USCB FINANCIAL HOLDINGS, INC. 10-Q

Item 1. Financial Statements USCB FINANCIAL HOLDINGS, INC Consolidated Balance Sheets – Unaudited (Dollars in thousands, except share data) June 30, 2025 December 31, 2024 ASSETS: Cash and due from banks $ 8,386 $ 6,986 Interest-bearing deposits in banks 46,433 70,049 Total cash and cash equivalents 54,819 77,035 Investment securities held to maturity, net of allowance of $ 7 and $ 6 , respectively (fair value of $ 142,877 and $ 145,540 , respectively) 158,740 164,694 Investment securities available for sale, at fair value 285,382 260,221 Federal Home Loan Bank stock, at cost 6,936 9,379 Loans held for investment, net of allowance of $ 24,933 and $ 24,070 , respectively 2,088,385 1,948,778 Accrued interest receivable 11,285 10,945 Premises and equipment, net 4,359 4,563 Bank owned life insurance 58,427 53,472 Deferred tax assets, net 23,663 29,646 Lease right-of-use asset 7,046 8,451 Other assets 20,432 14,032 Total assets $ 2,719,474 $ 2,581,216 LIABILITIES: Deposits: Non-interest bearing demand deposits $ 584,895 $ 575,159 Savings and money market deposits 1,248,379 1,180,809 Interest-bearing demand deposits 40,597 50,648 Time deposits 461,790 367,388 Total deposits 2,335,661 2,174,004 Federal Home Loan Bank advances 108,000 163,000 Lease liability 7,046 8,451 Accrued interest and other liabilities 37,184 20,373 Total liabilities 2,487,891 2,365,828 Commitments and contingencies (See Notes 5 and 11) (nil) (nil) STOCKHOLDERS' EQUITY: Preferred stock - Class C; $ 1.00 par value; $ 1,000 per share liquidation preference; 52,748 shares authorized; 0 and 0 issued and outstanding as of June 30, 2025 and December 31, 2024 - - Preferred stock - Class D; $ 1.00 par value; $ 5.00 per share liquidation preference; 12,309,480 shares authorized; 0 and 0 issued and outstanding as of June 30, 2025 and December 31, 2024 - - Preferred stock - Class E; $ 1.00 par value; $ 1,000 per share liquidation preference; 3,185,024 shares authorized; 0 and 0 issued and outstanding as of June 30, 2025 and December 31, 2024 - - Common stock - Class A Voting; $ 1.00 par value; 45,000,000 shares authorized; 20,078,385 issued and outstanding as of June 30, 2025, 19,924,632 issued and outstanding as of December 31, 2024 20,078 19,925 Common stock - Class B Non-voting; $ 1.00 par value; 8,000,000 shares authorized; 0 and 0 issued and outstanding as of June 30, 2025 and December 31, 2024 - - Additional paid-in capital on common stock 309,282 307,810 Accumulated deficit ( 56,025 ) ( 67,813 ) Accumulated other comprehensive loss ( 41,752 ) ( 44,534 ) Total stockholders' equity 231,583 215,388 Total liabilities and stockholders' equity $ 2,719,474 $ 2,581,216 The accompanying notes are an integral part of these unaudited consolidated financial statements. Table of Contents 4 USCB Financial Holdings, Inc. Q2 2025 Form 10-Q USCB FINANCIAL HOLDINGS, INC. Consolidated Statements of Operations - Unaudited (Dollars in thousands, except per share data) Three Months Ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 Interest income: Loans, including fees $ 31,946 $ 28,017 $ 62,191 $ 54,660 Investment securities 3,432 3,069 6,456 5,880 Interest-bearing deposits in financial institutions 776 1,531 1,485 2,964 Total interest income 36,154 32,617 70,132 63,504 Interest expense: Interest-bearing demand deposits 285 391 623 760 Savings and money market deposits 9,410 10,071 18,745 20,465 Time deposits 4,343 3,222 8,261 6,516 Federal Home Loan Bank advances and other borrowings 1,082 1,622 2,354 3,294 Total interest expense 15,120 15,306 29,983 31,035 Net interest income before provision for credit losses 21,034 17,311 40,149 32,469 Provision for credit losses 1,031 786 1,712 1,196 Net interest income after provision for credit losses 20,003 16,525 38,437 31,273 Non-interest income: Service fees 2,402 1,977 4,733 3,628 Gain on sale of securities available for sale, net - 14 - 14 Gain on sale of loans held for sale, net 151 417 676 484 Other non-interest income 817 803 1,677 1,549 Total non-interest income 3,370 3,211 7,086 5,675 Non-interest expense: Salaries and employee benefits 7,954 7,353 15,590 13,663 Occupancy 1,337 1,266 2,621 2,580 Regulatory assessments and fees 396 476 817 909 Consulting and legal fees 263 263 456 855 Network and information technology services 564 479 1,069 986 Other operating expense 2,120 1,723 4,133 3,741 Total non-interest expense 12,634 11,560 24,686 22,734 Income before income tax expense 10,739 8,176 20,837 14,214 Income tax expense 2,599 1,967 5,039 3,393 Net income $ 8,140 $ 6,209 $ 15,798 $ 10,821 Per share information: Net income per share, basic $ 0.41 $ 0.32 $ 0.79 $ 0.55 Net income per share, diluted $ 0.40 $ 0.31 $ 0.78 $ 0.55 Cash dividends declared $ 0.10 $ 0.05 $ 0.20 $ 0.10 The accompanying notes are an integral part of these unaudited consolidated financial statements. Table of Contents 5 USCB Financial Holdings, Inc. Q2 2025 Form 10-Q USCB FINANCIAL HOLDINGS, INC. Consolidated Statements of Comprehensive Income - Unaudited (Dollars in thousands) Three Months Ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 Net income $ 8,140 $ 6,209 $ 15,798 $ 10,821 Other comprehensive income (loss): Unrealized gain (loss) on investment securities ( 895 ) 910 3,778 ( 1,224 ) Reclassification adjustment for amortization of net unrealized losses on securities transferred from available-for-sale to held-to-maturity 67 66 134 133 Reclassification adjustment for gain included in net income - ( 14 ) - ( 14 ) Unrealized gain (loss) on cash flow hedge ( 28 ) 30 ( 186 ) 549 Tax benefit (expense) 217 ( 251 ) ( 944 ) 141 Total other comprehensive income (loss), net of tax ( 639 ) 741 2,782 ( 415 ) Total comprehensive income $ 7,501 $ 6,950 $ 18,580 $ 10,406 The accompanying notes are an integral part of these unaudited consolidated financial statements. Table of Contents 6 USCB Financial Holdings, Inc. Q2 2025 Form 10-Q USCB FINANCIAL HOLDINGS, INC. Consolidated Statements of Changes in Stockholders’ Equity - Unaudited (Dollars in thousands, except per share data) Common Stock Additional Paid-in Capital on Common Stock Accumulated Deficit Accumulated Other Comprehensive Loss Shares Par Value Total Stockholders' Equity Balance at March 31, 2025 20,048,385 $ 20,048 $ 308,313 $ ( 62,160 ) $ ( 41,113 ) $ 225,088 Net income - - - 8,140 - 8,140 Other comprehensive loss - - - - ( 639 ) ( 639 ) Exercise of stock options 30,000 30 195 - - 225 Dividend payment - - - ( 2,005 ) - ( 2,005 ) Stock-based compensation - - 774 - - 774 Balance at June 30, 2025 20,078,385 $ 20,078 $ 309,282 $ ( 56,025 ) $ ( 41,752 ) $ 231,583 Balance at March 31, 2024 19,650,463 $ 19,650 $ 305,740 $ ( 84,952 ) $ ( 45,427 ) $ 195,011 Net income - - - 6,209 - 6,209 Other comprehensive income - - - - 741 741 Repurchase of Class A common stock ( 25,000 ) ( 25 ) ( 275 ) - - ( 300 ) Restricted stock issued 5,169 6 ( 6 ) - - - Dividend payment - - - ( 1,017 ) - ( 1,017 ) Stock-based compensation - - 376 - - 376 Balance at June 30, 2024 19,630,632 $ 19,631 $ 305,835 $ ( 79,760 ) $ ( 44,686 ) $ 201,020 Table of Contents 7 USCB Financial Holdings, Inc. Q2 2025 Form 10-Q Common Stock Additional Paid-in Capital on Common Stock Accumulated Deficit Accumulated Other Comprehensive Loss Shares Par Value Total Stockholders' Equity Balance at December 31, 2024 19,924,632 $ 19,925 $ 307,810 $ ( 67,813 ) $ ( 44,534 ) $ 215,388 Net income - - - 15,798 - 15,798 Other comprehensive income - - - - 2,782 2,782 Repurchase of Class A common stock ( 9,671 ) ( 10 ) ( 164 ) - - ( 174 ) Restricted stock issued 124,424 124 ( 124 ) - - - Restricted stock forfeiture - - - - - - Exercise of stock options 39,000 39 278 - - 317 Dividend payment - - - ( 4,010 ) - ( 4,010 ) Stock-based compensation - - 1,482 - - 1,482 Balance at June 30, 2025 20,078,385 $ 20,078 $ 309,282 $ ( 56,025 ) $ ( 41,752 ) $ 231,583 Balance at December 31, 2023 19,575,435 19,575 305,212 ( 88,548 ) ( 44,271 ) 191,968 Net income - - - 10,821 - 10,821 Other comprehensive loss - - - - ( 415 ) ( 415 ) Repurchase of Class A common stock ( 32,100 ) ( 32 ) ( 348 ) - - ( 380 ) Restricted stock issued 57,922 58 ( 58 ) - - - Restricted stock forfeiture ( 8,625 ) ( 8 ) 8 - - - Exercise of stock options 38,000 38 285 - - 323 Dividend payment - - - ( 2,033 ) - ( 2,033 ) Stock-based compensation - - 736 - - 736 Balance at June 30, 2024 19,630,632 $ 19,631 $ 305,835 $ ( 79,760 ) $ ( 44,686 ) $ 201,020 The accompanying notes are an integral part of these unaudited consolidated financial statements. The accompanying notes are an integral part of these consolidated financial statements. Table of Contents 8 USCB Financial Holdings, Inc. Q2 2025 Form 10-Q USCB FINANCIAL HOLDINGS, INC. Consolidated Statements of Cash Flows - Unaudited (Dollars in thousands) Six Months Ended June 30, 2025 2024 Cash flows from operating activities: Net income $ 15,798 $ 10,821 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 