USCB Financial 10Q 2023 Q1 Quarterly report

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

March 31, 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 May 1, 2023, the registrant had

19,622,380

shares of Class

common stock outstanding.

FORM 10-Q

March 31, 2023

TABLE OF CONTENTS

PART I

Item 1.

Financial Statements

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

Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022 (Unaudited)

Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2023 and

2022 (Unaudited)

Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2023 and

2022 (Unaudited)

Consolidated Statements of Cash Flows for the three months ended March 31, 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

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

USCB Financial Holdings, Inc.

Q1 2023 Form 10-Q

PART I

Item 1.

Financial Statements

USCB FINANCIAL HOLDINGS, INC.

Consolidated Balance Sheets - Unaudited

(Dollars in thousands,

except share data)

March 31, 2023

December 31, 2022

ASSETS:

Cash and due from banks

5,586

6,605

Interest-bearing deposits in banks

57,665

47,563

Total cash and cash

equivalents

63,251

54,168

Investment securities held to maturity, net of allowance

for credit losses of $

(fair value $

169,167

and

169,088

, respectively)

186,428

188,699

Investment securities available for sale, at fair value

229,409

230,140

Federal Home Loan Bank stock, at cost

6,143

2,882

Loans held for investment, net of allowance of $

18,887

and $

17,487

, respectively

1,561,507

1,489,851

Accrued interest receivable

8,216

7,546

Premises and equipment, net

5,135

5,263

Bank owned life insurance

43,048

42,781

Deferred tax assets, net

39,567

42,360

Lease right-of-use asset

13,652

14,395

Other assets

7,465

7,749

Total assets

2,163,821

2,085,834

LIABILITIES:

Deposits:

Demand deposits

633,606

629,776

Money market and savings accounts

900,478

915,853

Interest-bearing checking

50,573

66,675

Time deposits

245,805

216,977

Total deposits

1,830,462

1,829,281

Federal Home Loan Bank advances

120,000

46,000

Lease liability

13,652

14,395

Accrued interest and other liabilities

15,849

13,730

Total liabilities

1,979,963

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 March 31, 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 March 31, 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 March 31, 2023 and December 31, 2022

Common stock - Class A Voting; $

1.00

par value;

45,000,000

shares authorized;

19,622,380

issued and

outstanding

as of March 31, 2023,

20,000,753

issued and outstanding as of December 31, 2022

19,622

20,001

Common stock - Class B Non-voting; $

1.00

par value;

8,000,000

shares authorized;

and

issued and

outstanding as of March 31, 2023 and December 31, 2022

Additional paid-in capital on common stock

305,921

311,282

Accumulated deficit

(99,620)

(104,104)

Accumulated other comprehensive loss

(42,065)

(44,751)

Total stockholders'

equity

183,858

182,428

Total liabilities

and stockholders' equity

2,163,821

2,085,834

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Table of Contents

USCB Financial Holdings, Inc.

Q1 2023 Form 10-Q

USCB FINANCIAL HOLDINGS, INC.

Consolidated Statements of Operations - Unaudited

(Dollars in thousands,

except per share data)

Three Months Ended March 31,

2023

2022

Interest income:

Loans, including fees

19,711

12,982

Investment securities

2,286

2,329

Interest-bearing deposits in financial institutions

382

Total interest

income

22,379

15,342

Interest expense:

Interest-bearing checking

Money market and savings accounts

4,785

551

Time deposits

1,057

259

Federal Home Loan Bank advances and other borrowings

497

137

Total interest

expense

6,382

963

Net interest income before provision for credit losses

15,997

14,379

Provision for credit losses

201

Net interest income after provision for credit losses

15,796

14,379

Non-interest income:

Service fees

1,205

900

(Loss) gain on sale of securities available for sale, net

(21)

Gain on sale of loans held for sale, net

347

334

Loan settlement

161

Other non-interest income

539

529

Total non-interest

income

2,070

1,945

Non-interest expense:

Salaries and employee benefits

6,377

5,875

Occupancy

1,299

1,270

Regulatory assessment and fees

224

213

Consulting and legal fees

358

517

Network and information technology services

478

387

Other operating expense

1,440

1,350

Total non-interest

expense

10,176

9,612

Income before income tax expense

7,690

6,712

Income tax expense

1,881

1,858

Net income

5,809

4,854

Per share information:

Net income per share, basic

0.29

0.24

Net income per share, diluted

0.29

0.24

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Table of Contents

USCB Financial Holdings, Inc.

Q1 2023 Form 10-Q

USCB FINANCIAL HOLDINGS, INC.

Consolidated Statements of Comprehensive Income (Loss) - Unaudited

(Dollars in thousands)

Three Months Ended March 31,

2023

2022

Net income

5,809

4,854

Other comprehensive income (loss):

Unrealized gain (loss) on investment securities

3,637

(22,775)

Amortization of net unrealized (loss) gain on securities transferred from available-for-sale to held-to-maturity

(60)

Reclassification adjustment for loss (gain) included in net income

(21)

Tax effect

(912)

5,789

Total other comprehensive

income (loss), net of tax

2,686

(16,942)

Total comprehensive

income (loss)

8,495

(12,088)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Table of Contents

USCB Financial Holdings, Inc.

Q1 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 December 31, 2022

20,000,753

20,001

311,282

(104,104)

(44,751)

182,428

Cumulative effect of adoption of accounting principle related to ASC 326

(1,325)

Adjusted beginning balance after cumulative effect adjustment

20,000,753

20,001

311,282

(105,429)

(44,751)

181,103

Net income

5,809

Other comprehensive income

2,686

Repurchase of Class A common stock

(500,000)

(500)

(5,367)

(5,867)

Restricted stock issued

121,627

121

(121)

Stock based compensation

127

Balance at March 31, 2023

19,622,380

19,622

305,921

(99,620)

(42,065)

183,858

Balance at January 1, 2022

19,991,753

19,992

310,666

(124,245)

(2,516)

203,897

Net income

4,854

Other comprehensive loss

(16,942)

Exercise of stock options

9,000

102

Stock-based compensation

128

Balance at March 31, 2022

20,000,753

20,001

310,887

(119,391)

(19,458)

192,039

Table of Contents

USCB Financial Holdings, Inc.

Q1 2023 Form 10-Q

USCB FINANCIAL HOLDINGS, INC.

Consolidated Statements of Cash Flows - Unaudited

(Dollars in thousands)

Three Months Ended March 31,

2023

2022

Cash flows from operating activities:

Net income

5,809

4,854

Adjustments to reconcile net income to net cash provided by operating activities:

Provision for credit losses

201

Depreciation and amortization

150

188

(Accretion) Amortization of premiums on securities, net

(38)

169

Accretion of deferred loan fees, net

(93)

(807)

Stock-based compensation

127

128

Loss (gain) on sale of available for sale securities

(21)

Gain on sale of loans held for sale

(347)

(334)

Increase in cash surrender value of bank owned life insurance

(267)

(266)

Decrease in deferred tax assets

1,881

1,858

Net change in operating assets and liabilities:

Accrued interest receivable

(670)

(328)

Other assets

284

(2,838)

Accrued interest and other liabilities

1,943

3,000

Net cash provided by operating activities

9,001

5,603

Cash flows from investing activities:

Purchase of investment securities held to maturity

(2,432)

Proceeds from maturities and pay-downs of investment securities held to maturity

2,406

2,626

Purchase of investment securities available for sale

(7,667)

(42,794)

Proceeds from maturities and pay-downs of investment securities available for sale

3,261

14,788

Proceeds from sales of investment securities available for sale

8,617

14,558

Net increase in loans held for investment

(77,413)

(617)

Purchase of loans held for investment

(70,175)

Additions to premises and equipment

(22)

(155)

Proceeds from the sale of loans held for sale

4,847

3,643

Proceeds from the redemption of Federal Home Loan Bank stock

3,570

Purchase of Federal Home Loan Bank stock

(6,831)

(177)

Net cash used in investment activities

(69,232)

(80,735)

Cash flows from financing activities:

Proceeds from issuance of Class A common stock, net

102

Repurchase of Class A common stock

(5,867)

Net increase in deposits

1,181

122,915

Proceeds from Federal Home Loan Bank advances

158,000

Repayments on Federal Home Loan Bank advances

(84,000)

Net cash provided by financing activities

69,314

123,017

Net increase in cash and cash equivalents

9,083

47,885

Cash and cash equivalents at beginning of period

54,168

46,228

Cash and cash equivalents at end of period

63,251

94,113

Supplemental disclosure of cash flow information:

Interest paid

6,044

961

Supplemental schedule of non-cash investing and financing activities:

Transfer of loans held for investment to loans held for sale

4,500

3,309

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.

Q1 2023 Form 10-Q

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Overview

USCB Financial Holdings, Inc., a Florida corporation incorporated in 2021, is a bank

holding company with one wholly

owned subsidiary, U.S. Century

Bank (the “Bank”), together referred to as “the Company”. The Bank,

established in 2002,

is a Florida

state-chartered, non-member

financial institution

providing financial services

through its banking

centers located

in South Florida.

The Bank owns

a subsidiary,

Florida Peninsula Title

LLC, that offers

our clients title

insurance policies for

real estate

transactions closed at the Bank. Licensed

in the State of Florida and

approved by the Department of

Insurance Regulation,

Florida Peninsula Title LLC began operations in 2021.

Basis of Presentation

The accompanying unaudited consolidated financial

statements have been prepared in accordance

with instructions to

Form 10-Q and do not

include all the information and footnotes

required by U.S. generally accepted accounting

principles

(“U.S.

GAAP”)

for

complete

financial

statements.

All

adjustments

consisting

normally

recurring

accruals

that,

the

opinion

management,

are

necessary

for

fair

presentation

the

financial

position

and

results

operations

for

the

periods presented have

been included. These

unaudited consolidated financial

statements should be

read in conjunction

with the

Company’s

consolidated financial

statements and

related notes

appearing in

the Company’s

Annual Report

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

Principles of Consolidation

The

Company

consolidates

entities

which

has

controlling

financial

interest.

Intercompany

transactions

and

balances are eliminated in consolidation.

Use of Estimates

prepare financial statements in conformity with U.S.

GAAP,

management makes estimates and assumptions based

on available

information. These

estimates and

assumptions affect

the amounts

reported in

the financial

statements. The

most significant estimates

impacting the Company’s

consolidated financial statements

are the allowance

for credit losses

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.

Recently Issued Accounting Standards

Adoption of New Accounting Standards

Measurement of Credit Losses on Financial Instruments

January

1st,

2023,

the

Company

adopted

ASU

2016-13

Financial

Instruments

Credit

Losses

(Topic

326):

Measurement of Credit Losses on Financial Instruments, as

amended, which replaces the incurred loss methodology with

an expected

loss methodology

that is

referred to

as the

current expected

credit loss

(CECL) methodology. The

measurement

expected

credit

losses

under

the

CECL

methodology

applicable

financial

assets

measured

amortized

cost,

including

loan

receivables and

held-to-maturity debt

securities.

also

applies 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 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.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q1 2023 Form 10-Q

Historical credit losses provide

the basis for estimation of

expected credit losses. Qualitative adjustments

are applied to the

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, in

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 an

array

loan-specific

data

points

and

segment-

implied

assumptions

determine the lifetime

expected loss attributable

to each instrument.

An implicit "hypothetical

loss" is derived

for each period

of the

DCF and

helps establish

the present

value of

future cash

flows for

each period.

The reserve

applied to

a specific

instrument is the difference between the sum of the present value of future cash

flows and the book balance of the loan at

the measurement date.

Management elected

the Remaining

Life (WARM) methodology

for five

portfolio segments.

For each

of these

segments,

a long-term average loss rate is calculated

and applied on a quarterly basis

for the remaining life of the pool.

