USCB Financial Holdings, Inc. (USCB) Earnings

Management highlights

Good morning, Lou de la Aguilera, Chairman, President, and CEO of USCB Financial Holdings, along with Rob Anderson, Chief Financial Officer, and Bill Turner, Chief Credit Officer, discussed the first quarter results. The company had a record quarter with strong core earnings, disciplined balance sheet execution, and strong credit quality. Total assets, loans, and deposits grew. Net interest margin expanded. Non-performing loans and net charge-offs were low. Total non-interest income increased. Expenses were down. Capital ratios were robust. Lou discussed strategies like launching a new lending team in Miami-Dade and expanding the association banking team in Broward and Palm Beach counties, and plans to open 2 - 4 strategically located branches in those areas over the next three years.

Guidance

Management anticipates deposit costs will stay near current levels. Expect new loan production yields to remain around current levels. Anticipate incremental improvement in interest income as recently originated loans season into earnings, which should support a very modest margin expansion later this year. Projected earnings and capital generation profile suggest further improvement in capital ratios over the coming quarters. The three-year strategic plan involves investments in Broward, Palm Beach, and Miami-Dade with measured growth and expected continued strong revenue momentum with operating leverage.

Segment performance

For the quarter ending March 31st, 2026, total assets reached 2.8 billion, up 6.3% year over year. Loans increased 10.1% year-over-year from 2.2 billion. Deposits grew 8% year-over-year to 2.5 billion. Net interest margin expanded to 3.27%, up from 3.1% the prior year. Non-performing loans remain exceptionally low at 0.16% of total loans and net charge-offs were effectively zero for the quarter. Total non-interest income for Q1 was $4.2 million, up from the previous quarter and accounting for 15.8% of total revenue. Service fee income reached $3.1 million, mainly driven by record swap fees of $1.6 million. Total expenses amounted to $13.7 million, which is $564,000 less than the previous quarter, predominantly due to various one-time items in Q4 of last year. The efficiency ratio stood at 52.4% for the quarter. Capital ratios remain robust and continue to strengthen. Total risk-based capital currently stands at 14.09%.

Analyst Q&A

• Q: Hey, Rob, I wanted to start firstly on the margin. This quarter, it felt like just with some of the loan dynamics with the payoffs early and the growth late that we didn't really get to see, you know, realized fully optimized margin just from the bond restructure that you guys did and some of the liquidity deployment that you guys had planned. Is there a way to look at like what a March NIM would have looked like just as we think about, you know, a good starting point for the margin going forward?

  A: On the margin, I mean, our net interest income was down slightly. I mean, you had the day count in there, of course, but also we had elevated payoffs real early in the quarter. We had some properties, clients that sold some properties that left, and then over around 60% of our loan production occurred in March. You know, the March... margin was right around 328. So it's been pretty steady for the three months. I would anticipate all the additional earning assets that came in mainly in the last two weeks of March to help fuel the net interest income for the second quarter. We have a very strong pipeline right now, probably one of the strongest we've seen. April activity was strong on the loan side as well. So I would anticipate flat to slightly higher margin, given what we're doing on the deposits, and we don't have to pay up for deposits either. So, you know, I would model flat to slightly up near term.

• Q: Yeah, do you have that, just the new incremental deposits this quarter, just what that's costing and kind of what the competitive dynamics are looking like today?

  A: Yeah, so we grew about $149 million in the quarter, and it was very broad-based. Lou mentioned about $62 million of that came from our specialty verticals, meaning the private client group, correspondent banking, and our homeowners association, which you know we've been emphasizing and will continue to put a lot of resources behind. The balance of it came across the board, and again, In the meantime, we decreased the cost of the entire deposit book by eight basis points in the quarter. So it's not like we were paying up for that funding. Our DDA has been strong in the early parts of April, so we feel pretty confident about maintaining kind of our deposit costs in or around the current levels. And I could tell you the specialty verticals have a much lower deposit cost than overall For instance, our private client group deposit cost in that book, which is about a little over 2%, correspondent banking is probably around 165, and our HOA loans are probably around a similar amount.

