USCB Financial Holdings, Inc. Q3 FY2025 earnings call

• Financial metrics: Net income, ROA, ROE, net interest margin improved. Net interest income before provision for credit losses was $21.3 million, up $3.2 million or 17.5% from the prior year. - Business segments: Deposit-focused verticals are highly scalable; loans held for investment grew with steady customer demand and solid credit quality; credit performance exceptionally strong with nonperforming loans at low level. - Capital and shares: Completed $40 million subordinated debt issuance, used most proceeds to repurchase ~2 million shares. - Securities portfolio: Total holdings at $480 million at quarter end, 67% available for sale and 33% held to maturity, yield reached 3.03%. - Expenses: Total expense base was $13 million, with onetime expenses, efficiency ratio 52.28%.

For the quarter ended September 30, 2025, USCB Financial Holdings had net income of $8.9 million or $0.45 per diluted share, up from $6.9 million or $0.35 per share in Q3 2024. Return on average assets increased to 1.27% from 1.11% a year ago. Return on average equity improved from 15.74% to 13.38% last year. Net interest margin expanded to 3.14% from 3.03% in the same quarter last year. Total assets reached $2.8 billion as of September 30, 2025, a 10.5% year-over-year growth. Total deposits ended the quarter at $2.5 billion, a robust 15.5% year-over-year increase. Loans held for investment grew to $2.1 billion, an increase of more than $199 million or 10.3% from Q3 2024. Nonperforming loans declined to just 0.06% of total loans, down from 0.14% last year. The diversified deposit-focused business verticals (Association Banking, Private Client Group and Correspondent Banking) account for $672 million or 27% of total deposits.

• Anticipate improvement in NIM as excess cash is put to work in loan volume and deposit rates cut. - Expect loan growth to get back to normal run rate in Q4 with strong pipeline. - Quarterly expense base expected to be at current level and gradually increase due to new hires and incentive accrual with improved performance. - Securities portfolio cash flows provide optionality for reinvestment at higher yields.

• Interest rate risk: Liability sensitivity depends on ability to reprice money market book faster than loan book. - SBA business may be impacted by government shutdowns affecting fee income.

Q: Just a question on the yacht payoffs you saw in the quarter. Could you just quantify the amount of payoffs you saw in that division in the quarter, and when in the quarter they occurred?

A: Yes, I'll take that one, Woody. It was a little over $10 million, and that happened in August, and that impacted our loan yields in August and our margin in August.

Q: And then it looks like a majority of the loan production came in September. That will obviously be a strength for the NIM next quarter. But just looking into that production, is it a sign of sustained loan momentum entering the fourth quarter? Or was it September just a strong month?

A: No, I believe it is. Historically, we always see a seasonal dip in Q3 as vacation time, school stop, school starts. We had the same situation last year and the previous year. And you're right, September was a record-setting month for the year. As we look forward, the go-forward pipeline is absolutely in line with what we've seen over the last 5 quarters. And I just attended with Rob and Bill a pipeline meeting a couple of days ago. We have enough dry powder, I think, to have a very good fourth quarter.

Q: Just wanted to start on the margin, digging a little deeper here. I appreciate the detail on that 3.27% and the discussion on yields and where yields are going. But given that we have a little bit of additional cost, I guess, coming in from the sub debt in the fourth quarter, does the quarter still, I guess, end at that 3.27% -- I'm just trying to figure out if maybe more of that is coming from the cost side for you to kind of land at recovery in the margin there?

A: Yes. On the margin, I mean, it came back to 3.14%. August was a month where we had a lot of cash sitting on the balance sheet because we were anticipating a strong pipeline, but all of the loan demand came in, in September. So -- and then we had payoffs on the yacht portfolio that exasperated that issue in August. But 3.27%, I think, is a good go-forward number for the fourth quarter. We had a rate cut in September. There's like a 97% probability in October. We've already done a round of rate cuts on our money market book. We've lowered CD rates. So I think 3.27% or slightly better for the fourth quarter is still a realistic number.

Q: If I could just squeeze one more in. I just wanted to ask about the opportunity set on the condo association banking business line? And just how much do you think you can grow that segment in terms of loans and deposits over the next couple of quarters?

A: We're very bullish about the association banking vertical. I think it's one of our greatest opportunities for scale. Just to put things in perspective, there's a 27,500 condominium associations in the state of Florida, 48% of that is in between Miami-Dade and Broward County. And of the overall condominium inventory, 60% of that falls between 30 to 40 years, and they're all subject to 30- and 40-year recertifications. So we, right now, in the current pipeline have more HOA business than we probably have seen in any one quarter. So we are very bullish on this area. It gives us great opportunities for low-cost deposits, shorter-term C&I lending. We hired about 2 quarters ago, a new production officer, which joined us from one of the largest management companies here. She's doing quite well, and we believe that this is an area that we could probably double the book of business in the next 18 months.