Adjustments

for

economic

expectations

are

made

through

qualitative

assessments.

For

the

remaining

life

estimated

management

implemented

software

that

uses

attrition-based

calculation

that

performs

quarterly,

cohort-based

attrition

measurements based on the loan portfolio.

For loans collectively

evaluated, $

1.3

billion of loan

receivables or

% were evaluated

under Discounted Cash

Flow

method and

251.0

million of

loan receivables

% were

evaluated under

the Remaining

Life method.

The remaining

7.9

million loan receivable 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 by

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

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

in the

quantitative component

of 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 of adoption of the ASU 2016-13 was an increase to the allowance for credit losses on loans receivables of

1.1

million

and

increase

the

reserve

for

unfunded

commitments

259

thousand.

This

one-time

cumulative

adjustment resulted in a decrease of $

3 million in retained earnings. See “Allowance for Credit Losses” section in Note 3

for more information on the allowance of credit losses (”ACL”).

Trouble Debt Restructuring

In March

2022, the

Financial Accounting

Standards Board

(“FASB”) issued Accounting

Standards Update

(“ASU”) 2022-

02, Financial Instruments-Credit Losses (Topic

326): Troubled Debt

Restructurings (“TDR”) and Vintage

Disclosures. The

standard

addresses

the

following:

eliminates

the

accounting

guidance

for

TDRs,

will

require

entity

determine

whether

modification

results

new

loan

continuation

existing

loan,

expands

disclosures

modifications, and

3) will

require disclosure

of current

period gross

write-offs

of financing

receivables within

the vintage

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q1 2023 Form 10-Q

disclosures table (see

footnote 3 “Loans”). The

Company adopted ASU

2022-02 effective January 1,

2023 on a prospective

basis. The adoption of ASU 2022-02 did not have a material impact on the Company’s consolidated financial statements.

Issued and Not Yet Adopted

Reference Rate Reform

March

2020,

the

FASB

issued

ASU

2020-04,

Reference

Rate

Reform

(Topic

848),

Facilitation

the

Effects

Reference Rate Reform on

Financial Reporting. In January 2021,

the FASB

clarified the scope of

this guidance with ASU

2021-01 which provides optional guidance for a

limited period of time to ease

the burden in accounting for (or

recognizing

the effects of)

reference rate

reform on

financial reporting.

This ASU

is effective from

March 12, 2020

through December 31,

2024. The

Company is

evaluating the

impact of

this ASU

and has

not yet

determined whether

LIBOR transition

and this

ASU will have a material effect on our business operations and consolidated financial statements.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q1 2023 Form 10-Q

INVESTMENT SECURITIES

January

1st,

2023,

the

Company

adopted

ASU

2016-13

Financial

Instruments

-Credit

Losses

(Topic

326):

Measurement of Credit Losses on Financial Instruments, as

amended, which replaces the incurred loss methodology with

an expected

loss methodology

that is

referred to

as the

current expected

credit loss

(CECL) methodology. The

measurement

expected

credit

losses

under

the

CECL

methodology

applicable

financial

assets

measured

amortized

cost,

including loan receivables and

held-to-maturity debt securities. In

addition, ASC 326 amended

the accounting for available-

for-sale debt securities. One

such change is to

require credit losses to

be presented as an

allowance rather than as

a write-

down on available-for-sale debt

securities management does not

intend to sell or

believes that it is

more likely than not

they

will be required to sell.

CECL requires loss

reserve for securities

classified as

Held-to-Maturity (“HTM”). The

reserve should

reflect historical

credit performance

as well

as the

impact of

projected economic

forecast. For

U.S. Government

bonds and

U.S. Agency

issued bonds in HTM the explicit guarantee of the US Government is sufficient to conclude that a credit loss reserve is not

required. The

reserve requirement

is for

three primary

assets groups:

municipal bonds,

corporate bond,

and non-agency

securitizations.

The

Company

calculates

quarterly

the

loss

reserve

utilizing

Moody’s

ImpairmentStudio.

The

CECL

measurement

for

investment

securities

incorporates historical

data,

containing

defaults

and

recoveries

information,

and

Moody’s baseline economic

forecast. The solution uses

probability of default/loss given

default (“PD/LGD”) approach. PD

represents the likelihood a borrower will default. Within the Moody’s model, this is determined using historical default data,

adjusted for the current economic environment. LGD projects the expected loss if a borrower were to default.

quarter

end,

HTM

securities

included

175.4

million

U.S.

Government

and

U.S.

Agency

issued

bonds

and

mortgage-backed

securities,

because

the

explicit

and/or

implicit

guarantee

these

bonds

the

Company

holds

reserves on

these holdings.

The remaining

portion of

the HTM

portfolio is

made up

of $

11.0

million in

investment grade

corporate bonds. The required

reserve for these

holdings is determined

each quarter using

the model described

above. The

resulting amount of allowance was immaterial at March 31, 2023.

There was

allowance for Available for Sale (“AFS”) securities that needed to be recorded as of March 31, 2023.

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):

March 31, 2023

Available-for-sale:

Amortized

Cost

Unrealized

Gains

Unrealized

Losses

Fair Value

U.S. Government Agency

10,184

(1,353)

8,831

Collateralized mortgage obligations

110,180

(21,343)

88,837

Mortgage-backed securities - residential

72,690

(12,124)

60,566

Mortgage-backed securities - commercial

37,043

(4,449)

32,600

Municipal securities

25,064

(5,754)

19,310

Bank subordinated debt securities

16,831

(1,352)

15,497

Corporate bonds

4,035

(267)

3,768

276,027

(46,642)

229,409

Held-to-maturity:

U.S. Government Agency

44,792

126

(5,182)

39,736

U.S. Treasury

9,951

(8)

9,943

Collateralized mortgage obligations

67,404

161

(7,019)

60,546

Mortgage-backed securities - residential

41,842

483

(4,237)

38,088

Mortgage-backed securities - commercial

11,399

(644)

10,755

Corporate bonds

11,040

(941)

10,099

186,428

770

(18,031)

169,167

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q1 2023 Form 10-Q

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 on

the date

of transfer.

The

net unrealized

loss that

was retained

in accumulated

other

comprehensive income (“AOCI”)

is being

amortized over

the remaining

life of

the securities. For

the three months

ended

March 31,

2023, total

amortization out

of AOCI

for net

unrealized losses

on securities

transferred from

AFS to

HTM was

thousand. The unamortized net unrealized loss at March 31, 2023 was $

9.7

million.

Gains

and

losses

the

sale

securities

are

recorded

the

trade

date

and

are

determined

the

specific

identification basis. The following table presents

the proceeds, realized gross gains and

realized gross losses on sales and

calls of AFS debt securities for the three months ended March 31, 2023 and 2022 (in thousands):

Three Months Ended Mach 31,

Available-for-sale:

2023

2022

Proceeds from sale and call of securities

8,617

14,558

Gross gains

158

Gross losses

(24)

(137)

Net realized (loss) gain

(21)

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q1 2023 Form 10-Q

The amortized

cost and

fair value

of investment

securities, by

contractual maturity,

are shown

below as

of the

date

indicated (in thousands). Actual maturities may differ

from contractual maturities because borrowers may have the

right to

call or prepay

obligations with

or without call

or prepayment

penalties. Securities

not due at

a single maturity

date are shown

separately.

Available-for-sale

Held-to-maturity

March 31, 2023:

Amortized

Cost

Fair Value

Amortized

Cost

Fair Value

Due within one year

11,460

11,426

Due after one year through five years

4,035

3,768

9,531

8,616

Due after five years through ten years

17,831

16,329

Due after ten years

24,064

18,478

U.S. Government Agency

10,184

8,831

44,792

39,736

Collateralized mortgage obligations

110,180

88,837

67,404

60,546

Mortgage-backed securities - residential

72,690

60,566

41,842

38,088

Mortgage-backed securities - commercial

37,043

32,600

11,399

10,755

276,027

229,409

186,428

169,167

At March 31, 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

Agencies.

All

the

collateralized

mortgage obligations

and mortgage-backed

securities are

issued by

United States

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 December 31, 2022, 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 December

31, 2022.

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 March 31,

2023, the Company

did

t have

any securities pledged

under this agreement.

The Company is a Qualified Public Depositor (“QPD”) with the State

of Florida. As a QPD, the Company has the legal

authority to maintain public deposits from cities, municipalities, and the State of Florida. These public deposits are secured

by securities pledged

to the State

of Florida at

a ratio of

% of the

outstanding uninsured deposits.

The Company must

also maintain a minimum amount of pledged securities to be in the public funds program.

As of

March 31, 2023,

the Company

had a

total of

206.3

million in

deposits under

the public

funds program

and pledged

to the State of Florida for these

public funds were

twenty one

corporate bonds with an aggregate fair

value of $

62.3

million.

As of December 31,

2022, the Company had

a total of

204.2

million in deposits

under the public

funds program and

pledged

the

State

Florida

for

these

public

funds

were

eighteen

corporate

bonds

with

aggregate

fair

value

49.0

million.

The Federal

Reserve Board,

on March

12, 2023,

announced the

creation of

a new

Bank Term Funding Program

(BTFP).

The BTFP

offers loans of

up to

one year in

length to

banks, savings

associations, credit

unions, and

other eligible depository

institutions pledging

U.S. Treasuries,

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 and had pledged

24.3

million in securities measured at par

to the Federal Reserve Bank of Atlanta for the BTFP program.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q1 2023 Form 10-Q

LOANS

January 1,

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):

March 31, 2023

December 31, 2022

Total

Percent of

Total

Percent of

Total

Residential Real Estate

184,427

11.7

185,636

12.3

Commercial Real Estate

987,757

62.5

970,410

64.4

Commercial and Industrial

160,947

10.2

126,984

8.4

Foreign Banks

97,405

6.1

93,769

6.2

Consumer and Other

149,410

9.5

130,429

8.7

Total

gross loans

1,579,946

100.0

1,507,228

100.0

Less: Deferred fees (cost)

448

(110)

Total

loans net of deferred fees (cost)

1,580,394

1,507,338

Less: Allowance for credit losses

18,887

17,487

Total

net loans

1,561,507

1,489,851

March 31,

2023

and

December 31,

2022,

the

Company

had

358.8

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 $

308

thousand

at March 31, 2023 and $

1.3

million at December 31, 2022, which are categorized as commercial and industrial loans.

The Company recognized $

thousand and $

1.0

million in PPP loan fees and interest income during the three months

ended

March 31,

2023

and

2022,

respectively,

which

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

in development of a

loss driver analysis based

on regression models and

supportable forecast. Peer group

data obtained

from FFIEC Call Report filings is used

to inform regression analyses to quantify the impact

of reasonable and supportable

forecasts in projective models. Economic

forecasts applied to regression models

to estimate probability of default

for loan

receivables use at

least one of

the following economic

indicators: civilian unemployment

rate (national), real

gross domestic

product growth

(national GDP)

and/or the

HPI. For

each of

the segments

in which

the WARM

methodology is

used, the

long-term average loss rate is calculated and

applied on a quarterly basis for the remaining

life of the pool. Adjustments for

economic expectations are made through qualitative factors.

Qualitative factors used in the ACL methodology include:

•

Changes in lending policies, procedures, and strategies

•

Changes in international, national, regional, and local conditions

•

Changes in nature and volume of portfolio

•

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

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q1 2023 Form 10-Q

•

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

months ended

March 31,

2023, was

estimated under

the CECL

methodology, and for

the three

months

ended December 31, 2022, and prior periods, it was estimated under the incurred loss model.

