What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-11 compared with 2023-05-12 · 1248 added, 1069 removed, 467 unchanged (83% of the section changed)

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

Management's Discussion and Analysis of Financial Condition

and Results of Operations

understanding

condition and

operations of

subsidiary, for the

March 31, 2023.

condition and results

of operations of

the Company and

the Bank, its

wholly owned subsidiary,

for the quarter

and six months

This discussion

conjunction with

the unaudited

financial statements and

related footnotes included

in the Annual Report

on Form 10-K/A

(“2022 Form 10-K/A”)

the Securities and Exchange Commission (“SEC”) for the year ended December 31, 2022.

This discussion contains forward-looking

statements that involve risks, uncertainties

and assumptions that could cause

actual results to

differ materially from

management's expectations.

that could cause

such differences are

sections entitled "Forward-Looking

Statements" and Item

1A “Risk Factors"

the 2022 Form

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

unaudited consolidated

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

December 31, 2022.

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

actual results to differ materially

from management's expectations.

Factors that could cause

such differences are discussed

in the sections entitled "Forward-Looking Statements"

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

with the SEC which is available at the SEC’s website

Holdings, Inc.

Forward-Looking Statements

This Quarterly

(“Form 10-Q”)

contains statements

not historical

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

This Quarterly Report

(“Form 10-Q”) contains

statements that are

not historical in

nature and are

to be, and are hereby identified

as, forward-looking statements for

purposes of the safe harbor provided by

Section 21E of

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

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

The words “may,”

“will,” “anticipate,” “should,” “would,”

“contemplate,”

1 unchanged sentence

forward-looking statements.

forward-looking statements include,

management’s long-term

performance goals,

as statements

the anticipated

financial condition

from expected

developments or

growth strategies,

including anticipated

These forward-looking

statements include,

management’s long-term performance

statements relating

anticipated effects on

internal growth and balance sheet restructuring.

These forward-looking statements involve

significant risks and uncertainties that

could cause our actual results

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

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

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

our ability to successfully manage interest rate risk, credit

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

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

reserve and deferred tax asset valuation allowance;

the efficiency and effectiveness of our internal control environment;

our ability to

comply with the

extensive laws and

regulations to which

the efficiency and effectiveness of

our internal control procedures and processes;

extensive laws

and regulations

we are subject,

including the laws

including the

jurisdiction where we operate;

adverse changes or conditions in

capital and financial markets, including

actual or potential stresses

in the banking

adverse changes or conditions in capital and financial markets, including actual or potential stresses in

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;

legislative or regulatory

changes in accounting

principles, policies,

practices or guidelines,

the on-going effects of the implementation of the

Current Expected Credit Losses (“CECL”) standard;

a diversified

2 unchanged sentences

South Florida

market, including

geographic, depositor,

concentrations, including

our concentration

including the

of geographic,

industry concentrations,

including our

concentration

loans secured

effects of climate change;

1 unchanged sentence

fluctuations in the price of our common stock;

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

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

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

our ability to fund or access the capital markets at attractive rates

and terms and manage our growth, both organic

growth as well as growth through other means, such as

future acquisitions;

inflation, interest rate, unemployment rate, market

and monetary fluctuations;

impacts of international hostilities and geopolitical events;

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

the effectiveness of our risk management strategies, including

operational risks, including, but not limited to,

increased competition and its effect

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

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

employee, or third-party fraud and security breaches;

other risks described

10-Q, the 2022

Form 10-K/A and

other filings we

described in this

the 2022 Form

10-K/A and other

make with the

3 unchanged sentences

Q2 2023 Form 10-Q

All forward-looking

statements are

necessarily only

future results,

actual results will not

differ materially from

forward-looking

actual results will

materially from

expectations.

Therefore, you are cautioned

not to place undue

reliance on any

you are cautioned

undue reliance on

forward-looking statements.

forward-looking statements included in

this Form 10-Q

forward-looking statements

included in this

are made only

hereof, and we

undertake no obligation

revise any forward-looking

statement to reflect

events or circumstances

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

the occurrence of unanticipated events, unless required to do

so under the federal securities laws.

should also review the risk

factors described in the reports the

Company filed or

will file with

for periods prior

to the completion

holding company reorganization

in December 2021,

the Bank filed with the FDIC.

Class A common stock for

months ended March 31,

2023, compared with

net income of

$4.9 million or

$0.24 per diluted

share for Class A common

stock, respectively, for the same period in 2022.

weighted average price per share of $11.74.

The aggregate purchase

price for these transactions was approximately $5.9

repurchase under this program.

In evaluating our financial performance, the Company

considers the level of and trends

in net interest income, the net

interest margin, the cost

of deposits, levels and

composition of non-interest income

and non-interest expense, performance

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

Unless otherwise

period comparisons

bullet points

calculated for

ended March 31,

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

$16.0 million

March 31, 2022.

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

Total assets were $2.2

billion at March 31, 2023,

hereof, and we undertake

no obligation to

update or revise any

forward-looking statement to reflect events

or circumstances

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

unless required to do

so under the federal

securities laws.

should also review

the risk factors

described in the reports

the Company filed

will file with the SEC.

ended June 30, 2023 compared

to $5.3 million or

$0.26 per diluted share

of common stock for

the three months ended

for the six months

ended June 30, 2023

was $10.0 million or

$0.51 per diluted share

of common stock

compared to $10.1 million or $0.50 per diluted share of

common stock for the same period in 2022.

During the second quarter

of 2023, the Company

repurchased 77,603 shares

of Class A common stock at a

average price per share of $9.58.

The aggregate

purchase price for these transactions

was approximately $747 thousand,

including transaction costs.

Year-to-date, the Company

has repurchased

577,603 shares

weighted average

announced repurchase

172,397 shares

remain authorized for

repurchase under

this program.

In evaluating our financial

performance, the Company

considers the level of

and trends in net

interest income, the

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 June 30,

2023 compared to the quarter ended June 30,

2022 and to December 31, 2022,

comparison annualized where appropriate:

Net interest income for the three months ended

June 30, 2023 decreased $1.5 million or 9.4% to

$14.2 million from

$15.6 million for

the quarter ended

June 30, 2022.

interest income for

the six months

ended in June 30,

increased $149 thousand or 0.5% compared to the same

period ended June 30, 2022.

Net interest margin (“NIM”) was 2.73% for the three months ended June 30, 2023 compared to 3.37% for the three

months ended June 30,

NIM was 2.97% for

the six months ended

in June 30, 2023

compared to 3.30% for

the same period in 2022.

Total assets were $2.2 billion at June

30, 2023, representing an increase of $209.8

million or 10.0% from March

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

million or 10.4% from June 30,

2022 and an increase of $140.1 million or 13.5% annualized

from December 31, 2022.

