USCB Financial 10Q 2024 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, 2024

☐

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 April 30, 2024 the registrant had

19,655,632

of Class A common stock outstanding.

FORM 10-Q

March 31, 2024

TABLE OF CONTENTS

PART I

Item 1.

Financial Statements

Consolidated Balance Sheets as of March 31, 2024 (Unaudited) and December 31, 2023

Consolidated Statements of Operations for the three months ended March 31, 2024 and 2023 (Unaudited)

Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2024 and

2023 (Unaudited)

Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2024 and

2023 (Unaudited)

Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023 (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 2024 Form 10-Q

PART

Item 1.

Financial Statements

USCB FINANCIAL HOLDINGS, INC

Consolidated Balance Sheets – Unaudited

(Dollars in thousands, except share data)

March 31, 2024

December 31, 2023

ASSETS:

Cash and due from banks

9,601

8,019

Interest-bearing deposits in banks

116,945

33,043

Total cash and cash equivalents

126,546

41,062

Investment securities held to maturity, net of allowance of $

and $

, respectively (fair value $

152,156

and $

155,510

, respectively)

173,038

174,974

Investment securities available for sale, at fair value

259,992

229,329

Federal Home Loan Bank stock, at cost

5,532

10,153

Loans held for investment, net of allowance of $

21,454

and $

21,084

, respectively

1,799,742

1,759,743

Accrued interest receivable

11,579

10,688

Premises and equipment, net

4,787

4,836

Bank owned life insurance

52,192

51,781

Deferred tax assets, net

36,249

37,282

Lease right-of-use asset

10,680

11,423

Other assets

8,805

7,822

Total assets

2,489,142

2,339,093

LIABILITIES:

Deposits:

Demand deposits

576,626

552,762

Money market and savings accounts

1,141,422

1,048,272

Interest-bearing checking

57,839

47,702

Time deposits

326,907

288,403

Total deposits

2,102,794

1,937,139

Federal Home Loan Bank advances and other

borrowings

162,000

183,000

Lease liability

10,680

11,423

Accrued interest and other liabilities

18,657

15,563

Total liabilities

2,294,131

2,147,125

Commitments and contingencies (See Notes 5

and 10)

(nil)

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, 2024

and December 31, 2023

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, 2024

and December 31, 2023

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, 2024

and December 31, 2023

Common stock - Class A Voting; $

1.00

par value;

45,000,000

shares authorized;

19,650,463

issued and

outstanding

as of March 31, 2024,

19,575,435

issued and outstanding as of December 31,

2023

19,650

19,575

Common stock - Class B Non-voting; $

1.00

par value;

8,000,000

shares authorized;

and

issued and

outstanding as of March 31, 2024 and December

31, 2023

Additional paid-in capital on common stock

305,740

305,212

Accumulated deficit

(84,952)

(88,548)

Accumulated other comprehensive loss

(45,427)

(44,271)

Total stockholders' equity

195,011

191,968

Total liabilities and stockholders' equity

2,489,142

2,339,093

The accompanying notes are an integral part of

these unaudited consolidated financial statements.

Table of Contents

USCB Financial Holdings, Inc.

Q1 2024 Form 10-Q

USCB FINANCIAL HOLDINGS, INC.

Consolidated Statements of Operations - Unaudited

(Dollars in thousands,

except per share data)

Three Months Ended March 31,

2024

2023

Interest income:

Loans, including fees

26,643

19,711

Investment securities

2,811

2,286

Interest-bearing deposits in financial institutions

1,433

382

Total interest income

30,887

22,379

Interest expense:

Interest-bearing checking

369

Money market and savings accounts

10,394

4,785

Time deposits

3,294

1,057

Federal Home Loan Bank advances and other borrowings

1,672

497

Total interest expense

15,729

6,382

Net interest income before provision for

credit losses

15,158

15,997

Provision for credit losses

410

201

Net interest income after provision for

credit losses

14,748

15,796

Non-interest income:

Service fees

1,651

1,205

(Loss) gain on sale of securities available for

sale, net

(21)

Gain on sale of loans held for sale, net

347

Other non-interest income

746

539

Total non-interest income

2,464

2,070

Non-interest expense:

Salaries and employee benefits

6,310

6,377

Occupancy

1,314

1,299

Regulatory assessment and fees

433

224

Consulting and legal fees

592

358

Network and information technology services

507

478

Other operating expense

2,018

1,440

Total non-interest expense

11,174

10,176

Income before income tax expense

6,038

7,690

Income tax expense

1,426

1,881

Net income

4,612

5,809

Per share information:

Net income per share, basic

0.23

0.29

Net income per share, diluted

0.23

0.29

Cash dividend declared

0.05

The accompanying notes are an integral part of

these unaudited consolidated financial statements.

Table of Contents

USCB Financial Holdings, Inc.

Q1 2024 Form 10-Q

USCB FINANCIAL HOLDINGS, INC.

Consolidated Statements of Comprehensive Income

(Loss) - Unaudited

(Dollars in thousands)

Three Months Ended March 31,

2024

2023

Net income

4,612

5,809

Other comprehensive income (loss):

Unrealized gain (loss) on investment securities

(2,134)

3,637

Amortization of net unrealized gain (loss) on securities

transferred from available-for-sale to held-to-maturity

(60)

Reclassification adjustment for (gain) loss included

in net income

Unrealized gain on cash flow hedge

519

Tax effect

392

(912)

Total other comprehensive income (loss), net of tax

(1,156)

2,686

Total comprehensive income

3,456

8,495

The accompanying notes are an integral part of

these unaudited consolidated financial statements.

Table of Contents

USCB Financial Holdings, Inc.

Q1 2024 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, 2023

19,575,435

19,575

305,212

(88,548)

(44,271)

191,968

Net income

4,612

Other comprehensive loss

(1,156)

Repurchase of Class A common stock

(7,100)

(7)

(72)

(79)

Restricted stock issued

52,753

(53)

Restricted stock forfeiture

(8,625)

(9)

Exercise of stock options

38,000

284

322

Dividend payment

(1,016)

Stock-based compensation

360

Balance at March 31, 2024

19,650,463

19,650

305,740

(84,952)

(45,427)

195,011

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 loss

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

The accompanying notes are an integral

part of these consolidated financial statements.

Table of Contents

USCB Financial Holdings, Inc.

Q1 2024 Form 10-Q

USCB FINANCIAL HOLDINGS, INC.

Consolidated Statements of Cash Flows - Unaudited

(Dollars in thousands)

Three Months Ended March 31,

2024

2023

Cash flows from operating activities:

Net income

4,612

5,809

Adjustments to reconcile net income

to net cash provided by operating activities:

Provision for credit losses

410

201

Depreciation and amortization

140

150

(Accretion) amortization of premiums on securities,

net

(135)

(38)

Accretion of deferred loan fees, net

(3)

(93)

Stock-based compensation

360

127

Loss (gain) on sale of available for sale securities

Gain on sale of loans held for sale

(67)

(347)

Increase in cash surrender value of bank owned

life insurance

(411)

(267)

Decrease in deferred tax assets

1,424

1,881

Net change in operating assets and liabilities:

Accrued interest receivable

(891)

(670)

Other assets

(464)

284

Accrued interest and other liabilities

3,051

1,943

Net cash provided by operating activities

8,026

9,001

Cash flows from investing activities:

Proceeds from maturities and pay-downs of investment

securities held to maturity

1,987

2,406

Purchase of investment securities available

for sale

(36,927)

(7,667)

Proceeds from maturities and pay-downs of investment

securities available for sale

4,278

3,261

Proceeds from sales of investment securities

available for sale

8,617

Net increase in loans held for investment

(15,830)

(77,413)

Purchase of loans held for investment

(25,249)

Additions to premises and equipment

(91)

(22)

Proceeds from the sale of loans held for sale

787

4,847

Proceeds from the redemption of Federal

Home Loan Bank stock

4,798

3,570

Purchase of Federal Home Loan Bank stock

(177)

(6,831)

Net cash used in investment activities

(66,424)

(69,232)

Cash flows from financing activities:

Proceeds from issuance of Class A common

stock, net

322

Cash dividends paid

(1,016)

Repurchase of Class A common stock

(79)

(5,867)

Net increase in deposits

165,655

1,181

Proceeds from other borrowings

80,000

158,000

Repayments on Federal Home Loan Bank advances

(101,000)

(84,000)

Net cash provided by financing activities

143,882

69,314

Net increase in cash and cash equivalents

85,484

9,083

Cash and cash equivalents at beginning

of period

41,062

54,168

Cash and cash equivalents at end of period

126,546

63,251

Supplemental disclosure of cash flow

information:

Interest paid

14,624

6,044

Supplemental schedule of non-cash investing

and financing activities:

Transfer of loans held for investment to loans held

for sale

720

4,500

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 2024 Form 10-Q

SUMMARY OF SIGNIFICANT ACCOUNTING

POLICIES

Overview

USCB Financial Holdings,

Inc.,

a Florida corporation

incorporated in 2021,

is a bank

holding company with

one direct

wholly owned subsidiary,

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

The Bank, established in

2002, is a Florida state-chartered,

non-member financial institution providing

financial services through its

banking centers

located in South Florida.

The Bank

owns a

subsidiary,

Florida Peninsula

Title LLC,

that offers

our clients

title insurance

policies for

real estate

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

Florida Peninsula Title LLC began operations

in 2021.

Basis of Presentation

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

Form 10-Q and

do not include all

the information and

footnotes required by U.S.

generally accepted accounting

principles

(“U.S.

GAAP”)

for

complete

financial

statements.

All

adjustments

consisting

normally

recurring

accruals

that,

the

opinion

management,

are

necessary

for

fair

presentation

the

financial

position

and

results

operations

for

the

periods presented

have been

included. These

unaudited consolidated

financial statements

should be

read in

conjunction

with

the

Company’s

consolidated

financial

statements

and

notes

appearing

in the

Company’s

Annual

Report

Form 10-K for the year ended December 31, 2023.

Principles of Consolidation

The

Company

consolidates

entities

which

has

controlling

financial

interest.

Intercompany

transactions

and

balances are eliminated in consolidation.

Use of Estimates

To prepare

financial statements in conformity with U.S. GAAP,

management makes estimates and assumptions based

on available

information. These

estimates and

assumptions affect

the amounts

reported in

the financial

statements. The

most significant

estimates impacting

the Company’s

consolidated financial

statements are

the allowance

for credit

losses

(“ACL”) and income taxes.

Reclassifications

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

to the current presentation.

Reclassifications had no impact on the net income or stockholders’

equity of the Company.

Recently Issued Accounting Standards

Adoption of New Accounting Standards

Reference Rate Reform

March

2020,

the

Financial

Accounting

Standards

Board

(“FASB”)

issued

ASU

2020-04,

Reference

Rate

Reform

(Topic

848), aiming to facilitate the impacts

of reference rate reform on financial reporting.

This initiative was subsequently

clarified

January

2021

through

ASU

2021-01,

providing

optional

directives

for

designated

timeframe

alleviate

challenges

associated

with

accounting

for,

or acknowledging

the

effects

of, reference

rate reform

on financial

reporting.

These

amendments

offer

discretionary

guidance

for

defined

period

alleviate

potential

accounting

complexities

associated with reference rate reform in financial reporting. The

expedients and exceptions provided by these amendments

are not

applicable to

contract modifications

executed and

hedging relationships

initiated or

reviewed after

December 31,

2022, except

for

pre-existing

hedging

relationships

of December

31,

2022,

for

which

entity

has

opted

for

specific

optional expedients, and which

are retained until the conclusion

of the hedging relationship.

Additionally,

the amendments

permit entities to make a one-time choice to divest, transfer,

or both divest and transfer debt securities categorized as held

to maturity, referencing a rate impacted by reference rate reform,

and classified as held to maturity

prior to January 1, 2020.

In December 2022, the

FASB issued new guidance extending the

expiration date of this

guidance from December 31,

2022,

to December

31, 2024,

after which

entities will

no longer

be authorized

to apply

the relief

provided under

this guidance.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q1 2024 Form 10-Q

Before this recent guidance, these amendments were effective for all entities

from March 12, 2020, to December 31, 2022.

The

Company

executed

its

transition

strategy

preparation

for

the

cessation

the

London

Intrabank

Offered

Rate

(“LIBOR”) and the adjustment of

its existing financial instruments affected

by LIBOR, whether directly or

indirectly.

LIBOR-

based originations were ceased as of June 30, 2023, and for existing LIBOR-based transactions,

the Company substituted

Secured Overnight

Financing Rate

(“SOFR”) for

LIBOR. The

Company has

completed its

transition away

from LIBOR

for

its loan and other financial instruments.

Issued and Not Yet Adopted

Improvements to Income Tax

Disclosures

December

2023,

the

FASB

issued

Accounting

Standards

Update

(ASU)

2023-09,

Income

Taxes

(Topic

740):

Improvements to Income Tax

Disclosures. This ASU pertains to

disclosures regarding effective

tax rates and cash income

taxes paid with the goal of providing stakeholders with more transparent

and relevant information. This ASU is effective for

public business entities for annual periods beginning after Dec. 15,

2024. The Company is currently assessing the potential

impact of this

ASU on its

financial reporting and

has not yet

concluded whether the

changes will materially

affect its business

operations or consolidated financial statements.

INVESTMENT SECURITIES

The measurement of expected credit losses under the current expected credit loss (“CECL”) methodology is applicable

financial

assets

measured

amortized

cost,

including

loan

receivables

and

held-to-maturity

debt

securities.

The

accounting

for available-for-sale

debt securities

credit

losses is

presented

as an

allowance rather

than

as a

write-down.

Management does not intend to sell or believes that

it is more likely they will not be required to sell AFS

securities.

CECL requires a loss reserve for

securities classified as held-to-maturity

(“HTM”). The reserve should reflect

historical

credit performance

as well

as the

impact of

projected

economic forecast.

For U.S.

Government bonds

and

U.S. Agency

issued bonds

classified as

HTM, the

explicit guarantee

of the U.S.