Changes in the allowance

for credit losses for

the three months ended

March 31, 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 March 31, 2023

Beginning balance

1,352

10,143

4,163

720

1,109

17,487

Cumulative effect of adoption of accounting

principle

(1)

1,238

1,105

(2,158)

858

1,066

Provision for credit losses

(2)

221

(795)

318

512

285

Recoveries

Charge-offs

(5)

Ending Balance

2,819

10,453

2,367

772

2,476

18,887

Three Months Ended March 31, 2022

Beginning balance

2,498

8,758

2,775

457

569

15,057

Provision for credit losses

(157)

425

(426)

124

Recoveries

Charge-offs

(16)

(5)

(21)

Ending Balance

2,357

9,183

2,355

491

688

15,074

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

(2) Provision for credit losses excludes $

thousand reduction due to unfunded commitments included in other liabilities.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q1 2023 Form 10-Q

The ACL and the outstanding balances in the specified loan categories as of March 31,

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

March 31, 2023:

Allowance for credit losses:

Individually evaluated for impairment

149

339

Collectively evaluated for impairment

2,670

10,453

2,271

772

2,382

18,548

Balances, end of period

2,819

10,453

2,367

772

2,476

18,887

Loans:

Individually evaluated for impairment

7,155

558

171

7,884

Collectively evaluated for impairment

177,272

987,757

160,389

97,405

149,239

1,572,062

Balances, end of period

184,427

987,757

160,947

97,405

149,410

1,579,946

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.

Q1 2023 Form 10-Q

Loan credit exposures by internally assigned grades are presented below for the periods indicated (in thousands):

As of March 31, 2023

Term Loans by Origination Year

Revolving

Loans

Total

2023

2022

2021

2020

2019

Prior

Residential real estate

Pass

2,736

40,571

27,348

7,224

10,119

90,718

5,711

184,427

Total

2,736

40,571

27,348

7,224

10,119

90,718

5,711

184,427

Commercial real estate

Pass

25,800

342,353

226,774

107,237

81,305

197,272

4,474

985,215

Substandard

1,842

700

2,542

Total

25,800

342,353

228,616

107,937

81,305

197,272

4,474

987,757

Commercial and

industrial

Pass

35,181

39,173

35,534

9,402

17,571

2,994

19,928

159,783

Substandard

486

308

370

1,164

Total

35,181

39,173

35,534

9,402

18,057

3,302

20,298

160,947

Foreign banks

Pass

47,410

49,995

97,405

Total

47,410

49,995

97,405

Consumer and other

loans

Pass

18,948

76,401

49,777

714

501

1,504

1,394

149,239

Substandard

171

Total

18,948

76,401

49,777

714

501

1,675

1,394

149,410

Total

Loans

Pass

130,075

548,493

339,433

124,577

109,496

292,488

31,507

1,576,069

Special Mention

Substandard

1,842

700

486

479

370

3,877

Doubtful

Total

130,075

548,493

341,275

125,277

109,982

292,967

31,877

1,579,946

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q1 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

The Company had charge offs totaling

thousand for the quarter ended as of

March 31, 2023 on loans that

were all

originated within 2023.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q1 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

March 31, 2023

and

December 31, 2022 (in thousands):

Accruing

As of March 31, 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

606

1-4 family residential

128,622

1,156

129,778

Condo residential

52,859

1,184

54,043

182,087

2,340

184,427

Commercial real estate:

Land and construction

34,986

Multi-family residential

175,358

Condo commercial

53,583

Commercial property

723,770

Leasehold improvements

987,757

Commercial and industrial:

Secured

153,810

2,343

156,153

486

156,639

Unsecured

4,059

249

4,308

157,869

2,592

160,461

486

160,947

Foreign banks

97,405

Consumer and other

149,239

171

149,410

Total

1,574,357

5,103

1,579,460

486

1,579,946

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q1 2023 Form 10-Q

Accruing

As of December 31, 2022:

Current

Past Due

30-89 Days

Past Due 90

Days or >

and Still

Accruing

Total

Accruing

Non-Accrual

Total Loans

Residential real estate:

Home equity line of credit and other

623

1-4 family residential

131,120

1,058

132,178

Condo residential

50,310

2,525

52,835

182,053

3,583

185,636

Commercial real estate:

Land and construction

38,687

Multi-family residential

176,820

Condo commercial

49,994

Commercial property

704,884

704,909

Leasehold improvements

970,385

970,410

Commercial and industrial:

Secured

121,649

121,680

Unsecured

4,332

972

5,304

125,981

1,003

126,984

Foreign banks

93,769

Consumer and other

130,169

260

130,429

Total

1,502,357

4,871

1,507,228

Nonaccrual Status

The following table

includes the amortized

cost basis of

loans on nonaccrual

status and loans

past due over

90 days

and still accruing as of March 31, 2023:

March 31, 2023

Nonaccrual

Loans With No

Allowance

Nonaccrual

Loans With

Allowance

Total

Nonaccruals

Loans Past

Due Over 90

Days and Still

Accruing

Residential real estate

Commercial real estate

Commercial and industrial

486

Consumer and other

486

The Company did

t have loans in nonaccrual status as of December 31, 2022.

Accrued interest

receivable is

excluded from

the estimate

of credit

losses. There

was

interest income

recognized

attributable to nonaccrual loans outstanding during the three months

ended March 31, 2023 and 2022. Interest income on

these loans for

the three months

ended March 31, 2023

and 2022, would

have been approximately

and $

thousand,

respectively, had these loans performed in accordance with their original terms.

Collateral-Dependent Loans

loan

collateral

dependent

when

the

borrower

experiencing

financial

difficulty

and

repayment

the

loan

expected to

be provided

substantially through

the sale

or operation

of the

collateral. There

were

collateral dependent

loans as of March 31, 2023 and as of December 31, 2022.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q1 2023 Form 10-Q

Impaired Loans

The following table includes the unpaid principal balances for

impaired loans with the associated allowance amount, if

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

impaired

loans

for

the

date

indicated

(in

thousands):

Three Months Ended March 31, 2022

Residential real estate

8,181

Commercial real estate

649

Commercial and industrial

137

Consumer and other

220

Total

9,187

Interest income recognized on impaired loans for the three months ended March 31, 2022 was $

thousand.

Loan Modifications to Borrowers Experiencing Financial Difficulties

The Company did

t have new modifications to borrowers experiencing financial difficulties and

loan modifications

that subsequently defaulted during for the three months ended March 31, 2023.

INCOME TAXES

The Company’s provision for income taxes is presented in the following table for the dates indicated (in thousands):

Three Months Ended March 31,

2023

2022

Current:

Federal

State

Total

current

Deferred:

Federal

1,472

1,442

State

409

416

Total

deferred

1,881

1,858

Total

tax expense

1,881

1,858

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q1 2023 Form 10-Q

The actual

income tax

expense for

the three

months ended

March 31, 2023

and 2022

differs

from the

statutory tax

expense for

the period

(computed by

applying the

U.S. federal

corporate tax

rate of

% for

2023 and

2022 to

income

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

Three Months Ended March 31,

2023

2022

Federal taxes at statutory rate

1,615

1,409

State income taxes, net of federal tax benefit

334

289

Bank owned life insurance

(68)

(67)

Other, net

227

Total

tax expense

1,881

1,858

The Company’s deferred tax assets and deferred tax liabilities as of the dates indicated were (in thousands):

March 31, 2023

December 31, 2022

Deferred tax assets:

Net operating loss

19,998

21,720

Allowance for credit losses

4,787

4,432

Lease liability

3,460

3,648

Unrealized losses on available for sale securities

14,281

15,193

Deferred loan fees

Depreciable property

170

158

Stock option compensation

406

373

Accruals

234

723

Deferred tax assets:

43,336

46,247

Deferred tax liability:

Deferred loan cost

(113)

(28)

Lease right of use asset

(3,460)

(3,648)

Deferred expenses

(165)

(175)

Other, net

(31)

(36)

Deferred tax liability

(3,769)

(3,887)

Net deferred tax assets

39,567

42,360

The Company

has approximately

75.0

million of

federal and

97.7

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 months ended March 31, 2023 and 2022, the Company did

t have any unrecognized tax benefits as a

result of

tax positions

taken during

a prior

period or

during the

current period.

Additionally,

interest or

penalties were

recorded as a result of tax uncertainties.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q1 2023 Form 10-Q

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

March 31, 2023 and December 31, 2022 (in thousands):

March 31, 2023

December 31, 2022

Commitments to grant loans and unfunded lines of credit

81,506

95,461

Standby and commercial letters of credit

3,542

4,320

Total

85,048

99,781

Commitments to extend

credit are agreements

to lend to

a customer as

long as there

is no violation

of any condition

established in the contract. Commitments generally have fixed expiration dates or other termination clauses.

Unfunded lines of credit

and revolving credit lines

are commitments for possible

future extensions of credit

to existing

customers. These lines

of credit are

uncollateralized and usually

do not contain

a specified maturity

date and ultimately

may

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

Standby

and

commercial

letters

credit

are

conditional

commitments

issued

the

Company

guarantee

the

performance of

a customer

to a

third party. Those

letters of

credit are

primarily issued

to support

public and

private borrowing

arrangements. Essentially all letters of credit have fixed maturity

dates and since many of them expire without being drawn

upon, they do not generally present a significant liquidity risk to the Company.

DERIVATIVES

The Company utilizes interest rate swap agreements as part of its asset liability management strategy to help manage

its interest rate risk exposure. The notional amount of

the interest rate swaps do not represent actual

amounts exchanged

by the

parties. The

amounts exchanged

are determined

by reference

to the

notional amount

and the

other terms

of the

individual interest rate swap agreements.

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

40.9

million

and

33.9

million

March 31,

2023

and

December 31, 2022, respectively.

These interest rate

swaps mature between 2025

and 2051. The 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.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q1 2023 Form 10-Q

The following table reflects the Company’s customer-related interest rate swaps at the dates indicated (in thousands):

Fair Value

Notional

Amount

Collateral

Amount

Balance Sheet Location

Asset

Liability

March 31, 2023:

Derivatives not designated as hedging instruments:

Interest rate swaps related to customer loans

40,896

1,287

Other assets/Other liabilities

4,673

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

determine fair value disclosures. In

accordance with the fair value

measurements accounting guidance, the fair value

of a

financial instrument is the price that would be received to

sell an asset or paid to transfer a liability

in an orderly transaction

between market

participants at

the measurement

date. Fair

value is

best determined

based upon

quoted market

prices.

However, in many

instances, there are no quoted market

prices for the Company's various financial

instruments. In cases

where quoted

market prices

are not

available, fair

values are

based on

estimates using

present value

or other

valuation

techniques. Those techniques are

significantly affected by the assumptions

used, including the discount

rate and estimates

of future cash flows.

Accordingly, the fair value estimates may not

be realized in an

immediate settlement of the

instrument.

The fair

value guidance

provides a

consistent definition

of fair

value, which

focuses on

exit price

in an

orderly transaction

(that is,

not a

forced liquidation

or distressed

sale) between

market participants

at the

measurement date

under current

market conditions.

If there

has been

a significant

decrease in

the volume

and level

of activity

for the

asset or

liability,

change in

valuation technique

or the

use of

multiple valuation

techniques may

be appropriate.

In such

instances, determining

the

price

which

willing

market

participants

would

transact

the

measurement

date

under

current

market

conditions

depends on the facts and circumstances and requires

the use of significant judgment. The fair value

is a reasonable point

within the range that is most representative of fair value under current market conditions.

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 or

indirectly.

The

valuation

may

based

quoted

prices for

similar

assets

liabilities; quoted prices

in markets that

are not active;

or other inputs

that are observable

or can be

corroborated

by observable market data for substantially the full term of the asset or liability.