Total loans were

$1.6 billion at

June 30, 2023,

representing an increase

of $223.2 million

or 16.3% from

2022 and an increase of $88.6 million or 11.9% annualized

from December 31, 2022.

Total deposits

2023, representing

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

Total deposits were $1.8 billion at March 31,

2023, representing an increase of $117.2 million or

6.8% from March

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

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

30, 2022 and an increase of $92.0 million or 10.1% annualized

from December 31, 2022.

Annualized return on

average assets for

the quarter ended

June 30, 2023

was 0.77% compared

quarter ended June 30, 2022.

Annualized return

on average assets was

0.94% for the six months

ended June 30,

2023 compared to 1.05% for the same period in 2022.

Annualized return

stockholders’

12.85% compared

ended March 31,

The allowance for credit losses to

total loans was 1.20% for

March 31, 2023 and

1.16% for December 31, 2022.

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

methodology for

the first quarter 2022.

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

total risk-based

capital ratios

respectively.

Tangible book value

per common share

2023 was negatively

affected by $2.14

tax unrealized security losses of $42.1 million at March 31, 2023.

At March 31, 2022, tangible book value of $9.60

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

security losses.

See “Reconciliation and

quarter ended

June 30, 2022.

Annualized return on

average equity was

June 30, 2023 compared to 10.54% for the same period

The ACL to total loans was 1.18%

at June 30, 2023 and

1.16% at December

ACL was calculated under

the CECL methodology

loss methodology

periods in 2022.

Non-performing loans to total loans was 0.03% at June

30, 2023 compared to 0.0% at December 31, 2022.

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

reconciliation

respectively.

negatively affected

unrealized security

securities of

$47.1 million

At June 30, 2022,

tangible book value

common share was

negatively affected

$36.9 million after tax unrealized security losses.

See “Reconciliation and Management Explanation for Non-GAAP

Financial Measures”

for a reconciliation of this non-GAAP financial measure.

Critical Accounting Policies and Estimates

consolidated financial

prepared based

the application

Significant Accounting

the Company’s

Significant Accounting Policies”

Company’s 2022 Form

financial statements

in conformity

with US GAAP,

management makes

estimates, assumptions,

and judgments

available information.

These estimates,

and judgments

affect the amounts

the financial

and judgments affect the

amounts reported in

the financial statements

and accompanying notes.

These estimates, assumptions,

and judgments are based on information

available as of the date

of the financial

statements and, as

this information changes,

actual results could

differ from the estimates,

assumptions and

and judgments are based on information available as of the date

of the financial statements and,

as this information changes, actual results

could differ from the estimates, assumptions and

judgments reflected

1 unchanged sentence

In particular,

management has

identified accounting

has identified

policies that,

the estimates, assumptions and judgments inherent

in those policies, are critical in understanding

our financial statements.

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

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

Management has presented the application of these policies to

the Audit and Risk Committee of our Board.

Allowance for Credit Losses

Measurement of Credit Losses on Financial Instruments, as

amended, which replaces the incurred loss methodology with

Significant Accounting

Policies” for

more information

the allowance

31, 2023, our

a concentration of

commercial real

estate loans.

To assess the potential impact

evaluated the impact of two scenarios:

(1) an increase in qualitative factors to simulate a maximum loss scenario and (2) a

reduction to all qualitative

factors to zero.

the first scenario, the

ACL increased by $4.6

million or 24.2% and

the second scenario the

ACL was reduced by

$1.1 million or 6.3%.

This sensitivity analysis provides

Measurement of Credit Losses

on Financial Instruments,

as amended, which replaces

the incurred loss methodology

“Summary of Significant

Accounting Policies” Item

10-Q for more information

on the adoption

326 and the allowance of credit losses.

included residential

potential impact

in qualitative

factors related

a sensitivity

Company evaluated

in calculating

expected losses on the residential loan segment.

As of June 30,

2023, for every 100 basis points increase in the

approximately

everything else being

sensitivity analysis provides

a hypothetical result

to assess the sensitivity of the ACL and does not represent a change in management’s judgement.

Deferred tax assets

and liabilities are

recognized for the

future tax consequences

attributable to differences

the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss

to assess the

sensitivity of the

and does not represent a change in management’s

liabilities are

recognized for

tax consequences

attributable to

the financial statement carrying amounts of

existing assets and liabilities and their

respective tax bases and operating loss

and tax credit carryforwards.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to

tax assets and liabilities are measured

using enacted tax rates expected to

taxable income

temporary differences

deferred tax assets and liabilities of a

change in tax rates is recognized in income

in the period that includes the enactment

Management is required to assess whether

a valuation allowance should be

established on the net deferred tax

based on the consideration of

all available evidence using

a more likely than

not standard.

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

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

consideration of

all available evidence

likely than not

evaluation, management

considers taxable

loss carry-back

availability, expectation of

sufficient taxable

income, trends

of temporary differences, and available tax planning strategies.

The Company recognizes

positions taken or

expected to be

tax return in

accordance with existing

guidance on income

taxes which prescribes

considers taxable loss

carry-back availability, expectation of sufficient taxable

income, trends in

earnings, the future

of temporary differences, and available tax planning

The Company recognizes positions taken

or expected to be

taken in a tax

return in accordance with existing accounting

which prescribes

a recognition threshold

and measurement process.

Interest and penalties

tax liabilities, if any, would be recorded in interest expense and other operating non-interest expense, respectively.

and measurement

and penalties on

tax liabilities, if any,

would be recorded in interest expense and other operating

non-interest expense, respectively.

Non-GAAP Financial Measures

This Form 10-Q

includes financial

information determined

in accordance with

generally accepted

includes financial information determined by

methods other than in

accordance with generally accepted

accounting principles (“GAAP”).

This financial information includes certain operating performance measures.

has included these non-GAAP

measures because it believes

these measures may

provide useful supplemental information

for evaluating the

Company’s underlying performance

Further, management uses these

measures in managing

the Company’s

discussions about

our operations

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

This financial

information includes certain operating performance

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

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

Operating performance measures

should be viewed in

addition to, and not

as an alternative to

or substitute for,

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

directly comparable

To the extent applicable, reconciliations of these

non-GAAP measures to the most directly

“Reconciliation

Measures” included in this Form 10-Q.

USCB Financial Holdings, Inc.

Q1 2023 Form 10-Q

Segment Reporting

Management monitors the revenue streams for all its various products and services.

The identifiable segments are not

Management monitors the revenue streams for

all its various products and services.

