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 and the nine months ended September 30, 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 and potential balance sheet restructuring. 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 allowance for credit losses 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, including the enactment of the One Big Beautiful Bill, 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 our 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 , retaliatory tariffs, and trade restrictions; • the effects of the current federal government shutdown, including, but not limited to, the ability to sell Small Business Administration loans; • the 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; Table of Contents 30 USCB Financial Holdings, Inc. Q3 2025 Form 10-Q • 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. 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 has filed or will file with the SEC. Overview The Company reported net income of $8.9 million or $0.45 per diluted share of common stock for the three months ended September 30, 2025 compared to $6.9 million or $0.35 per diluted share of common stock for the three months ended September 30, 2024. For nine months ended September 30, 2025, the Company reported net income of $24.7 million or $1.23 per diluted share of common stock compared to $17.8 million or $0.90 per diluted share of common stock for the nine months ended September 30, 2024. 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 September 30, 2025 compared to at or for the quarter ended September 30, 2024 and as of December 31, 2024 and annualized where appropriate: • Net interest income for the three months ended September 30, 2025 increased $3.2 million or 17.5% to $21.3 million from $18.1 million for the quarter ended September 30, 2024. • Net interest margin (“NIM”) expanded to 3.14% for the three months ended September 30, 2025 compared to 3.03% for the three months ended September 30, 2024. • Total assets were $2.77 billion at September 30, 2025, representing an increase of $264.0 million or 10.5% from September 30, 2024 and an increase of $186.7 million or 9.7% annualized from December 31, 2024. • Total loans held for investment (net of deferred cost/fees) were $2.13 billion at September 30, 2025, representing an increase of $199.6 million or 10.3% from September 30, 2024 and an increase of $158.1 million or 10.7% annualized from December 31, 2024. • Total deposits were $2.46 billion at September 30, 2025, representing an increase of $329.0 million or 15.5% from September 30, 2024 and an increase of $281.6 million or 17.3% annualized from December 31, 2024. • Annualized return on average assets for the quarter ended September 30, 2025 was 1.27% compared to 1.11% for the quarter ended September 30, 2024. • Annualized return on average stockholders’ equity for the quarter ended September 30, 2025 was 15.74% compared to 13.38% for quarter ended September 30, 2024. • The ACL to total loans was 1.17% at September 30, 2025 compared to 1.22% at December 31, 2024. • Non-performing loans to total loans was 0.06% at September 30, 2025 and 0.14% at December 31, 2024. • At September 30, 2025, the total risk-based capital ratios for the Company and the Bank were 14.20% and 13.93%, respectively. • Tangible book value per common share (a non-GAAP measure) was $11.55 at September 30, 2025, representing an increase of $0.74 or 9.1% annualized from $10.81 at December 31, 2024. At September 30, 2025, tangible book value per common share was negatively affected by ($2.09) due to an accumulated comprehensive loss of $37.8 million. At December 31, 2024, tangible book value per common share was negatively affected by ($2.24) due to Table of Contents 31 USCB Financial Holdings, Inc. Q3 2025 Form 10-Q 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 reconciliation of this non-GAAP financial measure. • On August 14, 2025, the Company entered into a Subordinated Note Purchase Agreement with certain qualified institutional buyers pursuant to which the Company sold and issued $40.0 million in aggregate principal amount of its 7.625% fixed-to-floating rate subordinated notes due August 15, 2035 in a private placement transaction. This transaction was conducted under the provisions of Regulation D promulgated under the Securities Act 1933. The subordinated notes were issued by the Company to the purchasers at a price equal to 100% of their face amount. The majority of the net proceeds were used to repurchase 2.0 million shares of Class A common stock in September 2025, from certain institutional shareholders through privately negotiated transactions, at a weighted average price per share of $17.19. The aggregate purchase price for these transactions was approximately $34.4 million. The repurchases were supplemental and not part of the Company’s two previously announced stock repurchase programs. Critical Accounting Policies and Estimates The consolidated financial statements are prepared based on the application of