What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-24 compared with 2022-03-24 · 765 added, 745 removed, 1006 unchanged (60% of the section changed)

4 unchanged sentences

December 31, 2022

discussion and

in conjunction

Consolidated Financial

This discussion

conjunction with

the Consolidated

Statements and related footnotes

2 unchanged sentences

Statements and Supplementary

forward-looking statements

risks, uncertainties

and assumptions

differ materially

from management's

this Annual Report on Form

In addition to

historical information, this

discussion contains forward-looking

uncertainties

expectations.

such differences

are discussed

sections entitled

"Forward-Looking Statements"

1A “Risk Factors" of this Annual Report.

Throughout this document, references to “we,” “us,” “our,” and “the

Company” refer to USCB Financial Holdings, Inc.

"Forward-Looking

Statements" and Item 1A “Risk Factors" of this Annual Report.

In this Annual Report on Form 10-K, unless the context indicated otherwise, references to “we,”

“us,”, and “our” refer to

the Company and the Bank, as

the contest dictates.

the discussion relates to a period

before the Effective Date,

the terms refer only to the Bank.

Forward-Looking Statements

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operations and financial

condition from expected

condition from

expected developments

or events, or business and growth strategies, including

3 unchanged sentences

Potential risks and uncertainties include, but are not

the strength of the United States economy

in general and the strength of the local

economies in which we conduct

the COVID-19 pandemic and its impact on

us, our employees, customers and third-party service providers, and the

ultimate extent of the impacts of the pandemic and related government

stimulus programs;

local economies

our employees,

and third-party

ultimate extent of the impact of the pandemic and related

government stimulus programs;

our ability to successfully manage interest rate risk, credit

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

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

risk, liquidity risk, and other risks inherent to our

our financial

reserve and deferred tax asset valuation allowance;

the efficiency and effectiveness of our

internal control environment;

extensive laws

and regulations

subject, including

the efficiency and effectiveness of

our internal control environment;

jurisdiction where we operate;

legislative or regulatory

changes and changes

legislative or

regulatory changes

in accounting

principles, policies,

practices or guidelines,

the effects of the forthcoming implementation

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

a diversified

loan portfolio

and concentration

South Florida

market, including

of geographic,

industry concentrations,

including our

concentration

loans secured

the concentration of ownership of our Class A common

fluctuations in the price of our Class A common stock;

our ability to fund or access the capital markets at attractive

rates and terms and manage our growth, both organic

guidelines, including

effects of the implementation of the Current Expected

Credit Losses (“CECL”) standard on January 1, 2023;

the effects of our lack of a diversified loan portfolio and concentration in the South Florida market, including the risks of

geographic, depositor, and

industry concentrations, including our concentration in loans

secured by real estate;

effects of climate change;

the concentration of ownership of our common stock;

fluctuations in the price of our Class A common

at attractive

growth as well as growth through other means, such as

future acquisitions;

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

fluctuations;

increased competition and its effect on pricing

of our products and services as well as our margins;

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

inflation, interest rate, unemployment rate, market,

and potential monetary fluctuations;

impacts of international hostilities and geopolitical events;

increased competition and its effect

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

effectiveness

employee, or third-party fraud and security breaches;

other risks described in this Annual Report and other

filings we make with the SEC.

forward-looking

actual results will

materially from expectations.

Therefore, you are

cautioned not to

place undue reliance

forward-looking statements.

forward-looking statements included in this presentation

are made only as of the date

hereof, and we undertake

no obligation to update

or revise any forward-looking

statement to reflect events

or circumstances

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

under the federal securities laws.

should also review the risk factors

described in the reports the Company

filed or will

file with the

the completion

holding company

reorganization, the

materially from

expectations.

you are cautioned

undue reliance on

forward-looking

Annual Report

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

occurrence of unanticipated events,

unless required to do

so under the federal

securities laws.

should also review

the risk factors

described herein and in

USCB Financial Holdings, Inc.

the reports the Company filed or will file with the SEC and, for periods

prior to the completion of the bank holding company

reorganization in December 2021, the Bank filed with the FDIC

Non-GAAP Financial Measures

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in this annual report.

For the year ended December 31, 2021, the

Company reported net income of $21.1

For the year ended December 31, 2022, the Company reported net income of

$20.1 million compared with net income

$10.8 million

December 31, 2020,

2021 included

closing our initial public offering of the Class A common stock and the simplification of the Bank’s capital structure.

$21.1 million for the year ended December 31, 2021.

margin, the cost of deposits,

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expense, performance ratios,

asset quality ratios, regulatory capital ratios, and any significant

event or transaction.

The following significant highlights are of note for the year

ended December 31, 2021:

losses totaled

compared to $40.3 million at December 31, 2020.

margin (“NIM”)

asset quality ratios,

regulatory capital ratios, and any significant event or transaction

The following significant highlights are of note for the

year ended December 31, 2022:

income before

provision for

credit losses

totaled $63.7 million,

compared to $52.5 million for the year ended December

Net interest margin (“NIM”) was 3.38% for the year ended

December 31, 2022 and 3.26% for the year ended 2021.

The yield on earning assets increased to 3.78% for 2022, compared

to 3.52% for 2021.

December 31, 2021.

yield on earning assets decreased to 3.52% in 2021, compared to 3.93% in 2020.

The yield on earning assets was

negatively impacted by certain floating rate investment securities,

loans with variable rate pricing features, and

loans originated in the lower interest rate environment,

including PPP loans which carry a rate of 1.0%.

