10-Q - USCB - Equibles

uscb-20230930p1i0

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

September 30, 2023

☐

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

For the transition period from _____to_____

Commission File Number:

001-41196

USCB Financial Holdings, Inc.

(Exact name of registrant as specified in its charter)

Florida

87-4070846

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

2301 N.W. 87th Avenue

Doral

33172

(Address of principal executive offices) (zip code)

Registrant’s telephone number, including area code:

(

305

)

715-5200

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A common stock, $1.00 par value per share

USCB

The Nasdaq Stock Market LLC

Indicate by check

mark whether the

registrant (1) has

filed all reports

required to be

filed by Section

13 or 15(d)

of the Securities

Exchange

Act of 1934 during the preceding 12 months

(or for such shorter period that the registrant was

required to file such reports), and (2)

has

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

Yes

☒

☐

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

File required to be submitted pursuant

to Rule 405

of Regulation S-T

(§232.405 of this

chapter) during the

preceding 12 months

(or for such

shorter period that

the registrant

was required to submit such files).

Yes

☒

☐

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

company

emerging

growth

company.

See

the

definitions

“large

accelerated

filer,”

“accelerated

filer,”

“non-accelerated

filer,”

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

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☒

If an

emerging growth

company, indicate by

check mark

if the

registrant has elected

not to

use the

extended transition

period for

complying

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

☐

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

☐

☒

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

As of October 30, 2023 the registrant had

19,542,290

shares of Class

common stock outstanding.

uscb-20230930p1i0

FORM 10-Q

September 30, 2023

TABLE OF CONTENTS

PART I

Item 1.

Financial Statements

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

Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022

(Unaudited)

Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September

30, 2023 and 2022 (Unaudited)

Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September

30, 2023 and 2022 (Unaudited)

Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022

(Unaudited)

Notes to the Consolidated Financial Statements (Unaudited)

Item 2.

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

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

PART II

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

Item 5.

Other Information

Item 6.

Exhibit Index

Signatures

Table of Contents

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

PART

Item 1.

Financial Statements

USCB FINANCIAL HOLDINGS, INC

Consolidated Balance Sheets – Unaudited

(Dollars in thousands, except share data)

September 30, 2023

December 31, 2022

ASSETS:

Cash and due from banks

5,074

6,605

Interest-bearing deposits in banks

28,361

47,563

Total cash and cash equivalents

33,435

54,168

Investment securities held to maturity, net of allowance of $

and $

, respectively (fair value $

171,294

and $

169,088

, respectively)

197,311

188,699

Investment securities available for sale, at fair value

218,609

230,140

Federal Home Loan Bank stock, at cost

6,305

2,882

Loans held for investment, net of allowance of $

19,493

and $

17,487

, respectively

1,657,027

1,489,851

Accrued interest receivable

8,920

7,546

Premises and equipment, net

4,951

5,263

Bank owned life insurance

51,377

42,781

Deferred tax assets, net

40,430

42,360

Lease right-of-use asset

12,166

14,395

Other assets

14,071

7,749

Total assets

2,244,602

2,085,834

LIABILITIES:

Deposits:

Demand deposits

573,546

629,776

Money market and savings accounts

1,016,564

915,853

Interest-bearing checking

46,537

66,675

Time deposits

284,275

216,977

Total deposits

1,920,922

1,829,281

Federal Home Loan Bank advances

102,000

46,000

Lease liability

12,166

14,395

Accrued interest and other liabilities

26,630

13,730

Total liabilities

2,061,718

1,903,406

Commitments and contingencies (See Notes 5

and 10)

STOCKHOLDERS' EQUITY:

Preferred stock - Class C; $

1.00

par value; $

1,000

per share liquidation preference;

52,748

authorized;

and

issued and outstanding as of September 30, 2023

and December 31, 2022

Preferred stock - Class D; $

1.00

par value; $

5.00

per share liquidation preference;

12,309,480

authorized;

and

issued and outstanding as of September 30, 2023

and December 31, 2022

Preferred stock - Class E; $

1.00

par value; $

1,000

per share liquidation preference;

3,185,024

authorized;

and

issued and outstanding as of September 30, 2023

and December 31, 2022

Common stock - Class A Voting; $

1.00

par value;

45,000,000

shares authorized;

19,542,290

issued and

outstanding

as of September 30, 2023,

20,000,753

issued and outstanding as of December 31,

2022

19,542

20,001

Common stock - Class B Non-voting; $

1.00

par value;

8,000,000

shares authorized;

and

issued and

outstanding as of September 30, 2023 and

December 31, 2022

Additional paid-in capital on common stock

305,837

311,282

Accumulated deficit

(91,269)

(104,104)

Accumulated other comprehensive loss

(51,226)

(44,751)

Total stockholders' equity

182,884

182,428

Total liabilities and stockholders' equity

2,244,602

2,085,834

The accompanying notes are an integral part of

these unaudited consolidated financial statements.

Table of Contents

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

USCB FINANCIAL HOLDINGS, INC.

Consolidated Statements of Operations - Unaudited

(Dollars in thousands,

except per share data)

Three Months Ended September 30,

Nine Months Ended September 30,

2023

2022

2023

2022

Interest income:

Loans, including fees

22,523

15,954

63,081

42,989

Investment securities

2,833

2,201

7,501

7,040

Interest-bearing deposits in financial institutions

1,026

322

2,459

474

Total interest income

26,382

18,477

73,041

50,503

Interest expense:

Interest-bearing checking

331

574

Money market and savings accounts

8,779

1,141

20,532

2,307

Time deposits

2,565

363

5,767

893

Federal Home Loan Bank advances and other borrowings

685

180

1,976

456

Total interest expense

12,360

1,703

28,849

3,708

Net interest income before provision for

credit losses

14,022

16,774

44,192

46,795

Provision for credit losses

653

910

892

1,615

Net interest income after provision for

credit losses

13,369

15,864

43,300

45,180

Non-interest income:

Service fees

1,329

934

3,707

2,917

(Loss) gain on sale of securities available for

sale, net

(955)

(558)

(976)

(540)

Gain on sale of loans held for sale, net

255

330

696

686

Loan settlement

161

Other non-interest income

1,532

1,083

2,650

2,127

Total non-interest income

2,161

1,789

6,077

5,351

Non-interest expense:

Salaries and employee benefits

6,066

6,075

18,325

17,863

Occupancy

1,350

1,281

3,968

3,802

Regulatory assessment and fees

365

269

1,041

708

Consulting and legal fees

513

604

1,257

1,519

Network and information technology services

481

488

1,464

1,323

Other operating expense

1,686

1,415

5,034

4,080

Total non-interest expense

10,461

10,132

31,089

29,295

Income before income tax expense

5,069

7,521

18,288

21,236

Income tax expense

1,250

1,963

4,464

5,529

Net income

3,819

5,558

13,824

15,707

Per share information:

Net income per share, basic

0.20

0.28

0.70

0.79

Net income per share, diluted

0.19

0.28

0.70

0.78

The accompanying notes are an integral part of

these unaudited consolidated financial statements.

Table of Contents

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

USCB FINANCIAL HOLDINGS, INC.

Consolidated Statements of Comprehensive Income

(Loss) - Unaudited

(Dollars in thousands)

Three Months Ended

September 30,

Nine Months Ended

September 30,

2023

2022

2023

2022

Net income

3,819

5,558

13,824

15,707

Other comprehensive income (loss):

Unrealized loss on investment securities

(7,858)

(11,679)

(11,145)

(57,577)

Amortization of net unrealized (loss) gain on

securities transferred from

available-for-sale to held-to-maturity

(52)

184

(177)

Reclassification adjustment for loss included in net

income

955

558

976

540

Unrealized gain on cash flow hedge

266

1,312

Tax effect

1,666

2,832

2,198

14,528

Total other comprehensive loss, net of tax

(4,907)

(8,341)

(6,475)

(42,686)

Total comprehensive income (loss)

(1,088)

(2,783)

7,349

(26,979)

The accompanying notes are an integral part of

these unaudited consolidated financial statements.

Table of Contents

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

USCB FINANCIAL HOLDINGS, INC.

Consolidated Statements of Changes in Stockholders’

Equity - Unaudited

(Dollars in thousands,

except per share data)

Common Stock

Additional Paid-in

Capital on Common

Stock

Accumulated Deficit

Accumulated Other

Comprehensive

Loss

Par Value

Total

Stockholders'

Equity

Balance at July 1, 2023

19,544,777

19,545

305,547

(95,088)

(46,319)

183,685

Net income

3,819

Other comprehensive loss

(4,907)

Restricted stock forfeiture

(2,487)

(3)

Stock-based compensation

287

Balance at September 30, 2023

19,542,290

19,542

305,837

(91,269)

(51,226)

182,884

Balance at July 1, 2022

20,000,753

20,001

311,024

(114,096)

(36,861)

180,068

Net income

5,558

Other comprehensive loss

(8,341)

Stock-based compensation

132

Balance at September 30, 2022

20,000,753

20,001

311,156

(108,538)

(45,202)

177,417

Common Stock

Additional Paid-in

Capital on Common

Stock

Accumulated

Deficit

Accumulated Other

Comprehensive

Loss

Par Value

Total

Stockholders'

Equity

Balance at January 1, 2023

20,000,753

20,001

311,282

(104,104)

(44,751)

182,428

After tax cumulative effect of adoption of accounting

principle related to ASC

326

(989)

Adjusted beginning balance after cumulative

effect adjustment

20,000,753

20,001

311,282

(105,093)

(44,751)

181,439

Net income

13,824

Other comprehensive loss

(6,475)

Repurchase of Class A common stock

(577,603)

(577)

(6,036)

(6,613)

Restricted stock issued

121,627

121

(121)

Restricted stock forfeiture

(2,487)

(3)

Stock-based compensation

709

Balance at September 30, 2023

19,542,290

19,542

305,837

(91,269)

(51,226)

182,884

Balance at January 1, 2022

19,991,753

19,992

310,666

(124,245)

(2,516)

203,897

Net income

15,707

Other comprehensive loss

(42,686)

Exercise of stock options

9,000

102

Stock-based compensation

397

Balance at September 30, 2022

20,000,753

20,001

311,156

(108,538)

(45,202)

177,417

The accompanying notes are an integral

part of these unaudited consolidated financial

statements.

Table of Contents

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

USCB FINANCIAL HOLDINGS, INC.

Consolidated Statements of Cash Flows - Unaudited

(Dollars in thousands)

Nine Months Ended September 30,

2023

2022

Cash flows from operating activities:

Net income

13,824

15,707

Adjustments to reconcile net income

to net cash provided by operating activities:

Provision for credit losses

892

1,615

Depreciation and amortization

443

530

(Accretion) amortization of premiums on securities,

net

(651)

412

Accretion of deferred loan fees, net

(236)

(1,364)

Stock-based compensation

709

397

Loss (gain) on sale of available for sale securities

976

540

Gain on sale of loans held for sale

(696)

(686)

Increase in cash surrender value of bank owned

life insurance

(775)

(794)

Bank owned life insurance enhancement

(981)

Decrease in deferred tax assets

4,465

5,529

Net change in operating assets and liabilities:

Accrued interest receivable

(1,374)

(593)

Other assets

(751)

(4,163)

Accrued interest and other liabilities

12,679

14,432

Net cash provided by operating activities

28,524

31,562

Cash flows from investing activities:

Purchase of investment securities held

to maturity

(86,788)

(2,432)

Proceeds from maturities and pay-downs of investment

securities held to maturity

79,085

9,689

Purchase of investment securities available

for sale

(26,792)

(49,808)

Proceeds from maturities and pay-downs of investment

securities available for sale

11,679

35,502

Proceeds from sales of investment securities

available for sale

15,409

45,647

Net increase in loans held for investment

(165,662)

(177,916)

Purchase of loans held for investment

(13,277)

(70,175)

Additions to premises and equipment

(131)

(175)

Proceeds from the sale of loans held for sale

10,715

8,641

Purchase of Bank owned life insurance

(11,100)

Proceeds from the redemption of Federal

Home Loan Bank stock

6,517

2,250

Purchase of Federal Home Loan Bank stock

(9,940)

(2,052)

Net cash used in investment activities

(190,285)

(200,829)

Cash flows from financing activities:

Proceeds from issuance of Class A common

stock, net

102

Repurchase of Class A common stock

(6,613)

Net increase in deposits

91,641

206,263

Proceeds from Federal Home Loan Bank advances

259,350

60,000

Repayments on Federal Home Loan Bank advances

(203,350)

(70,000)

Net cash provided by financing activities

141,028

196,365

Net increase in cash and cash equivalents

(20,733)

27,098

Cash and cash equivalents at beginning

of period

54,168

46,228

Cash and cash equivalents at end of period

33,435

73,326

Supplemental disclosure of cash flow

information:

Interest paid

27,872

3,675

Supplemental schedule of non-cash investing

and financing activities:

Transfer of loans held for investment to loans held

for sale

10,019

7,955

Transfer of investment securities from available-for-sale

to held-to-maturity

74,444

Lease liability arising from obtaining right-of-use

asset

1,550

The accompanying notes are an integral

part of these unaudited consolidated financial

statements.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

SUMMARY OF SIGNIFICANT ACCOUNTING

POLICIES

Overview

USCB Financial Holdings,

Inc.,

a Florida corporation

incorporated in 2021,

is a bank

holding company with

one direct

wholly owned subsidiary,

U.S. Century Bank (the “Bank”), together referred to as “the Company”.

The Bank, established in

2002, is a Florida state-chartered,

non-member financial institution providing

financial services through its

banking centers

located in South Florida.

The Bank

owns a

subsidiary,

Florida Peninsula

Title LLC,

that offers

our clients

title insurance

policies for

real estate

transactions closed at the Bank. Licensed in the State of Florida and approved by the Department of Insurance Regulation,

Florida Peninsula Title LLC began operations

in 2021.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with instructions to

Form 10-Q and

do not include all

the information and

footnotes required by U.S.

generally accepted accounting

principles

(“U.S.

GAAP”)

for

complete

financial

statements.

All

adjustments

consisting

normally

recurring

accruals

that,

the

opinion

management,

are

necessary

for

fair

presentation

the

financial

position

and

results

operations

for

the

periods presented

have been

included. These

unaudited consolidated

financial statements

should be

read in

conjunction

with

the

Company’s

consolidated

financial

statements

and

notes

appearing

in the

Company’s

Annual

Report

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

Principles of Consolidation

The

Company

consolidates

entities

which

has

controlling

financial

interest.

Intercompany

transactions

and

balances are eliminated in consolidation.

Use of Estimates

To prepare

financial statements in conformity with U.S. GAAP,

management makes estimates and assumptions based

on available

information. These

estimates and

assumptions affect

the amounts

reported in

the financial

statements. The

most significant

estimates impacting

the Company’s

consolidated financial

statements are

the allowance

for credit

losses

(ACL) and income taxes.

Reclassifications

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

to the current presentation.

Reclassifications had no impact on the net income or stockholders’

equity of the Company.

Adoption of New Accounting Standards

Measurement of Credit Losses on Financial Instruments

On January

1st, 2023,

the

Company adopted

Accounting Standard

Update (“ASU”)

2016-13 Financial

Instruments

Credit

Losses

(Topic

326):

Measurement

Credit

Losses

Financial

Instruments,

amended,

which

replaces

the

incurred loss methodology with an expected loss

methodology that is referred to as the

current expected credit loss (CECL)

methodology.

The measurement

of expected

credit losses

under the

CECL methodology

is applicable

to financial

assets

measured at

amortized cost,

including loan

receivables and

held-to-maturity debt

securities. It

also applies

to off-balance

sheet

credit

exposures

not

accounted

for

insurance

(e.g.,

loan

commitments,

standby

letters

credit,

financial

guarantees, and other similar

instruments) and net investments

in leases recognized by

a lessor in accordance

with Topic

842 on leases. In addition,

ASC 326 amended the accounting

for available-for-sale debt securities.

One such change is to

require credit losses to be presented as an allowance

rather than as a write-down on available-for-sale debt

securities that

management does not intend to sell or believes that

it is more likely than not they will not be required to sell.

Under CECL,

the Company

estimates the

allowance for

credit losses

using relevant

available information,

from both

internal

and

external

sources,

relating

past

events,

current

conditions,

and

reasonable

and

supportable

forecasts.

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

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

expected credit

losses estimated

for the

loan portfolio

in relation

to potential

limitations of

the quantitative model.

A scorecard

is used to aid management in the assessment of qualitative

factor adjustments applied to expected credit losses.

The

quantitative

component

the

estimate

relies

the

statistical

relationship

between

the

projected

value

economic

indicator

and

the

implied

historical

loss

experience

among

curated

group

peers.

The

Company

utilized

regression

analyses

of peer

data,

which

the

Company

was

included,

and

where

observed

credit

losses

and selected

economic factors were used

to determine suitable

loss drivers for modeling

the lifetime rates of

probability of default (PD).

loss

given

default

rate

(LGD)

assigned

each

pool

for

each

period

based

these

outcomes.

The

model

fundamentally utilizes an

expected discounted cash

flow (DCF) analysis

for

loan portfolio segments.

The DCF analysis

run

the

instrument-level

and

incorporates

array

loan-specific

data

points

and

segment-implied

assumptions

determine the lifetime expected

loss attributable to each

instrument. An implicit "hypothetical

loss" is derived

for each period

of the

DCF and

helps establish

the present

value of

future cash

flows for

each period.

The reserve

applied to

a specific

instrument is the difference

between the sum of the present

value of future cash flows

and the book balance of

the loan at

the measurement date.

Management

elected

the

Remaining

Life

(WARM)

methodology

for

five

loan

portfolio

segments.

For

each

these

segments, a

long-term average

loss rate

is calculated

and applied

on a

quarterly basis

for the

remaining life

of the

pool.

