USCB FINANCIAL HOLDINGS INC

USCB Financial Holdings, Inc., a

Florida corporation incorporated

in 2021, is a bank holding

company with one 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.

In December 2021, USCB Financial

Holdings, Inc. acquired all issued

and outstanding shares of the Class

stock of

in connection

reorganization of the

Bank into

a holding

company structure. Each

of the

share of

common stock,

par value

$

1.00

per share,

formerly held

by its

stockholders were

converted into

and

exchanged for one newly issued share of the Company’s

Class A common stock, par value $

1.00

per share.

owns a

subsidiary,

Florida Peninsula

Title LLC,

that offers

our clients

title insurance

policies for

transactions closed at the Bank. Licensed in the State of Florida and approved by the Department of Insurance Regulation,

Florida Peninsula tittle LLC began operations in 2021.

Principles of Consolidation

Intercompany transactions

and balances

are eliminated

in consolidation.

The consolidated

financial statements

have

been prepared in accordance with GAAP.

Risk and Uncertainties

Banking Environment

Industry events

transpiring early

in 2023,

including bank

failures, have

led to

uncertainty and

concerns regarding

the

liquidity positions

of the

banking sector.

The Company’s

deposit base

a combination

of consumer,

commercial,

and public

funds deposits.

The Company’s

largest depositors

include a

mixture of

government-related

organizations and

commercial clients without a high level of industry concentration.

In response

to these

events, the

Treasury

Department, the

Board of

Governors

of the

System, and

jointly announced

Term

Funding Program

(BTFP) on

March 12,

2023. This

program aims

to enhance

liquidity by allowing institutions to pledge

certain securities at the par value

of the securities, and at a

borrowing rate of ten

basis

points

over

the

one-year

overnight

index

swap

rate.

The

BTFP

was

to

U.S.

federally

insured

depository institutions, with

advances having a

term of up to

one year and

no prepayment penalties.

In January 2024,

the

Company drew

$

80.0

million in the

BTFP; there

were

no

draws in 2023.

No further draws

were permitted

after March 11,

2024. All advances must be paid by January 2025.

Market conditions and external factors may unpredictably impact the competitive landscape for deposits in the banking

industry.

the

rising

rate

environment

in

and

has

for

liquidity and the premium at

which liquidity is available to

meet funding needs. The Company

believes its sources of liquidity

are sufficient to meet its needs as of the balance sheet

date.

An unexpected influx

of withdrawals of

deposits could adversely

impact the Company's

rely on organic

to primarily

fund its

operations, potentially

requiring greater

reliance on

secondary sources

of liquidity

to meet

withdrawal

demands or to fund continuing operations. These sources may include proceeds from FHLB advances, sales of

securities and loans, federal funds lines of credit from correspondent

banks, and out-of-market time deposits.

Such reliance on secondary funding sources could increase the Company's

overall cost of funding and thereby reduce

net

income.

While

the

Company

its

current

sources

of

are

to

fund

there

is

no

guarantee they

will suffice

to meet

future

demands.

This

may necessitate

slowing

or discontinuing

loan growth,

capital expenditures, or other investments, or liquidating assets.

Use of Estimates

The

Company

has

and

control

that

are

to

ensure

methods

are

controlled and

applied consistently

from period

to period.

These estimates

and assumptions,

which may

materially affect

the reported amounts of

certain assets, liabilities, revenues

and expenses, are based

on information available as

of the date

of the

financial statements,

and changes

in this

information over

time and

the use

of revised

estimates and

could materially affect amounts reported in subsequent

financial statements.

Cash and Cash Equivalents

The

Company

considers

with

a

of

days

or

less

from

its

original

date

to

be

cash

equivalents. For

Statements of

Cash Flows,

cash and cash

equivalents include

cash on hand,

amounts

due from banks, and interest-bearing deposits in banks.

Restricted Cash

The Company may be required to maintain

funds at other banks to satisfy

the terms of a loan participation agreement.

The Company reports restricted cash

within cash and cash equivalents.

At the years ended December

31, 2023 and 2022

the company had $

in restricted cash.

Interest-Bearing Deposits in Other Financial Institutions

Interest-bearing deposits in other financial institutions consist

of Federal Reserve Bank, Federal Home Loan

Bank and

other accounts.

Investment Securities

Debt securities

are recorded

at fair

value except

for those

securities which

has the

positive intent

and

ability to hold to

maturity. Management determines the appropriate classification of its securities at

the time of purchase

and

accounts for them on a trade date basis.

Debt securities that

management has the

positive intent and

ability to hold

to maturity are

classified as "held-to-maturity"

and recorded at amortized cost. Trading securities are

recorded at fair value with

changes in fair value included

in earnings.

Securities not classified

as held-to-maturity or

trading are classified

as "available-for-sale"

and recorded at

fair value, with

unrealized gains and

losses excluded from

earnings and reported

income (loss). Equity

must be recorded at fair value with changes in fair value

included in earnings.

Purchase premiums and discounts are amortized or accreted over

the estimated life of the related available-for-sale or

as

an

adjustment

to

yield

using

the

method.

Prepayments

of

are

considered in determining the estimated life of

the security. Such amortization and accretion are included in interest income

in the Consolidated

Statements of Operations.

Dividend and interest

income are recognized

when earned. Gains

and losses

on the sale of securities are recorded on trade date and are determined

on a specific identification basis.

On

January

1,

2023,

the

Company

adopted

ASU

2016-13

Credit

Losses

(Topic

326):

with

that is

referred to as

under the CECL methodology

is applicable to financial

assets measured at amortized

cost, including loan receivables

and

securities. In

addition, ASC

326 amended

the accounting

for available-for-sale

debt securities.

One

such change is

to require credit

losses to be

presented as an

allowance rather than

as a write-down

on available-for-sale

debt securities management does not intend to sell or

believes that it is more likely than not they will be required

to sell.

CECL requires a loss reserve for securities

classified as HTM. The reserve should reflect

historical credit performance

as well as the impact

of projected economic forecast.

For U.S. Government bonds

and U.S. Agency issued bonds

in HTM

the explicit and/or

implicit guarantee of the

US Government is sufficient to

conclude that a

credit loss reserve is

not required.

The

reserve

requirement

is

for

three

primary

assets

groups:

bonds,

bonds,

and

The

Company

calculates

the

loss

reserve

utilizing

ImpairmentStudio.

The

CECL

for

data,

and

and

Moody’s baseline

The solution

uses probability

of default/loss

given default (“PD/LGD”)

represents the likelihood a borrower will

default. Within the Moody’s model,

this is determined using historical

adjusted for the current economic environment. LGD projects

the expected loss if a borrower were to default.

Federal Home Loan Bank (FHLB) Stock

The Bank is a member of the FHLB system. Members are required to

own a certain amount of stock based on the level

of borrowings and

other factors and

may invest in

additional amounts. FHLB

stock is carried

at cost, classified

as a restricted

asset, and

periodically evaluated

for impairment

ultimate recovery

of par

value. As

and

2022, FHLB

stock amounted

to $

10.2

million and

$

2.9

million, respectively,

with no

impairment deemed

necessary.

Both

cash and stock dividends are reported as interest income.

Loans Held for Investment and Allowance for Credit

Losses

Loans held for investment (“loans”) are reported at their outstanding principal

balance net of charge-offs, deferred loan

cost,

unearned

income, and

the ACL.

Interest income

is generally

when

income is

earned using

the interest

method.

Loan

origination

and

commitment

fees

and

the

costs

with

the

origination

of

loans

are

and

amortized, using the interest method or the straight-line

method, over the life of the related loan.

If the

a commercial

due and

unpaid for

90 days

or more,

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

for

to

accrual

status.

Restoring

a

loan

to

accrual

status

is

when

the

resumes

payment

of

all

principal and interest

payments for a period

of six months

and the Company

has a documented

expectation of repayment

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

accrued but not

collected for

loans that are

placed on

nonaccrual status

is reversed

against interest

income. The interest

loans is

accounted for

on the

cash-basis

or cost-recovery

method, under

which cash

collections are

unpaid principal, which may change as conditions dictate.

The Company has determined that the entire balance of

a loan is contractually delinquent for all

classes if the minimum

payment is not received by

the specified due date on

the borrower's statement. Interest and fees

continue to accrue on past

due loans until the date the loan goes into nonaccrual

status.

The Company provides for loan losses through a provision for credit losses charged to operations. When management

believes that a

loan or a portion

of the loan balance

is uncollectible, that

amount is charged

against the ACL.

Subsequent

recoveries, if any,

are credited to the ACL.

The

ACL

reflects

of

loan

losses

in

the

at

the

balance

sheet

date.

Management uses a disciplined

process and methodology

to establish the ACL

each quarter.

To

determine the total

ACL,

estimates the

reserves needed

segment of

the portfolio,

including loans

analyzed individually

and

loans analyzed on a pooled basis. The ACL consists

of the amount applicable to the following segments:

•

•

•

•

•

Other loans (secured and unsecured consumer loans)

real

estate

loans

are

underwritten

the

of

the

Company

which

include

a

review

of

the

borrower’s credit, capacity

and the collateral

securing the loan.

The borrower’s ability

to repay involves

an analysis of

factors

including: current income,

employment status, monthly

payment of

the loan,

current debt

obligations, monthly debt

to income

ratio and credit history. The Company relies on appraisals in determining the value of the property.

Risk is mitigated by this

analysis and the diversity of the residential portfolio.

loans are

secured by liens

on commercial properties,

land, construction and

multifamily housing.

Underwriting of commercial real estate loans will analyze the key market and business factors to arrive at a decision on the

credit worthiness of the borrower. The analysis may include the capacity of the borrower,

income generated by property for

debt service,

other

sources

of repayment,

to fluctuations

in market

including vacancy

and

rental rates in geographic

location and loan

to value. Land

and construction loan

analysis will include

the time to

develop,

sell or lease

the property.

Appraisals are used

to determine the

value of the

underlying collateral.

Risk is mitigated

as the

properties securing the commercial real estate loans

are diverse in type, location, and loan structure.

and

loans

are

secured

by

the

assets

of

the

company

and

may

include

equipment,

inventory, and receivables.

The loans are underwritten based on the

income capacity of the business, the ability

to service

the debt based

on operating cash

flows, the credit

worthiness of the

borrower,

other sources

of repayment and

collateral.

The Company mitigates the risk in the commercial portfolio

through industry diversification.

loans

are short

-term

loans with

banking

domiciled

in

Latin America. Most of these loans are for trade capital and have a

life of less than one year. The Company’s

credit review

includes a credit analysis, peer comparison and current

country risk overview.