NIM, excluding PPP loans, was 3.16% and 3.30% for the years ended December 31, 2021 and 2020, respectively.

Total assets grew to $1.9 billion, an increase of $352.2

million or 23.5%, compared to December 31, 2020.

Loans grew to $1.2 billion, an increase of $151.6 million

or 14.6%, compared to December 31, 2020.

The cost of interest-bearing liabilities

in 2021 from 1.07% in

2020 as a result of the continued

downward repricing of deposits and continued improvement in

December 31, 2021.

of interest-bearing

December 31, 2021 as a result of the increase in market

interest rates.

Return on average assets for the year ended December

31, 2022 was 1.01% compared to 1.24% in 2021.

Return on average stockholders’ equity for the year ended December 31, 2021 was

11.45% compared to 6.54% in

Nonperforming

December 31, 2020.

Return on average

stockholders’

equity for the

year ended December 31,

10.73% compared to

Nonperforming assets was $0.0 for the year ended December

31, 2022 compared to $1.2 million at December

The Company maintained its strong capital position.

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12.53%, a common equity tier 1 capital

leverage ratio

December 31, 2021

our regulatory

ratios exceeded the thresholds to be well-capitalized under

the applicable bank regulatory requirements.

In April 2021,

and outstanding

the liquidation

value of $7.5

million along with

declared dividends approved

of Directors (the

“Board”) with the

to simplify its capital structure.

USCB Financial Holdings, Inc.

Bank completed

public offering

Class A common

included an additional 600,000 shares in connection with the exercise in full of the underwriters’

option to purchase

additional shares.

In a continuation effort to simplify the Company’s capital structure, an exchange and redemption

of then outstanding Class C and Class D preferred shares

was also completed.

In December 2021,

entered into agreements

with the Class

B shareholders

to exchange all

Class B non-voting common stock for Class A voting common

ratios exceeded the thresholds to be well-capitalized under the

applicable bank regulatory requirements.

The Company became the parent bank

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Each share of

of the Company continue to trade under ticker symbol “USCB”

on the Nasdaq Stock Market.

of the Company trade under ticker symbol “USCB” on the Nasdaq

Stock Market.

USCB Financial Holdings, Inc.

Critical Accounting Policies and Estimates

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the application

risk committee

Allowance for Credit Losses

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to earnings in the

a provision for

credit losses.

amount of the

affected by the

(i) charge-offs of

loans that decrease

provision for credit

is affected by

the following:

charge-offs of loans

that decrease

the allowance;

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the allowance;

for credit losses charged to

income that increase the allowance.

Management considers the policies

related to the ACL as

the most critical to

the financial statement

for credit losses charged to income that increase or decrease the allowance.

Management considers the policies related to

most critical

financial statement

presentation.

ACL includes activity

related to allowances

calculated in

accordance with Accounting Standards Codification (“ASC”) 310,

includes activity

calculated in accordance with Accounting Standards Codification (“ASC”)

310, Receivables, and ASC 450, Contingencies.

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specific reserve is

component covers

general component covers

non-impaired loans

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process, general

conditions both

affect the borrower’s ability to pay,

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management to be

credit losses are

credit losses

are inherently

subjective as they involve an exercise of judgment.

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between March 1,

termination of

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

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insignificant.

The Company’s charge-off policy is to continuously

review all impaired loans to monitor the Company’s ability

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

with terms of any restructurings.

For loans which

The Company’s charge-off

policy is to continuously review all impaired loans to monitor the Company’s ability

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

accordance with terms of any restructurings.

are collateral dependent,

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fair value of

the collateral relative to

investment in the loan is charged off.

The amount charged

-off conforms to the amount necessary

to comply with GAAP.

the collateral relative

to the recorded

in the loan is charged off.

The amount charged-off

conforms to the amount necessary to comply with GAAP.

liabilities are

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respective tax bases and operating loss

USCB Financial Holdings, Inc.

and tax credit carryforwards.

assets and liabilities are measured

using enacted tax rates expected

tax assets and liabilities are measured

using enacted tax rates expected to

taxable income

7 unchanged sentences

considers taxable loss

carry-back availability, expectation of sufficient

taxable income, trends

in earnings, the

future reversal

carry-back availability, expectation of sufficient taxable

income, trends in

earnings, the future

of temporary differences, and available tax planning

USCB Financial Holdings, Inc.

The Company recognizes positions taken

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and measurement

and penalties

tax liabilities, if any, would

be recorded in interest expense and other operating non-interest

expense, respectively.

and penalties on

tax liabilities, if any,

would be recorded in interest expense and other operating

non-interest expense, respectively.

Other than temporary impairment

subordination, duration, the Company's ability to hold the debt security, and the ability of the issuers to pay all amounts

internal review procedures

and the fair values

provided by the pricing

services, we believe that

the fair values provided

consistent with

the principles

times validate the

observed prices using

the observed prices

for similar securities

to determine the

fair value of

its securities.

Changes in the fair values, as

a result of deteriorating economic conditions

and credit spread changes, should only

principal and interest

payments from

its securities portfolio,

risk that losses

would be realized

need to sell securities to obtain liquidity.

Segment Reporting

Management monitors the revenue streams for all its various

products and services.

The identifiable segments are not

Management monitors the revenue streams for

all its various products and services.

The identifiable segments

Accordingly, all

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operations are

considered by management

considered by

management to be

aggregated in one

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The Company’s results

of operations

depend substantially on

net interest income

and non-interest income.

Other factors

of operations depend

substantially on net

interest income and

non-interest income.

contributing to the

results of operations

include our provision

for credit losses,

non-interest expense, and

the provision for

income taxes.