Level 3

- Valuation

is based on unobservable

inputs that are supported

by little or no

market activity and that

are

significant

the

fair

value

the

assets

liabilities. Level

assets

and

liabilities include

financial

instruments

whose value

is determined

using pricing

models, discounted

cash flow

methodologies, or

similar techniques,

well as instruments for which determination of fair value requires significant management judgment or estimation.

financial

instrument's

categorization

within

the

valuation

hierarchy

based

upon

the

lowest

level

input

that

significant to the fair value measurement.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q1 2023 Form 10-Q

Items Measured at Fair Value on a Recurring Basis

AFS investment securities:

When instruments are

traded in secondary

markets and quoted

market prices do

not exist

for such

securities, management

generally relies

on prices

obtained from

independent vendors

or third-party

broker-dealers.

Management reviews pricing methodologies provided

by the vendors and third-party broker-dealers

in order to determine if

observable market information is

being utilized. Securities measured

with pricing provided by independent

vendors or third-

party broker-dealers are classified

within Level 2 of

the hierarchy and

often involve using quoted

market prices for

similar

securities, pricing models or discounted cash flow analyses utilizing inputs observable in the market where available.

Derivatives:

The

fair

value

derivatives

are

measured

with

pricing

provided

third-party

participants

and

are

classified within Level 2 of the hierarchy.

The

following

table

represents

the

Company's

assets

and

liabilities

measured

fair

value

recurring

basis

March 31, 2023 and December 31, 2022 for each of the fair value hierarchy levels (in thousands):

March 31, 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

8,831

8,655

Collateralized mortgage obligations

88,837

95,541

Mortgage-backed securities - residential

60,566

60,879

Mortgage-backed securities - commercial

32,600

27,954

Municipal securities

19,310

18,483

Bank subordinated debt securities

15,497

14,919

Corporate bonds

3,768

3,709

Total

229,409

230,140

Derivative assets

4,673

5,011

Total assets at fair value

234,082

235,151

Derivative liabilities

4,673

5,011

Total liabilities at fair value

4,673

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, 2022. Loans

subject to write-downs,

or impaired loans,

are estimated using

the present value

of expected cash flows

or the appraised value

of the underlying collateral

discounted as necessary due

to management's

estimates of changes in economic conditions are considered a Level 3 valuation.

Other Real

Estate:

Other real

estate owned

is valued

at the

lesser of

the third-party

appraisals less

management's

estimate of

the costs

to sell

or the

carrying cost

of the

other real

estate owned.

Appraisals generally

use the

market approach

valuation technique and

use market observable

data to formulate

an opinion

of the fair

value of

the properties. However,

the appraiser uses

professional judgment in

determining the

fair value

of the

property and

the Company

may also

adjust

the value for changes in market conditions subsequent to the

valuation date when current appraisals are not available. As

a consequence of the

carrying cost or the third-party

appraisal and adjustments therein,

the fair values of

the properties are

considered a Level 3 valuation.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q1 2023 Form 10-Q

The following

table represents

the Company’s assets

measured at

fair value on

a non-recurring

basis at March

31, 2023

and December 31, 2022 for each of the fair value hierarchy levels (in thousands):

Level 1

Level 2

Level 3

Total

March 31, 2023:

Individually evaluated loans

December 31, 2022:

Impaired loans

3,639

The following table presents quantified information about Level 3

fair value measurements for assets measured at fair

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

Fair Value

Valuation Technique(s)

Unobservable Input(s)

December 31, 2022:

Residential real estate

3,500

Sales comparison approach

Adj. for differences between comparable sales

Commercial and industrial

Discounted cash flow

Adj. for differences in net operating income expectations

Consumer and other loans

Discounted cash flow

Adj. for differences in net operating income expectations

Total

impaired loans

3,639

There were

financial liabilities measured at

fair value on a non-recurring

basis at March 31, 2023 and

December 31,

2022.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q1 2023 Form 10-Q

Items Not Measured at Fair Value

The following table presents the

carrying amounts and estimated fair

values of financial instruments not

carried at fair

value as of December 31, 2022 (in thousands):

Fair Value Hierarchy

Carrying

Amount

Level 1

Level 2

Level 3

Fair Value

Amount

March 31, 2023:

Financial Assets:

Cash and due from banks

5,586

Interest-bearing deposits in banks

57,665

Investment securities held to maturity, net

186,428

169,167

Loans held for investment, net

1,561,507

1,518,178

Accrued interest receivable

8,216

1,248

6,968

8,216

Financial Liabilities:

Demand deposits

633,606

Money market and savings accounts

900,478

Interest-bearing checking accounts

50,573

Time deposits

245,805

241,263

FHLB advances

120,000

118,852

Accrued interest payable

567

327

240

567

December 31, 2022:

Financial Assets:

Cash and due from banks

6,605

Interest-bearing deposits in banks

47,563

Investment securities held to maturity

188,699

169,088

Loans held for investment, net

1,489,851

1,436,877

Accrued interest receivable

7,546

1,183

6,363

7,546

Financial Liabilities:

Demand deposits

629,776

Money market and savings accounts

915,853

Interest-bearing checking accounts

66,675

Time deposits

216,977

211,406

FHLB advances

46,000

44,547

Accrued interest payable

229

137

229

STOCKHOLDERS’ EQUITY

Common Stock

In July

2021, the

Bank completed

the initial

public offering

of its

Class A

common stock,

in which

it issued

and sold

4,600,000

shares of Class A common stock at a

price of $

10.00

per share. The Bank received total net proceeds of

40.0

million after deducting underwriting discounts and expenses.

In December 2021, the Company acquired all

the issued and outstanding shares of the

Class A voting common stock

of the Bank, which

at the time were

the only issued and

outstanding shares of

the Bank’s capital stock,

in a share exchange

(the “Reorganization”) effected under the Florida Business Corporation Act. Each outstanding share of the

Bank’s Class A

common stock,

par value

1.00

per share,

formerly held

by its

shareholders was

converted into

and exchanged

for

one

newly

issued

the

Company’s

Class

common

stock,

par

value

1.00

per

share,

and

the

Bank

became

the

Company’s wholly owned subsidiary.

In the

Reorganization, each

shareholder of

the Bank

received securities

of 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.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q1 2023 Form 10-Q

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 in March 2023.

During

the

first

quarter

2023,

the

Company

repurchased

500,000

USCB

Financial

Holdings

Inc

weighted average price per share of $

11.74

. The aggregate purchase price for these transactions was approximately

5.9

million,

including

transaction

costs.

These

repurchases

were

made

through

open

market

purchases

pursuant

the

Company’s

publicly

announced

repurchase

program. As

March

31,

2023,

250,000

remained

authorized

for

repurchase under this program.

Shares of the

Company’s Class A

common stock issued

and outstanding as

of March 31,

2023 and December

31, 2022

were

19,622,380

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

March 31, 2023 and 2022. Additionally, there were

dividends declared and unpaid as of March 31, 2023 and 2022.

The

Company

and

the

Bank

exceeded

all

regulatory

capital

requirements

and

remained

significantly

above

“well-

capitalized” guidelines as of December 31, 2022 and

March 31, 2023. At March 31, 2023, the total

risk-based capital ratios

for the Company and the Bank were

13.20

% and

13.12

%, respectively.

EARNINGS PER SHARE

Earnings

per

(“EPS”)

for

common

stock

calculated

using

the

two-class

method

required

for

participating

securities. Basic

EPS is

calculated by

dividing net

income (loss)

available to

common stockholders

by the

weighted-average

number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted EPS is

computed by

dividing net

income (loss)

available to

common stockholders

by the

weighted-average number

of common

shares outstanding for the period

and the weighted-average number of

dilutive common stock equivalents outstanding for

the period determined

using the treasury-stock

method. For purposes

of this calculation,

common stock equivalents

include

common stock options and are only included in the calculation of diluted EPS when their effect is dilutive.

The following table reflects the calculation

of net income available to common stockholders

for the three months ended

March 31, 2023 and 2022 (in thousands):

Three Months Ended March 31,

2023

2022

Net Income

5,809

4,854

Less: Preferred stock dividends

Net income available to common stockholders

5,809

4,854

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q1 2023 Form 10-Q

The following table reflects the calculation of basic and diluted

earnings per common share class for the three months

ended March 31, 2023 and 2022 (in thousands, except per share amounts):

Three Months Ended March 31,

2023

2022

Class A

Basic EPS

Numerator:

Net income available to common shares

5,809

4,854

Denominator:

Weighted average shares outstanding

19,855,409

19,994,953

Earnings per share, basic

0.29

0.24

Diluted EPS

Numerator:

Net income available to common shares

5,809

4,854

Denominator:

Weighted average shares outstanding for basic EPS

19,855,409

19,994,953

Add: Dilutive effects of assumed exercises of stock options

85,197

114,830

Weighted avg. shares including dilutive potential common shares

19,940,606

20,109,783

Earnings per share, diluted

0.29

0.24

Anti-dilutive stock options excluded from diluted EPS

572,500

10.

LOSS CONTINGENCIES

Loss contingencies, including

claims and legal

actions may arise

in the ordinary

course of business.

In the opinion

management, none of

these actions, either

individually or in

the aggregate, is

expected to have

a material adverse

effect

on the Company’s Consolidated Financial Statements.

Table of Contents

USCB Financial Holdings, Inc.

Q1 2023 Form 10-Q

Item 2.

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

The

following

discussion

and

analysis

designed

provide

better

understanding

the

consolidated

financial

condition and

results of

operations of

the Company

and the

Bank, its

wholly owned

subsidiary, for the

quarter and

three

months ended

March 31, 2023.

This discussion

and analysis

is best

read in

conjunction with

the unaudited

consolidated

financial

statements

and

footnotes

included

this

quarterly

report

Form

10-Q

and

the

audited

consolidated

financial statements and

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 filed

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

Throughout

this

document,

references

“we,”

“us,”

“our,”

and

“the

Company”

generally

refer

USCB

Financial

Holdings, Inc.

Forward-Looking Statements

This Quarterly

Report on

Form 10-Q

(“Form 10-Q”)

contains statements

that are

not historical

in nature

and are

intended

to be, and are hereby identified as, forward-looking statements for purposes of the safe harbor provided by Section 21E of

the Securities Exchange Act of 1934, as amended (Exchange Act”).

The words “may,” “will,” “anticipate,” “should,” “would,”

“believe,”

“contemplate,”

“expect,”

“aim,”

“plan,”

“estimate,”

“continue,”

and

“intend,”

well

other

similar

words

and

expressions of

the future,

are intended

to identify

forward-looking statements. These

forward-looking statements include,

but

are

not

limited

to,

statements

our

projected

growth,

anticipated

future

financial

performance,

and

management’s long-term

performance goals,

as well

as statements

relating to

the anticipated

effects on

results of

operations

and

financial condition

from expected

developments 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 environment;

•

our ability to

comply with the

extensive laws and

regulations to which

we are subject,

including the laws

for each

jurisdiction where we operate;

•

adverse changes or conditions in

capital and financial markets, including

actual or potential stresses

in the banking

industry;

•

deposit attrition and the level of our uninsured deposits;

•

legislative or regulatory changes

and changes in accounting

principles, policies, practices or

guidelines, including

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

•

the effects

of our

lack of

a diversified

loan portfolio

and concentration

in the

South Florida

market, including

the

risks of

geographic, depositor,

and industry

concentrations, including

our concentration

in loans

secured by

real

estate;

•

effects of climate change;

•

the concentration of ownership of our common stock;

•

fluctuations in the price of our common stock;

•

our ability to fund or access the capital markets at attractive rates and terms and manage our growth, both organic

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

•

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

•

impacts of international hostilities and geopolitical events;

•

increased competition and its effect on the pricing of our products and services as well as our margin;

•

the effectiveness of our risk management strategies, including

operational risks, including, but not limited to,

client,

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

•

other risks described

in this Form

10-Q, the 2022

Form 10-K/A and

other filings we

make with the

Securities and

Exchange Commission (“SEC”).

Table of Contents

USCB Financial Holdings, Inc.