1,712 1,196 Depreciation and amortization 298 286 Accretion of premiums on securities, net ( 728 ) ( 228 ) Amortization of deferred loan fees, net 280 100 Stock-based compensation 1,482 736 Gain on sale of available for sale securities, net - ( 14 ) Gain on sale of loans held for sale, net ( 676 ) ( 484 ) Proceeds from the sale of loans held for sale 9,745 6,049 Origination of loans held for sale ( 9,069 ) ( 5,565 ) Increase in cash surrender value of bank owned life insurance ( 955 ) ( 826 ) Decrease in deferred tax assets 5,040 3,393 Net change in operating assets and liabilities: Accrued interest receivable ( 340 ) ( 850 ) Other assets ( 6,586 ) ( 1,198 ) Accrued interest and other liabilities 16,667 12,991 Net cash provided by operating activities 32,668 26,407 Cash flows from investing activities: Proceeds from maturities and pay-downs of investment securities held to maturity 6,044 5,455 Purchase of investment securities available for sale ( 31,676 ) ( 52,449 ) Proceeds from maturities and pay-downs of investment securities available for sale 11,063 9,630 Proceeds from sales of investment securities available for sale - 34,753 Net increase in loans held for investment ( 71,439 ) ( 43,821 ) Purchase of loans held for investment ( 70,015 ) ( 44,691 ) Additions to premises and equipment ( 94 ) ( 178 ) Purchase of bank owned life insurance ( 4,000 ) - Proceeds from the redemption of Federal Home Loan Bank stock 8,170 4,798 Purchase of Federal Home Loan Bank stock ( 5,727 ) ( 177 ) Net cash used in investment activities ( 157,674 ) ( 86,680 ) Cash flows from financing activities: Proceeds from issuance of Class A common stock, net 317 323 Cash dividends paid ( 4,010 ) ( 2,033 ) Repurchase of Class A common stock ( 174 ) ( 380 ) Net increase in deposits 161,657 119,562 Proceeds from FHLB advances 117,000 - Proceeds from other borrowings - 80,000 Repayments on Federal Home Loan Bank advances ( 172,000 ) ( 101,000 ) Net cash provided by financing activities 102,790 96,472 Net increase (decrease) in cash and cash equivalents ( 22,216 ) 36,199 Cash and cash equivalents at beginning of period 77,035 41,062 Cash and cash equivalents at end of period $ 54,819 $ 77,261 Supplemental disclosure of cash flow information: Interest paid $ 29,167 $ 28,538 The accompanying notes are an integral part of these unaudited consolidated financial statements. Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 9 USCB Financial Holdings, Inc. Q2 2025 Form 10-Q 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Overview USCB Financial Holdings, Inc., a Florida corporation incorporated in 2021, is a bank holding company with one direct wholly owned subsidiary, U.S. Century Bank (the “Bank”), together referred to as “the Company”. The Bank, established in 2002, is a Florida state-chartered, non-member financial institution providing financial services through its banking centers located in South Florida. The Bank owns a subsidiary, Florida Peninsula Title LLC, that offers our clients title insurance policies for real estate transactions closed at the Bank. Licensed in the State of Florida and approved by the Department of Insurance Regulation, Florida Peninsula Title LLC began operations in 2021. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with instructions to Form 10-Q and do not include all the information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. All adjustments consisting of normally recurring accruals that, in the opinion of management, are necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. These unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes appearing in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024. Principles of Consolidation The Company consolidates entities in which it has a controlling financial interest. Intercompany transactions and balances are eliminated in consolidation. Use of Estimates To prepare financial statements in conformity with U.S. GAAP, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements. The most significant estimate impacting the Company’s consolidated financial statements is the allowance for credit losses (“ACL”). Reclassifications Certain amounts in prior period consolidated financial statements have been reclassified to conform to the current presentation. Reclassifications had no impact on prior period net income or stockholders’ equity. Recently Issued Accounting Standards Adoption of New Accounting Standards Improvements to Income Tax Disclosures In December 2023, the FASB issued Accounting Standards Update (ASU) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU pertains to disclosures regarding effective tax rates and cash income taxes paid with the goal of providing stakeholders with more transparent and relevant information. This ASU is effective for public business entities for annual periods beginning after December 15, 2024. The Company adopted this ASU 2023-09 effective January 1, 2025. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements. Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 10 USCB Financial Holdings, Inc. Q2 2025 Form 10-Q 2. INVESTMENT SECURITIES The following tables present a summary of the amortized cost, unrealized or unrecognized gains and losses, and fair value of investment securities at the dates indicated (in thousands): June 30, 2025 Available-for-sale: Amortized Cost Unrealized Gains Unrealized Losses Fair Value U.S. Government Agency $ 16,308 $ 18 $ ( 1,476 ) $ 14,850 Collateralized mortgage obligations 97,459 13 ( 20,748 ) 76,724 Mortgage-backed securities - residential 62,002 9 ( 11,024 ) 50,987 Mortgage-backed securities - commercial 104,782 3 ( 8,261 ) 96,524 Municipal securities 24,885 - ( 5,054 ) 19,831 Bank subordinated debt securities 26,873 250 ( 657 ) 26,466 $ 332,309 $ 293 $ ( 47,220 ) $ 285,382 Held-to-maturity: Amortized Cost Unrecognized Gains Unrecognized Losses Fair Value U.S. Government Agency $ 41,716 $ 22 $ ( 4,154 ) $ 37,584 Collateralized mortgage obligations 54,312 266 ( 6,641 ) 47,937 Mortgage-backed securities - residential 38,404 319 ( 4,168 ) 34,555 Mortgage-backed securities - commercial 15,182 - ( 1,293 ) 13,889 Corporate bonds 9,133 - ( 221 ) 8,912 $ 158,747 $ 607 $ ( 16,477 ) $ 142,877 Allowance for credit losses - securities held-to-maturity ( 7 ) Securities held-to maturity, net of allowance for credit losses $ 158,740 December 31, 2024 Available-for-sale: Amortized Cost Unrealized Gains Unrealized Losses Fair Value U.S. Government Agency $ 14,279 $ 14 $ ( 1,668 ) $ 12,625 Collateralized mortgage obligations 101,808 15 ( 22,918 ) 78,905 Mortgage-backed securities - residential 58,995 1 ( 12,063 ) 46,933 Mortgage-backed securities - commercial 86,604 40 ( 7,905 ) 78,739 Municipal securities 24,925 - ( 5,614 ) 19,311 Bank subordinated debt securities 24,314 438 ( 1,044 ) 23,708 $ 310,925 $ 508 $ ( 51,212 ) $ 260,221 Held-to-maturity: Amortized Cost Unrecognized Gains Unrecognized Losses Fair Value U.S. Government Agency $ 42,538 $ - $ ( 5,094 ) $ 37,444 Collateralized mortgage obligations 56,987 57 ( 7,785 ) 49,259 Mortgage-backed securities - residential 40,681 53 ( 4,613 ) 36,121 Mortgage-backed securities - commercial 15,272 - ( 1,385 ) 13,887 Corporate bonds 9,222 - ( 393 ) 8,829 $ 164,700 $ 110 $ ( 19,270 ) $ 145,540 Allowance for credit losses - securities held-to-maturity ( 6 ) Securities held-to maturity, net of allowance for credit losses $ 164,694 Transfers of debt securities into the HTM category from the AFS category are made at fair value as of the date of transfer. The unrealized gain or loss at the date of transfer is retained in AOCI and in the carrying value of the HTM securities and there is no impact to net income. Such amounts are amortized over the remaining life of the security. The Company made two transfers from AFS to HTM portfolios in 2022. During the quarter ended June 30, 2025 there were no investment securities that were transferred from AFS to HTM. For the three months ended June 30, 2025, total amortization out of AOCI for net unrealized losses on securities transferred Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 11 USCB Financial Holdings, Inc. Q2 2025 Form 10-Q in 2022 from AFS to HTM was $ 67 thousand and $ 134 thousand for the six month ended June 30, 2025. At June 30, 2025, the fair value of the securities was $ 99.9 million and the balance of the net unrealized loss was $ 9.1 million. For the quarter ended June 30, 2024, total amortization out of AOCI for the net unrealized losses on securities transferred from AFS to HTM was $ 66 thousand and $ 133 thousand for the six month ended June 30, 2024. At June 30, 2024, the fair value of the securities was $ 103.7 million and the balance of the net unrealized losses retained in AOCI was $ 9.4 million. The measurement of expected credit losses under the current expected credit loss (“CECL”) methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. CECL requires a loss reserve