USCB Financial Holdings, Inc.

December 31, 2022

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of $21.1 million

the same period in 2020.

The Company reported net loss per diluted

share for the year ended December 31, 2021 of $6.72

compared to net income per diluted share for the same period in 2020 of $1.50 and $0.30 for

and Class B common

stock, respectively, after adjusted to reflect the 1

for 5 reverse stock split on

common stock.

The net loss per diluted

share for the year ended December 31, 2021 was attributable to the one-time reduction in net income available to common

stockholders for the

exchange and redemption

C and Class D

preferred shares.

third quarter of

USCB Financial Holdings, Inc.

redeemed the remaining outstanding preferred shares, at a liquidation value that exceeded book value, causing a one-time

common stockholders

At December 31,

and outstanding preferred shares.

Operating net

diluted share

(non-GAAP) for

ended December 31,

December 31, 2022

$1.00 compared

operating net income per

diluted share (non-GAAP)

for the same period

in 2020 of $1.50

and $0.30 for Class A and Class

B, respectively.

Operating net

loss per diluted

period in 2021

diluted share

(non-GAAP) for

ended December 31,

2021 excludes

$89.6 million one-time accounting

and redemption of

the preferred

operating net

per diluted share

ended December 31,

2020 was adjusted

to reflect the

reverse stock

split on Class A

common stock.

a reconciliation

GAAP measures

section below

“Reconciliation

and Management Explanation of Non-GAAP Financial

year ended 2021 was

attributable to the one-time

reduction in net income

available to common stockholders

reflecting the

remaining outstanding

preferred shares,

liquidation value

that exceeded

one-time reduction

net income available

to common stockholders

of $89.6 million.

At December 31, 2022,

there were no

issued and outstanding

preferred shares.

compared to adjusted net income per diluted share (non-GAAP) for the same period in 2021 of $1.81.

Adjusted net income

$89.6 million

exchange and redemption of the

preferred shares.

a reconciliation of non-GAAP

to GAAP measures refer

to section below “Reconciliation and Management Explanatio

of Non-GAAP Financial Measures”.

Net Interest Income

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between interest

earned on interest

earning assets

interest earning

interest incurred

bearing liabilities

core earnings.

Interest income

from interest

and dividends

generated from

interest-earning

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Net interest spread is

to the difference between rates

earned on interest-earning assets

and rates paid on interest-bearing

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

the annualized

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

and stockholders’ equity, also fund interest-earning assets,

and stockholders’

equity, also fund interest-earning assets,

net interest margin includes the benefit of these non-interest-bearing

interest rates and

interest rates

2 unchanged sentences

liabilities, as well

as the volume

interest-earning assets and interest-bearing

and non-interest-bearing liabilities,

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.

asset liability committee

in place asset-liability

management techniques

largest drivers of

periodic changes in

net interest spread,

net interest margin

and net interest

ALCO has in place

asset-liability management techniques

to manage major

net interest income and net interest margin.

factors that affect

net interest income

interest margin.

USCB Financial Holdings, Inc.

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At fair value except for securities held to maturity.

This amount includes

Net interest spread is the average yield on

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Net interest income before the provision

for credit losses was $52.5 million

for the year ended December

$8.9 million or

$43.6 million for

ended December

for credit losses was $63.7

million for the year ended December

increase of $11.2 million

or 21.3%, from

$52.5 million for the

year ended December 31,

This increase

was primarily

attributable to higher

income from investment

securities and loan

as lower costs

for interest-bearing liabilities

because of lower interest rate benchmarks.

Included with loan interest income are PPP fees totaling $3.6 million and $2.3 million for the year ended December

attributable to higher income from a larger loan portfolio and

higher yield on earning assets.

Included with loan interest income are PPP fees totaling $1.6 million and $4.5 million for the

year ended December 31,

2022 and 2021, respectively.

PPP loan fees are recognized upon forgiveness.

PPP loan fees are fully recognized upon forgiveness.

As of December 31, 2022, we had

million of PPP loans remaining in our portfolio.

interest margin

ended December 31,

and individual yields for interest-bearing assets and interest-bearing

liabilities both decreased in 2021 compared to 2020.

December 31, 2022

overall and individual

yields for interest-bearing

assets and interest

-bearing liabilities

both increased in

2022 compared to

2021 due primarily to increases

in market rates of interest.

Provision for Credit Losses

The allowance for credit losses

(“ACL”) represents probable incurred

losses in our portfolio.

maintain an adequate

ACL that can mitigate probable losses incurred in the loan portfolio.

The ACL is increased by the provision for credit losses

and is decreased

by charge-offs,

net of recoveries

loan charge-offs.

There are multiple

credit quality

determination

corresponding

metrics evaluate

portfolio, assess

non-performing

charge-offs levels, considers statistical trends and economic

conditions and other applicable factors.

ACL represents

losses incurred

loan portfolio.

The ACL is increased

provision for

$160 thousand

$3.3 million in provision

expense for the same

period in 2020.

driver of the decrease

was the improvement of

credit losses

determination of

and corresponding

provision for

credit losses.

non-performing

considers statistical trends and economic conditions and other

applicable factors.

USCB Financial Holdings, Inc.

the credit risk

associated with the

COVID-19 pandemic.

a percentage of

total loans was

at December 31,

2021 compared to 1.45% at December 31, 2020.

See “Allowance for Credit Losses” below for further discussion

on how the ACL is calculated.