Government is

sufficient to

conclude that

a credit

loss

reserve is not required.

The reserve requirement is for three primary assets groups: municipal bonds, corporate bonds, and

non-agency

securitizations.

The Company

calculates

quarterly

the loss

reserve

utilizing Moody’s

ImpairmentStudio.

The

CECL measurement for

investment securities

incorporates historical

data, containing

defaults and recoveries

information,

and Moody’s baseline

economic forecast. The solution

uses probability of default/loss

given default (“PD/LGD”)

approach.

PD represents

the likelihood

a borrower

will default.

Within the

Moody’s model

this is

determined using

historical default

data, adjusted for the current economic environment. LGD projects

the expected loss if a borrower were to default.

The Company monitors

the credit

quality of held

to maturity

securities through

the use of

credit ratings.

Credit ratings

are

monitored

the

Company

least

quarterly

basis.

March

31,

2024

and

December

31,

2023,

all

HTM

securities held by the Company were rated investment

grade.

quarter

end,

HTM

securities

included

163.7

million

U.S.

Government

and

U.S.

Agency

issued

bonds

and

mortgage-backed

securities.

Because

the

explicit

and/or

implicit

guarantee

these

bonds,

the

Company

holds

reserves

on these

holdings.

The remaining

portion

the HTM

portfolio

is made

up of

9.4

million

investment

grade

corporate bonds. The required reserve for these holdings is

determined each quarter using the model described above. For

the portion of the HTM exposed to non-government

credit risk, the Company utilized the PD/LGD

methodology to estimate

a $

thousand Allowance for

credit losses (“ACL”)

as of March

31, 2024. The book

value for debt securities

classified as

HTM represents amortized cost less ACL.

The Company determined that an ACL on its debt securities available for sale as of March 31, 2024 and December 31,

2023 was not required.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q1 2024 Form 10-Q

The following

tables present

a summary

of the amortized

cost, unrealized

or unrecognized

gains and

losses,

and fair

value of investment securities at the dates indicated (in

thousands):

March 31, 2024

Available-for-sale:

Amortized

Cost

Unrealized

Gains

Unrealized

Losses

Fair Value

U.S. Government Agency

17,168

(1,644)

15,549

Collateralized mortgage obligations

130,533

(24,165)

106,369

Mortgage-backed securities - residential

62,734

(12,397)

50,337

Mortgage-backed securities - commercial

48,182

(6,550)

41,702

Municipal securities

24,985

(5,924)

19,061

Bank subordinated debt securities

28,622

471

(2,119)

26,974

312,224

567

(52,799)

259,992

Held-to-maturity:

U.S. Government Agency

43,439

(5,816)

37,623

Collateralized mortgage obligations

61,465

(8,336)

53,131

Mortgage-backed securities - residential

43,383

160

(4,930)

38,613

Mortgage-backed securities - commercial

15,409

(1,301)

14,108

Corporate bonds

9,354

(673)

8,681

173,050

162

(21,056)

152,156

Allowance for credit losses - securities held-to-maturity

(12)

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

173,038

December 31, 2023

Available-for-sale:

Amortized

Cost

Unrealized

Gains

Unrealized

Losses

Fair Value

U.S. Government Agency

9,664

(1,491)

8,173

Collateralized mortgage obligations

103,645

(23,039)

80,606

Mortgage-backed securities - residential

63,795

(11,608)

52,187

Mortgage-backed securities - commercial

49,212

(6,504)

42,764

Municipal securities

25,005

(5,667)

19,338

Bank subordinated debt securities

28,106

188

(2,033)

26,261

Corporate bonds

279,427

244

(50,342)

229,329

Held-to-maturity:

U.S. Government Agency

43,626

(5,322)

38,306

U.S. Treasury

62,735

(7,983)

54,752

Collateralized mortgage obligations

43,784

348

(4,533)

39,599

Mortgage-backed securities - residential

15,439

(1,257)

14,182

Mortgage-backed securities - commercial

9,398

(727)

8,671

174,982

350

(19,822)

155,510

Allowance for credit losses - securities held-to-maturity

(8)

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

174,974

During the quarter ended March 31, 2024 there were

investment securities that were transferred from available-for-

sale (“AFS”) to

HTM. For the three

months ended March 31,

2024, total amortization out

of Additional Other Comprehensive

Income

(“AOCI”)

for

net

unrealized

losses

securities

transferred

2022

from

AFS

HTM

was

thousand.

The

unamortized net unrealized loss as of March 31, 2024,

was $

9.5

million.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q1 2024 Form 10-Q

Gains

and

losses

the

sale

securities

are

recorded

the

trade

date

and

are

determined

the

specific

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

calls of AFS debt securities for the three months ended

March 31, 2024 and 2023 (in thousands):

Three Months Ended March 31,

Available-for-sale:

2024

2023

Proceeds from sale and call of securities

8,617

Gross gains

Gross losses

(24)

Net realized (loss) gain

(21)

The amortized

cost

and

fair

value of

investment

securities,

by contractual

maturity,

are shown

below

as of

the date

indicated (in thousands).

Actual maturities may

differ from contractual

maturities because borrowers

may have the right

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, 2024:

Amortized

Cost

Fair Value

Amortized

Cost

Fair Value

Due within one year

Due after one year through five years

2,722

2,863

9,354

8,681

Due after five years through ten years

38,045

33,506

Due after ten years

12,840

9,666

U.S. Government Agency

17,168

15,549

43,439

37,623

Collateralized mortgage obligations

130,533

106,369

61,465

53,131

Mortgage-backed securities - residential

62,734

50,337

43,383

38,613

Mortgage-backed securities - commercial

48,182

41,702

15,409

14,108

312,224

259,992

173,050

152,156

At March 31, 2024, there were no securities held in the portfolio from any

one issuer in an amount greater than 10% of

total

stockholders’

equity

other

than

the

U.S.

Government

and

Government

Agency

securities.

All

the

collateralized

mortgage

obligations

and

mortgage-backed

securities

March 31,

2024

and

December 31,

2023

were

issued

U.S.

sponsored

entities

having

fair

value

284.1

million

that

were

attributable to a combination of factors, including relative

changes in interest rates since the time of purchase.

The contractual

cash

flows

for these

securities

are

guaranteed

U.S.

government

agencies

and

U.S.

government

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

value are not due to credit quality.

Based

the

assessment

these

mitigating

factors,

management

believed

that

the

unrealized

losses

these

debt

security holdings are

a function of

changes in investment

spreads and interest

rate movements

and not changes

in credit

quality. Management

expects to recover the entire amortized cost basis of these

securities.

At March 31, 2024, the Company

does not intend to sell

debt securities that are in

an unrealized loss position

and it is

more than likely not required to sell these securities before recovery

of the amortized cost basis.

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, 2024,

the Company did

t have any

securities pledged

under this agreement.

The Bank is a Qualified Public Depository

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

authority

maintain

public

deposits

from

cities,

municipalities,

and

the

State

Florida.

These

public

deposits

are

secured

securities pledged

to the

State of

Florida at

a ratio

% of

the outstanding

uninsured deposits

for March

31, 2024

and

25% for

December 31,

2023. The

Bank must

also maintain

a minimum

amount

of pledged

securities

to be

in the

public

funds program.

As of March 31,

2024, the Bank

had a total

of $

249.6

million in deposits

under the public

funds program

and pledged

to the State of Florida for these public funds were

fifty-one

bonds with an aggregate fair value of $

137.0

million.

As of

December 31, 2023, the

Bank had

a total

of $

268.4

million in

deposits under the

public funds program

and pledged

to the State

of Florida for

these public funds were

twenty-eight

corporate bonds with an

aggregate fair value of

86.9

million.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q1 2024 Form 10-Q

The Board

of Governors

of the

Federal Reserve

System, on

March 12,

2023, announced

the creation

of a

new Bank

Term

Funding Program (“BTFP”).

The BTFP offers

loans of up to one year

in length to banks, savings

associations, credit

unions,

and

other

eligible

depository

institutions

pledging

U.S.

Treasuries,

U.S.

agency

debt

and

mortgage-backed

securities, and other qualifying assets as collateral. These

assets will be valued at par.

The Company had $

million in borrowings under

the BTFP program as

of March 31, 2024,

and had pledged $

130.3

million in

securities

measured

at par

to the

Federal

Reserve Bank

of Atlanta

for the

BTFP program.

The BTFP

program

ceased making new loans as of March 2024.

LOANS

The following table is a summary of the distribution of

loans held for investment by type (in thousands):

March 31, 2024

December 31, 2023

Total

Percent of

Total

Percent of

Total

Residential Real Estate

237,906

13.1

204,419

11.5

Commercial Real Estate

1,057,800

58.2

1,047,593

58.8

Commercial and Industrial

228,045

12.5

219,757

12.4

Foreign Banks

100,182

5.5

114,945

6.5

Consumer and Other

194,325

10.7

191,930

10.8

Total

gross loans

1,818,258

100.0

1,778,644

100.0

Plus: Deferred costs

2,938

2,183

Total

loans net of deferred fees (costs)

1,821,196

1,780,827

Less: Allowance for credit losses

21,454

21,084

Total

net loans

1,799,742

1,759,743

March 31,

2024

and

December 31,

2023,

the

Company

had

567.7

million

and

534.2

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.

Allowance for Credit Losses

general,

the

Company

utilizes

the

Discounted

Cash

Flow

(“DCF”)

method

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

used to

inform

regression

analyses

quantify

the

impact

of reasonable

and

supportable

forecasts

projective

models.

Economic

forecasts

applied

regression

models

estimate

probability

default for loan receivables use at least

one of the following economic indicators: civilian unemployment rate (national), real

gross domestic

product growth

(national GDP)

or the

HPI. For each

of the

segments in

which the

WARM methodology

used,

the

long-term

average

loss

rate

calculated

and

applied

quarterly

basis

for

the

remaining

life

the

pool.

Adjustments for economic expectations are made through

qualitative factors.

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

include:

•

Changes in lending policies, procedures, and strategies

•

Changes in international, national, regional, and local conditions

•

Changes in nature and volume of portfolio

•

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

•

Concentration risk

•

Changes in the value of underlying collateral

•

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

•

Changes in lending management, among others

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q1 2024 Form 10-Q

Changes in the ACL for the three months ended March 31,

2024 and 2023 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, 2024

Beginning balance

2,695

10,366

3,974

911

3,138

21,084

Provision for credit losses

(1)

235

(64)

288

(117)

363

Recoveries

Charge-offs

(5)

Ending Balance

2,930

10,302

4,272

794

3,156

21,454

(1) Provision for credit losses excludes a $

thousand charge due to unfunded commitments included in other liabilities and a $

thousand charge related to investment securities held to maturity.

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

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

(2) Provision for credit losses excludes a $

thousand release due to unfunded commitments included in other liabilities.

At March 31, 2024, the

ACL was $

21.5

million compared to $

21.1

million at December 31,

2023. The increase of

0.4

million was composed

of a $

363

thousand increase in

the ACL for loan

receivables due to

loan growth and

to net charge-

offs.

The Company had charge offs totaling $

thousand for the quarter ended March 31, 2024 related to loans that were all

originated in 2024.

The Company had charge

offs totaling $

thousand for the quarter

ended as of March

31, 2023 on loans

that were all

originated in 2023.

The

Federal

Open

Market

Committee

(“FOMC”)

economic

forecasts

March

31,

2024,

showed

moderate

improvements in unemployment and a slower real GDP growth.

Fannie Mae HPI forecast reflected important improvement

in national housing prices over the next four quarters.

The Company continued to adjust the HPI index effect on 1-4 Family

loan portfolio with a qualitative

factor because Florida

housing prices are performing

better than national levels.

Q-Factors

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

were updated

based on portfolio and external developments during the first

quarter 2024.

Our ACL

included residential

loans. To

assess the

potential impact

of changes

in qualitative

factors related

to these

loans,

management

performed

a sensitivity

analysis.

The Company

evaluated

the

impact

of the

HPI

used

in calculating

expected

losses

the

residential

loan segment.

of March

31,

2024, for

every

100 basis

points

increase

the

HPI

index, the forecast reduces

reserves by approximately $

200

thousand and about

basis point to

the reserve coverage ratio,

everything else being

constant. This

sensitivity analysis provides

a hypothetical result

to assess the

sensitivity of the

ACL

and does not represent a change in management’s

judgement.

As of March 31, 2024, we

stress tested two qualitative factors in our commercial real

estate loan pool, as it’s the largest

segment in

our portfolio.

We evaluated

the impact

of a

change in

the qualitative

factors from

no risk

to maximum

loss to

measure the

sensitivity of

the qualitative

factors. The

change from

no risk

to high

risk resulted

in a

6.1

million or

36.9

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q1 2024 Form 10-Q

increase in the

allowance for

credit losses. This

sensitivity analysis provides

a hypothetical result

to assess

the sensitivity

of the ACL and does not represent a change in management’s

judgement.

