10-Q - USCB - Equibles

uscb-20220630p1i0

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, 2022

☐

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

Miami

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 August 1, 2022, the registrant had

20,000,753

shares of Class

common stock outstanding.

uscb-20220630p2i0

FORM 10-Q

June 30, 2022

TABLE OF CONTENTS

PART I

Item 1.

Financial Statements

Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021 (Unaudited)

Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021

(Unaudited)

Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2022

and 2021 (Unaudited)

Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2022

and 2021 (Unaudited)

Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021 (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 2022 Form 10-Q

PART I

Item 1.

Financial Statements

USCB FINANCIAL HOLDINGS, INC.

Consolidated Balance Sheets - Unaudited

(Dollars in thousands,

except share data)

June 30, 2022

December 31, 2021

ASSETS:

Cash and due from banks

7,448

6,477

Interest-bearing deposits in banks

75,824

39,751

Total cash and cash equivalents

83,272

46,228

Investment securities held to maturity (fair value $

101,067

and $

120,157

, respectively)

116,671

122,658

Investment securities available for sale, at fair value

339,464

401,542

Federal Home Loan Bank stock, at cost

3,402

2,100

Loans held for investment, net of allowance of

15,786

and $

15,057

, respectively

1,356,947

1,175,024

Accrued interest receivable

5,991

5,975

Premises and equipment, net

5,088

5,278

Bank owned life insurance

42,249

41,720

Deferred tax asset, net

43,059

34,929

Lease right-of-use asset

13,574

14,185

Other assets

6,369

4,300

Total assets

2,016,086

1,853,939

LIABILITIES:

Deposits:

Demand

653,708

$605,425

Money market and savings accounts

802,841

703,856

Interest-bearing checking accounts

63,416

55,878

Time deposits

218,755

225,220

Total deposits

1,738,720

1,590,379

Federal Home Loan Bank advances

66,000

36,000

Lease liability

13,574

14,185

Accrued interest and other liabilities

17,724

9,478

Total liabilities

1,836,018

1,650,042

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, 2022

and December 31, 2021

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, 2022

and December 31, 2021

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, 2022

and December 31, 2021

Common stock - Class A Voting; $

1.00

par value;

45,000,000

shares authorized;

20,000,753

and

19,991,753

issued and outstanding as of June 30, 2022

and December 31, 2021

20,001

19,992

Common stock - Class B Non-voting; $

1.00

par value;

8,000,000

shares authorized;

and

issued and

outstanding as of June 30, 2022 and December

31, 2021

Additional paid-in capital on common stock

311,024

310,666

Accumulated deficit

(114,096)

(124,245)

Accumulated other comprehensive loss

(36,861)

(2,516)

Total stockholders' equity

180,068

203,897

Total liabilities and stockholders' equity

2,016,086

1,853,939

The accompanying notes are an integral part of

these consolidated financial statements.

Table of Contents

USCB Financial Holdings, Inc.

Q2 2022 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,

2022

2021

2022

2021

Interest income:

Loans, including fees

14,053

11,538

27,035

23,406

Investment securities

2,510

1,968

4,839

3,812

Interest-bearing deposits in financial institutions

121

152

Total interest income

16,684

13,529

32,026

27,257

Interest expense:

Interest-bearing deposits

Money market and savings accounts

615

523

1,166

1,071

Time deposits

271

379

530

933

Federal Home Loan Bank advances

139

138

276

275

Total interest expense

1,042

1,055

2,005

2,308

Net interest income before provision for

credit losses

15,642

12,474

30,021

24,949

Provision for credit losses

705

(160)

Net interest income after provision for

credit losses

14,937

12,474

29,316

25,109

Non-interest income:

Service fees

1,083

903

1,983

1,792

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

net

(3)

187

249

Gain on sale of loans held for sale, net

356

987

Loan settlement

161

Other non-interest income

515

403

1,044

809

Total non-interest income

1,617

1,516

3,562

3,837

Non-interest expense:

Salaries and employee benefits

5,913

5,213

11,788

10,491

Occupancy

1,251

1,411

2,521

2,798

Regulatory assessment and fees

226

195

439

373

Consulting and legal fees

398

373

915

558

Network and information technology services

448

332

835

840

Other operating expense

1,315

1,150

2,665

2,291

Total non-interest expense

9,551

8,674

19,163

17,351

Income before income tax expense

7,003

5,316

13,715

11,595

Income tax expense

1,708

1,263

3,566

2,761

Net income

5,295

4,053

10,149

8,834

Less: Preferred stock dividend

754

1,535

Net income available to common stockholders

5,295

3,299

10,149

7,299

Per share information:

(1)

Class A common stock

Net income per share, basic

0.26

0.65

0.51

1.43

Net income per share, diluted

0.26

0.64

0.50

1.41

Class B common stock

Net income per share, basic

0.13

0.29

Net income per share, diluted

0.13

0.29

(1)

For further details on the allocation of net

income available to common stockholders and per

share information, see Note 9 "Earnings per Share".

The accompanying notes are an integral part of

these consolidated financial statements.

Table of Contents

USCB Financial Holdings, Inc.

Q2 2022 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,

2022

2021

2022

2021

Net income

5,295

4,053

10,149

8,834

Other comprehensive income (loss):

Unrealized gain (loss) on investment securities

(23,253)

233

(45,898)

(5,837)

Amortization of net unrealized gains on securities

transferred from

available-for-sale to held-to-maturity

(61)

(126)

Reclassification adjustment for (gain) loss included

in net income

(187)

(18)

(249)

Tax effect

5,908

(12)

11,697

1,491

Total other comprehensive income (loss), net of tax

(17,403)

(34,345)

(4,595)

Total comprehensive (loss) income

(12,108)

4,087

(24,196)

4,239

The accompanying notes are an integral part of

these consolidated financial statements.

Table of Contents

USCB Financial Holdings, Inc.

Q2 2022 Form 10-Q

USCB FINANCIAL HOLDINGS, INC.

Consolidated Statements of Changes in Stockholders’

Equity - Unaudited

(Dollars in thousands,

except per share data)

Preferred Stock

Common Stock

Additional Paid-

in Capital on

Common Stock

Accumulated

Deficit

Accumulated

Other

Comprehensive

Income (Loss)

Par Value

Total

Stockholders'

Equity

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

Balance at April 1, 2021

12,350,879

32,077

10,010,521

10,010

177,808

(49,622)

152

170,425

Net income

4,053

Other comprehensive income

Dividends - preferred stock

(754)

Preferred stock repurchase

(7,500)

(7,461)

(39)

(7,500)

Stock-based compensation

Balance at June 30, 2021

12,343,379

24,616

10,010,521

10,010

177,852

(46,362)

186

166,302

Preferred Stock

Common Stock

Additional Paid-

in Capital on

Common Stock

Accumulated

Deficit

Accumulated

Other

Comprehensive

Income (Loss)

Par Value

Total

Stockholders'

Equity

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

Balance at January 1, 2021

12,350,879

32,077

10,010,521

10,010

177,755

(53,622)

4,781

171,001

Net income

8,834

Other comprehensive loss

(4,595)

Dividends - preferred stock

(1,535)

Preferred stock repurchase

(7,500)

(7,461)

(39)

(7,500)

Stock-based compensation

Balance at June 30, 2021

12,343,379

24,616

10,010,521

10,010

177,852

(46,362)

186

166,302

The accompanying notes are an integral part of

these consolidated financial statements.

Table of Contents

USCB Financial Holdings, Inc.

Q2 2022 Form 10-Q

USCB FINANCIAL HOLDINGS, INC.

Consolidated Statements of Cash Flows - Unaudited

(Dollars in thousands)

Six Months Ended June 30,

2022

2021

Cash flows from operating activities:

Net income

10,149

8,834

Adjustments to reconcile net income to net

cash provided by operating activities:

Provision for credit losses

705

(160)

Depreciation and amortization

363

642

Amortization of premiums on securities, net

306

192

Accretion of deferred loan fees, net

(508)

(2,016)

Stock-based compensation

265

Gain on sale of available for sale securities

(18)

(249)

Gain on sale of loans held for sale

(356)

(987)

Increase in cash surrender value of bank owned

life insurance

(529)

(335)

Decrease in deferred tax asset

3,567

2,760

Net change in operating assets and liabilities:

Accrued interest receivable

(16)

(65)

Other assets

(2,069)

(863)

Accrued interest and other liabilities

8,246

6,001

Net cash provided by operating activities

20,105

13,851

Cash flows from investing activities:

Purchase of investment securities held to maturity

(2,432)

Proceeds from maturities and pay-downs of investment

securities held to maturity

8,173

Purchase of investment securities available for

sale

(42,794)

(138,937)

Proceeds from maturities and pay-downs of investment

securities available for sale

26,950

28,159

Proceeds from sales of investment securities available

for sale

31,838

43,266

Net increase in loans held for investment

(115,607)

(68,609)

Purchase of loans held for investment

(70,175)

(44,868)

Additions to premises and equipment

(173)

(240)

Proceeds from the sale of loans held for

sale

4,018

9,811

Proceeds from the redemption of Federal Home

Loan Bank stock

611

Purchase of Federal Home Loan Bank stock

(1,302)

Net cash used in investment activities

(161,504)

(170,807)

Cash flows from financing activities:

Proceeds from issuance of Class A common stock, net

102

Dividends paid

(1,535)

Redemption of Preferred stock Class E

(7,500)

Net increase in deposits

148,341

165,374

Proceeds from Federal Home Loan Bank advances

30,000

Net cash provided by financing activities

178,443

156,339

Net increase in cash and cash equivalents

37,044

(617)

Cash and cash equivalents at beginning of period

46,228

47,734

Cash and cash equivalents at end of period

83,272

47,117

Supplemental disclosure of cash flow information:

Interest paid

2,002

2,359

Supplemental schedule of non-cash investing and

financing activities:

Transfer of loans held for investment to loans held for

sale

3,662

8,824

Transfer of premises and equipment to assets held for

sale

656

Lease liability arising from obtaining right-of-use assets

898

The accompanying notes are an integral part of

these consolidated financial statements.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2022 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.

