USCB FINANCIAL HOLDINGS, INC. 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis is designed to provide a better understanding of the consolidated financial condition and results of operations of the Company and the Bank, its wholly owned subsidiary, as of and for the three months ended March 31, 2025. This discussion and analysis is best read in conjunction with the unaudited consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q (“Form 10-Q”) and the audited consolidated financial statements and related notes included in the Annual Report on Form 10-K (“2024 Form 10-K”) filed with the Securities and Exchange Commission (“SEC”) for the year ended December 31, 2024. This discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management's expectations. Factors that could cause such differences are discussed in the sections entitled "Forward-Looking Statements" and Item 1A “Risk Factors" below in Part II hereof and in the 2024 Form 10-K filed with the SEC which is available at the SEC’s website www.sec.gov. Throughout this document, references to “we,” “us,” “our,” and “the Company” generally refer to USCB Financial Holdings, Inc. Forward-Looking Statements This Form 10 -Q contains statements that are not historical in nature are intended to be, and are hereby identified as, forward-looking statements for purposes of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934, as amended. The words “may,” “will,” “anticipate,” “could,” “should,” “would,” “believe,” “contemplate,” “expect,” “aim,” “plan,” “estimate,” “continue,” and “intend,” as well as other similar words and expressions of the future, are intended to identify forward-looking statements. These forward-looking statements include statements related to our projected growth, anticipated future financial performance, and management’s long-term performance goals, as well as statements relating to the anticipated effects on results of operations and financial condition from expected developments or events, or business and growth strategies, including anticipated internal growth. These forward-looking statements involve significant risks and uncertainties that could cause our actual results to differ materially from those anticipated in such statements. Potential risks and uncertainties include, but are not limited to: • the strength of the United States economy in general and the strength of the local economies in which we conduct operations; • our ability to successfully manage interest rate risk, credit risk, liquidity risk, and other risks inherent to our industry; • the accuracy of our financial statement estimates and assumptions, including the estimates used for our credit loss reserve and deferred tax asset valuation allowance; • the efficiency and effectiveness of our internal control procedures and processes; • our ability to comply with the extensive laws and regulations to which we are subject, including the laws for each jurisdiction where we operate; • adverse changes or conditions in capital and financial markets, including actual or potential stresses in the banking industry; • deposit attrition and the level of our uninsured deposits; • legislative or regulatory changes and changes in accounting principles, policies, practices or guidelines, including the on-going effects of the Current Expected Credit Losses (“CECL”) standard; • the lack of a significantly diversified loan portfolio and the concentration in the South Florida market, including the risks of geographic, depositor, and industry concentrations, including our concentration in loans secured by real estate, in particular, commercial real estate; • the effects of climate change; • the concentration of ownership of our common stock; • fluctuations in the price of our common stock; • our ability to fund or access the capital markets at attractive rates and terms and manage our growth, both organic growth as well as growth through other means, such as future acquisitions; • inflation, interest rate, unemployment rate, market and monetary fluctuations; • the effects of potential new or increased tariffs and trade restrictions; • impacts of international hostilities and geopolitical events; • increased competition and its effect on the pricing of our products and services as well as our interest rate spread and net interest margin; • the loss of key employees; • the effectiveness of our risk management strategies, including operational risks, including, but not limited to, client, employee, or third-party fraud and security breaches; and • other risks described in this Form 10-Q, the 2024 Form 10-K and other filings we make with the SEC. Table of Contents 30 USCB Financial Holdings, Inc. Q1 2025 Form 10-Q All forward-looking statements are necessarily only estimates of future results, and there can be no assurance that actual results will not differ materially from expectations. Therefore, you are cautioned not to place undue reliance on any forward-looking statements. Further, forward-looking statements included in this Form 10-Q are made only as of the date hereof, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, unless required to do so under the federal securities laws. You should also review the risk factors described in the 2024 Form 10-K and in the reports the Company filed or will file with the SEC. Overview The Company reported net income of $7.7 million or $0.38 per diluted share of common stock for the three months ended March 31, 2025 compared to $4.6 million or $0.23 per diluted share of common stock for the three months ended March 31, 2024. On January 21, 2025, the Company’s Board of Directors declared a quarterly cash dividend of $0.10 per share on the Company’s Class A common stock. The dividend was paid on March 5, 2025 to shareholders of record at the close of business on February 14, 2025. The aggregate amount distributed in connection with the quarterly cash dividend paid was $2.0 million. 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 and borrowings, 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 at or for the quarter ended March 31, 2025 compared to at or for the quarter ended March 31, 2024 and as of December 31, 2024 and annualized where appropriate: • Net interest income for the three months ended March 31, 2025 increased $4.0 million or 26.1% to $19.1 million from $15.2 million for the quarter ended March 31, 2024. • Net interest margin (“NIM”) was 3.10% for the three months ended March 31, 2025 compared to 2.62% for the three months ended March 31, 2024. • Total assets were $2.68 billion at March 31, 2025, representing an increase of $188.2 million or 7.6% from March 31, 2024 and an increase of $96.2 million or 15.1% annualized from December 31, 2024. • Total loans (net of deferred cost/fees) were $2.04 billion at March 31, 2025, representing an increase of $215.0 million or 11.8% from March 31, 2024 and an increase of $63.4 million or 13.0% annualized from December 31, 2024. • Total deposits were $2.31 billion at March 31, 2025, representing an increase of $206.8 million or 9.8% from March 31, 2024 and an increase of $135.6 million or 25.3% annualized from December 31, 2024. • Annualized return on average assets for the quarter ended March 31, 2025 was 1.19% compared to 0.76% for the quarter ended March 31, 2024. • Annualized return on average stockholders’ equity for the quarter ended March 31, 2025 was 14.15% compared to 9.61% for quarter ended March 31, 2024. • The ACL to total loans was 1.22% at both March 31, 2025 and December 31, 2024. • Non-performing loans to total loans was 0.20% at March 31, 2025 and 0.14% at December 31, 2024. • At March 31, 2025, the total risk -based capital ratios for the Company and the Bank were 13.72% and 13. 