

recapitalization

otherwise) its outstanding shares of Non-Voting Common Stock into a greater number of

shares,

combine

(by

combination,

reverse

stock

split

otherwise)

its

outstanding

shares of Non-Voting Common Stock into a smaller number of shares.

(f)

Reclassification, Consolidation,

Merger or

Sale.

In the

event

of any merger,

consolidation, share exchange,

reclassification or other

similar transaction

which the

shares of

Voting Common

Stock are

exchanged for

or changed

into other

stock or

securities, cash

and/or any

other property,

each share

of Non-Voting

Common

Stock will at the same time be similarly exchanged or changed in

an amount equal to the

aggregate amount of

stock, securities, cash and/or

any other property (payable

in kind),

the

case may

be,

based

upon the

Converted Stock

Equivalent Amount

immediately

prior

such

transaction;

provided

that

the

election

such

Holder

Non-Voting

Common Stock,

any securities

issued with

respect to

the Non-Voting

Common Stock

shall

be non-voting securities

under the resulting

corporation's organizational documents

and

the

Corporation

shall

make

appropriate

provisions

(in

form

and

substance

reasonably

satisfactory to

the Holders

of at

least a

majority of

the Non-Voting

Common Stock

then

outstanding) and

take such

actions necessary to

ensure that

Holders of

the Non-Voting

Common

Stock

shall retain

securities with

substantially the

same privileges,

limitations

and

relative

rights

the

Non-Voting

Common

Stock.

Subject

the

foregoing,

the

event the Holders of Voting

Common Stock are provided the

right to convert or

exchange

Voting

Common

Stock for

stock

or securities,

cash and/or

any

other property,

then

the

Holders of

the Non-Voting Common

Stock shall be

provided the same

right based upon

the

Converted

Stock

Equivalent Amount

immediately

prior

such

transaction.

the

event that the Corporation offers to

repurchase shares of Voting Common Stock from

its

shareholders

generally,

the

Corporation

shall

offer

repurchase

Non-Voting

Common

Stock pro

rata based

upon

the Converted

Stock Equivalent Amount

such Holders

Non-Voting Common Stock immediately prior

to such repurchase. In the event

of any pro

rata subscription offer, rights offer

or similar offer to

holders of Voting Common Stock,

the

Corporation

shall

provide

the

Holders

the

Non-Voting

Common

Stock

the

right

participate based

upon the Converted

Stock Equivalent

Amount immediately

prior to such

offering; provided

that at

the election

of such

Holder, any

shares issued

with respect

the Non-Voting Common Stock shall be issued in the form of Non-Voting Common Stock

rather than Voting Common Stock.

(g)

Unissued

Reacquired

Shares.

Non-Voting

Common Stock that have

been issued and converted, redeemed

or otherwise purchased

acquired

the

Corporation

shall,

upon

the

taking

any

action

required

law,

automatically revert to authorized but unissued shares of Non-Voting Common Stock.

(h)

Reservation of Voting Common Stock.

(i)

Sufficient

Shares.

The

Corporation

shall

all

times

reserve and keep available out of its authorized and unissued shares of Voting Common

Stock or

shares of

Voting Common

Stock acquired

by the

Corporation, solely

for issuance

upon the

conversion of

shares of

Non-Voting Common

Stock as

provided in

this Article

III, Paragraph

A, Section 3, free

from any preemptive or other

similar rights, such number

Voting

Common

Stock

shall

from

time

issuable

upon

the

conversion of all the shares of Non-Voting Common Stock then outstanding.

(ii)

Free and Clear Delivery. All shares of Voting Common

Stock delivered upon conversion

of the shares

of Non-Voting Common Stock,

shall, upon

issuance, be

duly authorized,

validly issued,

fully paid

and non-assessable,

free and

clear

of all liens, claims, security interests and other encumbrances (other than liens, charges,

security interests and other encumbrances created by the Holders thereof).

(iii)

Compliance with

Law. Prior

to the

delivery

of any

Voting

Common Stock that the Corporation

shall be obligated to deliver upon

conversion of the

Non-Voting

Common

Stock,

the

Corporation

shall

use

its

reasonable

best

efforts

comply

with

any

federal

and

state

laws

and

regulations

thereunder

requiring

the

registration of

such securities with,

or any approval

of or

consent to the

delivery thereof

by, any governmental authority.

(i)

Transfer

Agent,

Conversion

Agent,

Registrar

and

Paying

Agent.

The duly appointed

Transfer

Agent, Conversion

Agent, registrar and

paying agent,

as applicable,

for the

Common Stock

shall initially

be the

Corporation. The

Corporation

may appoint a

successor Transfer Agent that shall accept

such appointment prior

to the

effectiveness of

such removal.

Upon any

such appointment,

the Corporation

shall send

notice thereof to the Holders of Common Stock.

(j)

Mutilated, Destroyed, Stolen and Lost Certificates.

If physical

certificates

are

issued,

the

Corporation

shall

replace

any

mutilated

certificate

the

Holder's expense

upon surrender

of that

certificate to

the Transfer

Agent. The

Corporation

shall

replace

any

certificate

that

becomes

destroyed,

stolen

lost,

the

Holder's

expense, upon

delivery to

the Corporation

and the

Transfer

Agent of

satisfactory evidence

that

the

certificate has

been

destroyed,

stolen

lost,

together with

any

indemnity and

bond that may be required by the Transfer Agent or the Corporation.

(k)

No Closing of Books; Cooperation.

The Corporation shall not

close its books against the Transfer of shares of Non-Voting Common Stock or of shares

Voting

Common

Stock

issued

issuable

upon

conversion

Non-Voting

Common

Stock in any manner which

interferes with the timely conversion

of Non-Voting Common

Stock.

The

Corporation

shall

assist

and

cooperate

with

any

Holder

Non-Voting

Common

Stock required

to make

any governmental

filings

or obtain

any governmental

approval

non-objection

prior

connection

with

any

conversion

Non-Voting

Common Stock hereunder (including, without limitation, making any governmental filings

required

made

by the

Corporation),

but the

Corporation

shall not

obligated

reimburse any such Holder for expenses incurred in connection therewith.

(l)

Taxes.

(i)

Transfer Taxes. The

Corporation shall

pay any and

all

stock transfer,

documentary, stamp

and similar

taxes that

may be

payable in

respect of

any issuance

or delivery

of shares

of Non-Voting

Common Stock

or Voting

Common Stock

issued

account

Non-Voting

Common

Stock

pursuant

hereto

certificates

representing such shares; provided, that the

Corporation shall not be required to

pay any

such

tax

that

may

payable

respect

any

Transfer

involved

the

issuance

delivery of shares in a

name other than that

in which the shares of Non-Voting

Common

Stock involved were registered, or in respect of

any payment to any Person other than a

payment

the

registered

Holder

thereof,

and

shall

not

required

make

any

such

issuance

delivery

unless

and

until

satisfied

that

any

such

tax

for

which

the

Corporation is not responsible has been or will be paid.

