USCB Financial Holdings, Inc.

Thank you for standing by, and welcome to the Q3 2023 USCB Financial Holdings, Inc. Earnings Conference Call. I would now like to welcome Luis de la Aguilera, Chairman, President, and CEO, to begin the call. Luis, over to you.

Good morning, and thank you for joining us today for USCB Financial Holdings Third Quarter 2023 Earnings Call. With me today reviewing our Q3 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. As we report our third quarter earnings, I am pleased to highlight the rebound in loan growth following earlier concerns this year about the safety and soundness of the banking industry. The third quarter saw $135 million in new loan production, more than doubling the volume of the previous quarter. Our commitment to enhance net interest margin is evident in the 8% weighted average coupon on new loans in Q3 production, exceeding our portfolio average. Shortly, we will review this consistent increase in both production and yield. We are encouraged by the continued diversification of our loan growth, particularly the 59% in new non-SERI loans for the quarter. This diversification is a result of the contribution to loan production from our numerous business lines, including association lending, SBA lending, yacht loans, and correspondent banking. Throughout 2023, 65% of all loan production has been generated through these business lines, reducing CRE concentration since the beginning of the year to 363% and well spread over various asset classes. Furthermore, We took the opportunity to restructure our bank-owned life insurance, which bolstered BOLI revenue by $982,000 this quarter, and we offset this one-time non-recurring gain with a comparable-sized security loss trade. This small portfolio restructuring will allow us to optimize our investment portfolio by transitioning from lower-yielding securities to higher-returned investments. Despite a decrease in NIM early in the third quarter, September's NIM increased to 2.7%, which reflects the resilience and adaptive spirit of our bank in fortifying our financial performance. As a commercially focused SBA preferred lender, U.S. Century is committed to support South Florida's small business community. Early in 2020, we launched our SBA Business Initiative, which has generated over $115 million and SBA 504 and 7 loans, while generating over 4 million fees on the gain on sale of the guaranteed portion of the 7 loans. Serving over 7,000 small business clients, we recognize the responsibility and business opportunity in supporting the lending needs of these clients. With that said, we launched this past quarter a strategic partnership with industry-leading technology partner NewTekOne, delivering a fully integrated small-ticket SBA 7A online application and expedited approval process. In business since 2000, NewTekOne is a publicly traded company listed on NASDAQ and an industry leader in the field. This partnership will efficiently support our existing small business relationships and attract new clients without additions to staff. Since launching this initiative this past September 7, 61 applications totaling $12.5 million have been submitted. The program accepts loans between $10,000 to $500,000. Management's commitment in ever-improving operational efficiency can be observed in the year-to-year declining trends seen in the bank's non-interest expense to average assets, which improved from 2.1% in 2021 to 1.97 in 2022, to 1.84% this past quarter. We are committed to running an efficient bank, and any expense saved allow us further investment in people and technology to improve our platform here in South Florida. To this end, our focus on growing low-cost deposits was reinforced in the third quarter with two new hires, one in our association banking group and another in the private client group which is focused on delivering personalized concierge-level service to the local attorney market. These two deposit aggregating businesses have grown 300 million since their launch in 2017, and the new hires will support our targeted deposit growth plans. The following page is self-explanatory, directionally 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 turn our attention to our specific financial results and key performance indicators, which were reviewed by our CFO, Rob Anderson.

Thank you, Lou, and good morning, everyone. Overall, I would characterize this quarter as resilient. The management team executed on several initiatives, which we believe positively impact forward earnings. As we move through the slides, I'll be pointing out why we believe our financial performance is starting to recover compared to previous quarters and why management feels more optimistic about the upcoming quarters. With that, let's get into the numbers. Total assets were $2.2 billion for the quarter. Loan balances were $1.7 billion, up $81 million from the prior quarter. Deposits were $1.9 billion. At quarter end, we had $416 million in securities, and total equity closed at $183 million, a slight decrease compared to the previous quarter due to the increase in unrealized losses in the security portfolio with higher interest rates. Despite a difficult operating environment, the deposit portfolio remains flat for the quarter. However, when we review average balances, you'll see an annual growth rate of 10.1%. Moving on to the P&L, net interest income was slightly down compared to the prior quarter, as we have been in an inverted yield curve for some time. The good news is that we saw an inflection point in our NIM with the low point in July and both August and September steadily increasing. I will expand on the NIM conversation as we progress with the call. Another good thing to report this quarter is the increase in non-interest income. Compared to the prior quarter and last year, the non-interest income was up due to SBA fees, and higher wire fees where our high-touch concierge business verticals differentiate themselves from our competition. Furthermore, within this line item, we executed a small security loss trade and restructured our bank-owned life insurance portfolio, which will provide higher earnings going forward. Expenses were flat from the prior quarter, and we booked $653,000 for loan loss provision with growth in our loan book. On a gap basis, net income was $3.8 million, or 19 cents per diluted share. Let's briefly cover our performance metrics for the quarter. In terms of soundness, our credit metrics remain strong. Our loan loss reserve coverage was down slightly to 1.16%. In terms of profitability, our return on average assets was 0.67%, and our return on average equity was 8.19%. Our NIM was 2.6%, down 13 basis points from the prior quarter. But we believe we are at or near an inflection point as we have started to see a normalization in the interest expense on our deposits. And we have been able to book higher yielding assets this quarter. More on this in a bit. Non-interest expense to average assets ticked down to 1.84%. Intangible book value per share moved down to $9.36 per share. which is reflective of the negative mark of $2.62 per share in AOCI referenced earlier. Absent the AOCI mark, our tangible book value per share would have been $11.98. Moving on to the next slide. A big part of our NIMS story centers around our deposit costs and composition, where we are continuing to see the shift in deposit mix with balances moving out of DDA and into interest-bearing deposits It is happening at a much slower pace. Many of our competitors are still offering higher rates on interest-bearing deposits, and we have felt that pressure. However, as mentioned before, we have maintained our deposit pricing discipline and believe that is evident in our overall deposit cost compared to peers. Overall, there are three positive takeaways from this slide. The first is that our deposit beta is within our modeling assumption at 41%. The second is the average DDA that total deposits was 30%, which is within our expectations. And the third is that monthly we have seen deposit costs increasing, but at a much slower pace. A slower interest expense growth and a faster yield on earning asset growth will have a positive impact on our NIM going forward. Nevertheless, a material positive NIM impact will depend on our ability to attract and retain DDA checking accounts. Let's move forward. Our deposit base reflects our business model, a diversified commercial community bank. 49% of our deposits are commercial accounts, 37% personal accounts, 11% public funds, which are partially collateralized, and 3% brokered. The total amount of uninsured deposits adjusted by the collateralized portion of the public funds is 49% for the quarter. And if you excluded the collateralized portion of public funds, The uninsured deposits are 53%. Let's move forward to liquidity. For this quarter, liquidity decreased from previous periods as we experienced strong loan demand. Accordingly, you'll notice our loan-to-deposit ratio increased to 87.3%, an increase of 420 basis points compared to the previous quarter, and an increase of 760 basis points compared to the previous year. Our on-balance sheet liquidity is $229 million, and our off-balance sheet sources, excluding brokered and listing CDs, is more than $513 million. Given this, we feel confident that these liquidity sources are adequate for us to navigate the current environment. With that, let me turn it back to Lou to discuss our loan vote.