Provision for credit loss

for the year ended

December 31, 2022, was

$2.5 million compared to

a net reduction of

thousand in provision

the same period

primary driver of

the increase was

as a percentage of total loans was 1.16%

at December 31, 2022 compared to 1.27% at December

See “Allowance

further discussion on

calculated for

Non-Interest Income

5 unchanged sentences

and products generate service charges and fees, mainly from our depository accounts.

generate income from gain

We also generate income from gain

SBA programs.

1 unchanged sentence

on several employees

income on the increase in the cash surrender value of

these policies.

income reflecting the increase in the cash surrender value

of these policies.

The following table presents the components of non-interest

1 unchanged sentence

Years Ended December 31,

Gain on sale of securities available for sale, net

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

Gain on sale of loans held for sale, net

4 unchanged sentences

Non-interest income

2021 increased

$4.6 million or

75.5%, compared

December 31, 2022

million compared

period in 2021.

This increase was primarily

driven by the default

interest recovery of a

prior lending customer for $2.5

and a gain on the sale of a previously owned building for $983 thousand as well as higher deposit service fees and gain on

sales of loans due

to increased activity

in our SBA program.

the default interest recovery

of $2.5 million was

loan that was originated

in 2008 and subsequently

went through many iterations

of credit collection.

the final payment and settlement of lien judgments against

the customer.

This decrease was primarily driven by $2.5

million loss on sale of securities in 2022 and one-time items that

generated income in 2021 but not in 2022.

One-time items in 2021 include a $2.5 million interest recovery related to a prior

lending customer

owned building

restructuring

lower-yielding

available-for-sale

currently yielding higher than the securities that were sold.

Non-Interest Expense

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non-interest expense

Non-interest expense

Non-interest expense for

the year ended

December 31, 2022

increased $3.6 million

benefit costs

of $2.2 million

or 10.2%, compared

primarily due

employee benefit

$2.5 million for

December 31, 2022,

full-time equivalent

respectively,

period in 2021.

The headcount

equivalent employees

operating expenses

increased $436

$403 thousand

respectively, during

2022 compared

publicly traded

formation of a bank holding company.

The increase in salaries and employee benefits, consulting and legal fees, and other

operating costs has enabled

The increase in salaries and employee

benefits, consulting and legal fees,

and other operating costs has

us to support recent growth

and has provided us with

the necessary technology and required

professionals to execute our growth strategy.

and has provided us

with the necessary technology and

required professionals to execute

growth strategy.

USCB Financial Holdings, Inc.

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

USCB Financial Holdings, Inc.

Surrender value of bank-owned life

insurance policies for key employees, purchasing municipal bonds, and

taxable income will be important elements in determining our

effective tax rate.

and expense for income tax purposes.

Therefore, future decisions on the investments we

choose will affect our effective tax

Changes in the

cash surrender

value of bank-owned

life insurance policies

for key employees,

purchasing municipal

bonds, and overall taxable income will be important elements

in determining our effective tax rate.

$6.9 million,

to $6.6 million

ended December 31, 2021.

effective tax rate for

the year ended December 31, 2021

was 23.8% and for the

The effective

tax rate for the year

ended December 31, 2022 was 25.6%

and for the year

December 31, 2021 was 23.8%.

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on income taxes, see

Note 6 “Income Taxes” to

the Consolidated Financial

Note 6 “Income Taxes”

to the Consolidated Financial

Statements in this

Annual Report on Form 10-K.

Rate/Volume Analysis

29 unchanged sentences

At fair value except for securities held to maturity.

This amount includes FHLB

Both average yields on

interest earning assets and

average rates paid on interest

bearing liabilities have been declining

periods presented,

reflecting the

macro interest

rate environment

initiatives to

improve the mix of deposits.

interest earning assets

and average rates

paid on interest

bearing liabilities increased

as a compared to 2021, reflecting the changes in the

macro interest rate environment.

Analysis of Financial Condition

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December 31, 2022 compared

December 31, 2020.

deferred fees.

Total deposits

increased by $238.9 million, or 15.0%, to $1.8 billion at December 31, 2022 compared to $1.6

billion at December 31, 2021.

Investment Securities

8 unchanged sentences

the Company’s

profitability

capital market risk exposure.

operating philosophy of the portfolio is

to maximize the Company’s profitability,

consideration the Company’s risk appetite and tolerance, manage the assets composition

1 unchanged sentence

adequate risk-based capital ratios.

USCB Financial Holdings, Inc.

investment guideline,

more frequently

deemed necessary,

The investment

USCB Financial Holdings, Inc.

conditions and/or

portfolio composition

subject to change

1 unchanged sentence

funding and liquidity

the Company, and the interest

risk management objective

Company, and the interest risk

management objective

directed by the ALCO.

The portfolio of investments can be used to modify the duration of the balance

The portfolio of investments can be used to modify the duration of

the balance sheet.

The allocation

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The investment portfolio is regularly reviewed by the Chief Financial Officer,

an appropriate

return profile

investment policy.

As of December 31, 2021, the investment portfolio consisted of available-for-sale

(“AFS”) and held-to-maturity (“HTM”)

As of December

31, 2022, the investment portfolio consisted of available-for-sale (“AFS”) and held-to-maturity

debt securities.

During the third quarter

of 2021, there were

28 investment securities that

were transferred from AFS

During the third quarter of 2022, there were 26 investment securities that was

transferred from AFS to HTM

with an amortized cost basis and fair value amount

1 unchanged sentence

On the date of transfer,

these securities had a

total net unrealized gain of

$1.1 million.