65%, respectively. • Tangible book value per common share (a non-GAAP measure) was $11.23 at March 31, 2025, representing an increase of $0.42 or 15.6% annualized from $10.81 at December 31, 2024. At March 31, 2025, tangible book value per common share was negatively affected by $2.05 due to an accumulated comprehensive loss of $41.1 million. At December 31, 2024, tangible book value per common share was negatively affected by $2.24 due to an accumulated comprehensive loss of $44.5 million. See “Reconciliation and Management Explanation for Non-GAAP Financial Measures” included in this Form 10-Q for a reconciliati on of this non-GAAP financial measure. Table of Contents 31 USCB Financial Holdings, Inc. Q1 2025 Form 10-Q Critical Accounting Policies and Estimates The consolidated financial statements are prepared based on the application of U.S. GAAP, the most significant of which are described in Note 1 “Summary of Significant Accounting Policies” in the Company’s 2024 Form 10-K and “Summary of Significant Accounting Policies” in Part I in this Form 10-Q . To prepare financial statements in conformity with US GAAP, management makes estimates, assumptions, and judgments based on available information. These estimates, assumptions, and judgments affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements and, as this information changes, actual results could differ from the estimates, assumptions and judgments reflected in the financial statements. In particular, management has identified accounting policies that, due to the estimates, assumptions and judgments inherent in those policies, are critical to an understanding of our financial statements. Management has presented the application of these policies to the Audit and Risk Committee of our Board of Directors. Non-GAAP Financial Measures This Form 10-Q includes financial information determined by methods other than in accordance with generally accepted accounting principles (“GAAP”). This financial information includes certain operating performance measures. Management has included these non-GAAP measures because it believes these measures may provide useful supplemental information for evaluating the Company’s underlying performance trends. Further, management uses these measures in managing and evaluating the Company’s business and intends to refer to them in discussions about our operations and performance. Operating performance measures should be viewed in addition to, and not as an alternative to or substitute for, measures determined in accordance with GAAP, and are not necessarily comparable to non-GAAP measures that may be presented by other companies. To the extent applicable, reconciliations of these non-GAAP measures to the most directly comparable GAAP measures can be found in the section “Reconciliation and Management Explanation of Non-GAAP Financial Measures” included in this Form 10-Q. Segment Reporting Management monitors the revenue streams for all its various products and services. The identifiable segments are not material and operations are managed and financial performance is evaluated on an overall Company-wide basis. Accordingly, all the financial service operations are considered by management to be aggregated in one reportable operating segment. Results of Operations General The following tables present selected balance sheet, income statement, and profitability ratios for the dates indicated (in thousands, except ratios): March 31, 2025 December 31, 2024 Consolidated Balance Sheets: Total assets $ 2,677,382 $ 2,581,216 Total loans (1) $ 2,036,212 $ 1,972,848 Total deposits $ 2,309,569 $ 2,174,004 Total stockholders' equity $ 225,088 $ 215,388 (1) Loan amounts include deferred fees/costs. Table of Contents 32 USCB Financial Holdings, Inc. Q1 2025 Form 10-Q Three Months Ended March 31, 2025 2024 Consolidated Statements of Operations: Net interest income before provision for credit losses $ 19,115 $ 15,158 Total non-interest income $ 3,716 $ 2,464 Total non-interest expense $ 12,052 $ 11,174 Net income $ 7,658 $ 4,612 Profitability: Efficiency ratio 52.79% 63.41% Net interest margin 3.10% 2.62% The Company’s results of operations depend substantially on the levels of our net interest income and non-interest income. Other factors contributing to the results of operations include our provision for credit losses, the level of non-interest expense, and the provision for income taxes. Three months ended March 31, 2025 compared to the three months ended March 31, 2024 Net income increased to $7.7 million for the three months ended March 31, 2025 from $4.6 million for the same period in 2024. The $3.0 million or 66% increase in net income was attributable to higher interest income from a larger loan portfolio and increased activity in fee generating transactions (gain on sale of SBA 7a loans, prepayment penalties, title insurance income) between periods. Net Interest Income Net interest income is the difference between interest earned on interest-earning assets and interest paid on interest- bearing liabilities and is the primary driver of core earnings. Interest income is generated from interest and dividends on interest-earning assets, including loans, investment securities and other short-term investments. Interest expense is incurred from interest paid on interest-bearing liabilities, including interest-bearing deposits, FHLB advances and other borrowings. To evaluate net interest income, we measure and monitor (i) yields on loans and other interest-earning assets, (ii) the costs of deposits and other funding sources, (iii) net interest spread, and (iv) net interest margin. Net interest spread is equal to the difference between yields earned on interest-earning assets and rates paid on interest-bearing liabilities. Net interest margin is equal to the annualized net interest income divided by average interest -earning assets. Because non-interest- bearing sources of funds, such as non-interest-bearing deposits and stockholders’ equity, also fund interest-earning assets, net interest margin includes the indirect benefit of these non-interest-bearing funding sources. Changes in market interest rates and interest rates we earn on interest-earning assets or pay on interest-bearing liabilities, as well as the volume and types of interest-earning assets and interest-bearing and non-interest-bearing liabilities, are usually the largest drivers of periodic changes in net interest spread, net interest margin and net interest income. Our asset liability committee (“ALCO”) has in place asset-liability management techniques to manage major factors that affect net interest income and net interest margin. Table of Contents 33 USCB Financial Holdings, Inc. Q1 2025 Form 10-Q The following table contains information related to average balances, average yields earned on assets, and average costs of liabilities for the periods indicated (dollars in thousands): Three Months Ended March 31, 2025 2024 Average (1) Balance Interest Yield/Rate (2) Average (1) Balance Interest Yield/Rate (2) Assets Interest-earning assets: Loans (3) $ 1,986,856 $ 30,245 6.17% $ 1,781,528 $ 26,643 6.01% Investment securities (4) 436,935 3,024 2.81% 419,989 2,811 2.69% Other interest-earnings assets 75,182 709 3.82% 125,244 1,433 4.60% Total interest-earning assets 2,498,973 33,978 5.51% 2,326,761 30,887 5.34% Non-interest-earning assets 107,620 109,342 Total assets $ 2,606,593 $ 2,436,103 Liabilities and stockholders' equity Interest-bearing liabilities: Interest-bearing checking $ 53,611 338 2.56% $ 53,344 369 2.78% Saving and money market deposits 1,199,027 9,335 3.16% 1,097,575 10,394 3.81% Time deposits 399,509 3,918 3.98% 322,912 3,294 4.10% Total interest-bearing deposits 1,652,147 13,591 3.34% 1,473,831 14,057 3.84% FHLB advances and other borrowings 138,944 1,272 3.71% 164,187 1,672 4.10% Total interest-bearing liabilities 1,791,091 14,863 3.37% 1,638,018 15,729 3.86% Non-interest-bearing demand deposits 563,040 574,760 Other non-interest-bearing liabilities 32,957 30,233 Total liabilities 2,387,088 2,243,011 Stockholders' equity 219,505 193,092 Total liabilities and stockholders' equity $ 2,606,593 $ 2,436,103 Net interest income $ 19,115 $ 15,158 Net interest spread (5) 2.14% 1.48% Net interest margin (6) 3.10% 2.62% (1) Average balances - Daily average balances are used to calculate yields/rates. (2) Annualized. (3) Average loan balances include deferred fees/costs and non-accrual loans. Interest income on loans includes accretion of deferred loan fees, net of deferred loan costs. (4) At