The ACL and the outstanding

balances in the specified

loan categories as of March

31, 2024 and December 31,

2023

are as follows (in thousands):

Residential

Real Estate

Commercial

Real Estate

Commercial

and Industrial

Foreign

Banks

Consumer

and Other

Total

March 31, 2024:

Allowance for credit losses:

Individually evaluated

124

Collectively evaluated

2,883

10,302

4,195

794

3,156

21,330

Balances, end of period

2,930

10,302

4,272

794

3,156

21,454

Loans:

Individually evaluated

6,934

805

7,739

Collectively evaluated

230,972

1,057,800

227,240

100,182

194,325

1,810,519

Balances, end of period

237,906

1,057,800

228,045

100,182

194,325

1,818,258

December 31, 2023:

Allowance for credit losses:

Individually evaluated

145

128

273

Collectively evaluated

2,550

10,366

3,846

911

3,138

20,811

Balances, end of period

2,695

10,366

3,974

911

3,138

21,084

Loans:

Individually evaluated

6,994

1,668

8,662

Collectively evaluated

197,425

1,047,593

218,089

114,945

191,930

1,769,982

Balances, end of period

204,419

1,047,593

219,757

114,945

191,930

1,778,644

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 2024 Form 10-Q

Loan credit exposures by internally assigned grades are

presented below for the periods indicated (in thousands):

As of March 31, 2024

Term Loans by Origination Year

Revolving

Loans

Total

2024

2023

2022

2021

2020

Prior

Residential real estate

Pass

36,295

43,716

36,336

26,194

5,885

80,670

8,530

237,626

Substandard

280

Total

36,295

43,716

36,336

26,194

5,885

80,950

8,530

237,906

Commercial real estate

Pass

28,702

148,575

329,451

181,818

102,597

255,713

4,773

1,051,629

Substandard

5,479

692

6,171

Total

28,702

148,575

329,451

187,297

103,289

255,713

4,773

1,057,800

Commercial and

industrial

Pass

13,812

96,054

36,806

32,129

5,794

15,762

26,117

226,474

Substandard

319

1,252

1,571

Total

13,812

96,054

36,806

32,448

5,794

17,014

26,117

228,045

Foreign banks

Pass

34,864

65,318

100,182

Total

34,864

65,318

100,182

Consumer and other

loans

Pass

9,557

66,799

72,452

41,499

502

1,845

1,671

194,325

Substandard

Total

9,557

66,799

72,452

41,499

502

1,845

1,671

194,325

Total

Loans

Pass

123,230

420,462

475,045

281,640

114,778

353,990

41,091

1,810,236

Special Mention

Substandard

5,798

692

1,532

8,022

Doubtful

Total

123,230

420,462

475,045

287,438

115,470

355,522

41,091

1,818,258

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q1 2024 Form 10-Q

As of December 31, 2023

Term Loans by Origination Year

Revolving

Loans

Total

2023

2022

2021

2020

2019

Prior

Residential real estate

Pass

44,365

36,325

26,180

6,080

9,325

75,654

6,198

204,127

Substandard

292

Total

44,365

36,325

26,180

6,080

9,617

75,654

6,198

204,419

Commercial real estate

Pass

148,311

337,938

184,024

104,182

78,153

182,714

4,710

1,040,032

Substandard

6,867

694

7,561

Total

148,311

337,938

190,891

104,876

78,153

182,714

4,710

1,047,593

Commercial and

industrial

Pass

97,753

37,414

34,090

6,499

13,706

3,113

25,554

218,129

Substandard

330

1,298

1,628

Total

97,753

37,414

34,420

6,499

15,004

3,113

25,554

219,757

Foreign banks

Pass

114,945

Total

114,945

Consumer and other

loans

Pass

71,593

74,387

41,966

615

560

1,337

1,472

191,930

Total

71,593

74,387

41,966

615

560

1,337

1,472

191,930

Total

Loans

Pass

476,967

486,064

286,260

117,376

101,744

262,818

37,934

1,769,163

Special Mention

Substandard

7,197

694

1,590

9,481

Doubtful

Total

476,967

486,064

293,457

118,070

103,334

262,818

37,934

1,778,644

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q1 2024 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,

2024 and

December 31, 2023 (in thousands):

Accruing

As of March 31, 2024

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

548

1-4 family residential

183,825

6,022

189,847

Condo residential

43,452

4,059

47,511

227,825

10,081

237,906

Commercial real estate:

Land and construction

21,100

Multi-family residential

211,813

Condo commercial

56,072

1,918

57,990

Commercial property

766,003

873

766,876

Leasehold improvements

1,055,009

2,791

1,057,800

Commercial and industrial:

Secured

208,590

208,650

456

209,106

Unsecured

18,495

444

18,939

227,085

504

227,589

456

228,045

Foreign banks

100,182

Consumer and other

194,325

Total

1,804,426

13,376

1,817,802

456

1,818,258

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q1 2024 Form 10-Q

Accruing

As of December 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

559

1-4 family residential

155,842

711

156,553

Condo residential

43,572

3,735

47,307

199,973

4,446

204,419

Commercial real estate:

Land and construction

33,710

Multi-family residential

181,287

Condo commercial

58,106

Commercial property

772,569

1,890

774,459

Leasehold improvements

1,045,703

1,890

1,047,593

Commercial and industrial:

Secured

200,235

200,264

468

200,732

Unsecured

19,025

219,260

219,289

468

219,757

Foreign banks

114,945

Consumer and other

191,930

Total

1,771,811

6,365

1,778,176

468

1,778,644

Non-accrual Status

The following table

includes the amortized

cost basis of

loans on non-accrual

status and loans

past due over

90 days

and still accruing as of March 31, 2024 (in thousands):

March 31, 2024

Nonaccrual

Loans With

No Related

Allowance

Nonaccrual

Loans With

Allowance

Total Non-

accruals

Loans Past

Due Over 90

Days and Still

Accruing

Residential real estate

Commercial real estate

Commercial and industrial

456

Consumer and other

456

December 31, 2023

Nonaccrual

Loans With

No Related

Allowance

Nonaccrual

Loans With

Allowance

Total Non-

accruals

Loans Past

Due Over 90

Days and Still

Accruing

Residential real estate

Commercial real estate

Commercial and industrial

468

Consumer and other

468

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q1 2024 Form 10-Q

Accrued interest

receivable is

excluded from

the estimate

of credit

losses. There

was

interest income

recognized

attributable to non-accrual loans outstanding during the three

months ended March 31, 2024 and 2023. Interest income on

these loans

for the

three months

ended March 31,

2024 and

2023, would

have been

approximately

thousand and

thousand, respectively,

had these loans performed in accordance with their

original terms.

Collateral-Dependent Loans

loan

collateral

dependent

when

the

borrower

experiencing

financial

difficulty

and

repayment

the

loan

expected to

be provided

substantially through

the sale

or operation

of the

collateral. There

were

collateral dependent

loans as of March 31, 2024, or as of December 31, 202

Loan Modifications to Borrowers Experiencing Financial

Difficulties

The following table presents newly restructured loans,

by type of modification, which occurred during the three

months

ended March 31, 2024 (in thousands):

Recorded Investment Prior to Modification

Recorded Investment After Modification

Number of

Loans

Combination

Modifications

Total

Modifications

Number of

Loans

Combination

Modifications

Total

Modifications

Residential real estate

Commercial real estate

Commercial and industrial

468

Consumer and other

468

The Company

had no

new modifications

and one

new modification

to borrowers

experiencing financial

difficulties for

the three months ended March 31, 2024. There were

existing loan modifications that subsequently defaulted

during the

three months

ended March

31, 2024.

The Company

did not

have new

modifications

to borrowers

experiencing

financial

difficulties and no 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 periods indicated (in thousands):

Three Months Ended March 31,

2024

2023

Current:

Federal

State

Total

current

Deferred:

Federal

1,114

1,472

State

312

409

Total

deferred

1,426

1,881

Total

tax expense

1,426

1,881

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q1 2024 Form 10-Q

The actual

income

tax

expense

for

the

three

months

ended March

31,

2024 and

2023 differs

from

the

statutory

tax

expense for the periods

(computed by applying the U.S.

federal corporate tax rate of

% for both 2024

and 2023 to income

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

Three Months Ended March 31,

2024

2023

Federal taxes at statutory rate

1,268

1,615

State income taxes, net of federal tax benefit

262

334

Bank owned life insurance

(104)

(68)

Other, net

Total

tax expense

1,426

1,881

The Company’s deferred tax assets and deferred

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

March 31, 2024

December 31, 2023

Deferred tax assets:

Net operating loss

15,369

16,430

Allowance for credit losses

5,503

5,410

Lease liability

2,707

2,895

Unrealized losses on available for sale securities

15,638

15,114

Depreciable property

130

203

Equity compensation

716

630

Accruals

382

Other, net

Deferred tax assets:

40,126

41,074

Deferred tax liabilities:

Deferred loan cost

(745)

(553)

Lease right of use asset

(2,707)

(2,895)

Deferred expenses

(140)

(180)

Cash flow hedge

(216)

(85)

Other, net

(69)

(79)

Deferred tax liabilities

(3,877)

(3,792)

Net deferred tax assets

36,249

37,282

The Company

has approximately

56.8

million of

federal

and $

79.5

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 2020.

For the three months ended

March 31, 2024 and 2023,

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 2024 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, 2024 and December 31, 2023 (in thousands):

March 31, 2024

December 31, 2023

Commitments to grant loans and unfunded lines of credit

99,224

85,117

Standby and commercial letters of credit

3,274

3,987

Total

102,498

89,104

Commitments to

extend credit

are agreements

to lend

to a

customer as

long as

there is

no violation

of any

condition

established in the contract. Commitments generally have

fixed expiration dates or other termination clauses.

Unfunded lines of

credit and revolving

credit lines are

commitments for possible

future extensions

of credit to

existing

customers. These lines of

credit are uncollateralized and

usually do not contain

a specified maturity date

and ultimately may

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

committed.

Standby

and

commercial

letters

credit

are

conditional

commitments

issued

the

Company

guarantee

the

performance of a

customer to

a third

party. Those letters of

credit are

primarily issued to

support public and

private borrowing

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

many of them expire without being drawn

upon, they do not generally present a significant liquidity

risk to the Company.

DERIVATIVES

The Company utilizes interest rate swap agreements

as part of its asset-liability management strategy to help

manage

its interest rate

risk exposure. The notional

amount of the interest

rate swaps does not

represent actual amounts exchanged

by the

parties.

The amounts

exchanged

are determined

by reference

to the

notional amount

and the

other

terms

of the

individual interest rate swap agreements.

Interest Rate Swaps Designated as a Cash Flow Hedge

As of March 31,

2024, the Company

had

two

interest rate swap

agreements with a

notional aggregate amount

of $

million that

were designated

as cash

flow hedges

certificates

of deposit.

The

interest rate

swap

agreements

have an

average maturity

2.13

years, the

weighted

average

fixed-rate

paid of

3.59

%, and

with the

weighted

average

3-month

compound SOFR being received.

As of December

31, 2023,

the Company had

two

interest rate swap

agreements with

a notional aggregate

amount of

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

average

maturity

2.38

years,

the

weighted

average

fixed-rate

paid

3.59

with

the

weighted

average

3-month

compound SOFR being received.

The

changes

fair

value

these

interest

rate

swaps

are

recorded

other

assets

other

liabilities

with

corresponding recognition

in other comprehensive

income (loss)

and subsequently reclassified

to earnings when

gains or

losses are realized.

Interest Rate Swaps Designated as Fair Value

Hedge

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q1 2024 Form 10-Q

As of March 31, 2024, the Company had

four

interest rate swap agreements with a notional aggregate amount of $

200

million that were designated as fair value hedges on loans. The interest

rate swap agreements have an average maturity of

1.98

years,

the

weighted

average

fixed-rate

paid

4.74

with

the

weighted

average

3-month

compound

SOFR

being

received.

As of December

31, 2023, the

Company had

four

interest rate swap

agreements with a

notional aggregate amount

200

million

that

were

designated

fair

value

hedges

loans.

The

interest

rate

swap

agreements

have

average

maturity of

2.23

years, the weighted average fixed-rate paid

4.74

%, with the weighted average

3-month compound SOFR

being received.

The

changes

fair

value

these

interest

rate

swaps

are

recorded

other

assets

other

liabilities

with

corresponding recognition in the assets being hedged.

Interest Rate Swaps

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

and

interest rate swaps

with

loan

customers

with

aggregate

notional

amount

65.8

million

and

46.5

million

March 31,

2024

and

December 31, 2023,

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.

The following table reflects the Company’s

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

Fair Value

Notional

Amount

Collateral

Amount

Balance Sheet Location

Asset

Liability

March 31, 2024:

Derivatives designated as cash flow hedges:

Interest rate swaps

50,000

Other assets

852

Derivatives designated as hedging instruments:

Interest rate swaps

200,000

Other liabilities

1,005

Derivatives not designated as hedging instruments:

Interest rate swaps related to customer loans

65,768

1,344

Other assets/Other liabilities

4,941

December 31, 2023:

Derivatives designated as cash flow hedges:

Interest rate swaps

50,000

Other assets

334

Derivatives designated as fair value hedges:

Interest rate swaps

200,000

Other liabilities

3,430

Derivatives not designated as hedging instruments:

Interest rate swaps related to customer loans

46,463

1,326

Other assets/Other liabilities

4,558

FAIR VALUE

MEASUREMENTS

Determination of Fair Value

The Company

uses

fair value

measurements

to record

fair-value

adjustments

to certain

assets

and liabilities

and to

determine fair value

disclosures. In accordance

with the fair

value measurements

accounting guidance, the

fair value of

financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction

between market

participants

at the

measurement

date.

Fair value

is best

determined based

upon quoted

market prices.

However, in

many instances, there

are no quoted

market prices for the

Company's various financial

instruments. In cases

where quoted

market prices

are not

available, fair

values are

based on

estimates using

present value

or other

valuation

techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates

of future cash flows. Accordingly, the fair value estimates may not be realized in

an immediate settlement of the instrument.

The fair

value guidance provides

a consistent definition

of fair

value, which focuses

on exit

price in

an orderly transaction

(that is,

not a

forced

liquidation

or distressed

sale) between

market participants

at the

measurement

date

under current

market conditions.

If there

has been

a significant

decrease

in the

volume

and level

of activity

for the

asset

or liability,

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q1 2024 Form 10-Q

change in

valuation technique or

the use

of multiple

valuation techniques may

be appropriate.

In such

instances, determining

the

price

which

willing

market

participants

would

transact

the

measurement

date

under

current

market

conditions

depends on the facts

and circumstances and

requires the use of

significant judgment. The fair

value is a reasonable

point

within the range that is most representative of fair value under

current market conditions.

Fair Value Hierarchy

In accordance with

this guidance, the

Company groups its

financial assets

and financial liabilities

generally measured

at fair

value in

three

levels, based

on the

markets

in which

the assets

and liabilities

are traded,

and the

reliability

of the

assumptions used to determine fair value.