for securities classified as held-to-maturity (“HTM”). The reserve should reflect historical credit performance as well as the impact of projected economic forecasts. For U.S. Government bonds and U.S. Agency issued bonds classified as HTM, the explicit guarantee of the U.S. Government is sufficient to conclude that a credit loss reserve is not required. The reserve requirement is for three primary assets groups: municipal bonds, corporate bonds, and non-agency securitizations. The Company calculates quarterly the loss reserve utilizing Moody’s ImpairmentStudio. The CECL measurement for investment securities incorporates historical data, containing defaults and recoveries information, and Moody’s baseline economic forecast. The solution uses the probability of default/loss given default (“PD/LGD”) approach. PD represents the likelihood a borrower will default. Within the Moody’s model, this is determined using historical default data, adjusted for the current economic environment. LGD projects the expected loss if a borrower were to default. The Company monitors the credit quality of HTM securities through the use of credit ratings. Credit ratings are monitored by the Company on at least a quarterly basis. As of June 30, 2025 and December 31, 2024, all HTM securities held by the Company were rated investment grade. At June 30, 2025 HTM securities included $ 149.6 million of U.S. Government and U.S. Agency 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 $ 9.1 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 $ 7 thousand ACL as of June 30, 2025. The book value for debt securities classified as HTM represents amortized cost less the ACL related to these securities. The Company’s investment portfolio includes Available-for-Sale (“AFS”) debt securities, which are carried at fair value with unrealized gains and losses recognized in accumulated other comprehensive income (loss) (“AOCI”), net of applicable taxes. The Company evaluates whether the declines in fair value are 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, bond vintage, remaining payment terms, prepayment speeds and analysis of macro-economic conditions. When the fair value of an AFS security is less than its amortized cost and the decline is attributable to credit-related factors, an allowance for credit losses (“ACL”) is recorded. As a result of this evaluation, the Company concluded that no allowance was required on AFS securities as of June 30, 2025. Information pertaining to investment securities with gross unrealized losses, aggregated by investment category and length of time that those individual securities have been in a continuous loss position, are presented as of the following dates (in thousands): June 30, 2025 Less than 12 months 12 months or more Total Available-for-Sale: Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses U.S. Government Agency $ 3,163 $ ( 48 ) $ 8,083 $ ( 1,428 ) $ 11,246 $ ( 1,476 ) Collateralized mortgage obligations - - 72,887 ( 20,748 ) 72,887 ( 20,748 ) Mortgage-backed securities - residential 5,980 ( 29 ) 43,649 ( 10,995 ) 49,629 ( 11,024 ) Mortgage-backed securities - commercial 60,802 ( 1,637 ) 32,732 ( 6,624 ) 93,534 ( 8,261 ) Municipal securities - - 19,830 ( 5,054 ) 19,830 ( 5,054 ) Bank subordinated debt securities 6,039 ( 18 ) 14,333 ( 639 ) 20,372 ( 657 ) $ 75,984 $ ( 1,732 ) $ 191,514 $ ( 45,488 ) $ 267,498 $ ( 47,220 ) Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 12 USCB Financial Holdings, Inc. Q2 2025 Form 10-Q December 31, 2024 Less than 12 months 12 months or more Total Available-for-sale: Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses U.S. Government Agency $ 4,468 $ ( 76 ) $ 7,451 $ ( 1,592 ) $ 11,919 $ ( 1,668 ) Collateralized mortgage obligations 3,101 ( 23 ) 72,952 ( 22,895 ) 76,053 ( 22,918 ) Mortgage-backed securities - residential 972 ( 11 ) 44,600 ( 12,052 ) 45,572 ( 12,063 ) Mortgage-backed securities - commercial 44,411 ( 1,265 ) 27,874 ( 6,640 ) 72,285 ( 7,905 ) Municipal securities - - 19,311 ( 5,614 ) 19,311 ( 5,614 ) Bank subordinated debt securities - - 14,352 ( 1,044 ) 14,352 ( 1,044 ) $ 52,952 $ ( 1,375 ) $ 186,540 $ ( 49,837 ) $ 239,492 $ ( 51,212 ) The contractual cash flows for these securities are guaranteed by U.S. government sponsored entities. The municipal bonds are of high credit quality and the declines in fair value are not due to credit quality. Based on the assessment of these mitigating factors, management believed that the unrealized losses on these debt security holdings are a function of changes in investment spreads and interest rate movements and not changes in credit quality. Gains and losses on the sale of securities are recorded on the trade date and are determined on the specific identification basis. There were no sales or calls of securities nor gains or losses of securities during the three months and six months ended June 30, 2025. The following table presents the proceeds, realized gross gains and realized gross losses on sales and calls of AFS debt securities for the three and six months ended June 30, 2024 (in thousands): Three Months Ended June 30, Six Months Ended June 30, Available-for-sale: 2025 2024 2025 2024 Proceeds from sale and call of securities $ - $ 34,753 $ - $ 34,753 Gross gains $ - $ 195 $ - $ 195 Gross losses - ( 181 ) - ( 181 ) Net realized gain $ - $ 14 $ - $ 14 The amortized cost and fair value of investment securities, by contractual maturity, are shown below as of the date indicated (in thousands). Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately. Available-for-sale Held-to-maturity June 30, 2025: Amortized Cost Fair Value Amortized Cost Fair Value Due within one year $ - $ - $ 9,133 $ 8,912 Due after one year through five years 7,925 7,978 - - Due after five years through ten years 39,593 35,066 - - Due after ten years 4,240 3,253 - - U.S. Government Agency 16,308 14,850 41,716 37,584 Collateralized mortgage obligations 97,459 76,724 54,312 47,937 Mortgage-backed securities - residential 62,002 50,987 38,404 34,555 Mortgage-backed securities - commercial 104,782 96,524 15,182 13,889 $ 332,309 $ 285,382 $ 158,747 $ 142,877 At June 30, 2025, there were no securities held in the portfolio from any one issuer in an amount greater than 10% of total stockholders’ equity other than the U.S. Government and U.S. Government Agency securities. All the collateralized mortgage obligations and mortgage-backed securities at June 30, 2025 and December 31, 2024 were issued by U.S. Government entities. The Bank is a Qualified Public Depository (“QPD”) with the State of Florida. As a QPD, the Bank has the legal authority to maintain public deposits from cities, municipalities, and the State of Florida. These public deposits are secured by securities pledged to the State of Florida at a ratio of 25 % of the quarter daily average balance at June 30, 2025 and 50 % Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 13 USCB Financial Holdings, Inc. Q2 2025 Form 10-Q at December 31, 2024. The Bank must also maintain a minimum amount of pledged securities to be in the public funds program. As of June 30, 2025, the Bank had a total of $ 176.1 million in deposits under the public funds program and pledged to the State of Florida for these public funds were sixteen bonds with an aggregate fair value of $ 49.6 million. As of December 31, 2024, the Bank had a total of $ 110.5 million in deposits under the public funds program and pledged to the State of Florida for these public funds were twenty-one bonds with an aggregate fair value of $ 66.1 million. 3. LOANS The following table is a summary of the distribution of loans held for investment by type (dollars in thousands): June 30, 2025 December 31, 2024 Total Percent of Total Total Percent of Total Residential Real Estate $ 307,020 14.6 % $ 289,961 14.8 % Commercial Real Estate 1,206,621 57.3 % 1,136,417 57.8 % Commercial and Industrial 263,966 12.5 % 258,311 13.1 % Correspondent Banks 110,155 5.2 % 82,438 4.2 % Consumer and Other 218,426 10.4 % 198,091 10.1 % Total gross loans 2,106,188 100.0 % 1,965,218 100.0 % Plus: Deferred fees/costs 7,130 7,630 Total loans net of deferred fees/costs 2,113,318 1,972,848 Less: Allowance for credit losses 24,933 24,070 Total net loans $ 2,088,385 $ 1,948,778 At June 30, 2025 and December 31, 2024, the Company had $ 609.4 million and $ 518.8 million, respectively, of commercial real estate and residential mortgage loans pledged as collateral for lines of credit with the FHLB of Atlanta and the Federal Reserve Bank of Atlanta. Allowance for Credit Losses In general, the Company utilizes the Discounted Cash Flow (“DCF”) method or the Weighted-Average Remaining Maturity (“WARM”) methodology to estimate the quantitative portion of the ACL for loan pools. The DCF method uses a loss driver analysis (“LDA”) and discounted cash flow analyses. Management engaged advisors and consultants with expertise in CECL model development to