USCB Financial Holdings, Inc.

Good day, and welcome to the third quarter 2024 USCB Financial Holdings, Inc. 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 your telephone keypad. 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 and CEO. Please go ahead.

Good morning, and thank you for joining us for USCB Financial Holdings third quarter 2024 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. We're very pleased to report another consecutive record quarter of fully diluted earnings per share, reaffirming the soundness of our strategic initiatives and operational performance. Supported by the strength of Florida's economy, USCB continued posting strong growth in assets, deposits, diversified quality loans, and profitability. These results reflect the steady execution of a business plan that focuses on organic growth, supported by diversified commercial banking initiatives designed to deepen existing relationships and develop new ones. In reviewing our Q3 highlights, I will comment on a select few data points as CFO Anderson will further detail our growth, profitability, capital, and liquidity positions. Supported by our various deposit aggregating business verticals, deposits increased 206 million to 2.1 billion, or 10.7% compared to the third quarter of 2023. These business lines, which include both association and correspondent banking, as well as our focus on developing the deposit-rich attorney-client market, have grown to represent 31% of total deposits as of the end of the third quarter. These business verticals also contribute to the continued diversification of quality loan production, generating non-CRE relationship-focused loans. Average loans increased $267 million, or 16.6%, compared to the third quarter of 2023. Our loan growth has moved in line with consecutive quarter-over-quarter improvement in average loan coupon rates contributing to profitability. To this end, loan yields increased 16 basis points compared to the prior quarter and 79 basis points compared to the third quarter of 2023. This will be detailed shortly. And speaking of our loan portfolio, I am pleased to report that the bank experienced minimal effects from the damage caused by Hurricane Milton, which on October 9th made landfall along the west coast of Florida as a Category 3 hurricane. In early preparation for this storm, our credit department identified all the bank's exposure along the projected path of the storm in the Tampa, Orlando, and Ocala markets where the bank had identified $169 million in exposure. Prior to the storm, we confirmed that all insurance policies were current and active. All clients were immediately contacted after the storm, site visits initiated, and only one multifamily building having a loan exposure of $1.6 million had reported damage. Repairs are underway and the loan is current. As we look at profitability, net income was $6.9 million, or $0.35 per diluted share, an increase of $3.1 million, or 82%, compared to the third quarter of 2023. ROA was 1.11% for the third quarter of 2024 compared to 0.67% for the third quarter of 2023, while ROAE was 13.38% for the past quarter, again, as compared to 8.19 for Q3 2023. Also, the company's board of directors declared a cash dividend of $0.05 per share of the company's Class A common stock on October 28, 2024. The dividend will be paid on December 5th of this year. The cash dividend program is an important driver to shareholder value, and the board of directors is committed to return capital to our investors while maintaining a strong balance sheet. The following page is self-explanatory, directionally showing nine select historical trends since recapitalization. The disciplined execution of our business plan, focused on developing the best people, products, and processes, has consistently delivered efficient, profitable performance guided by conservative risk management practices. 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.

Okay, thank you, Lou, and good morning, everyone. Q3 was the second quarter in a row where we posted record earnings. As you look at pages five and six, you'll see results that reflect crisp execution from a well-oiled USCB machine and positive trends that we believe are sustainable as we enter Q4 and into 2025. First, net income was 6.9 million and fully diluted earnings per share was 35 cents per share. That's up from 31 cents per share last quarter and 19 cents per share last year. As it relates to the balance sheet, loans, deposits, and total assets were all up double digits from the prior year. Tangible book value per share was $10.90. And if you exclude AOCI, tangible book value per share would be $12.84. Profitability metrics exceeded the prior quarters with return on average assets at 1.11% and return on average equity of 13.38%. We also saw improvements in both the net interest margin and the efficiency ratio this quarter. Credit remains clean and all capital ratios improves. So with that overview, let's discuss specifics starting with deposits on the next page. The deposit book stayed steady throughout the quarter as we used excess liquidity to fund loan volume in the quarter. Probably the most noteworthy item was the Fed's action to cut rates by 50 basis points in September. Accordingly, we were ready for this move, and while the deposit cost was flat quarter to quarter, the September cost of deposits was 2.57%, representing the efforts the team took in repricing the money market book. We feel confident that we can reduce our deposit costs with any rate cuts, Some specific actions that we are currently taking include the following. Reducing money market rates across the board. We anticipate the deposit beta for this deposit book specifically to be between a 40% and 50% beta. In Q4, we have $147 million in CDs repricing at a weighted average rate of 4.78. If we went out six months, we would have 213 million in CDs repricing at a weighted average rate of 4.03%. Currently, we are repricing these CDs anywhere between 20 to 100 basis points lower based on the tenor. Furthermore, we are not offering any CDs beyond one year as we are looking to keep liabilities short as the market is anticipating Fed rates to continue. With that, let's discuss our loan books. The loan book continues to grow at double digits, whether you look at it from a link quarter perspective or year over year. Additionally, as we book new loans at yields above the portfolio average, our overall loan portfolio yields continue and will grind higher. As a reminder, we book all loans with floors and prepayment penalties, which could protect us if rates begin to drop. As for guidance, we expect loan growth to continue in the high single to low double digits going forward. Turning to page 9, you can see that for the past five quarters, we have originated $728 million in new loans with a weighted average loan coupon at 7.98%. This past quarter is the first time we have seen loan coupons below 8%. And while the loan coupon ticked down this quarter, which lowers the five-quarter average, we are still originating loans 143 basis points above the portfolio average. This will help ensure our loan portfolio yield continues to grind higher. Also worth noting is that the loan book has transitioned over time and is more diversified. As of quarter end, non-real estate loans are at 28% of the total loan portfolio. Let's go to the next page and look at the margin. While the margin improved nine basis points in the quarter, the net interest income increased $798,000 or $8. 16.3% annualized compared to the prior quarter. The drivers include a larger balance sheet, higher loan yields, and an improvement in our earning asset mix while holding deposit costs stable. We believe the NIM can improve from here as September's NIM was 3.09% buoyed by loan yields that continue to go higher and stabilization in our deposit costs. According to our ALM model, the bank's balance sheet is close to neutral as we have made changes in the last couple of quarters to prepare for a lower rate environment. Most notably, we have favored money market retention rates over CD rates. This will allow us to reprice liabilities faster going forward. As previously mentioned, we are not booking any CDs beyond one year as we prefer to stay short on the liability side. During the quarter, we unwound $200 million notional of pay-fix interest rate swaps. These swaps, while beneficial in a period of rising rates and an inverted yield curve, were at a point where they were not as appealing with the change in Fed policy and the 50 basis points of rate cuts. While these swaps will have a small negative drag in the coming quarters, we have reduced our asset sensitivity with minimal impact on profitability. We expect to receive $13.5 million from the securities portfolio in Q4 at current rates and $49.2 million in 2025. These cash flows will support loan growth or debt repayment. If rates drop 100 basis points, we expect to receive $52.9 million in 2025. The rates attached to these cash flows are between 3.22% to 3.39%. offering us an opportunity to reinvest at much higher rates. As mentioned on earlier calls, we have also pruned the balance sheet from rate-sensitive public funds and single-service product clients. With these changes, we believe our NIM performance will improve from this level, especially if the yield curve steepens. So with that, let me turn it over to Bill to discuss asset quality.