Level 1

- Valuation

is based

on quoted

prices in

active markets

for identical

assets or

liabilities that

the reporting

entity has

the ability

to access

at the measurement

date. Level

1 assets

and liabilities

generally include

debt and

equity securities that

are traded in

an active exchange

market. Valuations are obtained from

readily available pricing

sources for market transactions involving identical assets

or liabilities.

Level 2

- Valuation

is based on inputs other

than quoted prices included

within Level 1 that are

observable for the

asset

liability,

either

directly

indirectly.

The

valuation

may

based

quoted

prices

for

similar

assets

liabilities; quoted

prices in

markets that are

not active;

or other inputs

that are observable

or can be

corroborated

by observable market data for substantially the full term of the

asset or liability.

Level 3

- Valuation

is based on

unobservable inputs that

are supported

by little or

no market activity

and that are

significant

the

fair

value

the

assets

liabilities.

Level

assets

and

liabilities

include

financial

instruments

whose value

is determined

using pricing

models, discounted

cash

flow

methodologies,

or similar

techniques,

well as instruments for which determination of fair value

requires significant management judgment or estimation.

financial

instrument's

categorization

within

the

valuation

hierarchy

based

upon

the

lowest

level

input

that

significant to the fair value measurement.

Items Measured at Fair Value

on a Recurring Basis

AFS investment securities:

When instruments are traded in

secondary markets and quoted market

prices do not exist

for such securities,

management generally relies

on prices obtained

from independent vendors

or third-party broker-dealers.

Management reviews pricing methodologies provided by the vendors and third-party broker-dealers in order to determine if

observable market information is being utilized. Securities measured with pricing provided by independent vendors or

third-

party broker-dealers

are classified within

Level 2 of

the hierarchy and

often involve using

quoted market

prices for similar

securities, pricing models or discounted cash flow analyses

utilizing inputs observable in the market where available.

Derivatives:

The

fair

value

derivatives

are

measured

with

pricing

provided

third-party

participants

and

are

classified within Level 2 of the hierarchy.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q1 2024 Form 10-Q

The

following

table

represents

the

Company's

assets

and

liabilities

measured

fair

value

recurring

basis

March 31, 2024 and December 31, 2023 for each of the

fair value hierarchy levels (in thousands):

March 31, 2024

December 31, 2023

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

Investment securities available for sale:

U.S. Government Agency

15,549

8,173

Collateralized mortgage obligations

106,369

80,606

Mortgage-backed securities - residential

50,337

52,187

Mortgage-backed securities - commercial

41,702

42,764

Municipal securities

19,061

19,338

Bank subordinated debt securities

26,974

26,261

Total

259,992

229,329

Derivative assets

5,793

4,892

Total assets at fair value

265,785

234,221

Derivative liabilities

5,946

7,988

Total liabilities at fair value

5,946

7,988

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 March 31, 2024 and December 31, 2023 (in

thousands):

Fair Value Hierarchy

Carrying

Amount

Level 1

Level 2

Level 3

Fair Value

Amount

March 31, 2024:

Financial Assets:

Cash and due from banks

9,601

Interest-bearing deposits in banks

116,945

Investment securities held to maturity, net

173,038

152,156

Loans held for investment, net

1,799,742

1,763,399

Accrued interest receivable

11,579

1,732

9,847

11,579

Financial Liabilities:

Demand deposits

576,626

Money market and savings accounts

1,141,422

Interest-bearing checking accounts

57,839

Time deposits

326,907

325,215

FHLB advances

162,000

159,875

Accrued interest payable

2,477

1,297

1,180

2,477

December 31, 2023:

Financial Assets:

Cash and due from banks

8,019

Interest-bearing deposits in banks

33,043

Investment securities held to maturity

174,974

155,510

Loans held for investment, net

1,759,743

1,723,210

Accrued interest receivable

10,688

1,448

9,240

10,688

Financial Liabilities:

Demand deposits

552,762

Money market and savings accounts

1,048,272

Interest-bearing checking accounts

47,702

Time deposits

288,403

287,104

FHLB advances

183,000

182,282

Accrued interest payable

1,372

551

821

1,372

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q1 2024 Form 10-Q

STOCKHOLDERS’ EQUITY

Common Stock

In July

2021, the

Bank completed

the initial

public offering

of its

Class

A common

stock, in

which it

issued

and sold

4,600,000

shares of Class A

common stock at a

price of $

10.00

per share. The Bank

received total net proceeds

of $

40.0

million after deducting underwriting discounts and expenses.

In December 2021,

the Company acquired

all the issued

and outstanding shares

of the Class

A common stock

of the

Bank, which at the time were

the only issued and outstanding shares

of the Bank’s capital stock,

in a share exchange (the

“Reorganization”)

effected

under

the

Florida

Business

Corporation

Act.

Each

outstanding

the

Bank’s

Class

common stock,

par value

1.00

per share,

formerly held

by its

Shareholders was

converted into

and exchanged

for

one

newly

issued

the

Company’s

Class

common

stock,

par

value

1.00

per

share,

and

the

Bank

became

the

Company’s wholly owned subsidiary.

In the

Reorganization,

each

shareholder

of the

Bank

received securities

the same

class,

having

substantially

the

same designations,

rights,

powers, preferences,

qualifications,

limitations

and restrictions,

as those

that the

shareholder

held in the Bank,

and the Company’s

then current shareholders

owned the same

percentages of the

Company’s common

stock as they previously owned of the Bank’s common

stock.

During the first quarter 2024, the Company issued

52,753

shares of Class A common stock to employees as restricted

stock awards

pursuant to

the Company’s

2015 equity

incentive plan

During

the first

quarter 2023,

the Company

issued

121,627

shares of Class A

common stock to

employees and directors as

restricted stock awards pursuant

to the Company’s

2015 equity incentive plan.

During the three months ended

March 31, 2024, the Company

repurchased

7,100

shares of Class A common stock at

a weighted average price per share of $

11.15

. The aggregate purchase price for these transactions was approximately $

thousand,

including

transaction

costs.

These

repurchases

were

made

pursuant

the

Company’s

publicly

announced

repurchase program. As of March 31, 2024,

72,980

shares remained authorized for repurchase under this program. During

the three months

ended March 31,

2023, the Company

repurchased

500,000

shares of Class

common stock at

a weighted

average price

per share

of $

11.74

. The

aggregate purchase

price for

these transactions

was approximately

5.9

million,

including transaction costs.

See Note 11, Subsequent Events, for information

regarding the new share repurchase program declared in April 2024.

Shares of the Company’s Class

A common stock issued

and outstanding as of

March 31, 2024 and

December 31, 2023

were

19,650,463

and

19,575,435

, respectively.

Dividends

Declaration of dividends

by the Board

is required before

dividend payments

are made. The

Company is

limited in the

amount of

cash dividends

that it

may pay.

Payment of

dividends is

generally limited

to the

Company’s

net income

of the

current

year

combined

with

the

Company’s

retained

income

for

the

preceding

two

years,

defined

state

banking

regulations. However,

for any

dividend declaration,

the Company

must consider

additional factors

such as

the amount

current period net income, liquidity,

asset quality,

capital adequacy and economic conditions

at the Bank since the Bank is

the primary source

of funds to fund

dividends by the Company.

It is likely that

these factors would

further limit the

amount

of dividends which the

Company could declare. In addition, bank

regulators have the authority to prohibit

banks from paying

dividends if they deem such payment to be an unsafe

or unsound practice.

On January

29,

2024,

the

Company

announced

that

its

Board

of Directors

approved

a cash

dividend

program.

The

quarterly dividend

for the

first quarter

of 2024

was $

0.05

per share

of Class

A common

stock, paid

on March

5, 2024,

stockholders of record as of the close of business

on February 15, 2024. Total amount paid to shareholders in dividends on

February 15,

2024 was

1.0

million.

dividends were

declared by

the Board

for the

stockholders for

the quarter

ended

March 31, 2023.

See Note 11, Subsequent

Events, for information regarding dividends declared in April 2024.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q1 2024 Form 10-Q

The following table details the dividends declared and paid by

the Company in the three months ended March

31, 2024:

Declaration Date

Record Date

Payment Date

Dividend Per Share

Dividend Amount

January 19, 2024

February 15, 2024

March 5, 2024

0.05

1.0

million

The

Company

and

the

Bank

exceeded

all

regulatory

capital

requirements

and

remained

above

“well-capitalized”

guidelines

March

31,

2024

and

December

31,

2023.

March 31,

2024,

the

total

risk-based

capital

ratios

for

the

Company and the Bank were

12.98

% and

12.89

%, respectively.

EARNINGS PER SHARE

Earnings

per

(“EPS”)

for

common

stock

calculated

using

the

two-class

method

required

for

participating

securities. Basic EPS

is calculated by

dividing net income

(loss) available to

common shareholders by

the weighted-average

number of common shares outstanding for

the period, without consideration for common

stock equivalents. Diluted EPS is

computed by

dividing net

income (loss)

available to

common share

holders by

the weighted

-average

number of

common

shares outstanding for

the period and

the weighted-average number

of dilutive common

stock equivalents outstanding

for

the period determined using the treasury-stock method. For

purposes of this calculation, common stock equivalents

include

common stock options and are only included in the calculation

of diluted EPS when their effect is dilutive.

The following table reflects the calculation of net income

available to common shareholders for the three months ended

March 31, 2024 and 2023 (in thousands):

Three Months Ended March 31,

2024

2023

Net Income

4,612

5,809

Net income available to common shareholders

4,612

5,809

The following table reflects

the calculation of basic and

diluted earnings per common

share class for the

three months

ended March 31, 2024 and 2023 (in thousands, except

per share amounts):

Three Months Ended March 31,

2024

2023

Class A

Basic EPS

Numerator:

Net income available to common shares

4,612

5,809

Denominator:

Weighted average shares outstanding

19,633,330

19,855,409

Earnings per share, basic

0.23

0.29

Diluted EPS

Numerator:

Net income available to common shares

4,612

5,809

Denominator:

Weighted average shares outstanding for basic EPS

19,633,330

19,855,409

Add: Dilutive effects of assumed exercises of stock options

64,928

85,197

Weighted avg. shares including dilutive potential common shares

19,698,258

19,940,606

Earnings per share, diluted

0.23

0.29

Anti-dilutive stock options excluded from diluted EPS

502,500

572,500

Net income has not been allocated to unvested restricted

stock awards that are participating securities

because the amounts that would be allocated

are not material to net income per share of

common stock. Unvested restricted stock awards

that are participating securities represent less than one

percent of all of the outstanding shares of

common stock for each of the periods presented.

Table of Contents

USCB FINANCIAL HOLDINGS, INC.

Notes to the Consolidated Financial Statements - Unaudited

USCB Financial Holdings, Inc.

Q1 2024 Form 10-Q

10.

LOSS CONTINGENCIES

Loss contingencies,

including claims

and legal actions

may arise in

the ordinary

course of

business. In

the opinion

management, none

of these

actions, either

individually or

in the aggregate,

is expected to

have a

material adverse

effect

on the Company’s Consolidated Financial Statements.

11.

SUBSEQUENT EVENTS

Dividends

On April 23, 2024,

the Company announced that its

Board of Directors declared its

second quarterly cash dividend. The

quarterly dividend for

the second quarter

of 2024 was

0.05

per share of Class

A common stock

and will be paid

on June

5, 2024, to stockholders of record as of the close of

business on May 15, 2024.

Share Repurchase Program

On April 22, 2024, the Board of Directors approved a new share

repurchase program of up to

500,000

shares of Class

A common

stock

approximately

2.5

the

Company’s

issued

and

outstanding

common

stock.

Under

the

repurchase program,

the Company

may purchase

shares of

Class A common

stock on

a discretionary

basis from time

time through open market repurchases, privately negotiated transactions, or other means. The repurchase program has no

expiration date and may

be modified, suspended, or

terminated at any time.

The new repurchase program

will commence

upon completion of the Company’s current

repurchase program. Repurchases under this new

program will be funded from

the

Company’s

existing

cash

and

cash

equivalents

future

cash

flow.

April

22,

2024,

572,980

remain

authorized for repurchase under the Company’s share

repurchase programs.

Table of Contents

USCB Financial Holdings, Inc.

Q1 2024 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,

as of

and for the

three months

ended March 31,

2024. This

discussion and analysis

is best read

in conjunction

with the unaudited

consolidated financial

statements and related

notes included in

this Quarterly

Report on Form

10-Q (“Form 10-Q”)

and the audited

consolidated

financial

statements

and

notes

included

the

Annual

Report

Form

10-K

(“2023

Form

10-K”)

filed

with

the

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

ended December 31, 2023.

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

in Part II

hereof and in

the 2023

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 Form 10

-Q contains

statements that

are not

historical in

nature 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. The

words “may,” “will,” “anticipate,” “could,”

“should,” “would,” “believe,”

“contemplate,” “expect,” “aim,”

“plan,”

“estimate,” “continue,”

and “intend,”

as well

as other

similar words

and expressions

of the

future, are

intended to

identify

forward-looking

statements.

These

forward-looking

statements

include

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.

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

materially from those anticipated in such statements.

Potential risks and uncertainties include, but are not

limited to:

•

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

•

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

•

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

used for our credit loss reserve and

deferred tax asset valuation allowance;

•

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

•

our ability

to comply

with the

extensive laws

and regulations

to which

we are

subject, including

the laws

for each

jurisdiction

where we operate;

•

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

•

deposit attrition and the level of our uninsured deposits;

•

legislative or regulatory changes and changes in

accounting principles, policies, practices or guidelines, including

the on-going

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

•

the

lack

significantly

diversified

loan

portfolio

and

the

concentration

the

South

Florida

market,

including

the

risks

geographic, depositor,

and industry

concentrations, including

our concentration

in loans

secured by

real estate,

in particular,

commercial real estate;

•

the effects of climate change;

•

the concentration of ownership of our common stock;

•

fluctuations in the price of our common stock;

•

our ability to

fund or access

the capital markets

at attractive rates

and terms and

manage our growth,

both organic growth

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

•

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

•

impacts of international hostilities and geopolitical events;

•

increased

competition

and its

effect

the pricing

our products

and services

well as

our interest

rate spread

and net

interest margin;

•

the loss of key employees;

•

the effectiveness of

our risk management strategies,

including operational risks,

including, but not limited

to, client, employee,

or third-party fraud and security breaches; and

•

other risks described in this Form 10-Q, the 2023 Form 10-K and other filings we make with the SEC.