The identifiable segments

Accordingly, all

the financial

service operations

are considered

by management

aggregated in

one reportable

the financial service

operations are

considered by

management to be

aggregated in one

reportable operating

Results of Operations

The following tables

present selected balance

sheet, income statement,

and profitability ratios

for the dates

The following

tables present

selected balance

sheet, income

statement, and

profitability ratios

dates indicated

(in thousands, except ratios):

March 31, 2023

June 30, 2023

December 31, 2022

2 unchanged sentences

Loan amounts include deferred fees/costs.

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Consolidated Statements of Operations:

5 unchanged sentences

Net interest margin

The Company’s

operations depend

substantially on

The Company’s results

of operations depend

substantially on net

interest income and

non-interest income.

Other factors

operations include

our provision

losses, non-interest

expenses, and

contributing to the results of operations include our provision

for credit losses, non-interest expenses,

and the provision for

income taxes.

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

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

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

Three months ended June 30, 2023 compared to the three

months ended June 30, 2022

Net income decreased to

$4.2 million for the

three months ended June

30, 2023 from $5.3 million

for the same period

in 2022 mainly due to higher weighted average deposit

Six months ended June 30, 2023 compared to six months

ended June 30, 2022

Net income slightly decreased to $10.0 million for the six months

ended June 30, 2023 from $10.1 million for the same

generated from higher loan

yields and a bigger loan

portfolio, offset by a

$14.5 million increase in

interest expense mainly

due to increases in deposit cost, combined with a $1.5

million increase in non-interest expense.

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

Net Interest Income

interest-earning

interest-bearing liabilities

interest-bearing liabilities and

primary driver of

core earnings.

Interest income

from interest

and dividends

income is generated

from interest and

interest-earning

1 unchanged sentence

interest-bearing

To evaluate net interest income,

we measure and monitor (i)

yields on loans and other

interest-earning assets, (ii) the

deposits and other

funding sources,

(iii) net interest

interest margin.

spread is equal

to the difference between yields earned

on interest-earning assets and rates paid

on interest-bearing liabilities.

To evaluate net

interest income, we

measure and monitor

(i) yields on

loans and other

interest-earning assets, (ii)

costs of deposits

and other funding

sources, (iii) net

interest spread, and

(iv) net interest margin.

Net interest spread is

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

the annualized

income divided

interest-earning assets.

Because non-interest-

bearing sources of funds,

such as non-interest-bearing deposits

average interest

-earning assets.

non-interest-

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

and stockholders’

equity, also fund interest-earning

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

equity, also fund interest-earning assets,

net interest margin includes the indirect benefit of these

non-interest-bearing funding sources.

interest rates and

interest rates

interest-earning assets

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.

asset liability committee (ALCO) has in

place asset-liability management techniques to manage major factors that

interest income and net interest margin.

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

Changes in the

market interest rates

and interest rates

interest-earning assets or

pay on interest-bearing

liabilities, as

interest-earning assets

and interest-bearing

and non-interest-bearing

are usually the largest

drivers of periodic changes

in net interest spread,

net interest margin and

net interest income.

asset liability committee (“ALCO”)

has in place asset-liability

management techniques to manage

major factors that affect

net interest income and net interest margin.

The following table

contains information related

to average balance

sheet, average yields

on assets, and

average costs

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

Three Months Ended March 31,

The following

table contains

information related

balances, average

yields earned

costs of liabilities for the periods indicated (dollars in

Three Months Ended June 30,

Interest-earning assets:

1 unchanged sentence

Other interest-earnings assets

Total interest-earning

Total interest-earning assets

Non-interest-earning assets

4 unchanged sentences

Time deposits

Total interest-bearing

Total interest-bearing deposits

FHLB advances and other borrowings

Total interest-bearing

Total interest-bearing liabilities

Non-interest-bearing demand deposits

2 unchanged sentences

Stockholders' equity

Total liabilities

and stockholders' equity

Total liabilities and stockholders' equity

Net interest income

1 unchanged sentence

Net interest margin

Average balances - Daily average balances are used

to calculate yields/rates.

Average loan balances include non-accrual loans.

Interest income on loans includes accretion of deferred

loan fees, net of deferred loan costs.

At fair value except for securities held to maturity.

amount includes FHLB stock.

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

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

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

Net interest income before

the provision for

credit losses was

$16.0 million for the

three months ended

March 31, 2023,

an increase of

$1.6 million or 11.3%, from

$14.4 million for the

same period in 2022.

This increase was

primarily attributable

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

Included with loan

Interest income

are PPP interest

fees totaling $1

thousand and $1.0

months ended March 31, 2023 and 2022, respectively.

PPP loan fees are recognized upon loan forgiveness by the SBA.

quarters ended

March 31, 2023 and

was partially

higher interest-bearing

liabilities cost.

attributed to

current interest

market conditions.

on loans includes accretion of deferred loan

fees, net of deferred loan costs.

At fair value except for securities held to maturity.

This amount includes

Net interest spread is the weighted average

yield on total interest-earning assets minus the weighted

average rate on total interest-bearing liabilities.

Net interest margin is the ratio of net interest

income to average total interest-earning assets.

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

Six Months Ended June 30,

Interest-earning assets:

Investment securities

Other interest-earnings assets

Total interest-earning assets

Non-interest earning assets

Liabilities and stockholders' equity

Interest-bearing liabilities:

Interest-bearing checking

Money market and savings accounts

Time deposits

Total interest-bearing deposits

Borrowings and repurchase agreements

Total interest-bearing liabilities

Non-interest bearing demand deposits

Other non-interest-bearing liabilities

Total liabilities

Stockholders' equity

Total liabilities and stockholders' equity

Net interest income

Net interest spread

Net interest margin

Average balances - Daily average balances are used

to calculate yields/rates.

Average loan balances include non-accrual loans.

Interest income

on loans includes accretion of deferred loan fees,

net of deferred loan costs.

At fair value except for securities held to maturity.

Includes FHLB stock.

Net interest spread is the weighted average

yield on total interest-earning assets minus the weighted

average rate on total interest-bearing

Net interest margin is the ratio of net interest

income to average total interest-earning assets.

Three months ended June 30, 2023 compared to the three

months ended June 30, 2022

Net interest income before the provision

for credit losses was $14.2 million for

the three months ended June 30,

a decrease of

$1.5 million or

$15.6 million

period in 2022.

The decrease can

be attributed to

impact of higher deposit costs, which was a result to

the prevailing market interest rate conditions.

quarter ended

June 30, 2023

increase in loan yields as well as yields on other interest

-earning assets was offset by higher deposit and borrowing

Six months ended June 30, 2023 compared to six months

ended June 30, 2022

Net interest income before the provision for credit losses was $30.2 million for the six months ended June 30, 2023, an

increase of $149 thousand or 0.5%, from $30.0 million for

the same period in 2022.

