USCB Financial Holdings, Inc.

Good morning, and welcome to the USCB Financial Holdings Fourth Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode today. Should you need any assistance during the call, 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 your telephone keypad. To withdraw your question, please press star then two. Please note that this event is being recorded. I would now like to turn the conference over to Luis de la Aguilera, President and Chief Executive Officer. Please go ahead. Luis de la Aguilera, President and Chief Executive Officer. Please go ahead. Luis de la Aguilera, President and Chief Executive Officer. Please go ahead.

Luis de la Aguilera, President and Chief Executive Officer. Please go ahead. Luis de la Aguilera, President and Chief Executive Officer. Please go ahead. Luis de la Aguilera, President and Chief Executive Officer. Please go ahead. Luis de la Aguilera, President and Chief Executive Officer. Please go ahead. Luis de la Aguilera, President and Chief Executive Officer. Please go ahead. Luis de la Aguilera, President and Chief Executive Officer. Please go ahead. Luis de la Aguilera, President and Chief Executive Officer. Please go ahead. Luis de la Aguilera, President and Chief Executive Officer. the highlights of which you can see on slide three. Completing our first full year of performance since our IPO on July 23rd, 2021, USDB Financial Holdings ended the year posting consistent solid results in the fourth quarter and robust double digit annualized growth, annualized loan and deposit growth as net interest margins expanded year over year. Total assets were 2.1 billion as of December 31st, 2022, representing an increase of $231.9 million or 12.5% increase from December 31st, 2021. Asset quality continued a sound and stable trend with no loans classified as non-performing. Capital liquidity remains strong, positioning us well for continued safe and sound future growth. The bank closed the year with total deposits at $1.8 billion as of December 31st, 2022. average deposits increased by 241.9 million, or 15.5%, compared to the fourth quarter of 2021. As a business-centered commercial bank, our focus is to develop and optimize fully banked relationships, always placing a premium on growing core deposits. To this point, demand deposit balances comprise 36.2% of total deposits at year end. In continued support of our deposit growth strategies, we have hired two new experienced senior bankers that have joined us in the new year. This new team of proven producers have deep roots in the South Dade market and a strong following. Their primary focus are professionals, owner-operated businesses, and homeowners associations. We are confident that they will be accretive to our loan and deposit growth plans. Total average loans excluding PPP loans increased 347.8 million or 31.4% annualized compared to the fourth quarter 2021. 2022 saw the strongest year of loan production since the bank's 2015 recapitalization with 569 million in originations. Increased diversification in our loan portfolio is being generated through the various business verticals we have developed, including SBA, Homeowners Association Lending, global banking, and yacht lending. Nonetheless, we maintain a prudent and disciplined approach in sourcing new loan opportunities with a focus on quality, repayment, deposits, and business potential, as well as diversity by asset class and concentration. Our South Florida market is driven by a largely real estate-denominated economy, and CRE lending will be significant for most banks. Under the supervision of our Chief Credit Officer, Ben Passos, our credit department maintains a watchful eye regarding risk management, closely monitoring loan concentrations, analyzing sub-market performance, growth trends, and proactively monitoring key credit metrics. Mr. Passos will shortly be updating us on the evolution of the bank's loan portfolio, where we will note with granularity the composition of our commercial real estate by loan type, weighted averages, covering loan-to-values, debt service coverage ratios, and average loan size. In effect, the CRE portion of the loan portfolio is high quality, low leverage, and well diversified. The bank's net income for the fourth quarter was $4.4 million, or $0.22 per diluted share. Non-GAAP operating net income was $5.9 million, or $0.29 per diluted share, compared to $5.6 million, or $0.30 per diluted share, for the same period in 2021. The bank executed a strategy in Q4 2022, which resulted in the sale of 17 million of its lower-yielding available-for-sale securities for an estimated after-tax loss of approximately 1.5 million, or 7 cents, EPS. Proceeds from the sale will be more effectively reinvested in higher-yielding assets, generating an additional 3 cents in 2023 EPS. CFO Anderson, will review this repositioning strategy update as well as overall bank performance in greater detail. As we continue an overview of our Q4 profitability highlights, we note the quarter closed with an ROA of 0.86 and an ROAE of 9.91%. Non-GAAP ROAA was 1.14 compared to 1.22% for the fourth quarter of 2021. Non-GAAP operating ROAE was 13.23% compared to 11.03% for the fourth quarter of 2021. The bank's efficiency ratio was 59.81%. By contrast, our non-GAAP operating efficiency ratio was 53.46% compared to 55.85% for the fourth quarter of 2021. NIM was 3.45%. and net interest income was $16.9 million compared to 3.19 percent at $14 million in Q4 2021. Again, to fully appreciate the directional trajectory of U.S. Century Bank, we best view its performance trends. Slide four graphically details nine key performance indicators showing the significant strides made by the bank since recapitalization. I will briefly comment on four of these KPIs, namely total assets, total loans, total deposits, and stockholders' equity. When comparing 2021 and 2022, we see double-digit year-over-year increases in total assets of $232 million, or 12.5%, total loans of $317 million, or 26.7%, and total deposits of $239 million, or 15.5%. Stockholders' equity. was 182.4 million at December 31st, 2022, representing a decrease of 21.5 million, or 10.5% from December 31st, 2021. Total stockholders' equity includes unrealized securities losses of 44.8 million at December 31st, 2022, compared to unrealized securities loss of 2.5 million at December 31st, 2021. The bank's progress over these years is indicative of the leadership of our board, the experience and capacity of the management team, the commitment of our staff, and the positive response of our local market. Our developing business lines are an important contributor to our loan and deposit objectives. On slide five are listed five diversified business lines that include the Juris Advantage Program, a deposit aggregation strategy primarily supporting small to medium-sized law firms, offering personalized concierge banking service. Association Banking, focus on the expansive and deposit-rich Florida condominium market. Global Banking, developing select foreign correspondent banking relationships in the Caribbean Basin and Central America, a strong fee business generator. SBA Lending, supporting small to medium-sized businesses. We're developing a growing niche in SBA 7A Lending having the opportunity to sell the government-guaranteed portion, offering strong fee potential. And yacht lending, our newest vertical, launched in January 2022, focused on high net worth clients and one of the premier yachting markets in the U.S. Each business vertical offers multiple sales opportunities as clients are onboarded and relationships develop. As can be seen in the graphic, collectively, these business lines have generated over $446 million in deposits, and $339 million in loans, mostly CNI and consumer. The Yacht Financing Vertical is a high-quality, short-duration portfolio, which is modeled according to plan. Presently, the Yacht portfolio totals $125 million, or 8% of the total portfolio of 60 notes, having an average loan size of $2.6 million. The portfolio also reflects the following data points, which underscores the conservative nature of this underwriting. The average FICO score is 770. Average liquidity to monthly debt is at 102 times. The average loan to cost is 66%. Average liquidity to loans of 234%. The average debt service coverage is 4.4 times. All loans are recourse, current, and on auto debit. This is a new and exciting business vertical and already new additional business has been generated as a large number of these yacht owners reside in South Florida or maintain second homes in the state. Notwithstanding, this business line represents an excellent opportunity to commence a business relationship with high net worth prospects. With that said, I will turn things over to Rob.