fair value except for securities held to maturity. This amount includes FHLB stock. (5) Net interest spread is the weighted average yield on total interest-earning assets minus the weighted average rate on total interest-bearing liabilities. (6) Net interest margin is the ratio of net interest income to average total interest-earning assets. Three months ended March 31, 2025 compared to the three months ended March 31, 2024 Net interest income before the provision for credit losses was $19.1 million for the three months ended March 31, 2025, an increase of $4.0 million or 26.1%, from $15.2 million for the same period in 2024. This increase was primarily attributable to higher income from a larger loan portfolio combined with an increase in the weighted average loan yield. Net interest margin (“NIM”) was 3.10% for the three months ended March 31, 2025 and 2.62% for the same period in 2024. NIM expansion of 48 basis points was due to increases in both loan yields and the average balance of interest-earning assets, and also a decrease on rates paid on interest-bearing liabilities between periods. Provision for Credit Losses The provision for credit losses represents a charge to earnings necessary to maintain an allowance for credit losses that, in management's evaluation, is adequate to provide coverage for all expected credit losses. The provision for credit losses is impacted by variations in the size and composition of our loan and debt securities portfolio, recent historical and projected future economic conditions, our internal assessment of the credit quality of the loan and debt securities portfolios and net charge-offs. Three months ended March 31, 2025 compared to the three months ended March 31, 2024 Table of Contents 34 USCB Financial Holdings, Inc. Q1 2025 Form 10-Q The provision for credit loss was $681 thousand for the three months ended March 31, 2025 compared to $410 thousand for the same period in 2024. Growth in the loan portfolio was the primary driver of the increase in the provision expense, and to a lesser degree the slight deterioration in the economic forecast under the CECL methodology to calculate the ACL during the three months ended March 31, 2025. Non-Interest Income Our services and products generate service charges and fees, mainly from our depository accounts. We also generate income from gain on sale of loans though our swap and SBA loan programs. In addition, we own and are beneficiaries of the life insurance policies on some of our employees, which policies generate income from the increase in the cash surrender values. The following table presents the components of non-interest income for the dates indicated (in thousands): Three Months Ended March 31, 2025 2024 Service fees $ 2,331 $ 1,651 Gain on sale of loans held for sale, net 525 67 Other non-interest income 860 746 Total non-interest income $ 3,716 $ 2,464 Three months ended March 31, 2025 compared to the three months ended March 31, 2024 Non-interest income for the three months ended March 31, 2025 increased $1.3 million or 50.8%, compared to the same period in 2024. This increase was primarily driven by growth in prepayment penalties and title insurance income reported under service fees category combined with an increase in the gain on sale of loans. Gain on sale of loans during the first quarter of 2025 was greater than the first quarter of 2024 due to higher loan amounts in new SBA 7a loans. Non-Interest Expense The following table presents the components of non-interest expense for the dates indicated (in thousands): Three Months Ended March 31, 2025 2024 Salaries and employee benefits $ 7,636 $ 6,310 Occupancy 1,284 1,314 Regulatory assessment and fees 421 433 Consulting and legal fees 193 592 Network and information technology services 505 507 Other operating 2,013 2,018 Total non-interest expense $ 12,052 $ 11,174 Three months ended March 31, 2025 compared to the three months ended March 31, 2024 Non-interest expense for the three months ended March 31, 2025 increased $878 thousand or 7.9%, compared to the same period in 2024. The increase was primarily driven by an increase of $1.3 million in salaries and employee benefits due to merit increases, management bonuses, stock-based compensation expense, and an increase in payroll taxes for the first quarter 2025. Provision for Income Tax Fluctuations in the effective tax rate reflect the effect of the differences in the inclusion or deductibility of certain income and expenses for income tax purposes. Therefore, future decisions on the investments we choose will affect our effective tax rate. The cash surrender value of bank-owned life insurance policies covering key employees, purchasing municipal bonds, and overall levels of taxable income will be important elements in determining our effective tax rate. Three months ended March 31, 2025 compared to the three months ended March 31, 2024 Income tax expense for the three months ended March 31, 2025 was $2.4 million as compared to $1.4 million for the same period in 2024. The effective tax rate for the three months ended March 31, 2025 was 24.2% compared to 23.6% for the same period in 2024. Table of Contents 35 USCB Financial Holdings, Inc. Q1 2025 Form 10-Q For a further discussion of income taxes, see Note 4 “Income Taxes” to the unaudited Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q. Analysis of Financial Condition Total assets at March 31, 2025 were $2.68 billion, an increase of $96.2 million, or 15.1% annualized, over total assets of $2.58 billion at December 31, 2024. Total loans, net of deferred fees/costs, increased $63.4 million, or 13.0% annualized, to $2.04 billion at March 31, 2025 compared to $1.97 billion at December 31, 2024. Total deposits increased by $135.6 million, or 25.3% annualized, to $2.31 billion at March 31, 2025 compared to $2.17 billion December 31, 2024. Investment Securities The investment portfolio is used and managed to provide liquidity through cash flows, marketability and, if necessary, collateral for borrowings. The investment portfolio is also used as a tool to manage interest rate risk and the Company’s capital market risk exposure. The philosophy of the portfolio is to maximize the Company’s profitability taking into consideration the Company’s risk appetite and tolerance, manage it’s asset composition and diversification, and maintain adequate risk-based capital ratios. The investment portfolio is managed in accordance with the Board approved Asset and Liability Management (“ALM”) policy, which includes investment guidelines. Such policy is reviewed at least annually or more frequently if deemed necessary, depending on market conditions and/or unexpected events. The investment portfolio composition is subject to change depending on the funding and liquidity needs of the Company, and the interest risk management objective directed by the Asset-Liability Committee (“ALCO”). The portfolio of investments also can be used to modify the duration of the balance sheet. The allocation of cash into securities takes into consideration anticipated future cash flows (uses and sources) and all available sources of credit. Our investment portfolio consists primarily of securities issued by the U.S. Government and U.S. Government Agencies and mortgage-backed securities, collateralized mortgage obligation, corporate bonds, municipal securities, other debt securities all with varying contractual maturities and coupons. Due to the optionality embedded in these securities, the contractual maturities do not necessarily represent the expected life of the portfolio. Some of these securities will be called or paid down prior to maturity depending on capital market conditions and expectations. The investment portfolio is regularly reviewed by the Chief Financial Officer, Treasurer, and the ALCO of the Company to ensure an appropriate risk and return profile as well as for adherence to the investment policy. When evaluating AFS debt securities under ASC Topic 326, the Company evaluates whether the decline in fair value is attributable to credit losses or other factors like interest rate risk, using both