Overall interest-bearing asset yields grew but were outpaced

by the increase in cost of funds.

Provision for Credit Losses

The provision for

The provision

losses represents

allowance for

credit losses

represents a charge

necessary to establish

for credit losses

management's evaluation, is

provide coverage for

management's evaluation,

credit losses.

provision for

losses is impacted

our loan portfolio,

recent historical and

projected future economic

conditions, our internal

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

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

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

recorded for the same period in 2022.

The primary driver of the provision expense in 2023 was attributable to loan growth.

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

is calculated.

The provision

variations in

securities portfolio,

recent historical

and projected

future economic

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

conditions, our internal assessment of the credit quality of

the loan and debt securities portfolios

and net charge-offs.

Three months ended June 30, 2023 compared to the three

months ended June 30, 2022

The provision for credit loss was $38 thousand for the three months

ended June 30, 2023 compared to $705 thousand

for the same period

Growth in unfunded commitments

was the primary driver

of the provision expense

three months ended June

30, 2023 period.

decrease in provision for

credit losses in the

2023 period compared to

June 30, 2022 quarter was due to greater loan growth

in second quarter 2022.

Six months ended June 30, 2023 compared to six months

ended June 30, 2022

The provision for credit

loss was $239

thousand for the six

months ended June

30, 2023 compared

to $705 thousand

for the same period in 2022.

Decrease of $466 thousand due to higher loan growth in the six months ended

June 30, 2022.

The ACL as a percentage of total loans increased to 1.18% at June 30, 2023 compared to 1.15% at June 30,

three and six months ended

June 30 2023, was estimated under

the CECL methodology, and for

in 2022, it was estimated under the incurred loss model

See “Allowance for Credit Losses”

below for further discussion on

how the ACL is calculated.

Non-Interest Income

Our services and products generate service charges and fees,

mainly from our depository accounts.

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

We also generate

income from gain on sale of

loans though our swap and SBA

In addition, we own

and are beneficiaries of the life

insurance policies on

employees and generate

income on the

increase in the

cash surrender value

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

Three Months Ended March 31,

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

In addition, we own and are beneficiaries of the life

insurance policies

employees and

generate income

surrender value

The following table presents the components of non-interest

income for the dates indicated (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

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

3 unchanged sentences

non-interest income

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

Non-interest income for

the three months

ended March 31, 2023

increased $125 thousand

or 6.4%, compared

Three months ended June 30, 2023 compared to the three

months ended June 30, 2022

Non-interest income

ended June 30,

2023 increased

$229 thousand

same period in

increase was primarily driven

by a $305 thousand

increase in fees related

to SWAP loans.

the period ended March 31, 2022 the Company recognized $161 thousand interest recovery from a prior lending customer

This payment reflected the final payment and settlement of lien judgements against the customer.

This increase

was primarily driven

by an increase

in service fees

from a larger

deposit portfolio and

$72 increase in gain on sale of loans due to higher sales

Six months ended June 30, 2023 compared to the six

months ended June 30, 2022

Non-interest income for the six months ended June 30, 2023 increased $354 thousand or 9.9%,

compared to the same

larger deposit

recognized $161

thousand interest

recovery from

lending customer

This payment reflected the final payment and settlement

of lien judgements against the customer.

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

Non-Interest Expense

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

Three Months Ended March 31,

The following table presents the components of non-interest

expense for the dates indicated (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Salaries and employee benefits

4 unchanged sentences

non-interest expense

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

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

Three months ended June 30, 2023 compared to the three

months ended June 30, 2022

Non-interest expense

ended June 30,

2023 increased

$901 thousand

same period in 2022.

was primarily driven

by higher salaries

and employee benefits

expense due to

and increased salary compensation.

USCB Financial Holdings, Inc.

Q1 2023 Form 10-Q

The increase was primarily driven by an increase in the FDIC deposit insurance assessment rate and

included in salary and employee benefits expense.

Six months ended June 30, 2023 compared to the six

months ended June 30, 2022

Non-interest expense

months ended June

30, 2023 increased

$1.5 million or

7.6%, compared

increased salary compensation and seasonal payroll taxes as well as increases

in the FDIC deposit insurance assessment

rate, and audit and tax services expense.

Provision for Income Tax

Fluctuations in the effective tax

rate reflect the effect of the

differences in the inclusion or deductibility

of certain income

and expenses for income

tax purposes.

Therefore, future decisions

on the investments we

choose will affect our

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

surrender value

of bank-owned

life insurance policies

employees, purchasing municipal

bonds, and overall levels of taxable income will be important elements in determining our effective tax rate.

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

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

was $1.9 million.

The effective tax rate for

life insurance

policies covering

key employees,

purchasing municipal

bonds, and overall levels of taxable income will be important

elements in determining our effective tax rate.

Three months ended June 30, 2023 compared to the three

months ended June 30, 2022

ended June 30,

effective tax

primarily because

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

Statements in this Form 10-Q.

same period in 2022.

Six months ended June 30, 2023 compared to the six

months ended June 30, 2022

Income tax expense

months ended June

30, 2023 decreased

to $3.2 million

from $3.6 million

period in 2022.

The Company’s effective tax rate was 24.3% for the 2023 period compared to 26.0% for the same period in

higher primarily

recorded a one-time adjustment of $300 thousand to deferred

tax assets which increased the income tax provision.

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

Analysis of Financial Condition

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

loans increased

$73.1 million,

March 31, 2023

December 31, 2022.

assets at June 30, 2023 were $2.2 billion, an increase of $140.1 million, or 13.5%

annualized, over total assets of

$2.1 billion at December 31, 2022.

loans, net of unearned fees/cost, increased $88.6 million, or 11.9

annualized, to

$1.6 billion at June 30,

2023 compared to $1.5

billion at December

deposits increased by $92.0

10.1% annualized, to $1.9 billion at June 30, 2023 compared

to December 31, 2022.

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

Investment Securities

The investment portfolio is

used and managed to

provide liquidity through cash

flows, marketability and, if

The investment portfolio

managed to provide

liquidity through cash

flows, marketability

and, if necessary,

collateral for

3 unchanged sentences

profitability

consideration the Company’s risk

appetite and tolerance, manage the

asset composition and diversification, and

consideration the Company’s

risk appetite and

tolerance, manage

the asset composition

and diversification,

adequate risk-based capital ratios.

deemed necessary,

market conditions

and/or unexpected

investment portfolio

composition is

change depending

liquidity needs

Company, and the

interest risk

conditions and/or

subject to change

depending on the

funding and liquidity

Company, and the interest risk

management objective

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

allocation of cash into securities takes into consideration anticipated

future cash flows (uses and sources) and all available

sources of credit.

Our investment portfolio consists primarily of securities issued by U.S.

government-sponsored agencies, U.S.