Adjustments

for

economic

expectations

are

made

through

qualitative

assessments.

For

the

remaining

life

estimated,

management implemented a software solution

that uses an attrition-based

calculation that performs quarterly, cohort-based

attrition measurements based on the loan portfolio.

At adoption of

CECL,

% or $

1.3

billion of loan

receivables were collectively

evaluated under DCF

method and

251.0

million

loan

receivables

were

collectively

evaluated

under

the

Remaining

Life

method.

The

remaining

7.9

million of loan receivables of the total loan portfolio were individually

evaluated.

Portfolio segments are the level at which loss assumptions

are applied to a pool of loans based on the similarity

of risk

characteristics inherent in

the included instruments,

relying on collateral

codes and

FFIEC Call

Report codes. The

Company

currently segments the portfolio based on collateral codes

for purpose of establishing reserves. Each of these

segments is

paired

regression

models

(Loss

Driver

Analyses)

based

peer

data

for

loans

similar

risk

characteristics.

The

Company has established relationships between internal segmentation and FFIEC

Call Report codes for this purpose. The

loss driver for each loan

portfolio segment is derived

from a readily available and

reasonable economic forecast, including

the Federal Reserve Bank

projections of U.S. civilian

unemployment rate and

the year-over-year real

GDP growth;

for the

residential

loan

segment

the

House

Price

index

(“HPI”)

projections

published

Fannie

Mae’s

Economic

and

Strategic

Research Group

are utilized

for the

forecast. Forecasts

are applied

the first

four quarters

of the

credit loss

estimate and

revert on a

straight-line basis

to the lookback

period's historical

mean for

the economic

indicator over

the expected

life of

loans.

The model incorporates qualitative

factor adjustments in order to

calibrate the model for risk

in each portfolio segment

that may

not be captured

through quantitative

analysis. Determinations

regarding qualitative

adjustments are

reflective of

management's

expectation

of loss

conditions

differing

from those

already

captured

the

quantitative

component

the

model.

The

Company

estimates

reserve

for

unfunded

commitments,

which

reported

separately

from

the

allowance

for

credit losses within

other liabilities. The

reserve is based

upon the same

quantitative and qualitative

factors applied to

the

collectively evaluated loan portfolio.

The

impact

adoption

the

ASU

2016-13

was

increase

the

allowance

for

credit

losses

(ACL)

loans

receivables of $

1.1

million and an increase

to the reserve for unfunded

commitments of $

259

thousand. This one-time net

of tax cumulative adjustment resulted in a

increase of $

1.0

million in accumulated deficit. See “Allowance for Credit

Losses”

section in Note 3 for more information on the ACL.

Trouble Debt Restructuring

In March 2022, the Financial Accounting Standards Board (“FASB”) issued ASU 2022-02, Financial Instruments-Credit

Losses (Topic 326): Troubled

Debt Restructurings (“TDR”) and Vintage Disclosures. The standard addresses the following:

1) eliminates

the accounting

guidance for

TDRs, require

an entity

to determine

whether a

modification results

in a

new

loan or

a continuation

of an

existing

loan, 2)

expands

disclosures

related to

modifications,

and 3)

requires

disclosure of

current

period

gross

write-offs

financing

receivables

within

the

vintage

disclosures

table

(see

Note

3).

The

Company

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

adopted

ASU

2022-02

effective

January

2023

prospective

basis.

The

adoption

ASU

2022-02

did

not

have

material impact on the Company’s consolidated financial

statements.

Issued and Not Yet Adopted

Reference Rate Reform

March

2020,

the

FASB

issued

ASU

2020-04,

Reference

Rate

Reform

(Topic

848),

Facilitation

the

Effects

Reference Rate Reform

on Financial Reporting.

In January 2021,

the FASB

clarified the scope

of this guidance

with ASU

2021-01 which provides

optional guidance for

a limited period of

time to ease the

burden in accounting for

(or recognizing

the effects of)

reference rate reform on

financial reporting. This ASU

is effective from March 12,

2020 through December 31,

Company is

evaluating the

impact of

this ASU

and has

not yet

determined whether

LIBOR transition

and this

ASU will have a material effect on our business operations

and consolidated financial statements.

INVESTMENT SECURITIES

January

1st,

2023,

the

Company

adopted

ASU

2016-13

Financial

Instruments

Credit

Losses

(Topic

326):

Measurement of Credit Losses

on Financial Instruments,

as amended, which replaces

the incurred loss methodology

with

an expected

loss methodology

that is

referred to

as the

current expected credit

loss (CECL)

methodology. The measurement

expected

credit

losses

under

the

CECL

methodology

applicable

financial

assets

measured

amortized

cost,

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

for-sale debt securities. One such change is to

require credit losses to be presented as an allowance rather

than as a write-

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

sell or believes that it is more likely

than not they

will be required to sell.

CECL requires

a loss reserve

for securities

classified as

Held-to-Maturity (HTM).

The reserve should

reflect historical

credit performance

as well

as the

impact of

projected

economic forecast.

For U.S.

Government bonds

and

U.S. Agency

issued bonds in HTM the explicit guarantee

of the US Government is sufficient

to conclude that a credit loss reserve

is not

required. The reserve

requirement is for

three primary assets

groups: municipal bonds,

corporate bonds,

and non-agency

securitizations.

The

Company

calculates

quarterly

the

loss

reserve

utilizing

Moody’s

ImpairmentStudio.

The

CECL

measurement

for

investment

securities

incorporates

historical

data,

containing

defaults

and

recoveries

information,

and

Moody’s baseline

economic forecast.

The solution

uses probability of

default/loss given

default (“PD/LGD”)

approach. PD

represents the likelihood a borrower will

default. Within the Moody’s model

this is determined using historical

default data,

adjusted for the current economic environment. LGD projects

the expected loss if a borrower were to default.

The Company monitors

the credit

quality of held

to maturity

securities through

the use of

credit ratings.

Credit ratings

are monitored by the

Company on at

least a quarterly

basis. As of

September 30, 2023

and December 31,

2022, all held-

to-maturity securities held by the Company were rated investment

grade.

quarter

end,

HTM

securities

included

187.9

million

U.S.

Government

and

U.S.

Agency

issued

bonds

and

mortgage-backed

securities.

Because

the

explicit

and/or

implicit

guarantee

these

bonds,

the

Company

holds

reserves

on these

holdings.

The remaining

portion

the HTM

portfolio

is made

up of

9.4

million

investment

grade

corporate bonds. The required reserve for these holdings is

determined each quarter using the model described above. For

the portion of the HTM exposed to non-government

credit risk, the Company utilized the PD/LGD

methodology to estimate

a $

thousand ACL as of September 30, 2023. The book value for debt securities classified as HTM represents amortized

cost less ACL.

The Company determined that

an ACL on its

debt securities available for

sale as of September 30,

2023 and December

31, 2022 was not required.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

The following

tables present

a summary

of the amortized

cost, unrealized

or unrecognized

gains and

losses,

and fair

value of investment securities at the dates indicated (in

thousands):

September 30, 2023

Available-for-sale:

Amortized

Cost

Unrealized

Gains

Unrealized

Losses

Fair Value

U.S. Government Agency

9,913

(1,888)

8,025

Collateralized mortgage obligations

105,547

(26,976)

78,571

Mortgage-backed securities - residential

66,024

(14,867)

51,157

Mortgage-backed securities - commercial

48,010

(7,508)

40,564

Municipal securities

25,024

(6,908)

18,116

Bank subordinated debt securities

24,417

(2,246)

22,176

Corporate bonds

278,935

(60,393)

218,609

Held-to-maturity:

U.S. Government Agency

44,087

(7,038)

37,049

U.S. Treasury

19,934

(28)

19,906

Collateralized mortgage obligations

64,094

(10,308)

53,786

Mortgage-backed securities - residential

44,302

(6,088)

38,214

Mortgage-backed securities - commercial

15,467

(1,583)

13,884

Corporate bonds

9,443

(988)

8,455

197,327

(26,033)

171,294

Allowance for credit losses - securities held-to-maturity

(16)

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

197,311

December 31, 2022

Available-for-sale:

Amortized

Cost

Unrealized

Gains

Unrealized

Losses

Fair Value

U.S. Government Agency

10,177

(1,522)

8,655

Collateralized mortgage obligations

118,951

(23,410)

95,541

Mortgage-backed securities - residential

73,838

(12,959)

60,879

Mortgage-backed securities - commercial

32,244

(4,305)

27,954

Municipal securities

25,084

(6,601)

18,483

Bank subordinated debt securities

15,964

(1,050)

14,919

Corporate bonds

4,037

(328)

3,709

280,295

(50,175)

230,140

Held-to-maturity:

U.S. Government Agency

44,914

(5,877)

39,062

U.S. Treasury

9,841

(13)

9,828

Collateralized mortgage obligations

68,727

(7,830)

60,925

Mortgage-backed securities - residential

42,685

372

(4,574)

38,483

Mortgage-backed securities - commercial

11,442

(665)

10,777

Corporate bonds

11,090

(1,077)

10,013

188,699

425

(20,036)

169,088

During the

year ended

December 31,

2022, a

total of

investment securities

with an

amortized cost

basis and

fair

value

74.4

million

and

63.8

million,

respectively,

were

transferred

from

AFS

HTM.

These

securities

had

net

unrealized

loss of

10.6

million

the

date

transfer.

The

net

unrealized

loss

that

was

retained

accumulated

other

comprehensive income (“AOCI”) is being amortized over the remaining life of the securities. For

the three and nine months

ended September 30,

2023, total amortization

out of AOCI for

net unrealized losses

on securities transferred

from AFS to

HTM was

thousand and

184

thousand, respectively.

The unamortized

net unrealized

loss on

September 30,

2023,

was $

9.6

million. There were

securities transferred from AFS

to HTM during

the nine months

ended September 30,

2023.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

Gains

and

losses

the

sale

securities

are

recorded

the

trade

date

and

are

determined

the

specific

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

calls of AFS debt securities for the three and nine months

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

Three Months Ended September 30,

Nine Months Ended September 30,

Available-for-sale:

2023

2022

2023

2022

Proceeds from sale and call of securities

6,792

13,809

15,409

45,647

Gross gains

218

Gross losses

(955)

(560)

(979)

(758)

Net realized (loss) gain

(955)

(558)

(976)

(540)

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

September 30, 2023:

Amortized

Cost

Fair Value

Amortized

Cost

Fair Value

Due within one year

19,934

19,906

Due after one year through five years

6,000

5,977

9,443

8,455

Due after five years through ten years

22,059

18,919

Due after ten years

21,382

15,396

U.S. Government Agency

9,913

8,025

44,087

37,049

Collateralized mortgage obligations

105,547

78,571

64,094

53,786

Mortgage-backed securities - residential

66,024

51,157

44,302

38,214

Mortgage-backed securities - commercial

48,010

40,564

15,467

13,884

278,935

218,609

197,327

171,294

At September 30,

2023, there

were no

securities held

in the

portfolio from

any one

issuer in

an amount

greater than

10%

total

stockholders’

equity

other

than

the

United

States

Government

and

Government

Agency

securities.

All

the

collateralized

mortgage

obligations

and

mortgage-backed

securities

are

issued

United

States

sponsored

entities

having

fair

value

294.6

million

that

were

attributable to a combination of factors, including relative

changes in interest rates since the time of purchase.

The contractual

cash

flows

for these

securities

are

guaranteed

U.S.

government

agencies

and

U.S.

government

sponsored entities. The municipal bonds are of high credit quality and the declines in fair

value are not due to credit quality.

Based

the

assessment

these

mitigating

factors,

management

believed

that

the

unrealized

losses

these

debt

security holdings are

a function of

changes in investment

spreads and interest

rate movements

and not changes

in credit

quality. Management

expects to recover the entire amortized cost basis of these

securities.

At September 30, 2023, the Company does not intend to sell debt securities

that are in an unrealized loss position and

it is not more than likely than not that the Company will be required to sell

these securities before recovery of the amortized

cost basis. Therefore, management

does not consider any investment

to be other than temporarily

impaired at September

30, 2023.

Pledged Securities

The Company

maintains a

master repurchase

agreement with

a public

banking institution

for up

to $

20.0

million fully

guaranteed with investment

securities upon withdrawal.

Any amounts borrowed

would be at a

variable interest rate

based

on prevailing rates

at the time

funding is

requested. As

of September 30,

2023, the

Company did

t have

any securities

pledged under this agreement.

The Bank is a Qualified Public Depository

(“QPD”) with the State of Florida. As a QPD, the Bank has the legal

authority

maintain

public

deposits

from

cities,

municipalities,

and

the

State

Florida.

These

public

deposits

are

secured

securities

pledged

the

State

Florida

ratio

the

outstanding

uninsured

deposits.

The

Bank

must

also

maintain a minimum amount of pledged securities to be in the

public funds program.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

September 30,

2023,

the

Bank

had

total

212.3

million

deposits

under

the

public

funds

program

and

pledged to the State

of Florida for these public

funds were

twenty-seven

bonds with an aggregate fair

value of $

82.6

million.

As of

December 31, 2022, the

Bank had

a total

of $

204.2

million in

deposits under the

public funds program

and pledged

to the State of Florida for these public funds were

eighteen

corporate bonds with an aggregate fair value of $

49.0

million.

The Board

of Governors

of the

Federal Reserve

System, on

March 12,

2023, announced

the creation

of a

new Bank

Term

Funding Program

(BTFP). The

BTFP offers

loans of

up to

one year

in length

to banks,

savings associations,

credit

unions,

and

other

eligible

depository

institutions

pledging

U.S.

Treasuries,

U.S.

agency

debt

and

mortgage-backed

securities, and other qualifying assets as collateral. These

assets will be valued at par.

The Company had

borrowing under the BTFP

program as of September

30, 2023, and had

pledged $

134.4

million

in securities measured at par to the Federal Reserve

Bank of Atlanta for the BTFP program.

LOANS

January

2023,

the

Company

adopted

FASB

ASC

Topic

326

using

the

modified

retrospective

methodology

accordance

with

the

amendments

FASB

ASU

2016-13.

Through

the

adoption

CECL,

the

Company

developed

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

for loan losses methodology.

See the

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

under legacy GAAP and may not be comparable to current

period presentation.

The following table is a summary of the distribution of

loans held for investment by type (in thousands):

September 30, 2023

December 31, 2022

Total

Percent of

Total

Percent of

Total

Residential Real Estate

188,880

11.3

185,636

12.3

Commercial Real Estate

1,005,280

60.0

970,410

64.4

Commercial and Industrial

212,975

12.7

126,984

8.4

Foreign Banks

94,640

5.7

93,769

6.2

Consumer and Other

173,096

10.3

130,429

8.7

Total

gross loans

1,674,871

100.0

1,507,228

100.0

Plus: Deferred fees (cost)

1,649

110

Total

loans net of deferred fees (cost)

1,676,520

1,507,338

Less: Allowance for credit losses

19,493

17,487

Total

net loans

1,657,027

1,489,851

At September 30, 2023

and December 31, 2022,

the Company had

556.1

million and $

338.1

million, respectively,

commercial real estate

and residential mortgage loans

pledged as collateral

for lines of

credit with the

FHLB and the

Federal

Reserve Bank of Atlanta.

The Company was a participant

in the Small Business

Administration’s (“SBA”) Paycheck

Protection Program (“PPP”)

loans. These

loans were

designed to

provide a

direct incentive

for small

businesses to

keep their

workers on

payroll and

the funds had to be used towards payroll cost, mortgage interest, rent, utilities and other costs related to COVID-19. These

loans are forgivable under specific criteria as

determined by the SBA. The Company had

PPP loans totaling $

295

thousand

at September 30, 2023 and $

1.3

million at December 31, 2022, which are categorized

as commercial and industrial loans.

The Company recognized

thousand and $

1.6

million in PPP

loan fees and

interest income

during the nine

months

ended September 30, 2023

and 2022, respectively,

which is reported

under loans, including

fees, within the

Consolidated

Statements of Operations.

Allowance for Credit Losses

In general, the Company utilizes

the Discounted Cash Flow (DCF)

method or the Remaining Life

(WARM) methodology

to estimate

the quantitative

portion of the

ACL for

loan pools.

The DCF

uses a

loss driver

analysis (LDA)

and discounted

cash flow analyses.

Management engaged

advisors and consultants

with expertise in

CECL model development

to assist

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

in development of

a loss driver

analysis based on

regression models

and supportable

forecast. Peer group

data obtained

from FFIEC Call Report

filings is used to

inform regression analyses

to quantify the impact

of reasonable and

supportable

forecasts in projective

models. Economic forecasts

applied to regression

models to estimate

probability of default

for loan

receivables use at least one

of the following economic indicators: civilian

unemployment rate (national), real gross domestic

product growth

(national

GDP) and/or

the HPI.

For each

of the

segments in

which the

WARM

methodology

is used,

the

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

economic expectations are made through qualitative factors

Qualitative factors (“Q-Factors”) used in the ACL methodology

include:

•

Changes in lending policies, procedures, and strategies

•

Changes in international, national, regional, and local conditions

•

Changes in nature and volume of portfolio

•

Changes in the volume and severity of past due loans and other similar conditions

•

Concentration risk

•

Changes in the value of underlying collateral

•

The effect of other external factors: e.g., competition, legal, and regulatory requirements

•

Changes in lending management, among others

ACL for the three

and nine months

ended September 30,

2023, was estimated

under the CECL

methodology,

and for

all periods in 2022, it was estimated under the incurred

loss model.