Okay, thank you, Lou, and good morning, everyone. In looking at our financial statements, and by many measures, U.S. Century Bank had another great quarter. Let me highlight a few items on the next couple of pages before getting into specific details. First, total assets were $2.1 billion for the quarter, loan balances were $1.5 billion, which is up $76 million from the prior quarter, and deposits are at $1.8 billion, up $33 million from the prior quarter. At quarter end, we had $419 million in securities, and we executed a portfolio restructuring strategy which resulted in the sale of $17 million of lower-yielding securities for an after-tax loss of $1.5 million, or $0.07 a share. Proceeds from the sales securities will be reinvested into higher-yielding assets, generating an additional $0.03 a share in 2023. In short, we expect an earn-back on this capital slightly over two years. Also, the loss on the sales securities is expected to have a nominal impact on our tangible book value as such loss was previously reflected in capital through Accumulated Other Comprehensive Income, or AOCI. I will highlight this on our capital slide. Like most banks in the industry today, these securities were put on the books during the pandemic period of very low interest rates. As interest rates have taken a fast and sharp rise, these securities now have a negative mark due to the mark-to-market accounting treatment. While the midpoint of the interest rate curve has moved down, our total equity is now 182 million, up from 177 million in Q3. Although footnoted on the slide, the 182 million in equity includes 44.8 million in unrealized losses on the securities portfolio in AOCI. For comparison purposes, the third quarter had 45.2 million in unrealized losses. Moving on to the P&L, net interest income increased slightly from the prior quarter with triple P income nearly exhausted and our non-interest income is negative due to the portfolio restructuring I just mentioned. We booked 880,000 of provision expense with loan growth in the quarter and operating expenses were flat at 10 million for the quarter. On a gap basis, net income was 4.4%. million or 22 cents a share, but on an operating or non-GAAP basis, we made 5.9 or 29 cents a share for the quarter. And the reconciliation from GAAP to non-GAAP are in the back of the presentation. With that, let's take a look at our performance indicators. In terms of soundness, our credit metrics remain strong. Loan loss reserve remained at 1.16%, and then we'll discuss our credit book in more detail. In terms of profitability, our operating return on average assets was 1.14% for the quarter, and operating return on average equity was 13.23%. Our NIM was down two basis points from the prior quarter to 3.45%, but if you excluded the impact of the triple fee income, we are flat quarter over quarter. The operating efficiency was 53.46%, and our tangible book value per share moved up slightly to $9.12 per share, which is reflective of the negative mark of $2.24 per share on our securities portfolio in AOSDI. Absent this mark, our tangible book value per share would have been $11.36. With that, let me turn it back to Lou to speak about our loan book and loan yields.