(ii)

Withholding.

All payments

and distributions

(or deemed

distributions) on

the shares

of Non-Voting

Common Stock

(and on

the shares

of Voting

Common

Stock

received

upon

their

conversion)

shall

subject

withholding

and

backup withholding of tax

to the extent required by

law, subject to applicable

exemptions,

and amounts withheld, if any, shall be treated as received by the Holders thereof.

Preferred Stock

General

Subject

applicable

law,

these

Articles

Incorporation

and

the

Corporation's

Bylaws, the

Board

Directors is

authorized,

any time

or from

time to

time, to

issue Preferred Stock

and: (i) to

provide for the

issuance of shares

of Preferred

Stock in

one or

more classes

or series,

and any

restrictions on the

issuance or

reissuance

of any

additional Preferred

Stock; (ii)

to determine

the designation for

any such

classes

or series

by number,

letter or

title that

shall distinguish

such classes

or series

from any

other classes or series,

respectively, of Preferred Stock; (iii) to

establish from time to

time

the number of

shares to be

included in

any such class

or series, including

a determination

that such class or

series shall consist

of a single

share, or that

the number of

shares shall

be decreased (but not below

the number of shares thereof

then outstanding); and (iv) to

determine with respect to the shares of any class

or series of Preferred Stock the terms,

powers,

preferences,

qualifications,

limitations,

restrictions

and

relative,

participating,

optional or

other special

rights of

the shares

of such

class or

series of

Preferred Stock,

including, but not limited to:

(a)

whether,

with

respect

entitled

dividends,

the

holders

thereof

shall

entitled

cumulative,

noncumulative

partially

cumulative

dividends,

the

dividend

rate

rates

(including

the

methods

and

procedures

for

determining

such

rate

rates),

and

any

other

terms

and

conditions

relating

such

dividends (including the

relation which such

dividends shall bear

to the dividends

payable

on any other class or series of the Corporation's capital stock);

(b)

whether,

and, if

so, to what

extent and

upon what terms

and

conditions, the holders thereof shall

be entitled to rights upon

the voluntary or involuntary

liquidation,

dissolution

winding-up

of,

upon

any

distribution

the

assets

of,

the

Corporation;

(c)

whether,

and,

so,

upon

what

terms

and

conditions,

such

shares shall be convertible into, or exchangeable for, other securities or property;

(d)

whether,

and,

so,

upon

what

terms

and

conditions,

such

shares shall be redeemable by the Corporation;

(e)

whether

the

shall

subject

any

sinking

fund

provided for the purchase or redemption of such

shares and, if so, the terms and

amount

of such fund;

(f)

whether

the

holders

thereof

shall

entitled

voting

rights

and, if so, the terms and conditions for the exercise thereof; and

(g)

whether the holders thereof shall

be entitled to other relative,

participating,

optional

other

special

powers,

preferences

rights

and,

so,

the

qualifications, limitations and restrictions of such preferences or rights.

ARTICLE IV

The term for which the Corporation shall exist shall be perpetual.

ARTICLE V

Management.

The

management

the

business

and

the

conduct

the

affairs

of the

Corporation shall

be vested

in the

Board of

Directors. The

initial Board

Directors

the

Corporation

shall

consist

seven

(7)

directors.

The

name

and

street

address of the initial director of this Corporation is:

Name

Address

Luis de la Aguilera

2301

87th

Avenue,

Doral,

Florida

33172

Aida Levitan

2301

87th

Avenue,

Doral,

Florida

33172

Ramón Abadin

2301

87th

Avenue,

Doral,

Florida

33172

Howard P.

Feinglas

2301

87th

Avenue,

Doral,

Florida

33172

Bernardo Fernandez, M.D.

2301

87th

Avenue,

Doral,

Florida

33172

Wayne K. Goldstein

2301

87th

Avenue,

Doral,

Florida

33172

W. Kirk Wycoff

2301

87th

Avenue,

Doral,

Florida

33172

Number of Directors; Election; Tenn.

Subject to the rights of holders of any

class or series of Preferred Stock with respect to the election of directors, the number of

directors which shall

constitute the

whole Board of

Directors shall be

fixed by,

or in

the

manner provided in, the Bylaws

of the Corporation. Elections of directors

need not be by

written ballot unless the Bylaws of the Corporation shall so provide. Notwithstanding the

foregoing provisions of this Section

B, and subject to the

rights of holders of

any class or

series

Preferred

Stock

with

respect

the

election

directors,

each

director

shall

serve

until

his

her

successor

duly

elected

and

qualified

until

his

her

earlier

death, resignation or removal.

Removal. Subject to the rights

of holders of any class

or series of Preferred

Stock with respect to the election of directors, a director

may be removed from office by

the

affirmative

vote

holders

capital

stock

issued

and

outstanding

and

entitled

vote in

election

Directors representing

least a

majority of

the

votes

entitled to be cast thereon, and then, only for cause:

Amendment of Bylaws. Subject to the restrictions set forth in these Articles

of Incorporation, the

power to adopt,

amend or repeal

the Bylaws of

the Corporation may

be exercised by the Board of Directors.

ARTICLE VI

Action

Written

Consent

Shareholders.

Except

otherwise

expressly provided

by the

terms of

the Non-Voting Common

Stock and

any class

or series

of Preferred Stock permitting the holders

of the Non-Voting Common Stock or such class

or series

of Preferred

Stock, as

the case

may be,

to act

by written

consent, any

action

required or permitted to be taken by shareholders of the Corporation must be effected at

a duly

called annual or

special meeting

of the shareholders

and may not

be effected

written consent in lieu of a meeting.

Special Meetings. Except

as otherwise expressly

provided by

the terms of

any class

or series

of Preferred

Stock permitting

the holders

of such

class or

series of

Preferred Stock

to call a

special meeting

of the

holders of

such class or

series, special

meetings of shareholders of the

Corporation may be called by the

Board of Directors or

any one or more shareholders owning, in the

aggregate, not less than ten percent of the

Voting Common Stock. The Board of Directors may cancel, postpone or reschedule any

previously

scheduled

special

meeting

any

time,

before

after

the

notice

for

such

meeting has been sent to the shareholders.

Fractional

Shares.

Common

Stock

Preferred

Stock

may

issued in fractions

of a share

which shall entitle

the holder thereof,

in proportion to

such

holder's

fractional

shares,

exercise

voting

rights,

receive

dividends,

participate

distributions

and

have

the

benefit

all

other

rights

holders

such

Common Stock or Preferred Stock, as the case may be.

Exclusion

Statutory

Provisions

Relating

Affiliate

Transactions

and

Control

Acquisitions.

Sections

607.0901

and

607.0902

the

Florida

Business

Corporation Act shall not apply to the Corporation.

Notices.