Changes in the

allowance for credit

losses for the

three and nine

months ended September

30, 2023 and

2022

were

as follows (in thousands):

Residential

Real Estate

Commercial

Real Estate

Commercial

and

Industrial

Foreign

Banks

Consumer

and Other

Total

Three Months Ended September 30, 2023

Beginning balance

2,673

10,183

2,500

677

2,782

18,815

Provision for credit losses

(1)

(162)

(84)

738

108

673

Recoveries

Charge-offs

(3)

Ending Balance

2,511

10,099

3,246

750

2,887

19,493

Nine Months Ended September 30, 2023

Beginning balance

1,352

10,143

4,163

720

1,109

17,487

Cumulative effect of adoption of accounting

principle

(2)

1,238

1,105

(2,158)

858

1,066

Provision for credit losses

(3)

(89)

(1,149)

1,181

965

915

Recoveries

Charge-offs

(48)

Ending Balance

2,511

10,099

3,246

750

2,887

19,493

(1) Provision for credit losses excludes $

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

thousand release due to investment securities held to maturity.

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

(3) Provision for credit losses excludes $

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

thousand expense due to investment securities held to maturity.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

Residential

Real Estate

Commercial

Real Estate

Commercial

and Industrial

Foreign

Banks

Consumer

and Other

Total

Three Months Ended September 30, 2022

Beginning balance

2,366

9,290

2,671

651

808

15,786

Provision for credit losses

(1,009)

695

1,126

910

Recoveries

Charge-offs

(88)

(5)

(93)

Ending Balance

1,358

9,985

3,709

725

827

16,604

Nine Months Ended September 30, 2022

Beginning balance

2,498

8,758

2,775

457

569

15,057

Provision for credit losses

(1,157)

1,227

1,011

268

266

1,615

Recoveries

Charge-offs

(16)

(88)

(11)

(115)

Ending Balance

1,358

9,985

3,709

725

827

16,604

September

30,

2023

the

ACL,

under

the

CECL

methodology,

was

19.5

million

compared

17.5

million

December 31,

2022, under

the incurred

loss

methodology.

The increase

of $

2.0

million was

composed of

a $

1.1

million

impact of adoption of the ASU 2016-13 on loan receivables, a $

915

thousand increase in the ACL for loan receivables due

to loan growth and to net charge-offs.

The

Company

had

charge

offs

totaling

thousand

for

the

quarter

ended

September

30,

2023

loans

originated in

Company had

charge offs

totaling $

thousand for

the nine

months ended

September 30,

2023

related to loans. $

thousand was related to loans originated

in 2023 and $

thousand of charge offs was related to

loans

originated in 2015.

The Company

had

charge

offs

totaling

115.0

thousand

for

the

nine

months

ended

September

30,

2022,

loans.

15.6

thousand

and $

87.7

thousand of

charge offs

related to

loans that

were originated

in 2004

and 2019,

respectively.

10.9

thousand of charge offs related to loans that

were originated in 2022.

The

Federal

Open

Market

Committee

(“FOMC”)

economic

forecasts

September

30,

2023,

showed

moderate

improvements in unemployment and a slower real GDP growth.

Fannie Mae HPI forecast reflected important improvement

in national housing prices over the next four quarters.

The Company continued

to adjust the HPI index effect on 1-4 Family

loan portfolio with a qualitative

factor because Florida

housing prices are performing

better than national levels.

Q-Factors

were reviewed and updated; maximum loss calculations are based on refreshed stress test and risk statuses were

updated

based on portfolio and external developments during the third

quarter.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

The ACL and

the outstanding balances

in the specified

loan categories

as of September

30, 2023 and

December 31,

2022 are as follows (in thousands):

Residential

Real Estate

Commercial

Real Estate

Commercial

and Industrial

Foreign

Banks

Consumer

and Other

Total

September 30, 2023:

Allowance for credit losses:

Individually evaluated for impairment

146

135

281

Collectively evaluated for impairment

2,365

10,099

3,111

750

2,887

19,212

Balances, end of period

2,511

10,099

3,246

750

2,887

19,493

Loans:

Individually evaluated for impairment

6,749

869

7,618

Collectively evaluated for impairment

182,131

1,005,280

212,106

94,640

173,096

1,667,253

Balances, end of period

188,880

1,005,280

212,975

94,640

173,096

1,674,871

December 31, 2022:

Allowance for credit losses:

Individually evaluated for impairment

155

294

Collectively evaluated for impairment

1,197

10,143

4,122

720

1,011

17,193

Balances, end of period

1,352

10,143

4,163

720

1,109

17,487

Loans:

Individually evaluated for impairment

7,206

393

196

7,877

Collectively evaluated for impairment

178,430

970,017

126,902

93,769

130,233

1,499,351

Balances, end of period

185,636

970,410

126,984

93,769

130,429

1,507,228

Credit Quality Indicators

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

loan agreement based

on relevant information

which may include:

current financial information

on the borrower,

historical

payment

experience,

credit

documentation

and

other

current

economic

trends.

Internal

credit

risk

grades

are

evaluated

periodically.

The Company's internally assigned credit risk grades are as follows:

Pass

– Loans indicate different levels of satisfactory

financial condition and performance.

Special Mention

– Loans classified as special mention have a potential weakness

that deserves management’s

close attention. If left uncorrected, these potential weaknesses

may result in deterioration of the repayment

prospects for the loan or of the institution’s

credit position at some future date.

Substandard

– Loans classified as substandard are inadequately protected

by the current net worth and paying

capacity of the obligator or of the collateral pledged, if

any. Loans so classified

have a well-defined weakness or

weaknesses that jeopardize the liquidation of the debt.

They are characterized by the distinct possibility that the

institution will sustain some loss if the deficiencies are

not corrected.

Doubtful

– Loans classified as doubtful have all the weaknesses inherent

in those classified at substandard, with

the added characteristic that the weaknesses make collection

or liquidation in full on the basis of currently existing

facts, conditions, and values, highly questionable and improbable.

Loss

– Loans classified as loss are considered uncollectible.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

Loan credit exposures by internally assigned grades are

presented below for the periods indicated (in thousands):

As of September 30, 2023

Term Loans by Origination Year

Revolving

Loans

Total

2023

2022

2021

2020

2019

Prior

Residential real estate

Pass

17,760

36,828

26,315

6,527

9,749

83,244

8,457

188,880

Total

17,760

36,828

26,315

6,527

9,749

83,244

8,457

188,880

Commercial real estate

Pass

78,285

340,524

210,028

104,816

79,129

186,669

3,314

1,002,765

Substandard

1,818

697

2,515

Total

78,285

340,524

211,846

105,513

79,129

186,669

3,314

1,005,280

Commercial and

industrial

Pass

92,156

38,012

34,581

7,141

14,001

3,483

21,617

210,991

Substandard

340

1,344

300

1,984

Total

92,156

38,012

34,921

7,141

15,345

3,483

21,917

212,975

Foreign banks

Pass

93,515

1,125

94,640

Total

93,515

1,125

94,640

Consumer and other

loans

Pass

50,027

74,961

44,249

717

529

1,396

1,217

173,096

Substandard

Total

50,027

74,961

44,249

717

529

1,396

1,217

173,096

Total

Loans

Pass

331,743

491,450

315,173

119,201

103,408

274,792

34,605

1,670,372

Special Mention

Substandard

2,158

697

1,344

300

4,499

Doubtful

Total

331,743

491,450

317,331

119,898

104,752

274,792

34,905

1,674,871

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

As of December 31, 2022

Pass

Special

Mention

Substandard

Doubtful

Total Loans

Residential real estate:

Home equity line of credit and other

623

1-4 family residential

132,178

Condo residential

52,835

185,636

Commercial real estate:

Land and construction

38,687

Multi-family residential

176,820

Condo commercial

49,601

393

49,994

Commercial property

702,357

2,552

704,909

967,465

2,945

970,410

Commercial and industrial:

Secured

120,873

807

121,680

Unsecured

5,304

126,177

807

126,984

Foreign banks

93,769

Consumer and other loans

130,233

196

130,429

Total

1,503,280

3,948

1,507,228

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

Loan Aging

The Company

also considers the

performance of loans

in grading

and in

evaluating the

credit quality

of the

loan portfolio.

The Company

analyzes credit

quality and

loan grades

based on

payment performance

and the

aging status

of the

loan.

The following

tables include

an aging

analysis of

accruing loans

and total

non-accruing

loans as

of September 30,

2023

and December 31, 2022 (in thousands):

Accruing

As of September 30, 2023

Current

Past Due 30-

89 Days

Past Due 90

Days or >

and Still

Accruing

Total

Accruing

Non-Accrual

Total Loans

Residential real estate:

Home equity line of credit and other

491

1-4 family residential

138,069

Condo residential

49,949

371

50,320

188,509

371

188,880

Commercial real estate:

Land and construction

30,717

Multi-family residential

177,573

Condo commercial

58,100

Commercial property

738,849

Leasehold improvements

1,005,280

Commercial and industrial:

Secured

194,119

479

194,598

Unsecured

18,377

212,496

479

212,975

Foreign banks

94,640

Consumer and other

173,096

Total

1,674,021

371

1,674,392

479

1,674,871

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

Accruing

As of December 31, 2022:

Current

Past Due

30-89 Days

Past Due 90

Days or >

and Still

Accruing

Total

Accruing

Non-Accrual

Total Loans

Residential real estate:

Home equity line of credit and other

623

1-4 family residential

131,120

1,058

132,178

Condo residential

50,310

2,525

52,835

182,053

3,583

185,636

Commercial real estate:

Land and construction

38,687

Multi-family residential

176,820

Condo commercial

49,994

Commercial property

704,884

704,909

Leasehold improvements

970,385

970,410

Commercial and industrial:

Secured

121,649

121,680

Unsecured

4,332

972

5,304

125,981

1,003

126,984

Foreign banks

93,769

Consumer and other

130,169

260

130,429

Total

1,502,357

4,871

1,507,228

Non-accrual Status

The following table

includes the amortized

cost basis of

loans on non-accrual

status and loans

past due over

90 days

and still accruing as of September 30, 2023 (in thousands):

September 30, 2023

Nonaccrual

Loans With No

Allowance

Nonaccrual

Loans With

Allowance

Total Non-

accruals

Loans Past

Due Over 90

Days and Still

Accruing

Residential real estate

Commercial real estate

Commercial and industrial

479

Consumer and other

479

The Company did

t have loans in nonaccrual status as of December

31, 2022.

Accrued interest

receivable is

excluded from

the estimate

of credit

losses. There

was

interest income

recognized

attributable to non-accrual

loans outstanding during

the three months

ended September 30, 2023 and

Interest income

on these loans for

the three months

ended September 30,

2023 and 2022,

would have been

approximately $

thousand

and $

thousand, respectively, had these loans performed in accordance with their original terms. Interest income on these

loans

for the

nine months

ended September

30,

2023 and

2022, would

have been

approximately

thousand

and

thousand, respectively,

had these loans performed in accordance with their

original terms.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

Collateral-Dependent Loans

loan

collateral

dependent

when

the

borrower

experiencing

financial

difficulty

and

repayment

the

loan

expected to

be provided

substantially through

the sale

or operation

of the

collateral. There

were

collateral dependent

loans as of September 30, 2023, or as of December 31,

2022.

Impaired Loans

The following table includes

the unpaid principal balances

for impaired loans with

the associated allowance amount,

applicable, on the basis of impairment methodology as of December

31, 2022 (in thousands):

December 31, 2022

Unpaid

Principal

Balance

Net

Investment

Balance

Valuation

Allowance

Impaired Loans with No Specific Allowance:

Residential real estate

3,551

3,544

Commercial real estate

393

3,944

3,937

Impaired Loans with Specific Allowance:

Residential real estate

3,655

3,626

155

Commercial and industrial

Consumer and other

196

3,933

3,904

294

Total

7,877

7,841

294

Net investment balance is the unpaid principal balance

of the loan adjusted for the remaining net deferred loan

fees.

The following table

presents the average

recorded investment

balance on impaired

loans for

the periods indicated

(in

thousands):

Three Months Ended September 30, 2022

Nine Months Ended September 30, 2022

Residential real estate

7,282

7,732

Commercial real estate

590

619

Commercial and industrial

116

Consumer and other

207

214

Total

8,174

8,681

Interest income recognized on impaired loans for

the three months ended September 30, 2022

was $

thousand and

for the nine months ended September 30, 2022 was $

271

thousand.

Loan Modifications to Borrowers Experiencing Financial

Difficulties

The following

table present

newly restructured

loans, by

type of

modification, which

occurred during

the nine

months

ended September 30, 2023 (in thousands):

Recorded Investment Prior to Modification

Recorded Investment After Modification

Number of

Loans

Combination

Modifications

Total

Modifications

Number of

Loans

Combination

Modifications

Total

Modifications

Residential real estate

Commercial real estate

Commercial and industrial

350

Consumer and other

350

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

The Company had

new modifications and

one

new modifications to

borrowers experiencing financial

difficulties for

the

three

and

nine

months

ended

September

30,

2023,

respectively.

There

were

existing

loan

modifications

that

subsequently defaulted during the three and nine months

ended September 30, 2023.

INCOME TAXES

The Company’s provision for income taxes is presented

in the following table for the dates indicated (in thousands):

Nine Months Ended September 30,

2023

2022

Current:

Federal

State

Total

current

Deferred:

Federal

3,510

4,342

State

954

1,187

Total

deferred

4,464

5,529

Total

tax expense

4,464

5,529

The actual income tax expense for the nine months

ended September 30, 2023 and 2022 differs

from the statutory tax

expense

for the

period (computed

by applying

the

U.S.

federal

corporate

tax rate

for

2023 and

2022 to

income

before provision for income taxes) as follows (in thousands):

Nine Months Ended September 30,

2023

2022

Federal taxes at statutory rate

3,840

4,460

State income taxes, net of federal tax benefit

795

923

Bank owned life insurance

(171)

(202)

Other, net

348

Total

tax expense

4,464

5,529

The Company’s deferred tax assets and deferred

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

September 30, 2023

December 31, 2022

Deferred tax assets:

Net operating loss

17,588

21,720

Allowance for credit losses

4,670

4,432

Lease liability

3,084

3,648

Unrealized losses on available for sale securities

17,723

15,193

Depreciable property

192

158

Equity compensation

554

373

Accruals

411

723

CECL Adoption

336

Deferred tax assets:

44,558

46,247

Deferred tax liability:

Deferred loan cost

(418)

(28)

Lease right of use asset

(3,084)

(3,648)

Deferred expenses

(189)

(175)

Cash flow hedge

(332)

Other, net

(105)

(36)

Deferred tax liability

(4,128)

(3,887)

Net deferred tax assets

40,430

42,360

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

The Company

has

approximately

65.5

million

of federal

and

88.2

million

of state

net

operating

loss

carryforwards

expiring in various amounts between

2031 and 2036 and which are

limited to offset, to the

extent permitted, future taxable

earnings of the Company.

In assessing the realizability of deferred tax assets, management considers

whether it is more likely than not that some

portion or

all of

the deferred

tax assets

will not

be realized.

The ultimate

realization

of deferred

tax assets

is dependent

upon the generation of

future taxable income

during the periods

in which those temporary

differences become deductible.

Management considers the scheduled reversal

of deferred tax liabilities, projected future taxable

income, and tax planning

strategies in making this assessment.

The major tax

jurisdictions where the

Company files income

tax returns are

the U.S. federal

jurisdiction and

the State

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

authorities for years before 2019.

For the three and nine months ended September 30, 2023 and 2022, the Company

did

t have any unrecognized tax

benefits

result

tax

positions

taken

during

prior

period

during

the

current

period.

Additionally,

interest

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

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

September 30, 2023

December 31, 2022

Commitments to grant loans and unfunded lines of credit

100,661

95,461

Standby and commercial letters of credit

6,490

4,320

Total

107,151

99,781

Commitments to

extend credit

are agreements

to lend

to a

customer as

long as

there is

no violation

of any

condition

established in the contract. Commitments generally have

fixed expiration dates or other termination clauses.

Unfunded lines of

credit and revolving

credit lines are

commitments for possible

future extensions

of credit to

existing

customers. These lines of

credit are uncollateralized and

usually do not contain

a specified maturity date

and ultimately may

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

committed.

Standby

and

commercial

letters

credit

are

conditional

commitments

issued

the

Company

guarantee

the

performance of a

customer to

a third

party. Those letters of

credit are

primarily issued to

support public and

private borrowing

arrangements. Essentially all letters of credit have fixed maturity dates and since

many of them expire without being drawn

upon, they do not generally present a significant liquidity

risk to the Company.

DERIVATIVES

The Company utilizes interest rate swap agreements

as part of its asset-liability management strategy to help

manage

its interest rate

risk exposure. The notional

amount of the interest

rate swaps does not

represent actual amounts exchanged

by the

parties.

The amounts

exchanged

are determined

by reference

to the

notional amount

and the

other

terms

of the

individual interest rate swap agreements.

Interest Rate Swaps Designated as a Cash Flow Hedge

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

As of September 30,

2023, the Company

had

two

interest rate swap agreements

with a notional aggregate

amount of

million that were designated as cash flow hedges of certificates of deposit. The interest rate swap agreements have an

average

maturity

2.63

years,

the

weighted

average

fixed

rate

paid

3.59

with

the

weighted

average

3-month

compound SOFR being received. The Company had

cash flow hedges outstanding on December 31,

2022.

The

changes

fair

value

these

interest

rate

swaps

are

recorded

other

assets

other

liabilities

with

corresponding recognition

in other comprehensive

income (loss)

and subsequently reclassified

to earnings when

gains or

losses are realized.

Interest Rate Swaps Designated as Fair Value

Hedge

As of September 30, 2023,

the Company had four interest

rate swap agreements with a

notional aggregate amount of

200

million

that

were

designated

fair

value

hedges

loans.

The

interest

rate

swap

agreements

have

average

maturity of

2.48

years, the weighted average fixed rate paid

4.74

%, with the weighted average 3-month compound SOFR

being received.

Interest Rate Swaps

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

and

interest rate swaps

with

loan

customers

with

aggregate

notional

amount

46.7

million

and

33.9

million

September 30,

2023

and

December 31, 2022,

respectively.