Our investment portfolio consists

primarily of securities issued

government-sponsored agencies,

mortgage-backed securities,

3 unchanged sentences

debt securities,

all with varying contractual maturities

Due to the optionality

embedded in these securities, the

final maturities

necessarily represent

all with varying contractual maturities and coupons.

Due to the optionality embedded in these securities, the final maturities

necessarily represent the

expected life of

the portfolio.

these securities

on capital market conditions and

expectations.

The investment portfolio

is regularly reviewed by the

Chief Financial Officer,

and the ALCO of

the Company to ensure

an appropriate risk and

return profile as well

as for adherence to

securities will be

called or paid

down depending

on capital market conditions and expectations.

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

of the Company

appropriate risk

and return profile

for adherence to

investment policy.

other-than-temporary-impairment guidance

securities, requiring

losses to be recorded as an allowance rather than through a

permanent write-down.

When evaluating AFS debt securities

under ASC Topic

326, the Company

has evaluated whether

the decline in

fair value is

attributed to credit

losses or other

interest rate

both quantitative

qualitative analyses,

including company

performance analysis,

other-than-temporary-impairment

losses to be recorded as

an allowance rather than

through a permanent write-down.

When evaluating AFS

debt securities

evaluated whether

attributed to

credit losses

review of credit

ratings, remaining payment

terms, prepayment speeds

and analysis of

macro-economic conditions.

investment is expected to

recover its price depreciations

over its holding period

as it moves to

maturity and the Company

concluded that no allowance was appropriate.

$415.8 million

$418.8 million at

December 31, 2022.

Investment securities

decreased due

Company’s profitability

the Company’s

balance sheet

duration according

ratings, remaining

payment terms,

prepayment speeds

of macro-economic

investment is expected

its price depreciations

over its holding

maturity and the

concluded that no allowance was required on AFS securities.

HTM investment

securities increased

$20.6 million, or

9.9% annualized,

to $439.4 million

from $418.8 million at December 31, 2022.

securities increased due to reinvestment of payments

investment of excess

balances into high

credit quality investments

to increase the

Company’s profitability and

market value of

$223.2 million were

pledged to secure

public deposits and

The investment portfolio

does not have

any tax-exempt securities.

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

2023, investment securities with a

market value of $83.5 million were

pledged to secure public deposits

and Fed Borrowing

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

March 31, 2023

June 30, 2023

December 31, 2022

13 unchanged sentences

Corporate bonds

The following table

shows the weighted

average yields, categorized

by contractual maturity,

for investment securities

as of March 31, 2023 (in thousands,

Allowance for credit losses - securities held-to-maturity

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

The following

average yields,

categorized by

contractual maturity,

for investment

as of June 30, 2023 (in thousands,

except ratios):

17 unchanged sentences

Corporate bonds

Loans are the largest

category of interest-earning assets on

the unaudited Consolidated Balance Sheets,

higher yields

Loans are the

largest category of

interest-earning assets

on the unaudited

Consolidated Balance

Sheets, and usually

interest-earning

typically carry

liquidity risks in comparison to lower yield assets.

The Company manages and mitigates such risks in accordance with the

liquidity risks in comparison to lower

yield assets.

The Company manages

and mitigates such risks in accordance

credit and ALM policies, risk tolerance and balance sheet composition.

1 unchanged sentence

Q2 2023 Form 10-Q

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

March 31, 2023

The following table shows the loan portfolio composition

as of the dates indicated (in thousands):

June 30, 2023

December 31, 2022

7 unchanged sentences

Allowance for credit losses

loans increased

by $73.1 million or

4.8% at March

compared to December 31,

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

approximately 62.5% of the total gross loan portfolio as of March 31, 2023.

We do not expect any significant changes over

the foreseeable

the composition

loans, net of unearned fees/cost, increased by $88.6 million,

annualized, at June 30, 2023 compared to

December 31, 2022.

The commercial and industrial, and

to a lesser extent, consumer and

other and commercial real estate

segments had the

most significant growth partially

offset by modest declines

in the residential

real estate and

correspondent

bank loan segments.

approximately

loan portfolio

on commercial

strategy since

inception has

been reflective

strategic plan

approved by the Board.

June 30, 2023.

been reflective of the market in which we operate and

of our strategic plan as approved by the Board.

commercial real estate

exposure represents loans to

commercial businesses secured by

owner-occupied

exposure represents

loans to commercial

businesses secured

by owner-occupied

experienced in

2 unchanged sentences

relationship managers

competitive metropolitan

long-term relationships

highly competitive

relationships with

senior management

2 unchanged sentences

portfolio provides

additional liquidity

repayments or

The following

table shows maturities

and sensitivity to

interest rate changes

portfolio at March 31,

liquidity due

to repayments

or unexpected

The following table shows maturities and sensitivity to

interest rate changes for the loan portfolio at June 30,

2023 (in thousands):

11 unchanged sentences

The information

the contractual

maturities of

the individual

contractual maturities

their contractual

Renewals will

department and

balance sheet

composition at

any modification

loan’s maturity.

composition at the

any modification of

the loan’s maturity.

Additionally,

1 unchanged sentence

reviewed, and analyzed by the ALCO.

Decisions on term rate modifications are discussed as well.

As of March 31,

Decisions on term

rate modifications are discussed as well.

2023, approximately

have adjustable/variable rates

The adjustable/variable rate

loans re-price to

have adjustable/variable

The adjustable/variable

different benchmarks

contractual characteristics,

material concentrations on

anniversary repricing.

Additionally, it

is important to

contractual characteristics, there are no

material concentrations on anniversary repricing.

Additionally, it is

important to note

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

loans have interest

This embedded option

protects the Company

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

interest rate

embedded option

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

of higher interest rates.

Asset Quality

Our asset quality

grading analysis estimates

the capability of

Our asset quality grading

analysis estimates the capability of

the borrower to

repay the contractual

obligation of the

repay the contractual obligation of

agreement as scheduled or at all.

The Company’s internal credit risk grading system

is based on experiences with

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

may change based

on management’s

assessment of the

results from the

risk grades are reviewed

at least once a

more frequently as

Internal credit

assessment of

annual review,

1 unchanged sentence

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:

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

The internal credit risk grades used by the Company to

assess the credit worthiness of a loan are shown below:

– 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

– 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.

– 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

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.

– Loans classified as substandard are inadequately protected

by the current net worth and paying

capacity of the obligator or of the collateral pledged, if

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.

– 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

institution will sustain some loss if the deficiencies are

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

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

– Loans classified as loss are considered uncollectible.

