USCB Financial Holdings, Inc.

Good morning and welcome to the USCB Financial Holdings conference call. All participants will be in a 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 your telephone keypad. To withdraw your question, please press star then two. Please note that this event is being recorded. I would like now to send the conference over to Mr. Luis de la Aguilera, President and CEO of the company. Please go ahead.

Good morning, and thank you for joining us today for USCB Financial Holdings 2023 First Quarter Earnings Call. With me today reviewing our Q1 highlights is CFO Rob Anderson and Chief Credit Officer Ben Passos, who will provide an overview of the bank's performance the highlights of which you can see on slide three. Well, what a difference a quarter makes. Who would have imagined that just six weeks after our last earnings call, three banks would have suddenly failed, heightening client concerns about the safety and soundness of the banking industry and intensifying discussions on inflation, liquidity, uninsured deposit ratios, any potential recession. Banking is based on confidence, and clients look for guidance and support during stressful economic times. It is critical to maintain our clients' trust, and we see the moment as an opportunity to further interact with them to strengthen and grow their relationships. More on that shortly. Despite these challenges, we are pleased to announce that the USDB team delivered strong performance in the first quarter of 2023, reflecting our ability to navigate a challenging operating environment with prudent consistency. Our financial results demonstrate robust earnings driven by solid loan production, disciplined credit underwriting, and risk management practices. Over the past six years, we have focused on diversifying our loan portfolio by developing multiple non-CRE business lines, which are delivering in a meaningful way. Actually, 64% of the bank's Q1 loan production was non-CRE, and we expect that trend to continue. Our deposits are derived primarily from local businesses, their owners, and the communities we serve. We do not have any exposure to either cryptocurrencies or investments or to crypto-related businesses. We are a commercial bank, and our strength and stability is reinforced by growing core customer relationships, enabling us to build a granular deposit-based and diversified loan portfolio in one of the fastest growing markets in Florida and the United States. As we review our Q1 2023 highlights, let's start by comparing our results to those posted in the first quarter of 2022. Average deposits increased by 194 million or 11.8% compared to the first quarter of last year. Average loans excluding PPP loans increased 137 million or 31.4% compared to the first quarter of 2022. Tangible book value per share was $9.37, including an after-tax unrealized security loss impact of $2.14. Net income was $5.8 million, or $0.29 per diluted share, an increase of $1 million, or 19.7%, compared to the first quarter of 2022. Annualized return on average assets for the quarter ended March 31st, 2023 was 1.11% compared to 1.03 for the first quarter of 2022. Annualized return on average stockholders' equity for the quarter ended March 31st, 2023 was 12.85% compared to 9.75% for the first quarter of the previous year. The efficiency ratio for the quarter ended March 31st, 2023 was 56.32% compared to 58.88% for the first quarter of last year. Credit metrics remain strong. Non-performing loans to total loans was 0.03% at March 31st, 2023 compared to zero at March 31st of last year with a single loan for $486,000 classified as non-performing. The allowance for credit losses represented a 1.20% of total loans, both at the March 31st, 2023 and March 31st of last year. Effectively, as of January 1st of this year, the company adopted the CECL methodology for estimating credit losses, which resulted in an increase to the allowance for credit losses for loans of 1.1 million and an increase to the reserve for unfunded commitments of 259,000. This one-time cumulative adjustment resulted in an after-tax decrease of $1 million in retained earnings. During the quarter, the company repurchased 500,000 shares of USTB Financial Holdings, Inc. at a weighted average price per share of $11.74. The aggregate purchase price for these transactions was approximately $5.9 million, including transaction costs. These open market repurchases were made pursuant to the company's publicly announced repurchase program. As of March 31st, 23, 250,000 shares remain to be repurchased under the program. The following page is self-explanatory, directionally showing nine select historical financial trends since our recapitalization. Profitable performance based on sound and conservative risk management is what our team is focused on consistently delivering. So now let's turn 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. 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 2.2 billion for the quarter. Loan balances were 1.6 billion, which is up 73 million from the prior quarter, and deposits are at 1.8 billion. At quarter end, we had 416 million in securities. 