Q1 2023 Form 10-Q

All forward-looking

statements are

necessarily only

estimates of

future results,

and

there

can

assurance

that

actual results will not

differ materially from

expectations. Therefore, you are cautioned

not to place undue

reliance on any

forward-looking statements. Further,

forward-looking statements included in

this Form 10-Q

are made only

as of the

date

hereof, and we

undertake no obligation

to update or

revise any forward-looking

statement to reflect

events or circumstances

after the date on which the statements are made or to reflect

the occurrence of unanticipated events, unless required to do

so under the federal securities laws.

You

should also review the risk

factors described in the reports the

Company filed or

will file with

the SEC and,

for periods prior

to the completion

of the bank

holding company reorganization

in December 2021,

the Bank filed with the FDIC.

Overview

The Company

reported net

income of

$5.8 million

or $0.29

per diluted

share for

Class A common stock for

the three

months ended March 31,

2023, compared with

net income of

$4.9 million or

$0.24 per diluted

share for Class A common

stock, respectively, for the same period in 2022.

During

the

first

quarter

2023,

the

Company

repurchased

500,000

USCB

Financial

Holdings

Inc

weighted average price per share of $11.74. The aggregate purchase

price for these transactions was approximately $5.9

million,

including

transaction

costs.

These

repurchases

were

made

through

open

market

purchase

pursuant

the

Company’s

publicly

announced

repurchase

program.

March

31,

2023,

250,000

remain

authorized

for

repurchase under this program.

In evaluating our financial performance, the Company

considers the level of and trends

in net interest income, the net

interest margin, the cost

of deposits, levels and

composition of non-interest income

and non-interest expense, performance

ratios, asset quality ratios, regulatory capital ratios, and any significant event or transaction.

Unless otherwise

stated, all

period comparisons

in the

bullet points

below are

calculated for

the quarter

ended March 31,

2023 compared to the quarter ended March 31, 2022 and annualized where appropriate:

•

Net

interest

income

increased

$1.6

million

11.3%

$16.0 million

from

$14.4

million

for

the

quarter

ended

March 31, 2022.

•

Net interest margin (“NIM”) was 3.22% for both quarters ended at March 31, 2023 and 2022.

•

Total assets were $2.2

billion at March 31, 2023,

representing an increase of $196.6

million or 10.0% from March

31, 2022 and an increase of $78.0 million or 15.2% annualized from December 31, 2022.

•

Total loans

were $1.6

billion at

March 31,

2023, representing

an increase

of $322.0

million or

25.6% from

March

31, 2022 and an increase of $73.1 million or 19.7% annualized from December 2022.

•

Total deposits were $1.8 billion at March 31,

2023, representing an increase of $117.2 million or

6.8% from March

31, 2022 and $1.2 million from December 31, 2022.

•

Annualized return on average assets was 1.11% compared to 1.03% at March 31, 2022.

•

Annualized return

on average

stockholders’

equity was

12.85% compared

to 9.75%

for quarter

ended March 31,

2022.

•

The allowance for credit losses to

total loans was 1.20% for

March 31, 2023 and

1.16% for December 31, 2022.

ACL was calculated under the CECL methodology for the first quarter 2023 and the incurred loss

methodology for

the first quarter 2022.

•

Non-performing loans to total loans was 0.03% at March 31, 2023 compared to 0.0% at December 31, 2022.

•

At March 31,

2023, the

total risk-based

capital ratios

for the

Company and

the Bank

were 13.20%

and 13.12%,

respectively.

•

Tangible book value

per common share

of $9.37 as

of March 31,

2023 was negatively

affected by $2.14

due to after

tax unrealized security losses of $42.1 million at March 31, 2023. At March 31, 2022, tangible book value of $9.60

was negatively affected by $0.97 due to $19.5 million after tax unrealized

security losses. See “Reconciliation and

Table of Contents

USCB Financial Holdings, Inc.

Q1 2023 Form 10-Q

Management

Explanation

for

Non-GAAP

Financial

Measures”

for

reconciliation

this

non-GAAP

financial

measure.

Critical Accounting Policies and Estimates

The

consolidated financial

statements

are

prepared based

the application

U.S.

GAAP,

the

most

significant

which are

described in

Note 1

“Summary of

Significant Accounting

Policies” in

the Company’s

2022 Form

10-K/A. To prepare

financial

statements

conformity

with

GAAP,

management

makes

estimates,

assumptions,

and

judgments

based

available information.

These estimates,

assumptions,

and judgments

affect the amounts

reported in

the financial

statements

and accompanying notes. These estimates, assumptions,

and judgments are based on information

available as of the date

of the financial

statements and, as

this information changes,

actual results could

differ from the estimates,

assumptions and

judgments reflected

in the

financial statements.

In particular,

management has

identified accounting

policies that,

due to

the estimates, assumptions and judgments inherent

in those policies, are critical in understanding

our financial statements.

Management has presented the application of these policies to the Audit and Risk Committee of our Board.

Allowance for Credit Losses

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” for

more information

on the

adoption ASC

326 and

the allowance

of credit

losses.

As of March

31, 2023, our

ACL included

a concentration of

commercial real

estate loans.

To assess the potential impact

changes

qualitative

factors

these

loans,

management

performed

sensitivity

analysis.

Specially

evaluated the impact of two scenarios: (1) an increase in qualitative factors to simulate a maximum loss scenario and (2) a

reduction to all qualitative

factors to zero. Under

the first scenario, the

ACL increased by $4.6

million or 24.2% and

under

the second scenario the

ACL was reduced by

$1.1 million or 6.3%.

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 on

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

to refer

them in

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.

Q1 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):

March 31, 2023

December 31, 2022

Consolidated Balance Sheets:

Total

assets

2,163,821

2,085,834

Total

loans

(1)

1,580,394

1,507,338

Total

deposits

1,830,462

1,829,281

Total

stockholders' equity

183,858

182,428

(1)

Loan amounts include deferred fees/costs.

Three Months Ended March 31,

2023

2022

Consolidated Statements of Operations:

Net interest income before provision for credit losses

15,997

14,379

Total

non-interest income

2,070

1,945

Total

non-interest expense

10,176

9,612

Net income

5,809

4,854

Profitability:

Efficiency ratio

56.32%

58.88%

Net interest margin

3.22%

The Company’s

results of

operations depend

substantially on

net interest

income and

non-interest income.

Other factors

contributing

to the

results of

operations include

our provision

for credit

losses, non-interest

expenses, and

provision

for

income taxes.

Three months ended March 31, 2023 compared to the three months ended March 31, 2022

Net income increased to $5.8 million for the three months ended March 31, 2023 from $4.9 million for the same period

in 2022 due to higher interest income generated by a larger loan portfolio and higher yields.

Net Interest Income

Net

interest

income

the

difference

between

interest

earned

interest-earning

assets

and

interest

incurred

interest-bearing liabilities

and is

the primary

driver of

core earnings.

Interest income

is generated

from interest

and dividends

interest-earning

assets,

including

loans,

investment

securities

and

other

short-term

investments.

Interest

expense

incurred

from

interest

paid

interest-bearing

liabilities,

including

interest-bearing

deposits,

FHLB

advances

and

other

borrowings.

To evaluate net interest income,

we measure and monitor (i)

yields on loans and other

interest-earning assets, (ii) the

costs of

deposits and other

funding sources,

(iii) net interest

spread, and

(iv) net

interest margin.

Net interest

spread is equal

to the difference between yields earned

on interest-earning assets and rates paid

on interest-bearing liabilities. Net interest

margin is

equal to

the annualized

net interest

income divided

by average

interest-earning assets.

Because non-interest-

bearing sources of funds,

such as non-interest-bearing deposits

and stockholders’

equity, also fund interest-earning

assets,

net interest margin includes the indirect benefit of these non-interest-bearing sources.

Table of Contents

USCB Financial Holdings, Inc.

Q1 2023 Form 10-Q

Changes in the

market interest rates

and interest rates

we earn on

interest-earning assets or

pay on interest-bearing

liabilities, as

well as the

volume and

types of

interest-earning assets

and interest-bearing

and non-interest-bearing

liabilities,

are usually the largest

drivers of periodic changes

in net interest spread,

net interest margin and

net interest income. Our

asset liability committee (“ALCO”)

has in place asset-liability

management techniques to manage

major factors that affect

net interest income and net interest margin.

The following table

contains information related

to average balance

sheet, average yields

on assets, and

average costs

of liabilities for the periods indicated (dollars in thousands):

Three Months Ended March 31,

2023

2022

Average

Balance

Interest

Yield/Rate

(1)

Average

Balance

Interest

Yield/Rate

(1)

Assets

Interest-earning assets:

Loans

(2)

1,547,393

19,711

5.17%

1,211,432

12,982

4.35%

Investment securities

(3)

421,717

2,286

2.20%

510,257

2,329

1.85%

Other interest-earnings assets

43,084

382

3.60%

90,137

0.14%

Total interest-earning

assets

2,012,194

22,379

4.51%

1,811,826

15,342

3.43%

Non-interest-earning assets

108,024

101,658

Total assets

2,120,218

1,913,484

Liabilities and stockholders' equity

Interest-bearing liabilities:

Interest-bearing checking

58,087

0.30%

64,436

0.10%

Saving and money market deposits

897,061

4,785

2.16%

736,134

551

0.30%

Time deposits

224,730

1,057

1.91%

223,274

259

0.47%

Total interest-bearing

deposits

1,179,878

5,885

2.02%

1,023,844

826

0.33%

FHLB advances and other borrowings

61,600

497

3.27%

36,011

137

1.54%

Total interest-bearing

liabilities

1,241,478

6,382

2.08%

1,059,855

963

0.37%

Non-interest-bearing demand deposits

664,369

626,400

Other non-interest-bearing liabilities

31,000

25,369

Total liabilities

1,936,847

1,711,624

Stockholders' equity

183,371

201,860

Total liabilities

and stockholders' equity

2,120,218

1,913,484

Net interest income

15,997

14,379

Net interest spread

(4)

2.43%

3.07%

Net interest margin

(5)

3.22%

(1)

Annualized.

(2)

Average loan balances include non-accrual loans. Interest income on loans includes accretion of deferred

loan fees, net of deferred loan costs.

(3)

At fair value except for securities held to maturity. This

amount includes FHLB stock.

(4)

Net interest spread is the average yield on total interest-earning assets minus the average rate on total interest-bearing liabilities.

(5)

Net interest margin is the ratio of net interest income to total interest-earning assets.

Three months ended March 31, 2023 compared to the three months ended March 31, 2022

Net interest income before

the provision for

credit losses was

$16.0 million for the

three months ended

March 31, 2023,

an increase of

$1.6 million or 11.3%, from

$14.4 million for the

same period in 2022.

This increase was

primarily attributable

to higher income from a larger loan portfolio combined with an increase in the weighted average loan yield.

Included with loan

interest income

are PPP interest

and loan

fees totaling $1

thousand and $1.0

million for

the three

months ended March 31, 2023 and 2022, respectively. PPP loan fees are recognized upon loan forgiveness by the SBA.

Net interest

margin was

at 3.22% for

both the

quarters ended

March 31, 2023 and

2022. The increase

in loan

yields

was partially

offset by

higher interest-bearing

liabilities cost.

Increase in

deposit cost

was mainly

attributed to

current interest

market conditions.

Table of Contents

USCB Financial Holdings, Inc.

Q1 2023 Form 10-Q

Provision for Credit Losses

The provision for

credit losses

represents a charge

to earnings

necessary to establish

an allowance

for credit losses

that, in

management's evaluation, is

adequate to

provide coverage for

all expected

credit losses. The

provision for

credit

losses is impacted

by growth in

our loan portfolio,

recent historical and

projected future economic

conditions, our internal

assessment of the credit quality of the loan portfolio and net charge-offs.