quantitative and qualitative analyses, including company performance analysis, review of credit ratings, vintage bonds, remaining payment terms, prepayment speeds and analysis of macro-economic conditions. Each investment is expected to recover its unrealized loss position over its holding period as it approaches to maturity and the Company has the intent and ability to hold these securities maturity. As a result of this evaluation, the Company concluded that no allowance was required on AFS securities as of March 31, 2025. At quarter end, HTM securities included $152.6 million of U.S. Government and U.S. Government Agencies issued bonds and mortgage-backed securities. Because of the explicit and/or implicit guarantee on these bonds, the Company holds no reserves on these holdings. The remaining portion of the HTM portfolio is made up of $9.2 million in investment grade corporate bonds. The required reserve for these holdings is determined each quarter using the model described above. For the portion of the HTM exposed to non-government credit risk, the Company utilized the PD/LGD methodology to estimate a $5 thousand allowance for credit losses (“ACL”) as of March 31, 2025. The book value for debt securities classified as HTM represents amortized cost less ACL. AFS and HTM investment securities increased $12.0 million, or 11.5% annualized, to $436.9 million at March 31, 2025 from $424.9 million at December 31, 2024. Investment securities increased due to reinvestment of payments received and investment of excess in cash balances into high credit quality investments to increase the Company’s profitability and modify the Company ’s balance sheet duration according to the ALM policy. As of March 31, 2025, investment securities with a market value of $51.1 million were pledged to secure public deposits. The investment portfolio does not have any tax- exempt securities. Table of Contents 36 USCB Financial Holdings, Inc. Q1 2025 Form 10-Q The following table presents the amortized cost and fair value of investment securities for the dates indicated (dollars in thousands): March 31, 2025 December 31, 2024 Available-for-sale: Amortized Cost Fair Value Amortized Cost Fair Value U.S. Government Agency $ 13,986 $ 12,605 $ 14,279 $ 12,625 Collateralized mortgage obligations 99,775 78,556 101,808 78,905 Mortgage-backed securities - residential 63,115 52,219 58,995 46,933 Mortgage-backed securities - commercial 95,033 87,811 86,604 78,739 Municipal securities 24,905 19,892 24,925 19,311 Bank subordinated debt securities 24,356 24,056 24,314 23,708 $ 321,170 $ 275,139 $ 310,925 $ 260,221 Held-to-maturity: U.S. Government Agency $ 42,095 $ 37,822 $ 42,538 $ 37,444 Collateralized mortgage obligations 55,781 49,122 56,987 49,259 Mortgage-backed securities - residential 39,514 35,793 40,681 36,121 Mortgage-backed securities - commercial 15,227 14,037 15,272 13,887 Corporate bonds 9,178 8,891 9,222 8,829 $ 161,795 $ 145,665 $ 164,700 $ 145,540 Allowance for credit losses - securities held-to-maturity (5) (6) Securities held-to maturity, net of allowance for credit losses $ 161,790 $ 164,694 The following table shows the weighted average yields, categorized by contractual maturity, for investment securities as of March 31, 2025 (in thousands, except yields): Within 1 year After 1 year through 5 years After 5 years through 10 years After 10 years Total Amortized Cost Yield Amortized Cost Yield Amortized Cost Yield Amortized Cost Yield Amortized Cost Yield Available-for-sale: U.S. Government Agency $ - - $ - $ 2,383 3.14% $ 11,603 2.62% $ 13,986 2.70% Collateralized mortgage obligations - - - - 99,775 1.62% 99,775 1.62% MBS - residential - - - - 63,115 2.12% 63,115 2.12% MBS - commercial - - 1,595 4.41% 4,094 4.71% 89,344 3.26% 95,033 3.62% Municipal securities - - - 20,662 1.73% 4,243 1.86% 24,905 1.75% Bank subordinated debt securities - - 2,935 9.10% 21,421 5.10% - - 24,356 5.58% $ - - $ 4,530 7.45% $ 48,560 3.49% $ 268,080 2.44% $ 321,170 2.67% Held-to-maturity: U.S. Government Agency $ - - $ 7,958 1.02% $ 19,854 1.38% $ 14,283 1.99% $ 42,095 1.52% Collateralized mortgage obligations - - - - - - 55,781 1.66% 55,781 1.66% MBS - residential - - 3,844 1.70% 5,874 1.74% 29,796 2.31% 39,514 2.17% MBS - commercial - - 3,053 1.62% - - 12,174 2.57% 15,227 2.38% Corporate bonds 1,015 2.59% 8,163 2.84% - - - - 9,178 2.81% $ 1,015 2.59% $ 23,018 1.86% $ 25,728 1.46% $ 112,034 1.98% $ 161,795 1.88% Loans Loans are the largest category of interest-earning assets on the unaudited Consolidated Balance Sheets, and usually provide higher yields than the remainder of the interest -earning assets. Higher yields typically carry greater inherent credit and liquidity risks in comparison to lower yield assets. The Company manages and mitigates such risks in accordance with the credit and ALM policies, risk tolerance and balance sheet composition. Table of Contents 37 USCB Financial Holdings, Inc. Q1 2025 Form 10-Q The following table shows the loan portfolio composition as of the dates indicated (in thousands): March 31, 2025 December 31, 2024 Total Percent of Total Total Percent of Total Residential Real Estate $ 301,164 14.8 % $ 289,961 14.8 % Commercial Real Estate 1,150,129 56.7 % 1,136,417 57.8 % Commercial and Industrial 256,326 12.6 % 258,311 13.1 % Correspondent Banks 103,026 5.1 % 82,438 4.2 % Consumer and Other 218,711 10.8 % 198,091 10.1 % Total gross loans 2,029,356 100.0 % 1,965,218 100.0 % Plus: Deferred fees/costs 6,856 7,630 Total loans net of deferred fees/costs 2,036,212 1,972,848 Less: Allowance for credit losses 24,740 24,070 Total net loans $ 2,011,472 $ 1,948,778 Total loans, net of deferred fees/costs, increased by $63.4 million, or 13.0% annualized to $2.04 billion, at March 31, 2025 compared to December 31, 2024. The correspondent banks loan segment had the most significant growth . Our loan portfolio continues to grow, with commercial real estate lending as the primary focus which represented approximately 56.7% of the total gross loan portfolio as of March 31, 2025. Our loan growth strategy since inception has been reflective of the market in which we operate and of our strategic plan as approved by the Board. Most of the commercial real estate exposure represents loans to commercial businesses secured by owner-occupied real estate. The growth experienced in recent years is primarily due to implementation of our relationship-based banking model and the success of our relationship managers in competing for new business in a highly competitive metropolitan area. Many of our larger loan clients have long-term relationships with members of our senior management team or our relationship managers that date back to former institutions. From a liquidity perspective, our loan portfolio provides us with additional liquidity due to repayments or unexpected prepayments. The following table shows maturities and sensitivity to interest rate changes of the loan portfolio at March 31, 2025 (in thousands): Due in 1 year or less Due in 1 to 5 years Due after 5 to 15 years Due after 15 years Total Residential Real Estate $ 15,598 $ 56,635 $ 66,212 $ 162,719 $ 301,164 Commercial Real Estate 71,483 413,144 660,122 5,380 1,150,129 Commercial and Industrial 8,921 93,182 109,616 44,607 256,326 Correspondent Banks 103,026 - - - 103,026 Consumer and Other 2,125 1,694 21,710 193,182 218,711 Total gross loans $ 201,153 $ 564,655 $ 857,660 $ 405,888 $ 2,029,356 Interest rate sensitivity: Fixed interest rates $ 174,592 $ 208,718 $ 158,136 $ 319,980 $ 861,426 Floating or adjustable rates 26,561 355,937 699,524 85,908 1,167,930 Total gross loans $ 201,153 $ 564,655 $ 857,660 $ 405,888 $ 2,029,356 The information presented in the table above is based upon the contractual maturities of the individual loans, which may be subject to renewal at their contractual maturity. Renewals will depend on approval by our credit department and balance sheet composition at the time of the analysis, as well as any modification of terms at the loan’s maturity. Additionally, maturity concentrations, loan duration, prepayment speeds and other interest rate sensitivity measures are