All

forward-looking

statements

are

necessarily

only

estimates

future

results,

and

there

can

assurance

that

actual results will

not differ

materially from expectations.

Therefore, you are

cautioned not to

place undue reliance

on any

forward-looking statements.

Further,

forward-looking statements

included in

this quarterly

report on

Form 10-Q

are made

only

as of

the

date

hereof,

and

undertake

obligation

update

revise

any forward

-looking

statement

to reflect

events or circumstances after the date on which the statement is made or to

reflect the occurrence of unanticipated events,

Table of Contents

USCB Financial Holdings, Inc.

Q1 2024 Form 10-Q

unless required to do so

under the federal securities

laws. You

should also review the

risk factors described

in the Annual

Report on Form 10-K and in the reports the Company

filed or will file with the SEC.

Overview

The Company

reported net

income of

$4.6 million

or $0.23

per diluted

share of

common stock

for the

three

months

ended March 31,

2024 compared

to $5.8

million or

$0.29 per

diluted share

of common

stock for

the three

months ended

March 31, 2023.

On January 29, 2024, the Company’s Board of

Directors declared a cash dividend of $0.05 per

share of the Company’s

Class A

common

stock.

The

Dividend

was

declared

conjunction

with

the

adoption

cash

dividend

program.

The

dividend was paid

on March 5,

2024 to shareholders

of record at

the close of

business on February

15, 2023. The

aggregate

amount distributed in

connection with this

dividend was $1.0

million. Additionally,

the Company’s Board

of Directors declared

a cash dividend of $0.05 per share of the Company’s Class

A common stock on

April 22, 2024. The dividend will be paid on

June 5, 2024 to shareholders of record at the close of

business on May 15, 2024.

7,100 shares of

Class A common stock were repurchased

at a weighted

average price per

share of $11.15

during the

first quarter 2024. These repurchases were made

pursuant to the Company’s publicly

announced repurchase program. As

of March 31, 2024, 72,980 shares remained authorized

for repurchase under this program.

On April 22, 2024, the Board of Directors approved a new share repurchase

program of up to 500,000 shares of Class

A common

stock

approximately

2.5%

the

Company’s

issued

and

outstanding

common

stock.

Under

the

repurchase program,

the Company

may purchase

shares of

Class A common stock

on a discretionary

basis from

time to

time through open market repurchases, privately negotiated transactions, or other means. The repurchase program has no

expiration date and may

be modified, suspended,

or terminated at any

time. The new repurchase

program will commence

upon

completion

the

current

repurchase

program.

Repurchases

under

the

new

program

will

funded

from

the

Company’s existing cash and cash equivalents or future

cash flow. As of April 22, 2024, 572,980 shares remain authorized

for repurchase under the Company’s share repurchase

programs.

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,

2024 compared

the

quarter

ended

March 31,

2023

and as

of March

31,

2024

compared

to December

31,

2023,

and

annualized where appropriate:

•

Net interest income for the three months ended

March 31, 2024 decreased $839 thousand or 5.2% to $15.2 million

from $16.0

million for the quarter ended March 31, 2023.

•

Net interest

margin (“NIM”)

was 2.62%

for the

three months

ended March

31, 2024

compared to

3.22% for

the three months

ended March 31, 2023.

•

Total assets were $2.5 billion at March 31, 2024, representing an increase of $325.3 million or 15.0% from March 31, 2023 and

an increase of $150.0 million or 25.7% annualized from December 31, 2023.

•

Total loans were $1.8

billion at March 31, 2024,

representing an increase of $240.8

million or 15.2% from March

31, 2023 and

an increase of $40.4 million or 9.1% annualized from December 31, 2023.

•

Total deposits

were $2.1 billion

at March

31, 2024,

representing an increase

of $272.3

million or

14.9% from March

31, 2023

and an increase of $165.7 million or 34.4% annualized from December 31, 2023.

•

Annualized return on average

assets for the quarter

ended March 31, 2024

was 0.76% compared

to 1.11% for

the quarter ended

March 31, 2023.

•

Annualized return on

average stockholders’ equity

for the quarter

ended March

31, 2024 was

9.61% compared to

12.85% for

quarter ended March 31, 2023.

•

The ACL to total loans was 1.18% at both March 31, 2024 and December 31, 2023.

•

Non-performing loans to total loans was 0.03% at both March 31, 2024 and December 31, 2023.

•

At March 31, 2024, the total risk-based capital ratios for the Company and the Bank were 12.98% and 12.89%, respectively.

Table of Contents

USCB Financial Holdings, Inc.

Q1 2024 Form 10-Q

•

Tangible book

value per

common share

(a non-GAAP

financial measurement)

of $9.92

as of

March 31,

2024 was

negatively

affected by $2.31 due to accumulated comprehensive loss of

$45.4 million at March 31, 2024.

At March 31, 2023, tangible book

value of $9.37 per common

share was negatively affected

by $2.14 due to

$42.1 million accumulated other

comprehensive loss.

See

“Reconciliation and

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

Note

“Summary

Significant

Accounting

Policies”

the

Company’s

2023

Form

10-K

and

“Summary of Significant Accounting Policies” in Part I

in this Form 10-Q . To prepare financial statements in conformity with

US GAAP,

management makes estimates, assumptions,

and judgments based on available information.

These estimates,

assumptions,

and

judgments

affect

the

amounts

reported

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,

this

information

changes,

actual

results

could

differ

from

the

estimates,

assumptions

and

judgments

reflected

the

financial statements. In

particular,

management has identified

accounting policies that,

due to the

estimates, assumptions

and

judgments

inherent

those

policies,

are

critical

understanding

our

financial

statements.

Management

has

presented the application of these policies to the Audit

and Risk Committee of our Board of Directors.

Non-GAAP Financial Measures

This Form 10-Q

includes financial information determined by

methods other than in

accordance with generally accepted

accounting principles (“GAAP”). This financial information

includes certain operating performance measures.

Management

has included these non-GAAP measures because it believes these

measures may provide useful supplemental information

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

managing and

evaluating

the

Company’s

business

and

intends

refer

them

discussions

about

our

operations

and

performance.

Operating performance measures

should be viewed in

addition to, and not

as an alternative to

or substitute for,

measures

determined in accordance with GAAP,

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

be presented

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

non-GAAP measures to the most

directly comparable

GAAP

measures

can

found

the

section

“Reconciliation

and

Management

Explanation

Non-GAAP

Financial

Measures” included in this Form 10-Q.

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, 2024

December 31, 2023

Consolidated Balance Sheets:

Total

assets

2,489,142

2,339,093

Total

loans

(1)

1,821,196

1,780,827

Total

deposits

2,102,794

1,937,139

Total

stockholders' equity

195,011

191,968

(1)

Loan amounts include deferred costs.

Table of Contents

USCB Financial Holdings, Inc.

Q1 2024 Form 10-Q

Three Months Ended March 31,

2024

2023

Consolidated Statements of Operations:

Net interest income before provision for credit losses

15,158

15,997

Total

non-interest income

2,464

2,070

Total

non-interest expense

11,174

10,176

Net income

4,612

5,809

Profitability:

Efficiency ratio

63.41%

56.32%

Net interest margin

2.62%

3.22%

The Company’s

results

operations

depend

substantially

the

levels

our

net

interest

income

and

non-interest

income. Other factors contributing

to the results of

operations include our provision for

credit losses, the level

of non-interest

expense, and the provision for income taxes.

Three months ended March 31, 2024 compared to the three

months ended March 31, 2023

During the

three months

ended March

31,

2024, total

interest

income

increased

$8.5

million compared

to the

same

period in

2023. However,

this positive

trend was

offset by

a $9.3

million increase

in total

interest expense

due to

higher

weighted average deposit

costs

and borrowing costs.

Consequently, net income

decreased $1.2 million

to $4.6 million

for

the three months ended March 31, 2024 compared to the three

months ended March 31, 2023.

Net Interest Income

Net interest income

is the difference

between interest

earned on interest-earning

assets and interest

paid on interest-

bearing liabilities

and is

the primary

driver of

core earnings.

Interest income

is generated

from interest

and dividends

interest-earning

assets,

including

loans,

investment

securities

and

other

short-term

investments.

Interest

expense

incurred

from

interest

paid

interest-bearing

liabilities,

including

interest-bearing

deposits,

FHLB

advances

and

other

borrowings.

To evaluate net

interest income, we

measure and monitor

(i) yields on

loans and other

interest-earning assets, (ii)

the

costs of deposits

and other funding

sources, (iii) net

interest spread, and

(iv) net interest margin.

Net interest spread is

equal

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

margin is

equal to

the annualized

net interest

income

divided by

average interest

-earning assets.

Because

non-interest-

bearing sources

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

stockholders’ equity, also fund interest-earning assets,

net interest margin includes the indirect benefit of these

non-interest-bearing funding sources.

Changes

market

interest

rates

and

interest

rates

earn

interest-earning

assets

pay

interest-bearing

liabilities, as well

as the volume

and types of

interest-earning assets and interest-bearing

and non-interest-bearing liabilities,

are usually the

largest drivers

of periodic changes

in net interest

spread, net interest

margin and net

interest income.

Our

asset liability committee

(“ALCO”) has

in place asset-liability

management techniques

to manage major

factors that

affect

net interest income and net interest margin.

Table of Contents

USCB Financial Holdings, Inc.

Q1 2024 Form 10-Q

The following

table contains

information related

to average

balances, average

yields earned

on assets,

and average

costs of liabilities for the periods indicated (dollars in

thousands):

Three Months Ended March 31,

2024

2023

Average

(1)

Balance

Interest

Yield/Rate

(2)

Average

(1)

Balance

Interest

Yield/Rate

(2)

Assets

Interest-earning assets:

Loans

(3)

1,781,528

26,643

6.01%

1,547,393

19,711

5.17%

Investment securities

(4)

419,989

2,811

2.69%

421,717

2,286

2.20%

Other interest-earnings assets

125,244

1,433

4.60%

43,084

382

3.60%

Total interest-earning assets

2,326,761

30,887

5.34%

2,012,194

22,379

4.51%

Non-interest-earning assets

109,342

108,024

Total assets

2,436,103

2,120,218

Liabilities and stockholders' equity

Interest-bearing liabilities:

Interest-bearing checking

53,344

369

2.78%

58,087

0.30%

Saving and money market deposits

1,097,575

10,394

3.81%

897,061

4,785

2.16%

Time deposits

322,912

3,294

4.10%

224,730

1,057

1.91%

Total interest-bearing deposits

1,473,831

14,057

3.84%

1,179,878

5,885

2.02%

FHLB advances and other borrowings

164,187

1,672

4.10%

61,600

497

3.27%

Total interest-bearing liabilities

1,638,018

15,729

3.86%

1,241,478

6,382

2.08%

Non-interest-bearing demand deposits

574,760

664,369

Other non-interest-bearing liabilities

30,233

31,000

Total liabilities

2,243,011

1,936,847

Stockholders' equity

193,092

183,371

Total liabilities and stockholders' equity

2,436,103

2,120,218

Net interest income

15,158

15,997

Net interest spread

(5)

1.48%

2.43%

Net interest margin

(6)

2.62%

3.22%

(1)

Average balances - Daily average balances are used

to calculate yields/rates.

(2)

Annualized.

(3)

Average loan balances include non-accrual loans. Interest income

on loans includes accretion of deferred loan

fees, net of deferred loan costs.

(4)

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

FHLB stock.

(5)

Net interest spread is the weighted average

yield on total interest-earning assets minus the weighted

average rate on total interest-bearing liabilities.

(6)

Net interest margin is the ratio of net interest

income to average total interest-earning assets.

Three months ended March 31, 2024 compared to the three months

ended March 31, 2023

Net interest income before the provision for

credit losses was $15.2 million for the

three months ended March 31, 2024,

decrease

$839

thousand

5.2%,

from

$16.0

million

for

the

same

period

2023.

The

decrease

was

primarily

attributable

the

$9.3

million

increase

interest

expense,

which

was

result

the

prevailing

market

interest

rate

conditions which offset the increase in interest income.

Net

interest

margin

was

2.62%

for

the

quarter

ended

March 31,

2024

and

3.22%

for

the

same

period

2023. The

increases

in loan yields as well as yields on other interest-earning assets was offset by

higher deposit and borrowing costs.

Provision for Credit Losses

The provision

for credit

losses represents

a charge

to earnings

necessary to

maintain an

allowance for

credit losses

that, in

management's evaluation,

is adequate

to provide

coverage for

all expected

credit losses.

The provision

for credit

losses is impacted

by variations in

the size and

composition of our

loan and debt

securities portfolio, recent

historical and

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

securities portfolios

and net charge-offs.

Table of Contents

USCB Financial Holdings, Inc.

Q1 2024 Form 10-Q

Three months ended March 31, 2024 compared to the three months

ended March 31, 2023

The provision

for credit

loss was

$410 thousand

for the

three months

ended March 31, 2024

compared to

$201 thousand

for the

same period

in 2023.

Growth in

the loan

portfolio was

the primary

driver of

the increase

in the

provision expense

during the three months ended March 31, 2024.

Non-Interest Income

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

accounts. We also generate

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

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

insurance policies on some of our

employees and generate income from

the increase in the cash surrender

value of these

policies.

The following table presents the components of non-interest

income for the dates indicated (in thousands):

Three Months Ended March 31,

2024

2023

Service fees

1,651

1,205

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

(21)

Gain on sale of loans held for sale, net

347

Other non-interest income

746

539

Total

non-interest income

2,464

2,070

Three months ended March 31, 2024 compared to the three months

ended March 31, 2023

Non-interest income for the three

months ended March 31, 2024

increased $394 thousand or 19.0%,

compared to the

same period

in 2023.