Annual re-evaluation of the risk rating of the

borrower and country where the borrower is

located and a review by the authorized signer

within the Company.

The risk is

mitigated as these loans are short term, have limited exposure,

and are geographically dispersed.

Other loans are secured and

unsecured consumer loans including

yacht loans, personal loans, overdrafts

and deposit

account collateralized loans. Repayment of these loans are primarily from the personal income of the borrowers. Loans are

underwritten based on the credit worthiness of the borrower.

The risk on these loans is mitigated by small loan balances.

Under

CECL,

the

Company

the

ACL

using

relevant

from

both

and

external

to

past

events,

current

and

and

supportable

forecasts.

Historical

credit

losses

provide the basis for estimation of expected credit losses. Qualitative adjustments are applied to the expected credit losses

for

the

loan

in

relation

to

of

the

model.

A

scorecard

is

used

to

aid

management in the assessment of qualitative factor adjustments

applied to expected credit losses.

The

of

the

relies

on

the

statistical

between

the

value

of

an

indicator

and

the

implied

loss

experience

among

a

curated

group

of

peers.

The

Company

utilized

analyses

of peer

data,

in

which

the

Company

was

included,

and

where

observed

credit

losses

and selected

economic factors were used

to determine suitable

loss drivers for modeling

the lifetime rates of

probability of default (PD).

A

loss

given

default

rate

(LGD)

is

to

each

pool

for

each

period

based

on

these

PD

outcomes.

The

model

fundamentally utilizes

discounted cash

flow (DCF)

analysis for loan

portfolio segments.

The DCF

analysis is

run

at

the

instrument-level

and

an

array

of

loan-specific

data

points

and

segment-implied

to

determine the lifetime expected

loss attributable to each

instrument. An implicit "hypothetical

loss" is derived

for each period

of the

DCF and

helps establish

the present

future cash

flows for

each period.

a specific

instrument is the difference

between the sum of the present

value of future cash flows

and the book balance of

the loan at

the measurement date.

elected

the

Remaining

Life

(WARM)

for

five

loan

segments.

For

each

of

these

segments, a

long-term average

loss rate

and applied

on a

quarterly basis

for the

remaining life

of the

pool.

Adjustments

for

are

made

through

assessments.

For

the

life

estimated,

management implemented a software

solution that uses an

attrition-based calculation that performs quarterly, cohort-based

attrition measurements based on the loan portfolio.

Portfolio segments are the level at which loss assumptions

are applied to a pool of loans based on the similarity

of risk

characteristics inherent in the

included instruments, relying on

collateral codes and FFIEC

Call Report codes. The

Company

currently segments the

portfolio based on

collateral codes for

the

purpose of establishing

reserves. Each of

these segments

is

paired

to

models

(Loss

Driver

Analyses)

based

on

peer

data

for

loans

of

similar

risk

characteristics.

The

Company has established relationships between internal segmentation and FFIEC

Call Report codes for this purpose. The

loss driver for each loan

portfolio segment is derived

from a readily available and

reasonable economic forecast, including

the Federal Reserve Bank

projections of U.S. civilian

unemployment rate and the

year-over-year real GDP

growth; for the

loan

segment

the

HPI

projections

published

by

Fannie

Mae’s

Economic

and

Strategic

Research

Group

are

utilized for the

forecast. Forecasts

are applied to

the first four

quarters of the

credit loss estimate

and revert on

a straight-

line basis to the lookback period's historical mean for the

economic indicator over the expected life of loans.

The model incorporates qualitative

factor adjustments in order to

calibrate the model for risk

in each portfolio segment

not be captured

through quantitative

analysis. Determinations

regarding qualitative

adjustments are

reflective of

expectation

of loss

differing

from those

already

captured

in

the

of

the

model.

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

The

Company

a

reserve

for

unfunded

commitments,

which

is

separately

from

the

for

credit losses within

other liabilities. The

reserve is based

upon the same

quantitative and qualitative

factors applied to

the

collectively evaluated loan portfolio.

Concentration of Credit Risks

Credit

risk

the

loss

that

would

be

at

the

date

if

counterparties

failed

to

perform as contracted and any collateral or security proved to be insufficient

to cover the loss. Concentrations of credit risk

(whether on or off-balance sheet) arising from financial instruments exist in relation to certain

groups of customers. A group

concentration arises

when a number

of counterparties

have similar economic

characteristics that would

cause their ability

to meet contractual obligations to be similarly affected by changes in economic or other conditions. The Company does not

have a significant exposure to any individual customer

or counterparty.

Most of the Company's business activity is

with customers located within its primary market area, which

is generally the

State of Florida. The Company's loan portfolio is concentrated largely in real estate and commercial loans in South Florida.

Many of the

Company's loan

customers are engaged

in real estate

development. Circumstances

which negatively

impact

the South Florida real estate industry

or the South Florida economy, in general, could adversely impact

the Company's loan

a concentration

of risk

with loans

outstanding to

top ten lending relationships

totaling $

163.1

197.9

At December 31, 2023 and

2022, this

concentration represented

9.2

% and

13.1

% of

outstanding, respectively.

For the

periods ended

2023 and December 31, 2022, the largest commercial real estate loan note

outside Florida was

one

loan with an outstanding balance of $

million collateralized by a 1

st

lien commercial property located in New York

State.

the Company had

a concentration of

risk with loans

outstanding totaling $

105.4

million to foreign

banks located in Ecuador, Dominican Republic, Honduras, and El Salvador. At December 31, 2022, the Company also had

a concentration of risk

with loans outstanding totaling

$

88.8

million to foreign banks

located in Ecuador,

Honduras, and El

Salvador.

These

banks

maintained

with

right

of

offset

totaling

$

43.9

million

and

$

31.4

million

at

2023 and 2022, respectively.

At various times during

the year,

the Company has maintained

deposits with other

financial institutions. The exposure

to the Company from

these transactions is solely

dependent upon daily balances

and the financial strength

of the respective

institution.

Premises and Equipment, net

Land is

carried at

cost. Premises

and equipment

are stated

at cost

less accumulated

depreciation

and amortization.

Depreciation is computed

on the straight-line

method over the

estimated useful life

of the asset. Leasehold

improvements

are amortized over the

remaining term of the

applicable leases or their

useful lives, whichever

is shorter.

Estimated useful

lives of these assets were as follows:

Building

s

years

Furniture, fixtures and equipment

to

years

Computer hardware and software

to

years

Shorter of life or term of lease

Maintenance

and

repairs

are

charged

to

expense

as

while

improvements

and

betterments

are

capitalized.

When items are retired or are

otherwise disposed of, the related costs

and accumulated depreciation and amortization

are

removed from the accounts and any resulting gains or losses

are credited or charged to income.

Other Real Estate Owned

OREO consists of real estate

property acquired through, or

in lieu of, foreclosure that

are held for sale and are

initially

recorded at

the property

less estimated

selling costs

at the

date

of foreclosure,

establishing

a new

cost

basis. Subsequent to

foreclosure, valuations

are periodically performed

by management and

the assets are

carried at the

lower of carrying

amount or

less cost

to sell.

Subsequent write-downs

are recognized

as a

valuation allowance

with

the

offset

in

the

of

Carrying

costs

are

charged

to

other

real

estate

owned

in

the

of

Operation.

Gains

or

losses

on

sale

of

OREO

are

recognized when

consideration has

been exchanged,

all closing

conditions have

been met

and permanent

financing has

been arranged.

Bank Owned Life Insurance

BOLI is carried at

the amount that could

be realized under the

contract at the balance sheet

date, which is typically

cash

value.

Changes

in

cash

value

are

in

non-interest

income.

At

2023,

the

Company

maintained

BOLI

with

five

carriers

with

a

cash

value

of

$

51.8

These policies cover certain present and former executives

and officers, the Company is the beneficiary

Employee 401(k) Plan

The

Company

has

an

401(k)

plan

covering

all

employees.

Employee

401(k)

plan

expense is the amount of matching contributions.

Income Taxes

Income taxes are accounted for under the

asset and liability method. Deferred tax

assets and liabilities are recognized

for the

future

tax

consequences

to differences

between the

carrying

amounts

of existing

liabilities and

their respective

tax bases

and operating

loss and

tax credit

carryforwards. Deferred

and

are

measured

using

enacted

tax

rates

to

apply

to

taxable

income

in

the

years

in

which

those

temporary differences are expected to be recovered

or settled. The effect on deferred tax assets and

liabilities of a change

in tax rates is recognized in income in the period that includes

the enactment date.

Management is required to

assess whether a valuation

allowance should be established

on the net deferred tax

asset

consideration of

all available evidence

using a more

likely than not

standard. In its

evaluation, Management

considers taxable loss

carry-back availability, expectation of sufficient

taxable income, trends

in earnings, the

future reversal

of temporary differences, and available tax planning

The Company recognizes positions taken

or expected to be

taken in a tax

return in accordance with existing accounting

income taxes

which prescribes

a recognition threshold

and measurement

process. Interest

and penalties

on

tax liabilities, if any, would

be recorded in interest expense and other operating noninterest

expense, respectively.

Impairment of Long-Lived Assets

The Company's long-lived

assets, such as premises

and equipment, are reviewed

for impairment whenever

events or

changes in circumstances

indicate that

the carrying

an asset may

not be recoverable.

Recoverability of

assets

to be held and

used is measured by a

comparison of the carrying amount of

an asset to estimated undiscounted future

cash

flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an

impairment charge

is recognized

by the

amount by

which the

carrying amount

of the

asset exceeds

the

asset. Assets

to be

disposed of

separately

presented in

Balance Sheets

and reported

at the

lower of

the carrying

amount or

less costs

to sell

and are

no longer

depreciated. The

liabilities of

a

disposal group classified as held for

sale would be presented separately in

the appropriate asset and liability sections of

the

Transfer of Financial Assets

Transfers of

are accounted for

as sales,

when control over

has been surrendered.

Control

over

assets

is

deemed

to

be

surrendered

when

(i)

the

assets

have

been

isolated

from

the

Company

put

presumptively

beyond

the

reach

of

the

transferor

and

its

creditors,

even

in

bankruptcy

or

other

receivership,

(ii)

the

transferee obtains

the right

(free of conditions

that constrain

it from taking

advantage of

that right)

to pledge

or exchange

the transferred

assets,

and

(iii) the

Company

does not

maintain effective

control

over

the transferred

assets

through

an

agreement to repurchase them before their maturity or

the ability to unilaterally cause the holder to return specific assets.