Three months ended March 31, 2023 compared to the three months ended March 31, 2022

The provision for credit loss was $201 thousand for the three months ended March 31, 2023 compared to no provision

recorded for the same period in 2022. The primary driver of the provision expense in 2023 was attributable to loan growth.

See “Allowance for Credit Losses” below for further discussion on how the ACL

is calculated.

Non-Interest Income

Our services and products generate service charges and fees,

mainly from our depository accounts. We also generate

income from gain on sale of

loans though our swap and SBA

programs. In addition, we own

and are beneficiaries of the life

insurance policies on

some of our

employees and generate

income on the

increase in the

cash surrender value

of these

policies.

The following table presents the components of non-interest income for the dates indicated (in thousands):

Three Months Ended March 31,

2023

2022

Service fees

1,205

900

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

(21)

Gain on sale of loans held for sale, net

347

334

Loan settlement

161

Other non-interest income

539

529

Total

non-interest income

2,070

1,945

Three months ended March 31, 2023 compared to the three months ended March 31, 2022

Non-interest income for

the three months

ended March 31, 2023

increased $125 thousand

or 6.4%, compared

to the

same period in 2022. This

increase was primarily driven

by a $305 thousand

increase in fees related

to SWAP loans. For

the period ended March 31, 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.

Non-Interest Expense

The following table presents the components of non-interest expense for the dates indicated (in thousands):

Three Months Ended March 31,

2023

2022

Salaries and employee benefits

6,377

5,875

Occupancy

1,299

1,270

Regulatory assessment and fees

224

213

Consulting and legal fees

358

517

Network and information technology services

478

387

Other operating

1,440

1,350

Total

non-interest expense

10,176

9,612

Three months ended March 31, 2023 compared to the three months ended March 31, 2022

Non-interest expense for the three months ended March 31, 2023 increased $564 thousand or 5.9%, compared to the

same period in

2022. The increase

was primarily driven

by higher salaries

and employee benefits

expense due to

new hires

and increased salary compensation.

Table of Contents

USCB Financial Holdings, Inc.

Q1 2023 Form 10-Q

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 March 31, 2023 compared to the three months ended March 31, 2022

Income tax expense for both the quarters ended March 31, 2023 and 2022

was $1.9 million. The effective tax rate for

the

three

months

ended

March 31,

2023

was

24.5%

compared

27.7%

for

the

same

period

2022.

The

Company’s

effective tax

rate in

the quarter

ended March

31, 2022

was higher

primarily because

the Company

recorded a

one-time

adjustment of $300 thousand to deferred tax assets which increased the income tax provision.

For

further

discussion

income

taxes,

see

Note

“Income

Taxes”

the

unaudited

Consolidated

Financial

Statements in this Form 10-Q.

Analysis of Financial Condition

Total

assets at March 31, 2023 were $2.2 billion, an increase of $78.0 million, or 3.7%, over total assets of

$2.1 billion

at December

31, 2022.

Total

loans increased

$73.1 million,

or 4.8%,

to $1.6

billion at

March 31, 2023

compared to

$1.5

billion

December

31,

2022.

Total

deposits

increased

$1.2

million

$1.8

billion

March 31,

2023

compared

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

consideration the Company’s risk

appetite and tolerance, manage the

asset composition and diversification, and

maintain

adequate risk-based capital ratios.

The

investment

portfolio

managed

accordance

with

the

Asset

and

Liability

Management

(“ALM”)

policy,

which

includes

investment

guidelines,

approved

the

Board.

Such

policy

reviewed

least

annually

frequently

deemed necessary,

depending on

market conditions

and/or unexpected

events. The

investment portfolio

composition is

subject to

change depending

on the

funding and

liquidity needs

of the

Company, and the

interest risk

management objective

directed

the

ALCO.

The

portfolio

investments

also

can

used

modify

the

duration

the

balance

sheet.

The

allocation of cash into securities takes into consideration anticipated future cash flows (uses and sources) and all available

sources of credit.

Our investment portfolio consists primarily of securities issued by U.S. government-sponsored agencies, U.S.

agency

mortgage-backed securities,

collateralized mortgage

obligation securities,

municipal securities,

and other

debt securities,

all with varying contractual maturities

and coupons. Due to the optionality

embedded in these securities, the

final maturities

do not

necessarily represent

the expected

life of

the portfolio.

Some of

these securities

will be

called or

paid down

depending

on capital market conditions and

expectations. The investment portfolio

is regularly reviewed by the

Chief Financial Officer,

Treasurer,

and the ALCO of

the Company to ensure

an appropriate risk and

return profile as well

as for adherence to

the

investment policy.

ASC Topic

326 amended

the existing

other-than-temporary-impairment guidance

for AFS

securities, requiring

credit

losses to be recorded as an allowance rather than through a

permanent write-down. When evaluating AFS debt securities

under ASC Topic

326, the Company

has evaluated whether

the decline in

fair value is

attributed to credit

losses or other

factors like

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 appropriate.

AFS

and

HTM

investment

securities

decreased

$3.0 million

1.0%

$415.8 million

March 31,

2023

from

$418.8 million at

December 31, 2022.

Investment securities

decreased due

to payments

received and

sales of

securities

during

the

quarter.

Management

reinvested

excess

cash

balances

into

high

credit

quality

investments

increase

the

Company’s profitability

and modify

the Company’s

balance sheet

duration according

to the

ALM policy.

As of

March 31,

Table of Contents

USCB Financial Holdings, Inc.

Q1 2023 Form 10-Q

2023, investment securities with a

market value of $83.5 million were

pledged to secure public deposits

and Fed Borrowing

Program. The investment portfolio does not have any tax-exempt securities.

The

following

table

presents

the

amortized

cost

and

fair

value

investment

securities

for

the

dates

indicated

(in

thousands):

March 31, 2023

December 31, 2022

Available-for-sale:

Amortized

Cost

Fair Value

Amortized

Cost

Fair Value

U.S. Government Agency

10,184

8,831

10,177

8,655

Collateralized mortgage obligations

110,180

88,837

118,951

95,541

Mortgage-backed securities - residential

72,690

60,566

73,838

60,879

Mortgage-backed securities - commercial

37,043

32,600

32,244

27,954

Municipal securities

25,064

19,310

25,084

18,483

Bank subordinated debt securities

16,831

15,497

15,964

14,919

Corporate bonds

4,035

3,768

4,037

3,709

276,027

229,409

280,295

230,140

Held-to-maturity:

U.S. Government Agency

44,792

39,736

44,914

39,062

U.S. Treasury

9,951

9,943

9,841

9,828

Collateralized mortgage obligations

67,404

60,546

68,727

60,925

Mortgage-backed securities - residential

41,842

38,088

42,685

38,483

Mortgage-backed securities - commercial

11,399

10,755

11,442

10,777

Corporate bonds

11,040

10,099

11,090

10,013

186,428

169,167

188,699

169,088

The following table

shows the weighted

average yields, categorized

by contractual maturity,

for investment securities

as of March 31, 2023 (in thousands,

except ratios):

Within 1 year

After 1 year through

5 years

After 5 years through

10 years

After 10 years

Total

Amortized

Cost

Yield

Amortized

Cost

Yield

Amortized

Cost

Yield

Amortized

Cost

Yield

Amortized

Cost

Yield

Available-for-sale:

U.S. Government Agency

0.00%

2,352

3.18%

7,832

2.04%

10,184

2.30%

U.S. Treasury

0.00%

Collateralized mortgage obligations

0.00%

110,180

1.40%

110,180

1.40%

MBS - residential

0.00%

72,690

1.67%

72,690

1.67%

MBS - commercial

0.00%

37,043

2.17%

37,043

2.17%

Municipal securities

0.00%

1,000

2.05%

24,064

1.72%

25,064

1.74%

Bank subordinated debt securities

0.00%

16,831

4.99%

0.00%

16,831

4.99%

Corporate bonds

0.00%

4,035

2.50%

0.00%

4,035

2.50%

4,035

20,183

251,809

276,027

1.87%

Held-to-maturity:

U.S. Government Agency

0.00%

7,909

1.03%

20,346

1.45%

16,537

1.98%

44,792

1.57%

U.S. Treasury

9,951

4.44%

0.00%

9,951

4.44%

Collateralized mortgage obligations

0.00%

67,404

1.69%

67,404

1.69%

MBS - residential

0.00%

4,526

1.84%

5,941

1.74%

31,375

2.24%

41,842

2.12%

MBS - commercial

0.00%

3,084

1.62%

8,315

1.69%

11,399

1.67%

Corporate bonds

1,509

2.25%

9,531

2.79%

0.00%

11,040

2.72%

11,460

21,966

29,371

123,631

186,428

1.96%

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.

Q1 2023 Form 10-Q

The following table shows the loan portfolio composition as of the dates indicated (in thousands):

March 31, 2023

December 31, 2022

Total

Percent of

Total

Percent of

Total

Residential Real Estate

184,427

11.7

185,636

12.3

Commercial Real Estate

987,757

62.5

970,410

64.4

Commercial and Industrial

160,947

10.2

126,984

8.4

Foreign Banks

97,405

6.1

93,769

6.2

Consumer and Other

149,410

9.5

130,429

8.7

Total

gross loans

1,579,946

100.0

1,507,228

100.0

Less: Deferred fees (cost)

448

(110)

Total

loans net of deferred fees (cost)

1,580,394

1,507,338

Less: Allowance for credit losses

18,887

17,487

Total

net loans

1,561,507

1,489,851

Total

loans increased

by $73.1 million or

4.8% at March

31, 2023

compared to December 31,

2022. The

commercial

and

industrial,

and

lesser

extent,

consumer

and

other

loan

and

commercial

real

estate

segments

had

the

most

significant growth partially offset by declines in the residential real estate loan segment.

Our

loan

portfolio

continues

grow,

with

commercial

real

estate

lending

the

primary

focus

which

represented

approximately 62.5% of the total gross loan portfolio as of March 31, 2023. We do not expect any significant changes over

the foreseeable

future in

the composition

of our

loan portfolio

or in

our emphasis

on commercial

real estate

lending. Our

loan growth

strategy since

inception has

been reflective

of the

market in

which we

operate and

of our

strategic plan

approved by the Board.

Most of the

commercial real estate

exposure represents loans to

commercial businesses secured by

owner-occupied

real estate.

The growth

experienced in

recent years

is primarily

due to

implementation of

our relationship-based

banking

model and

the success

of our

relationship managers

in competing

for new

business in

a highly

competitive metropolitan

area. Many

of our

larger loan

clients have

long-term relationships

with members

of our

senior management

team or

our

relationship managers that date back to former institutions.

From a

liquidity perspective,

our loan

portfolio provides

us with

additional liquidity

due to

repayments or

unexpected

prepayments. The following

table shows maturities

and sensitivity to

interest rate changes

for the loan

portfolio at March 31,

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

15,740

7,809

84,011

76,867

184,427

Commercial Real Estate

92,411

155,604

729,841

9,901

987,757

Commercial and Industrial

8,392

30,996

80,925

40,634

160,947

Foreign Banks

97,405

Consumer and Other

3,424

1,992

10,980

133,014

149,410

Total

gross loans

217,372

196,401

905,757

260,416

1,579,946

Interest rate sensitivity:

Fixed interest rates

186,433

105,797

176,867

155,007

624,104

Floating or adjustable rates

30,939

90,604

728,890

105,409

955,842

Total

gross loans

217,372

196,401

905,757

260,416

1,579,946

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 March 31,

2023, approximately 60.5%

of the loans

have adjustable/variable rates

and 39.5% of

the loans

have

fixed rates.

The adjustable/variable rate

loans re-price to

different benchmarks

and tenors

in different

periods of

time. By

contractual characteristics,

there are no

material concentrations on

anniversary repricing. Additionally, it

is important to

note

Table of Contents

USCB Financial Holdings, Inc.