This increase

was primarily

driven by

growth in

service fees

from a

larger deposit

portfolio and

increase in wire and treasury management fees.

Non-Interest Expense

The following table presents the components of non-interest

expense for the dates indicated (in thousands):

Three Months Ended March 31,

2024

2023

Salaries and employee benefits

6,310

6,377

Occupancy

1,314

1,299

Regulatory assessment and fees

433

224

Consulting and legal fees

592

358

Network and information technology services

507

478

Other operating

2,018

1,440

Total

non-interest expense

11,174

10,176

Three months ended March 31, 2024 compared to the three months

ended March 31, 2023

Non-interest expense for the three

months ended March 31, 2024

increased $998 thousand or 9.8%,

compared to the

same period in 2023. The increase was

primarily driven by an increase

in other operating expenses of $578

thousand due

to $199 thousand

increase in

internal and

external audit

expense, $70

thousand increase

in miscellaneous

expense, and

$97

thousand

increase

force-placed

insurance

expense

(this

expense

will

eventually

reimbursed

customers).

Additionally, consulting and legal fees increased

$234 thousand due to legal

expenses

and regulatory assessment and fees

increased $209 thousand mostly due to FDIC deposit insurance

as our deposit portfolio grew.

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.

Table of Contents

USCB Financial Holdings, Inc.

Q1 2024 Form 10-Q

Three months ended March 31, 2024 compared to the three months

ended March 31, 2023

Income tax expense for

the quarter ended March

31, 2024 was $1.4

million as compared to

$1.9 million for the

same

period in

2023. The

effective tax

rate for

the three

months ended

March 31, 2024

was 23.6%

compared to

24.5% for

the

same period in 2023.

For

further

discussion

income

taxes,

see

Note

“Income

Taxes”

the

unaudited

Consolidated

Financial

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

Analysis of Financial Condition

Total assets at March 31, 2024 were $2.49 billion, an increase of $150.0 million, or 25.8% annualized,

over total assets

of $2.34 billion at December 31, 2023. Total

loans, net of unearned fees/cost, increased $40.4 million, or 9.1% annualized,

to $1.82

billion at

March 31,

2024 compared

to $1.78

billion at

December

31, 2023.

Total

deposits increased

by $165.7

million, or 34.4% annualized, to $2.10 billion at March

31, 2024 compared to $1.94 billion December 31, 2023.

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

is managed in accordance

with the Board approved

Asset and Liability

Management (“ALM”)

policy,

which

includes

investment

guidelines.

Such

policy

reviewed

least

annually

frequently

deemed

necessary,

depending on

market conditions

and/or unexpected

events. The investment

portfolio composition

is subject to

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

the

Asset-Liability

Committee

(“ALCO”).

The

portfolio

investments

also

can

used

modify

the

duration

the

balance

sheet.

The

allocation

cash

into

securities

takes

into

consideration

anticipated

future

cash

flows

(uses

and

sources) and all available sources of credit.

Our investment portfolio consists

primarily of securities issued

by U.S. government-sponsored agencies,

U.S.

agency

mortgage-backed securities,

collateralized mortgage

obligation securities,

municipal securities,

and other

debt securities,

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

do not necessarily represent

the expected life of

the portfolio. Some

of these securities will

be called or paid

down prior to

maturity

depending on

capital market

conditions

and

expectations.

The

investment

portfolio

is regularly

reviewed by

the

Chief Financial

Officer,

Treasurer,

and the

ALCO of

the Company

to ensure

an appropriate

risk and

return profile

as well

as for adherence to the investment policy.

When evaluating AFS

debt securities under

ASC Topic

326, the Company

evaluates

whether the decline

in fair value

is attributable

to credit losses

or other

factors like interest

rate risk,

using both quantitative

and qualitative

analyses, including

company

performance

analysis,

review

credit

ratings,

remaining

payment

terms,

prepayment

speeds

and

analysis

macro-economic conditions.

Each investment is

expected to recover

its unrealized loss

position over its

holding period as

it approaches to maturity

and the Company has

the intent and ability

to hold these securities

to maturity until

recovery.

a result of this evaluation, the

Company concluded that no allowance was required on AFS

securities as of March 31, 2024.

AFS and HTM investment securities increased $28.7 million,

or 28.6% annualized, to $433.0 million at March 31, 2024

from $404.3 million at December 31, 2023. Investment

securities increased due to reinvestment of payments

received and

investment of excess

in cash

balances into high

credit quality investments

to increase the

Company’s profitability and

modify

the Company

’s

balance

sheet

duration

according to

the

ALM policy.

As of

March 31, 2024,

investment

securities

with

market value

of $244.4 million

were pledged

to secure

public deposits

and the

BTFP.

The investment

portfolio does

not

have any tax-exempt securities.

Table of Contents

USCB Financial Holdings, Inc.

Q1 2024 Form 10-Q

The

following

table

presents

the

amortized

cost

and

fair

value

investment

securities

for

the

dates

indicated

(in

thousands):

March 31, 2024

December 31, 2023

Available-for-sale:

Amortized

Cost

Fair Value

Amortized

Cost

Fair Value

U.S. Government Agency

17,168

15,549

9,664

8,173

Collateralized mortgage obligations

130,533

106,369

103,645

80,606

Mortgage-backed securities - residential

62,734

50,337

63,795

52,187

Mortgage-backed securities - commercial

48,182

41,702

49,212

42,764

Municipal securities

24,985

19,061

25,005

19,338

Bank subordinated debt securities

28,622

26,974

28,106

26,261

312,224

259,992

279,427

229,329

Held-to-maturity:

U.S. Government Agency

43,439

37,623

43,626

38,306

Collateralized mortgage obligations

61,465

53,131

62,735

54,752

Mortgage-backed securities - residential

43,383

38,613

43,784

39,599

Mortgage-backed securities - commercial

15,409

14,108

15,439

14,182

Corporate bonds

9,354

8,681

9,398

8,671

173,050

152,156

174,982

155,510

Allowance for credit losses - securities held-to-maturity

(12)

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

173,038

The following

table shows

the weighted

average yields,

categorized by

contractual maturity,

for investment

securities

as of March 31, 2024 (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%

3,106

4.03%

14,062

3.66%

17,168

3.73%

Collateralized mortgage obligations

0.00%

130,533

2.30%

130,533

2.30%

MBS - residential

0.00%

62,734

1.87%

62,734

1.87%

MBS - commercial

0.00%

48,182

3.35%

48,182

3.35%

Municipal securities

0.00%

20,733

1.72%

4,252

1.86%

24,985

1.74%

Bank subordinated debt securities

0.00%

5,561

7.18%

21,272

5.14%

0.00%

26,834

5.57%

Corporate bonds

0.00%

1,788

6.41%

0.00%

1,788

6.41%

5,561

46,899

259,763

312,224

2.71%

Held-to-maturity:

U.S. Government Agency

0.00%

7,933

1.02%

20,143

1.45%

15,363

2.03%

43,439

1.58%

Collateralized mortgage obligations

0.00%

61,465

1.66%

61,465

1.66%

MBS - residential

0.00%

4,410

1.85%

5,908

1.74%

33,066

2.41%

43,383

2.27%

MBS - commercial

0.00%

3,069

1.62%

0.00%

12,340

2.62%

15,409

2.42%

Corporate bonds

0.00%

9,354

2.80%

0.00%

9,354

2.80%

24,766

26,050

122,234

173,050

1.92%

Loans

Loans are the

largest category of

interest-earning assets

on the unaudited

Consolidated Balance

Sheets, and usually

provide higher yields than the

remainder of the interest

-earning assets. Higher yields

typically carry greater

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 2024 Form 10-Q

The following table shows the loan portfolio composition

as of the dates indicated (in thousands):

March 31, 2024

December 31, 2023

Total

Percent of

Total

Percent of

Total

Residential Real Estate

237,906

13.1

204,419

11.5

Commercial Real Estate

1,057,800

58.2

1,047,593

58.8

Commercial and Industrial

228,045

12.5

219,757

12.4

Foreign Banks

100,182

5.5

114,945

6.5

Consumer and Other

194,325

10.7

191,930

10.8

Total

gross loans

1,818,258

100.0

1,778,644

100.0

Plus: Deferred costs

2,938

2,183

Total

loans net of deferred fees (costs)

1,821,196

1,780,827

Less: Allowance for credit losses

21,454

21,084

Total

net loans

1,799,742

1,759,743

Total

loans, net

of unearned

cost, increased

by $40.4 million,

or 9.1%

annualized to

$1.82 billion,

at March 31,

2024

compared to December 31, 2023. The residential real

estate loan segment had the most significant growth.

Our

loan

portfolio

continues

grow,

with

commercial

real

estate

lending

the

primary

focus

which

represented

approximately 58% of the

total gross loan portfolio as

of March 31, 2024. Our loan

growth strategy since inception has

been

reflective of the market in which we operate and of our strategic

plan as approved by the Board.

Most of the

commercial real estate

exposure represents

loans to commercial

businesses secured

by owner-occupied

real estate.

The growth

experienced in

recent years

is primarily

due to

implementation of

our relationship-based

banking

model and

the success

of our

relationship managers

in competing

for new

business

in a

highly competitive

metropolitan

area. Many

of our

larger loan

clients have

long-term relationships

with members

of our

senior management

team or

our

relationship managers that date back to former institutions.

From a

liquidity perspective,

our loan

portfolio provides

us with

additional

liquidity due

to repayments

or unexpected

prepayments. The following table shows

maturities and sensitivity to

interest rate changes for the

loan portfolio at March 31,

2024 (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

5,006

42,647

74,664

115,589

237,906

Commercial Real Estate

105,181

200,845

745,043

6,731

1,057,800

Commercial and Industrial

13,458

47,095

122,945

44,547

228,045

Foreign Banks

100,182

Consumer and Other

1,623

3,511

10,711

178,480

194,325

Total

gross loans

225,450

294,098

953,363

345,347

1,818,258

Interest rate sensitivity:

Fixed interest rates

180,206

161,021

187,337

237,934

766,498

Floating or adjustable rates

45,244

133,077

766,026

107,413

1,051,760

Total

gross loans

225,450

294,098

953,363

345,347

1,818,258

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, 2024, approximately 58% of

the loans have adjustable/variable rates

and 42% of the loans have fixed

rates.

The

adjustable/variable

rate

loans

re-price

different

benchmarks

and

tenors

different

periods

time.

contractual characteristics, there are no

material concentrations on anniversary repricing. Additionally, it is

important to note

that most

of our

loans have

interest rate

floors. This

embedded option

protects the

Company from

a decrease

in interest

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

of higher interest rates.

Table of Contents

USCB Financial Holdings, Inc.

Q1 2024 Form 10-Q

Asset Quality

Our asset quality grading

analysis estimates the capability of

the borrower to repay

the contractual obligation of

the loan

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

graded loans. Internal credit

risk grades are reviewed

at least once a

year, and

more frequently as

needed. Internal credit

risk ratings

may change

based on

management’s

assessment of

the results

from the

annual review,

portfolio monitoring,

and other developments observed with borrowers.

The internal credit risk grades used by the Company to

assess the credit worthiness of a loan are shown below:

Pass

– Loans indicate different levels of satisfactory

financial condition and performance.

Special Mention

– Loans classified as special mention have a potential weakness

that deserves management’s

close attention. If left uncorrected, these potential weaknesses

may result in deterioration of the repayment

prospects for the loan or of the institution’s

credit position at some future date.

Substandard

– Loans classified as substandard are inadequately protected

by the current net worth and paying

capacity of the obligator or of the collateral pledged, if

any. Loans so classified

have a well-defined weakness or

weaknesses that jeopardize the liquidation of the debt.

They are characterized by the distinct possibility that the

institution will sustain some loss if the deficiencies are

not corrected.

Doubtful

– Loans classified as doubtful have all the weaknesses inherent

in those classified at substandard, with

the added characteristic that the weaknesses make collection

or liquidation in full on the basis of currently existing

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

Loss

– Loans classified as loss are considered uncollectible.

Loan credit exposures by internally assigned grades are

as follows for the dates indicated (in thousands):

March 31, 2024

Pass

Special Mention

Substandard

Doubtful

Total

Residential Real Estate

237,626

280

237,906

Commercial Real Estate

1,051,629

6,171

1,057,800

Commercial and Industrial

226,474

1,571

228,045

Foreign Banks

100,182

Consumer and Other

194,325

1,810,236

8,022

1,818,258

December 31, 2023

Pass

Special Mention

Substandard

Doubtful

Total

Residential Real Estate

204,127

292

204,419

Commercial Real Estate

1,040,032

7,561

1,047,593

Commercial and Industrial

218,129

1,628

219,757

Foreign Banks

114,945

Consumer and Other

191,930

1,769,163

9,481

1,778,644

Table of Contents

USCB Financial Holdings, Inc.

Q1 2024 Form 10-Q

Non-Performing Assets

The following table presents non-performing assets as

of the dates shown (in thousands,

except ratios):

March 31, 2024

December 31, 2023

Total

non-performing loans

456

468

Other real estate owned

Total

non-performing assets

456

468

Asset quality ratios:

Allowance for credit losses to total loans

1.18%

Allowance for credit losses to non-performing loans

4,705%

4,505%

Non-performing loans to total loans

0.03%

Non-performing assets include all loans categorized

as non-accrual or restructured, other real

estate owned (“OREO”)

and other repossessed assets.

Problem loans for which

the collection or

liquidation in full

is 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 consecutive 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

borrower’s

ability

repay

accordance with

the original

terms of

the loan

or line

of credit.

The concessions

are given

to the

debtor in

various forms,

including interest rate

reductions, principal forgiveness, extension

of maturity date,

waiver, or deferral of

payments and other

concessions intended to minimize potential losses.

For further discussion on non-performing loans

and borrowers experiencing financial difficulties,

see Note 3 “Loans” to

the unaudited Consolidated Financial Statements in Item

1 of Part 1 this Form 10-Q.