• Q: Yeah, all right. That's great. That's very helpful, Collar. And then I guess just kind of curtailing a little on some of your final thoughts there. It feels like the next, you know, call it two, three, four, or five years is going to be a pretty transformational period for you guys just in terms of what you want to do with the growth of the franchise. And I guess within that, you know, comes a little bit of, you know, upfront investment as you guys talked about. But it still feels like you're going to carry some pretty solid revenue momentum just from that growth. So what is the right way to think about operating leverage as we look out maybe over this year and next? and maybe curtail that on just some near-term profitability goals that you guys might have?

  A: It's a good question. Well, we've been modeling that out, but we do have a really strong three-year strategic plan. It does involve some investments, mainly moving up to Broward and Palm Beach, in addition to investing heavily in Miami-Dade. I think the word that I would use will be measured. We're clocking a 125 ROA, 16% on equity. I do not see those materially moving down. Of course, asset quality has been our cornerstone, but we will be making investments. I think you can expect the expenses to tick up, but we're still growing the balance sheet at a double-digit pace and compounding our equity around 16%. So that should translate into good earnings and returns for our shareholders. that are well within kind of what I'd say is our current performance. And Will, to add to that, this is Lou, to add to that, the fact that we've built out in Broward and Palm Beach the portfolios we have in loans and deposits, over $445 million in loans, over $415 in deposits, that is as large as some smaller banks that are up there that have multiple branches. So we already have The demand, it's clear, that proof of concept, over 2,100 customers, and we feel that strategically opening banking centers, we can not only service those customers more readily, but also attract new ones. As you know, over the last decade, there's been a lot of M&A activity in Broward and Palm Beach, and there's, I think, a wide open opportunity for us.

• Q: Hey, good morning, guys. Thanks for taking my questions. Just wanted to follow up on, you know, kind of the, you know, some of the deposit commentary and um you know i know that was kind of your your number one priority coming uh in into the year you guys really you know executed both on the you know uh interest-bearing front but especially on the the nib front mix you know remain relatively stable just as we think about you know some of the efforts to to ramp up or continue loan growth at kind of higher levels and i think lou you did a really good job kind of outlining some of the priorities and strategies as we move forward um And I know you described some of the deposit, you know, aspects as well. But, you know, should we anticipate any change in that mix? And then maybe just from a shorter-term perspective, Rob, I mean, what are you assuming in terms of, you know, rate cuts, if any? It seems like the forward curve doesn't have any in there. Just the ability to kind of, you know, put a cap on deposit costs for some of the growth in some of the specialty verticals. I know there's a lot in there, but just trying to kind of frame up the deposit conversation. Thanks.

  A: Yeah, so maybe I'll start. You know, I would say early in the quarter, you know, February timeframe, I mean, it seemed like rates were starting to move down, then March hit and, you know, rates started moving back up. You know, we're not anticipating rate cuts near term, but there's still, I think, one in the forward curve going forward. As a reminder, you know, we still profile liability-sensitive rates just slightly, which I think would benefit us, and we've been able to outperform our modeling. So I think if we do get the rate cuts, that will be beneficial to the margin. We have put a lot of emphasis on our deposit book because we feel that's where we add franchise values, having small, granular, low-cost deposits across the board. So we've made investments in our private client group, in our HOA space, in our correspondent banking. And, of course, in our business banking and just how we price and go after deposits across the board. We're talking to the sales team constantly, whether it's in pipeline meetings or monthly leadership meetings. That is a heavy focus for us. But I think you can continue to see both the loans and deposits growing at double digits. We've given that guidance before. This quarter was a little outsized on the deposit side, but we needed that given what we had at year end. But I don't think the deposit cost is going to move materially next quarter unless we have a rate cut, which isn't anticipated at this time. So I would stop with that color unless Lou wants to add anything else to it.

• Q: Okay, perfect. I appreciate it. And then just, you know, I think I heard, Rob, earlier that you expect swap fees to normalize. Not surprised there. You know, I think you kind of previously talked, and the service charts were up this quarter, which was nice to see. You know, I think previously you talked about a four to four and a half million a quarter, you know, kind of run rate for fee income. I know it's a smaller piece relative to spread income for sure. But, you know, any updated thoughts there as we kind of move forward and you kind of grow out, you know, on the deposit side? Thanks.