discussed, reviewed, and analyzed by the ALCO. Decisions on term /rate modifications are discussed as well. As of March 31, 2025, approximately 57.6% of the loans have adjustable/variable rates and 42.4% of the loans have fixed rates. The adjustable/variable rate loans re-price to different benchmarks and tenors and in different periods of time. By contractual characteristics, there are no material concentrations on anniversary repricing. Additionally, it is important to note that most of our loans have interest rate floors. This embedded option protects the Company from a decrease in interest rates below the floor and positions us to gain in the scenario of higher interest rates. Table of Contents 38 USCB Financial Holdings, Inc. Q1 2025 Form 10-Q Asset Quality Our asset quality grading analysis estimates the capability of the borrower to repay the contractual obligation of the loan agreement as scheduled or at all. The Company’s internal credit risk grading system is based on experiences with similarly graded loans. Internal credit risk grades are reviewed at least once a year, and more frequently as needed. Internal credit risk ratings may change based on management’s assessment of the results from the annual review, portfolio monitoring, and other developments observed with borrowers. The internal credit risk grades used by the Company to assess the credit worthiness of a loan are shown below: Pass – Loans indicate different levels of satisfactory financial condition and performance. Special Mention – Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date. Substandard – Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligator or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Doubtful – Loans classified as doubtful have all the weaknesses inherent in those classified at substandard, with the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Loss – Loans classified as loss are considered uncollectible. Loan credit exposures by internally assigned grades are as follows for the dates indicated (in thousands): March 31, 2025 Pass Special Mention Substandard Doubtful Total Residential Real Estate $ 299,971 $ - $ 1,193 $ - $ 301,164 Commercial Real Estate 1,143,041 4,643 2,445 - 1,150,129 Commercial and Industrial 253,196 76 3,054 - 256,326 Correspondent Banks 103,026 - - - 103,026 Consumer and Other 216,721 - 1,990 - 218,711 $ 2,015,955 $ 4,719 $ 8,682 $ - $ 2,029,356 December 31, 2024 Pass Special Mention Substandard Doubtful Total Residential Real Estate $ 289,401 $ - $ 560 $ - $ 289,961 Commercial Real Estate 1,133,965 - 2,452 - 1,136,417 Commercial and Industrial 256,031 - 2,280 - 258,311 Correspondent Banks 82,438 - - - 82,438 Consumer and Other 196,101 - 1,990 - 198,091 $ 1,957,936 $ - $ 7,282 $ - $ 1,965,218 Table of Contents 39 USCB Financial Holdings, Inc. Q1 2025 Form 10-Q Non-Performing Assets The following table presents non-performing assets as of the dates shown (in thousands, except ratios): March 31, 2025 December 31, 2024 Non-accrual loans $ 4,156 $ 2,707 Loans past due over 90 days and still accruing - - Total non-performing loans $ 4,156 $ 2,707 Other real estate owned - - Total non-performing assets $ 4,156 $ 2,707 Asset quality ratios: Allowance for credit losses to total loans 1.22% 1.22% Allowance for credit losses to non-performing loans 595% 889% Non-performing loans to total loans 0.20% 0.14% Non-performing assets include all loans categorized as non-accrual, other real estate owned (“OREO”) and other repossessed assets. Problem loans for which the collection or liquidation in full is reasonably uncertain are placed on a non- accrual status. This determination is based on current existing facts concerning collateral values and the paying capacity of the borrower. When the collection of the full contractual balance is unlikely, the loan is placed on non-accrual to avoid overstating the Company’s income for a loan with increased credit risk. If the principal or interest on a commercial loan becomes due and unpaid for 90 days or more, the loan is placed on non-accrual status as of the date it becomes 90 days past due and remains in non-accrual status until it meets the criteria for restoration to accrual status. Residential loans, on the other hand, are placed on non-accrual status when the principal or interest becomes due and unpaid for 120 days or more and remains in non-accrual status until it meets the criteria for restoration to accrual status. Restoring a loan to accrual status is possible when the borrower resumes payment of all principal and interest payments for a period of six consecutive months and the Company has a documented expectation of repayment of the remaining contractual principal and interest or the loan becomes secured and in the process of collection. The Company may grant a loan concession to a borrower experiencing financial difficulties. This determination is performed during the annual review process or whenever problems surface regarding the borrower’s ability to repay in accordance with the original terms of the loan or line of credit. The concessions are given to the debtor in various forms, including interest rate reductions, principal forgiveness, extension of maturity date, waiver, or deferral of payments and other concessions intended to minimize potential losses. For further discussion of non-performing loans and borrowers experiencing financial difficulties, see Note 3 “Loans” to the unaudited Consolidated Financial Statements in Item 1 of Part 1 this Form 10-Q. Allowance for Credit Losses The ACL on loans represents an amount that, in management's evaluation, is adequate to provide coverage for all expected future credit losses on outstanding loans. Additionally, qualitative adjustments are made to the ACL when, based on management’s judgment, there are factors impacting the allowance estimate not considered by the quantitative calculations. See Note 3 “Loans” in Item 1 of Part 1 of this Form 10-Q for more information on the ACL. Table of Contents 40 USCB Financial Holdings, Inc. Q1 2025 Form 10-Q The following table presents ACL on loans and net charge-offs to average loans by type for the periods indicated (in thousands): Residential Real Estate Commercial Real Estate Commercial and Industrial Correspondent Banks Consumer and Other Total Three Months Ended March 31, 2025 Beginning balance $ 5,121 $ 8,788 $ 4,633 $ 654 $ 4,874 $ 24,070 Provision for credit losses (1) (12) 409 (204) 163 316 672 Recoveries 6 - 5 - - 11 Charge-offs - - - - (13) (13) Ending Balance $ 5,115 $ 9,197 $ 4,434 $ 817 $ 5,177 $ 24,740 Average loans $ 301,230 $ 1,142,985 $ 257,241 $ 87,214 $ 198,186 $ 1,986,856 Net charge-offs (recoveries) to average loans (3) (0.01)% - (0.01)% - 0.03% 0.00% Three Months Ended March 31, 2024 Beginning balance $ 2,695 $ 10,366 $ 3,974 $ 911 $ 3,138 $ 21,084 Provision for credit losses (2) 235 (64) 288 (117) 21 363 Recoveries - - 10 - 2 12 Charge-offs - - - - (5) (5) Ending Balance $ 2,930 $ 10,302 $ 4,272 $ 794 $ 3,156 $ 21,454 Average loans $ 217,117 $ 1,048,870 $ 221,804 $ 102,150 $ 191,587 $ 1,781,528 Net charge-offs (recoveries) to average loans (3) - - 0.02% - 0.01% 0.00% (1) Provision for credit losses excludes a $10 thousand expense due to unfunded commitments included in accrued interest and other liabilities and a $1 thousand release related to investment securities held to maturity. (2) Provision for credit losses excludes a $43 thousand expense due to unfunded commitments included in accrued interest and other liabilities and a $4 thousand charge related to investment securities held to maturity. (3) Annualized. The Federal Open Market Committee (“FOMC”) economic forecasts as of March 31, 2025, showed moderate deterioration in unemployment and forecast for real GDP. Fannie Mae House Price Index (“HPI”) forecast reflected a deterioration in national housing prices as well. The Company continued to adjust the HPI index effect on the 1-4 Family loan portfolio with a qualitative factor because Florida housing prices are performing better than national levels. The Q- factor scorecard was updated based on the latest portfolio stress test and the resulting