During the year ended December 31,

2021, the Bank completed an initial

public offering (“IPO”) and

its Class A voting

common shares began

trading on the

Nasdaq Stock Market

in July 2021.

In December 2021,

the Bank exchanged

all the

outstanding

Class

non-voting

common

stock

for

Class

voting

common

stock

one

five

exchange. Shortly thereafter,

USCB Financial Holdings,

Inc. acquired all

issued and outstanding

shares of Class

A voting

common stock

of the

Bank in

connection with

the reorganization

of the

Bank into

the holding

company form

of structure.

For further information on the IPO and the exchange

and redemption of shares, see Note 8 “Stockholders’

Equity”.

The Company’s

Consolidated Financial

Statements consist

of USCB

Financial Holdings,

Inc. and

U.S. Century

Bank

as of June 30, 2022 and December

31, 2021 and for the three

and six month ended June

30, 2022 compared to only

U.S.

Century Bank as of June 30, 2021 and for the three and six

months periods ended June 30, 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 for the year ended December 31, 2021.

Principles of Consolidation

The

Company

consolidates

entities

which

has

controlling

financial

interest.

Intercompany

transactions

and

balances are eliminated in consolidation.

Use of Estimates

To prepare

financial statements in conformity with U.S. GAAP,

management makes estimates and assumptions based

on available

information. These

estimates and

assumptions affect

the amounts

reported in

the financial

statements. The

most significant

estimates impacting

the Company’s

consolidated financial

statements are

the allowance

for credit

losses

and income taxes.

Reclassifications

Certain

amounts

the

Consolidated

Financial

Statements

have

been

reclassified

conform

the

current

presentation. Reclassifications had no impact on the net income

or stockholders’ equity of the Company.

Recently Issued Accounting Standards

Issued and Not Yet Adopted

Measurement of Credit Losses

on Financial Instruments

In June

2016, the FASB issued

ASU 2016-13, Financial

Instruments - Credit

Losses (Topic 326); Measurement of

Credit

Losses on Financial Instruments. This accounting standard update (“ASU” or “Update”)

on accounting for current expected

credit

losses

financial

instruments

(“CECL”)

will

replace

the

current

probable

incurred

loss

impairment

methodology

under U.S. GAAP

with a methodology

that reflects the

expected credit losses.

The Update is

intended to provide

financial

statement

users

with

decision-useful

information

about

expected

credit

losses.

This

Update

applicable

the

Company

a modified

retrospective

basis

for

interim

and

annual

periods

fiscal

years

beginning

after

December 15,

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2022 Form 10-Q

Early adoption is permitted for fiscal years beginning after December 15, 2019, including interim periods within those

fiscal

years.

The

Company

expects

adopt

this

ASU

January 1,

2023.

The

impact

adoption

the

Company’s

financial statements

will depend on

the composition

of the loan

and investment

securities portfolio

as of January

1, 2023,

general economic conditions,

and other factors that

are not known at

this time. Although

management is in the

process of

evaluating the impact of

adoption of this ASU on

its consolidated financial statements,

management does believe that

this

ASU will lead to significant changes

in accounting policies and disclosures

related to, and the methods used

in estimating,

the

ACL.

The

Company

has

developed

detailed

implementation

plan

through

the

date

adoption

that

includes

the

implementation of a software solution to assist

with the CECL implementation process and is developing

measurements in

parallel

with

the

current

methodology.

date,

the

Company

has

initiated

policy

discussion

with

key

stakeholders,

completed a data

gap analysis

and retained the

services of a

third-party consulting

firm to perform

an independent model

validation prior to adoption.

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.

Trouble Debt Restructuring

March

2022,

the

FASB

issued

ASU

2022-02,

Financial

Instruments—Credit

Losses

(Topic

326):

Troubled

Debt

Restructurings and Vintage Disclosures.

This ASU eliminates the recognition and measurement guidance on troubled debt

restructurings for

creditors and

aligns it

with existing

guidance to

determine whether

a loan

modification results

in a

new

loan

continuation

existing

loan.

The

new

guidance

also

requires

enhanced

disclosures

about

certain

loan

modifications by

creditors

when a

borrower is

experiencing financial

difficulty.

This ASU

is effective

in periods

beginning

after

December

15,

2022,

using

either

prospective

modified

retrospective

transition

approach.

Early

adoption

permitted for entities that have already adopted CECL.

The Company is in the process of reviewing this

ASU, as part of its

CECL implementation efforts,

to determine

whether it would

have a material

impact on

the Company’s consolidated financial

statements when adopted.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2022 Form 10-Q

INVESTMENT SECURITIES

The following

tables present

a summary

of the amortized

cost, unrealized

or unrecognized

gains and

losses,

and fair

value of investment securities at the dates indicated (in

thousands):

June 30, 2022

Available-for-sale:

Amortized

Cost

Unrealized

Gains

Unrealized

Losses

Fair Value

U.S. Government Agency

27,816

(1,966)

25,850

U.S. Treasury

2,468

(31)

2,437

Collateralized mortgage obligations

155,340

(21,520)

133,820

Mortgage-backed securities - residential

111,708

(15,726)

95,982

Mortgage-backed securities - commercial

44,670

(4,549)

40,121

Municipal securities

25,124

(5,522)

19,602

Bank subordinated debt securities

16,503

(584)

15,972

Corporate bonds

6,062

(382)

5,680

389,691

(50,280)

339,464

Held-to-maturity:

U.S. Government Agency

34,100

(4,692)

29,408

Collateralized mortgage obligations

40,806

(5,513)

35,293

Mortgage-backed securities - residential

27,478

(3,954)

23,524

Mortgage-backed securities - commercial

3,095

(403)

2,692

Corporate bonds

11,192

(1,042)

10,150

116,671

(15,604)

101,067

December 31, 2021

Available-for-sale:

Amortized

Cost

Unrealized

Gains

Unrealized

Losses

Fair Value

U.S. Government Agency

10,564

(50)

10,520

Collateralized mortgage obligations

160,506

(3,699)

156,829

Mortgage-backed securities - residential

120,643

228

(2,029)

118,842

Mortgage-backed securities - commercial

49,905

820

(608)

50,117

Municipal securities

25,164

(894)

24,276

Bank subordinated debt securities

27,003

1,418

(13)

28,408

Corporate bonds

12,068

482

12,550

405,853

2,982

(7,293)

401,542

Held-to-maturity:

U.S. Government Agency

34,505

(615)

33,904

Collateralized mortgage obligations

44,820

(1,021)

43,799

Mortgage-backed securities - residential

26,920

(568)

26,352

Mortgage-backed securities - commercial

3,103

(90)

3,013

Corporate bonds

13,310

(221)

13,089

122,658

(2,515)

120,157

During the

year ended

December 31,

2021, a

total of

investment securities

with an

amortized cost

basis and

fair

value of

67.6

million and

68.7

million, respectively,

were transferred

from

available-for-sale

(“AFS”) to

held-to-maturity

(“HTM”). These securities had a net unrealized gain

of $

1.1

million on the date of transfer,

with no immediate impact to net

income on the transfer

date. The unrealized gain or

loss of each security

at the date of

transfer was retained in accumulated

other comprehensive income (“AOCI”)

and in the carrying value

of the HTM securities.

The net unrealized gains

that were

retained in AOCI are being amortized over the remaining

life of the transferred securities. For the three

months and the six

months ended June 30, 2022, total amortization

out of AOCI for net unrealized gains

on securities transferred from AFS to

HTM was $

thousand and $

126

thousand, respectively.

Two of these

transferred securities totaling $

2.0

million matured

during the second quarter of 2022.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2022 Form 10-Q

Gains and losses on

the sale of securities are

recorded on the trade date

and are determined on a

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, 2022 and 2021 (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Available-for-sale:

2022

2021

2022

2021

Proceeds from sale and call of securities

17,280

29,018

31,838

43,266

Gross gains

363

216

438

Gross losses

(61)

(176)

(198)

(189)

Net realized gain (loss)

(3)

187

249

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

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, 2022:

Amortized

Cost

Fair Value

Amortized

Cost

Fair Value

Due after one year through five years

8,530

8,117

11,192

10,150

Due after five years through ten years

17,503

16,822

Due after ten years

24,124

18,752

U.S. Government Agency

27,816

25,850

34,100

29,408

Collateralized mortgage obligations

155,340

133,820

40,806

35,293

Mortgage-backed securities - residential

111,708

95,982

27,478

23,524

Mortgage-backed securities - commercial

44,670

40,121

3,095

2,692

389,691

339,464

116,671

101,067

At June 30, 2022, 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

Agencies.