These interest

rate swaps

mature between

2025 and

Company entered

into

corresponding

and

offsetting

derivatives

with

third

parties.

The

fair

value

liability

these

derivatives

requires

the

Company to provide the counterparty

with funds to be held as collateral

which the Company reports as other

assets under

the Consolidated

Balance Sheets.

While these

derivatives represent

economic hedges,

they do

not qualify

as hedges

for

accounting purposes.

The following table reflects the Company’s

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

Fair Value

Notional

Amount

Collateral

Amount

Balance Sheet Location

Asset

Liability

September 30, 2023:

Derivatives designated as hedging instruments:

Interest rate swaps

250,000

Other assets

1,450

294

Derivatives not designated as hedging instruments:

Interest rate swaps related to customer loans

46,717

1,297

Other assets/Other liabilities

5,623

December 31, 2022:

Derivatives not designated as hedging instruments:

Interest rate swaps related to customer loans

33,893

1,278

Other assets/Other liabilities

5,011

FAIR VALUE

MEASUREMENTS

Determination of Fair Value

The Company

uses

fair value

measurements

to record

fair-value

adjustments

to certain

assets

and liabilities

and to

determine fair value

disclosures. In accordance

with the fair

value measurements

accounting guidance, the

fair value of

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

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

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.

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.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

The

following

table

represents

the

Company's

assets

and

liabilities

measured

fair

value

recurring

basis

September 30, 2023 and December 31, 2022 for each

of the fair value hierarchy levels (in thousands):

September 30, 2023

December 31, 2022

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

Investment securities available for sale:

U.S. Government Agency

8,025

8,655

Collateralized mortgage obligations

78,571

95,541

Mortgage-backed securities - residential

51,157

60,879

Mortgage-backed securities - commercial

40,564

27,954

Municipal securities

18,116

18,483

Bank subordinated debt securities

22,176

14,919

Corporate bonds

3,709

Total

218,609

230,140

Derivative assets

7,073

5,011

Total assets at fair value

225,682

235,151

Derivative liabilities

5,917

5,011

Total liabilities at fair value

5,917

5,011

Items Measured at Fair Value

on a Non-recurring Basis

Individually Evaluated

Loans and

Impaired Loans:

ASC 326

eliminates the

current accounting

model for

impaired

loans

effective

January

2023.

December 31,

2022,

accordance

with

provisions

the

loan

impairment

guidance,

individual

loans

with

carrying

amount

approximately

3.9

million

were

written

down

their

fair

value

approximately $

3.6

million, resulting

in an

impairment charge

of $

294

thousand,

which was

included in

the allowance

for

credit losses at December 31,

Loans subject to write-downs,

or impaired loans, are

estimated using the present

value

of expected cash

flows or the

appraised value

of the underlying

collateral discounted

as necessary

due to management's

estimates of changes in economic conditions and are

considered a Level 3 valuation.

Other Real

Estate:

Other

real estate

owned

is valued

at the

lesser of

the third-party

appraisals less

management's

estimate of

the costs to

sell or the

carrying cost of

the other

real estate

owned. Appraisals generally

use the market

approach

valuation technique

and use

market observable

data to

formulate an

opinion of

the fair

value of

the properties.

However,

the appraiser

uses professional

judgment in

determining the

fair value

of the

property and

the Company

may also

adjust

the value for changes in

market conditions subsequent to

the valuation date when

current appraisals are not

available. As

a consequence of the carrying cost or the

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

considered a Level 3 valuation.

The following table represents the Company’s assets measured at

fair value on a non-recurring basis at

September 30,

2023 and December 31, 2022 for each of the fair value

hierarchy levels (in thousands):

Level 1

Level 2

Level 3

Total

September 30, 2023:

Individually evaluated loans

December 31, 2022:

Impaired loans

3,639

The following table presents

quantified information about

Level 3 fair value

measurements for assets measured

at fair

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

Fair Value

Valuation Technique(s)

Unobservable Input(s)

December 31, 2022:

Residential real estate

3,500

Sales comparison approach

Adj. for differences between comparable sales

Commercial and industrial

Discounted cash flow

Adj. for differences in net operating income expectations

Consumer and other loans

Discounted cash flow

Adj. for differences in net operating income expectations

Total

impaired loans

3,639

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

There

were

financial

liabilities

measured

fair

value

non-recurring

basis

September 30,

2023

and

December 31, 2022.

Items Not Measured at Fair Value

The following table

presents the carrying

amounts and estimated

fair values of

financial instruments

not carried at fair

value as of September 30, 2023 and December 31, 2022

(in thousands):

Fair Value Hierarchy

Carrying

Amount

Level 1

Level 2

Level 3

Fair Value

Amount

September 30, 2023:

Financial Assets:

Cash and due from banks

5,074

Interest-bearing deposits in banks

28,361

Investment securities held to maturity, net

197,311

171,294

Loans held for investment, net

1,657,027

1,606,440

Accrued interest receivable

8,920

1,476

7,444

8,920

Financial Liabilities:

Demand deposits

573,546

Money market and savings accounts

1,016,564

Interest-bearing checking accounts

46,537

Time deposits

284,275

282,062

FHLB advances

102,000

98,718

Accrued interest payable

1,206

469

737

1,206

December 31, 2022:

Financial Assets:

Cash and due from banks

6,605

Interest-bearing deposits in banks

47,563

Investment securities held to maturity

188,699

169,088

Loans held for investment, net

1,489,851

1,436,877

Accrued interest receivable

7,546

1,183

6,363

7,546

Financial Liabilities:

Demand deposits

629,776

Money market and savings accounts

915,853

Interest-bearing checking accounts

66,675

Time deposits

216,977

211,406

FHLB advances

46,000

44,547

Accrued interest payable

229

137

229

STOCKHOLDERS’ EQUITY

Common Stock

In July

2021, the

Bank completed

the initial

public offering

of its

Class

A common

stock, in

which it

issued

and sold

4,600,000

shares of Class A

common stock at a

price of $

10.00

per share. The Bank

received total net proceeds

of $

40.0

million after deducting underwriting discounts and expenses.

In December 2021,

the Company acquired

all the issued

and outstanding shares

of the Class

A common stock

of the

Bank, which at the time were

the only issued and outstanding shares

of the Bank’s capital stock,

in a share exchange (the

“Reorganization”)

effected

under

the

Florida

Business

Corporation

Act.

Each

outstanding

the

Bank’s

Class

common stock,

par value

1.00

per share,

formerly held

by its

Shareholders was

converted into

and exchanged

for

one

newly

issued

the

Company’s

Class

common

stock,

par

value

1.00

per

share,

and

the

Bank

became

the

Company’s wholly owned subsidiary.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

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 in the Bank,

and the Company’s

then current shareholders

owned the same

percentages of the

Company’s common

stock as they previously owned of the Bank’s common

stock.

In March 2023, the

Company issued

121,627

shares of Class A

common stock to employees and

directors as restricted

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

stock awards issued during the quarter

ended September 30, 2023 nor during the three and nine

months ended September 30, 2022.

During the

nine months

ended September

30, 2023

the Company

repurchased

577,603

of Class

A common

stock

weighted

average

price

per

9.77

The

aggregate

purchase

price

for

these

transactions

was

approximately

6.6

million,

including

transaction

costs.

These

repurchases

were

made

through

open

market

purchases

pursuant to the Company’s publicly announced repurchase program.

shares were repurchased during the three months

ended

September

30,

September

30,

2023,

172,397

remained

authorized

for

repurchase

under

this

program.

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

of September 30, 2023 and December 31,

2022 were

19,542,290

and

20,000,753

, respectively.

Dividends

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

dividends were approved by

the Board for

the common stock classes

for the three

months ended September 30, 2023

and 2022. Additionally, there were

dividends declared and unpaid as of September 30,

2023 and 2022.

The

Company

and

the

Bank

exceeded

all

regulatory

capital

requirements

and

remained

above

“well-capitalized”

guidelines as of September 30, 2023

and December 31, 2022. At September 30, 2023, the

total risk-based capital ratios for

the Company and the Bank were

13.10

% and

13.06

%, 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 shareholders by

the weighted-average

number of common shares outstanding for

the period, without consideration for common

stock equivalents. Diluted EPS is

computed by

dividing net

income (loss)

available to

common share

holders by

the weighted

-average

number of

common

shares outstanding for

the period and

the weighted-average number

of dilutive common

stock equivalents outstanding

for

the period determined using the treasury-stock method. For

purposes of this calculation, common stock equivalents

include

common stock options and are only included in the calculation

of diluted EPS when their effect is dilutive.

The

following

table

reflects

the

calculation

net

income

available

common

shareholders

for

the

three

and

nine

months ended September 30, 2023 and 2022 (in thousands):

Three Months Ended

September 30,

Nine Months Ended

September 30,

2023

2022

2023

2022

Net Income

3,819

5,558

13,824

15,707

Net income available to common shareholders

3,819

5,558

13,824

15,707

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

The following table reflects the calculation of basic and diluted earnings per common share class for the three and nine

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

except per share amounts):

Three Months Ended September 30,

2023

2022

Class A

Basic EPS

Numerator:

Net income available to common shares

3,819

5,558

Denominator:

Weighted average shares outstanding

19,542,723

20,000,753

Earnings per share, basic

0.20

0.28

Diluted EPS

Numerator:

Net income available to common shares

3,819

5,558

Denominator:

Weighted average shares outstanding for basic EPS

19,542,723

20,000,753

Add: Dilutive effects of assumed exercises of stock options

69,174

147,455

Weighted avg. shares including dilutive potential common shares

19,611,897

20,148,208

Earnings per share, diluted

0.19

0.28

Anti-dilutive stock options excluded from diluted EPS

720,500

15,000

Net income has not been allocated to unvested restricted

stock awards that are participating securities

because the amounts that would be allocated

are not material to net income per share of

common stock. Unvested restricted stock awards

that are participating securities represent less than one

percent of all of the outstanding shares of

common stock for each of the periods presented.

Nine Months Ended September 30,

2023

2022

Class A

Basic EPS

Numerator:

Net income available to common shares

13,824

15,707

Denominator:

Weighted average shares outstanding

19,661,685

19,998,841

Earnings per share, basic

0.70

0.79

Diluted EPS

Numerator:

Net income available to common shares

13,824

15,707

Denominator:

Weighted average shares outstanding for basic EPS

19,661,685

19,998,841

Add: Dilutive effects of assumed exercises of stock options

67,496

179,248

Weighted avg. shares including dilutive potential common shares

19,729,181

20,178,089

Earnings per share, diluted

0.70

0.78

Anti-dilutive stock options excluded from diluted EPS

720,500

15,000

Net income has not been allocated to unvested

restricted stock awards that are participating securities

because the amounts that would be allocated are

not material to net income per share of common

stock. Unvested restricted stock awards that are participating

securities represent less than one percent

of all of the outstanding shares of common stock

for each of the periods presented.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

10.

LOSS CONTINGENCIES

Loss contingencies,

including claims

and legal actions

may arise in

the ordinary

course of

business. In

the opinion

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.

As previously

disclosed, on

July 13, 2023,

three

individual shareholders

(“The Plaintiffs”)

filed a complaint

against

six

board members

serving in

July 2021,

without naming

the Bank

as a

party,

alleging the

named directors

did not

have the

authority to approve the exchange of

preferred stock in July 2021 as

part of the Bank’s initial public

offering and that further,

such action breached

their fiduciary duties.

The Plaintiffs

claim this exchange

was not permitted

by the Bank’s

Articles of

Incorporation.

The

Company

believes

that

the

allegations

the

lawsuit

are

legally

and

factually

without

merit,

and

the

Company intends to vigorously defend against the allegations in

the lawsuit. Despite the Company’s belief the lawsuit lacks

merit, if the plaintiffs were successful, the Court

could award substantial compensatory damages.

Table of Contents

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

Item 2.

Management's Discussion and Analysis of Financial Condition

and Results of Operations

The

following

discussion

and

analysis

designed

provide

better

understanding

the

consolidated

financial

condition

and

results

operations

of the

Company

and the

Bank,

its wholly

owned

subsidiary,

for

the quarter

and nine

months ended

September 30, 2023. This

discussion and analysis

is best

read in

conjunction with

the unaudited consolidated

financial statements

and related

footnotes included

in this Quarterly

Report on

Form 10-Q

(“Form 10-Q”)

and the

audited

consolidated

financial

statements

and

related footnotes

included in

the Annual

Report

on Form

10-K/A (“2022

Form 10-

K/A”) filed with the Securities and Exchange Commission (“SEC”)

for the year ended December 31, 2022.

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

actual results to differ materially

from management's expectations. Factors that could cause

such differences are discussed

in the sections entitled "Forward-Looking Statements"

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

with the SEC which is available at the SEC’s website www.sec.gov.

Throughout

this

document,

references

“we,”

“us,”

“our,”

and

“the

Company”

generally

refer

USCB

Financial

Holdings, Inc.

Forward-Looking Statements

This Form 10-Q contains

statements that are

not historical in

nature and are

intended to be, and

are hereby identified

as, forward-looking statements for

purposes of the safe

harbor provided by Section

21E of the Securities

Exchange Act of

1934,

amended

(Exchange

Act”).

The

words

“may,”

“will,”

“anticipate,”

“should,”

“would,”

“believe,”

“contemplate,”

“expect,” “aim,” “plan,” “estimate,” “continue,” and “intend,” as well as other similar words and expressions of the future, are

intended

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 or events,

or business

and growth

strategies, including anticipated

internal growth and

balance

sheet restructuring.

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

materially from those anticipated in such statements.

Potential risks and uncertainties include, but are not

limited to:

•

the strength of the United States economy in general and the strength of the local economies in which we conduct operations;

•

our ability to successfully manage interest rate risk, credit risk, liquidity risk, and other risks inherent to our industry;

•

the accuracy of our financial statement estimates and assumptions, including the estimates

used for our credit loss reserve and

deferred tax asset valuation allowance;

•

the efficiency and effectiveness of our internal control procedures and processes;

•

our ability

to comply

with the

extensive laws

and regulations

to which

we are

subject, including

the laws

for each

jurisdiction

where we operate;

•

adverse changes or conditions in capital and financial markets, including actual or potential stresses in the banking industry;

•

deposit attrition and the level of our uninsured deposits;

•

legislative or regulatory changes and changes in

accounting principles, policies, practices or guidelines, including

the on-going

effects of the implementation of the Current Expected Credit Losses (“CECL”) standard;

•

the

lack

significantly

diversified

loan

portfolio

and

the

concentration

the

South

Florida

market,

including

the

risks

geographic, depositor,

and industry

concentrations, including

our concentration

in loans

secured by

real estate,

in particular,

commercial real estate;

•

the effects of climate change;

•

the concentration of ownership of our common stock;

•

fluctuations in the price of our common stock;

•

our ability to

fund or access

the capital markets

at attractive rates

and terms and

manage our growth,

both organic growth

well as growth through other means, such as future acquisitions;

•

inflation, interest rate, unemployment rate, market and monetary fluctuations;

•

impacts of international hostilities and geopolitical events;

•

increased

competition

and its

effect

the pricing

our products

and services

well as

our interest

rate spread

and net

interest margin;

•

the loss of key employees;

•

the effectiveness of

our risk management strategies,

including operational risks,

including, but not limited

to, client, employee,

or third-party fraud and security breaches; and

•

other risks

described in

this Form

10-Q, the

2022 Form

10-K/A and

other filings

we make

with the

Securities and

Exchange

Commission (“SEC”).

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

Table of Contents

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

forward-looking statements.

Further,

forward-looking statements

included in

this Form

10-Q are

made only

as of the

date

hereof, and we undertake

no obligation to update

or revise any forward-looking

statement to reflect events

or circumstances

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

events, unless required to do

so under the federal securities laws. You should also review the risk factors described in the reports the Company has filed

or will file with the SEC.

Overview

The Company

reported net

income of

$3.8 million

or $0.19

per diluted

share of

common stock

for the

three

months

ended

September 30,

2023

compared

$5.6

million

$0.28

per

diluted

common

stock

for

the

three

months

ended September

30, 2022.

Net income

for the

nine months

ended September

30, 2023

was $13.8

million or

$0.70 per

diluted share of common stock

compared to $15.7 million

or $0.78 per diluted

share of common stock

for the same period

in 2022.

No shares

were repurchased

during the

third

quarter 2023.

Year-to-date, the

Company

has repurchased

577,603 of

Class A

common stock shares at

a weighted average price

per share of

$9.77. These repurchases were

made through open

market purchases pursuant to

the Company’s publicly announced repurchase

program. As of

September 30, 2023, 172,397

shares remained authorized for repurchase under this

program.

In evaluating our financial

performance, the Company

considers the level of

and trends in net

interest income, the

net

interest margin, the cost of deposits, levels

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

ratios, asset quality ratios, regulatory capital ratios, and any

significant event or transaction.

Unless

otherwise

stated,

all

period

comparisons

the

bullet

points

below

are

calculated

for

the

quarter

ended

September 30, 2023 compared

to the quarter

ended September 30, 2022

and to

December 31, 2022,

and annualized where

appropriate:

•

Net interest income

for the three

months ended September

30, 2023 decreased

$2.8 million or

16.4% to $14.0 million

from $16.8

million

for

the

quarter

ended

September 30,

2022.

Net

interest

income

for

the

nine

months

ended

September

30,

2023

decreased $2.6 million or 5.6% to $44.2 million compared to the same period ended September 30, 2022.

•

Net interest margin

(“NIM”) was 2.60%

for the three

months ended September

30, 2023 compared

to 3.47% for

the three months

ended September 30, 2022.

NIM was 2.84% for

the nine months ended

in September 30, 2023

compared to 3.36% for

the same

period in 2022.