Comprehensive Income (Loss)

Under

GAAP,

certain

changes

in

assets

and

such

as

holding

gains

and

losses

on

available-for-sale, are

excluded from

current period

earnings and

reported as

a separate

component of

the stockholders’

equity section of the Consolidated

Balance Sheets, such items,

along with net income, are

components of comprehensive

income (loss).

any unrealized

losses on

transfers of

from available-for-sale

to

held-to-maturity are recorded to

accumulated other comprehensive income (loss)

on the date

of transfer and amortized

over

the remaining life of each security. The amortization

of the unrealized gain or loss on transferred securities is reported as a

component of comprehensive income (loss). See Note 2 “Investment

Securities” for further discussion.

Advertising Costs

Advertising costs are expensed as incurred.

Earnings per Common Share

Basic earnings

per common

share is

common stockholders

divided by

the weighted

average

number

of

common

shares

during

the

period.

Diluted

per

common

share

the

effect

of

additional potential

common shares

issuable under

vested stock

options and

unvested restricted

stock. Basic

and diluted

per

share

are

updated

to

reflect

the

effect

of

stock

splits

as

occurred.

See

Note

“Earnings

Per

Share”

for

additional information

on earnings

per common

share. See

Note 13

“Stockholders’ Equity”

for further discussion

on stock

splits.

Interest Income

Interest income is recognized as earned, based upon the principal

amount outstanding, on an accrual basis.

Operating Segments

While the Company monitors

the revenue streams of

the various products

and services, operations

are managed and

financial performance

is evaluated on

a Company wide

basis. Operating results

of the individual

products are

not used to

make resource allocations or performance decisions by Company

management.

Stock-Based Compensation

Stock-based compensation accounting guidance requires that the compensation

cost relating to share-based payment

transactions be recognized in the accompanying Consolidated

Financial Statements. That cost will be measured

the grant

date fair

the equity

or liability

instruments issued.

The stock-based

compensation accounting

guidance

covers

a

wide

range

of

share-based

arrangements

stock

options,

restricted

share

awards,

performance-based awards, share appreciation rights, and

employee share purchase plans.

The stock-based compensation accounting guidance

requires that compensation cost

for all stock

awards be calculated

and recognized

employees' service period,

generally defined as

the vesting

period. For

awards with graded-vesting,

compensation cost

is recognized

on

a straight-line

basis over

the

requisite service

period for

the

entire award.

A Black-

Scholes model is used to estimate the fair value of stock

options.

Loss Contingencies

Loss

contingencies,

claims

and

legal

actions

arising

in

the

normal

course

of

are

as

liabilities when the

likelihood of loss is

probable, and an

amount or range of

loss can be

reasonably estimated. 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.

See Note 18 “Loss Contingencies” for further details.

Dividend Restrictions

Banking

require

certain

capital

levels

and

may

limit

the

paid

by

the

Bank

to

the

Company or by the Company to the stockholders.

Fair Value Measurements

Fair values

instruments are

estimated using

relevant market

information and

other assumptions,

as more

fully disclosed in Note

12 “Fair Value

Measurements”. Fair value estimates

involve uncertainties and

matters of significant

judgment. Changes in assumptions or in market conditions

could significantly affect the estimates.

Derivative Instruments

Derivative financial instruments are

carried at fair

value and reflect

the estimated amount that

would have been

received

to

these

contracts

at

the

date

based

upon

pricing

or

models

applied

to

current

market

information.

Rate Swaps Designated as Cash Flow Hedges

The

changes

in

fair

value

on

these

rate

swaps

are

in

other

assets

or

other

with

a

corresponding recognition

and subsequently reclassified

to earnings when

losses are realized. As of December 31, 2023 the cash

flow hedge was effective.

Interest Rate Swaps Designated as Fair Value

Hedges

The

changes

in

fair

value

on

these

rate

swaps

are

in

other

assets

or

other

with

a

corresponding recognition in the assets being hedged.

Interest Rate Swaps

The Company enters into interest rate swaps

agreements to provide commercial loan clients

the ability to swap from a

variable interest rate to a fixed rate. The Company

enters into a floating-rate loan with a customer with

a separately issued

swap agreement allowing

the customer to convert

floating payments on

the loan into a

fixed interest rate. To

mitigate risk,

the Company enters into a matching agreement with

a third party to offset the exposure on

the customer agreement. These

swaps are

not considered

to be

qualified hedging

transactions and

the unmatched

unrealized gain

or loss

is recorded

in

other non-interest income.

rate

swap

are

used

by

the

Company

as

part

of

its

asset-liability

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.

Revenue from Contracts with Customers

Revenue from

contracts with customers

is recognized in

an amount that

reflects the consideration

the Company expects

to receive for the

services the Company

provides to its

customers. The main

revenue earned by

the Company from

loans

and investment

are excluded

accounting standard

update “Revenue

from Contracts

with Customers”.

Deposit and

service charge

fees, consisting

of primarily

monthly maintenance

fees, wire

fees, ATM

interchange fees

and

other transaction-based fees, are the most

significant types of revenue within

the accounting standard update.

Revenue is

recognized when the service provided by the

Company is complete. The aggregate amount

of revenue within the scope of

this standard that is received from sources other than deposit

service charges and fees is not material.

Cash Flow Statement

The Company reports the net activity rather than gross activity in the Consolidated

Statements of Cash Flows. The net

cash

flows

are

for

loans

held

for

investment,

accrued

receivable,

tax

assets,

other

assets,

customer deposits, accrued interest payable, other liabilities, and

proceeds from the issuance of Class A common shares.

Reclassifications

Certain

amounts

in

the

have

been

reclassified

to

conform

to

the

current

presentation. Reclassifications had no impact on the net income

or stockholders’ equity of the Company.

Recently Issued Accounting Standards

Issued and Adopted

Guidance on Accounting for Credit Losses on Financial Instruments

On January 1, 2023, the Company implemented Accounting Standard Update (“ASU”)

2016-13

Financial Instruments -

Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended. This update replaces the

loss

with

the

CECL

The

CECL

credit

losses

and

applies to

amortized cost,

including loan

securities. It

also applies to off-balance sheet credit

exposures not accounted for as insurance

(e.g., loan commitments, standby letters

of

credit,

guarantees,

and

similar

instruments),

as

well

as

net

in

leases

by

lessors

in

accordance with Topic 842 on leases. Furthermore, ASC 326 amended the accounting treatment for available-for-sale debt

securities. One notable

change is

the requirement for

credit losses to

be reported

as an allowance

rather than as

a write-

down on available-for-sale debt securities that management does not intend to

sell or believes it is more likely than

not they

will not need

to sell. CECL

requires a

loss reserve

for securities

classified as

held-to-maturity (HTM).

should

reflect historical credit performance as well as the impact

of projected economic

forecast.

At adoption

of CECL,

% or

$

1.3

billion of

loan receivables

were collectively

evaluated under

the Discounted

Cash

Flow (“DCF)” method

and

% or $

251.0

million of loan

receivables were collectively

evaluated under the

Remaining Life

method. The remaining $

7.9

million of loan receivables of the total loan portfolio

were individually evaluated.

The impact of

adoption of the

ASU 2016-13 in

January 1, 2023,

was an increase

to ACL on

loans receivables of

$

1.1

million and

an increase

to the

reserve for

unfunded commitments

of $

thousand. This

one-time net

of tax

cumulative

adjustment resulted in

a increase of

$

1.0

million in accumulated

deficit. The following

table reflects the

impact of adopting

CECL on the Company’s consolidated balance sheet

(in thousands):

January 1, 2023

As Reported Under ASC

Pre - ASC 326 Adoption

Impact of ASC 326

Adoption

Assets

Allowance for credit losses

$

18,553

$

17,487

$

1,066

Deferred tax asset, net

42,696

42,360

Liabilities

Reserve for unfunded credit commitments

Stockholder's Equity

Retained earnings

$

(105,093)

$

$

(989)

See “Allowance for Credit Losses” section in Note 3 for

more information on the ACL.

Guidance on Accounting for Trouble

Debt Restructuring and Vintage Disclosures

In March 2022, the

FASB issued ASU 2022-02, which eliminates creditor accounting guidance for

TDRs for entities that

have adopted ASU 2016-13, Financial Instruments

-Credit Losses (Topic

326. and enhances Vintage Disclosures

of Gross

Write-offs.

This ASU

eliminates Subtopic

310-40 guidance

for TDRs

and requires

creditors to

apply the

loan refinancing

and restructuring

guidance in

Subtopic 310-20

when evaluating

modifications granted

to borrowers

experiencing financial

difficulty to determine

whether the modification is

considered a continuation

of an existing loan

or a new loan.

The vintage

disclosure component of

the ASU requires

entities to disclose

current-period gross write-offs by

origination year for

financing

receivables and investment leases within the scope of Subtopic 326-20. The Company adopted ASU 2022-02 concurrently

with the adoption of ASU 2016-13.

Issued and Not Yet

Adopted

Guidance on Reference Rate Reform

In

March

2020,

the

FASB

issued

ASU

2020-04,

Reference

Rate

Reform

(Topic

848),

Facilitation

of

the

Effects

of

Reference Rate Reform

on Financial Reporting.

In January 2021,

the FASB

clarified the scope

of this guidance

with ASU

2021-01 which provides

optional guidance for

a limited period of

time to ease the

burden in accounting for

(or recognizing

of) reference

rate reform

on financial

reporting. This

ASU is

March 12,

2020 through

31,

2024. The

evaluating the

this ASU

and has

not yet

determined whether

LIBOR transition

and this

ASU will have material effects on our business

operations and consolidated financial statements.

INVESTMENT SECURITIES

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

Cost

Gains

Losses

$

9,664

$

$

(1,491)

$

8,173

103,645

(23,039)

80,606

63,795

(11,608)

52,187

49,212

(6,504)

42,764

25,005

(5,667)

19,338

28,106

(2,033)

26,261

$

279,427

$

$

(50,342)

$

229,329

$

43,626

$

$

(5,322)

$

38,306

62,735

(7,983)

54,752

43,784

(4,533)

39,599

15,439

(1,257)

14,182

9,398

(727)

8,671

$

174,982

$

$

(19,822)

$

155,510

Allowance for credit losses - securities held-to-maturity

(8)

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

$

174,974

Cost

Gains

Losses

$

10,177

$

$

(1,522)

$

8,655

118,951

(23,410)

95,541

73,838

(12,959)

60,879

32,244

(4,305)

27,954

25,084

(6,601)

18,483

15,964

(1,050)

14,919

4,037

(328)

3,709

$

280,295

$

$

(50,175)

$

230,140

$

44,914

$

$

(5,877)

$

39,062

9,841

(13)

9,828

68,727

(7,830)

60,925

42,685

(4,574)

38,483

11,442

(665)

10,777

11,090

(1,077)

10,013

$

188,699

$

$

(20,036)

$

169,088

For the year ended December 31, 2023, there were

no

investment securities that were transferred from

AFS to HTM.