All

the

collateralized

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

at June 30, 2022 and

December 31, 2021.

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, 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

40,053

(3,976)

15,205

(2,787)

55,258

(6,763)

U.S. Treasury

2,437

(31)

2,437

(31)

Collateralized mortgage obligations

100,414

(14,042)

68,699

(12,991)

169,113

(27,033)

Mortgage-backed securities - residential

77,724

(10,426)

41,782

(8,927)

119,506

(19,353)

Mortgage-backed securities - commercial

36,712

(3,830)

6,101

(1,057)

42,813

(4,887)

Municipal securities

6,050

(1,560)

13,552

(3,962)

19,602

(5,522)

Bank subordinated debt securities

11,919

(584)

11,919

(584)

Corporate bonds

15,830

(859)

15,830

(859)

291,139

(35,308)

145,339

(29,724)

436,478

(65,032)

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2022 Form 10-Q

December 31, 2021

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

25,951

(254)

15,477

(516)

41,428

(770)

Collateralized mortgage obligations

155,668

(3,223)

38,459

(1,497)

194,127

(4,720)

Mortgage-backed securities - residential

88,772

(1,178)

37,373

(1,274)

126,145

(2,452)

Mortgage-backed securities - commercial

25,289

(318)

7,507

(309)

32,796

(627)

Municipal securities

11,292

(395)

11,978

(499)

23,270

(894)

Bank subordinated debt securities

4,487

(13)

4,487

(13)

311,459

(5,381)

110,794

(4,095)

422,253

(9,476)

As of June 30,

2022, the unrealized

losses associated

with $

62.2

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 upon transfer

between portfolios.

The Company performs a review

of the investments that have

an unrealized loss to determine

whether there have been

any changes in the

economic circumstance of the security

issuer to indicate that

the unrealized loss is

impaired on an other-

than-temporary (“OTTI”) basis. Management

considers several factors in

their analysis including

(i) the severity

and duration

of the impairment,

(ii) the

credit rating

of the

security including

any downgrade,

(iii) the

intent to

sell the security,

or if

it is

more likely than

not that it

will be required

to sell the

security before recovery

(iv) whether

there have been

any payment

defaults and (v) the underlying guarantor of the securities.

The company does not consider these investments to be OTTI as the decline in market value

is attributable to changes

in market

interest rates

and not

credit quality,

and because

the Company

does not

intend to

sell the

investments before

recovery

of its

amortized

cost

basis, which

may be

maturity,

and

is more

likely

than not

that

the Company

will not

required to sell the securities before maturity.

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, 2022, the Company did not 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.

As of June 30, 2022, the Company had a total of $

93.7

million in deposits under the public funds program and pledged

to the state of Florida for these public funds were

fourteen

corporate bonds with an aggregate fair value of $

23.6

million.

As of

December 31,

2021, the

Company had

a total

of $

37.3

million in

deposits under

the public

funds program

and

pledged

the

state

Florida

for

these

public

funds

were

eleven

corporate

bonds

with

aggregate

fair

value

20.4

million.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2022 Form 10-Q

LOANS

The following table is a summary of the distribution of

loans held for investment by type (in thousands):

June 30, 2022

December 31, 2021

Total

Percent of

Total

Percent of

Total

Residential Real Estate

203,662

14.8

201,359

16.9

Commercial Real Estate

843,445

61.5

704,988

59.2

Commercial and Industrial

131,271

9.5

146,592

12.3

Foreign Banks

84,770

6.2

59,491

5.0

Consumer and Other

109,250

8.0

79,229

6.6

Total

gross loans

1,372,398

100.0

1,191,659

100.0

Less: Deferred fees (cost)

(335)

1,578

Total

loans net of deferred fees (cost)

1,372,733

1,190,081

Less: Allowance for credit losses

15,786

15,057

Total

net loans

1,356,947

1,175,024

June 30,

2022

and

December 31,

2021,

the

Company

had

159.9

million

and

185.1

million,

respectively,

commercial real estate

and residential mortgage loans

pledged as collateral

on 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

determined

by the

SBA.

The

Company

had

PPP

loans

13.5

million

June 30, 2022 and

42.4

million at December 31,

2021, which are

categorized as commercial

and industrial loans.

These

PPP loans had deferred loan fees of $

149

thousand at June 30, 2022 and $

1.5

million at December 31, 2021.

The Company

recognized

1.5

million

and $

2.4

million

PPP loan

fees

and

interest

income

during the

six

months

ended

June 30,

2022

and

2021,

respectively,

which

reported

under

loans,

including

fees,

within

the

Consolidated

Statements of Operations.

The

Company

segments

the

portfolio

pools

grouping

loans

that

similar

risk

characteristics

and

employing

collateral type

and lien

position to

group loans

according to

risk. The

Company determines

historical

loss rates

for each

loan

pool

based

its

own

loss

experience.

estimating

credit

losses,

the

Company

also

considers

qualitative

and

environmental factors that may cause estimated credit losses

for the loan portfolio to differ from historical

losses.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2022 Form 10-Q

Changes in the allowance for credit losses for

the three and six months ended June 30, 2022 and

2021 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, 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

Residential

Real Estate

Commercial

Real Estate

Commercial

and Industrial

Foreign

Banks

Consumer

and Other

Total

Three Months Ended June 30, 2021

Beginning balance

3,087

9,320

2,005

407

190

15,009

Provision for credit losses

(322)

(568)

398

147

345

Recoveries

Charge-offs

(229)

(1)

(230)

Ending Balance

2,540

8,752

2,467

554

535

14,848

Six Months Ended June 30, 2021

Beginning balance

3,408

9,453

1,689

348

188

15,086

Provision for credit losses

(647)

(701)

627

206

355

(160)

Recoveries

151

161

Charge-offs

(229)

(10)

(239)

Ending Balance

2,540

8,752

2,467

554

535

14,848

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2022 Form 10-Q

Allowance for credit losses and the

outstanding balances in loans as

of June 30, 2022 and December

31, 2021 are as

follows (in thousands):

Residential

Real Estate

Commercial

Real Estate

Commercial

and Industrial

Foreign

Banks

Consumer

and Other

Total

June 30, 2022:

Allowance for credit losses:

Individually evaluated for impairment

165

104

319

Collectively evaluated for impairment

2,201

9,290

2,621

651

704

15,467

Balances, end of period

2,366

9,290

2,671

651

808

15,786

Loans:

Individually evaluated for impairment

7,307

594

210

8,210

Collectively evaluated for impairment

196,355

842,851

131,172

84,770

109,040

1,364,188

Balances, end of period

203,662

843,445

131,271

84,770

109,250

1,372,398

December 31, 2021:

Allowance for credit losses:

Individually evaluated for impairment

178

111

360

Collectively evaluated for impairment

2,320

8,758

2,704

457

458

14,697

Balances, end of period

2,498

8,758

2,775

457

569

15,057

Loans:

Individually evaluated for impairment

9,006

696

141

224

10,067

Collectively evaluated for impairment

192,353

704,292

146,451

59,491

79,005

1,181,592

Balances, end of period

201,359

704,988

146,592

59,491

79,229

1,191,659

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2022 Form 10-Q

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.

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, 2022

Pass

Special

Mention

Substandard

Doubtful

Total Loans

Residential real estate:

Home equity line of credit ("HELOC") and other

707

1-4 family residential

144,937

Condo residential

58,018

203,662

Commercial real estate:

Land and construction

37,326

Multi-family residential

134,535

Condo commercial

48,103

406

48,509

Commercial property

621,789

1,197

622,986

Leasehold improvements

841,842

1,197

406

843,445

Commercial and industrial:

(1)

Secured

111,293

462

111,755

Unsecured

19,516

130,809

462

131,271

Foreign banks

84,770

Consumer and other loans

109,040

210

109,250

Total

1,370,123

1,197

1,078

1,372,398

(1)

All outstanding PPP loans were internally graded

pass.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2022 Form 10-Q

As of December 31, 2021

Pass

Special

Mention

Substandard

Doubtful

Total Loans

Residential real estate:

Home equity line of credit ("HELOC") and other

701

1-4 family residential

130,840

4,581

135,421

Condo residential

65,237

196,778

4,581

201,359

Commercial real estate:

Land and construction

24,581

Multi-family residential

127,489

Condo commercial

41,983

417

42,400

Commercial property

509,189

1,222

510,411

Leasehold improvements

107

703,349

1,222

417

704,988

Commercial and industrial:

(1)

Secured

97,605

536

98,141

Unsecured

48,434

48,451

146,039

553

146,592

Foreign banks

59,491

Consumer and other loans

79,005

224

79,229

Total

1,184,662

1,222

5,775

1,191,659

(1)

All outstanding PPP loans were internally graded

pass.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2022 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,

2022

and

December 31, 2021 (in thousands):

Accruing

As of June 30, 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

707

1-4 family residential

144,937

Condo residential

57,338

680

58,018

202,982

680

203,662

Commercial real estate:

Land and construction

37,326

Multi-family residential

134,535

Condo commercial

48,509

Commercial property

622,986

Leasehold improvements

843,445

Commercial and industrial:

Secured

111,556

199

111,755

Unsecured

19,516

131,072

199

131,271

Foreign banks

84,770

Consumer and other

109,250

Total

1,371,519

879

1,372,398

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2022 Form 10-Q

Accruing

As of December 31, 2021:

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

701

1-4 family residential

133,942

289

134,231

1,190

135,421

Condo residential

64,243

994

65,237

198,886

1,283

200,169

1,190

201,359

Commercial real estate:

Land and construction

24,581

Multi-family residential

127,053

436

127,489

Condo commercial

42,400

Commercial property

510,411

Leasehold improvements

107

704,552

436

704,988

Commercial and industrial:

Secured

98,141

Unsecured

48,041

410

48,451

146,182

410

146,592

Foreign banks

59,491

Consumer and other

78,969

260

79,229

Total

1,188,080

2,389

1,190,469

1,190

1,191,659

There was

interest income recognized attributable to nonaccrual loans outstanding during June 30, 2022 and 2021.