maximum loss calculation. Our ACL included residential loans. To assess the potential impact of changes in qualitative factors related to these loans, management performed a sensitivity analysis. The Company evaluated the impact of the HPI used in calculating expected losses on the residential loan segment. As of March 31, 2025, for every 100 basis points increase in the HPI, the forecast reduces reserves by approximately $334 thousand and about 2 basis points to the reserve coverage ratio, everything else being constant. This sensitivity analysis provides a hypothetical result to assess the sensitivity of the ACL and does not represent a change in management’s judgement. As of March 31, 2025, we stress tested two qualitative factors in our commercial real estate loan pool, as it is the largest segment in our portfolio. We evaluated the impact of a change in the qualitative factors from no risk to maximum loss to measure the sensitivity of the qualitative factors. The change from no risk to high risk resulted in a $10.2 million or 41.0% increase in the ACL. This sensitivity analysis provides a hypothetical result to assess the sensitivity of the ACL and does not represent a change in management’s judgement. Bank-Owned Life Insurance As of March 31, 2025, the combined cash surrender value of all bank-owned life insurance (“BOLI”) policies was $57.9 million. Changes in cash surrender value are recorded to non-interest income in the unaudited Consolidated Statements of Operations. The Company has BOLI policies with five insurance carriers. The Company is the beneficiary of these policies. Table of Contents 41 USCB Financial Holdings, Inc. Q1 2025 Form 10-Q Deposits Customer deposits are the primary funding source for the Bank’s growth. Through our network of banking centers, we offer a competitive array of deposit accounts and treasury management services designed to meet our customers’ business needs. Our primary deposit customers are small-to-medium sized businesses (“SMBs”), and the personal business of owners and operators of these SMBs, as well as the retail/consumer relationships of the employees of these businesses. The following table presents the daily average balance and average rate paid on deposits by category for the periods presented (in thousands, except ratios): Three Months Ended March 31, 2025 2024 Average Balance Average Rate Paid Average Balance Average Rate Paid Non-interest-bearing checking $ 563,040 0.00% $ 574,760 0.00% Interest-bearing checking 53,611 2.56% 53,344 2.78% Money market and savings deposits 1,199,027 3.16% 1,097,575 3.81% Time deposits 399,509 3.98% 322,912 4.10% Total $ 2,215,187 2.49% $ 2,048,591 2.76% The Company has a granular deposit portfolio with outstanding balances comprised of 55% in commercial deposits, 32% personal deposits, 5% public funds (which are partially collateralized) and 8% brokered deposits. The brokered deposits balance at March 31, 2025 was $178.0 million and $133.0 million at December 31, 2024. As of March 31, 2025, the Company has approximately 21 thousand deposit accounts with the majority in personal accounts, approximately 13 thousand or 63.8%. The estimated average account size of our deposit portfolio was approximately $112 thousand as of March 31, 2025. The uninsured deposits are estimated based on the FDIC deposit insurance limit of $250 thousand per account holder for all deposit accounts at the Company. The total estimated percentage of uninsured deposits was 54% at March 31, 2025 and 55% at December 31, 2024. The Company offers Insured Cash Sweep (“ICS”) and Certificate of Deposit Account Registry Service (“CDARS”) deposit products to fully insure our clients. The deposit balance in ICS/CDARS was $158.5 million at March 31, 2025 and $125.5 million at December 31, 2024. The following table shows scheduled maturities of uninsured time deposits as of March 31, 2025 (in thousands): March 31, 2025 Three months or less $ 58,048 Over three through six months 15,450 Over six though twelve months 13,316 Over twelve months 40,537 $ 127,351 Other Liabilities The Company collects from commercial and residential loan customers funds which are held in escrow for future payment of real estate taxes and insurance. These escrow funds are disbursed by the Company directly to the insurance companies and taxing authority of the borrower. Escrow funds are recorded as other liabilities. As of March 31, 2025, escrow balances totaled $13.5 million compared to $6.1 million at December 31, 2024. Borrowings As a member of the FHLB of Atlanta, we are eligible to obtain advances with various terms and conditions. This accessibility to additional funding allows us to efficiently and timely meet both expected and unexpected outgoing cash flows and collateral needs without adversely affecting either daily operations or the financial condition of the Company. As of March 31, 2025, we had $108.0 million of fixed-rate advances outstanding from the FHLB with a weighted average rate of 3.60%. Maturity dates for the advances range between 2025 to 2028 as detailed in the table below. Table of Contents 42 USCB Financial Holdings, Inc. Q1 2025 Form 10-Q The following table presents the FHLB advances as of March 31, 2025 (in thousands): Interest Rate Type of Rate Maturity Date Amount 1.07% Fixed July 18, 2025 $ 6,000 3.76% Fixed January 24, 2028 11,000 3.77% Fixed April 25, 2028 50,000 3.68% Fixed September 13, 2027 21,000 3.79% Fixed March 23, 2026 20,000 $ 108,000 During the third quarter 2024, the Company paid off the $80.0 million fixed-rate loan outstanding from the Bank Term Funding Program with an original maturity date of January 10, 2025. The Company has also established Federal Funds lines of credit with our upstream correspondent banks and the Federal Reserve Bank of Atlanta Discount Window to manage temporary fluctuations in our daily cash balances. As of March 31, 2025, there were no outstanding balances with any of these liquidity sources. Off-Balance Sheet Arrangements We engage in various financial transactions in our operations that, under GAAP, may not be included on the balance sheet. To meet the financing needs of our customers, we may include commitments to extend credit and standby letters of credit. To a varying degree, such commitments involve elements of credit, market, and interest rate risk in excess of the amount recognized in the balance sheet. We use more conservative credit and collateral policies in making these credit commitments than we do for on-balance sheet items. We are not aware of any accounting loss to be incurred by funding these commitments; however, we maintain an allowance for off-balance sheet credit risk which is recorded under accrued interest and other liabilities on the unaudited Consolidated Balance Sheets. The ACL related to unfunded commitments at March 31, 2025 was $581 thousand and at March 31, 2024 was $415 thousand. Since commitments associated with letters of credit and commitments to extend credit may expire unused, the amounts shown do not necessarily reflect actual future cash funding requirements. The following table presents lending related commitments outstanding as of the dates indicated (in thousands ): March 31, 2025 December 31, 2024 Commitments to grant loans and unfunded lines of credit $ 132,466 $ 122,578 Standby and commercial letters of credit 3,346 5,389 Total $ 135,812 $ 127,967 Commitments to extend credit are agreements to lend funds to a client, as long as there is no violation of any condition established in the contract, for a specific purpose. Commitments generally have variable interest rates, fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being fully drawn, the total commitment amounts disclosed above do not necessarily represent future cash requirements. Unfunded lines of credit represent unused portions of credit facilities to our current borrowers that represent no change in credit risk in our portfolio. Lines of credit generally have variable interest rates. The maximum potential amount of future payments we could be required to make is represented by the contractual amount of the commitment, less the