KBRA assigns a senior unsecured debt rating of BBB, a subordinated debt rating of BBB-, and a short-term debt rating of K3 to USCB Financial Holdings, Inc. (NASDAQ:USCB)("the company"). Additionally, KBRA assigns deposit and senior unsecured debt ratings of BBB+, a subordinated debt rating of BBB, and short-term deposit and debt ratings of K2 to its subsidiary, U.S. Century Bank ("the bank"). The Outlook for all long-term ratings is Stable.
The ratings are supported by USCB's solid earnings profile, evidenced by an ROA that has tracked above 1% in recent quarters, upheld by minimal credit costs over a multi-year period. Moreover, given the company's branch-lite model, USCB exhibits a meaningfully lower-cost operating model, with noninterest expenses tracking between 1.7% - 1.8% of average assets in recent quarters. While the proportion of noninterest income to total revenue (historically 8%-17%) tracks slightly lower than peers, contribution to bottom line earnings has been stable, derived from deposit fees, the sale of SBA loans, and other noninterest income. The ratings are further supported by a core deposit franchise that represents a majority of its funding base at 82% of total funding at 1Q25, derived from respectable market share in the Miami-Dade MSA and a favorable mix of NIB accounts (27% at 1Q25). However, the bank's footprint has resulted in above average deposit costs at 2.45% at 1Q25 (23 bps above peers), in part, due to its various specialty segments like private banking, which are inherently higher cost, though this is somewhat offset by the greater fee income from these deposits (USCB had roughly $235 million in private banking deposits at 1Q25). Nonetheless, the bank's higher funding cost, coupled with a lower-yielding securities portfolio (USCB's reported average securities yield was 2.43% for 1Q25) has resulted in a NIM that has consistently tracked below rated peers in recent years (USCB reported a NIM of 3.01% at 1Q25, ~40 bps below the rated peer average). The company has demonstrated favorable asset quality performance in recent years, including nominal credit losses attributable to disciplined underwriting, a selective borrower base, and a management team with extensive experience and market knowledge across its footprint. While we acknowledge a comparatively higher investor CRE mix (345% of risk-based capital), USCB has actively reduced its CRE concentration in recent years. Following a period of decreasing capital ratios, post-IPO in 2021, the company has reported strong capital growth in recent quarters, with risk-based capital ratios up ~100 bps since YE23. Overall, regulatory capital protection (CET1 of 12.5% at 1Q25), combined with solid loss absorption capacity (LLR of 1.22%) is, in our view, sufficient for its risk profile. While the company's investment securities portfolio's negative AOCI balances represent ~19% of shareholder equity, somewhat pressuring the TCE ratio, this is, in our view, in line with similarly rated peers.
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Methodologies
- Financial Institutions: Bank & Bank Holding Company Global Rating Methodology
- ESG Global Rating Methodology
Disclosures
Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.
A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.
Information on the meaning of each rating category can be located here.
Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.
About KBRA
Kroll Bond Rating Agency, LLC (KBRA), one of the major credit rating agencies (CRA), is a full-service CRA registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a Designated Rating Organization (DRO) by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized as a Qualified Rating Agency by Taiwan's Financial Supervisory Commission and is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider (CRP) in the U.S.
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Analytical Contacts
Hunter Chadwick, Associate (Lead Analyst)
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Jason Szelc, Senior Director
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Ian Jaffe, Senior Managing Director
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Ashley Phillips, Managing Director (Rating Committee Chair)
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