U.S. Generally Accepted Accounting Practices (“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 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. Table of Contents 32 USCB Financial Holdings, Inc. Q3 2025 Form 10-Q Results of Operations General The following tables present selected balance sheet, income statement, and profitability ratios for the dates and periods indicated (in thousands, except ratios): September 30, 2025 December 31, 2024 Consolidated Balance Sheets: Total assets $ 2,767,945 $ 2,581,216 Total loans (1) $ 2,130,966 $ 1,972,848 Total deposits $ 2,455,614 $ 2,174,004 Total stockholders' equity $ 209,095 $ 215,388 (1) Loan amounts include deferred fees/costs. Three Months Ended September 30, Nine Months Ended September 30, 2025 2024 2025 2024 Consolidated Statements of Operations: Net interest income before provision for credit losses $ 21,274 $ 18,109 $ 61,423 $ 50,578 Total non-interest income $ 3,684 $ 3,438 $ 10,770 $ 9,113 Total non-interest expense $ 13,048 $ 11,454 $ 37,734 $ 34,188 Net income $ 8,939 $ 6,949 $ 24,737 $ 17,770 Profitability: Efficiency ratio 52.28% 53.16% 52.27% 57.27% Net interest margin 3.14% 3.03% 3.17% 2.87% 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 September 30, 2025 compared to the three months ended September 30, 2024. Net income increased $2.0 million to $8.9 million for the three months ended September 30, 2025 from $6.9 million for the same period in 2024. The $2.0 million or 28.6% increase in net income was primarily driven by an improvement in net interest margin due to reduction in rates paid on interest-bearing liabilitie s between periods and a decrease in provision for credit losses for the third quarter ended September 30, 2025. Nine months ended September 30, 2025 compared to the nine months ended September 30, 2024 Net income increased $7.0 million to $24.7 million for the nine months ended September 30, 2025 from $17.8 million for the same period in 2024. The $7.0 million or 39.2% increase in the net income was primarily driven by an improvement in net interest margin due to reduction in rates paid on interest-bearing liabilities between periods. However, the increase in net interest income was partially offset by an increase in non-interest expense between periods. Additionally, increased activity in fee generating transactions (gain on sale of SBA 7a loans, prepayment penalties, title insurance income) contributed to the increase 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- Table of Contents 33 USCB Financial Holdings, Inc. Q3 2025 Form 10-Q 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 34 USCB Financial Holdings, Inc. Q3 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 September 30, 2025 2024 Average (1) Balance Interest Yield/Rate (2) Average (1) Balance Interest Yield/Rate (2) Assets Interest-earning assets: Loans (3) $ 2,099,043 $ 32,866 6.21% $ 1,878,230 $ 29,819 6.32% Investment securities (4) 461,303 3,522 3.03% 419,315 2,754 2.61% Other interest-earnings assets 130,740 1,332 4.04% 80,378 989 4.89% Total interest-earning assets 2,691,086 37,720 5.56% 2,377,923 33,562 5.61% Non-interest-earning assets 107,029 107,511 Total assets $ 2,798,115 $ 2,485,434 Liabilities and stockholders' equity Interest-bearing liabilities: Interest-bearing demand deposits $ 47,338 286 2.40% $ 57,925 411 2.82% Saving and money market deposits 1,319,862 10,343 3.11% 1,084,562 10,064 3.69% Time deposits 520,345 5,036 3.84% 325,580 3,391 4.14% Total interest-bearing deposits 1,887,545 15,665 3.29% 1,468,067 13,866 3.76% FHLB advances and other borrowings 40,065 377 3.73% 156,043 1,587 4.05% Subordinated notes 26,029 404 6.16% - - - % Total interest-bearing liabilities 1,953,639 16,446 3.34% 1,624,110 15,453 3.79% Non-interest-bearing demand deposits 569,522 609,456 Other non-interest-bearing liabilities 49,638 45,227 Total liabilities 2,572,799 2,278,793 Stockholders' equity 225,316 206,641 Total liabilities and stockholders' equity $ 2,798,115 $ 2,485,434 Net interest income $ 21,274 $ 18,109 Net interest spread (5) 2.22% 1.82% Net interest margin (6) 3.14% 3.03% (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. Table of Contents 35 USCB Financial Holdings, Inc. Q3 2025 Form 10-Q Nine Months Ended September 30, 2025 2024 Average Balance (1) Interest Yield/Rate (2) Average Balance (1) Interest Yield/Rate (2) Assets Interest-earning assets: Loans (3) $ 2,048,192 $ 95,057 6.21 % $ 1,829,593 $ 84,479 6.17 % Investment securities (4) 449,376 9,978 2.97 % 426,594 8,634 2.70 % Other interest-earnings assets 90,169 2,817 4.18 % 101,919 3,953 5.18 % Total interest-earning assets 2,587,737 107,852 5.57 % 2,358,106 97,066 5.50 % Non-interest earning assets 106,933 108,902 Total assets $ 2,694,670 $ 2,467,008 $ Liabilities and stockholders' equity Interest-bearing liabilities: Interest-bearing demand deposits $ 49,191 909 2.47 % $ 55,887 $ 1,171 2.80 % Saving and money market deposits 1,243,911 29,088 3.13 % 1,094,433 30,529 3.73 % Time deposits 457,847 13,297 3.88 % 321,470 9,907 4.12 % Total interest-bearing