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

March 31, 2023

Loan credit exposures by internally assigned grades are

as follows for the dates indicated (in thousands):

June 30, 2023

Special Mention

14 unchanged sentences

Non-Performing Assets

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

March 31, 2023

The following table presents non-performing assets

as of the dates shown (in thousands,

except ratios):

June 30, 2023

December 31, 2022

6 unchanged sentences

Non-performing loans to total loans

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

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

Non-performing

restructured,

reasonably uncertain are placed on a non-accrual status.

determination is based on current existing facts concerning

reasonably uncertain are

placed on a non-accrual

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.

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

the collection of the full contractual balance is unlikely,

loan is placed on non-accrual to avoid overstating the

Company’s income for a loan with increased credit

non-accrual status as of

the date it becomes

90 days past due and

remains in non-accrual

status until it

meets the criteria

principal and interest payments for

a period of six months

and the Company has a

documented expectation of repayment

of the remaining contractual principal and interest or the loan becomes secured and in the process of collection.

status until it meets

for restoration to accrual status.

Residential loans, on

the other hand, are placed

on non-accrual status when

the principal

non-accrual status

until it meets

principal and interest

payments for a

period of six

months and the

Company has a

documented expectation

of the remaining contractual principal and interest or the

loan becomes secured and in the process of collection.

difficulties.

determination

accordance with the

original terms of

line of credit.

The concessions are

debtor in various

including interest

rate reductions,

principal forgiveness,

maturity date,

waiver, or deferral

accordance with

The concessions

various forms,

including interest rate

reductions, principal forgiveness, extension

of maturity date,

waiver, or deferral of

payments and other

concessions intended to minimize potential losses.

For further discussion on non-performing loans and borrowers experiencing financial difficulties, see Note 3 “Loans” to

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

For further discussion on non-performing loans

and borrowers experiencing financial difficulties,

see Note 3 “Loans” to

the unaudited Consolidated Financial Statements of this

Allowance for Credit Losses

On January 1,

the Company adopted FASB

ASU 2016-13, which introduced

the current expected credit

2023, the Company

which introduced the

current expected

credit losses

(CECL) methodology

expected credit

the remaining

expected future credit losses on outstanding loans.

Additionally, qualitative adjustments are made to the ACL when,

Additionally,

qualitative adjustments are made to the ACL when, based

calculations.

See Note 3 “Loans” for more information on the allowance for credit losses on this Form 10-Q.

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

The following table presents

ACL and net charge-offs to

average loans by type

for the periods indicated

(in thousands):

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

type for the periods indicated (in thousands):

and Industrial

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

Beginning balance

Provision for credit losses

Ending Balance

Average loans

Net charge-offs to average loans

Six Months Ended June 30, 2023

Beginning balance

Cumulative effect of adoption of accounting

3 unchanged sentences

Net charge-offs to average loans

Impact of CECL adoption as of January 1, 2023

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

(1) Provision for credit losses excludes $62 thousand expense due to unfunded commitments included in other liabilities and $19

thousand expense due to investment securities held to maturity.

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

(3) Provision for credit losses excludes $22 thousand release due to unfunded commitments included in other liabilities and $19

thousand expense due to investment securities held to maturity.

and Industrial

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

Beginning balance

3 unchanged sentences

Net charge-offs to average loans

Six Months Ended June 30, 2022

Beginning balance

Provision for credit losses

Ending Balance

Average loans

Net charge-offs to average loans

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

Bank-Owned Life Insurance

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

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

Changes in cash surrender value are

recorded to non-interest income in the unaudited

Consolidated Statements of

The Company had BOLI

policies with five insurance carriers.

The Company is the beneficiary

of these policies.

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

Through our network of banking centers, we

offer a competitive

array of deposit

accounts and treasury

management services designed

customers’ business

As of June 30,

2023, the combined

cash surrender

value of all bank-owned

life insurance (“BOLI”)

policies was $43.3

Changes in cash surrender value are recorded to non-interest income in the unaudited Consolidated Statements of

The Company had BOLI policies with five insurance carriers.

The Company is the beneficiary of these policies.

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

small-to-medium

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

The following table presents the

daily average balance and

average rate paid on deposits

by category for the

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

relationships of the employees of these businesses.

The following table

presents the daily

average balance

and average rate

paid on deposits

by category for

presented (in thousands, except ratios):

Three Months Ended March 31,

Three Months Ended June 30,

Average Balance

4 unchanged sentences

Time deposits

USCB Financial Holdings, Inc.

Q1 2023 Form 10-Q

granular deposit

portfolio with

outstanding balances

commercial deposits,

collateralized.

with outstanding

balances comprised

in commercial

deposits, 11%

partially collateralized

brokered deposits.

quarter ended June 30, 2023, the Company acquired

$50 million in brokered deposits to boost liquidity.

The Company has

approximately 20 thousand deposits accounts with the majority in personal

approximately 13 thousand or 64.4%.

approximately

thousand deposits accounts with the

majority in personal accounts, approximately

12 thousand or 64.4%.

deposits adjusted

collateralized portion

compared to December 31, 2022

and below the 2022 average.

The estimated average account

size of our deposit portfolio

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

accounts at the

Company per account

Total estimated uninsured deposits adjusted for

collateralized public deposits

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

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

March 31, 2023

Company also offers

Insured Cash Sweep (“ICS”) and Certificate

Deposit Account Registry Service (“CDARS”)

products to fully insure our clients.

accounts at the Company per

account holder.

total estimated amount of uninsured

deposits is 53.2% or $1.0 billion

June 30, 2023.

The following table shows scheduled maturities of uninsured

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

June 30, 2023

Three months or less

3 unchanged sentences

Other Liabilities

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

The Company collects from commercial loan customers

funds which are held in escrow for future payment of

estate taxes and insurance.

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

These escrow funds are disbursed

by the Company directly to the insurance companies

taxing authority of the borrower.

Escrow funds are recorded as other liabilities.

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

As of June 30, 2023 escrow balances totaled $12.1 million

compared to $3.5 million at December 31, 2022

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

we are eligible

to obtain advances

with various terms

advances with

various terms

and conditions.

accessibility of

additional funding allows us

to efficiently and timely

meet both expected and unexpected

outgoing cash flows and

needs without adversely affecting either daily operations or the financial condition of the Company.

March 31, 2023,

$120.0 million

of fixed-rate

advances outstanding

This accessibility

additional funding allows us to efficiently and timely meet both expected

and unexpected outgoing cash flows and collateral

needs without adversely affecting either daily operation

or the financial condition of the Company.

As of June 30, 2023, we

had $87.0 million of fixed-rate

advances outstanding from

the FHLB with a weighted average

rate of 3.06%.

Maturity dates for

the advances are

between third quarter

2023 and third

quarter 2025 as

detailed in the

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

Maturity dates for the advances range between

2023 to 2028 detailed in the table below.