The transfer of debt

securities from the AFS

to HTM category

were made at fair value at the date of

The unrealized gain or loss at the date of transfer is retained in accumulated

comprehensive

remaining life of the security.

these securities

unrealized loss

securities from

The unrealized

accumulated other

comprehensive income

over the remaining life of the security.

There was no impact to net income on the date of transfer.

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be permanent,

made considering

many factors,

including the

would be made

considering many

factors, including

duration of the impairment, the severity

of the event, our intent and

ability to hold the security for a

period of time sufficient

ability to hold the security for

a period of time sufficient

value, recent

4 unchanged sentences

unrealized loss

write-down recorded

realized loss

the write-down

under line item

1 unchanged sentence

sale of securities

available-for-sale,

net” of the Consolidated

Statements of Operations.

further discussion

Statements in this Form 10-K.

HTM investment

securities increased

$189.9 million or

$524.2 million at

$334.3 million at December 31, 2020.

Investment securities increased over the past year due to higher than expected cash

profitability

corporate bond securities with a market value of $20.4 million were pledged to secure

available-for-sale, net” of

the Consolidated Statements

of Operations.

has classified

Statements in this Annual Report on Form 10-K.

AFS and HTM investment securities

in aggregate decreased $105.4 million or 20.1%

to $418.8 million at December 31,

2022 from $524.2

December 31, 2021.

Investment securities

decreased over the

repayments from

securities were

Management reinvested

the repayments

of securities

sale of securities into higher

yielding loans.

As of December

31, 2022, securities with a

market value of $49.0 million

pledged to secure

public deposits.

As of December

2021, the Company did not have any tax-exempt securities

in the portfolio.

31, 2022, the

tax-exempt securities

USCB Financial Holdings, Inc.

2 unchanged sentences

Available-for-sale:

Government Agency - SBA

Government Agency

6 unchanged sentences

Held-to-maturity:

Government Agency - SBA

Government Agency

22 unchanged sentences

Held-to-maturity:

Government Agency - SBA

Government Agency

5 unchanged sentences

Balance Sheets,

higher yields

the interest-earning

yields typically

carry inherent

liquidity risks

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.

higher yields than the remainder of the Company’s

interest-earning assets.

Higher yields typically carry

inherent credit and

liquidity risks in

comparison to lower

yielding assets.

Company manages and

mitigates such risks

in accordance with

the credit and ALM policies, risk tolerance and balance

sheet composition.

USCB Financial Holdings, Inc.

11 unchanged sentences

Allowance for credit losses

gross loans increased

by $150.6 million

at December 31,

2021 compared to

the same period

significant growth

the commercial

the residential real

estate and commercial

and industrial loan

other loans increased

because of two

yacht loan portfolios that were purchased for $93.7 million,

including deferred fees, for the year ended December 31, 2021.

Commercial and industrial loans decreased because of

continuing PPP loan forgiveness

The loan portfolio has continued to experience growth in the past two years.

Since our inception, the primary focus has

approximately

December 31, 2021.

In the past, we supplemented our core commercial growth with the origination of 1-4 family residential

the acquisition

family residential

loan portfolios

diversify our

loan portfolio.

determined not to further pursue this line of business and

are focused on growing our commercial portfolio.

Other than the previous

mentioned shifts, we

do not expect any

significant changes

over the foreseeable future

al gross loans increased by $315.6 million or 26.5% at December

31, 2022 compared to December 31, 20211.

most significant

commercial real

residential real estate and commercial and industrial loan pools.

and other loans increased primarily as result of

decreased primarily because of continuing PPP loan forgiveness

inception has been reflective of the market in which we

operate and of our strategic plan as approved by the

commercial real estate

exposure represents

loans to commercial

businesses secured

by owner-occupied

implementation

relationship-

based banking model and the success

of our relationship managers in

competing for new business in

a highly competitive

relationship-based

metropolitan area.

larger loan clients have lengthy

relationships with members of our senior management

or our relationship managers that date back to former institutions.

relationships with members of our senior

management team

or our relationship managers that date back to former

institutions.

liquidity perspective,

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The information

maturities of

the individual

contractual maturities

their contractual

Renewals will

department and

balance sheet

composition at the

the analysis,

modification of terms

loan’s maturity.

any modification of

the loan’s maturity.

Additionally,

USCB Financial Holdings, Inc.

concentrations,

8 unchanged sentences

different benchmarks

and tenors in

different periods

and tenors in different

periods of time.

contractual characteristics, there are no

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important to note

USCB Financial Holdings, Inc.

interest rate

4 unchanged sentences

analysis estimates the capability of

the borrower to repay

the contractual obligation of

the borrower to

repay the contractual obligation of

agreement as scheduled or at all.

8 unchanged sentences

assess the credit worthiness of a loan are shown below:

– Loans indicate different levels of satisfactory

financial condition and performance.

– Loans indicate different levels of satisfactory financial

condition and performance.

Special Mention

15 unchanged sentences

not corrected.

– 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

– 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.

36 unchanged sentences

impaired securities,

real estate owned

(“OREO”) and other

repossessed assets.

collection or liquidation

determination

concerning collateral values

and the paying capacity

of the borrower.

When the collection of

the full contractual balance

unlikely, the loan is

placed on non-accrual to avoid overstating the Company’s

income for a loan with increased credit risk.

restructurings

liquidation in full is reasonably uncertain

are placed on a non-accrual status.

determination is based on current existing

facts concerning

collateral values and

capacity of the

When the collection

full contractual balance

on non-accrual

overstating the

with increased

non-accrual status as of

the date it becomes

90 days past due

and remains in non-accrual

90 days past due and

remains in non-accrual

status until it meets

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the principal

more and remains

in non-accrual

non-accrual status

until it meets

principal and interest

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a debtor that

is experiencing

financial difficulties

and the Company

grants a concession.