assist in development of a LDA based on regression models and supportable forecast. Peer group data obtained from FFIEC Call Report filings is used to inform regression analyses to quantify the impact of reasonable and supportable forecasts in projective models. Economic forecasts applied to regression models to estimate probability of default for loan receivables use at least one of the following economic indicators: civilian unemployment rate (national), real gross domestic product growth (national GDP) or the House Price Index (“HPI”). For each of the segments in which the WARM methodology is used, the long-term average loss rate is calculated and applied on a quarterly basis for the remaining life of the pool. Adjustments for economic expectations are made through qualitative factors. Qualitative factors (“Q-Factors”) used in the ACL methodology include: • Changes in lending policies, procedures, and strategies • Changes in international, national, regional, and local conditions • Changes in nature and volume of portfolio • Changes in the volume and severity of past due loans and other similar conditions • Concentration risk • Changes in the value of underlying collateral • The effect of other external factors: e.g., competition, legal, and regulatory requirements • Changes in lending management, among others Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 14 USCB Financial Holdings, Inc. Q2 2025 Form 10-Q Changes in the ACL for the three and six months ended June 30, 2025 and 2024 were as follows (in thousands): Residential Real Estate Commercial Real Estate Commercial and Industrial Correspondent Banks Consumer and Other Total Three Months Ended June 30, 2025 Beginning balance $ 5,115 $ 9,197 $ 4,434 $ 817 $ 5,177 $ 24,740 Provision for credit losses (1) 356 294 73 57 115 895 Recoveries 6 - 1 - 1 8 Charge-offs - - - - ( 710 ) ( 710 ) Ending Balance $ 5,477 $ 9,491 $ 4,508 $ 874 $ 4,583 $ 24,933 Six Months Ended June 30, 2025 Beginning balance $ 5,121 $ 8,788 $ 4,633 $ 654 $ 4,874 $ 24,070 Provision for credit losses (2) 344 703 ( 131 ) 220 431 1,567 Recoveries 12 - 6 - 1 19 Charge-offs - - - - ( 723 ) ( 723 ) Ending Balance $ 5,477 $ 9,491 $ 4,508 $ 874 $ 4,583 $ 24,933 (1) Provision for credit losses excludes a $ 134 thousand provision due to unfunded commitments included in accrued interest and other liabilities and a $ 2 thousand provision related to investment securities held to maturity. (2) Provision for credit losses excludes a $ 144 thousand provision due to unfunded commitments included in accrued interest and other liabilities and a $ 1 thousand provision related to investment securities held to maturity. Residential Real Estate Commercial Real Estate Commercial and Industrial Correspondent Banks Consumer and Other Total Three Months Ended June 30, 2024 Beginning balance $ 2,930 $ 10,302 $ 4,272 $ 794 $ 3,156 $ 21,454 Provision for credit losses (1) 257 ( 30 ) 474 98 ( 25 ) 774 Recoveries 6 - 1 - - 7 Charge-offs - - - - ( 5 ) ( 5 ) Ending Balance $ 3,193 $ 10,272 $ 4,747 $ 892 $ 3,126 $ 22,230 Six Months Ended June 30, 2024 Beginning balance $ 2,695 $ 10,366 $ 3,974 $ 911 $ 3,138 $ 21,084 Provision for credit losses (2) 492 ( 94 ) 762 ( 19 ) ( 4 ) 1,137 Recoveries 6 - 11 - 2 19 Charge-offs - - - - ( 10 ) ( 10 ) Ending Balance $ 3,193 $ 10,272 $ 4,747 $ 892 $ 3,126 $ 22,230 (1) Provision for credit losses excludes a $ 15 thousand provision due to unfunded commitments included in accrued interest and other liabilities and a $ 3 thousand release related to investment securities held to maturity. (2) Provision for credit losses excludes a $ 58 thousand provision due to unfunded commitments included in accrued interest and other liabilities and $ 1 thousand provision related to investment securities held to maturity. At June 30, 2025, the ACL for loans was $ 24.9 million compared to $ 24.1 million at December 31, 2024. The increase of $ 863 thousand in the ACL was due to loan growth. Charge offs related to loans for the three months ended June 30, 2025 were $ 709 thousand originated in 2022 and $ 1 originated in 2025. Charge offs for the six months ended June 30, 2025 were $ 709 thousand originated in 2022 and $ 14 thousand originated in 2025. Charge offs related to loans for the three months ended June 30, 2024 totaled $ 5 thousand and were all originated in 2024. Charge offs for the six months ended June 30, 2024 totaled $ 10 thousand and were all originated in 2024. Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 15 USCB Financial Holdings, Inc. Q2 2025 Form 10-Q The ACL and the outstanding balances in the specified loan categories as of June 30, 2025 and December 31, 2024 are as follows (in thousands): Residential Real Estate Commercial Real Estate Commercial and Industrial Correspondent Banks Consumer and Other Total June 30, 2025: Allowance for credit losses: Individually evaluated $ 35 $ - $ 46 $ - $ - $ 81 Collectively evaluated 5,442 9,491 4,462 874 4,583 24,852 Balances, end of period $ 5,477 $ 9,491 $ 4,508 $ 874 $ 4,583 $ 24,933 Loans: Individually evaluated $ 6,715 $ - $ 1,075 $ - $ - $ 7,790 Collectively evaluated 300,305 1,206,621 262,891 110,155 218,426 2,098,398 Balances, end of period $ 307,020 $ 1,206,621 $ 263,966 $ 110,155 $ 218,426 $ 2,106,188 December 31, 2024: Allowance for credit losses: Individually evaluated $ 40 $ - $ 27 $ - $ 651 $ 718 Collectively evaluated 5,081 8,788 4,606 654 4,223 23,352 Balances, end of period $ 5,121 $ 8,788 $ 4,633 $ 654 $ 4,874 $ 24,070 Loans: Individually evaluated $ 6,788 $ - $ 690 $ - $ 1,990 $ 9,468 Collectively evaluated 283,173 1,136,417 257,621 82,438 196,101 1,955,750 Balances, end of period $ 289,961 $ 1,136,417 $ 258,311 $ 82,438 $ 198,091 $ 1,965,218 Credit Quality Indicators The Company grades loans based on the estimated capability of the borrower to repay the contractual obligation of the loan agreement based on relevant information which may include: current financial information on the borrower, historical payment experience, credit documentation and other current economic trends. Internal credit risk grades are evaluated periodically. The Company's internally assigned credit risk grades are as follows: Pass – Loans indicate different levels of satisfactory financial condition and performance. Special Mention – Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date. Substandard – Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligator or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Doubtful – Loans classified as doubtful have all the weaknesses inherent in those classified at substandard, with the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Loss – Loans classified as loss are considered uncollectible. Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 16 USCB Financial Holdings, Inc. Q2 2025 Form 10-Q Loan credit exposures by internally assigned grades are presented below for the periods indicated (in thousands): As of June 30, 2025 Term Loans by Origination Year Revolving Loans Total 2025 2024 2023 2022 2021 Prior Residential real estate Pass $ 49,259 $ 96,857 $ 35,326 $ 26,533 $ 21,750 $ 63,430 $ 10,381 $ 303,536 Special Mention - - - - - 2,925 - 2,925 Substandard - 442 - - - 117 - 559 Total 49,259 97,299 35,326 26,533 21,750 66,472 10,381 307,020 Commercial real estate Pass 133,847 181,987 118,108 308,006 139,583 312,652 4,687 1,198,870 Special Mention - - 4,632 - - 695 - 5,327 Substandard - - - - 1,743 681 - 2,424 Total 133,847 181,987 122,740 308,006 141,326 314,028 4,687 1,206,621 Commercial and industrial Pass 20,713 65,009 75,054 33,547 28,671 13,652 23,696 260,342 Special Mention - 74 - - 891 - - 965 Substandard - - - - 489 1,394 776 2,659 Total 20,713 65,083 75,054 33,547 30,051 15,046 24,472 263,966 Correspondent banks Pass 102,784 7,371 - - - - - 110,155 Total 102,784 7,371 - - - - - 110,155 Consumer and other loans Pass 44,714 38,001 41,557 64,426 26,776 1,263 1,689 218,426 Total 44,714 38,001 41,557 64,426 26,776 1,263 1,689 218,426 Total Loans Pass 351,317 389,225 270,045 432,512 216,780 390,997 40,453 2,091,329 Special Mention - 74 4,632 - 891 3,620 - 9,217 Substandard - 442 - - 2,232 2,192 776 5,642 Doubtful - - - - - - - - Total $ 351,317 $ 389,741 $ 274,677 $ 432,512 $ 219,903 $ 396,809 $ 41,229 $ 2,106,188 Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 17 USCB Financial Holdings, Inc. Q2 2025 Form 10-Q As of December 31, 2024 Term Loans by Origination Year Revolving Loans Total 2024 2023 2022 2021 2020 Prior Residential real estate Pass $ 109,590 $ 39,666 $ 34,315 $ 23,039 $ 5,791 $ 66,115 $ 10,885 $ 289,401 Substandard - - - - - 560 - 560 Total 109,590 39,666 34,315 23,039 5,791 66,675 10,885 289,961 Commercial real estate Pass 175,023 130,503 317,971 175,535 98,695 231,558 4,680 1,133,965 Substandard - - - 1,765 687 - - 2,452 Total 175,023 130,503 317,971 177,300 99,382 231,558 4,680 1,136,417 Commercial and industrial Pass 68,405 80,644 33,962 30,495 3,891 11,839 