•

Total assets were $2.2 billion at September 30,

2023, representing an increase of $207.1 million or 10.2%

from September 30,

2022 and an increase of $158.8 million or 10.2% annualized from December 31, 2022.

•

Total loans were

$1.7 billion at

September 30, 2023,

representing an increase

of $245.0 million

or 17.1% from

September 30,

2022 and an increase of $169.2 million or 15.0% annualized from December 31, 2022.

•

Total deposits were $1.9 billion at September 30, 2023, representing an increase of $124.3 million or 6.9% from September 30,

2022 and an increase of $91.6 million or 6.7% annualized from December 31, 2022.

•

Annualized return on average assets for the quarter ended September 30, 2023 was 0.67% compared to 1.09% for the quarter

ended September 30, 2022.

•

Annualized return on average stockholders’ equity for the quarter

ended September 30, 2023 was 8.19% compared

to 11.90%

for quarter ended September 30, 2022.

•

The ACL to total loans was

1.16% at both

September 30, 2023 and December

31, 2022. ACL was calculated under

the CECL

methodology for three and nine months ended September 30, 2023 and the incurred loss methodology for all periods in 2022.

•

Non-performing loans to total loans was 0.03% at September 30, 2023 compared to 0.00% at December 31, 2022.

•

At September 30, 2023,

the total risk-based

capital ratios for

the Company and

the Bank were

13.10% and 13.06%,

respectively.

•

Tangible book value

per common share

(a non-GAAP financial

measurement) of $9.36

as of September

30, 2023 was

negatively

affected by

$2.62 due

to accumulated

comprehensive loss

of $51.2

million at

September 30,

2022,

tangible

book

value

$8.87

per

common

was

negatively

affected

$2.26

due

$45.2

million

accumulated

other

comprehensive loss.

See “Reconciliation and Management Explanation for Non-GAAP Financial Measures” for a reconciliation

of this non-GAAP financial measure.

Table of Contents

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

Critical Accounting Policies and Estimates

The

consolidated

financial

statements

are

prepared

based

the

application

U.S.

GAAP,

the

most

significant

which are

described in

Note 1

“Summary of

Significant Accounting Policies”

in the

Company’s 2022 Form

10-K/A. To prepare

financial statements

in conformity

with US

GAAP,

management makes

estimates, assumptions,

and judgments

based on

available information. These estimates,

assumptions, and judgments affect

the amounts reported in

the financial statements

and accompanying notes. These estimates, assumptions,

and judgments are based on information available as of the date

of the financial statements and,

as this information changes, actual results

could differ from the estimates, assumptions and

judgments reflected

in the

financial statements.

In particular,

management

has identified

accounting

policies that,

due to

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

Management has presented the application of these policies

to the Audit and Risk Committee of our Board of

Directors.

Allowance for Credit Losses

January

2023,

the

Company

adopted

ASU

2016-13

Financial

Instruments

Credit

Losses

(Topic

326):

Measurement of Credit Losses

on Financial Instruments,

as amended, which replaces

the incurred loss methodology

with

expected

loss

methodology

that

referred

the

current

expected

credit

loss

(CECL)

methodology.

See

Note

“Summary of Significant Accounting Policies” in Item 1

of Part I of this

Form 10-Q for more information on the

adoption ASC

326 and the allowance for credit losses.

Our ACL

included residential

loans. To

assess the

potential impact

of changes

in qualitative

factors related

to these

loans,

management

performed

a sensitivity

analysis.

The Company

evaluated

the

impact

of the

HPI

used

in calculating

expected losses on the residential loan segment. As of September 30, 2023, for every 100 basis points increase in the HPI

index, the forecast reduces

reserves

by approximately $217

thousand and about 1

basis point to

the reserve coverage ratio,

everything else being

constant. This

sensitivity analysis provides

a hypothetical result

to assess the

sensitivity of the

ACL

and does not represent a change in management’s

judgement.

Income Taxes

Deferred tax

assets and

liabilities are

recognized for

the future

tax consequences

attributable to

differences

between

the financial statement carrying amounts of

existing assets and liabilities and their

respective tax bases and operating loss

and tax credit carryforwards. Deferred tax

assets and liabilities are measured

using enacted tax rates expected

to apply to

taxable income

in the

years in

which those

temporary differences

are expected

to be

recovered or

settled. The

effect

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

date.

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

based on the

consideration of

all available evidence

using a more

likely than not

standard. In its

evaluation, management

considers taxable loss

carry-back availability, expectation of sufficient

taxable income, trends

in earnings, the

future reversal

of temporary differences, and available tax planning

strategies.

The Company recognizes positions taken

or expected to be

taken in a tax

return in accordance with existing accounting

guidance on

income taxes

which prescribes

a recognition threshold

and measurement

process. Interest

and penalties

tax liabilities, if any, would

be recorded in interest expense and other operating non-interest

expense, respectively.

Non-GAAP Financial Measures

This Form 10-Q

includes financial information determined by

methods other than in

accordance with generally accepted

accounting principles (“GAAP”). This financial information

includes certain operating performance measures.

Management

has included these non-GAAP measures because it believes these

measures may provide useful supplemental information

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

managing and

evaluating

the

Company’s

business

and

intends

refer

them

discussions

about

our

operations

and

performance.

Operating performance measures

should be viewed in

addition to, and not

as an alternative to

or substitute for,

measures

determined in accordance with GAAP,

and are not necessarily comparable to non-GAAP measures that may

be presented

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

non-GAAP measures to the most

directly comparable

GAAP

measures

can

found

the

section

“Reconciliation

and

Management

Explanation

Non-GAAP

Financial

Measures” included in this Form 10-Q.

Table of Contents

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

Segment Reporting

Management monitors the revenue streams for all its various

products and services. The identifiable segments are not

material

and

operations

are

managed

and

financial

performance

evaluated

overall

Company-wide

basis.

Accordingly, all

the financial service

operations are

considered by management

to be

aggregated in one

reportable operating

segment.

Results of Operations

General

The following

tables present

selected balance

sheet, income

statement, and

profitability ratios

for the

dates indicated

(in thousands, except ratios):

September 30, 2023

December 31, 2022

Consolidated Balance Sheets:

Total

assets

2,244,602

2,085,834

Total

loans

(1)

1,676,520

1,507,338

Total

deposits

1,920,922

1,829,281

Total

stockholders' equity

182,884

182,428

(1)

Loan amounts include deferred fees/costs.

Three Months Ended September 30,

Nine Months Ended September 30,

2023

2022

2023

2022

Consolidated Statements of Operations:

Net interest income before provision for credit losses

14,022

16,774

44,192

46,795

Total

non-interest income

2,161

1,789

6,077

5,351

Total

non-interest expense

10,461

10,132

31,089

29,295

Net income

3,819

5,558

13,824

15,707

Profitability:

Efficiency ratio

64.64%

54.58%

61.85%

56.18%

Net interest margin

2.60%

3.47%

2.84%

3.36%

The Company’s results

of operations

depend substantially on

net interest income

and non-interest income.

Other factors

contributing to

the results

of operations

include our

provision for

credit losses,

the level

of non-interest

expense, and

the

provision for income taxes.

Three months ended September 30, 2023 compared to the

three months ended September 30, 2022

Net income decreased

to $3.8 million

for the three

months ended September

30, 2023 from

$5.6 million for

the same

period in 2022 mainly due to higher weighted average

deposit costs.

Nine months ended September 30, 2023 compared to nine

months ended September 30, 2022

Net income decreased to $13.8 million for the nine months ended September 30,

2023 from $15.7 million for the same

period in 2022. The main drivers of the variance of net income was a $25.1 million increase in

interest expense mainly due

to increases in the cost of deposits partially offset by a $22.5 million increase in interest income generated from higher loan

yields and a larger loan portfolio.

Net Interest Income

Net interest income

is the difference

between interest

earned on interest-earning

assets and interest

paid on interest-

bearing liabilities

and is

the primary

driver of

core earnings.

Interest income

is generated

from interest

and dividends

interest-earning

assets,

including

loans,

investment

securities

and

other

short-term

investments.

Interest

expense

incurred

from

interest

paid

interest-bearing

liabilities,

including

interest-bearing

deposits,

FHLB

advances

and

other

borrowings.

To evaluate net

interest income, we

measure and monitor

(i) yields on

loans and other

interest-earning assets, (ii)

the

costs of deposits

and other funding

sources, (iii) net

interest spread, and

(iv) net interest margin.

Net interest spread is

equal

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

Table of Contents

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

margin is

equal to

the annualized

net interest

income

divided by

average interest

-earning assets.

Because

non-interest-

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

and stockholders’ equity, also fund

interest-earning assets,

net interest margin includes the indirect benefit of these

non-interest-bearing funding sources.

Changes

market

interest

rates

and

interest

rates

earn

interest-earning

assets

pay

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.

Q3 2023 Form 10-Q

The following

table contains

information related

to average

balances, average

yields earned

on assets,

and average

costs of liabilities for the periods indicated (dollars in

thousands):

Three Months Ended September 30,

2023

2022

Average

(1)

Balance

Interest

Yield/Rate

(2)

Average

(1)

Balance

Interest

Yield/Rate

(2)

Assets

Interest-earning assets:

Loans

(3)

1,610,864

22,523

5.55%

1,398,761

15,954

4.53%

Investment securities

(4)

445,828

2,833

2.52%

450,514

2,201

1.94%

Other interest-earnings assets

83,479

1,026

4.88%

70,540

322

1.81%

Total interest-earning assets

2,140,171

26,382

4.89%

1,919,815

18,477

3.82%

Non-interest-earning assets

110,087

106,976

Total assets

2,250,258

2,026,791

Liabilities and stockholders' equity

Interest-bearing liabilities:

Interest-bearing checking

52,080

331

2.52%

66,585

0.11%

Saving and money market deposits

1,011,164

8,779

3.44%

823,521

1,141

0.55%

Time deposits

290,272

2,565

3.51%

217,023

363

0.66%

Total interest-bearing deposits

1,353,516

11,675

3.42%

1,107,129

1,523

0.55%

FHLB advances and other borrowings

85,326

685

3.19%

43,935

180

1.63%

Total interest-bearing liabilities

1,438,842

12,360

3.41%

1,151,064

1,703

0.59%

Non-interest-bearing demand deposits

587,917

655,853

Other non-interest-bearing liabilities

38,598

34,586

Total liabilities

2,065,357

1,841,503

Stockholders' equity

184,901

185,288

Total liabilities and stockholders' equity

2,250,258

2,026,791

Net interest income

14,022

16,774

Net interest spread

(5)

1.48%

3.23%

Net interest margin

(6)

2.60%

3.47%

(1)

Average balances - Daily average balances are used

to calculate yields/rates.

(2)

Annualized.

(3)

Average loan balances include non-accrual loans. Interest income

on loans includes accretion of deferred loan

fees, net of deferred loan costs.

(4)

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

FHLB stock.

(5)

Net interest spread is the weighted average

yield on total interest-earning assets minus the weighted

average rate on total interest-bearing liabilities.

(6)

Net interest margin is the ratio of net interest

income to average total interest-earning assets.

Table of Contents

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

Nine Months Ended September 30,

2023

2022

Average

Balance

(1)

Interest

Yield/Rate

(2)

Average

Balance

(1)

Interest

Yield/Rate

(2)

Assets

Interest-earning assets:

Loans

(3)

1,576,074

63,081

5.35

1,302,909

42,989

4.41

Investment securities

(4)

430,118

7,501

2.33

484,489

7,040

1.94

Other interest-earnings assets

71,514

2,459

4.60

76,655

474

0.83

Total interest-earning assets

2,077,706

73,041

4.70

1,864,053

50,503

3.62

Non-interest earning assets

107,443

105,914

Total assets

2,185,149

1,969,967

Liabilities and stockholders' equity

Interest-bearing liabilities:

Interest-bearing checking

54,554

574

1.41

65,798

0.11

Money market and savings accounts

949,858

20,532

2.89

780,564

2,307

0.40

Time deposits

264,241

5,767

2.92

221,504

893

0.54

Total interest-bearing deposits

1,268,653

26,873

2.83

1,067,866

3,252

0.30

Borrowings and repurchase agreements

80,087

1,976

3.30

38,788

456

1.57

Total interest-bearing liabilities

1,348,740

28,849

2.87

1,106,654

3,708

0.45

Non-interest bearing demand deposits

617,741

642,396

Other non-interest-bearing liabilities

34,492

29,608

Total liabilities

2,000,973

1,778,658

Stockholders' equity

184,176

191,309

Total liabilities and stockholders' equity

2,185,149

1,969,967

Net interest income

44,192

46,795

Net interest spread

(5)

1.83

3.17

Net interest margin

(6)

2.84

3.36

(1)

Average balances - Daily average balances are used

to calculate yields/rates.

(2)

Annualized.

(3)

Average loan balances include non-accrual loans. Interest income

on loans includes accretion of deferred loan fees,

net of deferred loan costs.

(4)

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

(5)

Net interest spread is the weighted average

yield on total interest-earning assets minus the weighted

average rate on total interest-bearing

liabilities.

(6)

Net interest margin is the ratio of net interest

income to average total interest-earning assets.

Three months ended September 30, 2023 compared to the

three months ended September 30, 2022

Net interest income before the provision

for credit losses was $14.0

million for the three months

ended September 30,

2023, a

decrease

$2.8

million

16.4%,

from

$16.8

million

for the

same

period in

decrease

was

primarily

attributable

the

$10.7

million

increase

interest

expense,

which

was

result

the

prevailing

market

interest

rate

conditions which offset the increase in interest income.

Net interest margin was 2.60%

for the quarter ended September 30, 2023 and 3.47% for the same period in 2022. The

increase in loan yields as well as yields on other interest

-earning assets was offset by higher deposit and borrowing

costs.

Nine months ended September 30, 2023 compared to nine

months ended September 30, 2022

Net interest income

before the provision

for credit losses

was $44.2 million

for the nine

months ended September

30,

2023,

decrease

$2.6

million

5.6%,

from

$46.8

million

for

the

same

period

2022.

The

decrease

was

primarily

attributable

the

$25.1

million

increase

interest

expense,

which

was

result

the

prevailing

market

interest

rate

conditions which partially offset by the increase in interest

income.

Net interest margin

decreased to 2.84%

for the nine

months ended September

30, 2023 from

3.36% for the

same period

in 2022. Overall interest-bearing asset yields grew but

were outpaced by the increase in the cost of funds.

Provision for Credit Losses

The provision

for credit

losses represents

a charge

to earnings

necessary to

maintain an

allowance for

credit losses

that, in

management's evaluation,

is adequate

to provide

coverage for

all expected

credit losses.

The provision

for credit

Table of Contents

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

losses is impacted

by variations in

the size and

composition of our

loan and debt

securities portfolio, recent

historical and

projected future economic conditions, our internal assessment of the credit quality of the loan and debt

securities portfolios

and net charge-offs.

Three months ended September 30, 2023 compared to the

three months ended September 30, 2022

The provision

for credit

loss was

$653 thousand

for the

three months

ended September 30,

2023 compared

to $910

thousand for the

same period in

Growth in

the loan portfolio

was the primary

driver of the

provision expense during

the three

months ended

September 30, 2023

period.

The decrease

in provision

for credit

losses in

the 2023

period compared

to the September 30, 2022 quarter was due to greater loan

growth in third quarter 2022.

Nine months ended September 30, 2023 compared to nine

months ended September 30, 2022

The provision

for credit

loss

was

$892 thousand

for the

nine

months

ended

September

30,

2023 compared

$1.6

million

for

the

same

period

2022.

Decrease

$723

thousand

due

higher

loan

growth

the

nine

months

ended

September 30,

The ACL

as a

percentage

of total

loans was

1.16% at

September

30, 2023

and at

September 30,

2022.

ACL for the three

and nine months

ended September 30,

2023, was estimated

under the CECL methodology,

and for

all periods

in 2022,

it was

estimated under

the incurred

loss model

See “Allowance

for Credit

Losses”

below for

further

discussion on how the ACL is calculated.

Non-Interest Income

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

accounts. We also generate

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

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

insurance policies on some of our

employees and generate income from

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 September 30,

Nine Months Ended September 30,

2023

2022

2023

2022

Service fees

1,329

934

3,707

2,917

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

(955)

(558)

(976)

(540)

Gain on sale of loans held for sale, net

255

330

696

686

Loan settlement

161

Other non-interest income

1,532

1,083

2,650

2,127

Total

non-interest income

2,161

1,789

6,077

5,351

Three months ended September 30, 2023 compared to the

three months ended September 30, 2022

Non-interest income for the three months ended September 30, 2023 increased $372 thousand or 20.8%, compared to

the same period in 2022.

This increase was primarily driven by growth in service fees from a larger deposit portfolio and an

increase in

wire and

treasury

management

fees.

A strategic

restructuring

bank

owned

life insurance

increased

other

income

$982

thousand.

However,

there

was

$955

thousand

securities

loss

experienced

during

the

period.

The

Company sold $7.7 million in lower-yielding securities to reinvest

the funds in higher-return investments.

Nine months ended September 30, 2023 compared to the

nine months ended September 30, 2022

Non-interest income for the nine months

ended September 30, 2023 increased $726

thousand or 13.6%, compared to

the same

period in

This increase

was primarily

driven by

an increase

in service

fees from

a larger

deposit portfolio

and an

increase in

wire and

treasury management

fees. A strategic restructuring

of bank

owned life

insurance increased

other income by

$982 thousand

experienced during

the period. However,

there was a

$976 thousand securities

loss. The

Company sold

$16.4 million

in lower-yielding

securities

to reinvest

the funds

in higher-return

investments. For

the period

ended September 30, 2022, the Company recognized $161 thousand interest

recovery from a prior lending customer of the

Bank. This payment reflected the final payment and settlement of

lien judgements against the customer.