This determination

is experiencing financial

difficulties and

the Company grants

a concession.

determination

is performed during the annual review process or whenever problems

are surfacing regarding the client’s ability to repay

are surfacing regarding the client’s ability to repay in

accordance with

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Consumer and Other

The Company had

allocated $360 thousand

and $453 thousand of

specific allowance for

The Company had allocated $294 thousand and $360 thousand of specific allowances

for TDR loans at December 31,

2022 and 2021, respectively.

There was no commitment to lend additional funds to these

TDR customers.

There was no commitment to lend additional funds to

these TDR customers.

USCB Financial Holdings, Inc.

Charge-offs on

for the years

ended December 31,

$153 thousand,

respectively.

Company did not have any new TDR loans for the year

ended December 31, 2021.

modifications

classification

Section 4013 of the CARES Act or under applicable interagency

guidance of the federal banking regulators.

Charge-offs on TDR loans for the years ended December 31,

2022 and 2021 were $0 and $18 thousand, respectively.

loans at December

prior 12 months

have any new TDR loans for the year ended December

There were no TDRs or modifications due to COVID-19

as of December 31, 2022.

discussion on

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Consolidated Financial

Statements of

Statements in

Annual Report on Form 10-K.

Allowance for Credit Losses

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the allowance at

changes in the composition and size of the loan portfolio

and the overall credit worthiness of the borrowers.

changes in the composition and size of the loan portfolio and

the overall credit worthiness of the borrowers.

Additionally,

qualitative adjustments

the ACL when,

based on management’s

are made to the

ACL when, based

on management’s

judgment, there are

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Net charge-offs to average loans

USCB Financial Holdings, Inc.

Loan Category

% of Loans in

Each Category to

% of Loans in

Each Category to

Residential Real Estate

Commercial Real Estate

Commercial and Industrial

Foreign Banks

Consumer and Other

Bank-Owned Life Insurance

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deposit customers

and the personal

business of owners

and operators

are SMBs, and

the personal business

of owners and

well as the retail/consumer relationships of the employees

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Our focus on quality and customer

USCB Financial Holdings, Inc.

has created a strong brand recognition within

2 unchanged sentences

funding sources are core deposits.

Additionally, our personal and private banking management line of business is focused on the needs of the

operators of our business

customers, offering

a suite of checking,

savings, money market

and time deposit

accounts, and

utilizing superior client service to build and expand client relationships.

A unique aspect of our business model is our ability

to offer correspondent services to banks in Central America

and the Caribbean.

In addition to our banking centers network,

we developed business verticals to diversify

our portfolio in different specialty industries and

we offer public fund deposit products

to municipalities and public agencies

in our geographical footprint.

Furthermore, our

private banking

and operators of

our business customers,

offering a suite

of checking, savings,

money market and

time deposit accounts,

and utilizing superior

client service

expand client relationships.

A unique aspect

of our business

ability to offer correspondent services to banks

in Central America and the Caribbean.

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

Non-interest-bearing deposits

Interest-bearing transaction accounts

Twelve Months Ended December 31,

Average Balance

Non-interest bearing demand deposits

Interest-bearing demand deposits

Saving and money market deposits

Time deposits

$1.5 billion,

$267.7 million,

average deposits of $1.2 billion

for the same period

demand deposits has resulted

in an increase in

average balances of

$156.6 million,

or 40.1%, in non-interest

bearing demand deposits

and an increase of

$146.8 million,

or 31.0%, in saving and money market deposits when

comparing the average balances for the

tal average deposits for the year ended December 31, 2022 was $1.7 billion,

an increase of $279.5 million,

over total average

deposits of $1.5 billion

same period in

on demand deposits

resulted in an

in average balances of $98.3 million,

or 18.0%, in non-interest bearing demand deposits and an increase of $183.6 million,

or 29.6%, in saving and money market deposits

when comparing the average balances for the

years ended December 31,

2 unchanged sentences

$897.8 million

$606.1 million

December 31, 2021 and

2020, respectively.

Time deposits

with balances of $250

thousand or more totaled

$119.4 million

and $104.1 million at December 31, 2021 and 2020,

USCB Financial Holdings, Inc.

respectively.

well-diversified

depositors only

total portfolio.

Our public funds

of total deposits and

are partially collateralized.

The estimated average account

$95 thousand.

deposits with

$250 thousand

totaled $122.9

$119.4 million at December

31, 2022 and 2021, respectively.

Critical elements of our liquidity

risk management include:

effective corporate governance consisting of

oversight by the

active involvement

appropriate strategies,

policies, procedures,

comprehensive

complexity and business activities of the Company;

active management of intraday liquidity and collateral;

an appropriately

and potential

future funding

highly liquid

marketable securities

legal, regulatory, or operational impediments, that

to meet liquidity

needs in stressful

comprehensive

requirements;

institution’s

liquidity risk management process.

repayment and maturity of loans and investment security

Other potential funding sources include

federal funds

purchased, brokered

certificates of

deposit, listing

certificates of

and borrowings

Accordingly, our liquidity resources were at sufficient levels to

fund loans and meet other

cash needs as necessary.

The following table shows scheduled maturities of uninsured

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Over twelve months

are eligible for

advances with various

terms and conditions.