  A: Yeah, on the non-interest side, on the fee side, the swaps were the outstanding, you know, item in the quarter. I think the sales team really knows how to work with their customers, position that as a product where they can choose either a fixed rate or a swap. And, you know, that was elevated. February, we had a fair amount that locked in at a little bit tighter spreads. March came in a little tighter, but February was a good month. I think you'll see the swap number come back down to maybe $700,000 a quarter, and that would put maybe total fees all else being equal right around maybe $3,700, somewhere around there for the quarter. But certainly, you know, 4.1 was a nice quarter for us and a standout, and the team did a great job.

• Q: Okay, great. And maybe just one final one for me. You know, obviously you guys continue to have really strong players, you know, capital levels, they bumped up higher this quarter despite, you know, pretty strong balance sheet growth. Any sort of thoughts around, you know, normalized capital levels as you kind of execute upon these growth plans and, you know, maybe what that could translate to from either a ROTC or an ROA perspective, you know, just over the next, you know, kind of the intermediate to longer term as we think about the story playing out with all the growth initiatives that you talked about earlier. Thanks.

  A: Yeah. You know, this year we increased our dividend to 12.5 cents a quarter. I think that will remain at that level for current time. You know, our capital is really supporting our growth, but when we're compounding our capital at 16%, 17%, which I think is a great return for a bank our size, you know, we're going to build capital. You know, we're growing our earnings faster than our balance sheets, so that should continue to grow our capital levels. And I think our capital levels are good from where they are, but, you know, we'll continue deployment at a profitable pace as well. So, you know, we may rethink the dividend, but, you know, I would say that's pretty safe at the current levels for the balance of the year.

• Q: Hey, good morning. It sounds like there's maybe still a little bit of room for the margin to grow from here, maybe on the yield side. And it looks like the weighted average yield on new production, I think, was around 620 is what you had in the deck. What's the pickup you're seeing there versus what you're seeing on loans rolling off, particularly maybe fixed rate CRE coming up for repricing?

  A: It's a good question. I mean, I think our production, I mentioned this earlier, The pipeline is really strong right now. It's probably one of the strongest that we've had in a long time, and it's more balanced earlier in the quarter. Outside of the correspondent piece, which was a little bit lower this past quarter, the yields were around 620. I think today they're hovering right around that for really solid gold-plated CRE-type properties. But I would anticipate that we would be right around the same level. I don't see that moving significantly higher or significantly lower on the loan yield. We haven't changed our pricing significantly and our pipeline is really strong at those levels. So we tend to want to keep the sales team fixed with volume and pricing that is in the market today where we don't have to go chased up. And I think given where we are in terms of our growth and what we're putting on, we don't have to go out and and chase a lot of lower-yielding assets. So I would say at or near the current levels would be good for modeling FETI.

• Q: Rob, this is what I was trying to get at. Do you have anything that's coming off at lower rates that's being replaced with that 620 or so? That's what I'm curious about.

  A: Yeah, we do. We have some stuff that, you know, we were originating in, you know, 21 that were still at lower rates that will be moving off. I think we had a payoff the other day. I think it was at 485. That was probably maybe $7 million to $10 million alone. That came off. I don't have the exact number that's rolling off, but we would anticipate we had over $50 million of net loan growth. I think that's a good number to model for the coming quarter as well. given our pipeline is similar to what we had, maybe a little bit more elevated.

• Q: On the correspondent banking side, obviously super strong growth there this quarter. Was that kind of expected or seasonal, or was any of that driven by some of the geopolitical turmoil we've seen lately? Maybe you had some customers come in more there. Is that not really a direct impact?

  A: No, that was planned, Fetty. We want to go that book responsibly. Our focus is the Caribbean Basin and Central America. To that effect, we have onboarded three new banks in this quarter, and we are looking at an additional five. Our team just visited with our lead director, Central America. We do kind of quarterly visits. And just like a domestic customer, they're eager for customer service execution. And I think that we're poised to do that. And again, on the loans, keep in mind that the term of these loans are 180 days. And the business is really relationship driven because the loans, not all the banks borrow. but all of them have deposits, and they're low-cost deposits, and we do a tremendous amount of wire activity. So for us, it's a very good business, and it gives us diversity on the loan side, cheap funding, and these are very established banks. We look very carefully at country risk, and the banks, by and large, are very well capitalized and very, very established.

• Q: Rob, I know you guys have a one-time tax item this quarter. What should we expect as a good kind of normalized tax rate going forward?

  A: Yeah, for modeling, I'd use about 26.4%. I think that's a good rate to use going forward.