26,795 256,031 Substandard - - - 519 - 1,093 668 2,280 Total 68,405 80,644 33,962 31,014 3,891 12,932 27,463 258,311 Correspondent banks Pass 82,438 - - - - - - 82,438 Total 82,438 - - - - - - 82,438 Consumer and other loans Pass 40,921 51,392 65,603 35,181 491 815 1,698 196,101 Substandard - - 1,990 - - - - 1,990 Total 40,921 51,392 67,593 35,181 491 815 1,698 198,091 Total Loans Pass 476,377 302,205 451,851 264,250 108,868 310,327 44,058 1,957,936 Special Mention - - - - - - - - Substandard - - 1,990 2,284 687 1,653 668 7,282 Doubtful - - - - - - - - Total $ 476,377 $ 302,205 $ 453,841 $ 266,534 $ 109,555 $ 311,980 $ 44,726 $ 1,965,218 Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 18 USCB Financial Holdings, Inc. Q2 2025 Form 10-Q Loan Aging The Company also considers the performance of loans in grading and in evaluating the credit quality of the loan portfolio. The Company analyzes credit quality and loan grades based on payment performance and the aging status of the loan. The following tables include an aging analysis of accruing loans and total non-accruing loans as of June 30, 2025 and December 31, 2024 (in thousands): Accruing As of June 30, 2025 Current Past Due 30- 89 Days Past Due 90 Days or > and Still Accruing Total Accruing Non-Accrual Total Loans Residential real estate: Home equity lines of credit and other $ 1,139 $ - $ - $ 1,139 $ - $ 1,139 1-4 family residential 241,492 3,424 - 244,916 442 245,358 Condo residential 60,284 121 - 60,405 118 60,523 302,915 3,545 - 306,460 560 307,020 Commercial real estate: Land and construction 78,786 - - 78,786 - 78,786 Multi-family residential 217,339 - - 217,339 - 217,339 Condo commercial 56,986 - - 56,986 - 56,986 Commercial property 853,424 86 - 853,510 - 853,510 1,206,535 86 - 1,206,621 - 1,206,621 Commercial and industrial: Secured 239,496 381 - 239,877 806 240,683 Unsecured 23,283 - - 23,283 - 23,283 262,779 381 - 263,160 806 263,966 Correspondent banks 110,155 - - 110,155 - 110,155 Consumer and other 218,426 - - 218,426 - 218,426 Total $ 2,100,810 $ 4,012 $ - $ 2,104,822 $ 1,366 $ 2,106,188 Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 19 USCB Financial Holdings, Inc. Q2 2025 Form 10-Q Accruing As of December 31, 2024: Current Past Due 30-89 Days Past Due 90 Days or > and Still Accruing Total Accruing Non-Accrual Total Loans Residential real estate: Home equity lines of credit and other $ 1,120 $ - $ - $ 1,120 $ - $ 1,120 1-4 family residential 225,334 2,886 - 228,220 - 228,220 Condo residential 58,956 1,351 - 60,307 314 60,621 285,410 4,237 - 289,647 314 289,961 Commercial real estate: Land and construction 40,090 - - 40,090 - 40,090 Multi-family residential 214,912 - - 214,912 - 214,912 Condo commercial 57,402 - - 57,402 - 57,402 Commercial property 823,326 687 - 824,013 - 824,013 1,135,730 687 - 1,136,417 - 1,136,417 Commercial and industrial: Secured 232,779 521 - 233,300 403 233,703 Unsecured 24,608 - - 24,608 - 24,608 257,387 521 - 257,908 403 258,311 Correspondent banks 82,438 - - 82,438 - 82,438 Consumer and other 196,101 - - 196,101 1,990 198,091 Total $ 1,957,066 $ 5,445 $ - $ 1,962,511 $ 2,707 $ 1,965,218 Non-accrual Status The following table includes the amortized cost basis of loans on non-accrual status as of June 30, 2025 and as of December 31, 2024 (in thousands): June 30, 2025 Non-accrual Loans With No Related Allowance Non-accrual Loans With Related Allowance Total Non- accruals Residential real estate $ 560 $ - $ 560 Commercial and industrial 778 28 806 Total $ 1,338 $ 28 $ 1,366 December 31, 2024 Non-accrual Loans With No Related Allowance Non-accrual Loans With Related Allowance Total Non- accruals Residential real estate $ 314 $ - $ 314 Commercial and industrial - 403 403 Consumer and other - 1,990 1,990 Total $ 314 $ 2,393 $ 2,707 Accrued interest receivable is excluded from the estimate of credit losses. There was no interest income recognized attributable to non-accrual loans outstanding during the three months ended June 30, 2025 and 2024. Interest income on these loans for the three months ended June 30, 2025 and 2024, would have been approximately $ 29 thousand and $ 9 thousand, respectively, had these loans performed in accordance with their original terms. Interest income on these loans for the six months ended June 30, 2025 and 2024, would have been approximately $ 80 thousand and $ 20 thousand, respectively, had these loans performed in accordance with their original terms. Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 20 USCB Financial Holdings, Inc. Q2 2025 Form 10-Q Collateral-Dependent Loans A loan is collateral dependent when the borrower is experiencing financial difficulty and repayment of the loan is expected to be provided substantially through the sale or operation of the collateral. The following table includes the amortized cost basis of collateral dependent loans related to borrowers experiencing financial difficulty by type of collateral as of June 30, 2025 and December 31, 2024 (in thousands): June 30, 2025 Collateral Type Residential Real Estate Specific Reserve Residential real estate $ 560 $ - Total $ 560 $ - December 31, 2024 Collateral Type Boat Specific Reserve Consumer and other $ 1,990 $ 651 Total $ 1,990 $ 651 Management evaluates on an individual basis collateral dependent loans using the fair value of the collateral method to determine if a credit loss reserve is necessary. The ACL is measured based on the difference of the fair value of the collateral and the recorded investment (amortized cost basis of the loan). If the final collateral valuation is less than the recorded investment of the loan, a reserve amount is calculated. If the collateral valuation is equal to or greater than the recorded investment of the loan, no reserve is determined. Loan Modifications to Borrowers Experiencing Financial Difficulties The Company had no new modifications to borrowers experiencing financial difficulties for the three and six months ended June 30, 2025 and three months ended June 30, 2024. The Company had one new modification to borrowers experiencing financial difficulties for the six months ended June 30, 2024. The following table presents newly restructured loans, by type of modification, which occurred during the six months ended June 30, 2024 (in thousands): Recorded Investment Prior to Modification Recorded Investment After Modification Number of Loans Combination Modifications Total Modifications Number of Loans Combination Modifications Total Modifications Commercial and industrial 1 $ 468 $ 468 1 $ 468 $ 468 Total 1 $ 468 $ 468 1 $ 468 $ 468 The loan modification for the borrower experiencing financial difficulty at June 30, 2024 included a combination of rate and maturity modifications. The rate was modified from a variable rate to a fixed rate of 8.0 %. The original maturity of September 2029 was extended to January 2034. There were no existing loan modifications that subsequently defaulted during either the three or the six months ended June 30, 2025 and June 30, 2024. Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 21 USCB Financial Holdings, Inc. Q2 2025 Form 10-Q 4. INCOME TAXES The Company’s provision for income taxes is presented in the following table for the periods indicated (in thousands): Six Months Ended June 30, 2025 2024 Current: Federal $ - $ - State - - Total current - - Deferred: Federal 3,948 2,653 State 1,091 740 Total deferred 5,039 3,393 Total tax expense $ 5,039 $ 3,393 The actual income tax expense for the six months ended June 30, 2025 and 2024 differs from the statutory tax expense for the periods (computed by applying the U.S. federal corporate tax rate of 21 % for both 2025 and 2024 periods to income before provision for income taxes) as follows (in thousands): Six Months Ended June 30, 2025 2024 Federal taxes at statutory rate $ 4,376 $ 2,985 State income taxes, net of federal tax benefit 905 618 Bank owned life insurance ( 242 ) ( 210 ) Total tax expense $ 5,039 $ 3,393 The Company’s deferred tax assets and deferred tax liabilities as of the dates indicated were (in thousands): June 30, 2025 December 31, 2024 Deferred tax assets: Net operating loss $ 3,942 $ 9,276 Allowance for credit losses 6,319 6,100 Lease liability 1,786 2,142 Unrealized losses on available for sale securities 14,209 15,200 Depreciable property 31 38 Equity compensation 889 686 Accruals 367 520 Other, net 70 65 Deferred tax assets: 27,613 34,027 Deferred tax liabilities: Deferred loan cost ( 1,807 ) ( 1,934 ) Lease right of use asset ( 1,786 ) ( 2,142 ) Deferred expenses ( 323 ) ( 224 ) Cash flow hedge ( 34 ) ( 81 ) Deferred tax liabilities ( 3,950 ) ( 4,381 ) Net deferred tax assets $ 23,663 $ 29,646 The Company has approximately $ 11.7 million of federal and $ 34.4 million of state net operating loss carryforwards expiring in various amounts between 2031 and 2036 and which are limited to offset, to the extent permitted, future taxable earnings of the Company. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 22 USCB Financial Holdings, Inc. Q2 2025 Form 10-Q Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. The major tax jurisdictions where the Company files income tax returns are the U.S. federal jurisdiction and the State of Florida. With few exceptions, the Company is no longer subject to U.S. federal and state income tax return examinations by tax authorities for years before 2022. For the six months ended June 30, 2025 and 2024, the Company did no t have any unrecognized tax benefits as a result of tax positions taken during a prior period or during the current period. Additionally, no interest or penalties were recorded as a result of tax uncertainties. 5. OFF-BALANCE SHEET ARRANGEMENTS The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business in order to meet the financial needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include unfunded commitments under lines of credit, commitments to extend credit, standby and commercial letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Company’s Consolidated Balance Sheets. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instruments for unused lines of credit, and standby letters of credit is represented by the contractual amount of these commitments. A summary of the amounts of the Company's financial instruments with off-balance sheet risk are shown below at June 30, 2025 and December 31, 2024 (in thousands): June 30, 2025 December 31, 2024 Commitments to grant loans and unfunded lines of credit $ 124,051 $ 122,578 Standby and commercial letters of credit 2,616 5,389 Total $ 126,667 $ 127,967 Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses. Unfunded lines of credit and revolving credit lines are commitments for possible future extensions of credit to existing customers. These lines of credit are uncollateralized and usually do not contain a specified maturity date and ultimately may not be drawn upon to the total extent to which the Company committed. Standby and commercial letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing arrangements. Essentially all letters of credit have fixed maturity dates and since many of them expire without being drawn upon, they do not generally present a significant liquidity risk to the Company. 6. DERIVATIVES The Company utilizes interest rate swap agreements as part of its asset-liability management strategy to help manage its interest rate risk exposure. The notional amount of the interest rate swaps does not represent actual amounts exchanged by the parties. The amounts exchanged are determined by reference to the notional amount and the other terms of the individual interest rate swap agreements. Interest Rate Swaps Designated as a Cash Flow Hedge As of June 30, 2025, the Company had two interest rate swap agreements with a notional aggregate amount of $ 50 million that were designated as cash flow hedges of certificates of deposit. The interest rate swap agreements have an average maturity of 0.88 years, a weighted average fixed-rate paid of 3.59 %, and with a weighted average 3-month compound SOFR being received. As of December 31, 2024, the Company had two interest rate swap agreements with a notional aggregate amount of $ 50 million that were designated as cash flow hedges of certificates of deposit. The interest rate swap agreements have an Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 23 USCB Financial Holdings, Inc. Q2 2025 Form 10-Q average maturity of 1.38 years, a weighted average fixed-rate paid of 3.59 %, and with a weighted average 3-month compound SOFR being received. The changes in fair value of these interest rate swaps are recorded in other assets or accrued interest and other liabilities with a corresponding recognition in other comprehensive income (loss) and subsequently reclassified to earnings when gains or losses are realized. Interest Rate Swaps Designated as Fair Value Hedge The Company had no interest rate swap agreements designated as fair value hedges at June 30, 2025. During the quarter ended September 30, 2024, the Company unwound four fair value interest rate swaps with a notional aggregate amount of $ 200 million. The decision to unwind these swaps was driven by changes in interest rate forecasts and asset- liability management strategies. The early termination fee to unwind the fair value swaps totaled $ 3.7 million. The termination fee allocated to each loan category is being amortized over the remining life of the hedge loans on a monthly straight-line basis with full recognition of the unamortized cost upon the early payoff of the hedge loan. The amortization of the termination fee is reflected in the loan interest income line in the Consolidated Statement of Operations . The remaining unamortized termination fee as of June 30, 2025 was $ 3.2 million. The original maturities of these fair value interest swaps were between 2025 and 2026. The fair value interest rate swap agreements had an average maturity of 1.51 years at the date of their termination. At June 30, 2024, the Company had four interest rate swap agreements with a notional aggregate amount of $ 200 million that were designated as fair value hedges on loans. The interest rate swap agreements have an average maturity of 1.73 years, the weighted average fixed-rate paid is 4.74 %, with the weighted average 3-month compound SOFR being received. Interest Rate Swaps The Company enters into interest rate swaps with its loan customers. The Company had 70 and 60 interest rate swaps with loan customers with an aggregate notional amount of $ 237.8 million and $ 206.3 million at June 30, 2025 and December 31, 2024, respectively. At June 30, 2025, these interest rate swaps mature between 2025 and 2051. The Company entered into corresponding and offsetting derivatives with third parties. The fair value of the liability created by these derivatives requires the Company to provide the counterparty with funds to be held as collateral which the Company reports as other assets under the Consolidated Balance Sheets. While these derivatives represent economic hedges, they do not qualify as hedges for accounting purposes. The following table reflects the Company’s interest rate swaps at the dates indicated (in thousands): Fair Value Notional Amount Collateral Amount Balance Sheet Location Asset Liability June 30, 2025: Derivatives designated as cash flow hedges: Interest rate swaps $ 50,000 $ - Other assets $ 135 $ - Derivatives not designated as hedging instruments: Interest rate swaps related to customer loans $ 237,804 $ 4,981 Other assets/Other liabilities $ 9,260 $ 9,260 December 31, 2024: Derivatives designated as cash flow hedges: Interest rate swaps $ 50,000 $ - Other assets $ 321 $ - Derivatives not designated as hedging instruments: Interest rate swaps related to customer loans $ 206,258 $ 4,943 Other assets/Other liabilities $ 6,869 $ 6,869 7. FAIR VALUE MEASUREMENTS Determination of Fair Value The Company uses fair value measurements to record fair-value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the fair value measurements accounting guidance, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 24 USCB Financial Holdings, Inc. Q2 2025 Form 10-Q between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company's various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions. Fair Value Hierarchy In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded, and the reliability of the assumptions used to determine fair value. Level 1 - Valuation is based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities. Level 2 - Valuation is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. Level 3 - Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value requires significant management judgment or estimation. A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Items Measured at Fair Value on a Recurring Basis AFS investment securities: When instruments are traded in secondary markets and quoted market prices do not exist for such securities, management generally relies on prices obtained from independent vendors or third-party broker-dealers. Management reviews pricing methodologies provided by the vendors and third-party broker-dealers in order to determine if observable market information is being utilized. Securities measured with pricing provided by independent vendors or third- party broker-dealers are classified within Level 2 of the hierarchy and often involve using quoted market prices for similar securities, pricing models or discounted cash flow analyses utilizing inputs observable in the market where available. Derivatives: The fair value of derivatives are measured with pricing provided by third-party participants and are classified within Level 2 of the hierarchy. Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 25 USCB Financial Holdings, Inc. Q2 2025 Form 10-Q The following table represents the Company's assets and liabilities measured at fair value on a recurring basis at June 30, 2025 and December 31, 2024 for each of the fair value hierarchy levels (in thousands): June 30, 2025 December 31, 2024 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Investment securities available for sale: U.S. Government Agency $ - $ 14,850 $ - $ 14,850 $ - $ 12,625 $ - $ 12,625 Collateralized mortgage obligations - 76,724 - 76,724 - 78,905 - 78,905 Mortgage-backed securities - residential - 50,987 - 50,987 - 46,933 - 46,933 Mortgage-backed securities - commercial - 96,524 - 96,524 - 78,739 - 78,739 Municipal securities - 19,831 - 19,831 - 19,311 - 19,311 Bank subordinated debt securities - 26,466 - 26,466 - 23,708 - 23,708 Total - 285,382 - 285,382 - 260,221 - 260,221 Derivative assets - 9,395 - 9,395 - 7,190 - 7,190 Total assets at fair value $ - $ 294,777 $ - $ 294,777 $ - $ 267,411 $ - $ 267,411 Derivative liabilities $ - $ 9,260 $ - $ 9,260 $ - $ 6,869 $ - $ 6,869 Total liabilities at fair value $ - $ 9,260 $ - $ 9,260 $ - $ 6,869 $ - $ 6,869 Items Not Measured at Fair Value The following table presents the carrying amounts and estimated fair values of financial instruments not carried at fair value as of June 30, 2025 and December 31, 2024 (in thousands): Fair Value Hierarchy Carrying Amount Level 1 Level 2 Level 3 Fair Value Amount June 30, 2025: Financial Assets: Cash and due from banks $ 8,386 $ 8,386 $ - $ - $ 8,386 Interest-bearing deposits in banks $ 46,433 $ 46,433 $ - $ - $ 46,433 Investment securities held to maturity, net $ 158,740 $ - $ 142,877 $ - $ 142,877 Loans held for investment, net $ 2,088,385 $ - $ - $ 2,113,423 $ 2,113,423 Accrued interest receivable $ 11,285 $ - $ 1,450 $ 9,835 $ 11,285 Financial Liabilities: Non-interest bearing demand deposits $ 584,895 $ 584,895 $ - $ - $ 584,895 Savings and money market deposits $ 1,248,379 $ 1,248,379 $ - $ - $ 1,248,379 Interest-bearing demand deposits $ 40,597 $ 40,597 $ - $ - $ 40,597 Time deposits $ 461,790 $ - $ 460,962 $ - $ 460,962 FHLB advances and other borrowings $ 108,000 $ - $ 107,975 $ - $ 107,975 Accrued interest payable $ 2,940 $ - $ 2,940 $ - $ 2,940 December 31, 2024: Financial Assets: Cash and due from banks $ 6,986 $ 6,986 $ - $ - $ 6,986 Interest-bearing deposits in banks $ 70,049 $ 70,049 $ - $ - $ 70,049 Investment securities held to maturity $ 164,694 $ - $ 145,540 $ - $ 145,540 Loans held for investment, net $ 1,948,778 $ - $ - $ 1,950,646 $ 1,950,646 Accrued interest receivable $ 10,945 $ - $ 1,372 $ 9,573 $ 10,945 Financial Liabilities: Non-interest bearing demand deposits $ 575,159 $ 575,159 $ - $ - $ 575,159 Savings and money market deposits $ 1,180,809 $ 1,180,809 $ - $ - $ 1,180,809 Interest-bearing demand deposits $ 50,648 $ 50,648 $ - $ - $ 50,648 Time deposits $ 367,388 $ - $ 366,479 $ - $ 366,479 FHLB advances $ 163,000 $ - $ 161,375 $ - $ 161,375 Accrued interest payable $ 2,125 $ - $ 2,125 $ - $ 2,125 Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 26 USCB Financial Holdings, Inc. Q2 2025 Form 10-Q 8. STOCKHOLDERS’ EQUITY Common Stock There were no restricted stock awards issued in the three months ended June 30, 2025. During the six months ended June 30, 2025, the Company issued 124,424 shares of Class A common stock to employees as restricted stock awards pursuant to the Company’s 2015 equity incentive plan. During the second quarter 2024, the Company issued 5,169 shares of Class A common stock to employees as restricted stock awards pursuant to the Company’s 2015 equity incentive plan. For the six month ended June 30, 2024 the Company issued 52,922 shares of Class A common stock to employees as restricted stock awards pursuant to the Company’s 2015 equity incentive plan. During the first quarter 2025, the Company repurchased 9,671 shares of Class A common stock at a weighted average cost per share of $ 17.91 . The aggregate purchase price for these transactions was approximately $ 174 thousand, including transaction costs. These repurchases were made pursuant to the Company’s publicly announced repurchase programs. There were no shares repurchased during the second quarter 2025. As of June 30, 2025, 528,309 shares remained authorized for repurchase under the Company’s two stock repurchase programs. Shares of the Company’s Class A common stock issued and outstanding as of June 30, 2025 and December 31, 2024 were 20,078,385 and 19,924,632 , respectively. Dividends Declaration of dividends by the Board is required before dividend payments are made. The Company is limited in the amount of cash dividends that it may pay. Payment of dividends is generally limited to the Company’s net income of the current year combined with the Company’s retained income for the preceding two years, as defined by state banking regulations. However, for any dividend declaration, the Company must consider additional factors such as the amount of current period net income, liquidity, asset quality, capital adequacy and economic conditions at the Bank since the Bank is the primary source of funds to fund dividends by the Company. It is likely that these factors would further limit the amount of dividends which the Company could declare. In addition, bank regulators have the authority to prohibit banks and bank holding companies from paying dividends if they deem such payment to be an unsafe or unsound practice. As of June 30, 2025, the Company was not subject to any formal supervisory restrictions on its ability to pay dividends but will notify the Federal Reserve Bank of Atlanta in advance of any proposed dividend to the Company's shareholders in light of the Bank's negative retained earnings. In addition, under applicable FDIC regulations and policy, because the Bank has negative retained earnings, it must obtain the prior approval of the FDIC before effecting a cash dividend or other capital distribution. On January 21, 2025, the Board of Directors declared a quarterly cash dividend. The quarterly dividend for the first quarter of 2025 was $ 0.10 per share of Class A common stock, paid on March 5, 2025, to stockholders of record as of the close of business on February 14, 2025. The aggregate distribution in connection with the first quarter 2025 dividend was $ 2.0 million. The quarterly dividend for the second quarter 2025 was $ 0.10 per share of Class A common stock, paid on June 5, 2025, to stockholders of record as of close of business on May 15, 2025. The aggregate distribution in connection with the second quarter dividend was $ 2.0 million. On January 29, 2024, the Company announced that its Board of Directors approved a quarterly cash dividend program. The quarterly dividend for the first quarter of 2024 was $ 0.05 per share of Class A common stock, paid on March 5, 2024, to stockholders of record as of the close of business on February 15, 2024. The aggregate distribution in connection with the first quarter dividend was $ 1.0 million. The quarterly dividend for the second quarter was $ 0.05 per share of Class A common stock, paid on June 5, 2024, to stockholders of record as of the close of business on May 15, 2024. The aggregate distribution in connection with the second quarter dividend was $ 1.0 million. Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 27 USCB Financial Holdings, Inc. Q2 2025 Form 10-Q The following table details the dividends declared and paid by the Company for the periods presented: Six Months Ended June 30, 2025 Declaration Date Record Date Payment Date Dividend Per Share Dividend Amount January 21, 2025 February 14, 2025 March 5, 2025 $ 0.10 - $ 2.0 million April 21, 2025 May 15, 2025 June 5, 2025 $ 0.10 $ 2.0 million Six Months Ended June 30, 2024 Declaration Date Record Date Payment Date Dividend Per Share Dividend Amount January 22, 2024 February 15, 2024 March 5, 2024 $ 0.05 - $ 1.0 million April 22, 2024 May 15, 2024 June 5, 2024 $ 0.05 $ 1.0 million The Company and the Bank exceeded all regulatory capital requirements and remained above “well-capitalized” guidelines as of June 30, 2025 and December 31, 2024. At June 30, 2025, the total risk -based capital ratios for the Bank was 13.67 %. 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. See Note 13, Subsequent Events, for information regarding dividends declared in July 2025. 