Unless

otherwise

provided

herein,

all

notices

referred

herein

shall be in writing, and,

unless otherwise specified herein, all

notices hereunder shall be

deemed to

have been

given upon

the earlier

of receipt

thereof or

five days

after its

deposit

the

U.S. mail

sent by

registered

or certified

mail with

postage

prepaid,

or the

date

shown on

the return

receipt if sent

by registered

or certified

mail, return

receipt requested,

and

the

receipt

signed

behalf

the

addressee,

addressed:

(i)

the

Corporation, to the principal executive office of

the Corporation or to the

transfer agent at

its principal

office in

the United

States of

America,

(ii) if

to any

holder,

to such

holder at

the address of

such holder as

listed in the

stock record books

of the Corporation,

or (iii)

to such other

address as the

Corporation or any

such holder,

as the case

may be, shall

have designated by notice similarly given.

ARTICLE VII

Indemnification.

the

fullest

extent

permitted

applicable

law,

the

Corporation

is authorized

provide

indemnification of

(and

advancement of

expenses

to)

the

directors,

officers,

employees

and

agents

the

Corporation

(and

any

other

persons to which

the applicable provisions

of the Florida

Business Corporation Act

or any

other

applicable

law

not

conflict

therewith

permits

the

Corporation

provide

indemnification)

through

Bylaw

provisions,

agreements

with

such

agents

other

persons, vote of shareholders or disinterested directors, or otherwise.

Priority of Indemnification.

The Corporation

acknowledges that the

directors

nominated by

the Priam

Capital Fund

II, LP.

("Priam") and

Patriot Financial

Partners II,

L.P.

and

Patriot

Financial

Partners

Parallel

II,

L.P.

(collectively,

"Patriot")

(each

"Investor Director") may

have certain rights to

indemnification, advancement of expenses

and/or

insurance

provided

the

Priam

and

Patriot

and/or

certain

their

respective

affiliates (collectively, the "Investor Indemnitors"). The

Corporation hereby agrees

(1) that

it is the indemnitor of first resort (i.e., its obligations to each Investor Director are primary

and

any

obligation

Investor

Indemnitors

advance

expenses

provide

indemnification for the same

expenses or liabilities incurred

by any Investor Director are

secondary),

and

(2)

that

shall

required

advance

the

full

amount

expenses

incurred by each

Investor Director and

shall be liable for

the full amount

of all expenses

and liabilities,

in each

case, to

the extent

permitted by

law,

without regard

to any

rights

an Investor

Director may have

against any

Investor Indemnitor.

The Corporation

further

agrees

that

advancement

payment

any

Investor

Indemnitor

behalf

any

Investor

Director with

respect to

any claim

for

which such

Investor Director

has sought

indemnification from

the Corporation

shall affect

the foregoing

and Investor Indemnitors

shall have a

right of contribution

and/or be subrogated

to the extent

of such advancement

payment

all

the

rights

recovery

such

Investor

Director

against

the

Corporation.

Limitation of Personal Liability. To

the fullest extent permitted by applicable

law as the same

exists or hereafter may

be amended, no director

of the Corporation shall

personally

liable

the

Corporation

its

shareholders

for

monetary

damages

for

breach

fiduciary

duty

director.

applicable

provisions

the

Florida

Business

Corporations

Act

any

other

applicable

law

not

conflict

therewith

are

amended

authorize corporate action further eliminating or limiting the personal liability of

directors,

then the liability of a

director of the Corporation shall

be eliminated or limited to

the fullest

extent

permitted

the

applicable

provisions

the

Florida

Business

Corporations

Act

and such other applicable law, as so amended. No amendment,

modification or repeal of

this

paragraph or

any adoption

of any

other provision

of these

Articles of

Incorporation

inconsistent with

this paragraph shall

apply to or

adversely affect

any right or

protection

director

the

Corporation

existing

the

time

such

amendment,

modification,

repeal or

adoption with respect

to any acts

or omissions of

such director occurring

prior

to such amendment, modification, repeal or adoption.

ARTICLE VIII

The

Corporation reserves

the

right to

amend, alter,

change or

repeal any

provision contained in

these Articles of

Incorporation (including any

rights, preferences or

other

designations

Preferred

Stock),

the

manner

now

hereafter

prescribed

these Articles of Incorporation

and the Florida Business

Corporations Act; and all rights,

preferences and

privileges herein

conferred upon

shareholders by

and pursuant

to this

Articles of Incorporation in its present

form or as hereafter amended

are granted subject

the

right

reserved

this

Article

VIII.

Notwithstanding

any

other

provision

these

Articles

Incorporation

the

contrary,

and

addition

any

other

vote

that

may

required by law or the terms

of these Articles of Incorporation, the

affirmative vote of the

holders

least

sixty

six

and

two-thirds

percent

(66

2/3%)

the

then

outstanding

shares of Voting Common Stock, voting together

as a single class,

shall be required to (i)

amend,

alter

repeal,

adopt

any

provision

part

this

Articles

Incorporation

inconsistent with the purpose and intent of, Article IV, Article V,

Article VI, Article VII, this

Article VIII or Article X (including, without limitation, any such Article as renumbered as a

result of

any amendment,

alteration, change,

repeal or

adoption of

any other

Article) or

(ii) amend, alter

or repeal, or

adopt any provision

as part of

these Articles of

Incorporation

or the Corporation's Bylaws inconsistent with the purpose

and intent of, Sections 2.1, 2.2

and 2.12 or Articles VII

or IX (including, without limitation,

any such Article or Section

renumbered as a result of any amendment, alteration, change, repeal or adoption of any

other Article or Section) of the Corporation's Bylaws.

ARTICLE IX

Notwithstanding anything in

these Articles

to the

contrary,

the Corporation

and the members of the Board of Directors (the "Directors") shall at all

times comply with

the

requirements

Sections

655.0385

and

655.0386

the

Florida

Statutes.

The

Corporation

acknowledges

that

the

Directors

and

their

respective

affiliates

and

investment funds

may review

the

business plans

and

related proprietary

information

other enterprises

which may

have products

or services

which may

or may

not compete

directly or indirectly

with those

of the

Corporation and its

subsidiaries, and may

trade in

the securities of

such enterprises. No

Directors, any

of their respective

affiliates or related

investment funds

shall be

precluded or

in any

way restricted

from investing

or participating

any

particular

enterprise,

trading

the

securities

thereof

whether

not

such

enterprise

has products

or services

that

compete

with those

the Corporation

and

its

subsidiaries and affiliates. The Corporation expressly acknowledges and agrees that: (a)

the

Directors

and

their

respective

affiliates

have

the

right

to,

and

shall

have

duty

(contractual

otherwise)

not

to,

directly

indirectly,

engage

the

same

similar

business

activities

lines

business

the

Corporation

and

its

subsidiaries

and

affiliates;

and

(b) in

the event

that any

Director or

its affiliates

acquires knowledge

of a

potential transaction or matter that may be a corporate opportunity for the Corporation or

any

its

subsidiaries

affiliates,

such

Director

its

affiliate

shall

have

duty

(contractual or

otherwise) to

communicate or

present such

corporate opportunity

to the

Corporation or any of its subsidiaries and affiliates, and, notwithstanding any

provision of

this

Articles

Incorporation,

the Bylaws

or applicable

law to

the contrary,

shall

not

liable to

the Corporation or

any of its

subsidiaries or affiliates

or the shareholders

of the

Corporation for

breach of

any duty

(contractual or

otherwise) by

reason

of the

fact that

such Director or

any of its

affiliates thereof, directly

or indirectly, pursues or acquires

such

opportunity for itself,

directs such opportunity

to another person,

or does not

present such

opportunity to the Corporation.