Table of Contents

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

Non-Interest Expense

The following table presents the components of non-interest

expense for the dates indicated (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

2023

2022

2023

2022

Salaries and employee benefits

6,066

6,075

18,325

17,863

Occupancy

1,350

1,281

3,968

3,802

Regulatory assessment and fees

365

269

1,041

708

Consulting and legal fees

513

604

1,257

1,519

Network and information technology services

481

488

1,464

1,323

Other operating

1,686

1,415

5,034

4,080

Total

non-interest expense

10,461

10,132

31,089

29,295

Three months ended September 30, 2023 compared to the

three months ended September 30, 2022

Non-interest expense for the three months ended September 30, 2023 increased $329 thousand or 3.2%, compared to

the same

period in

The increase

was primarily

driven by

an increase

in the audit

and tax

services, legal

expenses,

FDIC deposit insurance assessment,

and was partially offset by a decrease in the professional

fees.

Nine months ended September 30, 2023 compared to

the nine months ended September 30, 2022

Non-interest expense for the nine months ended September 30,

2023 increased $1.8 million or 6.1%, compared to

the

same period in

The increase

was primarily driven

by higher salaries

and employee benefits

expense due to

new hires,

increased salary compensation and seasonal payroll taxes as well as increases in the FDIC deposit insurance assessment

rate, and audit and tax services expense.

Provision for Income Tax

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

and expenses for

income tax purposes.

Therefore, future

decisions on the

investments we choose

will affect our

effective

tax rate.

The cash

surrender value

of bank-owned

life insurance

policies covering

key employees,

purchasing municipal

bonds, and overall levels of taxable income will be important

elements in determining our effective tax rate.

Three months ended September 30, 2023 compared to the

three months ended September 30, 2022

Income tax

expense for

the quarter

ended September

30, 2023

was $1.3

million as

compared to

$2.0 million

for the

same period in 2022.

The effective tax rate

for the three months ended

September 30, 2023 was 24.7% compared to

26.1%

for the same period in 2022.

Nine months ended September 30, 2023 compared to the

nine months ended September 30, 2022

Income tax expense for the nine months ended September 30, 2023 decreased to $4.5 million from $5.5 million for

the

same period

in 2022.

The Company’s

effective tax

rate was

24.4% for

the 2023

period compared

to 26.0%

for the

same

period in 2022.

For

further

discussion

income

taxes,

see

Note

“Income

Taxes”

the

unaudited

Consolidated

Financial

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

Analysis of Financial Condition

Total

assets at

September 30, 2023

were $2.2

billion, an

increase of

$158.8 million,

or 10.2%

annualized,

over total

assets of

$2.1 billion

at December

31, 2022.

Total

loans,

net of

unearned

fees/cost,

increased

$169.2

million,

or 15.0%

annualized, to $1.7 billion at September 30, 2023 compared to $1.5 billion at December 31, 2022. Total

deposits increased

by $91.6 million,

or 6.7% annualized, to $1.9 billion at September 30, 2023

compared to December 31, 2022.

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.

Q3 2023 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

is managed in accordance

with the Board approved

Asset and Liability

Management (“ALM”)

policy,

which

includes

investment

guidelines.

Such

policy

reviewed

least

annually

frequently

deemed

necessary,

depending on

market conditions

and/or unexpected

events. The investment

portfolio composition

is subject to

change depending on the funding and liquidity needs of the Company, and the interest risk management objective directed

by the Asset-Liability

Comittee (“ALCO”). The

portfolio of investments

also 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 prior to

maturity

depending on

capital market

conditions

and

expectations.

The

investment

portfolio

is regularly

reviewed by

the

Chief Financial

Officer,

Treasurer,

and the

ALCO of

the Company

to ensure

an appropriate

risk and

return profile

as well

as for adherence to the investment policy.

ASC Topic

326 amended

the

existing

other-than-temporary-impairment

guidance

for AFS

securities,

requiring

credit

losses to be recorded as

an allowance rather than

through a permanent write-down.

When evaluating AFS debt

securities

under ASC Topic

326, the Company has evaluated

whether the decline in fair value

is attributable to credit losses

or other

factors

interest

rate

risk,

using

both

quantitative

and

qualitative

analyses,

including

company

performance

analysis,

review of credit

ratings, remaining

payment terms,

prepayment speeds

and analysis

of macro-economic

conditions. Each

investment is expected

to recover

its price depreciations

over its holding

period as

it moves to

maturity and the

Company

has

the

intent

and

ability

hold

these

securities

maturity

necessary.

result

this

evaluation,

the

Company

concluded that no allowance was required on AFS securities.

AFS and

HTM investment

securities de

creased $2.9

million, or

0.9% annualized,

to $415.9 million

at September

30,

2023 from $418.8 million at December 31,

Investment securities increased due

to reinvestment of payments received

and investment of excess

in cash balances into

high credit quality investments

to increase the Company’s

profitability and

modify the

Company’s balance sheet

duration according to

the ALM policy. As

of September 30, 2023,

investment securities

with a market value of $107.7 million

were pledged to secure public deposits

and the BTFP.

The investment portfolio does

not have any tax-exempt securities.

Table of Contents

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

The

following

table

presents

the

amortized

cost

and

fair

value

investment

securities

for

the

dates

indicated

(in

thousands):

September 30, 2023

December 31, 2022

Available-for-sale:

Amortized

Cost

Fair Value

Amortized

Cost

Fair Value

U.S. Government Agency

9,913

8,025

10,177

8,655

Collateralized mortgage obligations

105,547

78,571

118,951

95,541

Mortgage-backed securities - residential

66,024

51,157

73,838

60,879

Mortgage-backed securities - commercial

48,010

40,564

32,244

27,954

Municipal securities

25,024

18,116

25,084

18,483

Bank subordinated debt securities

24,417

22,176

15,964

14,919

Corporate bonds

4,037

3,709

278,935

218,609

280,295

230,140

Held-to-maturity:

U.S. Government Agency

44,087

37,049

44,914

39,062

U.S. Treasury

19,934

19,906

9,841

9,828

Collateralized mortgage obligations

64,094

53,786

68,727

60,925

Mortgage-backed securities - residential

44,302

38,214

42,685

38,483

Mortgage-backed securities - commercial

15,467

13,884

11,442

10,777

Corporate bonds

9,443

8,455

11,090

10,013

197,327

171,294

188,699

169,088

Allowance for credit losses - securities held-to-maturity

(16)

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

197,311

The following

table shows

the weighted

average yields,

categorized by

contractual maturity,

for investment

securities

as of September 30, 2023 (in thousands,

except ratios):

Within 1 year

After 1 year through

5 years

After 5 years through

10 years

After 10 years

Total

Amortized

Cost

Yield

Amortized

Cost

Yield

Amortized

Cost

Yield

Amortized

Cost

Yield

Amortized

Cost

Yield

Available-for-sale:

U.S. Government Agency

0.00%

1,983

3.17%

6,042

1.53%

8,025

1.93%

Collateralized mortgage obligations

0.00%

78,571

1.39%

78,571

1.39%

MBS - residential

0.00%

51,157

1.62%

51,157

1.62%

MBS - commercial

0.00%

40,564

2.58%

40,564

2.58%

Municipal securities

0.00%

2,720

1.69%

15,396

1.75%

18,116

1.74%

Bank subordinated debt securities

0.00%

5,977

5.75%

16,199

4.88%

0.00%

22,176

5.12%

Corporate bonds

0.00%

5,977

20,902

191,730

218,609

2.09%

Held-to-maturity:

U.S. Government Agency

0.00%

7,921

1.02%

20,141

1.38%

16,025

2.01%

44,087

1.54%

U.S. Treasury

19,934

5.20%

0.00%

19,934

5.20%

Collateralized mortgage obligations

0.00%

64,094

1.66%

64,094

1.66%

MBS - residential

0.00%

4,468

1.85%

5,925

1.75%

33,909

2.40%

44,302

2.26%

MBS - commercial

0.00%

3,076

1.62%

12,391

2.60%

15,467

2.40%

Corporate bonds

0.00%

9,443

2.80%

0.00%

9,443

2.80%

19,934

21,832

29,142

126,419

197,327

2.24%

Loans

Loans are the

largest category of

interest-earning assets

on the unaudited

Consolidated Balance

Sheets, and usually

provide

higher

yields

than

the

remainder

the

interest-earning

assets.

Higher

yields

typically

carry

inherent

credit

and

liquidity risks in comparison to lower

yield assets. The Company manages

and mitigates such risks in accordance

with the

credit and ALM policies, risk tolerance and balance sheet

composition.

Table of Contents

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

The following table shows the loan portfolio composition

as of the dates indicated (in thousands):

September 30, 2023

December 31, 2022

Total

Percent of

Total

Percent of

Total

Residential Real Estate

188,880

11.3

185,636

12.3

Commercial Real Estate

1,005,280

60.0

970,410

64.4

Commercial and Industrial

212,975

12.7

126,984

8.4

Foreign Banks

94,640

5.7

93,769

6.2

Consumer and Other

173,096

10.3

130,429

8.7

Total

gross loans

1,674,871

100.0

1,507,228

100.0

Plus: Deferred fees (cost)

1,649

110

Total

loans net of deferred fees (cost)

1,676,520

1,507,338

Less: Allowance for credit losses

19,493

17,487

Total

net loans

1,657,027

1,489,851

Total

loans,

net

unearned

fees/cost,

increased

$169.2 million,

15.0%

annualized

$1.7

billion,

September 30, 2023

compared to

December 31,

commercial

and industrial,

and to

a lesser

extent, consumer

and other and commercial real estate loan segments had the

most significant growth.

Our

loan

portfolio

continues

grow,

with

commercial

real

estate

lending

the

primary

focus

which

represented

approximately 60.0%

of the

total gross

loan portfolio

as of

September 30, 2023.

Our loan

growth strategy

since inception

has been reflective of the market in which we operate and of our

strategic plan as approved by the Board.

Most of the

commercial real estate

exposure represents

loans to commercial

businesses secured

by owner-occupied

real estate.

The growth

experienced in

recent years

is primarily

due to

implementation of

our relationship-based

banking

model and

the success

of our

relationship managers

in competing

for new

business

in a

highly competitive

metropolitan

area. Many

of our

larger loan

clients have

long-term relationships

with members

of our

senior management

team or

our

relationship managers that date back to former institutions.

From a

liquidity perspective,

our loan

portfolio provides

us with

additional

liquidity due

to repayments

or unexpected

prepayments.

The

following

table

shows

maturities

and

sensitivity

interest

rate

changes

for

the

loan

portfolio

September 30, 2023 (in thousands):

Due in 1 year or

less

Due in 1 to 5

years

Due after 5 to 15

years

Due after 15

years

Total

Residential Real Estate

9,513

23,902

81,777

73,688

188,880

Commercial Real Estate

85,013

164,387

747,779

8,101

1,005,280

Commercial and Industrial

5,348

53,234

114,106

40,287

212,975

Foreign Banks

94,640

Consumer and Other

1,634

3,080

10,223

158,159

173,096

Total

gross loans

196,148

244,603

953,885

280,235

1,674,871

Interest rate sensitivity:

Fixed interest rates

174,725

144,198

193,366

170,370

682,659

Floating or adjustable rates

21,423

100,405

760,519

109,865

992,212

Total

gross loans

196,148

244,603

953,885

280,235

1,674,871

The information

presented

in the

table above

is based

upon the

contractual

maturities of

the individual

loans, which

may be

subject to

renewal at

their contractual

maturity.

Renewals will

depend on

approval by

our credit

department and

balance sheet

composition at the

time of

the analysis,

as well

as any

modification of terms

at the

loan’s maturity. Additionally,

maturity

concentrations,

loan

duration,

prepayment

speeds

and

other

interest

rate

sensitivity

measures

are

discussed,

reviewed, and analyzed by the ALCO. Decisions on term

/rate modifications are discussed as well.

As of September 30,

2023, approximately 59%

of the loans have

adjustable/variable rates and

41% of the

loans have

fixed rates.

The adjustable/variable

rate loans

re-price to

different benchmarks

and tenors

in different

periods of

time. By

contractual characteristics, there are no

material concentrations on anniversary repricing. Additionally, it is

important to note

that most

of our

loans have

interest rate

floors. This

embedded option

protects the

Company from

a decrease

in interest

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

of higher interest rates.

Table of Contents

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

Asset Quality

Our asset quality grading

analysis estimates the capability of

the borrower to repay

the contractual obligation of

the loan

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

graded loans. Internal credit

risk grades are reviewed

at least once a

year, and

more frequently as

needed. Internal credit

risk ratings

may change

based on

management’s

assessment of

the results

from the

annual review,

portfolio monitoring,

and other developments observed with borrowers.

The internal credit risk grades used by the Company to

assess the credit worthiness of a loan are shown below:

Pass

– Loans indicate different levels of satisfactory

financial condition and performance.

Special Mention

– Loans classified as special mention have a potential weakness

that deserves management’s

close attention. If left uncorrected, these potential weaknesses

may result in deterioration of the repayment

prospects for the loan or of the institution’s

credit position at some future date.

Substandard

– Loans classified as substandard are inadequately protected

by the current net worth and paying

capacity of the obligator or of the collateral pledged, if

any. Loans so classified

have a well-defined weakness or

weaknesses that jeopardize the liquidation of the debt.

They are characterized by the distinct possibility that the

institution will sustain some loss if the deficiencies are

not corrected.

Doubtful

– Loans classified as doubtful have all the weaknesses inherent

in those classified at substandard, with

the added characteristic that the weaknesses make collection

or liquidation in full on the basis of currently existing

facts, conditions, and values, highly questionable and improbable.

Loss

– Loans classified as loss are considered uncollectible.

Loan credit exposures by internally assigned grades are

as follows for the dates indicated (in thousands):

September 30, 2023

Pass

Special Mention

Substandard

Doubtful

Total

Residential Real Estate

188,880

Commercial Real Estate

1,002,765

2,515

1,005,280

Commercial and Industrial

210,991

1,984

212,975

Foreign Banks

94,640

Consumer and Other

173,096

1,670,372

4,499

1,674,871

December 31, 2022

Pass

Special Mention

Substandard

Doubtful

Total

Residential Real Estate

185,636

Commercial Real Estate

967,465

2,945

970,410

Commercial and Industrial

126,177

807

126,984

Foreign Banks

93,769

Consumer and Other

130,233

196

130,429

1,503,280

3,948

1,507,228

Table of Contents

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

Non-Performing Assets

The following table presents non-performing assets as

of the dates shown (in thousands,

except ratios):

September 30, 2023

December 31, 2022

Total

non-performing loans

479

Other real estate owned

Total

non-performing assets

479

Asset quality ratios:

(1)

Allowance for credit losses to total loans

1.16%

Allowance for credit losses to non-performing loans

4070%

Non-performing loans to total loans

0.03%

(1)

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

Non-performing

assets

include

all

loans

categorized

non-accrual

restructured,

impaired

securities,

other

real

estate

owned

(“OREO”)

and

other

repossessed

assets.

Problem

loans

for

which

the

collection

liquidation

full

reasonably uncertain are

placed on a non-accrual

status. This determination

is based on current

existing facts concerning

collateral values and the paying capacity of the borrower.

When the collection of the full contractual balance is unlikely,

the

loan is placed on non-accrual to avoid overstating the

Company’s income for a loan with increased credit

risk.

If the

principal or

interest on

a commercial

loan becomes

due and

unpaid for

90 days

or more,

the loan

is placed

non-accrual status as of

the date it becomes

90 days past due

and remains in non-accrual

status until it meets

the criteria

for restoration to accrual status.

Residential loans, on

the other hand, are placed

on non-accrual status when

the principal

or interest

becomes due

and unpaid

for 120

days or

more and remains

in non-accrual

status until

it meets

the criteria

for

restoration

accrual

status.

Restoring

loan

accrual

status

possible

when

the

borrower

resumes

payment

all

principal and interest

payments for a period

of six months

and the Company

has a documented

expectation of repayment

of the remaining contractual principal and interest or the

loan becomes secured and in the process of collection.

The

Company

may

grant

loan

concession

borrower

experiencing

financial

difficulties.

This

determination

performed

during

the

annual

review

process

whenever

problems

surface

regarding

the

client’s

ability

repay

accordance with

the original

terms of

the loan

or line

of credit.

The concessions

are given

to the

debtor in

various forms,

including interest rate

reductions, principal forgiveness, extension

of maturity date,

waiver, or deferral of

payments and other

concessions intended to minimize potential losses.

For further discussion on non-performing loans

and borrowers experiencing financial difficulties,

see Note 3 “Loans” to

the unaudited Consolidated Financial Statements in Item

1 of Part 1 this Form 10-Q.

Allowance for Credit Losses

On January 1,

2023, the Company

adopted FASB

ASU 2016-13,

which introduced the

current expected

credit losses

(CECL)

methodology

and

required

us to

estimate

all expected

credit

losses over

the remaining

life of

our loan

portfolio.

Accordingly,

the

ACL

represents

amount

that,

management's

evaluation,

adequate

provide

coverage

for

all

expected future credit losses on outstanding loans. Additionally,

qualitative adjustments are made to the ACL when, based

management’s

judgment,

there

are

factors

impacting

the

allowance

estimate

not

considered

the

quantitative

calculations.

See

Note

3 “Loans”

in Item

Part 1

of this

Form

10-Q

for

information

the

allowance

for credit

losses.