Allowance for Credit Losses

The ACL

represents

an amount

that,

management's

evaluation,

is adequate

to provide

coverage

for

all

expected

future

credit

losses

outstanding

loans.

Additionally,

qualitative

adjustments

are

made

the

ACL

when,

based

management’s judgment, there

are factors impacting

the allowance estimate

not considered by

the quantitative calculations.

See Note 3 “Loans” in Item 1 of Part 1 of this Form 10-Q

for more information on the ACL.

Table of Contents

USCB Financial Holdings, Inc.

Q1 2024 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, 2024

Beginning balance

2,695

10,366

3,974

911

3,138

21,084

Provision for credit losses

(1)

235

(64)

288

(117)

363

Recoveries

Charge-offs

(5)

Ending Balance

2,930

10,302

4,272

794

3,156

21,454

Average loans

217,117

1,048,870

221,804

102,150

191,587

1,781,528

Net charge-offs to average loans

0.00%

(0.02)%

0.00%

0.01%

0.00%

(1) Provision for credit losses excludes a $43 thousand charge due to unfunded commitments included in other liabilities and a $4

thousand charge related to investment securities held to maturity.

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 on January 1, 2023.

(2) Provision for credit losses excludes a $84 thousand release due to unfunded commitments included in other liabilities

Bank-Owned Life Insurance

As of March 31, 2024, the combined cash surrender value of all bank-owned life insurance (“BOLI”) policies was

$52.2

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.

Table of Contents

USCB Financial Holdings, Inc.

Q1 2024 Form 10-Q

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,

2024

2023

Average Balance

Average Rate

Paid

Average Balance

Average Rate

Paid

Non-interest-bearing checking

574,760

0.00%

664,369

0.00%

Interest-bearing checking

53,344

2.78%

58,087

0.30%

Money market and savings deposits

1,097,575

3.81%

897,061

2.16%

Time deposits

322,912

4.10%

224,730

1.91%

Total

2,048,591

2.76%

1,844,247

1.29%

The Company

has a

granular deposit

portfolio with

outstanding balances

comprised of

52% in

commercial

deposits,

32% personal deposits, 12% public funds

(which are partially collateralized)

and 4% brokered deposits. Brokered

deposits

balance at March 31, 2024 was $90.1 million and there

were no brokered deposits at March 31, 2023.

The Company has approximately

21 thousand deposit accounts

with the majority in

personal accounts, approximately

13 thousand or

62.9%. The estimated

average account

size of our

deposit portfolio is

approximately $103 thousand

as of

March 31, 2024.

The

uninsured

deposits

are

estimated

based

the

FDIC

deposit

insurance

limit

$250

thousand

for

all

deposit

accounts at

the Company

per account

holder.

The total

estimated

amount of

uninsured

deposits

was 55%

at March

31,

2024 and

56% at

March

31, 2023.

The Company

offers

Insured Cash

Sweep (“ICS”)

and Certificate

Deposit Account

Registry Service (“CDARS”) deposit products

to fully insure our clients. The

deposit balance in ICS/CDARS at

quarter end

was $144.1 million and $35.7 million at March 31, 2023.

The following table shows scheduled maturities of uninsured

time deposits as of March 31, 2024 (in thousands):

March 31, 2024

Three months or less

23,229

Over three through six months

17,772

Over six though twelve months

41,918

Over twelve months

2,393

85,312

Other Liabilities

The Company collects from commercial and residential loan

customers funds which are held in escrow for future

payment of real estate taxes and insurance. These escrow

funds are disbursed by the Company directly to the

insurance

companies and taxing authority of the borrower.

Escrow funds are recorded as other liabilities.

As of March 31, 2024 escrow balances totaled $7.8 million compared

to $2.3 million at December 31, 2023.

Borrowings

member

the

FHLB

Atlanta,

are

eligible

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, 2024, we had $82.0 million of

fixed-rate advances outstanding from the FHLB with a weighted average

rate of 3.19%. Maturity dates for the advances range between

2024 to 2028 as detailed in the table below.

Table of Contents

USCB Financial Holdings, Inc.

Q1 2024 Form 10-Q

The following table presents the FHLB advances as of

March 31, 2024 (in thousands):

Interest Rate

Type of Rate

Maturity Date

Amount

1.04%

Fixed

July 30, 2024

5,000

2.05%

Fixed

March 27, 2025

10,000

1.07%

Fixed

July 18, 2025

6,000

3.76%

Fixed

January 24, 2028

11,000

3.77%

Fixed

April 25, 2028

50,000

82,000

As of

March 31, 2024,

we had

a $80.0

million fixed-rate

loan outstanding

from the

FRB issued

pursuant to

the Bank

Term

Funding Program with an interest rate of 4.81% and

a maturity date of January 10, 2025.

We have

also established

Federal Funds

lines of credit

with our

upstream correspondent

banks and

the FRB

Atlanta

Discount

Window

manage

temporary

fluctuations

our

daily

cash

balances.

March 31,

2024,

there

were

outstanding balances with any of these liquidity sources.

Off-Balance Sheet Arrangements

We engage

in various financial

transactions in

our operations

that, under GAAP,

may not be

included on

the balance

sheet. To

meet the financing needs

of our customers we may

include commitments to extend

credit and standby letters

credit. To

a varying

degree, such

commitments involve

elements of

credit, market,

and interest

rate risk

in excess

of the

amount recognized

in the

balance sheet.

We use

more conservative

credit and

collateral policies

in making

these credit

commitments than

we do

for on-balance

sheet items.

We are

not aware

of any accounting

loss to

be incurred

by funding

these commitments;

however,

maintain

allowance

for

off-balance

sheet

credit

risk

which

is recorded

under

other

liabilities on the unaudited Consolidated Balance Sheets.

Since commitments associated with letters of

credit and commitments to extend

credit may expire unused, the

amounts

shown

not

necessarily

reflect

actual

future

cash

funding

requirements.

The

following

table

presents

lending

commitments outstanding as of the dates indicated (in thousands

March 31, 2024

December 31, 2023

Commitments to grant loans and unfunded lines of credit

99,224

85,117

Standby and commercial letters of credit

3,274

3,987

Total

102,498

89,104

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

established

the

contract,

for

specific

purpose.

Commitments

generally

have

variable

interest

rates,

fixed

expiration

dates or

other

termination

clauses

and

may require

payment

a fee.

Since many

of the

commitments

are

expected to

expire without being

fully drawn, the

total commitment

amounts disclosed

above do not

necessarily represent

future cash

requirements.

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

in credit risk in our portfolio. Lines

of credit generally have variable interest

rates. The maximum potential amount

of future

payments we could

be required to

make is represented

by the contractual

amount of the

commitment, less

the amount of

any advances made.

Letters of credit are

conditional commitments issued

by us to guarantee

the performance of a

client to a third

party.

the event of nonperformance by

the client in accordance with the

terms of the agreement with the

third party,

we would be

required to fund

the commitment.

If the commitment

is funded, we

would be entitled

to seek recovery

from the client

from

the underlying collateral,

which can include

commercial real estate,

physical plant and

property, inventory, receivables, cash

or marketable securities.

Asset and Liability Management Committee

Members

senior

management

and

our

Board

make

the

asset

and

liability

management

committee,

ALCO.

Senior management

is responsible

for ensuring

that Board

approved strategies

and policies

for managing

and mitigating

risks are appropriately executed within the designated lines

of authority and responsibility in a timely manner.

Table of Contents

USCB Financial Holdings, Inc.

Q1 2024 Form 10-Q

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

Interest Rate Risk

(“IRR”) is inherent to

the banking business, we

believe our ALCO implemented

sound risk management practices to identify,

quantify,

monitor, and limit IRR exposures.

When assessing

the scope

of IRR

exposure

and

impact on

the consolidated

balance sheet,

cash

flows and

income

statement,

management

considers

both

earnings

and

economic

impacts.

Asset

price

variations,

deposit

volatility

and

reduced earnings or outright losses could adversely affect

the Company’s liquidity,

performance, and capital adequacy.

Income simulations

are used

to assess

the impact

of changing

rates on

earnings under

different rates

scenarios and

time horizons.

These simulations

utilize both

instantaneous and

parallel changes

in the

level of

interest rates,

as well

non-parallel changes such as

changing slopes (flat and steepening)

and twists of the yield curve.

Static simulation models

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

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

simulation relies on detailed assumptions outlined in

our

budget

and

strategic

plan,

and

assumptions

regarding

changes

existing

lines

business,

new

business,

management strategies and client expected behavior.

have

complete

picture

IRR,

the

Company

also

evaluates

the

economic

value

equity

(“EVE”).

This

assessment

allows

measure

the

degree

which

the

economic

values

will

change

under

different

interest

rate

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

future cash flows expected

from existing assets and

liabilities. The economic value

model utilizes a static

approach in that

the analysis

does not

incorporate new

business; rather,

the analysis

shows a

snapshot in

time of

the risk

inherent in

the

balance sheet.

Market and Interest Rate Risk Management

According to our

ALCO model, as

of March 31,

2024, we had

an asset sensitive

balance sheet both

for year one

and

year two

modeling, using

the static

modeling. Asset

sensitivity indicates

that our

assets generally

reprice faster

than our

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

increase. Liability sensitivity

indicates that our

liabilities generally reprice faster

than our assets,

which results in

a favorable impact

to net interest

income

when market interest rates decrease.

Many assumptions are used

to calculate the impact of interest

rate variations on our

net interest income,

such as asset

prepayment speeds, non-maturity

deposit price sensitivity,

pricing correlations, deposit

truncations and decay rates, and key interest rate drivers.

Because of the inherent use

of these estimates and

assumptions in the model,

our actual results may,

and most likely

will, differ from static measures results.

In addition, static measures like EVE

do not include actions that management

may

undertake to manage the risks in response to anticipated changes in interest rates or customer 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, 2024,

our balance

sheet

is asset

sensitive

for both

year

one and

year

two

under interest

static rate

scenarios (an

increase or

decrease of

400 basis

points).

This means

than if

rates increase,

the

NIM will increase and if rates decrease, the NIM will decrease.

Additionally, utilizing

an EVE approach, we analyze the risk

to capital from the

effects of various interest rate scenarios

through a long-term discounted cash flow

model. This measures

the difference between

the economic value of

our assets and the

economic value of

our liabilities, which is

a proxy for our

liquidation value.

According to

our balance

sheet composition,

and as

expected, our

model stipulates

that an

increase in

interest rates will have a

negative impact on the EVE

and lower rates, a positive

impact. Results and analysis are presented

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

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

Table of Contents

USCB Financial Holdings, Inc.

Q1 2024 Form 10-Q

sources

used

meet

them,

depend

significantly

our

business

mix,

balance

sheet

structure

and

composition,

credit

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

and off-balance sheet obligations.

In managing

inflows and

outflows,

management

regularly

monitors situations

that can

give rise

to increased

liquidity

risk. These

include funding

mismatches, market

constraints on

the ability

to convert

assets (particularly

investments) into

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

and contingent liquidity events.

Changes in macroeconomic conditions, as well as exposure

to credit, market, operational, legal and reputational

risks,

such as

cybersecurity risk,

could have

an unexpected

impact on

the Company’s

liquidity risk

profile and

are factored

into

the assessment of liquidity and the ALM framework.

Management has established

a comprehensive and

holistic management process for

identifying, measuring, monitoring

and

mitigating

liquidity

risk.

Due

its

critical

importance

the

viability

the

Company,

liquidity

risk

management

integrated into our risk management processes, Contingency

Funding Plan and ALM policy.

Critical elements of our liquidity

risk management include: effective corporate governance consisting of

oversight by the

Board and active

involvement of senior

management; appropriate strategies, policies,

procedures, and limits

used to identify

and mitigate liquidity risk; comprehensive liquidity risk measurement and

monitoring systems (including assessments of the

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

business

activities of

the Company;

active management

of intraday

liquidity and

collateral; an

appropriately diverse

mix of

existing

and

potential

future

funding

sources;

adequate

levels

highly

liquid

marketable

securities

free

legal,

regulatory,

operational

impediments,

that

can

used

meet

liquidity

needs

stressful

situations;

comprehensive

contingency

funding plans

that sufficiently address

potential adverse liquidity

events and emergency

cash flow

requirements; and internal

controls

and

internal

audit

processes

sufficient

determine

the

adequacy

the

institution’s

liquidity

risk

management

process.

expect

funds

available

from

several

basic

banking

activity

sources,

including

the

core

deposit

base,

the

repayment and maturity of loans and investment security

cash flows. Other potential funding sources include

federal funds

purchased, brokered certificates of deposit, listing services certificates of deposit, and draws

from the FRB Atlanta discount

window,

and borrowings

from the

FHLB.

Accordingly,

we believe

our liquidity

resources

are adequate

to fund

loans and

meet other cash needs as necessary.

Capital Adequacy

As of

March 31, 2024,

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, 2024, we exceeded the capital conversation buffer

all capital

ratios,

according

our actual

ratios.

The

following

table

presents

the

capital

ratios

for

the

Bank

at the

dates

indicated (in thousands, except ratios).

Actual

Minimum Capital

Requirements

To be Well Capitalized

Under Prompt Corrective

Action Provisions

Amount

Ratio

Amount

Ratio

Amount

Ratio

March 31, 2024

Total

risk-based capital

240,055

12.89

148,997

8.00

186,247

10.00

Tier 1 risk-based capital

218,174

11.71

111,748

6.00

148,997

8.00

Common equity tier 1 capital

218,174

11.71

83,811

4.50

121,060

6.50

Leverage ratio

218,174

8.84

98,695

4.00

123,368

5.00

December 31, 2023:

Total

risk-based capital

233,109

12.65

147,432

8.00

184,290

10.00

Tier 1 risk-based capital

211,645

11.48

110,574

6.00

147,432

8.00

Common equity tier 1 capital

211,645

11.48

82,931

4.50

119,789

6.50

Leverage ratio

211,645

9.17

92,328

4.00

115,410

5.00

The Company is

not subject to

regulatory capital ratios

imposed by Basel

III on bank

holding companies because

the

Company is deemed to be a small bank holding company.