The following table presents the FHLB fixed rate advances

as of June 30, 2023 (in thousands):

Interest Rate

Maturity Date

March 27, 2025

August 17, 2023

July 30, 2024

March 27, 2025

July 18, 2025

August 17, 2023

December 22, 2023

January 24, 2028

correspondent

fluctuations in our daily

cash balances.

March 31, 2023, there were

no outstanding balances with

the Fed Funds lines

April 25, 2028

Federal Funds

correspondent banks,

Discount Window

fluctuations in

June 30, 2023,

were no outstanding balances with any of these sources.

Off-Balance Sheet Arrangements

various financial transactions

in our operations

in various financial

transactions in

our operations

that, under GAAP,

included on the

meet the financing needs of our customers we may

include commitments to extend credit and standby letters of

commitments involve

credit, market,

USCB Financial Holdings, Inc.

Q1 2023 Form 10-Q

meet the financing needs

of our customers we may

include commitments to extend

credit and standby letters

involve elements

amount recognized

balance sheet.

more conservative

collateral policies

commitments than we

do for on-balance

conservative credit

and collateral

commitments than

on-balance sheet

are not aware

of any accounting

incurred by funding

these commitments;

-balance sheet

recorded under

liabilities on the unaudited Consolidated Balance Sheets.

Since commitments associated

with letters of

credit and commitments

to extend credit

may expire unused,

Since commitments associated with letters of

credit and commitments to extend

credit may expire unused, the

requirements.

commitments outstanding as of the dates indicated (in thousands

March 31, 2023

June 30, 2023

December 31, 2022

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Standby and commercial letters of credit

Commitments to extend credit are agreements to

lend funds to a client, as long as

there is no violation of any condition

contract, for

Commitments generally

other termination

commitments are

expire without being fully

drawn, the total commitment

amounts disclosed above do

not necessarily represent future

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

fully drawn, the

total commitment

amounts disclosed

necessarily represent

requirements.

Unfunded lines of credit represent unused

portions of credit facilities to our

current borrowers that represent no change

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

of credit generally have variable interest

The maximum potential amount

payments we could

be required to

make is represented

by the contractual

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 party.

the event of nonperformance by the client in accordance with the terms of the agreement with the third party,

required to fund the

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 third party,

required to fund

the commitment.

If the commitment

is funded, we would

be entitled to seek

recovery from the client

the underlying

collateral, which

commercial real

estate, physical

is funded, we

would be entitled

recovery from

the client from

the underlying collateral,

which can include

commercial real estate,

physical plant and

property, inventory, receivables, cash

or marketable securities.

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

Asset and Liability Management Committee

management and

liability management

Senior management is responsible

for ensuring that Board

approved strategies, policies, and

procedures for managing and

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

Senior management is responsible for ensuring that Board

approved strategies, policies, and procedures for managing and

mitigating risks are appropriately executed within the designated

lines of authority and responsibility in a timely manner.

establishment,

implementation,

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

While some degree of

IRR (“Interest Rate Risk”)

mitigation strategies, ALM related policies, ALCO procedures

and risk tolerances and appetite.

degree of IRR

(“Interest Rate Risk”)

is inherent to the

banking business, we believe

our ALCO has put

place sound risk management practices to identify, quantify,

monitor, and limit IRR exposures.

banking business,

we believe our

place sound risk management practices to identify,

quantify, monitor,

and limit IRR exposures.

When assessing

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balance sheet,

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

Income simulations are

assess the impact

of changing rates

on earnings under

reduced earnings or outright losses could adversely affect

the Company’s liquidity,

performance, and capital adequacy.

Income simulations

earnings under

different rates

5 unchanged sentences

interest rates,

non-parallel changes such as

changing slopes (flat and

steeping) and twists of

the yield curve.

simulation models are

based on current

exposures and assume

a constant balance

sheet with no

simulation analysis is

utilized to have a more comprehensive assessment

This simulation relies on

detailed assumptions outlined in our

budget and strategic plan,

and in assumptions regarding

changes in existing lines

of business, new business,

strategies and client expected behavior.

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.

simulation relies on detailed assumptions outlined in

management strategies and client expected behavior.

scenarios (parallel and non-parallel).

economic value approach focuses on

a longer-term time horizon and

future cash flows expected from existing assets and liabilities.

The economic value model utilizes a static approach in

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

future cash flows expected

from existing assets and

value model utilizes a

static approach in that

incorporate new

balance sheet.

USCB Financial Holdings, Inc.

Q1 2023 Form 10-Q

Market and Interest Rate Risk Management

According to our

ALCO model, as

2023, we were

a liability sensitive

Bank for year

one modeling and

sensitive for year two modeling.

Asset sensitivity indicates that our assets generally reprice faster than our liabilities, which

a favorable impact

interest income when

market interest rates

According to our ALCO

model, as of June

30, 2023, we had

a neutral balance sheet

for year one modeling

sensitive balance

sheet for year

two modeling.

Asset sensitivity indicates

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

favorable impact to

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,

interest rates decrease.

Many assumptions are

used to calculate

the impact of

interest rate

variations on

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,

such as asset

prepayment speeds, non-maturity

deposit price sensitivity,

pricing correlations, deposit

truncations and decay rates, and key interest rate drivers

Because of the inherent use

of these estimates and

assumptions in the model,

our actual results may,

and most likely

will, differ from static measures results.

In addition, static measures like EVE do not include actions that management may

undertake to manage the risks in response

to anticipated changes in interest rates

or client deposit behavior.

In addition, static measures like EVE

do not include actions that management

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

As part of our

management has

balance sheet

either increase

asset duration

decrease liability duration to

reduce asset sensitivity,

or to decrease asset

duration and increase liability

duration in order

decrease liability

duration to reduce

asset sensitivity,

or to decrease

asset duration and

increase liability duration

to increase asset sensitivity.

According to our model, as of March 31, 2023, NIM most likely will decrease for year one and should increase for year

two under static rate

scenarios (-400 basis points

or +400 basis points).

For the static forecast

in year one, the

NIM will decrease

from the base case

a +400 basis points

According to our

June 30, 2023,

NIM most likely

will remain neutral

and should increase

year two under static

rate scenarios (an

increase or decrease

static forecast in

year one, the

estimated NIM

will decrease

base case scenario

points scenario.

Additionally,

utilizing an EVE approach,

we analyze the

risk to capital

approach, we analyze

the risk to capital

from the effects

1 unchanged sentence

rate scenarios through

a long-term discounted cash

cash flow model.

This measures

the difference

between the economic

assets and the

economic value of

our liabilities,

liquidation value.

sheet composition,

expected, our

model stipulates

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

Results and analysis

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

collateral obligations

reasonable cost.