ARTICLE X

Certain Definitions. For purposes

of this Article X, the following

terms shall

have the meanings indicated (and any references to any

portions of Treasury Regulation

§ 1.3822T shall include any successor provisions):

"Affiliate"

shall have the meanings

set forth in

Rule 12b-2 under

the

Securities Exchange Act of 1934, as amended.

"Code" means the Internal

Revenue Code of 1986,

as amended from

time to time.

"Entity"

means an "entity" as defined in Treasury Regulation § 1.382-

3(a).

"Expiration

Date"

means

the

earlier

(A)

January

2035,

(B)

the

repeal

Section

382

the

Code

any

successor

statute

the

Board

Directors

determines that this Article X is no longer

necessary for the preservation of Tax

Benefits

and (C) the

beginning of a

taxable year of

the Corporation to

which the Board

of Directors

determines that

no Tax

Benefits may

be carried

forward, unless

the Board

of Directors

shall fix an earlier or later date in accordance with Article X, Section G.

"Five-Percent Shareholder"

means an individual,

an Entity

or a Public

Group" whose

Ownership Interest

Percentage is

greater than

or equal

to 5%

or who

would

be treated

as a

"5-percent shareholder"

under Section

382 of

the Code

and applicable

Treasury

Regulations. For

purposes of

determining whether

a Person

is a

Five-percent

Shareholder, any options (as defined in Treasury Regulations) treated as owned by

such

Person shall be deemed

exercised if the result

is to cause such

Person to be treated

a Five-percent Shareholder.

"Large

Investor"

means

any

Person

that

identified

Large

Investor in a stock purchase agreement between such Person and the Corporation.

"Option"

shall

have

the

meaning

set

forth

Treasury

Regulation

§§1.382-2T(h)(4)(v) and 1.382-4(d)(9).

"Ownership

Interest

Percentage"

means,

any

determination

date,

the

percentage

the

Corporation's

issued

and

outstanding

Stock

(not

including

treasury

subject

vesting

connection

with

compensatory

arrangements

with

the

Corporation)

that

individual

Entity

would

treated

owning for purposes

of Section 382

of the Code,

applying the following

additional rules:

(A) in the

event that such individual

or Entity,

or any Affiliate

of such individual or

Entity,

owns or is party to an Option with

respect to Stock (including, for the avoidance

of doubt,

any cash-settled derivative contract that gives such individual or Entity

a "long" exposure

with

respect

Stock),

such

individual,

Entity

affiliate

will

treated

owning

amount

Stock

equal

the

number

referenced

such

Option,

(B)

for

purposes

applying

Treasury

Regulation

1.382-2T(k)(2),

the

Corporation

shall

treated as

having "actual

knowledge" of

the beneficial

ownership of

all outstanding

Stock

that

would

attributed

any

such

individual

Entity,

(C)

Section

382(l)(3)(A)(ii)(II)

the

Code shall

not

apply and

(D) any

additional

rules

the Board

Directors may establish from time to time.

"Permissible Transferee"

means a

transferee that,

immediately prior

any

transfer,

has

Ownership

Interest

Percentage

equal

(A)

zero

percentage

points,

plus

(B)

any

percentage

attributable

prior

transfer

from,

attribution

ownership from, a Large Investor or another Permissible Transferee.

10.

"Person" means any individual, Entity,

firm, corporation, partnership,

trust association,

limited liability

company, limited liability

partnership, governmental

entity

or other

entity and

shall

include any

successor (by

merger or

otherwise) of

any such

entity.

11.

"Prohibited

Transfer"

means

any

purported

transfer

Stock

the

extent that such transfer is prohibited under this Article X.

12.

"Public

Group"

means

"public

group"

defined

Treasury

Regulation §1.382-2T(f)(13).

13.

"Stock"

means (A) shares of Common Stock, (B) shares of Preferred

Stock (other than shares of any class of Preferred Stock described in Section 1504(a)(4)

of the Code) and

(other than any Option)

that would be treated

"stock" of the Corporation pursuant to Treasury Regulation § 1.382-2T(f)(18).

14.

"Tax

Benefit"

means

the

net

operating

loss

carryovers,

capital

loss

carryovers, general business credit

carryovers, alternative minimum

tax credit carryovers

and foreign tax

credit carryovers, as well

as any potential loss or

deduction attributable to

an existing

"net unrealized

built-in loss"

within the meaning

of Section

382 of

the Code,

of the Corporation or any direct or indirect subsidiary thereof.

15.

"Transfer"

refers to any means of

conveying record, beneficial or tax

ownership

(applying,

the

case

tax

ownership,

applicable

attribution

rules

for

purposes of Section 382 of the Code) of Stock, whether such means is direct or

indirect,

voluntary or

involuntary.

A Transfer

also shall

include the

creation or

grant of

an option

(including an option within the meaning of

Treasury Regulations § 1.382-2T(h)(4)(v)

and

§ 1.382-4(d)(9)).

16.

"Transferee"

means

any

Person

whom

any

such

security

transferred.

17.

"Treasury

Regulations"

means

the

regulations,

including

temporary

regulations or any successor regulations

promulgated under the Code,

as amended from

time to time.

Transfer

Restrictions. Solely

for the

purpose of

permitting the

utilization of

the Tax Benefits to

which the

Corporation (or

any other

member of

the consolidated

group

of which the

Corporation is the

common parent for

U.S. federal income

tax purposes) is

may

entitled

pursuant

the

Code

and

the

regulations

thereunder,

the

following

restrictions shall apply

until the Expiration

Date, unless the

Board of Directors

has waived

any such restrictions in accordance with Article X, Section G:

From and after the effective date of this Articles of

Incorporation and

prior to the Expiration Date,

except as otherwise provided in

this Article X, Section (B)(1),

no individual

or Entity

other than

the Corporation

shall, except

as provided

in Article

Section (C)(1)

below,

transfer to

any individual

or Entity

any direct

or indirect

interest in

any Stock or Options to

acquire Stock to the extent

that such transfer,

if effective, would

cause the Ownership Interest Percentage of the transferee or any other individual, Entity

or Public Group to increase to 4.95 percent (4.95%) or above, or

from 4.95% or above to

greater

Ownership

Interest

Percentage

the

extent

that

such

transfer

would

constitute a

transfer to

a Five-Percent

Shareholder. Nothing in

this Article

X shall

preclude

the

settlement

any

transaction

with

respect

the

Stock

entered

into

through

the

facilities

any

national

securities

exchange

over-the-counter

market;

provided,

however,

that the fact

that the

settlement of any

transaction occurs shall

not negate

the

effect

any

other

provision

this

Article

and

the

securities

involved

such

transaction,

and

the

purported

transferor

and

Purported

Acquiror

(as

defined

below)

thereof,

shall

remain

subject

the

provisions

this

Article

respect

such

transaction.

From and after the effective date of this Articles of

Incorporation and

prior to the Expiration

Date, except as otherwise

provided in this Article

X, Section (C)(2),

no Five-Percent Shareholder shall, except as provided in Article X, Section (C)(2) below,

transfer to any individual or

Entity any direct or

indirect interest in any

Stock or Options to

acquire Stock owned by such Five-Percent Shareholder without the prior approval of the

Board

Directors.

Nothing

this

Article

shall

preclude

the

settlement

any

transaction

with

respect

the

Stock

entered

into

through

the

facilities

any

national

securities exchange or over-the-counter market; provided, however, that the fact that the

settlement of any transaction

occurs shall not negate

the effect of

any other provision of

this Article X,

and the securities

involved in such

transaction, and the

purported transferor

and Purported Acquiror (as defined below) thereof, shall remain subject

to the provisions

of this Article X in respect of such transaction.

Permitted Transfers.

Any transfer that

would otherwise

be prohibited pursuant

to Article X,

Section

(B)(1)

shall

nonetheless

permitted

(A)

such

transfer

made

Large

Investor to a

Large Investor or

a Permissible Transferee

or by a

Permissible Transferee

Large

Investor

Permissible

Transferee,

(B)

prior

such

transfer

being

consummated (or, in the

case of an involuntary transfer, as

soon as practicable after the

transaction is consummated), the

Board of Directors, in

its sole discretion, approves

the

transfer (such approval may relate to a transfer or series

of identified transfers), (C) such

transfer

pursuant

any

transaction,

including,

but

not

limited

to,

merger

consolidation, in

which all

holders of

Stock receive,

or are

offered the

same opportunity

to receive, cash or other consideration for all such Stock,

and upon the consummation of

which the acquiror

will own at

least a majority

of the outstanding

shares of Stock,

or (D)

such

transfer is

transfer by

the

Corporation to

an underwriter

or placement

agent for

distribution in a

public offering, whether registered

or conducted pursuant

to an exception

from

registration;

provided,

however,

that

transfers

such

underwriter

placement

agent

purchasers

such

offering

remain

subject

this

Article

determining

whether to

approve a

proposed transfer

pursuant to

Article X,

Section (C)(1)(B),

the Board

Directors may,

its sole

discretion,

require (at

the expense

the transferor

and/or

transferee) an

opinion of

counsel or

an independent

nationally recognized

accounting firm

selected

the

Board

Directors

any

matter,

which

may

include

opinion

with

respect to the

transfer not causing

an "ownership change"

or an "owner

shift"

within the

meaning of Section 382 of the Code.

Any transfer that

would otherwise

be prohibited pursuant

to Article X,

Section (B)(2)

shall nonetheless

be permitted,

provided that

it is otherwise

permitted by

Article X, Section (B)(1), if applicable, if

(A) such transfer is made by a

Large Investor or

a Permissible Transferee,

(B) prior to such

transfer being consummated (or,

in the case

of an involuntary transfer,

as soon as practicable after

the transaction is consummated),

the Board

of Directors,

its sole

discretion, approves

the transfer

(such

approval may

relate to a transfer or series of identified

transfers) or (C) such transfer is pursuant to

any

transaction, including, but not limited to,

a merger or consolidation, in

which all holders of

Stock receive, or

are offered the same

opportunity to receive,

cash or other

consideration

for all

such Stock, and

upon the consummation

of which

the acquiror will

own at

least a

majority

the

outstanding

Stock.

determining

whether

approve

proposed transfer pursuant to Article X, Section (C)(2)(B), the Board of Directors may, in

its sole discretion, require (at the expense of the transferor and/or transferee) an opinion

of counsel

or an

independent nationally

recognized accounting

firm selected

by the

Board

of Directors on any matter,

which may include an opinion with respect to the transfer

not

causing an "ownership change"

or an "owner shift"

within the meaning of Section

382 of

the Code.

The

Board

Directors

may

exercise

the

authority

granted

this

Article

Section

C through

duly

authorized officers

or agents

the

Corporation. The

Board

Directors

may

establish

committee

determine

whether

approve

proposed transfer or for any other purpose relating to this Article X. As a condition to the

Corporation's

consideration

request

approve

proposed

transfer,

the

Board

Directors may require

the transferor and/or transferee

to reimburse or

agree to reimburse

the Corporation, on demand, for all costs and expenses incurred by the Corporation with

respect

such

proposed

transfer,

including, without

limitation,

the Corporation's

costs

and expenses incurred in determining whether to authorize such proposed transfer.

Treatment

Prohibited

Transfers.

Unless

the

transfer

permitted

provided in Article X,

Section C, any attempted

transfer of Stock or

Options in excess of

the Stock or

Options that could be

transferred to the

transferee without restriction

under

Article X, Section

(B)(1) shall

be prohibited, shall

be null and

void ab initio

and shall not

effective

transfer

ownership

such

excess

Stock

Options

(the

"Prohibited

Shares")

the purported

acquiror

thereof

(the "Purported

Acquiror"),

who

shall

not be

entitled to any rights as a shareholder of

the Corporation with respect to such Prohibited

Shares (including, without limitation, the right to vote or to receive dividends with respect

thereto).

Upon

demand

the

Corporation,

the

Purported

Acquiror

shall,

within thirty (30)

days of

the date of

such a demand,

transfer or

cause to be

transferred

any certificate or

other evidence of

purported ownership of

Prohibited Shares

within the

Purported Acquiror's

possession or

control, along

with any

dividends or

other distributions

paid by the Corporation

with respect to any

Prohibited Shares that were received

by the

Purported

Acquiror

(the

"Prohibited

Distributions"),

such

Person

the

Corporation

shall designate

to act

as transfe

agent for

such Prohibited

Shares (the

"Agent"). If

the

Purported

Acquiror

has

sold

any

Prohibited

unrelated

party

arm's-

length

transaction

after

purportedly

acquiring

them,

the

Purported

Acquiror

shall

deemed

have

sold

such

Prohibited

for

the

Agent,

and

lieu

transferring

such Prohibited

Shares (and

Prohibited Distributions

with respect

thereto) to

the Agent

shall

transfer

the

Agent

any

such

Prohibited

Distributions

and

the

proceeds

such

sale (the

"Resale Proceeds")

except to

the extent

that the

Agent grants

written permission

to the Purported Acquiror to retain

a portion of such Resale Proceeds not

exceeding the

amount that

would have

been payable

by the

Agent to

the Purported

Acquiror pursuant

to Article

X, Section

(D)(2) below if

such Prohibited

Shares had

been sold

by the

Agent

rather than by the

Purported Acquiror. Any purported transfer of

Prohibited Shares by

the

Purported Acquiror other

than a transfer

described in one

of the first

two sentences of

this

Article X,

Section (D)(1)

shall not

be effective

to transfer

any ownership

of such

Prohibited

Shares.

The

Agent

shall

sell

one

arm's-length

transactions

any

Prohibited Shares transferred

to the Agent

by the Purported

Acquiror, provided, however,

that any

such sale

must not

constitute a

Prohibited Transfer

and provided,

further,

that

the Agent shall effect such sale or

sales in an orderly fashion

and shall not be required

effect any such sale within any specific time frame

if, in the Agent's discretion, such sale

or sales

would disrupt

the market

for the

Stock or

otherwise would

adversely affect

the

value

the

Stock.

The

proceeds

such

sale

(the

"Sales

Proceeds"),

the

Resale

Proceeds, if applicable,

shall be

used to

pay the

expenses of the

Agent in

connection with

its duties under this Article X, Section D with respect to such Prohibited Shares, and any

excess shall be

allocated to the Purported

Acquiror up to

the following amount:

(A) where

applicable, the

purported purchase

price paid

or value

of consideration

surrendered by

the Purported Acquiror for such Prohibited

Shares; and (B) where the purported transfer

Prohibited

the

Purported

Acquiror

was

gift,

inheritance,

any

similar

purported

transfer,

the

fair

market

value

(as

determined

good

faith

the

Board

Directors) of such Prohibited

Shares at the

time of such

purported transfer. Subject to the

succeeding

provisions

this

Article

Section

(D)(2),

any

Resale

Proceeds

Sales

Proceeds

excess

the

amount

allocable

the

Purported

Acquiror

pursuant

the

preceding sentence, together with any Prohibited Distributions, shall be transferred to an

entity described in Section 501(c)(3)

of the Code and selected

by the Board of Directors

or its designee; provided,

however, that if the Prohibited Shares

(including any Prohibited

Shares arising

from a

previous Prohibited

Transfer

not sold

by the

Agent in

a prior

sale

sales)

represent

4.95%

greater

Ownership

Interest

Percentage,

then

any

such

remaining

amounts

the

extent

attributable

the

disposition

the

portion

such

Prohibited Shares

exceeding a

4.94% Ownership

Interest Percentage

shall be

paid to

two

organizations

qualifying

under

Section

501(c)(3)

selected

the

Board

Directors. In no event shall any such amounts described in the preceding sentence inure

to the benefit of the Purported Acquiror,

the Corporation or the Agent, but such amounts

may be used to cover expenses incurred by

the Agent in connection with its duties

under

this

Article X,

Section D

with respect

to the

related Prohibited

Shares. Notwithstanding

anything in

this Article

X to

the contrary,

the Corporation

shall at

all times

be entitled

make

application to

any court

equitable jurisdiction

within the

State of

Florida for

adjudication

the

respective

rights

and

interests

any

Person

and

any

Sale

Proceeds,

Resale

Proceeds

and

Prohibited

Distributions

pursuant

this

Article

and

applicable law and for leave to pay such amounts into such court.

Within thirty (30) business days of learning of

a purported transfer of

Prohibited

Purported

Acquiror,

the

Corporation

through

its

Secretary

shall

demand that the

Purported Acquiror surrender

to the Agent

the certificates representing

the Prohibited

Shares, or any

Resale Proceeds, and

any Prohibited Distributions,

and if

such surrender is

not made by

the Purported

Acquiror, the Corporation may

institute legal

proceedings

compel

such

transfer;

provided,

however,

that

nothing

this

Article

Section (D)(3)

shall preclude

the Corporation

in its

discretion from

immediately bringing

legal

proceedings

without

prior

demand,

and

provided,

further

that

failure

the

Corporation to act within the time periods set

out in this paragraph (c) shall not constitute

waiver

any

right

the

Corporation

compel

any

transfer

required

Article

Section (D)(1).

Upon a

determination by

the

Corporation that

there has

been or

threatened

purported

transfer

Prohibited

Purported

Acquiror,

the

Corporation

may take

such

action

addition to

any

action

permitted

the

preceding

paragraph as it

deems advisable

to give

effect to the

provisions of

this Article

X, including,

without limitation,

refusing

to give

effect on

the books

of this

Corporation to

such purported

transfer or instituting proceedings to enjoin such purported transfer.

Transferee Information.

The Corporation may

require as a

condition to the

approval of the transfer of

any shares of its

Stock or Options to acquire

Stock pursuant to

this

Article

that

the

proposed

transferee

furnish

the

Corporation

all

information

requested by

the Corporation

and available

to the

proposed transferee

and its

affiliates

with respect to the

direct or indirect ownership

interests of the proposed

transferee (and

of Persons

to whom ownership

interests of

the proposed

transferee would be

attributed

for

purposes of

Section

382

the Code)

in Stock

or other

options or

rights to

acquire

Stock.

Legend

Certificates.

All

certificates

evidencing

ownership

Stock that are subject

to the restrictions on

transfer contained in this

Article X shall bear

a conspicuous legend referencing the restrictions set forth in this Article X as follows:

"THE

ARTICLES

INCORPORATION

THE

CORPORATION,

AMENDED,

CONTAIN

RESTRICTIONS

PROHIBITING

THE

TRANSFER

STOCK

(INCLUDING

THE

CREATION

GRANT

CERTAIN

OPTIONS,

RIGHTS

AND

WARRANTS)

WITHOUT

THE

PRIOR

AUTHORIZATION

THE

BOARD

DIRECTORS

THE

CORPORATION

SUCH

TRANSFER

AFFECTS

THE

PERCENTAGE

OF STOCK OF

THE CORPORATION

THAT

IS TREATED

AS OWNED

FIVE-PERCENT

SHAREHOLDER.

THE

TRANSFER

RESTRICTIONS

ARE

VIOLATED, THEN THE TRANSFER WILL BE VOID AB INITIO AND

THE PURPORTED

ACQUIROR

THE

STOCK

WILL

REQUIRED

TRANSFER

SUFFICIENT

SECURITIES TO

CAUSE THE FIVE-PERCENT

SHAREHOLDER TO NO

LONGER BE

VIOLATION

THE

TRANSFER

RESTRICTIONS.