amount of any advances made. Letters of credit are conditional commitments issued by us to guarantee the performance of a client to a third party. In the event of nonperformance by the client in accordance with the terms of the agreement with the third party, we would be required to fund the commitment. If the commitment is funded, we would be entitled to seek recovery from the client from the underlying collateral, which can include commercial real estate, physical plant and property, inventory, receivables, cash or marketable securities. Asset and Liability Management Committee Members of senior management and our Board make up the asset and liability management committee, or ALCO. Senior management is responsible for ensuring that Board approved strategies and policies for managing and mitigating risks are appropriately executed within the designated lines of authority and responsibility in a timely manner. Table of Contents 43 USCB Financial Holdings, Inc. Q1 2025 Form 10-Q ALCO oversees the establishment, approval, implementation, and review of interest rate risk, management, and mitigation strategies, ALM related policies, ALCO procedures and risk tolerances and appetite. While some degree of Interest Rate Risk (“IRR”) is inherent to the banking business, we believe our ALCO implements sound risk management practices to identify, quantify, monitor, and limit IRR exposures. When assessing the scope of IRR exposure and impact on the consolidated balance sheet, cash flows and income statement, management considers both earnings and economic impacts. Asset price variations, deposit volatility and reduced earnings or outright losses could adversely affect the Company’s liquidity, performance, and capital adequacy. Income simulations are used to assess the impact of changing rates on earnings under different rates scenarios and time horizons. These simulations utilize both instantaneous and parallel changes in the level of interest rates, as well as 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 is also utilized to have a more comprehensive assessment on IRR. This simulation relies on detailed assumptions outlined in our budget and strategic plan, and in assumptions regarding changes in existing lines of business, new business, management strategies and client expected behavior. To have a more complete picture of IRR, the Company also evaluates the economic value of equity (“EVE”). This assessment allows us to measure the degree to which the economic values will change under different interest rate scenarios (parallel and non-parallel). The economic value approach focuses on a longer-term time horizon and captures all future cash flows expected from existing assets and liabilities. The economic value model utilizes a static approach in that the analysis does not incorporate new business; rather, the analysis shows a snapshot in time of the risk inherent in the balance sheet. Market and Interest Rate Risk Management According to our ALCO model, as of March 31, 2025, we had a neutral to slightly asset sensitive balance sheet both for year one, and an asset sensitivity balance sheet for year two, using the static model. Asset sensitivity indicates that our assets generally reprice faster than our liabilities, which results in a favorable impact to net interest income when market interest rates increase. Liability sensitivity indicates that our liabilities generally reprice faster than our assets, which results in a favorable impact to net interest income when market interest rates decrease. Many assumptions are used to calculate the impact of interest rate variations on our net interest income, such as asset prepayment speeds, non-maturity deposit price sensitivity (betas), pricing correlations, deposit truncations and decay rates, and key interest rate drivers. Because of the inherent use of these estimates and assumptions in the model, our actual results may, and most likely will, differ from static measures results. In addition, static measures like EVE do not include actions that management may undertake to manage the risks in response to anticipated changes in interest rates or customer deposit behavior. As part of our ALM strategy and policy, management has the ability to modify the balance sheet to either increase asset duration and decrease liability duration to reduce asset sensitivity, or to decrease asset duration and increase liability duration in order to increase asset sensitivity. According to our model, as of March 31, 2025, our balance sheet is neutral to slightly asset sensitive for year one more asset sensitivity and year two under interest static rate scenarios (an increase or decrease of 400 basis points). This means that the impact of rates variations will be minimal to our NIM. Additionally, utilizing an EVE approach, we analyze the risk to capital from the effects of various interest rate scenarios through a long-term discounted cash flow model. This measures the difference between the economic value of our assets and the economic value of our liabilities, which is a proxy for our liquidation value. According to our balance sheet composition, and as expected, our model stipulates that an increase in interest rates will have a negative impact on the EVE and lower rates, a positive impact. Results and analysis are presented quarterly to the ALCO, and strategies are reviewed and defined. Liquidity Liquidity is defined as a Company’s capacity to meet its cash and collateral obligations at a reasonable cost. Maintaining an adequate level of liquidity depends on the Company’s ability to efficiently meet both expected and unexpected cash flow and collateral needs without adversely affecting either daily operations or the financial condition of the Company. Liquidity risk is the risk that we will be unable to meet our short-term and long-term obligations as they become due because of an inability to liquidate assets or obtain relatively adequate funding. The Company’s obligations, and the funding sources used 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. Table of Contents 44 USCB Financial Holdings, Inc. Q1 2025 Form 10-Q In managing inflows and outflows, management regularly monitors situations that can give rise to increased liquidity risk. These include funding mismatches, market constraints on the ability to convert assets (particularly investments) into cash or in accessing sources of funds (i.e., market liquidity), pledging assets and contingent liquidity events. Changes in macroeconomic conditions, as well as exposure to credit, market, operational, legal, cybersecurity risk and reputational risks, could have an unexpected impact on the Company’s liquidity risk profile and are factored into the assessment of liquidity and the ALM framework. Management has established a comprehensive and holistic management process for identifying, measuring, monitoring and mitigating liquidity risk. Due to its critical importance to the viability of the Company, liquidity risk management is 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 ALCO, and active involvement of senior management; appropriate strategies, policies, procedures, and limits used to identify and mitigate liquidity risk; comprehensive liquidity risk measurement and monitoring systems (including assessments of the current and prospective cash flows or sources and uses of funds) that are commensurate with the complexity and business activities of the Company; active management of intraday liquidity and collateral; an appropriately diverse mix of existing and potential future funding sources; adequate levels of highly liquid marketable securities free of legal, regulatory, or operational impediments, that can be used to meet liquidity needs in stressful situations; comprehensive contingency funding plans that sufficiently address potential adverse liquidity events and emergency cash flow requirements; and internal controls and internal audit processes sufficient to determine the adequacy of the institution’s liquidity risk management process. We expect funds to be available from several basic banking activity sources, including the core