This accessibility of

funding allows

unexpected outgoing

and collateral

without adversely affecting either daily operations

or the financial condition of the Company.

As of December 31,

2021 and 2020,

there was $36.0 million

of fixed rate advances

from the FHLB outstanding

weighted average rate of 1.52%.

Most of the advances

are due in the first two quarters of 2025.

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.

Outstanding fixed-rate advances from the FHLB were at $46.0 million and $36.0 million, as of December 31, 2022, and

December 31, 2021,

respectively.

The weighted average

rate for outstanding

FHLB advances at

December 31, 2022

Most of the advances are due in 2023.

USCB Financial Holdings, Inc.

The following table presents the FHLB fixed rate advances

as of December 31, 2022 (in thousands):

At December 31, 2022

Interest Rate

Maturity Date

March 27, 2025

July 18, 2025

July 30, 2024

August 17, 2023

January 13, 2023

At December 31, 2021

Interest Rate

Maturity Date

August 17, 2023

July 30, 2024

3 unchanged sentences

July 18, 2025

USCB Financial Holdings, Inc.

correspondent

fluctuations in our daily cash balances.

December 31, 2021, there were no

outstanding balances with the Fed Funds

fluctuations in our daily

cash balances.

As of December 31,

2022, there were no

outstanding balances under the Fed

line of credit.

8 unchanged sentences

credit and standby letters

commitments involve

credit, market,

involve elements

amount recognized

balance sheet.

more conservative

collateral policies

conservative credit

and collateral

commitments as we

2 unchanged sentences

incurred by funding

we maintain an allowance

for off-balance sheet

credit risk which is

recorded under other liabilities

we maintain an allowance for

off-balance sheet credit risk

which is recorded under other

on the Consolidated Balance Sheets.

4 unchanged sentences

reflect the actual

future cash funding requirements

future cash funding

requirements.

The following table

5 unchanged sentences

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

the commitments

expire without being

12 unchanged sentences

by the contractual

amount of the

commitment, less

the amount of

the commitment,

less the amount

any advances made.

Letters of credit are

conditional commitments issued

by us to guarantee

the performance of a

client to a third

the event of nonperformance by

the client in accordance with the

terms of the agreement with the

conditional commitments

issued by us to guarantee

the performance of

a client to a third

the event of nonperformance by the

client in accordance with the terms

of the agreement with the third party,

required to fund

3 unchanged sentences

would be entitled

to seek recovery

from the client

recovery from

the client from

the underlying collateral,

4 unchanged sentences

or marketable securities.

USCB Financial Holdings, Inc.

Asset and Liability Management Committee

The asset and liability management committee of our Company, or ALCO, consists of members of senior management

The asset and liability management committee of our Company,

or ALCO, consists of members of senior management

and our Board.

11 unchanged sentences

and risk tolerances and appetite.

IRR (“Internal

business, our

While some degree of interest

rate risk (“IRR”) exposure is inherent

to the banking business, our ALCO

has established

sound risk management practices in place to identify,

4 unchanged sentences

reduced earnings or outright losses could adversely affect

the Company’s

liquidity, performance,

and capital adequacy.

the Company’s liquidity,

performance, and capital adequacy.

Income simulations

4 unchanged sentences

These simulations

instantaneous

instantaneous and

parallel changes

interest rates,

non-parallel changes such as changing slopes (flat and steeping) and

3 unchanged sentences

no new growth.

Dynamic simulation analysis

USCB Financial Holdings, Inc.

Dynamic simulation analysis is

utilized to have a

6 unchanged sentences

strategies and client expected behavior.

scenarios (parallel and non-parallel).

The economic-value approach focuses on a longer-term time horizon and

future cash flows expected

from existing assets and

value model utilizes a

static approach in that

incorporate new

balance sheet.

The economic value of equity 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;

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 December 31, 2021,

we were an asset sensitive company.

This indicates that our

assets generally

reprice faster

liabilities, which

interest rates

assumptions are

calculate the

interest rate

income, such as

asset prepayment speeds,

non-maturity deposit

price sensitivity,

pricing correlations, deposit

and decay rates, and key rate drivers.

According to our ALCO model, as of December 31, 2022, we were a

liability sensitive bank for year one modeling and

asset sensitive for year two modeling.

Asset sensitivity indicates that our

assets generally reprice faster than

our liabilities,

which results in a favorable impact to net interest income when market interest rates increase.

Liability sensitivity indicates

that our liabilities

generally reprice faster

than our assets,

which results in

a favorable impact

to net interest

market interest

rates decrease.

Many assumptions

rate variations

correlations,

truncations and decay rates, and key interest rate drivers.

Because of the inherent use

18 unchanged sentences

According to our model, as of December 31, 2022, the NIM will remain fairly stable for static rate scenarios (-400

will decrease

scenario to 3.20%

5 unchanged sentences

risk to capital

various interest

rate scenarios

through a long-term

discounted cash

various interest rate

scenarios through

discounted cash flow

difference between

economic value

our liabilities,

our liquidation value.

our balance sheet

composition, and as

expected, our model

that an increase of rates

will have a negative impact

analysis are presented quarterly to the

and strategies are defined.

According to our

balance sheet composition,

and as expected,

our model stipulates

that an increase

rates will have

a negative impact

Results and analysis

are presented quarterly

the ALCO, and strategies are reviewed and refined.