Table of Contents

USCB Financial Holdings, Inc.

Q1 2024 Form 10-Q

Impact of Inflation

Our

Consolidated

Financial

Statements

and

notes

have

been

prepared

accordance

with

U.S.

GAAP,

which require the measurement of financial

position and operating results in terms

of historical dollars, without considering

the changes in the

relative purchasing power

of money over time

due to inflation. The

impact of inflation is

reflected in the

increased cost of operations.

Unlike most industrial companies,

nearly all our assets and

liabilities are monetary in

nature.

As a result,

interest rates have a

greater impact on our

performance than do the

effects of general levels

of inflation. Periods

of high inflation

are often accompanied

by relatively higher

interest rates, and

periods of low

inflation are accompanied

relatively lower interest rates.

As market interest rates

rise or fall in relation

to the rates earned

on loans and investments,

the

value

these

assets

decreases

increases

respectively.

Inflation

can

also

impact

core

non-interest

expenses

associated with delivering the Company’s services.

Recently Issued Accounting Pronouncements

Recently issued accounting

pronouncements are discussed

in Note 1 “Summary

of Significant Accounting Policies”

the unaudited Consolidated Financial Statements in Part

1 of this Form 10-Q.

Table of Contents

USCB Financial Holdings, Inc.

Q1 2024 Form 10-Q

Reconciliation and Management Explanation of Non

-GAAP Financial Measures

Management

has

included

these

non-GAAP

measures

because

believes

these

measures

may

provide

useful

supplemental information

for evaluating

the Company’s

underlying performance

trends. Further,

management uses

these

measures

managing

and

evaluating

the

Company’s

business

and

intends

refer

them

discussions

about

our

operations and performance.

Operating performance

measures should be

viewed in addition

to, and not

as an alternative

to or

substitute

for,

measures

determined

accordance

with

GAAP,

and

are

not

necessarily

comparable

to non-GAAP

measures that may be presented by other

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

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

except per share data):

Table of Contents

USCB Financial Holdings, Inc.

Q1 2024 Form 10-Q

USCB FINANCIAL HOLDINGS, INC.

NON-GAAP FINANCIAL MEASURES (UNAUDITED)

(Dollars in thousands)

As of or For the Three Months Ended

3/31/2024

12/31/2023

9/30/2023

6/30/2023

3/31/2023

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

(1)

Net income

4,612

2,721

3,819

4,196

5,809

Plus: Provision for income taxes

1,426

787

1,250

1,333

1,881

Plus: Provision for credit losses

410

1,475

653

201

PTPP income

6,448

4,983

5,722

5,567

7,891

PTPP return on average assets:

(1)

PTPP income

6,448

4,983

5,722

5,567

7,891

Average assets

2,436,103

2,268,811

2,250,258

2,183,542

2,120,218

PTPP return on average assets

(2)

1.06%

0.87%

1.01%

1.02%

1.51%

Operating net income:

(1)

Net income

4,612

2,721

3,819

4,196

5,809

Less: Net gains (losses) on sale of securities

(883)

(955)

(21)

Less: Tax effect on sale of securities

224

242

Operating net income

4,612

3,380

4,532

4,196

5,825

Operating PTPP income:

(1)

PTPP income

6,448

4,983

5,722

5,567

7,891

Less: Net gains (losses) on sale of securities

(883)

(955)

(21)

Operating PTPP income

6,448

5,866

6,677

5,567

7,912

Operating PTPP return on average assets:

(1)

Operating PTPP income

6,448

5,866

6,677

5,567

7,912

Average assets

2,436,103

2,268,811

2,250,258

2,183,542

2,120,218

Operating PTPP return on average assets

(2)

1.06%

1.03%

1.18%

1.02%

1.51%

Operating return on average assets:

(1)

Operating net income

4,612

3,380

4,532

4,196

5,825

Average assets

2,436,103

2,268,811

2,250,258

2,183,542

2,120,218

Operating return on average assets

(2)

0.76%

0.59%

0.80%

0.77%

1.11%

Operating return on average equity:

(1)

Operating net income

4,612

3,380

4,532

4,196

5,825

Average equity

193,092

183,629

184,901

184,238

183,371

Operating return on average equity

(2)

9.61%

7.30%

9.72%

9.13%

12.88%

Operating Revenue:

(1)

Net interest income

15,158

14,376

14,022

14,173

15,997

Plus: Non-interest income

2,464

1,326

2,161

1,846

2,070

Less: Net gains (losses) on sale of

securities

(883)

(955)

(21)

Operating revenue

17,622

16,585

17,138

16,019

18,088

Operating Efficiency Ratio:

(1)

Total non-interest expense

11,174

10,719

10,461

10,452

10,176

Operating revenue

17,622

16,585

17,138

16,019

18,088

Operating efficiency ratio

63.41%

64.63%

61.04%

65.25%

56.26%

(1)

The Company believes these non-GAAP measurements

are key indicators of the ongoing earnings

power of the Company.

(2)

Annualized.

Table of Contents

USCB Financial Holdings, Inc.

Q1 2024 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

3/31/2024

12/31/2023

9/30/2023

6/30/2023

3/31/2023

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

(1)

Total stockholders' equity

195,011

191,968

182,884

183,685

183,858

Less: Intangible assets

Tangible stockholders' equity

195,011

191,968

182,884

183,685

183,858

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

Total common shares issued and outstanding

19,650,463

19,575,435

19,542,290

19,544,777

19,622,380

Tangible book value per common share

(2)

9.92

9.81

9.36

9.40

9.37

Operating diluted net income per common share:

(1)

Operating net income

4,612

3,380

4,532

4,196

5,825

Total weighted average diluted shares of common stock

19,698,258

19,573,350

19,611,897

19,639,682

19,940,606

Operating diluted net income per common share:

0.23

0.17

0.23

0.21

0.29

Tangible Common Equity/Tangible Assets

(1)

Tangible stockholders' equity

195,011

191,968

182,884

183,685

183,858

Tangible assets

2,489,142

2,339,093

2,244,602

2,225,914

2,163,821

Tangible Common Equity/Tangible

Assets

7.83%

8.21%

8.15%

8.25%

8.50%

(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 2024 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

Rules

13a-15(e)

and

15d-15(e)

under

the

Exchange

Act)

March 31,

2024.

Based on that evaluation,

management believes that, as of

the end of

the period covered by

this Form 10-Q, the

Company's

disclosure controls and procedures were effective to 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.

Changes in Internal Control Over Financial Reporting

There has been

no change in

our internal control

over financial reporting

(as defined in

Rules 13a-15(f) and

15d-15(f)

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

materially affected, or is reasonably likely to

materially affect, our internal control over financial

reporting.

Limitations on Effectiveness of Controls and Procedures

designing

and

evaluating

the

disclosure

controls

and

procedures,

management

recognizes

that

any

controls

and

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

the desired control objectives.

In addition, the design

of disclosure controls and

procedures must reflect the

fact that there

are resource constraints and that management is required to apply

judgment in evaluating the benefits of possible controls

and procedures relative to their costs.

Table of Contents

USCB Financial Holdings, Inc.

Q1 2024 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.

The

Company

previously

disclosed

that

litigation

(the

“Litigation”)

had

been

commenced

July

13,

2023

three

individuals

who

were

shareholders

the

Bank

prior

the

Bank’s

reorganization

into

the

holding

company

form

organization in 2021

(the “Plaintiffs”)

against six

persons, all

of whom were

directors of

the Bank at

the relevant

time (the

“Defendants”), in the Circuit Court, Eleventh Judicial Circuit for Miami-Dade County, Florida (the “Court”) (Benes et al. v. de

Aguilera

al.)

alleging

the

Defendants

(i) caused

the

Bank,

directors

thereof,

engage

in ultra

vires

conduct by

devising

and

approving

the

exchange

transaction

effected

July

2021

pursuant

which

the

Bank’s

then

outstanding

shares of Class C and Class D preferred stock was exchanged for shares of Class A voting common stock in the

Bank (the

“Exchange Transaction”),

which action

the Plaintiffs

allege was

not permitted

by the

Bank’s Articles

of Incorporation,

and

(ii) breached

their

fiduciary

duty as

directors

of the

Bank

by approving

and

engaging

the

Exchange

Transaction.

The

Plaintiffs sought the

Court to certify the

action as a class

action and to award

damages in an

amount to be

proven at trial.

The Plaintiffs sought damages exceeding $750,000

plus attorney’s fees and costs as

well as such other relief as the Court

determined to award.

The Defendants filed a motion to dismiss the Litigation with

prejudice (the “Motion”). On December 27, 2023, the Court,

after reviewing

the Motion,

the Plaintiff’s response

thereto and

the Defendant’s reply

as well

as the

oral arguments presented

the

parties

December

14,

2023,

granted

the

Motion,

dismissing

the

Litigation

with

prejudice

and

rendering

final

judgment in favor

of the Defendants

(the “Order”). The Court

reserved jurisdiction to award

costs or grant

any post-judgment

relief.

On May 1, 2024, the

Plaintiffs filed in the

Thirds District Court of

Appeal for the State of

Florida (the “Appellate Court”)

an appeal, appealing the issuance of the Order and seeking a reversal of the Order.

The Plaintiffs claim the Court erred by

concluding

(i)

the

Exchange

Transaction

was

not

ultra

vires,

and

(ii)

that

the

Legacy

Shareholders

(which

includes

the

Plaintiffs) lacked direct standing.

The Company believes

that the positions

in the Appeal

are legally

and factually without

merit, and it

intends to vigorously

defend

against

the

Appeal,

pursue

any

potential

counterclaims

against

the

Plaintiffs

deems

appropriate,

and

seek

coverage

from

its

insurance

carriers.

However,

there

can

assurance

that

the

Appeal

will

resolved

favorably.

Furthermore, there

is also

no assurance

that we

will be

able to

secure coverage

from our

insurance carriers

for any

expenses

incurred by

us in

connection with

defending against

the Appeal.

The Appellate

Court could

grant the

Plaintiff’s motion

reverse the Order and remand the case to the Court.

this

time,

the

opinion

management,

the

likelihood

remote

that

the

impact

such

proceedings,

either

individually or

in the

aggregate, would

have a

material adverse

effect

on our

consolidated results

of operations,

financial

condition

or cash

flows. However,

one

or more

unfavorable

outcomes

in any

claim or

litigation

against

us, including

the

aforementioned Appeal

regarding the

Exchange Transaction,

could have

a material

adverse effect

on the period

in which

such claims

or litigation

are resolved.

In addition,

regardless of

their merits

or their

ultimate outcomes,

such matters

are

costly, divert management’s

attention and may materially adversely affect our

reputation, even if resolved in our favor.

In addition

to the

foregoing, we

are from

time to

time subject

to claims

and litigation

arising in

the ordinary

course of

business.

These

claims

and

litigation

may

include,

among

other

things,

allegations

violation

banking

and

other

applicable regulations, competition

law, labor

laws and consumer

protection laws, as

well as claims or

litigation relating to

intellectual property,

securities, breach of contract

and tort. We intend

to defend ourselves vigorously

against any pending

or future claims and litigation.

There can be no

assurance that any

future legal proceedings

to which we are

a party will not

be decided adversely

our interests and have a material adverse effect

on our financial condition and operations.

Table of Contents

USCB Financial Holdings, Inc.

Q1 2024 Form 10-Q

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

2023 Form 10-K.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

(a) None.

(b) Not applicable.

for the quarter ended March 31,

2024 were as follows:

Total

Number of

Purchased

Average

Price Paid

Per Share

Total Number of Shares Purchased

as Part of Publicly Announced Plans

or Programs (1)

Maximum Number

of Shares that May

Yet Be Purchased

Under Plans or

Programs (1)

Period

80,080

January 1 - 31, 2024

80,080

February 1 - 29, 2024

80,080

March 1 - 31, 2024

7,100

11.15

7,100

72,980

7,100

11.15

7,100

(1) On January 24, 2022 the Company announced

its initial stock repurchase program to repurchase

up to 750,000 shares of Class A common

stock,

approximately 3.75% of the Company’s then outstanding

shares of common stock.

Item 3.

Defaults Upon Senior Securities

(a)

Not applicable

(b)

Not applicable

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5. Other Information

(a)

Not applicable

(b)

Not applicable

(c)

During the

three months

ended March

31, 2024,

none of

the Company’s

directors or Section

16 reporting

officers

adopted

terminated

any Rule 10b5-1

trading arrangement or

non-Rule

10b5-1

trading arrangement (as

such terms are

defined in Item

408 of the SEC’s Regulation S-K).

Table of Contents

USCB Financial Holdings, Inc.

Q1 2024 Form 10-Q

Item 6. Exhibits

Exhibit No.

Description of Exhibit

2.1

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

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

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

3.1

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

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

Securities and Exchange Commission on August 11, 2023).

3.2

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

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

4.1

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

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

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

Exchange Commission on December 30, 2021).

4.2

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

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

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

Securities and Exchange Commission on December 30, 2021).

4.3

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

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

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

4.4

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

Report on Form 10-K (File No. 001-41196) filed with the Securities and Exchange Commission on March 22, 2024).

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,

2024 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 2024 Form 10-Q

SIGNATURES

Pursuant to the

requirements of

the Securities Exchange

Act of 1934,

the registrant has

duly caused this

report to be

signed on its behalf by the undersigned thereunto duly authorized.

USCB FINANCIAL HOLDINGS, INC.

(Registrant)

Signature

Title

Date

/s/ Luis de la Aguilera

Chairman, President and Chief Executive

Officer

May 10, 2024

Luis de la Aguilera

(Principal Executive Officer)

/s/ Robert Anderson

Executive Vice President and Chief Financial

Officer

May 10, 2024

Robert Anderson

(Principal Financial Officer and Principal

Accounting Officer)

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USCB Financial (USCB) 10-Q2024 Q1 Quarterly report

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