deposit base, the repayment and maturity of loans and the investment portfolio cash flows. Other potential funding sources include Federal Funds purchased, brokered certificates of deposit, listing services certificates of deposit, unsecured fed funds lines with other banking institutions and draws from the Federal Reserve Bank of Atlanta discount window, and borrowings from the FHLB. Accordingly, we believe our liquidity resources are adequate to fund loans and meet other cash needs as necessary. Capital Adequacy As of March 31, 2025, the Bank was well capitalized under the FDIC’s prompt corrective action framework. We also follow the capital conservation buffer framework, and as of March 31, 2025, we exceeded the capital conversation buffer in all capital ratios, according to our actual ratios. The following table presents the capital ratios for the Bank at the dates indicated (in thousands, except ratios). Actual Minimum Capital Requirements To be Well Capitalized Under Prompt Corrective Action Provisions Amount Ratio Amount Ratio Amount Ratio March 31, 2025 Total risk-based capital $ 277,832 13.65 % $ 162,795 8.00 % $ 203,494 10.00 % Tier 1 risk-based capital $ 252,506 12.41 % $ 122,096 6.00 % $ 162,795 8.00 % Common equity tier 1 capital $ 252,506 12.41 % $ 91,572 4.50 % $ 132,271 6.50 % Leverage ratio $ 252,506 9.55 % $ 105,814 4.00 % $ 132,267 5.00 % December 31, 2024 Total risk-based capital $ 266,387 13.34 % $ 159,795 8.00 % $ 199,744 10.00 % Tier 1 risk-based capital $ 241,740 12.10 % $ 119,846 6.00 % $ 159,795 8.00 % Common equity tier 1 capital $ 241,740 12.10 % $ 89,885 4.50 % $ 129,834 6.50 % Leverage ratio $ 241,740 9.38 % $ 103,074 4.00 % $ 128,843 5.00 % The Company is not subject to regulatory capital ratios imposed by Basel III on bank holding companies because the Company is deemed to be a small bank holding company. Impact of Inflation Our Consolidated Financial Statements and related notes have been prepared in accordance with U.S. GAAP, which require the measurement of financial position and operating results in terms of historical dollars, without considering Table of Contents 45 USCB Financial Holdings, Inc. Q1 2025 Form 10-Q the changes in the relative purchasing power of money over time due to inflation. The impact of inflation is mostly reflected in the increased cost of operations, inflation can negatively impact overhead expenses. Unlike most industrial companies, nearly all our assets and liabilities are monetary in nature. As a result, interest rates have a greater impact on our performance than the effects of inflation. Periods of high inflation are often accompanied by relatively higher interest rates, and periods of low inflation are accompanied by relatively lower interest rates. 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 Part 1 of this Form 10-Q. Table of Contents 46 USCB Financial Holdings, Inc. Q1 2025 Form 10-Q Reconciliation and Management Explanation of Non -GAAP Financial Measures Management has included these non-GAAP measures because it believes these measures may provide useful supplemental information for evaluating the Company’s underlying performance trends. Further, management uses these measures in managing and evaluating the Company’s business and intends to refer to them in discussions about our operations and performance. Operating performance measures should be viewed in addition to, and not as an alternative to or substitute for, measures determined in accordance with GAAP, and are not necessarily comparable to non-GAAP measures that may be presented by other companies. The following table reconciles the non-GAAP financial measurement of operating net income available to common shareholders for the periods presented (in thousands, except per share data): USCB FINANCIAL HOLDINGS, INC. NON-GAAP FINANCIAL MEASURES (UNAUDITED) (Dollars in thousands) As of or For the Three Months Ended 3/31/2025 12/31/2024 9/30/2024 6/30/2024 3/31/2024 Pre-tax pre-provision ("PTPP") income: (1) Net income $ 7,658 $ 6,904 $ 6,949 $ 6,209 $ 4,612 Plus: Provision for income taxes 2,440 2,197 2,213 1,967 1,426 Plus: Provision for credit losses 681 1,030 931 786 410 PTPP income $ 10,779 $ 10,131 $ 10,093 $ 8,962 $ 6,448 PTPP return on average assets: (1) PTPP income $ 10,779 $ 10,131 $ 10,093 $ 8,962 $ 6,448 Average assets $ 2,606,593 $ 2,544,592 $ 2,485,434 $ 2,479,222 $ 2,436,103 PTPP return on average assets (2) 1.68% 1.58% 1.62% 1.45% 1.06% Operating net income: (1) Net income $ 7,658 $ 6,904 $ 6,949 $ 6,209 $ 4,612 Less: Net gains (losses) on sale of securities - - - 14 - Less: Tax effect on sale of securities - - - (4) - Operating net income $ 7,658 $ 6,904 $ 6,949 $ 6,199 $ 4,612 Operating PTPP income: (1) PTPP income $ 10,779 $ 10,131 $ 10,093 $ 8,962 $ 6,448 Less: Net gains (losses) on sale of securities - - - 14 - Operating PTPP income $ 10,779 $ 10,131 $ 10,093 $ 8,948 $ 6,448 Operating PTPP return on average assets: (1) Operating PTPP income $ 10,779 $ 10,131 $ 10,093 $ 8,948 $ 6,448 Average assets $ 2,606,593 $ 2,544,592 $ 2,485,434 $ 2,479,222 $ 2,436,103 Operating PTPP return on average assets (2) 1.68% 1.58% 1.62% 1.45% 1.06% Operating return on average assets: (1) Operating net income $ 7,658 $ 6,904 $ 6,949 $ 6,199 $ 4,612 Average assets $ 2,606,593 $ 2,544,592 $ 2,485,434 $ 2,479,222 $ 2,436,103 Operating return on average assets (2) 1.19% 1.08% 1.11% 1.01% 0.76% Operating return on average equity: (1) Operating net income $ 7,658 $ 6,904 $ 6,949 $ 6,199 $ 4,612 Average equity $ 219,505 $ 215,715 $ 206,641 $ 197,755 $ 193,092 Operating return on average equity (2) 14.15% 12.73% 13.38% 12.61% 9.61% Operating Revenue: (1) Net interest income $ 19,115 $ 19,358 $ 18,109 $ 17,311 $ 15,158 Plus: Non-interest income 3,716 3,627 3,438 3,211 2,464 Less: Net gains (losses) on sale of securities - - - 14 - Operating revenue $ 22,831 $ 22,985 $ 21,547 $ 20,508 $ 17,622 Operating Efficiency Ratio: (1) Total non-interest expense $ 12,052 $ 12,854 $ 11,454 $ 11,560 $ 11,174 Operating revenue $ 22,831 $ 22,985 $ 21,547 $ 20,508 $ 17,622 Operating efficiency ratio 52.79% 55.92% 53.16% 56.37% 63.41% (1) The Company believes these non-GAAP measurements are key indicators of the ongoing earnings power of the Company. (2) Annualized. Table of Contents 47 USCB Financial Holdings, Inc. Q1 2025 Form 10-Q USCB FINANCIAL HOLDINGS, INC. NON-GAAP FINANCIAL MEASURES (UNAUDITED) (Dollars in thousands, except per share data) As of or For the Three Months Ended 3/31/2025 12/31/2024 9/30/2024 6/30/2024 3/31/2024 Tangible book value per common share (at period-end): (1) Total stockholders' equity $ 225,088 $ 215,388 $ 213,916 $ 201,020 $ 195,011 Less: Intangible assets - - - - - Tangible stockholders' equity $ 225,088 $ 215,388 $ 213,916 $ 201,020 $ 195,011 Total shares issued and outstanding (at period-end): Total common shares issued and outstanding 20,048,385 19,924,632 19,620,632 19,630,632 19,650,463 Tangible book value per common share (2) $ 11.23 $ 10.81 $ 10.90 $ 10.24 $ 9.92 Operating diluted net income per common share: (1) Operating net income $ 7,658 $ 6,904 $ 6,949 $ 6,199 $ 4,612 Total weighted average diluted shares of common stock 20,319,535 20,183,731 19,825,211 19,717,167 19,698,258 Operating diluted net income per common share: $ 0.38 $ 0.34 $ 0.35 $ 0.31 $ 0.23 Tangible Common Equity/Tangible Assets (1) Tangible stockholders' equity $ 225,088 $ 215,388 $ 213,916 $ 201,020 $ 195,011 Tangible total assets (3) $ 2,677,382 $ 2,581,216 $ 2,503,954 $ 2,458,270 $ 2,489,142 Tangible Common Equity/Tangible Assets 8.41% 8.34% 8.54% 8.18% 7.83% (1) The Company believes these non-GAAP measurements are key indicators of the ongoing earnings power of the Company. (2) Excludes the dilutive effect, if any, of shares of common stock issuable upon exercise of outstanding stock options. (3) Since the Company has no intangible assets, tangible total assets is the same amount as total assets calculated under GAA P. Table of Contents 48 USCB Financial Holdings, Inc. Q1 2025 Form 10-Q Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, we are not required to provide the information required by this item.