For the year

2022, there

were

that were

transferred from

AFS to

HTM

with an amortized cost basis and fair value amount

of $

74.4

63.8

On the date of transfer,

these securities had a total net unrealized loss of $

10.6

million which was included in AOCI.

Transfers of debt securities into the HTM category from the AFS category are made at fair value at the date of transfer.

The

gain

or

loss

at

the

date

of

is

in

AOCI

and

in

the

carrying

value

of

the

securities. There was no impact to net income. Such amounts

are amortized over the remaining life of the security.

For the

years

ended

and

2022,

total

out

of

AOCI

for

the

net

losses

on

transferred from

AFS to

HTM was

$

thousand and

$

thousand. In

addition for

these securities,

the balance

of the

net unrealized losses retained in AOCI was $

9.5

million at December 31, 2023 and $

9.8

million at December 31, 2022.

table presents

the proceeds,

realized gross

gains and

realized gross

losses on

sales and

calls of

AFS

debt securities for the years ended December 31, 2023 and

Proceeds from sales and call of securities

$

24,185

$

60,649

Gross Gains

$

$

Gross Losses

(1,862)

(2,746)

Net realized gains (losses)

$

(1,859)

$

(2,529)

The

amortized

cost

and

fair

value

of

securities,

by

contractual

maturity,

are

shown

below

for

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

Cost

Cost

Due within one year

$

$

$

$

Due after one year through five years

2,710

2,853

9,398

8,671

Due after five years through ten years

32,116

28,673

Due after ten years

18,285

14,073

9,664

8,173

43,626

38,306

103,645

80,606

62,735

54,752

63,795

52,187

43,784

39,599

49,212

42,764

15,439

14,182

$

279,427

$

229,329

$

174,982

$

155,510

2022, there

were no

securities to

any one

issuer,

in an

amount greater

than 10%

of total

stockholders’

equity

other

than

the

U.S.

Government

and

U.S.

Government

Agencies.

All

the

collateralized

obligations and mortgage-backed securities are issued

by U.S. sponsored entities at December 31, 2023 and

Information pertaining

to investment

securities with

gross unrealized

losses, aggregated

by investment

and

length of

time that

those

individual securities

have been

in a

continuous

loss position,

are presented

as of

the following

dates (in thousands):

Less than 12 months

12 months or more

Total

Losses

Losses

Losses

$

$

$

46,479

$

(8,043)

$

46,479

$

(8,043)

135,358

(35,566)

135,358

(35,566)

5,290

(47)

83,484

(18,365)

88,774

(18,412)

20,292

(611)

33,083

(8,623)

53,375

(9,234)

19,338

(5,667)

19,338

(5,667)

8,600

(331)

12,287

(1,703)

20,887

(2,034)

8,671

(406)

8,671

(406)

$

34,182

$

(989)

$

338,700

$

(78,373)

$

372,882

$

(79,362)

Less than 12 months

12 months or more

Total

Losses

Losses

Losses

$

11,407

$

(1,093)

$

36,310

$

(7,616)

$

47,717

$

(8,709)

9,828

(13)

9,828

(13)

16,500

(963)

139,965

(34,962)

156,465

(35,925)

5,059

(564)

91,742

(19,348)

96,801

(19,912)

10,052

(1,173)

26,823

(5,300)

36,875

(6,473)

18,483

(6,601)

18,483

(6,601)

11,295

(670)

2,619

(381)

13,914

(1,051)

13,723

(926)

13,723

(926)

$

77,864

$

(5,402)

$

315,942

$

(74,208)

$

393,806

$

(79,610)

The

losses

with

$

126.8

million

of

from

the

AFS

portfolio to the HTM portfolio represent unrealized losses since the date of purchase, independent of the impact associated

with changes in the cost basis upon transfer between portfolios.

On

January

1,

2023,

the

Company

adopted

ASU

2016-13

Credit

Losses

(Topic

326):

with

that is

referred to

as CECL.

CECL

methodology is applicable

to financial assets

measured at amortized

cost, including loan

debt securities. In addition, ASC 326 amended the accou

nting for available-for-sale debt securities. One such

change is to

require

credit

losses

to

be

as

an

rather

than

as

a

write-down

on

available-for-sale

debt

management does not intend to sell or believes that

it is more likely than not they will be required to sell.

CECL requires a loss reserve for securities

classified as HTM. The reserve should reflect

historical credit performance

as well as the impact

of projected economic forecast.

For U.S. Government bonds

and U.S. Agency issued bonds

in HTM

the explicit guarantee of the US Government is sufficient

to conclude that a credit loss reserve is not required.

requirement

is

for three

primary

assets

groups:

bonds,

bonds,

and

The

Company calculates quarterly the loss reserve

utilizing Moody’s ImpairmentStudio. The CECL measurement for investment

data,

and

and

baseline

forecast. The

solution uses

probability of

default/loss

given default

(“PD/LGD”)

represents the

likelihood a

borrower will

default.

Within the

model, this

using historical

adjusted for

the current

economic environment. LGD projects the expected loss

if a borrower were to default.

The Company monitors

the credit

quality of held

to maturity

securities through

the use of

credit ratings.

Credit ratings

are monitored by the Company on at least a quarterly basis. As of

December 31, 2023 and December 31, 2022, all held-to-

maturity securities held by the Company were rated investment

grade.

At December 31, 2023, HTM securities

included $

165.6

million of U.S. Government and

U.S. Agency issued bonds and

Because

of

the

explicit

and/or

on

these

bonds,

the

Company

holds

no

reserves

on

these

holdings.

The

portion

of

the

HTM

is

made

up

of

$

9.4

million

in

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 $

thousand ACL as

of December 31,

2023. The book

value for debt

securities classified as

HTM represents amortized

cost less ACL.

The

Company

that

an

ACL

on

its

debt

for

sale

as

of

31,

was

not

At

31,

2023,

the

Company

had

$

54.9

million

of

losses

on

and

collateralized mortgage

obligations of

U.S. Government

sponsored entities

having a

of $

284.1

million that

were

to

a

combination

of

factors,

relative

changes

in

rates

since

the

time

of

purchase.

The

contractual cash flows for these securities are guaranteed by U.S. Government agencies

and 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

believes that the

unrealized losses on these

debt security holdings

are a

function of

investment spreads

rate movements and

not changes

in credit

quality. Management

expects to recover the entire amortized cost basis of these securities.

At December 31, 2023, the

Company does not intend to

sell debt securities that are

in an unrealized loss position and

it is not more than likely than not that the Company will be required to sell

these securities before recovery of the amortized

cost basis.

As of December 31, 2023, the Company maintains a master repurchase agreement with a public banking institution for

up

to

$

20.0

million

fully

guaranteed

with

upon

withdrawal.

Any

amounts

borrowed

would

be

at

a

variable interest rate

based on prevailing

rates at the

time funding is

requested. At

Company did

no

t have any securities pledged under this agreement.

In 2018, the Company became a Qualified Public Depositor (“QPD”) with the State of Florida. As a QPD, the Company

has the

authority to

legally maintain public

deposits from cities,

municipalities, and the

State of

Florida. These public

are secured by

securities pledged to

the State of

Florida at a

% of the

average outstanding uninsured

The Company must also maintain a minimum amount

of pledged securities to be in the program.

At December 31, 2023, the Company had

twenty-eight

securities with a fair value of $

86.9

million pledged to the State

of Florida

under

the

public

funds

The

Company

held

a total

of

$

268.4

million

in

public

funds

at

2022, the Company

had

eighteen

securities with a

fair value of

$

49.0

million pledged to

the State of

Florida under the public funds program. The Company held

a total of $

204.2

million in public funds at December 31, 2022.

The Board

of Governors

of the Federal

Reserve System,

on March

12, 2023,

announced the

creation of

a new

Bank

Term

Funding Program (“BTFP”).

The BTFP offers

loans of up to one year

in length to banks, savings

associations, credit

unions,

and

other

pledging

U.S.

Treasuries,

U.S.

agency

debt

and

securities, and other qualifying assets as collateral. These

assets will be valued at par.

The Company had

no

borrowing under the

BTFP program as

of December 31,

2023, and had

pledged $

132.1

million

in securities

par to

Reserve Bank

of Atlanta

for the

BTFP program.

The BTFP

program ceased

making new loans as of March 2024.

On January 12, 2024, the Company borrowed $

million at a rate of

4.81

%, maturing on January 10, 2025, under the

BTFP program.

LOANS

The following table is a summary of the distribution of

loans held for investment by type (in thousands):

Total

Total

Total

Total

$

204,419

11.5

%

$

185,636

12.3

%

58.8

%

970,410

64.4

%

219,757

12.4

%

126,984

8.4

%

114,945

6.5

%

93,769

6.2

%

191,930

10.8

%

130,429

8.7

%

Total

100.0

%

100.0

%

Plus: Deferred cost

2,183

Total

loans net of deferred cost

Less: Allowance for credit losses

21,084

17,487

Total

$

$

At December 31, 2023 and 2022, the Company had $

534.2

338.1

million, respectively, of commercial real

estate and residential mortgage loans pledged as collateral on lines of credit with the FHLB and the

Federal Reserve Bank

of Atlanta. At December 31, 2023 and 2022, the Company

had

no

loans in the process of foreclosure.

The Company was a participant of the SBAs Paycheck

Protection Program (“PPP”) loans. These loans were

to provide a direct incentive for small businesses

to keep their workers on payroll and

had to be used towards payroll cost,

mortgage interest, rent,

utilities and other

costs related to

COVID-19. These loans

are forgivable under

specific criteria as

determined by

the SBA.

had PPP

loans totaling

$

thousand at

and $

1.3

million at

December 31, 2022, which are categorized as commercial and industrial loans. These PPP

loans had deferred loan fees of

$

thousand at December 31, 2023 and $

thousand at December 31, 2022.

The

Company

$

and

$

1.6

million

in

PPP

loan

fees

and

income

for

the

years

ended

and

2022,

respectively,

which

is

under

loans,

fees

within

the

Statements of Operations.

Allowance for Credit Losses

In general, the Company utilizes

the Discounted Cash Flow (DCF)

method or the Remaining Life

(WARM) methodology

to estimate

the quantitative

portion of the

ACL for

loan pools.

The DCF

uses a

loss driver

analysis (LDA)

and discounted

cash flow analyses.

The Company engaged

advisors and consultants

with experience in

CECL model development

to assist

in development of

a loss driver

analysis 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) and/or

the HPI.

For each

of the

segments in

which the

WARM

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

The

Company

segments

the

by

pools

grouping

loans

that

share

similar

risk

characteristics

and

employing

collateral type and lien position to group loans according to risk. The Company evaluates

five segments using the loss rate

methodology 'Remaining

Life Method'

or WARM.

The remaining

the annual

attrition rate

observed

for the Company’s own

portfolio experience. The

peer group includes historical

losses for U.S. The

Company also applies

a scorecard methodology

to determine

for WARM

segments. The

scorecard is

built using

a peer group

loss. The maximum losses for

these peers are derived selecting

periods were higher than normal

loss rates are observed.

In estimating

credit losses,

also considers

qualitative and

environmental factors

cause estimated

credit losses for the loan portfolio to differ from

historical losses.

ACL

for the

year

ended

31,

2023,

was

under

the

CECL

methodology,

and

for

the

year

ended

December 31, 2022, it was estimated under the incurred

loss model.

Prior to

the adoption

of ASC

326 on

January

1, 2023,

the allowance

losses

was a

valuation allowance

for

probable incurred credit

losses.

Management estimated the

allowance balance required

using past loan

loss experience,

the

nature

and

volume

of

the

about

and

values,

and

other

factors.

The

consisted

of

and

general

components.

The

related

to

loans

that

were

individually

classified

as

impaired.

A

loan

was

when,

based

on

current

information and events,

it was probable

that the Bank

unable to

collect all

amounts due

according to

the contractual

agreement. Loans

for which

the terms

had been

modified resulting

in a

concession,

and

for which

the

borrower is experiencing financial difficulties, were

considered troubled debt restructurings and classified as

impaired.

Changes in the ACL for the years ended December 31, 2023

and 2022 are as follows (in thousands):

Foreign

Banks

Total

$

1,352

$

10,143

$

4,163

$

$

1,109

$

17,487

Cumulative effect of adoption of

accounting principle

(1)

1,238

1,105

(2,158)

1,066

(2)

(882)

1,897

1,225

2,503

(57)

(57)

$

2,695

$

10,366

$

3,974

$

$

3,138

$

21,084

$

2,498

$

8,758

$

2,775

$

$

$

15,057

(1,179)

1,385

1,474

2,495

(104)

(16)

(120)

$

1,352

$

10,143

$

4,163

$

$

1,109

$

17,487

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

(2) Provision for credit losses excludes $

thousand release for unfunded commitments

included in other liabilities and $

thousand provision for

investment securities held to maturity.

Allowance for credit losses and the outstanding balances in

loans as of December 31, 2023 and 2022 are as

follows (in

Foreign

Banks

Total

Allowance for credit losses:

Individually evaluated

$

$

$

$

$

$

Collectively evaluated

2,550

10,366

3,846

3,138

20,811

$

2,695

$

10,366

$

3,974

$

$

3,138

$

21,084

Loans:

Individually evaluated

$

6,994

$

$

1,668

$

$

$

8,662

Collectively evaluated

197,425

218,089

114,945

191,930

1,769,982

$

204,419

$

$

219,757

$

114,945

$

191,930

$

Allowance for credit losses:

Individually evaluated for impairment

$

$

$

$

$

$

Collectively evaluated for impairment

1,197

10,143

4,122

1,011

17,193

$

1,352

$

10,143

$

4,163

$

$

1,109

$

17,487

Loans:

Individually evaluated for impairment

$

7,206

$

$

$

$

$

7,877

Collectively evaluated for impairment

178,430

970,017

126,902

93,769

130,233

1,499,351

$

185,636

$

970,410

$

126,984

$

93,769

$

130,429

$

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,

payment

experience,

credit

documentation

and

other

current

trends.

credit

risk

grades

are

periodically.

The Company's internally assigned credit risk grades are as follows:

Pass

– Loans indicate different levels of satisfactory

financial condition and performance.

– Loans classified as special mention have a potential weakness

that deserves management’s

close attention. If left uncorrected, these potential weaknesses

may result in deterioration of the repayment

prospects for the loan or of the institution’s

credit position at some future date.

– Loans classified as substandard are inadequately protected

by the current net worth and paying

capacity of the obligator or of the collateral pledged, if

any. Loans so classified

have a well-defined weakness or

weaknesses that jeopardize the liquidation of the debt.

They are characterized by the distinct possibility that the

institution will sustain some loss if the deficiencies are

not corrected.

– Loans classified as doubtful have all the weaknesses inherent

in those classified at substandard, with

the added characteristic that the weaknesses make collection

or liquidation in full on the basis of currently existing

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

Loss

– Loans classified as loss are considered uncollectible.

Loan credit exposures by internally assigned grades are

presented below for the periods indicated (in thousands):

As of December 31, 2023

Term Loans by Origination Year

Revolving

Loans

Total

Prior

Pass

$

44,365

$

36,325

$

26,180

$

6,080

$

9,325

$

75,654

$

6,198

$

204,127

Total

44,365

36,325

26,180

6,080

9,617

75,654

6,198

204,419

Pass

148,311

337,938

184,024

104,182

78,153

182,714

4,710

1,040,032

6,867

7,561

Total

148,311

337,938

190,891

104,876

78,153

182,714

4,710

Commercial and

Pass

97,753

37,414

34,090

6,499

13,706

3,113

25,554

218,129

1,298

1,628

Total

97,753

37,414

34,420

6,499

15,004

3,113

25,554

219,757

Pass

114,945

114,945

Total

114,945

114,945

loans

Pass

71,593

74,387

41,966

1,337

1,472

191,930

Total

71,593

74,387

41,966

1,337

1,472

191,930

Total

Loans

Pass

476,967

486,064

286,260

117,376

101,744

262,818

37,934

1,769,163

7,197

1,590

9,481

Total

$

476,967

486,064

293,457

118,070

103,334

262,818

37,934

As of December 31, 2022

Pass

Special

Mention

Home equity line of credit ("HELOC") and other

$

$

$

$

$

132,178

132,178

52,835

52,835

185,636

185,636

38,687

38,687

176,820

176,820

49,601

49,994

702,357

2,552

704,909

967,465

2,945

970,410

(1)

Secured

120,873

121,680

5,304

5,304

126,177

126,984

93,769

93,769

Consumer and other loans

130,233

130,429

Total

$

1,503,280

$

$

3,948

$

$

(1)

All outstanding PPP loans were internally graded

pass.

Loan Aging

also considers the

performance of loans

in grading

and in

evaluating the

credit quality

of the

loan portfolio.

analyzes credit

quality and

loan grades

payment performance

and the

aging status

of the

loan.

The following table include an aging analysis

of accruing loans and total non-accruing

loans as of December 31, 2023 and

As of December 31, 2023:

Current

30-89 Days

Past Due >

90 Days

Total

Non-

Accrual

Home equity line of credit and other

$

$

$

$

$

$

155,842

156,553

156,553

43,572

3,735

47,307

47,307

199,973

4,446

204,419

204,419

33,710

33,710

33,710

181,287

181,287

181,287

58,106

58,106

58,106

772,569

1,890

774,459

774,459

1,045,703

1,890

Secured

200,235

200,264

200,732

19,025

19,025

19,025

219,260

219,289

219,757

114,945

114,945

114,945

191,930

191,930

191,930

Total

$

1,771,811

$

6,365

$

$

1,778,176

$

$

As of December 31, 2022:

Current

30-89 Days

90 Days

Total

Non-

Accrual

Home equity line of credit and other

$

$

$

$

$

$

131,120

1,058

132,178

132,178

50,310

2,525

52,835

52,835

182,053

3,583

185,636

185,636

38,687

38,687

38,687

176,820

176,820

176,820

49,994

49,994

49,994

704,884

704,909

704,909

970,385

970,410

970,410

Secured

121,649

121,680

121,680

4,332

5,304

5,304

125,981

1,003

126,984

126,984

93,769

93,769

93,769

130,169

130,429

130,429

Total

$

1,502,357

$

4,871

$

$

$

$

no

loans over 90 days past due and accruing as of December

31, 2023 and 2022.

Non-accrual Status

includes the amortized

cost basis of

loans on non-accrual

status and loans

past due over

90 days

and still accruing as of December 31, 2023 (in thousands):

Nonaccrual

Loans With

No Related

Nonaccrual

Loans With

Related

Total Non-

accruals

Loans Past

Due Over

90 Days

$

$

$

$

Total

$

$

$

$

The Company did not have loans in non-accrual status

as of December 31, 2022.

Accrued interest

receivable is

excluded from

the estimate

losses. There

was

no

interest income

to non-accrual

loans

years

ended

and

2022. Interest

income

on

these

loans

for

the

year

ended

31,

and

2022,

would

have

been

$

and

$

thousand, respectively,

had these loans performed in accordance with their

original terms.

Collateral-Dependent Loans

A

loan

is

dependent

when

the

is

experiencing

difficulty

and

repayment

of

the

loan

is

be provided

substantially through

the sale

or operation

of the

collateral. There

were

no

collateral dependent

loans as of December 31,

2023 or as of December 31, 2022.

Impaired Loans

The following table includes

the unpaid principal balances

for impaired loans with

the associated allowance amount,

if

applicable, on the basis of impairment methodology as of December

31, 2022 (in thousands):

Unpaid

Principal

Balance

Net Investment

Balance

Valuation

Impaired Loans with No Specific Allowance:

$

3,551

$

3,544

$

3,944

3,937

Impaired Loans with Specific Allowance:

3,655

3,626

3,933

3,904

Total

$

7,877

$

7,841

$

income

on

loans

for

the

year

ended

31,

was

$

Net

investment balance is the unpaid principal balance of the loans

adjusted for the remaining net deferred loan fees.

presents the average

recorded investment

balance on impaired

loans for the

periods indicated (in

$

7,626

Total

$

8,520

Loan Modifications to Borrowers Experiencing Financial

Difficulties

table present

newly restructured

loans,

by type

of modification,

which occurred

year

ended

December 31, 2023 (in thousands):

Recorded Investment Prior to Modification

Recorded Investment After Modification

Loans

Combination

Total

Loans

Combination

Total

$

$

$

$

$

$

$

$

The Company had two new

modifications to borrowers experiencing

financial difficulties for

the year ended December

31, 2023. There were

no

existing loan modifications that subsequently

defaulted during the year

ended December 31, 2023.

LEASES

The

Company

enters

into

leases

in

the

normal

course

of

for

banking

centers

and

back-office

operations. As of

Company leased nine

of the ten

banking centers and

the headquarter building.

is obligated

under non-cancelable

operating leases

for these

premises with

expiration dates

ranging from

2026 to 2036. Many of these leases have extension

clauses which the Company could exercise which

would extend these

dates.

has classified

all leases as

operating leases.

Lease expense

for operating

leases are

recognized on

a

straight-line basis over

the lease term.

Right-of-use (“ROU”)

assets represent the

right to use

the underlying

asset for the

lease

term

and

lease

represent

the

to

make

lease

payments

arising

from

the

lease.

The

Company

elected the short-term

lease recognition exemption

for all leases

that qualify,

meaning those with

terms under 12

months.

ROU assets or lease liabilities are not to be recognized

for short-term leases.

ROU assets and

lease liabilities are

recognized at the lease

commencement date based on

the estimated present value

of lease payments

lease term.

In the Company’s

Consolidated Balance

Sheets, ROU

assets are

reported under

other assets while lease liabilities are classified under

accrued interest and other liabilities.

As

most

of

the

leases

do

not

provide

an

rate,

the

incremental

borrowing

rate

based

on

the

information available

at commencement

date is

used. The

incremental borrowing

rate is

advance rate matching or nearing the lease term.

The following table presents the ROU assets and lease liabilities

as of December 31, 2023 and 2022 (in thousands):

ROU assets:

$

11,423

$

14,395

Lease liabilities:

$

11,423

$

14,395

The weighted average remaining lease term and weighted average

discount rate as of December 31, 2023 and 2022:

Weighted average remaining lease term (in years):

6.35

6.98

Weighted average discount rate:

2.94

%

2.94

%

Future lease payment obligations and a reconciliation to lease

liability as of December 31, 2023 (in thousands):

$

3,236

3,312

2,383

Thereafter

2,987

Total

future minimum lease payments

13,361

Less: interest component

(1,938)

Total

lease liability

$

11,423

PREMISES AND EQUIPMENT

A summary of premises and equipment are presented

below as of December 31, 2023 and 2022 (in thousands):

Land

$

$

Building

1,952

1,952

Furniture, fixtures and equipment

8,981

8,841

Computer hardware and software

4,592

4,575

10,457

10,451

Premises and equipment, gross

26,954

26,791

Accumulated depreciation and amortization

(22,118)

(21,528)

Premises and equipment, net

$

4,836

$

5,263

Depreciation

and

expense

was

$

and

$

for

the

years

ended

2023 and 2022, respectively.

INCOME TAXES

The Company’s provision

for income taxes is

presented in the following

table for the years

ended December 31, 2023

and 2022 (in thousands):

Current:

Federal

$

$

State

Total

current

Deferred:

Federal

4,121

5,462

State

1,130

1,482

Total

5,251

6,944

Total

tax expense

$

5,251

$

6,944

The actual income

tax expense for the

years ended December 31, 2023

and 2022 differs from

the statutory tax expense

for the year (computed by applying the

U.S. federal corporate tax rate of

% for 2023 and 2022 to

income before provision

for income taxes) as follows (in thousands):

Federal taxes at statutory rate

$

4,577

$

5,688

State income taxes, net of federal tax benefit

1,177

Bank owned life insurance

(273)

(269)

Total

tax expense

$

5,251

$

6,944

The following table presents

the deferred tax assets

and deferred tax liabilities

as of December 31, 2023

and 2022 (in

Deferred tax assets:

Net operating loss

$

16,430

$

21,720

Allowance for credit losses

5,410

4,432

Lease liability

2,895

3,648

Unrealized loss on available for sale securities

15,114

15,193

Depreciable property

Equity compensation

Accruals

Deferred tax asset

$

41,074

$

46,247

Deferred tax liability:

Deferred loan cost

(553)

(28)

Lease right of use asset

(2,895)

(3,648)

Deferred expenses

(180)

(175)

Cash flow hedge

(85)

(79)

(36)

Deferred tax liability

$

(3,792)

$

(3,887)

Net deferred tax asset

$

37,282

$

42,360

2023 the Company

had approximately $

61.5

million of Federal

and $

84.1

million of State

net operating

loss carryforwards

expiring in

various amounts

from 2032

to 2036

if unused

after 2036,

their utilization

is limited to

future

taxable earnings of the Company.

In assessing the

realizability of deferred

tax assets, management considered

whether it is

more likely than

not that some

portion or

all of

the deferred

will not

be realized.

The ultimate

realization

of deferred

is dependent

upon the generation of

future taxable income

during the periods

in which those temporary

differences become deductible.

Management considers the scheduled reversal

of deferred tax liabilities, projected future taxable

income, and tax planning

strategies in making this assessment.

The U.S.

Federal jurisdiction

and Florida

are the

major tax

jurisdictions where

files income

tax returns.

The Company is generally no longer subject to U.S. Federal or

State examinations by tax authorities for years before 2020.

For

the

years

ended

2022,

the

Company

did

no

t have

any unrecognized

tax benefits

as a

tax positions

taken during

a prior

period or

current period.

no

interest or

were

recorded as a result of tax uncertainties.

DEPOSITS

The following table presents deposits by type at December 31,

2023 and 2022 (in thousands):

Non-interest bearing deposits

$

552,762

$

629,776

Interest-bearing transaction accounts

47,702

66,675

915,853

288,403

216,977

Total

$

$

Time

deposits exceeding

limit of

$250 thousand

per account

2022 were $

117.2

82.0

The Company brought in $

million of brokered CDs at a weighted average rate

of

4.98

% to boost liquidity during the

second quarter of 2023.

The CDs renewed in

Q1 2024 at weighted

average rate

of

5.13

%.There were

no

brokered deposits

as of December 31, 2022.

At December 31, 2023, the scheduled maturities of time deposits

were (in thousands):

$

280,529

6,074

$

288,403

aggregate amount

of demand

deposits reclassified

to loans

as overdrafts

was

$

thousand, respectively.

BORROWINGS

Borrowed funds

consist of

fixed-rate advances

FHLB. At

were $183.0

million and at December 31, 2022 were $46.0 million.

The following table presents outstanding FHLB advances

at December 31, 2023 and 2022 (in thousands):

At December 31, 2023

Amount

2.05

%

Fixed

$

10,000

1.07

%

Fixed

6,000

1.04

%

Fixed

5,000

3.76

%

Fixed

January 24, 2028

11,000

3.77

%

Fixed

April 25, 2028

50,000

5.57

%

Fixed

December 26, 2024

101,000

$

183,000

At December 31, 2022

Amount

2.05

%

Fixed

$

10,000

1.07

%

Fixed

6,000

1.04

%

Fixed

5,000

0.81

%

Fixed

August 17, 2023

5,000

4.14

%

Fixed

January 13, 2023

20,000

$

46,000

The

FHLB

holds

a

blanket

lien

on

the

loan

that

may

be

pledged

as

for

advances, subject

to eligibility

borrowing agreement.

choose to

assign cash

balances

held at the FHLB as additional collateral. See Note 3 “Loans”

for further discussion on pledged loans.

EQUITY BASED AND OTHER COMPENSATION

PLANS

Employee 401(k) Plan

The Company has an

employee 401(k) plan (the

“Plan”) covering substantially all

eligible employees. The Plan includes

a provision that the employer may contribute to the accounts of eligible employees for whom a salary deferral is made. The

Company contributed $

thousand to the Plan during

the years ended December 31, 2023 and

2022,

respectively;

the

contributions

are

under

salaries

and

in

the

of

Stock-Based Compensation

In

2015,

the

the

Equity

Incentive

Plan

(the

“2015

Option

Plan”),

which

authorized grants

of options

to purchase

up to

2,000,000

The

Option

Plan

provided that

vesting

schedules

will

be

upon

issuance

of

options

by

the

Board

of

Directors

or

committee.

Options granted

2015 Option

Plan have

a

-year life

and, in

no event

shall an

option be

exercisable after

the

expiration of

years from

the grant date.

The 2015

Option Plan has

a

-year life and

initially would

have terminated

in

2025. In

July 2020,

the stockholders

of the

Company approved

the amendment

of the

2015 Option

plan to

authorize the

issuance of

an additional

3,000,000

shares of common

stock and

extending the

life of

the plan

additional years, terminating

in 2030. The

authorized shares,

after being adjusted

to reflect the

1 for 5

reverse stock

split, totaled

1,000,000

shares. In

2021,

the

of

the

Company

the

amendment

of

the

Option

Plan

to

authorize

the

issuance of

an additional

1,400,000

as well

as the

issue restricted

stock grants

(up to

600,000

shares) for a total of

2,400,000

shares.

At December 31, 2023, there were

1,160,564

shares available for grant under the

2015 Option Plan. At December 31,

2022, there were

1,386,667

shares available for grant under the 2015 Option Plan.

Stock Options

The Company recognizes compensation expense based

on the estimated grant date

fair value method using the

Black-

Scholes

option

pricing

model and

accounts

for this

expense

using

a prorated

straight-line

method over

the

vesting

period

of

the

option.

Stock-based

expense

is

based

on

awards

that

the

Company

expects

will

ultimately vest,

reduced by estimated forfeitures.

Estimated forfeitures consider the voluntary

termination trends as well as

actual option forfeitures.

The

expense

is

under

salaries

and

in

the

of

Compensation

expense

totaling

$

was

for

the

year

ended

and $

thousand for

ended December

There was

no

related tax

benefit for

the

years ended December 31, 2023 and 2022.

Unrecognized compensation cost remaining

on stock-based compensation

totaled $

for the years ended December 31, 2023 and 2022, respectively.

Cash

flows

from

excess

tax

are

to

be

classified

as

a

part

of

cash

flows

from

activities. Excess tax benefits

are realized tax benefits

from tax deductions for

exercised options in

excess of the deferred

tax asset attributable to the compensation cost for such

options.

For the fair value of options granted in 2023 and 2022,

the following were the assumptions:

Assumption

Risk-free interest rate

3.53

%

2.34

%

Expected term

years

years

Expected stock price volatility

%

%

Dividend yield

%

%

The following table presents a summary of stock options

for the years ended December 31, 2023 and 2022:

Stock Options

Weighted Average

Exercise Price

Weighted Average

Remaining

Contractual Years

Aggregate Intrinsic

Value (in

thousands)

965,667

$

10.91

7.4

Granted

7,500

$

12.41

Exercised

(10,000)

$

7.50

Forfeitures

(16,000)

$

10.34

947,167

$

10.97

6.5

Exercisable at December 31, 2023

758,000

$

10.71

6.1

$

1,195

Balance at January 1, 2022

959,667

$

10.87

8.4

Granted

15,000

$

14.03

Exercised

(9,000)

$

11.35

Balance at December 31, 2022

965,667

$

10.91

7.4

Exercisable at December 31, 2022

560,000

$

10.18

6.4

$

1,131

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value of exercisable options at the

dates presented

(the

difference

between

the

of the

stock

and the

exercise

price,

multiplied

by the

options considered

in-the-money) that

would have

been received

by the

option holders

had all

option holders

exercised their options.

The weighted

average per

share fair value

of options

granted for the

and 2022 was

$

3.91

and $

3.45

, respectively.

Restricted Stock

In 2023 , the Company issued

242,713

shares of Class A common stock to employees and

directors as restricted stock

awards pursuant

to the

Company's 2015

Option Plan.

Awards under

the 2015

Option Plan

may not

be sold

or otherwise

transferred until certain restrictions have lapsed.

no

restricted stock awards outstanding as of December

The

total

share-based

expense

for

these

awards

is

based

on

the

market

price

of

the

Company's common

stock as

of the date

of grant

the total

shares granted

and is

amortized straight

line over the

vesting period

one to

three years.

unearned share-based

expense associated with these awards totaled $

2.3

Compensation expense

totaling $

thousand was

recognized for

ended December

and reported

under salaries and benefits in the accompanying Consolidated

Statement of Operations.

The following table presents a summary of restricted stock

awards for the year ended December 31, 2023:

Restricted Stock

Weighted Average Grant Date

$

Granted

242,713

$

12.24

Forfeited

(8,111)

$

12.67

Vested

(16,180)

$

12.67

218,422

$

12.19

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

fluctuations in

interest rates.

These financial

instruments include

unfunded commitments

under lines

of credit,

commitments to

extend credit,

standby and

letters of

credit. Those

instruments involve,

to varying

degrees, elements

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.

On

January

1,

2023,

the

Company

adopted

ASU

2016-13

Credit

Losses

(Topic

326):

with

that is

referred to as

under the CECL methodology

is applicable to financial

assets measured at amortized

cost, including loan receivables

and

securities. Prior

to the adoption

of ASC 326

on January

2023, the allowance

losses was

a

valuation allowance for probable incurred credit losses.

records

a

liability

for

credit

losses

on

off-balance-sheet

credit

in

with

ASC

The

Company

uses

the

loss

rate

and

of

default

to

a

reserve

for

unfunded

commitments. Loss rates

for the expected funded

balances are determined

associated pooled loan

loss rate and the exposure at default is

based on an estimated utilization given

default. The off-balance sheet commitment

allowance were $

thousand as of December 31, 2023 and December 31,

A

summary

of

the

amounts

of

the

with

sheet

risk

are

shown

below

at

December 31, 2023 and 2022 (in thousands):

Commitments to grant loans and unfunded lines of credit

$

85,117

$

95,461

Standby and commercial letters of credit

3,987

4,320

Total

$

89,104

$

99,781

Commitments to

extend credit

are agreements

to lend

to a

customer as

long as

there is

no violation

of any

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

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

is committed.

Standby

and

letters

of

credit

are

conditional

issued

by

the

Company

to

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 many of them expire without being drawn upon,

they do not generally present a significant liquidity risk

to the Company.

DERIVATIVES

The Company utilizes interest rate swap agreements

as part of its asset-liability management strategy to help

manage

its interest

position. The

notional amount

of the

swaps do

not represent

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.

Rate Swaps Designated as Cash Flow Hedges

the Company had

two

interest rate swap

agreements with

a notional aggregate

$

million that were designated as cash flow hedges of certificates of deposit. The interest rate swap agreements have an

average

of

2.38

years,

the

average

fixed-rate

paid

is

3.59

%,

with

the

average

3-month

compound SOFR (Secured Overnight Financing Rate) being received.

The Company had

no

cash flow hedges outstanding

on December 31, 2022.

The

changes

in

fair

value

on

these

rate

swaps

are

in

other

assets

or

other

with

a

corresponding recognition

and subsequently reclassified

to earnings when

losses are realized.

Interest Rate Swaps Designated as Fair Value

Hedges

31, 2023, the

four

interest rate swap

agreements with a

notional aggregate amount

of

$

million

that

were

as

fair

value

hedges

on

loans.

The

rate

swap

have

an

average

maturity of

2.23

years, the weighted average fixed-rate paid

is

4.74

%, with the weighted average

3-month compound SOFR

being received.

The

changes

in

fair

value

on

these

rate

swaps

are

in

other

assets

or

other

with

a

corresponding recognition in the assets being hedged.

Interest Rate Swaps

The Company also

enters into

interest rate swaps

with its

loan customers. The

and

swaps with loan customers with a notional aggregate

amount of $

46.5

33.9

million at December 31, 2023 and

These interest rate

swaps have maturity

dates of between

2025 and 2051.

The Company entered

into

corresponding

and

offsetting

with

third

The

fair

value

of

liability

on

these

the

Company to provide the counterparty

with funds to be held as collateral

which the Company reports as other

assets under

Balance Sheets.

While these

derivatives represent

economic hedges,

they do

not qualify

as hedges

for

accounting purposes.

The following table reflects the Company’s customer

related interest rate swaps at the dates indicated (in

Notional

Amount

Collateral

Amount

Balance Sheet Location

Asset

Derivatives Designated as Cash Flow Hedges

Interest rate swaps

$

50,000

$

$

$

Derivatives Designated as Fair Value Hedges

Interest rate swaps

$

200,000

$

Other liabilities

$

$

3,430

Derivatives not designated as hedging instruments:

Interest rate swaps related to customer loans

$

46,463

$

1,326

Other assets/Other liabilities

$

4,558

$

4,558

Derivatives not designated as hedging instruments:

Interest rate swaps related to customer loans

$

33,893

$

1,278

Other assets/Other liabilities

$

5,011

$

5,011

FAIR VALUE

MEASUREMENTS

Determination of Fair Value

uses

measurements

to record

fair-value

to certain

assets

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

between market

at the

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

estimates using

present value

or other

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

date

under current

market conditions.

If there

has been

a significant

in the

volume

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

would

transact

at

the

date

under

current

market

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

and financial liabilities

generally measured

at fair

value in

three

levels, based

on the

markets

are traded,

and the

of the

assumptions used to determine fair value.

Level 1

on quoted

prices in

active markets

for identical

assets or

liabilities that

the reporting

entity has

to access

at the measurement

date. Level

1 assets

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

is based on inputs other

than quoted prices included

within Level 1 that are

observable for the

asset

or

either

directly

or

indirectly.

The

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

is based on

unobservable inputs that

are supported

by little or

no market activity

and that are

to

the

fair

value

of

the

assets

or

liabilities.

Level

assets

and

include

whose value

using pricing

models, discounted

cash

flow

methodologies,

techniques,

as

well as instruments for which determination of fair value

requires significant management judgment or estimation.

A

instrument's

categorization

within

the

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

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

are

measured

with

pricing

provided

by

and

are

classified within Level 2 of the hierarchy.

The following table represents

the Company's assets measured at

fair value on a

recurring basis at December 31, 2023

and 2022 for each of the fair value hierarchy levels (in thousands):

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

Investment securities available for sale:

$

$

8,173

$

$

8,173

$

$

8,655

$

$

8,655

80,606

80,606

95,541

95,541

52,187

52,187

60,879

60,879

42,764

42,764

27,954

27,954

19,338

19,338

18,483

18,483

26,261

26,261

14,919

14,919

3,709

3,709

Total

229,329

229,329

230,140

230,140

Derivative assets

4,892

4,892

5,011

5,011

Total assets at fair value

$

$

234,221

$

$

234,221

$

$

235,151

$

$

235,151

Derivative liabilities

$

$

7,988

$

$

7,988

$

$

5,011

$

$

5,011

Total liabilities at fair value

$

$

7,988

$

$

7,988

$

$

5,011

$

$

5,011

Items Measured at Fair Value

on a Non-recurring Basis

Individually Evaluated

Loans and

Impaired Loans:

ASC 326

eliminates the

current accounting

model for

loans effective as

of January 1,

2023. At

December 31, 2022,

with provisions

of the

loan impairment

guidance,

individual loans

with a

carrying amount

of $

3.9

million were

written down

to their

of $

3.6

million, resulting

in an

impairment charge of $

thousand, which was included

in the allowance for

credit losses at December

31, 2022. Loans

subject to write

-downs, or

impaired loans,

are estimated

using the present

expected cash

flows or the

appraised

value

of

the

underlying

discounted

as

due

to

of

changes

in

conditions and are considered a Level 3 valuation.

Other Real Estate:

Other real

estate owned are

valued at the

lesser of the

third-party appraisals

less management's

estimate of

the costs to

sell or the

carrying cost of

the other

owned. Appraisals generally

use the market

valuation technique

and use

market observable

data to

formulate an

opinion of

the properties.

the appraiser

uses professional

judgment in

determining the

of the

adjust

the value for changes in

market conditions subsequent

to the valuation date

when current appraisals

are not available. As

a consequence of the carrying cost or the

third-party appraisal and adjustments therein, the fair values of the properties are

considered a Level 3 valuation.

The following table represents the Company’s assets measured at fair value on a non-recurring basis at December 31,

2023 and 2022 for each of the fair value hierarchy levels

(in thousands):

Level 1

Level 2

Level 3

Total

Impaired loans

$

$

$

3,639

$

3,639

The following table presents

quantified information about

Level 3 fair value

measurements for assets measured

at fair

value on a non-recurring basis at December 31, 2022 (in

Valuation Technique(s)

Unobservable Input(s)

$

3,500

Sales comparison approach

Adj. for differences between comparable sales

Discounted cash flow

Adj. for differences in net operating income expectations

Other

Discounted cash flow

Adj. for differences in net operating income expectations

Total

impaired loans

$

3,639

no

financial liabilities measured at fair value on a non-recurring

basis at December 31, 2023 and 2022.

Items Not Measured at Fair Value

The carrying amounts and estimated fair values of financial instruments not carried at fair value, at December 31, 2023

and 2022 are as follows (in thousands):

Fair Value Hierarchy

Carrying

Amount

Level 1

Level 2

Level 3

Amount

Financial Assets:

$

8,019

$

8,019

$

$

$

8,019

$

33,043

$

33,043

$

$

$

33,043

Investment securities held to maturity, net

$

174,974

$

$

155,510

$

$

155,510

$

$

$

$

1,723,210

$

1,723,210

$

10,688

$

$

1,448

$

9,240

$

10,688

Financial Liabilities:

Demand Deposits

$

552,762

$

552,762

$

$

$

552,762

$

$

$

$

$

$

47,702

$

47,702

$

$

$

47,702

$

288,403

$

$

$

287,104

$

287,104

$

183,000

$

$

182,282

$

$

182,282

Accrued interest payable

$

1,372

$

$

$

$

1,372

Financial Assets:

$

6,605

$

6,605

$

$

$

6,605

$

47,563

$

47,563

$

$

$

47,563

Investment securities held to maturity

$

188,699

$

$

169,088

$

$

169,088

$

$

$

$

1,436,877

$

1,436,877

$

7,546

$

$

1,183

$

6,363

$

7,546

Financial Liabilities:

Demand deposits

$

629,776

$

629,776

$

$

$

629,776

$

915,853

$

915,853

$

$

$

915,853

$

66,675

$

66,675

$

$

$

66,675

$

216,977

$

$

$

211,406

$

211,406

$

46,000

$

$

44,547

$

$

44,547

Accrued interest payable

$

$

$

$

$

STOCKHOLDERS’ EQUITY

In 2023 , the Company issued

242,713

shares of Class A common stock to employees and

directors as restricted stock

awards

pursuant

to

the

Option

Plan.

There

were

no

restricted

stock

awards

issued

in

the

year

ended

During the year ended December

31, 2023, the Company repurchased

669,920

shares of Class A common

stock at a

weighted average price per share

of $

11.28

. The aggregate purchase

price for these transactions was

approximately $

7.6

million, including

costs.

As of

2023,

80,080

shares remained

authorized

for repurchase

under

this program.

Shares of the Company’s Class A common stock issued and

outstanding as of December 31, 2023 and December 31,

2022 were

and

, respectively.

Declaration of dividends by the Board is required before dividend payments are made.

No

dividends were approved by

for the

common

stock classes

for the

2022. Additionally,

there were

no

dividends declared and unpaid as of December 31, 2023

and 2022.

See Note 19, Subsequent Events, for information regarding

dividends declared in January 2024.

The

Company

and

the

Bank

exceeded

all

capital

and

remained

above

“well-capitalized”

guidelines as of December 31, 2023 and December

31, 2022. At December 31,

2023, the total risk-based capital ratios

for

the Company and the Bank were

12.78

% and

12.65

%, respectively.

EARNINGS PER SHARE

Earnings

per

share

(“EPS”)

for

common

stock

is

calculated

using

the

two-class

method

for

participating

securities. Basic EPS

is calculated by

dividing net income

(loss) available to

common stockholders 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

common stockholders

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

table

reflects

the

calculation

of

net

income

to

common

for

the

years

ended

December 31, 2023 and 2022 (in thousands):

Net Income

$

16,545

$

20,141

$

16,545

$

20,141

reflects the calculation

of basic and

diluted earnings per

common share

class for the

December 31, 2023 and 2022 (in thousands, except

per share amounts):

Class A

Class A

Basic EPS

Numerator:

Net income available to common shares

$

16,545

$

20,141

Denominator:

Weighted average shares outstanding

19,621,698

19,999,323

Earnings per share, basic

$

0.84

$

1.01

Diluted EPS

Numerator:

Net income available to common shares

$

16,545

$

20,141

Denominator:

Weighted average shares outstanding for basic EPS

19,621,698

19,999,323

Add: Dilutive effects of assumed exercises of stock options

65,936

177,515

Weighted avg. shares including dilutive potential common shares

19,687,634

20,176,838

Earnings per share, diluted

$

0.84

$

1.00

Anti-dilutive stock options excluded from diluted EPS

720,500

15,000

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.

REGULATORY

MATTERS

Banks and

bank holding

to regulatory

capital requirements

administered by

federal and

state

banking

agencies.

Failure

to

meet

minimum

capital

can

initiate

certain

mandatory

and

possibly

discretionary actions

by regulators

that, if

undertaken, could

have a

direct material

the Company's

Under

capital

and

the

for

prompt

action,

the

Company and the

Bank must meet

specific capital guidelines

that involve quantitative

measures of their

assets, liabilities,

and certain

off-balance-sheet

items as

calculated under

regulatory accounting

practices. The

Company’s and

capital

amounts

and

classification

are

also

subject

to

by

the

about

components,

risk

weightings, and other factors.

Based on changes to the Federal Reserve’s definition of a “Small Bank

Holding Company” that increased the threshold

to $3.0 billion in assets

in August 2018, the Company

is not currently subject to

separate minimum capital measurements.

At such time when the Company reaches the

$3.0 billion asset level, it will

be subject to capital measurements independent

of the Bank.

elected to

permanently opt-out

of the

inclusion of

accumulated other

comprehensive income

in the

capital

calculations, as

permitted by the

regulations. This

opt-out reduces

the impact of

market volatility on

capital levels.

The Bank is

subject to the

rules of the

Basel III regulatory capital

framework and related Dodd-Frank

Wall Street Reform

and Consumer Protection

Act. The rules include

the implementation of

a

2.5

% capital conservation

buffer that is

added to

the minimum requirements

for capital adequacy

purposes. Failure

to maintain the

required capital conservation

buffer will

limit the ability of

the Bank to pay

dividends, repurchase shares

or pay discretionary

bonuses. At December

2022, the capital ratios for the Bank were sufficient

to meet the conservation buffer.

Prompt

action

provide

five

classifications:

well

capitalized,

capitalized,

significantly

and

critically

although

these

terms

are

not

used

to

represent overall financial condition. If

adequately capitalized, regulatory approval

is required to accept brokered

If

capital

are

limited,

as

is

asset

growth

and

expansion,

and

capital

plans

are

most recent

notification from

the regulatory

authorities categorized

as

well capitalized

regulatory framework

for prompt

corrective action.

Failure to

meet statutorily

mandated capital

could

subject

the

Bank

to

a

variety

of

remedies,

issuance

of

a

capital

directive,

the

termination of deposit

insurance by the

FDIC, a prohibition

on accepting or

renewing brokered deposits,

limitations on the

rates of

interest that

may pay

on

its deposits

on

its business.

To

be categorized

as well

capitalized, an institution

must maintain minimum

total risk-based, Tier

1 risk-based and Tier

1 leverage ratios as

set forth

in the

table below.

There are

no conditions

or events

since the

notification that

management believes

have changed

the

Bank’s category.

Actual and required

capital amounts and

ratios are presented

below for the

Bank at December

2022 (in

thousands, except ratios). The required amounts for capital adequacy

shown do not include the capital conservation buffer

previously discussed.

Actual

Minimum Capital

Requirements

To be Well Capitalized

Under Prompt Corrective

Action Provisions

Amount

Ratio

Amount

Ratio

Amount

Ratio

Total

$

233,109

12.65

%

$

147,432

8.00

%

$

184,290

10.00

%

$

211,645

11.48

%

$

110,574

6.00

%

$

147,432

8.00

%

$

211,645

11.48

%

$

82,931

4.50

%

$

119,789

6.50

%

$

211,645

9.17

%

$

92,328

4.00

%

$

115,410

5.00

%

Total

$

216,693

13.58

%

$

127,616

8.00

%

$

159,520

10.00

%

$

198,909

12.47

%

$

95,712

6.00

%

$

127,616

8.00

%

$

198,909

12.47

%

$

71,784

4.50

%

$

103,688

6.50

%

$

198,909

9.56

%

$

83,210

4.00

%

$

104,012

5.00

%

is limited in

the amount

of cash

dividends that

it may

pay.

Payment of dividends

is generally

limited to

of the

current year

combined with

retained income

of 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. It is likely that

these factors would further limit the

amount of dividends which the Company could

declare. In addition,

bank

have

the

authority

to

prohibit

banks

from

paying

to

their

parent

holding

company, if they deem

such payment to be an unsafe or unsound practice.

RELATED PARTY

TRANSACTIONS

In

the

ordinary

course

of

officers,

and

affiliates

may

engage

in

with

the

The

table

loans

to

and

from

related

parties

within

the

Consolidated Financial Statements at December 31, 2023

and 2022 (in thousands):

$

$

Deposits

$

2,792

$

6,825

Interest income

$

$

Interest expense

$

$

Loan Purchases

During 2023, the Bank purchased $

85.1

million of loans from entities that are

deemed to be related parties.

paid those entities fees of $

1.9

During 2022, the Bank purchased $

42.8

million of loans from entities that are deemed to be related

parties. The Bank

paid those entities fees of $

PARENT COMPANY

CONDENSED FINANCIAL INFORMATION

In December

2021, USCB

Inc. was

formed as

the parent

bank holding

company of

Bank.

The

condensed

balance

sheet

is

below

for

USCB

Inc.

at

the

dates

(in

ASSETS:

Cash and Cash Equivalents

$

2,426

$

1,102

Investment in bank subsidiary

188,827

181,326

Total

assets

$

191,968

$

182,428

LIABILITIES AND STOCKHOLDERS' EQUITY:

Other liabilities

$

$

Stockholders' equity

191,968

182,428

Total

liabilities and stockholders' equity

$

191,968

$

182,428

The condensed

income statement

is presented

below for

for the

periods indicated

(in

Years Ended

INCOME:

Dividends from subsidiaries

$

11,100

$

1,000

Total

11,100

1,000

EXPENSE:

Employee compensation and benefits

2,268

Total

2,821

Income before income taxes and undistributed subsidiary income

8,279

1,000

Provision (benefit) for income taxes

(715)

Equity in undisbursed subsidiary income

7,551

19,141

Net Income

$

16,545

$

20,141

The condensed cash

flow is presented below

for USCB Financial Holdings,

Inc. for the periods

indicated (in thousands):

Years Ended

Cash flows from operating activities:

$

16,545

$

20,141

Adjustments to reconcile net income to net cash provided

by operating

activities:

Equity in undistributed earnings of subsidiaries

(7,551)

(19,141)

Increase in deferred tax asset

(715)

Net cash provided by operating activities

8,832

1,000

Cash flows from investing activities:

Capital contributions to subsidiary

Other

Net cash used in investing activities

Cash flows from financing activities:

Dividends paid

Proceeds from exercise of stock options

Repurchase of common stock

(7,583)

Net cash (used in) provided by financing activities

(7,508)

Net increase in cash and cash equivalents

1,324

1,102

Cash and cash equivalents, beginning of period

1,102

Cash and cash equivalents, end of period

$

2,426

$

1,102

LOSS CONTINGENCIES

Loss contingencies,

including claims

and legal actions

may arise in

the ordinary

course of

business. In

the opinion

of

management, none

actions, either

individually or

in the aggregate,

is expected

to have

a material

adverse effect

on the Company’s Consolidated Financial Statements.

SUBSEQUENT EVENTS

On January

29,

2024,

the

Company

announced

that

its

Board

of Directors

a cash

The

quarterly dividend

for the

first quarter

of 2024

was $

0.05

per share

stock, paid

on March

5, 2024,

to

stockholders of record as of the close of business

on February 15, 2024. Total amount paid to shareholders in dividends on

February 15, 2024 was $

1.0

Changes in and Disagreements with Accountants on

Accounting and Financial Disclosure