9. EARNINGS PER SHARE Earnings per share (“EPS”) for common stock is calculated using the two-class method required for participating securities. Basic EPS is calculated by dividing net income available to common shareholders by the weighted-average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted EPS is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding for the period and the weighted-average number of dilutive common stock equivalents outstanding for the period determined using the treasury-stock method. For purposes of this calculation, common stock equivalents include common stock options and are only included in the calculation of diluted EPS when their effect is dilutive. The following table reflects the calculation of net income available to common shareholders for the three and six months ended June 30, 2025 and 2024 (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 Net Income $ 8,140 $ 6,209 $ 15,798 $ 10,821 Net income available to common shareholders $ 8,140 $ 6,209 $ 15,798 $ 10,821 Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 28 USCB Financial Holdings, Inc. Q2 2025 Form 10-Q The following table reflects the calculation of basic and diluted earnings per common share class for the three and six months ended June 30, 2025 and 2024 (in thousands, except share amounts): Three Months Ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 Class A Class A Basic EPS Numerator: Net income available to common shares $ 8,140 $ 6,209 $ 15,798 $ 10,821 Denominator: Weighted average shares outstanding 20,059,264 19,650,681 20,040,205 19,642,006 Earnings per share, basic $ 0.41 $ 0.32 $ 0.79 $ 0.55 Diluted EPS Numerator: Net income available to common shares $ 8,140 $ 6,209 $ 15,798 $ 10,821 Denominator: Weighted average shares outstanding for basic EPS 20,059,264 19,650,681 20,040,205 19,642,006 Add: Dilutive effects of assumed exercises of stock options 236,530 66,486 259,380 65,555 Weighted avg. shares including dilutive potential common shares 20,295,794 19,717,167 20,299,585 19,707,561 Earnings per share, diluted $ 0.40 $ 0.31 $ 0.78 $ 0.55 Anti-dilutive stock options excluded from diluted EPS - 502,500 - 502,500 Net income has not been allocated to unvested restricted stock awards that are participating securities because the amounts that would be allocated are not material to net income per share of common stock. Unvested restricted stock awards that are participating securities represent less than one percent of all of the outstanding shares of common stock for each of the periods presented. 10. SEGMENT REPORTING Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”) in assessing performance and in deciding how to allocate resources. The Company’s CODM is the President, Chief Executive Officer, and Chairman of the Board. The Company through the Bank, its sole direct subsidiary, operates 10 banking centers in South Florida providing a wide range of personal and business banking products and services, and through a subsidiary of the Bank, offers clients title insurance policies for real estate transactions closed at the Bank. The Company’s business activities are similar in their nature, operations and economic characteristics, largely serving commercial and specialty banking clients with products and services that are offered through similar processes and platforms. Accounting policies for the products and services referenced here are the same as those described in Note 1, “Summary of Significant Accounting Policies” in this From 10-Q. The Company’s segment revenue is driven primarily by interest income on loans as well as fee income from the origination of loans and from fees charged on loans and deposit accounts. Lending activities include loans to individuals, which primarily consist of home equity lines of credit, residential real estate loans, yacht loans, and consumer loans, and loans to commercial clients, which include commercial and industrial loans, commercial real estate loans, investor residential real estate loans, correspondent bank loans, and letters of credit. The CODM regularly reviews consolidated income and expenses, as presented on the Consolidated Statements of Operations, in addition to consolidated assets presented on the Consolidated Balance Sheets. The significant segment expenses that the CODM reviews regularly are interest expense, provision for credit losses, salaries and wages, employee benefits, and occupancy expense. The CODM evaluates the performance of the segment and allocates resources based on net income that is also reported on the Consolidated Statements of Operations as consolidated net income to maximize shareholder value. Additionally, consolidated internal financial information is used by the CODM to monitor credit quality and credit loss expense. Furthermore, net income, as the measure of profit or loss, is used to monitor budget versus actual results and to perform competitive analyses that benchmark the Company to competitors. As a result, the Company has determined that it has only one reportable segment. Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 29 USCB Financial Holdings, Inc. Q2 2025 Form 10-Q 11. LOSS CONTINGENCIES Loss contingencies, including claims and legal actions may arise in the ordinary course of business. In the opinion of management, none of these actions, either individually or in the aggregate, is expected to have a material adverse effect on the Company’s Consolidated Financial Statements. 12. RELATED PARTY TRANSACTIONS In the ordinary course of business, principal officers, directors, and affiliates may engage in transactions with the Company. Loan Purchases During the six months ended June 30, 2025 the Bank purchased $ 70.0 million from entities that deemed to be related parties. The Bank paid those entities net fees of $ 447 thousand. During the year 2024, the Bank purchased $ 90.8 million of loans from entities that are deemed to be related parties. The Bank paid those entities fees of $ 2.7 million. Loan Originations During the three months ended June 30, 2025, the Bank acted as the lead arranger in a $ 40.0 million syndicated loan extended to an entity deemed to be a related party. As of June 30, 2025, the Bank held an outstanding balance of $ 15.0 million related to this transaction. In connection with the syndication, the Bank received a 50 -basis point commitment fee and will earn a 25 -basis point annual servicing fee. The other two financial institutions participating in the syndication were also deemed to be related parties. Although originating loans to related parties is not part of the Company’s standard policy, this transaction was reviewed by the appropriate departments in accordance with Company procedures. Detailed analyses were presented to the Board of Directors and the Audit and Risk Committee, and all necessary approvals were obtained. Additional analysis was conducted to determine that the transaction was executed in the ordinary course of business and on arm’s-length terms, consistent with the requirements of Regulation O. There were no loan originations or syndications extended to entities deemed to be related parties during the three months ended March 31, 2025 and for the year ended December 31, 2024. 13. SUBSEQUENT EVENTS Dividends On July 21, 2025, the Company announced that its Board of Directors declared its quarterly cash dividend. The quarterly dividend for the third quarter of 2025 was $ 0.10 per share of Class A common stock and will be paid on September 5, 2025, to stockholders of record as of the close of business on August 15, 2025. Derivatives In July 2025, the Company entered into a two-year costless collar hedge with a notional amount of $ 50 million to manage exposure to interest rate volatility on a three-month brokered CD. The derivative is based on the USD SOFR overnight index and establishes a cap rate of 4.50 % and a floor rate of 1.875 %, effectively creating a defined range of interest rate outcomes without requiring an upfront premium. The hedge was designated as a cash flow hedge under ASC 815, Derivatives and Hedging, and will be accounted for accordingly. Changes in the fair value of the derivative will be recorded in other comprehensive income to the extent the hedge remains effective. Management believes this instrument strengthens the Company’s interest rate risk management strategy by mitigating the impact of rate movements on future cash flows. In Augus 2025, the Company entered into a two-year costless collar hedge with a notional amount of $ 50 million to manage exposure to interest rate volatility on a three-month brokered CD. The derivative is based on the USD SOFR overnight index and establishes a cap rate of 4.50 % and a floor rate of 1.965 %, effectively creating a defined range of interest rate outcomes without requiring an upfront premium. The hedge was designated as a cash flow hedge under ASC 815, Derivatives and Hedging, and will be accounted for accordingly. Changes in the fair value of the derivative will be recorded in other comprehensive income to the extent the hedge remains effective. Management believes this instrument Table of Contents USCB FINANCIAL HOLDINGS, INC. Notes to the Consolidated Financial Statements - Unaudited 30 USCB Financial Holdings, Inc. Q2 2025 Form 10-Q strengthens the Company’s interest rate risk management strategy by mitigating the impact of rate movements on future cash flows. Debt Rating Kroll Bond Rating Agency assigned both the Company and the Bank investment grade debt ratings in July 2025. Table of Contents 31 USCB Financial Holdings, Inc. Q2 2025 Form 10-Q