Table of Contents

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

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

type for the periods indicated (in thousands):

Residential

Real Estate

Commercial

Real Estate

Commercial

and Industrial

Foreign

Banks

Consumer

and Other

Total

Three Months Ended September 30, 2023

Beginning balance

2,673

10,183

2,500

677

2,782

18,815

Provision for credit losses

(1)

(162)

(84)

738

108

673

Recoveries

Charge-offs

(3)

Ending Balance

2,511

10,099

3,246

750

2,887

19,493

Average loans

183,643

992,171

179,127

87,847

168,076

1,610,864

Net charge-offs to average loans

-0.02%

0.01%

0.00%

Nine Months Ended September 30, 2023

Beginning balance

1,352

10,143

4,163

720

1,109

17,487

Cumulative effect of adoption of accounting

principle

(2)

1,238

1,105

(2,158)

858

1,066

Provision for credit losses

(3)

(89)

(1,149)

1,181

965

915

Recoveries

Charge-offs

(48)

Ending Balance

2,511

10,099

3,246

750

2,887

19,493

Average loans

186,918

980,244

164,466

90,597

153,849

1,576,074

Net charge-offs to average loans

-0.01%

-0.05%

0.04%

0.00%

(1) Provision for credit losses excludes $17 thousand release due to unfunded commitments included in other liabilities and $3

thousand release due to investment securities held to maturity.

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

(3) Provision for credit losses excludes $39 thousand release due to unfunded commitments included in other liabilities and $16

thousand expense due to investment securities held to maturity.

Residential

Real Estate

Commercial

Real Estate

Commercial

and Industrial

Foreign

Banks

Consumer

and Other

Total

Three Months Ended September 30, 2022

Beginning balance

2,366

9,290

2,671

651

808

15,786

Provision for credit losses

(1,009)

695

1,126

910

Recoveries

Charge-offs

(88)

(5)

(93)

Ending Balance

1,358

9,985

3,709

725

827

16,604

Average loans

190,757

887,000

119,993

94,628

106,382

1,398,761

Net charge-offs to average loans

0.29%

0.02%

0.03%

Nine Months Ended September 30, 2022

Beginning balance

2,498

8,758

2,775

457

569

15,057

Provision for credit losses

(1,157)

1,227

1,011

268

266

1,615

Recoveries

Charge-offs

(16)

(88)

(11)

(115)

Ending Balance

1,358

9,985

3,709

725

827

16,604

Average loans

195,863

809,411

128,625

77,237

91,773

1,302,909

Net charge-offs to average loans

-0.02%

0.00%

0.12%

0.00%

0.02%

0.01%

Bank-Owned Life Insurance

As of September 30,

2023, the combined

cash surrender

value of all

bank-owned life

insurance (“BOLI”)

policies was

$51.4

million.

Changes

cash

surrender

value

are

recorded

non-interest

income

the

unaudited

Consolidated

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

these policies.

Table of Contents

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

During the

third quarter

of 2023,

the Company

restructured its

BOLI, cancelling

a $7.1

million policy

by surrendering

$4.2 million of the value and transferring the remaining $2.9 million to a new BOLI

policy. The new BOLI policy

was funded

with an additional

$11.1

million for

a total of

$14.1 million.

This new

BOLI policy

received a cash

surrender enhancement

from the new insurance carrier of $981 thousand.

Deposits

Customer deposits are the

primary funding source for

the Bank’s growth.

Through our network of

banking centers, we

offer a competitive array of deposit

accounts and treasury management services designed

to meet our customers’ business

needs.

Our

primary

deposit

customers

are

small-to-medium

sized

businesses

(“SMBs”),

and

the

personal

business

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

relationships of the employees of these businesses.

The following table

presents the daily

average balance and

average rate paid

on deposits by

category for

the periods

presented (in thousands, except ratios):

Three Months Ended September 30,

2023

2022

Average Balance

Average Rate

Paid

Average Balance

Average Rate

Paid

Non-interest-bearing checking

587,917

0.00%

655,853

0.00%

Interest-bearing checking

52,080

2.52%

66,585

0.11%

Money market and savings deposits

1,011,164

3.44%

823,521

0.55%

Time deposits

290,272

3.51%

217,023

0.66%

Total

1,941,433

2.39%

1,762,982

0.34%

The Company

has a

granular deposit

portfolio with

outstanding balances

comprised of

49% in

commercial

deposits,

37%

personal

deposits,

11%

public

funds

which

are

partially

collateralized

and

brokered

deposits.

During

the

nine

months ended September

30, 2023, the

Company acquired $50

million in brokered

deposits to boost

liquidity. The Company

has

approximately

thousand

deposit

accounts

with

the

majority

personal

accounts,

approximately

thousand

63.8%. The

estimated average

account size

of our

deposit portfolio

is approximately

$95

thousand

as of

September 30,

Company also offers

Insured Cash

Sweep (“ICS”) and

Certificate of

Deposit Account Registry Service

(“CDARS”)

deposit products to fully insure our clients.

The

uninsured

deposits

are

estimated

based

the

FDIC

deposit

insurance

limit

$250

thousand

for

all

deposit

accounts at the Company

per account holder.

The total estimated

amount of uninsured deposits

is 53% at

September 30,

2023.

The following table shows scheduled maturities of uninsured

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

September 30, 2023

Three months or less

18,563

Over three through six months

32,457

Over six though twelve months

28,769

Over twelve months

2,566

82,355

Other Liabilities

The Company collects from commercial and residential loan

customers funds which are held in escrow for future

payment of real estate taxes and insurance. These escrow

funds are disbursed by the Company directly to the

insurance

companies and taxing authority of the borrower.

Escrow funds are recorded as other liabilities.

As of September 30, 2023 escrow balances totaled $16.7 million

compared to $3.5 million at December 31, 2022.

Table of Contents

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

Borrowings

As a member

of the FHLB,

we are eligible

to obtain

advances with

various terms

and conditions.

This accessibility

additional funding allows us to efficiently and timely meet both expected

and unexpected outgoing cash flows and collateral

needs without adversely affecting either daily operations

or the financial condition of the Company.

As of September 30, 2023,

we had $102.0 million

of fixed and variable rate

advances outstanding from

the FHLB with

a weighted average rate of 3.66%.

Maturity dates for the advances range

between 2023 to 2028 detailed

in the table below.

The following table presents the FHLB advances as of

September 30, 2023 (in thousands):

Interest Rate

Type of Rate

Maturity Date

Amount

5.57%

Variable

December 22, 2023

20,000

1.04%

Fixed

July 30, 2024

5,000

2.05%

Fixed

March 27, 2025

10,000

1.07%

Fixed

July 18, 2025

6,000

3.76%

Fixed

January 24, 2028

11,000

3.77%

Fixed

April 25, 2028

50,000

102,000

We have

also established

Federal Funds

lines of

credit with

our upstream

correspondent

banks,

the BTFP,

and the

FRB Atlanta

Discount Window

to manage

temporary fluctuations

in our

daily cash

balances. As

of September

30, 2023,

there were no outstanding balances with any of these

liquidity sources.

Off-Balance Sheet Arrangements

We engage

in various financial

transactions in

our operations

that, under GAAP,

may not be

included on

the balance

sheet. To

meet the financing needs

of our customers we may

include commitments to extend

credit and standby letters

credit. To

a varying

degree, such

commitments involve

elements of

credit, market,

and interest

rate risk

in excess

of the

amount recognized

in the

balance sheet.

We use

more conservative

credit and

collateral policies

in making

these credit

commitments than

we do

for on-balance

sheet items.

We are

not aware

of any accounting

loss to

be incurred

by funding

these commitments;

however,

maintain

allowance

for

off-balance

sheet

credit

risk

which

is recorded

under

other

liabilities on the unaudited Consolidated Balance Sheets.

Since commitments associated with letters of

credit and commitments to extend

credit may expire unused, the

amounts

shown

not

necessarily

reflect

actual

future

cash

funding

requirements.

The

following

table

presents

lending

commitments outstanding as of the dates indicated (in thousands

September 30, 2023

December 31, 2022

Commitments to grant loans and unfunded lines of credit

100,661

95,461

Standby and commercial letters of credit

6,490

4,320

Total

107,151

99,781

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

established

the

contract,

for

specific

purpose.

Commitments

generally

have

variable

interest

rates,

fixed

expiration

dates or

other

termination

clauses

and

may require

payment

a fee.

Since many

of the

commitments

are

expected to

expire without being

fully drawn, the

total commitment

amounts disclosed

above do not

necessarily represent

future cash

requirements.

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

in credit risk in our portfolio. Lines

of credit generally have variable interest

rates. The maximum potential amount

of future

payments we could

be required to

make is represented

by the contractual

amount of the

commitment, less

the amount of

any advances made.

Letters of credit are

conditional commitments issued

by us to guarantee

the performance of a

client to a third

party.

the event of nonperformance by

the client in accordance with the

terms of the agreement with the

third party,

we would be

required to fund

the commitment.

If the commitment

is funded, we

would be entitled

to seek recovery

from the client

from

the underlying collateral,

which can include

commercial real estate,

physical plant and

property, inventory, receivables, cash

or marketable securities.

Table of Contents

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

Asset and Liability Management Committee

Members

senior

management

and

our

Board

make

the

asset

and

liability

management

committee,

ALCO.

Senior management

is responsible

for ensuring

that Board

approved strategies

and policies

for managing

and mitigating

risks are appropriately executed within the designated lines of

authority and responsibility in a timely manner.

ALCO

oversees

the

establishment,

approval,

implementation,

and

review

interest

rate

risk,

management,

and

mitigation strategies, ALM related policies, ALCO procedures

and risk tolerances and appetite.

While some degree of

IRR (“Interest Rate

Risk”) is inherent to

the banking business, we

believe our ALCO implemented

sound risk management practices to identify,

quantify,

monitor, and limit IRR exposures.

When assessing

the scope

of IRR

exposure

and

impact on

the consolidated

balance sheet,

cash

flows and

income

statement,

management

considers

both

earnings

and

economic

impacts.

Asset

price

variations,

deposit

volatility

and

reduced earnings or outright losses could adversely affect

the Company’s liquidity,

performance, and capital adequacy.

Income simulations

are used

to assess

the impact

of changing

rates on

earnings under

different rates

scenarios and

time horizons.

These simulations

utilize both

instantaneous and

parallel changes

in the

level of

interest rates,

as well

non-parallel changes such as

changing slopes (flat and steepening)

and twists of the yield curve.

Static simulation models

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

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

simulation relies on detailed assumptions outlined in

our

budget

and

strategic

plan,

and

assumptions

regarding

changes

existing

lines

business,

new

business,

management strategies and client expected behavior.

have

complete

picture

IRR,

the

Company

also

evaluates

the

economic

value

equity

(“EVE”).

This

assessment

allows

measure

the

degree

which

the

economic

values

will

change

under

different

interest

rate

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

future cash flows expected

from existing assets and

liabilities. The economic value

model utilizes a static

approach in that

the analysis

does not

incorporate new

business; rather,

the analysis

shows a

snapshot in

time of

the risk

inherent in

the

balance sheet.

Market and Interest Rate Risk Management

According to our

ALCO model, as of

September 30, 2023,

we had an asset

sensitive balance sheet

both for year one

and two

modeling,

using the

static modeling.

Asset sensitivity

indicates

that

our assets

generally reprice

faster

than our

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

increase. Liability sensitivity

indicates that our

liabilities generally reprice faster

than our assets,

which results in

a favorable impact

to net interest

income

when market interest rates decrease.

Many assumptions are used

to calculate the impact of interest

rate variations on our

net interest income,

such as asset

prepayment speeds, non-maturity

deposit price sensitivity,

pricing correlations, deposit

truncations and decay rates, and key interest rate drivers.

Because of the inherent use

of these estimates and

assumptions in the model,

our actual results may,

and most likely

will, differ from static measures results.

In addition, static measures like EVE

do not include actions that management

may

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

ALM strategy

and

policy,

management

has the

ability

to modify

the

balance sheet

either increase

asset

duration

and

decrease liability

duration to reduce

asset sensitivity,

or to decrease

asset duration and

increase liability duration

in order

to increase asset sensitivity.

According to our

model, as of September

30, 2023, our balance

sheet is asset

sensitive for both year

one and two

under

interest static rate

scenarios (an increase

or decrease of

400 basis points).

This means than

if rates increase the

NIM will

increase and if rates decrease the NIM will decrease. Additionally, utilizing an EVE approach, we analyze the risk to capital

from

the

effects

various

interest

rate

scenarios

through

long-term

discounted

cash

flow

model.

This

measures

the

difference

between

the

economic

value

our

assets

and

the

economic

value

our

liabilities,

which

proxy

for

our

liquidation value.

According to

our balance

sheet composition,

and as

expected, our

model stipulates

that an

increase in

interest rates will have a

negative impact on the EVE and

lower rates, a positive impact.

Results and analysis are presented

quarterly to the ALCO, and strategies are reviewed and refined.

Table of Contents

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

Liquidity

Liquidity is defined

as a Company’s

capacity to meet

its cash and

collateral obligations at

a reasonable cost.

Maintaining

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

efficiently meet both expected and unexpected cash flow

and collateral needs without adversely affecting

either daily operations or the financial condition of the

Company.

Liquidity risk

is the

risk that

we will

be unable

to meet

our short-term

and long-term

obligations as

they become

due

because of an inability

to liquidate assets or

obtain relatively adequate funding. The

Company’s obligations, and the funding

sources

used

meet

them,

depend

significantly

our

business

mix,

balance

sheet

structure

and

composition,

credit

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

and off-balance sheet obligations.

In managing

inflows and

outflows,

management

regularly

monitors situations

that can

give rise

to increased

liquidity

risk. These

include funding

mismatches, market

constraints on

the ability

to convert

assets (particularly

investments) into

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

and contingent liquidity events.

Changes in macroeconomic conditions, as well as exposure

to credit, market, operational, legal and reputational

risks,

such as

cybersecurity risk,

could have

an unexpected

impact on

the Company’s

liquidity risk

profile and

are factored

into

the assessment of liquidity and the ALM framework.

Management has established

a comprehensive and

holistic management process for

identifying, measuring, monitoring

and

mitigating

liquidity

risk.

Due

its

critical

importance

the

viability

the

Company,

liquidity

risk

management

integrated into our risk management processes, Contingency

Funding Plan and ALM policy.

Critical elements of our liquidity

risk management include: effective corporate governance consisting of

oversight by the

Board and active

involvement of senior

management; appropriate strategies, policies,

procedures, and limits

used to identify

and mitigate liquidity risk; comprehensive liquidity risk measurement and

monitoring systems (including assessments of the

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

business

activities of

the Company;

active management

of intraday

liquidity and

collateral; an

appropriately diverse

mix of

existing

and

potential

future

funding

sources;

adequate

levels

highly

liquid

marketable

securities

free

legal,

regulatory,

operational

impediments,

that

can

used

meet

liquidity

needs

stressful

situations;

comprehensive

contingency

funding plans

that sufficiently address

potential adverse liquidity

events and emergency

cash flow

requirements; and internal

controls

and

internal

audit

processes

sufficient

determine

the

adequacy

the

institution’s

liquidity

risk

management

process.

expect

funds

available

from

several

basic

banking

activity

sources,

including

the

core

deposit

base,

the

repayment and maturity of loans and investment security

cash flows. Other potential funding sources include

federal funds

purchased, brokered

certificates of

deposit, listing

services certificates

of deposit,

the Bank

Term

Funding Program,

FRB

Atlanta discount

window,

and borrowings

from the

FHLB. Accordingly,

we believe

our liquidity

resources are

adequate to

fund loans and meet other cash needs as necessary.

Table of Contents

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

Capital Adequacy

As of

September 30,

2023, the

Bank was

well capitalized

under the

FDIC’s

prompt corrective

action framework.

also follow the capital conservation buffer framework, and

as of September 30, 2023, we exceeded the

capital conversation

buffer in

all capital ratios,

according to

our actual ratios.

The following table

presents the capital

ratios for

the Bank at

the

dates indicated (in thousands,

except ratios).

Actual

Minimum Capital

Requirements

To be Well Capitalized

Under Prompt Corrective

Action Provisions

Amount

Ratio

Amount

Ratio

Amount

Ratio

September 30, 2023

Total

risk-based capital

230,801

13.06

141,327

8.00

176,659

10.00

Tier 1 risk-based capital

210,815

11.93

105,995

6.00

141,327

8.00

Common equity tier 1 capital

210,815

11.93

79,496

4.50

114,828

6.50

Leverage ratio

210,815

9.24

91,310

4.00

114,138

5.00

December 31, 2022:

Total

risk-based capital

216,693

13.58

127,616

8.00

159,520

10.00

Tier 1 risk-based capital

198,909

12.47

95,712

6.00

127,616

8.00

Common equity tier 1 capital

198,909

12.47

71,784

4.50

103,688

6.50

Leverage ratio

198,909

9.56

83,210

4.00

104,012

5.00

The Company is

not subject to

regulatory capital ratios

imposed by Basel

III on bank

holding companies because

the

Company is deemed to be a small bank holding company.

Impact of Inflation

Our

Consolidated

Financial

Statements

and

notes

have

been

prepared

accordance

with

U.S.

GAAP,

which require the measurement of financial

position and operating results in terms

of historical dollars, without considering

the changes in the

relative purchasing power

of money over time

due to inflation. The

impact of inflation is

reflected in the

increased cost of operations.

Unlike most industrial companies,

nearly all our assets and

liabilities are monetary in

nature.

As a result,

interest rates have a

greater impact on our

performance than do the

effects of general levels

of inflation. Periods

of high inflation

are often accompanied

by relatively higher

interest rates, and

periods of low

inflation are accompanied

relatively lower interest rates.

As market interest rates

rise or fall in relation

to the rates earned

on loans and investments,

the

value

these

assets

decreases

increases

respectively.

Inflation

can

also

impact

core

non-interest

expenses

associated with delivering the Company’s servi

ces.

Recently Issued Accounting Pronouncements

Recently issued accounting

pronouncements are discussed

in Note 1 “Summary

of Significant Accounting Policies”

the unaudited Consolidated Financial Statements in this

Form 10-Q.