deposits 1,750,949 43,294 3.31 % 1,471,790 41,607 3.78 % FHLB advances 98,151 2,731 3.72 % 160,726 4,881 4.06 % Subordinated notes 8,771 404 6.16 % - - - Total interest-bearing liabilities 1,857,871 46,429 3.34 % 1,632,516 46,488 3.80 % Non-interest bearing demand deposits 570,918 598,294 Other non-interest-bearing liabilities 41,422 37,045 Total liabilities 2,470,211 2,267,855 Stockholders' equity 224,459 199,153 Total liabilities and stockholders' equity $ 2,694,670 $ 2,467,008 Net interest income $ 61,423 $ 50,578 Net interest spread (5) 2.23 % 1.70 % Net interest margin (6) 3.17 % 2.87 % (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 September 30, 2025 compared to the three months ended September 30, 2024. Net interest income before the provision for credit losses was $21.3 million for the three months ended September 30, 2025 as compared to $18.1 million for the same period 2024. The increase of $3.2 million or 17.5% was primarily driven by higher income from an expanded loan portfolio, and a reduction in rates paid on interest-bearing liabilities between the periods. Net interest margin (“NIM”) was 3.14% for the three months ended September 30, 2025 and 3.03% for the same period in 2024. The 11-basis-point increase primarily reflects a reduction in the weighted average rate paid on interest-bearing liabilities that outweighed the decline in the yield on interest-bearing assets. Additionally, the balance of interest-bearing assets grew more rapidly than the balance of interest-bearing liabilities. Nine months ended September 30, 2025 compared to the nine months ended September 30, 2024 Net interest income before the provision for credit losses was $61.4 million for the nine months ended September 30, 2025, an increase of $10.8 million or 21.4%, from $50.6 million for the same period in 2024. This growth was primarily driven by higher income from an expanded loan portfolio and a reduction in the weighted average rates paid on interest -bearing liabilities between periods. The NIM was 3.17% for the nine months ended September 30, 2025 and 2.87% for the same period in 2024. The NIM expansion of 30 basis points reflects both higher loan yields and growth in the loan average balance, along with a decrease in interest rate paid on interest-bearing liabilities. Table of Contents 36 USCB Financial Holdings, Inc. Q3 2025 Form 10-Q Provision for Credit Losses The provision for credit losses represents a charge to earnings necessary to maintain an allowance for credit losses at a level 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 September 30, 2025 compared to the three months ended September 30, 2024. The provision for credit loss was $105 thousand for the three months ended September 30, 2025 compared to $931 thousand for the same period in 2024. The significant decrease in provision expense was primarily attributable to slower loan portfolio growth during the third quarter of 2025. Nine months ended September 30, 2025 compared to the nine months ended September 30, 2024 The provision for credit loss was $1.8 million for the nine months ended September 30, 2025 compared to $2.1 million for the same period in 2024. The decrease in the provision for credit losses was due to release of reserves related to individually evaluated loans, following two charge-offs recorded during the nine months ended September 30, 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 the SBA 7a loan program and the monetization fees earned through our loan swap program. 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 September 30, Nine Months Ended September 30, 2025 2024 2025 2024 Service fees $ 2,661 $ 2,544 $ 7,394 $ 6,172 (Loss) gain on sale of securities available for sale, net (28) - (28) 14 Gain on sale of loans held for sale, net 128 109 804 593 Other non-interest income 923 785 2,600 2,334 Total non-interest income $ 3,684 $ 3,438 $ 10,770 $ 9,113 Three months ended September 30, 2025 compared to the three months ended September 30, 2024. Non-interest income for the three months ended September 30, 2025 increased $246 thousand or 7.2%, compared to the same period in 2024. This increase was primarily driven by growth in prepayment penalties and wire transfer fees reported under the service fees category and income from bank owned life insurance reported under other non-interest income. Nine months ended September 30, 2025 compared to the nine months ended September 30, 2024 Non-interest income for the nine months ended September 30, 2025 increased $1.7 million or 18.2%, compared to the same period in 2024. This increase was primarily driven by growth in prepayment penalties and title insurance income reported under the service fees category combined with an increase in the gain on sale of loans as well as income from bank owned life insurance reported under other non-interest income. Table of Contents 37 USCB Financial Holdings, Inc. Q3 2025 Form 10-Q Non-Interest Expense The following table presents the components of non-interest expense for the dates indicated (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2025 2024 2025 2024 Salaries and employee benefits $ 7,909 $ 7,200 $ 23,499 $ 20,863 Occupancy 1,382 1,341 4,003 3,921 Regulatory assessment and fees 377 452 1,194 1,361 Consulting and legal fees 585 161 1,041 1,016 Network and information technology services 656 513 1,725 1,499 Other operating 2,139 1,787 6,272 5,528 Total non-interest expense $ 13,048 $ 11,454 $ 37,734 $ 34,188 Three months ended September 30, 2025 compared to the three months ended September 30, 2024. Non-interest expense for the three months ended September 30, 2025, increased $1.6 million, or 13.9%, compared to the same period in 2024. The increase was primarily driven by a $709 thousand rise in salaries and employee benefits, reflecting merit increases, new hires and higher stock-based compensation expense. Consulting and legal fees increased $424 thousand due to the administration expense related to the interest rate collars and the third quarter of 2024 included a legal expense reimbursement, which reduced expenses in that period and contributed to the year-over-year increase. Additionally, other operating expense increased by $352 thousand, primarily due to the absence of a reimbursement for force-placed insurance that was received in the third quarter of 2024. These prior-period reimbursements had the effect of lowering reported expenses, making the current period’s expenses appear higher by comparison. Nine months ended September 30, 2025 compared to the nine months ended September 30, 2024 Non-interest expense for the nine months ended September 30, 2025 increased $3.5 million or 10.4%, compared to the same period in 2024. The increase was primarily driven by an increase of $2.6 million in salaries and employee benefits due to an increase of $1.0 million in merit increases and new full-time employee salaries, and $1.5 million in stock-based compensation expenses. Additionally, other operating expenses increased $744 thousand due to increase of $276 thousand due to item processing and internet banking fees, $160 thousand in board of directors’ expenses, $147 thousand in shareholders expense and $103 thousand in forced placed insurance. 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 September 30, 2025 compared to the three months ended September 30, 2024. Income tax expense for the three months ended September 30, 2025 was $2.9 million as compared to $2.2 million for the same period in 2024 and reflected the increased level of pre-tax net income experienced during the 2025 period. The effective tax rate for the three months ended September 30, 2025 was 24.28% compared to 24.15% for the same period in 2024. Nine months ended September 30, 2025 compared to the nine months ended September 30, 2024 Income tax expense for the nine months ended September 30, 2025 was $7.9 million as compared to $5.6 million for the same period in 2024 and reflected the substantially increased level of pre-tax net income experienced during the 2025 period. The effective tax rate for the nine months ended September 30, 2025 was 24.22% compared to 23.98% for the same period in 2024. 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. Table of Contents 38 USCB Financial Holdings, Inc. Q3 2025 Form 10-Q Analysis of Financial Condition Total assets at September 30, 2025 were $2.77 billion, an increase of $186.7 million, or 9.7% annualized, over total assets of $2.58 billion at December 31, 2024. Total loans, net of deferred fees/costs, increased $158.1 million, or 10.7% annualized, to $2.13 billion at September 30, 2025 compared to $1.97 billion at December 31, 2024. Total deposits increased by $281.6 million, or 17.3% annualized, to $2.46 billion at September 30, 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 obligations, 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 Company’s 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. As a result of this evaluation, the Company concluded that no allowance was required on AFS securities as of September 30, 2025. At quarter end, HTM securities included $147.3 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 $9.1 million in investment grade corporate bonds. For the portion of the HTM exposed to non-government credit risk, the Company utilized the PD/LGD methodology to estimate a $5 thousand ACL as of September 30, 2025. The book value for debt securities classified as HTM represents amortized cost less ACL. Aggregate AFS and HTM investment securities increased $55.6 million, or 17.5% annualized, to $480.5 million at September 30, 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 investment securities to increase the Company’s profitability and modify the Company ’s balance sheet duration according to the ALM policy. As of September 30, 2025, investment securities with a market value of $49.7 million were pledged to secure public deposits. The investment portfolio does not contain any tax-exempt securities. Table of Contents 39 USCB Financial Holdings, Inc. Q3 2025 Form 10-Q The following table presents the amortized cost and fair value of investment securities for the dates indicated (dollars in thousands): September 30, 2025 December 31, 2024 Available-for-sale: Amortized Cost Fair Value Amortized Cost Fair Value U.S. Government Agency $ 13,143 $ 11,965 $ 14,279 $ 12,625 Collateralized mortgage obligations 100,830 81,695 101,808 78,905 Mortgage-backed securities - residential 60,915 51,318 58,995 46,933 Mortgage-backed securities - commercial 145,991 138,517 86,604 78,739 Municipal securities 22,838 18,915 24,925 19,311 Bank subordinated debt securities 22,046 21,769 24,314 23,708 $ 365,763 $ 324,179 $ 310,925 $ 260,221 Held-to-maturity: U.S. Government Agency $ 41,500 $ 38,046 $ 42,538 $ 37,444 Collateralized mortgage obligations 52,766 47,376 56,987 49,259 Mortgage-backed securities - residential 37,880 34,915 40,681 36,121 Mortgage-backed securities - commercial 15,135 14,002 15,272 13,887 Corporate bonds 9,089 8,960 9,222 8,829 $ 156,370 $ 143,299 $ 164,700 $ 145,540 Allowance for credit losses - securities held-to-maturity (5) (6) Securities held-to maturity, net of allowance for credit losses $ 156,365 $ 164,694 The following table shows the weighted average yields, categorized by contractual maturity, for investment securities as of September 30, 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 $ - - $ - - $ 2,390 2.90% $ 10,753 2.62% $ 13,143 2.68% Collateralized mortgage obligations - - - - - - 100,830 1.46% 100,830 1.46% MBS - residential - - - - - - 60,915 1.86% 60,915 1.86% MBS - commercial - - - - - - 145,991 3.67% 145,991 3.67% Municipal securities - - - - 22,838 1.45% - - 22,838 1.45% Bank subordinated debt securities - - 1,983 7.97% 20,063 5.26% - - 22,046 5.52% $ - - $ 1,983 7.97% $ 45,291 3.21% $ 318,489 2.59% $ 365,763 2.70% Held-to-maturity: U.S. Government Agency $ 2,998 0.64% $ 13,873 1.22% $ 10,885 1.59% $ 13,744 2.07% $ 41,500 1.56% Collateralized mortgage obligations - - - - - - 52,766 1.64% 52,766 1.64% MBS - residential - - 4,597 1.85% 5,052 1.62% 28,231 2.33% 37,880 2.18% MBS - commercial - - 3,046 1.63% - - 12,089 2.57% 15,135 2.38% Corporate bonds 9,089 2.82% - - - - - - 9,089 2.82% $ 12,087 2.28% $ 21,516 1.42% $ 15,937 1.60% $ 106,830 1.98% $ 156,370 1.89% 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 40 USCB Financial Holdings, Inc. Q3 2025 Form 10-Q The following table shows the loan portfolio composition as of the dates indicated (in thousands): September 30, 2025 December 31, 2024 Total Percent of Total Total Percent of Total Residential real estate $ 316,557 14.9 % $ 289,961 14.8 % Commercial real estate 1,226,121 57.7 % 1,136,417 57.8 % Commercial and industrial 269,430 12.7 % 258,311 13.1 % Correspondent banks 104,598 4.9 % 82,438 4.2 % Consumer and other 207,939 9.8 % 198,091 10.1 % Total gross loans 2,124,645 100.0 % 1,965,218 100.0 % Plus: Deferred fees/costs 6,321 7,630 Total loans net of deferred fees/costs 2,130,966 1,972,848 Less: Allowance for credit losses 24,964 24,070 Total net loans $ 2,106,002 $ 1,948,778 Total loans, net of deferred fees/costs, increased by $158.1 million, or 10.7% annualized to $2.13 billion, at September 30, 2025 compared to December 31, 2024. The commercial real estate loan segment had the most significant balance increase compared to December 31, 2024. Our loan portfolio continues to grow, with commercial real estate lending as the primary focus which represented approximately 57.7% of the total gross loan portfolio as of September 30, 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. 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 September 30, 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 $ 15,515 $ 51,018 $ 68,095 $ 181,929 $ 316,557 Commercial real estate 83,082 463,653 673,810 5,576 1,226,121 Commercial and industrial 10,968 109,875 104,382 44,205 269,430 Correspondent banks 104,598 - - - 104,598 Consumer and other 2,519 1,307 22,547 181,566 207,939 Total gross loans $ 216,682 $ 625,853 $ 868,834 $ 413,276 $ 2,124,645 Interest rate sensitivity: Fixed interest rates $ 170,510 $ 180,720 $ 146,407 $ 315,912 $ 813,549 Floating or adjustable rates 46,172 445,133 722,427 97,364 1,311,096 Total gross loans $ 216,682 $ 625,853 $ 868,834 $ 413,276 $ 2,124,645 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 September 30, 2025, approximately 61.7% of the loan portfolio has adjustable/variable rates and 38.3% of the loan portfolio has 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 41 USCB Financial Holdings, Inc. Q3 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): September 30, 2025 Pass Special Mention Substandard Doubtful Total Residential real estate $ 313,945 $ 2,060 $ 552 $ - $ 316,557 Commercial real estate 1,212,052 11,656 2,413 - 1,226,121 Commercial and industrial 266,801 936 1,693 - 269,430 Correspondent banks 104,598 - - - 104,598 Consumer and other 207,939 - - - 207,939 $ 2,105,335 $ 14,652 $ 4,658 $ - $ 2,124,645 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 42 USCB Financial Holdings, Inc. Q3 2025 Form 10-Q Non-Performing Assets The following table presents non-performing assets as of the dates shown (in thousands, except ratios): September 30, 2025 December 31, 2024 Non-accrual loans $ 1,310 $ 2,707 Loans past due over 90 days and still accruing - - Total non-performing loans $ 1,310 $ 2,707 Other real estate owned - - Total non-performing assets $ 1,310 $ 2,707 Asset quality ratios: Allowance for credit losses to total loans 1.17% 1.22% Allowance for credit losses to non-performing loans 1,906% 889% Non-performing loans to total loans 0.06% 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 of 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 43 USCB Financial Holdings, Inc. Q3 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 September 30, 2025 Beginning balance $ 5,477 $ 9,491 $ 4,508 $ 874 $ 4,583 $ 24,933 Provision for credit losses (1) 544 (102) (118) (45) (252) 27 Recoveries 5 - 6 - - 11 Charge-offs - - - - (7) (7) Ending Balance $ 6,026 $ 9,389 $ 4,396 $ 829 $ 4,324 $ 24,964 Average loans $ 316,701 $ 1,184,145 $ 269,204 $ 103,210 $ 225,783 $ 2,099,043 Net charge-offs (recoveries) to average loans (2) (0.01)% - (0.01)% - 0.01% (0.00)% Nine Months Ended September 30, 2025 Beginning balance $ 5,121 $ 8,788 $ 4,633 $ 654 $ 4,874 $ 24,070 Provision for credit losses (3) 888 601 (249) 175 179 1,594 Recoveries 17 - 12 - 1 30 Charge-offs - - - - (730) (730) Ending Balance $ 6,026 $ 9,389 $ 4,396 $ 829 $ 4,324 $ 24,964 Average loans $ 304,401 $ 1,170,204 $ 264,718 $ 95,724 $ 213,145 $ 2,048,192 Net charge-offs (recoveries) to average loans (2) (0.01)% - (0.00)% - 0.69% 0.07% (1) Provision for credit losses excludes a $80 thousand provision due to unfunded commitments included in accrued interest and other liabilities and a $2 thousand release related to investment securities held to maturity. (2) Annualized. (3) Provision for credit losses excludes a $224 thousand provision due to unfunded commitments included in accrued interest and other liabilities and a $1 thousand release related to investment securities held to maturity. Table of Contents 44 USCB Financial Holdings, Inc. Q3 2025 Form 10-Q Residential Real Estate Commercial Real Estate Commercial and Industrial Correspondent Banks Consumer and Other Total Three Months Ended September 30, 2024 Beginning balance $ 3,193 $ 10,272 $ 4,747 $ 892 $ 3,126 $ 22,230 Provision for credit losses (1) 760 (86) (96) (69) 322 831 Recoveries 2 - 10 - 1 13 Charge-offs - - - - (7) (7) Ending Balance $ 3,955 $ 10,186 $ 4,661 $ 823 $ 3,442 $ 23,067 Average loans $ 238,113 $ 1,093,599 $ 238,331 $ 105,388 $ 202,799 $ 1,878,230 Net charge-offs (recoveries) to average loans (2) (0.01)% - (0.02)% - 0.01% 0.00% Nine Months Ended September 30, 2024 Beginning balance $ 2,695 $ 10,366 $ 3,974 $ 911 $ 3,138 $ 21,084 Provision for credit losses (3) 1,252 (180) 666 (88) 318 1,968 Recoveries 8 - 21 - 3 32 Charge-offs - - - - (17) (17) Ending Balance $ 3,955 $ 10,186 $ 4,661 $ 823 $ 3,442 $ 23,067 Average loans $ 231,947 $ 1,065,280 $ 232,160 $ 102,659 $ 197,547 $ 1,829,593 Net charge-offs (recoveries) to average loans (2) (0.01)% - (0.02)% - 0.01% 0.00% (1) Provision for credit losses excludes a $101 thousand provision due to unfunded commitments included in accrued interest and other liabilities and a $1 thousand release related to investment securities held to maturity. (2) Annualized. (3) Provision for credit losses excludes $159 thousand provision due to unfunded commitments included in accrued interest. The Federal Open Market Committee (“FOMC”) economic forecasts as of September 30, 2025, showed moderate improvement in the forecast for real GDP an slight improvement in unemployment rate. Fannie Mae House Price Index (“HPI”) forecast reflected a deterioration in national housing prices. 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 September 30, 2025, for every 100 basis points increase in the HPI, the forecast reduces reserves by approximately $380 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 September 30, 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 $9.1 million or 35.5% 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 September 30, 2025, the combined cash surrender value of all bank-owned life insurance (“BOLI”) policies was $58.9 million. Changes in cash surrender value are recorded to other 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 45 USCB Financial Holdings, Inc. Q3 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 the owners and operators of these SMBs, as well as the retail/consumer relationships of the employees of these businesses. The following table presents the daily average balance and average rate paid on deposits by category for the periods presented (in thousands, except ratios): Three Months Ended September 30, 2025 2024 Average Balance Average Rate Paid Average Balance Average Rate Paid Non-interest bearing demand deposits $ 569,522 0.00% $ 609,456 0.00% Interest-bearing demand deposits 47,338 2.40% 57,925 2.82% Saving and money market deposits 1,319,862 3.11% 1,084,562 3.69% Time deposits 520,345 3.84% 325,580 4.14% Total $ 2,457,067 2.53% $ 2,077,523 2.66% The Company has a granular deposit portfolio with outstanding balances comprised of 57% in commercial deposits, 27% in personal deposits, 6% in public funds (which are partially collateralized) and 10% in brokered deposits. The brokered deposits balance at September 30, 2025 was $235.5 million and $133.0 million at December 31, 2024. This increase was primarily driven by a $100 million aggregate notional amount associated with two costless collar hedges executed during the third quarter of 2025.These costless hedges enhance the Company’s interest rate risk management strategy by mitigating the impact of rate movements on future cash flows. As of September 30, 2025, the Company has approximately 21 thousand deposit accounts with the majority of which were personal accounts, approximately 13 thousand or 61.7%. The estimated average account size in our deposit portfolio was approximately $119 thousand as of September 30, 2025. The amount of 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 53% at September 30, 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 $183.9 million at September 30, 2025 and was $129.5 million at December 31, 2024. The following table shows scheduled maturities of uninsured time deposits as of September 30, 2025 (in thousands): September 30, 2025 Three months or less $ 68,923 Over three through six months 24,033 Over six though twelve months 9,923 Over twelve months 38,097 $ 140,976 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 accrued interest and other liabilities in the consolidated balance sheet. As of September 30, 2025, escrow balances totaled $29.2 million compared to $6.1 million at December 31, 2024. The increase reflects the normal growth in escrow accounts pending tax and insurance payments. Table of Contents 46 USCB Financial Holdings, Inc. Q3 2025 Form 10-Q Borrowings FHLB Advances 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 September 30, 2025, we had $11.0 million of fixed-rate advances outstanding from the FHLB with a weighted average rate of 3.76% maturing in 2028 as detailed in the table below. The following table presents the FHLB advances as of September 30, 2025 (in thousands): Interest Rate Type of Rate Maturity Date Amount 3.76% Fixed January 24, 2028 11,000 $ 11,000 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 September 30, 2025, there were no outstanding balances with any of these liquidity sources. Subordinated Notes On August 14, 2025, the Company entered into a Subordinated Note Purchase Agreement with certain qualified institutional buyers pursuant to which the Company sold and issued $40.0 million in aggregate principal amount of its 7.625% Fixed-to-Floating Rate Subordinated Notes due 2035. The Notes were issued by the Company to the purchasers at a price equal to 100% of their face amount. The subordinated debt was originally issued at a cost of $760 thousand. After two months of amortization, the carrying value has been reduced to $738 thousand, reflecting the scheduled expense recognition over the term of the instrument. The subordinated notes are presented net of these costs on the consolidated balance sheet. The Notes were offered and sold by the Company in a private placement transaction in reliance on exemptions from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D thereunder. For additional information, see the Company Form 8-K filed on August 14, 2025. 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 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 September 30, 2025 was $795 thousand and at December 31, 2024 was $571 thousand. The increase was primarily driven by an increase in unfunded commitments. 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 ): September 30, 2025 December 31, 2024 Commitments to grant loans and unfunded lines of credit $ 140,146 $ 122,578 Standby and commercial letters of credit 3,855 5,389 Total $ 144,001 $ 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 Table of Contents 47 USCB Financial Holdings, Inc. Q3 2025 Form 10-Q 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. 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 interest rates scenarios, yield curve shapes 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, 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 September 30, 2025, we had a slightly liability sensitive balance sheet for year one, and a neutral balance sheet for year two, using the static model. 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. 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. Neutral denotes minimal or no effect on net interest income as a result of changes in interest rates. 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. Table of Contents 48 USCB Financial Holdings, Inc. Q3 2025 Form 10-Q According to our model, as of September 30, 2025, our balance sheet is liability sensitive for year one and more neutral in year two under static interest rate scenarios (an increase or decrease of 400 basis points). 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. 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 Federal Funds lines of credit with other banking institutions and draws from the Federal Reserve Bank of Atlanta Discount Window, and borrowings from the FHLB Atlanta. Accordingly, we believe our liquidity resources are adequate to fund loans and meet other cash needs as necessary. Table of Contents 49 USCB Financial Holdings, Inc. Q3 2025 Form 10-Q Capital Adequacy As of September 30, 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 September 30, 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 September 30, 2025 Total risk-based capital $ 299,147 13.93 % $ 171,861 8.00 % $ 214,826 10.00 % Tier 1 risk-based capital $ 273,382 12.73 % $ 128,896 6.00 % $ 171,861 8.00 % Common equity tier 1 capital $ 273,382 12.73 % $ 96,672 4.50 % $ 139,637 6.50 % Leverage ratio $ 273,382 9.63 % $ 113,507 4.00 % $ 141,883 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 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 and other variable 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 50 USCB Financial Holdings, Inc. Q3 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 9/30/2025 6/30/2025 3/31/2025 12/31/2024 9/30/2024 Pre-tax pre-provision ("PTPP") income: (1) Net income $ 8,939 $ 8,140 $ 7,658 $ 6,904 $ 6,949 Plus: Income tax expense 2,866 2,599 2,440 2,197 2,213 Plus: Provision for credit losses 105 1,031 681 1,030 931 PTPP income $ 11,910 $ 11,770 $ 10,779 $ 10,131 $ 10,093 PTPP return on average assets: (1) PTPP income $ 11,910 $ 11,770 $ 10,779 $ 10,131 $ 10,093 Average assets $ 2,798,115 $ 2,677,198 $ 2,606,593 $ 2,544,592 $ 2,485,434 PTPP return on average assets (2) 1.69% 1.76% 1.68% 1.58% 1.62% Operating net income: (1) Net income $ 8,939 $ 8,140 $ 7,658 $ 6,904 $ 6,949 Less: Net losses on sale of securities (28) - - - - Less: Tax effect on sale of securities 7 - - - - Operating net income $ 8,960 $ 8,140 $ 7,658 $ 6,904 $ 6,949 Operating PTPP income: (1) PTPP income $ 11,910 $ 11,770 $ 10,779 $ 10,131 $ 10,093 Less: Net losses on sale of securities (28) - - - - Operating PTPP income $ 11,938 $ 11,770 $ 10,779 $ 10,131 $ 10,093 Operating PTPP return on average assets: (1) Operating PTPP income $ 11,938 $ 11,770 $ 10,779 $ 10,131 $ 10,093 Average assets $ 2,798,115 $ 2,677,198 $ 2,606,593 $ 2,544,592 $ 2,485,434 Operating PTPP return on average assets (2) 1.69% 1.76% 1.68% 1.58% 1.62% Operating return on average assets: (1) Operating net income $ 8,960 $ 8,140 $ 7,658 $ 6,904 $ 6,949 Average assets $ 2,798,115 $ 2,677,198 $ 2,606,593 $ 2,544,592 $ 2,485,434 Operating return on average assets (2) 1.27% 1.22% 1.19% 1.08% 1.11% Operating return on average equity: (1) Operating net income $ 8,960 $ 8,140 $ 7,658 $ 6,904 $ 6,949 Average equity $ 225,316 $ 228,492 $ 219,505 $ 215,715 $ 206,641 Operating return on average equity (2) 15.78% 14.29% 14.15% 12.73% 13.38% Operating Revenue: (1) Net interest income $ 21,274 $ 21,034 $ 19,115 $ 19,358 $ 18,109 Plus: Non-interest income 3,684 3,370 3,716 3,627 3,438 Less: Net losses on sale of securities (28) - - - - Operating revenue $ 24,986 $ 24,404 $ 22,831 $ 22,985 $ 21,547 Operating Efficiency Ratio: (1) Total non-interest expense $ 13,048 $ 12,634 $ 12,052 $ 12,854 $ 11,454 Operating revenue $ 24,986 $ 24,404 $ 22,831 $ 22,985 $ 21,547 Operating efficiency ratio 52.22% 51.77% 52.79% 55.92% 53.16% (1) The Company believes these non-GAAP measurements are key indicators of the ongoing earnings power of the Company. (2) Annualized. Table of Contents 51 USCB Financial Holdings, Inc. Q3 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 9/30/2025 6/30/2025 3/31/2025 12/31/2024 9/30/2024 Tangible book value per common share (at period-end): (1) Total stockholders' equity $ 209,095 $ 231,583 $ 225,088 $ 215,388 $ 213,916 Less: Intangible assets - - - - - Tangible stockholders' equity (3) $ 209,095 $ 231,583 $ 225,088 $ 215,388 $ 213,916 Total shares issued and outstanding (at period-end): Total common shares issued and outstanding 18,107,385 20,078,385 20,048,385 19,924,632 19,620,632 Tangible book value per common share (2) $ 11.55 $ 11.53 $ 11.23 $ 10.81 $ 10.90 Operating diluted net income per common share: (1) Operating net income $ 8,960 $ 8,140 $ 7,658 $ 6,904 $ 6,949 Total weighted average diluted shares of common stock 19,755,820 20,295,794 20,319,535 20,183,731 19,825,211 Operating diluted net income per common share: $ 0.45 $ 0.40 $ 0.38 $ 0.34 $ 0.35 Tangible Common Equity/Tangible Assets (1) Tangible stockholders' equity $ 209,095 $ 231,583 $ 225,088 $ 215,388 $ 213,916 Tangible total assets (3) $ 2,767,945 $ 2,719,474 $ 2,677,382 $ 2,581,216 $ 2,503,954 Tangible Common Equity/Tangible Assets 7.55% 8.52% 8.41% 8.34% 8.54% (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 stockholders’ equity and tangible total assets are the same amounts as stockholders’ equity and total assets, respectively, as calculated under GAAP. Table of Contents 52 USCB Financial Holdings, Inc. Q3 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.