Q1 2023 Form 10-Q

that most

of our

loans have interest

rate floors.

This embedded option

protects the Company

from a

decrease in

interest

rates and positions us to gain in the scenario of higher interest rates.

Asset Quality

Our asset quality

grading analysis estimates

the capability of

the borrower to

repay the contractual

obligation of the

loan

agreement as scheduled or at all.

The Company’s internal credit risk grading system

is based on experiences with

similarly

graded loans. Internal credit risk grades are

reviewed at least once a year,

and more frequently as needed. Internal credit

risk ratings

may change based

on management’s

assessment of the

results from the

annual review,

portfolio monitoring,

and other developments observed with borrowers.

The internal credit risk grades used by the Company to assess the credit worthiness of a loan are shown below:

Pass

– Loans indicate different levels of satisfactory financial condition and performance.

Special Mention

– Loans classified as special mention have a potential weakness that deserves management’s

close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment

prospects for the loan or of the institution’s credit position at some future date.

Substandard

– Loans classified as substandard are inadequately protected by the current net worth and paying

capacity of the obligator or of the collateral pledged, if any. Loans so classified have a well-defined weakness or

weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the

institution will sustain some loss if the deficiencies are not corrected.

Doubtful

– Loans classified as doubtful have all the weaknesses inherent in those classified at substandard, with

the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing

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

Loss

– Loans classified as loss are considered uncollectible.

Loan credit exposures by internally assigned grades are as follows for the dates indicated (in thousands):

March 31, 2023

Pass

Special Mention

Substandard

Doubtful

Total

Residential Real Estate

184,427

Commercial Real Estate

985,214

2,542

987,756

Commercial and Industrial

159,783

1,164

160,947

Foreign Banks

97,405

Consumer and Other

149,239

171

149,410

1,576,068

3,877

1,579,945

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.

Q1 2023 Form 10-Q

Non-Performing Assets

The following table presents non-performing assets as of the dates shown (in thousands, except ratios):

March 31, 2023

December 31, 2022

Total

non-performing loans

486

Other real estate owned

Total

non-performing assets

486

Asset quality ratios:

(1)

Allowance for credit losses to total loans

1.20%

1.16%

Allowance for credit losses to non-performing loans

3886%

- %

Non-performing loans to total loans

0.03%

- %

(1)

ACL was calculated under CECL methodology for first quarter 2023, and incurred loss methodology for fourth quarter 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 on 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” for more information on the allowance for credit losses on this Form 10-Q.

Table of Contents

USCB Financial Holdings, Inc.

Q1 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 March 31, 2023

Beginning balance

1,352

10,143

4,163

720

1,109

17,487

Cumulative effect of adoption of accounting

principle

(1)

1,238

1,105

(2,158)

858

1,066

Provision for credit losses

(2)

221

(795)

318

512

285

Recoveries

Charge-offs

(5)

Ending Balance

2,819

10,453

2,367

772

2,476

18,887

Average loans

194,355

964,682

158,509

89,020

140,826

1,547,392

Net charge-offs to average loans

-0.02%

0.00%

-0.11%

0.00%

0.01%

-0.01%

(1)

Impact of CECL adoption as of January 1, 2023

(2)

Provision for credit losses excludes $84 thousand reduction due to unfunded commitments included in other liabilities.

Residential

Real Estate

Commercial

Real Estate

Commercial

and Industrial

Foreign

Banks

Consumer

and Other

Total

Three Months Ended March 31, 2022

Beginning balance

2,498

8,758

2,775

457

569

15,057

Provision for credit losses

(157)

425

(426)

124

Recoveries

Charge-offs

(16)

(5)

(21)

Ending Balance

2,357

9,183

2,355

491

688

15,074

Average loans

198,162

739,732

139,781

59,667

74,090

1,211,432

Net charge-offs to average loans

-0.03%

-0.02%

0.03%

-0.01%

Bank-Owned Life Insurance

As of March 31, 2023, the combined cash surrender value

of all bank-owned life insurance (“BOLI”) policies was $43.0

million. Changes in cash surrender value are

recorded to non-interest income in the unaudited

Consolidated Statements of

Operations. The Company had BOLI

policies with five insurance carriers.

The Company is the beneficiary

of these policies.

Deposits

Customer deposits are the primary funding source for the Bank’s

growth. Through our network of banking centers, we

offer a competitive

array of deposit

accounts and treasury

management services designed

to meet our

customers’ business

needs.

Our

primary

deposit

customers

are

small-to-medium

sized

businesses

(“SMBs”),

and

the

personal

business

owners and operators of these SMBs, as well as the retail/consumer relationships of the employees of these businesses.

The following table presents the

daily average balance and

average rate paid on deposits

by category for the

periods

presented (in thousands, except ratios):

Three Months Ended March 31,

2023

2022

Average Balance

Average Rate

Paid

Average Balance

Average Rate

Paid

Non-interest-bearing checking

664,369

0.00%

626,400

0.00%

Interest-bearing checking

58,087

0.30%

64,436

0.10%

Money market and savings deposits

897,061

2.16%

736,134

0.30%

Time deposits

224,730

1.91%

223,274

0.47%

Total

1,844,247

1.29%

1,650,244

0.20%

Table of Contents

USCB Financial Holdings, Inc.

Q1 2023 Form 10-Q

The Company

has a

granular deposit

portfolio with

outstanding balances

comprised of

54% in

commercial deposits,

35%

personal

deposits

and

11%

public

funds,

which

are

partially

collateralized.

The

Company

has

approximately

thousand deposits accounts with the

majority in personal accounts, approximately

12 thousand or 64.4%. The total

amount

of uninsured

deposits adjusted

by the

collateralized portion

of public

funds is

56% at

March 31,

2023, a

decrease of

compared to December 31, 2022

and below the 2022 average.

The estimated average account

size of our deposit portfolio

$96

thousand

March

31,

2023.

The

Company

also

offers

Insured

Cash

Sweep

(“ICS”)

and

Certificate

Deposit Account Registry Service (“CDARS”) deposit products to fully insure our clients.

The

uninsured

deposits

are

estimated

based

the

FDIC

deposit

insurance

limit

$250

thousand

for

all

deposit

accounts at the

Company per account

holder. Total estimated uninsured deposits adjusted for

collateralized public deposits

were $1.0 billion and $1.1 billion at March 31, 2023 and December 31, 2022, respectively.

The following table shows scheduled maturities of uninsured time deposits as of March 31, 2023 (in thousands):

March 31, 2023

Three months or less

21,116

Over three through six months

26,996

Over six though twelve months

29,135

Over twelve months

23,038

100,285

Other Liabilities

The Company collects from commercial loan customers funds which are held in escrow for future payment of real

estate taxes and insurance. These escrow funds are disbursed by the Company directly to the insurance companies and

taxing authority of the borrower.

Escrow funds are recorded as other liabilities.

As of March 31, 2023 escrow balances totaled $8.3 million compared to $3.5 million at December 31, 2022.

Borrowings

As a member

of the FHLB,

we are eligible

to obtain advances

with various terms

and conditions. This

accessibility of

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

March 31, 2023,

we had

$120.0 million

of fixed-rate

advances outstanding

from the

FHLB with

a weighted

average

rate of 4.15%.

Maturity dates for

the advances are

between third quarter

2023 and third

quarter 2025 as

detailed in the

table

below.

The following table presents the FHLB fixed rate advances as of March 31, 2023 (in thousands):

Interest Rate

Type of Rate

Maturity Date

Amount

2.05%

Fixed

March 27, 2025

10,000

1.07%

Fixed

July 18, 2025

6,000

1.04%

Fixed

July 30, 2024

5,000

0.81%

Fixed

August 17, 2023

5,000

5.07%

Daily

December 22, 2023

83,000

3.76%

Fixed

January 24, 2028

11,000

120,000

have

also

established

Fed

Funds

lines

credit

with

our

upstream

correspondent

banks

manage

temporary

fluctuations in our daily

cash balances. As of

March 31, 2023, there were

no outstanding balances with

the Fed Funds lines

of credit.

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 of

credit. To

a varying

degree, such

commitments involve

elements of

credit, market,

and interest

rate risk

in excess

of the

Table of Contents

USCB Financial Holdings, Inc.

Q1 2023 Form 10-Q

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,

we maintain

an 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):

March 31, 2023

December 31, 2022

Commitments to grant loans and unfunded lines of credit

81,506

95,461

Standby and commercial letters of credit

3,542

4,320

Total

85,048

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 of

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.

Asset and Liability Management Committee

Members

senior

management and

our

Board

make

the

asset

and

liability management

committee,

ALCO.

Senior management is responsible

for ensuring that Board

approved strategies, policies, and

procedures for managing and

mitigating risks are appropriately executed within the designated lines of authority and responsibility in a timely manner.

ALCO

oversees

the

establishment,

approval,

implementation,

and

review

interest

rate

risk,

management,

and

mitigation strategies, ALM related policies, ALCO procedures and risk tolerances and appetite.

While some degree of

IRR (“Interest Rate Risk”)

is inherent to the

banking business, we believe

our ALCO has put

place sound risk management practices to identify, quantify,

monitor, and limit IRR exposures.

When assessing

the scope

of IRR

exposure and

impact on

the consolidated

balance sheet,

cash flows

and income

statement,

management

considers

both

earnings

and

economic

impacts.

Asset

price

variations,

deposit

volatility

and

reduced earnings or outright losses could adversely affect the Company’s liquidity, performance, and capital adequacy.

Income simulations are

used to

assess the impact

of changing rates

on earnings under

different rates

scenarios and

time horizons.

These simulations

utilize both

instantaneous and

parallel changes

in the

level of

interest rates,

as well

non-parallel changes such as

changing slopes (flat and

steeping) 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 in assumptions regarding

changes in existing lines

of 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.

Table of Contents

USCB Financial Holdings, Inc.

Q1 2023 Form 10-Q

Market and Interest Rate Risk Management

According to our

ALCO model, as

of March 31,

2023, we were

a liability sensitive

Bank for year

one modeling and

asset

sensitive for year two modeling. Asset sensitivity indicates that our assets generally reprice faster than our liabilities, which

results in

a favorable impact

to net

interest income when

market interest rates

increase. Liability sensitivity

indicates that

our liabilities generally

reprice faster than

our assets, which

results in a

favorable impact to

net interest income

when market

interest rates decrease.

Many assumptions are

used to calculate

the impact of

interest rate

variations on

our net

interest

income, such as asset

prepayment speeds, non-maturity deposit

price sensitivity,

pricing correlations, deposit truncations

and decay rates, and key interest rate drivers.

Because of the inherent use of these estimates and assumptions in the

model, our actual results may,

and most likely

will, differ from static measures results. In addition, static measures like EVE do not include actions that management may

undertake to manage the risks in response

to anticipated changes in interest rates

or client deposit behavior. As part of our

ALM strategy

and policy,

management has

the ability

to modify

the balance

sheet to

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 March 31, 2023, NIM most likely will decrease for year one and should increase for year

two under static rate

scenarios (-400 basis points

or +400 basis points).

For the static forecast

in year one, the

estimated

NIM will decrease

from the base case

scenario to

a +400 basis points

scenario. Additionally,

utilizing an EVE approach,

we analyze the

risk to capital

from the effects

of various interest

rate scenarios through

a long-term discounted cash

flow

model. This measures

the difference

between the economic

value of our

assets and the

economic value of

our liabilities,

which is

a proxy

for our

liquidation value.

According to

our balance

sheet composition,

and as

expected, our

model stipulates

that an increase of rates will have a negative impact on the EVE and lower rates and positive impact. Results and analysis

are presented quarterly to the ALCO, and strategies are defined.

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.

Table of Contents

USCB Financial Holdings, Inc.