Table of Contents

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

Reconciliation and Management Explanation of Non

-GAAP Financial Measures

Management

has

included

these

non-GAAP

measures

because

believes

these

measures

may

provide

useful

supplemental information

for evaluating

the Company’s

underlying performance

trends. Further,

management uses

these

measures

managing

and

evaluating

the

Company’s

business

and

intends

refer

them

discussions

about

our

operations and performance.

Operating performance

measures should be

viewed in addition

to, and not

as an alternative

to or

substitute

for,

measures

determined

accordance

with

GAAP,

and

are

not

necessarily

comparable

to non-GAAP

measures that may be presented by other

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

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

except per share data):

Table of Contents

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

USCB FINANCIAL HOLDINGS, INC.

NON-GAAP FINANCIAL MEASURES (UNAUDITED)

(Dollars in thousands)

As of or For the Three Months Ended

9/30/2023

6/30/2023

3/31/2023

12/31/2022

9/30/2022

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

(1)

Net income

3,819

4,196

5,809

4,434

5,558

Plus: Provision for income taxes

1,250

1,333

1,881

1,415

1,963

Plus: Provision for credit losses

653

201

880

910

PTPP income

5,722

5,567

7,891

6,729

8,431

PTPP return on average assets:

(1)

PTPP income

5,722

5,567

7,891

6,729

8,431

Average assets

2,250,258

2,183,542

2,120,218

2,051,867

2,026,791

PTPP return on average assets

(2)

1.01%

1.02%

1.51%

1.30%

1.65%

Operating net income:

(1)

Net income

3,819

4,196

5,809

4,434

5,558

Less: Net gains (losses) on sale of securities

(955)

(21)

(1,989)

(558)

Less: Tax effect on sale of securities

242

504

141

Operating net income

4,532

4,196

5,825

5,919

5,975

Operating PTPP income:

(1)

PTPP income

5,722

5,567

7,891

6,729

8,431

Less: Net gains (losses) on sale of securities

(955)

(21)

(1,989)

(558)

Operating PTPP income

6,677

5,567

7,912

8,718

8,989

Operating PTPP return on average assets:

(1)

Operating PTPP income

6,677

5,567

7,912

8,718

8,989

Average assets

2,250,258

2,183,542

2,120,218

2,051,867

2,026,791

Operating PTPP return on average assets

(2)

1.18%

1.02%

1.51%

1.69%

1.76%

Operating return on average assets:

(1)

Operating net income

4,532

4,196

5,825

5,919

5,975

Average assets

2,250,258

2,183,542

2,120,218

2,051,867

2,026,791

Operating return on average assets

(2)

0.80%

0.77%

1.11%

1.14%

1.17%

Operating return on average equity:

(1)

Operating net income

4,532

4,196

5,825

5,919

5,975

Average equity

184,901

184,238

183,371

177,556

185,288

Operating return on average equity

(2)

9.72%

9.13%

12.88%

13.23%

12.79%

Operating Revenue:

(1)

Net interest income

14,022

14,173

15,997

16,866

16,774

Plus: Non-interest income

2,161

1,846

2,070

(123)

1,789

Less: Net gains (losses) on sale of

securities

(955)

(21)

(1,989)

(558)

Operating revenue

17,138

16,019

18,088

18,732

19,121

Operating Efficiency Ratio:

(1)

Total non-interest expense

10,461

10,452

10,176

10,014

10,132

Operating revenue

17,138

16,019

18,088

18,732

19,121

Operating efficiency ratio

61.04%

65.25%

56.26%

53.46%

52.99%

(1)

The Company believes these non-GAAP measurements

are key indicators of the ongoing earnings

power of the Company.

(2)

Annualized.

Table of Contents

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

USCB FINANCIAL HOLDINGS, INC.

NON-GAAP FINANCIAL MEASURES (UNAUDITED)

(Dollars in thousands, except per share data)

As of or For the Three Months Ended

9/30/2023

6/30/2023

3/31/2023

12/31/2022

9/30/2022

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

(1)

Total stockholders' equity

182,884

183,685

183,858

182,428

177,417

Less: Intangible assets

Tangible stockholders' equity

182,884

183,685

183,858

182,428

177,417

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

Total common shares issued and outstanding

19,544,777

19,622,380

20,000,753

Tangible book value per common share

(2)

9.36

9.40

9.37

9.12

8.87

Operating diluted net income per common share:

(1)

Operating net income

4,532

4,196

5,825

5,919

5,975

Total weighted average diluted shares of common stock

19,611,897

19,639,682

19,940,606

20,172,438

20,148,208

Operating diluted net income per common share:

0.23

0.21

0.29

0.30

Tangible Common Equity/Tangible Assets

(1)

Tangible stockholders' equity

182,884

183,685

183,858

182,428

177,417

Tangible assets

2,244,602

2,225,914

2,163,821

2,085,834

2,037,453

Tangible Common Equity/Tangible

Assets

8.15%

8.25%

8.50%

8.75%

8.71%

(1)

The Company believes these non-GAAP measurements

are key indicators of the ongoing earnings

power of the Company.

(2)

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

of outstanding stock options.

Table of Contents

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

As a smaller reporting company,

we are not required to provide the information required

by this item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the

supervision and with

the participation of

our management, including

our President and

Chief Executive Officer

and our

Chief Financial

Officer,

we evaluated

the effectiveness

of the

design and

operation of

the Company’s

disclosure

controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under

the Exchange Act) as of September 30, 2023.

Based on that

evaluation, management believes

that the Company’s

disclosure controls and

procedures were effective

collect, process, and disclose the information required to be

disclosed in the reports filed or submitted under the Exchange

Act within the required time periods as of the end of the

period covered by this Form 10-Q.

Changes in Internal Control Over Financial Reporting

There has been

no change in

our internal control

over financial reporting

(as defined in

Rules 13a-15(f) and

15d-15(f)

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

materially affected, or is reasonably likely to

materially affect, our internal control over financial

reporting.

Limitations on Effectiveness of Controls and Procedures

designing

and

evaluating

the

disclosure

controls

and

procedures,

management

recognizes

that

any

controls

and

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

the desired control objectives.

In addition, the design

of disclosure controls and

procedures must reflect the

fact that there

are resource constraints and that management is required to apply

judgment in evaluating the benefits of possible controls

and procedures relative to their costs.

Table of Contents

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

PART II

Item 1.

Legal Proceedings

As previously

disclosed, on July

13, 2023,

three individuals who

were shareholders of

the Bank

prior to

its reorganization

into the holding company form

of organization (the “Plaintiffs”) filed a lawsuit

against six persons, all of

whom were directors

of the

Bank at

the relevant

time (the

“Defendants”),

in the

Circuit Court,

Eleventh Judicial

Circuit for

Miami-Dade County

(the

“Court”)

(Benes

al.

Aguilera

al.)

alleging

the

Defendants

(i)

caused

the

Bank,

directors

thereof,

engage in ultra vires conduct

by devising and approving

the exchange transaction

effected in July 2021

pursuant to which

the

Bank’s

then

outstanding

Class

and

Class

preferred

stock

was

exchanged

(the

“Exchange

Transaction”),

which

action the Plaintiffs allege was not permitted by the Bank’s Articles of Incorporation, and (ii) breached their

fiduciary duty as

directors of the Bank

by approving and engaging

in the Exchange Transaction.

The Plaintiffs seek

the Court to certify

the

action

a class

action

and

award

damages

amount

proven

trial.

Plaintiffs

seek

damages

exceeding

$750,000 plus

attorney’s fees

and costs

as well

as such

other relief

as the

Court may

determine. The

Company believes

that

the

allegations

the

lawsuit

are

legally

and

factually

without

merit,

and

intends

vigorously

defend

against

the

allegations

the

lawsuit,

pursue

any

potential

counterclaims

against

the

plaintiffs

deems

appropriate,

and

seek

coverage

from

its

insurance

carriers.

However,

there

can

assurance

that

this

litigation

will

resolved

favorably.

Furthermore, there

is also

no assurance

that we

will be

able to

secure coverage

from our

insurance carriers

for any

expenses

incurred by us in

connection with this litigation. If

the plaintiff shareholders are successful, the

Court could award substantial

compensatory damages.

In addition

to the

foregoing, we

are from

time to

time subject

to claims

and litigation

arising in

the ordinary

course of

business.

These

claims

and

litigation

may

include,

among

other

things,

allegations

violation

banking

and

other

applicable regulations, competition

law, labor

laws and consumer

protection laws, as

well as claims or

litigation relating to

intellectual property,

securities, breach of contract

and tort. We intend

to defend ourselves vigorously

against any pending

or future claims and litigation.

this

time,

the

opinion

management,

the

likelihood

remote

that

the

impact

such

proceedings,

either

individually or

in the

aggregate, would

have a

material adverse

effect

on our

consolidated results

of operations,

financial

condition

or cash

flows. However,

one

or more

unfavorable

outcomes

in any

claim or

litigation

against

us, including

the

aforementioned litigation regarding the Exchange

Transaction, could have

a material adverse effect on

the period in which

such claims

or litigation

are resolved.

In addition,

regardless of

their merits

or their

ultimate outcomes,

such matters

are

costly, divert management’s

attention and may materially adversely affect our

reputation, even if resolved in our favor.

Item 1A. Risk Factors

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

condition, or future

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

31, 2023 Form 10-Q.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

(a) None.

(b) Not applicable.

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

Table of Contents

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

Total

Number of

Purchased

Average

Price Paid

Per Share

Total Number of Shares Purchased

as Part of Publicly Announced Plans

or Programs (1)

Maximum Number

of Shares that May

Yet Be Purchased

Under Plans or

Programs (1)

Period

July 1-31, 2023

172,397

August 1-30, 2023

172,397

September 1-30, 2023

172,397

(1) On January 24, 2022 the Company announced

its initial stock repurchase program to repurchase

up to 750,000 shares of Class A common

stock,

approximately 3.75% of the Company’s then outstanding

shares of common stock.

Item 3.

Defaults Upon Senior Securities

(a)

Not applicable

(b)

Not applicable

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5. Other Information

(a)

Not applicable

(b)

Not applicable

(c)

Not applicable

Table of Contents

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

Item 6. Exhibits

Exhibit No.

Description of Exhibit

2.1

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

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

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

3.1

Articles of Incorporation, as amended, of USCB Financial Holdings, Inc. (incorporated by reference to Exhibit 3.1 to the

Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 (File No. 001-41196) filed with the

Securities and Exchange Commission on August 11, 2023).

3.2

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

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

4.1

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

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

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

Exchange Commission on December 30, 2021).

4.2

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

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

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

Securities and Exchange Commission on December 30, 2021).

4.3

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

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

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

4.4

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

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

31.1

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

31.2

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

32.1

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

32.2

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

101

The following financial

statements from

the Company’s Quarterly

Report on

Form 10-Q for

the quarter ended

September 30,

2023 formatted

in Inline

XBRL: (i)

Consolidated Balance

Sheets (unaudited),

(ii) Consolidated

Statements of

Operations

(unaudited), (iii) Consolidated

Statements

of Comprehensive

Income (unaudited), (iv)

Consolidated Statements

of Changes

in Stockholders’

Equity (unaudited),

(v) Consolidated

Statements of

Cash Flows

(unaudited), (vi)

Notes to

Consolidated

Financial Statements (unaudited).

104

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

Filed herewith.

Furnished herby.

Table of Contents

USCB Financial Holdings, Inc.

Q3 2023 Form 10-Q

SIGNATURES

Pursuant to the

requirements of

the Securities Exchange

Act of 1934,

the registrant has

duly caused this

report to be

signed on its behalf by the undersigned thereunto duly authorized.

USCB FINANCIAL HOLDINGS, INC.

(Registrant)

Signature

Title

Date

/s/ Luis de la Aguilera

Chairman, President and Chief Executive

Officer

November 9, 2023

Luis de la Aguilera

(Principal Executive Officer)

/s/ Robert Anderson

Chief Financial Officer

November 9, 2023

Robert Anderson

(Principal Financial Officer and Principal

Accounting Officer)

exhibit311

Exhibit 31.1

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act

of 2002

I, Luis de la Aguilera, certify that:

I have reviewed this Quarterly Report on Form

10-Q of USCB Financial Holdings, Inc.;

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

necessary

make

the

statements

made,

light

the

circumstances

under

which

such

statements

were

made,

not

misleading with respect to the period covered by this report;

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

material respects

the financial

condition, results

of operations

and cash

flows of

the registrant

as of,

and for,

the periods

presented in this report;

The

registrant’s

other

certifying

officer

and

are

responsible

for

establishing

and

maintaining

disclosure

controls

and

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

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

designed

such

disclosure

controls

and

procedures,

caused

such

disclosure

controls

and

procedures

designed

under

our

supervision,

ensure

that

material

information

relating

the

registrant,

including

its

consolidated subsidiaries, is

made known

to us by

others within those

entities, particularly during

the period in

which

this report is being prepared;

evaluated the effectiveness

of the registrant’s

disclosure controls and

procedures and presented

in this report our

conclusions about the effectiveness of the

disclosure controls and procedures, as of the

end of the period covered

by this report based on such evaluation; and

disclosed in this

report any

change in the

registrant’s internal

control over

financial reporting

that occurred

during

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

has

materially

affected,

reasonably

likely

materially

affect,

the

registrant’s

internal

control

over

financial

reporting; and

The registrant’s

other certifying

officer

and I

have disclosed,

based on

our most

recent evaluation

of internal

control over

financial

reporting,

the

registrant’s

auditors

and

the

audit

committee

the

registrant’s

board

directors

(or

persons

performing the equivalent functions):

All

significant

deficiencies

and

material

weaknesses

the

design

operation

internal

control

over

financial

reporting which are

reasonably likely

to adversely affect

the registrant’s ability

to record, process,

summarize and

report financial information; and

Any fraud, whether or not material,

that involves management or other employees who

have a significant role in

the

registrant’s internal control over financial reporting.

/s/ Luis de la Aguilera

Luis de la Aguilera

Chairman, President and Chief Executive Officer

Date: November 9, 2023

exhibit312

Exhibit 31.2

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act

of 2002

I, Robert Anderson, certify that:

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

USCB Financial Holdings, Inc.;

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

necessary

make

the

statements

made,

light

the

circumstances

under

which

such

statements

were

made,

not

misleading with respect to the period covered by this report;

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

material respects

the financial

condition, results

of operations

and cash

flows of

the registrant

as of,

and for,

the periods

presented in this report;

The

registrant’s

other

certifying

officer

and

are

responsible

for

establishing

and

maintaining

disclosure

controls

and

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

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

designed

such

disclosure

controls

and

procedures,

caused

such

disclosure

controls

and

procedures

designed

under

our

supervision,

ensure

that

material

information

relating

the

registrant,

including

its

consolidated subsidiaries, is

made known

to us by

others within those

entities, particularly during

the period in

which

this report is being prepared;

evaluated the effectiveness

of the registrant’s

disclosure controls and

procedures and presented

in this report our

conclusions about the effectiveness of the

disclosure controls and procedures, as of the

end of the period covered

by this report based on such evaluation; and

disclosed in this

report any

change in the

registrant’s internal

control over

financial reporting

that occurred

during

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

has

materially

affected,

reasonably

likely

materially

affect,

the

registrant’s

internal

control

over

financial

reporting; and

The registrant’s

other certifying

officer

and I

have disclosed,

based on

our most

recent evaluation

of internal

control over

financial

reporting,

the

registrant’s

auditors

and

the

audit

committee

the

registrant’s

board

directors

(or

persons

performing the equivalent functions):

All

significant

deficiencies

and

material

weaknesses

the

design

operation

internal

control

over

financial

reporting which are

reasonably likely

to adversely affect

the registrant’s ability

to record, process,

summarize and

report financial information; and

Any fraud, whether or not material, that involves

management or other employees who have a significant role

in the

registrant’s internal control over financial reporting.

/s/ Robert Anderson

Robert Anderson

Chief Financial Officer

Date: November 9, 2023

exhibit321

Exhibit 32.1

Certification of Chief Executive Officer Pursuant to

18 U.S.C. Section 1350

as Adopted Pursuant to Section 906 of the Sarbanes

-Oxley Act of 2002

In connection with the Quarterly

Report of USCB Financial Holdings, Inc. (the

“Company”) on Form 10-Q for the

quarter

ended September 30, 2023, as filed

with the Securities and Exchange

Commission on the date hereof

(the “Report”), I, Luis

de la Aguilera, as President

and Chief Executive Officer

of the Company,

certify, to

the best of my knowledge,

pursuant to

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

of the Sarbanes-Oxley Act of 2002, that:

The

Report

fully

complies

with

the

requirements

Section 13(a) or

15(d),

applicable,

the

Securities

Exchange Act of 1934; and

The

information

contained

the

Report

fairly

presents,

all

material

respects,

the

financial

condition

and

results of operations of the Company.

/s/ Luis de la Aguilera

Luis de la Aguilera

Chairman, President and Chief Executive Officer

Date: November 9, 2023

exhibit322

Exhibit 32.2

Certification of Chief Financial Officer Pursuant to

18 U.S.C. Section 1350

as Adopted Pursuant to Section 906 of the Sarbanes

-Oxley Act of 2002

In connection with the Quarterly

Report of USCB Financial Holdings, Inc. (the

“Company”) on Form 10-Q for the

quarter

ended September

30,

2023,

as filed

with

the

Securities

and

Exchange

Commission

the

date

hereof

(the

“Report”), I,

Robert Anderson,

as Chief

Financial Officer

of the

Company,

certify,

to the

best of

my knowledge,

pursuant to

18 U.S.C.

§1350, as adopted pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002, that:

The

Report

fully

complies

with

the

requirements

Section 13(a) or

15(d),

applicable,

the

Securities

Exchange Act of 1934; and

The

information

contained

the

Report

fairly

presents,

all

material

respects,

the

financial

condition

and

results of operations of the Company.

/s/ Robert Anderson

Robert Anderson

Chief Financial Officer

Date: November 9, 2023