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.

economic value

of our assets

and the economic

liabilities, which is

our liquidation value.

According to our

balance sheet composition, and

as expected, our

stipulates that an increase

in rates will have a

negative impact on the EVE

and lower rates, a

positive impact.

analysis are presented quarterly to the ALCO, and strategies

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

Liquidity is defined

as a Company’s

capacity to meet

collateral obligations at

a reasonable cost.

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

Liquidity risk

2 unchanged sentences

obligations as

because of an

inability to liquidate

assets or obtain

relatively adequate funding.

The Company’s obligations,

and the funding

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.

outflows, management

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

and off-balance sheet obligations.

regularly monitors

situations that

increased liquidity

These include

funding mismatches, market

constraints on the

ability to convert

assets (particularly investments)

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

include funding

mismatches, market

constraints on

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

cybersecurity risk,

an unexpected

the Company’s

liquidity risk

the assessment of liquidity and the ALM framework.

Management has

established a

comprehensive and

holistic management

identifying, measuring,

integrated into our risk management processes, Contingency Funding Plan and ALM policy.

Critical elements of

our liquidity risk

management include:

corporate governance consisting

of oversight by

active involvement

strategies, policies,

procedures, and

Management has established

a comprehensive and

holistic management process for

identifying, measuring, monitoring

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

appropriate strategies, policies,

procedures, and limits

used to identify

and mitigate liquidity risk;

comprehensive liquidity risk

measurement and monitoring systems

(including assessments of

current and prospective cash flows

or sources and uses of

funds) that are commensurate with

the complexity and business

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

management of intraday

liquidity and collateral;

an appropriately

active management

liquidity and

appropriately diverse

comprehensive

funding plans

that sufficiently

address potential

adverse liquidity

emergency cash

flow requirements;

that sufficiently address

potential adverse liquidity

events and emergency

requirements;

institution’s

repayment and maturity of loans and investment security

Other potential funding sources include

federal funds

purchased, brokered

listing services

Funding Program,

Atlanta discount

and borrowings

our liquidity

resources are

fund loans and meet other cash needs as necessary.

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

repayment and maturity of loans and investment security cash flows.

Other potential funding sources include federal funds

purchased, brokered certificates

of deposit, listing

certificates of deposit,

The Bank Term Funding Program, and

from the FHLB.

Accordingly, our liquidity resources were adequate

to fund loans and meet other

cash needs as necessary.

Capital Adequacy

March 31, 2023,

capitalized under

prompt corrective

action framework.

follow the capital conservation buffer framework, and as of March

31, 2023, we exceeded the capital conversation buffer

ratios, according

actual ratios.

The following

table presents

indicated (in thousands,

except ratios).

well capitalized

follow the capital conservation

buffer framework,

and as of June

exceeded the capital

conversation buffer

indicated (in thousands, except ratios).

Minimum Capital

2 unchanged sentences

Action Provisions

March 31, 2023

June 30, 2023

risk-based capital

7 unchanged sentences

Leverage ratio

The Company is not subject to capital

ratios imposed by Basel III on bank

holding companies because the Company is

The Company is not subject to capital ratios imposed by Basel III on bank holding companies because the Company is

deemed to be a small bank holding company.

Impact of Inflation

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.

impact of inflation is reflected in the

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.

impact of inflation is reflected

increased cost of operations.

Unlike most industrial companies, nearly all our assets and liabilities

are monetary in nature.

interest rates have

a greater impact

on our performance

effects of general

levels of inflation.

of high inflation are often

accompanied by relatively higher interest rates,

and periods of low inflation

are accompanied by

Unlike most industrial companies,

nearly all our assets and

liabilities are monetary in

interest rates have a

greater impact on our

performance than do the

effects of general levels

of inflation.

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,

rise or fall in relation

to the rates earned

on loans and investments,

respectively.

1 unchanged sentence

Recently Issued Accounting Pronouncements

Recently issued accounting pronouncements are discussed in Note 1

“Summary of Significant Accounting Policies” to

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

Recently issued accounting

pronouncements are discussed

in Note 1 “Summary

of Significant Accounting

the unaudited Consolidated Financial Statements in this

USCB Financial Holdings, Inc.

Q2 2023 Form 10-Q

Reconciliation and Management Explanation of Non-GAAP Financial Measures

supplemental information for evaluating

the Company’s underlying

performance trends.

management uses these

Reconciliation and Management Explanation of Non

-GAAP Financial Measures

supplemental information

for evaluating

the Company’s

underlying performance

management uses

operations and performance.

Operating performance

measures should be viewed

in addition to, and

not as an alternative

substitute for,

measures determined

in accordance

necessarily comparable

measures that may be

presented by other companies.

The following table reconciles

the non-GAAP financial

of operating net income available

to common stockholders for the

periods presented (in thousands, except

per share data):

measures should be

viewed in addition

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,

except per share data):

USCB Financial Holdings, Inc.

12 unchanged sentences

Net gains (losses) on sale of securities

on sale of securities

Tax effect on sale of securities

Operating net income

17 unchanged sentences

Non-interest income

Net gains (losses) on sale of securities

Net gains (losses) on sale of

Operating revenue

Operating Efficiency Ratio:

Total non-interest

Total non-interest expense

Operating revenue

Operating efficiency ratio

The Company believes these non-GAAP measurements are

key indicators of the ongoing earnings power

of the Company.

USCB Financial Holdings, Inc.

5 unchanged sentences

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

Total stockholders'

Total stockholders' equity

Intangible assets

Tangible stockholders'

Tangible stockholders' equity

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

Total common shares

issued and outstanding

Tangible book value

per common share

Total common shares issued and outstanding

Tangible book value per common share

Operating diluted net income per common share:

Operating net income

Total weighted average

diluted shares of common stock

Total weighted average diluted shares of common stock

Operating diluted net income per common share:

Tangible Common Equity/Tangible

Tangible stockholders'

Tangible Common Equity/Tangible Assets

Tangible stockholders' equity

Tangible assets

Tangible Common

Equity/Tangible

The Company believes these non-GAAP measurements are key indicators of the ongoing earnings power of the Company.

Excludes the dilutive effect, if any, of

shares of common stock issuable upon exercise of outstanding stock options.

Tangible Common Equity/Tangible

The Company believes these non-GAAP measurements are

key indicators of the ongoing earnings power

of the Company.

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

of outstanding stock options.

USCB Financial Holdings, Inc.

1 unchanged sentence

Quantitative and Qualitative Disclosures About Market Risk

As a smaller reporting company, we are not required to provide the information required by this item.

As a smaller reporting company,

we are not required to provide the information required by

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-Q

Item 2. Management’s Discussion and Analysis