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-mark accounting treatment. Total equity is now $184 million, up slightly from $182 million in Q4. And although footnoted on the slide, the $184 million in equity includes $42.1 million in unrealized losses on the securities portfolio running through AOCI. Moving on to the P&L, net interest income decreased from the prior quarter due to higher deposit costs and our non-interest income of $2.1 million reflects the execution of SBA loan sales. The bank implemented CECL in the quarter and booked 201,000 provision expense with loan growth. Additionally, our day one CECL implementation resulted in a 1.1 million increase to our loan loss reserve, which we ran through retained earnings. On a GAAP basis, net income was 5.8 million, or 29 cents a share. And with that, let's take a quick look at our performance indicators on the next page. In terms of soundness, our credit metrics remain strong. Our loan loss reserve coverage ratio increased with the adoption of CECL at 1.20%, and Ben will discuss our credit book in more detail in a bit. In terms of profitability, our return on average assets was 1.11 for the quarter, and return on average equity was 12.85%. Our NIM was down 23 basis points from the quarter to 3.22%, driven by a higher cost of funding. Efficiency Ratio was 56.32%, and our tangible book value per share moved up slightly to $9.37 per share, which is reflective of the negative mark of $2.14 per share on our securities portfolio and AOSDI that I referenced earlier, and the stock repurchases in the quarter. Absent the AOSDI mark, our tangible book value per share would have been $11.51. Let's hit on liquidity on the next page. During the month of March, our industry saw three notable banks fail and liquidity became a headline issue across the industry. The Federal Reserve created a new liquidity program to make additional funding available to depository institutions. We have enrolled in the Bank Term Funding Program, or BTFP, but have not accessed the program and do not intend to access the program anytime soon. Our on-balance sheet liquidity is in excess of $413 million and our off-balance sheet sources, excluding brokered CDs, is in the excess of $228 million. We continue to beef up our pledging of both loans and securities, and our liquidity sources have expanded post-quarter end. Additionally, U.S. Century Bank has access to the brokered CD market and listing CDs, which we have self-imposed policy limits on these products and are not listed on the chart. If we include all sources of wholesale funding, our self-imposed liquidity limits are in excess of $500 million of funding, which we believe is sufficient to weather the current environment. So with that, let's take a look at our deposit book on the next page. Average deposits increased $40.4 million or 9.1% annualized compared to the prior quarter and $194 million or 11.8% compared to the first quarter of 2022. Average DDA deposits increased 10.5 million or 6.5% annualized compared to the prior quarter and increased 38 million or 6.1% compared to the first quarter of 2022. Average DDA balances comprised 36% of total deposits during the quarter and is consistent with the prior quarter. You may note that USCB did not experience the mix shift that seems prevalent with other institutions today. We believe this speaks to the strength of our deposit base. Also, you will notice that quarter end spot balance of $1.831 billion is below our quarterly average of $1.844 billion. We had numerous conversations with clients in the last two weeks of March who were concerned about the events happening within the industry. While few clients decided to minimize their balances with USCB, I'm happy to report that we did not lose any clients due to these events, and we had a few clients place their deposits into the Intrify ICS and CDARS product, which provides the depositor with insurance on every dollar of their deposit. To that point, we had $35.7 million in ICS CDARS at quarter end, and some clients have continued to put more in the ICS product post-quarter end. As it relates to the cost of our deposit book, we continue to see increases relative to the Fed Funds rate increases but remain with a 24% deposit beta through the current rate cycle. So let's take a closer look at the deposit book on the next slide. Our deposit book reflects our business model, a diversified commercial bank. 54% of our deposits are commercial or business accounts, 35% personal or retail accounts, and 11% public fund accounts, which are partially collateralized. The bank has 19.2 thousand deposit accounts with the majority in personal accounts, 12.4 thousand or 64.4 percent of the total. As you can see by the chart on the lower left, the average balance in a business account is 145 thousand, 52 thousand in a personal account, and 7.1 million in a public fund account. The total amount of uninsured deposits adjusted by the collateralized portion of public funds is 56% for quarter end, a decrease of 3% compared to the fourth quarter of 2022 and below the 2022 average so far. We anticipate this number to come down or more significantly next quarter as we continue to place clients in the ICS product post-quarter end. With that, let me turn it back to Liv.