Additionally, in the last couple of quarters we

1 unchanged sentence

sensitivity by extending asset duration.

has reduced our NII volatility

for the first and second

year and has helped us

to maintain the NII in

accordance with ALCO

expectations.

has reduced our

NII volatility

for the first

and second year

in the analysis

maintain the NII

in accordance

with ALCO expectations.

USCB Financial Holdings, Inc.

a Company’s capacity

1 unchanged sentence

obligations at

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

efficiently meet both expected and unexpected cash flow

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

either daily operations or the financial condition of

Liquidity risk

2 unchanged sentences

obligations as

because of an inability

to liquidate assets or

obtain relatively adequate funding.

Company’s obligations, and the funding

significantly

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

and off-balance sheet obligations.

monitors situations

because of an inability to

liquidate assets or obtain adequate funding on

acceptable terms.

The Company’s obligations, and

the funding sources used

to meet them, depend

significantly on 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.

regularly monitors

situations that

include funding

3 unchanged sentences

investments) into

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

and contingent liquidity events.

accessing sources

of funds (i.e.,

market liquidity),

and contingent

liquidity events.

presents to the

ALCO, on a quarterly basis, liquidity stress tests foll

owing the scenarios described in the Bank’s

contingency funding plan.

Changes in macroeconomic conditions or exposure

1 unchanged sentence

and reputational risks, including

cybersecurity risk could also affect the Company’s

liquidity risk profile unexpectedly and are considered

in the assessment

cybersecurity risk could also affect the Company

’s liquidity risk profile unexpectedly

and are considered in the assessment

of liquidity and ALM framework.

4 unchanged sentences

integrated into our risk management processes and ALM

USCB Financial Holdings, Inc.

Critical elements of our liquidity

4 unchanged sentences

appropriate strategies,

policies, procedures, and

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

activities of

active management

liquidity and

appropriately diverse

policies, procedures,

comprehensive

funding plans

that sufficiently address

potential adverse liquidity

events and emergency

complexity and business activities of the Company;

active management of intraday liquidity and collateral;

an appropriately

and potential

future funding

highly liquid

marketable securities

legal, regulatory, or operational impediments, that

to meet liquidity

needs in stressful

comprehensive

requirements;

institution’s

liquidity risk management process.

repayment and maturity of loans and investment security

6 unchanged sentences

and borrowings

Accordingly, our liquidity resources

were at sufficient levels to fund loans and meet other cash needs as necessary.

not expect liquidity resources to be compromised at this

Accordingly, our liquidity resources were at sufficient levels to

fund loans and meet other

cash needs as necessary.

USCB Financial Holdings, Inc.

Capital Adequacy

Additionally,

we follow the

capital conservation buffer

we follow the capital

conservation buffer

framework, and according

to our actual

ratios the Bank

to our actual ratios

the Bank exceeds

capital conversation buffer

in all capital

December 31, 2021.

The following table

presents the capital

in all capital ratios

as of December

following table presents

the capital ratios

both the Bank and the Company at December 31, 2022

20 unchanged sentences

accordance with

operating results

of historical

measurement of

financial position

and operating

historical dollars,

without considering

20 unchanged sentences

respectively.

associated with delivering the Company’s services.

associated with delivering the Company’s

Recently Issued Accounting Pronouncements

2 unchanged sentences

in Note 1 “Summary

of Significant Accounting Policies”

the Consolidated Financial Statements of this Form 10-K.

of Significant Accounting

the Consolidated Financial Statements of this Annual Report

on Form 10-K.

USCB Financial Holdings, Inc.

11 unchanged sentences

as an alternative

measures that may be presented by other

The following table reconciles the non-GAAP financial measurement

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

Company believes

indicators of

the earnings power

of the Company.

The following

table reconciles

financial measurement

operating net income available to common stockholders

for the periods presented (in thousands,

except per share data):

7 unchanged sentences

Operating Net Income:

Net gains on sale of securities

effect on sale of securities

Net gain (loss) on sale of securities

on sale of securities

Operating net income

Operating PTPP Income:

Net gains on sale of securities

Net gain (loss) on sale of securities

Operating PTPP Income

3 unchanged sentences

Operating PTPP Return on average assets

Operating Return on Average Asset:

Operating Return on Average Assets:

Operating net income

3 unchanged sentences

Years Ended December 31,

Operating Net Income Available to Common Stockholders:

Adjusted Net Income Available to Common Stockholders:

Net income (GAAP)

3 unchanged sentences

Exchange and redemption of preferred shares

Operating net income avail.

to common stock (non-GAAP)

Allocation of operating net income per common stock class:

Class A common stock

Class B common stock

Adjusted net income available to common stock (non-GAAP)

Weighted average shares outstanding:

Class A common stock

Class B common stock

Class A common stock

1 unchanged sentence

Exchange and redemption of preferred shares

Operating net income per diluted share (non-GAAP)

Class B common stock

Net income per diluted share (GAAP)

Exchange and redemption of preferred shares

Operating net income per diluted share (non-GAAP)

The Company believes these non-GAAP measurements

are a key indicator of the ongoing earnings

power of the Company.

During the year ended December 31, 2021,

the Company entered into agreements with the Class

B shareholders to exchange all outstanding

Class B non-voting stock for Class A voting common

stock on a 1 for 5 reverse stock split As such,

there are no issued and outstanding shares

B common stock at December 31, 2021.

USCB Financial Holdings, Inc.

Adjusted net income available to common stockholders per diluted share (non-GAAP)

Quantitative and Qualitative Disclosures About Market Risk

As a smaller reporting company,

we are not required to provide the information required

by this item.

we are not required to provide the information required by

USCB Financial Holdings, Inc.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis