Phillips Edison & Company, Inc.

Good day, and welcome to the USCB Financial Holdings Inc. Third Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Luis de la Aguilera, Chairman, CEO, and President. Please go ahead.

Good morning, and thank you for joining us for USCB Financial Holdings Q3 2025 Earnings Call. With me today reviewing our Q3 highlights is CFO Rob Anderson and Chief Credit Officer Bill Turner, who will provide an overview of the bank's performance, the highlights of which commence on slide three. The third quarter of 2025 continued to reflect disciplined financial performance across all key metrics, marking our third consecutive quarter a record fully diluted earnings per share. For the quarter ended September 30th, 2025, the bank posted net income of 8.9 million or 45 cents per diluted share, up from 6.9 million or 35 cents per share in the third quarter of 2024. During the third quarter, our profitability metrics remain among the best in our peer group. Return on average assets increased to 1.27% compared to 1.11% a year ago. Return on average equity improved from 15.74% up from 13.38% last year. Our efficiency ratio strengthened to 52.28%, reflecting disciplined expense management and operating leverage. Net interest margin expanded to 3.14% compared to 3.03% in the same quarter last year. Net interest income before provision for credit losses was 21.3 million, up 3.2 million or 17.5% from the prior year, supported by solid balance sheet growth and prudent pricing discipline. Total assets reached 2.8 billion as of September 30th, 2025, representing a 10.5% year-over-year growth. Total deposits ended the quarter at 2.5 billion, marking a robust 15.5% year-over-year increase. Growth was broad-based across business and consumer segments. Our diversified deposit-focused business verticals, namely association banking, private client group, and correspondent banking, now account for 672 million, or 27% of total deposits. These deposit-focused verticals are highly scalable, and in the past year, we have added new production personnel to further support our growth plans. Liquidity remains strong and well above policy limits, providing ample flexibility to support loan growth and capital initiatives. Loans held for investment grew to $2.1 billion, an increase of more than $199 million, or 10.3%, from $1.9 billion on September 30, 2024. reflecting steady customer demand and solid credit quality. Again, we consistently focus on credit quality and diversity, and our loan bulk has significantly diversified in composition as 42% of our loans are now non-CRE. Credit performance continues to be exceptionally strong. Non-performing loans declined to just 0.06% of total loans, down from 0.14% last year. The allowance for credit losses totaled $25 million at year end, representing 1.17 of total loans. During the quarter, we completed a successful 40 million subordinated debt issuance, providing efficient capital at attractive terms. Most of the proceeds were used to repurchase approximately 2 million shares at a weighted average price of $17.19 per share, underscoring our confidence in the intrinsic value of our stock and our commitment to returning capital to shareholders. Following these transactions, tangible book value per share grew to $11.55, 6% higher than the prior year. Our capital position remains a key strength. As of September 30th, total risk-based capital ratios were 14.2% for the company and 13.93% for the bank, well above regulatory minimums. Overall, the third quarter's record performance reflects the strength of our business model, our focus on relationship-based growth, and our commitment to deliver long-term value to our shareholders, customers, and employees. On the following page is self-explanatory, directly showing nine select historical trends since recapitalization. Profitable performance based on sound and conservative risk management is what our team is focused on, consistently delivering. So let's now draw our attention to our specific financial results and key performance indicators, which will be reviewed by our CFO, Rob Anderson.