Interest income on

these loans for

the three months

ended June 30, 2022

and 2021, would

have been approximately $

and

thousand, respectively,

had these loans performed in accordance with their original terms.

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 at

the dates indicated (in thousands):

June 30, 2022

December 31, 2021

Unpaid

Principal

Balance

Net

Investment

Balance

Valuation

Allowance

Unpaid

Principal

Balance

Net

Investment

Balance

Valuation

Allowance

Impaired Loans with No Specific Allowance:

Residential real estate

3,598

3,592

5,021

5,035

Commercial real estate

593

696

695

4,191

4,185

5,717

5,730

Impaired Loans with Specific Allowance:

Residential real estate

3,710

3,677

165

3,985

3,950

178

Commercial and industrial

141

Consumer and other

210

104

224

111

4,019

3,986

319

4,350

4,315

360

Total

8,210

8,171

319

10,067

10,045

360

Net investment balance is the unpaid principal balance

of the loan adjusted for the remaining net deferred loan

fees.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2022 Form 10-Q

The following

table presents

the average

recorded

investment

balance

on impaired

loans for

the dates

indicated

(in

thousands):

Three Months Ended June 30,

Six Months Ended June 30,

2022

2021

2022

2021

Residential real estate

7,332

8,321

7,890

9,027

Commercial real estate

599

718

631

723

Commercial and industrial

115

188

124

192

Consumer and other

214

262

217

268

Total

8,260

9,489

8,862

10,210

Interest income recognized on

impaired loans for the

three months ended June

30, 2022 and 2021

was $

thousand

and $

105

thousand, respectively.

Interest income

recognized on

impaired loans

for the

six months

ended June 30,

2022 and

2021 was

181

thousand

and $

214

thousand, respectively.

Troubled Debt Restructuring

A troubled

debt

restructuring

(“TDR”)

occurs

when

the

Company

has agreed

a loan

modification

the

form

concession

for

borrower

who

experiencing

financial

difficulty.

Modifications

loans

can

made

for

rate,

term,

payment, conversion of

loan to interest

only for a

limited period of

time or a

combination to include

more than one

type of

modification.

The following table presents performing and non-performing

TDRs at the dates indicated (in thousands):

June 30, 2022

December 31, 2021

Accrual Status

Non-Accrual

Status

Total TDRs

Accrual Status

Non-Accrual

Status

Total TDRs

Residential real estate

7,307

7,815

Commercial real estate

594

696

Commercial and industrial

141

Consumer and other

210

224

Total

8,210

8,876

The Company had allocated

319

thousand and $

360

thousand of specific allowance

for TDR loans at

June 30, 2022

and December

31, 2021,

respectively.

There were

charge-offs

on TDR

loans

during the

three and

six

months ended

June 30, 2022 and 2021. There were

commitments outstanding to lend additional funds to any of these TDR customers

as of June 30, 2022.

During the

quarter ended

June 30,

2022

and 2021,

there were

defaults on

loans

which

were modified

as a

TDR

within the prior

12 months. The

Company also did

t have any

new TDR loans

for the three

and six months ended

June 30,

2022 and 2021.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2022 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,

2022

2021

Current:

Federal

State

Total

current

Deferred:

Federal

2,778

2,268

State

788

493

Total

deferred

3,566

2,761

Total

tax expense

3,566

2,761

The actual income tax

expense for the six

months ended June 30, 2022 and

2021 differs from the statutory

tax expense

for the year (computed by applying the

U.S. federal corporate tax rate of

% for 2022 and 2021 to

income before provision

for income taxes) as follows (in thousands):

Six Months Ended June 30,

2022

2021

Federal taxes at statutory rate

2,880

2,435

State income taxes, net of federal tax benefit

596

406

Bank owned life insurance

(134)

(82)

Other, net

224

Total

tax expense

3,566

2,761

The Company’s deferred tax assets and deferred

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

June 30, 2022

December 31, 2021

Deferred tax assets:

Net operating loss

25,768

28,819

Allowance for credit losses

4,001

3,816

Lease liability

3,440

3,595

Unrealized losses on available for sale securities

12,514

817

Deferred loan fees

400

Depreciable property

134

361

Stock option compensation

298

241

Accruals

447

600

Other, net

144

Deferred tax assets:

46,746

38,651

Deferred tax liability:

Deferred loan cost

(85)

Lease right of use asset

(3,440)

(3,595)

Deferred expenses

(162)

(127)

Deferred tax liability

(3,687)

(3,722)

Net deferred tax assets

43,059

34,929

The Company

has approximately

97.8

million of

federal and

120.5

million of

state net

operating loss

carryforwards

expiring in various amounts between 2031 and 2036 and are

limited to 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 2022 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

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 2018.

For the three

months ended

June 30, 2022

and 2021,

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, 2022 and December 31, 2021 (in thousands):

June 30, 2022

December 31, 2021

Commitments to grant loans and unfunded lines of credit

142,498

134,877

Standby and commercial letters of credit

3,843

6,420

146,341

141,297

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 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

position. The

notional amount

of the

interest rate

swaps do

not represent

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.

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

36.3

million

and

39.2

million

June 30,

2022

and

December 31, 2021,

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

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2022 Form 10-Q

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 customer-related

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

Fair Value

Notional

Amount

Collateral

Amount

Balance Sheet Location

Asset

Liability

June 30, 2022:

Derivatives not designated as hedging instruments:

Interest rate swaps related to customer loans

36,315

1,260

Other assets/Other liabilities

3,831

December 31, 2021:

Derivatives not designated as hedging instruments:

Interest rate swaps related to customer loans

39,156

1,260

Other assets/Other liabilities

1,434

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

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.

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.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2022 Form 10-Q

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 measured at fair value on a recurring basis at June 30, 2022 and

December 31, 2021 for each of the fair value hierarchy

levels (in thousands):

June 30, 2022

December 31, 2021

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

Investment securities available for sale:

U.S. Government Agency

25,850

10,520

U.S. Treasury

2,437

Collateralized mortgage obligations

133,820

156,829

Mortgage-backed securities - residential

95,982

118,842

Mortgage-backed securities - commercial

40,121

50,117

Municipal Securities

19,602

24,276

Bank subordinated debt securities

15,972

28,408

Corporate bonds

5,680

12,550

Total

2,437

337,027

339,464

401,542

Derivative assets

3,831

1,434

Total assets at fair value

2,437

340,858

343,295

402,976

Derivative liabilities

3,831

1,434

Total liabilities at fair value

3,831

1,434

Items Measured at Fair Value

on a Non-recurring Basis

Impaired

Loans:

June 30,

2022

and

December 31,

2021,

accordance

with

provisions

the

loan

impairment

guidance, individual loans with

a carrying amount of approximately

4.0

million and $

4.4

million, respectively,

were written

down to

their

fair value

approximately

3.7

million

and $

4.0

million,

respectively,

resulting

an impairment

charge

319

thousand and

360

thousand, respectively,

which was

included in

the allowance

for credit

losses at

June 30, 2022

and December 31, 2021, respectively.

Loans applicable to write-downs, or impaired loans, are estimated using the present

value

expected

cash

flows

the

appraised

value

the

underlying

collateral

discounted

necessary

due

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.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2022 Form 10-Q

The following table represents the Company’s assets measured at fair value on a non-recurring basis at June 30, 2022

and December 31, 2021 for each of the fair value hierarchy

levels (in thousands):

Level 1

Level 2

Level 3

Total

June 30, 2022:

Impaired loans

3,700

December 31, 2021:

Impaired loans

3,990

The following table presents

quantified information about

Level 3 fair value

measurements for assets measured

at fair

value on a non-recurring basis at June 30, 2022 and December

31, 2021 (in thousands):

Fair Value

Valuation Technique(s)

Unobservable Input(s)

June 30, 2022:

Residential real estate

3,546

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

106

Discounted cash flow

Adj. for differences in net operating income expectations

Total

impaired loans

3,700

December 31, 2021:

Residential real estate

3,807

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

113

Discounted cash flow

Adj. for differences in net operating income expectations

Total

impaired loans

3,990

There were

financial liabilities measured

at fair value on a

non-recurring basis at June

30, 2022 and December

31,

2021.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2022 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, 2022 and December 31, 2021 (in

thousands):

Fair Value Hierarchy

Carrying

Amount

Level 1

Level 2

Level 3

Fair Value

Amount

June 30, 2022:

Financial Assets:

Cash and due from banks

7,448

Interest-bearing deposits in banks

75,824

Investment securities held to maturity

116,671

101,067

Loans held for investment, net

1,356,947

1,339,283

Accrued interest receivable

5,991

1,246

4,745

5,991

Financial Liabilities:

Demand deposits

653,708

Money market and savings accounts

802,841

Interest-bearing checking accounts

63,416

Time deposits

218,755

214,737

FHLB advances

66,000

64,985

Accrued interest payable

December 31, 2021:

Financial Assets:

Cash and due from banks

6,477

Interest-bearing deposits in banks

39,751

Investment securities held to maturity

122,658

120,157

Loans held for investment, net

1,175,024

1,189,191

Accrued interest receivable

5,975

1,222

4,753

5,975

Financial Liabilities:

Demand deposits

605,425

Money market and savings accounts

703,856

Interest-bearing checking accounts

55,878

Time deposits

225,200

224,688

FHLB advances

36,000

36,479

Accrued interest payable

STOCKHOLDERS’ EQUITY

Common Stock

The rights

of the

holders of

Class A

common stock

and Class

B common

stock are

the same,

except for

voting and

conversion rights.

Holders of

Class A

common stock

are entitled

to voting

rights, while

holders of

Class B

common stock

have no

voting rights.

Shares of

Class

B common

stock

are convertible

into shares

of Class

A common

stock

if sold

transferred.

In June 2021, the Bank effected a 1 for 5

reverse stock split of all the Class A common

stock $

1.00

par value. Each five

shares of

the Bank’s Class

A common

stock was combined

into

one

fully paid

share of Class

A common

stock. Any fractional

resulting from

this

reverse

stock

split were

rounded

up to

one whole

share.

The

Bank has

adjusted

the Class

common stock, earnings per share and stock

options for this 1 for 5 reverse stock

split for all periods in 2021. The Class

common stock was not adjusted but if sold or exchanged would be converted

at the 1 for 5 reverse stock split of

share of

Class

common

stock

for

Class

common

stock.

Any

dividends

declared

the

Board

Directors

(the

“Board”)

include

Class

common

stock

will

also

paid

converted.

The

for

reverse

stock

split

resulted

adjustments

Consolidated

Balance

Sheets,

Consolidated

Statements

Operations,

and

Consolidated

Statements

Changes in Stockholders’ Equity.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2022 Form 10-Q

In July 2021,

the Bank completed

the IPO of

its Class A

common stock, in

which it issued

and sold

4,600,000

Class

common

stock

price

10.00

per

share.

The

Bank

received

total

net

proceeds

40.0

million

after

deducting underwriting discounts and expenses.

In December 2021, the Bank entered into agreements with the

Class B shareholders to exchange all outstanding Class

B common stock for Class A common stock at

a ratio of 5 to 1. As a result, a total of

6,121,052

shares of Class B common

stock were exchanged for

1,224,212

shares of Class A common stock.

In December 2021,

USCB Financial Holdings,

Inc. (the “Company”)

acquired all the

issued and outstanding

shares of

the Class A voting

common stock of

U.S. Century Bank

(the “Bank”), which are

the only issued and

outstanding shares of

the Bank’s capital

stock, in a share

exchange (the “Reorga

nization”) effected

under the Florida

Business Corporation

Act.

Each of the outstanding

shares of the

Bank’s common stock,

par value $

1.00

per share, formerly

held by its

shareholders

was converted into and

exchanged for one newly issued

share of the Company’s common stock,

par value $

1.00

per share,

and the Bank became the Company’s wholly owned

subsidiary.

In the

Reorganization,

each

shareholder

of the

Bank

received securities

the same

class,

having

substantially

the

same designations,

rights,

powers,

preferences,

qualifications,

limitations

and restrictions,

as those

that the

shareholder

held

the

Bank,

and

the

Company’s

current

shareholders

own

the

same

percentages

its

common

stock

they

previously owned of the Bank’s common stock.

Preferred Stock

In April 2021,

the Board

authorized and

approved the

offer to

repurchase all

outstanding shares

of Class

E preferred

stock at

the liquidation

value of

7.5

million along

with declared

dividends of

103

thousand.

All Class

E preferred

stock

shareholders approved the repurchase which the Bank

completed in April 2021.

The

Bank

offered

the

Class

and

Class

preferred

stockholders

the

ability

exchange

their

for

Class

common stock. The offer

to exchange was voluntary

and the preferred stockholders

were given the option to

convert

their

preferred

for

Class

common

stock

with

the

remaining

redeemed

the

form

cash.

The

exchange ratio for the

shares of Class A

common stock issued in

the preferred stock exchange transaction

was based upon

the IPO price for shares of Class A common stock.

During the year ended December 31, 2021,

47,473

shares of Class C preferred stock

and

11,061,552

shares of Class

D preferred stock converted into an aggregate of

10,278,072

shares of Class A common stock. The exchange of the Class

C and Class D preferred shares had

a total liquidation value of $

102.8

million. The remaining unconverted shares of

Class

C preferred stock

and Class

D preferred stock

totaling

1,234,354

shares were subsequently

redeemed at their

liquidation

value for $

11.4

million.

The fair value of consideration

on the preferred stock

exchange and redemption of

the Class C and

Class D preferred

exceeded

the

book

value

causing

one-time

reduction

net

income

available

common

stockholders

89.6

million. As of June

30, 2022 and December

31, 2021, there were

preferred shares and

outstanding dividends

to be paid these on.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2022 Form 10-Q

Dividends

The following dividend

amounts were paid

on the preferred

shares for the

three and six

months ended June 30,

2022

and 2021 (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

2022

2021

2022

2021

Preferred stock - Class C: Non-voting, Non-cumulative, Perpetual:

1.00

par value; $

1,000

per share liquidation preference; annual

dividend rate of

% of liquidation preference paid quarterly. Quarterly

dividend of $

10.00

per share.

528

1,055

Preferred stock - Class D: Non-voting, Non-cumulative, Perpetual:

1.00

par value; $

5.00

per share liquidation preference; annual

dividend rate of

% of par value paid quarterly. Quarterly dividend of

0.01

per share.

123

246

Preferred stock - Class E: Non-voting, Partially Cumulative,

Perpetual: $

1.00

par value; $

1,000

per share liquidation preference;

annual dividend rate of

% of liquidation preference paid quarterly.

Quarterly dividend of $

17.50

per share.

103

234

Total

dividends paid

754

1,535

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,

2022 and 2021.

Additionally,

there were

dividends declared and unpaid as of June 30, 2022 and 2021.

The

Company

and

the

Bank

exceeded

all

regulatory

capital

requirements

and

remained

significantly

above

“well-

capitalized” guidelines.

At June

30, 2022,

total risk-based

capital ratio

for the

Company

and the

Bank were

13.74

% and

13.67

%, 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.

To calculate EPS for the three and six

months ended June 30, 2022, net

income available to common stockholders

was

not allocated between

Class A and

Class B common

stock since there were

no issued and outstanding

shares of Class

common stock as of June 30, 2022.

To calculate EPS for the three and six

months ended June 30, 2021, net

income available to common stockholders

was

allocated

as if

all

the

income

for

the

period

were

distributed

common

stockholders.

The

allocation

was

based

the

outstanding shares

per common

share class

to the

total common

shares outstanding

during each

period giving

effect for

the 1 for

5 reverse stock

split. The Company’s Articles

of Incorporation require that

the distribution of

net income to

Common

stockholders

adjusted

give

effect

for

Class

stock

splits.

Therefore,

the

income

allocated

Class

common

shares was calculated based on their

% per share equivalent to Class A common shares.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2022 Form 10-Q

The following

table reflects

the calculation

of net

income available

to common

stockholders

for three

and six

months

ended June 30, 2022 and 2021 (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

2022

2021

2022

2021

Net Income

5,295

4,053

10,149

8,834

Less: Preferred stock dividends

754

1,535

Net income available to common stockholders

5,295

3,299

10,149

7,299

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2022 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, 2022 and 2021 (in thousands,

except per share amounts):

Three Months Ended June 30,

2022

2021

Class A

Class B

Class A

Class B

(1)

Basic EPS

Numerator:

Net income available to common shares before allocation

5,295

3,299

Multiply: % allocated on weighted avg. shares outstanding

100.0%

76.0%

24.0%

Net income available to common shares after allocation

5,295

2,509

790

Denominator:

Weighted average shares outstanding

20,000,753

3,889,469

6,121,052

Earnings per share, basic

0.26

0.65

0.13

Diluted EPS

Numerator:

Net income available to common shares before allocation

5,295

3,299

Multiply: % allocated on weighted avg. shares outstanding

100.0%

76.0%

24.0%

Net income available to common shares after allocation

5,295

2,509

790

Denominator:

Weighted average shares outstanding for basic EPS

20,000,753

3,889,469

6,121,052

Add: Dilutive effects of assumed exercises of stock options

170,508

44,167

Weighted avg. shares including dilutive potential common shares

20,171,261

3,933,636

6,121,052

Earnings per share, diluted

0.26

0.64

0.13

Anti-dilutive stock options excluded from diluted EPS

15,000

103,666

(1)

Net income available to common shares between Class

A and Class B common stock was allocated

based on the weighted average number of

shares outstanding. The allocation also assumes that

Class B shares had converted to Class A shares which is equivalent

0.20

per share of Class B

1,224,212

shares of Class A shares.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q2 2022 Form 10-Q

Six Months Ended June 30,

2022

2021

Class A

Class B

Class A

Class B

(1)

Basic EPS

Numerator:

Net income available to common shares before allocation

10,149

7,299

Multiply: % allocated on weighted avg. shares outstanding

100.0%

76.1%

23.9%

Net income available to common shares after allocation

10,149

5,551

1,748

Denominator:

Weighted average shares outstanding

19,997,869

3,889,469

6,121,052

Earnings per share, basic

0.51

1.43

0.29

Diluted EPS

Numerator:

Net income available to common shares before allocation

10,149

7,299

Multiply: % allocated on weighted avg. shares outstanding

100.0%

76.1%

23.9%

Net income available to common shares after allocation

10,149

5,551

1,748

Denominator:

Weighted average shares outstanding for basic EPS

19,997,869

3,889,469

6,121,052

Add: Dilutive effects of assumed exercises of stock options

195,049

44,167

Weighted avg. shares including dilutive potential common shares

20,192,918

3,933,636

6,121,052

Earnings per share, diluted

0.50

1.41

0.29

Anti-dilutive stock options excluded from diluted EPS

15,000

103,666

(1)

Net income available to common shares between Class

A and Class B common stock was allocated

based on the weighted average number of

shares outstanding. The allocation also assumes that

Class B shares had converted to Class A shares which is equivalent

to 0.20 per share of Class B

or 1,224,212 shares of Class A shares.

See Note 8 “Stockholders’ Equity” for further discussion

of the stock split.

10.

LOSS CONTINGENCIES

Loss contingencies,

including claims

and legal actions

may arise in

the ordinary

course of

business. In

the opinion

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.

Table of Contents

USCB Financial Holdings, Inc.

Q2 2022 Form 10-Q

Item 2.

Management's Discussion and Analysis of Financial Condition

and Results of Operations

The

following

discussion

and

analysis

are

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, 2022. This discussion and

analysis are best read in conjunction with the

consolidated financial statements

and related footnotes

included in this Form

10-Q and in the Annual

Report filed on

the Form 10-K (“2021

form 10-K”) filed

with the Security and Exchange Commission (“SEC”) for the year

ended December 31, 2021.

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

2021 Form

10-K 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

contains statements

that are not

historical in

nature and

are intended to

be, and

are

hereby

identified

as,

forward-looking

statements

for

purposes

the

safe

harbor

provided

Section

21E

the

Securities

Exchange

Act

1934,

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.

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;

•

the continuation

of COVID-19

pandemic and

its impact

on us,

our employees,

customers and

third-party

service

providers, and the ultimate extent of the impacts of the

pandemic and related government stimulus programs;

•

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 environment;

•

our ability

to comply

with the

extensive laws

and regulations

to which

we are

subject, including

the laws

for each

jurisdiction where we operate;

•

legislative or regulatory

changes and changes

in accounting

principles, policies,

practices or guidelines,

including

the effects of the forthcoming 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;

•

the concentration of ownership of our Class A common

stock;

•

fluctuations in the price of our Class A 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;

•

increased competition and its effect on the pricing

of our products and services as well as our interest rate 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 and other filings

we make with the SEC.

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 statement is made or to reflect the occurrence of unanticipated events, unless required to do so

Table of Contents

USCB Financial Holdings, Inc.

Q2 2022 Form 10-Q

under the federal securities laws. You

should also review the risk factors

described in the reports the Company

filed or will

file with the

SEC and,

for periods

prior to

the completion

of the bank

holding company

reorganization in

December 2021,

U.S. Century Bank (“Bank”) filed with the Federal Depository

Institution Corporation (“FDIC”).

Non-GAAP Financial Measures

This Quarterly

Report on

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

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

presented

other

companies.

the

extent

applicable,

reconciliations

these

non-GAAP

measures

the

most

directly

comparable

GAAP

measures

can

found

the

‘Reconciliation

and

Management

Explanation of Non-GAAP Financial Measures’

included in this Form 10-Q.

Overview

The Company,

the holding

company of

the Bank,

reported net

income

$5.3 million

or $0.26

per diluted

share for

class A common stock for the three months

ended June 30, 2022, compared

with net income of

$4.1 million or $0.64

and

$0.13 per

diluted share

for Class

A and

Class B

common stock,

respectively, for

the same

period in

December

2021, the Company agreed to exchange all the outstanding

shares of Class B common stock for Class A common stock at

a ratio

of 5

to 1.

As of June 30,

2022 and December 31,

2021, the Company’s

only class of

securities issued and

outstanding

was Class A

common stock.

During the

first quarter

in 2022,

the Board

of Directors

(the “Board”)

approved a

share repurchase

program

of up

750,000 shares of Class A common stock.

Under the repurchase program,

the Company may

purchase shares of Class A

common

stock

a discretionary

basis from

time to

time. As

of June

30,

2022,

the

Company

had

not

repurchased

any

shares.

evaluating

our

financial

performance,

consider

the

level

and

trends

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 comparisons in

the bullet points below are calculated

for the quarter ended June 30, 2022

compared to the quarter ended June 30, 2021 and annualized

where appropriate:

•

Net

interest

income

increased

$3.2

million

25.4%

$15.6 million

from

$12.5

million

for

the

quarter

ended

June 30, 2021.

•

Net interest margin (“NIM”) increased to 3.37% from 3.14%

for the second quarter of 2021.

•

Total assets exceeded $2.0 billion, an increase of $161.1

million or 8.7%, compared to December 31, 2021.

•

Total loans grew to $1.4 billion, an increase of $182.7 million

or 15.3%, compared to December 31, 2021.

•

Total deposits increased $148.3 million or 9.3% to $1.7

billion from $1.6 billion at December 31, 2021.

•

Annualized return on average assets was 1.08% compared

to 0.98% at June 30, 2021.

•

Annualized return on average stockholders’ equity was 11.38% compared

to 9.74% at June 30, 2021.

•

The allowance

for credit

losses to

total loans

ratio decreased

to 1.15%

at June

30, 2022

from 1.30%

at June 30,

2021.

•

Non-performing loans to total loans was 0.00% at June

30, 2022 and 2021.

•

The Company and

the Bank exceeded

all regulatory

capital requirements

and remained

significantly above

“well-

capitalized” guidelines. At June 30, 2022, total risk-based capital ratio for the Company and the Bank were 13.74%

and 13.67%, respectively.

Table of Contents

USCB Financial Holdings, Inc.

Q2 2022 Form 10-Q

•

Tangible book value

per common share

(a Non-GAAP financial

measure) was $9.00

as of June 30,

2022, compared

to $27.71

at June

30,

decline

was

primarily

driven by

increase

issued

and

outstanding

Class A

common shares as result of the exchange and redemption of preferred

shares combined with the completion of the

IPO

2021.

See

“Reconciliation

and

Management

Explanation

for

Non-GAAP

Financial

Measures”

for

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” of

the Company’s 2021 Form 10-K. To prepare

financial

statements

conformity

with

GAAP,

management

makes

estimates,

assumptions,

and

judgments

based

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

The allowance for credit

losses (“ACL”) is

a valuation allowance that

is established through charges

to earnings in the

form of

a provision for

credit losses. The

amount of the

ACL is

affected by the

following: (i) charge-offs

of loans that

decrease

the allowance;

(ii) subsequent

recoveries on

loans previously

charged off

that increase

the allowance;

and (iii)

provisions

for credit losses charged to

income that increase the allowance.

Management considers the policies

related to the ACL as

the most critical to

the financial statement

presentation. The total

ACL includes activity

related to allowances

calculated in

accordance with Accounting Standards Codification (“ASC”)

310, Receivables, and ASC 450, Contingencies.

Throughout the year,

management estimates the probable

incurred losses in the loan portfolio

to determine if the ACL

is adequate to absorb such losses. The ACL

consists of specific and general components.

The specific component relates

to loans that are

individually classified as

impaired. We follow

a loan review program

to evaluate the credit

risk in the loan

portfolio. Loans

that have

been identified

as impaired

are reviewed

on a

quarterly basis

in order

to determine

whether a

specific reserve is

required. The general

component covers

non-impaired loans

and is based

on industry and

our specific

historical loan

loss experience,

volume, growth

and composition

of the

loan portfolio,

the evaluation

of our

loan portfolio

through our

internal

loan review

process, general

current

economic

conditions

both

internal and

external to

us that

may

affect the borrower’s ability to pay,

value of collateral and other qualitative relevant risk factors. Based on

a review of these

estimates, we

adjust the ACL

to a

level determined by

management to be

adequate. Estimates of

credit losses are

inherently

subjective as they involve an exercise of judgment.

The

CARES

Act,

amended

the

Consolidated

Appropriations

Act,

2021,

specified

that

COVID-19

loan

modifications executed

between March 1,

2020 and

the earlier

of (i)

60 days

after the

date of

termination

of the

national

emergency declared by President Trump and (ii) January 1, 2022, on loans

that were current as of December 31, 2019,

are

not TDRs. Additionally,

under guidance from the federal banking agencies,

other short-term modifications made on a good

faith basis

in response

to COVID-19

to borrowers

that were

current prior

to any

relief are

not TDRs

under ASC

Subtopic

310-40,

“Troubled

Debt

Restructurings

Creditors.”

These

modifications

include

short-term

(i.e.,

six

months)

modifications

such

payment

deferrals,

fee

waivers,

extensions

repayment

terms,

delays

payment

that

are

insignificant. The Company’s charge-off policy is to continuously

review all impaired loans to monitor the Company’s ability

to collect them in full at the applicable maturity date and/or in accordance

with terms of any restructurings. For loans which

are collateral dependent,

or deemed to

be uncollectible, any

shortfall in the

fair value of

the collateral relative to

the recorded

investment in the loan is charged off. The amount charged

-off conforms to the amount necessary

to comply with GAAP.

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.

Table of Contents

USCB Financial Holdings, Inc.

Q2 2022 Form 10-Q

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

tax liabilities, if any, would

be recorded in interest expense and other operating non-interest

expense, respectively.

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, 2022

December 31, 2021

Consolidated Balance Sheets:

Total

assets

2,016,086

1,853,939

Total

loans

(1)

1,372,733

1,190,081

Total

deposits

1,738,720

1,590,379

Total

stockholders' equity

180,068

203,897

(1)

Loan amounts include deferred fees/costs.

Three Months Ended June 30,

Six Months Ended June 30,

2022

2021

2022

2021

Consolidated Statements of Operations:

Net interest income before provision for credit losses

15,642

12,474

30,021

24,949

Total

non-interest income

1,617

1,516

3,562

3,837

Total

non-interest expense

9,551

8,674

19,163

17,351

Net income

5,295

4,053

10,149

8,834

Net income available to common stockholders

5,295

3,299

10,149

7,299

Profitability:

Efficiency ratio

55.34%

62.00%

57.06%

60.28%

Net interest margin

3.37%

3.14%

3.30%

3.24%

The Company’s results

of operations

depend substantially on

net interest income

and non-interest income.

Other factors

contributing

the

results

operations

include

our

provision

for

credit

losses,

non-interest

expenses,

and

provision

for

income taxes.

Three months ended June 30, 2022 compared to the three months

ended June 30, 2021

Net income increased

to $5.3 million

for the three

months ended June

30, 2022 from

$4.1 million for

the same period

in 2021.

Net income

available to

common stockholders

increased $2.0

million for

the three

months ended

June 30, 2022

compared to

the same

period in

2021 primarily

because of

increase in

net interest

income and

no dividend

payments in

2022.

Six months ended June 30, 2022 compared to six months

ended June 30, 2021

Net income increased to $10.1 million for

the six months ended June 30, 2022

from $8.8 million for the same period

2021.

Net

income

available

common

stockholders

increased

$2.9

million

for

the

six

months

ended

June 30,

2022

Table of Contents

USCB Financial Holdings, Inc.

Q2 2022 Form 10-Q

compared to

the same

period in

2021 primarily

because of

increase in

net interest

income and

no dividend

payments in

2022.

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 rates

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 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 2022 Form 10-Q

The following table contains information related

to average balance sheet, average yields

on assets, and average costs

of liabilities for the periods indicated (in thousands):

Three Months Ended June 30,

2022

2021

Average

Balance

(1)

Interest

Yield/Rate

(2)

Average

Balance

Interest

Yield/Rate

(2)

Assets

Interest-earning assets:

Loans

(3)

1,296,476

14,053

4.35

1,088,492

11,538

4.19

Investment securities

(4)

493,352

2,510

2.04

385,090

1,968

2.04

Other interest earnings assets

69,503

121

0.70

101,134

0.09

Total

interest-earning assets

1,859,331

16,684

3.60

1,574,716

13,529

3.41

Non-interest earning assets

109,050

85,344

Total

assets

1,968,381

1,660,060

Liabilities and stockholders' equity

Interest-bearing liabilities:

Interest-bearing demand deposits

66,349

0.10

52,620

0.11

Saving and money market deposits

781,076

615

0.32

607,752

523

0.35

Time deposits

224,284

271

0.48

235,899

379

0.65

Total

interest-bearing deposits

1,071,709

903

0.34

896,271

917

0.41

Borrowings and repurchase agreements

36,330

139

1.53

36,000

138

1.52

Total

interest-bearing liabilities

1,108,039

1,042

0.38

932,271

1,055

0.45

Non-interest bearing demand deposits

644,975

535,894

Other non-interest-bearing liabilities

28,770

24,964

Total

liabilities

1,781,784

1,493,129

Stockholders' equity

186,597

166,931

Total

liabilities and stockholders' equity

1,968,381

1,660,060

Net interest income

15,642

12,474

Net interest spread

(5)

3.23

2.96

Net interest margin

(6)

3.37

3.14

(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 average yield on

total interest-earning assets minus the 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 2022 Form 10-Q

Six Months Ended June 30,

2022

2021

Average

Balance

(1)

Interest

Yield/Rate

(2)

Average

Balance

(1)

Interest

Yield/Rate

(2)

Assets

Interest-earning assets:

Loans

(3)

1,254,189

27,035

4.35

1,080,183

23,406

4.31

Investment securities

(4)

501,758

4,839

1.94

361,394

3,812

2.11

Other interest-earnings assets

79,763

152

0.38

89,914

0.90

Total

interest-earning assets

1,835,710

32,026

3.52

1,531,491

27,257

3.54

Non-interest earning assets

105,374

85,718

Total

assets

1,941,084

1,617,209

Liabilities and stockholders' equity

Interest-bearing liabilities:

Interest-bearing demand deposits

65,398

0.10

48,607

0.12

Saving and money market deposits

758,729

1,166

0.31

588,282

1,071

0.37

Time deposits

223,781

530

0.48

241,993

933

0.78

Total

interest-bearing deposits

1,047,908

1,729

0.33

878,882

2,033

0.47

Borrowings and repurchase agreements

36,171

276

1.54

36,000

275

1.52

Total

interest-bearing liabilities

1,084,079

2,005

0.37

914,882

2,308

0.51

Non-interest bearing demand deposits

635,740

509,283

Other non-interest-bearing liabilities

27,079

23,803

Total

liabilities

1,746,898

1,447,968

Stockholders' equity

194,186

169,241

Total

liabilities and stockholders' equity

1,941,084

1,617,209

Net interest income

30,021

24,949

Net interest spread

(5)

3.15

3.03

Net interest margin

(6)

3.30

3.24

(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 average yield on

total interest-earning assets minus the 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, 2022 compared to the three months

ended June 30, 2021

Net interest income before the provision

for credit losses was $15.6 million

for the three months ended June

30, 2022,

an increase of $3.2 million or

25.4%, from $12.5 million for

the same period in 2021.

This increase was primarily attributable

to higher income from larger loan and investment portfolio

combined with an increase in the weighted average

loan yield.

Included with loan interest

income are PPP loan

fees totaling $484 thousand

and $925 thousand for

the three months

ended June 30, 2022 and 2021, respectively.

PPP loan fees are recognized upon loan forgiveness by the SBA

Net interest margin

increased to 3.37%

for the quarter

ended June 30, 2022

from 3.14%

for the same

period in 2021.

The yield for loans and other interest-earning assets increased

while the overall interest-bearing deposits cost decreased

Six months ended June 30, 2022 compared to six months

ended June 30, 2021

Net interest

income before

the provision

for credit

losses

was $30.0

million for

the six

months ended

June 30,

2022, an

increase of $5.1 million or 20.3%, from $24.9 million for the same period in

This increase was primarily attributable to

higher income from larger loan and investment portfolios combined

with a decrease in the average deposit cost.

Included with loan

interest income are PPP

loan fees totaling $1.5

million and $2.4 million

for the six

months ended June 30,

2022 and 2021, respectively. PPP loan fees are recognized upon

loan forgiveness by the SBA.

Net

interest

margin

increased

3.30%

June 30,

2022

from

3.24%

the

same

period

2021.

The

overall

interest-

bearing liabilities yields decreased.

Table of Contents

USCB Financial Holdings, Inc.

Q2 2022 Form 10-Q

Provision for Credit

Losses

The ACL

represents probable incurred losses in our portfolio. We maintain an adequate ACL

that can mitigate probable

losses inherent

in the

loan portfolio.

The ACL is increased

by the

provision for

credit losses

and is

decreased by

charge-

offs,

net

recoveries

prior

loan

charge-offs.

There

are

multiple

credit

quality

metrics

that

use

base

our

determination of

the amount

of the ACL

and corresponding

provision for

credit losses.

These credit

metrics evaluate

the

credit

quality

and

level

credit

risk

inherent

our

loan

portfolio,

assess

non-performing

loans

and

charge-offs

levels,

considers statistical and historical trends and economic conditions

and other applicable factors.

Three months ended June 30, 2022 compared to the three months

ended June 30, 2021

The

provision

for credit

loss

was

$705

thousand

for

the

three

months

ended

June 30,

2022 compared

provision

recorded for the same period in 2021. The primary driver of the provision

expense was attributed to loan growth.

Six months ended June 30, 2022 compared to six months

ended June 30, 2021

The provision for

credit loss

was $705 thousand

for the six

months ended

June 30, 2022

compared a

net recovery of

$160 thousand for the same period in 2021. The primary driver of the provision expense was attributed to loan growth. The

ACL as a percentage of total

loans decreased to 1.15%

at June 30, 2022 compared

to 1.30% at June 30,

2021 due to the

growth of the loan portfolio.

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,

2022

2021

2022

2021

Service fees

1,083

903

1,983

1,792

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

(3)

187

249

Gain on sale of loans held for sale, net

356

987

Loan settlement

161

Other non-interest income

515

403

1,044

809

Total

non-interest income

1,617

1,516

3,562

3,837

Three months ended June 30, 2022 compared to the three months

ended June 30, 2021

Non-interest

income for

the

three months

ended June

30, 2022

increased

$101 thousand

or 6.7%,

compared

to the

same period in 2021. This increase was primarily driven by higher

services fees.

Six months ended June 30, 2022 compared to the six

months ended June 30, 2021

Non-interest income for the

six months ended June 30,

2022 decreased $275 thousand

or 7.2%, compared to

the same

period in 2021. This decrease was primarily driven by fewer loan sales

resulting in reduced gains.

Table of Contents

USCB Financial Holdings, Inc.

Q2 2022 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,

2022

2021

2022

2021

Salaries and employee benefits

5,913

5,213

11,788

10,491

Occupancy

1,251

1,411

2,521

2,798

Regulatory assessment and fees

226

195

439

373

Consulting and legal fees

398

373

915

558

Network and information technology services

448

332

835

840

Other operating

1,315

1,150

2,665

2,291

Total

non-interest expense

9,551

8,674

19,163

17,351

Three months ended June 30, 2022 compared to the three months

ended June 30, 2021

Non-interest expense for the

three months ended June 30,

2022 increased $877 thousand

or 10.1%, compared to

the

same period in 2021. The increase

was primarily driven by higher salaries

and employee benefits due to

new hires, salary

compensation, and seasonal payroll taxes.

Six months ended June 30, 2022 compared to the six

months ended June 30, 2021

Non-interest expense for the six months

ended June 30, 2022 increased $1.8

million or 10.4%, compared to the

same

period

2021.

The

increase

was

primarily

driven

higher

salaries

and

employee

benefits

due

new

hires,

salary

compensation, and seasonal payroll taxes.

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. 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, 2022 compared to the three months

ended June 30, 2021

Income tax expense for the three months

ended June 30, 2022 increased to $1.7 million from

$1.3 million for the same

period in 2021. The effective tax

rate for the three months ended June 30, 2022

was 24.4% and for the three months

ended

2021 was 23.8%.

Six months ended June 30, 2022 compared to the six

months ended June 30, 2021

Income tax

expense for

the six

months ended

June 30, 2022

increased to

$3.6 million

from $2.8 million

for the

same

period in 2021. The Company’s effective tax rate was 26.0% compared

to 23.8% for the same period in 2021.

For a further discussion

on income taxes, see

Note 4 “Income Taxes” to

the Consolidated Financial

Statements in this

Form 10-Q.

Analysis of Financial Condition

Total

assets at June 30, 2022 were

$2.0 billion, an increase of

$162.1 million, or 8.7%,

over total assets of $1.9

billion

at December

31, 2021. Total

loans increased

$182.7 million,

or 15.3%,

to $1.4 billion

at June 30,

2022 compared

to $1.2

billion at December 31,

Total deposits increased by $148.3 million,

or 9.3%, to $1.7

billion at June 30, 2022

compared

to December 31, 2021.

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

Table of Contents

USCB Financial Holdings, Inc.

Q2 2022 Form 10-Q

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 an

investment guideline,

approved by

the Board.

Such policy

is reviewed

at least

annually or

more 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 by the ALCO. The portfolio of investments can be used to modify the duration of 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,

or the

ALCO of

the Company

to ensure

an appropriate

risk and

return profile

as well

as for

adherence to

the

investment policy.

As of June 30, 2022, the

investment portfolio consisted

of available-for-sale (“AFS”) and

held-to-maturity (“HTM”) debt

securities. During the year ended December 31, 2021,

there were 28 investment securities that were transferred from AFS

to HTM with an

amortized cost basis

and fair value amount

of $67.6 million and

$68.7 million, respectively.

On the date of

transfer, these securities had a total net unrealized gain of $1.1

million. The transfer of debt securities from the AFS

to HTM

category was

made at

fair value

at the

date of

transfer.

The unrealized

gain or

loss

at the

date of

transfer is

retained in

accumulated other

comprehensive income

and in

the carrying

value of

the HTM

securities. Such

amounts are

amortized

over the remaining life of

the security.

There was no immediate

impact to net income on

the date of transfer.

Two of these

transferred securities totaling $2.0 million matured during

the second quarter of 2022.

The book value of the AFS securities is adjusted monthly

for unrealized gain or loss as a valuation allowance,

and any

gain

loss

reported

after-tax

basis

component

other

comprehensive

income

stockholders’

equity.

Periodically,

may

need

assess

whether

there

have

been

any

events

unexpected

economic

circumstances

indicate that

a security

on which

there is

an unrealized

loss is

impaired on

an other-than-temporary

basis (“OTTI”).

If the

impairment

deemed

permanent,

analysis

then

made

considering

many

factors,

including

the

severity

and

duration of the impairment, the severity

of the event, our intent and

ability to hold the security for a

period of time sufficient

for a

recovery in

value, recent

events specific

to the

issuer or

industry,

any related

credit events,

and for

debt securities,

external

credit

ratings

and

recent

downgrades

deterioration

credit

quality.

Securities

which

there

unrealized loss

that is

deemed to

be OTTI

are written

down to

fair value,

with the

write-down recorded

as a

realized loss

under line item

“Gain (loss) on

sale of securities

available-for-sale,

net” of the Consolidated

Statements of Operations.

of June 30, 2022, there are no securities

which management has classified as OTTI

For further discussion of our analysis

on impaired investment securities for OTTI, see Note 2 “Investment Securities” to the Consolidated Financial Statements in

this Form 10-Q.

AFS

and

HTM

investment

securities

decreased

$68.1 million

13.0%

$456.1 million

June 30,

2022

from

$524.2 million

at December

31, 2021.

Investment

securities

decreased

due to

payments received

and higher

unrealized

losses.

Management

reinvested

excess

cash

balances

into

high

credit

quality

investments

increase

the

Company’s

profitability and modify the Company’s balance sheet duration according

to the ALM policy. As of June

30, 2022, corporate

bond securities with a market value

of $23.6 million were pledged to secure

public deposits. The investment portfolio

does

not have any tax-exempt securities.

Table of Contents

USCB Financial Holdings, Inc.

Q2 2022 Form 10-Q

The

following

table

presents

the

amortized

cost

and

fair

value

investment

securities

for

the

dates

indicated

(in

thousands):

June 30, 2022

December 31, 2021

Available-for-sale:

Amortized

Cost

Fair Value

Amortized

Cost

Fair Value

U.S. Government Agency

27,816

25,850

10,564

10,520

U.S. Treasury

2,468

2,437

Collateralized mortgage obligations

155,340

133,820

160,506

156,829

Mortgage-backed securities - residential

111,708

95,982

120,643

118,842

Mortgage-backed securities - commercial

44,670

40,121

49,905

50,117

Municipal securities

25,124

19,602

25,164

24,276

Bank subordinated debt securities

16,503

15,972

27,003

28,408

Corporate bonds

6,062

5,680

12,068

12,550

389,691

339,464

405,853

401,542

Held-to-maturity:

U.S. Government Agency

34,100

29,408

34,505

33,904

Collateralized mortgage obligations

40,806

35,293

44,820

43,799

Mortgage-backed securities - residential

27,478

23,524

26,920

26,352

Mortgage-backed securities - commercial

3,095

2,692

3,103

3,013

Corporate bonds

11,192

10,150

13,310

13,089

116,671

101,067

122,658

120,157

The following

table shows

the weighted

average yields,

categorized by

contractual maturity,

for investment

securities

as of June 30, 2022 (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%

4,810

2.76%

2,015

2.84%

20,991

2.82%

27,816

2.81%

U.S. Treasury

0.00%

2,468

2.32%

0.00%

2,468

2.32%

Collateralized mortgage obligations

0.00%

155,340

1.49%

155,340

1.49%

MBS - residential

0.00%

111,708

1.61%

111,708

1.61%

MBS - commercial

0.00%

44,670

1.99%

44,670

1.99%

Municipal securities

0.00%

1,000

2.05%

24,124

1.72%

25,124

1.73%

Bank subordinated debt securities

0.00%

16,503

4.71%

0.00%

16,503

4.71%

Corporate bonds

0.00%

6,062

2.59%

0.00%

6,062

2.59%

13,340

19,518

356,833

389,691

1.85%

Held-to-maturity:

U.S. Government Agency

0.00%

7,890

1.03%

18,540

1.32%

7,670

1.58%

34,100

1.31%

Collateralized mortgage obligations

0.00%

40,806

1.42%

40,806

1.42%

MBS - residential

0.00%

1,354

2.63%

9,224

1.61%

16,900

2.05%

27,478

1.93%

MBS - commercial

0.00%

3,095

1.62%

0.00%

3,095

1.62%

Corporate bonds

0.00%

11,192

2.71%

0.00%

11,192

2.71%

20,436

30,859

65,376

116,671

1.64%

Loans

are

the

largest