Q1 2023 Form 10-Q

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

certificates of deposit,

The Bank Term Funding Program, and

borrowings

from the FHLB. Accordingly, our liquidity resources were adequate

to fund loans and meet other

cash needs as necessary.

Capital Adequacy

As of

March 31, 2023,

the Bank

was well

capitalized under

the FDIC’s

prompt corrective

action framework.

We also

follow the capital conservation buffer framework, and as of March

31, 2023, we exceeded the capital conversation buffer

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

March 31, 2023

Total

risk-based capital

218,621

13.12

133,293

8.00

166,616

10.00

Tier 1 risk-based capital

199,301

11.96

99,970

6.00

133,293

8.00

Common equity tier 1 capital

199,301

11.96

74,977

4.50

108,301

6.50

Leverage ratio

199,301

9.30

85,760

4.00

107,201

5.00

December 31, 2022:

Total

risk-based capital

216,693

13.58

127,616

8.00

159,520

10.00

Tier 1 risk-based capital

198,909

12.47

95,712

6.00

127,616

8.00

Common equity tier 1 capital

198,909

12.47

71,784

4.50

103,688

6.50

Leverage ratio

198,909

9.56

83,210

4.00

104,012

5.00

The Company is not subject to capital

ratios imposed by Basel III on bank

holding companies because the Company is

deemed to be a small bank holding company.

Impact of Inflation

Our

Consolidated

Financial

Statements

and

notes

have

been

prepared

accordance

with

U.S.

GAAP,

which require the measurement of financial position and operating results in terms of historical dollars, without considering

the changes in the relative purchasing power

of money over time due to inflation. The

impact of inflation is reflected in the

increased cost of operations. Unlike most industrial companies, nearly all our assets and liabilities

are monetary in nature.

As a result,

interest rates have

a greater impact

on our performance

than do the

effects of general

levels of inflation.

Periods

of high inflation are often

accompanied by relatively higher interest rates,

and periods of low inflation

are accompanied by

relatively lower interest rates. As market interest rates

rise or fall in relation to the

rates earned on loans and investments,

the

value

these

assets

decreases

increases

respectively.

Inflation

can

also

impact

core

non-interest

expenses

associated with delivering the Company’s services.

Recently Issued Accounting Pronouncements

Recently issued accounting pronouncements are discussed in Note 1

“Summary of Significant Accounting Policies” to

the unaudited Consolidated Financial Statements in this Form 10-Q.

Table of Contents

USCB Financial Holdings, Inc.

Q1 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

in 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.

Q1 2023 Form 10-Q

USCB FINANCIAL HOLDINGS, INC.

NON-GAAP FINANCIAL MEASURES (UNAUDITED)

(Dollars in thousands)

As of or For the Three Months Ended

3/31/2023

12/31/2022

9/30/2022

6/30/2022

3/31/2022

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

Net income

5,809

4,434

5,558

5,295

4,854

Plus: Provision for income taxes

1,881

1,415

1,963

1,708

1,858

Plus: Provision for credit losses

201

880

910

705

PTPP income

7,891

6,729

8,431

7,708

6,712

PTPP return on average assets:

PTPP income

7,891

6,729

8,431

7,708

6,712

Average assets

2,120,218

2,051,867

2,026,791

1,968,381

1,913,484

PTPP return on average assets

(1)

1.51%

1.30%

1.65%

1.57%

1.42%

Operating net income:

Net income

5,809

4,434

5,558

5,295

4,854

Less: Net gains (losses) on sale of securities

(21)

(1,989)

(558)

(3)

Less: Tax effect

on sale of securities

504

141

(5)

Operating net income

5,825

5,919

5,975

5,297

4,838

Operating PTPP income:

PTPP income

7,891

6,729

8,431

7,708

6,712

Less: Net gains (losses) on sale of securities

(21)

(1,989)

(558)

(3)

Operating PTPP income

7,912

8,718

8,989

7,711

6,691

Operating PTPP return on average assets:

Operating PTPP income

7,912

8,718

8,989

7,711

6,691

Average assets

2,120,218

2,051,867

2,026,791

1,968,381

1,913,484

Operating PTPP return on average assets

(1)

1.51%

1.69%

1.76%

1.57%

1.42%

Operating return on average assets:

Operating net income

5,825

5,919

5,975

5,297

4,838

Average assets

2,120,218

2,051,867

2,026,791

1,968,381

1,913,484

Operating return on average assets

(1)

1.11%

1.14%

1.17%

1.08%

1.03%

Operating return on average equity:

Operating net income

5,825

5,919

5,975

5,297

4,838

Average equity

183,371

177,556

185,288

186,597

201,860

Operating return on average equity

12.88%

13.23%

12.79%

11.39%

9.72%

Operating Revenue:

Net interest income

15,997

16,866

16,774

15,642

14,379

Non-interest income

2,070

(123)

1,789

1,617

1,945

Less: Net gains (losses) on sale of securities

(21)

(1,989)

(558)

(3)

Operating revenue

18,088

18,732

19,121

17,262

16,303

Operating Efficiency Ratio:

Total non-interest

expense

10,176

10,014

10,132

9,551

9,612

Operating revenue

18,088

18,732

19,121

17,262

16,303

Operating efficiency ratio

56.26%

53.46%

52.99%

55.33%

58.96%

(1)

Annualized.

Table of Contents

USCB Financial Holdings, Inc.

Q1 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

3/31/2023

12/31/2022

9/30/2022

6/30/2022

3/31/2022

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

(1)

Total stockholders'

equity

183,858

182,428

177,417

180,068

192,039

Less: Intangible assets

Tangible stockholders'

equity

183,858

182,428

177,417

180,068

192,039

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

Total common shares

issued and outstanding

19,622,380

20,000,753

Tangible book value

per common share

(2)

9.37

9.12

8.87

9.00

9.60

Operating diluted net income per common share:

(1)

Operating net income

5,825

5,919

5,975

5,297

4,838

Total weighted average

diluted shares of common stock

19,940,606

20,172,438

20,148,208

20,171,261

20,109,783

Operating diluted net income per common share:

0.29

0.30

0.26

0.24

Tangible Common Equity/Tangible

Assets

Tangible stockholders'

equity

183,858

182,428

177,417

180,068

192,039

Tangible assets

2,163,821

2,085,834

2,037,453

2,016,086

1,967,252

Tangible Common

Equity/Tangible

Assets

8.50%

8.75%

8.71%

8.93%

9.76%

(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.

Q1 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)

of March 31,

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

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.

Q1 2023 Form 10-Q

PART II

Item 1.

Legal Proceedings

We are not currently subject to any

material legal proceedings. We are from

time to time subject to claims

and litigation

arising

the

ordinary

course

business.

These

claims

and

litigation

may

include,

among

other

things,

allegations

violation of 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.

intend to

defend ourselves

vigorously against any pending or future claims and litigation.

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

additional risk factors

as of March

31, 2023 as

set forth below.

Financial

challenges

other

banking

institutions

could

lead

depositor

concerns

that

spread

within

the

banking industry causing disruptive and destabilizing deposit outflows.

In March

2023, Silicon

Valley

Bank and

Signature Bank

experienced large

deposit outflows

coupled with

insufficient

liquidity to

meet withdrawal

demands, resulting

in the

institutions being

placed into

FDIC receiverships.

In the

aftermath,

there has been

substantial market disruption and

concerns that diminished

depositor confidence could spread

across the

banking industry, leading to deposit outflows that could

destabilize other institutions. To strengthen public confidence in the

banking

system,

the

FDIC

took

action

protect

funds

held

uninsured

deposit

accounts

Silicon

Valley

Bank

and

Signature Bank. However, the

FDIC has not

committed to protecting

uninsured deposits in

other institutions that

experience

outsized withdrawal demands.

Subsequently, on May 1, 2023 First Republic Bank became another large bank to fail.

further bolster

the banking

system, the

FRB created

a new

Bank Term

Funding Program

to provide

an additional

source of

liquidity.

At March

31, 2023,

the Company

had $413.0

million in

available liquidity

on balance

sheet, including

$59.0 million in

excess cash. The

Company has an

additional $228.0

million in off

balance sheet liquidity, it

excludes access

to brokered deposits and other off balance sheet

sources of funding. Notwithstanding our significant

liquidity, large deposit

outflows could adversely affect our financial condition and results of operations and could ultimately result in the closure of

the Bank.

Furthermore, the

recent bank

failures may

result in

federal and

state banking

regulators taking

steps to

strengthen

capital and

liquidity rules

which, if

the revised

rules apply

to us,

could adversely affect

the Company’s

financial condition

and results of operations.

Our FDIC deposit insurance premiums and assessments may increase, which would reduce our profitability.

On March

12, 2023,

the Department

of the

Treasury,

the FRB

and the

FDIC issued

a joint

statement relating

to the

resolution of Silicon Valley

Bank and Signature Bank that

stated that losses to support

uninsured deposits of those banks

would be recovered via a special assessment on banks.

The terms of that special assessment have not been

announced.

The announced special assessment, as well

as any future increases in assessment

rates or required prepayments in FDIC

insurance

premiums,

the

extent

that

they

result

increased

deposit

insurance

costs,

would

reduce

the

Company’s

profitability.

Insufficient liquidity could impair our ability to fund operations and

jeopardize our financial condition, growth

and prospects.

The

Company

requires

sufficient

liquidity

fund

loan

commitments,

satisfy

depositor

withdrawal

requests,

make

payments on its debt obligations as they

become due, and meet other cash commitments.

Liquidity risk is the potential that

the Company will

not be able

to meet its

obligations as they

become due because

of an inability

to liquidate assets

or obtain

adequate

funding

reasonable

cost,

timely

manner

and

without

adverse

conditions

consequences.

The

Company’s sources of liquidity consist primarily of cash, assets readily convertible to cash (such as investment securities),

increases in

deposits, advances,

as needed,

from the

FHLB, borrowings,

as needed,

from the

Federal Reserve

Bank of

Atlanta and

other borrowings,

including pursuant

to the

Bank Term

Funding Program.

The Company’s

access to

funding

sources in

amounts adequate

to finance

its activities

or on

acceptable terms

could be

impaired by

factors that

affect the

Company

particular

the

financial

services

industry

economy

general.

Any

substantial,

unexpected,

and/or

prolonged

change

the

level

cost

liquidity

could

impair

the

Company’s

ability

fund

operations

and

meet

its

obligations as they become

due and could have

a material adverse effect

on the Company’s

business, financial condition

and results of operations.

Table of Contents

USCB Financial Holdings, Inc.

Q1 2023 Form 10-Q

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

(a) None.

(b) Not applicable.

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

January 1 - 31, 2023

750,000

February 1 - 28, 2023

250,000

12.04

500,000

March 1 - 31, 2023

250,000

11.43

250,000

500,000

11.74

(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

None.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Table of Contents

USCB Financial Holdings, Inc.

Q1 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 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 December 30,

2021).

3.2

Amended and Restated Bylaws of USCB Financial Holdings, Inc. (incorporated by reference to Exhibit 3.2 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).

4.1

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

March 31,

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.

Q1 2023 Form 10-Q

SIGNATURES

Pursuant to the requirements

of the Securities Exchange

Act of 1934, the

registrant has duly caused

this report to be

signed on its behalf by the undersigned thereunto duly authorized.

USCB FINANCIAL HOLDINGS, INC.

(Registrant)

Signature

Title

Date

/s/ Luis de la Aguilera

President, Chief Executive Officer, and Director

May 12, 2023

Luis de la Aguilera

(Principal Executive Officer)

/s/ Robert Anderson

Chief Financial Officer

May 12, 2023

Robert Anderson

(Principal Financial Officer and Principal

Accounting Officer)

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USCB Financial (USCB) 10-Q2023 Q1 Quarterly report

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