THE

CORPORATION

WILL

FURNISH

WITHOUT CHARGE

TO THE

HOLDER OF

RECORD OF

THIS CERTIFICATE

COPY

ITS

ARTICLES

INCORPORATION,

CONTAINING

THE

ABOVE

REFERENCED

TRANSFER

RESTRICTIONS,

UPON

WRITTEN

REQUEST

THE

CORPORATION AT

ITS PRINCIPAL PLACE OF BUSINESS."

Waiver

Article

The

Board

Directors

may,

any

time

prior

the

Expiration Date, waive this Article X in respect of any or all transfers notwithstanding

the

effect

potential

effect

such

waiver

the

Tax

Benefits

determines

that

such

waiver is in

the best interests

of the Corporation,

including as may

be necessary for

the

safety

and

soundness

the

Corporation

comply

with

any

order

issued

applicable

bank

regulatory

authority.

Any

such

determination

waive

this

Article

respect of any or all

transfers shall be filed with

the Secretary of the

Corporation. Nothing

in this Article X shall

be construed to limit or

restrict the Board of

Directors in the exercise

of its fiduciary duties under applicable law.

Board Authority.

The Board of Directors shall have the power to determine, in its sole

discretion, all

matters necessary for

assessing compliance

with this

Article X,

including,

without

limitation,

the

identification

Five-Percent

Shareholders

with

respect

the

Corporation

within

the

meaning

Section

382

the

Code

and

the

regulations

thereunder; the

owner shifts,

within the

meaning of

Section 382

of the

Code, that

have

previously

taken

place;

the

magnitude

the

owner

shift

that

would

result

from

the

proposed

transaction;

the

effect

any

reasonably

foreseeable

transactions

the

Corporation

or any

other

Person

(including any

transfer

Stock or

Options

acquire

Stock that the Corporation has no power to prevent, without regard to any knowledge on

the part of the Corporation

as to the likelihood of

such transfer); the possible

effects of an

ownership change within the meaning of Section 382 of

the Code and any other matters

which the

Board of

Directors determines

to be

relevant. Moreover,

the Corporation

and

the Board of

Directors shall be

entitled to

rely in

good faith upon

the information,

opinions,

reports or

statements of

the chief

executive officer, the chief

financial officer, and the

chief

accounting officer of the Corporation and

of the Corporation's legal counsel,

independent

auditors, transfer agent, investment bankers,

and other employees and agents in

making

the

determinations

and

findings

contemplated

this

Article

the

fullest

extent

permitted by

law.

Any determination

by the

Board of

Directors pursuant

to this

Article X

shall be conclusive and binding

on the Corporation, the Agent,

and all other parties

for all

purposes of this Article X.

Nothing

contained

this

Article

shall

limit

the

authority

the

Board of Directors to take such other action, in its sole discretion, to the extent permitted

by law as it deems necessary or advisable to preserve the Tax

Benefits.

In the case of an

ambiguity in the application

of any of the provisions

of this

Article X,

including any

definition used

herein, the

Board of

Directors shall

have

the

power

determine,

its

sole

discretion,

the

application

such

provisions

with

respect

any

situation

based

its

belief,

understanding

knowledge

the

circumstances. In the

event this Article

X requires an

action by the

Board of Directors

but

fails to provide specific

guidance with respect to

such action, the Board

of Directors shall

have the power

to determine, in

its sole discretion,

the action to

be taken so

long as such

action

not

contrary

the

provisions

this

Article

All

such

actions,

calculations,

interpretations

and

determinations

which

are

done

made

the

Board

Directors

shall be

conclusive and

binding on

the Corporation,

the Agent,

and all

other parties

for

all purposes of this Article X.

Liability.

the fullest

extent permitted

by law,

any shareholder

subject to

the provisions of this Article X who knowingly violates the provisions of

this Article X and

any

Persons

controlling, controlled

under

common

control

with

such

shareholder

shall be

jointly and

severally liable

to the

Corporation for,

and shall

indemnify and

hold

the

Corporation

harmless

against,

any

and

all

damages

suffered

result

such

violation, including but not limited

to damages resulting from

a reduction in, or

elimination

of,

the

Corporation's

ability to

utilize

its

Tax

Benefits,

and

attorneys'

and

auditors'

fees

incurred

connection

with,

resulting

from

that

are

any

way

attributable

such

violation.

Severability.

any

provision

this

Article

any

application

such

provision is determined to be invalid by any federal or state court having jurisdiction over

the

issue,

the

validity

the

remaining

provisions

shall

not

affected

and

other

applications

such provision

shall

affected

only to

the extent

necessary to

comply

with the determination of such court.

Benefits of

Article X.

Nothing in

this Article

X shall

be construed

to give

any Person other

than the Corporation or

the Agent any legal

or equitable right, remedy

or claim

under this Article

X. This

Article X shall

be for

the sole and

exclusive benefit

the Corporation and the Agent.

ARTICLE XI

The initial registered office of this Corporation shall be

located at the City of Doral,

the

County of

Miami-Dade, State

Florida, and

its address

there shall

be, at

present,

2301

N.W.

87th

Avenue,

Doral,

Florida

33172,

and

the

initial

registered

agent

the

Corporation

that

address

shall

Jalal

Shehadeh.

The

Corporation

may

change

its

registered agent or the

location of its registered

office, or both, from

time to time without

amendment of these Articles of Incorporation.

ARTICLE XII

The name and street address of the person signing

these Articles of Incorporation

as Incorporator are: 2301 N.W. 87th Avenue, Doral, Florida 33172.

WITNESS

WHEREOF,

the

undersigned

does

hereby

make

and

file

these

Articles of

Incorporation declaring

and certifying

that the

facts stated

here are

true, and

hereby subscribes thereto and hereunto sets his hand this 18 day of November, 2021.

/s/ Luis de la Aguilera

Luis de la Aguilera

IN WITNESS

WHEREOF,

the

Corporation has

caused these

Articles of

Amendment to

the Articles of Incorporation

to be signed by

its duly authorized

officer this 24th day of

May, 2023.

USCB FINANCIAL HOLDINGS, INC.

By:

/s/ Jalal Shehadeh

Name:

Jalal Shehadeh

Title:

Executive Vice President and General

Counsel

CERTIFICATE DESIGNATING

PLACE OF

BUSINESS

FOR THE

SERVICE OF PROCESS WITHIN FLORIDA AND REGISTERED

AGENT UPON

WHOM PROCESS

MAY BE SERVED

In compliance

with Sections 48.091

and 607.0501.

Florida Statutes, the

following

is submitted:

USCB

Financial

Holdings,

Inc.

(the

"Corporation")

desiring

organize

domestic

corporation

qualify

under

the

laws

the

State

Florida

has

named

and

designated

Jalal Shehadeh

its Registered

Agent

to accept

service of

process

within

the

State

Florida

with

its

registered

office

located

2301

87th

Avenue,

Doral,

Florida 33172.