Thank you, Lou, and good morning, everyone. Looking at pages five and six, I would describe the third quarter of 2025 as a highly successful quarter for USCB. In fact, it was another record for us. Net income was 8.9 million or 45 cents per diluted share, and that's up 29% over the prior year. Return on average assets was 1.27%. Return on average equity was 15.74%. And these metrics benchmark incredibly well when compared to peers. The most notable activity in the quarter was the $40 million sub-debt raise and repurchasing 2 million shares or 10% of the company. The weighted average price per share of the buyback was $17.19. While the 2 million share repurchase happened on September 4th, the weighted average diluted share count for the quarter was marginally impacted to 19.755 million shares versus the ending share count of 18.1 million. On a pro forma basis, assuming the repurchase happened on day one of the quarter with the same 8.9 million of earnings would have equated to an EPS amount of 49 cents. This number should help you when updating your estimates for 2026. While the summer months cooled off our loan growth for the quarter, we put excess cash to work in our securities portfolio. As a reminder, our securities portfolio is still reflective of the COVID era. yielding 3.03%. As discussed in previous calls, this represents a tremendous opportunity for us to improve go-forward earnings. I will elaborate more on this in a bit. With the sub-debt raise and the excess cash on the balance sheet in anticipation of loan demand, the NIM retreated slightly to 3.14%. The efficiency ratio was steady at 52.28%. Tangible book value per share was $11.55. and reflects the impact of the share repurchase. And last, credit metrics remain benign. So with that overview, let's discuss deposits on the next page. Average deposits increased 166 million or nearly 29% compared to the prior quarter and are up 380 million or 18% year over year. During the quarter, we issued 100 million of brokered CDs, which were used as hedging instruments as we put on an interest rate collar to mitigate interest rate risk. These are three-month CDs which will be renewed every quarter at market rates over the next two years. The cap rate on the caller is 4.5% with a floor rate of 1.88%. The swaps have a duration of two years at inception. While average DDA balances declined $10.6 million from the prior quarter, DDA still comprised 23% of total deposits. Interest-bearing deposit costs remain stable at 3.29%. down 47 basis points from the same period last year. Total deposit costs increased slightly by seven basis points, primarily due to the decrease in DDA balances and the higher proportion of interest-bearing deposits. While this mixed shift puts some pressure on the cost of funds, we anticipate improvement in our funding base in the fourth quarter as more liabilities reprice with rate cuts. Despite the temporary shift, we remain optimistic about deposit growth and continue to execute our business plan in niche verticals to support sustainable growth, in core operating accounts, and low-cost deposits. So with that, let's move on to the loan book. On a linked quarter basis, average loans grew by 41.6 million, or 8% annualized. Compared to the third quarter of 2024, we grew 220.8 million, or 11.8%. Both growth metrics are within our stated guidance. Alongside this growth, loan yield decreased two basis points to 6.21% and was negatively impacted by the payoff of consumer yacht loans during the quarter. Excluding the effect of the consumer yacht loan payoffs, the yield would have been 6.25%. On a point-to-point basis, the loan book increased 19 million. As you can see from page 9, our new loan production was lower than our last four quarters, but with a strong pipeline In the summer sluggishness behind us, we look to get on our normal run rate in Q4. New loan production had a weighted average coupon of 6.43%, 22 basis points higher than the portfolio's average yield. On page 10 is a snapshot of our business verticals. Two are loan-oriented and three are deposit-oriented, namely association banking, private client group, and correspondent banking. All business verticals are led by very seasoned, experienced bankers and are pivotal to our branch-light model. As Lou mentioned, they are highly scalable, and in the past year, we have added new production personnel to further support growth. Moving on to page 11, net interest income increased by $240,000, or 4.5% annualized compared to the prior quarter, and was up $3.2 million, or 17.5% year-over-year. Our net interest margin for the quarter was 3.14% and was affected by the higher cash balances, the issuance of $40 million of sub-debt at 7.625%, delayed loan production, and increased funding costs driven by lower DDA balances. Additionally, we received prepayments on yacht loans, which negatively impacted loan yields and the NIM for the quarter. However, looking ahead, we expect improvement in the NIM as we put excess cash to work in loan volume late in the quarter, added to our securities portfolio, and cut deposit rates in September. In fact, the NIM for the month of September was 3.27%. All these items are good tailwinds heading into Q4. With that, let's move on to the ALM model on the next page. In the past several quarters, the strategy has been to prepare for a lower rate environment, and according to our ALM model, the balance sheet is liability-sensitive and well-positioned for the current rate environment. With rate cuts expected in the short term, we anticipate this will benefit our funding costs and overall margin, and the effect of these rate cuts will be seen more predominantly in the fourth quarter. For instance, the ALM model contains a deposit beta assumption of 60%, but we have outperformed this beta over time. With the September rate cut, we achieved a 70% beta on our $1.2 billion money market book, which translates into an $840 million repricing fully at 100% or 25 basis points. On the flip side, we have 2.131 billion in our loan book and 62% or 1.3 billion is variable rate or hybrid in nature. 47% of that book or 620 million will reprice in the next year. In short, our liability sensitivity will be dependent on our ability to reprice our money market book faster than our loan book reprices. With that, let's take a look at our securities portfolio. Total holdings stood at $480 million at quarter end, with 67% classified as available for sale, and 33% as held to maturity. The portfolio yield has improved compared to the previous year, reaching 3.03%. This represents an increase of 42 basis points compared to the same period last year. A significant portion of this yield enhancement is due to our net purchase of 76 million bonds during the first nine months of the year, which carry a yield of 6% and an average duration of four years. A modified duration is 5.1, and the average life is 6.4 years, reflecting our strategy to purchase longer duration bonds in anticipation of lower interest rates. 79% of the portfolio is invested in agency, mortgage-backed securities, boosting liquidity. Looking ahead, we expect to receive $14.4 million in cash flows from the portfolio for the remainder of 2025 at current rates, and approximately $76.4 million in 2026, with a runoff rate of about 3%. These cash flows provide us with significant optionality. They can be reinvested at higher yields, whether in loans or other investments, or used to let go of more expensive funding sources. In this way, our investment portfolio should be viewed as a strategic tool for the upcoming quarter, supporting both margin improvement and balance sheet flexibility as we navigate the evolving rate environment. So with that, let me turn it over to Bill to discuss asset quality.