ACKNOWLEDGMENT

Having

been

named

Registered

Agent

for

the

Corporation

the

place

designated in this Certificate, I hereby agree to act in this capacity; and I am familiar with

and

the

obligations

relating

service

registered

agent,

the

same

may

apply

the

Corporation;

and

further

agree

comply

with

the

provisions

Florida

Statutes,

Section

48,091

and

all

other

statutes,

all

the

same

may

apply

the

Corporation relating to the proper and complete

performance of my duties as Registered

Agent.

Dated this 18th day of November, 2021.

/s/ Jalal Shehadeh

Jalal Shehadeh, Registered Agent

exhibit311

Exhibit 31.1

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley

Act of 2002

I, Luis de la Aguilera, certify that:

I have reviewed this Quarterly Report on Form

10-Q of USCB Financial Holdings, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact

necessary

make

the

statements

made,

light

the

circumstances

under

which

such

statements

were

made,

not

misleading with

respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all

material respects

the financial

condition, results

of operations

and cash

flows of

the registrant

as of,

and for,

the periods

presented in this report;

The

registrant’s

other

certifying

officer

and

are

responsible

for

establishing

and

maintaining

disclosure

controls

and

procedures (as defined in Exchange Act Rules 13a-15(e)

and 15d-15(e)) and have:

designed

such

disclosure

controls

and

procedures,

caused

such

disclosure

controls

and

procedures

designed

under

our

supervision,

ensure

that

material

information

relating

the

registrant,

including

its

consolidated subsidiaries, is

made known to

us by

others within those

entities, particularly during

the period in

which

this report is being prepared;

evaluated the effectiveness

of the registrant’s

disclosure controls and

procedures and presented

in this report

our

conclusions about the effectiveness of the

disclosure controls and procedures, as of

the end of the period covered

by this report based on such evaluation; and

disclosed in this

report any

change in the

registrant’s internal

control over

financial reporting

that occurred

during

the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an Annual Report) that

has

materially

affected,

reasonably

likely

materially

affect,

the

registrant’s

internal

control

over

financial

reporting; and

The registrant’s

other certifying

officer

and I

have disclosed,

based on

our most

recent evaluation

of internal

control over

financial

reporting,

the

registrant’s

auditors

and

the

audit

committee

the

registrant’s

board

directors

(or

persons

performing the equivalent functions):

All

significant

deficiencies

and

material

weaknesses

the

design

operation

internal

control

over

financial

reporting which are

reasonably likely

to adversely affect

the registrant’s ability

to record, process,

summarize and

report financial information; and

Any fraud, whether or not material,

that involves management or other employees who

have a significant role in

the

registrant’s internal control over financial reporting.

/s/ Luis de la Aguilera

Luis de la Aguilera

President and Chief Executive Officer

Date: August 11, 2023

exhibit312

Exhibit 31.2

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley

Act of 2002

I, Robert Anderson, certify that:

I have reviewed this Quarterly Report on Form 10-Q of

USCB Financial Holdings, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact

necessary

make

the

statements

made,

light

the

circumstances

under

which

such

statements

were

made,

not

misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all

material respects

the financial

condition, results

of operations

and cash

flows of

the registrant

as of,

and for,

the periods

presented in this report;

The

registrant’s

other

certifying

officer

and

are

responsible

for

establishing

and

maintaining

disclosure

controls

and

procedures (as defined in Exchange Act Rules 13a-15(e)

and 15d-15(e)) and have:

designed

such

disclosure

controls

and

procedures,

caused

such

disclosure

controls

and

procedures

designed

under

our

supervision,

ensure

that

material

information

relating

the

registrant,

including

its

consolidated subsidiaries, is

made known to

us by

others within those

entities, particularly during

the period in

which

this report is being prepared;

evaluated the effectiveness

of the registrant’s

disclosure controls and

procedures and presented

in this report our

conclusions about the effectiveness of the

disclosure controls and procedures, as of

the end of the period covered

by this report based on such evaluation; and

disclosed in this

report any

change in the

registrant’s internal

control over

financial reporting

that occurred

during

the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an Annual Report) that

has

materially

affected,

reasonably

likely

materially

affect,

the

registrant’s

internal

control

over

financial

reporting; and

The registrant’s

other certifying

officer

and I

have disclosed,

based on

our most

recent evaluation

of internal

control over

financial

reporting,

the

registrant’s

auditors

and

the

audit

committee

the

registrant’s

board

directors

(or

persons

performing the equivalent functions):

All

significant

deficiencies

and

material

weaknesses

the

design

operation

internal

control

over

financial

reporting which are

reasonably likely

to adversely affect

the registrant’s ability

to record, process,

summarize and

report financial information; and

Any fraud, whether or not material, that involves

management or other employees who have a significant role

in the

registrant’s internal control over financial reporting.

/s/ Robert Anderson

Robert Anderson

Chief Financial Officer

Date: August 11, 2023

exhibit321

Exhibit 32.1

Certification of Chief Executive Officer Pursuant to

18 U.S.C. Section 1350

as Adopted Pursuant to Section 906 of the Sarbanes

-Oxley Act of 2002

In connection with the Quarterly

Report of USCB Financial Holdings, Inc. (the

“Company”) on Form 10-Q for the

quarter

ended June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Luis de la

Aguilera, as

President and

Chief Executive

Officer

of the

Company,

certify,

to the

best of

my knowledge,

pursuant to

U.S.C. §1350, as adopted pursuant to Section 906 of

the Sarbanes-Oxley Act of 2002, that:

The

Report

fully

complies

with

the

requirements

Section 13(a) or

15(d),

applicable,

the

Securities

Exchange Act of 1934; and

The

information

contained

the

Report

fairly

presents,

all

material

respects,

the

financial

condition

and

results of operations of the Company.

/s/ Luis de la Aguilera

Luis de la Aguilera

President and Chief Executive Officer

Date: August 11, 2023

exhibit322

Exhibit 32.2

Certification of Chief Financial Officer Pursuant to

18 U.S.C. Section 1350

as Adopted Pursuant to Section 906 of the Sarbanes

-Oxley Act of 2002

In connection with the Quarterly

Report of USCB Financial Holdings, Inc. (the

“Company”) on Form 10-Q for the

quarter

ended June 30,

2023, as

filed with

the Securities

and Exchange

Commission on

the date

hereof (the

“Report”), I, Robert

Anderson,

as Chief Financial Officer of the Company, certify, to the best of my knowledge, pursuant to 18 U.S.C. §1350, as

adopted pursuant to Section 906 of the Sarbanes-Oxley Act

of 2002, that:

The

Report

fully

complies

with

the

requirements

Section 13(a) or

15(d),

applicable,

the

Securities

Exchange Act of 1934; and

The

information

contained

the

Report

fairly

presents,

all

material

respects,

the

financial

condition

and

results of operations of the Company.

/s/ Robert Anderson

Robert Anderson

Chief Financial Officer

Date: August 11, 2023